UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K


þ		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Year Ended December 31, ~~2004~~2006


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

Commission File Number
333-72213

~~333-72213~~

BFC Financial Corporation

(Exact name of registrant as specified in its Charter)


Florida		59-2022148

(State of Organization)		(IRS Employer Identification Number)
2100 West Cypress Creek Road
~~1750 E. Sunrise Boulevard~~
Ft. Lauderdale, Florida		~~33304~~33309

(Address of Principal Executive Office)		(Zip Code)

(954) ~~760-5200~~940-4900

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:


Class A Common Stock $.01 par Value Class B Common Stock $.01 par Value		~~NASDAQ National Market~~NYSE Arca ~~None~~OTC BB

(Title of Class)		(Name of Exchange on Which Registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YESo NOþ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YESo NOþ

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~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes~~YESþ NoNOo

Indicate, by check mark, if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero

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

The aggregate market value of the voting common equity held by non-affiliates was ~~$103.7~~$110.4 million computed by reference to the closing price of the Registrant’s Class A Common Stock ~~and Class B Common Stock~~ on June 30, ~~2004.~~

2006.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March ~~7, 2005~~

6, 2007.

Class A Common Stock of $.01 par value, ~~23,862,232~~28,755,882 shares outstanding.
Class B Common Stock of $.01 par value, ~~4,278,956~~7,090,652 shares outstanding.

Documents Incorporated by Reference

Portions of the 2006 Annual Report to Stockholders of the Registrant are incorporated in ~~Part~~Parts I, II and IV of this ~~Form 10-K:~~

report. Portions of ~~Registrant’s Definitive~~the Proxy Statement of the Registrant relating to the ~~2005~~ Annual Meeting of Shareholders isare incorporated inas Part III of this report.

~~[This Page Intentionally Left Blank]~~

TABLE OF CONTENTS


PART I
	ITEM 1. BUSINESS
	ITEM 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET PRICE FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8.8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ~~AND REPORTS ON FORM 8-K~~
SIGNATURES
INDEX TO EXHIBITS
~~Statement Re:~~EX-12.1 Ratio of ~~earnings~~Earnings to Fixed Charges
~~Code~~EX-21.1 Subsidiaries of ~~Business Conduct & Ethics~~the Registrant
~~Subsidiaries~~EX-23.1 Consent of PricewaterhouseCoopers
EX-23.2 Consent of ~~PricewaterhouseCoopers LLP~~Ernst & Young
~~Consent~~EX-31.1 Section 302 Certification of ~~KPMG LLP~~CEO
~~Sec~~EX-31.2 Section 302 ~~Chief Executive Officer~~ Certification of CFO
~~Sec 302 Chief Financial Officer~~EX-32.1 Section 906 Certification of CEO
~~Sec~~EX-32.2 Section 906 ~~Chief Executive Officer~~ Certification
~~Sec 906 Chief Financial Officer Certification~~ of CFO

PART I

Except for historical information contained herein, the matters discussed in this document contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. When used in this document and in any documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and similar expressions identify certain of such forward-looking statements. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of BFC Financial Corporation (“the Company” or “BFC” ~~which may be referred to as “we”, “us” or “our”~~) and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. When considering those forward-looking statements, ~~you~~the reader should keep in mind the risks, uncertainties and other cautionary statements made in this ~~document. You~~report, including those identified under Item 1A – Risk Factors. These risks are subject to change based on factors which are, in many instances, beyond the Company’s control. The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made.

This document also contains information regarding the past performance of our investments and ~~you~~the reader should note that prior or current performance of investments and acquisitions is not a guarantee or indication of future performance. Some factors which may affect the accuracy of the forward-looking statements apply generally to the financial services, ~~investment banking,~~ real estate development, homebuilding, resort development and vacation ownership, and restaurant industries, while other factors apply directly to us. ~~Other risks~~Risks and uncertainties associated with BFC include, but are not limited to:

	•		the impact of economic, competitive and other factors affecting the Company and its subsidiaries, and their operations, markets, products and services;

	•		that BFC shareholders’ interests may be diluted in transactions utilizing BFC stock for consideration;

	•		that the announced merger with Levitt Corporation (“Levitt”) may not be completed as contemplated, or at all, or that it may not be successful;

	•		that the performance of those entities in which investments are made may not be as anticipated;

	•		that BFC will be subject to the unique business and industry risks and characteristics of each entity in which an investment is made;

	•		that BFC may not have sufficient available cash to make desired investments; and

	•		that appropriate investment opportunities on reasonable terms and at reasonable prices may not be available.

With respect to BFC’s subsidiary, BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”), and BankAtlantic, a BankAtlantic Bancorp subsidiary, the risks and uncertainties that may affect BFC include:

	•		the impact of economic, competitive and other factors affecting BankAtlantic Bancorp and its operations, markets, products and services;

	•		credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact on the credit quality of BankAtlantic loans of changes in the real estate markets in their trade area and where their collateral is located;

	•		BankAtlantic’s seven-day banking initiatives and other growth, marketing or advertising initiatives not resulting in continued growth of core deposits or producing results which do not justify their costs;

	•		the success of expenses discipline initiatives;

	•		BankAtlantic’s new store expansion program, successfully opening the anticipated number of new stores in 2007 and achieving growth and profitability at the stores;

	•		changes in interest rates and the effects of, and changes in, trade, monetary and fiscal policies and laws including their impact on the bank’s net interest margin;

	•		adverse conditions in the stock market, the public debt market and other capital markets and the impact of such conditions on activities and the value of assets;

	•		the impact of periodic testing of goodwill and other intangible assets for impairment;

	•		past performance, actual or estimated new account openings and growth rate may not be indicative of future results; and

	•		BankAtlantic Bancorp success at managing the risk involved in the foregoing.

With respect to Levitt Corporation, the risks and uncertainties that may affect BFC include:

the impact of economic, competitive and other factors affecting ~~the Company~~Levitt and its subsidiaries, and their operations, markets, products and services; and its operations, markets, products and services that BFC will not have sufficient available cash to make investments, that BFC shareholders’ interests will be diluted in transactions utilizing BFC stock for consideration, that appropriate investment opportunities on reasonable terms and at reasonable prices will not be available, the performance of those entities in which investments are made may not be as anticipated, and that BFC will be subjectoperations;

	•		the market for real estate in the areas where Levitt has developments, including the impact of market conditions on Levitt’s margins and the fair value of Levitt’s real estate inventory;

	•		the accuracy of the estimated fair value of Levitt’s real estate inventory and the potential for further impairment charges;

	•		cancellations of existing sales contracts and the ability to consummate sales contracts included in Levitt’s backlog;

	•		the realization of cost savings associated with reductions of workforce and the ability to limit overhead and costs commensurate with sales;

	•		the need to offer additional incentives to buyers to generate sales;

	•		the effects of increases in interest rates;

	•		Levitt’s ability to realize the expected benefits of its expanded platform, technology investments, growth initiatives and strategic objectives;

	•		Levitt’s ability to timely deliver homes from backlog, shorten delivery cycles and improve operational and construction efficiency;

	•		Levitt’s ability to maintain sufficient liquidity in the event of a prolonged downturn in the housing market; and

	•		Levitt’s success at managing the risks involved in the foregoing.

In addition to the ~~unique business and industry~~ risks and ~~characteristics of each entity~~factors identified above, reference is also made to other risks and factors detailed in ~~which an investment is made; with respect to~~reports filed by the Company, BankAtlantic Bancorp and BankAtlantic: the risks and uncertainties associated with its operations, products and services, changes in economic or regulatory policies, the success of any new lines of business in which it may engage, credit risks and loan losses and the related sufficiency of the allowance for loan losses; changes in interest rates and the effects of, and changes in, trade, monetary and fiscal policies and laws; ; extended midnight branch banking hours initiative, branch expansion and other growth initiatives not producing results consistent with historic growth rates or results which justify their costs; the impact of regulatory or accounting issues, including the impact of and complianceLevitt Corporation with the ~~USA Patriot Act, Bank Secrecy Act~~Securities and anti-money laundering laws, the impact of periodic testing of goodwill and other intangible assets for impairment; and BankAtlantic’s achieving the benefits of its prepayment of certain Federal Home Loan Bank advances; with respect to Ryan Beck: risks and uncertainties associated with its operations, products and services; changes in economic or regulatory policies; the volatility of the stock market and fixed income markets, announce d or anticipated transactions, including mergers and acquisitions, or capital financing transactions not being completed or producing results which justify their costs; the success or profitability of Ryan Beck’s newly launched products; and the effectiveness of Ryan Beck’s advertising and brand awareness campaigns; with respect to Levitt: the risks and uncertainties relating to the market for real estate generally and in the areas where Levitt has developments; the impact of economic; competitive and other factors affecting Levitt and its operations; including the impact of hurricanes and tropical storms in the areas in which Levitt operates andExchange Commission. The Company cautions that the recent hurricanes may have a greater impact on operations than currently anticipated or that damage to Levitt homes and property may be greater than currently believed; unanticipated delays in opening planned new communities; the availability and price of land suitable for development; shortages and increased costs of construction materials and labor; the effects of increases in interest rate, the impact of governmental regulations and requirements (including delays in obtaining necessary permits and approvals as a result of the reallocation of government resources based on hurricane related issues in the areas in which Levitt operates), Levitt’s ability to successfully integrate the operations of its acquisitions, Levitt’s ability to timely deliver homes from backlog and successfully manage growth. The foregoing ~~is in addition to those risks and uncertainties discussed throughout this document.~~

factors are not all inclusive.

ITEM 1. BUSINESS

The Company

We are a ~~diversified~~ holding company that invests in and acquires businesses in diverse industries. Our ownership interests include direct and indirect interests in businesses in a variety of sectors, including consumer and commercial banking, ~~brokerage and investment banking,~~ home building and master-planned community development, time-share and vacation ~~ownership. We also hold interests in~~ownership, an ~~Asian themed~~Asian-themed restaurant chain and various real estate and venture capital investments. Our principal holdings consist of direct controlling interests in BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”) and Levitt Corporation (“Levitt”) and our primary activities currently relate to ~~the operations of BankAtlantic Bancorp and Levitt. On July 1, 2004 we made~~these investments. We also own a direct investment in the convertible preferred stock of Benihana, one of the oldest ~~Asian themed~~Asian-themed restaurant chains in the United States.

The Company’s website address is ~~www.bfcfinancial.com.~~www.bfcfinancial.com. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through our website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company’s Internet website and the information contained ~~therein~~on or connected ~~thereto~~to it are not incorporated into this Annual Report on Form 10-K.

~~We have controlled~~

BFC itself has no significant operations other than activities relating to the monitoring of existing investments and the identification, analysis and in appropriate cases, acquisition of new investments. BFC has no independent sources of cash-flow from operations except to the extent dividends, management fees and similar cash payments are made to BFC by its subsidiaries and investment holdings. BFC’s fees and dividends from BankAtlantic Bancorp, Levitt and Benihana do not currently cover BFC’s ongoing operating expenses. Therefore, BFC’s stand-alone activities currently generate a loss.

BFC’s ownership in BankAtlantic Bancorp and Levitt as of December 31, 2006 was as follows:


						Percent
	Shares		Percent of			of
	Owned		Ownership			Vote
BankAtlantic Bancorp
Class A Common Stock		8,329,236		14.83	%		7.86	%
Class B Common Stock		4,876,124		100.00	%		47.00	%
Total		13,205,360		21.64	%		54.86	%
Levitt
Class A Common Stock		2,074,243		11.15	%		5.91	%
Class B Common Stock		1,219,031		100.00	%		47.00	%
Total		3,293,274		16.61	%		52.91	%

For both BankAtlantic Bancorp and Levitt, the Class A Common Stock is entitled to one vote per share, which in the aggregate represents 53% of the combined voting power. The Class B Common Stock, all of which is owned by BFC, represents the remaining 47% of the combined vote of the two classes. Because BFC controls more than 50% of the vote of BankAtlantic Bancorp ~~since 2000,~~ and ~~BankAtlantic Bancorp is~~Levitt, they are consolidated in our financial statements instead of carried on the equity basis. ~~We own 8,329,236 shares~~Also, because of BFC’s position as the controlling stockholder of BankAtlantic Bancorp, BFC is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision (“OTS”).

Recent Developments

On January 30, 2007, BFC entered into a definitive agreement (“Merger Agreement”) with Levitt pursuant to which Levitt will become a wholly-owned subsidiary of BFC. BFC currently owns all of Levitt’s Class B Common Stock and approximately 11% of Levitt’s Class A Common Stock. Under the terms of the merger agreement, which has been approved by the Special Independent Committees and the Boards of Directors of both companies, holders of Levitt’s Class A Common Stock ~~and 4,876,124~~other than BFC will receive 2.27 shares of BankAtlantic Bancorp Class B Common Stock. BankAtlantic Bancorp’s Class A shareholders are entitled to one vote per share, which in the aggregate represent 55% of the combined voting power of BankAtlantic Bancorp’sBFC Class A Common Stock ~~and BankAtlantic Bancorp’s Class B Common Stock. BankAtlantic Bancorp’s Class B Common Stock, all of which is owned by the Company, represents the remaining 47% of the combined vote.~~

Through December 31, 2003, Levitt was a wholly-owned subsidiary of BankAtlantic Bancorp. On December 2, 2003, the BankAtlantic Bancorp Board of Directors authorized the spin-off of Levitt to the shareholders of BankAtlantic Bancorp by declaring a stock dividend of all of BankAtlantic Bancorp’s shares of Levitt. BankAtlantic Bancorp’s shareholders, including the Company,for each ~~received one~~ share of Levitt Class A Common Stock ~~for every four shares~~they hold. Based on BFC’s closing stock price of ~~BankAtlantic Bancorp~~$6.35 on January 30, 2007, the transaction valued each share of Levitt’s Class A Common Stock ~~owned,~~at $14.41, which represented an approximate 32% premium over market on that date. The aggregate transaction value on January 30, 2007 was estimated to be approximately $286 million. Levitt’s stock options and ~~one share of Levitt Class B Common Stock for every four shares of BankAtlantic Bancorp Class B Common Stock owned.~~restricted stock awards will be converted into BFC options and restricted stock awards with appropriate adjustments. The shares were distributed on December 31, 2003 to shareholders of record on December 18, 2003. As a consequence of the spin-off, our ownership position in Levitt on December 31, 2003 was initially identical to our ownership position in BankAtlantic Bancorp, including our control of more than 50% of the vote of these companies. In April 2004, Levitt completed a public offering of 5,000,000 shares of its Class A Common Stock, resulting in net proceeds to Levitt of approximately $114.8 million. As a result of this offering, our ownership position in Levitt was reduced to 16.6% of its total equity and a 52.9% voting interest at December 31, 2004. Levitt results and assets are consolidated in our financial statements.

~~BFC’s ownership in BankAtlantic Bancorp and Levitt as of December 31, 2004 was as follows:~~

Percent
Shares Percent of of
Owned Ownership Vote
BankAtlantic Bancorp
Class A Common Stock 8,329,236 15.09 % 8.00 %
Class B Common Stock 4,876,124 100.00 % 47.00 %
Total 13,205,360 21.98 % 55.00 %

Levitt
Class A Common Stock 2,074,243 11.15 % 5.91 %
Class B Common Stock 1,219,031 100.00 % 47.00 %
Total 3,293,274 16.62 % 52.91 %

Levitt shares held by BFC will be cancelled in the transaction. The transaction is subject to customary closing and termination conditions and the approval of BFC’s and Levitt’s shareholders. The merger is subject to a number of risks and uncertainties, including, without limitation, the risk that the market price of BFC Class A Common Stock as quoted on the NYSE Arca Stock Exchange might increase during the interim period between the date of the merger agreement and the date on which the merger is completed, thereby increasing the value of the consideration to be received by holders of Levitt’s Class A Common Stock in connection with the merger, and the risk that the merger may not be completed as contemplated, or at all. The merger is currently expected to close during 2007. If the merger is completed, all of Levitt’s common stock will be canceled and Levitt’s Class A Common Stock will no longer be listed on the New York Stock Exchange.

On February 28, 2007, BankAtlantic Bancorp completed the sale of its wholly-owned subsidiary, Ryan Beck Holdings, Inc. and its subsidiaries (“Ryan Beck”) to Stifel Financial Corp. (“Stifel”). The tax-free transaction resulted in BankAtlantic Bancorp and Ryan Beck option holders receiving initial consideration of 2,467,600 shares of Stifel (NYSE:SF) common shares and about $2.65 million in cash. BankAtlantic Bancorp is also to receive five-year warrants to purchase approximately 481,715 Stifel common shares at $36 per share. The receipt of warrants is subject to Stifel shareholder approval and if the Stifel shareholder approval is not obtained BankAtlantic Bancorp will receive approximately $19.3 million in cash. The transaction also calls for earn-out payments of, at most $40 million for the next two years based on defined revenue attributable to specified individuals in Ryan Beck’s then existing private client division for two years following the transaction closing and 25% of investment banking fees over $25 million for each of the next two years, based on defined revenue attributable to specified individuals in Ryan Beck’s then existing investment banking division. Stifel may pay each of the earn-outs in either cash or its own common shares.

Business Segments

We report our results of operations through three segments: ~~(1)~~BFC Activities, Financial Services ~~(2)~~and Homebuilding & Real Estate Development. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3 to our audited consolidated financial statements of trends, results of operations and further discussion on each segment.

BFC Activities Segment

BFC Activities segment includes all of the operations and all of the assets owned by BFC other than BankAtlantic Bancorp and its subsidiaries and Levitt and its subsidiaries. This segment includes dividends from our investment in Benihana’s convertible preferred stock and other securities and investments, advisory fee income and operating expenses from Cypress Creek Capital, Inc. (“CCC”), interest income from loans receivable, income from the shared service arrangement with BankAtlantic Bancorp, Levitt and Bluegreen to provide shared service operations in the areas of human resources, risk management, investor relations and executive office administration. The BFC Activities segment also includes BFC’s overhead and interest expense, the financial results of venture partnerships that BFC controls and BFC’s provision for income taxes including the tax provision related to the Company’s interest in the earnings of BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt are consolidated in our financial statements, as describe herein. The Company’s earnings or losses in BankAtlantic Bancorp and Levitt are included in our Financial Services and Homebuilding & Real Estate Development segments, respectively.

CCC is a wholly-owned real estate investment banking and ~~(3) Other Operations. As~~investment company that provides equity capital, debt placement and a broad array of advisory services for developers that are active in the residential and commercial markets. BFC’s equity investments include its investment in Series B Convertible Preferred Stock of Benihana and securities in the technology sector owned by a partnership that is included in the consolidated financial statements of BFC because BFC serves as general partner of the partnership.

Benihana

Benihana is a NASDAQ-listed company with two listed classes of common shares: Common Stock (BNHN) and Class A Common Stock (BNHNA). Benihana has operated teppanyaki-style restaurants in the United States for more than 42 years and has exclusive rights to own, develop and license Benihana and Benihana Grill restaurants in the United States, Central and South America and the islands of the Caribbean.

The Company owns 800,000 shares of Benihana Series B Convertible Preferred Stock (“Convertible Preferred Stock”). The Convertible Preferred Stock was acquired pursuant to an agreement with Benihana Inc., to purchase an aggregate of 800,000 shares of Series B Convertible Preferred Stock for $25.00 per share. On July 1, 2004, the Company funded the first tranche of Convertible Preferred Stock in the amount of $10.0 million for the purchase of 400,000 shares and

on August 4, 2005 the Company purchased the remaining 400,000 shares of Convertible Preferred Stock in the amount of $10.0 million. The shares of Convertible Preferred Stock are convertible into Benihana Common Stock at a conversion price of $19.00 per share, subject to adjustment from time to time upon certain defined events. The shares of the Convertible Preferred Stock have voting rights on “as if converted” basis together with Benihana’s Common Stock on all matters put to a vote of the holders of Benihana’s Common Stock. The approval of a majority of the holders of the Convertible Preferred Stock then outstanding, voting as a single class, are required for certain events outside the ordinary course of business. Holders of the Convertible Preferred Stock are entitled to receive cumulative quarterly dividends at an annual rate equal to $1.25 per share, payable on the last day of each calendar quarter. The Convertible Preferred Stock is subject to mandatory redemption at the original issue price plus accumulated dividends on July 2, 2014 unless the holders of a majority of the outstanding Convertible Preferred Stock elect to extend the mandatory redemption date to a later date not to extend beyond July 2, 2024. In addition, the Convertible Preferred Stock may be redeemed by Benihana for a limited period beginning three years from the date of issue if the price of Benihana’s Common Stock is at least $38.00 for sixty consecutive trading days.

Based upon Benihana’s currently outstanding capital stock, the Convertible Preferred Stock if converted would represent approximately 26% of Benihana voting and 10% of Benihana economic interest. The Company’s investment in Benihana’s Convertible Preferred Stock is classified as investment securities and is carried at historical cost. The market value of the Convertible Preferred Stock on an if converted basis at December 31, ~~2004, we had total consolidated assets~~2006 would have been approximately $33.3 million.

John E. Abdo, Vice Chairman of ~~approximately $7.0 billion, including~~ the ~~assets~~Company’s Board of ~~our consolidated subsidiaries, minority interest~~Directors, is a member of ~~$613 million~~Benihana’s Board of Directors. Further, Darwin Dornbush, a member of Levitt’s Board of Directors is a director and ~~shareholders’ equity~~corporate secretary of ~~approximately $125 million (See Item 8.Financial Statements~~Benihana.

Employees

Management believes that its relations with its employees are satisfactory. The Company currently maintains employee benefit programs that are considered by management to be generally competitive with programs provided by other major employers in its markets.

The number of employees at the indicated dates was:


	December 31, 2006				December 31, 2005
	Full-time		Part-time		Full-time		Part-time
BFC		41		1		20		1
BankAtlantic Bancorp		2,433		386		1,900		390
Levitt		666		32		639		28

Total		3,140		419		2,559		419

Of the 41 BFC employees at December 31, 2006, 9 are employed by Cypress Creek Capital and ~~Supplementary Data)~~21 are employed in the Company’s administrative and business development offices. On January 1, 2006, 20 employees of BankAtlantic were transferred to BFC to staff BFC’s shared services operations in the areas of investor relations, human resources, risk management and executive office administration. These employees are utilized by the affiliated entities and their costs are allocated to the companies based upon their usage of services.

Financial Services

Segment

Our Financial Services segment consists of BankAtlantic Bancorp, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation from BankAtlantic Bancorp are dividends when and if declared and paid by BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management prepared the following Item 1. Business regarding BankAtlantic Bancorp which was included in BankAtlantic Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us” , “our” or “Parent Company” in the following discussion under the caption “Financial Services” are references to BankAtlantic Bancorp and its subsidiaries, and are not references to BFC Financial Corporation.

“The Company

We are a Florida-based financial services holding company ~~that owns~~and own BankAtlantic and ~~Ryan Beck. Through these subsidiaries,~~its subsidiaries. BankAtlantic ~~Bancorp~~ provides a full line of products and services encompassing consumer and commercial ~~banking, brokerage services~~banking. We report our operations through two business segments consisting of BankAtlantic and ~~investment banking.~~BankAtlantic Bancorp, the parent company. Detailed operating financial information by segment is included in Note 29 to the Company’s consolidated financial statements.

In January 2007, we entered into an agreement (“merger agreement”) with Stifel to sell our entire interest in Ryan Beck Holdings, Inc. in exchange for shares of Stifel’s common stock and if approved by Stifel shareholders warrants to purchase shares of Stifel’s common stock (if not approved $20 million in lieu of the warrants). Stifel may substitute cash for up to 150,000 shares of Stifel common stock. As a consequence of the sale of Ryan Beck to Stifel, which was consummated on February 28, 2007, the results of Ryan Beck are presented as discontinued operations in our financial statements.

Our Internet website address is www.bankatlanticbancorp.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through our website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our Internet website and the information contained in or connected to our website are not incorporated into, and are not part of this Annual Report on Form 10-K.

As of December 31, ~~2004, BankAtlantic Bancorp~~2006, we had total consolidated assets of approximately ~~$6.4 billion, deposits of approximately $3.5~~$6.5 billion and stockholders’ equity of approximately ~~$469~~$525 million.

BankAtlantic

BankAtlantic is a federally-chartered, federally-insured savings bank organized in ~~1952,~~1952. It is one of the largest financial institutions headquartered in ~~Florida. It~~Florida and provides traditional retail banking services and a wide range of commercial banking products and related financial services through ~~74 branch offices~~a network of more than 90 branches or “stores” in southeast Florida and the Tampa Bay area, primarily in the metropolitan areas surrounding the cities of Miami, Ft. Lauderdale, West Palm Beach and Tampa, which are located ~~primarily~~ in the heavily-populated Florida counties of Miami-Dade, Broward, Palm Beach, Hillsborough and ~~Pinellas Counties~~Pinellas. During the fourth quarter of 2006, BankAtlantic announced its store expansion into the Orlando, Florida area with the expectation of opening four stores in ~~the State of Florida.~~Orlando during 2007. In January 2007, BankAtlantic opened its first two Orlando stores.

BankAtlantic’s primary business activities include:

•		attracting checking and savings deposits (core deposits) from individuals and business ~~customers;~~customers,

•		originating commercial real estate, business, consumer and small business ~~loans;~~loans,

•		purchasing wholesale residential loans, ~~from third parties; and~~

•	~~making investments~~	investing in mortgage-backed securities, tax certificates and other securities.

BankAtlantic’s business strategy focuses on the following key areas:

Continuing the “Florida’s Most Convenient Bank” Initiative.BankAtlantic began its “Florida’s Most Convenient Bank” initiative in 2002. This initiative includes offering free checking, seven-day banking, extended lobby hours, including some stores open from 7:30am until midnight, a 24-hour customer service center and other new products and services that are an integral part of BankAtlantic’s strategy to position itself as a customer-oriented bank and

~~The Bank’s strategy includes:~~

•	~~Continuing the “Florida’s Most Convenient Bank” Initiative.~~BankAtlantic began its “Florida’s Most Convenient Bank” initiative in 2002. This initiative, which includes offering free checking, seven-day banking, extended lobby hours, including some stores open 9:00 am until midnight, a 24-hour customer service center and other new products and services is an integral part of BankAtlantic’s strategy to position itself as a customer-oriented bank and	increase its ~~low cost~~core deposit accounts. BankAtlantic ~~continues to institute marketing programs in~~defines its ~~stores that include sales training programs, outbound telemarketing requirements~~core deposits as its demand deposit accounts, NOW checking accounts and ~~incentive compensation programs that enable its banking personnel to earn additional income for producing profitable business.~~savings accounts.

•		Increasing ~~Low Cost~~Core Deposits.~~BankAtlantic’s low cost deposits are comprised of demand deposits, NOW checking accounts and savings accounts.~~ From ~~December 31, 2001~~April, 2002, when the “Florida’s Most Convenient Bank” initiative was launched, to December 31, ~~2004, the balances of its low cost~~2006, BankAtlantic’s core deposits increased ~~200%~~272% from approximately $600 million to approximately ~~$1.8~~$2.2 billion. These ~~low cost~~core deposits represented ~~53%~~58% of BankAtlantic’s total deposits at December 31, ~~2004,~~2006, compared to 26% of total deposits at December 31, 2001. BankAtlantic intends to continue to seek to increase its ~~low cost~~core deposits through ~~strong~~ sales and marketing efforts, new ~~products~~product offerings, commitment to customer service and the “Florida’s Most Convenient Bank” initiative. The growth of core deposits has slowed since the first quarter of 2006 due primarily to higher short term interest rates, the slow down in the residential real estate market in Florida and increased competition.

•		Growing the Loan Portfolio ~~while~~by Concentrating ~~On Core~~on Areas of Lending ~~Competencies~~Expertise. BankAtlantic ~~intends to grow~~is focused on growth of its ~~core~~ commercial and retail banking business with an emphasis on generating commercial real estate, ~~loans, one to four family residential loans, and~~ small business, and consumer loans. BankAtlantic ~~attributes its success~~has historically been successful in these lending areas toas a result of several key factors, including disciplined underwriting and ~~expertise~~knowledge in its markets. ~~Further,~~Loan balances and total earning assets are down from mid -2005 levels primarily as a consequence of a decision to limit earning asset growth and the slow-down in the commercial real estate construction market. BankAtlantic plans to continue to limit its earning asset growth based on the current flat to inverted yield curve environment and to maintain disciplined underwriting standards in the increasingly challenging market. BankAtlantic intends to continue to limit activities in ~~non-core lending areas, such as~~ credit card, international, non-mortgage syndication and indirect lending.

•		Expanding the Retail Network.BankAtlantic ~~intends~~has plans to grow its retail network ~~both~~ internally, through a branding initiative and de novo expansion, and may also seek to grow externally through acquisitions ~~if attractive opportunities are presented~~ which are consistent with BankAtlantic’s growth strategy. BankAtlantic generally seeks to expand into relatively ~~faster~~fast growing and ~~higher~~high deposit level markets within Florida. BankAtlantic has ~~indicated that it currently intends to open 6~~opened 17 new stores from January 1, 2005 to December 31, 2006 and we currently anticipate continuing our aggressive store opening initiatives in ~~2005 while over the next 18 – 24 months renovating the interior of all existing stores during 2005 and 2006 with a consistent design.~~2007.

• Maintaining its Strong Credit Culture.BankAtlantic believes it has put in place ~~stringent~~strong underwriting standards and has ~~developed and~~ instituted credit training programs for its banking officers which emphasize underwriting and credit analysis. It has also developed systems and programs which it believes will enable it to offer sophisticated products and services without exposing ~~the Bank~~BankAtlantic to unnecessary credit ~~risks.~~risk. However, the real estate market in Florida is currently experiencing a slow down and there is no assurance that the credit quality of our assets will not be adversely impacted.

BankAtlantic offers a number of lending products to its customers. Its primary lending products include commercial real estate loans, commercial business loans, standby letters of credit and commitments, consumer loans, small business loans and residential loans.

Commercial Real Estate:BankAtlantic provides commercial real estate loans for the acquisition, development and construction of various property types, as well as the refinancing and acquisition of existing income-producing properties. These loans are primarily secured by property located in Florida. Commercial real estate loans ~~typically~~ are originated in amounts based ~~on a maximum of 80%~~upon the appraised value of the ~~collateral’s appraised~~collateral or estimated cost that generally have a loan to value ratio of less than 80%, and generally require that one or more of the principals of the borrowing entity guarantee these loans. Most of these loans have variable interest rates and are indexed to either prime or LIBOR rates.

Additionally, BankAtlantic ~~purchases~~sells participations in commercial real estate loans that are originated by other financial institutions, typically known as “lead” banks. These transactions are underwritten as if we were originating the loan, applying all normal underwriting standards. The lead bankit originates and administers the loan and provides to participants periodic reports on the progress of the project for which the loan was made. Major decisions regarding the loan are made by the participants on either a majority or unanimous basis. As a result, ~~the lead bank~~BankAtlantic generally can not significantly modify the loan without either majority or unanimous consent of the participants. ~~BankAtlantic sometimes act as a lead bank generally and sells~~BankAtlantic’s sale of loan participations ~~in its loans to other lenders. This~~ reduces its exposure on individual projects and may be required in order to stay within the regulatory “loans to one borrower” limitations. BankAtlantic also purchases commercial real estate loan participations from other financial institutions.

Consumer:Consumer loans are primarily loans to individuals originated through BankAtlantic’s retail network and sales force. The majority of its originations are home equity lines of credit secured by a first or second mortgage on the primary residence of the borrower. Home equity lines of credit have prime-based interest rates and generally mature in 15 years. All other consumer loans generally have fixed interest rates with terms ranging from one to five years.

Small Business:BankAtlantic makes small business loans to companies located primarily in its retail trade area. BankAtlantic retail trade area consists of markets located in BankAtlantic’s store network areas. Small business loans are primarily originated on a secured basis and do not exceed $1.0 million for non-real estate secured loans and $1.5 million for real estate secured loans. These loans are originated with maturities ranging primarily from one to three years or upon demand; however, loans collateralized by real estate could have terms of up to fifteen years. Lines of credit extended to small businesses are due upon demand. Small business loans typically have either fixed or variable prime-based interest rates.

Commercial Business:BankAtlantic makes commercial business loans generally to medium size companies ~~located throughout~~in Florida ~~but primarily in the South Florida and the Tampa Bay areas.~~(BankAtlantic’s trade area). It lends on both a secured and unsecured basis, although the majority of its loans are secured. Commercial business loans are typically secured by the accounts receivable, inventory, equipment, real estate, and/or general corporate assets of the borrowers. Commercial business loans generally have variable interest rates that are prime or LIBOR-based. These loans typically are originated for terms ranging from one to five years.

Residential:BankAtlantic purchases residential loans in the secondary markets that have been originated by other institutions. These loans, which are serviced by independent servicers, are secured by properties located throughout the United States. When BankAtlantic purchases residential loans, it evaluates the originator’s underwriting of the loans and, for most individual loans, performs confirming credit analysis. Residential loans are typically purchased in bulk and are generally non-conforming loans due to the size and characteristics of the individual loans. BankAtlantic sets guidelines for loan purchases relating to loan amount, type of property, state of residence, loan-to-value ratios, the borrower’s sources of funds, appraised amounts and loan documentation. Included in these purchased residential loans are interest-only loans. These loans result in possible future increases in a borrower’s loan payments when the contractually required repayments increase due to interest rate movement and when required amortization of the principal amount commences. These payment increases could affect a borrower’s ability to repay the loan and lead to increased defaults and losses. At December 31, 2006, BankAtlantic’s residential loan portfolio included $1.1 billion of interest-only loans. BankAtlantic attempts to manage this credit risk by purchasing interest-only loans originated to borrowers that it believes to be credit worthy, with loan-to-value and total debt to income ratios within agency guidelines.

BankAtlantic originates residential loans to customers that are then sold on a servicing released basis to a correspondent. It also originates and holds certain residential loans, which are primarily made to “low to moderate income” borrowers in accordance with requirements of the Community Reinvestment Act. The underwriting of these loans generally follows government agency guidelines with independent appraisers typically performing on-site inspections and valuations of the collateral.

Standby Letters of Credit and Commitments:Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is the same as extending loans to customers. BankAtlantic may hold certificates of deposit, liens on corporate assets and liens on residential and commercial property as collateral for letters of credit. BankAtlantic issues commitments for commercial real estate and commercial business loans.

~~Consumer:~~Consumer loans are primarily loans to individuals originated through BankAtlantic’s retail network and sales force. The majority of its originations are home equity lines of credit secured by a second mortgage on the primary residence of the borrower. Home equity lines of credit have prime-based interest rates and generally mature in 15 years. All other consumer loans generally have fixed interest rates with terms ranging from one to five years.

~~Small Business:~~BankAtlantic makes small business loans to companies located primarily in South Florida, along the Treasure Coast of East Florida and in the Tampa Bay area. Small business loans are primarily originated on a secured basis and do not exceed $1.0 million for non-real estate secured loans and $1.5 million for real estate secured loans. These loans are originated with maturities primarily ranging from one to three years or upon demand; however, loans collateralized by real estate could have terms of up to fifteen years. Lines of credit extended to small businesses are due upon demand. Small business loans typically have either fixed or variable prime-based interest rates.

~~Residential:~~BankAtlantic purchases residential loans in the secondary markets that have been originated by other institutions. These loans, which are serviced by independent servicers, are secured by properties located throughout the United States. When BankAtlantic purchases residential loans, it evaluates the originator’s underwriting of the loans and, for certain individual loans, performs confirming credit analysis. Residential loans are typically purchased in bulk and are generally non-conforming loans due to the size and characteristics of the individual loans. BankAtlantic sets guidelines for loan purchases relating to loan amount, type of property, state of residence, loan-to-value ratios, the borrower’s sources of funds, appraised amounts, and loan documentation. In 2003, BankAtlantic began a program in which it originates residential loans to customers that are then sold on a servicing released basis to a correspondent. It also originates and holds certain residential loans, which are primarily made to “low to moderate income” borrowers in order to comply with standards under

~~the Community Reinvestment Act.~~

The ~~underwriting of these loans generally follows government agency guidelines with independent appraisers typically performing on-site inspections and valuations~~composition of the ~~collateral.~~

loan portfolio was (in millions):


	As of December 31,
	2006					2005					2004						2003					2002
	Amount			Pct		Amount			Pct		Amount			Pct			Amount		Pct			Amount		Pct
Loans receivable:
Real estate loans:
Residential	$	2,159			46.99		2,043			44.20		2,066			45.35			1,344		37.00			1,378		40.30	%
Home Equity		562			12.23		514			11.12		457			10.03			334		9.19			262		7.65
Construction and development		860			18.72		1,340			28.99		1,454			31.92			1,345		37.05			1,266		37.00
Commercial		1,063			23.13		1,060			22.93		1,075			23.61			1,064		29.30			755		22.09
Small business		187			4.07		152			3.29		124			2.72			108		2.97			94		2.76
Loans to Levitt Corporation		—			0.00		—			0.00		9			0.19			18		0.50			—		—
Other loans:
Commercial business		157			3.41		88			1.90		93			2.06			116		3.20			153		4.48
Small business – non-mortgage		98			2.13		83			1.80		67			1.46			52		1.43			49		1.45
Consumer		26			0.57		27			0.59		18			0.41			22		0.60			25		0.73
Residential loans held for sale		9			0.20		3			0.07		5			0.10			2		0.06			—		—

Total		5,121			111.43		5,310			114.89		5,367			117.85			4,405		121.30			3,982		116.46

Adjustments:
Undisbursed portion of loans in process		483			10.51		649			14.04		768			16.86			728		20.05			512		14.97
Unearned discounts (premiums)		(1	)		-0.02		(2	)		-0.04		(1	)		(0.02	)		—		(0.01	)		3		0.09
Allowance for loan losses		44			0.96		41			0.89		46			1.01			46		1.26			48		1.40

Total loans receivable, net	$	4,595			100.00		4,622			100.00		4,554			100.00			3,631		100.00			3,419		100.00	%

In addition to its lending activities, BankAtlantic also invests in securities as described below:

Securities Available for Sale:BankAtlantic invests ~~in securities available for sale, consisting principally of investments~~ in obligations of the U.S. government or its agencies, such as mortgage-backed securities, ~~and~~ real estate mortgage investment conduits (REMICs)~~. Also included in~~ and tax exempt municipal bonds, which are accounted for as securities available for sale are tax exempt municipal bonds. These are debt obligations issued by states, cities, counties and other governmental entities to raise money to build schools, highways, hospitals, sewer systems and other projects for the public good.sale. The available for sale securities portfolio serves as a source of liquidity while at the same time providing a means to moderate the effects of interest rate changes. ~~BankAtlantic’s~~The decision to purchase and sell securities is based upon a current assessment ~~by BankAtlantic~~ of the economy, the interest rate environment and ~~its~~our liquidity requirements.

Investment Securities and Tax Certificates:BankAtlantic’s portfolio of investment securities held to maturity at December 31, ~~2004~~2006 consisted of tax exempt municipal ~~bonds and tax certificate.~~bonds. Tax certificates are evidences of tax obligations that are sold through auctions or bulk sales by various state and local taxing authorities on an annual basis. The tax obligation arises when the property owner fails to timely pay the real estate taxes on the property. Tax certificates represent a priority lien against the real property for the delinquent real estate taxes. The minimum repayment ~~in order~~ to satisfy the lien is the certificate amount plus the interest accrued through the redemption date, ~~and~~plus applicable penalties, fees and costs. Tax certificates have no payment schedule or stated maturity. If the certificate holder does not file for the deed within established time frames, the certificate may become null and void. BankAtlantic’s experience with this type of investment has been favorable because the rates earned are generally higher than many alternative investments and substantial repayments typically occur over a ~~two-year~~one-year period.

Derivative Investments:BankAtlantic, based on market conditions, writes call options on recently purchased agency securities (“covered call”). Management believes that this periodic investment strategy will result in the generation of non-interest income or an acquisition of agency securities to replenish agency repayments at a more advantageous acquisition price.

~~In part to fund its~~

The composition, yields and maturities of BankAtlantic’s securities available for sale and investment securities and tax certificates were as follows (dollars in thousands):


	U.S.												Corporate
	Treasury									Mortgage-			Bond						Weighted
	and			Tax			Tax-Exempt			Backed			and						Average
	Agencies			Certificates			Securities			Securities			Other			Total			Yield
December 31, 2006

Maturity: (1)

One year or less	$	—		$	195,391		$	—		$	996		$	—		$	196,387			8.76	%
After one through five years		—			—			12,638			106			675			13,419			5.68
After five through ten years		—			—			184,463			1,982			—			186,445			5.64
After ten years		—			—			200,143			358,666			—			558,809			5.46

Fair values (2)	$	—		$	195,391		$	397,244		$	361,750		$	675		$	955,060			6.17	%

Amortized cost (2)	$	—		$	195,391		$	397,469		$	365,565		$	685		$	959,110			6.05	%

Weighted average yield based on fair values		—	%		8.78	%		6.00	%		4.96	%		5.18	%		6.17	%
Weighted average maturity (yrs)		—			1.0			14.84			25.59			2.22			16.11


December 31, 2005
Fair values (2)	$	1,000		$	163,726		$	388,566		$	381,540		$	585		$	935,417			5.45	%

Amortized cost (2)	$	998		$	163,726		$	392,130		$	387,178		$	585		$	944,617			5.20	%


December 31, 2004
Fair values (2)	$	—		$	166,731		$	332,605		$	500,517		$	585		$	1,000,438			5.37	%

Amortized cost (2)	$	—		$	166,731		$	332,024		$	498,504		$	585		$	997,844			5.50	%


(1)		Except for tax certificates, maturities are based upon contractual maturities. Tax certificates do not have stated maturities, and estimates in the above table are based upon historical repayment experience (generally 1 to 2 years).

(2)		Equity and tax exempt securities held by the parent company with a cost of $88.6, $95.1 million, and $50.7 million and a fair value of $99.9 million, $103.2 million, and $53.7 million, at December 31, 2006, 2005 and 2004, respectively, were excluded from the above table. At December 31, 2006, equities held by BankAtlantic with a cost of $750,000 and a fair value of $765,000 was excluded from the above table.

A summary of the amortized cost and gross unrealized appreciation or depreciation of estimated fair value of tax certificates and investment securities and available for sale securities follows (in thousands):


	December 31, 2006 (1)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Appreciation		Depreciation		Fair Value
Tax certificates and investment securities:
Tax certificates:
Cost equals market	$	195,391	$	—	$	—	$	195,391
Investment securities:
Cost equals market		—		—		—		—
Market over cost		139,887		962		—		140,849
Cost over market		60,295		—		338		59,957
Securities available for sale:
Investment securities:
Cost equals market		235		—		—		235
Market over cost		87,481		837		—		88,318
Cost over market		111,006		—		1,681		109,325
Mortgage-backed securities :
Market over cost		147,646		1,366		—		149,012
Cost over market		217,919		—		5,181		212,738

Total	$	959,860	$	3,165	$	7,200	$	955,825


1)		The above table excludes Parent Company equity securities with a cost of $88.6 million and a fair value of $99.9 million at December 31, 2006.

Commencing in September 2006, BankAtlantic has also invested in rental real estate and lending joint ventures whereby the joint venture partner is the managing partner. We account for these joint ventures under the equity method of accounting.

Income-Producing Real Estate Joint Venture Investments:These joint ventures acquire income-producing real estate properties that generally do not require extensive management with the strategy of re-selling the properties in a relatively short period of time, generally within one year. BankAtlantic has invested $7.2 million in these joint ventures as of December 31, 2006 and ~~other activities,~~anticipates aggregate joint venture investments will not exceed $20 million.

Lending Joint Venture:We have invested in a joint venture involved in the factoring of accounts receivable. At this time, BankAtlantic does not anticipate funding in excess of $5 million into this venture.

BankAtlantic utilizes deposits, secured advances and other borrowed ~~funds.~~

funds to fund its lending and other activities.

Deposits:BankAtlantic offers checking and savings accounts to individuals and business customers. These include commercial demand deposit accounts, retail demand deposit accounts, savings accounts, money market accounts, certificates of deposit, various NOW accounts and IRA and Keogh retirement ~~accounts, brokered certificates of deposit~~accounts. BankAtlantic also obtains deposits from brokers and ~~public funds.~~municipalities. BankAtlantic solicits deposits from customers in its geographic market through advertising and relationship banking activities primarily conducted through its sales force and store network. BankAtlantic primarily solicits deposits at its branches (or stores) through its “Florida’s Most Convenient Bank” initiatives, which include midnight hours at selected stores, free online banking and bill pay, 24/7 customer service center and the opening of all locations seven days a week. Products such as Totally Free Checking, Totally Free Savings and Totally Free Online Banking and Billpay are the lead programs of its marketing strategy to ~~obtain~~attract new customers. While these lead products have produced solid results over the years, we may change these offerings to remain competitive. See note 1115 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s deposit accounts.

Federal Home Loan Bank (“FHLB”) Advances:BankAtlantic is a member of the FHLB and can obtain secured advances from the FHLB of Atlanta. These advances can be collateralized by a security lien against its residential loans, certain commercial loans and its securities. In addition, BankAtlantic must maintain certain levels of FHLB stock ~~for~~based upon outstanding advances. See note 12 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s FHLB Advances.

Other Short-Term Borrowings:BankAtlantic’s short-term borrowings consist of securities sold under agreements to repurchase, treasury tax and loan borrowings and federal ~~funds borrowings.~~ funds.

	•		Securities sold under agreements to repurchase include a sale of a portion of its current investment portfolio (usually mortgage-backed securities and REMICs) at a negotiated rate and an agreement to repurchase the same assets on a specified future date. BankAtlantic issues repurchase agreements to institutions and to its customers. These transactions are collateralized by securities in its investment portfolio but are not insured by the FDIC. Federal funds borrowings occur under established facilities with various federally-insured banking institutions to purchase federal funds. BankAtlantic uses these facilities on an overnight basis to assist in managing its cash flow requirements. These federal fund lines are subject to periodic review, may be terminated at any time by the issuer institution and are unsecured. BankAtlantic also has a facility with the Federal Reserve Bank of Atlanta for secured advances. These advances are collateralized by a security lien against its consumer loans. See note 14 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s Securities sold under agreements to repurchase borrowings.

	•		Treasury tax and loan borrowings represent BankAtlantic’s participation in the Federal Reserve Treasury Investment Program whereby the Federal Reserve places funds with BankAtlantic obtained from treasury tax and loan payments received by financial institutions. See note 13 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s Treasury tax and loan borrowings.

	•		Federal funds borrowings occur under established facilities with various federally-insured banking institutions to purchase federal funds. We also have a borrowing facility with various federal agencies which may place funds with us at overnight rates. BankAtlantic uses these facilities on an overnight basis to assist in managing its cash flow requirements. These lines are subject to periodic review, may be terminated at any time by the issuer institution and are unsecured. BankAtlantic also has a facility with the Federal Reserve Bank of Atlanta for secured advances. These advances are collateralized by a security lien against its consumer loans. See note 13 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s federal funds borrowings.

BankAtlantic’s other borrowings have floating interest rates and consist of mortgage-backed bond and subordinated debentures. See note 19 to the “Notes to Consolidated Financial Statements” for more information regarding BankAtlantic’s ~~short term~~other borrowings.

~~Other Borrowings:~~At December 31, 2004, BankAtlantic’s other borrowings consisted of a $22.0 million of floating rate subordinated debentures, a floating rate mortgage-backed bond with an outstanding balance of $10.0 million and $5.6 million of floating rate development notes associated with a joint venture acquired in connection with the Community Savings acquisition.

~~Banking Industry Risk~~

Banking is a business that depends on interest rate differentials. In general, a bank’s net interest income, which is the difference between the interest received on loan and securities and the interest paid on deposits and other borrowings, constitutes a major portion of its earnings.

Changes in interest rates can significantly impact BankAtlantic’s net interest income, the cost of purchasing residential mortgage loans in the secondary market and the valuation of its assets and liabilities. In particular, changes in market interest rates, changes in the relationships between short-term and long-term market interest rates or changes in the relationships between different interest rate indices can affect the interest rates received on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income and therefore reduce BankAtlantic’s net interest income.

Loan prepayments are also affected by interest rates. Loan prepayments generally accelerate as interest rates fall. Prepayments in a declining interest rate environment reduce BankAtlantic’s net interest income and adversely affect its earnings because:

• BankAtlantic often pays premiums to acquire loans and mortgage-backed securities, which it amortizes over the life of the asset. If loans or securities are prepaid, the unamortized premium is charged off; and
• ~~The yield BankAtlantic earns on the reinvestment of funds that it receives on the prepayment of loans and securities is generally less than the yield that it earned on the prepaid assets.~~

Thus, the earnings and growth of BankAtlantic are significantly affected by interest rates, which are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board.Parent Company

The ~~nature and timing of any changes in such policies or general economic conditions and their effect on BankAtlantic cannot be controlled and are extremely difficult to predict.~~

Additionally, BankAtlantic is exposed to the risk that borrowers or counter-parties may default on their obligations to it. Credit risk arises through the extension of loans and leases, certain securities, letters of credit, financial guarantees and through counter-party exposure on trading and wholesale loan transactions. In an attempt to manage this risk, BankAtlantic establishes policies and procedures to manage both on and off-balance sheet (primarily loan commitments) credit risk, and it monitors the application of these policies and procedures throughout its organization. BankAtlantic’s loan portfolio includes $2.5 billion of loans secured by residential real estate and $2.5 billion of commercial real estate and construction and development loans, which are subject to declines in real estate values. Further, the real estate collateralizing its commercial real estate and construction and development loans is concentrated in Broward, Miami-Dade, Palm Beach and Hillsborough Counties in Florida and, as such, the credit quality of these loans could be impacted by declines in the economy generally or in the real estate markets in these areas or by local natural disasters, such as hurricanes, causing a decline in the value of property collateralizing the loans.

BankAtlantic attempts to manage credit exposure to individual borrowers and counter-parties on an aggregate basis including loans, securities, letters of credit, and unfunded commitments. Credit personnel analyze the creditworthiness of individual borrowers or counter-parties, and limits are established for the total credit exposure to any one borrower or counter-party. Credit limits are subject to varying levels of approval by senior line and credit risk management.

Depending upon the condition of the local and national economy, BankAtlantic could experience a decline in credit quality that may result in loan losses and a material adverse effect on the Company’s earnings.

The banking industry is an industry subject to multiple layers of regulation. A risk of doing business in the banking industry is that any failure to comply with any of these regulations can result in substantial penalties, significant restrictions on business activities and growth plans or limitations on dividend payments depending upon the type of violation and various other factors. A description of the primary regulations applicable to BankAtlantic is set forth below under “Regulation and Supervision – BankAtlantic”. BankAtlantic has reported that it is taking steps to correct identified deficiencies in their compliance with the USA PATRIOT Act, various anti-money laundering laws and the Bank Secrecy Act, and is cooperating with regulators and incurring costs in connection with correcting such deficiencies

~~Ryan Beck~~

Ryan Beck is a full service broker-dealer headquartered in Florham Park, New Jersey. Ryan Beck operates on a nationwide basis through a network of 39 offices in 14 states. In addition to offering traditional brokerage products to individual investors, Ryan Beck is engaged in sector-oriented investment banking and capital markets activities.

~~Ryan Beck intends to focus on the following key areas:~~

• ~~Investment Banking~~. Ryan Beck has a well established investment banking group proactively focused on financial institutions. Recently, Ryan Beck’s strategy has been to diversify its operations through the addition of investment bankers and capital markets expertise focused on other sector, such as consumer products and services, and business services. Ryan Beck’s investment banking activities includes managing underwritten public offerings, serving as placement agent on institution private financings and acting as an advisor on merger and acquisitions.
• ~~Private Client Group~~. In April 2002, Ryan Beck acquired certain of the assets and assumed certain of the liabilities of Gruntal & Co., LLC. This transaction enabled Ryan Beck to significantly increase its private client group revenues. The table below shows Ryan Beck’s private client group statistics before the Gruntal transaction and at December 31, 2004.

December 31, 2004 December 31, 2001
Financial Consultants 450 80
Customer Accounts 136,000 27,000
Customer Assets $18 billion $4 billion

• ~~Capital Markets.~~Ryan Beck operates both equity and fixed income capital markets groups. Both groups engage in trading, institutional sales and syndicate activities. Ryan Beck makes a market in over 700 equity securities, principally financial institution stocks. Equity capital markets also incorporate a research department with over 134 companies under coverage in four industry sectors.

~~As a registered broker-dealer with the SEC, Ryan Beck operates on a fully-disclosed basis through its clearing firm, Pershing LLC. Clients consist primarily of:~~

•   ~~high net worth individuals,~~
•   financial institutions, institutional clients (including mutual funds, pension funds, trust companies, insurance companies, LBO funds, private equity sponsors, merchant banks and other long-term investors), and
•   ~~other corporate clients.~~

Ryan Beck’s research area employs 10 publishing analysts that cover approximately 35 closed end funds and 134 companies in four industry sectors. Additionally, it employs a Chief Market Strategist who provides economic and global market commentary. Its Institutional Equity Sales staff provides investment ideas and proprietary investment banking products to nearly 1,000 accounts across the United States.

~~Brokerage Industry Risk~~

The securities business is, by its nature, subject to various risks, particularly in volatile or illiquid markets, including the risk of losses resulting from the underwriting or ownership of securities, customer fraud, employee errors and misconduct, failures in connection with the processing of securities transactions and litigation. Ryan Beck’s business and its profitability are affected by many factors including:

•   ~~the volatility and price levels of the securities markets,~~
•   ~~the volume, size and timing of securities transactions,~~
•   ~~the demand for investment banking services,~~
•   ~~the level and volatility of interest rates,~~
•   ~~the availability of credit,~~
•   ~~legislation affecting the business and financial communities,~~
•   ~~the economy in general and~~
•   ~~the volatility of equity and debt securities held in inventory.~~

Markets characterized by low trading volumes and depressed prices generally result in reduced commissions and investment banking revenues as well as losses from declines in the market value of securities positions. Moreover, Ryan Beck is likely to be adversely affected by negative economic developments in the mid-Atlantic region or the financial services industry in general.

A major portion of Ryan Beck’s assets and liabilities are securities owned or securities sold but not yet purchased. Securities owned and securities sold but not yet purchased are associated with trading activities conducted both as principal and as agent on behalf of individual and institutional investor clients of Ryan Beck and are accounted for at fair value in our financial statements. The fair value of these trading positions is generally based on listed market prices. If listed market prices are not available or if liquidating the positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors, including dealer price quotations, price quotations for similar instruments traded in different markets or management’s estimates of amounts to be realized on settlement. As a consequence, volatility in either the stock or fixed-income markets could result in adverse changes in our financial results. Trading transactions as principal involve making markets in securities, which are held in inventory to facilitate sales to and purchases from customers. As a result of this activity, Ryan Beck may be required to hold securities during declining markets.

~~BankAtlantic Bancorp~~

~~BankAtlantic Bancorp is a holding company for BankAtlantic and Ryan Beck. Its~~Parent Company (“Parent”) operations are limited and primarily include the financing of the capital needs of its ~~subsidiaries. It~~subsidiaries and management of its subsidiaries and other investments. The Parent’s activities include executive management services, risk management and investor relations. The Parent also has arrangements with BFC Financial Corporation (“BFC”) for BFC to provide human resources, insurance management and investor relations services to the Parent and its subsidiaries and affiliates. The Parent obtains its funds from dividends from its subsidiaries, issuances of equity and debt securities, and returns on portfolio investments, as well as borrowings from unrelated financial institutions. ItThe Parent provides funds to ~~BankAtlantic and Ryan Beck~~its subsidiaries for capital, the financing of acquisitions and other general corporate purposes. ~~Its~~The largest expense is interest expense on debt, and depending on interest rates, this expense could increase or decrease significantly as much of its debt is indexed to floating rates.

~~BankAtlantic Bancorp also maintains~~ As a ~~portfolio~~consequence of ~~publicly traded~~the merger of Ryan Beck into Stifel the Parent’s equity investments now includes a large concentration in Stifel equity securities. While we have no immediate plans to sell Stifel stock and will hold unregistered securities for periods of time, we anticipate gradually reducing our Stifel investment and ~~privately held equity securities that subject it~~using the proceeds for general corporate purposes, including to equity pricing risks arising in connection with changes in the relative values due to changing market and economic conditions. Volatility or a decline in the financial markets can negatively impact net income as a result of devaluation of these investments.

As of December 31, 2004, BankAtlantic Bancorp had approximately $263.4 million of indebtedness outstanding, including $263.3 million of junior subordinated debentures with maturities ranging from 2032 to 2033. The degree to which it is leveraged poses risks to its operations, including the risk that its cash flow will not be sufficient to service its outstanding debt and that it may not be able to obtain additional financing or refinancing. If BankAtlantic Bancorp is forced to utilize all or most of its cash flow for the purpose of servicing debt, it will not be able to use those funds for other purposes. Its ability to meet these obligations is largely dependent on BankAtlantic’s and Ryan Beck’s ability to pay dividends, which will depend on the results of operations, financial condition and capital requirements of each subsidiary.

~~Homebuilding and Real Estate Development~~

~~Levitt is a homebuilding and real estate development company with activities throughout Florida and in the Memphis, Tennessee area. Until December 31, 2003, Levitt was a wholly owned subsidiary~~support future growth of BankAtlantic ~~Bancorp.~~

~~Levitt primarily develops single-family home~~ and ~~master-planned communities, but also develops, on a limited basis, commercial~~to make additional investments.

A summary of the carrying value and industrial properties and multi-family complexes. Levitt’s principal real estate activities are conducted through: Levitt and Sons, LLC, and Bowden Homes, its two wholly owned homebuilding subsidiaries, and Core Communities, LLC, a wholly owned master-planned community development subsidiary. In addition, Levitt owned approximately 31%gross unrealized appreciation or depreciation of publicly traded Bluegreen Corporation (NYSE: BXG), which acquires, develops, markets and sells vacation ownership interests in “drive-to” vacation resorts, golf communities and residential land. Levitt also engages in commercial real estate activities through Levitt Commercial, LLC, a wholly owned commercial development subsidiary, and invests with third parties in joint ventures that develop rental and single-family residential properties.

~~Levitt’s strategy includes:~~

estimated fair value of the Parent’s securities follows (in thousands):


	December 31, 2006
			Gross		Gross
	Carrying		Unrealized		Unrealized		Estimated
	Value		Appreciation		Depreciation		Fair Value
Securities available for sale:
Equity securities (2)	$	82,134	$	9,554	$	—	$	91,688
Investment securities:
Investment securities (1)		6,500		1,714		—		8,214

Total	$	88,634	$	11,268	$	—	$	99,902


	December 31, 2005
			Gross		Gross
	Carrying		Unrealized		Unrealized		Estimated
	Value		Appreciation		Depreciation		Fair Value
Securities available for sale:
Tax exempt securities	$	6,229	$	—	$	21	$	6,208
Equity securities		82,113		7,307		—		89,420
Investment securities:
Investment securities (1)		6,800		793		—		7,593

Total	$	95,142	$	8,100	$	21	$	103,221

•

~~Building and selingl homes profitably in strong growth markets throughout the Southeastern United States.~~Currently, Levitt builds homes throughout Florida and in Metropolitan Memphis, Tennessee (including Northern Mississippi). Additionally, Levitt has acquired land and entered into land purchase contracts to support the expansion of homebuilding activities into the Metropolitan Atlanta, Georgia and Nashville, Tennessee markets. Its markets are expected to remain strong due to favorable demographic and economic trends, such as retiring “Baby

(1) ~~Boomers”~~Investment securities consist of equity instruments purchased through private placements and ~~continuing new employment opportunities. As it completes existing developments~~are accounted for at historical cost adjusted for other-than-temporary declines in ~~these markets, it expects to acquire new land that will not only replenish but also increase its inventory of real estate.~~value.

(2) •   ~~Continuing to acquire land and to develop master-planned communities in desirable markets.~~Levitt intends to acquire land parcels in desirable markets that are suited for developing large master-planned communities. Generally, land sale revenues tend to be sporadic and fluctuate more than home sale revenues, but land sale transactions result in higher margins, which typically exceed 40%. Its land development activities in its master-planned communities complement its homebuilding activities by offering a potential source of land for future homebuilding. At the same time, its homebuilding activities complement its master-planned community development activities since it believes that its strong merchandising and quality developments support future land sales in its master-planned communities. Levitt expects that its Homebuilding Division will continue to purchase land for its residential home developments in its master-planned communities in the future.
•   ~~Exploring joint ventures and/or acquisitions to expand its penetration throughout~~The table excludes the ~~United States.~~~~Levitt believes that its brands and its core competence~~equity securities of Stifel received as a homebuilder and real estate developer can be extended to new markets both inside and outside of Florida and the Southeastern United States. Its plans to supplement its growth through selective acquisitions and joint ventures in both new and existing markets to enable it to more rapidly extend its competencies in active adult communities and land development.
•   ~~Maintain a conservative risk profile.~~Levitt attempts to apply a disciplined risk management approach to its business activities. Other than its model homes, the majority of its homes are pre-sold before construction begins. Levitt generally requires customer deposits of 5% to 10%result of the ~~base sales price~~merger of its homes, and requires a higher percentage deposit for design customizations and upgrades. As a result, it strengthens its backlog and lowers its risk of cancellation. It seeks to maintain its homebuilding land inventory at levels that can be absorbed within three to five years. While its land inventoryRyan Beck into Stifel because the transaction closed in Tradition, its newest master-planned community, can support eight to ten years of development, it can mitigate the risk associated with this investment by selling parcels to other developers throughout the development period. Alternatively, early sales can provide it with funds that allow it to assemble substantially more acreage with less required additional capital investment. It can also utilize this early sales strategy to improve the attractiveness of the development. For instance, it sold approximately 1,000 acres adjacent to Tradition which it expects to be developed with one or more golf courses, thereby adding an attractive amenity to the area near the development.
•   ~~Utilizing community development districts to fund development costs~~. Levitt establishes community development or improvement districts to access bond financing to fund infrastructure and other projects at its master-planned community developments. The ultimate owners of the property within the district are responsible for amounts owed on these bonds as part of an assessment on their property tax bills. Generally, no payments under the bonds are required from property owners during the first two years after issuance. While Levitt is responsible for these amounts until the affected property is sold, this strategy allows it to more effectively manage the cash required to fund development of the project.
•   ~~Pursuing other strategic real estate opportunities.~~Currently, Levitt owns approximately 31% of the outstanding common stock of Bluegreen. Bluegreen is an independently operated company that primarily acquires, develops, markets and sells vacation ownership interests in “drive-to” resorts and develops and sells residential home sites around golf courses or other amenities. In the future, Levitt may pursue strategic investments in other real estate related businesses.February 2007.

~~Homebuilding Division~~

Levitt’s homebuilding division is currently comprised of Levitt and Sons and Bowden Homes. Levitt acquired Levitt and Sons in December 1999 and Bowden Homes in April 2004. Levitt and Sons is a real estate developer and residential homebuilder specializing in active adult single-family home communities. Levitt and Sons and its predecessors have built more than 200,000 homes since 1929. It has strong brand awareness as America’s oldest homebuilder and is recognized nationally for having built the Levittown communities in New York, New Jersey and Pennsylvania. Bowden Homes, one of the largest homebuilders in Memphis, Tennessee and the surrounding metropolitan area, focuses on building distinctively featured family housing.

Employees

Levitt’s Homebuilding Division develops planned communities featuring homes with closing prices ranging from approximately $110,000 to over $400,000. Its communities serve homeowners aged 55 and older (active adults) and families. At December 31, 2004, the Homebuilding Division’s backlog was 1,814 homes, or $448.6 million. Backlog represents the number of units subject to pending sales contracts. Homes included in the backlog include homes that have been completed, but on which title has not been transferred, homes not yet completed and homes on which construction has not begun.

~~Real Estate Development Division~~

Levitt’s real estate development activities are conducted through its Core Communities subsidiary. Core Communities develops master-planned communities and has two existing communities in South Florida. Core Communities’ original and best-known community, St. Lucie West, has been the fastest growing community on Florida’s Treasure Coast since it was acquired in October 1997. St. Lucie West is a 4,600-acre community with approximately 6,000 built and occupied homes, numerous businesses, a university campus and the New York Mets’ spring training facility. At December 31, 2004, approximately 18 acres remained available for sale in St. Lucie West. Core Communities’ second master-planned community, Tradition, covers more than 9,000 gross acres and is planned to include a total of approximately five miles of frontage along Interstate-95, a major north/south interstate highway. Tradition is being developed as a master-planned community and at completion will include over 15,000 residences, a corporate park, educational facilities, commercial properties and mixed-use parcels. At December 31, 2004, Core Communities owned approximately 7,000 acres in Tradition including approximately 4,600 saleable acres.

~~Real Estate Industry Risks~~

The real estate industry is highly cyclical by nature and future market conditions are uncertain. Factors that may adversely affect the real estate and homebuilding industries, many of which are beyond Levitt’s control include:

•   ~~the availability and cost of financing;~~
•   ~~unfavorable interest rates and increases in inflation;~~
•   ~~overbuilding or decreases in demand;~~
•   ~~changes in the general availability of land and competition for available land;~~
•   construction defects and warranty claims arising in the ordinary course of business, including mold related property damage and bodily injury claims and homeowner and homeowners’ association lawsuits;
•   ~~potential adverse customer reaction to the requirement to assume Community Development District bond obligations;~~
•   ~~changes in national, regional and local economic conditions;~~
•   ~~cost overruns, inclement weather, and labor and material shortages;~~
•   ~~the impact of present or future environmental legislation, zoning laws and other regulations;~~
•   ~~availability, delays and costs associated with obtaining permits, approvals or licenses necessary to develop property; and~~
•   ~~increases in real estate taxes and other governmental fees.~~

In addition, a substantial majority of Levitt’s operations involve the development and sale of properties in the State of Florida. The Florida market is subject to the risks of natural disasters such as hurricanes and tropical storms and we will be subject to adverse changes in the economy in Florida.

~~Other Operations~~

Other Operations includes all of the operations and all of the assets owned by BFC other than BankAtlantic Bancorp and its subsidiaries and Levitt and its subsidiaries. BFC owns and manages real estate, which includes the ownership of Burlington Manufacturers Outlet Center, a shopping center in North Carolina and the unsold land at Center Port, an industrial office park developed in Florida. BFC also holds mortgage notes receivable that were received in connection with the sale of properties previously owned. The Other Operations segment also includes overhead and interest expense. The interest expense relates to debts and other borrowings, primarily utilized for the acquisition of real estate. Equity investments include the investment in Series B Convertible Preferred Stock of Benihana and also include equity securities in the technology sector owned by partnerships that are included in the consolidated financial statements of BFC because of BFC’s general partner interest in those partnerships.

~~Benihana~~

On June 8, 2004, we entered into an agreement with Benihana Inc. to purchase an aggregate of 800,000 shares of Benihana’s Series B Convertible Preferred Stock for $25.00 per share. Benihana is a NASDAQ-listed Asian-themed national restaurant chain with two listed classes of common shares: Common Stock (BNHN) and Class A Common Stock (BNHNA). On July 1, 2004, the Company funded the first tranche of convertible preferred stock in the amount of $10.0 million for the purchase of 400,000 shares. The purchase of the remaining 400,000 shares of convertible preferred stock will be funded from time to time at the election of Benihana during the two-year period commencing on July 1, 2005. The shares of convertible preferred stock are convertible into Benihana Common Stock at a conversion price of $19.00 per share, subject to adjustment from time to time upon certain defined events. We are entitled to receive cumulative quarterly dividends on the convertible preferred stock at an annual rate equal to $1.25 per share, payable on the last day of each calendar quarter commencing September 30, 2004. Based upon Benihana’s currently outstanding capital stock, our 400,000 shares of convertible preferred stock currently represents approximately a 13% voting interest and a 5% economic interest in Benihana. See Item 3. Legal Proceedings for a discussion of litigation brought against us and Benihana relating to our investment.

Benihana has operated teppanyaki-style dinnerhouse restaurants in the United States for 40 years. Benihana has exclusive rights to own, develop and license Benihana and Benihana Grill restaurants in the United States, Central and South America and the islands of the Caribbean. Benihana also operates other Asian-themed restaurant concepts including Haru and RA Sushi.

~~Employees~~

Management believes that its relations with its employees are satisfactory. The Company currently maintains comprehensive employee benefit programs that are considered by management to be generally competitive with programs provided by other major employers in its markets.

The Company’s number of employees at the indicated dates was:


	December 31, 2004				December 31, 2003				December 31, 2006				December 31, 2005
	Full-time		Part-time		Full-time		Part-time		Full-		Part-		Full-		Part-
BFC	16			1		7		1
									Time		time		time		time
BankAtlantic Bancorp		2,492		325		2,312		235		8		—		18		—
Levitt		527		32		353		34
BankAtlantic										2,425		386		1,882		390

Total		3,035		358		2,672		270		2,433		386		1,900		390

~~Competition~~

~~BankAtlantic is engaged in the~~

Competition

The banking and financial services industry ~~which~~ is very competitive. Legal and regulatory developments have made it easier for new and sometimes unregulated entities to compete with ~~BankAtlantic.~~us. Consolidation among financial service providers has resulted in ~~fewer~~ very large national and regional banking and financial institutions holding a large accumulation of assets. These institutions ~~may~~generally have significantly greater resources, a wider geographic presence or greater ~~accessibility.~~accessibility than we have. As consolidation continues among large banks, ~~BankAtlantic expects~~we expect additional smaller institutions to try to exploit our market. ~~BankAtlantic faces~~Our primary method of competition is emphasis on customer service and convenience, including our Florida’s Most Convenient Bank initiatives.

We face substantial competition for both loans and deposits. Competition for loans comes principally from other banks, savings institutions and other lenders. This competition could decrease the number and size of loans that ~~BankAtlantic makes~~we make and the interest rates and fees that ~~it is~~we receive on these loans.

~~BankAtlantic competes~~

We compete for deposits with banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds and mutual funds. These competitors may offer higher interest rates than ~~BankAtlantic,~~we do, which could decrease the deposits that ~~BankAtlantic attracts~~we attract or require ~~BankAtlantic~~us to increase ~~its~~our rates to attract new deposits. Increased competition for deposits could increase our cost of funds, reduce our net interest margin and adversely affect ~~BankAtlantic’s~~our ability to generate the funds necessary for ~~its~~our lending operations.

Ryan Beck is engaged in investment banking, securities brokerage and asset management activities, all of which are extremely competitive businesses. Competitors include all of the member organizations of the New York Stock Exchange and NASD, banks, insurance companies, investment companies and financial consultants. Like other firms, Ryan Beck’s business has been affected by consolidation within the financial services industry and the entry of non-traditional competitors, including banks and online financial services providers. The firm competes with other trading, investment banking, brokerage and financial advisory firms for clients, market share and personnel. Ryan Beck competes for individual and institutional clients on the strength of the range of products it offers, the quality of its services, its financial resources and fair pricing. The firm’s competitive position depends, to some extent, on existing economic conditions and government policies. The ability to attract, retain and motivate qualified employees for all areas of the firm’s business, including financial consultants, investment bankers, trading professionals and other personnel, affects Ryan Beck’s ability to compete effectively. Another critical element influencing Ryan Beck’s ability to compete is a strong infrastructure, including financial control, accounting and other data processing systems.

We are engaged in real estate activities primarily through Levitt and to a lesser extent, directly. The business of developing and selling residential properties and planned communities is highly competitive and fragmented. Levitt competes

with numerous large and small builders on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price. Some competing builders have nationwide operations and substantially greater financial resources. Levitt’s products must also compete with sales of existing homes and available rental housing. In connection with its leasing activities, the Company competes with other shopping centers and outlet centers for tenants.

We intend to seek to make investments in diverse industries. The business of investing in and acquiring diverse businesses is highly competitive. We will compete with numerous large and small investment firms, hedge funds, private equity firms, strategic investors and others for appropriate investments, and many of those firms with which we will compete have greater financial resources and better developed, track records, reputations, networks and infrastructures for sourcing, negotiating and completing transactions. Moreover, many of our competitors are private investment partnerships and, as such, are not subject to the same laws, regulations, reporting and filing requirements that we are subject to as a public company.

Regulation and Supervision

~~BFC and BankAtlantic Bancorp, Inc.~~

Holding Company

We are ~~both~~a unitary savings and loan holding ~~companies~~company within the meaning of the Home Owners’ Loan Act, as amended, ~~(“HOLA”).~~or HOLA. As such, we are registered with the Office of Thrift Supervision, ~~(“OTS”)~~or OTS, and are subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over us. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings bank.

HOLA prohibits a savings bank holding company, directly or indirectly, or through one or more subsidiaries, ~~from~~ from:

	•		acquiring another savings institution or holding company thereof without prior written approval of the OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings institution, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or its holding company without prior written approval of the OTS;

	•		acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings institution, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or

	•		acquiring or retaining control of a depository institution that is not insured by the FDIC.

In evaluating an application by a holding company to acquire a savings institution, the OTS must consider the financial and managerial resources and future prospects of the company and savings institution involved the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

As a unitary savings and loan holding company, we generally are not restricted under existing laws as to the types of business activities in which we may engage, provided that ~~the Bank~~BankAltantic continues to satisfy the Qualified Thrift ~~Lending (“QTL”)~~Lender, or QTL, test. See “Regulation of Federal Savings Banks — QTL ~~Test’’~~Test” for a discussion of the QTL requirements. If we were to make a non-supervisory acquisition of another savings institution or of a savings institution that meets the QTL test and is deemed to be a savings institution by the OTS and that will be held as a separate subsidiary, then we would become a multiple savings and loan holding company within the meaning of HOLA and would be subject to limitations on the types of business activities in which we can engage. HOLA limits the activities of a multiple savings institution holding company and its non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)~~(8)~~ of the Bank Holding Company ~~(“BHC”)~~ Act, subject to the prior approval of the OTS, and to other activities authorized by OTS regulation.

Transactions between ~~the Bank,~~BankAtlantic, including any of ~~the Bank’s~~BankAtlantic’s subsidiaries, and us or any of ~~the Bank’s~~BankAtlantic’s affiliates, are subject to various conditions and limitations. See ~~''Regulation~~“Regulation of Federal Savings Banks — Transactions with Related Parties.~~’’ The Bank~~” BankAtlantic must file a notice with the OTS prior to any declaration of the payment of any dividends or other capital distributions to us. See “Regulation of Federal Savings Banks — Limitation on Capital Distributions.’’”

~~Federal Securities Laws~~

BFC’s Class A Common Stock and Class B Common Stock are registered with the SEC under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

BankAtlantic

BankAtlantic ~~(“The Bank”)~~ is a federal savings association and is subject to extensive regulation, examination, and supervision by the OTS, as its chartering agency and primary regulator, and the FDIC, as its deposit insurer. ~~The Bank’s~~BankAtlantic’s deposit accounts are insured up to applicable limits by the ~~Bank~~Deposit Insurance Fund, ~~(“BIF”) and the Savings Association~~

~~Insurance Fund (“SAIF”),~~ which ~~are~~is administered by the FDIC. ~~The Bank~~BankAtlantic must file reports with the OTS and the FDIC concerning its activities and financial ~~condition, and it~~condition. Additionally, BankAtlantic must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions and must submit applications or notices prior to forming certain types of subsidiaries or engaging in certain activities through its subsidiaries. The OTS and the FDIC conduct periodic examinations to assess ~~the Bank’s~~BankAtlantic’s safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the insurance fund and depositors. The OTS and the FDIC have significant discretion in connection with their supervisory and enforcement activities and examination policies. Any change in such applicable activities or policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on us, ~~the Bank,~~BankAtlantic, and our operations.

The following discussion is intended to be a summary of the material banking statutes and regulations applicable to ~~the Bank,~~BankAtlantic, and it does not purport to be a comprehensive description of such statutes and regulations, nor does it include every federal and state statute and regulation applicable to ~~the Bank.~~

BankAtlantic.

Regulation of Federal Savings Banks

Business ~~Activities.~~Activities~~The Bank~~. BankAtlantic derives its lending and investment powers from ~~the~~ HOLA and the regulations of the OTS thereunder. Under these laws and regulations, ~~the Bank~~BankAtlantic may invest ~~in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and limited other assets. The Bank~~in:

	•		mortgage loans secured by residential and commercial real estate;

	•		commercial and consumer loans;

	•		certain types of debt securities; and

	•		certain other assets.

BankAtlantic may also establish service corporations to engage in activities not otherwise permissible for ~~the Bank,~~BankAtlantic, including certain real estate equity investments and securities and insurance brokerage. These investment powers are subject to limitations, including, among others, limitations that require debt securities acquired by ~~the Bank~~BankAtlantic to meet certain rating criteria and that limit ~~the Bank’s~~BankAtlantic’s aggregate investment in various types of loans to certain percentages of capital and/or assets.

Loans to One ~~Borrower.~~Borrower. Under HOLA, savings banks are generally subject to the same limits on loans to one borrower as are imposed on national banks. Generally, under these limits, the total amount of loans and extensions of credit made by a savings bank ~~may not make a loan or extend credit~~ to ~~a single~~one borrower or related group of borrowers ~~in excess of~~outstanding at one time and not fully secured by collateral may not exceed 15% of the savings bank’s unimpaired capital and unimpaired surplus. ~~Additional~~In addition to, and separate from, the 15% limitation, the total amount of loans orand extensions of credit ~~are permitted~~made by a savings bank to one borrower or related group of ~~up to~~borrowers outstanding at one time and fully secured by readily-marketable collateral may not exceed 10% of the savings bank’s unimpaired capital and ~~surplus if they are fully secured by readily- marketable collateral. Such~~unimpaired surplus. Readily-marketable collateral includes certain debt and equity securities and bullion, but generally does not include real estate. At December 31, ~~2004, the Bank’s~~2006, BankAtlantic’s limit on loans to one borrower was ~~$76~~approximately $84.8 million. At December 31, ~~2004, the Bank’s~~2006, BankAtlantic’s largest aggregate amount of loans to one borrower was ~~$56~~approximately $47.7 million and the second largest borrower had an aggregate balance of ~~$55.75~~approximately $45.0 million.

QTL ~~Test.~~Test. HOLA requires a savings bank to meet a ~~Qualified Thrift Lending (“QTL”)~~QTL test by maintaining at least 65% of its “portfolio assets” in certain “qualified thrift investments” on a monthly average basis in at least nine months out of ~~the most recent twelve-month period.~~every twelve months. A savings bank that fails the QTL test must either operate under certain restrictions on its activities or convert to a bank charter. At December 31, ~~2004, the Bank~~2006, BankAtlantic maintained ~~74.9%~~approximately 71% of its portfolio assets in qualified thrift investments. ~~The Bank~~BankAtlantic had also satisfied the QTL test in each of the nine months prior ~~12 months~~to December 2006 and, therefore, was a ~~qualified thrift lender.~~

QTL.

Capital ~~Requirements.~~Requirements. The OTS regulations require savings banks to meet three minimum capital standards: ~~(a)~~

a tangible capital ~~ratio~~ requirement offor savings banks to have tangible capital in an amount equal to at least 1.5% of adjusted total ~~assets as adjusted under the OTS regulations; (b)~~ assets;

a leverage ratio requirement:


	o		for savings banks assigned the highest composite rating of 1, to have core capital in an amount equal to at least 3% of adjusted total assets; or

	o		for savings banks assigned any other composite rating, to have core capital in an amount equal to at least 4% of adjusted total assets, or a higher percentage if warranted by the particular circumstances or risk profile of the savings bank; and

a risk-based capital ~~ratio~~ requirement offor savings banks to have capital in an amount equal to at least 8% of core and supplementary capital to total risk-based assets; and (c) a core capital ratio (as defined under OTS regulations). For a depository institution that has been assigned the highest composite rating of 1 under the Uniform Financial Institutions Rating, the minimum core capital ratio is 3%. For any other depository institution, the minimum core capital ratio is 4%, unless a higher capital ratio is warranted by the particular circumstances or risk profile of the depository institution.risk-weighted assets.

In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings bank must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk-weights assigned by the OTS capital regulations. The OTS monitors the interest rate risk management of individual institutions. The OTS may impose an individual minimum capital requirement on institutions that exhibit a high degree of interest rate risk.

At December 31, ~~2004, the Bank~~2006, BankAtlantic exceeded all applicable regulatory capital requirements. See note 18#20 to the “Notes to the Consolidated Financial Statements” for ~~BankAtlantic~~ actual capital amounts and ratios.

There currently are no regulatory capital requirements directly applicable to ~~BankAtlantic Bancorp~~us as a unitary savings and loan holding company apart from ~~those~~the regulatory capital requirements for savings banks that are applicable to BankAtlantic.

Limitation on Capital ~~Distributions.~~Distributions. The OTS regulations ~~currently~~ impose limitations upon certain capital distributions by savings ~~institutions,~~banks, such as certain cash dividends, payments to repurchase or otherwise acquire ~~the savings institution’s~~its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital.

The OTS regulates all capital distributions by BankAtlantic directly or indirectly to us, including dividend payments. BankAtlantic currently must file a notice with the OTS at least 30 days prior to each capital distribution. However, if the total amount of all of BankAtlantic’s capital distributions (including any proposed capital distribution) for the applicable calendar year exceeds BankAtlantic’s net income for that year-to-date period plus BankAtlantic’s retained net income for the preceding two years, then BankAtlantic must file an application to receive the approval of the OTS for a proposed capital distribution.

BankAtlantic may not pay dividends to us if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage and tangible capital ratio requirements or the OTS notified BankAtlantic that it was in need of more than normal supervision. Under the Federal Deposit Insurance Act, or FDIA, an insured depository institution such as BankAtlantic is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would ~~not~~become “undercapitalized.” Payment of dividends by BankAtlantic also may be ~~well capitalized after~~restricted at any time at the ~~distribution. A savings institution must provide~~discretion of the ~~OTS with at least 30 days’ written notice prior~~appropriate regulator if it deems the payment to declaring any capital distribution; however, in some circumstances, a savings institution is required to apply for prior approval of a distribution instead of providing notice. The OTS may prohibit a distribution on safetyconstitute an unsafe and ~~soundness grounds or if minimal capital requirements would not be met after the distribution.~~

unsound banking practice.

Liquidity. ~~The Bank~~BankAtlantic is required to maintain sufficient liquidity to ensure its safe and sound ~~operation.~~operation, in accordance with OTS regulations.

Assessments. The ~~Bank’s liquidity ratio, which was 6.91% at December 31, 2004, was adequate.~~

~~Assessments.~~~~Savings institutions are required by~~ OTS ~~regulation to pay semi-annual~~charges assessments to recover the ~~OTS to fund OTS operations. The regulations base the assessment for individual~~costs of examining savings ~~institutions~~banks and their affiliates, processing applications and other filings, and covering direct and indirect expenses in regulating savings banks and their affiliates. These assessments are based on three components: ~~(a) the size of the institution on which the basic assessment is based; (b) the institution’s supervisory condition; and (c) the complexity of the institution’s operations. The Bank’s~~

	•		the size of the savings bank, on which the basic assessment is based;

	•		the savings bank’s supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings bank with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and

	•		the complexity of the savings bank’s operations, which results in an additional assessment based on a percentage of the basic assessment for any savings bank that has more than $1 billion in trust assets that it administers, loans that it services for others or assets covered by its recourse obligations or direct credit substitutes.

These assessments are paid semi-annually. BankAtlantic’s assessment expense during the year ended December 31, ~~2004~~2006 was approximately ~~$713,000.~~

$959,000.

~~Branching.~~Branching. Subject to certain limitations, HOLA and the OTS regulations permit federally chartered savings banks to establish branches in any state or territory of the United ~~States, provided they have, among other things, adequate capital, meet~~ States.

Community Reinvestment Act requirements (as described below), and do not present any basis for supervisory objection. Also, limitations on branching may be imposed in connection with failure to comply fully with applicable regulations regarding its operations, including anti-terrorism and anti-money-laundering regulations.
~~Community Reinvestment.~~. Under the Community Reinvestment Act, ~~(“CRA”)~~or CRA, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA requires the OTS to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution. This assessment focuses on three tests:

	•		a lending test, to evaluate the institution’s record of making loans in its designated assessment areas;

	•		an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and

	•		a service test, to evaluate the institution’s delivery of banking services throughout its designated assessment area.

The OTS assigns ~~institution~~institutions a rating of ~~“outstanding”, “satisfactory”,~~“outstanding,” “satisfactory,” “needs to ~~improve”,~~improve,” or “substantial non-compliance.” The CRA requires all institutions to disclose their CRA ratings to the public. ~~The Bank~~BankAtlantic received a ~~“satisfactory” CRA~~“Satisfactory” rating in its most recent CRA evaluation.
Regulations also require all institutions to disclose certain agreements that are in fulfillment of the CRA. BankAtlantic has no such agreements in place at this time.

Transactions with Related ~~Parties.~~Parties~~The Bank’s~~. BankAtlantic’s authority to engage in transactions with its “affiliates” is limited by ~~OTS regulations, by~~ Sections 23A and 23B of the Federal Reserve Act, ~~(“FRA”), and~~or FRA, by Regulation W of the Federal Reserve Board, ~~(“FRB”)~~or FRB, implementing Sections 23A and 23B of the ~~FRA.~~FRA, and by OTS regulations. The applicable OTS regulations for savings banks regarding transactions with affiliates generally conform to the requirements of Regulation W, which is applicable to national banks. In general, an affiliate of ~~the Bank~~a savings bank is any company that controls, ~~the Bank or any other company that~~ is controlled by, ~~a company that controls~~or is under common control with, the ~~Bank, excluding the Bank’s subsidiaries~~savings bank, other than ~~non-bank insured depository institutions~~the savings bank’s subsidiaries. For instance, we are deemed an affiliate of BankAtlantic under these regulations.

Generally, Section 23A limits the extent to which a savings bank may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the savings bank’s capital stock and ~~financial subsidiaries. Under these regulations, “covered transactions”~~surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of the savings bank’s capital stock and surplus. A covered transaction generally includes:

	•		making or renewing a loan or other extension of credit to an affiliate;

	•		purchasing, or investing in, a security issued by an affiliate;

	•		purchasing an asset from an affiliate;

	•		accepting a security issued by an affiliate as collateral for a loan or other extension of credit to any person or entity; and

	•		issuing a guarantee, acceptance or letter of credit on behalf of an affiliate.

Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees, or acceptances of letters of credit issued on behalf of, an affiliate. Section 23B requires covered transactions and certain other transactions ~~with affiliates must~~to be on terms and ~~conditions~~under circumstances, including credit standards, that are ~~consistent with safe and sound banking practices and~~ substantially the same, or at least as favorable to the ~~institution or its subsidiary,~~savings bank, as those prevailing at the time for ~~comparable~~ transactions with ~~non-affiliated parties. These~~or involving non-affiliates. Additionally, under the OTS regulations, ~~limit the amount of covered transactions in which~~ a savings institution may engage and set collateralization requirements. “Covered transactions” generally include loans or extensions of credit to an affiliate, purchases of securities issued by an affiliate, purchases of assets from an affiliate, and certain other transactions. Additionally, a savings institution may not extend credit to an affiliate other than its subsidiary, unless the affiliate engages only in activities permissible for bank ~~holding companies. A savings institution also~~ is prohibited ~~from acquiring securities issued by an affiliate other than shares of the affiliate.~~
from:

	•		making a loan or other extension of credit to an affiliate that is engaged in any non-bank holding company activity; and

	•		purchasing, or investing in, securities issued by an affiliate that is not a subsidiary.

Sections 22(g) and 22(h) of the FRA, Regulation O of the FRB, ~~and~~ Section 402 of the Sarbanes-Oxley Act ~~(“Sarbanes-Oxley”),~~of 2002, and OTS regulations impose limitations on loans and extensions of credit from BankAtlantic and us to its and our executive officers, directors, controlling shareholders and their related interests. The applicable OTS regulations for savings banks regarding loans by a savings bank to its executive officers, directors and principal, shareholders ~~and their related interests.~~
generally conform to the requirements of Regulation O, which is applicable to national banks.

~~Enforcement.~~Enforcement. Under the ~~Federal Deposit Insurance Act (“FDI Act”),~~FDIA, the OTS has primary enforcement responsibility over savings banks and has the authority to bring enforcement action against all “institution-affiliated parties,” including any controlling stockholder or any shareholder, attorney, appraiser and accountant who knowingly or recklessly participates in any violation of applicable law or regulation, breach of fiduciary duty, or certain other wrongful actions that have, or are likely to have, a significant adverse effect on an insured savings bank or cause it more than minimal loss. In addition, the FDIC has back-up authority to take enforcement action for unsafe and unsound practices. Formal enforcement action ~~includes~~can include the issuance of a capital

directive, cease and desist order, removal of officers and/or directors, institution of proceedings for receivership or conservatorship and termination of deposit insurance.
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~~Examination.~~Examination~~Effective November 30, 2004, the OTS adopted new procedures for examination of savings institutions.~~. A savings institution must demonstrate to the OTS its ability to manage its compliance responsibilities by establishing an effective and comprehensive oversight and monitoring program. The degree of compliance oversight and monitoring by the institution’s management ~~will determine~~determines the scope and intensity of the OTS’ examinations of the institution. Institutions with significant management oversight and monitoring of compliance will receive ~~a Level I examination, which is the least~~less intrusive ~~examination. The~~ OTS ~~will conduct a Level II or III examination of other~~examinations than institutions with less oversight.

Standards for Safety and ~~Soundness.~~Soundness. Pursuant to the requirements of the ~~FDI Act,~~FDIA, the OTS, together with the other federal bank regulatory agencies, has adopted the Interagency Guidelines ~~Prescribing~~Establishing Standards for Safety and Soundness, ~~(“Guidelines”).~~or the Guidelines. The Guidelines ~~prescribe~~establish general safety and soundness standards relating to internal controls, ~~and~~ information ~~systems,~~and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the Guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the Guidelines. If the OTS determines that a savings ~~institution~~bank fails to meet any standard ~~prescribed~~established by the Guidelines, then the OTS may require the ~~institution~~savings bank to submit to the OTS an acceptable plan to achieve compliance.
If a savings bank fails to comply, the OTS may seek an enforcement order in judicial proceedings and impose civil monetary penalties.

Real Estate Lending ~~Standards.~~Standards. The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that are secured by liens on or interests in real estate or are made for the purpose of financing the construction of improvements on real estate. The OTS regulations require each savings bank to establish and maintain written internal real estate lending standards that are consistent with OTS guidelines and with safe and sound banking practices and which are appropriate to the size of the savings bank and the nature and scope of its real estate lending activities.

Prompt Corrective Regulatory ~~Action.~~Action. Under the OTS Prompt Corrective Action Regulations, the OTS is required to take certain, and is authorized to take other, supervisory actions against undercapitalized savings ~~institutions,~~banks, such ~~as:~~as requiring compliance with a capital restoration ~~plan;~~plan, restricting asset growth, acquisitions, branching and new lines of ~~business;~~business and, in extreme cases, appointment of a receiver or conservator. The severity of the action required or authorized to be taken increases as a savings ~~institution’s~~bank’s capital deteriorates. ~~For these purposes, a savings institution is placed in one of~~Savings banks are classified into five categories ~~based on its capital.~~of capitalization as “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” Generally, a savings ~~institution~~bank is ~~treated~~categorized as “well capitalized” (the strongest capital category) if its ratio of total capital to risk-weighted assets is at least 10%, its ratio of core capital to risk-weighted assets is at least 6%, its ratio of core capital to total assets is at least 5%, and it is not subject to any order or directive by the OTS to meet a specific capital level.if:

	•		its total capital is at least 10% of its risk-weighted assets;

	•		its core capital is at least 6% of its risk-weighted assets;

	•		its core capital is at least 5% of its adjusted total assets; and

	•		it is not subject to any written agreement, order, capital directive or prompt corrective action directive issued by the OTS, or certain regulations, to meet or maintain a specific capital level for any capital measure.

The most recent examination from the OTS categorized ~~the Bank~~BankAtlantic as “well ~~capitalized”.~~
capitalized.”

Insurance of Deposit ~~Accounts.~~Accounts. Savings banks are subject to a risk-based assessment system for determining the deposit insurance assessments to be paid by them.

Until December 31, 2006, the FDIC had assigned each ~~bank. The FDIC assigns an~~savings institution to one of three capital categories based on the savings institution’s financial information as of its most recent quarterly financial report filed with the ~~reporting~~applicable bank regulatory agency prior to the assessment period. The ~~institution is~~FDIC had also assigned each savings institution to aone of three supervisory ~~subgroup~~subcategories within each capital category based upon a supervisory evaluation provided to the FDIC by the savings institution’s primary federal regulator and information that the FDIC ~~determines~~determined to be relevant to the savings institution’s financial condition and the risk posed to the previously existing deposit insurance funds. AnA savings institution’s deposit insurance assessment rate ~~depends~~depended on the capital category and supervisory ~~category~~subcategory to which it iswas assigned. Insurance assessment rates ~~currently range~~ranged from ~~0.0%~~0.00% of deposits for ana savings institution in the highest category (i.e., ~~well-capitalized~~well capitalized and financially sound, with no more than a few minor weaknesses) to 0.27% of deposits for ana savings institution in the lowest category (i.e., undercapitalized and substantial supervisory concern).

In an effort to improve the federal deposit insurance system, on January 1, 2007, the Federal Deposit Insurance Reform Act of 2005, or the Reform Act, became effective. The Reform Act, among other things, merged the Bank Insurance Fund and the Savings Association Insurance Fund, both of which were administered by the FDIC, into a new fund

administered by the FDIC known as the Deposit Insurance Fund, or DIF, and increased the coverage limit for certain retirement plan deposits to $250,000, but maintained the basic insurance coverage limit of $100,000 for other depositors.

As a result of the Reform Act, the FDIC now assigns each savings institution to one of four risk categories based upon the savings institution’s capital evaluation and supervisory evaluation. The capital evaluation is based upon financial information as of the savings institution’s most recent quarterly financial report filed with the applicable bank regulatory agency at the end of each quarterly assessment period. The supervisory evaluation is based upon the results of examination findings by the savings institution’s primary federal regulator and information that the FDIC determined to be relevant to the savings institution’s financial condition and the risk posed to the DIF. A savings institution’s deposit insurance assessment rate depends on the risk category to which it is assigned. Insurance assessment rates now range from 0.05% of deposits for a savings institution in the least risk category (i.e., well capitalized and financially sound with only a few minor weaknesses) to 0.43% of deposits for a savings institution in the most risk category (i.e., undercapitalized and poses a substantial probability of loss to the DIF unless effective corrective action is taken).

The FDIC is authorized to raise the assessment rates in certain circumstances, which would affect savings institutions in all risk categories. The FDIC has exercised this authority several times in the past and could raise rates in the future. Increases in deposit insurance premiums could have an adverse effect on ~~the Company’s~~our earnings. ~~At December 31, 2004 BankAtlantic was assigned to the well-capitalized category.~~
The Deposit Insurance Funds Act of 1996 recapitalized the SAIF and expanded the assessment base for the payments of Financing Corporation (“FICO”) bonds. FICO bonds were sold by the federal government in order to finance the recapitalization of SAIF and BIF insurance funds. The quarterly adjusted rate of assessment for FICO bonds is 0.0152% for both BIF-and SAIF-insured institutions.

Privacy and Security Protection~~The~~. BankAtlantic is subject to the OTS regulations implementing the privacy and security protection provisions of the Gramm-Leach-Bliley Act, ~~(“GLBA”) imposes requirements on financial institutions~~or GLBA. These regulations require a savings bank to ~~protect customer privacy. GLBA generally prohibits disclosure~~disclose to its customers and consumers its policy and practices with respect to the privacy, and sharing with nonaffiliated third parties, of ~~customers’ “non-public~~its customers and consumers’ “nonpublic personal ~~information”~~information.” Additionally, in certain instances, BankAtlantic is required to ~~persons not affiliated~~provide its customers and consumers with the ~~financial institution, unless the customer has been given the opportunity~~ability to ~~object and has not objected to such disclosure. Financial institutions must disclose~~“opt-out” of having BankAtlantic share their ~~privacy policies to customers annually. Financial institutions are further required~~nonpublic personal information with nonaffiliated third parties. These regulations also require savings banks to maintain policies and procedures to safeguard their ~~customers’ “non-~~
17

~~public personal”~~customers and consumers’ nonpublic personal information. ~~The Bank~~BankAtlantic has policies and procedures designed to comply with GLBA and applicable ~~customer~~ privacy and security regulations.

Insurance ~~Activities.~~Activities~~As a federal savings bank, the Bank~~. BankAtlantic is generally permitted to engage in certain insurance activities through its subsidiaries. The OTS regulations ~~promulgated~~implemented pursuant to GLBA prohibit, among other things, depository institutions from conditioning the extension of credit to individuals upon either ~~(a)~~ the purchase of an insurance product or annuity or ~~(b)~~ an agreement by the consumer not to purchase an insurance product or annuity from an entity that is not affiliated with the depository institution. The regulations also require prior disclosure of this prohibition to potential insurance product or annuity customers.

Federal Home Loan Bank ~~System.~~System~~The Bank~~. BankAtlantic is a member of the Federal Home Loan Bank, ~~(“FHLB”)~~or FHLB, of Atlanta, which is one of the twelve regional FHLB’s composing the FHLB ~~System.~~system. Each FHLB provides a central credit facility primarily for its member ~~institutions. The Bank,~~institutions as ~~a member of the FHLB of Atlanta, is required to acquire and hold shares of capital stock~~well as other entities involved in ~~the FHLB. The Bank was in compliance with this requirement with an investment in FHLB stock at December 31, 2004 of $78.6 million.~~home mortgage lending. Any advances from a FHLB must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance. ~~The~~As a member of the FHLB of Atlanta, BankAtlantic is required to acquire and hold shares of capital stock in the FHLB. BankAtlantic was in compliance with this requirement with an investment in FHLB stock at December 31, 2006 of approximately $80.2 million. During the year ended December 31, 2006, the FHLB of Atlanta paid dividends of approximately $4.0 million on the capital stock ~~of $1.7 million during the year ended December 31, 2004.~~held by BankAtlantic. If dividends were reduced or interest on future FHLB advances increased, ~~the Bank’s~~BankAtlantic’s net interest income would likely also be reduced.

Federal Reserve ~~System.~~System~~The Bank~~. BankAtlantic is subject to provisions of the FRA and the FRB’s regulations, pursuant to which depository institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Currently, ~~reserves~~federal savings banks must ~~be maintained~~maintain reserves against transaction accounts (primarily NOW and regular interest and non-interest bearing checking accounts). The FRB regulations establish the specific rates of reserves that must be maintained, ~~and~~which are subject to adjustment by the ~~Bank~~FRB. BankAtlantic is currently in compliance with those reserve requirements. ~~Required~~The required reserves must be maintained in the form of vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a pass-through account as defined by the FRB. The effect of this reserve requirement is to reduce interest-earning assets. ~~The balances maintained to meet the reserve requirements imposed by the FRB may be used to satisfy liquidity requirements imposed by the OTS.~~ FHLB ~~System~~system members are also authorized to borrow from the Federal Reserve ~~''discount~~“discount window,’’” but FRB regulations require such institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank. ~~As of December 31, 2004, the Bank was in compliance with the FRB reserve requirement.~~

Anti-Terrorism and Anti-Money Laundering ~~Regulations.~~Regulations. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, (“or the USA PATRIOT ~~Act”)~~Act, provides the federal government with additional powers to address terrorist ~~threats.~~threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of

amendments to the Bank Secrecy Act, ~~Title III of~~or BSA, the USA PATRIOT Act puts in place measures intended to encourage ~~information-sharing~~information sharing among bank regulatory and law enforcement agencies. In addition, certain provisions of ~~Title III~~the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions, including savings banks.

Among other requirements, the ~~obligation~~USA PATRIOT Act and the related OTS regulations require savings banks to establish anti-money laundering programs that include, at a minimum: ~~(a) internal policies, procedures and controls designed to implement and maintain the institution’s~~

	•		internal policies, procedures and controls designed to implement and maintain the savings bank’s compliance with all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations;

	•		systems and procedures for monitoring and reporting of suspicious transactions and activities;

	•		a designated compliance officer;

	•		employee training;

	•		an independent audit function to test the anti-money laundering program;

	•		procedures to verify the identity of each customer upon the opening of accounts; and

	•		heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.

Additionally, the USA PATRIOT Act Bank Secrecy Act and related laws and regulations; (b) systems and procedures for monitoring and reporting of suspicious transactions and activities; (c) a designated compliance officer; (d) employee training; (e) an independent audit functionrequires each financial institution to test the anti-money laundering program; (f) procedures to verify the identity of each customer upon the opening of accounts; and (g) heightened due diligence procedures applicable to certain foreign accounts and relationships. The final rules on the USA PATRIOT Act, including the Section 326 Customer Identification Programs, were effective October 1, 2003. Under Section 326, each institution must develop a ~~Customer Identification Program (“CIP”)~~customer identification program, or CIP, as part of its anti-money laundering program. The key components of the CIP are identification, verification, government list comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the true identity and anticipated account activity of each customer. To make this determination, among other things, the financial institution must collect certain information from customers at the time they enter into the customer relationship with the financial institution. This information must be verified within a reasonable time through documentary and non-documentary methods. Furthermore, all customers must be screened against any ~~Section 326~~CIP-related government lists of known or suspected terrorists. In 2004, deficiencies were identified in ~~the Bank’s~~BankAtlantic’s compliance with anti-terrorism and anti-money laundering laws and ~~regulations.~~
regulations and the bank entered into agreements regarding its ongoing compliances and was required to pay fines associated with its past deficiencies (see “Risk Factors” “Management Discussion and Analysis of Results of Operation and Financial Condition – BankAtlantic Liquidity and Capital Resources”).

Consumer ~~Protection.~~Protection~~The Bank~~. BankAtlantic is subject to federal and state consumer protection statutes and regulations, including the Fair Credit Reporting Act, ~~(“FCRA”),~~the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act. Among other things, these acts: (a) require lenders to disclose credit terms in meaningful and consistent ways; (b) prohibit discrimination against an applicant in any consumer or business credit transaction; (c) prohibit discrimination in housing-related lending activities; (d) require certain lender banks to collect and report applicant and borrower data regarding loans for home purchase or improvement projects; (e) require lenders to provide borrowers with information regarding the nature

	•		require lenders to disclose credit terms in meaningful and consistent ways;

	•		require financial institutions to establish policies and procedures regarding identity theft and notify customers of certain information concerning their credit reporting;

	•		prohibit discrimination against an applicant in any consumer or business credit transaction;

	•		prohibit discrimination in housing-related lending activities;

	•		require certain lender banks to collect and report applicant and borrower data regarding loans for home purchase or improvement projects;

	•		require lenders to provide borrowers with information regarding the nature and cost of real estate settlements;

	•		prohibit certain lending practices and limit escrow account amounts with respect to real estate transactions; and

	•		prescribe penalties for violations of the requirements of consumer protection statutes and regulations.”

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Homebuilding & Real Estate Development Segment

Our Homebuilding & Real Estate Development segment consists of Levitt Corporation, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation are dividends when and ~~cost~~if declared and paid by Levitt. Levitt is a separate public company and its management prepared the following Item 1. Business regarding Levitt which was included in Levitt’s Annual Report onForm 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us”, “our” or “Parent Company” in the following discussion under the caption “Homebuilding & Real Estate Development” are references to Levitt and its subsidiaries, and are not references to BFC Financial Corporation.

“General Description of Business

We are a homebuilding and real estate ~~settlements; (f) prohibit certain lending practices and limit escrow account amounts~~development company with ~~respect to~~activities throughout the Southeastern United States. We were organized in December 1982 under the laws of the State of Florida.

Our principal real estate ~~transactions;~~activities are conducted through our Homebuilding and ~~(g) prescribe penalties for violations~~Land Divisions. Our Homebuilding Division consists of the ~~requirements~~operations of ~~consumer protection statutes~~Levitt and ~~regulations.~~
Sons, LLC (“Levitt and Sons”), our wholly-owned homebuilding subsidiary, which primarily develop single and multi-family homes. In our single-family home communities, we specialize in serving active adults and families. The ~~Fair~~standard base price for the homes we sell varies by geography and ~~Accurate Credit Transactions Act~~is between $110,000 and $650,000. For 2006, the average closing price of ~~2003~~the homes we delivered was $302,000. Our Land Division consists of the operations of Core Communities, LLC (“~~FACT Act”~~Core Communities”) ~~amended FCRA,~~, our wholly-owned master-planned community development subsidiary. In our master-planned communities, we generate revenue from developing, marketing and selling large acreage and raw and finished lots to third-party residential, commercial and industrial developers and internally developing certain commercial projects for leasing. We also sell land to our Homebuilding Division, which develops both active adult and family communities in our master-planned communities. We are also engaged in commercial real estate activities through our wholly-owned subsidiary, Levitt Commercial, LLC (“Levitt Commercial”), and we invest in other real estate projects through subsidiaries and various joint ventures. In addition, we own approximately 31% of the outstanding common stock of Bluegreen Corporation (“Bluegreen”, NYSE: BXG), which acquires, develops, markets and sells vacation ownership interests in “drive-to” vacation resorts as well as residential home sites around golf courses or other amenities.

Levitt and Sons is primarily a real estate developer of single and multi-family home and townhome communities specializing in both active adult and family communities in Florida, Georgia, South Carolina and Tennessee. Levitt and Sons and its ~~provisions that require changes~~predecessors have built more than 200,000 homes since 1929. It has strong brand awareness as America’s oldest homebuilder and is recognized nationally for having built the Levittown communities in New York, New Jersey and Pennsylvania. We acquired Levitt and Sons in December 1999. Levitt and Sons includes the operations of Bowden Building Corporation, a builder of single family homes based in Tennessee, which was acquired in April 2004. In the second quarter of 2006 we conducted an impairment review due to ~~financial institution procedures. Financial institutions must implement policies~~profitability and procedures that track identity theft incidents, provide identity-theft victims with evidence of fraudulent transactions upon request, block from reporting to consumer reporting agencies credit information resulting from identity theft, notify customers of adverse information concerning the customercash flows in ~~consumer reporting agency reports, and notify customers when reporting negative information concerning the customer~~Tennessee declining to a ~~consumer reporting agency. The Bank~~point where the carrying value of the assets exceeded their market value. As a result of this review, the $1.3 million of goodwill recorded in connection with the Bowden acquisition was fully written off in 2006 due to the carrying value of the assets exceeding their current market value.

Core Communities develops master-planned communities and is currently developing Tradition™, Florida, which is located in Port St. Lucie, Florida and Tradition, South Carolina, which is located in Hardeeville, South Carolina. Our original community is St. Lucie West. Substantially completed in 2006, it is a 4,600 acre community located in Port St. Lucie, Florida consisting of approximately 6,000 built and occupied homes, numerous businesses, a university campus and the New York Mets’ spring training facility. Our second master-planned community, Tradition, Florida also located in Port St. Lucie, Florida, encompasses more than 8,200 total acres, including approximately five miles of frontage on Interstate 95 and will have approximately 18,000 residential units and 8.5 million square feet of commercial space. Our Tradition, South Carolina development consists of approximately 5,400 acres, and is currently entitled for up to 9,500 residential units, with 1.5 million square feet of commercial space, in addition to recreational areas, educational facilities and emergency services. Land sales commenced in Tradition, South Carolina in the ~~process~~fourth quarter 2006.

Recent Developments

Merger Agreement with BFC

On January 31, 2007, we announced that we had entered into a definitive merger agreement with BFC Financial Corporation, a Florida corporation (“BFC”) which owns shares representing approximately 17% of ~~revising it policies~~our total equity and ~~procedures to implement FACT Act requirements.~~
53%

~~Ryan Beck~~

The securities industry in the United States is subject to extensive regulation under both federal and state laws. The SEC is the federal agency charged with administration of the federal securities laws. Much of the regulation of broker-dealers has been delegated to self-regulatory authorities, principally the NASD and, in the case of broker-dealers that are members of a securities exchange, the particular securities exchange. These self-regulatory organizations conduct periodic examinations of member broker-dealers in accordance with rules they have adopted and amended from time to time, subject to approval by the SEC.

Securities firms are also subject to regulation by state securities commissions in those states in which they do business. As of December 31, 2004, Ryan Beck was registered as a broker-dealer in 50 states and the District of Columbia. The principal purpose of regulation and discipline of broker-dealers is the protection of clients and the securities markets, rather than protection of creditors and stockholders of broker-dealers. The regulations to which broker-dealers are subject cover all aspects of the securities business, including sales methods, trading practices among broker-dealers, uses and safekeeping of clients’ funds and securities, capital structure of securities firms, record-keeping and reporting, fee arrangements, disclosure to clients and the conduct of directors, officers and employees.

Additionally, legislation, changes in rules promulgated by the SEC and self-regulatory authorities or changes in the interpretation or enforcement of existing laws and rules may directly affect the operations and profitability of broker-dealers. The SEC, self-regulatory authorities and state securities commissions may conduct administrative proceedings which can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees. Such administrative proceedings, whether or not resulting in adverse findings, can require substantial expenditures. The profitability of broker-dealers could also be affected by rules and regulations that impact the business and financial communities in general, including changes to the laws governing taxation, antitrust regulation and electronic commerce.

Securities held in custody by Pershing for Ryan Beck’s customer accounts are protected to an unlimited amount. The Securities Investors Protection Corporation (SIPC) provides $500,000 of coverage, including $100,000 for claims for cash. Pershing provides the remaining coverage through a commercial insurer. The account protection applies when a SIPC member firm fails financially and is unable to meet obligations to securities customers, but it does not protect against losses from the rise and fall in the market value of investments.

~~Ryan Beck is also subject to anti-terrorism and anti-money laundering regulations, including those under the USA PATRIOT Act, similar to those applicable to BankAtlantic.~~

Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the Securities Exchange Act of 1934. The Net Capital Rule specifies minimum net capital requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers. Failure to maintain the required net capital may subject a firm to suspension or expulsion by the NASD, certain punitive actions by the SEC and other regulatory bodies, and ultimately may require a firm’s liquidation. At December 31, 2004, Ryan Beck was in compliance with all applicable capital requirements.

Ryan Beck operates under the provisions of paragraph (k)(2)(ii) of Rule 15c3-3 of the SEC as a fully disclosed broker and, accordingly, customer accounts are carried on the books of the clearing broker. However, Ryan Beck safe keeps and redeems municipal bond coupons for the benefit of its customers. Accordingly, Ryan Beck is subject to the provisions of SEC Rule 15c3-3 relating to possession or control and customer reserve requirements and was in compliance with such provisions at December 31, 2004.

1921

of our total voting power, pursuant to which we would, upon consummation of the merger, become a wholly-owned subsidiary of BFC. Under the terms of the merger agreement, holders of our Class A Common Stock (other than BFC) will be entitled to receive 2.27 shares of BFC Class A Common Stock for each share of our Class A Common Stock held by them and cash in lieu of any fractional shares of BFC Class A Common Stock that they otherwise would be entitled to receive. Further, under the terms of the merger agreement, options to purchase shares, and restricted stock awards, of our Class A Common Stock will be converted into options to purchase, and restricted stock awards, as applicable, of shares of BFC Class A Common Stock with appropriate adjustments to reflect the exchange ratio. BFC Class A Common Stock is listed for trading on the NYSE Arca Stock Exchange under the symbol “BFF,” and on January 30, 2007, its closing price on such exchange was $6.35. The merger agreement contains certain customary representations, warranties and covenants on the part of us and BFC, and the consummation of the merger is subject to a number of customary closing and termination conditions as well as the approval of both the Company’s and BFC’s shareholders. Further, in addition to the shareholder approvals required by Florida law, the merger will also be subject to the approval of the holders of our Class A Common Stock other than BFC and certain other shareholders. The merger is subject to a number of risks and uncertainties, including, without limitation, the risk that the market price of BFC Class A Common Stock as quoted on the NYSE Arca Stock Exchange might decrease during the interim period between the date of the merger agreement and the date on which the merger is completed, thereby decreasing the value of the consideration to be received by holders of our Class A Common Stock in connection with the merger, and the risk that the merger may not be completed as contemplated, or at all. The merger is currently expected to close during 2007. If the merger is completed, all of our common stock will be canceled and our Class A Common Stock will no longer be listed on the New York Stock Exchange. While we are optimistic that the merger will be approved, the merger is subject to a number of conditions, including shareholder approval. In the event that the merger is not approved by shareholders, or not consummated for any other reason, it is our current intention to pursue a rights offering to holders of Levitt’s Class A Common Stock.

Impairment charges

The trends in the homebuilding industry were unfavorable in 2006. Demand has slowed significantly as evidenced by fewer new orders, lower conversion rates and higher cancellations in the markets in which we operate. Market conditions have been particularly difficult in Florida, which we believe are the result of changing homebuyer sentiment, reluctance of buyers to commit to a new home purchase because of uncertainty in their ability to sell their existing home, few homebuyers purchasing properties as investments, rising mortgage financing expenses, and an increase in both existing and new homes available for sale. In addition, higher sales prices, increases in property taxes and higher insurance rates in Florida have impacted affordability for buyers. As a result of these market conditions, we evaluated the real estate inventory reflected on our balance sheet for impairment on a project by project basis throughout 2006. Based on this assessment, we recorded $36.8 million of impairment charges for the year ended December 31, 2006 which are included in cost of sales in the consolidated statements of operations. Included in this amount are pretax charges of approximately $34.3 million of homebuilding inventory impairments and $2.5 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase.

Reduction in Force

Based on an ongoing evaluation of costs in view of current market conditions, we reduced our headcount in February by 89 employees resulting in a $440,000 severance charge to be recorded in the first quarter of 2007. It is expected that annual cash savings from the reduction in force will be approximately $3.9 million.

Business Strategy

Our business strategy involves the following principal goals:

Implement initiatives to increase sales and focus on improving customer service and quality control.Currently, we sell homes throughout Florida, Georgia, South Carolina and Tennessee. While the trends in the homebuilding industry were unfavorable in 2006, management is focused on cost control and initiatives to improve sales. Costs are being reviewed on an ongoing basis to align spending with new orders and home closings. We are also attempting to reduce our costs from our subcontractors and contain costs by using fixed price contracts. However, we remain committed to our strategic initiatives including our focus on customer service, marketing initiatives, and improvements in quality and construction cycle time. Advertising, outside broker commissions and other marketing costs have increased as competition for buyers has intensified. Continued aggressive marketing expenditures and customer incentives are expected to continue until the market stabilizes. We believe that these initiatives will prove advantageous in the current market as well as contribute to achieving long term profitability when the market returns to normal levels of growth.

Operate more efficiently and effectively. We have recently taken steps which we believe will improve our operating efficiencies. We are working diligently to align our staffing levels with current and anticipated future market conditions and will continue to focus on implementing expense management initiatives throughout the organization. We have hired additional experienced operating and financial professionals throughout the organization, increased accountability throughout the organization and implemented a new technology platform for all of our operating entities, excluding our Tennessee operations. We intend to continue our focus on improving our operating effectiveness in 2007 by continuing programs such as reducing our construction cycle time.

Continue to develop master-planned communities in desirable markets for sale and leasing. The Land Division is actively developing and marketing its master-planned communities in Florida and South Carolina. In addition to sales of parcels to homebuilders, the Land Division continues to expand its commercial operations through sales to developers and through its efforts to internally develop certain projects for leasing to third parties. In 2006 we expanded our commercial development and leasing activities with the construction and development of a “Power Center” at Tradition, Florida. The Power Center is substantially leased primarily to several “big box” retailers and is expected to open in the fall of 2007. We view our commercial projects opportunistically and intend to periodically evaluate the short and long term benefits of retention or disposition. Historically, land sale revenues have been sporadic and fluctuated more dramatically than home sale revenues, but land sale transactions result in higher margins, which historically have varied between 40% and 60%. However, margins on land sales and the many factors which impact the margin may not remain at these levels given the current downturn in the real estate markets where we own properties. Our land development activities in our master-planned communities complement our homebuilding activities by offering a source of land for future homebuilding. At the same time, our homebuilding activities have complemented our master-planned community development activities since we believe the Homebuilding Division’s strong merchandising and quality developments have tended to support future land sales in our master-planned communities. Much of our master-planned community acreage is under varying development orders and is not immediately available for construction or sale to third parties at prices that maximize value. As these parcels become available for sale, our Homebuilding Division will have an opportunity to develop them. Our strategy is to review whether the allocation of the land to our Homebuilding Division maximizes both the community as a whole and our overall business goals. In December 2006 the Homebuilding Division acquired the first 150 acres in Tradition South Carolina from our Land Division and currently plans to acquire an additional 312 acres in stages through 2009. Third-party homebuilder sales remain an important part of our ongoing strategy to generate cash flow, maximize returns and diversify risk, as well as to create appropriate housing alternatives for different market segments in our master-planned communities. Therefore, we will review each parcel as it is ready for development to determine if it should be developed by the Homebuilding Division, sold to a third party, or internally developed for leasing.

Improve our financial strength.We are focusing our efforts on improving our financial condition including enhancing our liquidity, preserving our borrowing capacity, and monitoring expenses. In addition to expense management, we are reviewing our land positions to ensure that our land portfolio is fairly valued and appropriately aligned with our expectations of future housing demand. Further, in January 2007 we announced that we entered into a definitive merger agreement pursuant to which we will become a wholly-owned subsidiary of BFC. We believe this will provide opportunities to strengthen our balance sheet as BFC has no debt at the holding company level and we believe is better positioned to access other financial resources. We are currently reviewing and in the process of selling certain of our land inventory. We suspended additional land acquisitions in the year ended December 31, 2006 and we wrote off approximately $2.5 million of pre-acquisition costs and deposits relating to properties that we decided not to acquire. Our current inventory is expected to yield sufficient usable homesites for the next five to six years and could last longer if current absorption levels persist.

Maintain a conservative risk profile.Our goal is to maintain a disciplined risk management approach to our business activities. Other than our model homes, the majority of our homes are pre-sold before construction begins. We generally require customer deposits of 5% to 10% of the base sales price of our homes, and we require a higher percentage deposit for design customizations and upgrades in order to minimize the risk of cancellations. We continue to seek to maintain our homebuilding land inventory at levels that can be absorbed within five to six years. Our master planned communities are long term projects with development cycles in excess of 10 years. We believe that we mitigate the risk inherent in our investments in our planned communities through careful site selection and market research in collaboration with our Homebuilding Division. We periodically sell both raw and developed parcels to our Homebuilding Division as well as other commercial and residential developers.

Utilize community development districts to fund development costs. We establish community development districts to access tax-exempt bond financing to fund infrastructure and other projects at our master-planned community developments which is a common practice among land developers in Florida. The ultimate owners of the property within the district are responsible for amounts owed on these bonds which are funded through annual assessments. Generally, in Florida, no payments under the bonds are required from property owners during the first two years after issuance as a result of

capitalized interest built into the bond proceeds. While we are responsible for any assessed amounts until the underlying property is sold, this strategy allows us to more effectively manage the cash required to fund infrastructure at the project in the short term. If the property is not sold prior to the assessment date we will be required to pay the full amount of the annual assessment on the property owned by us.

Business Segments

Management reports results of operations through three segments: Homebuilding Division, Land Division and Other Operations. The presentation and allocation of the assets, liabilities and results of operations of each segment may not reflect the actual economic costs of the segment as a stand-alone business. If a different basis of allocation were utilized, the relative contributions of the segment might differ but, in management’s view, the relative trends in segments would not likely be impacted. See Item 7. in Levitt’s Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 21 to our audited consolidated financial statements for discussion of trends, results of operations and further discussion on each segment.

Homebuilding Division

Our Homebuilding Division develops planned communities featuring homes with base prices generally ranging between $110,000 to $650,000. Our average contract price for new home orders in 2006, which includes the base price and buyer selected options and upgrades, was approximately $342,000. Our communities are designed to serve both active adult homeowners, aged 55 and older, and families. The communities currently under development or under contract and relevant data as of December 31, 2006 are as follows:

Number of Planned Closed Sold Net Units
Communities Units (a) Units Inventory Backlog Available
Active Adult Communities

Current Developments (includes optioned lots) 15 10,629 3,262 7,367 767 6,600
Properties Under Contract to be Acquired (b) 1 690 0 690 0 690

Total Active Adult
16 11,319 3,262 8,057 767 7,290

Family Communities

Current Developments (includes optioned lots) 33 7,271 3,200 4,071 481 3,590
Properties Under Contract to be Acquired (b) 0 0 0 0 0 0

Total Family
33 7,271 3,200 4,071 481 3,590

TOTAL HOMEBUILDING

Current Developments (includes optioned lots) 48 17,900 6,462 11,438 1,248 10,190
Properties Under Contract to be Acquired (b) 1 690 0 690 0 690

TOTAL HOMEBUILDING
49 18,590 6,462 12,128 1,248 10,880


(a)		Actual number of units may vary from original project plan due to engineering and architectural changes.

(b)		There can be no assurance that the current property under contract will be acquired.

The properties under contract listed above represent properties for which due diligence have been completed as of December 31, 2006 which our Homebuilding Division has the right to acquire at an aggregate purchase price of $14.2 million. Management will continue to evaluate market conditions and decide whether it is prudent to acquire this property in 2007, if at all. If a decision is made not to purchase properties under contract with third parties, amounts deposited or expended for due diligence will be written off. At December 31, 2006, we had $400,000 in deposits securing this purchase obligation and we are currently evaluating this obligation and intend to acquire the land associated with this purchase obligation.

At December 31, 2006, our homebuilding backlog was 1,248 units, or $438.2 million. Backlog represents the number of units subject to pending sales contracts. Homes in backlog include homes that have been completed, but on which title has not been transferred, homes not yet completed and homes on which construction has not begun. There is no assurance that buyers will choose to complete the purchase of homes under contract and our remedy upon such failure to close is generally limited to retaining the buyers’ deposits or seeking specific performance of the sales contracts.

Land Division

Core Communities was founded in May 1996 to develop a master-planned community in Port St. Lucie, Florida now known as St. Lucie West. It is currently developing master-planned communities in Tradition, Florida and in Tradition, South Carolina. As a master-planned community developer, Core Communities engages in four primary activities: (i) the acquisition of large tracts of raw land; (ii) planning, entitlement and infrastructure development; (iii) the sale of entitled land and/or developed lots to homebuilders (including Levitt and Sons) and commercial, industrial and institutional end-users; and (iv) the development and leasing of commercial space to commercial, industrial and institutional end-users.

Our completed development, St. Lucie West is a 4,600 acre master-planned community located in St. Lucie County, Florida. It is bordered by Interstate 95 to the west and Florida’s Turnpike to the east. St. Lucie West contains residential, commercial and industrial developments. Within the community, residents are close to recreational and entertainment facilities, houses of worship, retail businesses, medical facilities and schools. PGA of America owns and operates a golf course and a country club on an adjacent parcel. The community’s baseball stadium, Tradition Field^®, serves as the spring training headquarters for the New York Mets professional baseball team and a minor league affiliate. There are more than 6,000 homes in St. Lucie West housing nearly 15,000 residents.

Tradition, Florida, located approximately two miles south of St. Lucie West, includes approximately five miles of frontage on I-95, and encompasses more than 8,200 total acres (with approximately 5,800 saleable acres of which approximately 1,800 acres have been sold). Tradition, Florida is planned to include a corporate park, educational and health care facilities, commercial properties, residential homes and other uses in a series of mixed-use parcels. Community Development District special assessment bonds are being utilized to provide financing for certain infrastructure developments when applicable.

We acquired our newest master-planned community, Tradition, South Carolina, in 2005. It consists of approximately 5,400 total acres, including approximately 3,000 saleable acres of which 160 acres were sold in 2006. 150 of these acres were sold to the Homebuilding Division. This community is currently entitled for up to 9,500 residential units and 1.5 million square feet of commercial space, in addition to recreational areas, educational facilities and emergency services. Development commenced in the first quarter of 2006 and land sales commenced in South Carolina in the fourth quarter of 2006.

At December 31, 2006, our Land Division owned approximately 6,500 gross acres in Tradition, Florida including approximately 4,100 saleable acres. Through December 31, 2006, Core Communities had entered into contracts for the sale of a total of 1,794 acres in the first phase residential development at Tradition, Florida of which 1,757 acres had been delivered at December 31, 2006. Our backlog contains contracts for the sale of 37 acres, although there is no assurance that the consummation of those transactions will occur. Delivery of these acres is expected to be completed in 2007. At December 31, 2006, our Land Division additionally owned approximately 5,230 gross acres in Tradition, South Carolina including approximately 2,800 saleable acres. Through December 31, 2006, Core Communities had entered into a contract with Levitt and Sons for the sale of a total of 462 acres in the first phase residential development at Tradition, South Carolina of which 150 acres had been delivered at December 31, 2006. Our third party backlog in Tradition, South Carolina contains contracts for the sale of 37 acres.

Our Land Division’s land in development and relevant data as of December 31, 2006 were as follows:

Third
Non- party
Date Acres Closed Current Saleable Saleable Backlog Acres
Acquired Acquired Acres Inventory Acres (a) Acres (a) (b) Available
Currently in Development

Tradition, Florida 1998 – 2004 8,246 1,757 6,489 2,431 4,058 37 4,021
Tradition, South Carolina 2005 5,390 160 5,230 2,417 2,813 37 2,776

Total Currently in Development
13,636 1,917 11,719 4,848 6,871 74 6,797


(a)		Actual saleable and non-saleable acres may vary over time due to changes in zoning, project design, or other factors. Non-saleable acres include, but are not limited to, areas set aside for roads, parks, schools, utilities and other public purposes.

(b)		Acres under contract to Third Parties

Other Operations

Other operations consist of Levitt Commercial, our investment in Bluegreen Corporation, investments in joint ventures, other real estate interests, and holding company operations.

Levitt Commercial

Levitt Commercial was formed in 2001 to develop industrial, commercial, retail and residential properties. As of December 31, 2006 Levitt Commercial has one remaining flex warehouse project with a total of 17 units in the sales backlog which closed in the first quarter of 2007.

Investment in Bluegreen Corporation

We own approximately 9.5 million shares of the outstanding common stock of Bluegreen, which represents approximately 31% of that company’s issued and outstanding common stock. Bluegreen is a leading provider of vacation and residential lifestyle choices through its resorts and residential community businesses. Bluegreen is organized into two divisions: Bluegreen Resorts and Bluegreen Communities.

Bluegreen Resorts acquires, develops and markets vacation ownership interests (“VOIs”) in resorts generally located in popular high-volume, “drive-to” vacation destinations. Bluegreen Communities acquires, develops and subdivides property and markets residential land homesites, the majority of which are sold directly to retail customers who seek to build a home in a high quality residential setting, in some cases on properties featuring a golf course and related amenities

Bluegreen also generates significant interest income through its financing of individual purchasers of VOIs and, to a nominal extent, homesites sold by its Bluegreen Communities division.

Other Investments and Joint Ventures

In October 2004, we acquired an 80,000 square foot office building to serve as our home office in Fort Lauderdale, Florida for $16.2 million. The building was fully leased and occupied during the year ended December 31, 2005 and generated rental income. On November 9, 2005 the lease was modified and two floors of the building were vacated in January 2006. The Company moved its Homebuilding senior management and all Other Operations employees into this building in 2006, and it now serves as the Corporate Headquarters for Levitt Corporation and Levitt and Sons.

From time to time, we seek to mitigate the risk associated with certain real estate projects by entering into joint ventures. Our investments in joint ventures and the earnings recorded on these investments were not significant for the year ended December 31, 2006.

We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s indebtedness. Our liability under the indemnity agreement is limited to the amount of any distributions from the joint venture which exceeds our original capital and other contributions. Levitt Commercial owns a 20% partnership interest in Altman Longleaf, LLC, which owns a 20% interest in

this joint venture. This venture is developing a 298-unit apartment complex in Melbourne, Florida. An affiliate of our joint venture partner is the general contractor. Construction commenced on the development in 2004 and was completed in 2006. Our original capital contributions were approximately $585,000. In 2004, we received an additional distribution that totaled approximately $1.1 million. In January 2006, we received a distribution of approximately $138,000. Accordingly, our potential obligation of indemnity after the January 2006 distribution is approximately $664,000. Based on the joint venture assets that secure the indebtedness, we do not believe it is likely that any payment will be required under the indemnity agreement.

Information Technologies

We continue to seek to improve the efficiency of our field and corporate operations in an effort to plan appropriately for the construction of our homes under contract. In the fourth quarter of 2006, we implemented a fully integrated operating and financial system in order to have all operating entities, with the exception of the Tennessee operations, on one platform and to have all field personnel use a standardized construction scheduling system that aims to improve the management of cycle time, subcontractor relationships and efficiencies throughout the field operations. These systems are expected to enable information to be shared and utilized throughout our company and enable us to better manage, optimize and leverage our employees and management.

Seasonality

We have historically experienced volatility but not necessarily seasonality, in our results of operations from quarter-to-quarter due to the nature of the homebuilding business. We are focusing our efforts on our homebuilding sales and construction process with the overall objective of achieving more consistent levels of production. Our new financial systems improved our capabilities in construction scheduling and homebuilding operations which should assist us in managing and improving cycle times. However, due to the uncertainty in the homebuilding market, we expect to continue to experience high volatility in our starts and deliveries throughout 2007.

Competition

The real estate development and homebuilding industries are highly competitive and fragmented. Overbuilding and excess supply conditions could, among other competitive factors, materially adversely affect homebuilders in the affected market and our ability to sell homes. Further, if our competitors lower prices or offer incentives, we may be required to do so as well to maintain sales and in such case our margins and profitability would be impacted. We have begun to offer sales incentives to attract buyers which include price reductions, option discounts, closing costs reduction programs and mortgage fee incentives and these programs will adversely affect our margins. Homebuilders compete for financing, raw materials and skilled labor, as well as for the sale of homes. We also compete with third parties in our efforts to sell land to homebuilders. We compete with other local, regional and national real estate companies and homebuilders, often within larger subdivisions designed, planned and developed by such competitors. Some of our competitors have greater financial, marketing, sales and other resources than we do.

In addition, there are relatively low barriers to entry into our business. There are no required technologies that would preclude or inhibit competitors from entering our markets. Our competitors may independently develop land and construct products that are superior or substantially similar to our products. A substantial portion of our operations are in Florida, where some of the most attractive markets in the nation have historically been located, and therefore we expect to continue to face additional competition from new entrants into our markets.

Employees

As of December 31, 2006, we employed a total of 666 full-time employees and 32 part-time employees. The breakdown of employees by segment was as follows:

Full Part
Time Time
Homebuilding 544 25
Land 59 7
Other Operations 63 —

Total 666 32

Our employees are not represented by any collective bargaining agreements and we have never experienced a work stoppage. We believe our employee relations are satisfactory.

Additional Information

Our Internet website address is www.levittcorporation.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through our website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our Internet website and the information contained in or connected to our website are not incorporated into this Annual Report on Form 10-K.

Our website also includes printable versions of our Corporate Governance Guidelines, our code of Business Conduct and Ethics and the charters for each of our Audit, Compensation and Nominating Committees of our Board of Directors.”

ITEM 1A. RISK FACTORS

We depend on dividends from BankAtlantic Bancorp for a significant portion of our cash flow. Regulatory restrictions and the terms of indebtedness limit the ability for BankAtlantic Bancorp to pay dividends.

At December 31, 2006, we held approximately 21.6% of the outstanding common stock of BankAtlantic Bancorp. Dividends by BankAtlantic Bancorp are subject to a number of conditions, including the cash flow and profitability of BankAtlantic Bancorp, declaration dividends by BankAtlantic Bancorp’s Board of Directors, compliance with the terms of outstanding indebtedness, and regulatory restrictions applicable to BankAtlantic.

BankAtlantic Bancorp is a separate publicly traded company whose Board of Directors include a majority of independent directors as required by the listing standards of the New York Stock Exchange. Decisions made by the Board are not within our control and may not be made in our best interests.

BankAtlantic Bancorp is a holding company and it depends upon dividends from BankAtlantic for a significant portion of its cash flow. BankAtlantic Bancorp uses dividends from BankAtlantic to service its debt obligations and to pay dividends on its capital stock. BankAtlantic Bancorp’s ability to service its debt and pay dividends is further subject to restrictions under its indentures and loan covenants. BankAtlantic’s ability to pay dividends or make other capital distributions to BankAtlantic Bancorp is subject to the regulatory authority of the OTS and the FDIC. BankAtlantic’s ability to make capital distributions is subject to regulatory limitations. Generally, BankAtlantic may make a capital distribution without prior OTS approval in an amount equal to BankAtlantic’s net income for the current calendar year to date, plus retained net income for the previous two years, provided that BankAtlantic does not become under-capitalized as a result of the distribution. BankAtlantic’s ability to make such distributions depends on maintaining eligibility for “expedited treatment.” BankAtlantic currently qualifies for expedited treatment, but there can be no assurance that it will maintain its current status.

Additionally, although no prior OTS approval may be necessary, BankAtlantic is required to give the OTS thirty (30) days notice before making any capital distribution to BankAtlantic Bancorp. The OTS may object to any capital distribution if it believes the distribution will be unsafe and unsound. Additional capital distributions above the limit for an expedited treatment institution are possible but require the prior approval of the OTS. The OTS is not likely to approve any distribution that would cause BankAtlantic to fail to meet its capital requirements on a pro forma basis after giving effect to the proposed distribution. The FDIC has backup authority to take enforcement action if it believes that a capital distribution by BankAtlantic constitutes an unsafe or unsound action or practice, even if the OTS has cleared the distribution.

At December 31, 2006, BankAtlantic Bancorp had approximately $263.3 million of indebtedness outstanding at the holding company level with maturities in 2032 and 2033. The aggregate annual interest expense on this indebtedness is approximately $21.1 million. During 2006, BankAtlantic Bancorp received $20 million of dividends from BankAtlantic. BankAtlantic Bancorp’s financial condition and results would be adversely affected if the amounts needed to satisfy its debt obligations, including any additional indebtedness incurred in the future, exceeded the amount of dividends it receives from its subsidiaries.

During 2006, we received $2.1 million in dividends from BankAtlantic Bancorp.

We also depend on dividends from Levitt for a portion of our cash flow. Regulatory restrictions and the terms of indebtedness limit the ability for Levitt to pay dividends.

We also depend on dividends from Levitt for a portion of our cash flow. Levitt commenced paying a quarterly dividend in August 2004. Future dividends are subject to Levitt’s results and dividends from its subsidiaries and declaration by Levitt’s Board of Directors. Levitt may also be limited contractually from paying dividends by the terms of its outstanding indebtedness. Levitt’s subsidiaries currently have outstanding indebtedness, and may in the future incur additional indebtedness, the terms of which limit the payment of dividends by the subsidiaries to Levitt.

During 2006, we received $264,000 in dividends from Levitt.

We have in the past incurred operating cash flow deficits that we expect will continue in the future.

BFC itself has no revenue generating operating activities and is a holding company engaged in making investments in operating businesses. Accordingly, we have in the past incurred operating cash flow deficits at the BFC parent company level and expect to continue to do so in the foreseeable future. We incurred operating cash flow deficits of $3.0 million during the year ended December 31, 2006. We have financed these operating cash flow deficits with the proceeds of equity or debt financings. At December 31, 2006, BFC’s cash and cash equivalents balance was approximately $17.8 million. Since our acquisition strategy involves primarily long-term investments in growth oriented businesses, the investments made are not likely to generate cash flow to BFC in the near term. As a result, if cash flow from our subsidiaries is not sufficient to fund parent company operating expenses in the future, we may be forced to reduce operating expenses, to liquidate some of our investments or to seek to fund the expenses from the proceeds of additional equity or debt financing. There is no assurance that any such financing would be available on commercially reasonable terms, if at all, or that we would not be forced to liquidate our investments at depressed prices.

Events in Florida, where our investments are currently concentrated, could adversely impact our results and future growth.

BankAtlantic’s business, the location of its branches and the real estate collateralizing its commercial real estate loans are concentrated in Florida. Further, Levitt develops and sells its properties primarily in Florida. Further, the State of Florida is subject to the risks of natural disasters such as tropical storms and hurricanes. The occurrence of an economic downturn in Florida, adverse changes in laws or regulations in Florida or natural disasters could impact the credit quality of BankAtlantic’s assets, the desirability of Levitt’s properties, the financial wherewithal of Levitt’s and BankAtlantic’s customers and the overall success of Levitt and BankAtlantic.

Our future acquisitions may reduce our earnings, require us to obtain additional financing and expose us to additional risks.

Our business strategy includes investing in and acquiring diverse operating companies and some of these investments and acquisitions may be material. While we will seek investments and acquisitions primarily in companies that provide opportunities for growth with seasoned and experienced management teams, we may not be successful in identifying these opportunities. Further, investments or acquisitions that we do complete may not prove to be successful. Acquisitions may expose us to additional risks and may have a material adverse effect on our results of operations. Any acquisitions we make may:

	•		fail to accomplish our strategic objectives;

	•		not perform as expected; and/or

	•		expose us to the risks of the business that we acquire.

In addition, we will likely face competition in making investments or acquisitions which could increase the costs associated with the investment or acquisition. Our investments or acquisitions could initially reduce our per share earnings and add significant amortization expense or intangible asset charges. Since our acquisition strategy involves holding investments for the foreseeable future and because we do not expect to generate significant excess cash flow from operations, we may rely on additional debt or equity financing to implement our acquisition strategy. The issuance of debt will result in additional leverage which could limit our operating flexibility, and the issuance of equity could result in additional dilution to our then-current shareholders. In addition, such financing could consist of equity securities which have rights, preferences or privileges senior to our Class A Common Stock. If we do require additional financing in the future, we cannot assure the reader that it will be available on favorable terms, if at all. If we fail to obtain the required financing, we would be required to curtail or delay our acquisition plans or to liquidate certain of our assets. Additionally, we do not intend to seek shareholder approval of any investments or acquisitions unless required by law or regulation.

Our activities and our subsidiaries’ activities are subject to a wide range of bank regulatory requirements that could have a material adverse effect on our business.

The Company and BankAtlantic Bancorp are each grandfathered unitary savings and loan holding companies and have broad authority to engage in various types of business activities. The OTS can stop either of us from engaging in activities or limit those activities if it determines that there is reasonable cause to believe that the continuation of any particular activity constitutes a serious risk to the financial safety, soundness, or stability of BankAtlantic. The OTS may also:

	•		limit the payment of dividends by BankAtlantic to BankAtlantic Bancorp;

	•		limit transactions between us, BankAtlantic, BankAtlantic Bancorp and the subsidiaries or affiliates of either;

	•		limit the activities of BankAtlantic, BankAtlantic Bancorp or us; or

	•		impose capital requirements on us or BankAtlantic Bancorp.

Unlike bank holding companies, as a unitary savings and loan holding company, we and BankAtlantic Bancorp are not subject to capital requirements. However, the OTS has indicated that it may in the future impose capital requirements on savings and loan holding companies. The OTS may in the future adopt regulations that would affect our operations or those of BankAtlantic Bancorp, including our and BankAtlantic Bancorp’s ability to pay dividends or to engage in certain transactions or activities.

We have many competitors who may have greater financial resources or operate under fewer regulatory constraints.

BFC will face competition in identifying and completing investments, including from strategic buyers, business development companies, private equity funds and other financial sponsors. Many of these competitors have substantially greater financial resources than us. This competition may make acquisitions more costly and may make it more difficult for us to identify attractive investments and successfully complete any desired transaction.

Our success depends on key management, the loss of which could disrupt our business operations.

Our future success depends largely upon the continued efforts and abilities of key management employees, including Alan B. Levan, our Chairman and Chief Executive Officer, John E. Abdo, our Vice Chairman and Phil Bakes, our Managing Director and Executive Vice President. The loss of the services of one or more of our key employees or our failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and results of operations. Glen R. Gilbert, who has been a key management member for many years as Executive Vice President and Chief Financial Officer of the Company, has announced his planned retirement later this year. It is anticipated that Mr. George P. Scanlon, presently Chief Financial Officer of Levitt, will replace Mr. Gilbert as Chief Financial Officer.

Certain members of our Board of Directors and certain of our executive officers are also directors and executive officers of our affiliates.

Alan B. Levan, our Chairman and Chief Executive Officer, and John E. Abdo, our Vice Chairman, are also members of the Board of Directors and/or executive officers of BankAtlantic Bancorp, BankAtlantic, Levitt Corporation and Bluegreen Corporation. Neither Mr. Levan nor Mr. Abdo is obligated to allocate a specific amount of time to the management of the Company, and they may devote more time and attention to the operations of our affiliates than they devote directly to our operations. Additionally, D. Keith Cobb, a member of our Board of Directors is a member of the Board of Directors of BankAtlantic Bancorp and BankAtlantic.

Recent changes in accounting standards regarding the treatment of stock options could harm our ability to attract and retain employees and negatively impacts our results of operations.

In 2006, the Company’s net impact of adopting Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-Based Payment” (“SFAS 123R”) on the amount recognized in non-cash compensation expense was approximately $7.8 million and approximately $1.2 million, net of noncontrolling interests and income taxes, in the Company’s consolidated statement of operations for the year ended December 31, 2006. If the Company had been required to expense stock option grants during 2005 by applying the measurement provisions of SFAS 123R our recorded net income available to common shareholders for the year ended December 31, 2005 of approximately $12.0 million would have been reduced to approximately $10.9 million. Stock options have historically been an important employee recruitment and retention tool, and BFC, BankAtlantic Bancorp and Levitt’s ability to attract and retain key personnel may be impacted if the scope of employee stock option programs is significantly reduced. In any event, if we continue to grant stock options, our future results of operations will be negatively impacted due to SFAS 123R.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. This Act requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments. While

management was able to certify in connection with the Company’s audited financial statements for the year ended December 31, 2006 that our internal controls over financial reporting were effective and the Company’s auditors issued their attestation of such report, we cannot assure the reader that we will maintain the adequacy of our internal controls. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Absolute assurance also cannot be provided that testing will reveal all material weaknesses or significant deficiencies in internal control over financial reporting. In addition, since BankAtlantic Bancorp and Levitt are entities consolidated in our financial statements, our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act will be dependent, in part, on the ability of each of BankAtlantic Bancorp and Levitt to satisfy those requirements. Further, we may acquire privately-held businesses that are not then subject to the same stringent requirements for internal controls as public companies. While we intend to address any material weaknesses at acquired consolidated companies, there is no assurance that this will be accomplished. If we fail to strengthen the effectiveness of acquired companies’ internal controls, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our stock price.

Risks Associated with Our Investment in Benihana, Inc. and the Restaurant Industry

We have an investment in preferred shares of Benihana which are convertible to common stock. As such, the value of our investment will be influenced by the market performance of Benihana’s stock. Some of the risk factors common to the restaurant industry which might affect the performance of Benihana are as follows:

	•		Changes in consumer preferences and discretionary spending;

	•		Ability to compete with many food service businesses;

	•		The availability and quality of ingredients and changes in food and supply costs could adversely affect results of operations;

	•		Food service industry is affected by litigation and publicity concerning food quality, health and other issues, which could cause customers to avoid a particular restaurant, result in significant liabilities or litigation costs or damage reputation or brand recognition;

	•		Health concerns relating to the consumption of food products could affect consumer preferences and could negatively impact results of operation;

	•		Increased labor costs or labor shortages could adversely affect results of operations;

	•		The ability to obtain and maintain licenses and permits necessary to operate restaurants and compliance with laws could adversely affect operating results;

	•		Seasonal fluctuations in business could adversely impact stock price;

	•		Need for additional capital in the future which might not be available; and

	•		The loss of key management personnel.

Issuance of Additional Securities In The Future.

There is generally no restriction on our ability to issue debt or equity securities which are pari passu or have a preference over our Class A Common Stock. Likewise, there is also no restriction on the ability of BankAtlantic Bancorp to issue additional capital stock or incur additional indebtedness. Authorized but unissued shares of our capital stock are available for issuance from time to time in the discretion of our Board of Directors, including issuances in connection with acquisitions. Any such issuances may be dilutive to our earnings per share or to our shareholders’ ownership position.

On January 30, 2007, BFC entered into a Merger Agreement with Levitt, as described above in Item 1. Business, which would result in the issuance of approximately 38 million shares of BFC Class A Common Stock.

Our portfolio of equity securities subjects us to equity pricing risks

31, 2006, the aggregate market value of such shares would have been $33.3 million. See “Quantitative and Qualitative Disclosures About Market Risk.”

Our control position may adversely affect the market price of BankAtlantic Bancorp’s and Levitt’s Class A Common Stock.

As of December 31, 2006, we owned all of BankAtlantic Bancorp’s issued and outstanding Class B Common Stock and 8,329,236 shares, or approximately 14.8%, of BankAtlantic Bancorp’s issued and outstanding Class A Common Stock and we owned all of Levitt’s issued and outstanding Class B Common Stock and 2,074,243 shares, or approximately 11.2%, of Levitt’s issued and outstanding Class A Common Stock. Our share holdings in BankAtlantic Bancorp represent approximately 54.9% of its total voting power, and our share holdings in Levitt represent approximately 52.9% of its total voting power. Since the Class A Common Stock and Class B Common Stock of each of BankAtlantic Bancorp and Levitt vote as a single group on most matters, we are in a position to control BankAtlantic Bancorp and Levitt and elect BankAtlantic Bancorp’s and Levitt’s Boards of Directors. As a consequence, we have the voting power to significantly influence the outcome of any shareholder vote of BankAtlantic Bancorp and Levitt, except in those limited circumstances where Florida law mandates that the holders of our Class A Common Stock vote as a separate class. Our control position may have an adverse effect on the market prices of BankAtlantic Bancorp’s and Levitt’s Class A Common Stock.

Alan B. Levan And John E. Abdo’s Control Position May Adversely Affect The Market Price Of Our Common Stock.

Alan B. Levan, our Chairman of the Board of Directors and Chief Executive Officer, and John E. Abdo, our Vice Chairman of the Board of Directors, may be deemed to have beneficially owned at December 31, 2006 approximately 44.4% of our Class A Common Stock and 86.4% of our Class B Common Stock. These shares represented approximately 52.7% of our total common stock and 77.1% of our total voting power at December 31, 2006. Since our Class A Common Stock and Class B Common Stock vote as a single class on most matters, Alan B. Levan and John E. Abdo effectively have the voting power to control the outcome of any shareholder vote and elect the members of our Board of Directors. Alan B. Levan and John E. Abdo’s control position may have an adverse effect on the market price of our common stock.

The terms of our articles of incorporation, which establish fixed relative voting percentages between our Class A Common Stock and Class B Common Stock, may not be well accepted by the market.

Our Class A Common Stock and Class B Common Stock generally vote together as a single class. The Class A Common Stock possesses in the aggregate 22% of the total voting power of all our common stock and the Class B Common Stock possess in the aggregate the remaining 78% of the total voting power. These relative voting percentages will remain fixed unless the number of shares of Class B Common Stock outstanding decreases to 1,800,000 shares, at which time the Class A Common Stock aggregate voting power will change to 40% and the Class B Common Stock will have the remaining 60%. If the number of shares of Class B Common Stock outstanding decreases to 1,400,000 shares, the Class A Common Stock aggregate voting power will change to a fixed 53% and the Class B Common Stock will have the remaining 47%. These relative voting percentages will remain fixed unless the number of shares of Class B Common Stock outstanding decreases to 500,000 shares, at which time the fixed voting percentages will be eliminated. These changes in the relative voting power represented by each class of our common stock are based only on the number of shares of Class B Common Stock outstanding, thus issuances of Class A Common Stock including issuance of shares in connection with the proposed merger with Levitt, will have no effect on these provisions. Additional shares of Class A Common Stock are issued, it is likely that the disparity between the equity interest represented by the Class B Common Stock and its voting power will widen. While the amendment creating this capital structure was approved by our shareholders, the fixed voting percentage provisions are somewhat unique. If the market does not sufficiently accept this structure, the trading price and market for our Class A Common Stock would be adversely affected.

Financial Services Segment Risk Factors

Our Financial Services segment consists of BankAtlantic Bancorp, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation from BankAtlantic Bancorp are dividends when and if declared and paid by BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management prepared the following Item 1A. Risk Factors regarding BankAtlantic Bancorp which was included in BankAtlantic Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us” , “our” or “Parent Company” in the following discussion under the caption “Financial Services” are references to BankAtlantic Bancorp and its subsidiaries, and are not references to BFC Financial Corporation.

“BankAtlantic

Changes in interest rates could adversely affect our net interest income and profitability.

The majority of BankAtlantic’s assets and liabilities are monetary in nature. As a result, the earnings and growth of BankAtlantic are significantly affected by interest rates, which are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve Board. The nature and timing of any changes in such policies or general economic conditions and their effect on BankAtlantic cannot be controlled and are extremely difficult to predict. Changes in interest rates can impact BankAtlantic’s net interest income as well as the valuation of its assets and liabilities.

Banking is an industry that depends to a large extent on its net interest income. Net interest income is the difference between:

	•		interest income on interest-earning assets, such as loans; and

	•		interest expense on interest-bearing liabilities, such as deposits.

Changes in interest rates can have differing effects on BankAtlantic’s net interest income and the cost of purchasing residential mortgage loans in the secondary market. In particular, changes in market interest rates, changes in the relationships between short-term and long-term market interest rates, or the yield curve, or changes in the relationships between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income and therefore reduce BankAtlantic’s net interest income. While BankAtlantic has attempted to structure its asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates, we cannot provide assurances that BankAtlantic will be successful in doing so.

Loan prepayment decisions are also affected by interest rates. Loan prepayments generally accelerate as interest rates fall. Prepayments in a declining interest rate environment reduce BankAtlantic’s net interest income and adversely affect its earnings because:

	•		it amortizes premiums on acquired loans, and if loans are prepaid, the unamortized premium will be charged off; and

	•		the yields it earns on the investment of funds that it receives from prepaid loans are generally less than the yields that it earned on the prepaid loans.

Significant loan prepayments in BankAtlantic’s mortgage portfolio in the future could have an adverse effect on BankAtlantic’s earnings. Additionally, increased prepayments associated with purchased residential loans may result in increased amortization of premiums on acquired loans, which would reduce BankAtlantic’s interest income.

In a rising interest rate environment loan prepayments generally decline resulting in loan yields that are less than the current market yields. In addition, the credit risks of loans with adjustable rate mortgages may worsen as interest rates rise and debt service obligations increase.

BankAtlantic has developed a computer model using standard industry software to quantify its interest rate risk, referred to as an “ALCO model” in support of its Asset/Liability Committee. This model measures the potential impact of

gradual and abrupt changes in interest rates on BankAtlantic’s net interest income. While management would attempt to respond to the projected impact on net interest income, there is no assurance that management’s efforts will be successful.

The current level of short term interest rates is approximately equal to longer term rates. This is referred to as a “flat yield curve.” This situation has existed for some time extending back to 2005. BankAtlantic’s net interest income is largely derived from a combination of two factors: the level of core deposits, such as demand savings and NOW deposits, and the ability of banks to raise short term deposits and other borrowings and invest them at longer maturities. The current flat yield curve has significantly impacted the ability of BankAtlantic to profitably raise short term funds for longer term investment as the interest rate spread between short term and long term maturities is negligible. The future pattern of interest rates, including the relationship between short term and long term rates, will determine our ability to improve net interest income.

BankAtlantic’s “Florida’s Most Convenient Bank” initiative has resulted in higher operating expenses, which has had an adverse impact on our earnings.

BankAtlantic’s “Florida’s Most Convenient Bank” initiative and its associated expanded operations have required it to provide additional management resources, hire additional personnel, increase compensation, occupancy and marketing expenditures and take steps to enhance and expand its operational and management information systems. Employee compensation, occupancy and advertising expenses have significantly increased since the inception, during 2002, of the initiative from $78.9 million during 2001 to $182.0 million during 2005 and $238.0 million during 2006. Additionally, BankAtlantic has renovated the interior of most of its existing stores and has committed to a program to expand its store network. During the two years ended December 31, 2006, BankAtlantic opened 17 new stores and anticipates accelerating the pace of store openings in future periods.

As a result of these growth initiatives, BankAtlantic has incurred and will continue to incur increased operating expenses, which occur in advance of any anticipated benefit resulting from these expenses. In the event that the “Florida’s Most Convenient Bank” initiative does not produce the results anticipated, BankAtlantic’s increased operating expenses will not be adequately offset by the benefits of the initiative and our earnings will continue to be adversely impacted. Additionally, if our growth initiatives do not produce results which justify these increases in operating expenses, we may be forced to reduce expenses which could result in additional charges and costs.

Further, while management is currently undertaking a review of all non-interest expenses, including marketing expenses which increased significantly in 2006 with a view of reducing expenses not directly associated with new stores or customer service. There is no assurance that BankAtlantic will be successful in its efforts to reduce expenses.

BankAtlantic’s loan portfolio is concentrated in real estate lending.

The national real estate market is showing signs of a slow down, particularly in areas that have seen significant growth, including Florida and California. Our loan portfolio is concentrated in commercial real estate loans (virtually all of which are located in Florida), residential mortgages (nationwide), and consumer home-equity loans (Florida). We have exposure to credit losses that may arise from this concentration in what many believe is a softening real estate sector. Included in the commercial real estate loans are approximately $389 million of land development loans, which are susceptible to extended maturities or borrower default due to a slow-down in Florida construction activity, and $95.1 million of development loans for low and mid-rise condominium projects in Florida, where there is an increasing supply of new construction in the face of falling demand.

BankAtlantic obtains a significant portion of its non-interest income through service charges on core deposit accounts.

BankAtlantic’s core deposit account growth has generated a substantial amount of service charge income. The largest component of this service charge income is overdraft fees. Changes in customer behavior as well as increased competition from other financial institutions could result in declines in core deposit accounts or in overdraft frequency resulting in a decline in service charge income. Additionally, any future changes in banking regulations may impact this revenue source. Any of such changes could have a material adverse effect on BankAtlantic’s results.

BankAtlantic’s loan portfolio subjects it to high levels of credit risk.

BankAtlantic is exposed to the risk that its borrowers or counter-parties may default on their obligations. Credit risk arises through the extension of loans, certain securities, letters of credit, financial guarantees and through counter-party exposure on trading and wholesale loan transactions. In an attempt to manage this risk, BankAtlantic establishes policies and procedures to manage both on and off-balance sheet (primarily loan commitments) credit risk.

BankAtlantic attempts to manage credit exposure to individual borrowers and counter-parties on an aggregate basis including loans, securities, letters of credit, derivatives and unfunded commitments. Credit personnel analyze the creditworthiness of individual borrowers or counter-parties, and limits are established for the total credit exposure to any one borrower or counter-party. Credit limits are subject to varying levels of approval by senior line and credit risk managers. BankAtlantic also enters into participation agreements with other lenders to limit its credit risk.

The majority of BankAtlantic’s loan portfolio consists of loans secured by real estate. BankAtlantic’s loan portfolio included $2.2 billion of loans secured by residential real estate and $1.4 billion of commercial real estate, construction and development loans at December 31, 2006. At December 31, 2006, BankAtlantic’s commercial real estate, construction and development loans, which are concentrated mainly in Florida, represented approximately 37.6% of its loan portfolio. The real estate market in Florida is currently exhibiting signs of weakness. If real estate values in Florida were to decline, the credit quality of BankAtlantic’s loan portfolio and its earnings could be adversely impacted. Real estate values are affected by various factors, including changes in general and/or regional economic conditions, governmental rules and policies and natural disasters such as hurricanes.

BankAtlantic’s commercial real estate loan portfolio includes large lending relationships, including relationships with unaffiliated borrowers involving lending commitments in each case in excess of $30 million. These relationships represented an aggregate outstanding balance of $532 million as of December 31, 2006. Defaults by any of these borrowers could have a material adverse effect on BankAtlantic’s results.

BankAtlantic’s interest-only residential loans exposes it to greater credit risks.

Approximately 50% of our residential loan portfolio consists of interest-only loans. These loans have reduced initial loan payments with the potential for significant increases in monthly loan payments in subsequent periods, even if interest rates do not rise, as required amortization of the principal amount commence. Monthly loan payments will also increase as interest rates increase. This presents a potential repayment risk if the borrower is unable to meet the higher debt service obligations or refinance the loan. It is anticipated that it will be difficult for borrowers to refinance residential loans in markets where real estate values have declined.

An inadequate allowance for loan losses would result in reduced earnings.

As a lender, BankAtlantic is exposed to the risk that its customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to assure full repayment. BankAtlantic evaluates the collectibility of its loan portfolio and provides an allowance for loan losses that it believes is adequate based upon such factors as:

	•		the risk characteristics of various classifications of loans;

	•		previous loan loss experience;

	•		specific loans that have loss potential;

	•		delinquency trends;

	•		estimated fair value of the collateral;

	•		current economic conditions;

	•		the views of its regulators; and

	•		geographic and industry loan concentrations.

If BankAtlantic’s evaluation is incorrect and borrower defaults cause losses exceeding the portion of the allowance for loan losses allocated to those loans, our earnings could be significantly and adversely affected. BankAtlantic may experience losses in its loan portfolios or perceive adverse trends that require it to significantly increase its allowance for loan losses in the future, which would reduce future earnings. In addition, BankAtlantic’s regulators may require it to increase or decrease its allowance for loan losses even if BankAtlantic thinks such change is unjustified.

Adverse events in Florida, where our business is currently concentrated, could adversely impact our results and future growth.

BankAtlantic’s business, the location of its stores and the real estate collateralizing its commercial real estate loans are primarily concentrated in Florida. As a result, we are exposed to geographic risks, and any economic downturn in Florida or adverse changes in laws and regulations in Florida would have a negative impact on our revenues and business. Further, the State of Florida is subject to the risks of natural disasters such as tropical storms and hurricanes. The occurrence of an economic downturn in Florida, adverse changes in laws or regulations in Florida or natural disasters could impact the credit quality of BankAtlantic’s assets, growth, the level of deposits our customers maintain with BankAtlantic, the success of BankAtlantic’s customers’ business activities, and the ability of BankAtlantic to expand its business.

Regulatory Compliance.

The banking industry is an industry subject to multiple layers of regulation. A risk of doing business in the banking industry is that a failure to comply with any of these regulations can result in substantial penalties, significant restrictions on business activities and growth plans and/or limitations on dividend payments, depending upon the type of violation and various other factors. As a holding company, BankAtlantic Bancorp is also subject to significant regulation. For a description of the primary regulations applicable to BankAtlantic and BankAtlantic Bancorp see “Regulations and Supervision”.

BankAtlantic has entered into a deferred prosecution agreement with the Department of Justice and a Cease and Desist Order with the OTS regarding its compliance with the USA PATRIOT Act, anti-money laundering laws and the Bank Secrecy Act.

In April 2006, BankAtlantic entered into a deferred prosecution agreement with the U.S. Department of Justice relating to past deficiencies in BankAtlantic’s compliance with the Bank Secrecy Act and anti-money laundering laws. Under the Department of Justice agreement, BankAtlantic agreed to the filing of one-count information charging it with failing to establish an adequate anti-money laundering compliance program in accordance with the Bank Secrecy Act. BankAtlantic simultaneously entered into a cease and desist order with the Office of Thrift Supervision (OTS) and a consent agreement with the Financial Crimes Enforcement Network (FinCEN) relating to deficiencies in its compliance with the Bank Secrecy Act. The Department of Justice has agreed to take no further action against BankAtlantic in connection with this matter, the court will dismiss the information, and the deferred prosecution agreement will expire if BankAtlantic complies with the obligations under the deferred prosecution agreement for a period of twelve months. While BankAtlantic believes that it has appropriate policies and procedures in place to maintain full compliance with the terms of the Department of Justice agreement and the OTS order, compliance with the Bank Secrecy Act is inherently difficult and there is no assurance that BankAtlantic will remain in full compliance with the Bank Secrecy Act or the terms of the Department of Justice agreement or the OTS order. If the federal agencies deem BankAtlantic not in compliance with its obligations under the deferred prosecution agreement or the cease and desist order BankAtlantic may not be able to obtain regulatory approvals necessary to proceed with certain aspects of its business plan, including its store expansion and other acquisition plans, and its ability to pay dividends, could be adversely affected by a cease and desist order or any other actions taken by regulators or other federal agencies.

Parent Company

We are controlled by BFC Financial Corporation and its control position may adversely affect the market price of our Class A common stock.

As of December 31, 2006, BFC Financial Corporation (“BFC”) owned all of the Company’s issued and outstanding Class B common stock and 8,329,236 shares, or approximately 15%, of the Company’s issued and outstanding Class A common stock. BFC’s holdings represent approximately 55% of the Company’s total voting power. Class A common stock and Class B common stock vote as a single group on most matters. BFC is in a position to control the Company and elect the Company’s Board of Directors. As a consequence, BFC has the voting power to significantly influence the outcome of any shareholder vote, except in those limited circumstances where Florida law mandates that the holders of our Class A common stock vote as a separate class. BFC’s control position may have an adverse effect on the market price of the Company’s Class A common stock.

BankAtlantic Bancorp’s ability to service its debt and pay dividends depends on dividends from BankAtlantic, which are subject to regulatory limits.

BankAtlantic’s ability to pay dividends or make other capital distributions to BankAtlantic Bancorp is subject to the regulatory authority of the OTS and the FDIC.

BankAtlantic’s ability to make capital distributions is subject to regulatory limitations. Generally, BankAtlantic may make a capital distribution without prior OTS approval in an amount equal to BankAtlantic’s net income for the current calendar year to date, plus retained net income for the previous two years, provided that BankAtlantic does not become under-capitalized as a result of the distribution. BankAtlantic’s ability to make such distributions depends on maintaining eligibility for “expedited treatment.” BankAtlantic currently qualifies for expedited treatment, but there can be no assurance that it will maintain its current status.

At December 31, 2006, BankAtlantic had approximately $263.3 million of indebtedness outstanding at the holding company level with maturities in 2032 and 2033. The aggregate annual interest expense on this indebtedness is approximately $21.1 million. During 2006, BankAtlantic Bancorp received $20 million of dividends from BankAtlantic. BankAtlantic Bancorp’s financial condition and results would be adversely affected if the amounts needed to satisfy its debt obligations, including any additional indebtedness incurred in the future, exceeded the amount of dividends it receives from its subsidiaries.

Our activities and our subsidiary’s activities are subject to regulatory requirements that could have a material adverse effect on our business.

The Company is a “grandfathered” unitary savings and loan holding company and has broad authority to engage in various types of business activities. The OTS can prevent us from engaging in activities or limit those activities if it determines that there is reasonable cause to believe that the continuation of any particular activity constitutes a serious risk to the financial safety, soundness, or stability of BankAtlantic. The OTS may also:

	•		Limit the payment of dividends by BankAtlantic to us;

	•		Limit transactions between us, BankAtlantic and the subsidiaries or affiliates of either;

	•		Limit our activities and the activities of BankAtlantic; or

	•		impose capital requirements on us.

Unlike bank holding companies, as a unitary savings and loan holding company we are not subject to capital requirements. However, the OTS has indicated that it may in the future impose capital requirements on savings and loan holding companies. The OTS may in the future adopt regulations that would affect our operations including our ability to pay dividends or to engage in certain transactions or activities. See “Regulation and Supervision – Holding Company.”

Our portfolio of equity securities subjects us to equity pricing risks.

We maintain a portfolio of publicly traded and privately held equity securities that subject us to equity pricing risks arising in connection with changes in the relative values due to changing market and economic conditions. Volatility or a decline in the financial markets can negatively impact our net income as a result of devaluation of these investments. At December 31, 2006 we had equity securities with a book value of approximately $82 million. See “Quantitative and Qualitative Disclosures About Market Risk.” Additionally, in connection with the merger of Ryan Beck with Stifel in February 2007, we received approximately 2,375,000 shares of Stifel common stock, cash consideration of $1.9 million and we anticipate receiving warrants to acquire approximately 480,000 shares of Stifel common stock upon Stifel shareholder approval. Stifel had approximately 12,400,000 shares of common stock outstanding at the acquisition date, excluding the shares of common stock issued to us at the closing of the Ryan Beck acquisition. In addition to limitations imposed by federal securities laws, we are subject to contractual restrictions which limit the number of Stifel shares that we are permitted to sell during the 18 month period following the merger. Even after these restrictions lapse, the trading market for Stifel shares may not be liquid enough to permit us to sell Stifel common stock that we own without significantly reducing the market price of these shares, if we are able to sell them at all.

The repayment of our subordinated debentures is dependent on the ability of our subsidiaries to pay dividends to us.”

Homebuilding & Real Estate Development
Segment Risk Factors

Our Homebuilding & Real Estate Development segment consists of Levitt Corporation, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation are dividends when and if declared and paid by Levitt. Levitt is a separate public company and its management prepared the following Item 1A. Risk Factors regarding Levitt which was included in Levitt’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us”, “our” or “Parent Company” in the following discussion under the caption “Homebuilding & Real Estate Development” are references to Levitt and its subsidiaries, and are not references to BFC Financial Corporation.

“RISKS RELATING TO OUR BUSINESS AND THE REAL ESTATE BUSINESS GENERALLY

We engage in real estate activities which are speculative and involve a high degree of risk

The real estate industry is highly cyclical by nature, the current market is experiencing a significant decline and future market conditions are uncertain. Factors which adversely affect the real estate and homebuilding industries, many of which are beyond our control, include:

	•		overbuilding or decreases in demand;

	•		inventory build-up due to buyers contract cancellations;

	•		the availability and cost of financing;

	•		unfavorable interest rates and increases in inflation;

	•		changes in the general availability of land and competition for available land;

	•		construction defects and warranty claims arising in the ordinary course of business or otherwise, including mold related property damage and bodily injury claims and homeowner and homeowners’ association lawsuits;

	•		changes in national, regional and local economic conditions;

	•		cost overruns, inclement weather, and labor and material shortages;

	•		the impact of present or future environmental legislation, zoning laws and other regulations;

	•		availability, delays and costs associated with obtaining permits, approvals or licenses necessary to develop property, and

	•		increase in real estate taxes, insurance and other local government fees.

We have experienced a decline in our homebuilding operations over the past year which has adversely affected our sales volume and pricing.

In 2006, the homebuilding industry in our markets experienced a significant decline in demand for new homes. The trends in the homebuilding industry continue to be unfavorable. Demand has slowed as evidenced by fewer new orders and lower conversion rates in the markets in which we operate. These conditions have been particularly difficult in Florida, which is the market in which we have the strongest presence. Spec inventories have increased as a result of higher cancellation rates on pending contracts as new homeowners sometimes find it more advantageous to forfeit a deposit than to close on the purchase of the home. The combination of the lower demand and higher inventories affects both the number of homes we can sell and the prices at which we can sell them. We cannot predict how long demand and other factors in the homebuilding market will remain unfavorable, how active the market will be during the coming periods and if sales volume and pricing will return to past levels or levels that will enable us to operate more profitably.

Our industry is highly competitive

The homebuilding industry is highly competitive. We compete in each of our markets with numerous national, regional and local homebuilders. This competition with other homebuilders could reduce the number of homes we deliver or cause us to accept reduced margins in order to maintain sales volume.

We also compete with the resale of existing homes, including foreclosed home sales by lenders, sales by housing speculators and available rental housing. As demand for homes has slowed, the number of completed unsold homes has increased as well as the supply of existing homes. Competition with existing inventory, including homes purchased for speculation, has resulted in increased pressure on the prices at which we are able to sell homes, as well as upon the number of homes we can sell.

Continued decline in land values could result in further impairment write-offs.

Some of the land we currently own was purchased at prices that reflected the historic high demand cycle in the homebuilding industry. The recent slowdown in the homebuilding industry in our markets resulted in $36.8 million of homebuilding inventory impairments for the year ended December 31, 2006. If market conditions continue to deteriorate, the fair value of some of these assets or additional assets may decrease and be subject to future impairment write-offs and adversely affect our financial condition and operating results. Further, impairment write-offs could also result in the acceleration of debt which is secured by impaired assets. In order to remain competitive, we are aggressively offering sales incentives which will negatively impact our margins and may impact our backlog.

Because real estate investments are illiquid, a decline in the real estate market or in the economy in general could adversely impact our business and our cash flow.

Real estate investments are generally illiquid. Companies that invest in real estate have a limited ability to vary their portfolio of real estate investments in response to changes in economic and other conditions. In addition, the market value of any or all of our properties or investments may decrease in the future. Moreover, we may not be able to timely dispose of an investment when we find dispositions advantageous or necessary, or complete the disposition of properties under contract to be sold, and any such dispositions may not provide proceeds in excess of the amount of our investment in the property or even in excess of the amount of any indebtedness secured by the property. As part of our strategy for future growth, we significantly increased our land inventory during 2006, with our inventory of real estate increasing from $611.3 million at December 31, 2005 to $822.0 million at December 31, 2006. This substantial increase in our land holdings and concentration in Florida subjects us to a greater risk from declines in real estate values in our markets. Further, these newly acquired properties were purchased at a time when competition for land was very high, and accordingly these properties may be more susceptible to impairment write downs in the current real estate environment. Declines in real estate values or in the economy generally could have a material adverse impact on our financial condition and results of operations.

Shortages of supplies and labor could increase costs and delay deliveries, which may adversely affect our operating results

Our ability to develop our projects may be affected by circumstances beyond our control, including:

	•		shortages or increases in prices of construction materials;

	•		natural disasters in the areas in which we operate;

	•		work stoppages, labor disputes and shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers;

	•		lack of availability of adequate utility infrastructure and services; and

	•		our need to rely on local subcontractors who may not be adequately capitalized or insured.

Any of these circumstances could give rise to delays in the start or completion of, or increase the cost of, developing one or more of our projects or individual homes. We compete with other real estate developers, both regionally and nationally, for labor as well as raw materials, and the competition for materials has recently become global. Increased costs or shortages of lumber, drywall, steel, concrete, roofing materials, pipe and asphalt could cause increases in construction costs and construction delays.

Historically, we have sought to manage our costs, in part, by entering into short-term, fixed-price materials contracts with selected subcontractors and material suppliers. We may be unable to achieve cost containment in the future by using fixed-price contracts. Without corresponding increases in the sales prices of our real estate inventories (both land and finished homes), increasing materials costs associated with land development and home building could negatively affect our margins. We may not be able to recover these increased costs by raising our home prices because, typically, the price for each home is set in a home sale contract with the customer months prior to delivery. If we are unable to increase our prices for new homes to offset these increased costs, our operating results could be adversely affected.

Natural disasters could have an adverse effect on our real estate operations

We currently develop and sell a significant portion of our properties in Florida. The Florida markets in which we operate are subject to the risks of natural disasters such as hurricanes and tropical storms. These natural disasters could have a material adverse effect on our business by causing the incurrence of uninsured losses, increased homebuyer insurance rates, delays in construction, and shortages and increased costs of labor and building materials. In 2005 three named storms

made landfall in the State of Florida causing little damage to our communities. In addition, during the 2004 hurricane season, five named storms made landfall in the State causing property damage in several of our communities; however, our losses were primarily related to landscaping and claims based on water intrusion associated with the hurricanes, and we have attempted to address those issues. In May 2005, a purported class action was brought on behalf of owners of homes in a particular Central Florida Levitt and Sons’ subdivision alleging construction defects and damage suffered during certain of the hurricanes in 2004.

In addition to property damage, hurricanes may cause disruptions to our business operations. New homebuyers cannot obtain insurance until after named storms have passed, creating delays in new home deliveries. Approaching storms require that sales, development and construction operations be suspended in favor of storm preparation activities such as securing construction materials and equipment. After a storm has passed, construction-related resources such as sub-contracted labor and building materials are likely to be redeployed to hurricane recovery efforts around the state. Governmental permitting and inspection activities may similarly be focused primarily on returning displaced residents to homes damaged by the storms rather than on new construction activity. Depending on the severity of the damage caused by the storms, disruptions such as these could last for several months.

Our ability to sell lots and homes, and, accordingly, our operating results, will be affected by the availability of financing to potential purchasers

Most purchasers of real estate finance their acquisitions through third-party mortgage financing. Residential real estate demand is generally adversely affected by:

	•		increases in interest rates,

	•		decreases in the availability of mortgage financing,

	•		increasing housing costs,

	•		unemployment, and

	•		changes in federally sponsored financing programs.

Increases in interest rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs or the unavailability of financing to potential homebuyers. Even if potential customers do not need financing, increases in interest rates and decreased mortgage availability could make it harder for them to sell their homes. Recently, increases in rates on certain adjustable rate mortgage products and a trend of increasing defaults by borrowers generally, including under sub prime, certain interest only and negative amortization mortgage loans could lead to a reduction in the availability of mortgage financing. If demand for housing declines, land may remain in our inventory longer and our corresponding borrowing costs would increase. This would adversely affect our operating results and financial condition.

Our ability to successfully develop communities could affect our financial condition

It may take several years for a community development to achieve positive cash flow. Before a community development generates any revenues, material expenditures are required to acquire land, to obtain development approvals and to construct significant portions of project infrastructure, amenities, model homes and sales facilities. If we are unable to develop and market our communities successfully and to generate positive cash flows from these operations in a timely manner, it will have a material adverse effect on our ability to meet our working capital requirements.

A portion of our revenues from land sales in our master planned communities are recognized for accounting purposes under the percentage of completion method, therefore if our actual results differ from our assumptions our profitability may be reduced.

Under the percentage of completion method for recognizing revenue, we record revenue as work on the project progresses. This method relies on estimates of total expected project costs. Revenue and cost estimates are reviewed and revised periodically as the work progresses. Adjustments are reflected in contract revenue in the period when such estimates are revised. Variation of actual results and our estimates in these large master planned communities could be material.

Product liability litigation and claims that arise in the ordinary course of business may be costly which could adversely affect our business

Our homebuilding and commercial development business is subject to construction defect and product liability claims

arising in the ordinary course of business. These claims are common in the homebuilding and commercial real estate industries and can be costly. We have, and many of our subcontractors have, general liability, property, errors and omissions, workers compensation and other business insurance. However, these insurance policies only protect us against a portion of our risk of loss from claims. In addition, because of the uncertainties inherent in these matters, we cannot provide reasonable assurance that our insurance coverage or our subcontractor arrangements will be adequate to address all warranty, construction defect and liability claims in the future. In addition, the costs of insuring against construction defect and product liability claims, if applicable, are high and the amount of coverage offered by insurance companies is also currently limited. There can be no assurance that this coverage will not be further restricted and become more costly. If we are not able to obtain adequate insurance against these claims, we may experience losses that could negatively impact our operating results. We are currently a defendant in a purported class action lawsuit alleging construction defects and seeking damages. While we are vigorously defending this action, we will be required to incur legal fees and there is no assurance that we will be successful in litigation.

Further, as a community developer, we may be expected by community residents from time to time to resolve any real or perceived issues or disputes that may arise in connection with the operation or development of our communities. Any efforts made by us in resolving these issues or disputes may not satisfy the affected residents and any subsequent action by these residents could negatively impact sales and results of operations. In addition, we could be required to make material expenditures related to the settlement of such issues or disputes or to modify our community development plans.

We are subject to governmental regulations that may limit our operations, increase our expenses or subject us to liability

We are subject to laws, ordinances and regulations of various federal, state and local governmental entities and agencies concerning, among other things: ~~environmental matters, including the presence of hazardous or toxic substances; wetland preservation;~~

	•		environmental matters, including the presence of hazardous or toxic substances,

	•		wetland preservation,

	•		health ~~and safety; zoning, land use and other entitlements; building design;~~ and safety,

	•		zoning, land use and other entitlements,

	•		building design, and

	•		density levels.

In developing a project and building homes ~~apartments~~ or commercial properties, ~~Levitt~~we may be required to obtain the approval of numerous governmental authorities regulating matters such as: installation of utility services such as gas, electric, water and waste disposal; the dedication of acreage for open space, parks and schools; permitted land uses; and the construction design, methods and materials used.

	•		installation of utility services such as gas, electric, water and waste disposal,

	•		the dedication of acreage for open space, parks and schools,

	•		permitted land uses, and

	•		the construction design, methods and materials used.

These laws or regulations could, among other things: establish building moratoriums; limit the number of homes, apartments or commercial properties that may be built; change building codes and construction requirements affecting property under construction; increase the cost of development and construction; delay development and construction; and otherwise have a material adverse effect on the real estate industry in general and on Levitt’s business, financial condition and results of operations, specifically.
~~Levitt~~

	•		establish building moratoriums,

	•		limit the number of homes or commercial properties that may be built,

	•		change building codes and construction requirements affecting property under construction,

	•		increase the cost of development and construction, and

	•		delay development and construction.

We may also at times not be in compliance with all regulatory requirements. If ~~it is~~we are not in compliance with regulatory requirements, itwe may be subject to penalties or itwe may be forced to incur significant expenses to cure any noncompliance. In addition, some of ~~its~~our land and some of the land that itwe may acquire ~~has~~have not yet received planning approvals or entitlements necessary for planned ~~development~~ or future development. Failure to obtain entitlements necessary for further development of this land on a timely basis or to the extent desired may adversely affect ~~its~~our future results and prospects.

Several governmental authorities have also imposed impact fees as a means of defraying the cost of providing ~~certain~~ governmental services to developing areas, and many of these fees have increased significantly during recent years. ~~Levitt considers~~

Building moratoriums and changes in governmental regulations may subject us to delays or increased costs of construction or prohibit development of our properties

We may be subject to delays or may be precluded from developing in certain communities because of building moratoriums or changes in statutes or rules that could be imposed in the future. The State of Florida and various counties have in the past and may in the future continue to declare moratoriums on the issuance of building permits and impose restrictions in areas where the infrastructure, such as roads, schools, parks, water and sewage treatment facilities and other public facilities, does not reach minimum standards. Additionally, certain counties in Florida, including counties where we are developing projects, have enacted more stringent building codes which have resulted in increased costs of construction. As a consequence, we may incur significant expenses in connection with complying with new regulatory requirements that we may not be able to pass on to buyers.

We are subject to environmental laws and the cost of compliance could adversely affect our business

As a current or previous owner or operator of real property, we may be liable under federal, state, and local environmental laws, ordinances and regulations for the costs of ~~compliance with environmental regulations~~removal or remediation of hazardous or toxic substances on, under or in the property. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial. The presence of any such substance, or the failure promptly to ~~be part~~remediate any such substance, may adversely affect our ability to sell or lease the property, to use the property for our intended purpose, or to borrow using the property as collateral.

Increased insurance risk could negatively affect our business

Insurance and surety companies may take actions that could negatively affect our business, including increasing insurance premiums, requiring higher self-insured retentions and deductibles, requiring additional collateral or covenants on surety bonds, reducing limits, restricting coverages, imposing exclusions, and refusing to underwrite certain risks and classes of ~~the ordinary course~~business. Any of ~~its business, and such compliance has not had any~~these actions may adversely affect our ability to obtain appropriate insurance coverage at reasonable costs which could have a material adverse effect on ~~it.~~our business.

We utilize community development districts to fund development costs

We establish community development districts to access tax-exempt bond financing to fund infrastructure and other projects at our master-planned communities. We are responsible for any assessed amounts until the underlying property is sold. We will continue to be responsible for the annual assessments if the property is never sold.

RISKS RELATING TO OUR COMPANY

Our indebtedness and leverage could adversely affect our financial condition, restrict our ability to operate and prevent us from fulfilling our obligations

We have a significant amount of debt. At December 31, 2006, our consolidated debt was approximately $615.7 million. Our debt could:

	•		require us to dedicate a substantial portion of our cash flow from operations to payment of or on our debt and reduce our ability to use our cash flow for other purposes,

	•		be accelerated if we do not meet required covenants or the collateral securing the indebtedness decreases in value,

	•		make us more vulnerable in the event of a downturn in our business or in general economic conditions.

	•		impact our flexibility in planning for, or reacting to, the changes in our business,

	•		limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements or other requirements, and

	•		place us at a competitive disadvantage if we have more debt than our competitors.

Our ability to meet our debt service and other obligations, to refinance our indebtedness or to fund planned capital expenditures will depend upon our future performance. We are engaged in businesses that are substantially affected by changes in economic cycles. Our revenues and earnings vary with the level of general economic activity in the markets we

serve. The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of equity securities, the refinancing of debt, or the sale of assets. Changes in prevailing interest rates may affect our ability to meet our debt service obligations, because borrowings under a significant portion of our debt instruments bear interest at floating rates.

Our anticipated minimum debt payment obligations in 2007 total approximately $46.0 million, which does not include repayments of specified amounts upon a sale of portions of the property securing the debt or any amounts that could be accelerated in the event that property serving as collateral becomes impaired. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available under our existing credit facilities or any other financing sources in an amount sufficient to enable us to service our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity, which we may not be able to do on favorable terms or at all.

Our outstanding debt instruments and bank credit facilities impose restrictions on our operations and activities. The most significant restrictions relate to debt incurrence, lien incurrence, sales of assets and cash distributions by us and require us to comply with certain financial covenants. If we fail to comply with any of these restrictions or covenants, the holders of the applicable debt could cause our debt to become due and payable prior to maturity. In addition, some of our debt instruments contain cross-default provisions, which could cause a default in a number of debt instruments if we default on only one debt instrument.

Our current land development plans may require additional capital, which may not be available

We anticipate that we will need to obtain additional financing as we fund our current land development projects. These funds may be obtained through public or private debt or equity financings, additional bank borrowings or from strategic alliances. We may not be successful in obtaining additional funds in a timely manner, on favorable terms or at all. Moreover, certain of our bank financing agreements contain provisions that limit the type and amount of debt we may incur in the future without our lenders’ consent. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced, and lenders may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. If we do not have access to additional capital, we may be required to delay, scale back or abandon some or all of our land development activities or reduce capital expenditures and the size of our operations.

Our results may vary

We historically have experienced, and expect to continue to experience, variability in operating results on a quarterly basis and from year to year. Factors expected to contribute to this variability include:

	•		the cyclical nature of the real estate and construction industries,

	•		prevailing interest rates and the availability of mortgage financing,

	•		the uncertain timing of closings,

	•		weather and the cost and availability of materials and labor,

	•		competitive conditions, and

	•		the timing of receipt of regulatory and other governmental approvals for construction of projects.

The volume of sales contracts and closings typically varies from quarter to quarter depending on the stages of development of our projects. In the early stages of a project’s development (two to three years depending on the project), we incur significant start-up costs associated with, among other things, project design, land acquisition and development, construction and marketing expenses. Since revenues from sales of properties are generally recognized only upon the transfer of title at the closing of a sale, no revenue is recognized during the early stages of a project unless land parcels or residential homesites are sold to other developers. Our costs and expenses were approximately $607.8 million, $500.6 million and $484.9 million during the years ended December 31, 2006, 2005 and 2004, respectively. Periodic sales of properties may be insufficient to fund operating expenses and the current trends we are experiencing with respect to new sales and cancellations in our homebuilding operations makes it likely that our level of sales over the next 12 months will be significantly below past levels. Further, if sales and other revenues are not adequate to cover costs and expenses, we will be required to seek a source of additional operating funds. Accordingly, our financial results will vary from community to community and from time to time.

We may not successfully integrate acquired businesses into ours

As part of our business strategy, we have in the past and expect to continue to evaluate acquisition prospects that would complement our existing business, or that might otherwise offer growth opportunities. Acquisitions entail numerous risks, including:

	•		difficulties in assimilating acquired management and operations,

	•		risks associated with achieving profitability,

	•		the incurrence of significant due diligence expenses relating to acquisitions that are not completed,

	•		unforeseen expenses,

	•		integrating information technologies,

	•		risks associated with entering new markets in which we have no or limited prior experience,

	•		the potential loss of key employees of acquired organizations, and

	•		risks associated with transferred assets and liabilities.

We may not be able to acquire or profitably manage additional businesses, or to integrate successfully any acquired businesses, properties or personnel into our business, without substantial costs, delays or other operational or financial difficulties. Our failure to do so could have a material adverse effect on our business, financial condition and results of operations. If we are unable to successfully realize the anticipated benefits of an acquisition, we may be required to incur an impairment charge with respect to any goodwill recognized in the acquisition. For the year ended December 31, 2006, $1.3 million of goodwill recorded in connection with the Bowden acquisition consummated in 2004 was fully written off. In addition, we may incur debt or contingent liabilities in connection with future acquisitions, which could materially adversely affect our operating results.

Our controlling shareholders have the voting power to control the outcome of any shareholder vote, except in limited circumstances

As of December 31, 2006, BFC Financial Corporation owned 1,219,031 shares of our Class B common stock, which represented all of our issued and outstanding Class B common stock, and 2,074,240 shares, or approximately 11% of our issued and outstanding Class A common stock. In the aggregate these shares represent approximately 53% of our total voting power and approximately 17% of our total equity. Since the Class A common stock and Class B common stock vote as a single group on most matters, BFC Financial Corporation is in a position to control our company and elect a majority of our Board of Directors. Additionally, Alan B. Levan, our Chairman and Chief Executive Officer, and John E. Abdo, our Vice Chairman, beneficially own approximately 35.1% and 17.6% of the shares of BFC Financial Corporation, respectively. As a consequence, Alan B. Levan and John E. Abdo effectively have the voting power to control the outcome of any shareholder vote of Levitt Corporation, except in those limited circumstances where Florida law mandates that the holders of our Class A common stock vote as a separate class. BFC Financial Corporation’s interests may conflict with the interests of our other shareholders. On January 31, 2007, we announced that we had entered into a definitive merger agreement whereby we will become a wholly-owned subsidiary of BFC. See — “Business-Recent Developments-BFC Merger.”

RISKS ASSOCIATED WITH OUR OWNERSHIP STAKE IN BLUEGREEN CORPORATION

We own approximately 31% of the outstanding common stock of Bluegreen Corporation, a publicly-traded corporation whose common stock is listed on the New York Stock Exchange under the symbol “BXG”. Although traded on the New York Stock Exchange, our shares may be deemed restricted stock, which would limit our ability to liquidate our investment if we chose to do so. While we have made a significant investment in Bluegreen Corporation, we do not expect to receive any dividends from the company for the foreseeable future.

For the year ended December 31, 2006, our earnings from our investment in Bluegreen were $9.7 million, decreasing from $12.7 million in 2005, and from $13.1 million in 2004. At December 31, 2006, the book value of our investment in Bluegreen was $107.1 million. Accordingly, a significant portion of our earnings and book value are dependent upon Bluegreen’s ability to continue to generate earnings and maintain its market value. Further, declines in the market value of Bluegreen’s shares or other events that could impair the value of our holdings would have an adverse impact on the value of our investment. We annually review the investment in Bluegreen for impairment. We refer you to the public reports filed by Bluegreen with the Securities and Exchange Commission for information regarding Bluegreen.”

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

          The principal and executive offices of the Company, BankAtlantic Bancorp, ~~BankAtlantic,~~ and ~~Levitt~~BankAtlantic are located at ~~1750 East Sunrise Boulevard,~~2100 West Cypress Creek Road, Fort Lauderdale, Florida, ~~33304.~~33309. Levitt maintains its corporate offices at 2200 West Cypress Creek Road, Ft. Lauderdale, Florida 33309. The Company also maintains ~~executive~~ offices at 4150 SW 28^th Way, Fort Lauderdale, Florida 33312, which it leases from BankAtlantic. Levitt occupies its offices pursuant to an agreement with BFC, which leases the property from BankAtlantic. As discussed below, BankAtlantic has purchased another property to be used as its executive offices, and it is expected that the Sunrise Boulevard executive offices of the Company, BankAtlantic Bancorp and Levitt will move to that building under a new lease in the second quarter of 2005.
     The Company owns a shopping center known as the Burlington Manufacturers Outlet Center located in Burlington, North Carolina containing approximately 216,327 leaseable square feet. It is not utilized by the Company but is held by the Company as an investment.
     ~~The lease expiration dates for the four back office locations range from 2006-2009.~~

The following table sets forth ~~BankAtlantic’s~~BankAtlantic owned and leased ~~branch~~store offices by region at December 31, ~~2004:~~2006:

Miami-
Dade Broward Palm Beach Tampa Bay
Owned full-service branches 4 11 26 3
Leased full-service branches 8 12 5 5

Total full-service branches 12 23 31 8

Lease expiration dates 2005-2012 2005-2012 2005-2011 2006-2008

Miami - Palm Tampa Orlando /
Dade Broward Beach Bay Jacksonville
Owned full-service stores 7 10 24 4 —
Leased full-service stores 13 12 5 9 —
Ground leased full-service stores (1) 1 2 1 — —

Total full-service stores 21 24 30 13 —

Lease expiration dates 2007-2026 2007-2015 2008-2012 2007-2027 —

Ground lease expiration dates 2026 2020-2072 2026 — —


(1)		Stores in which BankAtlantic owns the building and leases the land.

The following table sets forth BankAtlantic ~~also maintains two~~leased drive-through facilities, executed ground leases ~~in Broward County, with one expiring in 2006~~for store expansion, leased back-office facilities and ~~the other expiring in 2072. In addition to its branches, BankAtlantic owns three buildings and leases four locations, which house its back office operations.~~
20
leased loan production offices by region at December 31, 2006:

~~During 2002, BankAtlantic purchased a $14.3 million office facility in Broward County to consolidate its headquarters and back office operations into a centralized facility.~~

Miami - Palm Tampa Orlando /
Dade Broward Beach Bay Jacksonville
Leased drive-through facilities 1 2 — — —

Drive through lease expiration dates 2026 2011-2014 — — —

Executed ground leases (2) 1 1 — 3 3

Executed ground lease expiration dates 2027 2017 — 2027 2027-2028

Leased back-office facilities — 2 1 1 1

Back-office lease expiration dates — 2009-2011 2007 2011 2013

Leased loan production offices 1 — — 1 2

Loan production lease expiration dates 2009 — — 2009 2009-2011


(2)		Stores in which BankAtlantic has executed the lease and has not yet opened the store.

As of December 31, ~~2004~~2006, BankAtlantic ~~had incurred approximately $24.5~~has 12 parcels of land with a book balance of $23.9 million for its store expansion initiatives included in ~~renovation costs. The total estimated cost to renovate the facility is approximately $29.4 million,~~office properties and ~~the facility is expected to be completed during the second quarter of 2005.~~
~~At December 31, 2004, Ryan Beck’s office space includes leased facilities~~equipment in the ~~following states with year~~Company’s Consolidated Statement of ~~lease expiration:~~Financial Condition.

Lease Number of
Locations Expiration Offices

California 2006 1
Connecticut 2005 — 2009 3
Florida 2005 — 2010 2
Georgia 2005 1
Illinois 2008 1
Maryland 2009 1
Massachusetts 2006 — 2008 4
Nevada 2005 1
New Jersey 2006 — 2019 7
New York 2005 — 2011 7
Ohio 2008 1
Pennsylvania 2006 — 2011 5
Virginia 2007 1

35

~~In October 2004, Levitt purchased an occupied office building~~ Levitt’s principal and executive offices are located at 2200 West Cypress Creek Road in Fort Lauderdale, Florida ~~for $16.2 million that it intends to use as its executive offices upon termination or modification of the existing tenant lease.~~33309, which is Levitt’s corporate headquarters. In addition, Levitt and its subsidiaries occupy ~~administrative space~~premises in various locations in Florida, Georgia, South Carolina and Tennessee under leases that expire at various dates through 2010. In addition to Levitt’s properties used for offices, Levitt additionally owns commercial space in Florida that is leased to third parties. Because of the nature of Levitt’s real estate operations, significant amounts of property are held as inventory and property and equipment in the ordinary course of Levitt’s business. See, Item 1 Business – Homebuilding & Real Estate Development Segment for a description of property owned by Levitt in connection with its homebuilding and land development business.

ITEM 3. LEGAL PROCEEDINGS
~~�� The following is~~

          On May 26, 2005, a ~~description of certain lawsuits other than ordinary routine litigation incidental to our business to which we or one of our subsidiaries is a party:~~
     ~~On July 2, 2004, Benihana of Tokyo, Inc., a major shareholder of Benihana~~suit was filed suit against Benihana, Inc., the members of the Benihana Board of Directors and us, seeking to rescind our agreement to purchase $20,000,000 of convertible preferred stock of Benihana. Benihana of Tokyo claims the transaction was created for the sole or primary purpose of diluting the stock interest of Benihana of Tokyo. It further claims that, in light of the relationship of certain members of the Benihana Board with us, the Benihana Board breached the fiduciary duties owed to the Benihana shareholders. The complaint also alleges that through John Abdo, as a member of the Benihana Board and our Vice Chairman, and Darwin Dornbush, as a member of the Benihana Board and a member of Levitt’s Board, BFC has aided and abetted in the ~~Benihana Board’s breaches of fiduciary duty. Under the terms of our purchase of the convertible preferred stock, Benihana is required to indemnify us~~9th Judicial Circuit in and for ~~our costs and expenses relating to this action.~~
     ~~Following the impact of three hurricanes~~Orange County, Florida against Levitt in ~~the second half of 2004, some purchasers of Levitt and Sons’ homes in Central Florida reported water intrusion damage as a result of the repeated windstorms. Although~~Frank Albert, Dorothy Albert, et al. v. Levitt and Sons, ~~did not believe it had any legal or contractual obligation to make repairs to homes damaged by the hurricanes,~~LLC, a Florida limited liability company, Levitt Homes, LLC, a Florida limited liability company, Levitt Corporation, a Florida corporation, Levitt Construction Corp. East, a Florida corporation and Levitt and Sons, ~~nevertheless agreed~~Inc., a Florida corporation. The suit purports to address water intrusion complaints by repairing stucco (including any necessary re-painting), and replacing drywall, insulation, and other materials damaged by water intrusion. Levitt and Sons retained an independent engineering firm to inspect each damaged home and to provide recommendations for repair. Separately, after the third hurricane, numerous homeowners delivered letters to Levitt and Sons pursuant to Florida Statutes Chapter 558 alleging construction defects in their homes. Pursuant to Chapter 558, Florida Statutes, formal notice to the builder and an opportunity to cure the alleged defect(s) isbe a pre-condition to the filing of any suit for construction defects. For each Chapter 558 claimant, Levitt and Sons delivered a copy of the inspection report (as contemplated by the statute) and requested the homeowners’ consent to make repairs in accordance with the engineers’ recommendations. Upon receipt of the homeowners’ consent, Levitt and Sons performed the recommended repairs at no cost at approximately 600 homes. A majority of Levitt and Sons’ Central Florida homeowners agreed to allow Levitt and Sons to address their water intrusion complaints and most of those repairs have been completed. Under Florida law, the fact that a homeowner has agreed to allow Levitt and Sons to
21

make identified repairs does not limit such homeowner’s right to pursue available legal remedies, including through litigation. A law firm in Miami claims to represent approximately 50 homeowners in a particular Central Florida Levitt and Sons’ subdivision in connection with their Chapter 558 claims. To our knowledge, no lawsuits have been filed as of this date with respect to these matters, however the Miami law firm has indicated that it may file a lawsuitclass action on behalf of residents in one of Levitt’s communities in Central Florida. The complaint alleges, among other claims, construction defects and unspecified damages ranging from $50,000 to $400,000 per house. While there is no assurance that Levitt will be successful, Levitt believes it has valid defenses and is engaged in a vigorous defense of the action. The amount of loss related to this matter is estimated to be $320,000 which is recorded in the consolidated balance sheet as of December 31, 2006 as an accrued expense.

On December 12, 2006 Levitt Corporation received a letter from the Internal Revenue Service advising that Levitt and its ~~client homeowners.~~
subsidiaries has been selected for an examination of the tax period ending December 31, 2004. The scope of the examination was not indicated in the letter.

In the ordinary course of business, the ~~company~~Company and its subsidiaries are parties to lawsuits as plaintiff or defendant involving ~~their~~its bank operations, , lending, and tax certificates ~~securities sales, brokerage~~activities and ~~underwriting, acquisitions~~homebuilding and real estate development activities. Although the Company believes it has meritorious defenses in all current legal actions, the outcome of the various legal actions is uncertain. ~~Based~~Management, based on ~~discussion~~discussions with legal counsel, ~~management does~~believes financial position, results of operations or cash flow will not ~~believe that~~be materially impacted by the resolution of these ~~proceedings will have a material adverse effect on our financial position or results of operations.~~matters.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
~~On January 14, 2005,~~

There were no matters submitted to a vote of security holders through the ~~Company received written consents approving an amendment to~~solicitation of proxies or otherwise during the ~~Company’s articles~~fourth quarter of incorporation which increased the authorized number of shares of Class A Common Stock, par value $.01 per share, of the Company from 20,000,000 shares to 70,000,000 shares (the “Amendment”). The Amendment was approved by written consents from the holders of 14,914,978 shares of Class A Common Stock and by the holders of 3,410,240 shares of Class B Common Stock, representing in the aggregate 75.7% of the total votes entitled to be cast on the Amendment
2006.

2248

PART II

ITEM 5. MARKET PRICE FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Class A Common Stock and the Class B Common Stock have substantially identical terms except:

	•		Each share of Class A Common Stock is entitled to one vote for each share held, with all holders of Class A Common Stock possessing in the aggregate 22% of the total voting power. Holders of Class B Common Stock have the remaining 78% of the total voting power. ~~When~~If the number of shares of Class B Common Stock outstanding decreases to 1,800,000 shares, the Class A Common Stock aggregate voting power will ~~increase~~change to 40% and the Class B Common Stock will have the remaining 60%. ~~When~~If the number of shares of Class B Common Stock outstanding decreases to 1,400,000 shares, the Class A Common Stock aggregate voting power will ~~increase~~change to 53% and the Class B Common Stock will have the remaining 47%;. If the number of shares of Class B Common Stock outstanding decreases to 500,000, the fixed voting percentages will be eliminated; and

	•		Each share of Class B Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock.

~~Our~~

On June 20, 2006 the Company announced that its Class A Common Stock ~~is listed~~was approved for listing on the ~~Nasdaq National Market~~NYSE Arca exchange (“NYSE Arca”) under the symbol ~~“BFCF.” Our~~“BFF” and on June 22, 2006, the Company commenced trading on the NYSE Arca. From April 2003 through June 19, 2006, BFC’s Class A Common Stock ~~began trading~~was traded on the ~~Nasdaq~~NASDAQ National ~~Market on May 5, 2003.~~Market. Our Class B Common Stock is quoted on the OTC Bulletin Board under the symbol “BFCFB.OB.”

On March 6, 2007, there were approximately 3,200 holders of the Class A Common Stock and approximately 780 holders of Class B Common Stock.

The following table sets forth, for the indicated periods, the high and low closing sale prices for our Class A Common Stock as reported by the Nasdaq National Market and New York Stock Exchange Arca and for our Class B Common Stock as reported by the National Association of Securities Dealers Automated Quotation System. The stock prices do not include retail mark-ups, mark-downs or commissions and are adjusted for all stock splits and stock dividends.

Class A Common Stock: High Low
2003

First Quarter $ 2.31 $ 1.78
Second Quarter 3.89 1.87
Third Quarter 5.30 3.42
Fourth Quarter 7.60 5.07

2004

First Quarter $ 11.04 $ 6.86
Second Quarter 10.99 8.06
Third Quarter 9.35 7.37
Fourth Quarter 10.65 8.12

Class B Common Stock: High Low
2003

High Low
Class A Common Stock:

2005

First Quarter $ 2.14 $ 1.82 $ 11.34 $ 9.04
Second Quarter 3.89 2.14 10.29 7.81
Third Quarter 4.87 3.44 9.00 6.81
Fourth Quarter 8.19 4.91 7.05 4.90

2004

2006

First Quarter $ 10.88 6.66 $ 6.64 $ 5.35
Second Quarter 10.88 7.36 8.16 5.69
Third Quarter 9.04 7.28 7.10 4.35
Fourth Quarter 10.40 8.20 7.06 4.80

High Low
Class B Common Stock:

2005

First Quarter $ 11.12 $ 9.20
Second Quarter 10.70 7.80
Third Quarter 8.70 7.00
Fourth Quarter 6.75 4.85
2006

First Quarter $ 6.50 $ 5.25
Second Quarter 7.70 5.70
Third Quarter 8.25 5.00
Fourth Quarter 6.80 4.85

~~On March 7, 2005, there were approximately 1,940 record holders of the Class A Common Stock and approximately 850 record holders of Class B Common Stock.~~

2349

~~There~~

While there are no restrictions on the payment of cash dividends by ~~BFC.~~BFC, BFC has never paid cash ~~dividends. We issued a 25% stock dividend~~dividends on ~~March 7, 2005, March 1, 2004, May 25, 2004 and December 1, 2003 and a 15% stock dividend on June 17, 2003, each of which was payable in shares of Class A Common Stock.~~
~~As noted in Part I, Item I under “Business – Regulation and Supervision — Regulation of Federal Savings Bank Limitation on Capital Distributions” there~~its common stock.

There are restrictions on the payment of dividends by BankAtlantic to BankAtlantic Bancorp and in certain circumstances on the payment of dividends by BankAtlantic Bancorp to its common shareholders, including BFC. The primary source of funds for payment by BankAtlantic Bancorp of dividends to BFC is currently ~~dividend payments~~dividends received by BankAtlantic Bancorp from BankAtlantic, ~~and Ryan Beck.~~
~~On each of~~which is limited by applicable regulations.

Commencing in July ~~26,~~ 2004, ~~October 25, 2004 and January 24, 2005~~ Levitt’s Board of Directors has declared quarterly cash dividends of $0.02 per share on its Class A common stock and Class B common stock. ~~These dividends were paid in August 2004, November 2004 and February 2005, respectively.~~However, Levitt’s Board has not adopted a policy of regular dividend payments. The payment of dividends in the future is subject to approval by Levitt’s Board of Directors and will depend upon, among other factors, Levitt’s results of operations and financial condition. ~~Levitt cannot assure you~~There is no assurance that ~~they~~Levitt will declare ~~additional~~ cash dividends in the future. BFC received approximately $66,000 ~~from~~in connection with each of Levitt’s quarterly dividends.

The following table lists all securities authorized for issuance under the Company’s equity compensation plans.


					Number of securities						Number of securities
					Remaining available for						Remaining available for
					future issuance under						future issuance under
	Number of securities to		Weighted-average		equity compensation plans		Number of securities to		Weighted-average		equity compensation plans
	be issued upon exercise		exercise price of		(excluding outstanding		be issued upon exercise		exercise price of		(excluding outstanding
Plan category	of outstanding options		outstanding options		options)		of outstanding options		outstanding options		options)

Equity compensation plans approved by security holders		5,240,120	$	2.63		—		1,607,087	$	4.88		2,479,448

Equity compensation plans not approved by security Holders		—				—		—		—		—


Total		5,420,120	$	2.63		—		1,607,087	$	4.88		2,479,448

~~Purchases~~

On October 21, 2006 the Company’s Board of Directors approved the repurchase of up to 1,750,000 shares of its Class A common stock through open market or private transactions at an aggregate cost of no more than $10.0 million. The timing and amount of repurchases, if any, will depend on market conditions, share price, trading volume and other factors, and there is no assurance that the Company will repurchase shares during any period. No termination date was set for the repurchase program. The shares purchased in this program will be retired. There were no repurchases of BFC equity securities ~~by the issuer and affiliated purchasers~~ during the ~~2004~~2006 fourth quarter ~~were:~~

Total Number of
Shares Purchased as Maximum Number of shares that
Part of Publicly May Yet Be Purchased
Total Number of Average price Announced Plans Under the Plans or
Period Shares Purchased per share or Programs (2) Programs
October 1, 2004 through October 31, 2004 — $ — — —
November 1, 2004 through November 30, 2004 — — — —
December 1, 2004 through December 31, 2004 629,852 (1) 9.40 — —

Total 629,852 $ 9.40 — —

or during the year ended December 31, 2006.
50

~~(1)~~		The amount represents the number of shares of the Company’s Class B Common Stock redeemed by the Company as consideration for the payment of the exercise price and minimum withholding taxes of stock options exercised during the period.

~~(2)~~		~~The Company currently has no plan or program to repurchase its equity securities.~~

Shareholder Return Performance Graph

Set forth below is a graph comparing the cumulative total returns (assuming reinvestment of dividends) for the Class A Stock, DJ Wilshire 5000 Index and NASDAQ Bank Stocks and assumes $100 is invested on December 31, 2001.

12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006
BFC Financial Corporation 100 100 343 499 263 321
DJ Wilshire 5000 Index 100 78 101 112 117 133
Nasdaq Bank Index 100 105 136 151 144 160

ITEM 6. ~~Selected Consolidated Financial Data~~
~~BFC FINANCIAL CORPORATION AND SUBSIDIARIES~~
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data as of and for the years ended December 31, 2006 through 2002. Certain selected financial data presented below as of December 31, 2006, 2005, 2004, 2003 and 2002 and for each of the years in the five-year period ended December 31, 2006, are derived from our audited consolidated financial statements. This table is a summary and should be read in conjunction with the consolidated financial statements and related notes thereto which are included elsewhere in this report.

(InDollars in thousands, except ~~for~~ per share data, ratios, percentages, units and ~~percentages)~~acres)

For the Years Ended December 31,
Income Statement 2004 2003 2002 2001 2000
Revenues
Financial Services $ 601,578 $ 541,910 $ 492,344 $ 412,091 $ 425,538
Homebuilding and Real Estate Development 558,838 288,686 212,081 147,977 109,126
Other Operations 6,185 1,708 1,336 3,261 9,217

1,166,601 832,304 705,761 563,329 543,881

Costs and Expenses
Financial Services 494,415 480,314 467,181 372,505 396,940
Homebuilding and Real Estate Development 481,618 253,169 191,662 136,885 98,933
Other Operations 7,950 7,809 5,944 8,852 13,886

983,983 741,292 664,787 518,242 509,759

Income before income taxes and equity in earnings from unconsolidated subsidiaries 182,618 91,012 40,974 45,087 34,122
Equity in earnings from unconsolidated subsidiaries 19,603 10,126 9,327 2,888 1,141

Income before income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of a change in accounting principle 202,221 101,138 50,301 47,975 35,263
Provision for income taxes 83,997 44,166 17,993 25,260 17,642
Minority interest in income of consolidated subsidiaries 103,994 51,093 38,294 18,379 14,655

Income (loss) from continuing operations 14,230 5,879 (5,986 ) 4,336 2,966
Income from discontinued operations, net of taxes — 1,143 2,536 — 669
Income from extraordinary items, net of taxes — — 23,749 — —
Income (loss) from cumulative effect of a change in accounting principle, net of taxes — — (15,107 ) 1,138 —

Net income $ 14,230 $ 7,022 $ 5,192 $ 5,474 $ 3,635
Amortization of goodwill, net of tax — — — 735 791

Net income adjusted to exclude goodwill amortization 14,230 7,022 5,192 6,209 4,426
5% Preferred Stock dividends 392 — — — —

Net income available to common shareholders $ 13,838 $ 7,022 $ 5,192 $ 6,209 $ 4,426

For the Years Ended December 31,
2006 2005 2004 2003 2002
Income Statement

Revenues
BFC Activities $ 3,682 $ 3,129 $ 5,683 $ 1,073 $ 607
Financial Services 507,746 445,537 358,703 320,534 350,987
Homebuilding & Real Estate Development 583,152 574,824 558,838 288,686 212,081

1,094,580 1,023,490 923,224 610,293 563,675

Costs and Expenses
BFC Activities 12,370 9,665 7,452 7,019 5,141
Financial Services 474,311 381,916 280,431 275,507 321,243
Homebuilding & Real Estate Development 606,655 498,760 481,618 253,169 191,662

1,093,336 890,341 769,501 535,695 518,046

Equity in earnings from unconsolidated affiliates 10,935 13,404 19,603 10,126 9,327

Income from continuing operations 12,179 146,553 173,326 84,724 54,956
(Benefit) provision for income taxes (528 ) 59,566 70,920 36,466 19,615
Noncontrolling interest 13,404 79,267 90,388 43,616 33,501

(Loss) income from continuing operations (697 ) 7,720 12,018 4,642 1,840
(Loss) income from discontinued operations, net of noncontrolling interest and income taxes (1,524 ) 5,054 2,212 2,380 2,151
Income from extraordinary items, net of noncontrolling interest and income taxes — — — — 3,298
Cumulative effect of a change in accounting principle, net of noncontrolling interest and income taxes — — — — (2,097 )

Net (loss) income (2,221 ) 12,774 14,230 7,022 5,192
5% Preferred Stock dividends 750 750 392 — —

Net (loss) income allocable to common stock $ (2,971 ) $ 12,024 $ 13,838 $ 7,022 $ 5,192

(CONTINUED)

~~(Continued)~~

2552

~~BFC FINANCIAL CORPORATION AND SUBSIDIARIES~~
~~SELECTED CONSOLIDATED FINANCIAL DATA — CONTINUED~~

(InDollars in thousands, except ~~for~~ per share data, ratios, percentages, units and ~~percentages)~~acres)


	For the Years Ended December 31,													For the Years Ended December 31,
	2004			2003		2002			2001		2000			2006			2005		2004		2003		2002
Common Share Data (a), (b), (c), (d)
Basic earnings (loss) per share from continuing operations	$	0.57			0.26	$	(0.27	)	$	0.19	$	0.13
Common Share Data (a), (c), (d)
Basic (loss) earnings per share:
Basic (loss) earnings per share from continuing operations														$	(0.04	)	$	0.24	$	0.48	$	0.21	$	0.08
Discontinued operations		—			0.05		0.11			—		0.03			(0.05	)		0.18		0.09		0.10		0.10
Extraordinary items		—			—		1.06			—		—			—			—		—		—		0.15
Cumulative effect of a change in accounting principle		—			—		(0.67	)		0.05		—			—			—		—		—		(0.09	)

Basic earnings per share of common stock		0.57			0.31		0.23			0.24		0.17
Basic earnings per share from amortization of goodwill		—			—		—			0.03		0.04

Basic earnings per share adjusted to exclude goodwill amortization	$	0.57			0.31	$	0.23		$	0.28	$	0.20
Basic (loss) earnings per share of common stock														$	(0.09	)	$	0.42	$	0.57	$	0.31	$	0.23


Diluted (loss) earnings per share:
Diluted earnings (loss) per share from continuing operations	$	0.47			0.21	$	(0.28	)	$	0.13	$	0.10		$	(0.05	)	$	0.22	$	0.40	$	0.16	$	0.07
Discontinued operations		—			0.04		0.11			—		0.03			(0.05	)		0.15		0.07		0.09		0.09
Extraordinary items		—			—		1.04			—		—			—			—		—		—		0.14
Cumulative effect of a change in accounting principle		—			—		(0.66	)		0.05		—			—			—		—		—		(0.09	)

Diluted earnings per share of common stock		0.47			0.25		0.21		$	0.18	$	0.12
Diluted earnings per share from amortization of goodwill		—			—		—			0.03		0.03

Diluted earnings per share adjusted to exclude goodwill amortization	$	0.47			0.25	$	0.21			0.20		0.15
Diluted (loss) earnings per share of common stock														$	(0.10	)	$	0.37	$	0.47	$	0.25	$	0.21


Basic weighted average number of common shares outstanding		24,183			22,818		22,454			22,341		22,341			33,249			28,952		24,183		22,818		22,454
Diluted weighted average number of common shares outstanding		27,806			26,031		22,454			24,631		23,925			33,249			31,219		27,806		26,031		22,454
Ratio of earnings to fixed charges (e)		(2.44	)		0.15		(0.23	)		0.95		(0.14	)		—			—		—		0.28		—
Dollar deficiency of earnings to fixed charges (e)		4,029			987		1,421			68		1,586		$	5,197		$	7,245	$	4,145	$	—	$	1,347

(CONTINUED)

~~(Continued~~)

2653

~~BFC FINANCIAL CORPORATION AND SUBSIDIARIES~~
~~SELECTED CONSOLIDATED FINANCIAL DATA~~

(InDollars in thousands, except ~~for~~ per share data, ratios, percentages, units and ~~percentages)~~acres)


	December 31,															December 31,
Balance Sheet (at period end)	2004			2003			2002			2001			2000			2006			2005			2004			2003			2002
Loans and leases, net ~~(f)~~	$	4,561,073			3,611,612		$	3,377,870		$	2,776,624		$	2,855,015		$	4,603,505		$	4,628,744		$	4,561,073		$	3,611,612		$	3,377,870
Securities		1,192,335			677,713			1,111,825			1,356,497			1,315,122		$	1,081,980		$	1,064,857		$	1,066,892		$	553,148		$	925,371
Total assets		6,954,847			5,136,235			5,415,933			4,665,359			4,654,954		$	7,605,766		$	7,395,755		$	6,954,847		$	5,136,235		$	5,415,933
Deposits		3,457,202			3,058,142			2,920,555			2,276,567			2,234,485		$	3,867,036		$	3,752,676		$	3,457,202		$	3,058,142		$	2,920,555
Securities sold under agreements to repurchase and federal funds purchased		257,002			120,874			116,279			467,070			669,202		$	128,411		$	249,263		$	257,002		$	120,874		$	116,279
Other borrowings ~~(g)~~(f)		2,086,368			1,209,571			1,686,613			1,326,264			1,351,881		$	2,426,000		$	2,131,976		$	2,086,368		$	1,209,571		$	1,686,613
Shareholders’ equity		125,251			85,675			77,411			74,172			72,615		$	177,585		$	183,080		$	125,251		$	85,675		$	77,411
Book value per share (c), (h)		4.25			3.68			3.45			3.31			3.25
Book value per share (d), (g)																	4.84			5.25			4.25			3.68			3.45
Return on average equity ~~(i)~~(h)		13.16	%		8.63	%		6.85	%		7.44	%		5.77	%		(1.24	)%		8.08	%		13.16	%		8.63	%		6.85
BankAtlantic Asset quality ratios
Non-performing assets, net of reserves as a percent of total loans, tax certificates and real estate owned		0.19	%		0.36	%		0.86	%		1.49	%		1.09	%		0.55	%		0.17	%		0.19	%		0.36	%		0.86
Loan loss allowance as a percent of non-performing loans		582.18	%		422.06	%		235.61	%		114.44	%		193.30	%		982.89	%		605.68	%		582.18	%		422.06	%		235.61
Loan loss allowance as a percentage of total loans		1.00	%		1.24	%		1.38	%		1.57	%		1.62	%		0.94	%		0.88	%		1.00	%		1.24	%		1.38
Levitt Corporation:
Consolidated margin on sales of real estate	$	143,378		$	73,627		$	48,133		$	31,455		$	21,293
Consolidated margin percentage		26.1	%		26.0	%		23.2	%		22.0	%		21.2	%
Homes delivered		2,126			1,011			740			597			441
Backlog of homes (units)		1,814			2,053			824			584			487
Backlog of homes (value)	$	448,647		$	458,771		$	167,526		$	125,041		$	94,751
Land division acres sold (j)		764			1,337			1,473			253			145
Capital Ratios for BankAtlantic:
Capital Ratios for BankAtlantic
Total risk based capital		10.80	%		12.06	%		11.89	%		12.90	%		11.00	%		12.08	%		11.50	%		10.80	%		12.06	%		11.89
Tier I risk based capital		9.19	%		10.22	%		10.01	%		11.65	%		9.74	%		10.50	%		10.02	%		9.19	%		10.22	%		10.01
Leverage		6.83	%		8.52	%		7.26	%		8.02	%		6.66	%		7.55	%		7.42	%		6.83	%		8.52	%		7.26

Levitt Corporation
Consolidated margin on sales of real estate (i)																$	83,125		$	150,030		$	143,378		$	73,627		$	48,133
Consolidated Margin																	14.70	%		26.90	%		26.1	%		26.0	%		23.2
Homes delivered (units)																	1,660			1,789			2,126			1,011			740
Backlog of homes (units)																	1,248			1,792			1,814			2,053			824
Backlog of homes (sales value)																$	438,240		$	557,325		$	448,647		$	458,771		$	167,526
Land division acres sold																	371			1,647			1,212			1,337			1,715


(a)		Since its inception, BFC has not paid any cash ~~dividends.~~dividends on its common stock.

(b)		Ratios were computed using quarterly averages.

(c)		While the Company has two classes of common stock outstanding, the two-class method is not presented because the company’s ~~Capital~~capital structure does not provide for different dividend rates or other preferences, other than voting rights, between the two ~~classes.~~classes

~~(c)~~(d)		I.R.E. Realty Advisory Group, Inc. (“RAG”) owns 4,764,282 shares of BFC’s Class A Common Stock and 500,000 shares of BFC Class B Common Stock. Because the Company owns 45.5% of the outstanding common stock of RAG, ~~2,167,748~~2,165,367 shares of Class A Common Stock and 227,500 shares of Class B Common Stock are eliminated from the number of shares outstanding for purposes of computing earnings per share and book value per share.

~~(d)~~		All shares and per share data has been adjusted for a five for four common stock split effected in the form of a 25% stock dividend payable in shares the Company’s Class A Common Stock to the holder of Class A and Class B Common Stock of record on March 7, 2005

(e)		The operations, fixed charges and ~~dividends~~dividend of BankAtlantic Bancorp and Levitt are not included in the calculation because each of those subsidiaries are separate, publicly traded companies whose Board of Directors are composed of individuals, a majority of whom are independent. Accordingly, decisions made by those Boards, including with respect to the payment of ~~dividends,~~dividend, are not within our control.

(f)		~~Includes $0, $233,000, $0, and $5,000 and $1.3 million of bankers acceptances in 2004, 2003, 2002, 2001 and 2000, respectively.~~

~~(g)~~		Other borrowings ~~consisted~~consist of FHLB advances, subordinated debentures, notes, mortgage notes payable, ~~and~~ bonds payable, ~~and guaranteed preferred beneficial interests in Bancorp’s junior subordinated debentures~~secured borrowings, and junior subordinated debentures. Secured borrowings were recognized on loan participation agreements that constituted a legal sale of a portion of the loan but that were not qualified to be accounted for as a loan sale.

~~(h)~~(g)		Preferred stock redemption price is eliminated from shareholders’ equity for purposes of computing book value per share.

~~(i)~~(h)		~~Ratios were computed using quarterly averages.~~The return on average equity is equal to net income (loss) (numerator) divided by average consolidated shareholders’ equity (denominator) during the respective year.

~~(j)~~(i)		~~Land~~Margin is calculated as sales ~~between Levitt Corporation’s subsidiaries were eliminated~~of real estate minus cost of sales of real estate. Included in ~~consolidation~~cost of sales of real estate for the year ended December 31, 2006 are homebuilding inventory impairment charges and write-offs of deposits and pre-acquisition costs of $36.8 million.

2754

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BFC FINANCIAL CORPORATION
SELECTED PARENT COMPANY ONLY FINANCIAL DATA
(In thousand)

The following table sets forth selected summary parent company only financial ~~data for BFC as of and for the years ended December 31, 2002 through 2004.~~data.

As of or for the Year Ended December 31,
(in thousands) 2004 2003 2002
Balance Sheet Data:

Assets

Cash and cash equivalents $ 1,520 $ 1,536 $ 797
Investment securities 11,800 1,218 1,269
Investment in venture partnerships 971 626 2,782
Investment in BankAtlantic Bancorp, Inc. 103,125 91,869 106,017
Investment in Levitt Corporation 48,983 27,885 —
Investment in other subsidiaries 14,219 13,680 13,620
Loans receivable 3,364 4,175 4,175
Other assets 2,596 484 768

Total assets $ 186,578 $ 141,473 $ 129,428

Liabilities and Shareholders’ Equity

Mortgages payable and other borrowings $ 10,483 $ 6,015 $ 6,015
Other liabilities 23,816 23,234 22,805
Deferred income taxes 27,028 26,549 23,197

Total liabilities 61,327 55,798 52,017

Total shareholders’ equity 125,251 85,675 77,411

Total liabilities and shareholders’ equity 186,578 141,473 129,428

Statements of Operations Data:

Revenues $ 3,514 $ 1,051 $ 763
Expenses 6,717 3,954 3,898

(Loss) before undistributed earnings from subsidiaries (3,203 ) (2,903 ) (3,135 )
Equity from earnings in BankAtlantic Bancorp 15,694 15,222 11,380
Equity from earnings in Levitt 10,265 — —
Equity from earnings (loss) in other subsidiaries (311 ) (1,583 ) (633 )

Income before income taxes 22,445 10,736 7,612
Provision for income taxes 8,215 3,714 2,420

Net income 14,230 $ 7,022 $ 5,192
5% Preferred Stock dividends 392 — —

$ 13,838 $ 7,022 $ 5,192

Statements of Cash Flow Data:

Operating Activities:

Income (loss) from continuing operations $ 14,230 $ 5,879 $ (5,986 )
Income from discontinued operations, net of tax — 1,143 2,536
Income from extraordinary item, net of tax — — 23,749
Cumulative effect of a change in accounting principle, net of tax — — (15,107 )
Other operating activities (20,317 ) (9,380 ) (9,894 )

Net cash used in operating activities (6,087 ) (2,358 ) (4,702 )
Net cash (used in) provided by investing activities (7,503 ) 2,815 1,408
Net cash provided by financing activities 13,574 282 1,385

Increase (decrease) in cash and cash equivalents (16 ) 739 (1,909 )
Cash at beginning of period 1,536 797 2,706

Cash at end of period $ 1,520 $ 1,536 $ 797

December 31,
2006 2005 2004
Balance Sheet Data:

Assets

Cash and cash equivalents $ 17,815 $ 26,683 $ 1,520
Investment securities 2,262 2,034 1,800
Investment in Benihana 20,000 20,000 10,000
Investment in venture partnerships 908 950 971
Investment in BankAtlantic Bancorp, Inc. 113,586 112,218 103,125
Investment in Levitt Corporation 57,009 58,111 48,983
Investment in other subsidiaries 1,525 1,631 31,867
Loans receivable 2,157 2,071 3,364
Other assets 2,261 960 2,596

Total assets $ 217,523 $ 224,658 $ 204,226

Liabilities and Shareholders’ Equity

Notes payable $ — $ — $ 10,483
Advances from and negative basis in wholly owned subsidiaries 1,290 462 34,636
Other liabilities 7,351 7,417 6,828
Deferred income taxes 31,297 33,699 27,028

Total liabilities 39,938 41,578 78,975

Total shareholders’ equity 177,585 183,080 125,251

Total liabilities and shareholders’ equity $ 217,523 $ 224,658 $ 204,226

For the Years Ended December 31,
2006 2005 2004
Statements of Operations Data:

Revenues $ 2,232 $ 1,775 $ 3,514
Expenses (a) 8,413 14,904 6,717

(Loss) before earnings (loss) from subsidiaries (6,181 ) (13,129 ) (3,203 )
Equity from earnings in BankAtlantic Bancorp 5,807 9,053 11,817
Equity from (loss) earnings in Levitt (1,522 ) 9,125 10,265
Equity from (loss) earnings in other subsidiaries (658 ) 6,671 (35 )

(Loss) income before income taxes (2,554 ) 11,720 18,844
(Benefit) provision for income taxes (1,857 ) 4,000 6,826

(Loss) income from continuing operations (697 ) 7,720 12,018
(Loss) income from discontinued operations, net of tax (1,524 ) 5,054 2,212

Net (loss) income (2,221 ) 12,774 14,230
5% Preferred Stock dividends 750 750 392

Net (loss) income $ (2,971 ) $ 12,024 $ 13,838

Statements of Cash Flow Data:

Operating Activities:

Income (loss) from continuing operations $ (697 ) $ 7,720 $ 12,018
Income (loss) from discontinued operations, net of tax (1,524 ) 5,054 2,212
Other operating activities (820 ) (12,709 ) (18,243 )

Net cash (used in) provided by operating activities (3,041 ) 65 (4,013 )
Net cash used in by investing activities (923 ) (10,029 ) (9,577 )
Net cash (used in) provided by financing activities (4,904 ) 35,127 13,574

(Decrease) increase in cash and cash equivalents (8,868 ) 25,163 (16 )
Cash at beginning of period 26,683 1,520 1,536

Cash at end of period $ 17,815 $ 26,683 $ 1,520


(a)		During the year ended December 31, 2005, expenses includes the write-off of wholly-owned subsidiaries’ inter-company advances of approximately $6.6 million, and the equity from earnings in other subsidiaries includes the earnings recognized by BFC’s wholly-owned subsidiaries in connection with this write-off. These inter-company advances were eliminated in consolidation.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
~~General~~
~~We are~~

Introduction

BFC Financial Corporation (“BFC” or the “Company”) is a diversified holding company ~~whose~~with investments in companies engaged in retail and commercial banking, homebuilding, master planned community development and time share and vacation ownership. The Company also owns an interest in an Asian-themed restaurant chain and various real estate and venture capital investments. The Company’s principal holdings consist of direct controlling interests in BankAtlantic Bancorp, ~~our financial services business division~~Inc. (“BankAtlantic Bancorp”) and Levitt ~~our homebuilding and real estate development business division. As a consequence~~Corporation (“Levitt”). Through its control of ~~our direct controlling interests, we have~~BankAtlantic Bancorp, BFC has indirect controlling interests ~~through BankAtlantic Bancorp~~ in BankAtlantic and ~~Ryan Beck and through our~~its subsidiaries (“BankAtlantic”). Through its control of Levitt, ~~we have an interest~~BFC has indirect controlling interests in Levitt and Sons, LLC and its subsidiaries (“Levitt and Sons”) and Core Communities, LLC and ~~Bluegreen. We~~its subsidiaries (“Core Communities”) and an indirect non-controlling interest in Bluegreen Corporation (“Bluegreen”). BFC also ~~hold~~holds a direct non-controlling ~~minority~~ investment in ~~Benihana.~~Benihana, Inc. (“Benihana”). As a result of ~~our~~the Company’s position as the controlling ~~shareholder~~stockholder of BankAtlantic Bancorp, ~~we are~~the Company is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision.

Our primary activities presently relate to managing our current investments ~~but we intend to seek to identify~~ and ~~make~~identifying and potentially making new investments. As of December 31, ~~2004,~~2006, we had total consolidated assets of approximately ~~$7.0~~$7.6 billion, including the assets of our consolidated subsidiaries, ~~minority~~noncontrolling interest of ~~$613~~$698.3 million and shareholders’ equity of approximately ~~$125~~$177.6 million.
We operate through three primary business segments: BFC Activities, Financial Services and Homebuilding & Real Estate Development.

In December 2005, I.R.E. BMOC, Inc. (“BMOC”), a wholly owned subsidiary of BFC, transferred its shopping center to its lender in full settlement of the mortgage note collateralized by the center. The financial results of BMOC are reported as discontinued operations in accordance with Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” (“SFAS 144”).

As a holding company with ~~control~~controlling positions in BankAtlantic Bancorp and Levitt, generally accepted accounting principles ~~(GAAP) require~~(“GAAP”) requires the consolidation of ~~the~~their financial ~~results of both BankAtlantic Bancorp and Levitt.~~results. As a consequence, the assets and liabilities of both entities are presented on a consolidated basis in BFC’s ~~consolidated~~ financial statements. However, ~~we also present the unconsolidated balance sheet of BFC on a stand alone basis (see Selected Parent Company Only Financial Data). Except~~except as otherwise noted, the debts and obligations of the consolidated entities are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or ~~distribution from the entity.~~distribution. The recognition by BFC of income from controlled entities is determined based on the ~~percentage~~total percent of ~~its~~ economic ownership in those ~~entities. As~~entities as shown below, BFC’s economic ownership in BankAtlantic Bancorp and Levitt is 22.0% and 16.6%, respectively, which results in BFC recognizing only 22.0% and 16.6% of BankAtlantic Bancorp’s and Levitt’s income, respectively. The portion of income in those subsidiaries not attributable to our economic ownership interests is classified in our financial statements as “Minority Interest” and is subtracted from income before income taxes to arrive at consolidated net income in our financial statements to calculate the income of BFC. Additionally, the Company owns equity securities in the ~~technology sector owned by partnerships included in our consolidated financial statements because of our general partner interest in those partnerships.~~
table below.

BFC’s ownership in BankAtlantic Bancorp and Levitt atas of December 31, ~~2004~~2006 was as follows:


						Percent								Percent
	Shares		Percent of			of			Shares		Percent of			of
	Owned		Ownership			Vote			Owned		Ownership			Vote
BankAtlantic Bancorp
Class A Common Stock		8,329,236		15.09	%		8.00	%		8,329,236		14.83	%		7.86	%
Class B Common Stock		4,876,124		100.00	%		47.00	%		4,876,124		100.00	%		47.00	%
Total		13,205,360		21.98	%		55.00	%		13,205,360		21.64	%		54.86	%

Levitt
Class A Common Stock		2,074,243		11.15	%		5.91	%		2,074,243		11.15	%		5.91	%
Class B Common Stock		1,219,031		100.00	%		47.00	%		1,219,031		100.00	%		47.00	%
Total		3,293,274		16.62	%		52.91	%		3,293,274		16.61	%		52.91	%

~~BankAtlantic Bancorp (NYSE:BBX) is~~

Recent Developments

On January 30, 2007, BFC entered into a ~~Florida-based diversified financial services holding company. BankAtlantic Bancorp’s principal assets include~~definitive agreement (“Merger Agreement”) with Levitt pursuant to which Levitt will become a wholly-owned subsidiary of BFC. BFC currently owns all of Levitt’s Class B Common Stock and approximately 11% of Levitt’s Class A Common Stock. Under the capital stock of BankAtlantic and Ryan Beck. BankAtlantic is a federal savings bank headquartered in Fort Lauderdale, Florida, which provides traditional retail banking services and a wide range of commercial banking products and related financial services. Ryan Beck is a full service broker-dealer headquartered in Florham Park, New Jersey. Ryan Beck offers a wide range of investment products and financial services for individual and institutional clients.
Levitt (NYSE:LEV) engages in homebuilding, land development and other real estate activities through Levitt and Sons, LLC, Core Communities, LLC, Levitt Commercial, LLC, Bowden Building Corporation and investments in real estate projects. At December 31, 2004 Levitt also owned approximately 31%terms of the ~~outstanding common stock of Bluegreen, a~~
merger agreement, which has been approved

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by the Special Independent Committees and the Boards of Directors of both companies, holders of Levitt’s Class A Common Stock other than BFC will receive 2.27 shares of BFC Class A Common Stock for each share of Levitt Class A Common Stock they hold. Based on BFC’s closing stock price of $6.35 on January 30, 2007, the transaction valued each share of Levitt’s Class A Common Stock at $14.41, which represented an approximate 32% premium over market on that date. The aggregate transaction value on January 30, 2007 was estimated to be approximately $286 million. Levitt’s stock options and restricted stock awards will be converted into BFC options and restricted stock awards, with appropriate adjustments. The Levitt shares held by BFC will be cancelled in the transaction. The transaction is subject to customary closing and termination conditions and the approval of BFC’s and Levitt’s shareholders. The merger is subject to a number of risks and uncertainties, including, without limitation, the risk that the market price of BFC Class A Common Stock as quoted on the NYSE Arca Stock Exchange might increase during the interim period between the date of the merger agreement and the date on which the merger is completed, thereby increasing the value of the consideration to be received by holders of Levitt’s Class A Common Stock in connection with the merger, and the risk that the merger may not be completed as contemplated, or at all. The merger is currently expected to close during 2007. If the merger is completed, all of Levitt’s common stock will be canceled and Levitt’s Class A Common Stock will no longer be listed on the New York Stock ~~Exchange-listed~~Exchange. While the amounts will vary based upon the timing of the closing and the market price of BFC on the closing date, if calculation were based on the year-end balance sheet of Levitt and the market price of BFC on the date of the Merger Agreement, the transaction would generate approximately $70 million of negative goodwill which would be allocated to the assets of Levitt acquired. The transaction would also increase BFC’s total shareholders’ equity from $177 million to approximately $422 million.

On February 28, 2007, BankAtlantic Bancorp completed the sale of its wholly owned subsidiary, Ryan Beck Holdings, Inc. and its subsidiaries (“Ryan Beck”) to Stifel Financial Corp. (“Stifel”). The tax-free transaction resulted in BankAtlantic Bancorp and Ryan Beck option holders receiving initial consideration of 2,467,600 shares of Stifel (NYSE:~~BXG) company that acquires, develops, markets~~SF) common shares and ~~sells vacation ownership interests~~about $2.65 million in ~~primarily “drive-to” resorts~~cash. BankAtlantic Bancorp is also to receive five-year warrants to purchase approximately 481,715 Stifel common shares at $36 per share. The receipt of warrants is subject to Stifel shareholder approval and ~~develops~~if the Stifel shareholder approval is not obtained BankAtlantic Bancorp will receive approximately $19.3 million cash. The transaction also calls for earn-out payments of, at most $40 million for the next two years based on defined revenue attributable to specified individuals in Ryan Beck’s then existing private client division for two years following the transaction closing and ~~sells residential home sites around golf courses~~25% of investment banking fees over $25 million for each of the next two years, based on defined revenue attributable to specified individuals in Ryan Beck’s then existing investment banking division. Stifel may pay each of the earn-outs in either cash or ~~other amenities. Levitt acquired Bowden on April 28,~~its own common shares. As a consequence of the sale of Ryan Beck to Stifel, the results of operations of Ryan Beck are presented as “Discontinued Operations” in the Consolidated Statement of Operations for all periods presented. The financial information of Ryan Beck is included in the Consolidated Statement of Financial Condition, Consolidated Statement of Shareholders’ Equity, Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statement of Cash Flows for all periods presented.

BFC Financial Corporation Summary of Consolidated Results of Operations

The table below sets forth the Company’s primary business segments results of operations (in thousands):

For the Years Ended December 31,
2006 2005 2004
BFC Activities $ (5,009 ) $ (10,450 ) $ (8,241 )
Financial Services 26,879 42,526 53,285
Homebuilding & Real Estate Development (9,163 ) 54,911 57,362

12,707 86,987 102,406
Noncontrolling interest 13,404 79,267 90,388

(Loss) income from continuing operations (697 ) 7,720 12,018
Discontinued operations, less controlling interest and income tax (1,524 ) 5,054 2,212

Net (loss) income $ (2,221 ) $ 12,774 $ 14,230

The Company reported a net loss of $2.2 million in 2006 as compared to net income of $12.8 million in 2005 and $14.2 million in 2004. Included in these totals for the years 2006, 2005 and 2004 ~~for approximately $7.4 million. Bowden~~ is a ~~builder~~$1.5 million loss, $5.1 million of ~~single family homes based in Memphis, Tennessee.~~
~~The following events have occurred during the past three years that have had~~income and $2.2 million of income from discontinued operations net of noncontrolling interest and income tax, respectively. As a ~~significant impact on~~consequence of BankAtlantic Bancorp’s sale of Ryan Beck to Stifel as described above, the Company reported a loss

from discontinued operations, net of noncontrolling interest and ~~upon~~income tax of $1.5 million in 2007 and income from discontinued operations, net of noncontrolling interest and income tax of $2.2 million and $2.4 million for the years 2005 and 2004, respectively. Also included in the Company’s discontinued operations in 2005 and 2004 is $2.8 million in income and a $170,000 loss, respectively, associated with the transfer by BMOC of its ~~past and future~~real property in settlement of its obligations under a mortgage note payable. The $2.8 million in 2005 includes the gain from the disposition of the BMOC property of approximately $3.2 million. There was no activity related to BMOC for the year ended December 31, 2006.

The results of ~~operations:~~
operation of our business segments and related matters are discussed below.

Consolidated Financial Condition

Consolidated Assets and Liabilities

Total assets at December 31, 2006 and 2005 were $7.6 billion and $7.4 billion, respectively. The changes in components of total assets to December 31, 2006 from December 31, 2005 are summarized below:

•	~~In March 2002,~~	A decline in cash and due from depository institutions balances of approximately $101.4 million which resulted from: i) Approximately $28.4 million at BankAtlantic ~~acquired Community Savings Bancshares, Inc., the parent company~~Bancorp primarily due to a decline in cash letter receivables from electronic clearing; ii) lower cash balances at BFC of ~~Community Savings, F.A. (“Community”),~~approximately $8.6 million primarily due to cash used in operations of approximately $4.4 million and ~~immediately merged Community into BankAtlantic. Community had its headquarters~~financing activities of $4.9 million; and ~~branches~~iii) lower cash balances at Levitt of approximately $65.2 million primarily due to cash used in ~~BankAtlantic’s South Florida market~~operations and ~~had approximately $909~~investing activities of $240.1 million and $28.2 million, respectively, partially offset by an increase in ~~assets and $637 million in deposits on the date~~cash provided by financing activities of ~~acquisition.~~$203.1 million;

•	~~In April 2002, Levitt acquired 8.3 million shares of~~	A decline in securities available for sale, reflecting BankAtlantic’s investment strategy to limit asset growth in response to the outstanding common stock of Bluegreen for approximately $53.8 million. BankAtlantic Bancorp previously had acquired approximately 1.2 million shares of Bluegreen which were subsequently acquired by Levitt from BankAtlantic Bancorp in connection with the spin-off of Levitt in December 2003 in exchange for a $5.5 million promissory note and additional shares of Levitt (which were distributed in the spin-off). The investment in Bluegreen was recorded at cost and the carrying amount of the investment is adjustedflat to recognize Levitt’s interest in the earnings or losses of Bluegreen after the acquisition date. At December 31, 2004 and 2003, Levitt’s investment in Bluegreen was approximately $80.6 million and $70.9, respectively. The 9.5 million shares of Bluegreen common stockinverted yield curve environment that ~~Levitt owns represented approximately 31% of Bluegreen’s outstanding common stock as of December 31, 2004.~~existed during 2006;

•	In April 2002, Ryan Beck acquired certain of the assets and assumed certain liabilities of the broker-dealer formerly known as Gruntal & Co., LLC. Before this acquisition, Ryan Beck had 130 account executives located	Higher investment securities balances, due to BankAtlantic’s additional investments in 9 offices, principally in the New Jersey/New York metropolitan area and southeast Florida. This transaction added over 400 additional consultants and 25 new offices to Ryan Beck’s operations. Ryan Beck currently has over 450 financial consultants in 39 offices and now has a substantial east coast presence, as well as offices in the mid-west and west coast.tax exempt securities;

•	~~In April 2002, BankAtlantic embarked upon its~~“~~Florida’s Most Convenient Bank”~~ ~~initiative to attract retail customers. This campaign includes seven-day branch banking and extended weekday hours, along~~	An increase in tax certificate balances, associated with a 24/7 live customer service center, Totally Free Checking, free online banking, Totally Free Change Exchange coin counters, and additional product and service initiatives. During 2004, BankAtlantic began an initiative to extend branch operating hours to midnight and began offering free internet bill-paying services. BankAtlantic also announced a plan to grow its retail network through de novo expansion while renovating its existing branches to further its branding as Florida’s Most Convenient Bank. While the initiatives have resulted in increased expenses, BankAtlantic’s ~~believes this marketing campaign has contributed to significant new deposit account openings and growth in low cost deposits.~~expanding purchases outside of Florida:

•	~~In May 2003, BFC’s Class A common shares were listed on the NASDAQ National Market under the trading symbol of “BFCF”.~~	Higher investment in FHLB stock, related to BankAtlantic’s additional FHLB advance borrowings;

•	~~On December 2, 2003, BankAtlantic Bancorp’s Board of Directors authorized~~	Decline in BankAtlantic’s loan receivable balances, associated with lower commercial real estate loan balances primarily resulting from a slow-down in the spin-off of Levitt to the shareholders of BankAtlantic Bancorp by declaring a dividend of all of BankAtlantic Bancorp’s shares of Levitt. Pursuant to the terms of the spin-off, BankAtlantic Bancorp’s shareholders each received one share of Levitt Corporation Class A Common Stock for every four shares of BankAtlantic Bancorp Class A Common Stock owned, and one share of Levitt Corporation Class B Common Stock for every four shares of BankAtlantic Bancorp Class B Common Stock owned. The shares were distributed on December 31, 2003 to shareholders of record on December 18, 2003.real estate construction market;

•	~~In April 2004, Levitt sold 5,000,000 shares~~	Higher BankAtlantic residential loans held for sale balances, resulting from an increase in originated loans;

•		An increase in BankAtlantic’s accrued interest receivable, resulting from higher earning asset yields during 2006 compared to 2005;

•		A net increase in Levitt’s inventory of ~~its Class A Common Stock~~real estate of approximately $210.8 million, which includes approximately $64.8 million in land acquisitions by Levitt’s homebuilding division and an ~~underwritten public offering, which decreased BFC’s combined ownership~~increase in BankAtlantic Bancorp’s real estate inventory related to a decision to build homes at the River Club real estate development;

•		Higher real estate owned balances, as BankAtlantic took possession of the real estate securing a $27.2 million land development loan;

•		Investments in unconsolidated affiliates increased primarily due to a net increase in Levitt’s investment in Bluegreen Corporation of $11.2 million primarily associated with $9.7 million of earnings from Bluegreen and $1.3 million from unrealized gains associated with Bluegreen’s other comprehensive income, and an increase in BankAtlantic Bancorp’s investment in unconsolidated affiliates due to additional investments in income producing real estate joint ventures during 2006;

•		An increase in property and equipment of approximately $107.7 million associated with BankAtlantic’s store expansion and growth initiatives and Levitt’s increase of approximately $34.4 million associated with increased investment in commercial properties under construction at Core Communities, Levitt’s support for infrastructure in Levitt’s master planned communities, and hardware and software in connection with Levitt’s systems upgrade; and

•		The write off of Levitt’s ~~outstanding common stock by~~goodwill of approximately ~~5.6% to 16.6%~~$1.3 million associated with Levitt’s Tennessee operations.

The Company’s total liabilities at December 31, 2006 and 2005 were $6.7 billion and $6.5 billion, respectively. The changes in components of total liabilities from December 31, 2005 to December 31, 2006 are summarized below:

	•		Higher BankAtlantic interest bearing deposit balances resulting from growth in savings and ~~decreased BFC’s voting interest~~NOW checking deposit accounts associated with the “Florida’s Most Convenient Bank” marketing initiatives;

	•		Lower BankAtlantic non-interest bearing deposit balances primarily resulting from a decline in ~~Levitt by 2.2% to 52.9%.~~the average customer account balances during 2006;

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•	~~During~~	A decrease of $9.0 million in customer deposits at Levitt due to lower backlog at December 31, 2006;

•		An increase in FHLB advance borrowings at BankAtlantic to fund the ~~quarter ended June 30, 2004,~~decline in short-term borrowings;

•		An increase in subordinated debentures, notes and bonds payable of approximately $167.8 million, primarily related to project debt associated with 2006 land acquisitions and land development activities at Levitt, partially offset with declines in notes payable resulting from the ~~Company entered into~~repayment of construction loans to an agreement with Benihana Inc., to purchase an aggregate of 800,000 shares of Series B Convertible Preferred Stock for $25.00 per share. On July 1, 2004, the Company funded the first tranche of convertible preferred stockunrelated financial institution at BankAtlantic Bancorp’s real estate joint venture, which is consolidated in the ~~amount~~Company’s financial statements;

•		An increase in junior subordinated debentures of ~~$10.0~~approximately $30.9 million associated with Levitt;

•		Declines in other liabilities of approximately $14.5 million were primarily associated with the payment in April 2006 of a $10 million reserve by BankAtlantic established in 2005 for ~~the purchase of 400,000 shares. The purchase of the remaining 400,000 shares of convertible preferred stock will be funded from time to time~~possible AML-BSA fines and penalties and lower current income taxes payable at ~~the election of Benihana during the two-year period commencing on the first anniversary of the closing. The Company has the right to receive cumulative quarterly dividends at~~BankAtlantic Bancorp. These declines in other liabilities were partially offset with an ~~annual rate equal to $1.25 per share,~~increase in Levitt’s accounts payable on the last day of each calendar quarter commencing September 30, 2004. It is anticipated the Company will receive approximately $125,000 per quarter. See Item 3. Legal Proceedings for a discussion of litigation brought against us and ~~Benihana~~accrued liabilities relating to ~~our investment.~~accruals for certain construction accruals, and professional services primarily related to Levitt’s implementation of its new systems; and

•		A decrease in the deferred tax liability primarily associated with decreases in earnings from BankAtlantic Bancorp and Levitt.

Noncontrolling Interest

At December 31, 2006 and 2005, noncontrolling interest held by others in our subsidiaries was approximately $698.3 million and $696.5 million, respectively. The following table summarizes the noncontrolling interest held by others in our subsidiaries (in thousands):

December 31, December 31,
2006 2005
BankAtlantic Bancorp $ 411,396 $ 404,118
Levitt 286,230 291,675
Joint Venture Partnerships 697 729

$ 698,323 $ 696,522

The increase in noncontrolling interest in BankAtlantic Bancorp was primarily attributable to BankAtlantic Bancorp’s $15.4 million in earnings, a $9.7 million increase in additional paid in capital from the issuance of BankAtlantic Bancorp common stock and associated tax benefits upon exercise by third parties of BankAtlantic Bancorp’s stock options, a $5.0 million increase in BankAtlantic Bancorp’s additional paid-in-capital associated with the expensing of share-based compensation and a $5.2 million increase in BankAtlantic Bancorp’s accumulated other comprehensive income, net of income tax benefits associated with the reduction in the minimum pension liability and lower unrealized losses on securities available for sale at December 31, 2006. The above increases were partially offset by the declaration of $9.7 million by BankAtlantic Bancorp dividends on its common stock, a $1.9 million decrease in BankAtlantic Bancorp’s retained earnings due to a cumulative effect adjustment upon adoption of Staff Accounting Bulletin No. 108 (“SAB 108”), a $15.1 million reduction in BankAtlantic Bancorp’s additional paid in capital resulting from the retirement of 528,896 shares of BankAtlantic Bancorp Class A Common Stock issued upon exercise of employee stock options and the retirement of 559,700 shares of BankAtlantic Bancorp Class A common stock associated with the BankAtlantic Bancorp’s Class A Common Stock repurchase program.

The decrease in noncontrolling interest in Levitt was attributable to Levitt’s loss of $9.2 million and the payment by Levitt of cash dividends on its common stock of $1.6 million. The above decreases were partially offset by a $3.3 million increase in Levitt’s additional paid-in-capital associated with the expensing of share-based compensation, a $776,000 increase in Levitt’s accumulated other income net of income taxes and $177,000 from the net effect of Levitt’s unconsolidated affiliates’ capital transactions.

Shareholders’ Equity

Shareholders’ equity at December 31, 2006 and December 31, 2005 was $177.6 million and $183.1 million, respectively. The decrease in shareholders’ equity was primarily due to a $2.2 million net loss, a $13.3 million reduction in additional paid in capital resulting from the retirement of the Company’s Class A and Class B common stock as consideration for the exercise price associated with the exercise of stock options and the related payment of withholding taxes, a $253,000 decrease in retained earnings due to our proportionate share of BankAtlantic Bancorp’s cumulative effect adjustment upon

adoption of SAB 108, a $16,000 reduction in additional paid in capital due to the net effect of subsidiaries’ capital transactions, net of income tax benefits, and $750,000 in cash dividends paid on the Company’s 5% Cumulative Convertible Preferred Stock. The above decreases were partially offset by a $9.1 million increase in additional paid in capital relating to the issuance of the Company’s common stock upon exercise of the Company’s stock options, a $973,000 increase in additional paid in capital associated with the expensing of share-based compensation and a $926,000 increase in accumulated other comprehensive income, net of income tax benefits.

BFC Impact of Inflation

The financial statements and related financial data and notes presented herein have been prepared in accordance with generally accepted accounting principles, except as otherwise noted and in those instances reconciled to the generally accepted accounting treatment of the financial measurement under discussion, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

The majority of our assets and liabilities are monetary in nature by virtue of our ownership interest in BankAtlantic Bancorp. As a result, interest rates have a more significant impact on our performance than the effects of general price levels. Although interest rates generally move in the same direction as inflation, the magnitude of such changes varies. The possible effect of fluctuating interest rates is discussed more fully under the section entitled “Consolidated Interest Rate Risk” In Item 7A below.

With respect to our real estate activities, primarily the activities of our subsidiary Levitt, inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates, as well as increased materials and labor costs may reduce gross margins. Given market conditions it may not be possible to raise prices or maintain sales. Further Levitt, generally enters into sales contracts prior to construction and cost increases during the construction period will negatively impact its margins and profitability.

Critical Accounting Policies

Management views critical accounting policies as accounting policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statements of financial condition and assumptions that affect the recognition of income and expenses on the consolidated statement of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in subsequent periods relate to the determination of the allowance for loan losses, evaluation of goodwill and other intangible assets for impairment, the valuation of real estate held for development, the valuation of equity method investments, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the valuation of the fair value of assets and liabilities in the application of the purchase method of accounting, the amount of the deferred tax asset valuation allowance, accounting for contingencies, and assumptions used in the valuation of ~~real estate held for development and equity method investments and accounting for contingencies.~~stock based compensation. The ~~seven~~nine accounting policies that we have identified as critical accounting policies are: (i) allowance for loan losses; (ii) valuation of securities as well as the determination of ~~other than temporary~~other-than-temporary declines in value; (iii) impairment of goodwill and other indefinite life intangible assets; (iv) impairment of long-lived assets; (v) accounting for business combinations; (vi) the valuation of real estate held for development and sale ~~and~~(vii) the valuation of equity method ~~investments; (vi)~~investments, (viii) accounting for ~~business combinations;~~contingencies; and ~~(vii)~~(ix) accounting for ~~contingencies.~~
~~We have discussed the~~share-based compensation. Our critical accounting ~~estimates outlined~~policies are further explained below ~~with~~within our ~~audit committee~~business segments results of ~~our board of directors,~~operations and ~~the audit committee has reviewed our disclosure.~~related matters.

See note 1, Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements, for a detailed discussion of our significant accounting policies.

~~Allowance for loan losses~~

BankAtlantic is in the business of making various loans and as of December 31, 2004 BankAtlantic’s loans receivable were approximately $4.6 billion and the related allowance for loan losses was approximately $46 million. The allowance for loan losses is maintained at an amount BankAtlantic’s considers adequate to absorb probable losses inherent in BankAtlantic’s loan portfolio. BankAtlantic has developed policies and procedures for evaluating its allowance for loan losses which consider all information available to them. However, BankAtlantic must rely on estimates and judgments regarding issues where the outcome is unknown. As a consequence, if circumstances change, the allowance for loan losses may decrease or increase significantly.

The calculation of allowance for loan losses consists of three components. The first component requires the identification of identify impaired loans based on management judgment and, if necessary, the assignment of a valuation allowance to the impaired loans. A loan is deemed impaired when collection of principal and interest based on the contractual terms of the loan is not likely to occur. Valuation allowances are established on loans that are collateral-dependent and foreclosure is probable based on management’s estimated fair value of the collateral less the cost to dispose of the collateral. Valuation allowances are established on other loans based on the present value of expected future cash flows. These valuations are based on available information and require estimates and subjective judgments about fair values of the collateral or expected future cash flows. Most of BankAtlantic’s loans do not have an observable market price and an estimate of the collection of contractual cash flows is based on the judgment of management. It is likely that materially different results would be obtain if different assumptions or conditions were to prevail. This would include updated information that came to management’s attention about the loans or a change in the current economic environment. As a consequence of the estimates and assumptions required to calculate the first component of allowance for loan losses, a change in these highly uncertain estimates could have a materially favorable or unfavorable impact on our financial condition and results of operations.

The second component of the allowance requires the grouping of loans that have similar credit risk characteristics so as to form a basis for predicting losses based on loss percentages and delinquency trends as it relates to the group. Management assigns an allowance to these groups of loans by utilizing data such as historical loss experiences, trends in the industry, static pool analysis, delinquency trends and credit scores. A subsequent change in data trends may result in material changes in this

3161

~~component of the allowance from period to period.~~

The third component of the allowance is the unassigned portion of the allowance. This component addresses certain industry and geographic concentrations, the view of regulators, model imprecision, change in underwriting standards and changes in the composition of the loan portfolio. This component requires substantial management judgment in adjusting the allowance for the changes in the current economic climate compared to the economic environment that existed historically. Due to the subjectivity involved in the determination of the unassigned portion of the allowance, the relationship of the unassigned component to the total allowance may fluctuate substantially from period to period.

We believe that the allowance for loan losses reflects management’s best estimate of incurred credit losses as of the statement of financial condition date. As of December 31, 2004, BankAtlantic’s allowance for loan losses was $46 million and BFC’s allowance for loan losses was $1.1 million. See “Provision for Loan Losses” for a discussion of the amounts of BankAtlantic allowance assigned to each loan product and the amount of our unassigned allowance. The estimated allowance derived from the above methodology may be significantly different from actual realized losses. Actual losses incurred in the future are highly dependent upon future events, including the economies of geographic areas in which we hold loans. These uncertainties are beyond management’s control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review BankAtlantic’s allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments and information available to them at the time of their examination.

On an on-going basis, the loan portfolio is monitored based on the loan mix, credit quality, historical trends and economic conditions. As a consequence, the allowance for loan losses estimates will change from period to period. A measure of this change is the ratio of the allowance for loan losses to total loans. This ratio has declined from 1.62% at December 31, 2000 to 1.00% at December 31, 2004. If the historical loss experience in the assigned portion of the allowance for loan losses was increased or decreased by 25 basis points at December 31, 2004, pre-tax earnings before minority interest for the year ended December 31, 2004 are estimated to increase or decrease by approximately $11 million and after minority interest (at BFC’s current proportionate share based on our 22% interest in BankAtlantic Bancorp, net of income taxes) to increase or decrease by approximately $1.5 million.

~~Valuation of securities and trading activities~~

The securities referred to here do not include BFC’s investments in BankAtlantic Bancorp or Levitt. BankAtlantic records its securities available for sale, investment securities, trading securities and derivative instruments in our statement of financial condition at fair value. The following three methods are used to determine fair value : obtaining market price quotes, using a price matrix, and applying a management valuation model.

~~The following table provides the sources of fair value for investment securities, trading securities and derivative instruments at December 31, 2004 (in thousands):~~

National
Market price Price Valuation
Quotes Matrix Model Total
Investment securities

Mortgage-backed securities $ — $ 500,517 $ — $ 500,517
Tax exempt securities — 353,441 — 353,441
Other securities — — 585 585
Equity securities 27,545 — — 27,545

Total investment securities 27,545 853,958 585 882,088

Trading securities

Securities owned 125,443 — — 125,443
Securities sold not yet purchased (39,462 ) — — (39,462 )

Total Trading securities
85,981 — — 85,981

Derivatives — — 49 49

Total
$ 113,526 $ 853,958 $ 634 $ 968,118

Equity securities trade daily on various stock exchanges. The fair value of these securities in our statement of financial condition was based on the closing price quotations at period end. The closing quotation represents inter-dealer quotations without retail markups, markdowns or commissions and do not necessarily represent actual transactions. We adjust our equity securities available for sale to fair value monthly with a corresponding increase or decrease, net of income taxes, to other comprehensive income. Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value.

A third-party service provides a pricing matrix to determine the fair value of debt securities available for sale. The pricing matrix computes a fair value of debt securities based on the securities’ coupon rate, maturity date and estimates of future prepayment rates. The valuations obtained from the pricing matrix are not actual transactions and will not be the actual amount realized upon sale. It is likely that materially different results would be derived if different interest rate and prepayment assumptions were used in the valuation. Debt securities available for sale are adjusted to fair value monthly with a corresponding increase or decrease, net of income taxes, to other comprehensive income. Debt securities held to maturity are recorded at historical cost with the fair value disclosed on our statement of financial condition. Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value.

Future contracts or commitments to purchase residential loans that are not listed on an exchange for which we cannot obtain broker quotes are nit available are valued based on a valuation model. Management estimates the valuation of these contracts based on market information. This valuation requires a significant amount of judgment in assessing the estimated fair value. These estimates would be significantly different if the assumptions concerning credit quality were changed.

At December 31, 2004, the fair value and unrealized gain associated with securities in our statement of financial condition was $749.0 million and $7.4 million, respectively. If interest rates were to decline by 200 basis points, we estimate that the fair value of the debt securities portfolio would increase by $100.4 million. In contrast, if interest rates were to increase by 200 basis points, we estimate that the fair value of the securities would decline by $88.8 million. The above changes in value are based on various assumptions concerning prepayment rates and shifts in the interest rate yield curve and do not take into account any mitigating steps that management might take in response to changes in interest rates. We are likely to obtain significantly different results if the assumptions were changed. At December 31, 2003 in our statement of financial condition securities had a fair value of $360.4 million and unrealized gains were $10.3 million .

Securities owned and securities sold but not yet purchased are accounted for at fair value with changes in fair value included in earnings. The fair value of these securities is determined by obtaining security values from various sources, including dealer price quotations and price quotations for similar instruments traded and management estimates. The majority of the securities owned are listed on national markets or market quotes can be obtained from brokers. The fair values of securities owned and securities sold but not yet purchased are highly volatile and are largely driven by general market conditions and changes in the market environment. The most significant factors affecting the valuation of securities owned and securities sold but not yet purchased is the lack of liquidity and credit quality of the issuer. Lack of liquidity results when trading in a position or a market sector has slowed significantly or ceased and quotes may not be available.

~~Impairment of Goodwill~~

Goodwill is tested for impairment annually. The test requires the determination of the fair value of our reporting units and a comparison of the reporting units’ fair value to their carrying value. The fair values of the reporting units are estimated using discounted cash flow present value techniques and management valuation models. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. These fair value estimates require a significant amount of judgment. Changes in management’s valuation of its reporting units may affect future earnings through the recognition of a goodwill impairment charge. At September 30, 2004 (BankAtlantic Bancorp’s goodwill impairment testing date) the fair value of BankAtlantic Bancorp reporting units was greater than their carrying value; therefore, goodwill was not impaired. If the fair value of BankAtlantic Bancorp reporting units declines below the carrying amount, BankAtlantic Bancorp would have to perform the second step of the impairment test. This step requires the determination of the fair value all assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation. This allocation will include core deposit intangible assets that are currently not recognized on our financial statements. These unrecognized assets may result in a significant impairment of goodwill. At December 31, 2004, total goodwill at BankAtlantic Bancorp was $76.7 million. The fair value of BankAtlantic Bancorp’s goodwill assigned to bank operations and Ryan Beck exceeds the carrying value by $565 million and $43 million, respectively

The acquisition of Bluegreen common stock in April 2002 resulted in approximately $4.1 million of goodwill and the acquisition of Bowden in April 2004 resulted in $1.3 million of goodwill being recorded by Levitt. Levitt performed its annual impairment test in December 2004 and determined that goodwill was not impaired.

~~Impairment of Long-Lived Assets~~

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When testing a long-lived asset for recoverability, it may be necessary to review estimated lives and adjust the depreciation period. Changes in circumstances and the estimates of future cash flows as well as evaluating estimated lives of long-lived assets are subjective and involve a significant amount of judgment. A change in the estimated life of a long-lived asset may substantially increase depreciation expense in subsequent periods. For purposes of recognition and measurement of an impairment loss, we are required to group long-lived assets at the lowest level for which identifiable cash flows are independent of other assets. These cash flows are based on projections from management reports which are based on subjective interdepartmental allocations. Fair values are not available for many of our long-lived assets, and estimates must be based on available information, including prices of similar assets and present value valuation techniques. At December 31, 2004, total property and equipment was $161 million, which includes $129.8 from BankAtlantic Bancorp, and $31.1 million from Levitt.

BankAtlantic Bancorp core deposit intangible assets are periodically reviewed for impairment at the branch level by reviewing the undiscounted cash flow by branch in order to assess recoverability. At December 31, 2004, BankAtlantic Bancorp’s core deposit intangible asset was $10.2 million. The undiscounted cash flows of the branches assigned to the core deposit intangible assets exceeded its carry amount at December 31, 2004.

During 2005, BankAtlantic Bancorp expects to relocate its new corporate headquarters. At December 31, 2004 the facility was considered “held and used”, as defined by FASB Statement No. 144, with a book value of $3.5 million. Based on a November 2004 appraisal, management believes the carrying value of the facility to be recoverable.

During 2004, BankAtlantic management finalized a plan to renovate the interior of BankAtlantic’s branches. As a result of the renovation plan, BankAtlantic shortened the estimated lives of $2.8 million of branch fixed assets resulting in $1.5 million of accelerated depreciation during 2004.

In October 2004, Levitt purchased an occupied office building in Fort Lauderdale, Florida for $16.2 million that it intends to use as its executive offices upon termination or modification of the existing tenant lease.

~~Accounting for Business Combinations~~

The Company and its subsidiaries accounts for business combinations, such as BankAtlantic Bancorp’s Community acquisition, Ryan Beck’s Gruntal transaction, Levitt’s Bluegreen purchase and Levitt’s Bowden acquisition based on the purchase method of accounting. The purchase method of accounting requires the acquirer to fair value the tangible net assets and identifiable intangible assets acquired. The fair values are based on available information and current economic conditions at the date of acquisition. The fair values may be obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers. These fair values estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different fair value estimates could affect future earnings through different values being utilized for the disposition or amortization of the underlying assets and liabilities acquired.

~~Real Estate Held for Development and Sale and Equity Method Investments~~

Real estate held for development and sale consists primarily of the combined activities of Levitt and its subsidiaries as well as the activities of a 50% owned real estate joint venture in (“Riverclub”) which BankAtlantic Bancorp is the primary beneficiary as defined by FIN 46. As a consequence of the implementation of FIN 46 on July 1, 2003, the Company consolidated Riverclub in its financial statements effective January 1, 2003. In periods prior to 2003, Riverclub was accounted for on the equity method. Also included in real estate held for development and sale is real estate held directly by BFC of approximately $3.5 million at December 31, 2004, which includes Burlington Manufacturers Outlet Center, a shopping center in North Carolina and the unsold land at the commercial development known as Center Port in Pompano Beach, Florida. At December 31, 2004, 2003 and 2002, the combined balance of real estate held for development and sale and investments in and advances to unconsolidated subsidiaries were $533.7 million, $386.8 million and $283.3 million, respectively.

Real estate held for development and sale includes land acquisition costs, land development costs, interest and other construction costs, all of which are accounted for in our financial statements at accumulated cost or when circumstances indicate that the inventory is impaired at estimated fair value. Estimated fair value is based on disposition of real estate in the normal course of business under existing and anticipated market conditions. The evaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances that may affect fair value, including management’s plans for the property. Due to the large acreage of land holdings, disposition in the normal course of business is expected to extend over a number of years. Uncertainties associated with the economy, interest rates and the real estate market in general may significantly change the valuation of real estate investments.

Land and indirect land development costs are accumulated and allocated to various parcels or housing units using specific identification and allocation based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Other capitalized costs consist of capitalized interest, real estate taxes, tangible selling costs, local government fees and field overhead incurred during the development and construction period. See Capitalized Interest, below. Start-up costs and selling expenses are not capitalized.

Our subsidiaries account for joint ventures using the equity method of accounting if they own at least 20% of the voting stock or exercises significant influence over the operating and financial policies but do not own a controlling interest. Under the equity method, the initial investment in a joint venture is recorded at cost and is subsequently adjusted to recognize the subsidiary’s share of the joint venture’s earnings or losses. Joint venture investments and Levitt’s investment in Bluegreen are evaluated annually for other than temporary declines in value. Evidence of other than temporary declines includes the inability of the joint venture or investee to sustain an earnings capacity that would justify the carrying amount of the investment and consistent joint venture operating losses. The evaluation is based on available information including condition of the property and current and anticipated real estate market conditions.

~~Revenue Recognition~~

Revenue and all related costs and expenses from home, land and commercial property sales are recognized at the time that closing has occurred, when title and possession of the property and the risks and rewards of ownership transfer to the buyer, and when other sale and profit recognition criteria are satisfied as required under accounting principles generally accepted in the United States of America for real estate transactions. In order to properly match revenues with expenses, construction and land development costs incurred but not paid at the time of closing are estimated. Estimated costs to complete are determined for each closed home and land sale based upon historical data with respect to similar product types and geographical areas. The accuracy of estimates is monitored by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and modifications to the estimates are made based on these comparisons. The estimation process is not expected to change in the future nor are actual results expected to materially differ from such estimates.

~~Capitalized Interest~~

~~Contingent Liabilities~~

Contingent liabilities consist of Ryan Beck arbitration proceedings, litigation and regulatory and tax uncertainties arising from the conduct of our consolidated business activities. Reserves for legal and other claims are established when it becomes probable that a loss will be incurred and the loss is reasonably estimated. Attorneys, consultants and other professionals assess the probability of the estimated amounts. Changes in these assessments can lead to changes in the recorded reserves and the actual costs of resolving the claims may be substantially higher or lower than the amounts reserved for the claim. The reserving for contingencies is based on management’s judgment and changes in circumstances could significantly affect the amounts recorded in the Company’s financial statements.

~~BFC Financial Corporation Summary of Consolidated Results of Operations~~

Net income increased to $14.2 million in 2004 from $7.0 million in 2003 and $5.2 million in 2002. Included in these totals is income from discontinued operations of $1.1 million and $2.5 million for the years 2003 and 2002, respectively, attributable to Ryan Beck’s sale of GMS. Additionally, in 2002, the Company realized an extraordinary gain of $23.7 million associated with Ryan Beck’s acquisition of the assets of Gruntal because the fair value of the assets acquired exceeded the purchase price. Also in 2002, the Company realized a loss of $15.1 million due to the initial implementation of FAS 142 relating to the goodwill impairment associated with BankAtlantic Bancorp’s ownership of Ryan Beck in that BankAtlantic Bancorp performed the required goodwill impairment test and determined that the goodwill assigned to the Ryan Beck subsidiary was impaired.

Income from continuing operations increased to $14.2 million in 2004 from $5.9 million in 2003 and a loss of $6.0 million in 2002. A reconciliation of income from continuing operations from each of the Company’s primary business segments follows (in thousands):

For the Years Ended December 31,
2004 2003 2002
Financial services $ 70,768 $ 38,597 $ 19,150
Homebuilding and real estate development 57,362 26,820 19,512
Other operations (9,906 ) (9,601 ) (6,849 )
Eliminations — 1,156 495

118,224 56,972 32,308
Minority interest 103,994 51,093 38,294

Income (loss) from continuing operations 14,230 �� 5,879 (5,986 )
Income from discontinued operations, less income taxes — 1,143 2,536
Income from extraordinary item, less income taxes — — 23,749
Cumulative effect of a change in accounting principle less income taxes — — (15,107 )

Net income $ 14,230 $ 7,022 $ 5,192

~~Financial Services Results of Operations~~

This segment consists of the operations of BankAtlantic Bancorp and its subsidiaries, including its principal subsidiaries, BankAtlantic, a federally-chartered, federally-insured savings bank organized in 1952 and Ryan Beck, a full service broker-dealer.

Change Change
For the Ended Years December 31, 2004 vs. 2003 vs.
(In thousands) 2004 2003 2002 2003 2002
Revenues

Interest and dividend income $ 260,555 $ 261,849 $ 303,387 $ (1,294 ) $ (41,538 )
Investment banking 227,949 207,788 130,738 20,161 77,050
Other income 116,355 73,501 58,519 42,854 14,982

604,859 543,138 492,644 61,721 50,494

Cost and Expenses

Interest expense, net 87,722 113,217 148,891 (25,495 ) (35,674 )
(Recovery) provision for loan losses (5,109 ) (547 ) 14,077 (4,562 ) (14,624 )
Employee compensation and benefits 255,064 226,940 166,979 28,124 59,961
Occupancy and equipment 48,146 40,036 39,196 8,110 840
Advertising and promotion 21,036 12,724 10,447 8,312 2,277
Impairment of securities — — 18,801 — (18,801 )
Amortization of intangible assets 1,715 1,772 1,360 (57 ) 412
Cost associated with debt redemption 11,741 12,543 3,125 (802 ) 9,418
Acquisition-related charges and impairments — — 4,925 — (4,925 )
Other expenses 74,351 74,857 57,935 (506 ) 16,922

494,666 481,542 465,736 13,124 15,806

110,193 61,596 26,908 48,597 34,688

Equity in earnings from unconsolidated subsidiaries 485 425 1,293 60 (868 )

Income before income taxes 110,678 62,021 28,201 48,657 33,820
Provision for income taxes 39,910 23,424 9,051 16,486 14,373

Income from continuing operations before minority interest 70,768 38,597 19,150 32,171 19,447
Minority interest 55,074 31,709 23,853 23,365 7,856

Income from continuing operations $ 15,694 $ 6,888 $ (4,703 ) $ 8,806 $ 11,591

~~Summary~~

~~In April of 2002, BankAtlantic launched its “~~~~Florida’s Most Convenient Bank”~~marketing campaign, and this initiative continues to result in new customer generation. Since the beginning of 2002, BankAtlantic has opened nearly 410,000 new checking and savings accounts, and the fourth quarter of 2004 marked the twelfth consecutive quarter of double-digit growth in new low cost checking and savings account openings. Since January 1, 2002, total low cost deposits have increased from approximately $600 million to approximately $1.8 billion, an increase of 200%. Non-interest bearing demand deposits now constitute 26% of deposit funding, up from 21% last year and 13% before initiation of the campaign. These trends are expected to continue as BankAtlantic increases its advertising expenditures, creates other marketing programs and maintain its commitment to superior customer service.

Subject to changes in the interest rate environment, BankAtlantic net interest income is expected to improve in 2005. During 2004, the net interest margin, which we define as interest and dividend income minus interest expense. was positively impacted by management’s decision to prepay certain of its high rate FHLB Advances in 2003 and 2004. Although BankAtlantic Bancorp incurred pre-payment penalties that decreased earnings in those periods, BankAtlantic Bancorp prepaid these fixed rate advances with the expectation that it would lower its funding costs and improve its interest margin in future periods. BankAtlantic’s management believes the impact of this decision will be realized commencing in.

~~BankAtlantic also believes that is ”~~~~Florida’s Most Convenient Bank”~~~~campaign will to decrease average cost of its deposit funding as balances of non-interest bearing and other low cost deposits grow and constitute a larger percentage of total deposit funding.~~

BankAtlantic credit quality continues to improve. The ratio of non-performing loans to total loans declined to 0.17% at year-end. In 2004, BankAtlantic had net recoveries of $5.5 million vs. net charge offs of $1.1 million for 2003 and $19.8 million for 2002, and the associated ratio of net charge-offs (recoveries) to average outstanding loans declined during each of these respective years to (0.14%), 0.03% and 0.57%. In addition to lower loan charge-offs, in 2004 BankAtlantic was successful in recovering and collecting loans in its commercial real estate loan and leasing portfolios that had been charged off. However there is no assurance that BankAtlantic will have similar success in future periods and higher net charge-off ratios are expected.

BankAtlantic’s is emphasizing origination and purchase of loans collateralized by real estate, which have lower historical loss experiences than BankAtlantic’s discontinued loan products and non-real estate loans, which has favorably impacted the allowance for loan losses to total loans outstanding. Since December 31, 2000, the ratio has declined from 1.62% to 1.00% at December 31, 2004. This trend, combined with net recoveries from loans charged offs during prior periods, necessitated a negative provision for loan losses of $5.1 million in 2004. We believe that BankAtlantic’s credit ratios reflect the improving credit quality of its loans. Although significant changes in the quality of BankAtlantic loan portfolio are not expected, we caution that changes in the local or national economy, or changes within certain industries, could have a dramatic impact on the performance of BankAtlantic loans.

BankAtlantic’s other income continued to improve during 2004, due primarily to increased fees associated with the additional new deposit accounts opened during the year. BankAtlantic expects to continue to experience an increase in other income during 2005 as BankAtlantic continues its “~~Florida’s Most Convenient Bank”~~~~initiatives and expands and renovates its branch network.~~

Furthermore, the integration of the assets that were acquired from Gruntal has enabled Ryan Beck to significantly increase its distribution capabilities and revenues since the latter half of 2003. The increase to over 400 financial consultants enables the investment banking and trading lines of business to distribute their products to an increased account base of over 130,000 clients.

BankAtlantic Bancorp’s expenses increased significantly during 2004 due primarily to the costs linked to BankAtlantic marketing initiatives, including the hiring of new employees to service customers and advertising expenditures to promote BankAtlantic’s~~“Florida Most Convenient Bank”~~campaign. Our financial services division also incurred higher expenses associated with regulatory compliance and internal audit costs relating to compliance with the Sarbanes-Oxley Act. BankAtlantic Bancorp believes that these expenses related to compliance will be less in 2005 than 2004, but that expenses related to our marketing initiatives will continue to increase during 2005 as we continue to implement the “~~Florida’s Most Convenient Bank”~~~~initiatives. Additionally, BankAtlantic’s branch expansion and renovation plans will also result in increased expenses.~~

~~The following table summarizes net interest income at BankAtlantic:~~

For the Years Ended
December 31, 2004 December 31, 2003 December 31, 2002
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest earning assets

Loans: (a)
Residential real estate $ 1,527,911 $ 72,758 4.76 % $ 1,639,504 $ 78,535 4.79 % $ 1,429,022 $ 88,808 6.21 %
Commercial real estate 1,683,068 96,585 5.74 1,610,707 94,193 5.85 1,500,744 96,836 6.45
Consumer 421,167 17,959 4.26 316,113 14,177 4.48 253,044 14,165 5.60
Lease financing 10,771 1,125 10.44 21,930 2,490 11.35 43,496 5,307 12.20
Commercial business 101,288 6,423 6.34 107,371 6,126 5.71 99,852 5,935 5.94
Small business 183,642 13,118 7.14 161,245 11,973 7.43 146,468 11,565 7.90

Total loans 3,927,847 207,968 5.29 3,856,870 207,494 5.38 3,472,626 222,616 6.41

Tax exempt securities (c) 110,748 5,988 5.41 — — — — — —
Taxable investment securities (b) 635,129 34,948 5.50 789,451 43,741 5.54 1,180,100 74,419 6.31
Federal funds sold 6,282 47 0.75 16,499 166 1.01 3,929 57 1.45

Total investment securities 752,159 40,983 5.45 805,950 43,907 5.45 1,184,029 74,476 6.29

Total interest earning assets 4,680,006 $ 248,951 5.32 % 4,662,820 $ 251,401 5.39 % 4,656,655 $ 297,092 6.38 %

Non-interest earning assets

Total non-interest earning assets 333,253 324,598 316,085

Total assets $ 5,013,259 $ 4,987,418 $ 4,972,740

Interest bearing liabilities

Deposits:
Savings $ 243,906 $ 652 0.27 % $ 190,506 $ 856 0.45 % $ 140,961 $ 1,362 0.97 %
NOW, money funds and checking 1,489,442 10,861 0.73 1,315,747 11,142 0.85 1,078,298 15,338 1.42
Certificate accounts 733,717 16,842 2.30 882,736 24,191 2.74 1,230,013 46,077 3.75

Total interest bearing deposits 2,467,065 28,355 1.15 2,388,989 36,189 1.51 2,449,272 62,777 2.56

Securities sold under agreements to repurchase and federal funds Purchased 252,718 3,349 1.33 285,284 3,089 1.08 400,376 6,845 1.71
Advances from FHLB 959,588 37,689 3.93 1,195,653 57,299 4.79 1,198,463 62,412 5.21
Subordinated debentures and notes payable 36,220 2,002 5.53 35,457 1,917 5.41 14,805 936 6.32

Total interest bearing liabilities 3,715,591 71,395 1.92 3,905,383 98,494 2.52 4,062,916 132,970 3.27

Non-interest bearing liabilities

Demand deposit and escrow accounts 765,084 551,866 405,599
Other liabilities 29,111 55,261 70,187

Total non-interest bearing liabilities 794,195 607,127 475,786

Stockholders’ equity 503,473 474,908 434,038

Total liabilities and stockholders’ Equity $ 5,013,259 $ 4,987,418 $ 4,972,740

Tax equivalent net interest income/net interest spread 177,556 3.40 % 152,907 2.87 % 164,122 3.11 %

Tax equivalent adjustment (2,096 ) — —
Capitalized interest from real estate Operations 1,398 1,193 —

Net interest income $ 176,858 $ 154,100 $ 164,122

Margin

Interest income/interest earning assets 5.32 % 5.39 % 6.38 %
Interest expense/interest earning assets 1.53 2.11 2.86

Net interest margin 3.79 % 3.28 % 3.52 %

a)		~~Includes non-accruing loans~~

b)		~~Average balances were based on amortized cost.~~

c)		~~The tax equivalent basis is computed using a 35% tax rate.~~

~~The following table summarizes the changes in BankAtlantic’s net interest income (in thousands):~~

Year Ended Year Ended
December 31, 2004 December 31, 2003
Compared to Year Ended Compared to Year Ended
December 31, 2003 December 31, 2002
Volume (a) Rate Total Volume (a) Rate Total
Increase (decrease) due to:

Loans $ 3,758 $ (3,284 ) $ 474 $ 20,672 $ (35,794 ) $ (15,122 )
Tax exempt securities 5,988 — 5,988 — — —
Taxable investment securities (b) (8,492 ) (301 ) (8,793 ) (21,645 ) (9,033 ) (30,678 )
Federal funds sold (76 ) (43 ) (119 ) 126 (17 ) 109

Total earning assets 1,178 (3,628 ) (2,450 ) (847 ) (44,844 ) (45,691 )

Deposits:
Savings 143 (347 ) (204 ) 223 (729 ) (506 )
NOW, money funds, and checking 1,267 (1,548 ) (281 ) 2,011 (6,207 ) (4,196 )
Certificate accounts (3,421 ) (3,928 ) (7,349 ) (9,517 ) (12,369 ) (21,886 )

Total deposits (2,011 ) (5,823 ) (7,834 ) (7,283 ) (19,305 ) (26,588 )

Securities sold under agreements to repurchase (432 ) 692 260 (1,246 ) (2,510 ) (3,756 )
Advances from FHLB (9,272 ) (10,338 ) (19,610 ) (135 ) (4,978 ) (5,113 )
Subordinated debentures 42 43 85 1,117 (136 ) 981

(9,662 ) (9,603 ) (19,265 ) (264 ) (7,624 ) (7,888 )

Total interest bearing liabilities (11,673 ) (15,426 ) (27,099 ) (7,547 ) (26,929 ) (34,476 )

Change in tax equivalent net interest income $ 12,851 $ 11,798 $ 24,649 $ 6,700 $ (17,915 ) $ (11,215 )

~~(a)~~		~~Changes attributable to rate/volume have been allocated to volume.~~

~~(b)~~		~~Average balances were based on amortized cost.~~

~~For the Year Ended December 31, 2004 Compared to the Same 2003 Period~~

~~Interest and Dividend Income~~

Interest and dividend income in our financial services division decreased by $1.3 million, or 5%, from 2003. BankAtlantic’s interest income on average loans increased slightly as the small decline in average loan yields was offset by an increase in average loan balances. The growth in balances primarily resulted from the origination of commercial real estate and home equity loans. During 2004, the Bank originated over $1.3 billion of corporate and commercial loans and over $400 million of home equity loans. Beginning in July 2004 the prime rate of interest increased from 4.00% to 5.25% at December 31, 2004, while long term loan rates declined slightly from the December 2003 levels. The increase in short term interest rates contributed to average loan yields only declining slightly from the prior period. Tax-equivalent interest income on investment securities declined $2.9 million, primarily due to a decline in the average balance of the investment portfolio. Maturities and prepayments on U.S. agency obligations, primarily mortgage-backed securities, were only partially replaced by purchases of new agency securities and purchases of tax exempt securities. During 2004, BankAtlantic began investing in tax exempt securities as the yields on these securities were more attractive than alternative investments. This decrease in BankAtlantic interest income was partially offset with an increase of approximately $914,000 in interest on trading securities at Ryan Beck.

~~Investment Banking~~

Our financial services division investment banking revenue consists of investment banking revenue, principal transactions revenue and commission revenue at Ryan Beck. Investment banking revenue increased to $227.9 million in 2004 from $207.8 million in 2003. The improvement in investment banking revenue at Ryan Beck of approximately $20.5 million in 2004 from 2003 was largely attributable to the increase in merger and acquisition and advisory business in 2004 in both the financial institutions group and the middle market investment banking group. Ryan Beck’s financial institutions group completed 22 transactions during 2004, versus 17 during 2003. Principal transactions decreased $5.1 million from the 2003 period. The decrease in principal transaction revenue was primarily the result of reductions in trading revenue associated with the firm’s fixed income proprietary trading activity. Commission revenue increased $4.1 million from the

~~2003 period. The improvement was largely due to the increased activity on the part of Ryan Beck’s retail client base as well as increase the in average production per financial consultant.~~

~~Other Income~~

The increase in other income of $42.8 million or 58.3% during the 2004 period compared to the 2003 period was primarily due to service charges and fees, service charges on deposits associated with a substantial increase in deposit balances, and other income which consisted, in part of fee income received for banking services provided by BankAtlantic to its deposit customers. Additionally, other income in 2004 includes income from real estate operations of approximately $2.4 million associated with a joint venture acquired as part of the Community Savings acquisition, gain on sales of loans of approximately $483,000, securities activities of approximately $3.7 million and income of $22.8 million in connection with a settlement of litigation with a technology company in which BankAtlantic Bancorp was an investor.

Other service charges and fees increased $4.2 million or 22% during 2004 compared to 2003. The additional fee income reflects the opening of 410,000 new deposit accounts since January 2002 that are associated with BankAtlantic “Florida’s Most Convenient Bank” campaign. New ATM and check cards are linked to the new checking and savings accounts and therefore the increase in accounts resulted in increases in interchange fees, annual fees and foreign transaction fees. Revenues from service charges on deposits increased $10.9 million or 27% in 2004. This was primarily the result of increased overdraft fee income associated with the increased number of checking accounts attributed to BankAtlantic’s high performance checking products and “Florida’s Most Convenient Bank” initiatives and to higher fees assessed on overdrafts.

Income from real estate operations represents revenues from the Riverclub joint venture. This is a 50% owned real estate joint venture acquired in connection with the Community acquisition in March 2002. This venture consists of a development of single family homes, condominium units and duplexes located on 117 acres of land in Florida. During 2004 and 2003, the Riverclub joint venture closed on the sale of 14 and 26 units, respectively. Prior to 2003, this joint venture was accounted for as an unconsolidated subsidiary, and the income from real estate operations represented the Bank’s equity in the undistributed earnings of Riverclub. During 2002, there were 11 closings on the sale of units.

The securities activities during 2004 primarily represent gains from sales of exchanged traded mutual funds. BankAtlantic Bancorp sold these mutual funds in order to invest the proceeds with a money manager.

The litigation settlement reflects proceeds from the settlement of litigation related to the BankAtlantic Bancorp’s prior investment of $15 million in the technology company. Pursuant to that settlement, BankAtlantic Bancorp sold its stock in the technology company to a third party investor group for $15 million in cash, BankAtlantic Bancorp ’s original cost, and received consideration from the technology company for legal expenses and damages, which consisted of $1.7 million in cash and 378,160 shares of BankAtlantic Bancorp’s Class A Common Stock returned by the technology company to BankAtlantic Bancorp.

Other income in 2004 was favorably impacted by higher miscellaneous customer fees such as wire fees, research charges and cash management services associated with the substantial increase in the number of customer accounts.

~~Interest Expense, net~~

Interest expense decreased $25.4 million or 22.5% in 2004 as compared to 2003. The improvement in our financial services division tax equivalent net interest margin primarily resulted from a significant decrease in interest expense caused by management of BankAtlantic to prepay certain of BankAtlantic’s high rate FHLB advances and the increased percentage of low cost deposits in its deposit mix. In late 2003, BankAtlantic repaid $325 million of advances with an average rate of 5.57%. Expenses of $10.9 million were recognized in connection with these prepayments and a $1.9 million loss was recognized on the termination of interest rate swap contracts. In early 2004, BankAtlantic repaid $108 million of fixed rate advances with an average interest rate of 5.55% and incurred penalties of $11.7 million. During the year ended December 31, 2004, approximately $960 million or 26% of average interest bearing liabilities of the Financial Services division, consist of advances from the FHLB with an average rate of 3.93% versus an average rate of 4.70% during 2003.

BankAtlantic’s deposit mix changed with higher rate certificate of deposit accounts and higher low cost deposits. This is primarily the result of the bank’s “Florida’s Most Convenient Bank” initiatives. Low cost deposits are comprised of checking and savings accounts. Balances in low cost deposits increased 31% at December 31, 2004, to $1.8 billion, or 53% of total deposits, versus $1.4 billion, or 45% of total deposits, at December 31, 2003. In 2004, new checking (DDA/NOW) and savings account openings were approximately 166,000, compared to 145,000 in 2003 and 99,000 in 2002. Non-interest

~~bearing account balances increased approximately $245 million and now constitute 26% of total deposits, up from 21% last year and 16% at December 2002.~~

Partially offsetting the decreases in interest expense on advances and deposits were increases in interest expense on short-term borrowings. Although average balances were slightly lower, the average rate on these borrowings was higher, reflecting the short-term interest rate environment.

~~Allowance for Loan Losses~~

~~Changes in BankAtlantic’s allowance for loan losses were as follows (in thousands):~~

For the Years Ended December 31,
2004 2003 2002 2001 2000
Balance, beginning of period
$ 45,595 $ 48,022 $ 44,585 $ 47,000 $ 44,450
Charge-offs:

Commercial business loans — (2,394 ) — — (24 )
Commercial real estate loans (645 ) — (6,998 ) —
Small business (238 ) (771 ) (953 ) (88 ) —
Consumer loans (585 ) (1,563 ) (1,006 ) (2,629 ) (2,233 )
Residential real estate loans (582 ) (681 ) (827 ) (244 ) (715 )

Continuing loan products (2,050 ) (5,409 ) (9,784 ) (2,961 ) (2,972 )
Discontinued loan products (2,026 ) (6,314 ) (18,879 ) (24,955 ) (29,249 )

Total charge-offs
(4,076 ) (11,723 ) (28,663 ) (27,916 ) (32,221 )

Recoveries:

Commercial business loans 536 95 76 331 94
Commercial real estate loans 4,052 3 20 10 8
Small business 418 559 7 4 —
Consumer loans 370 622 477 769 645
Residential real estate loans 486 726 331 223 106

Continuing loan products 5,862 2,005 911 1,337 853
Discontinued loan products 3,738 8,572 7,968 7,259 4,786

Total recoveries
9,600 10,577 8,879 8,596 5,639

Net (charge-offs) recoveries
5,524 (1,146 ) (19,784 ) (19,320 ) (26,582 )
Provision for loan losses (5,109 ) (547 ) 14,077 16,905 29,132
Allowance for loan losses acquired — (734 ) 9,144 — —

Balance, end of period
$ 46,010 $ 45,595 $ 48,022 $ 44,585 $ 47,000

The outstanding loan balances related to BankAtlantic discontinued loan products and the amount of allowance for loan losses (“ALL”) assigned to each discontinued loan product was as follows (in thousands):

As of December 31,
2004 2003 2002
Allocation Allocation Allocation
Amount of ALL Amount of ALL Amount of ALL
Lease finance $ 6,551 $ 1,429 $ 14,442 $ 3,425 $ 31,279 $ 7,396
Syndication loans — — 9,114 185 14,499 294
Small business (1) — — 9,569 873 17,297 2,143
Consumer – indirect 1,734 2 2,402 70 8,105 457

$ 8,285 $ 1,431 $ 35,527 $ 4,553 $ 71,180 $ 10,290

Activities

As of December 31,
2001 2000
Allocation Allocation
Amount of ALL Amount of ALL
Lease finance $ 54,969 $ 8,639 $ 75,918 $ 2,879
Syndication loans 40,774 8,602 80,016 8,480
Small business (1) 32,123 4,105 66,989 9,965
Consumer - indirect 25,400 1,247 62,475 5,388

$ 153,266 $ 22,593 $ 285,398 $ 26,712

~~(1)~~

~~Small business loans originated before January 1, 2000.~~

During prior periods, BankAtlantic discontinued the origination of syndication, lease financings and indirect consumer loans and made major modifications to the underwriting process for small business loans (collectively, “discontinued loan products”.) The loans associated with the discontinued loan products gave rise to a significant portion of BankAtlantic’s net charge-offs during each of the years in the three year period ended December 31, 2002. The decline in those portfolios during the past three years resulted in a reduction of BankAtlantic’s allowance for loan losses. Additionally, BankAtlantic was able to realize net recoveries associated with previously charged-off loans during the years ended December 31, 2004 and 2003 which favorably impacted the provision for loan losses.

The provision for (recovery from) loan losses improved in each of the years in the three year period ended December 31, 2004. This improvement resulted from several factors: including the discontinuation of the loan products discussed above and changes made in BankAtlantic’s credit policies which focused BankAtlantic’s loan production on collateral based loans which historically have had lower loss experiences than other loan products. The discontinued loan products accounted for approximately 80.1% of net charge-offs in the past five years. In 2003 and 2004, BankAtlantic experienced noticeable benefits from its change in policy, as the balances and the associated losses in discontinued loan products declined, while BankAtlantic experienced substantially lower losses from its loans originated under its new credit policy. During 2003, BankAtlantic’s loan provision was a recovery due to significant recoveries from discontinued loan products. The majority of these recoveries were from bankruptcy settlements associated with syndication loans charged-off in prior periods. In 2004, the recovery in loan losses primarily resulted from a $4.1 million recovery of a residential construction loan that was charged off in 2002, as well as continued net recoveries from BankAtlantic discontinued loan products.

BankAtlantic’s total charge-offs from continuing loan products during 2004 consisted of a $645,000 charge-down of one commercial real estate loan and various smaller charges-offs associated with small business, residential and consumer loans. BankAtlantic’s total recoveries from continuing products during 2004 related primarily from its $4.1 million recovery of the residential construction loan mentioned above. BankAtlantic’s improvement in net charge-offs during 2003 compared to 2002 resulted from commercial real estate loan charge-offs during 2002 and lower discontinued loan product net charge-offs during 2003. The commercial real estate loan charge-offs during 2002 were associated with two loans. The amount charged off on one of the loans was partially recovered from the loan guarantor during 2004. The other loan was sold without recourse at book value (less the amount charged-down) to an unrelated third party.

BankAtlantic recorded a $9.1 million allowance for loan losses in connection with the Community Savings acquisition in March 2002. The allowance amount represents the acquired allowance calculated based upon BankAtlantic’s methodology which was not significantly different than the allowance recorded by Community at the acquisition date. In 2003, the acquired allowance for loan losses was reduced by $734,000 with a corresponding reduction in goodwill for loans acquired in connection with the Community acquisition that had either matured or were prepaid and which had been assigned a valuation allowance.

The table below presents the allocation of the allowance for loan losses by various loan classifications (“Allowance for Loan Losses”), the percent of allowance to each loan category (“ALL to gross loans percent”) and sets forth the percentage of loans in each category to gross loans excluding banker’s acceptances (“Loans to gross loans percent”). The allowance shown in the table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages or that the allowance indicates future charge-off amounts or trends (dollars in thousands):

December 31, 2004 December 31, 2003 December 31, 2002
ALL Loans ALL Loans ALL Loans
Allowance to gross to gross Allowance to gross to gross Allowance to gross to gross
for Loans loans for loans loans for loans loans
(Dollars in thousands) Loan Losses Percent Percent Loan Losses Percent Percent Loan Losses Percent Percent
Commercial business $ 2,507 2.94 1.59 $ 1,715 2.15 1.81 $ 1,437 1.75 2.06
Commercial real estate 23,345 0.92 47.28 24,005 0.99 55.12 21,124 1.05 50.75
Small business 2,403 1.26 3.55 2,300 1.44 3.63 2,863 1.99 3.61
Residential real estate 2,565 0.12 38.57 2,111 0.16 30.56 2,512 0.18 34.60
Consumer 4,281 0.90 8.86 3,900 1.10 8.07 3,239 1.13 7.19
Discontinued loan products 1,431 17.26 0.15 4,553 12.81 0.81 10,290 14.46 1.79

Total assigned 36,532 38,584 41,465
Unassigned 9,478 N/A N/A 7,011 N/A N/A 6,557 N/A N/A

$ 46,010 0.86 100.00 $ 45,595 1.04 100.00 $ 48,022 1.21 100.00

December 31, 2001 December 31, 2000
ALL Loans ALL Loans
Allowance to gross to gross Allowance to gross to gross
for loans loans for loans loans
Loan Losses Percent Percent Loan Losses Percent Percent
Commercial business $ 1,563 2.02 2.37 $ 1,502 1.00 4.64
Commercial real estate 13,682 0.82 50.87 10,072 0.77 40.25
Small business 1,073 1.53 2.14 785 2.56 0.94
Residential real estate 1,304 0.12 34.08 1,540 0.12 40.52
Consumer — direct 2,064 1.07 5.86 2,989 1.89 4.86
Discontinued loan products 22,593 14.74 4.68 26,712 9.36 8.79

Total assigned 42,279 43,600
Unassigned 2,306 N/A N/A 3,400 N/A N/A

$ 44,585 1.36 100.00 $ 47,000 1.45 100.00

The assigned portion of the allowance for loan losses primarily related to commercial real estate loans at December 31, 2004, 2003 and 2002 and from discontinued loan products in prior periods. The allowance for commercial real estate loans increased from $10.1 million at December 31, 2000 to $23.3 million at December 31, 2004. This increase primarily reflects portfolio growth associated with high balance loans and additional reserves associated with loans to borrowers in the hospitality industry. This industry was designated as having a higher credit risk than the other industries in BankAtlantic’s portfolio. The allowance for loan losses to total gross loan percentages declined for each loan category during the three year period ended December 31, 2004, except for commercial business and discontinued loan products. The decline reflects improving credit quality of the loan portfolio due, in part, to changes in BankAtlantic’s credit policies and procedures which began in 2000. The increase in the ratio for discontinued loan products reflects a high percentage of aviation leases due to lease repayments and charge-offs in this portfolio. Aviation leases have a higher loss experience than other discontinued loan products. Commercial business allowance to gross loans percent increased due to an increase in the allowance for loans collateralized by time-share properties during 2004.

At December 31, 2004, BankAtlantic’s commercial real estate portfolio included several large lending relationships, including 24 relationships with unaffiliated borrowers involving individual lending commitments in excess of $30 million with an aggregate outstanding balance of $1.0 billion.

The unassigned portion of the allowance for loan losses addresses certain individual industry conditions, general economic conditions and geographic concentration. The major factors contributing to the increase in the unassigned allowance for loan losses during the past three years were the expanded geographical area in which BankAtlantic originated commercial real estate loans, the growth in consumer and purchased residential loan portfolios and adverse economic trends associated with small business loans. During 2003, BankAtlantic opened commercial loan offices in Orlando and Jacksonville, Florida. The loans originated outside BankAtlantic’s primary markets may have substantially different loss experiences than loans secured by collateral in South Florida. Loans originated in commercial lending branch offices outside of South Florida amounted to $564 million at December 31, 2004. Also contributing to BankAtlantic’s increase in the unassigned portion of the allowance during 2004 was the growth in BankAtlantic’s purchased residential and home equity loan products. BankAtlantic purchased $1.3 billion of residential loans during 2004 of which 34% were secured by properties located in California, many of which were hybrid loans with interest only payments for a period of three to ten years, followed by conversion to a fully amortizing loan at the then prevailing interest rates for the remaining term of the loan. These types of delayed amortizing loans may have a greater default or recovery risk than existing traditional amortizing loans in our portfolio. During 2004, BankAtlantic modified its underwriting policies to allow for higher loan-to-value ratios based on Beacon scores for home equity loans, and BankAtlantic originated approximately $400 million of home equity loans during 2004 primarily in its South Florida market. The charge-offs for home equity loans in the Southeastern United States during the four quarters ended September 30, 2004 exceeded all other regions in the country. Additionally, the Southeastern United States losses on non-real estate secured small business loans were more than double any other region in the country during the last six months of 2004. These types of loans generally have a higher degree of credit risk than other loans in BankAtlantic’s portfolio as repayment is dependent on the success of the business, many of which are relatively newer businesses without an established operating history or are family-owned firms.

~~BankAtlantic’s Non-performing Assets and Potential Problem Loans (dollars in thousands):~~

December 31,
2004 2003 2002 2001 2000
NONPERFORMING ASSETS

Tax certificates $ 381 $ 894 $ 1,419 $ 1,727 $ 2,491
Residential 5,538 9,777 14,237 10,908 16,618
Syndication — — — 10,700 —
Commercial real estate and business 340 52 1,474 13,066 1,705
Small business — real estate 88 155 239 905 2,532
Lease financing 727 25 3,900 2,585 1,515
Consumer 1,210 794 532 796 1,944

Total non-accrual assets
8,284 11,697 21,801 40,687 26,805

Residential real estate owned 309 1,474 1,304 2,033 2,562
Commercial real estate owned 383 948 8,303 1,871 1,937
Consumer — — 4 17 95
Lease financing — — — — 1,647

Total repossessed assets
692 2,422 9,611 3,921 6,241

Total nonperforming assets
8,976 14,119 31,412 44,608 33,046
Specific valuation allowances — — (1,386 ) (9,936 ) (819 )

Total nonperforming assets, net
$ 8,976 $ 14,119 $ 30,026 $ 34,672 $ 32,227

Total nonperforming assets as a percentage of:

Total assets 0.15 0.31 0.64 1.03 0.76

Loans, tax certificates and repossessed assets 0.19 0.36 0.86 1.49 1.09

TOTAL ASSETS
$ 6,044,988 $ 4,566,850 $ 4,903,886 $ 4,330,690 $ 4,361,043

Total loans, tax certificates and repossessed assets
$ 4,771,682 $ 3,872,473 $ 3,673,110 $ 2,989,979 $ 3,029,833

Allowance for loan losses
$ 46,010 $ 45,595 $ 48,022 $ 44,585 $ 47,000

Total tax certificates
$ 170,028 $ 193,776 $ 195,947 $ 145,598 $ 124,289

Allowance for tax certificate losses
$ 3,297 $ 2,870 $ 1,873 $ 1,521 $ 1,937

POTENTIAL PROBLEM LOANS

Loans contractually past due 90 days or more (1) $ — $ 135 $ 100 $ — $ 7,086
Performing impaired loans, net of specific allowance 320 180 — — 15,001
Restructured loans 24 1,387 1,882 743 —

Total potential problem loans
$ 344 $ 1,702 $ 1,982 $ 743 $ 22,087

~~(1)~~

~~The majority of these loans have matured and the borrower continues to make payments under the matured loan agreement. The 2000 amount represents one loan that was repaid during February 2001.~~

Non-performing assets significantly declined at December 31, 2004 and 2003 compared to the prior years. BankAtlantic believes that the reduction in non-performing assets was attributable to the strengthening of BankAtlantic’s underwriting policies by focusing its loan production on collateral based loans as well as discontinuing the origination of loan products with high historical loss experiences. In 2004, non-accrual assets improved primarily due to lower residential non-performing loans, delinquent tax certificates and real estate owned balances in BankAtlantic’s portfolio, resulting from favorable economic conditions in the real estate industry. The improvement in non-performing assets was partially offset by higher non-accrual lease financing lending arrangements in the aviation industry and higher non-accruing home equity loans.

The specific valuation allowances on non-performing assets at December 31, 2002, 2001 and 2000 consisted of specific valuation allowances on non-performing loans. At each period end, BankAtlantic individually evaluates the non-homogenous loans in its portfolio as to which it deems probable that the borrower will be unable to meet the contractual terms of the loan agreements. A specific valuation allowance is established for these loans, primarily based on cash flow valuation models. At year-end 2004 and 2003, there were no specific valuation allowances assigned to non-performing loans, as the present values of the expected cash flows was in excess of the carrying amount of the non-homogenous, non-performing loans.

The decline in potential problem assets at December 31, 2004 compared to the prior year was due to a lease in the aviation industry transferring to a non-accrual status and subsequently charged down by $600,000.

~~Other Expenses~~

~~Compensation and benefit expenses increased 12% in 2004. In addition to standard annual employee salary increases, the growth in this expense category primarily resulted from:~~

•   The number of full time equivalent BankAtlantic employees increased to 1,650 at year-end 2004 versus 1,403 at year-end 2003 and 1,244 at year-end 2002. In 2002, 172 employees were added as a result of the Community acquisition. The remainder of personnel growth during the past three years primarily related to the additional personnel required to implement BankAtlantic’s commitment to provide extended banking hours and high service levels to the increased number of BankAtlantic customers resulting from the Florida’s Most Convenient Bank campaign.
•   ~~In addition to the increase in the number of employees, the cost of BankAtlantic Bancorp regular benefit programs also increased, primarily due to rising health insurance costs.~~
•   ~~Approximately $5.7 million in bonuses were paid in 2004 to employees of BankAtlantic for exceeding targeted performance goals, versus $3.6 million in 2003 and zero in 2002.~~
•   An increase in Ryan Beck’s employee compensation and benefits of 8% from 2003 primarily due to the increase in the firm’s bonuses which is correlated to the increased investment banking revenues and the increase in Ryan Beck’s revenues from 2003.

In 2004, occupancy and equipment expenses increased 20% from 2003. During the year, BankAtlantic adopted a plan to renovate all of its existing branches with a goal to have a consistent look or “brand.” Management of BankAtlantic anticipates that the renovation plan will be complete in 2006. This resulted in the accelerated depreciation of $2.8 million of fixed assets and leasehold improvements that are scheduled to be replaced. These items are being depreciated over their remaining useful life. Also in 2004, Florida experienced unprecedented hurricane activity, and repair and maintenance expenses increased approximately 29% primarily as a result of damage to facilities and equipment. Additionally, as a result of extended weekend and weekday store hours associated with the~~“Florida’s Most Convenient Bank”~~initiative, guard service expense increased over 120% as BankAtlantic provided added security. Additional increases in occupancy and equipment were primarily due to Ryan Beck’s additional offices opened in 2004 and the leasing of back-office space associated with the relocation of Ryan Beck’s corporate headquarters.

Advertising expenses during 2004 and 2003 reflect marketing initiatives to promote BankAtlantic’s “high performance” account products and BankAtlantic’s Florida’s Most Convenient Bank initiatives. These promotions included print, radio and billboard advertising, periodic customer gifts and events associated with seven-day banking. Advertising and promotion expense at Ryan Beck increased approximately $1.4 million primarily due to expenses associated with the launch of Ryan Beck’s first formal advertising campaign designed to expand Ryan Beck’s exposure through print and television media.

Amortization of intangible assets consisted of the amortization of core deposit intangible assets acquired in connection with the Community acquisition. The core deposit intangible assets are being amortized over an estimated life of ten years.

Costs associated with debt redemption resulted from the prepayment penalties associated with the repayment of $108 million of FHLB advances in 2004 and $325 million of advances in 2003. BankAtlantic Bancorp prepaid these high rate advances with the expectation that it would improve BankAtlantic’s net interest margin in future periods.

The decrease in other expenses in our financial services division for year ended December 31, 2004, compared to the same 2003 period, primarily resulted from decreases in communication costs at Ryan Beck. This decrease was partially offset by increases in floor broker clearing fees at Ryan Beck, higher professional fees at BankAtlantic and other expenses.

The higher expenses for professional fees in 2004, compared to 2003, resulted from deficiencies that were identified in the Bank’s compliance with anti-terrorism and anti-money laundering laws and regulations. BankAtlantic is seeking to s correct the identified deficiencies in its compliance with the USA PATRIOT Act, anti-money laundering laws and the Bank Secrecy Act, and BankAtlantic has been cooperating with regulators and other federal agencies concerning those deficiencies. BankAtlantic has incurred substantial costs to improve its compliance systems and procedures, including costs associated with engaging attorneys and compliance consultants, acquiring new software and hiring additional compliance staff. Compliance costs in 2004 were approximately $5.0 million. These compliance-related costs were primarily one-time and are not expected to recur at these levels in 2005. However, 2005 on-going costs will be higher than prior periods by an estimated $2.0 — $2.5 million annually.

The increase in professional fees at BankAtlantic were partially offset with decreases in professional fees at Ryan Beck primarily due to legal settlements reached in 2004, including the settlement of the former Gruntal bankruptcy matter , which resulted in a decrease in Ryan Beck’s legal reserve for 2004. Offsetting this decrease is the increase in professional fees associated with higher internal audit costs related to Ryan Beck’s compliance with the Sarbanes-Oxley Act of 2002.

The decrease in Ryan Beck communications and other expenses from 2003 related primarily to decreased communication costs due to the elimination of duplicate vendors and services carried as a result of the Gruntal transaction.

~~For the Year Ended December 31, 2003 Compared to the Same 2002 Period~~

~~Interest and Dividend Income~~

Interest and dividend income decreased by $41.5 million, or 13.7%, from 2002. As a consequence of lower average yields on earning assets and a slight increase in average earning asset balances, interest income decreased by $45.7 million. The decline reflects a substantial decrease in yields on earning assets partially offset by lower rates on interest bearing liabilities resulting in a 24 basis point decline in our net interest margin. The net interest margin was negatively impacted by the historically low interest rates during 2003 and high rates associated with BankAtlantic’s advances from the FHLB. The yield on the 10-year Treasury bond declined from approximately 5.5% in early 2002 to almost 3.0% in mid-2003. For most of 2002, the prime rate stood at 4.75%. The prime rate declined to 4.25% in November 2002 and declined again to 4.00% in June 2003. Short-term Libor and Treasury based indices also declined during this period, leading to less interest income earned on adjustable rate loans and investments. Additionally, this low interest rate environment resulted in accelerated prepayments of mortgage loans and mortgage-backed securities as homeowners took advantage of the refinancing opportunities. BankAtlantic experienced accelerated amortization of premiums associated with some of these assets, and BankAtlantic was faced with investing the proceeds from these repayments primarily in residential and commercial loans at lower yields. This decrease was partially offset by an increase in interest on trading securities at Ryan Beck, which primarily resulted from the expansion of municipal bond trading and the associated spread between the interest on the municipal bonds and the financing costs incurred. Also included in interest income was Ryan Beck’s participation in interest income associated with approximately $259 million of customer margin debit balances and fees earned in connection with approximately $1.3 billion in customer money market account balances.

~~Investment Banking~~

Investment banking revenue increased by $77.1 million or 58.9% from 2002. Investment banking revenue consists of investment banking revenue, principal transaction revenue and commission revenue at Ryan Beck. The improvement in investment banking revenue at Ryan Beck of approximately 45% from 2002 was largely attributable to the increased distribution capabilities primarily associated with the increase to approximately 500 financial consultants which enabled the investment banking and trading lines of business to distribute their product to an increased client base of over 110,000 active clients. Principal transactions revenue increased 95% from 2002. The improvement in principal transactions revenue was primarily the result of additional financial consultants and trading personnel hired in connection with the Gruntal transaction in April 2002. The operating environment of the U.S. securities industry also improved during the second half of fiscal 2003. Commission revenue increased 35% in 2003. The improvement was largely due to the additional financial consultants, as well as the improvement in equity and fixed income markets.

~~Other Income~~

The increase in other income of 25.6% during 2003 compared to 2002 was primarily due to service charges and fees, service charges on deposits associated with a substantial increase in deposit balances, and other income which consisted in part of fee income received for banking services provided by BankAtlantic to its deposit customers. Additionally, other income included income from real estate operations associated with a joint venture acquired as part of the Community Savings acquisition. The increase in other income was partially offset by a decrease in the gain on sales of loans, net and securities activities.

Other service charges and fees increased 37% during 2003 compared to 2002, reflecting the opening of 244,000 new deposit accounts from January 2002 though December 2003. Also in 2003, check card income was favorably impacted by card conversion fees received from MasterCard in consideration for converting customer check cards from Visa. Revenues from service charges on deposits increased by 53% during 2003 compared to 2002. This was primarily the result of increased overdraft fee income associated with the increased number of checking accounts attributed to our high performance checking products and “Florida’s Most Convenient Bank” initiatives and to higher fees assessed on overdrafts.

Other income during 2003 was favorably impacted by the expansion of BankAtlantic’s branch brokerage business unit which earned $1.4 million in commissions versus $342,000 in commissions in 2002. Other income was also favorably impacted by higher miscellaneous customer fees such as wire fees, research charges and cash management services associated with the substantial increase in the number of customer accounts.

During 2002, the Bank had a gain on the sale of a commercial loan of $2.1 million. The gain was partially offset by losses on the sale of CRA loans. In 2003, the Bank had a small gain on the sale of residential loans.

Securities activities losses in 2003 were primarily due to the termination of interest rate swaps. The swaps had a total notional amount of $75 million and were settled at a loss of $1.9 million in connection with prepayments of FHLB advances discussed above. In 2002, gains on securities activities resulted from the sale of $152 million of mortgage-backed securities and $9.4 million of corporate bonds for gains. The securities were sold to reposition the portfolio in response to the significant decline in interest rates. Additionally during 2003, BankAtlantic Bancorp securities activities include a gain of approximately $404,000 from a liquidating dividend from an equity security and in 2002 included the sale of $3.8 million equity securities.

~~Interest Expense, net~~

The significant factors resulting in the decline in interest expense were a substantial reduction in BankAtlantic’s deposit interest expense due to low cost deposit growth, interest on advances from FHLB advances and decreased interest expense on short term borrowings.

Rates on interest bearing liabilities did not decline as rapidly as rates on interest earning assets because 30% of average interest bearing liabilities consisted of long term advances from the FHLB that, either directly or indirectly via interest rate swaps, had fixed interest rates. These advances were originated in order to fund the purchase of fixed rate residential loans. However, in September 2003 BankAtlantic repaid $185 million of these advances and in December 2003 BankAtlantic repaid an additional $140 million of these advances. The advances repaid had an average rate of 5.57%. Expenses of $10.9 million were recognized in connection with these prepayments and a $1.9 million loss was recognized on the termination of interest rate swap contracts. The lower deposit rates reflect the historically low interest rate environment

during 2003 plus a change in our deposit mix from higher rate certificate of deposit accounts to low cost deposits and insured money fund accounts, as discussed above. Interest expense on short-term borrowings was substantially lower during 2003 due to lower average balances and average rates. Interest expense on FHLB advances declined resulting from maturities and repayments of advances at higher rates than the advances outstanding. In total, BankAtlantic’s interest expense declined by $34.5 million primarily due to declining average rates and, secondarily, due to lower average balances on interest bearing liabilities

~~Other Expenses~~

Employee compensation and benefit expenses increased 36% in 2003 as compared to 2002. In addition to standard annual employee salary increases, the growth in this expense category also resulted from the items discussed in 2004. Furthermore, the increase in employee compensation and benefits was also attributable to additional personnel at Ryan Beck. The increase in Ryan Beck’s revenue correlates to an increase in compensation in the form of commission expense and discretionary bonuses.

In 2003, occupancy and equipment expenses decreased 2% as compared to the year ended December 31, 2002. This decline primarily resulted from lower data processing costs and depreciation expense. Lower data processing expenses resulted from the renewal of a vendor contract at significantly lower rates than experienced during the prior period. The decrease in depreciation expense reflects $1.9 million of accelerated depreciation expense during 2002, most of which was associated with a reduction in the estimated life of BankAtlantic’s on-line banking platform as the technology was upgraded.

~~Advertising expenses during 2003 and 2002 reflect marketing initiatives to promote BankAtlantic’s new “high performance” account products and the Florida’s Most Convenient Bank initiatives.~~

During 2002, BankAtlantic Bancorp recognized a $15 million impairment charge associated with its investment in a privately held technology company. BankAtlantic Bancorp charged off the carrying value of this investment as the ability of the technology company to continue as a “going concern” was in doubt. Additionally, during 2002, BankAtlantic Bancorp recognized impairment charges of $3.8 million on publicly traded equity securities resulting from significant declines in value that were other than temporary. The determinations were based on the length of time that the carrying amount of an investment was significantly above its market value and on the near term prospects of the issuers. BankAtlantic Bancorp did not recognize impairments on securities during 2003.

Costs associated with debt redemption of approximately $10.9 million in 2003 at BankAtlantic resulted from the prepayment penalties associated with the repayment of $325 million of FHLB advances. We prepaid these high rate advances with the expectation that it would improve our net interest margin in future periods. Additionally, loss on debt redemption during 2003 resulted from BankAtlantic Bancorp redeeming its 5.625% convertible debentures at a redemption price of 102% of the principal amount. The loss on the redemption reflects a $732,000 write-off of deferred offering costs and a $916,000 call premium. During 2002, we recognized a $3.1 million loss associated with the redemption of debentures.

Acquisition-related charges during 2002 included branch closures, professional fees, and regulatory costs incurred in connection with the Gruntal transaction. Acquisition related charges and impairments during 2002 at the Bank include various data conversion and system integration expenses as well as facilities impairment write-downs associated with the Community acquisition. As a consequence of the acquisition, BankAtlantic closed two of its branches that competed directly with two of the former Community offices.

The increase in other expenses of approximately $16.9 million or 29% in 2003 as compared to 2002 primarily resulted from higher (i) professional fees of approximately $8.8 million, (ii) communication expense of approximately $3.6 million, (iii) floor broker and clearing fees of approximately $1.0 million and (iv) other expenses of approximately $4.2 million.

The higher expenses in professional fees in 2003 compared to 2002 were primarily associated with legal fees associated with the ongoing successor liability issues relating to the Gruntal transaction, as well as an NASD ruling against Ryan Beck in the amount of $2.7 million which resulted in a $1.7 million increase in Ryan Beck’s professional fees, as well as higher broker registration fees as a result of the additional financial consultants added as a result of the Gruntal transaction. Also, professional fees increased at the Bank primarily associated with legal fees incurred in connection with a lawsuit filed

~~against BankAtlantic in October 2002 relating to the Bank’s Florida’s Most Convenient Bank initiative, which was settled without payments by either party.~~

The increase in communications, floor broker and clearing fees and other expenses from 2002 related primarily to increased commission revenue and principal transactions revenue associated with the additional financial consultants at Ryan Beck.

The increase in other expenses in 2003 versus 2002 primarily resulted from higher ATM interchange expenses, check loss charges, and higher general operating expenses. These increases in other expenses relate to a substantial increase in the number of deposit accounts and the related increase in transaction volume associated with Florida’s Most Convenient Bank initiative. Expenses of the Riverclub joint venture as well as costs related to converting check cards from Visa to MasterCard are also reflected in 2003 results and contributed to higher other expenses.

~~Homebuilding and Real Estate Development Results of Operations~~

This segment consists of the operations of Levitt Corporation and its subsidiaries, including it principal subsidiaries Levitt and Sons and Bowden Homes, homebuilders and Core Communities, a land developer. This segment also consists of the results from the operations of Bluegreen Corporation through Levitt Corporation’s 31% interest in Bluegreen, a resort developer and marketer of vacation ownership interests.

Change Change
For the Years Ended December 31, 2004 vs. 2003 vs.
(In thousands) 2004 2003 2002 2003 2002
Revenues

Sales of real estate $ 549,652 $ 283,058 $ 207,808 $ 266,594 $ 75,250
Interest and dividend income 1,338 863 1,259 475 (396 )
Other income 8,078 4,765 3,014 3,313 1,751

559,068 288,686 212,081 270,382 76,605

Cost and Expenses

Cost of sales of real estate 406,274 209,431 159,675 196,843 49,756
Interest expense, net of interest capitalized 259 233 389 26 (156 )
Employee compensation and benefits 35,321 19,845 13,983 15,476 5,862
Selling, general and administrative expenses 35,607 22,181 16,083 13,426 6,098
Other expenses 7,341 1,692 1,604 5,649 88

484,802 253,382 191,734 231,420 61,648

74,266 35,304 20,347 38,962 14,957
Equity in earnings from unconsolidated subsidiaries 19,118 7,916 5,419 11,202 2,497

Income before income taxes 93,384 43,220 25,766 50,164 17,454
Provision for income taxes 36,022 16,400 6,254 19,622 10,146

Income from continuing operations before minority interest 57,362 26,820 19,512 30,542 7,308
Minority interest 47,098 20,785 15,102 26,313 5,683

Income from continuing operations $ 10,264 $ 6,035 $ 4,410 $ 4,229 $ 1,625

~~Overview~~

Levitt and its subsidiaries’ performance and prospects are evaluated by using a variety of financial and non-financial measures. The key financial measures utilized to evaluate historical operating performance include revenues from sales of real estate, cost of sales of real estate, margin (which is measured as revenues from sales of real estate minus cost of sales of real estate), margin percentage (which is measured as margin divided by revenues from sales of real estate), income before taxes and net income. Non-financial measures used to evaluate historical performance include the number and value of new orders executed, the number of housing starts and the number of homes delivered. In evaluating Levitt’s future prospects, management considers non-financial information such as the number of homes and acres in backlog (which is measured as homes or land subject to an executed sales contract) and the aggregate value of those contracts. Additionally, Levitt monitors the number of properties remaining in inventory and under contract to be purchased relative to its sales and construction trends. Levitt’s ratio of debt to its shareholders’ equity and cash requirements are also considered by management when evaluating Levitt’s future prospects, as are general economic factors and interest rate trends. The list of measures above is not an exhaustive list, and management may from time to time utilize additional financial and non-financial information or may not use the measures listed above.

At December 31, 2004, Levitt’s homebuilding division had a delivery backlog of 1,814 homes representing $448.6 million of future sales. The average sales price of the homes in backlog at December 31, 2004 was approximately 11% higher than the average sales price of the homes in backlog at December 31, 2003. While the strong demand and backlog are encouraging for our 2005 results, adverse economic trends such as rising interest rates, continued inflationary pressures or labor or material shortages could impact Levitt’s homebuilding division in future periods. In 2004 the costs of lumber, steel, concrete and other building materials rose significantly. Additionally, labor costs rose reflecting a shortage of sub-contractors in some of the markets in which we build. The redeployment of labor in Florida following the 2004 hurricanes exacerbated the labor shortage in these markets. While Levitt may be able to increase its selling prices to absorb these

~~increased costs in future sales, the sales prices of homes in Levitt’s backlog cannot be increased and the margins on the delivery of homes in backlog may be adversely affected by these factors.~~

Levitt believes that it owns or controls sufficient land to meet its current growth goals. In the shorter-term, Levitt expects the number of signed new orders for homes in Florida operations to level off and perhaps decline slightly through the first quarter of 2005 as Levitt transitions from the older, established communities at which sales are reaching completion to new communities that Levitt expect will open for sale to the public in the next three to 18 months. If Levitt is not able to open new communities in a timely fashion, Levitt’s available inventory will remain below historical levels and Levitt’s results will be adversely impacted. Levitt’s sales performance in Florida over the past eighteen months exceeded its projections; as a result, Levitt is currently focused on building homes to meet the 12-month delivery time frame projected by Levitt at the time of sale. Levitt believes that active growth management will permit it to increase customer satisfaction and reduce the amount of time contracted homes are in backlog, thereby reducing its exposure to rising costs.

Levitt is also currently expanding its homebuilding activities to the Jacksonville, Florida, Atlanta, Georgia and Nashville, Tennessee markets. Levitt has not previously operated in these markets and may not recognize any revenues from these operations during the next twelve months or longer. As a result, any costs associated with this expansion prior to revenue recognition may adversely affect Levitt’s operating results.

~~Impact of Florida Hurricanes in 2004~~

The majority of Levitt’s business operations are located in the State of Florida, which is subject to hurricanes and other tropical weather systems. In the months of August and September 2004, five named storms made landfall in the State of Florida — Tropical Storm Bonnie and Hurricanes Charley, Frances, Ivan and Jeanne. Hurricane Charley passed through the southwestern and central areas of Florida, including areas where Levitt has significant homebuilding operations (Ft. Myers, Sarasota and Orlando). Hurricanes Frances and Jeanne both made landfall on the east coast of the state near Levitt’s St. Lucie County homebuilding and land development operations before passing to the northwest over Orlando. These three hurricanes caused property damage in several of Levitt’s communities under development in Central Florida, and Levitt has expended considerable resources repairing both homes under construction and previously delivered homes, repairing stucco, replacing insulation and dry wall as well as other materials damaged in the storms. Levitt has also expended funds to mitigate other hurricane-related damage, including replacing landscaping and fences, repairing lake beds and replacing building materials. Levitt’s income from continuing operations for the year ended December 31, 2004 include charges, recorded as other expenses, related to hurricane damage and repairs of approximately $4.4 million, net of projected insurance recoveries.

In addition to property damage, hurricanes cause disruptions to Levitt’s business operations. New home buyers cannot obtain insurance until after named storms have passed, creating delays in new home deliveries. As a storm approaches, Levitt will suspend sales, development and construction operations be suspended in favor of storm preparation activities such as securing construction materials and equipment. After a storm has passed, construction-related resources such as sub-contracted labor and building materials are likely to be redeployed to hurricane recovery efforts around the state. Governmental permitting and inspection activities may similarly be focused primarily on returning displaced residents to homes damaged by the storms, rather than on new construction activity. Depending on the severity of the damage caused by the storms, disruptions such as these could last for several months. Levitt has experienced a number of these disruptions following the unprecedented series of hurricanes which struck Florida in 2004, including permitting and delivery delays, reduced customer orders and labor and materials constraints. Although the disruptions are not expected to have a material impact on the profitability of Levitt’s operations over the long term, Levitt expects the delays in new home deliveries and governmental permitting and inspection activities resulting from the hurricanes to continue through the first quarter of 2005.

~~Impact of Materials Costs, Interest Rates and Local Government Regulation~~

Levitt’s operations are impacted by competition for labor direct and subcontracted labor, raw materials, supply and delivery issues. Throughout 2004, supply and delivery issues resulted in higher prices of most building materials. The costs of lumber, steel, concrete, asphalt and other building materials all rose significantly in 2004. Levitt and its subsidiaries also compete with other real estate developers — regionally, nationally and globally — for raw materials and labor. Labor shortages were particularly acute in Central Florida following the 2004 hurricane season; home builders were obliged to compete with businesses, municipalities and existing homeowners for the available labor, much of which was diverted to hurricane clean-up and repair of windstorm and wind-driven rain damage. In addition, Chinese demand for cement combined with supply bottlenecks and rising prices in global shipping have contributed to regional shortages in cement in 2004. Without corresponding increases in the sales prices of Levitt’s real estate inventories (both land and finished homes), increasing materials costs associated with land development and home building could negatively affect Levitt’s results of operations.

Rising construction costs and delays in the delivery of homes may negatively affect margins in the future, because Levitt enters into fixed-priced sales contracts for most of Levitt’s homes. Owing to the strong demand for housing products and the overall robust condition of the real estate markets where Levitt builds, Levitt has historically been able to offset increases in construction costs and land prices by periodically raising the prices on its homes. However, if Levitt is unable to raise its home prices to offset increased costs of production in the future, Levitt’s operating results would be adversely affected.

Levitt relies on third party financing of its land purchases, land development, and product development costs. The majority of Levitt’s financing consists of variable rate debt and rising interest rates therefore increase Levitt’s borrowing costs. Historically, rising interest rates have also negatively impacted housing demand. Were demand for housing to decline, land may remain in our inventory longer and Levitt’s corresponding borrowing costs would increase. Also, rising interest rates increase the mortgage costs of our customers who finance their purchases of Levitt’s homes. Similarly, rising interest rates may affect our customers’ ability to sell the homes they currently occupy, the proceeds of which may be needed to fund, in whole or in part, their purchases of our homes. Although Levitt is not currently experiencing any adverse effects from higher interest rates, higher rates may adversely affect Levitt’s results of operations in the future.

Levitt is required to obtain various permitting approvals of numerous governmental authorities in developing a project and building homes. Local governments have in the past difficulty responding to the rapid growth and continued demand for land and housing in the real estate markets in which Levitt operates, resulting in delays in permitting approvals. In some areas where Levitt builds and develops land, local governments have refused to issue building permits until all infrastructure and land development is substantially complete. The inability to obtain building permits during early stage development prevents homebuilders from conducting land development simultaneous with housing construction, contributing in some instances to longer production cycles. In the aftermath of the Florida hurricanes, the demands on local government were intensified as government staff mobilized to support construction repairs, restore basic community services and emergency relief. Delays in permitting approvals will affect Levitt’s business and may affect Levitt’s results of operations in the future.

~~For the Year Ended December 31, 2004 Compared to the Same 2003 Period~~

Revenues from sales of real estate increased 94% to $549.7 million for year ended December 31, 2004 from $283.1 million for the same 2003 period. This increase was attributable primarily to an increase in home deliveries from 1,011 homes delivered in 2003 to 2,126 homes delivered in 2004. Revenues from home sales increased 112% to $472.3 million in 2004 from $222.3 million in 2003, due primarily to increased home deliveries. This increase was attributable primarily to an increase in home deliveries in communities that commenced deliveries in 2003 and from Bowden’s operations. Margin percentages on home sales for the 2004 and 2003 periods were approximately 21.4% and 22.1%, respectively.Included in cost of sales for 2004 are approximately $1.8 million of purchase accounting adjustments relating to the acquisition of Bowden. Revenues from land and other real estate sales increased approximately $16.6 million to $96.2 million in 2004 from $55.0 million for 2003. During 2004, 1,212 acres were sold with an average margin of 55%, as compared to 1,337 acres sold with an average margin of 43% in 2003. The lower margin percentage in 2003 was primarily the result of the sale of approximately 1,000 acres of undeveloped land adjacent to Tradition in a single transaction to a developer that Levitt believes will utilize the property for the development of one or more golf courses. The above acres, revenues and margin in 2004 include sales to Levitt’s homebuilding division. Accordingly approximately 448 acres, $24.4 million in revenue and $14.4 million in margin were eliminated in Levitt’s consolidation and the profit recognized by the land division from these sales will be deferred until the homebuilding division delivers homes on these properties to third parties. At that time, consolidated cost of sales will be reduced by the amount of land division profits that were deferred.

The increase in other income was primarily related to a $1.4 million reduction of a previously accrued litigation reserve as a result of Levitt’s successful appeal of a 2002 judgment against a partnership in which a subsidiary of Levitt and Sons is a partner.

Selling, general and administrative expenses increased 61% in 2004 as compared to the same 2003 period. The increase in selling, general and administrative expenses was a result of increased sales revenues and advertising cost, as well as expenses related to Levitt being a public company and fees paid to BankAtlantic Bancorp for administrative and other services, which were eliminated in consolidation for the 2003 period. The increased in employee compensation and benefits and advertising expenses were directly related to new development projects in Central and Southeast Florida, the expansion of homebuilding activities into North Florida and Georgia, the addition of Bowden, and the increase in home deliveries. The number of Levitt’s full time employees increased to 527 at December 31, 2004 from 353 at December 31, 2003, and the number of part time employees decreased to 32 at December 31, 2004 from 34 at December 31, 2003.

Income from unconsolidated subsidiaries represents Levitt’s share of the net income or loss generated by joint ventures and investments in which Levitt has a 50% or less ownership position, each of which are accounted for under the equity method of accounting. Levitt currently owns approximately 9.5 million shares of Bluegreen’s common stock, which represented approximately 31% of Bluegreen’s outstanding shares as of December 31, 2004. For the year ended December 31, 2004, Levitt’s pro-rata share of Bluegreen’s net income, net of purchase accounting adjustments, was $13.1 million as compared to $7.4 million in the same period in 2003. Bluegreen’s reported net income for the year ended December 31, 2004 and 2003 was $36.5 million and $25.8 million, respectively. Additionally, Bluegreen issued approximately 4.1 million shares of common stock upon conversion of its $34.4 million of 8.25% Convertible Subordinated Debentures. The issuance of these shares diluted Levitt’s ownership interest from 36% at December 31, 2003 to 31% at December 31, 2004. Accordingly, Levitt’s investment in Bluegreen was reduced by $2.9 million to reflect the dilutive effect of the issuance of these shares. Levitt’s earnings from real estate joint ventures were $6.1 million during the year ended December 31, 2004 as compared to $483,000 during the 2003 period. This increase in earnings in real estate joint venture activities primarily resulted from gains recognized upon the sale of a joint venture’s property in Vero Beach, Florida, earnings associated with the delivery of condominium units by a joint venture project in Boca Raton, Florida and earnings associated with the delivery of homes by a joint venture project in West Palm Beach, Florida. All three joint venture projects are sold out and their operations are essentially completed.

The increase in other expenses in 2004 as compared to 2003 period was primarily attributable to a $4.4 million charge, net of projected insurance recoveries, recorded to account for the estimated costs of remediating hurricane related damage in Levitt’s Florida homebuilding and land operations as previously discussed.

~~For the Year Ended December 31, 2003 Compared to the Same 2002 Period~~

Homebuilding and land development income from continuing operations increased $7.3 million, or 37%, to $26.8 million for the year ended December 31, 2003 from $19.5 million for the same 2002 period. The increase in net income resulted primarily from an increase in gains on sales of real estate by Levitt and Sons, Core Communities, and Levitt Commercial, as well as from increased earnings from Bluegreen. These increases in income were partially offset by a decrease in earnings in joint ventures, an increase in selling, general and administrative expenses, an increase in employee compensation and benefits, and an increase in the provision for income taxes.

Margin on sales of real estate increased 53% in 2003. This increase was driven primarily by increases in real estate sales activity in 2003 over 2002. Revenues from sales of real estate increased $75.3 million, or 36%, to $283.1 million for the year ended December 31, 2003 from $207.8 million for 2002. Cost of sales of real estate increased $49.8 million, or 31%, to $209.4 million for the year ended December 31, 2003 from $159.7 million for the same 2002 period. Home deliveries in 2003 increased 37% to 1,011 homes from 740 homes delivered in 2002 resulting in a $59.9 million increase in revenues from sales of homes over the corresponding periods. Land sales in 2003 declined to $46.5 million from $53.9 million in 2002. Levitt Commercial commenced deliveries of its flex warehouse units in 2003, and revenues from sales of these units in 2003 totaled $5.8 million.

Equity in earnings from unconsolidated subsidiaries includes Levitt’s equity earnings from Bluegreen, as well as Levitt’s joint ventures’ equity earnings or losses. Levitt’s earnings from Bluegreen for the year ended December 31, 2003 were $7.4 million, as compared with $4.6 million for the period of Levitt’s ownership in 2002. Earnings from joint ventures decreased $370,000 in 2003 as compared to 2002. The decrease in earnings from joint ventures resulted primarily from completion of a joint venture project during 2002.

The increase in selling, general and administrative expenses, employee compensation and benefits, and other expenses for the year ended December 31, 2003 as compared to 2002 related primarily to Levitt’s new development projects in central and southeast Florida and to the increase in home deliveries by Levitt and Sons. As a result of these new projects and the higher number of home deliveries, Levitt’s full-time employees increased to 353 at December 31, 2003 from 221 at December 31, 2002, and the number of part-time employees increased to 34 at December 31, 2003 from 28 at December 31, 2002. Other expenses increased primarily due to professional fees relating to Levitt’s public offering of investment notes in 2003.

The provision for income taxes increased $10.1 million, or 62%, to $16.4 million for 2003, due to increased earnings before taxes, and an increase in the effective tax rate from 24.2% in 2002 to 37.9% in 2003. The provision for income taxes for the years ended December 31, 2003 and 2002 was net of a reduction in the deferred tax asset valuation allowance of approximately $418,000 and $2.6 million, respectively. Reductions in the deferred tax asset valuation allowance reduce the provision for income taxes for the year, thereby reducing the effective tax rate.

~~Other Operations Results of Operations~~

The discussion that follows reports on the operations and related matters of BFC itself, on a stand-alone basis, without consolidating the financial results of BankAtlantic Bancorp and Levitt and their respective subsidiaries.

Change Change
For the Years Ended December 31, 2004 vs. 2003 vs.
(In thousands) 2004 2003 2002 2003 2002
Revenues

Interest and dividend income $ 680 $ 390 $ 354 290 36
Other income, net 5,837 1,532 1,161 4,305 371

6,517 1,922 1,515 4,595 407

Cost and Expenses

Interest expense 1,171 1,163 1,153 8 10
Employee compensation and benefits 3,865 2,553 2,332 1,312 221
Impairment of securities 363 3,071 1,583 (2,708 ) 1,488
Other expenses, net 2,959 1,022 876 1,937 146

8,358 7,809 5,944 549 1,865

Loss before income taxes (1,841 ) (5,887 ) (4,429 ) 4,046 (1,458 )
Provision for income taxes 8,065 3,714 2,420 4,351 1,294

Loss from continuing operations $ (9,906 ) $ (9,601 ) $ (6,849 ) $ (305 ) $ (2,752 )

Since BFC’s principal activities consist of managing existing investments and ~~actively~~ seeking ~~for~~ and evaluating potential new investments, BFC itself has no significant direct revenue or cash-generating operations. We depend on dividends from our subsidiaries for a significant portion of our cash flow. Regulatory restrictions and the terms of indebtedness limit the ability of our subsidiaries to pay dividends. Dividends by each of BankAtlantic Bancorp and Levitt also are subject to a number of conditions, including cash flow and profitability, declaration by each company’s Board of Directors, compliance with the terms of each company’s outstanding indebtedness, and in the case of BankAtlantic Bancorp, regulatory restrictions applicable to BankAtlantic. BankAtlantic Bancorp’s and Levitt’s Boards of Directors are comprised of individuals, a majority of whom are independent.

The “BFC Activities” segment includes all of the operations and all of the assets owned by BFC other than BankAtlantic Bancorp and its subsidiaries and Levitt and its subsidiaries. This ~~“Other Operations”~~includes dividends from our investment in Benihana’s convertible preferred stock and other securities and investments, advisory fee income and operating expenses from Cypress Creek Capital, Inc. (“CCC”), interest income from loans receivable, income from the shared service arrangement with BankAtlantic Bancorp, Levitt and Bluegreen to provide shared service operations in the areas of human resources, risk management, investor relations and executive office administration. The BFC Activities segment ~~reflects~~also includes BFC’s overhead and interest expense, the financial results of venture partnerships that BFC ~~(without~~controls and BFC’s provision for income taxes including ~~our proportionate shares~~the tax provision related to the Company’s interest in the earnings or losses of ~~the~~BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt ~~income). This~~are consolidated in our financial statements, as described earlier. The Company’s earnings or losses in BankAtlantic Bancorp and Levitt are included in our Financial Services and Homebuilding & Real Estate Development segments, respectively.

The discussion that follows reflects the operations and related matters of the BFC Activities segment will normally show a loss as dividends, interest and fees from our investments typically have not historically covered BFC stand alone operating costs. BFC stand alone income cash flow is almost wholly dependent on interest and dividends from the investments. Our(in thousands).

Change Change
For the Years Ended December 31, 2006 vs. 2005 vs.
2006 2005 2004 2005 2004
Revenues

Interest and dividend income $ 2,292 $ 1,623 $ 677 $ 669 $ 946
Other income 3,679 1,750 5,338 1,929 (3,588 )

5,971 3,373 6,015 2,598 (2,642 )

Cost and Expenses

Interest expense 30 346 393 (316 ) (47 )
Employee compensation and benefits 9,407 6,245 3,865 3,162 2,380
Impairment of securities — — 363 — (363 )
Other expenses, net 3,398 3,505 2,959 (107 ) 546

12,835 10,096 7,580 2,739 2,516

Loss before income taxes (6,864 ) (6,723 ) (1,565 ) (141 ) (5,158 )
(Benefit) provision for income taxes (1,855 ) 3,727 6,676 (5,582 ) (2,949 )
Noncontrolling interest (25 ) 6 1,822 (31 ) (1,816 )

Loss from continuing operations $ (4,984 ) $ (10,456 ) $ (10,063 ) 5,472 (393 )

The increase in interest and dividend income ~~did increase in 2004~~during the year ended December 31, 2006 as compared to ~~2003~~2005 and 2004 was primarily due to interest income earned on higher average cash balances in 2006 as a consequence of our 2005 public offering and dividend income ~~of approximately $252,000~~ received on our Benihana ~~investment.~~convertible preferred stock investment which increased by $10 million in June 2005 to a total investment of $20 million.

Other income increased in 2006 as compared to 2005 primarily due to income from our shared service arrangement. Our shared service income for the year 2006 was approximately $2.5 million and none in 2005 and 2004. Effective January 1, 2006, BFC maintained arrangements with BankAtlantic Bancorp, Levitt and Bluegreen to provide shared service operations in the areas of human resources, risk management, investor relations and executive office administration. Pursuant to this arrangement, certain employees from BankAtlantic were transferred to BFC to staff BFC’s shared service operations. The costs of shared services are allocated based upon the usage of the respective services. Also, as part of the shared service

~~During 2004, 2003 and 2002,~~

BFC Activities (Continued)

arrangement, the Company ~~recorded~~reimburses BankAtlantic Bancorp and Bluegreen for office facilities costs relating to the Company and its shared service operations.

The decrease in other income in 2005 as compared to 2004 was due to the settlement of ~~$5.8 million, $1.5 million and $1.2 million, respectively. Other income reflects Burlington Manufacturers Outlet Center earnings from real estate operations. Included~~litigation in March 2004 ~~are gains from~~with a technology ~~company and~~company. In connection with that settlement, a $1.1 million gain was recognized. Additionally, in ~~2003, $444,000 from a gain on liquidating dividends from an equity security.~~
In September 2004, a limited partnership in which the Company had a 57% controlling interest ~~sold~~delivered its shares of common stock in a technology company for approximately $3.5 million in cash pursuant to ~~a merger agreement entered into by~~ the technology company ~~with a third party.~~merger agreement. The limited partnership had previously written off its investment in the technology company and accordingly a $3.5 million gain was recognized ~~and~~in September 2004. This amount is included in other ~~income. Additionally,~~income, net.

The decrease in ~~March~~interest expense for the year ended December 31, 2006 as compared to the same period in 2005 and 2004 ~~the limited partnership settled litigation with this technology company and~~was attributable to a ~~$1.1~~$10.5 million ~~gain was recognized and included~~reduction in ~~other income.~~
our outstanding revolving line of credit in July 2005.

The increase in employee compensation and benefits during the year ended December 31, ~~2004~~2006 as compared to ~~2003~~the same periods in 2005 and 2004 was due to increases in the number of employees at BFC primarily relating to the transfer of employees from BankAtlantic to BFC to staff shared service operations; stock compensation expense of approximately $774,000 in 2006 upon the adoption of the fair value recognition provision of SFAS No. 123R, using the modified prospective transition method and payroll taxes related to employer’s tax expense on the exercise of stock options during the first quarter of 2006. The increase in employee compensation and benefits during the year ended December 31, 2005 compared to 2004 was due to an increase in ~~bonus accrual, payroll taxes related to the exercise of stock options and~~bonuses paid, an increase in the number of
55

employees ~~primarily~~and deferred retirement compensation to ~~better position BFC’s~~a key executive. In September 2005, the Company recorded as compensation expense the present value of the retirement benefit payment in the amount of $482,444 to ~~identify evaluate~~a key executive. The Company continues to recognize monthly the amortization of interest on the retirement benefit as compensation expense. During the year ended December 31, 2006 and ~~complete new investments, as well as to increase~~2005 the ~~level~~amortization of ~~information provided to investors~~interest recorded in compensation expense was approximately $33,000 and ~~potential investors.~~

$10,500, respectively.

During 2004, ~~2003~~BFC and ~~2002~~a limited ~~partnerships~~partnership in which the Company has controlling interests recognized impairment charges of approximately $291,000, $3.1 million and $1.1 million, respectively, associated with investments. Also, during 2004 and 2002, we recognized impairment charges of $71,000 and $499,000, respectively, on equity securities resulting from significant declines in value that were considered other than temporary.

Other expenses decreased during the year ended December 31, 2006 as compared to 2005 primarily due a decrease in intangible taxes. The increase in other expenses during the year ended December 31, ~~2004~~2005 as compared to ~~2003~~2004 was primarily associated with ~~an increase in professional and legal fees, as well as a significant percentage increase in~~higher investor relations expenses, travel expenses, directors’ fees, intangible taxes and ~~public company activities including Nasdaq~~service fees ~~and the cost of directors and officers insurance.~~
~~Provision~~paid to BankAtlantic Bancorp.

          BFC Activities segment includes our provision (benefit) for income taxes ~~reflects primarily~~including the tax ~~effect of the Company’s interest in~~provision (benefit) relating to our earnings of(loss) from BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt are consolidated in our financial ~~statements. Partially offsetting~~statements but not in our tax return. The increase in our benefit for income taxes in 2006 as compared to 2005 and 2004 is primarily due to the ~~provision is losses at the parent company.~~
~~Financial Condition~~
~~December 31, 2004 versus December 31, 2003~~
~~Assets and Liabilities~~
     ~~Total consolidated assets including the assets~~decrease in earnings of ~~our two principal investments,~~ BankAtlantic Bancorp and ~~Levitt, at December 31, 2004 were $7.0 billion, compared to $5.1 billion at December 31, 2003.~~Levitt. The ~~significant increases in total assets primarily resulted from:~~
•   ~~BFC’s direct purchase of $10 million of Benihana’s Series B Convertible Preferred Stock securities;~~
•   ~~BankAtlantic’s purchase of approximately $1.3 billion of residential real estate loans;~~
•   ~~BankAtlantic’s origination of and participation in $16 billion of commercial real estate loans;~~
•   ~~BankAtlantic’s origination of approximately $400 million of home equity loans;~~
•   ~~BankAtlantic’s purchase of approximately $800 million of securities available for sale and investment securities;~~
•   BankAtlantic Bancorp’s additions of $49 million of fixed assets associated with BankAtlantic Bancorp’s new corporate headquarter building and BankAtlantic’s branch renovation and expansion initiatives;
•   ~~Levitt’s increase of $26.8 million associated with its acquisition of an office building in Fort Lauderdale, Florida and the construction of an irrigation facility in Tradition;~~
•   ~~Receivable from Ryan Beck’s clearing agent associated with Ryan Beck’s trading activities;~~
•   Levitt’s net increase in real estate held for development and sale of approximately $158.5 million resulting from land acquisitions in Florida, the acquisition of Bowden and land acquisitions in Tennessee by Levitt, as well as increases in land development and construction costs. These increases in inventory of real estate were partially offset by Levitt’s sales of homes and land.
•   ~~Higher real estate inventory related to increased construction activity by the Riverclub real estate joint venture acquired by BankAtlantic in connection with the Community acquisition;~~
•   ~~BankAtlantic’s increases in accrued interest receivable due to higher loan receivable and securities balances; and~~
•   ~~BankAtlantic’s higher Federal Home Loan Bank stock balances associated with a substantial increase in FHLB advance borrowings.~~
     ~~The Company’s total consolidated liabilities at December 31, 2004, including the liabilities~~table below presents a reconciliation of our ~~two principal subsidiaries, BankAtlantic Bancorp and Levitt, were $6.2 billion compared to $4.6 billion at December 31, 2003. The increases in total liabilities primarily resulted from:~~
(benefit) provision for income taxes (in thousands):

For the Years Ended December 31,
2006 2005 2004
Other operating income (loss) less permanent difference $ (9,094 ) $ (8,516 ) $ (4,775 )
Equity from earnings in BankAtlantic Bancorp 5,807 9,053 11,817
Equity from (loss) earnings in Levitt (1,522 ) 9,125 10,265

(4,809 ) 9,662 17,307
38.58 % 38.58 % 38.58 %

(Benefit) provision for income tax $ (1,855 ) $ 3,727 $ 6,676

•   ~~BankAtlantic’s higher deposit account balances resulting from the growth in low-cost deposits associated with Florida’s Most Convenient Bank and totally free checking account initiatives.~~
•   ~~BankAtlantic’s increases in short-term borrowings and FHLB advances to fund loan and securities growth;~~
•   Increases in notes and mortgage notes payable at Levitt of $94.1 million, primarily related to the land acquisitions, the assumption of debt in connection with the Bowden acquisition and the issuance of a $16.5 million bridge loan to finance the purchase of an office building by Levitt;

5663

• Increases in other liabilities primarily due to securities purchased by BankAtlantic Bancorp pending settlement in January 2005 and increases in accounts payable and accrued liabilities of $28.1 million related to increased construction and development activity at Levitt, as well as the assumption of liabilities in connection with the Bowden acquisition and liabilities recorded relating to Hurricanes Frances and Jeanne, offset in part by a $9.1 million reduction in customer deposits and a $1.4 million reversal of a litigation reserve related to the successful appeal of a 2002 lawsuit.

~~Minority Interest~~

~~Minority interest is an accounting term for that portion of a consolidated entity that is owned by others. Both BankAtlantic Bancorp and Levitt are consolidated because of the control ownership that~~

BFC ~~has even though BFC’s equity ownership is less than a majority.~~
At December 31, 2004 and 2003, minority interest was approximately $612.7 million and $420 million, respectively. The following table summarizes the minority interest held by others in our subsidiaries (in thousands):Activities (Continued)

December 31,
2004 2003
BankAtlantic Bancorp $ 366,140 $ 321,583
Levitt 245,756 97,567
Joint Venture Partnerships 756 784

$ 612,652 $ 419,934

The increase in minority interest in BankAtlantic Bancorp was primarily attributable to earnings of $70.8 million and $10.0 million from the issuance of common stock upon the exercise of stock options. The above increases were partially offset by the payment of $8.1 million in dividends on BankAtlantic Bancorp common stock, a $6.1 million reduction in BankAtlantic Bancorp additional paid in capital resulting from the retirement of 378,160 shares of BankAtlantic Bancorp’s Class A Common Stock received as part of the private technology company litigation settlement, $6.9 million of unrealized losses on securities (net of income tax benefits) and a $4.4 million reduction in additional paid in capital related to the acceptance of BankAtlantic Bancorp Class A common stock as consideration for the payment of withholding taxes and the exercise price upon the exercise of BankAtlantic Bancorp Class A stock options. The increase in minority interest in Levitt was partially attributable to earnings of $57.4 million and proceeds from Levitt’s issuance of its Class A Common Stock of $114.7 million, net of issuance costs. The increases were partially offset by the payment of dividends on Levitt’s common stock.

~~Shareholders’ Equity~~

Shareholders’ equity at December 31, 2004 and 2003 was $125.3 million and $85.7 million, respectively. The increase was due to earnings of $14.2 million, issuance of 15,000 shares of 5% Cumulative Convertible Preferred Stock (the “5% Preferred Stock”) for $15.0 million, issuance of the Company’s Class B Common Stock upon the exercise of stock options of $1.8 million, the tax effect relating to the exercise of stock options of $11.0 million and $5.8 million in additional paid in capital relating to the net effect of our controlled subsidiaries’ capital transactions, net of income taxes. Offsetting the above increases was a $588,000 decrease in accumulated other comprehensive income, net of income taxes, a $7.3 million reduction in additional paid in capital related to the acceptance of the Company’s Class A and Class B Common Stock as consideration for the payment of withholding taxes and the exercise price upon the exercise of the Company’s Class B stock options, as well as cash dividends of approximately $392,000 on our 5% Preferred Stock .

Year-end market capitalization of the Company was $363.5 million as of December 31, 2004 as compared to $249.0 million or as of December 31, 2003. Market capitalization was calculated by multiplying BFC’s shares outstanding by the closing price of its common stock on the last business day of the year.

Liquidity and Capital Resources

of BFC

For the Years Ended December 31,
2006 2005 2004
Net cash provided by (used in):
Operating activities $ (4,378 ) $ (2,164 ) $ (6,012 )
Investing activities 670 (7,847 ) (8,120 )
Financing activities (4,922 ) 34,590 14,757

(Decrease) increase in cash and cash equivalents (8,630 ) 24,579 625
Cash and cash equivalents at beginning of period 26,806 2,227 1,602

Cash and cash equivalents at end of period $ 18,176 $ 26,806 $ 2,227

The primary sources of funds to the BFC Activities segment for the ~~year~~years ended December 31, 2006, 2005 and 2004 (without consideration of BankAtlantic Bancorp’s or Levitt’s liquidity and capital resources, which, except as noted, are not available to BFC) were:

	•		Dividends from BankAtlantic Bancorp and Levitt;

	•		Dividends from Benihana;

	•		Revenues from CCC advisory fees;

	•		Revenues from shared services activities in 2006;

	•		Revenues from BMOC operations in 2005 and 2004

	•		Net proceeds of approximately $46.4 million, after underwriting discounts, commissions and offering expenses, from the sale of 5,957,555 shares of Class A Common Stock during 2005,

	•		Net proceeds of $15.0 million in 2004 received upon the sale by the Company of its 5% Cumulative Convertible Preferred Stock; and

	•		Principal and interest payments on loans receivable.

Funds were primarily utilized by BFC to:

	•		Fund minimum withholding tax liability of approximately $4.2 million upon exercise of options in 2006. The Company retired shares of the Company’s common stock delivered by the option holders as consideration for the option holders’ minimum tax withholding;

	•		Repayment of $10.5 million outstanding under the Company’s revolving line of credit during 2005 and payment of mortgage payables;

	•		Fund $1.8 million investment in CCC real estate partnerships during 2006;

	•		In 2005 and 2004, purchased an aggregate of 800,000 shares of Benihana Convertible Preferred Stock for a purchase price of $20 million;

	•		Fund the payment of dividends on the Company’s 5% Cumulative Convertible Preferred Stock of $750,000; and

	•		Fund BFC’s operating and general and administrative expenses.

On October 24, 2006, the Company’s Board of Directors approved the repurchase of up to 1,750,000 shares of its common stock at an aggregate cost of no more than $10.0 million. The timing and amount of repurchases, if any, will depend on market conditions, share price, trading volume and other factors, and there is no assurance that the Company will repurchase shares during any period. No termination date was set for the repurchase program. The Company plans to fund the share repurchase program primarily through existing cash balances. There were no share repurchases in 2006.

In 2005, the Company sold 5,957,555 shares of its Class A Common Stock pursuant to a registered underwritten public offering at $8.50 per share. Net proceeds ~~from~~to BFC were approximately $46.4 million. Approximately $10.5 million of the ~~issuance~~net proceeds of ~~5% Preferred Stock~~the offering were used to repay indebtedness and an additional $10.0 million was used to purchase Benihana convertible preferred stock in August 2005. The balance of ~~$15.0 million, dividends from BankAtlantic Bancorp~~the proceeds have been or will be used to fund operations and ~~Levitt, dividends from Benihana, increases in borrowings, revenues from property operations, principal~~growth and ~~interest payments on loans receivable, distributions received from our investments in partnerships, and proceeds from the exercise of stock options. In addition,~~for general corporate purposes.

BFC has a $14.0 million revolving line of credit that can be utilized for working capital as needed. ~~In May 2004, the line of credit was extended until May 2, 2005 and the~~The interest rate ~~changed from Prime plus 1% to~~on this facility is based on LIBOR plus 280 basis ~~points (5.13% at~~points. In September 2006, the loan documents were modified to extend the maturity date to June 15, 2007 and to substitute as collateral 1,716,771 shares of BankAtlantic Bancorp Class A Common

BFC Activities (Continued)

Stock. The Company had previously pledged Levitt’s Class A Common Stock as collateral and these shares were returned to the Company. At December 31, ~~2004). In December 2004, the~~2006, no amounts were drawn under this revolving line of credit.

We expect to meet our short-term liquidity requirements generally through cash dividends from BankAtlantic Bancorp, Levitt and Benihana, borrowings under our existing revolving line of credit ~~was increased from $8.0 million~~and existing cash balances. We expect to ~~$14.0 million~~meet our long-term liquidity requirements through the foregoing, as well as long term secured and ~~at December 31, 2004, approximately $10.5 million was outstanding under~~unsecured indebtedness, future issuances of equity and/or debt securities and operating cash flows of companies that may be acquired in the line of credit. Shares of BankAtlantic Bancorp and Levitt are pledged as collateral for the line of credit. Funds were primarily utilized by BFC to fund the first tranche of our investment in Benihana, the payment of dividends on the Company’s 5% Preferred Stock, to reduce mortgage payables and other borrowings and to fund BFC’s operating and general and administrative expenses.
future.

The payment of dividends by BankAtlantic Bancorp is subject to declaration by BankAtlantic Bancorp’s Board of Directors and applicable indenture restrictions and loan covenants and will also depend upon, among other things, the results of operations, financial condition and cash requirements of BankAtlantic Bancorp and the ability of BankAtlantic to pay dividends or otherwise advance funds to BankAtlantic Bancorp, which in turn is subject to OTS regulations and is based upon BankAtlantic’s regulatory capital levels and net income. At December 31, ~~2004,~~2006, BankAtlantic met all applicable liquidity and regulatory capital requirements. While there is no assurance that BankAtlantic Bancorp will pay dividends in the future, BankAtlantic Bancorp has paid a regular quarterly dividend to its common stockholders since August 1993. BankAtlantic Bancorp currently pays a quarterly dividend of ~~$.035~~$.041 per share on its Class A and Class B Common Stock. ~~BFC currently receives~~During the year ended December 31, 2006 the Company received approximately ~~$462,000 per quarter~~$2.1 million in dividends from BankAtlantic Bancorp.
~~On each of~~

Levitt has paid a quarterly dividend to its shareholders since July ~~26, 2004, October 25, 2004 and January 24, 2005~~2004. Levitt’s ~~Board of Directors declared cash dividends of~~most recent quarterly dividend was $0.02 per share on its Class A ~~common stock~~ and Class B common ~~stock. These dividends were paid~~stock which resulted in ~~August 2004, November 2004 and February 2005, respectively. Levitt’s Board has not adopted a policy of regular dividend payments.~~the Company receiving approximately $66,000. The payment of dividends in the future is subject to approval by Levitt’s Board of Directors and will depend upon, among other factors, Levitt’s results of operations and financial condition. ~~Levitt cannot assure you that they will declare additional cash dividends in~~During the ~~future. BFC~~year ended December 31, 2006, the Company received approximately ~~$66,000~~$264,000 in dividends from ~~each of Levitt’s dividends.~~
At December 31, 2004 and 2003, approximately $8.2 million of BFC’s mortgage payables related to a non-recourse mortgage loan on the BMOC shopping center. This loan bears interest at 9.2% per annum and matures in May 2007. In November 2004, a tenant occupying 21% of the square footage of the BMOC shopping center vacated the premises.Levitt.

The loss of this tenant caused BMOC to operate at a negative cash flow. Management is currently seeking a replacement tenant, however, if a replacement tenant is not found that allows BMOC to return to a positive cash flow, BFC may consider giving a deed to the center to the lender. If the property were deeded to the lender, BFC would recognize a gain of approximately $4.2 million based on the $8.2 million outstanding balance of this non-recourse debt. At December 31, 2004 and 2003, approximately $544,000 and $625,000, respectively, of the mortgage payables related to mortgage receivables received by BFC in connection with the sale of properties previously owned by the Company ~~where the purchaser did not assume the underlying existing mortgage payables. These mortgage payables bear interest at 6% per annum and have maturity dates ranging from 2009 through 2010.~~
~~During the quarter ended June 30, 2004, the Company entered into an agreement with Benihana Inc., to purchase an aggregate of~~owns 800,000 shares of Benihana Series B Convertible Preferred Stock that it purchased for $25.00 per share. On July 1, 2004, the Company funded the first tranche of convertible preferred stock in the amount of $10.0 million for the purchase of 400,000 shares. The purchase of the remaining 400,000 shares of convertible preferred stock will be funded from time to time at the election of Benihana during the two-year period commencing on the first anniversary of the closing.share ($20.0 million). The Company has the right to receive cumulative quarterly dividends at an annual rate equal to $1.25 per share, payable on the last day of each calendar ~~quarter commencing September 30, 2004.~~quarter. It is anticipated the Company will receive approximately ~~$125,000~~$250,000 per quarter. ~~See Item 3. Legal Proceedings~~If the Company were to convert its investment in Benihana, it would represent 1,052,632 shares of Benihana Class A Common Stock. At December 31, 2006, the aggregate market value of such shares would have been $33.3 million.

BFC has entered into guaranty agreements in connection with the purchase by two separate limited liability companies of two shopping centers in South Florida. A wholly-owned subsidiary of CCC (which is wholly owned by BFC) has a one percent non-managing general partner interest in a limited partnership that has a 15 percent interest in each of the limited liability companies. Pursuant to the guaranty agreements, BFC has guaranteed amounts on two nonrecourse loans. BFC’s maximum exposure under the guaranty agreements is estimated to be approximately $21.4 million, the full amount of the indebtedness. Based on the value of the assets securing the indebtedness, it is reasonably likely that no payment will be required by BFC under the guaranty. As non-managing general partner of the limited partnership and managing member of the limited liability companies, CCC does not control or have the ability to make major decisions without the consent of all partners.

In March 2006, BFC invested $1.0 million in a real estate limited partnership which represents an 8% limited partnership interest in the partnership. A subsidiary of CCC also has a 10% interest in the limited partnership as a non-managing general partner. The partnership owns an office building located in Boca Raton, Florida and in connection with the purchase, CCC guaranteed a portion of the nonrecourse loan on the property. CCC’s maximum exposure under the guaranty agreement is $8.0 million representing approximately one-third of the current indebtedness of the commercial property. Based on the value of the limited partnership assets securing the indebtedness, it is reasonably likely that no payment by CCC will be required under the guaranty.

A wholly-owned subsidiary of CCC and an unaffiliated third party entered into a joint venture to purchase two commercial properties in Hillsborough County, Tampa, Florida. CCC East Tampa has a 10% interest in the joint venture and is the managing member with an initial contribution of approximately $765,500 and the unaffiliated member has a 90% interest in the joint venture by virtue of its contribution of approximately $6,889,500. In December 2006, the joint venture purchased the commercial properties for the aggregate purchase price of $29.8 million and in connection with the purchase, BFC and the unaffiliated member each guarantees certain amounts on the nonrecourse loan with a ~~discussion~~maximum exposure under the guaranty agreement estimated at approximately $5.0 million for BFC and $5.0 million for the unaffiliated member. The BFC guaranty represents approximately twenty-one percent of ~~litigation brought against us and Benihana relating~~the current indebtedness of the commercial property.

BFC Activities (Continued)

However, based on the assets securing the indebtedness, it is reasonably likely that no payment will be required under the agreements. CCC does not control or have the ability to ~~our investment.~~
make major decisions without the consent of all partners.

On June 21, 2004, an investor group purchased 15,000 shares of the Company’s 5% Cumulative Convertible Preferred Stock for $15.0 million in a private offering. Holders of the 5% Cumulative Convertible Preferred Stock are entitled to receive when, and as declared by the Company’s Board of Directors, cumulative cash dividends on each share of 5% Cumulative Convertible Preferred Stock at a rate per annum of 5% of the stated value from the date of issuance, ~~and~~ payable quarterly. Since June 2004, the Company has paid quarterly dividends on the 5% Cumulative Convertible Preferred Stock of $187,500.

On December 19, 2005, BMOC, a wholly owned subsidiary of BFC, owned a shopping center that was transferred in full settlement of the $8.2 million note. The shopping center had lost a tenant that occupied 21% of the square footage of the shopping which caused the shopping center to operate at a negative cash flow. For the year ended December 31, 2005, the Company recorded approximately $2.8 million of income from discontinued operations, net of tax and $170,000 loss in discontinued operation, net of tax for the year 2004. There was no activity related to BMOC for the year ended December 31, 2006.

Financial Services

Our Financial Services segment consists of BankAtlantic Bancorp, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation from BankAtlantic Bancorp are dividends when and if paid by BankAtlantic Bancorp. BankAtlantic Bancorp is a separate public company and its management prepared the following discussion regarding BankAtlantic Bancorp which was included in BankAtlantic Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us” or “our” in the following discussion under the caption “Financial Services” are references to BankAtlantic Bancorp and its subsidiaries, and are not references to BFC Financial Corporation.

“Introduction

BankAtlantic Bancorp, Inc. is a Florida-based financial services holding company offering a full range of products and services through BankAtlantic, our wholly-owned banking subsidiary. As of December 31, 2006, we had total consolidated assets of approximately $6.5 billion, deposits of approximately $3.9 billion and shareholders’ equity of approximately $525 million. We operate through two primary business segments: BankAtlantic and the Parent Company.

On January 8, 2007 the Company entered into an Agreement and Plan of Merger with Stifel Financial Corp (“Stifel”) to merge the Company’s wholly-owned subsidiary, Ryan Beck Holdings, Inc. (“Ryan Beck”) and its subsidiaries into a Stifel wholly-owned subsidiary in exchange for Stifel common stock warrants to purchase Stifel common stock and certain contingent consideration. As a consequence of the Agreement and Plan of Merger to merge Ryan Beck with Stifel, Ryan Beck is accounted for as discontinued operations in the Company’s financial statements.

Consolidated Results of Operations

Income from continuing operations from each of the Company’s reportable business segments follows (in thousands):

For the Years Ended December 31,
2006 2005 2004
BankAtlantic $ 36,322 $ 55,820 $ 48,540
Parent Co. (9,443 ) (13,294 ) 4,745

Total $ 26,879 $ 42,526 $ 53,285

The decline in income from continuing operations during 2006 compared to 2005 was primarily due to lower earnings at BankAtlantic primarily as a result of a substantial increase in BankAtlantic’s non-interest expense, an $8.6 million provision for loan losses during 2006 compared to a negative provision for loan losses of ($6.6) million during 2005 and a decline in net interest income. The above declines in BankAtlantic’s segment net income were partially offset by an increase in non-interest income associated with higher revenue from customer service charges and transaction fees linked to growth in core deposit accounts.

The increase in BankAtlantic’s non-interest expense resulted from BankAtlantic’s growth initiatives and store expansion program as well as BankAtlantic’s “Florida’s Most Convenient Bank” program, which includes offering free checking, seven-day banking, extended lobby hours with certain stores open to midnight, and a 24-hour customer service center. These initiatives resulted in a substantial increase in compensation, occupancy and advertising costs.

The Parent Company segment experienced lower losses during 2006 compared to 2005 as a result of gains realized on the sale of equity securities from managed funds. These securities’ gains were partially offset by an increase in interest expense on borrowings based on higher interest rates during 2006 compared to 2005.

The decline in income from continuing operations during 2005 compared to 2004 was primarily due to $22.8 million of proceeds from a litigation settlement at the Parent Company during 2004. The improvement in BankAtlantic’s earnings during 2005 compared to 2004 resulted from a substantial increase in its net interest income primarily from earnings asset growth and significantly higher revenues from customer transaction fees and service charges. The improvement in

Financial Services (Continued)

BankAtlantic’s net interest income and non-interest income was partially offset by a significant increase in non-interest expense associated with the initiatives discussed above.

Results from discontinued operations relating to the Ryan Beck segment was a loss of $11.5 million during 2006 compared to earnings of $16.7 million and $17.5 million during the years ended December 31, 2005 and 2004, respectively. Ryan Beck’s 2006 loss resulted from declining retail brokerage revenues and a significant slow-down in investment banking activities. Ryan Beck’s 2005 and 2004 earnings primarily resulted from investment banking revenues and sales credits directly related to large investment banking deals.

BankAtlantic Results of Operations

Summary

In April 2002, BankAtlantic launched its “Florida’s Most Convenient Bank”campaign which resulted in significant demand deposit, NOW checking and savings accounts growth (we refer to these accounts as “core deposit” accounts). Since inception of this campaign, BankAtlantic has increased core deposit balances 272% from $600 million at December 31, 2001 to approximately $2.2 billion at December 31, 2006. These core deposits represented 58% of BankAtlantic’s total deposits at December 31, 2006, compared to 26% of total deposits at December 31, 2001. The growth in these core deposits was a significant reason for the improvement in BankAtlantic’s net interest margin and the significant increase in its non-interest income. BankAtlantic’s net interest margin increased from 3.79% for the year ended December 31, 2004 to 4.04% for the same 2006 period and its non-interest income was $131.8 million during 2006 compared to $85.7 million during 2004.

In 2004, BankAtlantic announced its de novo store expansion strategy and has opened 17 stores during 2005 and 2006 in connection with this strategy. This strategy is on-going and BankAtlantic’s non-interest expenses have substantially increased reflecting the hiring of additional personnel, increasing marketing to support new stores, executing leases and the acquisition of facilities to grow the store network and develop back-office technologies to support a larger institution.

During the fourth quarter of 2005 the growth in core deposits slowed reflecting rising short-term interest rates and increased competition among financial institutions. In response to these market conditions BankAtlantic significantly increased its marketing expenditures and continued its new store expansion program in an effort to sustain core deposit growth. As a result, the number of new core deposit accounts opened during the year increased from 166,000 and 226,000 during 2004 and 2005 to 270,000 during 2006. Despite the growth in the number of new core deposit accounts, core deposit balances only grew to $2.2 billion at December 31, 2006 from $2.1 billion at December 31, 2005 and $1.8 billion at December 31, 2004. We believe that the reduced growth in core deposit accounts primarily resulted from lower average balances in customer deposit accounts due to higher short-term interest rates, slow down in the real estate market and increased competition. BankAtlantic is currently evaluating its sales and marketing efforts and anticipates reducing overall marketing expense in subsequent periods.

Subject to changes in the interest rate environment and growth in core deposits, BankAtlantic expects its net interest income to remain at current levels. Management believes that given the current interest rate environment and the relative flatness of the yield curve, the growth in core deposits will largely determine any future improvements in its net interest margin.

During the fourth quarter of 2006, BankAtlantic took possession of $20.2 million of real estate securing a land development loan which resulted in the ratio of non-performing assets to total loans and other assets increasing to 0.55% at December 31, 2006 from 0.17% at December 31, 2005 and down from 0.36% at December 31, 2003. Due to the current slow-down in real estate markets, especially in Florida where BankAtlantic’s commercial and consumer real estate loans are concentrated, management is closely monitoring BankAtlantic’s real estate exposure in its loan portfolio and anticipates reduced growth in BankAtlantic’s commercial real estate loan portfolio in response to the current market trends.

Financial Services (Continued)

During 2005, BankAtlantic also incurred other expenses associated with establishing a $10 million reserve for fines and penalties related to regulatory compliance matters and incurred a $3.7 million impairment charge related to moving its corporate headquarters to a new location. In April 2006, BankAtlantic entered into a deferred prosecution agreement with the U.S Department of Justice and remitted the $10.0 million. During 2004, BankAtlantic incurred debt redemption costs of $11.7 million for the prepayment of FHLB advances.

The following table is a condensed income statement summarizing BankAtlantic’s results of operations (in thousands):

For the Years Ended Change Change
Ended December 31, 2006 vs 2005 vs
2006 2005 2004 2005 2004
Net interest income $ 219,605 $ 221,075 $ 176,858 $ (1,470 ) $ 44,217
(Provision for) recovery from loan losses (8,574 ) 6,615 5,109 (15,189 ) 1,506

Net interest income after provision for loan losses 211,031 227,690 181,967 (16,659 ) 45,723
Non-interest income 131,844 100,060 85,724 31,784 14,336
Non-interest expense (293,448 ) (241,092 ) (193,621 ) (52,356 ) (47,471 )
BankAtlantic income before income taxes 49,427 86,658 74,070 (37,231 ) 12,588

Provision for income taxes (13,105 ) (30,838 ) (25,530 ) 17,733 (5,308 )

BankAtlantic net contribution $ 36,322 $ 55,820 $ 48,540 $ (19,498 ) $ 7,280

Financial Services (Continued)

BankAtlantic’s Net Interest Income
The following table summarizes net interest income:

For the Years Ended
December 31, 2006 December 31, 2005 December 31, 2004
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
(Dollars are in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest earning assets

Loans: (a)
Residential real estate $ 2,099,664 109,103 5.20 % $ 2,177,432 106,992 4.91 % $ 1,527,911 72,758 4.76 %
Commercial real estate 1,530,282 128,420 8.39 1,828,557 130,379 7.13 1,683,068 96,585 5.74
Consumer 558,769 41,997 7.52 514,822 31,348 6.09 421,167 17,959 4.26
Commercial business 140,465 12,452 8.86 94,420 7,455 7.90 112,059 7,548 6.74
Small business 259,816 20,988 8.08 211,371 16,520 7.82 183,642 13,118 7.14

Total loans
4,588,996 312,960 6.82 4,826,602 292,694 6.06 3,927,847 207,968 5.29

Tax exempt securities (c) 396,539 23,162 5.84 368,807 21,391 5.80 110,748 5,988 5.41
Taxable investment securities (b) 618,913 36,912 5.96 698,279 37,184 5.33 635,129 34,948 5.50
Federal funds sold 1,824 22 1.21 4,275 17 0.40 6,282 47 0.75

Total investment securities 1,017,276 60,096 5.91 1,071,361 58,592 5.47 752,159 40,983 5.45

Total interest earning assets
5,606,272 373,056 6.65 % 5,897,963 351,286 5.96 % 4,680,006 248,951 5.32 %

Total non-interest earning assets 448,296 389,186 333,253

Total assets
$ 6,054,568 $ 6,287,149 $ 5,013,259

Interest bearing liabilities

Deposits:
Savings $ 369,504 2,936 0.79 % $ 298,867 909 0.30 % $ 243,906 652 0.27 %
NOW, money funds and checking 1,502,058 20,413 1.36 1,582,182 16,593 1.05 1,489,442 10,861 0.73
Certificate accounts 868,777 35,610 4.10 784,525 22,582 2.88 733,717 16,842 2.30

Total interest bearing deposits 2,740,339 58,959 2.15 2,665,574 40,084 1.50 2,467,065 28,355 1.15

Securities sold under agreements to repurchase and federal funds purchased 304,635 15,309 5.03 314,782 9,760 3.10 252,718 3,349 1.33
Advances from FHLB 1,265,772 66,492 5.25 1,538,852 62,175 4.04 959,588 37,689 3.93
Subordinated debentures and notes payable 66,287 5,513 8.32 191,050 12,584 6.59 36,220 2,002 5.53

Total interest bearing liabilities 4,377,033 146,273 3.34 4,710,258 124,603 2.65 3,715,591 71,395 1.92

Non-interest bearing liabilities

Demand deposit and escrow accounts 1,056,254 979,075 765,084
Other liabilities 61,392 53,150 29,111

Total non-interest bearing liabilities 1,117,646 1,032,225 794,195

Stockholders’ equity 559,889 544,666 503,473

Total liabilities and stockholders’ equity
$ 6,054,568 $ 6,287,149 $ 5,013,259

Net interest income/net interest spread 226,783 3.31 % 226,683 3.31 % 177,556 3.40 %

Tax equivalent adjustment (8,107 ) (7,487 ) (2,096 )
Capitalized interest from real estate operations 929 1,879 1,398

Net interest income 219,605 221,075 176,858

Margin

Interest income/interest earning assets 6.65 % 5.96 % 5.32 %
Interest expense/interest earning assets 2.61 2.11 1.53

Tax equivalent net interest margin 4.04 % 3.85 % 3.79 %


a)		Includes non-accruing loans

b)		Average balances were based on amortized cost.

c)		The tax equivalent basis is computed using a 35% tax rate.

Financial Services (Continued)

The following table summarizes the changes in tax equivalent net interest income (in thousands):

Year Ended Year Ended
December 31, 2006 December 31, 2005
Compared to Year Ended Compared to Year Ended
December 31, 2005 December 31, 2004
Volume (a) Rate Total Volume (a) Rate Total
Increase (decrease) due to:

Loans $ (16,204 ) $ 36,470 $ 20,266 $ 54,502 $ 30,224 $ 84,726
Tax exempt securities 1,620 151 1,771 14,968 435 15,403
Taxable investment securities (b) (4,733 ) 4,461 (272 ) 3,363 (1,127 ) 2,236
Federal funds sold (30 ) 35 5 (8 ) (22 ) (30 )

Total earning assets (19,347 ) 41,117 21,770 72,825 29,510 102,335

Deposits:
Savings 561 1,466 2,027 167 90 257
NOW, money funds, and checking (1,089 ) 4,909 3,820 973 4,759 5,732
Certificate accounts 3,453 9,575 13,028 1,462 4,278 5,740

Total deposits 2,925 15,950 18,875 2,602 9,127 11,729

Securities sold under Agreements to repurchase (510 ) 6,059 5,549 1,924 4,487 6,411
Advances from FHLB (14,345 ) 18,662 4,317 23,404 1,082 24,486
Subordinated debentures (10,376 ) 3,305 (7,071 ) 10,198 384 10,582

(25,231 ) 28,026 2,795 35,526 5,953 41,479

Total interest bearing liabilities (22,306 ) 43,976 21,670 38,128 15,080 53,208

Change in tax equivalent interest income $ 2,959 $ (2,859 ) $ 100 $ 34,697 $ 14,430 $ 49,127


(a)		Changes attributable to rate/volume have been allocated to volume.

(b)		Average balances were based on amortized cost.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

Tax equivalent net interest income remained at the 2005 amount. The additional net interest income from higher yields on earning assets and lower volume on interest-bearing liabilities were offset by higher rates on interest-bearing liabilities and lower interest earning assets. The net interest margin improved by 19 basis points resulting in-part from growth in non-interest bearing deposit accounts.

BankAtlantic’s average interest earning asset balances declined as a result of lower investment securities, and lower residential and commercial real estate loan average balances. The decline in commercial real estate loan average balances reflects a management decision to limit condominium construction lending during 2005 and a general slow-down in real estate construction in Florida. The decline in residential loan and investment securities average balances reflects a decision by management to not replace principal pay-downs on these loans and securities in response to the current flat interest rate yield curve. The average balance declines were partially offset by higher consumer, commercial business and small business loan average balances relating to the origination of loans to retail and small business customers.

The net interest spread was 3.31% during 2006 and 2005. Average interest-bearing deposits, which have lower rates than other borrowings, increased from 57% of total average interest-bearing liabilities during 2005 to 63% of total average interest-bearing liabilities during 2006. The increase in deposit balances mitigated the impact of increased rates on interest-bearing liabilities. As a result, the increase in yields on earning assets generally matched the increase in rates on interest-bearing liabilities. Commencing in the latter half of 2005, BankAtlantic used its growth in core deposits to reduce borrowings in response to the flat yield curve environment. Average core deposit balances increased from $1,955 million during 2005 to $2,173 million during 2006. As a consequence of the growth in core deposits, BankAtlantic’s tax equivalent

Financial Services (Continued)

net interest income remained at 2005 amounts despite an unfavorable interest rate environment which began during the latter half of 2005.

BankAtlantic experienced declines in both interest-earning assets and interest-bearing liabilities during 2006. The decline in interest-earnings assets reduced tax equivalent interest income by $19.3 million and the decline in interest-bearing liabilities reduced interest expense by $20.9 million. The increase in interest-earning asset yields increased interest income by $41.1 million while the higher rates on interest-bearing liabilities increased interest expense by $42.5 million. Since June 2004, the prime interest rate has increased from 4.00% to 8.25%. This increase favorably impacted the yields on earning assets, but the increase was offset by higher rates on short term borrowings, certificate accounts, money market deposits, LIBOR-based FHLB advances and long term debt. As a consequence, BankAtlantic’s interest rate spread has remained at the 2005 percentage.

BankAtlantic increased its holdings of tax exempt securities during 2006 and 2005 as the after tax yields were more attractive than alternative investments.

Capitalized interest represents interest capitalized on qualifying assets associated with the River Club real estate development acquired as part of a financial institution acquisition.

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

The substantial improvement in tax equivalent net interest income primarily resulted from higher average interest earning asset balances and a 5 basis point improvement in the net interest margin.

BankAtlantic’s average interest earning asset balances increased primarily due to purchases of residential loans and tax exempt securities as well as the origination of small business and home equity loans. The growth in its interest earning assets was funded through deposit growth, short term borrowings and LIBOR-based short term FHLB advances. During the second half of 2005, we slowed the growth in average earning assets in response to the flattening of the interest rate yield curve.

The improvement in the tax equivalent net interest margin primarily resulted from a substantial increase in core deposits, and secondarily, from higher earning asset yields. Core deposits were 54% of total average deposits during 2005 compared to 49% during 2004.

BankAtlantic experienced increases in both interest earning asset and interest bearing liability yields and rates. This increase has favorably impacted the yields on earning assets, which was offset by higher rates on our short term borrowings, certificate accounts, money market deposits, LIBOR-based FHLB advances and long term debt. As a consequence, BankAtlantic’s interest rate spread only increased slightly from 2004.

Financial Services (Continued)

BankAtlantic’s Allowance for Loan Losses

Changes in the allowance for loan losses were as follows (in thousands):

For the Years Ended December 31,
2006 2005 2004 2003 2002
Balance, beginning of period
$ 41,192 $ 46,010 $ 45,595 $ 48,022 $ 44,585
Charge-offs:

Commercial business loans — — — (2,394 ) —
Commercial real estate loans (7,000 ) — (645 ) — (6,998 )
Small business (951 ) (764 ) (238 ) (771 ) (953 )
Consumer loans (681 ) (259 ) (585 ) (1,563 ) (1,006 )
Residential real estate loans (239 ) (453 ) (582 ) (681 ) (827 )

Continuing loan products (8,871 ) (1,476 ) (2,050 ) (5,409 ) (9,784 )
Discontinued loan products (34 ) (1,218 ) (2,026 ) (6,314 ) (18,879 )

Total charge-offs
(8,905 ) (2,694 ) (4,076 ) (11,723 ) (28,663 )

Recoveries:

Commercial business loans 291 18 536 95 76
Commercial real estate loans 419 1,471 4,052 3 20
Small business 566 899 418 559 7
Consumer loans 536 401 370 622 477
Residential real estate loans 348 65 486 726 331

Continuing loan products 2,160 2,854 5,862 2,005 911
Discontinued loan products 581 1,637 3,738 8,572 7,968

Total recoveries
2,741 4,491 9,600 10,577 8,879

Net (charge-offs) recoveries
(6,164 ) 1,797 5,524 (1,146 ) (19,784 )
Provision for (recovery from) loan losses 8,574 (6,615 ) (5,109 ) (547 ) 14,077
Adjustments to acquired loan losses — — — (734 ) 9,144

Balance, end of period
$ 43,602 $ 41,192 $ 46,010 $ 45,595 $ 48,022

The outstanding loan balances related to our discontinued loan products and the amount of allowance for loan losses (“ALL”) assigned to each discontinued loan product was as follows (in thousands):

As of December 31,
2006 2005 2004
Allocation Allocation Allocation
Amount of ALL Amount of ALL Amount of ALL
Lease finance $ — $ — $ 664 $ 156 $ 6,551 $ 1,429
Syndication loans — — — — — —
Small business (1) — — — — — —
Consumer — indirect — — 543 — 1,734 2

$ — $ — $ 1,207 $ 156 $ 8,285 $ 1,431

Financial Services (Continued)

Discontinued loan products are part of commercial business loans (see note # 8 “Loans Receivable and Loans Held for Sale” to the Notes to BankAtlantic Bancorp’s Consolidated Financial Statements).

As of December 31,
2003 2002
Allocation Allocation
Amount Of ALL Amount of ALL
Lease finance $ 14,442 $ 3,425 $ 31,279 $ 7,396
Syndication loans 9,114 185 14,499 294
Small business (1) 9,569 873 17,297 2,143
Consumer — indirect 2,402 70 8,105 457

$ 35,527 $ 4,553 $ 71,180 $ 10,290


(1)		Small business loans originated before January 1, 2000.

During prior periods we discontinued the origination of syndication, lease financings and indirect consumer loans and made major modifications to the underwriting process for small business loans (collectively, “discontinued loan products”.) The loans associated with the discontinued loan products gave rise to a significant portion of our net charge-offs during the year ended December 31, 2002. The decline in those portfolios during the past five years has contributed to the reduction of our allowance for loan losses from December 31, 2002 to December 31, 2006 and net recoveries from loan losses for each of the years in the three year period ended December 31, 2005. This improvement resulted from several factors, including the discontinuation of the loan products mentioned above and changes in our credit policies which focused our loan production on collateral based loans with lower loss experiences than our other loan products. In 2004, our provision for loan losses was a recovery primarily as a consequence of a $4.1 million recovery of a commercial real estate loan that was charged off in 2002, as well as continued net recoveries from our discontinued loan products. During 2005, our provision was a recovery due to decreased reserves associated with the commercial loan portfolio reflecting lower loan balances and a payoff of a large hotel loan. Loans to borrowers in the hospitality industry are allocated higher general reserves than other categories of loans in the portfolio. We also experienced a reduction in our classified loans during the year which further added to our recovery from loan losses.

The provision for loan losses during the year ended December 31, 2006 primarily resulted from a $7.0 charge-down on one land development loan and increases in the allowance for commercial real estate loans. BankAtlantic took possession of real estate securing the land development loan during the fourth quarter of 2006. The qualitative component of the allowance for commercial real estate losses was increased during 2006 due to deteriorating economic conditions in the housing real estate market throughout 2006. At December 31, 2006 there were $389 million of land development loans in BankAtlantic’s loan portfolio. The remaining continuing loan products experienced historically low net charge-offs during 2006 and the majority of the discontinued loan product net recoveries were related to lease finance lending. There were no discontinued loan products in BankAtlantic’s loan portfolio at December 31, 2006 and management anticipates a lower level of recoveries from discontinued loan products in future periods compared to previous periods.

BankAtlantic’s total charge-offs from continuing loan products during 2005 consisted primarily of various charge-offs related to small business, residential and home equity loans. BankAtlantic’s total recoveries from continuing loan products included a $1.1 million partial recovery of a commercial business loan that had been charged off during the third quarter of 2003.

BankAtlantic acquired a $9.1 million allowance for loan losses in connection with its acquisition of a financial institution in March 2002. In 2003, the acquired allowance for loan losses was reduced by $734,000 with a corresponding reduction in goodwill for loans acquired in connection with the acquisition that had either matured or were prepaid and which had been assigned a valuation allowance.

Financial Services (Continued)

The table below presents the allocation of the allowance for loan losses by various loan classifications (“Allowance for Loan Losses”), the percent of allowance to each loan category (“ALL to gross loans percent”) and the percentage of loans in each category to gross loans excluding banker’s acceptances (“Loans to gross loans percent”). The allowance shown in the table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages or that the allowance accurately reflects future charge-off amounts or trends (dollars in thousands):

December 31, 2006 December 31, 2005 December 31, 2004
ALL Loans ALL Loans ALL Loans
to gross by to gross by to gross by
ALL loans category ALL loans category ALL loans category
by in each to gross By in each to gross by in each to gross
category category loans category category loans category category loans
Commercial business $ 2,359 1.50 % 3.07 % $ 1,988 2.30 % 1.63 % $ 2,507 2.94 % 1.59 %
Commercial real estate 24,632 1.28 37.54 17,984 0.75 45.20 23,345 0.92 47.28
Small business 4,495 1.58 5.57 2,640 1.12 4.43 2,403 1.26 3.55
Residential real estate 4,242 0.20 42.34 2,592 0.13 38.53 2,565 0.12 38.57
Consumer — direct 7,874 1.34 11.49 6,354 1.17 10.19 4,281 0.90 8.86
Discontinued loan products — — — 156 12.92 0.02 1,431 17.27 0.15

Total assigned 43,602 31,714 36,532
Unassigned — N/A N/A 9,478 N/A N/A 9,478 N/A N/A

$ 43,602 0.85 100.00 $ 41,192 0.78 100.00 $ 46,010 0.86 100.00

December 31, 2003 December 31, 2002
ALL Loans ALL Loans
to gross by to gross by
ALL loans category ALL loans category
By in each to gross by in each to gross
category category loans category category loans
Commercial business $ 1,715 2.15 1.81 $ 1,437 1.75 2.06
Commercial real estate 24,005 0.99 55.12 21,124 1.05 50.75
Small business 2,300 1.44 3.63 2,863 1.99 3.61
Residential real estate 2,111 0.16 30.56 2,512 0.18 34.60
Consumer — direct 3,900 1.10 8.07 3,239 1.13 7.19
Discontinued loan products 4,553 12.81 0.81 10,290 14.46 1.79

Total assigned 38,584 41,465
Unassigned 7,011 N/A N/A 6,557 N/A N/A

$ 45,595 1.04 100.00 $ 48,022 1.21 100.00

The allowance for loan losses has a quantitative amount and a qualitative amount. The methodology for the quantitative component is based on a three year charge-off history by loan type adjusted by an expected recovery rate. A three year period was considered a reasonable time frame to track a loan’s performance from the event of loss through the recovery period. The methodology for the qualitative component is determined by considering the following factors: (i) Delinquency and charge-off levels and trends; (ii) Problem loans and non-accrual levels and trends; (iii) Lending policy and underwriting procedures; (iv) Lending management and staff; (v) Nature and volume of portfolio; (vi) Economic and business conditions; (vii) Concentration of credit; (viii) Quality of loan review system; and (ix) External factors. The unassigned component that was part of the Company’s allowance for loan losses in periods prior to January 1, 2006 was incorporated into the qualitative components of loans by loan category during 2006. In prior periods the unassigned component was calculated based on the entire loan portfolio considering the above qualitative factors. At January 1, 2006 this unassigned component was allocated to each loan category.

Financial Services (Continued)

The unassigned allowance was transferred to the following loan categories as of January 1, 2006 (in thousands):

Amount
Commercial business $ 264
Commercial real estate 5,285
Small business 1,566
Residential real estate 1,262
Consumer — direct 1,101

$ 9,478

The unassigned allowance increased in each of the years in the three year period ended December 31, 2004 and remained at the ~~Company paid approximately $392,000~~prior year level at December 31, 2005. The major factors contributing to the increase in ~~cash dividends on~~our unassigned allowance for loan losses during the ~~5% Preferred Stock. Holders~~four year period ending December 31, 2004 were the expanded geographical area in Florida in which we originated commercial real estate loans, and the growth in our consumer and purchased residential loan portfolios. We opened commercial loan offices in Orlando and Jacksonville, Florida. The loans originated outside our primary markets may have substantially different loss experiences than loans secured by collateral in South Florida. Also contributing to our increase in the unassigned portion of the ~~5% Preferred Stock are entitled~~allowance was the growth in our purchased residential and home equity loan products. A large portion of the purchased residential loans required only interest payments for a period of three to ~~receive~~ten years, followed by conversion to a ~~quarterly dividend~~fully amortizing loan at the then prevailing interest rates for the remaining term of ~~$12.50 per share,~~the loan. These types of delayed amortizing loans may have a greater default or ~~$187,500~~recovery risk than the traditional amortizing loans in our portfolio. During 2004, we also modified our underwriting policies to allow for higher loan-to-value ratios based on Beacon scores for home equity loans. During 2005, the unassigned portion of the allowance remained at the prior period amount as there were no significant changes in lending policies or geographical concentration of credit risk.

Commercial real estate loans account for a large portion of the allowance for loan losses for each of the years in the five year period ended December 31, 2006. The commercial real estate loan allowance from December 31, 2002 through December 2004 primarily reflects portfolio growth in high balance loans and additional reserves associated with loans to borrowers in the hospitality and time-sharing industries. These industries were designated to have higher credit risk than existing loans in our portfolio. The decline in the allowance for commercial real estate loans at December 31, 2005 was associated with repayments of loans in the hospitality industry, lower classified loan balances and a decline in portfolio balances. The increase in the allowance for commercial real estate loans during 2006 was associated with current economic conditions in the real estate industry.

At December 31, 2006, our commercial real estate portfolio included several large lending relationships, including 19 relationships with unaffiliated borrowers involving individual lending commitments in excess of $30 million with aggregate ~~per quarter.~~
amounts outstanding of $532 million.

The allowance for consumer direct loans has increased for each of the years in the five year period ended December 31, 2006. This increase is largely associated with the growth in outstanding home equity loans throughout the period. The 2006 increase in the allowance also reflects an increase in estimated inherent losses in the loan portfolio associated with the current weakness in the housing market.

The significant increase in the assigned allowance for home equity loans during 2005 compared to 2004 reflected an increase in the home equity loan loss ratio. This allowance was increased in response to an analysis of the portfolio which included a review of the portfolios’ loan to value ratios.

The increase in the residential loan allowance during 2006 also reflects an increase in the estimated inherent losses in the residential loan portfolio associated with the current weakness in the housing market.

The change in the percentage of allowance for loan losses to total gross loans during the three year period ended December 31, 2006 primarily reflects changes in classified assets, and qualitative allowance adjustments in response to the slow-down in the real estate industry that began during the latter half of 2005. The adjustments were primarily in the commercial real estate, consumer-direct and residential loan categories.

5876

Financial Services (Continued)

BankAtlantic’s Non-performing Assets and Potential Problem Loans (dollars in thousands):

December 31,
2006 2005 2004 2003 2002
NONPERFORMING ASSETS

Tax certificates $ 632 $ 388 $ 381 $ 894 $ 1,419
Residential 2,629 5,981 5,538 9,777 14,237
Commercial real estate and business — 340 340 52 1,474
Small business — real estate 244 9 88 155 239
Lease financing — — 727 25 3,900
Consumer 1,563 471 1,210 794 532

Total non-accrual assets
5,068 7,189 8,284 11,697 21,801

Residential real estate owned 617 86 309 1,474 1,304
Commercial real estate owned 21,130 881 383 948 8,303
Consumer — — — — 4

Total repossessed assets
21,747 967 692 2,422 9,611

Total nonperforming assets
26,815 8,156 8,976 14,119 31,412
Specific valuation allowances — — — — (1,386 )

Total nonperforming assets, net
$ 26,815 $ 8,156 $ 8,976 $ 14,119 $ 30,026

Total nonperforming assets as a percentage of:

Total assets 0.43 0.13 0.15 0.31 0.64

Loans, tax certificates and net real estate owned 0.55 0.17 0.19 0.36 0.86

TOTAL ASSETS $ 6,187,122 $ 6,109,330 $ 6,044,988 $ 4,566,850 $ 4,903,886

TOTAL LOANS, TAX CERTIFICATES AND NET REAL ESTATE OWNED $ 4,903,961 $ 4,830,268 $ 4,771,682 $ 3,872,473 $ 3,673,110

Allowance for loan losses $ 43,602 $ 41,192 $ 46,010 $ 45,595 $ 48,022

Total tax certificates $ 199,090 $ 166,697 $ 170,028 $ 193,776 $ 195,947

Allowance for tax certificate losses $ 3,699 $ 3,271 $ 3,297 $ 2,870 $ 1,873

OTHER POTENTIAL PROBLEM LOANS

CONTRACTUALLY PAST DUE 90 DAYS OR MORE
Commercial real estate and business (1) $ — $ — $ — $ 135 $ 100

PERFORMING IMPAIRED LOANS, NET OF SPECIFIC ALLOWANCES
Performing impaired loans 163 193 320 180 —
RESTRUCTURED LOANS
Commercial real estate and business — 77 24 1,387 1,882

TOTAL POTENTIAL PROBLEM LOANS $ 163 $ 270 $ 344 $ 1,702 $ 1,982


(1)		The majority of these loans have matured and the borrower continues to make payments under the matured loan agreement.

Non-performing assets increased during 2006 reversing a declining non-performing asset trend. The increase in non-performing assets during 2006 resulted from the increase in real estate owned. BankAtlantic took possession of $20.2 million of real estate securing a land development loan during the fourth quarter of 2006.

We ~~expect to meet~~believe the declining amounts of non-performing loans throughout the period from 2002 through 2005 reflects the strengthening of BankAtlantic’s underwriting policies, focusing our ~~short-term liquidity requirements generally through net cash provided by operations, dividends from BankAtlantic Bancorp~~,~~dividends from Levitt, dividends from Benihana, borrowings~~loan production on ~~our $14.0 million revolving line of credit and existing cash balances. We expect to meet our long-term liquidity requirements through the foregoing,~~collateral based loans as well as ~~long term secured~~the discontinuance of loan products with high historical loss experiences. From 2002 through 2005 real estate values have appreciated substantially and ~~unsecured indebtedness,~~BankAtlantic focused its lending on real estate collateralized loans and underwriting policy and external environment had a favorable impact on BankAtlantic’s non-performing loan trends. During 2006, the real estate

Financial Services (Continued)

markets nationally and locally experienced a significant slow-down with negative implications for value appreciation. At December 31, 2006, BankAtlantic’s home equity non-performing loans are at higher levels than in prior periods; however, to date, residential non-performing loans remain low on a relative historical basis. BankAtlantic is monitoring these current trends and the potential effect these trends may have on its loan portfolio.

In 2005, the improvement in non-performing assets compared to 2004 resulted from the foreclosure and sale of a large consumer home equity loan and the decline in BankAtlantic’s lease financing portfolio. This improvement was partially offset by an increase in non-performing residential loans and higher real estate owned. The increase in real estate owned primarily related to BankAtlantic’s tax certificate operations. During 2004 and 2005, these acquired properties were sold for amounts in excess of their carrying value. In 2004, non-accrual assets improved from 2003 due primarily to lower amounts of residential non-performing loans, delinquent tax certificates and real estate owned balances in our portfolio, resulting from favorable economic conditions in the real estate industry. The improvement in non-performing assets was partially offset by higher non-accrual lease financing lending arrangements in the aviation industry and higher non-accruing home equity loans.

The specific valuation allowances on non-performing assets at December 31, 2002 consisted of specific valuation allowances on non-performing loans. At each period end, BankAtlantic individually evaluates the non-homogenous loans in its portfolio to identify those which it deems probable that the borrower will be unable to meet the contractual terms of the loan agreements. A specific valuation allowance is established for these loans, primarily based on cash flow valuation models or collateral value. At year-end 2006, 2005 and 2004, there was no specific valuation allowance assigned to non-performing loans.

BankAtlantic’s Non- Interest Income

The following table summarizes the significant components of and changes in non-interest income (in thousands):

For the Years Ended Change Change
Ended December 31, 2006 vs 2005 vs
2006 2005 2004 2005 2004
Other service charges and fees $ 27,542 $ 23,347 $ 23,620 $ 4,195 $ (273 )
Service charges on deposits 90,472 61,956 51,435 28,516 10,521
(Loss) income from real estate operations (982 ) 4,480 2,405 (5,462 ) 2,075
Gains on sales of loans 680 742 483 (62 ) 259
Securities activities, net 657 117 37 540 80
Gains associated with debt redemption 1,528 — — 1,528 —
Gain (loss) on sales of bank facilities 1,627 1,200 (16 ) 427 1,216
Other 10,320 8,218 7,760 2,102 458

Non-interest income $ 131,844 $ 100,060 $ 85,724 $ 31,784 $ 14,336

The higher other service charges and fees during the year ended December 31, 2006 compared to the same 2005 period reflects the substantial increase in the number of debit cards. These cards were issued to new customers in connection with the opening of new accounts. BankAtlantic opened approximately 270,000 new core deposit accounts during 2006 compared to 222,000 and 166,000 during 2005 and 2004 respectively.

The ATM and check cards issued upon opening new checking and savings accounts resulted in a $4.7 million increase in interchange and transaction fees during 2006 compared to 2005. Bank card annual fee income declined from 2005 as BankAtlantic waived the fee on new account openings in response to increased competition.

The higher revenues from service charges on deposits during the year ended December 31, 2006 compared to the same 2005 period primarily resulted from the increase in the number of core deposit accounts discussed above, higher frequency of overdrafts per account during the 2006 period, a 7% increase in the overdraft fee beginning in July 2006 and a change in policy which allows certain customers to overdraft their accounts through the use of debit cards. The higher revenue from service charges on deposits during the year ended December 31, 2005 compared to 2004 was linked to growth in core deposit accounts.

Income (loss) from real estate operations reflects net proceeds from sales of real estate inventory associated with a venture acquired as part of a financial institution acquisition during 2002. The 2005 and 2004 periods also included

Financial Services (Continued)

$624,000 and $274,000 of gains from the sales of store facilities. Loss from real estate operations during the 2006 year reflects higher development and capitalized interest costs associated with units sold during the period. In January 2007, a wholly owned subsidiary of BankAtlantic acquired the remaining 50% interest in the venture from the venture partner. It is possible that we may experience additional losses at this development, depending on the rate of future sales, sales prices and development costs.

The increase in income from real estate operations during the year ended December 31, 2005 compared to the same 2004 period primarily resulted from an increase in units sold. During the years ended December 31, 2005 and 2004 the joint venture closed on 27 and 14 units, respectively.

Gains on loan sales during each of the years in the three year period ended December 31, 2006 were primarily from the sale of residential loans originated with the assistance of independent mortgage brokers and the sale of Community Reinvestment Act qualified loans to other financial institutions.

Securities activities, net during the year ended December 31, 2006 resulted from $458,000 of proceeds received in connection with the MasterCard International initial public offering and a $172,000 net gain realized from the sale of agency securities. Securities activities, net in 2005 reflects gains on the sales of agency securities. Securities activities net, in 2004 reflects fair value adjustments on a forward contract held for trading purposes.

Gains associated with debt redemption for 2006 were the result of gains realized on the prepayment of FHLB advances. BankAtlantic prepaid these advances as part of a strategy to reduce the net effect of an asset sensitive portfolio on its net interest margin by shortening the average maturity of its outstanding interest-bearing liabilities.

Gain on sale of bank facilities during the year ended December 31, 2006 primarily resulted from an exchange of branch facilities with another financial institution. The financial institution had a surplus branch facility from a recent acquisition and BankAtlantic was searching for a suitable branch site in that general location. As consideration for this surplus branch, BankAtlantic exchanged a branch with the financial institution and recorded a $1.8 million gain equal to the appraised value of the branch transferred less its carrying value. The gain on the sale of branch facilities during 2005 primarily related to the sale of a branch to an unrelated financial institution for a $922,000 gain. The loss during 2004 reflects the disposition of various equipment.

The increase in other non-interest income during the year ended December 31, 2006 compared to the same 2005 period reflects a $400,000 deposit forfeited by a potential buyer of a portion of BankAtlantic’s old corporate headquarters property and $380,000 of corporate overhead fees received from BFC with no corresponding fees during the 2005 period. The remaining increase in other income during 2006 compared to 2005 reflects increased banking fees associated with a higher number of core deposit accounts and increased earnings credit from a third party teller check outsourcing servicer. Higher other non-interest income during 2005 compared to 2004 primarily reflects higher commissions from the outsourcing of teller checks and increased bank fees from customers.

Financial Services (Continued)

BankAtlantic’s Non- Interest Expense

The following table summarizes the significant components and changes in non-interest expense (in thousands):

For the Years Ended Change Change
Ended December 31, 2006 vs 2005 vs
2006 2005 2004 2005 2004
Employee compensation and benefits $ 146,099 $ 113,526 $ 93,154 $ 32,573 $ 20,372
Occupancy and equipment 57,291 41,611 32,713 15,680 8,898
Advertising and promotion 34,659 26,895 16,012 7,764 10,883
Check losses 8,615 5,176 2,878 3,439 2,298
Professional fees 7,653 9,695 11,285 (2,042 ) (1,590 )
Supplies and postage 6,833 5,638 4,467 1,195 1,171
Telecommunication 4,774 3,944 3,045 830 899
Amortization of intangible assets 1,561 1,627 1,715 (66 ) (88 )
Costs associated with debt redemption 1,457 — 11,741 1,457 (11,741 )
Fines and penalties, compliance matters — 10,000 — (10,000 ) 10,000
Impairment of office properties and equipment — 3,706 — (3,706 ) 3,706
Other 24,506 19,274 16,611 5,232 2,663

Non-interest expense $ 293,448 $ 241,092 $ 193,621 $ 52,356 $ 47,471

BankAtlantic’s non-interest expense for the year ended December 31, 2006 was $293.4 million, 22% greater than the year ended December 31, 2005. Management is currently reviewing the level of the Company’s non-interest expenses which gave rise to this increase, with a view toward reducing those expenses which do not impact the quality of customer service or the opening of new stores.

The substantial increase in employee compensation and benefits during each of the years in the three years ended December 31, 2006 resulted primarily from our store expansion and growth initiatives as well as the execution of our “Florida’s Most Convenient Bank” strategy. This strategy includes stores opened seven days a week, extended weekday hours, 24/7 call center hours, certain stores open to midnight, and holiday hours. This strategy, along with the opening of 17 stores and a second call center in central Florida during 2005 and 2006, contributed to the significant increase in compensation expense during each of the years in the three year period ended December 31, 2006. As a consequence of the above initiatives, the number of BankAtlantic’s full time equivalent employees increased from 1,301 at December 31, 2003 to 2,618 at December 31, 2006. Also contributing to the increased compensation costs were higher employee benefit costs, recruitment expenditures and temporary agency costs associated with maintaining a larger work force. Included in employee compensation costs during the year ended December 31, 2006 was $3.2 million of share-based compensation costs recorded as part of the Company’s adoption of Statement of Financial Accounting Standards No.123R. No such costs were recorded during 2005 and 2004.

The significant increase in occupancy and equipment reflects higher rental expenses associated with BankAtlantic’s growth and store expansion initiatives. BankAtlantic has entered into various operating lease agreements relating to current and future store expansion as well as for back-office facilities, including the opening of a second call center and BankAtlantic University to support the growing store network. BankAtlantic also incurred higher operating costs for real estate taxes, guard services, and utilities associated with the above growth and expansion initiatives. As a consequence of BankAtlantic’s growth, depreciation, building repairs, maintenance, real estate taxes and rent expense increased from $23.0 million and $28.3 million during the years ended December 31, 2004 and 2005, respectively, to $40.7 million during the year ended December 31, 2006. Guard service expense increased from $3.6 million and $4.8 million during the years ended December 31, 2004 and 2005, respectively, to $5.2 million during the year ended December 31, 2006. Also contributing to the higher occupancy costs was an increase in data processing costs associated with higher customer transaction volume. Data processing costs rose to $6.2 million during the year ended December 31, 2006 from $3.0 million and $4.7 million during the years ended December 31, 2004 and 2005, respectively.

Advertising expenses during 2006, 2005 and 2004 reflect marketing initiatives to promote our “Florida’s Most Convenient Bank”strategy and brand. These promotions included print, radio and billboard advertising, customer gifts, a sports arena sponsorship and events associated with seven-day banking. Commencing in the fourth quarter of 2005 BankAtlantic significantly expanded its advertising campaign in response to slowing growth rates in core deposits. BankAtlantic created new marketing promotions and introduced new account opening incentives in order to attract new core

Financial Services (Continued)

deposits. While new core deposit account growth has been favorable, account balances in existing accounts have declined resulting in slowed overall growth of deposit balances. BankAtlantic is currently reassessing its marketing strategy in light of the existing deposit outflows. Additionally, management is reviewing its marketing programs with a goal of reducing overall marketing expenses while intending to maintain its customer service standards.

BankAtlantic experienced a significant increase in check losses for each of the years in the three year period ended December 31, 2006. The higher check losses were primarily related to the increased number of core deposit accounts and the volume of checking account overdrafts. Also contributing to the losses was an increased number of fraudulent check cashing schemes and counterfeiting during the 2006 period compared to 2005 and 2004.

The decline in professional fees during the three year period primarily resulted from lower consulting costs associated with the compliance efforts relating to anti-terrorism and anti-money laundering laws and regulations following an earlier identification of deficiencies in our program. The compliance deficiency was identified during 2004 and BankAtlantic entered into a deferred prosecution agreement with the U.S. Department of Justice and an agreement with the Office of Thrift Supervision in April 2006. BankAtlantic incurred substantial consulting fees during 2004 and 2005 in connection with improving its compliance systems and procedures, including costs associated with acquiring new software.

The increase in supplies, postage and telecommunication costs during the three year period ended December 31, 2006 were directly related to BankAtlantic’s growth initiatives and store expansion.

Amortization of intangible assets consisted of the amortization of acquired core deposit intangible assets, which are being amortized over an estimated life of ten years.

The costs associated with debt redemptions were the result of prepayment penalties incurred during the years ended December 31, 2006 and 2004 upon the prepayment of FHLB advances. The prepayments during 2006 were part of a market risk strategy to reduce the effect of an asset sensitive portfolio on BankAtlantic’s net interest margin by shortening the average maturity of its outstanding interest-bearing liabilities. The prepayments during 2004 involved higher rate advances repaid with the goal of improving Bank Atlantic’s net interest margin.

The 2005 period includes an impairment charge associated with the relocation of our corporate headquarters and a decision to vacate and raze our former headquarters.

During the fourth quarter of 2005, BankAtlantic established a $10 million reserve with respect to the, anti-money laundering laws and the Bank Secrecy Act compliance issues discussed above. In April 2006, BankAtlantic entered into a deferred prosecution agreement with the U.S Department of Justice and remitted the $10.0 million.

The increase in other non-interest expense during the year ended December 31, 2006 compared to the same 2005 period relates to higher expenses associated with services provided by BFC, higher costs associated with a real estate development and increased general operating expenses such as check printing and ATM network cost related to a significant increase in the number of customer accounts, store locations, employees and the extended hours of the store network.

The significant increase in other non-interest expense during the year ended December 31, 2005 compared to the same 2004 period primarily related to an additional $1.5 million of fees remitted for maintaining attorney escrow accounts and increased general operating expenses.

BankAtlantic’s Provision for Income Taxes

For the Years Ended Change Change
Ended December 31, 2006 vs 2005 vs
2006 2005 2004 2005 2004
Income before income taxes $ 49,427 $ 86,658 $ 74,070 $ (37,231 ) $ 12,588
Provision for income taxes (13,105 ) (30,838 ) (25,530 ) 17,733 (5,308 )

BankAtlantic net income $ 36,322 $ 55,820 $ 48,540 $ (19,498 ) $ 7,280

Effective tax rate 26.51 % 35.59 % 34.47 %

The lower effective tax rate during the year ended December 31, 2006 compared to the same 2005 period resulted from a higher percentage of tax exempt income to earnings and a lower effective state income tax rate. During 2006, tax

Financial Services (Continued)

exempt income was 26% of income before taxes compared to 14% during the same 2005 periods. The lower state income tax effective rate reflects a change in the proportion of earnings among various state tax jurisdictions.

The increase in the effective tax rate during 2005 compared to the same 2004 period resulted from the establishment of a non-tax deductible $10 million reserve for fines and penalties associated with the AML-BSA compliance matter. The non-deductibility of these fines was partially offset by a higher percentage amount of income from tax exempt securities during 2005 compared to 2004.

Parent Company Results of Operations

The following table is a condensed income statement summarizing the parent company’s segment results of operations (in thousands):

For the Years Change Change
Ended December 31, 2006 vs 2005 vs
2006 2005 2004 2005 2004
Net interest income (expense):

Interest on loans $ — $ 556 $ 1,751 $ (556 ) $ (1,195 )
Interest and dividends on investments 2,448 1,701 756 747 945
Interest on Junior Subordinated Debentures (21,933 ) (19,347 ) (16,958 ) (2,586 ) (2,389 )

Net interest (expense)
(19,485 ) (17,090 ) (14,451 ) (2,395 ) (2,639 )

Non-interest income:

Income from unconsolidated subsidiaries 1,634 621 485 1,013 136
Securities activities, net 9,156 731 3,693 8,425 (2,962 )
Litigation settlement — — 22,840 — (22,840 )
Other — 1,172 512 (1,172 ) 660

Non-interest income 10,790 2,524 27,530 8,266 (25,006 )

Non-interest expense:

Employee compensation and benefits 4,705 4,047 3,042 658 1,005
Advertising and promotion 408 422 289 (14 ) 133
Professional fees 638 1,179 1,708 (541 ) (529 )
Other 1,005 515 603 490 (88 )

Non-interest expense 6,756 6,163 5,642 593 521

(Loss) income before income taxes (15,451 ) (20,729 ) 7,437 5,278 (28,166 )
Income tax (expense) benefit 6,008 7,435 (2,692 ) (1,427 ) 10,127

Parent Company (loss) income $ (9,443 ) $ (13,294 ) $ 4,745 $ 3,851 $ (18,039 )

Parent company interest on loans during 2005 and 2004 represented interest income on loans to Levitt Corporation. Levitt Corporation repaid all of its borrowings from the parent company during 2005.

Interest and dividends on investments during each of the years in the three year period ended December 31, 2006 was primarily interest and dividends associated with a debt and equity portfolio managed by a money manager as well as earnings from a reverse repurchase account with BankAtlantic. Earnings from the BankAtlantic reverse repurchase account were $220,000, $162,000 and $158,000 during the years ended December 31, 2006, 2005 and 2004, respectively.

Interest expense for the years ended December 31, 2006, 2005 and 2004 consisted primarily of debt service on the Company’s junior subordinated debentures. The average balance of the Company’s junior subordinated debentures was $263.3 million during each of the years in the three year period ended December 31, 2006. The increase in the interest expense during the three year period ending December 31, 2006 was primarily due to higher rates on variable rate junior subordinated debentures resulting from the increase in short term interest rates. Of the $263.3 million of junior subordinated debentures, $128.9 million bear interest at variable rates which adjust quarterly.

Income from unconsolidated subsidiaries during 2006, 2005 and 2004 represents $627,000, $556,000 and $485,000, respectively, of equity earnings from trusts formed to issue trust preferred securities and $1.0 million and $65,000 of equity earnings in income producing real estate joint ventures during the years ended December 31, 2006 and 2005, respectively.

Financial Services (Continued)

The business purpose of the joint ventures is to manage certain rental properties with the intent to sell the property in the foreseeable future.

During the year ended December 31, 2006, the Company recorded a gain of approximately $600,000 associated with the sale of the underlying rental property in a joint venture. The equity earnings from the trusts are generated by an equivalent amount of interest that we pay on the Company’s junior subordinated debentures that we issued to the trust in exchange for the proceeds form the trust’s issuances of its securities.

Securities activities gains during the year ended December 31, 2006 primarily represent gains from managed funds. During 2006, the Parent Company sold $69.1 million of equity ~~and/ or debt~~securities from its portfolio for gains of $9.2 million. The majority of the proceeds from the sale of equity securities were reinvested in equity securities.
~~On February 18,~~ A portion of these proceeds were also used to fund the higher interest expense on junior subordinated debentures. The Parent Company anticipates continuing to sell equity securities from its portfolio from time to time in order to fund a portion of its interest expense on junior subordinated debentures and to fund its common stock repurchase program.

Securities activities, net during 2005 reflect transactions by the money manager to rebalance the portfolio in response to changes in the equity markets. The securities activities during 2004 primarily represent gains from sales of exchange traded mutual funds. The Company sold its mutual funds and invested the proceeds with the money manager.

The litigation settlement in 2004 reflects proceeds from the settlement of litigation related to the Company’s prior investment of $15 million in a private technology company. Pursuant to that settlement, the Company ~~filed~~sold its stock in the technology company to a ~~registration statement on Form S-3~~third party investor group for ~~a proposed underwritten public offering~~$15 million in cash, the Company’s original cost, and the Company received consideration from the technology company for legal expenses and damages, which consisted of ~~up to 3,600,000~~$1.7 million in cash and 378,160 shares of the Company’s Class A ~~Common Stock.~~common stock returned by the technology company to the Company.

Other income during the years ended December 31, 2005 and 2004 represented fees received by the Company for investor relations and risk management services provided by the Company to Levitt and BFC Financial Corporation (“BFC”). During 2006, the employees who provided a substantial portion of these services were transferred to BFC and these services were then provided to the Company by BFC and the fees paid by the Company to BFC are reflected in other expenses.

The Company’s compensation expense during the year ended December 31, 2006 represents salaries and bonuses for executive officers of the Company as well as recruitment expenses. Additional compensation expense during 2006 also included payroll taxes associated with the exercise of stock options and $955,000 of share-based compensation costs for the year ended December 31, 2006 upon the implementation of SFAS 123R as of January 1, 2006.

The Company recorded compensation expense during 2005 and 2004 as a result of the allocation of investor relations, corporate and risk management compensation costs to the Company from BankAtlantic effective January 1, 2004. This expense was partially offset by fees received by the Company for investor relations and risk management services provided by the Company to Levitt and BFC Financial Corporation, which are included in other income.

Advertising costs during each of the years in the three year period ended December 31, 2006 represents investor relations expenditures and the cost of shareholder correspondence and the annual meetings.

The decreased professional fees during 2006 and 2005 primarily resulted from lower allocated fees associated with compliance with the Sarbanes Oxley Act partially offset by attorney fees associated with a proposed Ryan Beck initial public offering, which was initiated in 2006 and ultimately lead to the merger of Ryan Beck with Stifel.

The increase in other expenses during the year ended December 31, 2006 compared to the same 2005 period primarily resulted from fees paid to BFC for investor relations, risk management and executive management personnel services provided to the Company by BFC. These services were previously performed by the Company’s employees and accordingly these expenses were primarily reflected in compensation expense during the 2005 period.

Financial Services (Continued)

BankAtlantic Bancorp Consolidated Financial Condition

Total assets at December 31, 2006 and 2005 were $6.5 billion. The changes in components of total assets from December 31, 2005 to December 31, 2006 are summarized below:

	•		Lower cash and due from depository institution balances resulting from a decline in cash letter receivables resulting from electronic clearing;

	•		Decline in securities available for sale reflecting an investment strategy to limit asset growth in response to the flat to inverted yield curve environment that existed during 2006;

	•		Higher investment securities balances due to additional investments in tax exempt securities;

	•		Increase in tax certificate balances associated with expanding purchases outside of Florida:

	•		Higher investment in FHLB stock related to additional FHLB advance borrowings;

	•		Decline in loan receivable balances associated with lower commercial real estate loan balances primarily resulting from a slow-down in the real estate construction market;

	•		Higher residential loans held for sale balances resulting from an increase in originated loans;

	•		Increase in accrued interest receivable resulting from higher earning asset yields during 2006 compared to 2005;

	•		Increase in real estate inventory related to a decision to build homes at the River Club real estate development;

	•		Higher real estate owned balances as BankAtlantic took possession of the real estate securing a $27.2 million land development loan;

	•		Increase in investment in unconsolidated subsidiaries due to additional investments in income producing real estate joint ventures during 2006;

	•		Increase in office properties and equipment associated with BankAtlantic’s store expansion and growth initiatives.

The Company’s total liabilities at December 31, 2006 and 2005 were $6.0 billion. The changes in components of total liabilities from December 31, 2005 to December 31, 2006 are summarized below:

	•		Higher interest bearing deposit balances resulting from growth in Savings and NOW checking deposit accounts associated with the “Florida’s Most Convenient Bank” marketing initiatives;

	•		Lower non-interest bearing deposit balances primarily resulting from a decline in the average customer account balances during 2006;

	•		Increase in FHLB advance borrowings to fund the decline in short-term borrowings;

	•		Decrease in development notes payable associated with the repayment of River Club real estate development borrowings from third party lenders;

	•		Decrease in other liabilities associated with the payment of a $10 million reserve established for possible AML-BSA fines and penalties in April 2006 and lower current income taxes payable associated with the payment of 2005 income taxes in February 2006.

Stockholders’ equity at December 31, 2006 was $525.0 million compared to $516.3 million at December 31, 2005. The increase was primarily attributable to: earnings of $15.4 million, a $9.7 million increase in additional paid in capital from the issuance of common stock and associated tax benefits upon the exercise of stock options, a $5.0 million increase in additional-paid-in-capital associated with share-based compensation expense and a $5.2 million increase in accumulated other comprehensive income, net of income tax benefits associated with the reduction in the minimum pension liability and lower unrealized losses on securities available for sale at December 31, 2006. The above increases in stockholders’ equity were partially offset by the payment of $9.7 million of common stock dividends, a $15.1 million reduction in additional paid in capital resulting from the retirement of 528,896 shares of Class A common stock issued upon exercise of employee stock options and the retirement of 559,700 shares of Class A common stock associated with the Company’s Class A common stock repurchase program.

Financial Services (Continued)

Liquidity and Capital Resources

BankAtlantic Bancorp, Inc.

The Company’s principal source of liquidity is dividends from BankAtlantic. The Company also obtains funds through the issuance of equity and debt securities, borrowings from financial institutions, and liquidation of equity securities and other investments. The Company uses these funds to contribute capital to its subsidiaries, pay dividends, pay debt service, repay borrowings, purchase equity securities, invest in income producing real estate joint ventures and fund operations. The Company’s annual debt service associated with its junior subordinated debentures is approximately $21.1 million. The Company’s estimated current annual dividends to common shareholders are approximately $10.0 million. During the year ended December 31, 2006, the Company received $20.0 million of dividends from BankAtlantic. The declaration and payment of dividends and the ability of the Company to meet its debt service obligations will depend upon the results of operations, financial condition and cash requirements of the Company, as well as indenture restrictions and the ability of BankAtlantic to pay dividends to the Company. These payments are subject to regulations and OTS approval and are based upon BankAtlantic’s regulatory capital levels and net income.

In May 2006, the Company’s Board of Directors approved the repurchase of up to 6,000,000 shares of its Class A common stock. Share repurchases will be based on market conditions and our liquidity requirements. No termination date was set for the buyback program. The shares will be purchased on the open market, although the Company may purchase shares through private transactions. The Company plans to fund the share repurchase program primarily through the sale of equity securities from its securities portfolio. During the year ended December 31, 2006, the Company repurchased and retired 559,700 shares of Class A common stock at an aggregate purchase price of $7.8 million.

The Company has invested $77.1 million in equity securities through a third party money manager. The equity securities had a fair value of $86.6 million as of December 31, 2006. It is anticipated that these funds will be invested in this manner until such time as the funds may be needed to fund the operations of the Company and its subsidiaries, which may include acquisitions, BankAtlantic’s store expansion and growth initiatives, retirement of Class A common stock or other business purposes. The Company has also utilized this portfolio of equity securities as a source of liquidity to pay debt service on its borrowings.

The Company has established revolving credit facilities aggregating $30 million with two independent financial institutions. The credit facilities contain customary financial covenants relating to regulatory capital, debt service coverage and the maintenance of certain loan loss reserves. These facilities are secured by the common stock of BankAtlantic. The Company was in compliance with all covenants contained in the facilities at December 31, 2006. The Company had no outstanding borrowings under these credit facilities at December 31, 2006.

Upon the merger of Ryan Beck with Stifel, the Company received approximately 2,375,000 shares of Stifel common stock and upon Stifel shareholder approval will receive warrants to acquire approximately 480,000 shares of Stifel common stock at $36.00 per share, or in the event Stifel shareholders do not approve issuance of the warrants, $19.2 million. In the foreseeable future, the Company may reduce its investment in Stifel and use the proceeds to support future growth of the BankAtlantic franchise and provide additional funding for Class A common stock repurchases and additional investments.

BankAtlantic

BankAtlantic’s primary sources of funds are deposits; principal repayments of loans, tax certificates and investment securities; proceeds from the sale of loans and securities available for sale; proceeds from securities sold under agreements to repurchase and federal funds purchased; advances from FHLB; interest payments on loans and securities; distributions from income producing real estate joint ventures and other funds generated by operations. These funds were primarily utilized to fund loan disbursements and purchases, deposit outflows, repayments of securities sold under agreements to repurchase, repayments of advances from FHLB, purchases of tax certificates and investment securities, payments of maturing certificates of deposit, acquisitions of properties and equipment, investments in income producing joint ventures, operating expenses and dividends to the Company. The FHLB has granted BankAtlantic a line of credit capped at 40% of assets subject to available collateral, with a maximum term of ten years. BankAtlantic had utilized its FHLB line of credit to borrow $1.5 billion as of December 31, 2006. The line of credit is secured by a blanket lien on BankAtlantic’s residential mortgage loans and certain commercial real estate and consumer loans. BankAtlantic’s remaining available borrowings under this line of credit were approximately $957.8 million at December 31, 2006. BankAtlantic has established lines of credit for up to $557.9 million with other banks to purchase federal funds of which $32.0 million was outstanding as of December 31, 2006. BankAtlantic has also established a $6.2 million advance commitment with the Federal Reserve Bank

Financial Services (Continued)

of Atlanta. BankAtlantic is also a participating institution in the Federal Reserve Treasury Investment Program for up to $50 million in fundings and at December 31, 2006, $7.0 million of short term borrowings were outstanding under this program. BankAtlantic also has various relationships to acquire brokered deposits, which may be utilized as an alternative source of liquidity, if needed. At December 31, 2006, BankAtlantic had $61 million of brokered deposits.

BankAtlantic’s commitments to originate and purchase loans at December 31, 2006 were $249 million and $69.5 million, respectively, compared to $327.3 million and $6.7 million, respectively, at December 31, 2005.

At December 31, 2006, BankAtlantic had investments and mortgage-backed securities of approximately $101.9 million pledged against securities sold under agreements to repurchase, $23.3 million pledged against public deposits, $50.1 million pledged against the Federal Reserve Treasury Investment Program, and $6.7 million pledged against treasury tax and loan accounts.

BankAtlantic in 2004 began a de novo store expansion strategy and during the two years ended December 31, 2006 BankAtlantic opened 17 stores. The store expansion program is on-going and at December 31, 2006, BankAtlantic had $11.2 million of commitments to purchase land for store expansion. BankAtlantic’s estimated capital expenditures in connection with the 2007 store expansion initiatives are expected to be approximately $66.1 million. BankAtlantic estimates that the capital requirements for funding this store expansion will be approximately $7.0 million which may be funded through capital contributions from BankAtlantic Bancorp or earnings.

A significant source of our liquidity is repayments and maturities of loans and securities. The table below presents the contractual principal repayments and maturity dates of our loan portfolio and securities available for sale at December 31, 2006. The total amount of principal repayments on loans and securities contractually due after December 31, 2007 was $4.6 billion, of which $1.7 billion have fixed interest rates and $2.8 billion have floating or adjustable interest rates. Actual principal repayments may differ from information shown below (in thousands):

Outstanding
on
December 31, For the Period Ending December 31, (1)
2008- 2020-
2006 2007 2009 2010-2014 2015-2019 2024 >2025
Commercial real estate $ 2,109,741 $ 942,068 $ 688,677 $ 230,436 $ 184,308 $ 60,380 $ 3,872
Residential real estate 2,167,819 55,641 26,893 42,059 334,732 15,316 1,693,178
Consumer (2) 588,164 1,477 2,257 69,892 389,972 124,566 —
Commercial business 255,334 122,103 42,937 88,569 1,725 — —

Total loans
$ 5,121,058 $ 1,121,289 $ 760,764 $ 430,956 $ 910,737 $ 200,262 $ 1,697,050

Total securities Available for sale (3)
$ 558,863 $ 996 $ 3,410 $ 83,905 $ 150,424 $ 1,771 $ 318,357


(1)		Does not include deductions for the undisbursed portion of loans in process.

(2)		Includes second mortgage loans.

(3)		Does not include $92.5 million of equity securities.

Financial Services (Continued)

Loan maturities and sensitivity of loans to changes in interest rates for commercial business and real estate construction loans at December 31, 2006 were (in thousands):

Commercial Real Estate
Business Construction Total
One year or less $ 243,118 $ 846,216 $ 1,089,334
Over one year, but less than five years 11,959 11,683 23,642
Over five years 257 1,657 1,914

$ 255,334 $ 859,556 $ 1,114,890

Due After One Year:

Pre-determined interest rate $ 12,216 $ 13,340 $ 25,556
Floating or adjustable interest rate — — —

$ 12,216 $ 13,340 $ 25,556

BankAtlantic’s geographic loan concentration at December 31, 2006 was:


Florida	56	%
Eastern U.S.A.	23	%
Western U.S.A.	16	%
Central U.S.A	5	%

	100	%

The loan concentration for BankAtlantic’s originated portfolio is primarily in Florida. The concentration in Western and Northeastern United States, and other locations primarily relates to purchased wholesale residential real estate loans.

At December 31, 2006, BankAtlantic met all applicable liquidity and regulatory capital requirements. At the indicated dates, BankAtlantic’s capital amounts and ratios were (dollars in thousands):

Minimum Ratios
Adequately Well
Actual Capitalized Capitalized
Amount Ratio Ratio Ratio
At December 31, 2006:

Total risk-based capital $ 529,497 12.08 % 8.00 % 10.00 %
Tier 1 risk-based capital $ 460,359 10.50 % 4.00 % 6.00 %
Tangible capital $ 460,359 7.55 % 1.50 % 1.50 %
Core capital $ 460,359 7.55 % 4.00 % 5.00 %

At December 31, 2005:

Total risk-based capital $ 512,664 11.50 % 8.00 % 10.00 %
Tier 1 risk-based capital $ 446,419 10.02 % 4.00 % 6.00 %
Tangible capital $ 446,419 7.42 % 1.50 % 1.50 %
Core capital $ 446,419 7.42 % 4.00 % 5.00 %

Savings institutions are also subject to the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). Regulations implementing the prompt corrective action provisions of FDICIA define specific capital categories based on FDICIA’s defined capital ratios, as discussed more fully in Part I under “Regulation of Federal Savings Banks”.

Financial Services (Continued)

Consolidated Cash Flows

A summary of our consolidated cash flows ~~including the cash flows of our primary subsidiaries BankAtlantic Bancorp and Levitt, which cash flows are not available to BFC itself,~~ follows (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Net cash provided (used) by:
Operating activities	$	(18,449	)	$	99,493		$	(3,317	)	$	3,359		$	57,339		$	67,295
Investing activities		(1,500,903	)		147,276			279,444			(205,891	)		132,220			(1,457,098	)
Financing activities		1,600,530			(355,804	)		(148,089	)		174,460			(154,358	)		1,404,981

Increase (decrease) in cash and cash equivalents	$	81,178		$	(109,035	)	$	128,038
(Decrease) increase in cash and cash equivalents										$	(28,072	)	$	35,201		$	15,178

Cash flows from operating activities declined during ~~2004~~2006 compared to ~~2003~~2005 due primarily to ~~an increase in Levitt’s real estate inventory~~lower net income and a ~~decrease~~decline in ~~Ryan Beck’s clearing agent liability.~~
proceeds from the sale of loans held for sale. Cash flows from operating activities declined during 2005 compared to 2004 due primarily to lower net income.

Cash flows from investing activities ~~decreased~~declined significantly during 2006 compared to 2005 primarily due to lower proceeds from the sales of securities available for sale and an increase in loan originations and purchases. During 2006, BankAtlantic reinvested funds received from loan repayments primarily in purchased residential loans. Cash flows from investing activities increased significantly during 2005 compared to 2004 primarily resulting from net repayments of loans receivable during 2005 compared to net originations of loans receivable during 2004 as well as lower securities purchased during 2005 compared to ~~2003 due to a substantial increase in BankAtlantic’s loan purchases and originations and securities purchases.~~
2004.

          Cash flows from financing activities increased substantially during ~~2004~~2006 compared to ~~2003 resulting~~2005 primarily from BankAtlantic’s additional FHLB advance and short-term borrowings used to fund loan and securities purchases. Also contributing to the increase in cash flows from financing activities was a substantial increase in BankAtlantic’s low-cost deposits, issuance of Levitt’s common stock of approximately $114.7, net of issuance costs, and issuance of BFC’s 5% Preferred Stock, net of issuance cost.
     ~~Cash flows from operating activities increased during 2003 compared to 2002 due primarily to increases in other liabilities and amounts~~ due to ~~clearing agent. The above increases in cash flows were partially offset by a substantial decrease in securities owned activities.~~
     Cash flows from investing activities decreased during 2003 compared to 2002 resulting primarily from BankAtlantic’s increased purchases and originations of loans, net of repayments, and lower proceeds from the sale and maturity of securities. These decreases in cash flows from investing activities werehigher short term borrowings partially offset by lower ~~investments in unconsolidated subsidiaries and reduced purchases of investments.~~
deposit growth. Cash flows from financing activities declined during ~~2003~~2005 compared to ~~2002~~2004 primarily ~~as a result~~due to repayments of ~~BankAtlantic’s increases in~~ FHLB ~~maturities and~~advances. The FHLB advances were repaid primarily from loan repayments. ~~The decreases were partially offset by a net increase in deposits and a net increase in securities sold under agreements to repurchase.~~
59

Off Balance Sheet Arrangements, Contractual Obligations and Loan Commitments

The table below summarizes ~~BankAtlantic Bancorp ’s~~the Company’s loan commitments at December 31, ~~2004~~2006 (in thousands):


	Amount of Commitment Expiration Per Period										Amount of Commitment Expiration Per Period
	Total										Total
	Amounts		Less than					4-5	After 5		Amounts		Less than						After 5
Loan Commitments	Committed		1 year		1-3 years		years		years		Committed		1 year		1-3 years		4-5 years		years

Lines of credit	$	524,074	$	121,688	$	—	$	—	$	402,386	$	709,655	$	90,243	$	—	$	—	$	619,412
Standby letters of credit		55,605		55,605		—		—		—		67,831		67,831		—		—		—
Loan commitments		299,811		299,811		—		—		—
Other commitments		3,947		3,947		—		—		—
Other commercial commitments												318,931		318,931		—		—		—

Total commercial commitments	$	883,437	$	481,051	$	—	$	—	$	402,386
Total loan commitments											$	1,096,417	$	477,005	$	—	$	—	$	619,412

Lines of credit are primarily revolving lines to home equity loan and business loan customers. The business loans ~~to customers~~ usually expire in less than one year and the home equity lines generally expire in 15 years.

Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. BankAtlantic standby letters of credit are generally issued to customers in the construction industry guaranteeing project performance. These types of standby letters of credit had a maximum exposure of ~~$36.7~~$50.4 million at December 31, ~~2004.~~2006. BankAtlantic also issues standby letters of credit to commercial lending customers guaranteeing the payment ~~for~~of goods and services. These types of standby letters of credit had a maximum exposure of ~~$18.9~~$17.4 million at December 31, ~~2004.~~2006. Those guarantees are primarily issued to support public and private borrowing arrangements and have maturities of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. BankAtlantic may hold certificates of deposit and residential and commercial real estate liens as collateral for such commitments, similar to other types of borrowings.

~~Loan~~

Financial Services (Continued)

          Other loan commitments ~~by BankAtlantic~~ are agreements to lend funds to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BankAtlantic evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral required by BankAtlantic in connection with an extension of credit is based on management’s credit evaluation of the counter-party.
     ~~The other commitments consists of a 5-year forward commitment to purchase the underlying collateral from a government agency pool in March 2005.~~
     Ryan Beck, in its capacity as a market-maker and dealer in corporate and municipal fixed-income and equity securities, may enter into transactions in a variety of cash and derivative financial instruments in order to facilitate customer order flow and to hedge market risk exposures. Accordingly, these transactions result in off-balance-sheet risk as Ryan Beck’s ultimate obligation may exceed the amount recorded in the Consolidated Statement of Financial Condition.
     As a securities broker and dealer, Ryan Beck is engaged in various securities trading and brokerage activities servicing a diverse group of domestic corporations, governments, institutional, and individual investors. Ryan Beck has exposure to risk associated with the nonperformance of these counter parties in fulfilling their contractual obligations.
     In connection with the development of certain of Levitt’s communities, Levitt has established community development districts to access bond financing for the funding of infrastructure development and other projects within the community. If Levitt were not able to establish community development districts, Levitt would need to fund community infrastructure development out of operating income or through other sources of financing or capital. The bonds issued are obligations of the community development district and are repaid through assessments on property within the district. To the extent that Levitt owns property within a district when assessments are levied, Levitt will be obligated to pay such assessments when they are due. As of December 31, 2004, development districts in Tradition had $62.8 million of community development district bonds outstanding for which no assessments had been levied. As of December 31, 2004, Levitt owned approximately 66% of the property in the districts.
60

Levitt has entered into an indemnity agreement with a joint venture partner relating to that partner’s guarantee of the joint venture’s indebtedness. Levitt’s maximum exposure under the indemnity agreement is estimated to be approximately $500,000. Based on the joint venture assets securing the indebtedness, it is not reasonably likely that no payment will be required under the indemnity agreement.

At December 31, ~~2004,~~2006, the Company did not have off balance sheet arrangements that ~~303(a)(4)(i)~~would have ~~or reasonably likely to have,~~ a ~~current or future~~ material effect on the Company’s consolidated financial ~~condition, changes in financial condition, revenue or expenses, results of operation, liquidity, capital expenditures or capital resources.~~

statements.

The table below summarizes the Company’s contractual obligations at December 31, ~~2004~~2006 (in thousands).:


	Payments Due by Period										Payments Due by Period (2)
			Less than		1-3		4-5		After 5				Less than						After 5
Contractual Obligations	Total		1 year		years		years		years		Total		1 year		1-3 years		4-5 years		years
Time deposits	$	761,061	$	556,104	$	164,336	$	40,188	$	433	$	943,184	$	854,103	$	77,298	$	11,698	$	85
BankAtlantic Bancorp’s long-term debt obligations		301,007		100		5,683		—		295,224
Levitt’s long term debt obligations (2)		221,605		53,733		61,238		66,644		39,990
BFC’s long term obligations		19,259		10,744		8,236		187		92
Long-term debt												293,189		—		—		—		293,189
Advances from FHLB (1)		1,544,497		877,500		135,417		419,000		112,580		1,517,058		1,445,058		40,000		32,000		—
Levitt’s operating lease obligations		3,225		964		1,483		728		50
Levitt purchase obligations		208,315		189,760		18,555		—		—
BankAtlantic Bancorp operating lease obligations		72,391		13,263		21,677		14,715		22,736
Operating lease obligations												88,316		8,667		16,491		12,080		51,078
Pension obligation		12,102		821		1,815		2,169		7,297		14,336		938		2,220		2,848		8,330
Other obligations		6,233		6,233		—		—		—		37,956		15,456		8,250		6,250		8,000
Securities sold but not yet purchased		39,462		39,462		—		—		—		31,407		31,407		—		—		—

Total contractual cash obligations	$	3,189,157	$	1,748,684	$	418,440	$	543,631	$	478,402	$	2,925,446	$	2,355,629	$	144,259	$	64,876	$	360,682


(1)		Payments due by period are based on contractual ~~maturities.~~maturities

(2)	BankAtlantic and BankAtlantic Bancorp notes due from Levitt are not included in Levitt’s long term debt obligation amounts because they are eliminated in consolidation. Therefore, $4.7 million, $3.9 million and $38.0 million are not included in payments due less than 1 year, payments due 1-3 years and payments due 4-5 years, respectively.

~~(3)~~	The above table excludes interest payments on interest bearing ~~liabilities.~~liabilities

BFC also has a commitment to purchase 400,000 shares of Benihana Convertible Preferred Stock for $10.0 million, which will be funded from time to time at the election of Benihana during the two-year period commencing on July 1, 2004. The instruments indicated above for our controlled entities, BankAtlantic Bancorp and Levitt and their affiliates are all non-recourse to BFC.

~~BankAtlantic Bancorp’s long-term~~

Long-term debt primarily consists of the junior subordinated debentures issued by ~~BankAtlantic Bancorp,~~the Company as well as BankAtlantic’s subordinated debentures and mortgage backed bonds. Levitt’s long term debt consists of Levitt’s notes and mortgage notes payable of approximately $268.2 million of which approximately $46.6 million of indebtness by Levitt to BankAtlantic Bancorp and BankAtlantic are not included, since this amount is eliminated in our consolidated financial statements. BFC’s long term debt includes a $10.5 million outstanding balance on the $14.0 million revolving line of credit and $8.7 million of mortgage payables primarily related to a non-recourse mortgage loan. BankAtlantic Bancorp’s operatingOperating lease obligations represent minimum future lease payments ~~under leases~~ in which ~~BankAtlantic Bancorp~~the Company is the lessee for real estate and equipment leases. Levitt’s purchase obligations consist of contracts to acquire real estate properties for development and sale; however Levitt’s liability for not completing the purchase of any such property is generally limited to the deposit we made under the relevant contract.
Securities sold but not yet purchased represent obligations of Ryan Beck to deliver specified financial instruments at contracted prices, thereby creating a liability to purchase the financial instrument in the market at prevailing prices.

The pension obligation represents the accumulated benefit obligation of ~~BankAtlantic’s~~the Company’s defined benefit plan at December 31, ~~2004.~~2006. The payments represent the estimated benefit payments through ~~2014,~~2016, of which the majority of ~~which~~the payments will be funded ~~with~~through plan assets. The table does not include estimated benefit payments after ~~2014.~~2016. The actuarial present value of the projected accumulated benefit ~~obligations~~obligation was ~~$26.2~~$29.6 million at December 31, ~~2004.~~
61
2006.

Other obligations are legally binding agreements with vendors for the purchase of services, land and materials associated with BankAtlantic’s store expansion initiatives as well as advertising, marketing and sponsorship contracts.

Pursuant to the ~~construction~~agreement the for the merger of ~~BankAtlantic’s new corporate headquarters~~Ryan Beck with Stifel, the Company indemnified Stifel and ~~BankAtlantic’s branch renovations.~~its affiliates against third party claims attributable to the conduct or activities of Ryan Beck prior to the merger. This indemnification is subject to specified thresholds and time periods and to a cap of $20 million. The ~~corporate headquarters~~Company also agreed to indemnify Stifel against federal tax liabilities and claims relating to the ownership interests in Ryan Beck.

During the fourth quarter of 2006, BankAtlantic initiated an investment strategy whereby agency securities are purchased and a call option is ~~expected~~written on the purchased agency securities. BankAtlantic is subject to the off-balance sheet risk of foregoing the appreciation on the agency securities in exchange for the option premium and the potential of owning out-of-the-money agency securities when interest rates rise.

Critical Accounting Policies

Financial Services (Continued)

significant change in subsequent periods relate to the determination of the allowance for loan losses, evaluation of goodwill and other intangible assets for impairment, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the valuation of the fair value of assets and liabilities in the application of the purchase method of accounting, the amount of the deferred tax asset valuation allowance, accounting for contingencies, and assumptions used in the valuation of stock based compensation. The seven accounting policies that we have identified as critical accounting policies are: (i) allowance for loan losses; (ii) valuation of securities as well as the determination of other-than-temporary declines in value; (iii) impairment of goodwill and other indefinite life intangible assets; (iv) impairment of long-lived assets; (v) accounting for business combinations; (vi) accounting for contingencies; and (vii) accounting for share-based compensation. We have discussed the critical accounting estimates outlined below with our audit committee of our board of directors, and the audit committee has reviewed our disclosure. See note #1, Summary of Significant Accounting Policies to the “Notes to Consolidated Financial Statements”, for a detailed discussion of our significant accounting policies.

Allowance for loan losses

The allowance for loan losses is maintained at an amount that we believe to be ~~completed during~~adequate to absorb probable losses inherent in our loan portfolio. We have developed policies and procedures for evaluating our allowance for loan losses which consider all information available to us. However, we must rely on estimates and judgments regarding issues where the ~~second quarter~~outcome is unknown. As a consequence, if circumstances change the allowance for loan losses may decrease or increase significantly.

          The calculation of ~~2005.~~
~~Dividends~~
     ~~BFC has not paid cash dividends~~our allowance for loan losses consists of two components. The first component requires us to identify impaired loans based on ~~its common stock since its inception. It has however, issued~~management classification and, if necessary, assign a 25% stock dividend on March 7, 2005, March 1, 2004, May 25, 2004 and December 1, 2003 and a 15% stock dividend on June 17, 2003, each of which was payable in shares of Class A Common Stock. It also paid preferred stock dividend of $392,000 during 2004.
     ~~As stated above, a source~~valuation allowance to the impaired loans. Valuation allowances are established using management estimates of the ~~Company’s liquidity~~fair value of collateral and based on valuation models that present value estimated expected future cash flows. These valuations are based on available information and require estimates and subjective judgments about fair values of the collateral or expected future cash flows. Most of our loans do not have an observable market price and an estimate of the collection of contractual cash flows is ~~dividends~~based on the judgment of management. It is likely that we would obtain materially different results if different assumptions or conditions were to prevail. This would include updated information that came to management’s attention about the loans or a change in the current economic environment. As a consequence of the estimates and assumptions required to calculate the first component of our allowance for loan losses, a change in these highly uncertain estimates could have a materially favorable or unfavorable impact on our financial condition and results of operations.

The second component of the allowance requires us to group loans that have similar credit risk characteristics so as to form a basis for predicting losses based on historical loss percentages and delinquency trends as it relates to the group. Management assigns a quantitative allowance to these groups of loans by utilizing data such as historical loss experiences, loan-to-value ratios, concentration of credit risk, and delinquency trends. Management also assigns a qualitative allowance to these groups of loans in order to adjust the historical data for qualitative factors that exist currently that were not present in the historical data. These qualitative factors include economic and business conditions, concentration of credit risk, delinquency and problem loan trends and external factors. In deriving the qualitative allowance management uses significant judgment to qualitatively adjust the historical loss experiences for current trends that existed at period end that were not reflected in the calculated historical loss ratios and to adjust the allowance for the changes in the current economic climate compared to the economic environment that existed historically. A subsequent change in data trends or the external environment may result in material changes in this component of the allowance from ~~BankAtlantic Bancorp and Levitt. While~~period to period.

Management believes that the allowance for loan losses reflects a reasonable estimate of incurred credit losses as of the statement of financial condition date. As of December 31, 2006, our allowance for loan losses was $43.6 million. See “Provision for Loan Losses” for a discussion of the amounts of our allowance assigned to each loan product. The estimated allowance derived from the above methodology may be significantly different from actual realized losses. Actual losses incurred in the future are highly dependent upon future events, including the economies of geographic areas in which we hold loans. These uncertainties are beyond management’s control. Accordingly, there is no assurance that ~~BankAtlantic Bancorp~~we will ~~pay dividends~~not incur credit losses far in excess of the amounts estimated by our allowance for loan losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments and information available to them at the time of their examination.

We periodically analyze our loan portfolio by monitoring the loan mix, credit quality, historical trends and economic conditions. As a consequence, our allowance for loan losses estimates will change from period to period. A portion of the change in our loan loss estimates during the five year period ended December 31, 2006 resulted from changes in credit policies

Financial Services (Continued)

which focused our loan production on collateral based loans and the discontinuation of certain loan products. We believe that these changes reduced our allowance for loan losses as measured by the decline in our allowance to loan losses to total loans from 1.58% at December 31, 2001 to 0.94% at December 31, 2006. If our historical loss experience increased or decreased in the assigned portion of the allowance for loan losses by 25 basis points at December 31, 2006, we estimate that our pre-tax earnings would increase or decrease, respectively, by approximately $12 million.

Valuation of securities and trading activities

We record our securities available for sale, investment securities, and derivative instruments in our statement of financial condition at fair value. We use the following four methods for valuation: quoted market prices, matrix pricing, quoted broker prices and a management valuation model. Our policy is to use quoted market prices when available. Quoted market prices are available for equity securities, but quoted market prices are not available for our mortgage-backed securities, other securities and tax exempt securities.

The following table provides the sources of fair value for our securities and derivative instruments at December 31, 2006 (in thousands):

Quoted
Quoted Market Broker Matrix Valuation
Prices Prices Pricing Model Total
Securities:

Mortgage-backed securities $ — $ — $ 361,750 $ — $ 361,750
Tax exempt securities — 20,099 377,145 — 397,244
Other securities — — — 675 675

Total debt securities — 20,099 738,895 675 759,669
Total derivative instruments — — — — —
Total equity securities 92,453 — — — 92,453

Total $ 92,453 $ 20,099 $ 738,895 $ 675 $ 852,122

Equity securities trade daily on various stock exchanges or inter-dealer quotation systems. The fair value of these securities in our statement of financial condition is based on the closing price quotations or sales prices at period end. The closing quotation or sales price excludes retail markups, markdowns or commissions and does not necessarily represent actual transactions. We adjust our equity securities available for sale to fair value with a corresponding increase or decrease, net of income taxes, to other comprehensive income. Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value.

For a small portion of our tax exempt securities being held in a custody account at an unrelated financial institution, we use the broker price quotes reflected on the custody account statements delivered by that bank as quoted market prices are not available for these securities.

We subscribe to a third-party service to obtain matrix pricing to determine the fair value of our mortgage-backed securities and tax exempt securities as set forth in the table above. The matrix pricing computes the fair value of mortgage-backed securities and tax-exempt debt securities based on the coupon rate, maturity date and estimates of future ~~BankAtlantic Bancorp~~prepayment rates. We use matrix pricing to value these securities as quoted market prices are unavailable for these types of securities.

The valuations obtained from the matrix pricing and broker price quotes are not actual transactions and may not reflect the actual amount that would be realized upon sale. The interest rate and prepayment assumptions used in the matrix pricing and broker price quotes are representative of assumptions that we believe market participants would use in valuing these securities, while different assumptions may result in significantly different results. We adjust our debt securities available for sale to fair value with a corresponding increase or decrease, net of income taxes, to other comprehensive income.

Debt securities held to maturity are recorded at historical cost with the fair value disclosed on our statement of financial condition. Declines in the fair value of individual securities below their cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value.

Financial Services (Continued)

At December 31, 2006, the fair value and unrealized loss associated with securities was $852.1 million. If interest rates were to decline by 200 basis points, we estimate that the fair value of our debt securities portfolio would increase by $84.5 million. In contrast, if interest rates were to increase by 200 basis points, we estimate that the fair value of our debt securities would decline by $75.8 million. The above changes in value are based on various assumptions concerning prepayment rates and shifts in the interest rate yield curve and do not take into account any mitigating steps that management ~~has stated~~might take in response to changes in interest rates. We are likely to obtain significantly different results if these assumptions were changed.

Impairment of Goodwill and Other Intangible Assets

We test goodwill for impairment annually. The test requires us to determine the fair value of our reporting units and compare the reporting units’ fair value to its carrying value. The fair values of the reporting units are estimated using discounted cash flow present value techniques and management valuation models. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. These fair value estimates require a significant amount of judgment. Changes in management’s valuation of its reporting units may affect future earnings through the recognition of a goodwill impairment charge. At September 30, 2006 (our goodwill impairment testing date) the fair value of our reporting units was greater than their carrying value; therefore, goodwill was not impaired. If the fair value of our reporting units declines below the carrying amount we would have to perform the second step of the impairment test. This step requires us to fair value all assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation. This allocation will include core deposit intangible assets that are currently not recognized on our financial statements. These unrecognized assets may result in a significant impairment of goodwill. At December 31, 2006, total goodwill from continuing operations was $70.5 million. The fair value of our bank operations reportable segments assigned goodwill exceeds the carrying value by $513 million at September 30, 2006.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When testing a long-lived asset for recoverability, it ~~intends~~may be necessary to ~~pay regular quarterly~~review estimated lives and adjust the depreciation period. Changes in circumstances and the estimates of future cash ~~dividends~~flows as well as evaluating estimated lives of long-lived assets are subjective and involve a significant amount of judgment. A change in the estimated life of a long-lived asset may substantially increase depreciation and amortization expense in subsequent periods. For purposes of recognition and measurement of an impairment loss, we are required to group long-lived assets at the lowest level for which identifiable cash flows are independent of other assets. These cash flows are based on ~~its common stock~~projections from management reports which are based on subjective interdepartmental allocations. Fair values are not available for many of our long-lived assets, and estimates must be based on available information, including prices of similar assets and present value valuation techniques. Long-lived assets subject to the ~~results~~above impairment analysis included property and equipment, internal-use software, real estate held for development and sale and real estate owned. At December 31, 2006 the balance of ~~operations~~these assets was $266.8 million.

Our core deposit intangible assets are periodically reviewed for impairment at the store level by reviewing the undiscounted cash flows by store in order to assess recoverability. At December 31, 2006 our core deposit intangible asset was $6.8 million. The undiscounted cash flows of the stores assigned to the core deposit intangible asset exceeded its carrying amount at September 30, 2006.

During the second quarter of 2006, we began implementing a software application to improve customer service at our call center. As a consequence, the estimated life of our existing call center software was shortened resulting in $527,000 of accelerated depreciation during the year ended December 31, 2006.

During the second quarter of 2005, we relocated our corporate headquarters and ~~regulatory capital requirements~~finalized a plan to raze the old corporate headquarters building and construct a store on the site. As a consequence of the relocation and the expected demolition of the old corporate headquarters building we recorded an impairment charge of $3.7 million during the year ended December 31, 2005.

During 2004, we finalized a plan to renovate the interior of BankAtlantic’s stores. As a result of the renovation plan, BankAtlantic shortened the estimated lives of store fixed assets resulting in $1.5 million and $900,000 of accelerated depreciation and amortization during 2004 and 2005, respectively.

Financial Services (Continued)

Accounting for ~~BankAtlantic~~Business Combinations

The Company accounts for its business combinations based on the purchase method of accounting. The purchase method of accounting requires us to fair value the tangible net assets and ~~indenture restrictions. BankAtlantic Bancorp’s payment~~identifiable intangible assets acquired. The fair values are based on available information and current economic conditions at the date of ~~dividends~~acquisition. The fair values may be ~~limited~~obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers. These fair value estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different fair value estimates could affect future earnings through different values being utilized for the disposition or amortization of the underlying assets and liabilities acquired.

Accounting for Contingencies

Contingent liabilities consist of liabilities that we may incur in connection with our indemnity obligation to Stifel following the Ryan Beck-Stifel merger and, litigation, regulatory and tax uncertainties arising from the conduct of our business activities. We established reserves for legal, regulatory and other claims when it becomes probable that we will incur a loss and the loss is reasonably estimated. We have attorneys, consultants and other professionals to assist with assessing the probability of the estimated amounts. Changes in these assessments can lead to changes in the recorded reserves and the actual costs of resolving the claims may be substantially higher or lower than the amounts reserved for the claim. The reserving for contingencies is based on management’s judgment on uncertain events in which changes in circumstances could significantly affect the amounts recorded in the Company’s financial statements. At December 31, 2006, total reserves for contingent liabilities included in other liabilities were $1.5 million.

Share-based Compensation

The Company adopted SFAS 123R as of January 1, 2006 and began recognizing compensation costs based on the fair value of the stock-based award at the grant date. The Company currently uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of option awards using the Black Scholes option-pricing model is affected by the ~~terms~~stock price and assumptions regarding the expected stock price volatility over the expected term of ~~applicable indentures~~the awards, expected term of the awards, risk-free interest rate and expected dividends. If circumstances require that the Company alters the assumptions used for estimating stock-based compensation expense in future periods or if the Company decides to use a different valuation model, the recorded expenses in future periods may differ significantly from the amount recorded in the current period and could affect net income and earnings per share.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. These characteristics are not present in the Company’s option awards. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of stock options. As a consequence, the Company’s estimates of the fair values of stock option awards on the grant dates may be materially different than the actual values realized on those option awards in the future. Employee stock options may expire worthless while the Company records compensation expense in its financial statements. Also, amounts may be realized from exercises of stock options that are significantly higher than the fair values originally estimated on the grant date and recorded in the Company’s financial statements.

Dividends

The availability of funds for dividend ~~payments. The availability of funds~~payments depends upon BankAtlantic’s ability to pay dividends to ~~BankAtlantic Bancorp.~~the Company. Current regulations applicable to the payment of cash dividends by savings institutions impose limits on capital distributions based on an institution’s regulatory capital levels, retained net income and net income. ~~Dividends received from BankAtlantic Bancorp during 2004 and 2003 amounted to $1.8 million and $1.7 million, respectively.~~ See “Regulation and Supervision – Limitation on Capital Distributions.”
On each of July 26, 2004, October 25, 2004 and January 24, 2005 Levitt’s Board of Directors declared cash dividends of $0.02 per share on its Class A common stock and Class B common stock. These dividends were paid in August 2004, November 2004 and February 2005, respectively. Levitt’s Board has not adopted a policy of regular dividend payments. The payment of dividends in

Subject to the ~~future is subject to approval by Levitt’s Board of Directors and will depend upon, among other factors, Levitt’s~~ results of operations and ~~financial condition. Levitt cannot assure you that they~~regulatory capital requirements for BankAtlantic and indenture restrictions, we will seek to declare ~~additional~~regular quarterly cash dividends ~~in the future. BFC received approximately $66,000 from each of Levitt’s dividends.~~on our common stock.

Financial Services (Continued)

Impact of Inflation

The financial statements and related financial data and notes presented herein have been prepared in accordance with generally accepted accounting principles, ~~except as otherwise noted and in those instances reconciled to the generally accepted accounting treatment of the financial measurement under discussion,~~ which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, ~~the majority~~virtually all of our assets and liabilities are monetary in ~~nature by virtue of our ownership in BankAtlantic Bancorp.~~nature. As a result, interest rates have a more significant impact on our performance than the effects of general price levels. Although interest rates generally move in the same direction as inflation, the magnitude of such changes varies. The possible effect of fluctuating interest rates is discussed more fully under the section entitled “Consolidated Interest Rate Risk” In Item 7A below.
”

With respect to our real estate activities, primarily the activities of our subsidiary Levitt Corporation, inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates, as well as increased materials and labor costs may reduce gross margins. In recent years, the increases in these costs have followed the general rate of inflation and historically have not had a significant adverse impact on us. In addition, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

~~New Accounting Pronouncements~~

~~In December 2004, FASB issued Statement No. 123 (revision) (“Share-based payments”.) This Statement is a revision of FASB Statement No. 123,~~~~Accounting for Stock-Based Compensation and~~ ~~supersedes APB Opinion No. 25,~~~~Accounting for Stock Issued to Employees,~~and its related implementation guidance. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement also establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or

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~~services~~

Homebuilding & Real Estate Development

Our Homebuilding & Real Estate Development segment consists of Levitt, which is consolidated with BFC Financial Corporation. The only assets available to BFC Financial Corporation are dividends when and ~~addresses transactions~~if paid by Levitt. Levitt is a separate public company and its management prepared the following discussion regarding Levitt which was included in Levitt’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission. Accordingly, references to the “Company”, “we”, “us” or “our” in the following discussion under the caption “Homebuilding & Real Estate Development” are references to Levitt and its subsidiaries, and are not references to BFC Financial Corporation.

“Executive Overview

Our operations are concentrated in the real estate industry, which is cyclical by nature. In addition, the majority of our assets are located in the State of Florida. Our homebuilding operations sell residential housing, while our land development business sells land to residential builders as well as commercial developers, and on occasion internally develops commercial real estate and enters into lease arrangements. The homebuilding industry is going through a dramatic slowdown after years of strong growth. Excess supply, particularly in previously strong markets like Florida, in part driven by speculative activity by investors, has led to downward pressure on pricing for residential homes and land. Accordingly, we have increased our focus on alternative strategies under various economic scenarios with a view to maintaining sufficient liquidity to withstand a prolonged downturn. Capital for land development and community amenities is being closely monitored and we are attempting to pace expenditures in line with current absorption rates.

Outlook

During 2006, management continued to focus on improving organizational and infrastructure processes and procedures. We made substantial investments in our information systems, personnel and practices to strengthen the management team, increase field construction capacity and competency and standardize policies and procedures to enhance operational efficiency and consistency. While the Company made these organizational changes, the market conditions in the homebuilding industry deteriorated and we have not yet seen meaningful evidence of any improvement to date in 2007. As a result of these deteriorating conditions, we incurred higher selling expenses for advertising, outside broker commissions and other sales and marketing incentives in an ~~entity incurs~~effort to remain competitive and attract buyers during 2006 and expect to continue to do so in 2007.

Our Land Division entered the year with three active projects, St. Lucie West, Tradition, Florida and Tradition, South Carolina. During 2006, we finished development in St. Lucie West, continued our development and sales activities in Tradition, Florida, and started our development in Tradition, South Carolina. As a result, we incurred higher general and administrative expenses in the Land Division due to this expansion into the South Carolina market. In addition, the overall slowdown in the homebuilding market had an effect on demand for residential land in our Land Division which was partially mitigated by increased commercial sales and commercial leasing revenue. Traffic at the Tradition, Florida information center slowed in connection with the overall slowdown in the homebuilding market.

As we enter 2007, our strategy will focus on our balance sheet, including efforts to enhance our liquidity and preserve our borrowing capacity, as well as to bring costs in line with our orders, closings and strategic objectives. We have been taking steps to align our staffing levels with current and anticipated future market conditions and will continue to focus on implementing expense management initiatives throughout the organization. We have reviewed and continue to review our land positions to align our position with our requirements and expectations of future demand. In order to remain competitive in our markets, we are aggressively offering sales incentives to customers while working to preserve the conversion rate in our backlog. These initiatives will lead to lower gross margins on home sales. We are attempting to mitigate the impact of this margin compression by reducing general and administrative expenses, shortening cycle time to lower construction and carry costs, negotiating lower prices from our suppliers and in the short term curtailing land acquisitions in most of our markets. While there is clearly a slowdown in the homebuilding sector, interest in commercial property in our Land Division has remained strong, and interest in the South Carolina market does not appear to be impacted as severely as the Florida residential market. The Land Division expects to continue developing and selling land in its master-planned communities in South Carolina and Florida. In addition to sales of parcels to homebuilders, the Land Division plans to continue to expand its commercial operations through sales to developers and to internally develop certain projects for leasing to third parties. In

Homebuilding & Real Estate Development (Continued)

addition to sales to third party homebuilders and commercial developers, the Land Division anticipates that it will continue to periodically sell residential land to the Homebuilding Division.

Financial and Non-Financial Metrics

We evaluate our performance and prospects using a variety of financial and non-financial metrics. The key financial metrics utilized to evaluate historical operating performance include revenues from sales of real estate, margin (which we measure as revenues from sales of real estate minus cost of sales of real estate), margin percentage (which we measure as margin divided by revenues from sales of real estate), (loss) income before taxes, net (loss) income and return on equity. We also continue to evaluate and monitor selling, general and administrative expenses as a percentage of revenue. Non-financial metrics used to evaluate historical performance include the number and value of new orders executed, the number of cancelled contracts and resulting spec inventory, the number of housing starts and the number of homes delivered. In evaluating our future prospects, management considers non-financial information such as the number of homes and acres in backlog (which we measure as homes or land subject to an executed sales contract) and the aggregate value of those contracts as well as cancellation rates of homes in backlog. Additionally, we monitor the number of properties remaining in inventory and under contract to be purchased relative to our sales and construction trends. Our ratio of debt to shareholders’ equity and cash requirements are also considered when evaluating our future prospects, as are general economic factors and interest rate trends. Each of the above metrics is discussed in the following sections as it relates to our operating results, financial position and liquidity. These metrics are not an exhaustive list, and management may from time to time utilize different financial and non-financial information or may not use all of the metrics mentioned above.

Critical Accounting Policies and Estimates

We have identified the following accounting policies that management views as critical to the accurate portrayal of our financial condition and results of operations.

Inventory of Real Estate

Inventory of real estate includes land, land development costs, interest and other construction costs and is stated at accumulated cost or, when circumstances indicate that the inventory is impaired, at estimated fair value. Due to the large acreage of certain land holdings and the nature of our project development life cycles, disposition in the normal course of business is expected to extend over a number of years.

Land and indirect land development costs are accumulated by specific area and allocated to various parcels or housing units using either specific identification or apportioned based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of tangible selling costs, prepaid local government fees and capitalized real estate taxes. Tangible selling costs are capitalized by communities and represent costs incurred throughout the selling period to aid in the sale of housing units, such as model furnishings and decorations, sales office furnishings and facilities, exhibits, displays and signage. These tangible selling costs are capitalized and expensed to cost of sales of the benefited home sales. Start-up costs and other selling costs are expensed as incurred.

The expected future costs of development are analyzed at least annually to determine the appropriate allocation factors to charge to the remaining inventory as cost of sales when such inventory is sold. During the long term project

Homebuilding & Real Estate Development (Continued)

development cycles in our Land Division, such development costs are subject to more relative volatility than similar costs in homebuilding. Costs to complete infrastructure will be influenced by changes in direct costs associated with labor and materials, as well as changes in development orders and regulatory compliance.

We review real estate inventory for ~~goods~~impairment on a project-by-project basis in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or ~~services that~~Disposal of Long-Lived Assets” (SFAS No. 144). In analyzing potential impairment, we use projections of future undiscounted cash flows from the inventory. These projections are based on ~~the~~our views of future sales prices, cost of sales levels and absorption rates. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair ~~value~~value. Due to changes in economic and market conditions, and assumptions and estimates required of ~~the entity’s equity instruments or that~~management in valuing inventory during these changing market conditions, all of which are subjective and involve significant estimates, actual results could differ materially from management’s assumptions and estimates and may be settled by the issuance of those equity instruments. The Statement eliminated the accounting for share-based transactions under APB No. 25 and its related interpretations instead requiring all share based payments be accounted for using a fair value method. For public companies the Statement will be effective in the first interim or annual reporting period that begins after June 15, 2005. The Statement can be adopted using the “Modified Prospective Application” or the “Modified Retrospective Application.” Under the modified prospective application, this Statement applies to new awards granted after the effective date and to unvested awards at the effective date. Under the modified retrospective application, the Company would apply the modified prospective method, but also restate the prior financial statements to include the amounts that were previously recognized in the pro forma disclosures under Statement No. 123. Additionally, under the modified retrospective application the Company can choose to only restate the prior interim periods in the year of adoption as the effective date of the Statement does not coincide with the beginning of the Company’s fiscal year. Management will adopt the Statement on July 1, 2005 and is currently evaluating the two transitional applications. Management estimates that compensation expense resulting from currently unvested options at the effective date would be approximately $1.9 millionrequire material inventory impairment charges to be recorded ~~over~~in the future.

During the year ended December 31, 2006, we recorded $36.8 million of impairment charges which included $34.3 million of homebuilding inventory impairments and $2.5 million of write-offs of deposits and pre-acquisition costs related to land under option that we do not intend to purchase. Projections of future cash flows were discounted and used to determine the estimated impairment charges. These adjustments were calculated based on current market conditions and assumptions made by management, which may differ materially from actual results if our assumptions prove not to be accurate or if market conditions change.

Investments in Unconsolidated Subsidiaries

We follow the equity method of accounting to record our interests in subsidiaries in which we do not own the majority of the voting stock and to record our investment in variable interest entities in which we are not the primary beneficiary. These entities consist of Bluegreen Corporation, joint ventures and statutory business trusts. The statutory business trusts are variable interest entities in which the Company is not the primary beneficiary. Under the equity method, the initial investment in a joint venture is recorded at cost and is subsequently adjusted to recognize our share of the joint venture’s earnings or losses. Distributions received reduce the carrying amount of the investment. We evaluate our investments in unconsolidated entities for impairment during each reporting period in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock”. These investments are evaluated annually or as events or circumstances warrant for other than temporary declines in value. Evidence of other than temporary declines includes the inability of the joint venture or investee to sustain an earnings capacity that would justify the carrying amount of the investment and consistent joint venture operating losses. The evaluation is based on available information including condition of the property and current and anticipated real estate market conditions.

Homesite Contracts and Consolidation of Variable Interest Entities

In the ordinary course of business we enter into contracts to purchase homesites and land held for development. Option contracts allow us to control significant homesite positions with minimal capital investment and substantially reduce the risks associated with land ownership and development. Our liability for nonperformance under such contracts is typically only the required deposits, which are usually less than 20% of the underlying purchase price. We do not have legal title to these assets. However, if certain conditions are met under the requirements of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, the Company’s land contracts may create a variable interest for the Company, with the Company being identified as the primary beneficiary. If these conditions are met, interpretation no. 46 requires us to consolidate the assets (homesites) at their fair value. At December 31, 2006 there were no assets under these contracts consolidated in our financial statements.

Homebuilding & Real Estate Development (Continued)

Revenue Recognition

Revenue and all related costs and expenses from house and land sales are recognized at the time that closing has occurred, when title and possession of the property and the risks and rewards of ownership transfer to the buyer, and we do not have a substantial continuing involvement in accordance with SFAS No. 66, “Accounting for Sales of Real Estate”. In order to properly match revenues with expenses, we estimate construction and land development costs incurred but not paid at the time of closing. Estimated costs to complete are determined for each closed home and land sale based upon historical data with respect to similar product types and geographical areas. We monitor the accuracy of estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and make modifications to the estimates based on these comparisons. We do not expect the estimation process to change in the future.

Revenue is recognized from certain land sales on the percentage-of-completion method when the land sale takes place prior to all contracted work being completed. Pursuant to the requirements of SFAS 66, if the seller has some continuing involvement with the property and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement. In the case of our land sales, this involvement typically consists of final development activities. We recognize revenue and related costs as work progresses using the percentage of completion method, which relies on contract revenue and estimates of total expected costs to complete required work. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs at the time of sale. Actual revenues and costs to complete construction in the future could differ from our current estimates. If our estimates of development costs remaining ~~vesting period.~~
~~In December 2004, FASB issued~~to be completed are significantly different from actual amounts, then our revenues, related cumulative profits and costs of sales may be revised in the period that estimates change.

Effective January 1, 2006, Bluegreen adopted AICPA Statement ~~No. 152 (“~~of Position 04-02 Accounting for Real Estate Time-Sharing ~~Transactions—an amendment of FASB Statements No. 66 and 67.~~Transactions (“SOP 04-02”) This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions.. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP ~~04-2.~~04-02. The adoption of SOP 04-02 resulted in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in Bluegreen recorded by us by approximately $1.4 million for the same period.

Capitalized Interest

Income Taxes

The Company utilizes the asset and liability method to account for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when it is more likely than not that all or a portion of the deferred tax asset will not be realized.

Stock-based Compensation

The Company adopted SFAS 123R as of January 1, 2006 and elected the modified-prospective method, under which prior periods are not restated. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

We currently use the Black-Scholes option-pricing model to determine the fair value of stock options. The fair value of option awards on the date of grant using the Black-Scholes option-pricing model is determined by the stock price and assumptions regarding expected stock price volatility over the expected term of the awards, risk-free interest rate, expected forfeiture rate and expected dividends. If factors change and we use different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the amounts recorded in future periods may differ significantly from the amounts recorded in the current period and could affect net income and earnings per share.

Homebuilding & Real Estate Development (Continued)

Goodwill

Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but instead tested for impairment at least annually. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” we conduct a review of our goodwill on at least an annual basis to determine whether the carrying value of goodwill exceeds the fair market value using a discounted cash flow methodology. Should this be the case, the value of our goodwill may be impaired and written down. In the year ended December 31, 2006, we conducted an impairment review of the goodwill related to our Tennessee operations acquired in connection with our acquisition of Bowden Building Corporation in 2004. The profitability and estimated cash flows of this reporting entity were determined to have declined to a point where the carrying value of the assets exceeded their market value. We used a discounted cash flow methodology to determine the amount of impairment resulting in completely writing off the$1.3 million of goodwill in the year ended December 31, 2006. The write-off is included in other expenses in the consolidated statements of operations in the year ended December 31, 2006.

Consolidated Results of Operations

2006 2005
Year Ended December 31, vs. 2005 vs. 2004
2006 2005 2004 Change Change
(In thousands, except per share data)
Revenues

Sales of real estate $ 566,086 558,112 549,652 7,974 8,460
Other Revenues (b) 9,241 6,772 6,184 2,469 589

Total revenues 575,327 564,884 555,836 10,443 9,049

Costs and expenses

Cost of sales of real estate 482,961 408,082 406,274 74,879 1,808
Selling, general and administrative expenses 121,151 87,639 71,001 33,512 16,638
Other expenses 3,677 4,855 7,600 (1,178 ) (2,745 )

Total costs and expenses 607,789 500,576 484,875 107,213 15,701

Earnings from Bluegreen Corporation 9,684 12,714 13,068 (3,030 ) (354 )
(Loss) earnings from joint ventures (416 ) 69 6,050 (485 ) (5,981 )
Interest and other income (b) 8,260 10,256 3,233 (1,996 ) 7,023

(Loss) income before income taxes (14,934 ) 87,347 93,312 (102,281 ) (5,965 )
Benefit (provision) for income taxes 5,770 (32,436 ) (35,897 ) 38,206 3,461

Net (loss) income
$ (9,164 ) 54,911 57,415 (64,075 ) (2,504 )

Basic (loss) earnings per share $ (0.46 ) $ 2.77 $ 3.10 $ (3.23 ) $ (0.33 )

Diluted (loss) earnings per share (a) $ (0.47 ) $ 2.74 $ 3.04 $ (3.21 ) $ (0.30 )

Basic weighted average shares outstanding 19,823 19,817 18,518 6 1,299
Diluted weighted average shares outstanding 19,823 19,929 18,600 (106 ) 1,329


(a)		Diluted (loss) earnings per share takes into account (i) the dilution in earnings we recognize from Bluegreen as a result of outstanding securities issued by Bluegreen that enable the holders thereof to acquire shares of Bluegreen’s common stock and (ii) the dilutive effect of our stock options and restricted stock using the treasury stock method.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

We incurred a consolidated net loss of $9.2 million for the year ended December 31, 2006 which represented a decrease in consolidated net income of $64.1 million, or 116.7%, for the year ended December 31, 2006 compared to the same period in 2005. This ~~Statement~~decrease was the result of decreased margins on sales of real estate across all Divisions due to increased cost of sales, and inventory impairments recorded in the year ended December 31, 2006 in the amount of $36.8

Homebuilding & Real Estate Development (Continued)

million, and higher selling and administrative expenses. There were no inventory impairments recorded in the prior year, although we did write-off $467,000 in deposits. These increases in expenses were offset in part by an increase in sales of real estate. Further, Bluegreen Corporation experienced a decline in earnings in the year ended December 31, 2006 compared to the same period in 2005.

Revenues from sales of real estate increased slightly from $558.1 million to $566.1 million for the year ended December 31, 2006 as compared to the same period in 2005. The increase was primarily attributable to an increase in the average selling prices of homes delivered by our Homebuilding Division offset in part by decreases in the sales of real estate for the Land Division and Other Operations for the year ended December 31, 2006. Homebuilding revenues increased from $438.4 million for the year ended December 31, 2005 to $500.7 million for the same period in 2006. During the year ended December 31, 2006, 1,660 homes were delivered compared to 1,789 homes delivered during the same period in 2005, however the average selling price of deliveries increased to $302,000 for the year ended December 31, 2006 from $245,000 for the same period in 2005. The increase in the average price of our homes delivered was the result of price increases initiated throughout 2005 due to strong demand, particularly in Florida. In the year ended December 31, 2005, the Land Division recorded land sales of $105.7 million compared to land sales of $69.8 million for the same period in 2006. The large decrease is attributable to a bulk land sale of 1,294 acres for $64.7 million recorded by the Land Division in the year ended December 31, 2005 compared to 371 total acres sold by the Land Division for the same period in 2006. Revenues for 2005 also reflect sales of flex warehouse properties as Levitt Commercial delivered 44 flex warehouse units at two of its development projects, generating revenues of $14.7 million. Levitt Commercial delivered 29 units during the year ended December 31, 2006 recording $11.0 million in revenues.

Other Revenues increased from $6.8 million during the year ending December 31, 2005 to $9.2 million during the same period in 2006. This change was primarily related to an increase in lease and irrigation revenue associated with our Land Division’s Tradition, Florida master planned community.

Cost of sales increased 18.4% to $483.0 million during the year ended December 31, 2006, as compared to the same period in 2005. The increase in cost of sales was due to increased revenues from real estate. In addition, the increase was due to impairment charges and inventory related valuation adjustments in the amount of $36.8 million in our Homebuilding Division. Projections of future cash flows related to the remaining assets were discounted and used to determine the estimated impairment charge. These adjustments were calculated based on current market conditions and assumptions made by our management, which may differ materially from actual results. In the second quarter of 2006, we recorded inventory impairment charges related to the Tennessee operations. Our Tennessee operations have consistently delivered lower than expected margins. In the second quarter of 2006, key management personnel resigned and we faced increased start-up costs in the Nashville market. We also experienced a downward trend in home deliveries in our Tennessee operations during the second quarter and as a result of these factors, we recorded an impairment charge of approximately $4.7 million. In the fourth quarter of 2006, we recorded additional impairment charges of $29.7 million in Florida and Tennessee due to the continued downward trend in these homebuilding markets. In addition to impairment charges, cost of sales increased due to higher construction costs. The increase in cost of sales in homebuilding was partially offset by lower cost of sales in the Land Division and Other Operations, based on the decrease in land sales recorded. Consolidated cost of sales as a percentage of related revenue was approximately 85.3% for the year ended December 31, 2006, as compared to approximately 73.1% for the same period in 2005. This increase adversely affected gross margin percentages across all business segments. This decrease in margin was attributable to the impairment charges, higher construction costs as well as lower land revenues recognized associated with pricing pressure on sales of land.

Selling, general and administrative expenses increased $33.5 million to $121.2 million during the year ended December 31, 2006 compared to $87.6 million during the same period in 2005 as a result of higher employee compensation and benefits, advertising costs and professional services expenses. Employee compensation and benefits expense increased by approximately $7.1 million, from $42.5 million during the year ended December 31, 2005 to $49.6 million for the same period in 2006. This increase relates to the number of employees increasing from 668 at December 31, 2005 to 698 at December 31, 2006. The employee count was as high as 765 as of June 30, 2006. These increases were primarily a result of the continued expansion of the Homebuilding and Land Divisions activities into new geographic areas and enhanced support functions. Further, approximately $3.1 million of the increase in compensation expense was associated with non-cash stock-based compensation for which no expense was recorded in the same period in 2005. Additionally, other charges of $1.0 million consisted of employee related costs, including severance and retention payments relating to our Homebuilding Division. Advertising and outside broker expense increased approximately $8.6 million in the year ended December 31, 2006 compared to the same period in 2005 due to increased advertising costs for new communities opened during 2006 and increased advertising and increased costs to outside brokers associated with efforts to attract buyers in a challenging

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homebuilding market. Lastly, we experienced an increase in administrative costs of $2.8 million due to non-capitalizable consulting services performed during the year ended December 31, 2006 related to our financial systems implementation of a new technology and data platform for all of our operating entities. Effective October 2006, our segments excluding our Tennessee operations transferred to one system platform. The system implementation costs consisted of training and other validation procedures that were performed in the year ended December 31, 2006. Similar professional services costs were not incurred during the year ended December 31, 2005. As a percentage of total revenues, selling, general and administrative expenses increased to 21.1% during the year ended December 31, 2006, from 15.5% during the same period in 2005, due to the increases in overhead spending noted above, coupled with the decline in total revenues generated in our Land Division with no corresponding decrease in overhead costs. Management continues to evaluate overhead spending in an effort to align costs with backlog, sales and deliveries.

Interest incurred and capitalized totaled $42.0 million for the year ended December 31, 2006 compared to $19.3 million for the same period in 2005. Interest incurred was higher due to higher outstanding debt balances, as well as an increase in the average interest rate on our variable-rate debt and new borrowings. At the time of home closings and land sales, the capitalized interest allocated to such inventory is charged to cost of sales. Cost of sales of real estate for the year ended December 31, 2006 and 2005 included previously capitalized interest of approximately $15.4 million and $9.0 million, respectively.

Other expenses decreased to $3.7 million during the year ended December 31, 2006 from $4.9 million for the year ended December 31, 2005. The decrease was primarily attributable to a decrease of $677,000 in debt prepayment penalties that were incurred in 2005, a $830,000 litigation reserve recorded in 2005, and hurricane related expenses incurred during the year ended December 31, 2005 while no hurricane expenses were incurred in 2006. The decrease in other expenses was partially offset by goodwill impairment charges recorded in the year ended December 31, 2006 of approximately $1.3 million related to our Tennessee operations. In the second quarter of 2006, we determined the profitability and estimated cash flows of the reporting entity declined to a point where the carrying value of the assets exceeded their market value resulting in a write-off of goodwill.

Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as compared to net income of $46.6 million for the same period in 2005. Our interest in Bluegreen’s earnings, net of purchase accounting adjustments, was $9.7 million for the 2006 period compared to $12.7 million for the same period in 2005, net of purchase accounting adjustments and cumulative effect of 2005 restatement.

Interest and other income decreased from $10.3 million during the year ending December 31, 2005 to $8.3 million during the same period in 2006. This change was primarily related to certain one time income items recorded in 2005 in the amount of $7.3 million, including a contingent gain receipt and the reversal of a $6.8 million construction related obligation which were not realized in 2006. These decreases were partially offset by higher income in 2006 related to a $1.3 million gain on sale of fixed assets from our Land Division, higher interest income generated by our various interest bearing deposits, and a $2.6 million increase in forfeited deposits realized by our Homebuilding Division.

Provision for income taxes reflects an effective rate of 38.6% in the year ended December 31, 2006 compared to 37.1% in the year ended December 31, 2005. The change in the effective rate is due to the temporary differences created due to impairment of goodwill for the year ended December 31, 2006. Additionally, we recognized an adjustment of an over accrual of income tax expense in the amount of approximately $262,000, which is immaterial to the current and prior period financial statements to which it relates.

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

Consolidated net income decreased $2.5 million, or 4.4%, for the year ended December 31, 2005 as compared to 2004. The decrease in net income primarily resulted from a decrease in sales of real estate by our Homebuilding Division, coupled with an increase in overall selling, general and administrative expenses associated with our expansion into new markets, increased headcount, and our efforts to improve our organizational structure, production and operational practices. The impact of lower homebuilding revenue, higher spending on overhead, technology, training and infrastructure and lower earnings from joint ventures was partially mitigated by increases in sales by our Land Division and Levitt Commercial, as well as an increase in interest and other income.

Our consolidated revenues from sales of real estate increased 1.5% to $558.1 million for the year ended December 31, 2005 from $549.7 million for the same 2004 period. This increase was attributable primarily to an increase in consolidated revenue from the Land Division which increased to $105.7 million in 2005 and an increase at Levitt Commercial from $5.6 million in 2004 to $14.7 million in 2005. These increases were partially offset by a decrease of $33.9 million in Homebuilding Division revenues as a result of fewer deliveries. The Land Division’s segment revenues of $96.2 million in 2004 included $24.4 million of sales to the Homebuilding Division which were eliminated in consolidation

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because they represent inter-company sales. The increase in the Land Division revenue was attributable primarily to the first quarter 2005 bulk sale for $64.7 million of five non-contiguous parcels of land consisting of 1,294 acres adjacent to our Tradition, Florida master-planned community.

Selling, general and administrative expenses increased 23.4% to $87.6 million during 2005 compared to $71.0 million for the same 2004 period primarily as a result of higher employee compensation and benefits expenses and an increase in professional fees. As a percentage of total revenues, our selling, general and administrative expenses increased to 15.5% for 2005 from 12.8% for the year ended December 31, 2004. The increase in compensation expense was attributable to an increase in employee headcount associated with new hires in Central and South Florida (including the Company’s headquarters) and the continued expansion of homebuilding activities into North Florida, Georgia and South Carolina. Further, we incurred start-up costs such as advertising and administrative expenses associated with launching new communities in Atlanta, Georgia, Myrtle Beach, South Carolina and Nashville, Tennessee. The number of our employees increased to 668 at December 31, 2005, from 559 as of December 31, 2004. In addition, expenses incurred during the year ended December 31, 2005 reflected the full inclusion of Bowden’s operations which was acquired in May 2004. In connection with our initiatives to improve infrastructure, we incurred expenses associated with technology upgrades, training and human resource development and communications.

We engaged consultants in 2005 to assist us in a detailed operational and organizational review. Following that detailed evaluation, we concluded that additional infrastructure investment and organizational change would be necessary in order to support growth objectives of the Homebuilding Division. As a result, the Company was organizationally restructured into regional teams with matrixed, multi-functional relationships. At the same time, we implemented numerous initiatives to support the new regional structure and increased infrastructure investment, which included recruiting additional managers, particularly in field operations; the evaluation, documentation, and implementation of industry best practices; the selection and implementation of a common technology platform; the development of curriculum and training programs; and formalized management communications relating to strategies and priorities. Overhead expense associated with this broad range of organizational and operational initiatives increased, reflecting higher employee headcount, retention of outside consultants and other direct program costs.

Interest incurred totaled $19.3 million and $11.1 million for 2005 and 2004, respectively. Interest incurred was higher due to higher outstanding balances of notes and mortgage notes payable related to increases in our inventory of real estate and to an increase in interest rates associated with rising interest rate indices which impacted our variable rate indebtedness. Interest capitalized was $19.3 million for 2005 and $10.8 million for 2004. Cost of sales of real estate for the year ended December 31, 2005 and 2004 included previously capitalized interest of approximately $9.0 million and $9.9 million, respectively.

The decrease in other expenses was primarily attributable to a decrease in hurricane expenses, net of insurance recoveries. Expenses associated with the estimated costs of remediating hurricane-related damage in our Florida Homebuilding and Land Divisions were $572,000 in 2005 compared with $4.4 million in 2004. This decrease in expense was partially offset by a one time additional reserve recorded to account for our share of costs associated with a litigation settlement, and a debt prepayment penalty incurred during the first quarter of 2005 at our Land Division.

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

Bluegreen restated its financial statements for the first three quarters of fiscal 2005 and the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the accounting for sales of Bluegreen’s vacation ownership notes receivable and other related matters. The restatement accounts for the sales of notes receivable as on-balance sheet financing transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally accounted for these transactions. The cumulative effect of the restatement is reflected in our financial statements for the year ended December 31, 2005. This cumulative adjustment resulted in a $2.4 million reduction of our earnings from Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction to our investment in Bluegreen.

Earnings from real estate joint ventures were $69,000 during 2005 compared to earnings of $6.0 million for 2004. In 2004, earnings from real estate joint ventures included the sale of an apartment complex and deliveries of homes and condominium units. During the year ended December 31, 2005, there were no unit deliveries by the Company’s joint ventures which were winding down operations.

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The increase in interest and other income of $7.0 million for the 2005 year was primarily related to higher balances of interest-earning deposits at various financial institutions, a non-recurring contingent termination payment received from a previously dissolved partnership, and the reversal of a $6.8 million construction related obligation associated with certain future infrastructure development requirements in our Land Division. The total increase in these items of approximately $8.5 million was offset by the absence of a one time $1.4 million reduction of a litigation reserve which was recorded in 2004. The $1.4 million reduction of a litigation reserve was the result of our successful appeal of a 2002 judgment which reversed the damages awarded by the trial jury and ordered a new trial to determine damages. The litigation reserve was reduced based on our assessment of the potential liability.

Homebuilding Division Results of Operations

2006 2005
Year Ended December 31, vs. 2005 vs. 2004
2006 2005 2004 Change Change
(Dollars in thousands, except unit data)
Revenues

Sales of real estate $ 500,719 438,367 472,296 62,352 (33,929 )
Other Revenues 4,070 3,750 4,798 320 (1,048 )

Total revenues 504,789 442,117 477,094 62,672 (34,977 )

Costs and expenses

Cost of sales of real estate 440,059 347,008 371,097 93,051 (24,089 )
Selling, general and administrative expenses 77,858 57,403 50,806 20,455 6,597
Other expenses 3,669 3,606 7,015 63 (3,409 )

Total costs and expenses 521,586 408,017 428,918 113,569 (20,901 )

(Loss) earnings from joint ventures (279 ) 104 3,518 (383 ) (3,414 )
Interest and other income 3,388 723 1,944 2,665 (1,221 )

(Loss) income before income taxes (13,688 ) 34,927 53,638 (48,615 ) (18,711 )
Benefit (provision) for income taxes 4,749 (12,691 ) (20,658 ) 17,440 7,967

Net (loss) income
$ (8,939 ) 22,236 32,980 (31,175 ) (10,744 )

Operational data:

Homes delivered 1,660 1,789 2,126 (129 ) (337 )
Construction starts 1,682 1,662 2,294 20 (632 )
Average selling price of homes delivered $ 302,000 245,000 222,000 57,000 23,000
Margin percentage on homes delivered (a) 12.1 % 20.8 % 21.4 % (8.7 )% (0.6 )%
Gross sales contracts (units) 1,520 2,039 1,982 (519 ) 57
Sales contracts cancellations (units) 404 272 303 132 (31 )
Net orders (units) 1,116 1,767 1,679 (651 ) 88
Net orders (value – in thousands) $ 381,993 547,045 427,916 (165,052 ) 119,129
Backlog of homes (units) 1,248 1,792 1,814 (544 ) (22 )
Backlog of homes (value – in thousands) $ 438,240 557,325 448,647 (119,085 ) 108,678
Joint Ventures (excluded from above):

Homes delivered — — 146 — (146 )
Construction starts — — — — —
Net orders (units) — — 42 — (42 )
Net orders (value) $ — — 13,967 — (13,967 )
Backlog of homes (units) — — — — —
Backlog of homes (value) $ — — — — —


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

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In the year ended December 31, 2006 the Homebuilding Division incurred a net loss of $8.9 million compared to net income of $22.2 million in 2005, primarily due to the previously described $36.8 million of homebuilding inventory impairment charges and inventory related valuation adjustments which were included in costs of sales. Increased cost of sales resulted in a gross margin of 12.1% for the year ended December 31, 2006 compared to 20.8% in 2005. There were no impairment charges recorded in 2005, although we did write-off $467,000 in deposits. Excluding homebuilding inventory impairment charges, gross margin still would have declined from 20.8% in 2005 to 19.5% in 2006. The decline was associated with higher construction costs in 2006 compared to 2005, as well as a shift in geographic mix resulting in a higher proportion of units delivered from lower margin communities. Due to the Company’s sales performance in Florida in 2004 and 2005 and production issues associated with our expansion, our delivery cycle in 2005 and 2006 extended beyond our 12-month target, and the number of homes we closed in 2006 declined 7.2% as compared to 2005. We have implemented changes to our organizational structure, production and operational practices in an attempt to shorten cycle times to enable us to deliver homes within 12 months. We believe that shorter delivery cycles will increase customer satisfaction and the productivity of our overall construction practices and reduce our vulnerability to rising costs.

At December 31, 2006, our Homebuilding Division had a delivery backlog of 1,248 homes representing $438.2 million of future sales. The average sales price of the homes in backlog at December 31, 2006 of $351,000 is approximately 12.9% higher than the average sales price of the homes in backlog at December 31, 2005. This increase is attributable to the particular markets generating the backlog, and the Homebuilding Division’s current pricing, which has held consistent with the price increases implemented in 2005. We do not believe that we will be able to maintain these prices in 2007 due to current market conditions, and that more aggressive pricing will be necessary to generate future sales and reduce spec inventory. While we believe that our management team, information systems and practices and procedures have been effectively strengthened to allow us to compete in the current market, the condition in the homebuilding industry, adverse trends in the broader economy, continued inflationary pressures and labor shortages could adversely impact our Homebuilding Division in future periods. Our pricing of homes is limited by the current market demand, and the sales prices of homes in our backlog cannot be maintained. As such, we expect that the margins on the delivery of homes in 2007 will continue to reflect downward pressure.

Our Homebuilding results reflect the deterioration of conditions in the homebuilding industry characterized by record levels of new and existing homes available for sale, reduced affordability and diminished buyer confidence. The slowdown in the housing market has led to increased sales incentives, increased pressure on margins, higher cancellation rates, increased advertising expenditures and broker commissions, and increased inventories. As a result, we expect our gross margin on home sales to be negatively impacted until market conditions, particularly in Florida, stabilize.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

Revenues from home sales increased 14.2% to $500.7 million during the year ended December 31, 2006, from $438.4 million during the same period in 2005. The increase is the result of an increase in average sale prices on home deliveries, which increased to $302,000 for the year ended December 31, 2006, compared to $245,000 during the same period in 2005. Since our typical sale to delivery cycle lasts between 12 and 15 months, much of the increase in average sales price on deliveries was attributable to the price increases in 2005 which we were able to maintain through the first half of 2006. The increase in sales prices was partially offset by a decrease in the number of deliveries which declined to 1,660 homes during the year ended December 31, 2006 from 1,789 homes during the same period in 2005.

The value of net orders decreased to $382.0 million during the year ended December 31, 2006, from $547.0 million during the same period in 2005. During the year ended December 31, 2006, net unit orders decreased to 1,116 units, from 1,767 units during the same period in 2005 as a result of reduced traffic and lower conversion rates as well as an increase in order cancellations. The decrease in net orders was partially offset by the average sales price increasing 10.3% during the year ended December 31, 2006 to $342,000, from $310,000 during the same period in 2005. Higher average selling prices are primarily a reflection of a reduction of the percentage of sales in our Tennessee operations which yielded lower average sales prices, as well as the price increases that were implemented in 2005 and maintained in the first half of 2006.

Cost of sales increased $93.1 million to $440.1 million during the year ended December 31, 2006, from $347.0 million during the same period in 2005. The increase in cost of sales is due to the increase in revenue from home sales. In addition, the increase was due to impairment charges and inventory related valuation adjustments in the amount of $36.8 million. Cost of sales also increased due to higher construction costs related to longer cycle times and increased carrying costs.

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Margin percentage declined during the year ended December 31, 2006 to 12.1%, from 20.8% during the same period in 2005. There were no impairment charges recorded in 2005, although we did write-off $467,000 in deposits. Gross margin excluding inventory impairments was 19.5% compared to a gross margin of 20.8% for the same period in 2005. The decline was associated with higher construction costs in 2006 compared to 2005, as well as a shift in 2006 in geographic mix resulting in a higher proportion of units delivered from lower margin communities.

Selling, general and administrative expenses increased 35.6% to $77.9 million during the year ended December 31, 2006, as compared to $57.4 million during the same period in 2005 primarily as a result of higher employee compensation and benefits expense, recruiting costs, higher outside sales commissions, increased advertising, and costs of expansion throughout Florida, Georgia and South Carolina. Employee compensation costs increased by approximately $4.8 million, from $28.6 million during the year ended December 31, 2005 to $33.4 million for the same period in 2006 mainly attributable to higher average headcount, which reached 645 employees as of June 30, 2006, before totaling 569 employees as of December 31, 2006. There were 574 employees at December 31, 2005. During the year we reduced headcount throughout the Homebuilding Division and in connection with these reductions we incurred charges for employee related costs, including severance and retention payments. Employee cost increases were offset in part by a reduction in incentive compensation in 2006 associated with the decrease in profitability in the year ended December 31, 2006 as compared to the same period in 2005. Selling costs were higher in 2006 by $11.8 million, primarily associated with higher broker commissions earned, increased sales expenses associated with efforts to attract buyers in a challenging homebuilding market and headcount associated with the expansion into new markets discussed above. Additionally, legal fees associated with litigation in our various locations increased for the year ended December 31, 2006 as compared to the same period in 2005. As a percentage of total revenues, selling, general and administrative expense was approximately 15.4% for the year ended December 31, 2006 compared to 13.0% for the same period in 2005.

Other expenses remained relatively unchanged increasing to $3.7 million during the year ended December 31, 2006 from $3.6 million in the same period in 2005 although the components of other expenses were different in 2005 and 2006. Other expenses in 2006 consisted of title and mortgage expenses and a write-off of goodwill in the amount of $1.3 million associated with our Tennessee operations. Other expenses in 2005 consisted of title and mortgage expenses, a $830,000 reserve recorded in 2005 to account for our share of costs associated with a litigation settlement, and hurricane expenses. Title and mortgage expense in 2006 remained unchanged compared to 2005.

Interest incurred and capitalized on notes and mortgages payable totaled $29.9 million during the year ended December 31, 2006, compared to $12.1 million during the same period in 2005. Interest incurred increased as a result of an increase in the average interest rate on our variable-rate borrowings as well as a $145.4 million increase in our borrowings from December 31, 2005. Cost of sales of real estate associated with previously capitalized interest totaled $11.8 million during the year ended December 31, 2006 as compared to $6.3 million for the same period in 2005.

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

The value of net orders increased to $547.0 million for 2005 from $427.9 million in 2004 as a result of higher average sales prices and an increased number of orders. Higher selling prices were primarily a reflection of the continued strength of the Florida market during the period and the shift in our Tennessee operations away from the first-time entry level buyer to a higher end customer. Net unit orders modestly increased to 1,767 units in 2005, from 1,679 units during 2004 as additional inventory became available for sale. Further, our expanded presence in Tennessee and Georgia contributed to new order flow. Construction starts declined in 2005 primarily due to the delayed sales and delayed scheduled construction cycles.

Revenues from home sales decreased 7.2% to $438.4 million in 2005 from $472.3 million in 2004, due primarily to decreased home deliveries. While home deliveries in Tennessee increased to 451 units delivered from 343 units delivered during 2004, reflecting a full year of operations, home deliveries in Florida decreased to 1,338 units delivered from 1,783 units delivered during the same 2004 period. The decrease in Florida deliveries was attributable to the lower backlog at December 31, 2004, an increased emphasis on quality and customer service which delayed closings, as well as a reduction in construction starts as discussed above. Construction cycle times generally improved, although some projects continued to experience subcontractor delays and project-related management issues.

Cost of sales decreased by approximately 6.5% to $347.0 million in 2005 from $371.1 million in 2004. The decrease in cost of sales was attributable to fewer deliveries. Cost of sales as a percentage of related revenue was approximately 79.2% for the year ended December 31, 2005, as compared to approximately 78.6% for the year ended December 31, 2004. This slight increase was due primarily to increases in labor and raw material costs in 2005 and a higher percentage of homes sold in the Tennessee region, which produces lower margins than other regions and accounted for the higher cost of sales

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percentage. Deliveries in the Tennessee region represented 25.2% of 2005 total deliveries, compared with 16.1% in 2004. We shifted our strategy in Tennessee from acquiring finished lots for smaller subdivisions to acquiring and developing raw land for “signature communities” which resemble our communities in other regions.

Selling, general and administrative expenses increased 13.0% to $57.4 million in 2005 from $50.8 million for 2004. In connection with our detailed operational and organizational review, we made significant expenditures during 2005 for infrastructure investment which we believed necessary to support growth objectives. Higher expenses were incurred as a result of the inclusion of Bowden expenses for the full year of 2005 compared with only eight months in 2004, and the higher costs associated with increased headcount and market expansion. As a percentage of total revenues, our selling, general and administrative expense was approximately 13.0% during the twelve months ended December 31, 2005, compared to 10.6% during the same 2004 period. The increase was specifically attributable to increased employee compensation and benefits costs associated with new hires in Central and South Florida, and the continued expansion of homebuilding activities into the Jacksonville, Atlanta, Myrtle Beach and Nashville markets, incurring administrative start-up costs, including advertising.

Interest incurred and capitalized on notes and mortgages payable totaled $12.1 million during 2005, compared to $6.5 million incurred and $6.3 million capitalized during the same 2004 period. Interest incurred increased as a result of an increase in the average interest rate on our variable-rate borrowings and an increase in borrowings in 2005 associated with the Company’s purchases of land to replenish its inventory of homesites. At the time of a home sale, the related capitalized interest is charged to cost of sales. Cost of sales of real estate during 2005 and 2004 included previously capitalized interest of $6.3 million and $8.0 million, respectively.

The decrease in other expenses of $3.4 million was primarily attributable to certain non-recurring expenses recorded in 2004, including a charge of $3.9 million, net of insurance recoveries, to account for the costs of remediating hurricane related damage in the Company’s Florida operations. In 2005, the Homebuilding Division did not incur any hurricane related expense. For 2005, other expenses were comprised of mortgage operations expense and an additional reserve recorded for our share of costs associated with a litigation settlement reached in a matter in which we were a joint venture partner.

The decrease in interest and other income in 2005 was primarily related to a $1.4 million reduction of a litigation reserve recorded in 2004 as a result of our successful appeal of a 2002 judgment. The appellate court reversed the damages awarded by the trial jury and ordered a new trial to determine damages. The litigation reserve was reduced based on the final settlement liability.

We did not enter into any new joint venture development or other joint venture agreements in 2005. The decrease in earnings in joint ventures resulted primarily from the completion of unit deliveries in 2004 by a joint venture developing a condominium complex in Boca Raton, Florida. That joint venture delivered the final 146 condominium units during 2004. The final 4,100 square feet of commercial space in the project was delivered during the year ended December 31, 2005.

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Land Division Results of Operations

2006 2005
Year Ended December 31, Vs. 2005 vs. 2004
2006 2005 2004 Change Change
(Dollars in thousands)
Revenues

Sales of real estate $ 69,778 105,658 96,200 (35,880 ) 9,458
Other Revenues (b) 3,816 1,111 927 2,705 184

Total revenues 73,594 106,769 97,127 (33,175 ) 9,642

Costs and expenses

Cost of sales of real estate 42,662 50,706 42,838 (8,044 ) 7,868
Selling, general and administrative expenses 15,119 12,395 10,373 2,724 2,022
Other expenses — 1,177 561 (1,177 ) 616

Total costs and expenses 57,781 64,278 53,772 (6,497 ) 10,506

Interest and other income (b) 2,650 7,897 744 (5,247 ) 7,153

Income before income taxes 18,463 50,388 44,099 (31,925 ) 6,289
Provision for income taxes (6,936 ) (18,992 ) (17,031 ) 12,056 (1,961 )

Net income
$ 11,527 31,396 27,068 (19,869 ) 4,328

Operational data:

Acres sold 371 1,647 1,212 (1,276 ) 435
Margin percentage (a) 38.9 % 52.0 % 55.5 % (13.1 )% (3.5 )%
Unsold saleable acres 6,871 7,287 5,965 (416 ) 1,322
Acres subject to sales contracts – Third parties 74 246 1,833 (172 ) (1,587 )
Aggregate sales price of acres subject to sales contracts to third parties 21,124 39,283 121,095 (18,159 ) (81,812 )


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

Due to the nature and size of individual land transactions, our Land Division results are subject to significant volatility. We have historically realized between 40.0% and 60.0% margin on Land Division sales. However, in 2006 our margin percentage was 38.9%, which is indicative of the margin percentage we expect in the next 12-18 months based on current market conditions. Margins were higher in the past because of the St. Lucie West commercial land which generated higher margins. Margins will fluctuate based upon changing sales prices and costs attributable to the land sold, as well as the potential impact of revenue deferrals associated with percentage of completion accounting. The sales price of land sold varies depending upon: the location; the parcel size; whether the parcel is sold as raw land, partially developed land or individually developed lots; the degree to which the land is entitled; and whether the designated use of land is residential or commercial. The cost of sales of real estate is dependent upon the original cost of the land acquired, the timing of the acquisition of the land, and the amount of land development, interest and real estate tax costs capitalized to the particular land parcel during active development. Allocations to costs of sales involve management judgments and an estimate of future costs of development, which can vary over time due to labor and material cost increases, master plan design changes and regulatory modifications. Accordingly, allocations are subject to change based on factors which are in many instances beyond management’s control. Future margins will continue to vary based on these and other market factors.

The value of acres subject to third party sales contracts decreased from $39.3 million at December 31, 2005 to $21.1 million at December 31, 2006. This backlog consists of executed contracts and provides an indication of potential future sales activity and value per acre. However, the backlog is not an exclusive indicator of future sales activity. Some sales involve contracts executed and closed in the same quarter and therefore will not appear in the backlog. In addition, contracts in the backlog are subject to cancellation.

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For the Year Ended December 31, 2006 Compared to the Same 2005 Period

Revenues decreased 34.0% to $69.8 million during the year ended December 31, 2006, from $105.7 million during the same period in 2005. During the year ended December 31, 2006, we sold 371 acres at an average margin of 38.9% as compared to 1,647 acres sold at an average margin of 52.0% for the same 2005 period. The decrease in revenue was primarily attributable to a large bulk sale of land adjacent to Tradition, Florida consisting of a total of 1,294 acres for $64.7 million, which occurred in the year ended December 31, 2005. Included in the 371 acres sold in 2006 are 150 acres sold to the Homebuilding Division. Profits recognized by the Land Division from sales to the Homebuilding Division are deferred until the Homebuilding Division delivers homes on those properties to third parties, at which time the deferred profit is applied against consolidated cost of sales. During the year ended December 31, 2006, the Land Division’s sales to the Homebuilding Division amounted to $18.8 million, of which the $3.3 million profit was deferred at December 31, 2006, as compared to no sales between the divisions in the year ended December 31, 2005.

The increase in other revenues from $1.1 million for the year ended December 31, 2005 to $3.8 million for the same period in 2006 related to increased marketing fees associated with cooperative marketing agreements with homebuilders and lease and irrigation income.

Cost of sales decreased $8.0 million to $42.7 million during the year ended December 31, 2006, as compared to $50.7 million for the same period in 2005. The decrease in cost of sales was directly related to the decrease in revenues from the Land Division in 2006. This decrease was slightly offset by an increase in cost of sales due to lower margin sales in 2006. The large bulk sale that took place in 2005, which represented the majority of the sales activity in 2005, generated higher than normal margins for the year ended December 31, 2005. Cost of sales as a percentage of related revenue was approximately 61.1% for the year ended December 31, 2006 compared to 48.0% for the same period in 2005.

Selling, general and administrative expenses increased 22.0% to $15.1 million during the year ended December 31, 2006, from $12.4 million during the same period in 2005. The increase primarily was a result of increases in compensation and other administrative expenses attributable to increased headcount in support of our expansion into the South Carolina market, and commercial development, commercial leasing and irrigation activities. Additionally we incurred increases in Florida property taxes, advertising and marketing costs, and depreciation associated with commercial projects being developed internally. These increases were slightly offset by lower incentive compensation associated with the decrease in profitability in the year ended December 31, 2006 compared to the same period in 2005. As a percentage of total revenues, our selling, general and administrative expenses increased to 20.5% during the year ended December 31, 2006, from 11.6% during the same period in 2005. The large variance is attributable to the large land sale that occurred in the year ended December 31, 2005 which resulted in a large increase in revenue without a corresponding increase in selling, general and administrative expenses due to the fixed nature of many of the Land Division’s expenses.

Interest incurred and capitalized during the year ended December 31, 2006 and 2005 was $6.7 million and $2.8 million, respectively. Interest incurred was higher due to higher outstanding balances of notes and mortgage notes payable, as well as increases in the average interest rate on our variable-rate debt. Cost of sales of real estate during the year ended December 31, 2006 included previously capitalized interest of $443,000, compared to $743,000 during the same period in 2005.

The decrease in interest and other income from $7.9 million for the year ended December 31, 2005 to $2.7 million for the same period in 2006 is related to a reversal of a construction related obligation recorded in 2005 in the amount of $6.8 million. This item was not present in 2006. This decrease was partially offset by a $1.3 million gain on sale of fixed assets and higher interest income generated by our various interest bearing deposits.

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

Revenues from land sales increased 9.8% to $105.7 million in 2005 from $96.2 million in 2004. Margin on land sales in 2005 was approximately $55.0 million as compared to $53.4 million in 2004. During 2005, 1,647 acres were sold with an average margin of 52.0%, as compared to 1,212 acres sold with an average margin of 55.5% in 2004. The decline in average selling price per acre is attributable to the stage of entitlements of the parcels sold. We sold a greater percentage of undeveloped and untitled land in 2005 relative to 2004. The decrease in margin is also attributable to the mix of acreage sold, with a decrease in commercial property sales at St. Lucie West. The margin percentage on the Tradition, Florida acreage tends to be lower due to the stage of the development and the higher proportion of residential sales (which generally have a lower margin) to commercial sales in the same period. While yielding a slightly lower margin percentage, the Land Division generated increased revenue which enhanced overall profitability. The most notable transaction during 2005 was the bulk sale for $64.7 million in the first quarter of five non-contiguous parcels of land adjacent to Tradition, Florida consisting

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of a total of 1,294 acres. During 2004, the Company sold 448 acres in Tradition, Florida to the Homebuilding Division which generated revenue of $23.4 million and margin of $14.4 million. This transaction, which is included in the above table for 2004, was eliminated in consolidation, and the associated profit was deferred. There were no land sales to the Homebuilding Division in 2005.

Selling, general and administrative expenses increased 19.5% to $12.4 million during the year ended December 31, 2005 compared to $10.4 million for the same 2004 period. As a percentage of total revenues, selling, general and administrative expenses remained relatively flat increasing to 11.6% in 2005 from 10.7% in 2004. The slight increase was due to increased headcount as the number of Land Division employees increased to 48 in 2005 from 35 as of December 31, 2004 largely associated with our expansion at both Tradition, Florida and Tradition, South Carolina.

Interest incurred for 2005 and 2004 was approximately $2.8 million and $2.0 million, respectively. The increase in interest incurred was primarily due to an increase in outstanding borrowings related to acquisition of land for Tradition, South Carolina. During 2005, interest capitalized was approximately $2.8 million, as compared with $1.9 million for 2004. At the time of land sales, the related capitalized interest is charged to cost of sales. Cost of sales of real estate for 2005 and 2004 included previously capitalized interest of approximately $743,000 and $87,000, respectively.

The increase in other expenses was primarily attributable to a $677,000 pre-payment penalty on debt repayment incurred during the first quarter of 2005. We repaid indebtedness under a line of credit using a portion of the proceeds of the bulk sale described above.

The increase in interest and other income of $7.2 million was primarily related to the reversal of certain accrued construction obligations. During the fourth quarter of 2005, we reversed approximately $6.8 million in accrued construction obligations. These accrued construction obligations were recorded as property was sold to recognize our obligations to comply with future infrastructure development requirements of governmental entities. The reversal of these construction obligations was the result of changes made to the infrastructure development requirements by such governmental entities for certain projects. All payments and obligations related to the infrastructure development requirements for these projects were fulfilled as of December 31, 2005.

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Other Operations Results of Operations

2006 2005
Year Ended December 31, Vs. 2005 Vs. 2004
2006 2005 2004 Change Change
(Dollars in thousands)
Revenues
��
Sales of real estate $ 11,041 14,709 5,555 (3,668 ) 9,154
Other Revenues (a) 1,435 1,963 459 (528 ) 1,504

Total revenues 12,476 16,672 6,014 (4,196 ) 10,658

Costs and expenses

Cost of sales of real estate 11,649 12,520 6,255 (871 ) 6,265
Selling, general and administrative expenses 28,174 17,841 9,822 10,333 8,019
Other expenses 8 72 24 (64 ) 48

Total costs and expenses 39,831 30,433 16,101 9,398 14,332

Earnings from Bluegreen Corporation 9,684 12,714 13,068 (3,030 ) (354 )
(Loss) earnings from joint ventures (137 ) (35 ) 2,532 (102 ) (2,567 )
Interest and other income (a) 4,196 2,143 545 2,053 1,598

(Loss) income before income taxes (13,612 ) 1,061 6,058 (14,673 ) (4,997 )
Benefit (provision) for income taxes 5,639 (378 ) (2,198 ) 6,017 1,820

Net (loss) income
$ (7,973 ) 683 3,860 (8,656 ) (3,177 )

(a)

The years ended December 31, 2005 and 2004 reflect the reclassification of leasing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

Other Operations include all other Company operations, including Levitt Commercial, Parent Company general and administrative expenses, earnings from our investment in Bluegreen and earnings (loss) from investments in various real estate projects and trusts. We currently own approximately 9.5 million shares of the common stock of Bluegreen, which represented approximately 31% of Bluegreen’s outstanding shares as of December 31, 2006. Under equity method accounting, we recognize our pro-rata share of Bluegreen’s net income (net of purchase accounting adjustments) as pre-tax earnings. Bluegreen has not paid dividends to its shareholders; therefore, our earnings represent only our claim to the future distributions of Bluegreen’s earnings. Accordingly, we record a tax liability on our portion of Bluegreen’s net income. Our earnings in Bluegreen increase or decrease concurrently with Bluegreen’s reported results. Furthermore, a significant reduction in Bluegreen’s financial position could potentially result in an impairment charge on our investment against our future results of operations. For a complete discussion of Bluegreen’s results of operations and financial position, we refer you to Bluegreen’s Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

During the year ended December 31, 2006, Levitt Commercial delivered 29 flex warehouse units at two of its projects, generating revenues of $11.0 million as compared to 44 flex warehouse units in 2005, generating revenues of $14.7 million. Deliveries of individual flex warehouse units by Levitt Commercial generally occur in rapid succession upon the completion of a warehouse building. As of December 31, 2006 Levitt Commercial has one remaining flex warehouse project with a total of 17 units in the sales backlog which closed in the first quarter of 2007.

Cost of sales of real estate in Other Operations includes the expensing of interest previously capitalized, as well as the costs of development associated with the Levitt Commercial projects. Interest in Other Operations is capitalized and amortized to cost of sales in accordance with the relief rate used in our operating segments. This capitalization is for Other Operations debt where interest is allocated to inventory in the other operating segments. Cost of sales of real estate decreased $871,000 from $12.5 million in the year ended December 31, 2005 to $11.6 million in the year ended December 31, 2006. The primary reason for the decrease in cost of sales is due to fewer sales at Levitt Commercial partially offset by increased cost of sales associated with previously capitalized interest related to corporate debt.

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Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as compared to net income of $46.6 million for the same period in 2005. Our interest in Bluegreen’s earnings, net of purchase accounting adjustments, was $9.7 million for the year ended December 31, 2006 compared to $12.7 million for the same period in 2005.

Selling, general and administrative expense increased 57.9% to $28.2 million during the year ended December 31, 2006, from $17.8 million during the same period in 2005. The increase is a result of higher employee compensation and benefits, recruiting expenses, and professional services expenses. Employee compensation costs increased by approximately $4.4 million from $7.4 million during the year ended December 31, 2005 to $11.8 million for the same period in 2006. The increase relates to the increase in the number of full time employees to 63 at December 31, 2006 from 46 at December 31, 2005. Additionally, approximately $3.1 million of the increase in compensation expense was associated with non-cash stock-based compensation for which no expense was recorded in the same period in 2005. We experienced an increase in professional services due to non-capitalizable consulting services performed in the year ended December 31, 2006 related to our financial systems implementation. The system implementation costs and merger related costs did not exist in the year ended December 31, 2005. These increases were partially offset by decreases in bonus expense of approximately $1.0 million or 56.1% from the year ended December 31, 2005 due to decreased profitability.

Interest incurred and capitalized on notes and mortgage notes payable totaled $7.4 million during the year ended December 31, 2006, compared to $4.4 million during the same period in 2005. The increase in interest incurred was attributable to an increase in junior subordinated debentures and an increase in the average interest rate on our borrowings. Cost of sales of real estate includes previously capitalized interest of $3.6 million and $2.0 million during the year ended December 31, 2006 and 2005, respectively. Those amounts include adjustments to reconcile the amount of interest eligible for capitalization on a consolidated basis with the amounts capitalized in our other business segments.

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For the Year Ended December 31, 2005 Compared to the Same 2004 Period

During the year ended 2005, Levitt Commercial delivered 44 flex warehouse units at two of its projects, generating revenues of $14.7 million as compared to 18 flex warehouse units in 2004, generating revenues of $5.6 million.

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

Bluegreen restated its financial statements for the first three quarters of fiscal 2005 and the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the accounting for sales of the Company’s vacation ownership notes receivable and other related matters. The restatement accounts for the sales of notes receivable as on-balance sheet financing transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally accounted for these transactions. We recorded the cumulative effect of the restatement in the year ended December 31, 2005. This cumulative adjustment was recorded as a $2.4 million reduction of our earnings from Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction to our investment in Bluegreen.

Selling, general and administrative and other expenses increased to $17.8 million during the year ended December 31, 2005 as compared to $9.8 million during the year ended December 31, 2004. In 2005, we incurred professional fees associated with the organizational review of production and operational practices and procedures as previously discussed. Also contributing to the increase in selling, general and administrative expenses during the year ended 2005 were additional audit fees associated with Sarbanes Oxley. The increase in selling, general and administrative expenses is also attributable to increased compensation expense resulting from an increase from 22 employees in this segment at year end 2004 to 46 employees at year end 2005. The increased headcount was primarily related to parent company staffing in Human Resources, Project Management and administrative functions in preparation for our implementation of the Company’s strategic initiatives. In addition, incentives for all employees associated with achieving identified customer service goals were accrued in the fourth quarter of 2005. Finally, in the fourth quarter of 2005, we incurred expenses associated with several company-wide information meetings regarding the various organizational, information system, and operational changes scheduled to occur in 2005 and 2006.

Losses from real estate joint ventures in 2005 were $35,000 as compared to $2.5 million of earnings in 2004. The earnings during 2004 were primarily related to the gain recognized by the sale of Grand Harbor, a rental apartment property in Vero Beach, Florida and earnings associated with the delivery of homes by a joint venture project in West Palm Beach, Florida. During 2005, the joint ventures in which this operating segment participates had essentially completed their operations and were winding down as discussed above.

Interest incurred in other operations was approximately $4.4 million and $2.6 million for the year ended December 31, 2005 and 2004, respectively. The increase in interest incurred was primarily associated with an increase in debentures at the parent company associated with our trust preferred securities offerings and an increase in the average interest rate on our borrowings. Interest capitalized for this business segment totaled $4.4 million and $2.6 million for the year ended December 31, 2005 and 2004, respectively. Those amounts include adjustments to reconcile the amount of interest eligible for capitalization on a consolidated basis with the amounts capitalized in our other business segments.

FINANCIAL CONDITION

We are taking steps to address the current challenging residential real estate environment and are working to improve operational cash flows and increase our sources of financing. We believe that our current financial condition and credit relationships, together with anticipated cash flows from operations and other sources of funds, which may include proceeds from the disposition of certain properties or investments, joint ventures, and issuances of debt or equity, will provide for our current liquidity.

Our total assets at December 31, 2006 and 2005 were $1.1 billion and $895.7 million, respectively. The increase in total assets primarily resulted from:

a net increase in inventory of real estate of approximately $210.8 million, which includes approximately $64.8 million in land acquisitions by our Homebuilding Division;

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	•		an increase of $34.4 million in property and equipment associated with increased investment in commercial properties under construction by our Land Division, support for infrastructure in our master planned communities, and $3.5 million in hardware and software acquired for our implementation of our new financial and operating system ;

	•		a net increase of approximately $11.2 million in our investment in Bluegreen Corporation associated primarily with $9.7 million of earnings from Bluegreen (net of purchase accounting adjustments), $1.3 million from our pro rata share of unrealized gains associated with Bluegreen’s other comprehensive income and $287,000 associated with Bluegreen’s capital transactions; and

	•		the above increases in assets were partially offset by a net decrease in cash and cash equivalents of $65.2 million, which resulted from cash used in operations and investing activities of $268.3 million, partially offset by an increase in cash provided by financing activities of $203.1 million.

Total liabilities at December 31, 2006 and December 31, 2005 were $747.4 million and $545.9 million, respectively. The material changes in the composition of total liabilities primarily resulted from:

	•		a net increase in notes and mortgage notes payable of $176.8 million, primarily related to project debt associated with 2006 land acquisitions and land development activities;

	•		an increase of $30.9 million in junior subordinated debentures ;

	•		a decrease of $9.0 million in customer deposits due to a smaller backlog at December 31, 2006;

	•		an increase of $18.5 million in accruals as a result of increased construction costs, accrued professional services related to our systems implementation and legal and valuation services accruals related to the proposed merger with BFC; and

	•		a decrease in tax liability of approximately $7.0 million relating primarily to our pre-tax loss and the timing of estimated tax payments.

LIQUIDITY AND CAPITAL RESOURCES

We assess our liquidity in terms of our ability to generate cash to fund our operating and investment activities. During the year ended December 31, 2006, our primary sources of funds were proceeds from the sale of real estate inventory, the issuance of trust preferred securities and borrowings from financial institutions. These funds were utilized primarily to acquire, develop and construct real estate, to service and repay borrowings and to pay operating expenses. As of December 31, 2006 and December 31, 2005, we had cash and cash equivalents of $48.3 million and $113.6 million, respectively. Our cash declined $65.2 million during the year ended December 31, 2006 primarily as a result of our continued investment in inventory, principally in the Homebuilding Division in combination with a decline in operating performance. The Company primarily utilized borrowings to finance the growth in inventory. Total debt increased to $615.7 million at December 31, 2006 compared with $407.8 at December 31, 2005. Debt to total capitalization increased from 53.8% to 64.2% during the same period.

The downturn in the homebuilding industry combined with the timing of inventory acquisitions has increased our supply of land and substantially increased the amount of debt. We have substantially curtailed our acquisition of new land, and are closely monitoring expenditures for land development and community amenities in light of current market conditions. The majority of our Homebuilding inventory was purchased during the peak of the historic high demand in the homebuilding market cycle and remains vulnerable to future additional impairments should market conditions not improve. Additionally, demand for residential property in Florida, where the majority of our inventory is located, has declined significantly, and we have experienced a record number of contract cancellations as customers have elected to forfeit their deposits and not fulfill their purchase commitments. We expect that pricing pressures will erode future margins as we attempt to improve sales through various sales incentives. We do not believe there is any meaningful evidence to suggest market conditions will improve in the near term.

Due to current market conditions and the uncertain duration of the industry downturn, there is no assurance that operating cash flows will adequately support operations, and accordingly, we anticipate seeking additional capital. Sources for additional capital include proceeds from the disposition of certain properties or investments, joint venture partners, as well as issuances of debt or equity. In addition, as discussed in Item 1. –Business-Recent Developments, the decision to enter an agreement to merge with BFC Financial was predicated in part on the anticipated need for additional capital, and the recognition that BFC provides potential additional access to financial resources. The merger is subject to a number of conditions, including shareholder approval. In the event that the merger is not approved by shareholders, or not consummated for any other reason, it is our current intention to pursue a rights offering to holders of Levitt’s Class A common stock giving each then current holder of Levitt Class A common stock the right to purchase a proportional number

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of additional shares of Levitt Class A common stock. There is no assurance that we will be able to successfully raise additional capital on acceptable terms, if at all.

At December 31, 2006, our consolidated debt totaled $615.7 million under total borrowing facilities of up to $904.4 million, of which $527.7 was secured by various assets. Those loans are secured by mortgages on various properties. Approximately $70.4 million was available under the facilities at December 31, 2006 subject to qualifying assets and fulfillment of conditions precedent. The detail of debt instruments at December 31, 2006 and 2005 was as follows (in thousands):

December 31,
2006 2005
Mortgage notes payable $ 67,504 127,061
Mortgage notes payable to BankAtlantic — 223
Borrowing base facilities 348,600 143,100
Land acquisition and construction mortgage notes payable 1,641 3,875
Land acquisition mortgage notes payable 66,932 48,936
Construction mortgage notes payable 28,884 13,012
Lines of credit 14,000 14,500
Subordinated investment notes 2,489 3,132
Unsecured junior subordinated debentures 85,052 54,124
Other borrowings 601 7

Total Outstanding Debt $ 615,703 $ 407,970

Additional detail on the above borrowings is provided in Item 8 Note 11.

Operating Activities. During the year ended December 31, 2006, we used $240.1 million of cash in our operating activities, as compared to $132.5 million of cash used in such activities during 2005 and $78.9 million used in 2004. The net cash used in operations during fiscal 2006 was primarily the result of cash used to increase inventories in our Homebuilding segment, as well as a net loss for 2006 compared to net income during 2005. The net cash used in operations during fiscal 2005 and fiscal 2004 was the result of cash provided from net income and an increase in accounts payable, accrued expenses and other liabilities, offset by cash used to increase real estate inventory.

The decision to fund additional inventory growth in the past few years was based on strong market demand and the need to replenish inventory in certain markets, as well as management’s decision to diversify into new markets. In addition to the costs of land acquisition, we incur significant land development expenditures to prepare the land for the construction of homes. In addition, many of the Homebuilding communities provide amenities to residents which include gated entryways, clubhouses, swimming pools and tennis courts. As a result, we incur significant costs which are not recovered until homes are delivered. Depending upon the size of the community, product type and ability to obtain permits and required approvals from governmental authorities, the time between land acquisition and the delivery of the first completed home can take in excess of two years, exposing us to the volatility of demand in the homebuilding market. A reduction in sales activity results in a lower realized rate of return and a longer than anticipated breakeven period for cash flow, placing additional stress on the balance sheet as higher debt levels are maintained. The homebuilding market changed noticeably in early 2006 and further deteriorated throughout the year. The majority of our inventory is located in Florida, which is among many states experiencing challenges in the homebuilding industry associated with excess inventory supply and intense price competition. As a result, it is expected that Florida will lag the overall market recovery until supply is more aligned with market demand.

In light of these challenging market conditions, we modified our land acquisition plans in 2006 and substantially curtailed our planned purchases of new land after the first quarter. Land acquired from third parties, the majority of which was outside the state of Florida, totaled $64.8 million in 2006, compared with $197.4 million in 2005. Our inventory growth in 2006 was primarily associated with land development and construction activities on land purchases made in 2005 as well as land acquisitions made in the first quarter of the year. We will continue to invest in our existing projects in 2007, many of which require further investment in land development, amenities including entryways and clubhouse facilities, as well as model homes and sales facilities. As a result, we are not expecting a meaningful decline in inventory during the year. At this time, no significant land purchases are contemplated in 2007 based on current market conditions.

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We also utilize deposits from customers who enter into purchase contracts to support our working capital needs. These deposits totaled $42.7 million at December 31, 2006 and represented 10% of our homebuilding backlog value. In comparison, deposits at year end 2005 were $51.7 million and represented 9% of our homebuilding backlog value. The decline in deposits reflects a reduction in the backlog, as well as a decision in late 2006 to reduce the required deposits in certain communities to 5% of base price, and tier the required deposits on selected options. In 2006, $2.7 million in deposits were retained by us as a result of forfeitures by buyers as cancellations grew compared with $77,000 in 2005. If we are unable to increase sales during the same period, the amount of deposits will decline as we deliver homes from backlog.

Investing Activities. In fiscal 2006 and 2005, cash used in investing activities represented net purchases of property and equipment, primarily associated with commercial development activities and utility services at Tradition, Florida. In addition, we invested in new technology systems and capitalized related expenses for software, hardware and certain implementation costs. In 2004, we received distributions from a real estate joint venture for the Boca Grande project

Financing ActivitiesThe majority of our financing needs are funded with cash generated from operations, secured financing principally through commercial banks, and Trust Preferred securities. We have also issued common equity in the public markets, and continue to evaluate various sources of capital from both public and private investors to ensure we maintain sufficient liquidity to deal with the potential of a prolonged slowdown in the residential real estate markets where we operate. Cash provided through financing activities totaled $203.1 million in 2006, compared with $134.7 million in 2005 and $191.4 million in 2004.

Certain of our borrowings require us to repay specified amounts upon a sale of portions of the property securing the debt. These amounts would be in addition to our scheduled payments over the next twelve months. While homes in backlog are subject to sales contracts, there can be no assurance that these homes will be delivered as evidenced by the escalation of our cancellation rates. Upon cancellation, such homes become spec units and are aggressively marketed to new buyers. Our borrowing base facilities include project limitations on the number and holding period, as well as the overall dollar amount of spec units, and accordingly, if that limitation is exceeded, the underlying assets no longer qualify for financing. In that event, our available borrowings are reduced, and depending upon that status of other qualifying assets in the borrowing base, we may be required to repay the lender prior to scheduled payment dates for funds advanced on that particular property. We communicate with our lenders regarding limitations on spec houses, and in the past have received increased spec allowances, but there can be no assurance we will receive such flexibility in the future. Accordingly, our cash flow and liquidity would be adversely impacted should spec inventory continue to rise as a result of customer cancellations and we are unable to obtain waivers from our lenders.

Certain of our borrowings may require additional principal payments in the event that sales and starts are substantially below those agreed to at the inception of the borrowing. There is no assurance that these additional principal payments will not be required. A curtailment schedule is established for each project when that project is included as a qualifying project under a borrowing base facility. The curtailment schedule specifies minimum debt pay downs based on projected construction starts. If the construction starts do not commence, we remain obligated to make the payments. Such obligations total $84.5 million in 2007. We periodically discuss these curtailment requirements as well as current market activity and revised project budgets with our lenders. If we are unable to meet required construction starts and are not able to defer or eliminate curtailment requirements, significant additional funds will be needed to meet the required debt payments.

Some of our subsidiaries have borrowings which contain covenants that, among other things, require the subsidiary to maintain financial ratios, including minimum working capital, maximum leverage and minimum net worth. These covenants may have the effect of limiting the amount of debt that the subsidiaries can incur. At December 31, 2006, we were in compliance with all loan agreement financial covenants. There can be no assurance we will remain in compliance in the future should the homebuilding market remain in a prolonged downturn. Noncompliance with financial covenants may result in pressure on earnings and cash flow, and the risk of additional impairments. The risk of additional impairments could adversely impact the subsidiary’s net worth which would require additional capital from the parent and restrict the payment of dividends from that subsidiary to the parent.

On each of January 24, 2006, April 26, 2006, August 1, 2006, October 23, 2006 and January 22, 2007 our Board of Directors declared cash dividends of $0.02 per share on our Class A common stock and Class B common stock. These dividends were paid in February 2006, May 2006, August 2006, November 2006 and February 2007, respectively. The Board has not adopted a policy of regular dividend payments. The payment of dividends in the future is subject to approval by our Board of Directors and will depend upon, among other factors, our results of operations and financial condition. We cannot give assurance that we will declare additional cash dividends in the future.

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Off Balance Sheet Arrangements and Contractual Obligations

In connection with the development of certain of our communities, we establish community development districts to access bond financing for the funding of infrastructure development and other projects within the community. If we were not able to establish community development districts, we would need to fund community infrastructure development out of operating income or through other sources of financing or capital. The bonds issued are obligations of the community development district and are repaid through assessments on property within the district. To the extent that we own property within a district when assessments are levied, we will be obligated to pay the assessments as they are due. As of December 31, 2006, development districts in Tradition, Florida had $50.4 million of community development district bonds outstanding and we owned approximately 36% of the property in those districts. During the year ended December 31, 2006, we recorded approximately $1.7 million in assessments on property we owned in the districts. These costs were capitalized to inventory as development costs and will be recognized as cost of sales when the assessed properties are sold to third parties.

We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s indebtedness. Our liability under the indemnity agreement is limited to the amount of any distributions from the joint venture which exceeds our original capital and other contributions. Accordingly, our potential obligation of indemnity was approximately $664,000 at December 31, 2006. Based on the joint venture assets that secure the indebtedness, we do not believe it is likely that any payment will be required under the indemnity agreement.

The following table summarizes our contractual obligations as of December 31, 2006 (in thousands):

Payments due by period
Less than 13 - 36 37 - 60 More than
Category (1) Total 12 Months Months Months 60 Months

Long-term debt obligations $ 615,703 46,016 304,341 146,706 118,640
Interest payable on long-term debt 268,250 46,487 78,738 25,791 117,234
Operating lease obligations 8,531 2,287 3,466 1,323 1,455
Purchase obligations 14,220 14,220 — — —

Total obligations $ 906,704 109,010 386,545 173,820 237,329


(1)		Long-term debt obligations consist of notes, mortgage notes and bonds payable. Interest payable on these long-term debt obligations is the interest that will be incurred related to the outstanding debt. Operating lease obligations consist of lease commitments. Purchase obligations consist of contracts to acquire real estate properties for development and sale for which due diligence has been completed and our deposit is committed; however our liability for not completing the purchase of any such property is generally limited to the deposit made under the relevant contract. At December 31, 2006, we had $400,000 in deposits securing such purchase obligations and we currently intend to acquire the land associated with these purchase obligations, subject to market conditions and the Company’s financial condition.

(2)		In addition to the above scheduled payments, certain of our borrowings require repayments of specified amounts upon a sale of portions of the property securing the debt.

At December 31, 2006, we had outstanding surety bonds and letters of credit of approximately $139.4 million related primarily to obligations to various governmental entities to construct improvements in our various communities. We estimate that approximately $68.6 million of work remains to complete these improvements. We do not believe that any outstanding bonds or letters of credit will likely be drawn upon.

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The table below sets forth our debt obligations, principal payments by scheduled maturity, weighted-average interest rates and estimated fair market value as of December 31, 2006 (dollars in thousands):

Fair Market
Value at
Payments due by year December 31,
2007 2008 2009 2010 2011 Thereafter Total 2006
Fixed rate debt:

Notes and mortgage payable (a) 2,303 980 328 256 264 101,208 105,339 105,885
Average interest rate 8.03 % 8.03 % 8.09 % 8.10 % 8.11 % 5.27 % 7.61 %

Variable rate debt:

Notes and mortgage payable 43,713 24,951 278,082 100,312 45,874 17,432 510,364 510,364
Average interest rate 7.73 % 7.69 % 7.68 % 7.73 % 7.90 % 7.28 % 7.71 %

Total debt obligations
46,016 25,931 278,410 100,568 46,138 118,640 615,703 616,249


(a)		Fair value calculated based upon recent borrowings in same category of this debt.

Assuming the variable rate debt balance of $510.4 million outstanding at December 31, 2006 (which does not include approximately $85.1 million of initially fixed-rate obligations which will not become floating rate during 2007) were to remain constant, each one percentage point increase in interest rates would increase the interest incurred by us by approximately $5.1 million per year.

Impact of Inflation

The financial statements and related financial data and notes presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Inflation could have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates which could have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates as well as increased materials and labor costs may reduce margins.

Given market conditions we do not believe that we will be able to raise prices or generate sales at levels recorded in 2004 and 2005. Further, our Homebuilding Division generally enters into sales contracts prior to construction and unanticipated cost increases due to inflation during the construction period will negatively impact our margins and profitability.

New Accounting Pronouncements

In June 2006, the FASB issued FIN No. 48 (“Accounting for Uncertainty in Income Taxes – an interpretation of FASB No. 109”.) FIN 48 provides guidance for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. FIN 48 substantially changes the accounting policy for uncertain tax positions and is likely to cause greater volatility in our provision for income taxes. The interpretation also revises disclosure requirements including a tabular roll-forward of unrecognized tax benefits. The interpretation is effective as of January 1, 2007 and we do not expect a material adjustment upon adoption of this interpretation.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 which established an approach to quantify errors in financial statements. The SEC’s new approach to quantifying errors in the financial statements is called the dual-approach. This approach quantifies the errors under two common approaches requiring the registrant to adjust its financial statements when either approach results in a material error after considering all quantitative and qualitative factors. Adoption of this bulletin did not affect our financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands

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disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after ~~June~~November 15, ~~2005. Bluegreen has indicated~~2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years. We are currently reviewing the effect of this Statement on our consolidated financial statements and do not expect the adoption to have an effect on our financial condition or results of operations.

In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8,Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums,(“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in ~~its periodic reports filed with~~determining whether to recognize profit under the ~~SEC that~~percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (our fiscal year beginning December 1, 2007). The effect of this ~~pronouncement~~EITF is not expected to ~~have a~~be material ~~effect on Bluegreen’s financial statements. Accordingly, management believes that this Statement will not have a material effect on the Company’s~~to our consolidated financial statements.
”

The Emerging Issues Task Force (“EITF”) reached a consensus on EITF 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The EITF provides guidance on the meaning of other-than-temporary impairment and its application to investments classified as either available for sale or held to maturity under FASB Statement No. 115 and investments accounted for under the cost method of accounting. The guidance of EITF 03-01 requires that the Company make evidence-based judgments about the recovery of the unrealized loss (impairment), if any, on each security considering the severity and duration of the impairment and the Company’s ability and intent to hold the securities until the forecasted recovery. In September 2004 the FASB issued a FSP that delayed the effective date for the measurement and recognition guidance for the meaning of other-than-temporary impairment. The disclosure requirements were not deferred. At December 31, 2004, the securities portfolios were evaluated for other-than-temporary declines in value based on existing guidance contained in FASB No. 115, SAB Topic 5-M and FASB Staff Implementation Guide to FASB No. 115 resulting in approximately $362,000 in other-than-temporary impairment of the securities portfolios.

In December 2003, the American Institute of Certified Public Accountants’ (“AICPA”) Accounting Standards Executive Committee (“AcSEC”) issued Statement of Position 03-3 (“SOP”). The SOP addresses accounting for loans and debt securities acquired in purchase business combinations or purchased subsequent to origination with evidence of deterioration in credit quality since origination. The SOP prohibits the creation of valuation allowances in the initial accounting of all loans acquired that meet the criteria of the SOP. The SOP does not apply to originated loans. The SOP limits the yield that may be accreted to the excess of the purchaser’s estimate of undiscounted expected principal, interest and other cash flows over the purchaser’s initial investment. The SOP requires excess contractual cash flows over cash flows expected to be collected to not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairments. The SOP is effective for loans and securities acquired in fiscal years beginning after December 15, 2004 with early adoption encouraged. Upon adoption as of January 1, 2005, the SOP did not have a material impact on the Company’s financial statements

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Consolidated Market Risk

          Market risk is defined as the risk of loss arising from adverse changes in market valuations ~~which~~that arise from interest rate risk, foreign currency exchange rate risk, commodity price risk and equity price risk. ~~Our~~While the primary market risk of BankAtlantic Bancorp is interest rate risk, ~~and our secondary~~BFC’s primary market risk is equity price risk.
~~Consolidated Interest Rate Risk~~
     The majority of BankAtlantic’s assets and liabilities are monetary in nature, subjecting BankAtlantic to significant interest rate risk in that their value fluctuates with changes in interest rates. BankAtlantic Bancorp has developed a model using standard industry software to quantify its interest rate risk. A sensitivity analysis was performed by BankAtlantic to measure its potential gains and losses in net portfolio fair values of interest rate sensitive instruments at December 31, 2004 resulting from a change in interest rates. Interest rate sensitive instruments included in the model are:
•   ~~Loans,~~
•   ~~Debt securities available for sale,~~
•   ~~Investment securities,~~
•   ~~FHLB stock,~~
•   ~~Federal funds sold,~~
•   ~~Deposits,~~
•   ~~Advances from FHLB,~~
•   ~~Securities sold under agreements to repurchase,~~
•   ~~Federal funds purchased,~~
•   ~~Subordinated debentures,~~
•   ~~Notes and bonds payable,~~
•   ~~Forward contracts,~~
•   ~~Junior subordinated debentures, and~~
•   ~~Off-balance sheet loan commitments.~~
~~The model calculates the net potential gains and losses in net portfolio fair value by:~~
i.   ~~discounting anticipated cash flows from existing assets, liabilities and off-balance sheet contracts and derivatives at market rates to determine fair values at December 31, 2004,~~
~~ii.~~   ~~discounting the above expected cash flows based on instantaneous and parallel shifts in the yield curve to determine fair values; and~~
~~iii.~~   ~~calculating the difference between the fair value calculated in (i) and (ii).~~
     Management of BankAtlantic has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no quoted market for many of these financial instruments, management of BankAtlantic has no basis to determine whether the fair value presented would be indicative of the value that could be attained in an actual sale. BankAtlantic’s 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.
     Subordinated debentures and mortgage-backed bonds payable were valued for this purpose based on their contractual maturities or redemption date. BankAtlantic ’s interest rate risk policy has been approved by its Board of Directors and establishes guidelines for tolerance levels for net portfolio value changes based on interest rate volatility. Management of BankAtlantic has maintained the portfolio within these established tolerances.
     ~~Certain assumptions in assessing the interest rate risk were utilized in preparing the following table. These assumptions related to:~~
•   ~~Interest rates,~~
•   ~~Loan prepayment rates,~~
•   ~~Deposit decay rates,~~
•   ~~Market values of certain assets under various interest rate scenarios, and~~
64

• ~~Re-pricing of certain borrowings.~~

~~The prepayment assumptions used in the model are a portfolio composition of:~~

•   ~~Fixed rate mortgages~~ ~~25%~~
•   ~~Fixed rate securities~~ ~~22%~~
•   ~~Tax certificates~~ ~~10%~~
•   ~~Adjustable rate mortgages~~ ~~59%~~
•   ~~Adjustable rate securities~~ ~~39%~~

~~Deposit runoff assumptions used in the model are as follows:~~

Within 1-3 3-5 Over 5
1 Year Years Years Years
Money fund savings accounts decay rates 17 % 17 % 16 % 14 %
NOW and savings accounts decay rates 37 % 32 % 17 % 17 %

The tables below measure changes in net portfolio value for instantaneous and parallel shifts in the yield curve in 100 basis point increments up or down. It was also assumed that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this would be the case. Even if interest rates change in the designated increments, there can be no assurance that our assets and liabilities would perform as indicated in the table above. In addition, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the yield curve could cause significantly different changes to the fair values than indicated above. Furthermore, the results of the calculations in the preceding table are subject to significant deviations based upon actual future events, including anticipatory and reactive measures which we may take in the future.

~~Presented below is an analysis of the impact of changes in interest rates on BankAtlantic’s net portfolio value at December 31, 2004 (dollars in thousands):~~

Changesin Rate Net PortfolioValueAmount DollarChange
+200 bp $ 452,314 $ (128,817 )
+100 bp $ 534,255 $ (46,876 )
0 $ 581,131 $ —
-100 bp $ 595,287 $ 14,156
-200 bp $ 593,271 $ 12,140

~~Presented below is an analysis of the impact of changes in interest rates on BankAtlantic’s net portfolio value at December 31, 2003 (dollars in thousands):~~

Changesin Rate Net PortfolioValueAmount DollarChange
+200 bp $ 470,869 $ 17,666
+100 bp $ 482,543 $ 29,340
0 $ 453,203 $ —
-100 bp $ 408,921 $ (44,282 )
-200 bp $ 391,156 $ (62,047 )

Levitt is also subject to interest rate risk on its long-term debt. At December 31, 2004, Levitt had $262.5million in borrowings with adjustable rates tied to the prime rate and/or the London Interbank Offered Rate (“LIBOR”) and $5.8 million in borrowings with fixed rates. At December 31, 2004, included in the $262.5 million is approximately $8.6 million in borrowings due to BankAtlantic and $38.0 million in borrowings due to BankAtlantic Bancorp which are eliminated in the Company’s consolidated financial statements. Consequently, for debt tied to an indexed rate, changes in interest rates may

affect earnings and cash flows, but generally would not impact the fair value of such debt. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt, but not earnings or cash flow. Based upon the amount of variable rate debt outstanding at December 31, 2004 and holding the variable rate debt balance constant, each one percentage point increase in interest rates would increase interest incurred by approximately $2.6 million per year.

~~Interest Rate Sensitivity~~

Changes in interest rates can impact our net interest income as well as the valuation of our assets and liabilities, as the relative spreads between our assets and our liabilities can widen or narrow due to changes in the overall levels of and changes in market interest rates.

BankAtlantic Bancorp’s profitability is dependent to a large extent on net interest income. Net interest income is the difference between interest income on interest-earning assets, such as loans, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in market interest rates, changes in the relationships between short-term and long-term market interest rates, or changes in the relationships between different interest rate indices can affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income. While BankAtlantic Bancorp has attempted to structure its asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates, such strategy may not be successful.

Generally, as interest rates fall, loan prepayments accelerate. Prepayments in a declining interest rate environment reduce net interest income and adversely impact earnings due to accelerated amortization of loan premiums and the reinvestment of proceeds from these loan payoffs at lower rates. Significant loan prepayments in BankAtlantic Bancorp’s purchased residential loan portfolio in the future could have an adverse effect on future earnings.

Also, since BFC seeks to make appropriate and profitable additional investments and acquisitions, interest rates can and will affect the market and price for such investment and acquisitions. Moreover, BFC has in the past and intends to in the future finance in part future acquisitions by the issuance of debt at the parent and subsidiary level and, therefore, interest rates will affect the cost and availability of such credit.

~~Equity Price Risk~~

The portfolio of equity securities and exchange traded mutual funds held by the consolidated entities are subject to equity pricing risks which would arise as the relative values of the equity investments change in conjunction with market or economic conditions. The change in fair values of equity investments represents instantaneous changes in all equity prices. The following are hypothetical changes in the fair value of available for sale securities at December 31, 2004 based on percentage changes in fair value. Actual future price appreciation or depreciation may be different from the changes identified in the table below (dollars in thousands).

PercentChange inFair Value AvailableFor SaleSecuritiesFair Value DollarChange
20% $ 33,054 $ 5,509
10% $ 30,300 $ 2,755
0% $ 27,545 $ —
-10% $ 24,791 $ (2,755 )
-20% $ 22,036 $ (5,509 )

Excluded from the above table is Ryan Beck’s securities assets (which are discussed below), $1.8 million of investments in other financial institutions held by BankAtlantic Bancorp and $5.3 million invested by BankAtlantic Bancorp in a limited partnership for which no current liquid market exists. Also, excluded from the above table is $454,000 in investments in private companies held by BFC and a $10.0 million investment in Benihana held by BFC for which no current market is available. The ability to realize on or liquidate these investments will depend on future market conditions and is subject to significant risk.

~~Ryan Beck Market Risk~~

Ryan Beck’s market risk is the potential change in value of financial instruments caused by fluctuations in interest rates, equity prices, credit spreads or other market forces. The Company, through its broker/dealer subsidiary Ryan Beck, is exposed to market risk arising from trading and market making activities.

Ryan Beck’s management monitors risk in its trading activities by establishing limits and reviewing daily trading results, inventory aging, pricing, concentration and securities ratings. Ryan Beck uses a variety of tools, including aggregate and statistical methods. Value at Risk, (“VaR”) is the principal statistical method and measures the potential loss in the fair value of a portfolio due to adverse movements in underlying risk factors. Ryan Beck began using VaR on January 31, 2003. Substantially all the trading inventory is subject to measurement using VaR.

Ryan Beck uses an historical simulation approach to measuring VaR using a 99% confidence level, a one day holding period and the most recent three months average volatility. The 99% VaR means that, on average, one would not expect to exceed such loss amount more than one time every one hundred trading days if the portfolio were held constant for a one-day period.

Modeling and statistical methods rely on approximations and assumptions that could be significant under certain circumstances. As such, the risk management process also employs other methods such as sensitivity to interest rates and stress testing.

~~The following table sets forth the high, low and average VaR for Ryan Beck for the year ended December 31, 2004.~~

~~(In thousands)~~

High Low Average
VaR 1,747 11 336
Aggregate Long Value 112,494 43,431 72,787
Aggregate Short Value 167,987 23,851 65,006

~~The following table sets forth the high, low and average VaR for Ryan Beck during the period January 31, 2003 to December 31, 2003, and adjusted for discontinued operations.~~

~~(In thousands)~~

High Low Average
VaR 1,285 16 531
Aggregate Long Value 68,995 42,364 66,809
Aggregate Short Value 19,570 60,602 36,495

~~BFC Investment Risk~~

Because BankAtlantic Bancorp and Levitt are consolidated in the Company’s financial statements, an increase or decrease in the market price of their stock would not impact the financial statements. However, a significant change in the market price of either of these securities would likely have an effect on the market price of our common stock. The market price of BFC’s common stock and of BFC’s directly held equity securities are important to the valuation and financing capability of BFC.

BFC ~~both~~Interest Rate Risk

At December 31, 2006, BFC had no amounts outstanding under its $14.0 million line of ~~which~~credit. The interest rate on the line of credit is an adjustable rate tied to LIBOR. Should BFC make advances under the line of credit, it would be subjected to interest rate risk to the extent that there were changes in the LIBOR index.

BankAtlantic Bancorp Consolidated Interest Rate Risk

The amount of interest-earning assets and interest-bearing liabilities expected to reprice or mature in each of the indicated periods was as follows (in thousands):

BankAtlantic Repricing Gap Table
As of December 31, 2006
1 Year 3 Years 5 Years More Than
or Less or Less or Less 5 Years Total
Interest earning assets:

Loans:

Residential loans (1)
Fixed rate $ 144,931 $ 161,943 $ 138,788 $ 218,431 $ 664,093
Hybrid ARMs less than 5 years 148,908 104,424 30,489 — 283,821
Hybrid ARMs more than 5 years 282,048 331,526 323,296 277,881 1,214,751
Commercial loans 1,409,577 92,388 80,767 19,232 1,601,964
Small business loans 184,842 74,731 23,412 10,059 293,044
Consumer 554,754 5,459 4,459 17,177 581,849

Total loans
2,725,060 770,471 601,211 542,780 4,639,522

Investment securities

Tax exempt securities 3 9,914 30,113 357,439 397,469
Taxable investment securities 256,085 64,715 72,123 53,544 446,467
Tax certificates 195,391 — — — 195,391

Total investment securities
451,479 74,629 102,236 410,983 1,039,327

Total interest earning assets
$ 3,176,539 $ 845,100 $ 703,447 $ 953,763 $ 5,678,849

Total interest bearing liabilities $ 3,422,526 $ 356,883 $ 267,788 $ 1,573,975 $ 5,621,172

GAP (repricing difference)
$ (245,987 ) $ 488,217 $ 435,659 $ (620,212 )
Cumulative GAP
$ (245,987 ) $ 242,230 $ 677,889 $ 57,677
Repricing Percentage
-3.98 % 7.89 % 7.04 % -10.02 %

Cumulative Percentage
-3.98 % 3.92 % 10.96 % 0.93 %

Total assets
$ 6,187,122


(1)		Hybrid adjustable rate mortgages (ARM) earn fixed rates for designated periods and adjust annually thereafter based on the one year U.S. Treasury note rate.

The majority of BankAtlantic’s assets and liabilities are ~~important variables concerning whether BFC can continue~~monetary in nature, subjecting us to ~~successfully implement its strategy of investing in~~significant interest rate risk because our assets and ~~acquiring operating businesses in diverse industries.~~
liabilities reprice at different times, market interest rates change differently among each rate

67119

indices and certain interest earning assets, primarily residential loans, may be prepaid before maturity as interest rates change.

A model was developed using standard industry software to measure BankAtlantic’s interest rate risk. The model performs a sensitivity analysis that measures the effect of net interest income of changes in interest rates. The model measures the impact that parallel interest rate shifts of 100 and 200 basis points would have on our net interest income over a 12 month period.

The model calculates the change in net interest income by:

i.		Calculating interest income and interest expense from existing assets and liabilities using current repricing, prepayment and volume assumptions,

ii.		Estimating the change in expected net interest income based on instantaneous and parallel shifts in the yield curve to determine the effect on net interest income; and

iii.		Calculating the percentage change in net interest income calculated in (i) and (ii).

Management of BankAtlantic has made estimates of cash flow, prepayment, repricing and volume assumptions that it believes to be reasonable. Actual results will differ from the simulated results due to changes in interest rates that differ from the assumptions in the simulation model.

In assessing the interest rate risk certain assumptions were utilized in preparing the following table. These assumptions related to:


		•		Interest rates,
		•		Loan prepayment rates,
		•		Deposit decay rates,
		•		Re-pricing of certain borrowings
		•		Reinvestment in earning assets.

The prepayment assumptions used in the model are:


•	Fixed rate mortgages	20 %
•	Fixed rate securities	14 %
•	Tax certificates	10 %
•	Adjustable rate mortgages	15 %
•	Adjustable rate securities	17 %

Deposit runoff assumptions used in the model are as follows:

Within 1-3 3-5 Over 5
1 Year Years Years Years
Money fund savings accounts decay rates 17 % 17 % 16 % 14 %
NOW and savings accounts decay rates 37 % 32 % 17 % 17 %

Presented below is an analysis of BankAtlantic’s estimated net interest income over a twelve month period calculated utilizing its model (dollars are in thousands):

As of December 31, 2006
Net
Changes Interest Percent
in Rate Income Change
+200 bp $ 241,341 (5.94 )%
+100 bp $ 252,047 (1.74 )%
0 $ 256,482 —
-100 bp $ 256,485 0.00 %
-200 bp $ 252,346 (1.62 )%

120

As of December 31, 2005
Net
Changes Interest Percent
in Rate Income Change
+200 bp $ 258,020 1.47 %
+100 bp $ 259,549 2.15 %
0 $ 254,715 —
-100 bp $ 247,130 (3.37 )%
-200 bp $ 232,813 (9.72 )%

BankAtlantic Bancorp has $263.3 of outstanding junior subordinated debentures of which $128.9 million bear interest at variable rates and adjusts quarterly, $57.1 million bears interest at an 8.5% fixed rate and $77.3 million bear interest at a weighted average rate of 6.46% and will adjust quarterly in periods after April 2008. The junior subordinated debentures are callable during 2007 and 2008.

Consolidated Equity Price Risk

BFC and BankAtlantic Bancorp maintain a portfolio of equity securities that subjects us to equity pricing risks which would arise as the values of equity investments change in conjunction with market or economic conditions. The change in fair values of equity investments represents instantaneous changes in all equity prices. The following are hypothetical changes in the fair value of available for sale equity securities at December 31, 2006 based on percentage changes in fair value. Actual future price appreciation or depreciation may be different from the changes identified in the table below (dollars in thousands):

Available
Percent for Sale
Change in Securities Dollar
Fair Value Fair Value Change
20% $ 113,720 $ 18,953
10% $ 104,244 $ 9,477
0% $ 94,767 $ —
-10% $ 85,290 $ (9,477 )
-20% $ 75,814 $ (18,953 )

Excluded from the above table is $1.5 million of investments in private companies held by BankAtlantic Bancorp and a $5.0 million investment by BankAtlantic Bancorp in a limited partnership for which no current market exists. The limited partnership invests in companies in the financial services industry. Also excluded from the above table is $526,000 of investments held by BFC in private companies and BFC’s $20.0 million investment in Benihana Series B Convertible Preferred Stock for which no current market is available. If the Company were to convert its investment in Benihana, it would represent 1,052,632 shares of Benihana Class A Common Stock. At December 31, 2006, the aggregate market value of such shares would have been $33.3 million. The ability to realize or liquidate these investments will depend on future market conditions and is subject to significant risk.

In connection with the sale of Ryan Beck to Stifel, BankAtlantic Bancorp is subject to equity pricing risks associated with the Stifel equity securities received in the transaction. The value of these securities will vary based on general equity market conditions, the brokerage industry volatility, the results of operations and financial condition of Stifel and the general liquidity of Stifel common stock. The trading market for Stifel shares may not be liquid enough to permit BankAtlantic Bancorp to sell its Stifel’s common stock without significantly reducing the market price of these shares, if able to sell them at all (See Financial Services Segment “Item 1A. Risk Factors” “Our portfolio of equity securities subjects us to equity pricing risks”).

Levitt

Levitt is also subject to interest rate risk on its long-term debt. At December 31, 2006, Levitt had $510.4 million in borrowings with adjustable rates tied to the Prime Rate and/or LIBOR rates and $105.3 million in borrowings with fixed or initially-fixed rates. Consequently, for debt tied to an indexed rate, changes in interest rates may affect earnings and cash

121

flows, but generally would not impact the fair value of such debt. With respect to fixed rate debt, changes in interest rates generally affect the fair market value of the debt but not earnings or cash flow.

122

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68123

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~F-1~~124

[This Page Intentionally Left Blank]

~~F-2~~125

BFC FINANCIAL CORPORATION ~~AND SUBSIDIARIES~~

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP
Report of Independent Registered Public Accounting Firm of Ernst & Young LLP On the Consolidated Financial Statements of Bluegreen Corporation for the year ended December 31, 2006
Financial Statements:
Consolidated Statements of Financial Condition as of December 31, 2006 and 2005
Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2006
Consolidated Statements of Comprehensive (Loss) Income for each of the years in the three year period ended December 31, 2006
Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2006
Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2006
Notes to Consolidated Financial Statements
126

Report of Independent Registered Certified Public Accounting Firm ~~of PricewaterhouseCoopers LLP~~
~~Report of Independent Registered Public Accounting Firm of KPMG LLP~~
~~Financial Statements:~~
~~Consolidated Statements of Financial Condition as of December 31, 2004 and 2003~~
~~Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2004~~
~~Consolidated Statements of Comprehensive Income for each of the years in the three year period ended December 31, 2004~~
~~Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2004~~
~~Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2004~~
~~Notes to Consolidated Financial Statements~~
~~F-3~~

~~Report of Independent Registered Certified Public Accounting Firm~~

To the Board of Directors and Shareholders of BFC Financial Corporation:

We have completed an integrated ~~audit~~audits of BFC Financial Corporation’s ~~2004~~ consolidated financial statements and of its internal control over financial reporting as of December 31, ~~2004 and an audit of its 2003 consolidated financial statements~~2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits and the report of other auditors, are presented below.

Consolidated financial statements

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BFC Financial Corporation and its subsidiaries at December 31, ~~2004~~2006 and ~~2003,~~2005, and the results of their operations and their cash flows for each of the ~~two~~three years in the period ended December 31, ~~2004~~2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Bluegreen Corporation, an approximate 31 percent-owned equity investment, ~~of the Company accounted for under the equity method (Note 9 to the consolidated financial statements). Those statements~~which were audited by other auditors whose report thereon has been furnished to ~~us, and our~~us. Our opinion expressed herein, insofar as it relates to the ~~amounts included~~Company’s net investment in (approximately $ 107.1 million and $ 95.8 million at December 31, 2006 and 2005, respectively) and equity in the net earnings of (approximately $ 9.7 million, $ 12.7 million, and $ 13.1 million for the years ended December 31, 2006, 2005 and 2004, respectively) Bluegreen Corporation, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. ~~The~~

As discussed in Note 21 to the consolidated financial statements, of the Company changed the manner in which it accounts for the year ended December 31, 2002, were audited by other independent accountants whose report dated February 3, 2003, except as to the first paragraph of note 1 and note 24, which is as of February 11, 2005, expressed an unqualified opinion on those statements.
stock-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, based on our audit and the report of other auditors, management’s assessment, included in Management’s Report on Internal Control ~~over~~Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, ~~2004~~2006 based on criteria established inInternal Control –— Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, based on our audit and the report of other auditors, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2004,~~2006, based on criteria established inInternal Control –— Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the

127

effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We did not examine the effectiveness of internal control over financial reporting of Bluegreen Corporation as of December 31, 2006. The effectiveness of Bluegreen Corporation’s internal control over financial reporting as of December 31, 2006 was audited by other auditors whose report has been furnished to us, and our opinions expressed herein, insofar as they relate to the effectiveness of Bluegreen Corporation’s internal control over financial reporting, are based solely on the report of the other auditors. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit ~~provides~~and the report of the other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management’s assessment and our audit of BFC Financial Corporation’s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for ~~Bank Holding Companies (Form FRY-9C)~~Savings and Loan holding companies (OTS Form H-(b) 11) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
~~F-4~~

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March ~~16, 2005~~
14, 2007

~~F-5~~128

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
~~BFC Financial Corporation:~~
Bluegreen Corporation

We have audited the accompanying consolidated balance sheets of Bluegreen Corporation (the Company) as of December 31, 2005 and 2006, and the related consolidated statements of ~~operations,~~income, shareholders’ equity and ~~comprehensive income and~~ cash flows for each of ~~BFC Financial Corporation and subsidiaries for~~three years in the ~~year~~period ended December 31, ~~2002.~~2006. These ~~consolidated~~ financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these ~~consolidated~~ financial statements based on our audit.

We conducted our ~~audit~~audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ~~consolidated~~ financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ~~consolidated~~ financial ~~statements. An audit also includes~~statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall ~~consolidated~~ financial statement presentation. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

In our opinion, the ~~consolidated~~ financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bluegreen Corporation at December 31, 2005 and 2006, and the consolidated results of its operations and its cash flows for each of ~~BFC Financial Corporation and subsidiaries for~~ the ~~year~~three years in the period ended December 31, ~~2002,~~2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company ~~changed its~~adopted SFAS No. 123(R),Share-Based Payment, applying the modified prospective method at the beginning of ~~accounting~~2006. As discussed in Note 2, in 2006 the Company has also adopted SFAS No. 152,Accounting for ~~goodwill and intangible assets~~Real Estate Time-Sharing Transactions.

We also have audited, in ~~2002.~~
~~KPMG LLP~~
~~Fort Lauderdale, Florida~~
~~February 3, 2003, except as to note 25, which is~~accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Bluegreen Corporation’s internal control over financial reporting as of ~~February 11, 2005~~
December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2007 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP
Certified Public Accountants

March 14, 2007
Miami, Florida

~~F-6~~129

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Financial Condition
(In thousands, except share data)


	December 31,				December 31,
	2004		2003		2006		2005
ASSETS
Cash and due from depository institutions	$	208,627	$	143,542	$	195,401	$	296,842
Federal funds sold and securities purchased under resell agreements		16,093		—
Securities owned (at fair value)		125,443		124,565
Federal funds sold and other short-term investments						5,722		3,229
Securities available for sale (at fair value)		749,001		360,442		653,659		676,660
Investment securities and tax certificates (approximate fair value: $317,416 and $192,706)		317,891		192,706
Investment securities (approximate fair value: $229,546 and $220,920)						227,208		221,242
Tax certificates net of allowance of $3,699 and $3,271						195,391		163,726
Federal Home Loan Bank stock, at cost which approximates fair value		78,619		40,325		80,217		69,931
Loans receivable, net of allowance for loan losses of $47,082 and $46,667		4,561,073		3,611,612
Discontinued operations assets held for sale						190,763		240,109
Loans receivable, net of allowance for loan losses of $44,173 and $41,830						4,594,192		4,626,206
Residential loans held for sale						9,313		2,538
Accrued interest receivable		35,995		27,912		47,676		41,496
Real estate held for development and sale						847,492		632,597
Real estate owned						21,747		967
Investments in unconsolidated affiliates						124,521		110,124
Properties and equipment, net		160,997		98,340		298,513		190,860
Real estate held for development and sale		444,631		280,708
Investments in and advances to unconsolidated subsidiaries		89,090		106,048
Goodwill		77,981		76,674		70,490		71,797
Core deposit intangible asset		10,270		11,985		6,834		8,395
Due from clearing agent		16,619		—
Other assets		62,517		61,376		36,627		39,036

Total assets	$	6,954,847	$	5,136,235	$	7,605,766	$	7,395,755


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Deposits
Interest bearing deposits	$	2,566,804	$	2,413,106	$	2,871,116	$	2,732,727
Non-interest bearing deposits		890,398		645,036		995,920		1,019,949

Total deposits		3,457,202		3,058,142		3,867,036		3,752,676
Customer deposits on real estate held for sale		43,022		52,134		42,696		51,686
Advances from FHLB		1,544,497		782,205		1,517,058		1,283,532
Securities sold under agreements to repurchase		257,002		120,874		96,385		109,788
Federal funds purchased		105,000		—
Federal funds purchased and other short term borrowings						32,026		139,475
Secured borrowings						—		138,270
Subordinated debentures, notes and bonds payable		278,605		164,100		560,624		392,784
Junior subordinated debentures		263,266		263,266		348,318		317,390
Securities sold not yet purchased		39,462		37,813
Due to clearing agent		—		8,583
Deferred tax liabilities, net		8,455		2,895		10,646		22,421
Discontinued operations liabilities held for sale						95,246		133,763
Other liabilities		220,433		140,614		159,823		174,368

Total liabilities		6,216,944		4,630,626		6,729,858		6,516,153


Minority interest		612,652		419,934
Noncontrolling interest						698,323		696,522


Commitments and contingencies

Shareholders’ equity:
Preferred stock of $.01 par value; authorized 10,000,000 shares; 5% Cumulative Convertible Preferred Stock (“5% Preferred Stock”) issued and outstanding 15,000 shares in 2004 and none in 2003		—		—
Class A common stock of $.01 par value, authorized 70,000,000 shares; issued and outstanding 23,861,542 in 2004 and 17,989,194 in 2003		217		163
Class B common stock of $.01 par value, authorized 20,000,000 shares; issued and outstanding 4,279,656 in 2004 and 2,534,426 in 2003		41		23
Preferred stock of $.01 par value; authorized 10,000,000 shares; 5% Cumulative Convertible Preferred Stock (“5% Preferred Stock”) issued and outstanding 15,000 shares in 2006 and 2005						—		—
Class A common stock of $.01 par value, authorized 70,000,000 shares; issued and outstanding 28,755,882 in 2006 and 29,949,612 in 2005						266		278
Class B common stock of $.01 par value, authorized 20,000,000 shares; issued and outstanding 7,090,652 in 2006 and 4,285,413 in 2005						69		41
Additional paid-in capital		50,962		24,654		93,910		97,223
Unearned compensation — restricted stock grants						—		(100	)
Retained earnings		73,089		59,305		81,889		85,113

Total shareholders’ equity before accumulated other comprehensive income		124,309		84,145		176,134		182,555
Accumulated other comprehensive income		942		1,530		1,451		525

Total shareholders’ equity		125,251		85,675		177,585		183,080


Total liabilities and shareholders’ equity	$	6,954,847	$	5,136,235	$	7,605,766	$	7,395,755

See accompanying notes to consolidated financial statements.

~~F-7~~130

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Operations
(In thousands, except per share data)


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Revenues
Financial Services:
BFC Activities:
Interest and dividend income	$	258,181			260,621		$	303,087		$	2,249		$	1,591		$	659
Investment banking		227,669			207,788			130,738
Other income, net		115,728			73,501			58,519
Other income											1,433			1,538			5,024

		601,578			541,910			492,344			3,682			3,129			5,683

Homebuilding and Real Estate Development:

Financial Services:
Interest and dividend income											367,177			345,002			246,830
Service charges on deposits											90,472			61,956			51,435
Other service charges and fees											27,542			23,347			23,620
Other income											22,555			15,232			36,818

											507,746			445,537			358,703


Homebuilding & Real Estate Development:
Sales of real estate		549,652			283,058			207,808			566,086			558,112			549,652
Interest and dividend income		1,108			863			1,259			2,474			2,240			1,108
Other income		8,078			4,765			3,014			14,592			14,472			8,078

		558,838			288,686			212,081			583,152			574,824			558,838

Other Operations:
Interest and dividend income		659			390			354
Other income, net		5,526			1,318			982

		6,185			1,708			1,336

Total revenues											1,094,580			1,023,490			923,224
		1,166,601			832,304			705,761

Costs and Expenses
Financial Services:
Interest expense, net of interest capitalized		87,471			111,989			150,336
(Recovery) provision for loan losses		(5,109	)		(547	)		14,077
Employee compensation and benefits		255,064			226,940			166,979
Occupancy and equipment		48,146			40,036			39,196
Advertising and promotion		21,036			12,724			10,447
Amortization of intangible assets		1,715			1,772			1,360
Impairment of securities		—			—			18,801
Cost associated with debt redemption		11,741			12,543			3,125
Acquisition related charges and impairments		—			—			4,925
Other expenses		74,351			74,857			57,935

		494,415			480,314			467,181

Homebuilding and Real Estate Development:
Cost of sales of real estate		403,900			209,431			159,675
Interest expense, net of interest capitalized		259			233			389
Employee compensation and benefits		35,321			19,845			13,983
Selling, general and administrative expenses		34,797			21,968			16,083
Other expenses		7,341			1,692			1,532

		481,618			253,169			191,662

Other Operations:
BFC Activities:
Interest expense		1,171			1,163			1,153			30			346			393
Employee compensation and benefits		3,865			2,553			2,332			9,407			6,245			3,865
Impairment of securities		363			3,071			1,583			—			—			363
Other expenses		2,551			1,022			876			2,933			3,074			2,831

		7,950			7,809			5,944			12,370			9,665			7,452

		983,983			741,292			664,787
Financial Services:
Interest expense, net of interest capitalized											166,578			141,561			86,547
Provision (recovery) of loan losses											8,574			(6,615	)		(5,109	)
Employee compensation and benefits											150,804			117,573			96,196
Occupancy and equipment											57,308			41,621			32,717
Advertising and promotion											35,067			27,317			16,301
Impairment of office properties and equipment											—			3,706			—
Amortization of intangible assets											1,561			1,627			1,715
Cost associated with debt redemption											1,457			—			11,741
Fines and penalties, compliance matters											—			10,000			—
Other expenses											52,962			45,126			40,323

Income before income taxes and equity in earnings from unconsolidated subsidiaries		182,618			91,012			40,974
Equity in earnings from unconsolidated subsidiaries		19,603			10,126			9,327
											474,311			381,916			280,431
Income before income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of a change in accounting principle		202,221			101,138			50,301
Provision for income taxes		83,997			44,166			17,993
Minority interest in income of consolidated subsidiaries		103,994			51,093			38,294

Income from continuing operations		14,230			5,879			(5,986	)
Discontinued operations, less income tax (benefit) provision of $(517) in 2003 and $303 in 2002		—			1,143			2,536
Extraordinary items, less income taxes of $2,771		—			—			23,749
Cumulative effect of a change in accounting principle, less income tax (benefit) provision of $(1,246) in 2002		—			—			(15,107	)

Net income		14,230			7,022			5,192
Homebuilding & Real Estate Development:
Cost of sales of real estate											482,961			407,190			403,900
Interest expense, net of interest capitalized											—			—			259
Selling, general and administrative expenses											120,017			86,715			70,118
Other expenses											3,677			4,855			7,341

											606,655			498,760			481,618

Total costs and expenses											1,093,336			890,341			769,501

Equity in earnings from unconsolidated affiliates											10,935			13,404			19,603

Income from continuing operations before income taxes and noncontrolling interest											12,179			146,553			173,326
Provision (benefit) for income taxes											(528	)		59,566			70,920
Noncontrolling interest											13,404			79,267			90,388

(Loss) income from continuing operations											(697	)		7,720			12,018
Discontinued operations, less noncontrolling interest and income tax provision (benefit) of $(8,958) in 2006, 13,205 in 2005 and $13,078 in 2004											(1,524	)		5,054			2,212

Net (loss) income											(2,221	)		12,774			14,230
5% Preferred Stock dividends		392			—			—			750			750			392

Net income available to common shareholders	$	13,838			7,022			5,192
Net (loss) income allocable to common stock										$	(2,971	)	$	12,024		$	13,838

~~(Continued)~~

See accompanying notes to consolidated financial statements.

~~F-8~~131

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Operations
(In thousands, except per share data)

For the Years Ended December 31,
2004 2003 2002
Earnings per share:

Basic earnings (loss) per share before discontinued operations, extraordinary items and cumulative effect of a change in accounting principle $ 0.57 $ 0.26 $ (0.27 )
Basic earnings per share from discontinued operations — 0.05 0.11
Basic earnings per share from extraordinary items — — 1.06
Basic loss per share from cumulative effect of a change in accounting principle — — (0.67 )

Basic earnings per share 0.57 0.31 0.23

Diluted earnings (loss) per share before discontinued operations, extraordinary items and cumulative effect of a change in accounting principle $ 0.47 $ 0.21 $ (0.28 )
Diluted earnings per share from discontinued operations — 0.04 0.11
Diluted earnings per share from extraordinary items — — 1.04
Diluted loss per share from cumulative effect of a change in accounting principle — — (0.66 )

Diluted earnings per share 0.47 0.25 0.21

Basic weighted average number of common shares outstanding 24,183 22,818 22,454

Diluted weighted average number of common and common equivalent shares outstanding 27,806 26,031 22,454

For the Years Ended December 31,
2006 2005 2004
(Loss) earnings per common share:

Basic (loss) earnings per share from continuing operations $ (0.04 ) $ 0.24 $ 0.48
Basic (loss) earnings per share from discontinued operations (0.05 ) 0.18 0.09

Basic (loss) earnings per share (0.09 ) 0.42 0.57

Diluted (loss) earnings per share from continuing operations $ (0.05 ) $ 0.22 $ 0.40
Diluted (loss) earnings per share from discontinued operations (0.05 ) 0.15 0.07

Diluted (loss) earnings per share (0.10 ) 0.37 0.47

Basic weighted average number of common shares outstanding 33,249 28,952 24,183

Diluted weighted average number of common and common equivalent shares outstanding 33,249 31,219 27,806

See accompanying notes to consolidated financial statements.

~~F-9~~132

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)

For the Years Ended December 31,
2004 2003 2002
Net income $ 14,230 $ 7,022 $ 5,192

Other comprehensive income (loss), net of tax:
Unrealized gains (loss) on securities available for sale, net of income tax provision (benefit) $281 in 2004, $ in $(620) in 2003 and $153 in 2002 448 (988 ) 244
Minimum pension liability net of income tax provision (benefit) $(416) in 2004, $639 in 2003 and $(650) in 2002 (662 ) 1,018 (1,035 )
Unrealized gain (loss) associated with investment in unconsolidated real estate subsidiary, net of income tax provision (benefit) $(17) in 2004, $79 in 2003 and $(39) in 2002 (42 ) 121 (62 )
Accumulated gains associated with cash flow hedges, net of income tax $198 in 2003 and $(80) in 2002 — 315 (127 )
Reclassification adjustment for cash flow hedges — 70 (74 )
Reclassification adjustment for net gain included in net income (332 ) 126 (770 )

(588 ) 662 (1,824 )

Comprehensive income $ 13,642 $ 7,684 $ 3,368

For the Years Ended December 31,
2006 2005 2004
Net (loss) income $ (2,221 ) $ 12,774 14,230

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale, 1,518 (365 ) 448
Unfunded pension liability 212 — —
Minimum pension liability — (132 ) (662 )
Unrealized gains (losses) associated with investment in unconsolidated affiliates 79 152 (42 )
Reclassification adjustments:
Realized net periodic pension costs (26 ) — —
Realized gains on securities available for sale (857 ) (72 ) (332 )

926 (417 ) (588 )

Comprehensive (loss) income $ (1,295 ) $ 12,357 13,642

The components of other comprehensive (loss) income ~~(loss)~~ relate to the Company’s net unrealized gains (losses) on securities available for sale ~~net of income taxes~~ and the Company’s proportionate shares of non-wholly ~~owned subsidiaries other comprehensive income, net of income taxes, such as~~affiliates net unrealized gains (losses) on securities available for sale, ~~minimum~~net of income tax (benefit) provision of $ 953 in 2006, $(229) in 2005 and $281 in 2004; the Company’s proportionate shares of non-wholly owned affiliates unfunded pension liability, net of income tax provision of $133 in 2006 and mimimum pension liability, net of income tax benefit of $(83) in 2005 and $(416) in 2004; unrealized gains or ~~loss~~(losses) associated with ~~investment~~investments in unconsolidated real estate ~~subsidiary,~~affiliates, net of income tax (benefit) provision of $50 in 2006, $95 in 2005 and ~~accumulated gains (losses) associated with cash flow hedges.~~
$(17) in 2004 and the Company’s proportionate share of non-wholly owned affiliates reclassification adjustments from realized net periodic pension costs, net of income tax benefit of $(16) in 2006 and reclassification adjustments from realized losses on securities available for sale, net of income tax benefit of $(538) in 2006, $(45) in 2005 and $(202) in 2004.

~~See accompanying notes to consolidated financial statements.~~

~~F-10~~133

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Shareholders’ Equity
For each of the years in the three year period ended December 31, ~~2004~~2006
(In thousands)


												Accumulated															Unearned						Accumulated
												Other															Compen-						Other
												Compre-															sation						Compre-
	Class A		Class B			Additional						hensive						Class A			Class B			Additional			Restricted						hensive
	Common		Common			Paid-in			Retained			Income						Common			Common			Paid-in			Stock			Retained			Income
	Stock		Stock			Capital			Earnings			(Loss)			Total			Stock			Stock			Capital			Grants			Earnings			(Loss)			Total
Balance, December 31, 2001	$	58	$	21		$	24,206		$	47,195		$	2,692		$	74,172
Net income		—		—			—			5,192			—			5,192
Other comprehensive loss, net of tax		—		—			—			—			(1,824	)		(1,824	)
Net effect of Bancorp capital transactions, net of income taxes		—		—			(15	)		—			—			(15	)
Retirement of Class B common stock		—		(1	)		(318	)		—			—			(319	)
Issuance of Class B common stock		—		1			144			—			—			145
Tax effect relating to the exercise of stock options		—		—			60			—			—			60

Balance, December 31, 2002	$	58	$	21		$	24,077		$	52,387		$	868		$	77,411
Net income		—		—			—			7,022			—			7,022
Other comprehensive income		—		—			—			—			662			662
Net effect of subsidiaries capital transactions, net of income taxes		—		—			(252	)		—			—			(252	)
Common stock splits		104		—			—			(104	)		—			—
Issuance of common stock		1		2			279			—			—			282
Tax effect relating to the exercise of stock options		—		—			550			—			—			550

Balance, December 31, 2003	$	163	$	23		$	24,654		$	59,305		$	1,530		$	85,675		$	163		$	23		$	24,654		$	—		$	59,305		$	1,530		$	85,675
Net income		—		—			—			14,230			—			14,230			—			—			—						14,230			—			14,230
Other comprehensive loss, net of tax		—		—			—			—			(588	)		(588	)
Net effect of subsidiaries’ capital transactions, net of income taxes		—		—			5,812			—			—			5,812
Other comprehensive loss, net of taxes																			—			—			—			—			—			(588	)		(588	)
Net effect of subsidiaries’ capital transactions, net of taxes																			—			—			5,812			—			—			—			5,812
Retirement of Common Stock		—		(6	)		(7,276	)		—			—			(7,282	)		—			(6	)		(7,276	)		—			—			—			(7,282	)
Issuance of Common Stock		—		24			1,767			—			—			1,791			—			24			1,767			—			—			—			1,791
Issuance of 5% Preferred Stock		—		—			14,988			—			—			14,988			—			—			14,988			—			—			—			14,988
Cash dividends on 5% Preferred Stock		—		—			—			(392	)		—			(392	)		—			—			—			—			(392	)		—			(392	)
Common stock split		54		—			—			(54	)		—			—			54			—			—			—			(54	)		—			—
Tax effect relating to the exercise of stock options		—		—			11,017			—			—			11,017			—			—			11,017			—			—			—			11,017

Balance, December 31, 2004	$	217	$	41		$	50,962		$	73,089		$	942		$	125,251		$	217		$	41		$	50,962		$	—		$	73,089		$	942		$	125,251
Net income																			—			—			—			—			12,774			—			12,774
Other comprehensive loss, net of taxes																			—			—			—			—			—			(417	)		(417	)
Issuance of Class A Common Stock, net of stock issuance costs																			61			—			46,547			—			—			—			46,608
Issuance of Class A restricted stock																			—			—			200			(200	)		—			—			—
Net effect of subsidiaries’ capital transactions, net of taxes																			—			—			(474	)		—			—			—			(474	)
Cash dividends on 5% Preferred Stock																			—			—			—			—			(750	)		—			(750	)
Amortization of unearned compensation on restricted stock grants																			—			—			—			100			—			—			100
Tax effect relating to share-based compensation																			—			—			(12	)		—			—			—			(12	)

Balance, December 31, 2005																		$	278		$	41		$	97,223		$	(100	)	$	85,113		$	525		$	183,080

Cumulative effect adjustment upon adoption of Staff Accounting Bulletin No. 108 (“SAB No. 108”)																			—			—			—			—			(253	)		—			(253	)
Net loss																			—			—			—			—			(2,221	)		—			(2,221	)
Other comprehensive income, net of taxes																			—			—			—			—			—			926			926
Issuance of Common Stock, upon exercise of stock options																			1			39			9,076			—			—			—			9,116
Retirement of Common Stock relating to exercise of stock options																			(13	)		(11	)		(13,246	)		—			—			—			(13,270	)
Net effect of subsidiaries’ capital transactions, net of taxes																			—			—			(16	)		—			—			—			(16	)
Cash dividends on 5% Preferred Stock																			—			—			—			—			(750	)		—			(750	)
Share-based compensation related to stock options and restricted stock																			—			—			973			—			—			—			973
Reversal of unamortized stock compensation related to restricted stock upon adoption of FAS 123 ( R)																			—			—			(100	)		100			—			—			—

Balance, December 31, 2006																		$	266		$	69		$	93,910		$	—		$	81,889		$	1,451		$	177,585

See accompanying notes to consolidated financial statements.

~~F-11~~134

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Cash Flows
(In thousands)

For the Years Ended December 31,
2004 2003 2002
Operating activities:

Income from continuing operations $ 14,230 $ 5,879 $ (5,986 )
Income from discontinued operations, net of tax — 1,143 2,536
Income from extraordinary item, net of tax — — 23,749
Cumulative effect of a change in accounting principle, net of tax — — (15,107 )
Adjustment to reconcile net income to net cash provided by operating activities:

Minority interest in income of consolidated subsidiaries 103,994 51,093 38,294
Provision for loan losses, real estate owned and tax certificates (5,105 ) 1,465 17,019
Depreciation, amortization and accretion, net 17,577 19,167 11,128
Amortization of intangible assets 1,715 1,772 1,360
Securities activities, net (7,198 ) 1,110 (8,578 )
Gains on sale of REO (694 ) (1,984 ) (117 )
Gain on Gruntal transaction — — (26,520 )
Equity in earnings from unconsolidated subsidiaries (19,603 ) (10,126 ) (9,327 )
Restructuring charges and impairment write-downs, net — 257 4,852
Impairment of goodwill — — 16,353
Impairment of securities 362 3,071 20,384
Litigation settlements (23,987 ) — —
Cost associated with debt redemption 11,741 12,543 3,125
Issuance of forgivable notes receivable to Ryan Beck employees (8,079 ) (6,260 ) (10,463 )
Originations and repayment of loans held for sale, net (162,410 ) (32,305 ) (24,091 )
Proceeds from sales of loans held for sale 170,709 44,617 41,602
(Decrease) increase in securities owned activities, net (878 ) (43,194 ) 33,751
Increase in real estate inventory (142,511 ) (52,642 ) (57,131 )
(Increase) decrease in accrued interest receivable (8,093 ) 6,124 2,557
Decrease (increase) in deferred tax liabilities, net 17,894 13,073 (1,954 )
(Increase) decrease in other assets (2,085 ) (7,651 ) (849 )
Increase (decrease) in other liabilities 47,525 78,397 (25,399 )
(Decrease) increase in due to clearing agent (25,202 ) 10,353 (32,876 )
Increase (decrease) in securities sold but not yet purchased 1,649 3,591 (1,629 )

Net cash (used in) provided by operating activities
$ (18,449 ) $ 99,493 $ (3,317 )

Investing activities:

Purchase of investment securities and tax certificates (319,256 ) (205,209 ) (238,700 )
Proceeds from redemption and maturity of investment securities and tax certificates 220,414 205,677 239,176
Purchase of securities available for sale (677,050 ) (279,127 ) (356,795 )
Proceeds from sales and maturities of securities available for sale 308,529 631,350 772,339
Net purchases and (originations) repayments of loans and leases (928,493 ) (235,735 ) (23,776 )
Proceeds from sales of real estate owned 3,821 10,807 6,015
Purchase of properties and net additions to office properties and equipment (75,759 ) (16,104 ) (23,676 )
Proceeds from sales of properties and equipment — — 1,986
Proceeds from sales of bank facilities real estate held for sale 852 — 6,012
(Investments) and repayments from unconsolidated subsidiaries, net 10,442 1,044 (49,902 )
(Purchases) redemptions of FHLB stock, net (38,294 ) 24,618 (452 )
Net cash proceeds from the sale of Ryan Beck’s subsidiaries — 9,955 —
Acquisitions, net of cash acquired (6,109 ) — (52,783 )

Net cash (used in) provided by investing activities
$ (1,500,903 ) $ 147,276 $ 279,444

For the Years Ended December 31,
2006 2005 2004
Operating activities:

Net (loss) income from continuing operations $ (697 ) $ 7,720 $ 12,018
(Loss) Income from discontinued operations (1,524 ) 5,054 2,212
Adjustment to reconcile net income to net cash provided by operating activities:

Noncontrolling interest 4,393 91,144 103,994
Provision (recovery) and valuation allowances, net 8,883 (6,265 ) (5,105 )
Cumulative effect adjustment before noncontrolling interest (1,899 ) — —
Depreciation, amortization and accretion, net 26,430 18,508 17,577
Amortization of deferred revenue 3,854 2,368 1,425
Amortization of intangible assets 1,561 1,627 1,715
Share-based compensation expense related to stock options and restricted stock 9,291 — —
Tax benefits from share-based compensation (3,719 ) — —
Securities activities, net (9,795 ) (847 ) (7,198 )
Impairment of securities — — 362
Net gain on transfer of net assets for settlement of note — (3,439 ) —
Net gains on sale of real estate owned (1,443 ) (1,840 ) (694 )
Net gains on sales of loans held for sale (680 ) (742 ) (483 )
Net (gains) losses on sales of property and equipment (2,711 ) (277 ) 17
Gain on sale of branch — (922 ) —
Equity in earnings from unconsolidated affiliates (9,267 ) (12,783 ) (19,118 )
(Decrease) increase in deferred tax liability, net (20,628 ) 3,511 17,894
Litigation settlement — — (23,987 )
Net (gains) losses associated with debt redemption (71 ) — 11,741
Impairment of office properties and equipment — 3,706 —
Impairment of long lived assets 38,083 — —
Reserve for fines and penalties, compliance matters — 10,000 —
Increase of forgivable notes receivable, net (6,111 ) (6,999 ) (8,079 )
Originations and repayments of loans held for sale, net (93,887 ) (125,487 ) (163,988 )
Proceeds from sales of loans held for sale 87,793 128,337 171,192
Increase in real estate held for development and sale (259,629 ) (191,610 ) (142,511 )
Decrease (increase) in securities owned, net 67,910 (54,849 ) (878 )
(Decrease) increase in securities sold but not yet purchased (3,770 ) (4,285 ) 1,649
Increase in accrued interest receivable (6,183 ) (5,501 ) (8,093 )
(Increase) decrease in other assets 3,024 2,556 (507 )
(Decrease) increase in due to clearing agent (40,115 ) 41,105 (25,202 )
(Decrease) increase in other liabilities (30,048 ) 21,344 46,100

Net cash used in operating activities
(240,955 ) (78,866 ) (17,947 )

Investing activities:

Proceeds from redemption and maturities of investment securities and tax certificates 199,482 210,493 212,983
Purchase of investment securities and tax certificates (236,962 ) (278,509 ) (311,825 )
Purchase of securities available for sale (143,272 ) (227,179 ) (677,050 )
Proceeds from sales and maturities of securities available for sale 181,444 300,469 308,529
Purchases of FHLB stock (49,950 ) (29,870 ) (49,923 )
Redemption of FHLB stock 39,664 38,558 11,629
Repayments from unconsolidated subsidiaries and real estate joint venture 5,303 447 10,084
Investments in unconsolidated affiliates and and real estate joint venture (10,323 ) (6,228 ) (127 )
Net repayments (purchases and originations) of loans (106,123 ) 105,186 (928,493 )
Proceeds from sales of real estate owned 4,382 3,872 3,821
Proceeds from sales of property and equipment 2,055 651 —
Additions to property and equipment (121,680 ) (56,335 ) (81,033 )

Net cash (used in) provided by investing activities
(235,980 ) 61,555 (1,501,405 )

~~(Continued)~~

(continued)

See accompanying notes to consolidated financial statements.

~~F-12~~135

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Cash Flows
(In thousands)

For the Years Ended December 31,
2004 2003 2002
Financing activities:

Net increase in deposits $ 399,060 $ 137,587 $ 47,858
Reduction in deposits from sale of in-store branches, net — — (42,597 )
Proceeds from FHLB advances 1,220,000 275,000 227,499
Repayments of FHLB advances (469,323 ) (799,991 ) (172,736 )
Net increase (decrease) in federal funds purchased 105,000 — (61,000 )
Proceeds from notes and bonds payable 325,401 134,016 158,831
Issuance of trust preferred securities — — 180,375
Issuance of junior subordinated debentures — 77,320 —
Repayment of notes and bonds payable (227,621 ) (112,563 ) (95,772 )
Retirement of subordinated notes and debentures — (70,855 ) (21,716 )
Retirement of trust preferred securities — — (74,750 )
Net increase (decrease) in securities sold under agreements to repurchase 133,119 4,767 (289,791 )
Change in minority interest — — (61 )
Issuance of 5% Preferred Stock, net of issuance cost 14,988 — —
5% Preferred Stock dividends paid (392 ) — —
Issuance of BFC common stock upon exercise of stock options 1,791 282 205
Retirement of BFC Class B common stock accepted as consideration for the minimum withholding tax upon the exercise of stock options (7,282 ) — (319 )
Issuance of Levitt Corporation common stock, net of issuance cost 114,769 — —
Levitt common stock dividends paid to non-BFC shareholders (661 )
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders (6,331 ) (5,839 ) (5,411 )
Venture Partnerships distribution paid to non-BFC partners (1,376 ) — —
Issuance of BankAtlantic Bancorp common stock 2,334 4,472 1,296
Retirement of BankAtlantic Bancorp Class A common stock accepted as consideration for the minimum withholding tax upon the exercise of stock options (2,946 ) — —

Net cash provided by (used in) financing activities
1,600,530 (355,804 ) (148,089 )

Increase (decrease) in cash and cash equivalents 81,178 (109,035 ) 128,038
Cash and cash equivalents at the beginning of period 143,542 252,577 124,539

Cash and cash equivalents at end of period
$ 224,720 $ 143,542 $ 252,577

Cash paid for:

Interest paid on borrowings and deposits, net of capitalized interest $ 89,193 $ 121,384 $ 160,069
Income taxes paid 56,044 31,115 36,790
Supplementary disclosure of non-cash investing and financing activities:

Loans transferred to REO 1,401 2,450 13,067
Net loan recoveries (charge-offs) 5,524 (1,146 ) (19,784 )
Tax certificate net charge-offs (427 ) (203 ) (1,123 )
Decrease in minority interest resulting from the retirement of BankAtlantic Bancorp Class A common stock obtained from litigation settlement 6,058 — —
BankAtlantic Bancorp decreases in current income taxes payable from the tax effect of fair value of employee stock options 6,610 2,264 440
Securities purchased pending settlement 25,546 — —
Increase (decrease) in accumulated other comprehensive income, net of taxes (588 ) 662 (1,824 )
Net increase (decrease) in shareholders’ equity from the effect of subsidiaries’ capital transactions, net of income taxes 5,812 (252 ) (15 )
Increase in shareholders’ equity for the tax effect related to the exercise of employee stock options 11,017 550 60
Fair value of assets acquired from acquisition of Bowden Building Corporation 26,463 — —
Fair value of liabilities assumed from acquisition of Bowden Building Corporation 20,354 — —
Note receivable issued in connection with the GMS sale — 13,681 —
Increase in joint venture investment resulting from unrealized gain on non-monetary exchange 409 —
Adjustment to goodwill related to the allowance for loan losses — 734 9,144
Securities held to maturity transferred to available for sale — 14,505 —
Transfer of fixed assets to real estate held for sale — 1,000 —
Increase in investments in unconsolidated subsidiaries related to deconsolidation of trusts formed to issue trust preferred securities — 7,910 —
Increase in junior subordinated debentures related to trust deconsolidation — 7,910 —
Transfer of guaranteed preferred beneficial interest in BankAtlantic Bancorp’s junior subordinated debentures to junior subordinated debentures — 180,375 —
Change in minority interest resulting from issuance of BankAtlantic Bancorp Class A common stock upon conversion of subordinated debentures — 211 25
Issuance of notes payable under the Ryan Beck deferred compensation plan — — 3,675
Decrease in minority interest resulting from the distribution of securities investment — — (8,655 )

For the Years Ended December 31,
2006 2005 2004
Financing activities:

Net increase in deposits $ 114,360 $ 313,190 399,060
Net cash outflows from sale of branch — (13,605 ) —
Repayments of FHLB advances (2,551,344 ) (1,506,832 ) (469,323 )
Proceeds from FHLB advances 2,785,000 1,246,000 1,220,000
Net increase (decrease) in securities sold under agreements to repurchase (13,403 ) (147,214 ) 133,119
Net increase (decrease) in federal funds purchased (107,449 ) 34,475 105,000
Repayments of secured borrowings (26,516 ) (101,924 ) —
Proceeds from secured borrowings — 65,293 —
Repayment of notes and bonds payable (216,891 ) (266,432 ) (227,621 )
Proceeds from notes and bonds payable 384,732 388,781 325,401
Issuance of junior subordinated debentures 30,928 54,124 —
Capital contributions in managed fund by investors 2,905 — —
Capital withdrawals in managed fund by investors (4,203 ) — —
BankAtlantic Bancorp excess tax benefits from share-based compensation 3,719 — —
Change in noncontrolling interest — 895 —
Payments for debt issuance costs (3,043 ) (3,498 ) —
Proceeds from the issuance of BFC Class A Common Stock, net of issuance costs — 46,436 —
Proceeds from the issuance of BFC common stock upon exercise of stock options — 172 1,791
Payment by BFC of the minimum witholding tax upon exercise of stock option (4,154 ) — (7,282 )
5% Preferred Stock dividends paid (750 ) (750 ) (392 )
Proceeds from the issuance of 5% Preferred Stock, net of issuance cost — — 14,988
Issuance of Levitt Corporation common stock, net of issuance cost — — 114,769
Payment by BankAtlantic Bancorp of the minimum withholding tax upon exercise of stock options (2,717 ) (3,519 ) (2,946 )
Proceeds from issuance of BankAtlantic Bancorp Class A common stock 1,479 1,179 2,334
Purchase and retirement of BankAtlantic Bancorp subsidiary common stock (7,833 ) (491 ) —
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders (7,592 ) (6,930 ) (6,331 )
Levitt common stock dividends paid to non-BFC shareholders (1,322 ) (1,322 ) (661 )
Venture partnerships distribution paid to non-BFC partners — — (1,376 )

Net cash provided by financing activities
375,906 98,028 1,600,530

Increase (decrease) in cash and cash equivalents
(101,029 ) 80,717 81,178
Cash and cash equivalents at beginning of period 305,437 224,720 143,542
Cash and cash equivalents of discontinued assets held for sale (3,285 ) (5,366 ) (3,674 )

Cash and cash equivalents at end of period
$ 201,123 $ 300,071 $ 221,046

(continued)

See accompanying notes to consolidated financial statements.

~~F-13~~136

BFC Financial Corporation ~~and Subsidiaries~~
Consolidated Statements of Cash Flows
(In thousands)

For the Years Ended December 31,
2006 2005 2004
Supplemental cash flow information:

Interest on borrowings and deposits, net of amounts capitalized $ 167,430 $ 143,499 $ 89,193
Income taxes paid 39,770 30,002 56,044
Supplementary disclosure of non-cash investing and financing activities:

Loans transferred to real estate owned 23,728 2,307 1,401
Decreases in current income taxes payable from the tax effect of fair value of employee stock options — 4,538 6,610
Securities purchased pending settlement — 6,183 25,546
Reduction in loan participations sold accounted for as secured borrowings 111,754 — —
Exchange branch facilities 2,350 — —
Decrease in minority interest resulting from the retirement of BankAtlantic Bancorp Class A common stock obtained from litigation settlement — — 6,058
Increase in joint venture investment resulting from unrealized gain on non-monetary exchange — — 409
Fair value of assets acquired from acquisition of Bowden Building Corporation — — 26,463
Fair value of liabilities assumed from acquisition of Bowden Building Corporation — — 20,354
Decrease in real estate inventory to property and equipment 8,412 1,809 —
(Decrease) increase in accumulated other comprehensive income, net of taxes 926 (417 ) (588 )
Net increase (decrease) in shareholders’ equity from the effect of subsidiaries’ capital transactions, net of income taxes (16 ) (474 ) 5,812
(Decrease) increase in shareholders’ equity for the tax effect relating to share-based compensation — (12 ) 11,017
Issuance and retirement of BFC Common Stock accepted as consideration for the exercise price of stock options 4,154 — —

See accompanying notes to consolidated financial statements.

137

BFC Financial Corporation
Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Basis of Financial Statement Presentation-– BFC Financial Corporation (“BFC” or the “Company”) is a diversified holding company with investments in companies engaged in retail and commercial banking, ~~full service investment banking and brokerage,~~ homebuilding, master planned community development and time share and vacation ownership. The Company also ~~holds interests~~owns an interest in an ~~Asian~~Asian- themed restaurant chain and various real estate and venture capital investments. The Company’s principal holdings consist of direct controlling interests in BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”) and Levitt Corporation (“Levitt”). Through its control of BankAtlantic Bancorp, BFC has indirect controlling interests in BankAtlantic and its subsidiaries (“BankAtlantic”) ~~and RB Holdings, Inc. and its subsidiaries (“Ryan Beck”)~~. Through its control of Levitt, BFC has indirect controlling interests in Levitt and Sons, LLC and its subsidiaries (“Levitt and Sons”) and Core Communities, LLC and its subsidiaries (“Core Communities”) and an indirect non-controlling interest in Bluegreen Corporation (“Bluegreen”). BFC also holds a direct non-controlling ~~minority~~ investment in Benihana, Inc. (“Benihana”). As a result of the Company’s position as the controlling stockholder of BankAtlantic Bancorp, the Company is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision.
~~The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).~~
BankAtlantic Bancorp (NYSE:BBX) is a Florida-based diversified financial services holding company. BankAtlantic Bancorp’s principal assets include the capital stock of BankAtlantic and Ryan Beck. BankAtlantic is a federal savings bank headquartered in Fort Lauderdale, Florida, which provides traditional retail banking services and a wide range of commercial banking products and related financial services through a network of 74 branches. Ryan Beck is a full service broker-dealer headquartered in Florham Park, New Jersey. Ryan Beck offers a wide range of investment and insurance products for retail and institutional clients through 39 offices in 14 states.
~~Through December 31, 2003, Levitt was a wholly-owned subsidiary of BankAtlantic Bancorp.~~

On December 2, 2003, the BankAtlantic Bancorp Board of Directors authorized the spin-off of Levitt to the shareholders of BankAtlantic Bancorp by declaring a stock dividend of all of BankAtlantic Bancorp’s shares of Levitt. BankAtlantic Bancorp’s shareholders, includingJune 20, 2006 the Company each received one share of Levitt Class A Common Stock for every four shares of BankAtlantic Bancorp Class A Common Stock owned, and one share of Levitt Class B Common Stock for every four shares of BankAtlantic Bancorp Class B Common Stock owned. The shares were distributed on December 31, 2003 to shareholders of record on December 18, 2003. As a consequence of the spin-off, the Company’s ownership position in Levitt on December 31, 2003 was initially identical to the Company’s ownership position in BankAtlantic Bancorp, including the Company’s control of more than 50% of the vote of these companies. In April 2004, Levitt sold 5 million shares ofannounced that its Class A Common Stock was approved for listing on the NYSE Arca exchange (“NYSE Arca”) under the symbol “BFF” and on June 22, 2006, the Company commenced trading on the NYSE Arca. From April 2003 through June 19, 2006, BFC’s Class A Common Stock was traded on the NASDAQ National Market.

On January 8, 2007, BankAtlantic Bancorp entered into an agreement and Plan of Merger with Stifel Financial Corp (“Stifel”) to merge BankAtlantic Bancorp’s wholly-owned subsidiary, Ryan Beck Holdings, Inc. (“Ryan Beck”) and its subsidiaries into a Stifel wholly-owned subsidiary in ~~an underwritten public offering, resulting in net proceeds~~exchange for shares of Stifel common stock and warrants to ~~Levitt~~acquire shares of ~~approximately $114.8 million. As~~Stifel Common Stock. The receipt of warrants is subject to Stifel shareholder approval and if the Stifel shareholder approval is not obtained BankAtlantic Bancorp will receive cash instead of Stifel warrants. This transaction was consummated on February 28, 2007, as a ~~result of this offering, the Company’s ownership position in Levitt was reduced to 16.6% of its total equity and a 52.9% voting interest at December 31, 2004.~~
Levitt (NYSE:LEV) engages in homebuilding, land development and other real estate activities through Levitt and Sons, Core Communities, Levitt Commercial, LLC (“Levitt Commercial”), Bowden Building Corporation (“Bowden”), and investments in real estate projects. Levitt also owns approximately 31%consequence of the ~~outstanding common stock~~merger of ~~Bluegreen,~~Ryan Beck with Stifel, the results of operations of Ryan Beck are presented as “Discontinued Operations” in the Consolidated Statement of Operations for all periods presented. The financial information of Ryan Beck is included in the Consolidated Statement of Financial Condition, Consolidated Statement of Shareholders’ Equity, Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statement of Cash Flows for all periods presented.

In December 2005, I.R.E. BMOC, Inc. (“BMOC”), a ~~New York Stock Exchange-listed (NYSE:BXG) company that acquires, develops, markets and sells vacation ownership interests~~wholly owned subsidiary of BFC, transferred its shopping center to its lender in ~~primarily “drive-to” resorts and develops and sells residential home sites around golf courses~~full settlement of the mortgage note collateralized by the center. The financial results of BMOC are reported as discontinued operations in accordance with Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or ~~other amenities. Levitt acquired Bowden on April 28, 2004 for approximately $7.4 million.~~
Disposal of Long-Lived Assets.” (“SFAS 144”).

~~F-14~~138

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

BFC’s ownership in BankAtlantic Bancorp and Levitt isas of December 31, 2006 was as follows:


						Percent								Percent
	Shares		Percent of			of			Shares		Percent of			of
	Owned		Ownership			Vote			Owned		Ownership			Vote
BankAtlantic Bancorp
Class A Common Stock		8,329,236		15.09	%		8.00	%		8,329,236		14.83	%		7.86	%
Class B Common Stock		4,876,124		100.00	%		47.00	%		4,876,124		100.00	%		47.00	%
Total		13,205,360		21.98	%		55.00	%		13,205,360		21.64	%		54.86	%

Levitt
Levitt Class A Common Stock		2,074,243		11.15	%		5.91	%
Class A Common Stock										2,074,243		11.15	%		5.91	%
Class B Common Stock		1,219,031		100.00	%		47.00	%		1,219,031		100.00	%		47.00	%
Total		3,293,274		16.62	%		52.91	%		3,293,274		16.61	%		52.91	%

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statements of financial condition and operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the ~~next year~~near term relate to the ~~determination~~valuation of the fair value of assets and liabilities in the application of the purchase method of accounting, the valuation of intangible and long-lived assets for impairment, the allowance for loan losses, the evaluation of ~~goodwill~~securities for impairment, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the ~~valuation~~amount of the ~~fair value of assets and liabilities in the application of purchase method accounting, the amount of~~ deferred tax asset valuation allowance, ~~the valuation of equity securities that are not publicly traded,~~ accounting for ~~contingencies,~~share-based compensation, revenue recognition on percent complete projects and impairment of real estate assets, determination of the valuation of real estate ~~held for development, real estate joint venture investments~~ and ~~the cost~~estimated costs to complete ~~development work on real estate projects.~~construction, litigation and contingencies. In connection with the determination of the allowances for loan losses, real estate owned, and real estate held for development, ~~and real estate joint venture investments,~~ management obtains independent appraisals for significant properties when it is deemed prudent.
The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The accounting policies applied by the Company conform to accounting principles generally accepted in the United States of America.

Certain amounts for prior years have been reclassified to conform ~~with~~to revised statement presentation for ~~2004.~~
2006.

Consolidation Policy —— The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, majority-controlled subsidiaries, including BankAtlantic Bancorp and Levitt, majority-owned joint ventures and variable interest entities in which the Company’s subsidiaries are the primary beneficiary as defined by Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”).
No gains and losses are recorded on the issuance of subsidiary common stock. All inter-company transactions and balances have been eliminated.

Cash Equivalents —— Cash ~~and due from depository institutions include~~equivalents consist of cash, demand deposits at other financial institutions, ~~and~~federal funds sold, securities purchased under resell agreements, money market ~~funds.~~funds and other short-term investments with original maturities of 90 days or less. Federal funds sold are generally sold for one-day periods, and securities purchased under resell agreements are settled in less than 30 days.

Restricted Cash —Cash and interest bearing deposits are segregated into restricted accounts for specific uses in accordance with the terms of certain land sale contracts, home sales ~~and other arrangements.~~agreements. Restricted funds may only be utilized in accordance with the terms of the applicable governing documents. The majority of restricted funds are controlled by third-party escrow fiduciaries. Restricted cash is included in Other Assets in the Company’s Statements of Financial Condition.

~~Debt~~Securities Owned and ~~Equity~~ Securities Sold, But Not Yet Purchased— ~~Debt~~Securities owned and securities sold, but not yet purchased are associated with proprietary securities transactions entered into by Ryan Beck and are accounted for at fair value with changes in the fair value included in income from discontinued operations. The fair value of these trading

139

BFC Financial Corporation
Notes to Consolidated Financial Statements

positions is generally based on listed market prices. If listed market prices are not available or if liquidating the positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors, including dealer price quotations, price quotations for similar instruments traded in different markets, management’s estimates of amounts to be realized on settlement or management valuation models associated with securities that are not readily marketable.

Investment Securities —Investment securities are classified based on management’s intention on the date of purchase. Debt securities that management has both the ~~positive~~ intent and ability to hold to maturity are classified as securities held-to-maturity and are ~~carried~~stated at ~~amortized cost. Trading account~~cost, net of unamortized premiums and unaccreted discounts.

Debt securities ~~consist~~not held to maturity and marketable equity securities not accounted for under the equity method of securities that are bought and held principally for the purpose of selling them in the near term and are carried at fair value with changes in the fair value included in earnings. All other debt securitiesaccounting are classified as available for sale and ~~carried~~are recorded at fair value. Unrealized gains and losses, after applicable taxes, are recorded as a component of other comprehensive income.

Declines in the value ~~with~~of individual held to maturity and available for sale securities that are considered other than temporary result in write-downs in earnings through securities activity, net of the ~~net~~individual securities to their fair value. The review for other-than-temporary declines takes into account current market conditions, trends and other key measures.

Securities acquired for short-term appreciation or other trading purposes are classified as trading securities and are recorded at fair value. Realized and unrealized gains and losses resulting from such fair value adjustments and from recording the results of sales are recorded in securities activities, net which is included in ~~stockholders’ equity on an after-tax basis as other comprehensive income.~~Other Income in the Company’s Consolidated Statements of Operations.

The fair value of securities available for sale ~~was~~and trading securities are estimated by obtaining prices actively quoted on national markets, using a price matrix or applying management valuation models. Declines in the fair value of individual held to maturity and available for sale securities below their amortized cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value.
Interest and dividends on securities, including the amortization of premiums and the accretion of discounts, are reported in interest and dividends income using the interest method over the lives of the securities, adjusted for actual prepayments.
~~F-15~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Gains and losses on the sale of securities are recorded on the trade date and are calculated using the specific-identification method~~

Marketable equity securities and mutual funds which are included in securities available for sale are carried at fair value with the net unrealized gains and losses included in shareholders’ equity on an after-tax basis as other comprehensive income. Declines in the fair value of individual equity securities and mutual funds below their cost that are other than temporary result in write-downs through charges to earnings of the individual securities to their fair value. The fair value of marketable equity securities and mutual funds was estimated by obtaining prices actively quoted on national markets. Equity securities that do not have readily determinable fair values are ~~classified as investment securities and~~ carried at historical cost. These securities are evaluated for other than temporary declines in value, and, if impaired, the historical cost of the securities is written down ~~through charges to earnings~~ to estimated fair ~~value.~~

~~The~~value in earnings through securities activities, net.

Interest on securities, including the amortization of premiums and the accretion of discounts, are reported in interest income using the interest method over the lives of the securities, adjusted for actual prepayments. Gains and losses on the sale of securities are recorded on the trade date and recognized using the specific identification method ~~was used~~and reported in ~~determining cost~~other income in ~~computing~~the Company’s Consolidated Statements of Operations.

~~Tax Certificates~~Investments in Unconsolidated Subsidiaries~~— Tax certificates represent~~

We follow the equity method of accounting to record our interests in subsidiaries in which we do not own the majority of the voting stock and to record our investment in variable interest entities in which we are not the primary beneficiary. These entities consist of Bluegreen Corporation, joint ventures and statutory business trusts. The statutory business trusts are variable interest entities in which the Company is not the primary beneficiary. Under the equity method, the initial investment in a ~~priority lien against real~~joint venture is recorded at cost and is subsequently adjusted to recognize our share of the joint venture’s earnings or losses. Distributions received reduce the carrying amount of the investment. We evaluate our investments in unconsolidated entities for impairment during each reporting period in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock”. These investments are evaluated annually or as events or circumstances warrant for other than temporary declines in value. Evidence of other than temporary declines includes the inability of the joint venture or investee to sustain an earnings capacity that would justify the carrying amount of the investment and consistent joint venture operating losses. The evaluation is based on available information including condition of the property ~~for which assessed~~and current and anticipated real estate ~~taxes~~market conditions.

Homesite Contracts and Consolidation of Variable Interest Entities

In the ordinary course of business we enter into contracts to purchase homesites and land held for development. Option contracts allow us to control significant homesite positions with minimal capital investment and substantially reduce the risks associated with land ownership and development. Our liability for nonperformance under such contracts is typically only the required deposits, which are ~~delinquent. Tax certificates~~usually less than 20% of the underlying purchase price. We do not have legal title to these assets. However, if certain conditions are ~~classified~~met under the requirements of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, the Company’s land contracts may create a variable interest for the Company, with the Company being identified as ~~investment securities~~the primary beneficiary. If these conditions are met, interpretation no. 46 requires us to consolidate the assets (homesites) at their fair value. At December 31, 2006 there were no assets under these contracts consolidated in our financial statements.

Homebuilding & Real Estate Development (Continued)

Revenue Recognition

Revenue and all related costs and expenses from house and land sales are ~~carried~~recognized at ~~cost, net~~the time that closing has occurred, when title and possession of ~~an allowance~~the property and the risks and rewards of ownership transfer to the buyer, and we do not have a substantial continuing involvement in accordance with SFAS No. 66, “Accounting for ~~probable losses, which approximates fair value.~~
~~Allowance~~Sales of Real Estate”. In order to properly match revenues with expenses, we estimate construction and land development costs incurred but not paid at the time of closing. Estimated costs to complete are determined for ~~Tax Certificate Losses– The allowance represents management’s~~each closed home and land sale based upon historical data with respect to similar product types and geographical areas. We monitor the accuracy of estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time of ~~incurred losses~~closing and make modifications to the estimates based on these comparisons. We do not expect the estimation process to change in the ~~portfolio~~future.

Revenue is recognized from certain land sales on the percentage-of-completion method when the land sale takes place prior to all contracted work being completed. Pursuant to the requirements of SFAS 66, if the seller has some continuing involvement with the property and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement. In the case of our land sales, this involvement typically consists of final development activities. We recognize revenue and related costs as work progresses using the percentage of completion method, which relies on contract revenue and estimates of total expected costs to complete required work. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs at the time of sale. Actual revenues and costs to complete construction in the future could differ from our current estimates. If our estimates of development costs remaining to be completed are significantly different from actual amounts, then our revenues, related cumulative profits and costs of sales may be revised in the period that ~~are probable~~estimates change.

Effective January 1, 2006, Bluegreen adopted AICPA Statement of Position 04-02 Accounting for Real Estate Time-Sharing Transactions (“SOP 04-02”). This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to ~~reasonable estimation. In establishing its allowance~~the guidance in SOP 04-02. The adoption of SOP 04-02 resulted in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million to Bluegreen for ~~tax certificate losses, management considers past loss experience, present indicators, such~~the year ended December 31, 2006, and accordingly reduced the earnings in Bluegreen recorded by us by approximately $1.4 million for the same period.

Capitalized Interest

Interest incurred relating to land under development and construction is capitalized to real estate inventories during the active development period. Interest is capitalized as a component of inventory at the ~~length~~effective rates paid on borrowings during the pre-construction and planning stage and during the periods that projects are under development. Capitalization of ~~time the certificate has been outstanding, economic conditions and collateral values. Tax certificates and resulting deeds are classified as non-accrual when~~interest is discontinued if development ceases at a ~~tax certificate~~project. Interest is 24amortized to ~~60 months delinquent, depending~~cost of sales on the ~~municipality,~~relative sales value method as related homes and land are sold.

Income Taxes

Stock-based Compensation

Homebuilding & Real Estate Development (Continued)

Goodwill

Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but instead tested for impairment at least annually. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” we conduct a review of our goodwill on at least an annual basis to determine whether the carrying value of goodwill exceeds the fair market value using a discounted cash flow methodology. Should this be the case, the value of our goodwill may be impaired and written down. In the year ended December 31, 2006, we conducted an impairment review of the goodwill related to our Tennessee operations acquired in connection with our acquisition ~~date. At that time, interest ceases~~of Bowden Building Corporation in 2004. The profitability and estimated cash flows of this reporting entity were determined to ~~be accrued.~~have declined to a point where the carrying value of the assets exceeded their market value. We used a discounted cash flow methodology to determine the amount of impairment resulting in completely writing off the$1.3 million of goodwill in the year ended December 31, 2006. The ~~provision to record the allowance~~write-off is included in other ~~expenses.~~
~~Loans~~~~- Loans that management has~~expenses in the ~~intent and ability~~consolidated statements of operations in the year ended December 31, 2006.

Consolidated Results of Operations


(a)		Diluted (loss) earnings per share takes into account (i) the dilution in earnings we recognize from Bluegreen as a result of outstanding securities issued by Bluegreen that enable the holders thereof to acquire shares of Bluegreen’s common stock and (ii) the dilutive effect of our stock options and restricted stock using the treasury stock method.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

For the Year Ended December 31, 2006 Compared to ~~hold~~the Same 2005 Period

We incurred a consolidated net loss of $9.2 million for the ~~foreseeable~~year ended December 31, 2006 which represented a decrease in consolidated net income of $64.1 million, or 116.7%, for the year ended December 31, 2006 compared to the same period in 2005. This decrease was the result of decreased margins on sales of real estate across all Divisions due to increased cost of sales, and inventory impairments recorded in the year ended December 31, 2006 in the amount of $36.8

Homebuilding & Real Estate Development (Continued)

Cost of sales increased 18.4% to $483.0 million during the year ended December 31, 2006, as compared to the same period in 2005. The increase in cost of sales was due to increased revenues from real estate. In addition, the increase was due to impairment charges and inventory related valuation adjustments in the amount of $36.8 million in our Homebuilding Division. Projections of future ~~or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, unamortized deferred fees or costs, premiums or discounts~~cash flows related to the remaining assets were discounted and ~~an allowance for loan losses. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over~~used to determine the estimated ~~life of the loans using the interest method, adjusted for actual prepayments.~~
~~Loans Held for Sale~~~~— Such loans are reported at the lower of aggregate cost or estimated fair value~~impairment charge. These adjustments were calculated based on current market conditions and assumptions made by our management, which may differ materially from actual results. In the second quarter of 2006, we recorded inventory impairment charges related to the Tennessee operations. Our Tennessee operations have consistently delivered lower than expected margins. In the second quarter of 2006, key management personnel resigned and we faced increased start-up costs in the Nashville market. We also experienced a downward trend in home deliveries in our Tennessee operations during the second quarter and as a result of these factors, we recorded an impairment charge of approximately $4.7 million. In the fourth quarter of 2006, we recorded additional impairment charges of $29.7 million in Florida and Tennessee due to the continued downward trend in these homebuilding markets. In addition to impairment charges, cost of sales increased due to higher construction costs. The increase in cost of sales in homebuilding was partially offset by lower cost of sales in the Land Division and Other Operations, based on the decrease in land sales recorded. Consolidated cost of sales as a percentage of related revenue was approximately 85.3% for the year ended December 31, 2006, as compared to approximately 73.1% for the same period in 2005. This increase adversely affected gross margin percentages across all business segments. This decrease in margin was attributable to the impairment charges, higher construction costs as well as lower land revenues recognized associated with pricing pressure on sales of land.

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Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

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Homebuilding & Real Estate Development (Continued)

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

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Homebuilding & Real Estate Development (Continued)

Homebuilding Division Results of Operations


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

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Homebuilding & Real Estate Development (Continued)

At December 31, 2006, our Homebuilding Division had a delivery backlog of 1,248 homes representing $438.2 million of future sales. The average sales price of the homes in backlog at December 31, 2006 of $351,000 is approximately 12.9% higher than the average sales price of the homes in backlog at December 31, 2005. This increase is attributable to the particular markets generating the backlog, and the Homebuilding Division’s current pricing, which has held consistent with the price increases implemented in 2005. We do not believe that we will be able to maintain these prices ~~for similar loans. Loan origination fees~~in 2007 due to current market conditions, and ~~related direct loan origination costs~~that more aggressive pricing will be necessary to generate future sales and reduce spec inventory. While we believe that our management team, information systems and practices and procedures have been effectively strengthened to allow us to compete in the current market, the condition in the homebuilding industry, adverse trends in the broader economy, continued inflationary pressures and labor shortages could adversely impact our Homebuilding Division in future periods. Our pricing of homes is limited by the current market demand, and the sales prices of homes in our backlog cannot be maintained. As such, we expect that the margins on ~~originated loans held~~the delivery of homes in 2007 will continue to reflect downward pressure.

Our Homebuilding results reflect the deterioration of conditions in the homebuilding industry characterized by record levels of new and existing homes available for sale, reduced affordability and ~~premiums~~diminished buyer confidence. The slowdown in the housing market has led to increased sales incentives, increased pressure on margins, higher cancellation rates, increased advertising expenditures and ~~discounts~~broker commissions, and increased inventories. As a result, we expect our gross margin on ~~purchased loans held~~home sales to be negatively impacted until market conditions, particularly in Florida, stabilize.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

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Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

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Homebuilding & Real Estate Development (Continued)

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Homebuilding & Real Estate Development (Continued)

Land Division Results of Operations


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

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Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

The increase in other revenues from $1.1 million for the year ended December 31, 2005 to $3.8 million for the same period in 2006 related ~~loan~~to increased marketing fees associated with cooperative marketing agreements with homebuilders and lease and irrigation income.

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

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Homebuilding & Real Estate Development (Continued)

of a total of 1,294 acres. During 2004, the Company sold 448 acres in Tradition, Florida to the Homebuilding Division which generated revenue of $23.4 million and margin of $14.4 million. This transaction, which is included in ~~gains~~the above table for 2004, was eliminated in consolidation, and ~~losses~~the associated profit was deferred. There were no land sales to the Homebuilding Division in 2005.

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Homebuilding & Real Estate Development (Continued)

Other Operations Results of Operations

(a)

The years ended December 31, 2005 and 2004 reflect the reclassification of leasing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

During the year ended December 31, 2006, Levitt Commercial delivered 29 flex warehouse units at two of its projects, generating revenues of $11.0 million as compared to 44 flex warehouse units in 2005, generating revenues of $14.7 million. Deliveries of individual flex warehouse units by Levitt Commercial generally occur in rapid succession upon ~~sale.~~
~~Allowance for Loan Losses~~~~- The allowance for loan losses reflects management’s estimate~~the completion of ~~probable incurred credit losses~~a warehouse building. As of December 31, 2006 Levitt Commercial has one remaining flex warehouse project with a total of 17 units in the ~~loan portfolios. Loans are charged off against~~sales backlog which closed in the ~~allowance when management believes~~first quarter of 2007.

Cost of sales of real estate in Other Operations includes the ~~uncollectibility~~expensing of interest previously capitalized, as well as the costs of development associated with the Levitt Commercial projects. Interest in Other Operations is capitalized and amortized to cost of sales in accordance with the relief rate used in our operating segments. This capitalization is for Other Operations debt where interest is allocated to inventory in the other operating segments. Cost of sales of real estate decreased $871,000 from $12.5 million in the year ended December 31, 2005 to $11.6 million in the year ended December 31, 2006. The primary reason for the decrease in cost of sales is due to fewer sales at Levitt Commercial partially offset by increased cost of sales associated with previously capitalized interest related to corporate debt.

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Homebuilding & Real Estate Development (Continued)

Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as compared to net income of $46.6 million for the same period in 2005. Our interest in Bluegreen’s earnings, net of purchase accounting adjustments, was $9.7 million for the year ended December 31, 2006 compared to $12.7 million for the same period in 2005.

Selling, general and administrative expense increased 57.9% to $28.2 million during the year ended December 31, 2006, from $17.8 million during the same period in 2005. The increase is a result of higher employee compensation and benefits, recruiting expenses, and professional services expenses. Employee compensation costs increased by approximately $4.4 million from $7.4 million during the year ended December 31, 2005 to $11.8 million for the same period in 2006. The increase relates to the increase in the number of full time employees to 63 at December 31, 2006 from 46 at December 31, 2005. Additionally, approximately $3.1 million of the ~~loan balance is confirmed. Recoveries are credited~~increase in compensation expense was associated with non-cash stock-based compensation for which no expense was recorded in the same period in 2005. We experienced an increase in professional services due to non-capitalizable consulting services performed in the year ended December 31, 2006 related to our financial systems implementation. The system implementation costs and merger related costs did not exist in the year ended December 31, 2005. These increases were partially offset by decreases in bonus expense of approximately $1.0 million or 56.1% from the year ended December 31, 2005 due to decreased profitability.

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Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the ~~allowance.~~
~~The allowance consists~~Same 2004 Period

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

Bluegreen restated its financial statements for the first three ~~components. The first component~~quarters of fiscal 2005 and the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the accounting for sales of the ~~allowance~~Company’s vacation ownership notes receivable and other related matters. The restatement accounts for the sales of notes receivable as on-balance sheet financing transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally accounted for these transactions. We recorded the cumulative effect of the restatement in the year ended December 31, 2005. This cumulative adjustment was recorded as a $2.4 million reduction of our earnings from Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction to our investment in Bluegreen.

Selling, general and administrative and other expenses increased to $17.8 million during the year ended December 31, 2005 as compared to $9.8 million during the year ended December 31, 2004. In 2005, we incurred professional fees associated with the organizational review of production and operational practices and procedures as previously discussed. Also contributing to the increase in selling, general and administrative expenses during the year ended 2005 were additional audit fees associated with Sarbanes Oxley. The increase in selling, general and administrative expenses is also attributable to increased compensation expense resulting from an increase from 22 employees in this segment at year end 2004 to 46 employees at year end 2005. The increased headcount was primarily related to parent company staffing in Human Resources, Project Management and administrative functions in preparation for ~~high-balance “non-homogenous”~~our implementation of the Company’s strategic initiatives. In addition, incentives for all employees associated with achieving identified customer service goals were accrued in the fourth quarter of 2005. Finally, in the fourth quarter of 2005, we incurred expenses associated with several company-wide information meetings regarding the various organizational, information system, and operational changes scheduled to occur in 2005 and 2006.

FINANCIAL CONDITION

Our total assets at December 31, 2006 and 2005 were $1.1 billion and $895.7 million, respectively. The increase in total assets primarily resulted from:

a net increase in inventory of real estate of approximately $210.8 million, which includes approximately $64.8 million in land acquisitions by our Homebuilding Division;

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Homebuilding & Real Estate Development (Continued)

	•		an increase of $34.4 million in property and equipment associated with increased investment in commercial properties under construction by our Land Division, support for infrastructure in our master planned communities, and $3.5 million in hardware and software acquired for our implementation of our new financial and operating system ;

	•		a net increase of approximately $11.2 million in our investment in Bluegreen Corporation associated primarily with $9.7 million of earnings from Bluegreen (net of purchase accounting adjustments), $1.3 million from our pro rata share of unrealized gains associated with Bluegreen’s other comprehensive income and $287,000 associated with Bluegreen’s capital transactions; and

	•		the above increases in assets were partially offset by a net decrease in cash and cash equivalents of $65.2 million, which resulted from cash used in operations and investing activities of $268.3 million, partially offset by an increase in cash provided by financing activities of $203.1 million.

	•		a net increase in notes and mortgage notes payable of $176.8 million, primarily related to project debt associated with 2006 land acquisitions and land development activities;

	•		an increase of $30.9 million in junior subordinated debentures ;

	•		a decrease of $9.0 million in customer deposits due to a smaller backlog at December 31, 2006;

	•		an increase of $18.5 million in accruals as a result of increased construction costs, accrued professional services related to our systems implementation and legal and valuation services accruals related to the proposed merger with BFC; and

	•		a decrease in tax liability of approximately $7.0 million relating primarily to our pre-tax loss and the timing of estimated tax payments.

LIQUIDITY AND CAPITAL RESOURCES

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Homebuilding & Real Estate Development (Continued)

of additional shares of Levitt Class A common stock. There is no assurance that we will be able to successfully raise additional capital on acceptable terms, if at all.

At December 31, 2006, our consolidated debt totaled $615.7 million under total borrowing facilities of up to $904.4 million, of which $527.7 was secured by various assets. Those loans ~~that~~ are ~~individually evaluated~~secured by mortgages on various properties. Approximately $70.4 million was available under the facilities at December 31, 2006 subject to qualifying assets and fulfillment of conditions precedent. The detail of debt instruments at December 31, 2006 and 2005 was as follows (in thousands):

Additional detail on the above borrowings is provided in Item 8 Note 11.

Operating Activities. During the year ended December 31, 2006, we used $240.1 million of cash in our operating activities, as compared to $132.5 million of cash used in such activities during 2005 and $78.9 million used in 2004. The net cash used in operations during fiscal 2006 was primarily the result of cash used to increase inventories in our Homebuilding segment, as well as a net loss for ~~impairment. A loan is impaired when collection~~2006 compared to net income during 2005. The net cash used in operations during fiscal 2005 and fiscal 2004 was the result of ~~principal~~cash provided from net income and ~~interest~~an increase in accounts payable, accrued expenses and other liabilities, offset by cash used to increase real estate inventory.

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Homebuilding & Real Estate Development (Continued)

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Homebuilding & Real Estate Development (Continued)

Off Balance Sheet Arrangements and Contractual Obligations

We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s indebtedness. Our liability under the indemnity agreement is limited to the amount of any distributions from the joint venture which exceeds our original capital and other contributions. Accordingly, our potential obligation of indemnity was approximately $664,000 at December 31, 2006. Based on the joint venture assets that secure the indebtedness, we do not believe it is likely that any payment will be required under the indemnity agreement.

The following table summarizes our contractual obligations as of December 31, 2006 (in thousands):


(1)		Long-term debt obligations consist of notes, mortgage notes and bonds payable. Interest payable on these long-term debt obligations is the interest that will be incurred related to the outstanding debt. Operating lease obligations consist of lease commitments. Purchase obligations consist of contracts to acquire real estate properties for development and sale for which due diligence has been completed and our deposit is committed; however our liability for not completing the purchase of any such property is generally limited to the deposit made under the relevant contract. At December 31, 2006, we had $400,000 in deposits securing such purchase obligations and we currently intend to acquire the land associated with these purchase obligations, subject to market conditions and the Company’s financial condition.

(2)		In addition to the above scheduled payments, certain of our borrowings require repayments of specified amounts upon a sale of portions of the property securing the debt.

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Homebuilding & Real Estate Development (Continued)


(a)		Fair value calculated based upon recent borrowings in same category of this debt.

Impact of Inflation

The financial statements and related financial data and notes presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the ~~loan~~relative purchasing power of money over time due to inflation.

New Accounting Pronouncements

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Homebuilding & Real Estate Development (Continued)

disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years. We are currently reviewing the effect of this Statement on our consolidated financial statements and do not expect the adoption to have an effect on our financial condition or results of operations.

In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8,Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums,(“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (our fiscal year beginning December 1, 2007). The effect of this EITF is not ~~likely to occur. The process for identifying loans~~expected to be ~~evaluated individually for impairment~~material to our consolidated financial statements.”

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Consolidated Market Risk

Market risk is ~~based~~defined as the risk of loss arising from adverse changes in market valuations that arise from interest rate risk, foreign currency exchange rate risk, commodity price risk and equity price risk. While the primary market risk of BankAtlantic Bancorp is interest rate risk, BFC’s primary market risk is equity price risk.

Because BankAtlantic Bancorp and Levitt are consolidated in the Company’s financial statements, an increase or decrease in the market price of their stock would not impact the financial statements. However, a significant change in the market price of either of these securities would likely have an effect on ~~management’s identification~~the market price of ~~classified loans. Once~~our common stock. The market price of BFC’s common stock and of BFC’s directly held equity securities are important to the valuation and financing capability of BFC.

BFC Interest Rate Risk

At December 31, 2006, BFC had no amounts outstanding under its $14.0 million line of credit. The interest rate on the line of credit is an ~~individual loan is found~~adjustable rate tied to LIBOR. Should BFC make advances under the line of credit, it would be subjected to interest rate risk to the extent that there were changes in the LIBOR index.

BankAtlantic Bancorp Consolidated Interest Rate Risk

The amount of interest-earning assets and interest-bearing liabilities expected to reprice or mature in each of the indicated periods was as follows (in thousands):


(1)		Hybrid adjustable rate mortgages (ARM) earn fixed rates for designated periods and adjust annually thereafter based on the one year U.S. Treasury note rate.

The majority of BankAtlantic’s assets and liabilities are monetary in nature, subjecting us to significant interest rate risk because our assets and liabilities reprice at different times, market interest rates change differently among each rate

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indices and certain interest earning assets, primarily residential loans, may be prepaid before maturity as interest rates change.

The model calculates the change in net interest income by:

i.		Calculating interest income and interest expense from existing assets and liabilities using current repricing, prepayment and volume assumptions,

ii.		Estimating the change in expected net interest income based on instantaneous and parallel shifts in the yield curve to determine the effect on net interest income; and

iii.		Calculating the percentage change in net interest income calculated in (i) and (ii).

Management of BankAtlantic has made estimates of cash flow, prepayment, repricing and volume assumptions that it believes to be ~~impaired, a valuation allowance is assigned~~reasonable. Actual results will differ from the simulated results due to changes in interest rates that differ from the ~~loan based on one of~~assumptions in the simulation model.

In assessing the interest rate risk certain assumptions were utilized in preparing the following ~~three methods: (1) present value~~table. These assumptions related to:


		•		Interest rates,
		•		Loan prepayment rates,
		•		Deposit decay rates,
		•		Re-pricing of certain borrowings
		•		Reinvestment in earning assets.

The prepayment assumptions used in the model are:


•	Fixed rate mortgages	20 %
•	Fixed rate securities	14 %
•	Tax certificates	10 %
•	Adjustable rate mortgages	15 %
•	Adjustable rate securities	17 %

Deposit runoff assumptions used in the model are as follows:

Within 1-3 3-5 Over 5
1 Year Years Years Years
Money fund savings accounts decay rates 17 % 17 % 16 % 14 %
NOW and savings accounts decay rates 37 % 32 % 17 % 17 %

Presented below is an analysis of ~~expected future cash flows, (2)~~BankAtlantic’s estimated net interest income over a twelve month period calculated utilizing its model (dollars are in thousands):

As of December 31, 2006
Net
Changes Interest Percent
in Rate Income Change
+200 bp $ 241,341 (5.94 )%
+100 bp $ 252,047 (1.74 )%
0 $ 256,482 —
-100 bp $ 256,485 0.00 %
-200 bp $ 252,346 (1.62 )%

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As of December 31, 2005
Net
Changes Interest Percent
in Rate Income Change
+200 bp $ 258,020 1.47 %
+100 bp $ 259,549 2.15 %
0 $ 254,715 —
-100 bp $ 247,130 (3.37 )%
-200 bp $ 232,813 (9.72 )%

Consolidated Equity Price Risk

BFC and BankAtlantic Bancorp maintain a portfolio of equity securities that subjects us to equity pricing risks which would arise as the values of equity investments change in conjunction with market or economic conditions. The change in fair values of equity investments represents instantaneous changes in all equity prices. The following are hypothetical changes in the fair value of ~~collateral less costs~~available for sale equity securities at December 31, 2006 based on percentage changes in fair value. Actual future price appreciation or depreciation may be different from the changes identified in the table below (dollars in thousands):

Available
Percent for Sale
Change in Securities Dollar
Fair Value Fair Value Change
20% $ 113,720 $ 18,953
10% $ 104,244 $ 9,477
0% $ 94,767 $ —
-10% $ 85,290 $ (9,477 )
-20% $ 75,814 $ (18,953 )

Levitt

Levitt is also subject to interest rate risk on its long-term debt. At December 31, 2006, Levitt had $510.4 million in borrowings with adjustable rates tied to the Prime Rate and/or ~~(3) observable~~LIBOR rates and $105.3 million in borrowings with fixed or initially-fixed rates. Consequently, for debt tied to an indexed rate, changes in interest rates may affect earnings and cash

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flows, but generally would not impact the fair value of such debt. With respect to fixed rate debt, changes in interest rates generally affect the fair market ~~price. Non-homogenous loans that are~~value of the debt but not ~~impaired are assigned an allowance~~earnings or cash flow.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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BFC FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP

Report of Independent Registered Public Accounting Firm of Ernst & Young LLP On the Consolidated Financial Statements of Bluegreen Corporation for the year ended December 31, 2006

Financial Statements:

Consolidated Statements of Financial Condition as of December 31, 2006 and 2005

Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Comprehensive (Loss) Income for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2006

Notes to Consolidated Financial Statements

126

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of BFC Financial Corporation:

We have completed integrated audits of BFC Financial Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on ~~historical data by product. The second component~~our audits and the report of other auditors, are presented below.

Consolidated financial statements

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BFC Financial Corporation and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the ~~allowance is for “homogenous loans” in which groups of loans with common characteristics are evaluated to estimate the inherent losses~~three years in the ~~portfolio. Homogenous loans have certain characteristics that~~period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are ~~common~~the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the ~~entire portfolio so as~~financial statements of Bluegreen Corporation, an approximate 31 percent-owned equity investment, which were audited by other auditors whose report thereon has been furnished to ~~form a basis for predicting losses on historical data and delinquency trends~~us. Our opinion expressed herein, insofar as it relates to the ~~group. Management segregates homogenous loans into groups~~Company’s net investment in (approximately $ 107.1 million and $ 95.8 million at December 31, 2006 and 2005, respectively) and equity in the net earnings of (approximately $ 9.7 million, $ 12.7 million, and $ 13.1 million for the years ended December 31, 2006, 2005 and 2004, respectively) Bluegreen Corporation, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

As discussed in Note 21 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, based on our audit and the report of other auditors, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, based on our audit and the report of other auditors, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the

127

effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We did not examine the effectiveness of internal control over financial reporting of Bluegreen Corporation as of December 31, 2006. The effectiveness of Bluegreen Corporation’s internal control over financial reporting as of December 31, 2006 was audited by other auditors whose report has been furnished to us, and our opinions expressed herein, insofar as they relate to the effectiveness of Bluegreen Corporation’s internal control over financial reporting, are based solely on the report of the other auditors. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as ~~residential~~we consider necessary in the circumstances. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management’s assessment and our audit of BFC Financial Corporation’s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Savings and Loan holding companies (OTS Form H-(b) 11) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 14, 2007

128

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Bluegreen Corporation

We have audited the accompanying consolidated balance sheets of Bluegreen Corporation (the Company) as of December 31, 2005 and 2006, and the related consolidated statements of income, shareholders’ equity and cash flows for each of three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bluegreen Corporation at December 31, 2005 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company adopted SFAS No. 123(R),Share-Based Payment, applying the modified prospective method at the beginning of 2006. As discussed in Note 2, in 2006 the Company has also adopted SFAS No. 152,Accounting for Real Estate Time-Sharing Transactions.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Bluegreen Corporation’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2007 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP
Certified Public Accountants

March 14, 2007
Miami, Florida

129

BFC Financial Corporation
Consolidated Statements of Financial Condition
(In thousands, except share data)

December 31,
2006 2005
ASSETS

Cash and due from depository institutions $ 195,401 $ 296,842
Federal funds sold and other short-term investments 5,722 3,229
Securities available for sale (at fair value) 653,659 676,660
Investment securities (approximate fair value: $229,546 and $220,920) 227,208 221,242
Tax certificates net of allowance of $3,699 and $3,271 195,391 163,726
Federal Home Loan Bank stock, at cost which approximates fair value 80,217 69,931
Discontinued operations assets held for sale 190,763 240,109
Loans receivable, net of allowance for loan losses of $44,173 and $41,830 4,594,192 4,626,206
Residential loans held for sale 9,313 2,538
Accrued interest receivable 47,676 41,496
Real estate held for development and sale 847,492 632,597
Real estate owned 21,747 967
Investments in unconsolidated affiliates 124,521 110,124
Properties and equipment, net 298,513 190,860
Goodwill 70,490 71,797
Core deposit intangible asset 6,834 8,395
Other assets 36,627 39,036

Total assets $ 7,605,766 $ 7,395,755

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Deposits
Interest bearing deposits $ 2,871,116 $ 2,732,727
Non-interest bearing deposits 995,920 1,019,949

Total deposits 3,867,036 3,752,676
Customer deposits on real estate held for sale 42,696 51,686
Advances from FHLB 1,517,058 1,283,532
Securities sold under agreements to repurchase 96,385 109,788
Federal funds purchased and other short term borrowings 32,026 139,475
Secured borrowings — 138,270
Subordinated debentures, notes and bonds payable 560,624 392,784
Junior subordinated debentures 348,318 317,390
Deferred tax liabilities, net 10,646 22,421
Discontinued operations liabilities held for sale 95,246 133,763
Other liabilities 159,823 174,368

Total liabilities 6,729,858 6,516,153

Noncontrolling interest 698,323 696,522

Commitments and contingencies

Shareholders’ equity:
Preferred stock of $.01 par value; authorized 10,000,000 shares; 5% Cumulative Convertible Preferred Stock (“5% Preferred Stock”) issued and outstanding 15,000 shares in 2006 and 2005 — —
Class A common stock of $.01 par value, authorized 70,000,000 shares; issued and outstanding 28,755,882 in 2006 and 29,949,612 in 2005 266 278
Class B common stock of $.01 par value, authorized 20,000,000 shares; issued and outstanding 7,090,652 in 2006 and 4,285,413 in 2005 69 41
Additional paid-in capital 93,910 97,223
Unearned compensation — restricted stock grants — (100 )
Retained earnings 81,889 85,113

Total shareholders’ equity before accumulated other comprehensive income 176,134 182,555
Accumulated other comprehensive income 1,451 525

Total shareholders’ equity 177,585 183,080

Total liabilities and shareholders’ equity $ 7,605,766 $ 7,395,755

See accompanying notes to consolidated financial statements.

130

BFC Financial Corporation
Consolidated Statements of Operations
(In thousands, except per share data)

For the Years Ended December 31,
2006 2005 2004
Revenues

BFC Activities:

Interest and dividend income $ 2,249 $ 1,591 $ 659
Other income 1,433 1,538 5,024

3,682 3,129 5,683

Financial Services:

Interest and dividend income 367,177 345,002 246,830
Service charges on deposits 90,472 61,956 51,435
Other service charges and fees 27,542 23,347 23,620
Other income 22,555 15,232 36,818

507,746 445,537 358,703

Homebuilding & Real Estate Development:

Sales of real estate 566,086 558,112 549,652
Interest and dividend income 2,474 2,240 1,108
Other income 14,592 14,472 8,078

583,152 574,824 558,838

Total revenues 1,094,580 1,023,490 923,224

Costs and Expenses

BFC Activities:

Interest expense 30 346 393
Employee compensation and benefits 9,407 6,245 3,865
Impairment of securities — — 363
Other expenses 2,933 3,074 2,831

12,370 9,665 7,452

Financial Services:

Interest expense, net of interest capitalized 166,578 141,561 86,547
Provision (recovery) of loan losses 8,574 (6,615 ) (5,109 )
Employee compensation and benefits 150,804 117,573 96,196
Occupancy and equipment 57,308 41,621 32,717
Advertising and promotion 35,067 27,317 16,301
Impairment of office properties and equipment — 3,706 —
Amortization of intangible assets 1,561 1,627 1,715
Cost associated with debt redemption 1,457 — 11,741
Fines and penalties, compliance matters — 10,000 —
Other expenses 52,962 45,126 40,323

474,311 381,916 280,431

Homebuilding & Real Estate Development:

Cost of sales of real estate 482,961 407,190 403,900
Interest expense, net of interest capitalized — — 259
Selling, general and administrative expenses 120,017 86,715 70,118
Other expenses 3,677 4,855 7,341

606,655 498,760 481,618

Total costs and expenses 1,093,336 890,341 769,501

Equity in earnings from unconsolidated affiliates 10,935 13,404 19,603

Income from continuing operations before income taxes and noncontrolling interest 12,179 146,553 173,326
Provision (benefit) for income taxes (528 ) 59,566 70,920
Noncontrolling interest 13,404 79,267 90,388

(Loss) income from continuing operations (697 ) 7,720 12,018
Discontinued operations, less noncontrolling interest and income tax provision (benefit) of $(8,958) in 2006, 13,205 in 2005 and $13,078 in 2004 (1,524 ) 5,054 2,212

Net (loss) income (2,221 ) 12,774 14,230
5% Preferred Stock dividends 750 750 392

Net (loss) income allocable to common stock $ (2,971 ) $ 12,024 $ 13,838

See accompanying notes to consolidated financial statements.

131

BFC Financial Corporation
Consolidated Statements of Operations
(In thousands, except per share data)

For the Years Ended December 31,
2006 2005 2004
(Loss) earnings per common share:

Basic (loss) earnings per share from continuing operations $ (0.04 ) $ 0.24 $ 0.48
Basic (loss) earnings per share from discontinued operations (0.05 ) 0.18 0.09

Basic (loss) earnings per share (0.09 ) 0.42 0.57

Diluted (loss) earnings per share from continuing operations $ (0.05 ) $ 0.22 $ 0.40
Diluted (loss) earnings per share from discontinued operations (0.05 ) 0.15 0.07

Diluted (loss) earnings per share (0.10 ) 0.37 0.47

Basic weighted average number of common shares outstanding 33,249 28,952 24,183

Diluted weighted average number of common and common equivalent shares outstanding 33,249 31,219 27,806

See accompanying notes to consolidated financial statements.

132

BFC Financial Corporation
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)

For the Years Ended December 31,
2006 2005 2004
Net (loss) income $ (2,221 ) $ 12,774 14,230

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale, 1,518 (365 ) 448
Unfunded pension liability 212 — —
Minimum pension liability — (132 ) (662 )
Unrealized gains (losses) associated with investment in unconsolidated affiliates 79 152 (42 )
Reclassification adjustments:
Realized net periodic pension costs (26 ) — —
Realized gains on securities available for sale (857 ) (72 ) (332 )

926 (417 ) (588 )

Comprehensive (loss) income $ (1,295 ) $ 12,357 13,642

The components of other comprehensive (loss) income relate to the Company’s net unrealized gains (losses) on securities available for sale and the Company’s proportionate shares of non-wholly affiliates net unrealized gains (losses) on securities available for sale, net of income tax (benefit) provision of $ 953 in 2006, $(229) in 2005 and $281 in 2004; the Company’s proportionate shares of non-wholly owned affiliates unfunded pension liability, net of income tax provision of $133 in 2006 and mimimum pension liability, net of income tax benefit of $(83) in 2005 and $(416) in 2004; unrealized gains or (losses) associated with investments in unconsolidated real estate ~~small business mortgage, small business non-mortgage, lease financing,~~affiliates, net of income tax (benefit) provision of $50 in 2006, $95 in 2005 and $(17) in 2004 and the Company’s proportionate share of non-wholly owned affiliates reclassification adjustments from realized net periodic pension costs, net of income tax benefit of $(16) in 2006 and reclassification adjustments from realized losses on securities available for sale, net of income tax benefit of $(538) in 2006, $(45) in 2005 and $(202) in 2004.

133

BFC Financial Corporation
Consolidated Statements of Shareholders’ Equity
For each of the years in the three year period ended December 31, 2006
(In thousands)

Unearned Accumulated
Compen- Other
sation Compre-
Class A Class B Additional Restricted hensive
Common Common Paid-in Stock Retained Income
Stock Stock Capital Grants Earnings (Loss) Total
Balance, December 31, 2003
$ 163 $ 23 $ 24,654 $ — $ 59,305 $ 1,530 $ 85,675
Net income — — — 14,230 — 14,230
Other comprehensive loss, net of taxes — — — — — (588 ) (588 )
Net effect of subsidiaries’ capital transactions, net of taxes — — 5,812 — — — 5,812
Retirement of Common Stock — (6 ) (7,276 ) — — — (7,282 )
Issuance of Common Stock — 24 1,767 — — — 1,791
Issuance of 5% Preferred Stock — — 14,988 — — — 14,988
Cash dividends on 5% Preferred Stock — — — — (392 ) — (392 )
Common stock split 54 — — — (54 ) — —
Tax effect relating to the exercise of stock options — — 11,017 — — — 11,017

Balance, December 31, 2004
$ 217 $ 41 $ 50,962 $ — $ 73,089 $ 942 $ 125,251
Net income — — — — 12,774 — 12,774
Other comprehensive loss, net of taxes — — — — — (417 ) (417 )
Issuance of Class A Common Stock, net of stock issuance costs 61 — 46,547 — — — 46,608
Issuance of Class A restricted stock — — 200 (200 ) — — —
Net effect of subsidiaries’ capital transactions, net of taxes — — (474 ) — — — (474 )
Cash dividends on 5% Preferred Stock — — — — (750 ) — (750 )
Amortization of unearned compensation on restricted stock grants — — — 100 — — 100
Tax effect relating to share-based compensation — — (12 ) — — — (12 )

Balance, December 31, 2005
$ 278 $ 41 $ 97,223 $ (100 ) $ 85,113 $ 525 $ 183,080

Cumulative effect adjustment upon adoption of Staff Accounting Bulletin No. 108 (“SAB No. 108”) — — — — (253 ) — (253 )
Net loss — — — — (2,221 ) — (2,221 )
Other comprehensive income, net of taxes — — — — — 926 926
Issuance of Common Stock, upon exercise of stock options 1 39 9,076 — — — 9,116
Retirement of Common Stock relating to exercise of stock options (13 ) (11 ) (13,246 ) — — — (13,270 )
Net effect of subsidiaries’ capital transactions, net of taxes — — (16 ) — — — (16 )
Cash dividends on 5% Preferred Stock — — — — (750 ) — (750 )
Share-based compensation related to stock options and restricted stock — — 973 — — — 973
Reversal of unamortized stock compensation related to restricted stock upon adoption of FAS 123 ( R) — — (100 ) 100 — — —

Balance, December 31, 2006
$ 266 $ 69 $ 93,910 $ — $ 81,889 $ 1,451 $ 177,585

See accompanying notes to consolidated financial statements.

134

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)

For the Years Ended December 31,
2006 2005 2004
Operating activities:

Net (loss) income from continuing operations $ (697 ) $ 7,720 $ 12,018
(Loss) Income from discontinued operations (1,524 ) 5,054 2,212
Adjustment to reconcile net income to net cash provided by operating activities:

Noncontrolling interest 4,393 91,144 103,994
Provision (recovery) and valuation allowances, net 8,883 (6,265 ) (5,105 )
Cumulative effect adjustment before noncontrolling interest (1,899 ) — —
Depreciation, amortization and accretion, net 26,430 18,508 17,577
Amortization of deferred revenue 3,854 2,368 1,425
Amortization of intangible assets 1,561 1,627 1,715
Share-based compensation expense related to stock options and restricted stock 9,291 — —
Tax benefits from share-based compensation (3,719 ) — —
Securities activities, net (9,795 ) (847 ) (7,198 )
Impairment of securities — — 362
Net gain on transfer of net assets for settlement of note — (3,439 ) —
Net gains on sale of real estate owned (1,443 ) (1,840 ) (694 )
Net gains on sales of loans held for sale (680 ) (742 ) (483 )
Net (gains) losses on sales of property and equipment (2,711 ) (277 ) 17
Gain on sale of branch — (922 ) —
Equity in earnings from unconsolidated affiliates (9,267 ) (12,783 ) (19,118 )
(Decrease) increase in deferred tax liability, net (20,628 ) 3,511 17,894
Litigation settlement — — (23,987 )
Net (gains) losses associated with debt redemption (71 ) — 11,741
Impairment of office properties and equipment — 3,706 —
Impairment of long lived assets 38,083 — —
Reserve for fines and penalties, compliance matters — 10,000 —
Increase of forgivable notes receivable, net (6,111 ) (6,999 ) (8,079 )
Originations and repayments of loans held for sale, net (93,887 ) (125,487 ) (163,988 )
Proceeds from sales of loans held for sale 87,793 128,337 171,192
Increase in real estate held for development and sale (259,629 ) (191,610 ) (142,511 )
Decrease (increase) in securities owned, net 67,910 (54,849 ) (878 )
(Decrease) increase in securities sold but not yet purchased (3,770 ) (4,285 ) 1,649
Increase in accrued interest receivable (6,183 ) (5,501 ) (8,093 )
(Increase) decrease in other assets 3,024 2,556 (507 )
(Decrease) increase in due to clearing agent (40,115 ) 41,105 (25,202 )
(Decrease) increase in other liabilities (30,048 ) 21,344 46,100

Net cash used in operating activities
(240,955 ) (78,866 ) (17,947 )

Investing activities:

Proceeds from redemption and maturities of investment securities and tax certificates 199,482 210,493 212,983
Purchase of investment securities and tax certificates (236,962 ) (278,509 ) (311,825 )
Purchase of securities available for sale (143,272 ) (227,179 ) (677,050 )
Proceeds from sales and maturities of securities available for sale 181,444 300,469 308,529
Purchases of FHLB stock (49,950 ) (29,870 ) (49,923 )
Redemption of FHLB stock 39,664 38,558 11,629
Repayments from unconsolidated subsidiaries and real estate joint venture 5,303 447 10,084
Investments in unconsolidated affiliates and and real estate joint venture (10,323 ) (6,228 ) (127 )
Net repayments (purchases and originations) of loans (106,123 ) 105,186 (928,493 )
Proceeds from sales of real estate owned 4,382 3,872 3,821
Proceeds from sales of property and equipment 2,055 651 —
Additions to property and equipment (121,680 ) (56,335 ) (81,033 )

Net cash (used in) provided by investing activities
(235,980 ) 61,555 (1,501,405 )

(continued)

See accompanying notes to consolidated financial statements.

135

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)

For the Years Ended December 31,
2006 2005 2004
Financing activities:

Net increase in deposits $ 114,360 $ 313,190 399,060
Net cash outflows from sale of branch — (13,605 ) —
Repayments of FHLB advances (2,551,344 ) (1,506,832 ) (469,323 )
Proceeds from FHLB advances 2,785,000 1,246,000 1,220,000
Net increase (decrease) in securities sold under agreements to repurchase (13,403 ) (147,214 ) 133,119
Net increase (decrease) in federal funds purchased (107,449 ) 34,475 105,000
Repayments of secured borrowings (26,516 ) (101,924 ) —
Proceeds from secured borrowings — 65,293 —
Repayment of notes and bonds payable (216,891 ) (266,432 ) (227,621 )
Proceeds from notes and bonds payable 384,732 388,781 325,401
Issuance of junior subordinated debentures 30,928 54,124 —
Capital contributions in managed fund by investors 2,905 — —
Capital withdrawals in managed fund by investors (4,203 ) — —
BankAtlantic Bancorp excess tax benefits from share-based compensation 3,719 — —
Change in noncontrolling interest — 895 —
Payments for debt issuance costs (3,043 ) (3,498 ) —
Proceeds from the issuance of BFC Class A Common Stock, net of issuance costs — 46,436 —
Proceeds from the issuance of BFC common stock upon exercise of stock options — 172 1,791
Payment by BFC of the minimum witholding tax upon exercise of stock option (4,154 ) — (7,282 )
5% Preferred Stock dividends paid (750 ) (750 ) (392 )
Proceeds from the issuance of 5% Preferred Stock, net of issuance cost — — 14,988
Issuance of Levitt Corporation common stock, net of issuance cost — — 114,769
Payment by BankAtlantic Bancorp of the minimum withholding tax upon exercise of stock options (2,717 ) (3,519 ) (2,946 )
Proceeds from issuance of BankAtlantic Bancorp Class A common stock 1,479 1,179 2,334
Purchase and retirement of BankAtlantic Bancorp subsidiary common stock (7,833 ) (491 ) —
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders (7,592 ) (6,930 ) (6,331 )
Levitt common stock dividends paid to non-BFC shareholders (1,322 ) (1,322 ) (661 )
Venture partnerships distribution paid to non-BFC partners — — (1,376 )

Net cash provided by financing activities
375,906 98,028 1,600,530

Increase (decrease) in cash and cash equivalents
(101,029 ) 80,717 81,178
Cash and cash equivalents at beginning of period 305,437 224,720 143,542
Cash and cash equivalents of discontinued assets held for sale (3,285 ) (5,366 ) (3,674 )

Cash and cash equivalents at end of period
$ 201,123 $ 300,071 $ 221,046

(continued)

See accompanying notes to consolidated financial statements.

136

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)

See accompanying notes to consolidated financial statements.

137

BFC Financial Corporation
Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Basis of Financial Statement Presentation– BFC Financial Corporation (“BFC” or the “Company”) is a diversified holding company with investments in companies engaged in retail and commercial banking, homebuilding, master planned community development and time share and vacation ownership. The Company also owns an interest in an Asian- themed restaurant chain and various ~~types~~real estate and venture capital investments. The Company’s principal holdings consist of ~~consumer loans. The methodology utilized~~direct controlling interests in ~~establishing the allowance for homogenous loans includes consideration~~BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”) and Levitt Corporation (“Levitt”). Through its control of ~~trends~~BankAtlantic Bancorp, BFC has indirect controlling interests in ~~industries, analysis~~BankAtlantic and its subsidiaries (“BankAtlantic”). Through its control of ~~historical losses, static pool analysis, delinquency trends,~~Levitt, BFC has indirect controlling interests in Levitt and ~~credit scores. The third component~~Sons, LLC and its subsidiaries (“Levitt and Sons”) and Core Communities, LLC and its subsidiaries (“Core Communities”) and an indirect non-controlling interest in Bluegreen Corporation (“Bluegreen”). BFC also holds a direct non-controlling investment in Benihana, Inc. (“Benihana”). As a result of the ~~allowance~~Company’s position as the controlling stockholder of BankAtlantic Bancorp, the Company is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision.

On June 20, 2006 the Company announced that its Class A Common Stock was approved for listing on the NYSE Arca exchange (“NYSE Arca”) under the symbol “BFF” and on June 22, 2006, the Company commenced trading on the NYSE Arca. From April 2003 through June 19, 2006, BFC’s Class A Common Stock was traded on the NASDAQ National Market.

As a holding company with controlling positions in BankAtlantic Bancorp and Levitt, generally accepted accounting principles (“GAAP”) requires the consolidation of their financial results. As a consequence, the assets and liabilities of both entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or distribution. The recognition by BFC of income from controlled entities is determined ~~separately from~~based on the ~~procedures outlined above. This component addresses certain industry~~total percent of economic ownership in those entities as shown in the table below.

138

BFC Financial Corporation
Notes to Consolidated Financial Statements

BFC’s ownership in BankAtlantic Bancorp and ~~geographic concentrations,~~Levitt as of December 31, 2006 was as follows:

Percent
Shares Percent of of
Owned Ownership Vote
BankAtlantic Bancorp
Class A Common Stock 8,329,236 14.83 % 7.86 %
Class B Common Stock 4,876,124 100.00 % 47.00 %
Total 13,205,360 21.64 % 54.86 %

Levitt
Class A Common Stock 2,074,243 11.15 % 5.91 %
Class B Common Stock 1,219,031 100.00 % 47.00 %
Total 3,293,274 16.61 % 52.91 %

In preparing the ~~view~~financial statements, management is required to make estimates and assumptions that affect the reported amounts of ~~regulators~~assets and ~~changes in composition~~liabilities and disclosure of contingent assets and liabilities as of the ~~loan portfolio. Management believes~~date of the statements of financial condition and operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of the fair value of assets and liabilities in the application of the purchase method of accounting, the valuation of intangible and long-lived assets for impairment, the allowance for loan losses, ~~is adequate and that it has a sound basis~~the evaluation of securities for ~~estimating~~impairment, the ~~adequacy~~valuation of ~~the allowance for loan losses. Actual losses incurred in the future are highly dependent upon future events, including the economies of the geographic areas in which BankAtlantic holds loans.~~
~~F-16~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Non-performing Loans~~— A loan is generally placed on non-accrual status at the earlier of (i) the loan becoming past due 90 days as to either principal or interest or (ii) when the borrower has entered bankruptcy proceedings and the loan is delinquent. Exceptions to placing 90-day past due loans on non-accrual may be made if there exists an abundance of collateral and the loan is in the process of collection. Loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on non-accrual status, interest accrued but not received is reversed against interest income. A non-accrual loan may be restored to accrual status when delinquent loan payments are collected and the loan is expected to perform in the future according to its contractual terms. Interest income on performing impaired loans is recognized on an accrual basis.

Consumer non-mortgage loans and lease financing contracts that are 120 days past due are charged off. Real estate secured consumer and residential loans that are 120 days past due are charged down to fair value less cost to sell.

~~Real Estate Owned (“REO”)~~— REO is recorded at the lower of cost or estimated fair value, less estimated selling costs when acquired, establishing a new cost basis. Write-downs required at the time of acquisition are charged to the allowance for loan losses. Expenditures for capital improvements made thereafter are generally capitalized. Realreal estate acquired in ~~settlement~~connection with foreclosure or in satisfaction of loans, ~~is anticipated to be sold and~~the amount of the deferred tax asset valuation allowance, ~~adjustments are made~~accounting for share-based compensation, revenue recognition on percent complete projects and impairment of real estate assets, determination of the valuation of real estate and estimated costs to ~~reflect any subsequent changes in fair values from~~complete construction, litigation and contingencies. In connection with the ~~initially recorded amount. The costs~~determination of ~~holding REO are charged to operations as incurred. Provisions~~the allowances for loan losses, real estate owned, and ~~reversals in the REO valuation allowance are reflected in operations. Management~~real estate held for development, management obtains independent appraisals for significant ~~properties.~~

properties when it is deemed prudent. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The accounting policies applied by the Company conform to accounting principles generally accepted in the United States of America.

Certain amounts for prior years have been reclassified to conform to revised statement presentation for 2006.

~~Investment Banking Activities~~Consolidation Policy —~~– Investment banking revenues~~The consolidated financial statements include ~~gains, losses,~~the accounts of the Company, its wholly owned subsidiaries, majority-controlled subsidiaries, including BankAtlantic Bancorp and ~~fees, net of syndicate expenses, arising from securities offerings~~Levitt, majority-owned joint ventures and variable interest entities in which ~~Ryan Beck acts~~the Company’s subsidiaries are the primary beneficiary as ~~an underwriter or agent. Investment banking revenues also include fees earned from providing merger~~defined by Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”). No gains and ~~acquisition and financial restructuring advisory services. Investment banking management fees are recorded as earned, provided no contingency of payment exists. Sales concessions~~losses are recorded on ~~trade date,~~the issuance of subsidiary common stock. All inter-company transactions and ~~underwriting fees~~balances have been eliminated.

Cash Equivalents —Cash equivalents consist of cash, demand deposits at other financial institutions, federal funds sold, securities purchased under resell agreements, money market funds and other short-term investments with original maturities of 90 days or less. Federal funds sold are ~~recorded at~~generally sold for one-day periods, and securities purchased under resell agreements are settled in less than 30 days.

Restricted Cash —Cash and interest bearing deposits are segregated into restricted accounts for specific uses in accordance with the ~~time~~terms of certain land sale contracts, home sales agreements. Restricted funds may only be utilized in accordance with the ~~underwriting~~terms of the applicable governing documents. The majority of restricted funds are controlled by third-party escrow fiduciaries. Restricted cash is ~~completed and~~included in Other Assets in the ~~income is reasonably determined.~~
~~Securities Transactions~~~~— Proprietary securities transactions in regular-way trades are recorded on a trade date basis. Profit and loss arising from all securities transactions entered into for the account and risk~~Company’s Statements of Ryan Beck are recorded on a trade date basis. Customers’ securities transactions are reported on a settlement date basis with related commission income and expenses reported on a trade date basis. Amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition
Financial Condition.

Securities Owned and Securities Sold, But Not Yet Purchased–— Securities owned and securities sold, but not yet purchased are associated with proprietary securities transactions entered into by Ryan Beck and are accounted for at fair value with changes in the fair value included in ~~earnings.~~income from discontinued operations. The fair value of these trading

139

BFC Financial Corporation
Notes to Consolidated Financial Statements

positions is generally based on listed market prices. If listed market prices are not available or if liquidating the positions would reasonably be expected to impact market prices, fair value is determined based on other relevant factors, including dealer price quotations, price quotations for similar instruments traded in different markets, management’s estimates of amounts to be realized on settlement or management valuation ~~model~~models associated with securities that are not readily marketable.

~~Real Estate Held for Development~~Investment Securities —Investment securities are classified based on management’s intention on the date of purchase. Debt securities that management has both the intent and ~~Sale– This includes land, land development costs, interest~~ability to hold to maturity are classified as securities held-to-maturity and other construction costs associated with Levitt’s real estate inventory, BankAtlantic Bancorp’s investment in a real estate variable interest entity and BFC’s real estate property, an outlet center in North Carolina. Real estate inventory isare stated at cost, net of unamortized premiums and unaccreted discounts.

Debt securities not held to maturity and marketable equity securities not accounted for under the ~~accumulated cost or when circumstances indicate that the inventory is impaired~~equity method of accounting are classified as available for sale and are recorded at ~~estimated~~ fair value. ~~The estimated fair value of real estate is evaluated based on disposition of real estate in the normal course of business under existing~~Unrealized gains and anticipated market conditions. The evaluation takes into consideration the current status of property, various restrictions, carrying costs, debt service requirements, costs of disposition and any other circumstances which may affect fair value, including management’s plans for the property. Due to the large acreage of certain land holdings, disposition in the normal course of business is expected to extend over a number of years.

~~Land and indirect land development costs~~losses, after applicable taxes, are accumulated by specific area and allocated to various parcels or housing units using specific identification and allocation based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of tangible selling costs, prepaid local government fees and capitalized real estate taxes. Tangible selling costs are capitalized by communities and represent costs incurred that are used directly throughout the selling period to aid in the sale of housing units, such as model furnishings and decorations, sales

~~F-17~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

office furnishings and facilities, exhibits, displays and signage. These tangible selling costs are capitalized and expensed to cost of sales of the benefited home sales. Start-up costs and other selling expenses are expensed as incurred.

Interest is capitalized at the effective rates paid on borrowings incurred for real estate inventory during the preconstruction and planning stage and the periods that projects are under development. Capitalization of interest is discontinued if development ceases at a project. Interest is expensedrecorded as a component of other comprehensive income.

Declines in the value of individual held to maturity and available for sale securities that are considered other than temporary result in write-downs in earnings through securities activity, net of the individual securities to their fair value. The review for other-than-temporary declines takes into account current market conditions, trends and other key measures.

Securities acquired for short-term appreciation or other trading purposes are classified as trading securities and are recorded at fair value. Realized and unrealized gains and losses resulting from such fair value adjustments and from recording the results of sales are recorded in securities activities, net which is included in Other Income in the Company’s Consolidated Statements of Operations.

The fair value of securities available for sale and trading securities are estimated by obtaining prices actively quoted on national markets, using a price matrix or applying management valuation models.

Equity securities that do not have readily determinable fair values are carried at historical cost. These securities are evaluated for other than temporary declines in value, and, if impaired, the historical cost of ~~sales as related homes, land and units are sold. The following table~~the securities is ~~a summary~~written down to estimated fair value in earnings through securities activities, net.

Interest on securities, including the amortization of ~~interest incurred on notes and mortgage notes payable~~premiums and the ~~amounts capitalized (in thousands):~~

For the Years Ended December 31,
2004 2003 2002
Interest expense $ 101,139 $ 122,269 $ 159,546
Interest capitalized (12,238 ) (8,884 ) (7,668 )

Interest expense, net $ 88,901 $ 113,385 $ 151,878

~~Revenue~~accretion of discounts, are reported in interest income using the interest method over the lives of the securities, adjusted for actual prepayments. Gains and ~~all related costs~~losses on the sale of securities are recorded on the trade date and ~~expenses from home~~recognized using the specific identification method and ~~land sales~~reported in other income in the Company’s Consolidated Statements of Operations.

Derivative Instruments—All derivatives are recognized on the consolidated statement of financial condition at their fair value with realized and unrealized gains and losses resulting from such fair value adjustments recorded in securities activities, net on the ~~time that closing has occurred, when title~~consolidated statement of operations. If BankAtlantic Bancorp elects hedge accounting, the hedging instrument must be highly effective in achieving offsetting changes in the hedge instrument and ~~possession of the property and the risks and rewards of ownership transfer~~hedged item attributable to the ~~buyer, and when other sale and profit recognition criteria are satisfied as required under generally accepted principles~~risk being hedged. Any ineffectiveness which arises during the hedging relationship is recognized in earnings in the ~~United States~~Company’s consolidated statements of ~~America for real estate transactions. In order~~operations. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to ~~properly match revenues with expenses, an estimation~~be a highly effective hedge, hedge accounting is made as to certain construction and land development costs incurred but not yet paid at the time of closing. Estimated costs to complete are determined for each closed home and land sale based upon historical data with respect to similar product types and geographical areas. The accuracy of estimates are monitored by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and modifications are made to the estimates based on these comparisons. We do not expect the estimation process to change in the future nor do we expect actual results to materially differ from such estimates.

discontinued prospectively.

Investments in Unconsolidated Subsidiaries~~– The Company follows~~

We follow the equity method of accounting to record ~~its~~our interests in subsidiaries in which ~~it does~~we do not own the majority of the voting ~~stock. Effective January 1, 2003, the Company implemented FIN No. 46, which required the Company~~stock and to ~~use the equity method to account for its investments~~record our investment in variable interest entities in which itwe are not the primary beneficiary. These entities consist of Bluegreen Corporation, joint ventures and statutory business trusts. The statutory business trusts are variable interest entities in which the Company is not the primary beneficiary. ~~As a result of the adoption of this standard in 2003, the Company began accounting for its interest in statutory business trusts (utilized in the issuance of trust preferred securities) under~~Under the equity ~~method. Under this~~ method, the ~~Company’s~~ initial investment in a joint venture is recorded at cost and is subsequently adjusted to recognize ~~its~~our share of the joint venture’s earnings or losses. Distributions received reduce the carrying amount of the investment.

~~Goodwill and Other Intangible Assets~~~~– The Company adopted SFAS~~ We evaluate our investments in unconsolidated entities for impairment during each reporting period in accordance with Accounting Principles Board Opinion No. ~~142, “Goodwill and Other Intangible Assets,” on January 1, 2002. As~~18, “The Equity Method of Accounting for Investments in Common Stock”. These investments are evaluated annually or as events or circumstances warrant for other than temporary declines in value. Evidence of other than temporary declines includes the inability of the adoption date, the Company no longer amortizes goodwill over its useful life. Instead, goodwill is tested for impairment annually at the reporting unit level, by comparing the fair value of the reporting unitjoint venture or investee to ~~its carrying amount. The Company will recognize a goodwill impairment charge if~~sustain an earnings capacity that would justify the carrying amount of the ~~goodwill assigned to the reporting unit~~investment and consistent joint venture operating losses. The evaluation is ~~greater than the implied fair value~~based on available information including condition of the ~~goodwill.~~

Atproperty and current and anticipated real estate market conditions.

Homesite Contracts and Consolidation of Variable Interest Entities

In the ~~date~~ordinary course of ~~adoption~~business we enter into contracts to purchase homesites and land held for development. Option contracts allow us to control significant homesite positions with minimal capital investment and substantially reduce the ~~fair values~~risks associated with land ownership and development. Our liability for nonperformance under such contracts is typically only the required deposits, which are usually less than 20% of ~~all reporting units, except~~the underlying purchase price. We do not have legal title to these assets. However, if certain conditions are met under the requirements of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, the Company’s land contracts may create a variable interest for the ~~Ryan Beck, exceeded their respective carrying amounts at~~Company, with the ~~adoption date. Based on an independent valuation, a $15.1 million impairment loss (net of a $1.2 million tax benefit) related to Ryan Beck was recorded effective as of January 1, 2002~~Company being identified as the ~~cumulative effect of a change in accounting principle.~~

~~Other intangible assets consist of core deposit intangible assets which were initially measured at fair value and~~primary beneficiary. If these conditions are ~~amortized over their useful life of ten years.~~

~~Properties and Equipment~~–Properties and equipment consists primarily of office premises, office furniture and fixtures, computer equipment and water treatment and irrigation facilities. Land is carried at cost. Office properties, equipment and computer software are carried at cost less accumulated depreciation. Depreciation is primarily computed on the straight-line method over the estimated useful lives ofmet, interpretation no. 46 requires us to consolidate the assets which generally range up to 40 years for buildings and 3-10 years for equipment. The cost of leasehold improvements is being amortized using the straight-line method over the terms of the related leases.

(homesites) at their fair value. At December 31, 2006 there were no assets under these contracts consolidated in our financial statements.

~~Expenditures for new properties and equipment and major renewals and betterments are capitalized.~~

~~F-18~~97

~~BFC Financial Corporation~~

Homebuilding & Real Estate Development (Continued)

Revenue Recognition

Revenue and ~~Subsidiaries~~
~~Notes~~all related costs and expenses from house and land sales are recognized at the time that closing has occurred, when title and possession of the property and the risks and rewards of ownership transfer to ~~Consolidated Financial Statements~~

~~Expenditures~~the buyer, and we do not have a substantial continuing involvement in accordance with SFAS No. 66, “Accounting for ~~maintenance~~Sales of Real Estate”. In order to properly match revenues with expenses, we estimate construction and ~~repairs~~land development costs incurred but not paid at the time of closing. Estimated costs to complete are ~~charged~~determined for each closed home and land sale based upon historical data with respect to ~~expense~~similar product types and geographical areas. We monitor the accuracy of estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and make modifications to the estimates based on these comparisons. We do not expect the estimation process to change in the future.

Revenue is recognized from certain land sales on the percentage-of-completion method when the land sale takes place prior to all contracted work being completed. Pursuant to the requirements of SFAS 66, if the seller has some continuing involvement with the property and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement. In the case of our land sales, this involvement typically consists of final development activities. We recognize revenue and related costs as work progresses using the percentage of completion method, which relies on contract revenue and estimates of total expected costs to complete required work. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs at the time of sale. Actual revenues and ~~gains or losses on disposal~~costs to complete construction in the future could differ from our current estimates. If our estimates of ~~assets~~development costs remaining to be completed are ~~reflected~~significantly different from actual amounts, then our revenues, related cumulative profits and costs of sales may be revised in ~~current operations.~~

~~Impairment~~the period that estimates change.

Effective January 1, 2006, Bluegreen adopted AICPA Statement of ~~Long Lived Assets~~–~~Long-lived assets are reviewed~~Position 04-02 Accounting for ~~impairment whenever events or changes in circumstances indicate~~Real Estate Time-Sharing Transactions (“SOP 04-02”). This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the ~~carrying amount of an asset may~~guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not ~~be recoverable. In performing the review~~apply to real estate time-sharing transactions. The accounting for ~~impairment, the Company compares the expected future cash flows (undiscounted~~those operations and ~~without interest charges)~~costs is subject to the ~~carrying amount~~guidance in SOP 04-02. The adoption of SOP 04-02 resulted in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in Bluegreen recorded by us by approximately $1.4 million for the same period.

Capitalized Interest

Income Taxes

The Company utilizes the asset and ~~records an impairment loss if the carrying amount exceeds the expected future cash flows.~~

~~Long-lived assets~~liability method to ~~be abandoned or distributed to owners in a spin-off are considered held and used until disposed. The depreciable life of a long-lived asset to be abandoned is revised and~~account for income taxes. Under the asset is depreciated over its shortened depreciable life when an entity commits to a plan to abandon the asset before the end of its previously estimated useful life. An impairment loss is recognized at the date a long-lived asset is exchanged for a similar productive asset or distributed to owners in a spin-off if the carrying amount of the asset exceeds its fair value. Long-lived assets classified as held for sale are reported at the lower of its carrying amount or fair value less cost to sell and ~~depreciation (amortization) is ceased.~~

~~Advertising~~—~~Advertising expenditures are expensed as incurred.~~

~~Income Taxes –~~BFC and its wholly owned subsidiaries file a consolidated U.S. federal income tax return. Subsidiaries in which the Company owns less than 80% of the outstanding common stock, including BankAtlantic Bancorp and Levitt, are not included in the Company’s consolidated U.S. federal income tax return. The Company and its subsidiaries file separate state income tax returns for each state jurisdiction.

~~The provision for income taxes is based on income before taxes reported for financial statement purposes after adjustment for permanent differences. Deferred~~liability method, deferred tax assets and liabilities are recognized for the ~~estimated~~ future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax ~~basis.~~bases. Deferred tax assets and liabilities are measured using ~~the~~ enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when it is more likely than not that all or a portion of the deferred tax ~~assets~~asset will not be realized.

Stock-based Compensation

Homebuilding & Real Estate Development (Continued)

Goodwill

Consolidated Results of Operations


										2006			2005
	Year Ended December 31,									vs. 2005			vs. 2004
	2006			2005			2004			Change			Change
	(In thousands, except per share data)
Revenues
Sales of real estate	$	566,086			558,112			549,652			7,974			8,460
Other Revenues (b)		9,241			6,772			6,184			2,469			589

Total revenues		575,327			564,884			555,836			10,443			9,049


Costs and expenses
Cost of sales of real estate		482,961			408,082			406,274			74,879			1,808
Selling, general and administrative expenses		121,151			87,639			71,001			33,512			16,638
Other expenses		3,677			4,855			7,600			(1,178	)		(2,745	)

Total costs and expenses		607,789			500,576			484,875			107,213			15,701


Earnings from Bluegreen Corporation		9,684			12,714			13,068			(3,030	)		(354	)
(Loss) earnings from joint ventures		(416	)		69			6,050			(485	)		(5,981	)
Interest and other income (b)		8,260			10,256			3,233			(1,996	)		7,023

(Loss) income before income taxes		(14,934	)		87,347			93,312			(102,281	)		(5,965	)
Benefit (provision) for income taxes		5,770			(32,436	)		(35,897	)		38,206			3,461

Net (loss) income	$	(9,164	)		54,911			57,415			(64,075	)		(2,504	)


Basic (loss) earnings per share	$	(0.46	)	$	2.77		$	3.10		$	(3.23	)	$	(0.33	)

Diluted (loss) earnings per share (a)	$	(0.47	)	$	2.74		$	3.04		$	(3.21	)	$	(0.30	)

Basic weighted average shares outstanding		19,823			19,817			18,518			6			1,299
Diluted weighted average shares outstanding		19,823			19,929			18,600			(106	)		1,329


(a)		Diluted (loss) earnings per share takes into account (i) the dilution in earnings we recognize from Bluegreen as a result of outstanding securities issued by Bluegreen that enable the holders thereof to acquire shares of Bluegreen’s common stock and (ii) the dilutive effect of our stock options and restricted stock using the treasury stock method.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

We incurred a consolidated net loss of $9.2 million for the year ended December 31, 2006 which represented a decrease in consolidated net income of $64.1 million, or 116.7%, for the year ended December 31, 2006 compared to the same period in 2005. This decrease was the result of decreased margins on sales of real estate across all Divisions due to increased cost of sales, and inventory impairments recorded in the year ended December 31, 2006 in the amount of $36.8

Homebuilding & Real Estate Development (Continued)

100

Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

101

Homebuilding & Real Estate Development (Continued)

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

102

Homebuilding & Real Estate Development (Continued)

Homebuilding Division Results of Operations


										2006			2005
	Year Ended December 31,									vs. 2005			vs. 2004
	2006			2005			2004			Change			Change
	(Dollars in thousands, except unit data)
Revenues
Sales of real estate	$	500,719			438,367			472,296			62,352			(33,929	)
Other Revenues		4,070			3,750			4,798			320			(1,048	)

Total revenues		504,789			442,117			477,094			62,672			(34,977	)


Costs and expenses
Cost of sales of real estate		440,059			347,008			371,097			93,051			(24,089	)
Selling, general and administrative expenses		77,858			57,403			50,806			20,455			6,597
Other expenses		3,669			3,606			7,015			63			(3,409	)

Total costs and expenses		521,586			408,017			428,918			113,569			(20,901	)


(Loss) earnings from joint ventures		(279	)		104			3,518			(383	)		(3,414	)
Interest and other income		3,388			723			1,944			2,665			(1,221	)

(Loss) income before income taxes		(13,688	)		34,927			53,638			(48,615	)		(18,711	)
Benefit (provision) for income taxes		4,749			(12,691	)		(20,658	)		17,440			7,967

Net (loss) income	$	(8,939	)		22,236			32,980			(31,175	)		(10,744	)


Operational data:
Homes delivered		1,660			1,789			2,126			(129	)		(337	)
Construction starts		1,682			1,662			2,294			20			(632	)
Average selling price of homes delivered	$	302,000			245,000			222,000			57,000			23,000
Margin percentage on homes delivered (a)		12.1	%		20.8	%		21.4	%		(8.7	)%		(0.6	)%
Gross sales contracts (units)		1,520			2,039			1,982			(519	)		57
Sales contracts cancellations (units)		404			272			303			132			(31	)
Net orders (units)		1,116			1,767			1,679			(651	)		88
Net orders (value – in thousands)	$	381,993			547,045			427,916			(165,052	)		119,129
Backlog of homes (units)		1,248			1,792			1,814			(544	)		(22	)
Backlog of homes (value – in thousands)	$	438,240			557,325			448,647			(119,085	)		108,678
Joint Ventures (excluded from above):
Homes delivered		—			—			146			—			(146	)
Construction starts		—			—			—			—			—
Net orders (units)		—			—			42			—			(42	)
Net orders (value)	$	—			—			13,967			—			(13,967	)
Backlog of homes (units)		—			—			—			—			—
Backlog of homes (value)	$	—			—			—			—			—


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

103

Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

104

Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

105

Homebuilding & Real Estate Development (Continued)

106

Homebuilding & Real Estate Development (Continued)

Land Division Results of Operations


										2006			2005
	Year Ended December 31,									Vs. 2005			vs. 2004
	2006			2005			2004			Change			Change
	(Dollars in thousands)
Revenues
Sales of real estate	$	69,778			105,658			96,200			(35,880	)		9,458
Other Revenues (b)		3,816			1,111			927			2,705			184

Total revenues		73,594			106,769			97,127			(33,175	)		9,642


Costs and expenses
Cost of sales of real estate		42,662			50,706			42,838			(8,044	)		7,868
Selling, general and administrative expenses		15,119			12,395			10,373			2,724			2,022
Other expenses		—			1,177			561			(1,177	)		616

Total costs and expenses		57,781			64,278			53,772			(6,497	)		10,506


Interest and other income (b)		2,650			7,897			744			(5,247	)		7,153

Income before income taxes		18,463			50,388			44,099			(31,925	)		6,289
Provision for income taxes		(6,936	)		(18,992	)		(17,031	)		12,056			(1,961	)

Net income	$	11,527			31,396			27,068			(19,869	)		4,328


Operational data:
Acres sold		371			1,647			1,212			(1,276	)		435
Margin percentage (a)		38.9	%		52.0	%		55.5	%		(13.1	)%		(3.5	)%
Unsold saleable acres		6,871			7,287			5,965			(416	)		1,322
Acres subject to sales contracts – Third parties		74			246			1,833			(172	)		(1,587	)
Aggregate sales price of acres subject to sales contracts to third parties		21,124			39,283			121,095			(18,159	)		(81,812	)


(a)		Margin percentage is calculated by dividing margin (sales of real estate minus cost of sales of real estate) by sales of real estate.

(b)		The years ended December 31, 2005 and 2004 reflect the reclassification of irrigation, leasing and marketing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

107

Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

108

Homebuilding & Real Estate Development (Continued)

109

Homebuilding & Real Estate Development (Continued)

Other Operations Results of Operations


											2006			2005
	Year Ended December 31,										Vs. 2005			Vs. 2004
	2006			2005				2004			Change			Change
	(Dollars in thousands)
Revenues							��
Sales of real estate	$	11,041			14,709				5,555			(3,668	)		9,154
Other Revenues (a)		1,435			1,963				459			(528	)		1,504

Total revenues		12,476			16,672				6,014			(4,196	)		10,658


Costs and expenses
Cost of sales of real estate		11,649			12,520				6,255			(871	)		6,265
Selling, general and administrative expenses		28,174			17,841				9,822			10,333			8,019
Other expenses		8			72				24			(64	)		48

Total costs and expenses		39,831			30,433				16,101			9,398			14,332


Earnings from Bluegreen Corporation		9,684			12,714				13,068			(3,030	)		(354	)
(Loss) earnings from joint ventures		(137	)		(35	)			2,532			(102	)		(2,567	)
Interest and other income (a)		4,196			2,143				545			2,053			1,598

(Loss) income before income taxes		(13,612	)		1,061				6,058			(14,673	)		(4,997	)
Benefit (provision) for income taxes		5,639			(378	)			(2,198	)		6,017			1,820

Net (loss) income	$	(7,973	)		683				3,860			(8,656	)		(3,177	)

(a)

The years ended December 31, 2005 and 2004 reflect the reclassification of leasing revenue to Other revenues from Interest and other income. See Note 1 – Consolidation Policy.

For the Year Ended December 31, 2006 Compared to the Same 2005 Period

110

Homebuilding & Real Estate Development (Continued)

Bluegreen reported net income for the year ended December 31, 2006 of $29.8 million, as compared to net income of $46.6 million for the same period in 2005. Our interest in Bluegreen’s earnings, net of purchase accounting adjustments, was $9.7 million for the year ended December 31, 2006 compared to $12.7 million for the same period in 2005.

111

Homebuilding & Real Estate Development (Continued)

For the Year Ended December 31, 2005 Compared to the Same 2004 Period

We recorded $12.7 million of earnings relating to our ownership interest in Bluegreen during the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004.

Bluegreen restated its financial statements for the first three quarters of fiscal 2005 and the fiscal years ended December 31, 2004 and 2003 due to certain misapplications of GAAP in the accounting for sales of the Company’s vacation ownership notes receivable and other related matters. The restatement accounts for the sales of notes receivable as on-balance sheet financing transactions as opposed to off-balance sheet sales transactions as Bluegreen had originally accounted for these transactions. We recorded the cumulative effect of the restatement in the year ended December 31, 2005. This cumulative adjustment was recorded as a $2.4 million reduction of our earnings from Bluegreen and a $1.1 million increase in our pro-rata share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction to our investment in Bluegreen.

FINANCIAL CONDITION

Our total assets at December 31, 2006 and 2005 were $1.1 billion and $895.7 million, respectively. The increase in total assets primarily resulted from:

a net increase in inventory of real estate of approximately $210.8 million, which includes approximately $64.8 million in land acquisitions by our Homebuilding Division;

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Homebuilding & Real Estate Development (Continued)

	•		an increase of $34.4 million in property and equipment associated with increased investment in commercial properties under construction by our Land Division, support for infrastructure in our master planned communities, and $3.5 million in hardware and software acquired for our implementation of our new financial and operating system ;

	•		a net increase of approximately $11.2 million in our investment in Bluegreen Corporation associated primarily with $9.7 million of earnings from Bluegreen (net of purchase accounting adjustments), $1.3 million from our pro rata share of unrealized gains associated with Bluegreen’s other comprehensive income and $287,000 associated with Bluegreen’s capital transactions; and

	•		the above increases in assets were partially offset by a net decrease in cash and cash equivalents of $65.2 million, which resulted from cash used in operations and investing activities of $268.3 million, partially offset by an increase in cash provided by financing activities of $203.1 million.

	•		a net increase in notes and mortgage notes payable of $176.8 million, primarily related to project debt associated with 2006 land acquisitions and land development activities;

	•		an increase of $30.9 million in junior subordinated debentures ;

	•		a decrease of $9.0 million in customer deposits due to a smaller backlog at December 31, 2006;

	•		an increase of $18.5 million in accruals as a result of increased construction costs, accrued professional services related to our systems implementation and legal and valuation services accruals related to the proposed merger with BFC; and

	•		a decrease in tax liability of approximately $7.0 million relating primarily to our pre-tax loss and the timing of estimated tax payments.

LIQUIDITY AND CAPITAL RESOURCES

113

Homebuilding & Real Estate Development (Continued)

of additional shares of Levitt Class A common stock. There is no assurance that we will be able to successfully raise additional capital on acceptable terms, if at all.


	December 31,
	2006		2005
Mortgage notes payable	$	67,504		127,061
Mortgage notes payable to BankAtlantic		—		223
Borrowing base facilities		348,600		143,100
Land acquisition and construction mortgage notes payable		1,641		3,875
Land acquisition mortgage notes payable		66,932		48,936
Construction mortgage notes payable		28,884		13,012
Lines of credit		14,000		14,500
Subordinated investment notes		2,489		3,132
Unsecured junior subordinated debentures		85,052		54,124
Other borrowings		601		7


Total Outstanding Debt	$	615,703	$	407,970

Additional detail on the above borrowings is provided in Item 8 Note 11.

114

Homebuilding & Real Estate Development (Continued)

115

Homebuilding & Real Estate Development (Continued)

Off Balance Sheet Arrangements and Contractual Obligations

We entered into an indemnity agreement in April 2004 with a joint venture partner at Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s indebtedness. Our liability under the indemnity agreement is limited to the amount of any distributions from the joint venture which exceeds our original capital and other contributions. Accordingly, our potential obligation of indemnity was approximately $664,000 at December 31, 2006. Based on the joint venture assets that secure the indebtedness, we do not believe it is likely that any payment will be required under the indemnity agreement.

The following table summarizes our contractual obligations as of December 31, 2006 (in thousands):


			Payments due by period
			Less than		13 - 36		37 - 60		More than
Category (1)	Total		12 Months		Months		Months		60 Months

Long-term debt obligations	$	615,703		46,016		304,341		146,706		118,640
Interest payable on long-term debt		268,250		46,487		78,738		25,791		117,234
Operating lease obligations		8,531		2,287		3,466		1,323		1,455
Purchase obligations		14,220		14,220		—		—		—

Total obligations	$	906,704		109,010		386,545		173,820		237,329


(1)		Long-term debt obligations consist of notes, mortgage notes and bonds payable. Interest payable on these long-term debt obligations is the interest that will be incurred related to the outstanding debt. Operating lease obligations consist of lease commitments. Purchase obligations consist of contracts to acquire real estate properties for development and sale for which due diligence has been completed and our deposit is committed; however our liability for not completing the purchase of any such property is generally limited to the deposit made under the relevant contract. At December 31, 2006, we had $400,000 in deposits securing such purchase obligations and we currently intend to acquire the land associated with these purchase obligations, subject to market conditions and the Company’s financial condition.

(2)		In addition to the above scheduled payments, certain of our borrowings require repayments of specified amounts upon a sale of portions of the property securing the debt.

116

Homebuilding & Real Estate Development (Continued)


																						Fair Market
																						Value at
	Payments due by year																					December 31,
	2007			2008			2009			2010			2011			Thereafter			Total			2006
Fixed rate debt:
Notes and mortgage payable (a)		2,303			980			328			256			264			101,208			105,339			105,885
Average interest rate		8.03	%		8.03	%		8.09	%		8.10	%		8.11	%		5.27	%		7.61	%

Variable rate debt:
Notes and mortgage payable		43,713			24,951			278,082			100,312			45,874			17,432			510,364			510,364
Average interest rate		7.73	%		7.69	%		7.68	%		7.73	%		7.90	%		7.28	%		7.71	%

Total debt obligations		46,016			25,931			278,410			100,568			46,138			118,640			615,703			616,249


(a)		Fair value calculated based upon recent borrowings in same category of this debt.

Impact of Inflation

New Accounting Pronouncements

117

Homebuilding & Real Estate Development (Continued)

In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8,Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums,(“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (our fiscal year beginning December 1, 2007). The effect of this EITF is not expected to be material to our consolidated financial statements.”

118

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Consolidated Market Risk

Market risk is defined as the risk of loss arising from adverse changes in market valuations that arise from interest rate risk, foreign currency exchange rate risk, commodity price risk and equity price risk. While the primary market risk of BankAtlantic Bancorp is interest rate risk, BFC’s primary market risk is equity price risk.

BFC Interest Rate Risk

At December 31, 2006, BFC had no amounts outstanding under its $14.0 million line of credit. The interest rate on the line of credit is an adjustable rate tied to LIBOR. Should BFC make advances under the line of credit, it would be subjected to interest rate risk to the extent that there were changes in the LIBOR index.

BankAtlantic Bancorp Consolidated Interest Rate Risk

The amount of interest-earning assets and interest-bearing liabilities expected to reprice or mature in each of the indicated periods was as follows (in thousands):


	BankAtlantic Repricing Gap Table
	As of December 31, 2006
	1 Year			3 Years			5 Years			More Than
	or Less			or Less			or Less			5 Years			Total
Interest earning assets:
Loans:
Residential loans (1)
Fixed rate	$	144,931		$	161,943		$	138,788		$	218,431		$	664,093
Hybrid ARMs less than 5 years		148,908			104,424			30,489			—			283,821
Hybrid ARMs more than 5 years		282,048			331,526			323,296			277,881			1,214,751
Commercial loans		1,409,577			92,388			80,767			19,232			1,601,964
Small business loans		184,842			74,731			23,412			10,059			293,044
Consumer		554,754			5,459			4,459			17,177			581,849

Total loans		2,725,060			770,471			601,211			542,780			4,639,522

Investment securities
Tax exempt securities		3			9,914			30,113			357,439			397,469
Taxable investment securities		256,085			64,715			72,123			53,544			446,467
Tax certificates		195,391			—			—			—			195,391

Total investment securities		451,479			74,629			102,236			410,983			1,039,327

Total interest earning assets	$	3,176,539		$	845,100		$	703,447		$	953,763		$	5,678,849


Total interest bearing liabilities	$	3,422,526		$	356,883		$	267,788		$	1,573,975		$	5,621,172

GAP (repricing difference)	$	(245,987	)	$	488,217		$	435,659		$	(620,212	)
Cumulative GAP	$	(245,987	)	$	242,230		$	677,889		$	57,677
Repricing Percentage		-3.98	%		7.89	%		7.04	%		-10.02	%

Cumulative Percentage		-3.98	%		3.92	%		10.96	%		0.93	%

Total assets													$	6,187,122


(1)		Hybrid adjustable rate mortgages (ARM) earn fixed rates for designated periods and adjust annually thereafter based on the one year U.S. Treasury note rate.

119

indices and certain interest earning assets, primarily residential loans, may be prepaid before maturity as interest rates change.

The model calculates the change in net interest income by:

i.		Calculating interest income and interest expense from existing assets and liabilities using current repricing, prepayment and volume assumptions,

ii.		Estimating the change in expected net interest income based on instantaneous and parallel shifts in the yield curve to determine the effect on net interest income; and

iii.		Calculating the percentage change in net interest income calculated in (i) and (ii).

In assessing the interest rate risk certain assumptions were utilized in preparing the following table. These assumptions related to:


		•		Interest rates,
		•		Loan prepayment rates,
		•		Deposit decay rates,
		•		Re-pricing of certain borrowings
		•		Reinvestment in earning assets.

The prepayment assumptions used in the model are:


•	Fixed rate mortgages	20 %
•	Fixed rate securities	14 %
•	Tax certificates	10 %
•	Adjustable rate mortgages	15 %
•	Adjustable rate securities	17 %

Deposit runoff assumptions used in the model are as follows:


	Within			1-3			3-5			Over 5
	1 Year			Years			Years			Years
Money fund savings accounts decay rates		17	%		17	%		16	%		14	%
NOW and savings accounts decay rates		37	%		32	%		17	%		17	%

Presented below is an analysis of BankAtlantic’s estimated net interest income over a twelve month period calculated utilizing its model (dollars are in thousands):


As of December 31, 2006
	Net
Changes	Interest		Percent
in Rate	Income		Change
+200 bp	$	241,341		(5.94	)%
+100 bp	$	252,047		(1.74	)%
0	$	256,482		—
-100 bp	$	256,485		0.00	%
-200 bp	$	252,346		(1.62	)%

120


As of December 31, 2005
	Net
Changes	Interest		Percent
in Rate	Income		Change
+200 bp	$	258,020		1.47	%
+100 bp	$	259,549		2.15	%
0	$	254,715		—
-100 bp	$	247,130		(3.37	)%
-200 bp	$	232,813		(9.72	)%

Consolidated Equity Price Risk


	Available
Percent	for Sale
Change in	Securities		Dollar
Fair Value	Fair Value		Change
20%	$	113,720	$	18,953
10%	$	104,244	$	9,477
0%	$	94,767	$	—
-10%	$	85,290	$	(9,477	)
-20%	$	75,814	$	(18,953	)

Levitt

121

122

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123

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

124

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125

BFC FINANCIAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP

Report of Independent Registered Public Accounting Firm of Ernst & Young LLP On the Consolidated Financial Statements of Bluegreen Corporation for the year ended December 31, 2006

Financial Statements:

Consolidated Statements of Financial Condition as of December 31, 2006 and 2005

Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Comprehensive (Loss) Income for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2006

Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2006

Notes to Consolidated Financial Statements

126

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholders of BFC Financial Corporation:

We have completed integrated audits of BFC Financial Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits and the report of other auditors, are presented below.

Consolidated financial statements

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BFC Financial Corporation and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Bluegreen Corporation, an approximate 31 percent-owned equity investment, which were audited by other auditors whose report thereon has been furnished to us. Our opinion expressed herein, insofar as it relates to the Company’s net investment in (approximately $ 107.1 million and $ 95.8 million at December 31, 2006 and 2005, respectively) and equity in the net earnings of (approximately $ 9.7 million, $ 12.7 million, and $ 13.1 million for the years ended December 31, 2006, 2005 and 2004, respectively) Bluegreen Corporation, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

As discussed in Note 21 to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation in 2006.

Internal control over financial reporting

127

effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We did not examine the effectiveness of internal control over financial reporting of Bluegreen Corporation as of December 31, 2006. The effectiveness of Bluegreen Corporation’s internal control over financial reporting as of December 31, 2006 was audited by other auditors whose report has been furnished to us, and our opinions expressed herein, insofar as they relate to the effectiveness of Bluegreen Corporation’s internal control over financial reporting, are based solely on the report of the other auditors. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management’s assessment and our audit of BFC Financial Corporation’s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Savings and Loan holding companies (OTS Form H-(b) 11) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 14, 2007

128

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Bluegreen Corporation

We have audited the accompanying consolidated balance sheets of Bluegreen Corporation (the Company) as of December 31, 2005 and 2006, and the related consolidated statements of income, shareholders’ equity and cash flows for each of three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

ERNST & YOUNG LLP
Certified Public Accountants

March 14, 2007
Miami, Florida

129

BFC Financial Corporation
Consolidated Statements of Financial Condition
(In thousands, except share data)


	December 31,
	2006		2005
ASSETS
Cash and due from depository institutions	$	195,401	$	296,842
Federal funds sold and other short-term investments		5,722		3,229
Securities available for sale (at fair value)		653,659		676,660
Investment securities (approximate fair value: $229,546 and $220,920)		227,208		221,242
Tax certificates net of allowance of $3,699 and $3,271		195,391		163,726
Federal Home Loan Bank stock, at cost which approximates fair value		80,217		69,931
Discontinued operations assets held for sale		190,763		240,109
Loans receivable, net of allowance for loan losses of $44,173 and $41,830		4,594,192		4,626,206
Residential loans held for sale		9,313		2,538
Accrued interest receivable		47,676		41,496
Real estate held for development and sale		847,492		632,597
Real estate owned		21,747		967
Investments in unconsolidated affiliates		124,521		110,124
Properties and equipment, net		298,513		190,860
Goodwill		70,490		71,797
Core deposit intangible asset		6,834		8,395
Other assets		36,627		39,036

Total assets	$	7,605,766	$	7,395,755


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Deposits
Interest bearing deposits	$	2,871,116	$	2,732,727
Non-interest bearing deposits		995,920		1,019,949

Total deposits		3,867,036		3,752,676
Customer deposits on real estate held for sale		42,696		51,686
Advances from FHLB		1,517,058		1,283,532
Securities sold under agreements to repurchase		96,385		109,788
Federal funds purchased and other short term borrowings		32,026		139,475
Secured borrowings		—		138,270
Subordinated debentures, notes and bonds payable		560,624		392,784
Junior subordinated debentures		348,318		317,390
Deferred tax liabilities, net		10,646		22,421
Discontinued operations liabilities held for sale		95,246		133,763
Other liabilities		159,823		174,368

Total liabilities		6,729,858		6,516,153


Noncontrolling interest		698,323		696,522


Commitments and contingencies

Shareholders’ equity:
Preferred stock of $.01 par value; authorized 10,000,000 shares; 5% Cumulative Convertible Preferred Stock (“5% Preferred Stock”) issued and outstanding 15,000 shares in 2006 and 2005		—		—
Class A common stock of $.01 par value, authorized 70,000,000 shares; issued and outstanding 28,755,882 in 2006 and 29,949,612 in 2005		266		278
Class B common stock of $.01 par value, authorized 20,000,000 shares; issued and outstanding 7,090,652 in 2006 and 4,285,413 in 2005		69		41
Additional paid-in capital		93,910		97,223
Unearned compensation — restricted stock grants		—		(100	)
Retained earnings		81,889		85,113

Total shareholders’ equity before accumulated other comprehensive income		176,134		182,555
Accumulated other comprehensive income		1,451		525

Total shareholders’ equity		177,585		183,080

Total liabilities and shareholders’ equity	$	7,605,766	$	7,395,755

See accompanying notes to consolidated financial statements.

130

BFC Financial Corporation
Consolidated Statements of Operations
(In thousands, except per share data)


	For the Years Ended December 31,
	2006			2005			2004
Revenues
BFC Activities:
Interest and dividend income	$	2,249		$	1,591		$	659
Other income		1,433			1,538			5,024

		3,682			3,129			5,683


Financial Services:
Interest and dividend income		367,177			345,002			246,830
Service charges on deposits		90,472			61,956			51,435
Other service charges and fees		27,542			23,347			23,620
Other income		22,555			15,232			36,818

		507,746			445,537			358,703


Homebuilding & Real Estate Development:
Sales of real estate		566,086			558,112			549,652
Interest and dividend income		2,474			2,240			1,108
Other income		14,592			14,472			8,078

		583,152			574,824			558,838

Total revenues		1,094,580			1,023,490			923,224


Costs and Expenses
BFC Activities:
Interest expense		30			346			393
Employee compensation and benefits		9,407			6,245			3,865
Impairment of securities		—			—			363
Other expenses		2,933			3,074			2,831

		12,370			9,665			7,452


Financial Services:
Interest expense, net of interest capitalized		166,578			141,561			86,547
Provision (recovery) of loan losses		8,574			(6,615	)		(5,109	)
Employee compensation and benefits		150,804			117,573			96,196
Occupancy and equipment		57,308			41,621			32,717
Advertising and promotion		35,067			27,317			16,301
Impairment of office properties and equipment		—			3,706			—
Amortization of intangible assets		1,561			1,627			1,715
Cost associated with debt redemption		1,457			—			11,741
Fines and penalties, compliance matters		—			10,000			—
Other expenses		52,962			45,126			40,323

		474,311			381,916			280,431


Homebuilding & Real Estate Development:
Cost of sales of real estate		482,961			407,190			403,900
Interest expense, net of interest capitalized		—			—			259
Selling, general and administrative expenses		120,017			86,715			70,118
Other expenses		3,677			4,855			7,341

		606,655			498,760			481,618

Total costs and expenses		1,093,336			890,341			769,501

Equity in earnings from unconsolidated affiliates		10,935			13,404			19,603

Income from continuing operations before income taxes and noncontrolling interest		12,179			146,553			173,326
Provision (benefit) for income taxes		(528	)		59,566			70,920
Noncontrolling interest		13,404			79,267			90,388

(Loss) income from continuing operations		(697	)		7,720			12,018
Discontinued operations, less noncontrolling interest and income tax provision (benefit) of $(8,958) in 2006, 13,205 in 2005 and $13,078 in 2004		(1,524	)		5,054			2,212

Net (loss) income		(2,221	)		12,774			14,230
5% Preferred Stock dividends		750			750			392

Net (loss) income allocable to common stock	$	(2,971	)	$	12,024		$	13,838

See accompanying notes to consolidated financial statements.

131

BFC Financial Corporation
Consolidated Statements of Operations
(In thousands, except per share data)


	For the Years Ended December 31,
	2006			2005		2004
(Loss) earnings per common share:
Basic (loss) earnings per share from continuing operations	$	(0.04	)	$	0.24	$	0.48
Basic (loss) earnings per share from discontinued operations		(0.05	)		0.18		0.09

Basic (loss) earnings per share		(0.09	)		0.42		0.57


Diluted (loss) earnings per share from continuing operations	$	(0.05	)	$	0.22	$	0.40
Diluted (loss) earnings per share from discontinued operations		(0.05	)		0.15		0.07

Diluted (loss) earnings per share		(0.10	)		0.37		0.47


Basic weighted average number of common shares outstanding		33,249			28,952		24,183

Diluted weighted average number of common and common equivalent shares outstanding		33,249			31,219		27,806

See accompanying notes to consolidated financial statements.

132

BFC Financial Corporation
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)


	For the Years Ended December 31,
	2006			2005			2004
Net (loss) income	$	(2,221	)	$	12,774			14,230

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale,		1,518			(365	)		448
Unfunded pension liability		212			—			—
Minimum pension liability		—			(132	)		(662	)
Unrealized gains (losses) associated with investment in unconsolidated affiliates		79			152			(42	)
Reclassification adjustments:
Realized net periodic pension costs		(26	)		—			—
Realized gains on securities available for sale		(857	)		(72	)		(332	)

		926			(417	)		(588	)

Comprehensive (loss) income	$	(1,295	)	$	12,357			13,642

The components of other comprehensive (loss) income relate to the Company’s net unrealized gains (losses) on securities available for sale and the Company’s proportionate shares of non-wholly affiliates net unrealized gains (losses) on securities available for sale, net of income tax (benefit) provision of $ 953 in 2006, $(229) in 2005 and $281 in 2004; the Company’s proportionate shares of non-wholly owned affiliates unfunded pension liability, net of income tax provision of $133 in 2006 and mimimum pension liability, net of income tax benefit of $(83) in 2005 and $(416) in 2004; unrealized gains or (losses) associated with investments in unconsolidated real estate affiliates, net of income tax (benefit) provision of $50 in 2006, $95 in 2005 and $(17) in 2004 and the Company’s proportionate share of non-wholly owned affiliates reclassification adjustments from realized net periodic pension costs, net of income tax benefit of $(16) in 2006 and reclassification adjustments from realized losses on securities available for sale, net of income tax benefit of $(538) in 2006, $(45) in 2005 and $(202) in 2004.

133

BFC Financial Corporation
Consolidated Statements of Shareholders’ Equity
For each of the years in the three year period ended December 31, 2006
(In thousands)


										Unearned						Accumulated
										Compen-						Other
										sation						Compre-
	Class A			Class B			Additional			Restricted						hensive
	Common			Common			Paid-in			Stock			Retained			Income
	Stock			Stock			Capital			Grants			Earnings			(Loss)			Total
Balance, December 31, 2003	$	163		$	23		$	24,654		$	—		$	59,305		$	1,530		$	85,675
Net income		—			—			—						14,230			—			14,230
Other comprehensive loss, net of taxes		—			—			—			—			—			(588	)		(588	)
Net effect of subsidiaries’ capital transactions, net of taxes		—			—			5,812			—			—			—			5,812
Retirement of Common Stock		—			(6	)		(7,276	)		—			—			—			(7,282	)
Issuance of Common Stock		—			24			1,767			—			—			—			1,791
Issuance of 5% Preferred Stock		—			—			14,988			—			—			—			14,988
Cash dividends on 5% Preferred Stock		—			—			—			—			(392	)		—			(392	)
Common stock split		54			—			—			—			(54	)		—			—
Tax effect relating to the exercise of stock options		—			—			11,017			—			—			—			11,017

Balance, December 31, 2004	$	217		$	41		$	50,962		$	—		$	73,089		$	942		$	125,251
Net income		—			—			—			—			12,774			—			12,774
Other comprehensive loss, net of taxes		—			—			—			—			—			(417	)		(417	)
Issuance of Class A Common Stock, net of stock issuance costs		61			—			46,547			—			—			—			46,608
Issuance of Class A restricted stock		—			—			200			(200	)		—			—			—
Net effect of subsidiaries’ capital transactions, net of taxes		—			—			(474	)		—			—			—			(474	)
Cash dividends on 5% Preferred Stock		—			—			—			—			(750	)		—			(750	)
Amortization of unearned compensation on restricted stock grants		—			—			—			100			—			—			100
Tax effect relating to share-based compensation		—			—			(12	)		—			—			—			(12	)

Balance, December 31, 2005	$	278		$	41		$	97,223		$	(100	)	$	85,113		$	525		$	183,080

Cumulative effect adjustment upon adoption of Staff Accounting Bulletin No. 108 (“SAB No. 108”)		—			—			—			—			(253	)		—			(253	)
Net loss		—			—			—			—			(2,221	)		—			(2,221	)
Other comprehensive income, net of taxes		—			—			—			—			—			926			926
Issuance of Common Stock, upon exercise of stock options		1			39			9,076			—			—			—			9,116
Retirement of Common Stock relating to exercise of stock options		(13	)		(11	)		(13,246	)		—			—			—			(13,270	)
Net effect of subsidiaries’ capital transactions, net of taxes		—			—			(16	)		—			—			—			(16	)
Cash dividends on 5% Preferred Stock		—			—			—			—			(750	)		—			(750	)
Share-based compensation related to stock options and restricted stock		—			—			973			—			—			—			973
Reversal of unamortized stock compensation related to restricted stock upon adoption of FAS 123 ( R)		—			—			(100	)		100			—			—			—

Balance, December 31, 2006	$	266		$	69		$	93,910		$	—		$	81,889		$	1,451		$	177,585

See accompanying notes to consolidated financial statements.

134

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)


	For the Years Ended December 31,
	2006			2005			2004
Operating activities:
Net (loss) income from continuing operations	$	(697	)	$	7,720		$	12,018
(Loss) Income from discontinued operations		(1,524	)		5,054			2,212
Adjustment to reconcile net income to net cash provided by operating activities:
Noncontrolling interest		4,393			91,144			103,994
Provision (recovery) and valuation allowances, net		8,883			(6,265	)		(5,105	)
Cumulative effect adjustment before noncontrolling interest		(1,899	)		—			—
Depreciation, amortization and accretion, net		26,430			18,508			17,577
Amortization of deferred revenue		3,854			2,368			1,425
Amortization of intangible assets		1,561			1,627			1,715
Share-based compensation expense related to stock options and restricted stock		9,291			—			—
Tax benefits from share-based compensation		(3,719	)		—			—
Securities activities, net		(9,795	)		(847	)		(7,198	)
Impairment of securities		—			—			362
Net gain on transfer of net assets for settlement of note		—			(3,439	)		—
Net gains on sale of real estate owned		(1,443	)		(1,840	)		(694	)
Net gains on sales of loans held for sale		(680	)		(742	)		(483	)
Net (gains) losses on sales of property and equipment		(2,711	)		(277	)		17
Gain on sale of branch		—			(922	)		—
Equity in earnings from unconsolidated affiliates		(9,267	)		(12,783	)		(19,118	)
(Decrease) increase in deferred tax liability, net		(20,628	)		3,511			17,894
Litigation settlement		—			—			(23,987	)
Net (gains) losses associated with debt redemption		(71	)		—			11,741
Impairment of office properties and equipment		—			3,706			—
Impairment of long lived assets		38,083			—			—
Reserve for fines and penalties, compliance matters		—			10,000			—
Increase of forgivable notes receivable, net		(6,111	)		(6,999	)		(8,079	)
Originations and repayments of loans held for sale, net		(93,887	)		(125,487	)		(163,988	)
Proceeds from sales of loans held for sale		87,793			128,337			171,192
Increase in real estate held for development and sale		(259,629	)		(191,610	)		(142,511	)
Decrease (increase) in securities owned, net		67,910			(54,849	)		(878	)
(Decrease) increase in securities sold but not yet purchased		(3,770	)		(4,285	)		1,649
Increase in accrued interest receivable		(6,183	)		(5,501	)		(8,093	)
(Increase) decrease in other assets		3,024			2,556			(507	)
(Decrease) increase in due to clearing agent		(40,115	)		41,105			(25,202	)
(Decrease) increase in other liabilities		(30,048	)		21,344			46,100

Net cash used in operating activities		(240,955	)		(78,866	)		(17,947	)

Investing activities:
Proceeds from redemption and maturities of investment securities and tax certificates		199,482			210,493			212,983
Purchase of investment securities and tax certificates		(236,962	)		(278,509	)		(311,825	)
Purchase of securities available for sale		(143,272	)		(227,179	)		(677,050	)
Proceeds from sales and maturities of securities available for sale		181,444			300,469			308,529
Purchases of FHLB stock		(49,950	)		(29,870	)		(49,923	)
Redemption of FHLB stock		39,664			38,558			11,629
Repayments from unconsolidated subsidiaries and real estate joint venture		5,303			447			10,084
Investments in unconsolidated affiliates and and real estate joint venture		(10,323	)		(6,228	)		(127	)
Net repayments (purchases and originations) of loans		(106,123	)		105,186			(928,493	)
Proceeds from sales of real estate owned		4,382			3,872			3,821
Proceeds from sales of property and equipment		2,055			651			—
Additions to property and equipment		(121,680	)		(56,335	)		(81,033	)

Net cash (used in) provided by investing activities		(235,980	)		61,555			(1,501,405	)

(continued)

See accompanying notes to consolidated financial statements.

135

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)


	For the Years Ended December 31,
	2006			2005			2004
Financing activities:
Net increase in deposits	$	114,360		$	313,190			399,060
Net cash outflows from sale of branch		—			(13,605	)		—
Repayments of FHLB advances		(2,551,344	)		(1,506,832	)		(469,323	)
Proceeds from FHLB advances		2,785,000			1,246,000			1,220,000
Net increase (decrease) in securities sold under agreements to repurchase		(13,403	)		(147,214	)		133,119
Net increase (decrease) in federal funds purchased		(107,449	)		34,475			105,000
Repayments of secured borrowings		(26,516	)		(101,924	)		—
Proceeds from secured borrowings		—			65,293			—
Repayment of notes and bonds payable		(216,891	)		(266,432	)		(227,621	)
Proceeds from notes and bonds payable		384,732			388,781			325,401
Issuance of junior subordinated debentures		30,928			54,124			—
Capital contributions in managed fund by investors		2,905			—			—
Capital withdrawals in managed fund by investors		(4,203	)		—			—
BankAtlantic Bancorp excess tax benefits from share-based compensation		3,719			—			—
Change in noncontrolling interest		—			895			—
Payments for debt issuance costs		(3,043	)		(3,498	)		—
Proceeds from the issuance of BFC Class A Common Stock, net of issuance costs		—			46,436			—
Proceeds from the issuance of BFC common stock upon exercise of stock options		—			172			1,791
Payment by BFC of the minimum witholding tax upon exercise of stock option		(4,154	)		—			(7,282	)
5% Preferred Stock dividends paid		(750	)		(750	)		(392	)
Proceeds from the issuance of 5% Preferred Stock, net of issuance cost		—			—			14,988
Issuance of Levitt Corporation common stock, net of issuance cost		—			—			114,769
Payment by BankAtlantic Bancorp of the minimum withholding tax upon exercise of stock options		(2,717	)		(3,519	)		(2,946	)
Proceeds from issuance of BankAtlantic Bancorp Class A common stock		1,479			1,179			2,334
Purchase and retirement of BankAtlantic Bancorp subsidiary common stock		(7,833	)		(491	)		—
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders		(7,592	)		(6,930	)		(6,331	)
Levitt common stock dividends paid to non-BFC shareholders		(1,322	)		(1,322	)		(661	)
Venture partnerships distribution paid to non-BFC partners		—			—			(1,376	)

Net cash provided by financing activities		375,906			98,028			1,600,530

Increase (decrease) in cash and cash equivalents		(101,029	)		80,717			81,178
Cash and cash equivalents at beginning of period		305,437			224,720			143,542
Cash and cash equivalents of discontinued assets held for sale		(3,285	)		(5,366	)		(3,674	)

Cash and cash equivalents at end of period	$	201,123		$	300,071		$	221,046

(continued)

See accompanying notes to consolidated financial statements.

136

BFC Financial Corporation
Consolidated Statements of Cash Flows
(In thousands)


	For the Years Ended December 31,
	2006			2005			2004
Supplemental cash flow information:
Interest on borrowings and deposits, net of amounts capitalized	$	167,430		$	143,499		$	89,193
Income taxes paid		39,770			30,002			56,044
Supplementary disclosure of non-cash investing and financing activities:
Loans transferred to real estate owned		23,728			2,307			1,401
Decreases in current income taxes payable from the tax effect of fair value of employee stock options		—			4,538			6,610
Securities purchased pending settlement		—			6,183			25,546
Reduction in loan participations sold accounted for as secured borrowings		111,754			—			—
Exchange branch facilities		2,350			—			—
Decrease in minority interest resulting from the retirement of BankAtlantic Bancorp Class A common stock obtained from litigation settlement		—			—			6,058
Increase in joint venture investment resulting from unrealized gain on non-monetary exchange		—			—			409
Fair value of assets acquired from acquisition of Bowden Building Corporation		—			—			26,463
Fair value of liabilities assumed from acquisition of Bowden Building Corporation		—			—			20,354
Decrease in real estate inventory to property and equipment		8,412			1,809			—
(Decrease) increase in accumulated other comprehensive income, net of taxes		926			(417	)		(588	)
Net increase (decrease) in shareholders’ equity from the effect of subsidiaries’ capital transactions, net of income taxes		(16	)		(474	)		5,812
(Decrease) increase in shareholders’ equity for the tax effect relating to share-based compensation		—			(12	)		11,017
Issuance and retirement of BFC Common Stock accepted as consideration for the exercise price of stock options		4,154			—			—

See accompanying notes to consolidated financial statements.

137

BFC Financial Corporation
Notes to Consolidated Financial Statements

1. Organization and Summary of Significant Accounting Policies

Basis of Financial Statement Presentation– BFC Financial Corporation (“BFC” or the “Company”) is a diversified holding company with investments in companies engaged in retail and commercial banking, homebuilding, master planned community development and time share and vacation ownership. The Company also owns an interest in an Asian- themed restaurant chain and various real estate and venture capital investments. The Company’s principal holdings consist of direct controlling interests in BankAtlantic Bancorp, Inc. (“BankAtlantic Bancorp”) and Levitt Corporation (“Levitt”). Through its control of BankAtlantic Bancorp, BFC has indirect controlling interests in BankAtlantic and its subsidiaries (“BankAtlantic”). Through its control of Levitt, BFC has indirect controlling interests in Levitt and Sons, LLC and its subsidiaries (“Levitt and Sons”) and Core Communities, LLC and its subsidiaries (“Core Communities”) and an indirect non-controlling interest in Bluegreen Corporation (“Bluegreen”). BFC also holds a direct non-controlling investment in Benihana, Inc. (“Benihana”). As a result of the Company’s position as the controlling stockholder of BankAtlantic Bancorp, the Company is a “unitary savings bank holding company” regulated by the Office of Thrift Supervision.

As a holding company with controlling positions in BankAtlantic Bancorp and Levitt, generally accepted accounting principles (“GAAP”) requires the consolidation of their financial results. As a consequence, the assets and liabilities of both entities are presented on a consolidated basis in BFC’s financial statements. However, except as otherwise noted, the debts and obligations of the consolidated entities are not direct obligations of BFC and are non-recourse to BFC. Similarly, the assets of those entities are not available to BFC absent a dividend or distribution. The recognition by BFC of income from controlled entities is determined based on the total percent of economic ownership in those entities as shown in the table below.

138

BFC Financial Corporation
Notes to Consolidated Financial Statements

BFC’s ownership in BankAtlantic Bancorp and Levitt as of December 31, 2006 was as follows:


						Percent
	Shares		Percent of			of
	Owned		Ownership			Vote
BankAtlantic Bancorp
Class A Common Stock		8,329,236		14.83	%		7.86	%
Class B Common Stock		4,876,124		100.00	%		47.00	%
Total		13,205,360		21.64	%		54.86	%

Levitt
Class A Common Stock		2,074,243		11.15	%		5.91	%
Class B Common Stock		1,219,031		100.00	%		47.00	%
Total		3,293,274		16.61	%		52.91	%

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statements of financial condition and operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of the fair value of assets and liabilities in the application of the purchase method of accounting, the valuation of intangible and long-lived assets for impairment, the allowance for loan losses, the evaluation of securities for impairment, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the amount of the deferred tax asset valuation allowance, accounting for share-based compensation, revenue recognition on percent complete projects and impairment of real estate assets, determination of the valuation of real estate and estimated costs to complete construction, litigation and contingencies. In connection with the determination of the allowances for loan losses, real estate owned, and real estate held for development, management obtains independent appraisals for significant properties when it is deemed prudent. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The accounting policies applied by the Company conform to accounting principles generally accepted in the United States of America.

Certain amounts for prior years have been reclassified to conform to revised statement presentation for 2006.

Consolidation Policy —The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, majority-controlled subsidiaries, including BankAtlantic Bancorp and Levitt, majority-owned joint ventures and variable interest entities in which the Company’s subsidiaries are the primary beneficiary as defined by Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46 “Consolidation of Variable Interest Entities” (“FIN 46”). No gains and losses are recorded on the issuance of subsidiary common stock. All inter-company transactions and balances have been eliminated.

Cash Equivalents —Cash equivalents consist of cash, demand deposits at other financial institutions, federal funds sold, securities purchased under resell agreements, money market funds and other short-term investments with original maturities of 90 days or less. Federal funds sold are generally sold for one-day periods, and securities purchased under resell agreements are settled in less than 30 days.

Restricted Cash —Cash and interest bearing deposits are segregated into restricted accounts for specific uses in accordance with the terms of certain land sale contracts, home sales agreements. Restricted funds may only be utilized in accordance with the terms of the applicable governing documents. The majority of restricted funds are controlled by third-party escrow fiduciaries. Restricted cash is included in Other Assets in the Company’s Statements of Financial Condition.

Securities Owned and Securities Sold, But Not Yet Purchased— Securities owned and securities sold, but not yet purchased are associated with proprietary securities transactions entered into by Ryan Beck and are accounted for at fair value with changes in the fair value included in income from discontinued operations. The fair value of these trading

139

BFC Financial Corporation
Notes to Consolidated Financial Statements

Investment Securities —Investment securities are classified based on management’s intention on the date of purchase. Debt securities that management has both the intent and ability to hold to maturity are classified as securities held-to-maturity and are stated at cost, net of unamortized premiums and unaccreted discounts.

Debt securities not held to maturity and marketable equity securities not accounted for under the equity method of accounting are classified as available for sale and are recorded at fair value. Unrealized gains and losses, after applicable taxes, are recorded as a component of other comprehensive income.

Securities acquired for short-term appreciation or other trading purposes are classified as trading securities and are recorded at fair value. Realized and unrealized gains and losses resulting from such fair value adjustments and from recording the results of sales are recorded in securities activities, net which is included in Other Income in the Company’s Consolidated Statements of Operations.

Equity securities that do not have readily determinable fair values are carried at historical cost. These securities are evaluated for other than temporary declines in value, and, if impaired, the historical cost of the securities is written down to estimated fair value in earnings through securities activities, net.

Interest on securities, including the amortization of premiums and the accretion of discounts, are reported in interest income using the interest method over the lives of the securities, adjusted for actual prepayments. Gains and losses on the sale of securities are recorded on the trade date and recognized using the specific identification method and reported in other income in the Company’s Consolidated Statements of Operations.

Derivative Instruments—All derivatives are recognized on the consolidated statement of financial condition at their fair ~~value. On~~value with realized and unrealized gains and losses resulting from such fair value adjustments recorded in securities activities, net on the ~~date~~consolidated statement of operations. If BankAtlantic Bancorp elects hedge accounting, the ~~derivative contract is entered, the Company evaluates the derivative in order to determine if it qualifies for hedge accounting. The~~ hedging instrument must be highly effective in achieving offsetting changes in the hedge instrument and hedged item attributable to the risk being hedged. Any ineffectiveness which arises during the hedging relationship is recognized in earnings in the Company’s consolidated statements of operations. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, ~~the Company discontinues~~ hedge accounting is discontinued prospectively.

~~Changes~~

Tax Certificates— Tax certificates represent a priority lien against real property for which assessed real estate taxes are delinquent. Tax certificates are carried at cost, which approximates fair value.

Allowance for Tax Certificate Losses —The allowance represents management’s estimate of incurred losses in the ~~fair value~~portfolio that are probable and subject to reasonable estimation. In establishing its allowance for tax certificate losses, management considers past loss experience, present indicators, such as the length of time the certificate has been outstanding, economic conditions and collateral values. Tax certificates and resulting deeds are classified as non-accrual when a ~~derivative that~~tax certificate is ~~highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain~~24 to 60 months delinquent, depending on the ~~hedged asset~~municipality, from the acquisition date. At that time, interest ceases to be accrued. The provision to record the allowance is included in other expenses.

Loans —Loans that management has the intent and ability to hold for the foreseeable future, or ~~liability~~until maturity or ~~unrecognized firm commitment~~payoff, are reported at their outstanding principal balances net of any unearned income, unamortized deferred fees or costs, premiums or discounts and an allowance for loan losses. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over the estimated life of the ~~hedged item that is attributable to~~loans using the hedged risk are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of undesignated derivative instruments are reported in current-period earnings.

~~At December 31, 2004 and 2003 the Company’s derivatives consisted of commitments to sell residential mortgage loans which were accounted~~interest method, adjusted for ~~at fair value.~~

actual prepayments.

~~Minority Interest-~~~~Minority interest reflects third parties’ ownership interest in entities that are less than 100% owned by the Company.~~

~~Earnings Per Common Share –~~Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if options to issue common shares were exercised. Common stock options, if dilutive, are considered in the weighted average number of dilutive common shares outstanding. The options are included in the weighted average number of dilutive common shares outstanding based on the treasury stock method. The diluted earnings per share computations take into consideration the potential dilution from securities issued by subsidiaries that enable their holders to

~~F-19~~140

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~obtain~~

Loans Held for Sale— Loans held for sale are reported at the ~~subsidiary’s common stock. The resulting net income amount~~lower of aggregate cost or estimated fair value based on current market prices for similar loans. Loan origination fees and related direct loan origination costs on originated loans held for sale and premiums and discounts on purchased loans held for sale are deferred until the related loan is ~~divided by the weighted average number~~sold and included in gains and losses upon sale.

Transfer of ~~dilutive common shares outstanding, when dilutive. For all periods, the shares of the Company issued~~Loan Participations —BankAtlantic transfers participation rights in ~~connection~~certain commercial real estate loans with ~~a 1984 acquisition are considered outstanding after elimination of the Company’s percentage ownership of the entity that received the shares issued in that acquisition.~~

~~Brokered Deposits –~~~~Brokered deposits~~servicing retained. These participation rights transfers are accounted for ~~at historical cost~~as loan sales when the transferred asset has been isolated from BankAtlantic and ~~discounts~~beyond the reach of BankAtlantic’s creditors, the transferee’s right to pledge or ~~premiums, if any, are amortized or accreted using~~exchange the ~~interest method~~loan is not constrained and BankAtlantic does not have control over the ~~term~~loan. If the above criteria are not met, BankAtlantic accounts for the loan participation rights transfers as a secured borrowing.

Impaired Loans —Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the ~~brokered deposit.~~

~~Stock-Based Compensation Plans –~~ ~~During~~loan agreement. For a loan that has been restructured, the ~~year ended December 31, 2004,~~contractual terms of the Company maintained both qualifying and non-qualifying stock-based compensation plans for its employees and directors. These are described more fully in Note 13. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employee” and related Interpretations. No compensation is recognized in connection with option grants that had an exercise price equalloan agreement refer to the ~~market~~contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement.

Allowance for Loan Losses —The allowance for loan losses reflects management’s estimate of probable incurred credit losses in the loan portfolios. Loans are charged off against the allowance when management believes the loan is not collectible. Recoveries are credited to the allowance.

The allowance consists of two components. The first component of the allowance is for high-balance “non-homogenous” loans that are individually evaluated for impairment. The process for identifying loans to be evaluated individually for impairment is based on management’s identification of classified loans. Once an individual loan is found to be impaired, a valuation allowance is assigned to the loan based on one of the following three methods: (1) present value of ~~the underlying common stock on the date of grant. The tax benefit recognized upon the exercise of certain options is recorded as a component of additional paid-in-capital.~~

The following table illustrates the effect on net earnings and net earnings per share for each of the last three years as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS 148, “Accounting for Stock-Based compensation – Transition and Disclosure”, to stock-based employee compensation (in thousands, except per share data):

For the Years Ended December 31,
(In thousands, except per share data) 2004 2003 2002
Pro forma net income

Net income available to common shareholders, as reported $ 13,838 $ 7,022 $ 5,192
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects and minority interest 38 52 55
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax effects and minority interest (897 ) (639 ) (477 )

Pro forma net income $ 12,979 $ 6,435 $ 4,770

Earnings per share:

Basic as reported $ 0.57 $ 0.31 $ 0.23

Basic pro forma $ 0.54 $ 0.28 $ 0.21

Diluted as reported $ 0.47 $ 0.25 $ 0.21

Diluted pro forma $ 0.44 $ 0.23 $ 0.19

~~New Accounting Pronouncements:~~

~~In December 2004, FASB issued Statement No. 123 (revision) (“Share-based payments”.) This Statement is a revision of FASB Statement No. 123,~~~~Accounting for Stock-Based Compensation and~~~~supersedes APB Opinion No. 25,~~~~Accounting for Stock Issued to Employees,~~and its related implementation guidance. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement also establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services and addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on theexpected future cash flows, (2) fair value of collateral less costs to sell, or (3) observable market price.

The second component of the ~~entity’s equity instruments~~allowance is for “homogenous loans” in which groups of loans with common characteristics are evaluated to estimate the inherent losses in the portfolio. Homogenous loans have certain characteristics that are common to the entire portfolio so as to form a basis for estimating losses as it relates to the group. Management segregates homogenous loans into groups such as residential real estate, small business mortgage, small business non-mortgage, low-balance commercial loans, certain unimpaired non-homogenous loans and various types of consumer loans. The allowance for homogenous loans has a quantitative amount and a qualitative amount. The methodology for the quantitative component is based on a three year charge-off history by loan type adjusted by an expected recovery rate. A three year period was considered a reasonable time frame to track a loan’s performance from the event of loss through the recovery period. The methodology for the qualitative component is determined by considering the following factors: (1) delinquency and charge-off levels and trends; (2) problem loans and non-accrual levels and trends; (3) lending policy and underwriting procedures; (4) lending management and staff; (5) nature and volume of portfolio; (6) economic and business conditions; (7) concentration of credit; (8) quality of loan review system; and external factors. Based on an analysis of the above factors a qualitative amount is assigned to each homogenous loan product. These amounts are adjusted, if necessary, at period end based on directional adjustments by each category.

Non-performing Loans —A loan is generally placed on non-accrual status at the earlier of (i) the loan becoming past due 90 days as to either principal or ~~that~~interest or (ii) when the borrower has entered bankruptcy proceedings and the loan is delinquent. Exceptions to placing 90-day past due loans on non-accrual may be ~~settled by~~made if there exists well secured collateral and the ~~issuance~~loan is in the process of ~~those equity instruments. The Statement eliminated~~collection. Loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on non-accrual status, interest accrued but not received is reversed against interest income. A non-accrual loan may be restored to accrual status when delinquent loan payments are collected and the ~~accounting for share-based transactions under APB No. 25~~loan is expected to perform in the future according to its contractual terms. Interest income on performing impaired loans is recognized on an accrual basis.

Consumer non-mortgage loans that are 120 days past due are charged off. Real estate secured consumer and ~~its related interpretations instead requiring all share based payments be accounted for using a~~residential loans that are 120 days past due are charged down to the collateral’s fair value method. For public companies the Statement will be effective in the first interim or annual reporting period that begins after June 15, 2005. The Statement can be adopted using the “Modified Prospective Application” or the “Modified Retrospective Application.” Under the modified prospective application, this Statement applies to new awards granted after the effective date and to unvested awardsless estimated selling costs.

Real Estate Owned (“REO”)— REO is recorded at the ~~effective date. Under~~lower of cost or estimated fair value, less estimated selling costs when acquired. Write-downs required at the ~~modified retrospective application,~~time of acquisition are charged to the ~~Company would apply the modified prospective method, but also restate~~

allowance for loan losses or allowance for tax certificates. Expenditures for capital improvements are generally capitalized. Real estate acquired in

~~F-20~~141

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

settlement of loans or tax certificates are anticipated to be sold and valuation allowance adjustments are made to reflect any subsequent changes in fair values. The costs of holding REO are charged to operations as incurred. Provisions and reversals in the REO valuation allowance are reflected in operations. Management obtains independent appraisals for significant properties.

Real Estate Held for Development and Sale —Real estate held for development and sale includes land, land development costs, and other construction costs associated with Levitt’s real estate inventory and BankAtlantic Bancorp’s investment in a real estate variable interest entity. Inventory of real estate is stated at accumulated cost or, when circumstances indicate that the inventory is impaired, at estimated fair value. Due to large acreage of certain land holdings and the nature of our project development life cycles disposition in the normal course of business is expected to extend over a number of years.

Land and indirect land development costs are allocated to various parcels or housing units using either specific identification or apportioned based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of tangible selling costs, prepaid local government fees and capitalized real estate taxes. Selling costs are capitalized by communities and represent costs incurred throughout the selling period to aid in the sale of housing units, such as model furnishings and decorations, sales office furnishings and facilities, exhibits, displays and signage. These tangible selling costs are capitalized and expensed to cost of sales of the benefited home sales. Start-up costs and other selling costs are expensed as incurred.

The expected future costs of development are analyzed at least annually or when current events indicating a change may be warranted to determine the appropriate allocation factors to charge to the remaining inventory as cost of sales or as an adjustment to cost of sales.

Levitt reviews real estate inventory for impairment on a project-by-project basis in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) at least annually or when current events indicating a change may be warranted. In analyzing potential impairment, Levitt uses projections of future undiscounted cash flows from the inventory. These projections are based on views of future sales prices, cost of sales levels and absorption. Levitt believes that estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value

Capitalized Interest —Interest is capitalized at the effective rates paid on borrowings incurred for real estate inventory during the preconstruction and planning stage and the periods that projects are under development. Capitalization of interest is discontinued if development ceases at a project. Interest amortized to cost of sales on the relative sales value method as related homes, land and units are sold.

142

~~the prior financial statements~~

BFC Financial Corporation
Notes to ~~include~~Consolidated Financial Statements

The following table is a summary of consolidated interest incurred on notes and mortgage notes payable and the amounts capitalized (in thousands):


	For the Years Ended December 31,
	2006			2005			2004
Interest expense	$	209,539		$	163,050		$	99,437
Interest capitalized		(42,931	)		(21,143	)		(12,238	)

Interest expense, net	$	166,608		$	141,907		$	87,199

Homebuilding and Land Sales Revenue Recognition—Revenue and all related costs and expenses from house and land sales are recognized at the time that ~~were previously~~closing has occurred, when title and possession of the property and the risks and rewards of ownership transfer to the buyer, and if the Company does not have a substantial continuing involvement in accordance with SFAS No. 66, “Accounting for Sales of Real Estate”. In order to properly match revenues with expenses, the Company estimates construction and land development costs incurred but not paid at the time of closing. Estimated costs to complete are determined for each closed home and land sale based upon historical data with respect to similar product types and geographical areas. The Company monitors the accuracy of estimates by comparing actual costs incurred subsequent to closing to the estimate made at the time of closing and make modifications to the estimates based on these comparisons.

Revenue recognition for certain land sales are recognized on the percentage-of-completion method where land sales take place prior to all contracted work being completed. Pursuant to the requirements of SFAS 66, if the seller has some continuing involvement with the property and does not transfer substantially all of the risks and rewards of ownership, profit shall be recognized by a method determined by the nature and extent of the seller’s continuing involvement. In the case of land sales, this involvement typically consists of final development. The Company recognizes revenue and related costs as work progresses using the percentage of completion method, which relies on contract revenue and estimates of total expected costs to complete required work. Revenue is recognized in proportion to the ~~pro forma disclosures under Statement No. 123. Additionally, under~~percentage of total costs incurred in relation to estimated total costs at the ~~modified retrospective application the Company can choose~~time of sale. Actual revenues and costs to ~~only restate the prior interim periods~~complete construction in the ~~year~~future could differ from current estimates. If the estimates of adoption as the effective date of the Statement does not coincide with the beginning of the Company’s fiscal year. Management will adopt the Statement on July 1, 2005 and is currently evaluating the two transitional applications. Management estimates that compensation expense resulting from currently unvested options would be approximately $1.9 milliondevelopment costs remaining to be ~~recorded over~~completed are significantly different from actual amounts, then the ~~remaining vesting period.~~

~~In December 2004, FASB issued~~revenues, related cumulative profits and costs of sales may be revised in the period that estimates change.

Effective January 1, 2006, Bluegreen adopted AICPA Statement ~~No. 152 (“~~of Position 04-02 Accounting for Real Estate Time-Sharing ~~Transactions—an amendment of FASB Statements No. 66 and 67.~~Transactions (“SOP 04-02”) This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions.. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP ~~04-2. This Statement~~04-02. The adoption of SOP 04-02 resulted in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million to Bluegreen for the year ended December 31, 2006, and accordingly reduced the earnings in Bluegreen recorded by us by approximately $1.4 million for the same period.

�� Homesite Contracts and Consolidation of Variable Interest Entities—In December 2003, FASB Interpretation No. 46(R) (‘FIN No. 46(R)’) was issued by the FASB to clarify the application of ARB No. 51 to certain Variable Interest Entities (“VIEs”), in which equity investors do not have the characteristics of a controlling interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Pursuant to FIN No. 46(R), an enterprise that absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, is determined to be the primary beneficiary of the VIE and must consolidate the entity.

In the ordinary course of business Levitt enters into contracts to purchase homesites and land held for development. Option contracts allow Levitt to control significant homesite positions with minimal capital investment and substantially reduce the risks associated with land ownership and development. The liability for nonperformance under such contracts is typically only the required deposits, and is usually less than 20% of the underlying purchase price. Levitt does not have legal title to these assets. However, if certain conditions are met, under the requirements of FIN No. 46(R) Levitt’s land contracts may create a variable interest, with Levitt being identified as the primary beneficiary. If these certain conditions are met, FIN No. 46(R) requires us to consolidate the assets (homesites) at their fair value. At December 31, 2006 there were no assets under these contracts consolidated in the Company’s financial statements.

Investments in Unconsolidated Affiliates —The Company follows the equity method of accounting to record its interests in affiliates in which it does not own the majority of the voting stock and to record its investment in variable interest

143

BFC Financial Corporation
Notes to Consolidated Financial Statements

entities in which it is not the primary beneficiary. These entities consist of Bluegreen Corporation, joint ventures and statutory business trusts (utilized in the issuance of trust preferred securities). The statutory business trusts are variable interest entities in which the Company is not the primary beneficiary. Under the equity method, the initial investment in a joint venture is recorded at cost and is subsequently adjusted to recognize the Company’s share of the joint venture’s earnings or losses. Distributions received reduce the carrying amount of the investment. The Company evaluates its investments in unconsolidated entities for impairment annually or as events or circumstances warrant for other than temporary declines in value. Evidence of other than temporary declines includes the inability of the joint venture or investee to sustain an earnings capacity that would justify the carrying amount of the investment and consistent joint venture operating losses. The evaluation is based on available information including condition of the property and current and anticipated real estate market conditions.

Goodwill and Other Intangible Assets– Goodwill acquired in a purchase business combination is tested for impairment at least annually. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” ( SFAS No. 142). The Company conducts on at least an annual basis , a review of the goodwill to determine whether the carrying value of goodwill exceeds the fair market value using a discounted cash flow methodology. Should this be the case, the value of goodwill may be impaired and written down. In the year ended December 31, 2006, an impairment review was conducted of the goodwill related to the Tennessee operations acquired in connection with Levitt’s acquisition of Bowden Building Corporation in 2004. The profitability and estimated cash flows of this entity were determined in the second quarter of 2006 to have declined to a point where the carrying value of the assets exceeded their market value. A discounted cash flow methodology was used to determine the amount of impairment resulting in completely writing off this acquisition goodwill of approximately $1.3 million in the year ended December 31, 2006. The write-off is included in Homebuilding & Real Estate Development other expenses in the consolidated statements of operations.

Other intangible assets consist of core deposit intangible assets which were initially recorded at fair value and then amortized on an accelerated basis over a useful life of ten years. The accumulated amortization on core deposit intangible assets was $8.3 million at December 31, 2006.

Properties and Equipment–Properties and equipment consists primarily of office properties, leasehold improvements, equipment and computer software and water treatment and irrigation facilities, and are carried at cost less accumulated depreciation. Land is carried at cost. Depreciation is primarily computed on the straight-line method over the estimated useful lives of the assets which generally range up to 40 years for buildings and 3-10 years for equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the terms of the related leases or the useful lives of the assets. Interest expense associated with the construction of certain fixed assets is capitalized as incurred and relieved to expense through depreciation once the asset is put into use. Direct costs associated with development of internal-use software are capitalized and amortized over 3 – 5 years.

Expenditures for new properties, leasehold improvements and equipment and major renewals and betterments are capitalized. Expenditures for maintenance and repairs are expensed as incurred, and gains or losses on disposal of assets are reflected in current operations.

Impairment of Long Lived Assets– Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the full carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.

Long-lived assets to be abandoned are considered held and used until disposed. The carrying value of a long-lived asset to be abandoned is depreciated over its shortened depreciable life when an entity commits to a plan to abandon the asset before the end of its previously estimated useful life. An impairment loss is recognized at the date a long-lived asset is exchanged for a similar productive asset if the carrying amount of the asset exceeds its fair value. Long-lived assets classified as held for sale are reported at the lower of its carrying amount or fair value less estimated selling costs and depreciation (amortization) ceases.

Advertising–Advertising expenditures are expensed as incurred.

Income Taxes –BFC and its wholly owned subsidiaries file a consolidated U.S. federal income tax return. Subsidiaries in which the Company owns less than 80% of the outstanding common stock, including BankAtlantic Bancorp

144

BFC Financial Corporation
Notes to Consolidated Financial Statements

and Levitt, are not included in the Company’s consolidated U.S. federal income tax return. The Company and its subsidiaries file separate state income tax returns for each state jurisdiction.

The provision for income taxes is based on income before taxes reported for financial statement purposes after adjustment for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the statement of financial condition. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. A deferred tax asset valuation allowance is recorded when it has been determined that it is more likely than not that deferred tax assets will not be realized.

Noncontrolling Interest-Noncontrolling interest reflects third parties’ ownership interest in entities that are consolidated and less than 100% owned.

Accounting for Contingencies–Reserves for contingencies are recorded when it is probable that an asset has been impaired or a liability had been incurred and the amount of the loss can be reasonably estimated.

(Loss) Earnings Per Share –Basic (loss) earnings per share excludes dilution and is computed by dividing net income (loss) allocable to common stock (after deducting preferred stock dividend) by the weighted average number of common shares outstanding for the period. Diluted (loss) earnings per share reflect the potential dilution that could occur if options to issue common shares of the Company were exercised. Common stock options, if dilutive, are considered in the weighted average number of dilutive common shares outstanding. The options or restricted stock are included in the weighted average number of dilutive common shares outstanding based on the treasury stock method, if dilutive. Diluted (loss) earnings per share is computed in the same manner as basic (loss) earnings per share, but it also takes into consideration the potential dilution from securities issued by subsidiaries that enable their holders to obtain the subsidiary’s common stock. The resulting net income amount is divided by the weighted average number of dilutive common shares outstanding, when dilutive. For all periods, the shares the Company issued in connection with a 1984 acquisition are considered outstanding after elimination of the Company’s percentage ownership of the entity that received the shares issued in that acquisition.

Brokered Deposits –Brokered deposits are accounted for at historical cost and discounts or premiums, if any, are amortized or accreted using the effective interest method over the term of the deposit.

Stock-Based Compensation —Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method. Under this transition method, share-based compensation expense for the year ended December 31, 2006 includes compensation expense for all share-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Share-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of five years, except for options granted to directors which vest immediately. Prior to the adoption of SFAS 123R and during the years ended December 31, 2005 and 2004, the Company accounted for share-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. No compensation expense was recognized when option grants had an exercise price equal to the market value of the underlying common stock on the date of grant.

Discontinued Operations– Discontinued operations represents Ryan Beck’s results of operations, net of BFC’s noncontrolling interest in BankAtlantic Bancorp and income taxes, as well as BMOC operations. BMOC was a wholly owned subsidiary of BFC.

Ryan Beck’s activities include gains, losses, and fees, net of syndicate expenses, arising from securities offerings in which Ryan Beck acts as an underwriter or agent and fees earned from providing merger and acquisition and financial advisory services. These fees are recorded as earned, provided no contingency of payment exists. Sales concessions are recorded on trade date, and underwriting fees are recorded at the time the underwriting is completed. Gains and losses from securities transactions are recorded on a trade date basis. Profit and loss arising from all securities transactions entered into for the account and risk of Ryan Beck are recorded on a trade date basis. Commission income and expenses related to customers’ transactions are reported on a trade date basis. Amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition. BMOC operations

145

BFC Financial Corporation
Notes to Consolidated Financial Statements

include revenues from rental income and operating expenses, and in 2005 a $5.1 million gain from disposition was recorded upon the transfer of the shopping center to its lender in full settlement of the note (see Note 3.)

New Accounting Pronouncements:

In June 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes – an interpretation of FASB No. 109” FIN 48 provides guidance for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. The interpretation revises disclosure requirements including a tabular presentation to reflect the roll-forward of unrecognized tax benefits. The interpretation is effective for the Company as of January 1, 2007 and any changes in net assets that result from the application of this interpretation was an adjustment to retained earnings. The Company does not expect a material adjustment upon the adoption of this interpretation.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The Statement defines fair value in generally accepted accounting principles, establishes a framework for measuring fair value and expands disclosure about fair value measurements. The Statement will change key concepts in fair value measures including the establishment of a fair value hierarchy and the concept of the most advantageous or principal market. This Statement does not require any new fair value measurement. The Statement applies to financial statements issued for fiscal years beginning after ~~June~~November 15, ~~2005. Bluegreen has indicated~~2007 with early application encouraged. The Company is required to implement this Statement on January 1, 2008. Management is currently evaluating the impact this Statement will have on its financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132R. This Statement requires an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its ~~periodic reports filed with~~statement of financial position and to recognize through comprehensive income changes in that funded status in the ~~SEC~~year in which the changes occur. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial condition. This Statement applies to financial statements issued for fiscal years ending after December 15, 2006. The Company adopted the recognition and disclosure provisions of this Statement prospectively as of December 31, 2006. The adoption of this Statement had no significant impact on the Company’s financial statements as of December 31, 2006.

In November 2006, the FASB issued Emerging Issues Task Force Issue (“EITF”) No. 06-8, “Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, “Accounting for Sales of Real Estate, for Sales of Condominiums”, (“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual reporting period beginning after March 15, 2007 (our fiscal year beginning January 1, 2007). The effect of this ~~pronouncement~~EITF is not expected to ~~have a~~be material ~~effect on Bluegreen’s~~to the Company’s consolidated financial statements. ~~Accordingly, management does not believe~~

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument by instrument basis (the fair value option). The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that ~~this Statement~~choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. Management is currently in the process of assessing the impact that the adoption of SFAS No. 159 will have ~~a material~~on the company’s consolidated financial statements.

2. Cumulative-Effect Adjustment for Quantifying Financial Statement Misstatements

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, (“SAB 108”) which established an approach to quantify errors in financial statements. Previously, there were two methods for quantifying the effects of financial statement errors: the roll-over method and the iron curtain method. The roll-over method focuses on the impact errors have on the income statement, including the reversing effect of prior year errors. The iron curtain method focuses on the effect of correcting errors on the statement of financial condition. Prior to the application

146

BFC Financial Corporation
Notes to Consolidated Financial Statements

of the guidance in SAB No. 108, the Company used the roll-over method for quantifying identified financial statement errors. This method led to an accumulation of errors on the Company’s consolidated statement of financial ~~statements.~~condition. The SEC’s new approach to quantifying errors in the financial statements is called the dual-approach. This approach quantifies the errors under the roll-over and the iron-curtain methods requiring the registrant to adjust its financial statements when either approach results in a material error after considering all quantitative and qualitative factors.

SAB No. 108 permits companies to initially apply its provisions by either restating prior period financial statements or recording the cumulative effect of adjusting assets and liabilities as of January 1, 2006 as an offsetting adjustment to the opening balance of retained earnings.

The Company applied the provisions of SAB No. 108 using the cumulative effect transition method in connection with the preparation of its financial statements for the year ended December 31, 2006. The impact of quantifying the effects of prior period financial statement misstatements using the dual-approach compared to the roll-over method on opening statement of financial condition balances was attributable to BankAtlantic’s adjustments and such impact to the Company’s financial condition balances is summarized as follows: (in thousands)


	Cumulative Effect
	Adjustment
	As of January 1, 2006
Other liabilities:
Recurring operating expenses(1)	$	1,618
Deferred data processing expenses(2)		1,474
Current taxes payable		(696	)

Increase in other liabilities		2,396
Decrease in deferred tax liability		(657	)
Decrease in noncontrolling interest(3)		(1,486	)

Decrease in retained earnings	$	253


(1)		BankAtlantic has historically expensed certain recurring invoices when paid. The effect of this accounting policy was not material to BankAtlantic’s financial statements in any given year as the “rollover” impact of expenses in the following year approximated the expenses that rolled over from the prior year.

(2)		BankAtlantic pays a fixed fee for certain data processing transaction services and at the end of each contract year, the actual number of transactions is determined and the fees related to any greater or lesser transactions are invoiced or repaid to BankAtlantic over a twelve month period. BankAtlantic accounted for these charges when paid. The effect of this accounting policy was not material to BankAtlantic’s financial statements in any given year and the amount of the error had accumulated over a four year period as follows (in thousands):


For the Years	Occupancy and
Ended December 31,	Equipment Expense
2002	$	221
2003		276
2004		533
2005		444

	$	1,474


(3)		Noncontrolling interest amount represents third parties’ interest of approximately 78% in BankAtlantic Bancorp.

The Company had previously quantified these errors and concluded that they were immaterial under the roll-over method that was used prior to the issuance of SAB No. 108.

147

BFC Financial Corporation
Notes to Consolidated Financial Statements

3. Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker in assessing performance and deciding how to allocate resources. Reportable segments consist of one or more operating segments with similar economic characteristics, products and services, production processes, type of customer, distribution system and regulatory environment.

The ~~Emerging Issues Task Force~~information provided for Segment Reporting is based on internal reports utilized by management. The presentation and allocation of assets and results of operations may not reflect the actual economic costs of the segments as stand alone businesses. If a different basis of allocation were utilized, the relative contributions of the segments might differ but the relative trends in segments would, in management’s view, likely not be impacted.

The Company is currently organized into three reportable segments: BFC Activities; Financial Services; and Homebuilding & Real Estate Development.

The following summarizes the aggregation of the Company’s operating segments into reportable segments:

BFC Activities

This segment includes all of the operations and all of the assets owned by BFC other than BankAtlantic Bancorp and its subsidiaries and Levitt and its subsidiaries. This includes dividends from our investment in Benihana’s convertible preferred stock and other securities and investments, advisory fee income and operating expenses from Cypress Creek Capital, Inc. (“~~EITF”~~CCC”), interest income from loans receivable, income from the shared service arrangement with BankAtlantic Bancorp, Levitt and Bluegreen to provide shared service operations in the areas of human resources, risk management, investor relations and executive office administration. The BFC Activities segment also includes BFC’s overhead and interest expense, the financial results of venture partnerships that BFC controls and BFC’s provision for income taxes including the tax provision related to the Company’s interest in the earnings of BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt are consolidated in our financial statements, as described earlier. The Company’s earnings or losses in BankAtlantic Bancorp and Levitt are included in our Financial Services and Homebuilding & Real Estate Development segment, respectively.

Financial Services

Our Financial Services segment includes BankAtlantic Bancorp and its subsidiaries’ operations, including the operations of BankAtlantic.

Homebuilding & Real Estate Development

Our Homebuilding & Real Estate Development segment includes Levitt Corporation and its subsidiaries’ operations, including the operations of Levitt and Sons and Core Communities, as well as Levitt’s investment in Bluegreen.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies in Note 1. Inter-company transactions are eliminated for consolidated presentation. The Company evaluates segment performance based on income (loss) from continuing operations after tax and noncontrolling interest.

148

BFC Financial Corporation
Notes to Consolidated Financial Statements

The Company evaluates segment performance based on net segment income (loss) after noncontrolling interest and tax. The table below is segment information for income from continuing operations for each of the years in the three year period ended December 31, 2006 (in thousands):


						Homebuilding			Adjusting
	BFC			Financial		& Real Estate			and
2006	Activities			Services		Development			Eliminations			Total
Revenues:
Sales of real estate	$	—		$	—	$	566,086		$	—		$	566,086
Interest and dividend income		2,292			367,177		2,910			(479	)		371,900
Other income		3,679			140,949		14,592			(2,626	)		156,594

		5,971			508,126		583,588			(3,105	)		1,094,580

Costs and Expenses:
Cost of sale of real estate		—			—		482,961			—			482,961
Interest expense, net		30			167,057		—			(479	)		166,608
Provision for loan losses		—			8,574		—			—			8,574
Other expenses		12,805			300,186		124,828			(2,626	)		435,193

		12,835			475,817		607,789			(3,105	)		1,093,336

		(6,864	)		32,309		(24,201	)		—			1,244
Equity in earnings from unconsolidated affiliates		—			1,667		9,268			—			10,935

Income (loss) before income taxes and noncontrolling interest		(6,864	)		33,976		(14,933	)		—			12,179
Provision (benefit) for income taxes		(1,855	)		7,097		(5,770	)		—			(528	)

Income (loss) before noncontrolling interest		(5,009	)		26,879		(9,163	)		—			12,707
Noncontrolling interest		(25	)		21,072		(7,643	)		—			13,404

Income (loss) from continuing operations		(4,984	)		5,807		(1,520	)		—			(697	)

At December 31, 2006
Total assets	$	45,756		$	6,495,662	$	1,090,666		$	(26,318	)	$	7,605,766


							Homebuilding		Adjusting
	BFC			Financial			& Real Estate		and
2005	Activities			Services			Development		Eliminations			Total
Revenues:
Sales of real estate	$	—		$	—		$	558,112	$	—		$	558,112
Interest and dividend income		1,623			345,894			2,556		(1,240	)		348,833
Other income		1,750			101,678			14,472		(1,355	)		116,545

		3,373			447,572			575,140		(2,595	)		1,023,490

Costs and Expenses:
Cost of sale of real estate		—			—			408,082		(892	)		407,190
Interest expense, net		346			141,909			—		(348	)		141,907
Recovery for loan losses		—			(6,615	)		—		—			(6,615	)
Other expenses		9,750			246,970			92,494		(1,355	)		347,859

		10,096			382,264			500,576		(2,595	)		890,341

Equity in earnings from unconsolidated affiliates		—			621			12,783		—			13,404

Income (loss) before income taxes and noncontrolling interest		(6,723	)		65,929			87,347		—			146,553
Provision for income taxes		3,727			23,403			32,436		—			59,566

Income (loss) before noncontrolling interest		(10,450	)		42,526			54,911		—			86,987
Noncontrolling interest		6			46,246			45,786		(12,771	)		79,267

Income (loss) from continuing operation	$	(10,456	)	$	(3,720	)	$	9,125	$	12,771		$	7,720

At December 31, 2005
Total assets	$	54,118		$	6,471,411		$	895,673	$	(25,447	)	$	7,395,755

149

BFC Financial Corporation
Notes to Consolidated Financial Statements


							Homebuilding		Adjusting
	BFC			Financial			& Real Estate		and
2004	Activities			Services			Development		Eliminations			Total
Revenues:
Sales of real estate	$	—		$	—		$	549,652	$	—		$	549,652
Interest and dividend income		680			249,204			1,338		(2,625	)		248,597
Other income		5,335			112,500			8,078		(938	)		124,975

		6,015			361,704			559,068		(3,563	)		923,224

Costs and Expenses:
Cost of sale of real estate		—			—			406,274		(2,374	)		403,900
Interest expense, net		393			86,798			259		(251	)		87,199
Recovery for loan losses		—			(5,109	)		—		—			(5,109	)
Other expenses		7,187			198,993			78,269		(938	)		283,511

		7,580			280,682			484,802		(3,563	)		769,501

		(1,565	)		81,022			74,266		—			153,723
Equity in earnings from unconsolidated affiliates		—			485			19,118		—			19,603

Income (loss) before income taxes and noncontrolling interest		(1,565	)		81,507			93,384		—			173,326
Provision for income taxes		6,676			28,222			36,022		—			70,920

Income (loss) before noncontrolling Interest		(8,241	)		53,285			57,362		—			102,406
Noncontrolling interest		1,822			55,074			47,098		(13,606	)		90,388

Income (loss) from continuing operations	$	(10,063	)	$	(1,789	)	$	10,264	$	13,606		$	12,018

At December 31, 2004
Total assets	$	26,596		$	6,356,777		$	678,467	$	(106,993	)	$	6,954,847

The table below is segment information relating to the Company’s goodwill at December 31, 2006 and 2005 (in thousands):


			Homebuilding
	Financial		& Real Estate
	Services		Development			Total
Balance as of December 31, 2005	$	76,674	$	1,307		$	77,981
Impairment of goodwill (a)		—		(1,307	)		(1,307	)

Balance as of December 31, 2006	$	76,674	$	—		$	76,674


(a)		During the year ended December 31, 2006, the Company’s Homebuilding & Real Estate Development segment wrote off the $1.3 million in goodwill recorded in connection with the acquisition of Levitt’s Tennessee operations. The $1.3 million is included in Homebuilding & Real Estate Development other expenses in the consolidated statements of operations.

4. Discontinued Operations

Financial Services

In February 2007, BankAtlantic Bancorp and the Ryan Beck option holders (collectively “the Shareholders”) ~~reached~~exchanged their entire interest in Ryan Beck common stock and options to acquire Ryan Beck common stock for 2,467,600 shares of Stifel Common Stock, five-year warrants to purchase an aggregate of 500,000 shares of Stifel Common Stock at an exercise price of $36.00 per share (the “Warrants”) and $2.65 million of cash. The issuance of the Warrants is subject to Stifel shareholder approval. The Shareholders will receive $20 million in cash, of which BankAtlantic Bancorp will receive approximately $19.3 million, if the Stifel shareholders do not approve the issuance of Warrants.

150

BFC Financial Corporation
Notes to Consolidated Financial Statements

The Stifel agreement also provides for contingent earn-out payments, payable, at Stifel’s election, in cash or shares of Stifel Common Stock, based on (a) defined Ryan Beck private client revenues during the two-year period immediately following the merger up to a ~~consensus on EITF 03-1 “The Meaning~~maximum of ~~Other-Than-Temporary Impairment~~$40,000,000 and ~~Its Application~~(b) defined Ryan Beck investment banking revenues equal to ~~Certain Investments.”~~25% of the amount that such revenues exceed $25,000,000 during each of the two twelve-month periods immediately following the consummation of the transaction. The ~~EITF provides guidance~~contingent earn-out payments, if any, are accounted for as additional proceeds from the exchange of Ryan Beck common stock when earned with a corresponding increase in BankAtlantic Bancorp’s investment in Stifel. BankAtlantic Bancorp has entered into separate agreements with each individual Ryan Beck option holder in order to allocate the contingent earn-out payments.

All outstanding options to acquire shares of Ryan Beck Common Stock were cancelled in exchange for the option holders receiving a pro-rata interest in the above merger consideration. The approximate allocation of the initial merger consideration of Stifel common stock and warrants (if approved by Stifel shareholders), is as follows:


	BankAtlantic			Option			Total
	Bancorp			Holders			Consideration
Allocation Percentage (1)		96.34	%		3.66	%		100.00	%

Initial Share Consideration		2,377,354			90,246			2,467,600
Cash Consideration	$	2,555,582		$	97,007		$	2,652,589
Warrants to acquire Stifel stock at $36.00 per share		481,715			18,285			500,000


(1)		The contingent earn-out payments, if any, will change the allocation percentages as the initial merger consideration for the option holders was reduced by the options’ exercise price.

Based on the ~~meaning~~initial consideration of ~~other-than-temporary impairment~~shares of Stifel Common Stock issued to BankAtlantic Bancorp at the time of the merger, BankAtlantic Bancorp owns approximately 16% of the outstanding voting stock of Stifel and ~~its application~~therefore does not have the ability to ~~investments classified as either available for sale or held to maturity under FASB Statement No. 115 and investments~~exercise significant influence over Stifel’s operations. As such BankAtlantic Bancorp’s investment in Stifel is accounted for under the cost method of ~~accounting.~~accounting and will be reflected in BankAtlantic Bancorp’s Consolidated Financial Statements as securities available for sale.

Stifel has agreed to register the shares of Stifel Common Stock issuable in connection with the merger and to grant BankAtlantic Bancorp incidental “piggy-back” registration rights. BankAtlantic Bancorp has agreed that, other than in private transactions, it will not, without Stifel’s consent, sell more than one-third of the shares of Stifel Common Stock received by it within the year following the initial registration of such securities nor more than two-thirds of the shares of Stifel Common Stock received by it within the two-year period following the initial registration of such securities.

151

BFC Financial Corporation
Notes to Consolidated Financial Statements

The ~~guidance~~components of ~~EITF 03-01 requires~~earnings (losses) from discontinued operations relating to Ryan Beck are as follows (in thousands):


	For the Years Ended December 31,
	2006			2005		2004
Investment banking revenues	$	218,461		$	251,361	$	243,155

Expenses:
Employee compensation and benefits		170,605			165,325		158,868
Occupancy and equipment		16,588			15,816		15,429
Advertising and promotion		5,788			5,418		4,735
Interest expense		5,995			3,419		924
Other expenses:
Professional fees		8,790			6,706		5,482
Communications		15,187			13,554		12,527
Floor broker and clearing fees		8,612			9,118		9,835
Other		6,389			7,204		6,184

Total Expenses		237,954			226,560		213,984

(Loss) income from discontinued operations before income taxes and noncontrolling interest		(19,493	)		24,801		29,171
Income tax (benefit) provision		(8,958	)		10,690		13,184
Noncontrolling interest (loss) income		(9,011	)		11,877		13,605

(Loss) income from discontinued operations, net of tax and noncontrolling interest	$	(1,524	)	$	2,234	$	2,382

The assets and liabilities associated with Ryan Beck’s discontinued operations included in the Company’s consolidated statement of financial condition consisted of the following (in thousands):


	As of December 31,
	2006		2005
ASSETS
Cash	$	3,285	$	5,366
Securities owned		112,382		180,292
Loans receivable		—		3,360
Office properties and equipment, net		9,644		7,573
Deferred tax asset, net		16,411		11,729
Goodwill		6,184		6,184
Due from clearing agent		15,629		—
Other assets		27,228		25,605

Total assets	$	190,763	$	240,109

LIABILITIES:
Securities sold but not yet purchased	$	31,407	$	35,177
Due to clearing agent		—		24,486
Other liabilities		63,839		74,100

Total liabilities	$	95,246	$	133,763

152

BFC Financial Corporation
Notes to Consolidated Financial Statements

Cash flows from Ryan Beck’s discontinued operations included in the Company’s consolidated statement of cash flows consisted of the following: (in thousands)


	For the Years Ended December 31,
	2006			2005		2004
Net cash provided by operating activities	$	516		$	1,467	$	8,977
Net cash (used in) provided by investing activities	$	(1,298	)	$	225	$	(5,861	)
Net cash (used in) provided by financing activities	$	(1,299	)	$	—	$	4,856

BFC Activities

I.R.E BMOC, Inc (“BMOC”), a wholly owned subsidiary of BFC, owned an outlet center located in Burlington, North Carolina that was acquired in 1985. In November 2004, a tenant occupying 21% of the square footage of the shopping center vacated the premises. The loss of this tenant caused BMOC to operate at a negative cash flow. Because of the negative cash flow, the mortgage was not paid in accordance with its terms; rather, cash flow to the extent available from the shopping center was paid to the lender. The noteholder on September 14, 2005 filed a Notice of Hearing Prior to Foreclosure of Deed of Trust which among other things indicated that the ~~Company make evidence-based judgments about~~shopping center was scheduled to be sold on November 29, 2005. On December 19, 2005, the ~~recovery~~shopping center was transferred to the lender in full settlement of the ~~unrealized loss (impairment), if any, on each security considering~~note of $8.2 million. The Company’s income from the ~~severity and duration~~transfer of the impairment and the Company’s ability and intent to hold the securities until the forecasted recovery. In September 2004 the FASB issued a FSP that delayed the effective date for the measurement and recognition guidance for the meaning of other-than-temporary impairment. The disclosure requirements were not deferred. At December 31, 2004, the securities portfolios were evaluated for other-than-temporary declinesshopping center was approximately $5.1 million before tax which is included in value based on existing guidance contained in FASB No. 115, SAB Topic 5-M and FASB Staff Implementation Guide to FASB No. 115 resulting in approximately $362,000 in other-than-temporary impairment of the securities portfolios.

~~2. Discontinued Operations and Acquisitions~~

~~Discontinued Operations~~

~~During the year ended December 31, 2003, Ryan Beck sold two of its subsidiaries, GMS and Cumberland Advisors, Inc. (“Cumberland”). The above transactions are presented as~~ discontinued operations in the Company’s statements of operations for the ~~years~~year ended December 31, ~~2003 and 2002.~~

As part of Ryan Beck’s acquisition of certain of the assets and assumption of certain of the liabilities of Gruntal & Co, LLC, in April 2002, Ryan Beck acquired all of the membership interests in The GMS Group, L.L.C. (“GMS”). Since its acquisition, GMS2005. There was operated as an independent business unit. After a receipt of an offer by GMS’s management to purchase GMS from Ryan Beck, Ryan Beck sold its entire membership interest in GMS to GMS Group Holdings Corp. (“Buyer”) in August 2003 for $22.6 million. The Buyer was formed by the management of GMS along with other investors.

~~F-21~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

Ryan Beck received cash proceeds from the sale of $9.0 million and a $13.6 million secured promissory note issued by the Buyer with recourse to the management of GMS. The note is secured by the membership interest in GMS and contains covenants that require GMS to maintain certain capital and financial ratios. If these covenants are not maintained, Ryan Beck can exercise its rights of default under the note, including pursing the sale of the collateral. Ryan Beck did not recognize any gain or loss associated with the transaction. The promissory note is at a federal funds rate plus an applicable margin and is payable in 27 equal quarterly installments continuing until June 2010 with a final payment of $4.4 million in September 2010. At December 31, 2004 and 2003, the outstanding balance of the promissory note was $6.1 million and $12.0 million, respectively.

~~During the second quarter of 2003, Ryan Beck sold its entire interest in Cumberland for $1.5 million and recognized a $228,000 loss.~~

~~The components of earnings from discontinued operations were as follows (in thousands):~~

For the Years Ended December 31,
(in thousands) 2003 2002
Revenues:

Interest income $ 6,279 $ 5,424
Investment banking income 17,782 20,418
Other 1,375 1,706

25,436 27,548

Expenses:

Interest expense 1,039 1,237
Employee compensation and benefits 17,377 17,986
Other 6,394 5,486

24,810 24,709

Income before income taxes
626 2,839
(Benefit) provision for income taxes (517 ) 303

Income from discontinued operations, net of tax
$ 1,143 $ 2,536

~~The following table summarizes the assets and liabilities sold or transferred associated with discontinued operations and the cash proceeds received or transferred (in thousands):~~

Cash $ 815
Securities owned 105,083
Property and equipment 559
Goodwill 1,204
Other assets 5,479
Securities sold but not yet purchased (3,781 )
Due to clearing agent (80,561 )
Other liabilities (4,347 )

Net assets sold or transferred 24,451
Notes receivable — GMS Holdings, Inc. (13,681 )
Cash sold (815 )

Net cash proceeds received $ 9,955

~~F-22~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Acquisitions~~

On April 28, 2004 Levitt acquired Bowden for approximately $7.4 million in cash. The acquisition was accounted for under the purchase method of accounting. Under this method the assets acquired and the liabilities assumed were recorded at their estimated fair value. The amount of the purchase price in excess of the estimated fair value of net assets acquired, recorded as goodwill, was approximately $1.3 million. The following table summarizes the fair value of the assets acquired and liabilities assumed in connection with the purchase of all of Bowden’s capital stock (in thousands):

Cash, cash equivalents and restricted cash $ 1,335
Inventory 21,927
Property and equipment 409
Other assets 2,820
Goodwill 1,307

Fair value of assets acquired 27,798

Accounts payable and accrued liabilities 2,747

Customer deposits 287
Notes payable 16,725
Deferred tax liability 595

Fair value of liabilities assumed 20,354

Purchase price 7,444
Cash acquired (1,335 )

Purchase of Bowden, net of cash acquired $ 6,109

On April 26, 2002, Ryan Beck acquired certain of the assets and assumed certain of the liabilities of Gruntal and acquired all of the membership interests in GMS the (“Gruntal transaction”). The assets acquired from Gruntal include all of Gruntal’s customer accounts, furniture, leasehold improvements and equipment owned by Gruntal at the offices where Gruntal’s financial consultants were located, assetsno activity related to Gruntal’s deferred compensation plan and forgivable notes. The consideration provided by Ryan Beck for this transaction was the assumption of a note payable related to furniture and equipment in the Gruntal offices, assumption of non-cancelable leases associated with the Gruntal offices acquired, obligations owed to financial consultants participating in Gruntal’s deferred compensation plan that accepted employment with Ryan Beck, and the payment of $6.0 million in cash.

The Gruntal transaction was accounted for by the purchase method of accounting. Under this method the acquired assets and assumed liabilities of Gruntal were recorded at their estimated fair value, and the amount of estimated fair value of net assets in excess of the purchase price was used to write down non-financial assets. The remaining balance was recorded as an extraordinary income item. The Company’s financial statements reflect the Gruntal transaction since April 26, 2002.

On March 22, 2002, BankAtlantic acquired Community, for $170.3 million in cash and immediately merged Community into BankAtlantic. At the acquisition date, BankAtlantic Bancorp made a $78.5 million capital contribution to BankAtlantic. BankAtlantic funded the acquisition of Community using such capital contribution received from BankAtlantic Bancorp and funds obtained from the liquidation of investments. Community’s results of operations have been included in the Company’s consolidated financial statements since March 22, 2002. Community was a federally chartered savings and loan association founded in 1955 and headquartered in North Palm Beach, Florida. At March 22, 2002, Community had assets of $909 million, deposits of $637 million and 21 branches.

The following table summarizes the fair value of assets acquired and liabilities assumed in connection with the acquisition of Community and the Gruntal transaction effective March 22, 2002 and April 26, 2002, respectively (in thousands):

~~F-23~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

Community Gruntal Total
Cash and interest-earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 — 79,768
Securities owned — 151,909 151,909
Loans receivable, net 623,469 — 623,469
FHLB stock 8,063 — 8,063
Investments and advances in unconsolidated subsidiaries 16,122 — 16,122
Goodwill 55,068 — 55,068
Core deposit intangible asset 15,117 — 15,117
Other assets 46,620 12,597 59,217

Fair value of assets acquired 969,204 165,392 1,134,596

Deposits 639,111 — 639,111
FHLB advances 138,981 — 138,981
Other borrowings 14,291 3,427 17,718
Securities sold, but not yet purchased — 1,201 1,201
Due to clearing agent — 101,705 101,705
Other liabilities 6,022 27,463 (1) 33,485

Fair value of liabilities assumed 798,405 133,796 932,201
Fair value of net assets acquired over cost — (23,749) (2) (23,749 )

Purchase price 170,799 7,847 178,646
Cash acquired (124,977 ) (886 ) (125,863 )

Purchase price net of cash acquired $ 45,822 $ 6,961 $ 52,783

~~(1)~~

Included in Gruntal’s other liabilities were a $21 million deferred compensation plan obligation, of which $18.3 million was vested. Also included in other liabilities was $675,000 of termination costs for contract obligations related to leased equipment and $654,000 of contract termination obligations associated with closing certain Gruntal branches.

~~(2)~~ The Company recognized an extraordinary gain of $23.7 million, net of income taxes of $2.8 million, and reduced the carrying amount of non-financial assets by $11.2 million as a result of the fair value of the assets acquired exceeding the cost of the Gruntal transaction. BankAtlantic Bancorp did not establish a deferred tax liability for the extraordinary gain associated with the GMS membership interest acquired because BankAtlantic Bancorp acquired the GMS membership interest rather than the net assets.

The purchase price of Community consisted of $170.3 million in cash and $500,000 of acquisition professional fees. The cost of the Gruntal transaction consisted of a $6.0 million cash payment, $750,000 of acquisition professional fees and an estimated $1.05 million of contingent consideration payable to Gruntal. The $1.05 million contingent consideration to Gruntal relates to possible deferred compensation plan participant forfeitures and represents the maximum amount of additional consideration. Ryan Beck paid Gruntal $350,000 of contingent consideration during each of the years ended December 31, 2004 and 2003.

~~F-24~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The following pro forma information~~BMOC for the year ended December 31, ~~2002~~2006.

BMOC’s components of earnings (losses) from discontinued operations for the years ended December 31, 2005 and 2004 is ~~presented~~ as iffollows (in thousands):


	For the Years Ended December 31,
	2005		2004
BFC Activities – Revenues Other income	$	117	$	502
BFC Activities – Expenses Interest expense		736		778
Gain on disposition		5,146		—

Income (loss) from discontinued operations		4,527		(276	)
Provision (benefit) for income taxes		1,707		(106	)

Income (loss) from discontinued operations, net of tax	$	2,820	$	(170	)

During the ~~Gruntal~~year ended December 31, 2006, there were no earnings (losses) from BMOC discontinued operations.

5. Federal Funds Sold and Community transactions had been consummated on January 1, 2002. The pro forma information is not necessarily indicative of the combined results of operations which would have been realized had the transactions been consummated during the period or as of the date for which the pro forma financial information is presented.Other Short Term Investments

2002
(In thousands, except per share data) Historical Pro Forma
Interest income $ 304,700 $ 320,654
Interest expense 151,878 158,598
Provision for loan losses 14,077 16,121
Loss from continuing operations $ (5,986 ) $ (6,498 )

Basic loss per share from continuing operations $ (0.27 ) $ (0.29 )

Diluted loss per share from continuing operations $ (0.28 ) $ (0.30 )

During April 2002, BankAtlantic Bancorp and Levitt’s ownership in Bluegreen Corporation, a New York Stock Exchange-listed company engaged in the acquisition, development, marketing and sale of primarily drive-to vacation interval resorts, golf communities and residential land, increased from approximately 5% to 40%. This interest in Bluegreen was acquired for an aggregate purchase price of approximately $56 million. BankAtlantic Bancorp acquired approximately 5% of Bluegreen common stock during the first quarter of 2001, and Levitt acquired approximately 35% of Bluegreen common stock in April 2002. The Company’s investment in Bluegreen is accounted for as an investment in an unconsolidated subsidiary using the equity method of accounting.

~~3. Available for Sale Securities, Investment Securities, Tax Certificates and Short-Term Investments~~

The following ~~tables summarize available-for-sale securities, investment securities~~table provides information on BankAtlantic’s Federal Funds sold (in thousands):


	For the Years Ended December 31,
	2006			2005			2004
Ending Balance	$	691		$	1,057		$	5,100
Maximum outstanding at any month end within period	$	16,276		$	8,648		$	54,530
Average amount invested during period	$	1,824		$	4,275		$	6,282
Average yield during period		3.00	%		1.87	%		0.75	%

As of December 31, 2006, 2005 and ~~tax certificates (in thousands) :~~

Available for Sale Available for Sale
December 31, 2004 December 31, 2003
Gross Gross Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
Cost Appreciation Depreciation Fair Value Cost Appreciation Depreciation Fair Value
Mortgage-Backed Securities:

Mortgage-backed securities $ 401,566 $ 3,848 $ 1,587 $ 403,827 $ 315,520 $ 6,262 $ 529 $ 321,253
Real estate mortgage investment conduits 96,938 188 436 96,690 17,378 120 — 17,498

Total mortgage-backed securities 498,504 4,036 2,023 500,517 332,898 6,382 529 338,751

Investment Securities:

Tax-exempt securities 219,322 2,062 1,030 220,354 — — — —
Other bonds 585 — — 585 585 — — 585
Equity securities 23,141 4,404 — 27,545 16,635 4,471 — 21,106

Total investment securities 243,048 6,466 1,030 248,484 17,220 4,471 — 21,691

Total $ 741,552 $ 10,502 $ 3,053 $ 749,001 $ 350,118 $ 10,853 $ 529 $ 360,442

2004, BankAtlantic had $5.0 million, $2.2 million and $11.0 million, respectively, invested in money market accounts with unrelated brokers.

~~F-25~~153

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

Investment Securities and Tax Certificates
December 31, 2004 December 31, 2003
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value Cost Appreciation Depreciation Value
Tax certificates (1) —
Net of allowance of $3,297 $ 166,731 $ — $ — $ 166,731 $ — $ — $ — $ —
Net of allowance of $2,870 — — — — 190,906 — — 190,906
Tax-exempt securities 133,562 302 777 133,087 — — — —
Limited partnership (2) 5,000 345 — 5,345 — — — —
Investment securities (3) 12,253 — — 12,253 1,800 — — 1,800

$ 317,546 $ 647 $ 777 $ 317,416 $ 192,706 $ — $ — $ 192,706

6. Securities Available for Sale

The following tables summarize securities available-for-sale (in thousands):


	December 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Mortgage-Backed Securities:
Mortgage-backed securities	$	324,646	$	1,366	$	3,113	$	322,899
Real estate mortgage investment conduits (1)		40,919		—		2,068		38,851

Total mortgage-backed securities		365,565		1,366		5,181		361,750

Investment Securities:
Tax-exempt securities		197,287		822		1,671		196,438
Other bonds		685		—		10		675
Equity securities		83,013		11,783		—		94,796

Total investment securities		280,985		12,605		1,681		291,909

Total	$	646,550	$	13,971	$	6,862	$	653,659

~~(1)~~	~~Management considers estimated fair value equivalent to book value for tax certificates since these securities have no readily traded market~~
(1)		Real estate mortgage investment conduits are pass-through entities that hold residential loans and investors are ~~deemed to approximate fair value.~~

~~(2)~~ ~~The limited partnership invests in companies~~issued ownership interests in the ~~financial service industry and is recorded at fair value~~entities in ~~Investment Securities and Tax Certificates.~~the form of a bond.

(3) Investment securities consist of equity instruments purchased through private placements and are accounted for at historical cost adjusted for other-than-temporary declines in value. Also included in investment securities is BFC’s investment in Benihana of $10.0 million as discussed in Note 4.


	December 31, 2005
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Mortgage- Backed Securities:
Mortgage-backed securities	$	337,381	$	1,547	$	4,749	$	334,179
Real estate mortgage investment conduits		49,797		—		2,436		47,361

Total mortgage-backed securities		387,178		1,547		7,185		381,540

Investment Securities:
Tax-exempt securities		204,441		325		2,795		201,971
Other bonds		588		—		—		588
U.S. Treasury notes		998		2		—		1,000
Equity securities		82,296		9,265		—		91,561

Total investment securities		288,323		9,592		2,795		295,120

Total	$	675,501	$	11,139	$	9,980	$	676,660

The following table shows the gross unrealized losses and fair value of the Company’s securities available for sale ~~securities and investment securities~~ with unrealized losses that are deemed temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, ~~2004~~2006 (in thousands):


	Less Than 12 Months					12 Months or Greater					Total					Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
Available for sale securities:
Mortgage-backed securities	$	91,091	$	(1,256	)	$	52,253	$	(331	)	$	143,344	$	(1,587	)	$	30,868	$	(88	)	$	142,632	$	(3,025	)	$	173,500	$	(3,113	)
Real estate mortgage investment conduits		71,705		(436	)		—		—			71,705		(436	)		—		—			38,851		(2,068	)		38,851		(2,068	)
Tax exempt securities		71,523		(1,030	)		—		—			71,523		(1,030	)
Tax-exempt securities																	29,715		(65	)		79,169		(1,606	)		108,884		(1,671	)
Other bonds																	242		(8	)		198		(2	)		440		(10	)

Total available for sale securities:		234,319		(2,722	)		52,253		(331	)		286,572		(3,053	)	$	60,825	$	(161	)	$	260,850	$	(6,701	)	$	321,675	$	(6,862	)

Investment securities
Tax exempt securities		78,585		(777	)		—		—			78,585		(777	)

Total	$	312,904	$	(3,499	)	$	52,253	$	(331	)	$	365,157	$	(3,830	)

Unrealized losses on ~~mortgage-backed~~ securities outstanding greater than twelve months at December 31, ~~2004~~2006 were caused by interest rate increases. The cash flows of these securities are guaranteed by government ~~agencies.~~sponsored enterprises and state

154

BFC Financial Corporation
Notes to Consolidated Financial Statements

municipalities. Management expects that the ~~mortgage-backed~~ securities would not be settled at a price less than the carrying amount. Accordingly, the Company does not consider these investments other-than-temporarily impaired at December 31, ~~2004.~~

2006.

Unrealized losses on securities outstanding less than twelve months at December 31, ~~2004~~2006 were also caused by interest rate increases. These securities are guaranteed by government agencies and state municipalities and are of high credit quality. Since these securities are of high credit quality and the decline in value has existed for a short period of time, management believes that these securities may recover their losses in the foreseeable future. Accordingly, the Company does not consider these investments other-than-temporarily impaired at December 31, ~~2004.~~

~~F-26~~

2006.

~~BFC Financial Corporation~~ The following table shows the gross unrealized losses and ~~Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

fair value of the Company’s securities available for sale with unrealized losses that are deemed temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2005 (in thousands):


	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for sale securities:
Mortgage-backed securities	$	156,852	$	(2,110	)	$	101,168	$	(2,639	)	$	258,020	$	(4,749	)
Real estate mortgage investment conduits		12,210		(346	)		35,151		(2,090	)		47,361		(2,436	)
Tax exempt securities		107,089		(1,209	)		49,657		(1,586	)		156,746		(2,795	)
Total available for sale securities	$	276,151	$	(3,665	)	$	185,976	$	(6,315	)	$	462,127	$	(9,980	)

The scheduled maturities of debt securities ~~and tax certificates~~available for sale were (in thousands):


	Debt Securities				Tax Certificates and				Debt Securities
	Available for Sale				Investment Securities				Available for Sale
			Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair
December 31, 2004 (1) (2)	Cost		Value		Cost		Value
December 31, 2006 (1) (2) (3)									Cost		Value
Due within one year	$	4,419	$	4,398	$	118,725	$	118,725	$	997	$	996
Due after one year, but within five years		6,285		6,226		48,006		48,006		13,918		13,419
Due after five years, but within ten years		86,136		86,051		—		—		177,737		177,379
Due after ten years ~~(3)~~		621,571		624,781		133,562		133,087		370.885		367,069

Total	$	718,411	$	721,456	$	300,293	$	299,818	$	563,537	$	558,863


(1)		Scheduled maturities in the above table may vary significantly from actual maturities due to prepayments.

(2)	~~Except for tax certificates,~~	Scheduled maturities are based upon contractual maturities. ~~Tax certificates do not have stated maturities, and estimates in the above table are based upon historical repayment experience (generally 1 to 2 years).~~

(3)		Amounts include ~~$294~~$163 million of callable tax exempt securities with call dates ranging from 2008 to ~~2015.~~2014.

The components of securities activities, net were (in thousands):


	For the Years Ended December 31
	2006			2005			2004
Gross gains on securities activities	$	10,137		$	917		$	7,162
Realized gross losses on securities activities		(168	)		(18	)		—
Unrealized gains on derivative transactions		—			12			36
Realized losses on derivative transactions		(156	)		(6	)		—
Securities activities, net	$	9,813		$	905		$	7,198

Proceeds from sales of securities available for sale were $70.3 million, $127.9 million and $99.1 million during the years ended December 31, 2006, 2005 and 2004, respectively.

During the year ended December 31, 2006, MasterCard International (“MasterCard”) completed an initial public offering (“IPO”) of its common stock. Pursuant to the IPO, member financial institutions received cash and Class B

155

BFC Financial Corporation
Notes to Consolidated Financial Statements

Common Stock for their interest in MasterCard. BankAtlantic received $458,000 in cash and 25,587 shares of MasterCard’s Class B Common Stock. The $458,000 cash proceeds were reflected in the Company’s Consolidated Statement of Operations in Financial Services other income. The Class B Common Stock received was accounted for as a nonmonetary transaction and recorded at historical cost.

The change in net unrealized holding gains or losses on securities available for sale, included as a separate component of shareholders’ equity, was as follows (in thousands):


	For The Years Ended December 31,
	2006		2005			2004
Change in other comprehensive income (loss) on securities available for sale	$	1,076	$	(711	)	$	195
Income tax provision (benefit)		415		(274	)		79
Change in shareholders’ equity from net unrealized gains (losses) on securities available for sale, net of tax	$	661	$	(437	)	$	116

The components of accumulated other comprehensive loss included in stockholders’ equity was as follows (in thousands):


	December 31,
	2006			2005
Unrealized gains on securities	$	1,802		$	1,144
Unrecognized losses from defined benefit pension plan		(597	)		—
Unrealized gain associated with investment in unconsolidated affiliates		247			168
Minimum pension liability		—			(786	)
Accumulated other comprehensive income	$	1,451		$	525

7. Investment Securities Held-to-Maturity and Certain Equity Securities

The following tables summarize investment securities held–to-maturity (in thousands):


	December 31, 2006
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Tax-exempt securities (2), (3)	$	200,182	$	962	$	338	$	200,806
Equity securities (1)		27,026		1,714		—		28,740
	$	227,208	$	2,676	$	338	$	229,546


	December 31, 2005
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Tax-exempt securities (2)	$	193,918	$	313	$	1,428	$	192,803
Equity securities (1)		27,324		793		—		28,117
	$	221,242	$	1,106	$	1,428	$	220,920


(1)		Equity securities consist of equity instruments purchased through private placements which do not have readily determinable fair values and are accounted for at historical cost adjusted for other-than-temporary declines in value, as well as BFC’s Benihana convertible preferred stock investment of approximately $20.0 million at December 31, 2006 and 2005 (see Note 9).

(2)		Tax exempt securities consist of municipal bonds.

(3)		Amounts include $196.6 million of callable tax exempt securities with call dates ranging from 2007 to 2016.

156

BFC Financial Corporation
Notes to Consolidated Financial Statements


	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
As of December 31,2006
Tax exempt securities	$	47,603	$	(202	)	$	12,354	$	(136	)	$	59,957	$	(338	)

As of December 31, 2005
Tax exempt securities	$	116,393	$	(1,132	)	$	11,982	$	(296	)	$	128,375	$	(1,428	)

Unrealized losses on securities outstanding greater than twelve months at December 31, 2006 were caused by interest rate increases. The cash flows of these securities are guaranteed by state municipalities. Management expects that the securities would not be settled at a price less than the carrying amount. Accordingly, the Company does not consider these investments other-than-temporarily impaired at December 31, 2006.

Unrealized losses on securities outstanding less than twelve months at December 31, 2005 were also caused by interest rate increases. These securities are guaranteed by state municipalities. Since the decline in value has existed for a short period of time, management believes that these securities may recover their losses in the foreseeable future. Accordingly, the Company does not consider these investments other-than-temporarily impaired at December 31, 2005.

The scheduled maturities of debt securities based on contractual maturities at December 31, 2006 were (in thousands):


			Estimated
	Amortized		Fair
	Cost		Value
Due after five years, but within ten years	$	9,057	$	9,066
Due after ten years		191,125		191,740
Total	$	200,182	$	200,806

8. Tax Certificates

The following table summarizes tax certificates (in thousands):

December 31, 2006

December 31, 2005

Estimated

Amortized

Fair

Amortized

Fair

Cost

Value

Cost

Value

Tax certificates (1)(2) — Net of allowance of $3,699 in 2006 and $3,271 in 2005

195,391

163,726


(1)		Management considers the estimated fair value equivalent to book value for tax certificates since these securities have no readily traded market value.

(2)		Based on historical repayment experience, the majority of tax certificates are redeemed in two years or less.

157

BFC Financial Corporation
Notes to Consolidated Financial Statements

Activity in the allowance for tax certificate losses was (in thousands):


	For the Years Ended December 31									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Balance, beginning of period	$	2,870		$	1,873		$	1,521		$	3,271		$	3,297		$	2,870

Charge-offs		(491	)		(869	)		(1,783	)		(295	)		(979	)		(491	)
Recoveries		918			666			660			423			603			918

Net recoveries (charge-offs)		427			(203	)		(1,123	)		128			(376	)		427

Provision charged to operations		—			1,200			1,475			300			350			—

Balance, end of period	$	3,297		$	2,870		$	1,873		$	3,699		$	3,271		$	3,297

~~The components of gains and losses on sales of securities included in other income were (in thousands):~~

For the Years Ended December 31,
2004 2003 2002
Gross gains on securities activities $ 7,162 $ 900 $ 8,711
Gross losses on securities activities — (1,961 ) (67 )
Realized gain on future contract 36 — —
Realized loss on future contract — (49 ) (66 )

Net (losses) gains on securities activities $ 7,198 $ (1,110 ) $ 8,578

Proceeds from sales of securities available for sale were $99.1 million, $41.2 million, and $197.6 million during the years ended December 31, 2004, 2003 and 2002, respectively. Included in gross losses on securities activities, net during the year ended December 31, 2003 was $1.9 million of realized losses related to the settlement of interest rate swap contracts. The interest rate swaps were accounted for as a cash flow hedge and the unrealized losses were recorded i other comprehensive income during the year ended December 31, 2002.

In October 1999, BankAtlantic Bancorp made a $15 million investment in 3,033,386 shares of a privately held technology company’s common stock for cash and 848,364 shares of BankAtlantic Bancorp’s Class A common stock. A limited partnership in which BFC has an approximately 57% controlling interest invested $2 million for 219,300 shares of the technology company’s common stock, at a price per share of $9.12 in October 2000. At December 31, 2001, the carrying value of this investment by the limited partnership was written down to $4.95 per share and in 2002, based on performance of the technology company, the investment in the technology company was written off entirely by the limited partnership and BankAtlantic Bancorp. The Company also recognized an impairment charge of $362,000, $3.1 million and $4.3 million during the year ended December 31, 2004, 2003 and 2002, respectively, on other equity securities resulting from significant declines in their value that were considered other than temporary due to the financial condition and near term prospects of the issuers of the equity securities. Approximately $3.8 million of the impairment charge in 2002 relates to BankAtlantic

~~F-27~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Bancorp impairment charge in its equity securities.~~

In March 2004, the Company recorded a $24 million litigation gain pursuant to a settlement between the Company and its affiliates and the technology company. In accordance with the terms of the settlement, BankAtlantic Bancorp sold its stock in the technology company to a third party investor group for its original cost of $15 million and received from the investor group and the technology company additional compensation for legal expenses and damages consisting of $1.7 million in cash and 378,160 shares of BankAtlantic Bancorp’s Class A common stock with a $6.1 million fair value that had been owned by the technology company. BankAtlantic Bancorp retired the Class A common stock on the settlement date. The limited partnership and other affiliates of the Company chose not to sell their shares in the technology company but recovered legal fees and damages. The limited partnership received $309,845 in cash and 50,422 shares of BankAtlantic Bancorp Class A Common Stock in connection with the settlement and the Company’s other affiliates, without regard to BankAtlantic Bancorp or their interests in the limited partnership, received in the aggregate $132,747 in cash and 29,413 shares of BankAtlantic Bancorp Class A Common Stock. The legal fees associated with the lawsuit and the damages received by the Company and its affiliates were shared pro rata based on the amount of each party’s original investment in the technology company.

~~Securities owned consisted of the following (in thousands):~~

December 31,
2004 2003
Debt obligations:
States and municipalities $ 10,824 $ 9,903
Corporations 10,093 5,159
U.S. Government and agencies 57,659 62,229
Corporate equity 18,042 15,072
Mutual funds 27,898 24,639
Certificates of deposits 927 7,563

Total $ 125,443 $ 124,565

All the securities owned at December 31, 2004 and 2003 were associated with Ryan Beck’s trading activities conducted both as principal and as agent on behalf of the firm and individual and institutional investor clients of Ryan Beck. Transactions as principal involve making markets in securities which are held in inventory to facilitate sales to and purchases from customers. Ryan Beck realized income from principal transactions of $90.4 million, $95.5 million and $49.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.

In the ordinary course of business, Ryan Beck borrows or carries excess funds under an agreement with its clearing broker. Securities owned are pledged as collateral for clearing broker borrowings. As of December 31, 2004, balances due from the clearing broker were $16.6 million. As of December 31, 2003, balances due to the clearing broker were $8.6 million.

~~Securities sold, but not yet purchased consists of the following (in thousands):~~

December 31,
2004 2003
Corporate equity $ 3,498 $ 3,544
Corporate bonds 9,958 1,963
State and municipalities 269 67
U.S. Government agencies 25,384 32,231
Certificates of deposits 353 8

$ 39,462 $ 37,813

Securities sold, but not yet purchased are a part of Ryan Beck’s normal activities as a broker and dealer in securities and are subject to off-balance-sheet risk should Ryan Beck be unable to acquire the securities for delivery to the purchaser at prices equal to or less than the current recorded amounts.

~~F-28~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The following table provides information on securities purchased under resell agreements (in thousands):~~

For the Years Ended December 31,
2004 2003 2002
Ending Balance $ — $ — $ 30,145
Maximum outstanding at any month end within period $ — $ 160,000 $ 30,145
Average amount invested during period $ — $ 31,589 $ 4,558
Average yield during period — 0.60 % 0.73 %

~~The underlying securities associated with the securities purchased under resell agreements during the years ended December 31, 2003 and 2002 were held by the Company.~~

~~The following table provides information on Federal Funds sold (in thousands):~~

For the Years Ended
2004 2003 2002
Ending Balance $ 5,100 $ — $ 20,000
Maximum outstanding at any month end within period $ 54,530 $ 83,000 $ 20,000
Average amount invested during period $ 6,282 $ 16,499 $ 3,928
Average yield during period 0.75 % 1.01 % 1.45 %

~~The estimated fair value of securities and short term investments pledged for the following obligations were (in thousands):~~

December 31,
2004 2003
Treasury tax and loan $ 1,784 $ 1,724
Repurchase agreements 312,171 144,984
Public deposits 53,838 —
Interest rate swap and forward contracts — 174

$ 367,793 $ 146,882

The counter party to the repurchase agreements has the right to engage in other repurchase transactions with the pledged securities but must deliver the pledged securities to BankAtlantic at the termination of the agreement.

4.9. Benihana Convertible Preferred Stock Investment

Benihana has operated teppanyaki-style ~~dinnerhouse~~ restaurants in the United States for ~~40 years. Benihana~~more than 42 years and has exclusive rights to own, develop and license Benihana and Benihana Grill restaurants in the United States, Central and South America and the islands of the Caribbean. Benihana is a NASDAQ-listed company with two listed classes of common shares: Common Stock (BNHN) and Class A Common Stock (BNHNA). John E. Abdo, Vice Chairman of the ~~Company~~Company’s Board of Directors, is a member of ~~Benihana~~Benihana’s Board of Directors. Further, Darwin Dornbush, a member of Levitt’s Board of Directors is a director and corporate secretary of Benihana.

~~During~~

The Company owns 800,000 shares of Benihana Series B Convertible Preferred Stock (“Convertible Preferred Stock”). Based upon Benihana’s currently outstanding capital stock, the ~~quarter ended June 30, 2004, the Company entered into~~Convertible Preferred Stock if converted would represent approximately 26% of Benihana voting and 10% of Benihana economic interest. The Company’s investment in Benihana’s Convertible Preferred Stock is classified as investment securities and is carried at historical cost.

The Convertible Preferred Stock was acquired pursuant to an agreement with Benihana Inc., to purchase an aggregate of 800,000 shares of Series B Convertible Preferred Stock ~~(“Convertible Preferred Stock”)~~ for $25.00 per share. ~~Benihana is a NASDAQ-listed company with two listed classes of common shares: Common Stock (BNHN) and Class A Common Stock (BNHNA).~~ On July 1, 2004, the Company funded the first tranche of Convertible Preferred Stock in the amount of $10.0 million for the purchase of 400,000 ~~shares. The purchase of~~shares and on August 4, 2005 the Company purchased the remaining 400,000 shares of Convertible Preferred Stock ~~will be funded from time to time at~~in the ~~election~~amount of ~~Benihana during the two-year period commencing on the first anniversary of the closing.~~$10.0 million. The shares of Convertible Preferred Stock are convertible into Benihana Common Stock at a conversion price of $19.00 per share, subject to adjustment from time to time upon certain defined events. The shares of the Convertible Preferred Stock have voting rights on an “as if converted” basis together with Benihana’s Common Stock on all matters put to a vote of the holders of Benihana’s Common Stock. The approval of a majority of the holders of the Convertible Preferred Stock then outstanding, voting as a single class, are required for certain events outside the ordinary course of business. Holders of the Convertible Preferred Stock are entitled to receive cumulative quarterly dividends at an annual rate equal to $1.25 per share, payable on the last day of each calendar ~~quarter commencing September 30, 2004.~~quarter. The Convertible Preferred Stock is subject to mandatory redemption at the original issue price plus accumulated dividends on

~~F-29~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

July 2, 2014 unless the holders of a majority of the outstanding Convertible Preferred Stock elect to extend the mandatory redemption date to a later date not to extend beyond July 2, 2024. In addition, the Convertible Preferred Stock may be redeemed by Benihana for a limited period beginning three years from the date of issue if the price of Benihana’s Common Stock is at least $38.00 for sixty consecutive trading days. ~~Based upon Benihana’s currently outstanding capital stock,~~At December 29, 2006, BNHN close price was $31.60 per share. The market value of the Convertible Preferred Stock ~~currently held represents~~on an if converted basis at December 31, 2006 would have been approximately ~~13% of Benihana’s voting~~$33.3 million.

158

BSF Financial Corporation

Notes to Consolldated Financial Statements

10. Loans Receivable and ~~5% of Benihana economic interest. Accordingly, the Benihana investment is currently accounted~~Loans Held for ~~at historical cost and is included in investment securities.~~
~~5. Loans Receivable~~

Sale

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


	December 31,						December 31,			December 31,
	2004			2003			2006			2005
Real estate loans:
Residential	$	2,065,658		$	1,343,657		$	2,158,506		$	2,043,055
Construction and development		1,454,048			1,322,268			859,556			1,339,576
Commercial		1,082,294			1,071,787			1,071,287			1,066,598
Small business		123,740			107,835			186,833			151,924
Other loans:
Home equity		457,058			333,655			562,318			513,813
Commercial business		91,505			91,724			157,109			87,599
Small business — non-mortgage		66,679			51,898			98,225			83,429
Consumer loans		14,540			17,892			17,406			21,469
Deposit overdrafts		3,894			4,036			8,440			5,694
Residential loans held for sale		4,646			2,254
Other loans		3,364			4,175			425			2,071
Discontinued loans products (1)		8,285			35,544

Total gross loans		5,375,711			4,386,725			5,120,105			5,315,228

Adjustments:
Undisbursed portion of loans in process		(767,804	)		(728,100	)		(482,842	)		(649,296	)
Premiums related to purchased loans		6,609			6,898			2,180			5,566
Deferred fees		(5,812	)		(6,655	)
Deferred fees, net								(874	)		(3,231	)
Deferred profit on commercial real estate loans		(549	)		(589	)		(204	)		(231	)
Allowance for loan and lease losses		(47,082	)		(46,667	)		(44,173	)		(41,830	)

Loans receivable — net	$	4,561,073		$	3,611,612
Loans receivable – net							$	4,594,192		$	4,626,206

Loans held for sale							$	9,313		$	2,538

1) Discontinued loan products consist of non-mortgage syndication loan, lease financings, indirect consumer loans and certain small business loans originated before 2002. These loan products were discontinued during prior periods.

BankAtlantic’s loan portfolio had the following geographic concentration at December 31, ~~2004:~~2006:


Florida	56	%
~~California~~Eastern U.S.A.	1223	%
~~Northeast~~Western U.S.A.	816	%
~~Other~~Central U.S.A	245	%

	100	%

In February 2001, BFC originated several loans to officers and directors totaling approximately $1.1 million, $100,000 of which are non-recourse loans secured by investments in BankAtlantic Financial Ventures II, Ltd. These loans bear interest payable annually at the prime rate plus 1% and are due in February 2006. On July 16, 2002, John Abdo borrowed from the Company $3.5 million on a recourse basis and paid off his existing loan due to the Company of $500,000. The $3.5 million loan bears interest at the prime rate plus 1%, requires monthly interest payments, is due on demand and is secured by

~~F-30~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~2,127,470 shares of BFC Class A Common Stock and 370,750 shares of BFC Class B Common Stock. The balance of these loans~~ Loans held for sale at December 31, ~~2004~~2006 and ~~2003 is $3.4~~2005 consisted of $2.5 million and ~~$4.2 million (See note 24).~~

~~Loans to Levitt amounting to $38.0 million are unsecured and $8.6 million~~$686,000, respectively, of loans ~~are construction~~originated by BankAtlantic (primarily loans secured by land and improvements at December 31, 2004. These inter-company loans and related interest were eliminated in consolidation. Investments in and advances to unconsolidated subsidiaries includes loans due to BankAtlantic from Levitt’s joint ventures of approximately $23.2 million at December 31, 2003 and none at December 31, 2004. In January 2004, a joint venture loan due to BankAtlantic inthat qualify under the ~~amount of $21.5 million was repaid in connection with the sale of the joint venture project.~~

~~BankAtlantic began originating residential loans~~Community Reinvestment Act) designated as held for sale ~~with~~and $6.8 million and $1.9 million, respectively, of loans originated through the assistance of an independent mortgage ~~company in August 2003.~~company. The mortgage company provides processing and closing assistance to BankAtlantic. Pursuant to an agreement, this mortgage company purchases the loans from BankAtlantic 14 days after the date of funding. BankAtlantic owns the loans during the 14 day period and accordingly earns the interest income during the period. The sales price is negotiated quarterly for all loans sold during the quarter.

159

BSF Financial Corporation

Notes to Consolldated Financial Statements

Allowance for Loan Losses (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Balance, beginning of period	$	46,667		$	49,094		$	45,657		$	41,830		$	47,082		$	46,667

Loans charged-off		(4,076	)		(11,723	)		(28,663	)		(8,905	)		(2,694	)		(4,076	)
Recoveries of loans previously charged-off		9,600			10,577			8,879			2,674			4,057			9,600

Net recoveries (charge-offs)		5,524			(1,146	)		(19,784	)		(6,231	)		1,363			5,524
Allowance for loan losses, acquired		—			(734	)		9,144
Net provision charged (credited) to operations		(5,109	)		(547	)		14,077

Net provision (recovery) of loan losses											8,574			(6,615	)		(5,109	)

Balance, end of period	$	47,082		$	46,667		$	49,094		$	44,173		$	41,830		$	47,082

The following summarizes impaired loans (in thousands):


	December 31, 2004				December 31, 2003				December 31, 2006				December 31, 2005
	Gross				Gross				Gross				Gross
	Recorded		Specific		Recorded		Specific		Recorded		Specific		Recorded		Specific
	Investment		Allowances		Investment		Allowances		Investment		Allowances		Investment		Allowances
Impaired loans with specific valuation allowances	$	247	$	123	$	361	$	181	$	325	$	162	$	386	$	193
Impaired loans without specific valuation allowances		8,123		—		12,325		—		10,319		—		6,878		—

Total	$	8,370	$	123	$	12,686	$	181	$	10,644	$	162	$	7,264	$	193

The average gross recorded investment in impaired loans was ~~$10.3~~$13.6 million, ~~$16.3~~$6.8 million and ~~$39.3~~$10.3 million during the years ended December 31, 2006, 2005 and 2004, ~~2003 and 2002,~~ respectively.

Interest income which would have been recorded under the contractual terms of impaired loans and the interest income actually recognized ~~was~~were (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Contracted interest income	$	464		$	666		$	1,575		$	2,715		$	343		$	464
Interest income recognized		(192	)		(396	)		(768	)		(2,203	)		(192	)		(192	)

Foregone interest income	$	272		$	270		$	807		$	512		$	151		$	272

Non-performing assets consist of non-accrual loans, non-accrual tax certificates, ~~REO~~ and ~~repossessed assets.~~real estate owned. Non-accrual loans are loans on which interest recognition has been suspended because of doubts as to the borrower’s ability to repay principal or interest. Non-accrual tax certificates are tax deeds or certificates in which interest recognition has been suspended due to the aging of the certificate or deed.

~~F-31~~160

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

Non-performing assets (in thousands):


	December 31,							December 31,
	2004		2003		2002			2006		2005		2004
Non-accrual — tax certificates	$	381	$	894	$	1,419		$	632	$	388	$	381
Non-accrual — loans

Non-accrual – loans
Residential		5,538		9,777		14,237			2,629		5,981		5,538
Commercial real estate and business		340		52		1,474			—		340		340
Small business		88		155		239			244		9		88
Lease financing		727		25		3,900			—		—		727
Consumer		1,210		794		532			1,563		471		1,210

Total non-accrual loans									4,436		6,801		7,903

Real estate owned		692		2,422		9,607			21,747		967		692
Other repossessed assets		—		—		4

Total non-performing assets		8,976		14,119		31,412		$	26,815	$	8,156	$	8,976
Specific valuation allowance		—		—		(1,386	)

Total non-performing assets, net	$	8,976	$	14,119	$	30,026

Other potential problem loans (in thousands):


	December 31,						December 31,
	2004		2003		2002		2006		2005		2004
Loans contractually past due 90 days or more and still accruing	$	—	$	135	$	100
Performing impaired loans, net of specific allowances		320		180		—	$	162	$	193	$	320
Restructured loans		24		1,387		1,882		—		77		24

Total potential problem loans	$	344	$	1,702	$	1,982	$	162	$	270	$	344

~~Loans contractually past due 90 days or more represent~~

Performing impaired loans ~~that have matured and the borrower continues to make the payments under the matured loan agreement. BankAtlantic is in the process of renewing or extending these matured loans.~~are impaired loans which are still accruing interest. Restructured loans are loans in which the original terms were modified granting the borrower loan concessions due to financial difficulties. ~~Performing impaired loans are impaired loans which are still accruing interest.~~ There were no commitments to lend additional funds on non-performing ~~loans~~ and ~~BankAtlantic has $200,000 of commitments to lend additionally funds to~~ potential problem ~~loans at December 31, 2004.~~

loans.

Foreclosed asset activity in ~~non-interest expense~~Financial Services other expenses includes the following (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Real estate acquired in settlement of loans and tax certificates:
Operating expenses, net	$	137		$	1,122		$	872		$	(215	)	$	(75	)	$	(137	)
Provisions for losses on REO		5			812			1,467			(9	)		—			(5	)
Net (gains) losses on sales		(694	)		(1,984	)		(117	)
Net gains on sales											1,443			1,840			694

Total (income) loss	$	(552	)	$	(50	)	$	2,222
Total income from real estate acquired										$	1,219		$	1,765		$	552

11. Accrued Interest Receivable

Accrued interest receivable consisted of (in thousands):


	December 31,
	2006		2005
Loans receivable	$	29,604	$	26,113
Investment securities and tax certificates		13,128		10,929
Securities available for sale		4,944		4,454

Accrued interest receivable	$	47,676	$	41,496

~~F-32~~161

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~Activity in the allowance for real estate owned consisted of (in thousands):~~

For the Years Ended December 31,
2004 2003 2002
Balance, beginning of period $ — $ — $ —
Net charge-offs:
Commercial real estate — (750 ) (1,500 )
Residential real estate (5 ) (62 ) 33

Total net charge-offs (5 ) (812 ) (1,467 )
Provision for losses on REO 5 812 1,467

Balance, end of period $ — $ — $ —

12.

Properties and Equipment

~~6. Accrued Interest Receivable~~

~~Accrued interest receivable consists of (in thousands):~~

December 31,
2004 2003
Loans receivable $ 22,141 $ 15,746
Investment securities and tax certificates 9,527 10,269
Securities available for sale 4,327 1,897

Accrued interest receivable $ 35,995 $ 27,912

~~7. Properties and Equipment~~

Properties and equipment was comprised of (in thousands):

December 31,
2004 2003
Land $ 31,208 $ 28,749
Buildings and improvements 95,005 64,119
Furniture, fixtures and equipment 79,455 52,211
Other 13,763 3,505

Total 219,431 148,584
Less accumulated depreciation 58,434 50,245

Office properties and equipment — net $ 160,997 $ 98,340


	December 31,
	2006		2005
Land, buildings and improvements	$	250,504	$	150,188
Furniture and equipment		113,110		91,146
Water irrigation facilities		6,588		7,150

Total		370,202		248,484
Less accumulated depreciation		71,689		57,624

Properties and equipment, net	$	298,513	$	190,860

During ~~2004, BankAtlantic finalized a plan to renovate~~ the ~~interior of its existing branches. BankAtlantic has incurred approximately $4.1 million of renovation costs as of~~year ended December 31, ~~2004.~~2005, BankAtlantic opened its new Corporate Center, which serves as BankAtlantic Bancorp’s, and the Company’s corporate headquarters. As a ~~consequence~~result of the ~~branch renovation plan, BankAtlantic shortened~~relocation of the ~~estimated lives~~corporate headquarter and the expected demolition of ~~$2.8~~the former corporate headquarter building, an impairment charge for $3.7 million ~~of branch fixed assets resulting in $1.5 million of additional depreciation expense~~was recorded during the year ended December 31, ~~2004.~~

~~During 2002,~~2005. The building and equipment were previously included in the Financial Services segment.

BankAtlantic purchased a $14.3 million facility to consolidate BankAtlantic’s headquarters and back office operations into a centralized location. BankAtlantic has incurred approximately $24.5 million in renovation costs on this building as of December 31, 2004.

~~During 2002, the BankAtlantic discontinued certain ATM relationships, resulting in an $801,000 restructuring charge and a $206,000 impairment write-down.~~

In October 2004, Levitt purchased an occupied office building for approximately $16.2 million in Fort Lauderdale, Florida that it intends to use as its executive offices upon termination or modification of the existing tenant lease.

~~Depreciation~~Bancorp’s depreciation expense was ~~$13.2~~$16.0 million, $11.6 million and ~~$11.4~~$9.8 million for the years ended December 31, 2006, 2005 and 2004, ~~2003~~respectively, and

~~F-33~~

~~BFC~~ is included in Financial ~~Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~2002, respectively. Included in furniture~~Services occupancy and equipment expenses. Also included in depreciation expense for the years ended December 31, 2006, 2005 and 2004 was $2.6 million, $2.1 million and $1.6 million, respectively, of software cost amortization. BankAtlantic Bancorp’s unamortized software costs at December 31, ~~2004~~2006 and ~~2003~~2005 was ~~$5.4~~$6.4 million and ~~$4.7~~$6.1 million, respectively. Levitt’s depreciation expense was $2.6 million, $1.6 million and $748,000 for the years ended December 31, 2006, 2005 and 2004, respectively, ~~of unamortized software costs~~

8.and is included in Homebuilding & Real Estate ~~Held~~Development selling, general and administrative expenses in the consolidated statements of operations.

During the year ended December 31, 2006, BankAtlantic completed an exchange of branch facilities with a financial institution. The transaction was a real estate for ~~Development~~real estate exchange with no cash payments involved. The transaction was accounted for at the fair value of the branch facility transferred and ~~Sale~~

BankAtlantic recognized a $1.8 million gain in connection with the exchange.

13.

Real Estate Held for Development and Sale

Real estate held for development and sale ~~consist~~consisted of the following (in thousands):


	December 31,				December 31,
	2004		2003		2006		2005
Land and land development costs	$	302,076	$	172,172	$	579,256	$	467,747
Construction costs		112,292		74,936		180,005		120,830
Other capitalized costs		13,509		11,903
Other real estate		16,754		21,697
Capitalized interest and other costs						88,231		44,020

Total	$	444,631	$	280,708	$	847,492	$	632,597

Real estate held for development and sale consisted of the combined ~~activities~~real estate assets of Levitt and its subsidiaries as well as ~~the activities~~real estate inventory of a ~~50% owned real estate~~ joint venture (“Riverclub”) in which BankAtlantic Bancorp iswas the primary beneficiary. The joint venture was ~~accounted for under~~a variable interest entity that was consolidated in the ~~equity method during prior periods.~~Company’s financial statements. In January 2007, BankAtlantic’s joint venture partner withdrew from the venture and its interest was canceled. As a result, BankAtlantic is the sole participant in the venture and is managing the development. Also included in other real estate held for development and sale is BFC’s ~~real estate, Burlington Manufacturers Outlet Center (“BMOC”), a shopping center in North Carolina and the~~ unsold land at the commercial development known as Center Port in Pompano Beach, Florida. ~~Also~~

Levitt’s homebuilding division has experienced lower than expected margins during the last six months of 2006 and is also experiencing a downward trend in the number of net orders. In the second quarter of 2006, Levitt recorded goodwill and inventory impairment charges related to the Tennessee operations. The profitability and estimated cash flows of the

162

BFC Financial Corporation
Notes to Consolidated Financial Statements

Tennessee operations declined to a point where the carrying value of the assets exceeded their market value resulting in a write-off of goodwill. The Tennessee operations have also delivered lower than expected margins. In the second quarter of 2006, key management personnel left the Tennessee operations and it faced increased start-up costs in the Nashville market. Levitt also experienced a downward trend in home deliveries in the Tennessee operations during the second quarter and as a result of these factors an impairment charge was recorded in the amount of approximately $4.7 million. In the fourth quarter of 2006, Levitt recorded additional impairments in Florida and Tennessee due to the continued downward trend in these homebuilding markets. During the year ended December 31, 2006, Levitt recorded $36.8 million of impairment charges which included $34.3 million of homebuilding inventory impairment charges and $2.5 million of write-offs of deposits and pre-acquisition costs related to land under option that Levitt does not intend to purchase. The impairment charges of $36.8 million are included in cost of sales in the consolidated statements of operations. Projections of future cash flows were discounted and used to determine the estimated impairment charge. In 2004 and 2005, fair market value was based on the sales prices of similar real estate ~~held for development~~inventory and ~~sale at December 31, 2004 and 2003 is $2.5 million and $3.1 million, respectively, associated with branch banking facilities.~~

~~9. Investments~~the reviews resulted in ~~and Advances to Unconsolidated Subsidiaries~~

no impairment.

14.

Investments in Unconsolidated Affiliates

The consolidated statements of financial condition include the following amounts for investments in ~~and advance to~~ unconsolidated ~~subsidiaries~~affiliates (in thousands):

December 31,
2004 2003
Investment in Bluegreen Corporation $ 80,572 $ 70,852
Investments in and loans to real estate joint ventures 608 27,286
Investment in statutory business trusts 7,910 7,910

Investments in and advances to unconsolidated subsidiaries $ 89,090 $ 106,048


	December 31,
	2006		2005
Investment in Bluegreen Corporation	$	107,063	$	95,828
Investments in joint ventures		6,983		4,749
BankAtlantic Bancorp investment in statutory business trusts		7,910		7,910
Levitt investment in statutory business trusts		2,565		1,637

	$	124,521	$	110,124

The consolidated statements of operations include the following amounts for equity (loss) earnings from unconsolidated ~~subsidiaries~~affiliates (in thousands):

For the Years Ended December 31,
2004 2003 2002
Equity in Bluegreen earnings $ 13,068 $ 9,085 $ 5,349
Equity in joint ventures earnings 6,050 616 3,978
Earnings from statutory business trusts 485 425 —

$ 19,603 $ 10,126 $ 9,327


	For the Years Ended December 31,
	2006			2005		2004
Equity in Bluegreen earnings	$	9,684		$	12,714	$	13,068
Equity in joint ventures (loss) earnings		(416	)		69		6,050
Earnings from statutory trusts		1,667			621		485

	$	10,935		$	13,404	$	19,603

Investments in ~~and advances to~~ unconsolidated ~~subsidiaries~~affiliates consisted of Levitt’s investment in Bluegreen, Levitt’s ~~investment~~investments in real estate joint ventures and statutory business trusts that were formed solely to issue trust preferred securities; BankAtlantic Bancorp’s investment in 11a rental real estate joint venture and eleven statutory business trusts that were formed to issue trust preferred ~~securities,~~securities.

During the years ended December 31, 2006 and 2005, BankAtlantic Bancorp invested in ~~2002, Riverclub. Prior~~income producing real estate joint ventures. The business purpose of these joint ventures is to ~~January 1, 2003,~~manage certain rental property with the intent to sell the property in the foreseeable future. BankAtlantic Bancorp receives a preferred return ranging from 8% to 10% on its investment and 35% to 50% of any profits after return of BankAtlantic Bancorp’s ~~statutory business trusts were consolidated~~investment and the preferred return.

Investment in Bluegreen

Levitt owns approximately 9.5 million shares of the common stock of Bluegreen Corporation representing approximately 31% of Bluegreen’s outstanding common stock. The investment in Bluegreen is accounted under the equity

163

BFC Financial Corporation
Notes to Consolidated Financial Statements

method of accounting. The cost of the Bluegreen investment is adjusted to recognize Levitt’s interest in Bluegreen’s earnings or losses. The difference between a) the Levitt’s ownership percentage in Bluegreen multiplied by its earnings and b) the amount of the Levitt’s equity in earnings of Bluegreen as reflected in the ~~Company’s~~ financial ~~statements. At~~statements relates to the amortization or accretion of purchase accounting adjustments made at the time of the acquisition of Bluegreen’s stock and to the cumulative adjustment discussed below. Bluegreen issued approximately 4.1 million shares of common stock during 2004 in connection with the call for redemption of $34.1 million of its 8.25% Convertible Subordinated Debentures (the “Debentures”). In addition, during the year ended December 31, 2004, ~~the 9.5~~approximately 1.2 million shares of Bluegreen common stock ~~owned~~was issued upon the exercise of stock options. The issuance of these approximately 5.3 million shares reduced Levitt’s ownership interest in Bluegreen from 38% to 31%. Levitt’s investment in Bluegreen was reduced by ~~Levitt represented~~ approximately ~~31%~~$2.9 million primarily to reflect the dilutive effect of ~~Bluegreen’s outstanding common stock.~~

~~F-34~~

these transactions.

~~BFC Financial Corporation~~ In connection with the securitization of certain of its receivables in December 2005, Bluegreen undertook a review of the prior accounting treatment and ~~Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~At December 31, 2004, Levitt~~determined that it would restate its consolidated financial statements for the first three quarters of fiscal 2005 and ~~its subsidiaries owned equity investments associated with real estate joint ventures at various stages of development, ranging from 40% to 50% profit sharing interests. At~~the fiscal years ended December 31, 2003 and 2004 due to certain misapplications of GAAP in the accounting for sales of Bluegreen’s vacation ownership notes receivable and other related matters. The Company recorded the cumulative effect of the restatement in the year ended December 31, 2005. This cumulative adjustment was recorded as a $2.4 million reduction in Levitt’s earnings from Bluegreen and a $1.1 million increase in Levitt’s pro-rata share of unrealized gains recognized by Bluegreen. These adjustments resulted in a $1.3 million reduction in the investment in ~~real estate joint ventures included BankAtlantic’s loans~~Bluegreen.

Effective January 1, 2006, Bluegreen adopted Statement of Position 04-02 “Accounting for Real Estate Time-Sharing Transactions” (“SOP 04-02”), which resulted in a one-time, non-cash, cumulative effect of change in accounting principle charge of $4.5 million to Bluegreen for the year ended December 31, 2006 which reduced the equity earnings in Bluegreen by approximately ~~$23.2~~$1.4 million and ~~none at December 31, 2004. In January 2004, a joint venture loan due to BankAtlantic in~~increased the ~~amount~~Company’s net loss by approximately $86,000, net of ~~$21.5 million was repaid in connection with~~income tax and noncontrolling interest, for the ~~sale of the joint venture project~~

same period.

Bluegreen’s condensed consolidated financial statements are presented below (in thousands):

Condensed Consolidated Balance Sheet
(In thousands)


	December 31,				December 31,
	2004		2003		2006		2005
Total assets	$	634,809	$	551,022	$	854,212	$	694,243


Total liabilities		363,933		359,494		486,487		371,069
Minority interest		6,009		4,648		14,702		9,508
Total shareholders’ equity		264,867		186,880		353,023		313,666


Total liabilities and shareholders’ equity	$	634,809	$	551,022	$	854,212	$	694,243

Condensed Consolidated Statements of Income
(In thousands)

Year Year Nine Months
Ended Ended Ended
December 31, December 31, December 31,
2004 2003 2002
Revenues $ 601,623 $ 438,454 $ 271,973
Cost and expenses 538,282 393,129 247,302
Provision for income taxes 22,821 16,168 8,479
Minority interest 4,065 3,330 816

Income before cumulative effect of a change in accounting principle 36,455 25,827 15,376
Cumulative effect of change in accounting principle, net of income taxes — — (5,929 )
Minority interest in cumulative effect of change in accounting principle, net of income taxes — — (350 )

Net income $ 36,455 $ 25,827 $ 9,797


	For the Years Ended December 31,
	2006			2005			2004
Revenues and other income	$	673,373		$	684,156		$	630,728
Cost and other expenses		610,882			603,624			557,462

Income before minority interest and provision for income taxes		62,491			80,532			73,266
Minority interest		7,319			4,839			4,065

Income before provision for income taxes		55,172			75,693			69,201
Provision for income taxes		(20,861	)		(29,142	)		(26,642	)

Income before cumulative effect of change in accounting principle		34,311			46,551			42,559
Cumulative effect of change in accounting principle, net of tax		(5,678	)		—			—
Minority interest in cumulative effect of change in accounting principle		1,184			—			—

Net income	$	29,817		$	46,551		$	42,559

~~F-35~~164

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~The Condensed Combined Balance Sheets and Statements of Operations for the joint ventures accounted for using the equity method are as follows (unaudited):~~

~~Condensed Combined Balance Sheets~~
~~(In thousands)~~

December 31,
2004 2003
Real estate assets $ 1,785 $ 57,402
Other assets 1.686 5,931

Total assets $ 3,471 $ 63,333

Mortgage notes payable to BankAtlantic $ — $ 22,726
Mortgage notes payable non-affiliates — 25,628
Other liabilities 1,055 6,879

Total liabilities 1,055 55,233

Partners’ capital 2,416 8,100

Total liabilities and partners’ capital $ 3,471 $ 63,333

~~Condensed Combined Statements of Operations~~
~~(In thousands)~~

For the Years Ended December 31,
2004 2003 2002
Revenues $ 54,738 $ 18,893 $ 43,924
Cost and expenses 42,666 18,332 41,963

Net income $ 12,072 $ 561 $ 1,961

~~For the years ended December 31, 2004, 2003 and 2002, interest paid to~~ BankAtlantic ~~by Levitt’s joint ventures was approximately $84,000, $1.6 million and $2.2 million, respectively.~~

~~The~~Bancorp Investment in Statutory Business Trusts

BankAtlantic Bancorp’s statutory business trusts’ Condensed Combined Statements of Financial Condition as of December 31, 2006 and 2005 and Condensed Combined Statements of Operation for the years ended December 31, 2006, 2005 and 2004 are as follows (in thousands):


	December 31,
Statement of Financial Condition	2006		2005
Junior subordinated debentures	$	263,266	$	263,266
Other assets		918		820

Total Assets	$	264,184	$	264,086


Trust preferred securities	$	255,375	$	255,375
Other liabilities		899		801

Total Liabilities		256,274		256,176

Common securities		7,910		7,910

Total Liabilities and Equity	$	264,184	$	264,086


	For the Years Ended
	December 31,
Statement of Operations	2006			2005			2004
Interest income from subordinated debentures	$	20,913		$	18,538		$	16,161
Interest expense		(20,286	)		(17,982	)		(15,676	)

Net income	$	627		$	556		$	485

For the years ended December 31, 2006, 2005 and 2004 BankAtlantic Bancorp ~~statutory business trusts (in thousands):~~

December 31,
Statement of Financial Condition 2004 2003
Junior subordinated debentures $ 263,266 $ 263,266
Other assets 694 637

Total Assets $ 263,960 $ 263,903

Trust preferred securities $ 255,375 $ 255,375
Other liabilities 675 618

Total Liabilities 256,050 255,993

Common securities 7,910 7,910

Total Liabilities and Equity $ 263,960 $ 263,903

received dividends from unconsolidated affiliates of $1.0 million, $621,000 and $485,000, respectively.

For the Years Ended December 31,
Statement of Operations 2004 2003 2002 (1)
Interest income from subordinated debentures $ 16,161 $ 14,534 $ —
Revenue from the sale of real estate — — 7,942
Selling, general and administrative expenses — — (6,775 )
Interest expense (15,676 ) (14,109 ) —

Net income $ 485 $ 425 1,167

~~F-36~~165

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~(1)~~15.

~~The above Condensed Combined Statements of Operation for 2002 includes the operation of a joint venture that was consolidated in the Company’s financial statements as of January 1, 2003.~~

~~10. Investment in BankAtlantic Bancorp and Levitt, and Equity Transactions~~

~~Dividends from BankAtlantic Bancorp and Levitt~~

The payment of dividends by BankAtlantic Bancorp is subject to declaration by BankAtlantic Bancorp’s Board of Directors and compliance with applicable indenture covenants and will depend upon, among other things, the results of operations, financial condition and cash requirements of BankAtlantic Bancorp and the ability of BankAtlantic to pay dividends or otherwise advance funds to BankAtlantic Bancorp, which in turn is subject to OTS regulation and is based upon BankAtlantic’s regulatory capital levels and net income. Currently, BankAtlantic Bancorp pays a quarterly dividend of $0.035 per share for Class A and Class B Common Stock.

The payment of dividends by Levitt is subject to declaration by Levitt’s Board of Directors and compliance with applicable indenture covenants and will depend upon, among other things, the results of operations, financial condition and cash requirements of Levitt. In July 2004 and October 2004, Levitt paid cash dividends on its common stock of $0.02 per share on its Class A common stock and Class B common stock. Additionally, another $0.02 per share dividend on its Class A common stock and Class B common stock has been declared for payment in January 2005. Levitt’s Board has not adopted a policy of regular dividend payments.

~~Equity Transactions~~

Equity transactions at the subsidiary level have an impact on the ownership position that BFC has in the entity. As additional shares are issued by the subsidiary either by exercise of stock options or the issuance of additional shares, BFC’s ownership position is diluted. Conversely, if a subsidiary retires shares for any reason, BFC’s ownership position would be increased.

~~The following are equity transactions of BankAtlantic Bancorp and Levitt that impact or could impact the Company’s ownership percentage and minority interest.~~

~~Issuance and Redemption of BankAtlantic Bancorp Class A Common Stock~~

In April 2003, BankAtlantic Bancorp called for redemption approximately $45.8 million of its 5.625% Convertible Subordinated Debentures due 2007. The Convertible Subordinated Debentures were redeemed at a redemption price of 102% of the principal amount plus accrued and unpaid interest through the redemption date. During the period between the mailing of the notice of redemption and the redemption, approximately $211,000 of Convertible Subordinated Debentures were converted by holders into an aggregate of 18,754 shares of Class A Common Stock.

During the years ended December 31, 2004, 2003 and 2002, BankAtlantic Bancorp received net proceeds of $3.7 million, $4.5 million and $1.2 million, respectively, from the exercise of stock options. During the year ended December 31, 2004, BankAtlantic Bancorp redeemed 268,644 shares of Class A common stock as consideration for the payment of the exercise price of stock options and for the payment of the optionee’s minimum statutory withholding taxes.

~~BankAtlantic Bancorp Restricted Stock:~~

In December 1998, BankAtlantic Bancorp adopted a Restricted Stock Incentive Plan (“BankAtlantic Bancorp-Ryan Beck Restricted Stock Incentive Plan”) to provide additional incentives to officers and key employees of Ryan Beck. The Plan provided up to 862,500 shares of restricted Class A common stock, of which not more than 287,500 shares may be granted to any one person. The Plan allows the Board of Directors of BankAtlantic Bancorp to impose an annual cap on awards.

During the years ended December 31, 2004, 2003 and 2002, BankAtlantic Bancorp issued 0, 12,500 and 1,500 shares, respectively, of restricted Class A common stock to certain key employees of BankAtlantic. The restricted stock vests over designated periods and had a fair market value of $0, $148,000 and $17,000 on the issue dates, respectively. During the years ended December 31, 2004, 2003 and 2002, 19,500, 54,760 and 21,000 shares, respectively, of restricted stock vested and 163,787 shares of restricted stock remain outstanding.

~~In May 2004, BankAtlantic Bancorp’s stockholders approved the BankAtlantic Bancorp 2004 restricted stock incentive plan~~

~~F-37~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

for the purpose of attracting and retaining the best available personnel for positions of substantial responsibility and to provide additional incentive to the employees of BankAtlantic Bancorp or its subsidiaries. The maximum aggregate number of shares which may be issued for restricted stock awards under the Plan is 250,000 shares. No shares have been granted under the Plan at December 31, 2004.

~~BankAtlantic Bancorp Retention Pool:~~

In connection with the acquisition of Ryan Beck in June 1998, BankAtlantic Bancorp established a retention pool covering certain key officers of Ryan Beck. All participants in the retention pool vested on June 28, 2002, and received, in the aggregate, 5,941 shares of BankAtlantic Bancorp Class A common stock, and $3.8 million in cash and notes payable for an aggregate principal amount of $3.7 million. The notes payable had a 5.75% interest rate and were paid in full in May 2003. Included in the statement of operations during 2002 was $1.0 million of compensation expense associated with the retention pool.

~~BankAtlantic Bancorp Stock Option Plans:~~

Stock Option Plans
Maximum Shares Class of Vesting Type of
Term (3) Authorized (6) Stock Requirements Options (5)

1996 Stock Option Plan 10 years 2,246,094 A 5 Years (1) ISO, NQ
1998 Ryan Beck Option Plan 10 years 362,417 A (4 ) ISO, NQ
1998 Stock Option Plan 10 years 920,000 A 5 Years (1) ISO, NQ
1999 Non-qualifying Stock Option Plan 10 years 862,500 A (2 ) NQ
1999 Stock Option Plan 10 years 862,500 A (2 ) ISO, NQ
2000 Non-qualifying Stock Option Plan 10 years 1,704,148 A Immediately NQ
2001 Amended and Restated Stock Option Plan 10 years 3,918,891 A 5 Years (1) ISO, NQ

~~(1)~~		~~Vesting is established by the BankAtlantic Bancorp Compensation Committee in connection with each grant of options. All directors’ stock options vest immediately.~~

~~(2)~~		~~Vesting is established by the BankAtlantic Bancorp Compensation Committee.~~

~~(3)~~		~~All outstanding options must be exercised no later than 10 years after their grant date.~~

~~(4)~~		Upon acquisition of Ryan Beck, BankAtlantic Bancorp assumed all options outstanding under Ryan Beck’s existing stock option plans at various exercise prices based upon the exercise prices of the assumed option. No new options will be issued under the 1998 Ryan Beck option plan and the plan will terminate when the outstanding options are exercised or expire.

~~(5)~~		~~ISO - Incentive Stock Option; NQ — Non-qualifying Stock Option~~

~~(6)~~		During 2001 shares underlying options available for grant under all stock options plans except the 2001 stock option plan were canceled. BankAtlantic Bancorp’s shareholders increased the number of shares authorized under the 2001 stock option plan to 3,000,000 at the 2002 Annual Meeting and in January 2004, in connection with the Levitt spin-off, BankAtlantic Bancorp adjusted the shares authorized under the 2001 Amended and Restated Stock Option Plan to 3,918,891.

In January 2004, BankAtlantic Bancorp’s Compensation Committee adjusted all outstanding options to acquire Class A common stock that were outstanding prior to the Levitt spin-off to reflect the change in intrinsic value of BankAtlantic Bancorp’s Class A common stock that resulted from the spin-off. The options were adjusted in accordance with FASB Interpretation No. 44 whereby the aggregate intrinsic value of the options immediately after the Levitt spin-off was adjusted to equal the aggregate intrinsic value of the options immediately before the Levitt spin-off and options were also adjusted so that the ratio of the exercise price per share to the market value per share remained unchanged. The option adjustment was accounted for as if the outstanding options prior to the Levitt spin-off were cancelled and new options were issued at the adjusted exercise price and number of shares. As a consequence of the above adjustments, the outstanding options increased from 5,311,365 to 6,938,220 and the weighted average exercise price was reduced from $6.04 to $4.62. Prior period shares and exercise prices have been retroactively adjusted in the tables below to reflect the Levitt spin-off adjustment.

~~The following is a summary of BankAtlantic Bancorp’s Class A common stock option activity:~~

~~F-38~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~


	~~Class A~~
	~~Outstanding~~
	~~Options~~
~~Outstanding at December 31, 2001~~		~~7,127,260~~
~~Exercised~~		~~(351,953~~	)
~~Forfeited~~		~~(318,222~~	)
~~Issued~~		~~992,263~~

~~Outstanding at December 31, 2002~~		~~7,449,348~~
~~Exercised~~		~~(1,301,470~~	)
~~Forfeited~~		~~(224,781~~	)
~~Issued~~		~~1,015,123~~

~~Outstanding at December 31, 2003~~		~~6,938,220~~
~~Exercised~~		~~(1,461,678~~	)
~~Forfeited~~		~~(77,797~~	)
~~Issued~~		~~776,100~~

~~Outstanding at December 31, 2004~~		~~6,174,845~~

~~Available for grant at December 31, 2004~~		~~596,393~~
			Deposits

For the Years Ended December 31,
2004 2003 2002
Weighted average exercise price of options outstanding $ 6.79 $ 4.62 $ 4.17
Weighted average exercise price of options exercised 2.56 4.10 3.81
Weighted average price of options forfeited $ 8.15 $ 5.14 $ 6.76

~~The method used to calculate the fair value of the options granted was the Black-Scholes model with the following grant date fair values and assumptions:~~

Weighted Average
Number of Risk Free Expected
Year of Options Grant Date Exercise Interest Expected Dividend
Grant Granted Fair Value Price Rate Volatility Yield
2002 992,263 $ 4.25 $ 8.56 4.65 % 47.00 % 1.04 %
2003 1,015,123 $ 3.66 $ 7.45 3.34 % 50.00 % 1.27 %
2004 776,100 $ 8.42 $ 18.20 4.32 % 41.00 % 0.73 %

The employee turnover factor was 1.00% for officer incentive and non-qualifying stock options during the year ended December 31, 2004 and 2002, respectively. The employee turnover factor was 6.00% for incentive and non-qualifying stock options during the year ended December 31, 2003. The expected life for options issued during 2004, 2003 and 2002 was 7.0 years.

~~F-39~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The following table summarizes information about BankAtlantic Bancorp fixed stock options outstanding at December 31, 2004:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Class of Range of Number Average Average Number Average
Common Exercise Outstanding Remaining Exercise Exercisable Exercise
Stock Prices at 12/31/04 Contractual Life Price at 12/31/04 Price
A $ 1.73 to 1.91 620,358 0.3 years $ 1.77 620,358 $ 1.77
A $ 1.92 to 3.83 1,533,561 4.3 years 3.19 469,150 3.71
A $ 3.84 to 6.70 1,347,449 3.4 years 4.94 1,345,947 4.94
A $ 6.71 to 9.36 1,897,377 7.6 years 8.00 108,416 8.03
A $ 9.37 to 18.20 776,100 9.5 years 18.20 35,000 18.20

6,174,845 5.4 years $ 6.79 2,578,871 $ 4.28

~~The following table summarizes information about BankAtlantic Bancorp fixed stock options outstanding at December 31, 2003:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Class of Range of Number Average Average Number Average
Common Exercise Outstanding Remaining Exercise Exercisable Exercise
Stock Prices at 12/31/03 Contractual Life Price at 12/31/03 Price
A $ 1.73 to 1.91 1,673,384 0.9 years $ 1.77 1,281,013 $ 1.77
A $ 1.92 to 3.83 1,563,844 5.3 years 3.19 368,829 3.71
A $ 3.84 to 6.70 1,752,835 4.5 years 4.89 725,370 5.00
A $ 6.71 to 9.36 1,948,157 8.7 years 8.00 82,995 8.38

6,938,220 5.0 years $ 4.62 2,458,207 $ 3.23

~~The following table summarizes information about BankAtlantic Bancorp fixed stock options outstanding at December 31, 2002:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Class of Range of Number Average Average Number Average
Common Exercise Outstanding Remaining Exercise Exercisable Exercise
Stock Prices at 12/31/02 Contractual Life Price at 12/31/02 Price
A $ 1.73 to 1.91 1,985,110 1.8 years $ 1.77 1,985,110 $ 1.77
A $ 1.92 to 3.83 1,749,837 6.1 years 3.22 618,093 3.71
A $ 3.84 to 6.70 2,659,407 5.5 years 4.88 985,046 4.87
A $ 6.71 to 9.36 1,054,994 8.5 years 8.47 120,202 7.99

7,449,348 5.1 years $ 4.17 3,708,451 $ 3.11

~~Ryan Beck Stock Option Plan:~~

Ryan Beck’s Board of Directors adopted the RB Holdings, Inc. Option Plan (the “Plan”) effective March 29, 2002. In April 2004, Ryan Beck’s Board of Directors declared a 3 for 1 stock split increasing Ryan Beck’s outstanding shares from 8,125,000 to 24,375,000, all of which is owned by the Company. Ryan Beck adjusted the exercise price and number of options granted for all options then outstanding in order to restore the option holder’s intrinsic value. Additionally, shares authorized under the Plan were adjusted from 510,000 shares to 1,530,000 shares. In April 2004, the Plan was amended to increase the number of shares of Ryan Beck stock authorized for issuance under the Plan from 1,530,000 to 2,437,500. All shares and exercise prices below have been adjusted for the stock split.

~~F-40~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The following is a summary of Ryan Beck’s common stock option activity:~~


	~~Ryan Beck~~
	~~Outstanding~~
	~~Options~~
~~Outstanding at December 31, 2001~~		—
~~Issued~~		~~1,477,500~~

~~Outstanding at December 31, 2002~~		~~1,477,500~~
~~Exercised~~		—
~~Forfeited~~		~~(22,500~~	)
~~Issued~~		~~75,000~~

~~Outstanding at December 31, 2003~~		~~1,530,000~~
~~Exercised~~		~~(90,000~~	)
~~Forfeited~~		~~(15,000~~	)
~~Issued~~		~~820,500~~

~~Outstanding at December 31, 2004~~		~~2,245,500~~

~~Available for grant at December 31, 2004~~		~~102,000~~

In March 2002, pursuant to the Plan, Ryan Beck’s Board of Directors granted to certain executives, options to acquire an aggregate of 1,155,000 shares of Ryan Beck common stock at an exercise price of $1.60. The exercise price was below the $1.68 fair value at the date of grant. All of the options issued under this grant vested immediately. BankAtlantic Bancorp recorded $92,000 of compensation expense associated with the issuance of these options in 2002. Additionally, in June 2002, 322,500 options were granted with an exercise price equal to the fair value at the date of grant ($1.68), all of which vest four years from the grant date. During 2003, 75,000 options were granted with an exercise price equal to the fair value at the date of grant ($3.36), all of which vest four years from the grant date. During 2003, 22,500 options issued during 2002 were forfeited at an exercise price of $1.68. In March 2004, options were granted to acquire an aggregate of 798,500 shares of Ryan Beck common stock at an exercise price equal to fair value at the date of grant ($5.26), and in July 2004, 22,000 options were granted to acquire shares of Ryan Beck common stock at an exercise price equal to fair value at the date of grant ($5.28), all of which vest four years from the grant date and expire ten years from the grant date. In June 2004, options to acquire 90,000 shares of Ryan Beck common stock were exercised at a price of $1.60 per share.

Upon exercise of the options, BankAtlantic Bancorp or Ryan Beck has the right under certain defined circumstances, starting six months plus one day after the exercise date, to repurchase the common stock at fair value as determined by an independent appraiser. BankAtlantic Bancorp and Ryan Beck also have the right of first refusal on any sale of Ryan Beck common stock issued as a result of the exercise of an option, and BankAtlantic Bancorp has the right to require any common stockholder to sell its shares in the event that BankAtlantic Bancorp sells its interest in Ryan Beck. The 90,000 shares of Ryan Beck common stock issued in June 2004 upon the exercise of Ryan Beck stock options were repurchased by Ryan Beck in January 2005 at $5.46 per share, the fair value of Ryan Beck common stock at the repurchase date.

~~Levitt Stock Incentive Plan~~

~~Stock Incentive Plan~~

On May 11, 2004, Levitt’s Shareholders approved the 2003 Levitt Corporation Stock Incentive Plan (“Levitt Stock Incentive Plan”), which had been adopted by Levitt’s board of directors on December 15, 2003. The maximum number of shares with respect to which awards may be granted is 1,500,000 under this plan. Activity under the Plan for the year ended December 31, 2004 follows.

~~F-41~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

2004
Weighted
Average
Number Exercise
of Options Price
Options outstanding at beginning of year — $ —
Granted 757,500 $ 20.52
Exercised — $ —
Forfeited (32,250 ) $ 20.15

Options outstanding at end of year 725,250 $ 20.54

Options exercisable at end of year 45,000 $ 20.15

Options available for grant at end of year 774,750

Weighted average fair market value per share of options granted during the year under SFAS No. 123 $ 11.94

~~The following table summarizes information about stock options outstanding as of December 31, 2004:~~

Options Outstanding Options Exercisable
Exercise Remaining Exercise
Price Options Contractual Life Options Price
$20.15 642,000 9.00 years 45,000 $20.15
$23.40 25,000 9.64 years — —
$23.53 50,000 9.57 years — —
$24.15 8,250 9.22 years — —

~~No options were issued or outstanding in 2003 or 2002.~~

~~401(k) Plan~~

Levitt has a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code. Employees who have completed three months of service and have reached the age of 18 are eligible to participate. During the years ended December 31, 2003 and 2002, Levitt’s employees participated the BankAtlantic Security Plus Plan and Levitt’s contributions amounted to $495,000 and $344,000 respectively. During the year ended December 31, 2004, Levitt’s employees participated in the Levitt Corporation Security Plus Plan and Levitt’s contributions amounted to $857,000.

~~F-42~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~11. Deposits~~

The weighted average nominal interest rate payable on deposit accounts at December 31, ~~2004~~2006 and ~~2003~~2005 was ~~0.87%~~2.40 % and ~~0.94%~~1.26%, respectively. The stated rates and balances on deposits were (dollars in thousands):


	December 31,												December 31,
	2004						2003						2006						2005
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
Interest free checking	$	890,398			25.75	%	$	645,036			21.09	%	$	995,920			25.75	%	$	1,019,949			27.18	%
Insured money fund savings
1.05% at December 31, 2004
0.83% at December 31, 2003		875,422			25.32			865,590			28.31
2.30% at December 31, 2006,
1.76% at December 31, 2005,														677,642			17.52			846,441			22.56
NOW accounts
0.30% at December 31, 2004
0.30% at December 31, 2003		658,137			19.04			533,888			17.46
1.10% at December 31, 2006,
0.50% at December 31, 2005,														779,383			20.16			755,708			20.14
Savings accounts
0.28% at December 31, 2004
0.28% at December 31, 2003		270,001			7.81			208,966			6.83
1.10% at December 31, 2006,
0.46% at December 31, 2005,														465,172			12.03			313,889			8.36

Total non-certificate accounts		2,693,958			77.92			2,253,480			73.69			2,918,117			75.46			2,935,987			78.24

Certificate accounts:
Less than 2.00%		302,319			8.74			455,709			14.90			11,923			0.31			20,546			0.55
2.01% to 3.00%		327,958			9.49			147,446			4.82			16,425			0.43			181,589			4.84
3.01% to 4.00%		74,439			2.15			45,546			1.49			174,165			4.50			475,750			12.67
4.01% to 5.00%		21,357			0.62			51,379			1.68			278,934			7.21			130,288			3.47
5.01% and greater		34,988			1.01			102,382			3.35
5.01% to 6.00%														459,046			11.87			4,767			0.13
6.01% to 7.00%														2,691			0.07			—			—

Total certificate accounts		761,061			22.01			802,462			26.24			943,184			24.39			812,940			21.66

Total deposit accounts		3,455,019			99.93			3,055,942			99.93			3,861,301			99.85			3,748,927			99.90

Premium on brokered deposits		(308	)		(0.01	)		(798	)		(0.03	)		(7	)		—			(35	)		—
Fair value adjustment related to acquisitions		16			0.00			472			0.02
Interest earned not credited to deposit accounts		2,475			0.08			2,526			0.08			5,742			0.15			3,784			0.10

Total	$	3,457,202			100.00	%	$	3,058,142			100.00	%	$	3,867,036			100.00	%	$	3,752,676			100.00	%

Interest expense by deposit category was (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Money fund savings and NOW accounts	$	10,860		$	11,142		$	15,338		$	20,413		$	16,592		$	10,860
Savings accounts		652			856			1,362			2,936			909			652
Certificate accounts - below $100,000		8,126			10,914			24,177
Certificate accounts — below $100,000											23,136			12,676			8,126
Certificate accounts, $100,000 and above		8,873			13,457			22,140			13,048			10,225			8,873
Less early withdrawal penalty		(156	)		(180	)		(240	)		(574	)		(318	)		(156	)

Total	$	28,355		$	36,189		$	62,777		$	58,959		$	40,084		$	28,355

~~F-43~~166

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

At December 31, ~~2004,~~2006, the amounts of scheduled maturities of certificate accounts were (in thousands):


	For the Years Ending December 31,												For the Years Ending December 31,
	2005		2006		2007		2008		2009		Thereafter		2007		2008		2009		2010		2011		Thereafter
0.00% to 2.00%	$	288,852	$	10,462	$	2,348	$	276	$	369	$	13	$	10,901	$	715	$	174	$	21	$	113	$	—
2.01% to 3.00%		215,061		90,250		18,025		3,444		1,179		—		12,538		2,834		963		89		—		—
3.01% to 4.00%		19,589		3,192		23,442		18,982		8,819		415		137,081		22,636		7,846		4,425		2,142		35
4.01% to 5.00%		2,977		7,655		3,901		638		6,183		2		246,796		18,823		9,118		1,969		2,177		50
5.01% and greater		29,625		3,073		1,988		298		—		3
5.01% to 6.00%														444,129		13,017		1,172		—		729		—
6.01% and greater														2,658		—		—		—		33

Total	$	556,104	$	114,632	$	49,704	$	23,638	$	16,550	$	433	$	854,103	$	58,025	$	19,273	$	6,504	$	5,194	$	85

Time deposits of $100,000 and over had the following maturities (in thousands):


	December 31,		December 31,
	2004		2006
3 months or less	$	71,277	$	101,600
4 to 6 months		90,051		100,179
7 to 12 months		138,019		101,689
More than 12 months		97,872		36,654

Total	$	397,219	$	340,122

Included in ~~certificate accounts~~deposits at December 31, was (in thousands):


	2004		2003		2006		2005
Brokered deposits	$	140,116	$	145,559	$	60,956	$	78,296
Public deposits		114,052		180,241		62,940		63,767

Total institutional deposits	$	254,168	$	325,800	$	123,896	$	142,063

Ryan Beck acted as principal dealer in obtaining ~~$20.6~~$10.0 million and ~~$20.7~~$19.7 million of the brokered deposits outstanding as of December 31, ~~2004~~2006 and ~~2003,~~2005, respectively. BankAtlantic has various relationships for obtaining brokered ~~deposits. These relationships are considered as~~deposits which provide for an alternative source of borrowings, when and if needed.

~~F-44~~167

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~12. Advances from Federal Home Loan Bank and Federal Funds Purchased~~

16.

Advances from Federal Home Loan Bank

Advances from Federal Home Loan Bank (“FHLB”) (dollars in thousands):

Payable During Year Year December 31,
Ending December 31, Callable Interest Rate 2004 2003
2004 2.80% to 5.68% $ — $ 6,250
2005 1.86% 7,500 17,500
2006 1.89% 10,417 18,750
2007 5.68% — 25,000
2008 5.14% to 5.67% 409,000 492,000
2010 5.84% to 6.34% 32,000 32,000
2011 4.50% to 4.90% 50,000 —

Total fixed rate advances
508,917 591,500

2008 2004 1.31% — 25,000
2011 2004 4.50% to 4.90% — 50,000
2011 2005 5.05% 30,000 30,000

Total callable fixed rate advances - European
30,000 105,000

2009 2004 5.06% — 10,000
2009 2005 4.46% 10,000 —

Total callable fixed rate advances - Bermuda
10,000 10,000

Adjustable rate advances

2004 1.17% to 1.40% — 50,000
2005 2.13% to 2.57% 870,000 —
2006 1.18% to 2.39% 125,000 25,000

Total adjustable rate advances
995,000 75,000

Purchase accounting fair value adjustments
580 705

Total FHLB advances
$ 1,544,497 $ 782,205

Average cost during period
3.93 % 4.79 %

Average cost end of period
3.41 % 4.67 %


Maturity Date			December 31
Ending December 31,	Interest Rate		2006
2007	5.32% to 5.34%		$	75,000
2008	5.14% to 5.67%			15,000
2010	5.84% to 6.34%			32,000

Total fixed rate advances				122,000

2007	5.34% to 5.40%			1,370,000
2008		5.33%		25,000

Total adjustable rate advances				1,395,000

Purchase accounting fair value adjustments				58

Total FHLB advances			$	1,517,058

Average cost during period				5.25	%

Average cost end of period				5.36	%

European callable advances give the FHLB the option to reprice the advance at a specific future date. Bermuda callable advances give the FHLB the option to reprice the advance anytime from the call date until the payable date. Once the FHLB exercises its call option, BankAtlantic has the option to convert to a three month LIBOR-based floating rate advance, pay off the advance or convert to another fixed rate advance.

At December 31, ~~2004, $2.1~~2006, $2.3 billion of 1-4 family residential loans, ~~$285.9~~$188.1 million of commercial real estate loans and ~~$450.3~~$551.5 million of consumer loans were pledged against FHLB advances. In addition, FHLB stock is pledged as collateral for outstanding FHLB advances.

BankAtlantic’s line of credit with the FHLB is limited to ~~30%~~40% of assets, subject to available collateral, with a maximum term of 10 years.

During the year ended December 31, 2006, BankAtlantic incurred prepayment penalties of $1.5 million upon the repayment of $384 million of advances and recorded a gain of $1.5 million upon the repayment of $100 million of advances. BankAtlantic incurred no penalty or premium upon the repayment of $100 million of flipper advances. During the year ended December 31, 2004, BankAtlantic prepaid $108 million of fixed rate FHLB advances incurring prepayment penalties of $11.7 million.

17.

Federal Funds Purchased and Treasury Borrowings

BankAtlantic established $557.9 million of lines of credit with other banking institutions for the purchase of federal funds. BankAtlantic also participates in a treasury tax and loan program with the Department of Treasury (the “Treasury”). Under this program, the Treasury, at its option, can invest up to $50 million with BankAtlantic at a federal funds rate less 25 basis points. At December 31, 2006 and 2005, the outstanding balance under this program was $7.0 million and $24.7 million, respectively. BankAtlantic has pledged ~~$9.7~~$6.6 million of securities available for sale as collateral for these borrowings.

As of December 31, 2006, BankAtlantic pledged $7.8 million of consumer loans to the Federal Reserve Bank of Atlanta (“FRB”) as collateral for potential advances of ~~$8.0~~$6.2 million. The FRB line of credit has not yet been utilized by ~~BankAtlantic.~~

~~During~~ the year ended December 31, 2004, BankAtlantic prepaid $108 million of fixed rate advances. Of this amount, $25 million had an average interest rate of 5.68% and was scheduled to mature in 2007, and the remaining $83 million had an average interest rate of 5.51% and was scheduled to mature in 2008. As a result of the prepayments, BankAtlantic incurred prepayment penalties of $11.7 million.

Company.

During the year ended December 31, 2003, BankAtlantic repaid $325 million of fixed rate FHLB advances that would have matured within 24 months and incurred a prepayment penalty of $10.9 million. The weighted average rate of FHLB

~~F-45~~168

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~advances repaid was 5.57%.~~

~~Federal Funds Purchased~~:

~~BankAtlantic established $235.0 million of lines of credit with other banking institutions for the purchase of federal funds.~~

The following table provides information on federal funds purchased and Treasury borrowings at December 31, (dollars in thousands):


	2004			2003			2002			2006			2005			2004
Ending balance	$	105,000		$	—		$	—		$	32,026		$	139,475		$	105,000
Maximum outstanding at any month end within period	$	105,000		$	180,000		$	85,000
Maximum outstanding at any month-end within period										$	266,237		$	181,065		$	105,000
Average amount outstanding during period	$	47,661		$	60,179		$	47,704		$	176,237		$	124,605		$	47,661
Average cost during period		2.47	%		1.29	%		1.85	%		5.17	%		3.42	%		2.47	%

~~13.~~

18. Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase represent transactions whereby ~~BankAtlantic~~the Company sells a portion of its current investment portfolio (usually MBS’s and REMIC’s) at a negotiated rate and agrees to repurchase the same assets on a specified future date. BankAtlantic issues repurchase agreements to institutions and to its customers. These transactions are collateralized by securities available for sale and investment ~~securities.~~securities held-to-maturity. Customer repurchase agreements are not insured by the FDIC. At December 31, ~~2004~~2006 and ~~2003,~~2005, the outstanding balances of customer repurchase agreements were ~~$99.6~~$101.9 million and ~~$138.8~~$116.0 million, respectively. ~~Repurchase~~There were no institutional repurchase agreements outstanding ~~to institutions~~ at December 31, ~~2004~~2006 and ~~2003 were $197.0~~2005.

BankAtlantic’s outstanding balance of customer repurchase agreements includes transactions with Levitt and BFC in the aggregate of $5.5 million and ~~$0,~~$6.2 million as of December 31, 2006 and 2005, respectively.

Interest expense in connection with Levitt’s and BFC’s deposits was approximately $479,000 and $348,000 for the year ended December 31, 2006 and 2005, respectively. These transactions have the same terms as other BankAtlantic repurchase agreements and were eliminated in the Company’s Consolidated Financial Statements.

The following table provides information on the agreements to repurchase (dollars in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Maximum borrowing at any month-end within the period	$	374,824		$	365,042		$	540,880		$	202,607		$	287,088		$	374,824
Average borrowing during the period	$	189,398		$	193,068		$	327,001		$	123,944		$	185,111		$	189,398
Average interest cost during the period		1.26	%		1.11	%		1.73	%		4.83	%		2.88	%		1.26	%
Average interest cost at end of the period		2.16	%		0.73	%		1.08	%		5.17	%		4.10	%		2.16	%

~~F-46~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

The following table lists the amortized cost and estimated fair value of securities sold under repurchase agreements, and the repurchase liability associated with such transactions (dollars in thousands):


							Weighted									Weighted
			Estimated				Average					Estimated				Average
	Amortized		Fair		Repurchase		Interest			Amortized		Fair		Repurchase		Interest
	Cost		Value		Balance		Rate			Cost		Value		Balance		Rate
December 31, 2004 (1)
December 31, 2006 (1)
Mortgage-backed securities	$	213,824	$	215,904	$	175,316		2.09	%	$	65,313	$	64,856	$	60,277		5.17	%
REMIC		96,644		96,267		81,686		2.30			40,919		38,851		36,108		5.17

Total	$	310,468	$	312,171	$	257,002		2.16	%	$	106,232	$	103,707	$	96,385		5.17	%


December 31, 2003 (1)
December 31, 2005 (1)
Mortgage-backed securities	$	124,759	$	128,118	$	106,813		0.73	%	$	84,023	$	83,376	$	77,229		4.10	%
REMIC		16,846		16,866		14,061		0.73			37,241		35,151		32,559		4.10

Total	$	141,605	$	144,984	$	120,874		0.73	%	$	121,264	$	118,527	$	109,788		4.10	%


(1)		At December 31, ~~2004~~2006 and ~~2003,~~2005, all securities were classified as available for sale and were recorded at fair value in the consolidated statements of financial condition.

169

BFC Financial Corporation
Notes to Consolidated Financial Statements

All repurchase agreements existing at December 31, ~~2004~~2006 matured and were repaid in January ~~2005.~~2007. These securities were held by unrelated broker dealers.

~~F-47~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~14. Subordinated Debentures, Notes and Bonds Payable and Trust Preferred Securities~~

19. Subordinated Debentures, Notes and Bonds Payable, Secured Borrowings, Junior Subordinated Debentures and Other Liabilities

The ~~Company had the~~ following subordinated debentures, notes and bonds payable were outstanding at December 31, ~~2004~~2006 and ~~2003~~2005 (dollars in thousands):

Issue December 31, Interest Maturity
Date 2004 2003 Rate Date
BankAtlantic Bancorp Borrowings

Bank line of credit 8/24/2000 $ 100 $ 100 Prime -.50% March 1, 2005
BankAtlantic Borrowings

Subordinated debentures 10/29/2002 22,000 22,000 LIBOR + 3.45% November 7, 2012
Development notes 3/22/2002 1,036 856 Prime + 1.00% August 28, 2006
Development notes 3/22/2002 4,647 1,883 Prime + 0.75% May 1, 2006
Mortgage-Backed Bond 3/22/2002 9,958 10,954 (2) September 30, 2013

Total BankAtlantic Borrowings
37,641 35,693

Levitt Borrowings

Homebuilding Various 141,697 84,346 From Prime - 0.50% to
Prime + 1.00% Range from January
2005 to November 2009
Homebuilding borrowings to BankAtlantic (1) 8,621 18,118 Prime Range from October
2005 to March 2006
Land development Various 52,475 13,983 From LIBOR +2.00%
to LIBOR + 2.80% Range from May 2007
to June 2011
Land development Various 254 341 Fixed from 5.99% to
7.00% Range from March 2007
to April 2007
Development bonds Various — 850 Various Various
Other operations land acquisition and construction Various 7,447 11,646 LIBOR + 3.00% and
prime +.50% Range from April 2005
to February 2006
Other operations promissory note payable 16,500 — LIBOR + 1.50% March 2005
Other operations borrowings to BankAtlantic Bancorp (1) 38,000 43,500 Prime + 0.25%
escalation every six
months December 2008
Subordinated investment notes 3,232 1,309 Fixed from 6.50% to
8.75% Range from October
2005 to February 2008

Total Levitt borrowings
268,226 174,093

RB Holdings, Inc. Borrowings

Notes Payable 4/26/2002 — 802 LIBOR + 2.65 May 1, 2004

BFC Borrowings

Revolving Line of Credit Various 10,483 6,015 LIBOR +2.80 May 3, 2005
Mortgage payables Various 8,776 9,015 Fixed from 6.00% to 9.20% May 2007 - December 2010

Total BFC borrowings
19,259 15,030

Inter-company borrowings eliminated (1) (46,621 ) (61,618 )

Total
$ 278,605 $ 164,100


	Issue	December 31,					Interest	Maturity
	Date	2006		2005			Rate	Date
BFC borrowings
Revolving Line of Credit	Various	$	—	$	—		LIBOR +2.80	June 15, 2007
Mortgage payable	Various		50		69		6.00%	June 2009

Total BFC borrowings		$	50	$	69


BankAtlantic borrowings
Subordinated debentures (1)	10/29/2002	$	22,000	$	22,000		LIBOR + 3.45%	November 7, 2012
Mortgage-backed bond	3/22/2002		7,923		8,973		(2)	September 30, 2013
Development notes	3/22/2002		—		7,651		Prime + 1.00%	August 26, 2006
Development notes	3/22/2002		—		468		Prime + .75%	May 1, 2006

		$	29,923	$	39,092


BankAtlantic secured borrowings	Various		—		138,270		Floating	Various

Total BankAtlantic borrowings		$	29,923	$	177,362


Levitt Borrowings

Homebuilding- mortgage notes payable	Various	$	55,307	$	114,687		From Prime - 0.50% to Prime + 0.50%	Range from March 2007 to September 2009
Homebuilding mortgage notes payable due to BankAtlantic	Various		—		223		Prime	March 2006

Borrowing base facilities			348,600		143,100		From LIBOR + 2.00% to LIBOR + 2.40%	Range from August 2009 to January 2010

Land acquisition mortgage notes payable			66,932		48,936		From Fixed 6.88% to LIBOR + 2.80%	Range from June 2011 to October 2019

Construction mortgage notes payable			28,884		13,012		From LIBOR + 1.70% to LIBOR + 2.00%	Range from May 2007 to June 2009

Land acquisition and construction mortgage notes payable			1,641		3,875		LIBOR + 2.75%	September 2007
Mortgage notes payable			12,197		12,374		Fixed 5.47%	April 2015

Subordinated investment notes			2,489		3,132		Fixed from 8.00% to 8.75%	Range from December 2006 to February 2008
Promissory note payable			437		—		Fixed 2.44%	July 2009

Other borrowings			164		7		Fixed from 5.99% to 7.48%	Range from April 2007 to August 2011
Line of credit			14,000		14,500		Prime	September 2007

Total Levitt borrowings		$	530,651	$	353,846

Inter-Company borrowings eliminated (3)			—		(223	)

Total		$	560,624	$	531,054


(1)		~~Loans between Levitt~~LIBOR interest rates are indexed to 3-month LIBOR and ~~BankAtlantic amounting to $46.6 and $61.6 million at December 31, 2004 and 2003, respectively were eliminated in consolidation.~~adjust quarterly.

(2)		The bonds adjust semi-annually to the ten year treasury constant maturity rate minus 23 basis points.

(3)		Loans between Levitt and BankAtlantic were eliminated in consolidation.

~~F-48~~170

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

BankAtlantic Bancorp and Levitt had the following junior subordinated debentures outstanding at December 31, ~~2004 and 2003~~2006 (in thousands):

Beginning

December 31,

Beginning

Optional

2006

2005

Optional

Issue

Outstanding

Interest

Maturity

Redemption

Issue

Outstanding

Interest

Maturity

Redemption

Junior Subordinated Debentures

Date

Amount

Rate

Date

Amount

Rate

Date

Subordinated Debentures Trust II

3/5/2002

57,088

8.50

3/31/2032

3/31/2007

03/05/2002

57,088

8.50%

03/31/2032

03/31/2007

Subordinated Debentures Trust III

6/26/2002

25,774

LIBOR + 3.45

6/26/2032

6/26/2007

06/26/2002

25,774

LIBOR + 3.45%

06/26/2032

06/26/2007

Subordinated Debentures Trust IV

9/26/2002

25,774

LIBOR + 3.40

9/26/2032

9/26/2007

09/26/2002

25,774

LIBOR + 3.40%

09/26/2032

09/26/2007

Subordinated Debentures Trust V

9/27/2002

10,310

LIBOR + 3.40

9/30/2032

9/27/2007

09/27/2002

10,310

LIBOR + 3.40%

09/30/2032

09/27/2007

Subordinated Debentures Trust VI

12/10/2002

15,450

LIBOR + 3.35

12/10/2032

12/10/2007

12/10/2002

15,450

LIBOR + 3.35%

12/10/2032

12/10/2007

Subordinated Debentures Trust VII

12/19/2002

25,774

LIBOR + 3.25

12/19/2032

12/19/2007

12/19/2002

25,774

LIBOR + 3.25%

12/19/2032

12/19/2007

Subordinated Debentures Trust VIII

12/19/2002

15,464

LIBOR + 3.35

1/07/2033

12/19/2007

12/19/2002

15,464

LIBOR + 3.35%

01/07/2033

12/19/2007

Subordinated Debentures Trust IX

12/19/2002

10,310

LIBOR + 3.35

1/07/2033

12/19/2007

12/19/2002

10,310

LIBOR + 3.35%

01/07/2033

12/19/2007

Subordinated Debentures Trust X

3/26/2003

51,548

6.40

(2)%

3/26/2033

3/26/2008

03/26/2003

51,548

6.40% (2)

03/26/2033

03/26/2008

Subordinated Debentures Trust XI

4/10/2003

10,310

6.45

(2)%

4/24/2033

4/24/2008

04/10/2003

10,310

6.45% (2)

04/24/2033

04/24/2008

Subordinated Debentures Trust XII

3/27/2003

15,464

6.65

(2)%

4/07/2033

4/07/2008

03/27/2003

15,464

6.65% (2)

04/07/2033

04/07/2008

Total Subordinated Debentures (1)

263,266

Total BankAtlantic Bancorp (1)

263,266

Unsecured junior subordinated debentures — Levitt Capital Trust I (“LCT I”) (2)

03/15/2005

23,196

From fixed 8.11% to LIBOR + 3.85%

03/01/2035

3/15/2010

Unsecured junior subordinated debentures — Levitt Capital Trust II (“LCT II”) (2) and

05/04/2005

30,928

From fixed 8.09% to LIBOR + 3.80%

06/30/2035

05/04/2010

Unsecured junior subordinated debentures — Levitt Capital Trust III (“LCT III”) (2)

06/01/2006

15,464

—

From fixed 9.25% to LIBOR + 3.80%

06/30/2036

06/30/2011

Unsecured junior subordinated debentures — Levitt Capital Trust IV (“LCTIV”) (2)

07/18/2006

15,464

—

From fixed 9.35% to LIBOR + 3.80%

09/30/2036

09/30/2011

Total Levitt

85,052

54,124

Total Junior Subordinated Debentures

348,318

317,390


(1)		LIBOR interest rates are indexed to 3-month LIBOR and adjust quarterly.

(2)		Adjusts to floating LIBOR rate five years from the issue date.

~~At December 31, 2004, the approximate minimum aggregate required principal payment~~

Annual maturities of ~~the Notes, Mortgage Notes and Bonds Payable and~~ Junior Subordinated Debentures ~~in each of the next five years is approximately~~and other debt outstanding at December 31, 2006 are as follows (in thousands):


Year Ending
December 31,	Amount
2005	$	64,576
2006		12,986
Year ended December 31,			Amount
2007		62,172	$	46,036
2008		27,985		25,953
2009		38,846		278,419
2010				100,568
2011				46,138
Thereafter		335,306		411,828

	$	541,871	$	908,942

171

At December 31, 2004 and 2003, $6.7 million and $7.6 million, respectively, of unamortized underwriting discounts and costs associated with the issuance of subordinated debentures and junior subordinated debentures were included in other assets in the Company’s statements of financial condition.

BFC Financial Corporation
Notes to Consolidated Financial Statements

BankAtlantic Bancorp Junior Subordinated ~~Debentures:~~Debentures

BankAtlantic Bancorp has formed eleven statutory business trusts (“Trusts”) for the purpose of issuing Trust Preferred Securities (“trust preferred securities”) and investing the proceeds thereof in junior subordinated debentures of BankAtlantic Bancorp. The trust preferred securities are fully and unconditionally guaranteed by BankAtlantic Bancorp. The Trusts used the proceeds from issuing trust preferred securities and the issuance of its common securities to BankAtlantic Bancorp to purchase junior subordinated debentures from BankAtlantic Bancorp. Interest on the junior subordinated debentures and distributions on the trust preferred securities are payable quarterly in arrears. Distributions on the trust preferred securities are cumulative and are based upon the liquidation value of the trust preferred security. BankAtlantic Bancorp has the right, at any time, as long as there are no continuing events of default, to defer payments of interest on the junior subordinated debentures for a period not exceeding 20 consecutive quarters; but not beyond the stated maturity of the junior subordinated debentures. To date no interest has been deferred. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. BankAtlantic

~~F-49~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

Bancorp has the right to redeem the junior subordinated debentures five years from the issue date and also has the right to redeem the junior subordinated debentures in whole (but not in part) within 180 days following certain events, as defined, whether occurring before or after the redemption date and therefore cause a mandatory redemption of the trust preferred securities. The exercise of such right is subject to BankAtlantic Bancorp having received regulatory approval, if required under applicable capital guidelines or regulatory policies. In addition, BankAtlantic Bancorp has the right, at any time, to shorten the maturity of the junior subordinated debentures to a date not earlier than the redemption date. Exercise of this right is also subject to BankAtlantic Bancorp having received regulatory approval, if required under applicable capital guidelines or regulatory policies.

A portion of the net proceeds from issuance of junior subordinated debenture during the years ended December 31, 2003 and 2002 were used to redeem BankAtlantic Bancorp’s $45.8 million of 5.625% Convertible Subordinated Debentures, retire $74.8 million of 9.5% trust preferred securities, $21 million of 9% subordinated debentures and pay down $16 million of borrowings under BankAtlantic Bancorp’s credit facility with an unrelated financial institution.

BankAtlantic Bancorp ~~incurred costs associated with the above debt redemptions of $1.6 million and $3.1 million during the years ended December 31, 2003 and 2002, respectively.~~
~~BankAtlantic Bancorp:~~
Revolving Credit ~~Facility~~:

Facilities

BankAtlantic Bancorp ~~maintained a~~has established revolving credit ~~facility of~~facilities aggregating $30 million ~~from an~~with two independent financial ~~institution.~~institutions. The credit ~~facility contained~~facilities contain customary financial covenants relating to regulatory capital, debt service coverage and the maintenance of certain loan loss ~~reserves and is~~reserves. These facilities are secured by the common stock of BankAtlantic. As of December 31, 2006, BankAtlantic Bancorp was in compliance with all ~~loan~~ covenants contained in the facilities. BankAtlantic Bancorp had no outstanding borrowings under these credit facilities at December 31, ~~2004. The facility was repaid in March~~2006 and 2005.

~~BankAtlantic:~~BankAtlantic

~~In connection with the acquisition of Community,~~

BankAtlantic assumed a $15.9 million mortgage-backed bond ~~valued at $14.3 million at the~~in connection with a financial institution acquisition ~~date.~~during 2002. The mortgage-backed bond had ~~a $10.0~~an outstanding balance of $7.9 million ~~outstanding balance~~and $9.0 million at December 31, ~~2004.~~2006 and 2005, respectively. BankAtlantic ~~had~~ pledged ~~$15.2~~$13.2 million of residential loans as collateral for this bond at December 31, ~~2004.~~

2006.

In October 2002, BankAtlantic issued $22 million of floating rate subordinated debentures due 2012. The ~~Subordinated Debentures~~subordinated debentures pay interest quarterly at a floating rate equal to 3-month LIBOR plus 345 basis points and are redeemable after October 2007 at a price based upon ~~then prevailing~~then-prevailing market interest rates. The net proceeds have been used by BankAtlantic for general corporate purposes. The subordinated debentures were issued by BankAtlantic in a private transaction as part of a larger pooled securities offering. The subordinated debentures currently qualify for inclusion in BankAtlantic’s total risk based capital.

~~The development~~

Development notes ~~are the obligation of a real estate joint venture that was acquired in connection with the acquisition of Community. The notes are~~were secured by construction of specific ~~homes.~~homes associated with a real estate development and were paid-in-full during the year ended December 31, 2006.

BankAtlantic has entered into loan participation agreements in order to fund large balance loans and to limit its credit risk to one borrower. These agreements require other lenders to fund a portion of the loans on a non-recourse basis and BankAtlantic continues to service the loan. The ~~notes~~other lenders may or may not have the right to sell, transfer or pledge their participation during the life of the contract. In accordance with FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” loan participation arrangements that satisfy various criteria which include giving the participant the right to sell, transfer or pledge its participation are ~~with unrelated financial institutions with interest rates ranging from prime plus 0.75%~~accounted for as loan sales. Loan participation arrangements that limit the participants’ ability to ~~prime plus 1% with interest rate floors ranging from 5.00% to 5.75%. These notes mature in 2006. BankAtlantic’s wholly-owned subsidiary has a 50% interest~~sell, transfer or pledge the participation are accounted for as secured borrowings. Effective April 1, 2006, the loan participation agreements were amended which resulted in the ~~real estate joint venture and effective January 1, 2003, the joint venture was included~~affected loan participations being accounted for as sales with a corresponding reduction in ~~the Company’s consolidated financial statements upon the implementation~~secured borrowings. There were no loan participations accounted for as secured borrowings as of ~~FIN No. 46.~~December 31, 2006.

172

BFC Financial Corporation
Notes to Consolidated Financial Statements

BankAtlantic Bancorp Indentures

The Indentures relating to all of the ~~Debentures~~debentures (including those related to the junior subordinated debentures) contain certain customary covenants found in Indentures under the Trust Indenture Act, including covenants with respect to the payment of principal and interest, maintenance of an office or agency for administering the Debentures, holding of funds for payments on the ~~Debentures~~debentures in trust, payment by BankAtlantic Bancorp of taxes and other claims, maintenance by BankAtlantic Bancorp of its properties and its corporate existence and delivery of annual certifications to the Trustee.

~~Levitt:~~

Levitt Borrowings

Levitt and Sons has entered into various loan agreements to provide financing for the acquisition, site improvements and ~~development~~construction of residential units. At December 31, 2006 and 2005, the outstanding balance on these loans was $55.3 million and $114.9 million, respectively. As of December 31, 2006 and 2005, these loan ~~obligations~~agreements provided for advances on a revolving loan basis up to a maximum outstanding balance of $79.2 million and $147.2 million, respectively. The loans are collateralized by inventory of real estate with net carrying values aggregating $100.4 million and $168.9 million at December 31, ~~2004~~2006 and 2005, respectively. Certain mortgage notes contain provisions for accelerating the payment of principal as individual homes are ~~secured by land acquisitions, construction~~sold. Certain notes and ~~development~~mortgage notes also provide that events of ~~various communities located~~default may include a change in ~~Florida. These notes are~~ownership, management or executive management.

In 2005, Levitt and Sons entered into revolving credit facilities with ~~unrelated financial institutions~~third party lenders for borrowings of up to $210.0 million, subject to borrowing base limitations based on the value and type of collateral provided. During 2006, Levitt and Sons entered into a ~~total~~revolving credit facility and amended certain of

~~F-50~~

~~BFC Financial Corporation~~ the existing credit facilities increasing the amount available for borrowings under these facilities to $450.0 million and ~~Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~$194.2 million are indexed to~~amended certain of the ~~prime rate~~initial credit agreement’s definitions. Advances under these facilities bear interest, at Levitt and Sons’ option; at either (i) the lender’s Prime Rate less 50 basis points or ~~LIBOR rate of interest. Interest rates range from prime less 0.50% to prime plus 1.00% and~~(ii) 30-day LIBOR plus ~~2.00% to LIBOR plus 2.80%,~~a spread of between 200 and ~~maturity~~240 basis points, depending on the facility. Accrued interest is due monthly and these lines mature at various dates ranging from ~~January~~2009 to 2010. As of December 31, 2006, these facilities provided for advances on a revolving loan basis up to a maximum outstanding balance of $357.7 million. The loans are collateralized by mortgages on respective properties including improvements with net carrying values aggregating $483.6 million at December 31, 2006. At December 31, 2006 and 2005, ~~to June 2011.~~

Levitt Corporation entered into a six month bridge loan agreement with a financial institution in October 2004 to temporarily fund Levitt’s purchase of an office building in Fort Lauderdale, Florida that Levitt currently intends to utilize as its principal executive offices upon expiration or termination of the ~~lease of the existing tenant. The promissory note is interest only, payable monthly at Libor plus 1.50%~~outstanding balance on these facilities was $348.6 million and ~~matures in March 2005.~~

$143.1 million, respectively.

Levitt and Sons has a credit agreement with a financial institution to provide a $15.0 million line of credit. At December 31, ~~2004,~~2006, Levitt and Sons had available credit of ~~$15.0~~$1.0 million and had ~~no amounts~~$14.0 million outstanding. The credit facility currently matures September ~~2006.~~2007, and is guaranteed by Levitt Corporation. The guarantee is collateralized by Levitt Corporation’s pledge of its membership interest in Levitt and Sons, LLC. On or before June 30^th of each calendar year, the financial institution may at its sole discretion offer the option to extend the term of the loan for a one-year period. Levitt has pledged a first priority security interest on Levitt’s equity interest in Levitt and Sons to secure the loan.

Core Communities notes and mortgage notes payable are collateralized by inventory of real estate and property and equipment with net carrying values aggregating $186.7 million and $129.0 million as of December 31, 2006 and 2005, respectively. Included in these balances is a construction loan with a third party executed in 2006 for up to $60.9 million. The loan accrues interest at 30-day LIBOR plus a spread of 170 basis points and is due and payable on June 26, 2009. At December 31, 2006, Core had $14.1 million outstanding on this loan. On January 23, 2007, this loan was amended for the development of a commercial project. The amendment increased the loan amount to $64.3 million, amended the financial ratio and allowed for principal payments on or before the election to extend the loan such that the resized loan amount would comply with financial ratios in the credit agreement. All other material terms of this credit agreement remain unchanged. In September of 2006, Core entered into credit agreements with a financial institution to provide an additional $40.0 million in financing on an existing credit facility increasing the total maximum outstanding balance to $88.9 million. This facility matures in June 2011. As of December 31, 2006, $37.9 million is outstanding, and the entire $51.0 million remaining under the line is currently available for borrowing based on available collateral.

Levitt Corporation entered into a mortgage note payable agreement with a financial institution in March 2005 to repay the bridge loan used to temporarily fund Levitt’s purchase of the office building in Fort Lauderdale. This note payable is collateralized by the office building that Levitt currently utilizes as its principal executive offices, which was occupied by Levitt in November 2006. The note payable contains a balloon payment provision of approximately $10.4 million at the maturity date in April 2015.

173

BFC Financial Corporation
Notes to Consolidated Financial Statements

Inter-company loans to Levitt from BankAtlantic were none at December 31, 2006 and $223,000 at December 31, 2005. There were no inter-company loans to Levitt from BankAtlantic Bancorp in 2006 and 2005. Inter-company loans were eliminated in consolidation.

Some of Levitt’s subsidiaries have borrowings which contain covenants that, among other things, require the subsidiary to maintain financial ratios and a minimum net worth. These requirements may limit the amount of debt that the subsidiaries can incur in the future and restrict the payment of dividends from Levitt’s subsidiaries to Levitt. At December 31, 2006, Levitt was in compliance with all loan agreement financial requirements and covenants.

In addition certain of Levitt’s borrowings require repayments of specified amounts upon a sale of portions of the property securing the debt.

On February 28, 2007, Core Communities of South Carolina, LLC a wholly owned subsidiary of Core Communities, LLC, Levitt’s wholly owned subsidiary entered into a $50 million revolving credit facility for construction financing for the development of the Tradition South Carolina master planned community that is due and payable on February 28, 2009 and is subject to a one year extension upon compliance with the conditions set forth in the agreement. The loan is secured by 1,829 gross acres of land and the related improvements, easements as well as assignments of rents and leases. A payment guarantee for the loan amount was provided by Core Communities, LLC. The loan accrues interest at the bank’s Prime Rate and is payable monthly. The loan documents include customary conditions to funding, collateral release and acceleration provisions and financial, affirmative and negative covenants.

Levitt Junior Subordinated Debentures

In March 2005, Levitt Capital Trust I issued $22.5 million of trust preferred securities to third parties and $696,000 of trust common securities to Levitt and used the proceeds to purchase an identical amount of junior subordinated debentures from Levitt. Interest on these junior subordinated debentures and distributions on these trust preferred securities are payable quarterly in arrears at a fixed rate of 8.11% through March 30, 2010 and thereafter at a floating rate of 3.85% over 3-month London Interbank Offered Rate (“LIBOR”) until the scheduled maturity date of March 30, 2035. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part at our option at any time after five years from the issue date or sooner following certain specified events.

In May 2005, Levitt Capital Trust II issued $30.0 million of trust preferred securities to third parties and $928,000 of trust common securities to Levitt and used the proceeds to purchase an identical amount of junior subordinated debentures from Levitt. Interest on these junior subordinated debentures and distributions on these trust preferred securities are payable quarterly in arrears at a fixed rate of 8.09% through June 30, 2010 and thereafter at a floating rate of 3.80% over 3-month LIBOR until the scheduled maturity date of June 30, 2035. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part at our option at any time after five years from the issue date or sooner following certain specified events.

In June 2006, Levitt Capital Trust III issued $15.0 million of trust preferred securities to third parties and $464,000 of trust common securities to Levitt and used the proceeds to purchase an identical amount of junior subordinated debentures from Levitt. Interest on these junior subordinated debentures and distributions on these trust preferred securities are payable quarterly in arrears at a fixed rate of 9.25% through June 30, 2011 and thereafter at a floating rate of 3.80% over 3-month LIBOR until the scheduled maturity date of June 30, 2036. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part at our option at any time after five years from the issue date or sooner following certain specified events.

In July 2006, Levitt Capital Trust IV issued $15.0 million of trust preferred securities to third parties and $464,000 of trust common securities to Levitt and used the proceeds to purchase an identical amount of junior subordinated debentures from Levitt. Interest on these junior subordinated debentures and distributions on these trust preferred securities are payable quarterly in arrears at a fixed rate of 9.35% through September 30, 2011 and thereafter at a floating rate of 3.80% over 3- month LIBOR until the scheduled maturity date of September 30, 2036. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier

174

BFC Financial Corporation
Notes to Consolidated Financial Statements

redemption. The junior subordinated debentures are redeemable in whole or in part at our option at any time after five years from the issue date or sooner following certain specified events.

Levitt Development Bonds

In connection with the development of certain ~~of Levitt~~ projects, community development or improvement districts have been established and may utilize tax-exempt bond financing to fund construction or acquisition of certain on-site and off-site infrastructure improvements ~~performed by Levitt~~ near or at these communities. The obligation to pay principal and interest on the bonds issued by the districts is assigned to each parcel within the district, and a priority assessment lien may be placed on benefited parcels to provide security for the debt service. The bonds, including interest and redemption premiums, if any, and the associated priority lien on the property are typically payable, secured and satisfied by revenues, fees, or assessments levied on the property benefited. Levitt pays a portion of the revenues, fees, and assessments levied by the districts on the properties Levitt still owns that are benefited by the improvements. Levitt may also agree to pay down a specified portion of the bonds at the time of each unit or parcel closing.

These costs are capitalized to inventory during the development period and recognized as cost of sales when the properties are sold.

The amount of community development district and improvement district bond obligations issued and outstanding with respect to Levitt’s communities totaled $50.4 million and $81.8 million at December 31, 2006 and 2005, respectively. Bond Obligations at December 31, 2006 mature in 2035.

In accordance with Emerging Issues Task Force Issue 91-10 (“EITF 91-10”), Accounting for Special Assessments and Tax Increment Financing, Levitt records a liability ~~net of cash held by the districts available to offset the particular bond obligation,~~ for the estimated developer obligations that are fixed and determinable and user fees that are required to be paid or transferred at the time the parcel or unit is sold to an end user. Levitt reduces this liability by the corresponding assessment assumed by property purchasers and the amounts paid by Levitt at the time of closing and transfer of the property. Interest is calculated and paid based upon the gross bond obligation.

During the fourth quarter of 2003, a development district for the Tradition master-planned community issued $62.8 million of long-term assessment bonds to refinance $28.9 million of previously issued and outstanding bond anticipation notes and to provide financing for Phase I infrastructure development. The development district assesses property owners to fund debt service and the ultimate repayment of the bonds. Levitt is assessed based on its pro-rata ownership of the property in the district. Levitt’s pro-rata share of the assessment transfers to third party purchasers upon property sales. The assessments are projected to be levied beginning in 2005. In accordance with EITF 91-10, Levitt will recognize an expense for it’s pro rata portion of assessments, based upon its ownership of benefited property. As of December 31, 2004, Levitt owned approximately 66% of the property in the district.

The Utility Revenue Refunding Bonds and Water Management Benefit Tax Bonds are other bonds of the development district that are not recorded on the books of Levitt. As an owner of property within the development district, Levitt is responsible until land parcels are sold for the payment of its pro rata share of tax assessments from the water management benefit tax bonds. Levitt recognized a tax assessment expense, based upon its pro rata share of taxes and assessments of approximately $241,000, $444,000 and $544,000 for the years ended December 31, 2004, 2003 and 2002, respectively. This expense is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Inter-company loans to Levitt from BankAtlantic were $8.6 million and $18.1 million at December 31, 2004 and 2003, respectively. Inter-company loans to Levitt from BankAtlantic Bancorp were $38.0 million and $43.5 million at December 31, 2004 and 2003, respectively. The above inter-company loans were eliminated in consolidation.

Some of Levitt’s borrowings contain covenants that, among other things, require it to maintain financial ratios and a minimum net worth. These covenants may have the effect of limiting the amount of debt that Levitt can incur in the future and restricting the payment of dividends to Levitt from its subsidiaries.

At December 31, ~~2004,~~2006 and 2005, Levitt ~~was in compliance~~recorded no liability associated with ~~all loan agreement financial covenants.~~

~~F-51~~

outstanding CDD bonds as the assessments were not both fixed and determinable.

BFC ~~Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~Borrowings

~~BFC~~

All ~~mortgage payables~~mortgages payable and other borrowings are from unaffiliated parties. ~~At December 31, 2003, the Company had~~BFC has a $14.0 million revolving line of credit ~~in the amount of $8.0 million requiring only interest payments at prime plus 1%.~~that can be utilized for working capital as needed. The ~~line of credit matured in May 2004. In May 2004 the line of credit was extended until May 2, 2005 and the~~ interest rate ~~changed to~~on this facility is based on LIBOR plus 280 basis points. ~~In December 2004 the amount of the~~During September 2006, BFC amended its revolving line of credit ~~was increased~~promissory note by extending the maturity date to ~~$14.0 million. The outstanding balance at December 31, 2004 and 2003 was $10.5 million and $6.0 million, respectively. 1,187,687~~June 15, 2007. As amended, the collateral for this revolving line of credit is 1,716,771 shares of BankAtlantic Bancorp Class A ~~common stock and 491,097 Levitt shares of Class A commons stock owned by BFC are pledged as collateral.~~

Common Stock. At December 31, ~~2004~~2006 and ~~2003, approximately $8.2 million and $8.4 million, respectively,~~2005, no amounts were drawn under this revolving line of the mortgage payables related to real estate with an interest rate of 9.2% and maturity date in May 2007. At December 31, 2004 and 2003, approximately $544,000 and $625,000, respectively, of the mortgage payables related to mortgage receivables in connection with the sale of properties previously owned by the Company, with interest rates at 6% and maturity dates ranging from 2009 through 2010.

credit.

Other Liabilities

Included in other liabilities at December 31, ~~2004~~2006 and ~~2003~~2005 is approximately $4.8 million ~~and $4.9 million, respectively,~~ representing amounts due in connection with the settlement of a class action litigation that arose in connection with exchange transactions that the Company entered into in 1989 and 1991.

175

~~15.~~

BFC Financial Corporation
Notes to Consolidated Financial Statements

20. Income Taxes

The provision (benefit) for income taxes consisted of (in thousands):


	For the Years Ended December 31,								For the Years Ended December 31,
	2004		2003			2002			2006			2005		2004
Continuing operations	$	83,997	$	44,166		$	17,993		$	(528	)	$	59,566	$	70,920
Discontinued operations		—		(517	)		303			(8,958	)		13,205		13,078
Extraordinary items		—		—			2,771
Cumulative effect of a change in accounting principle		—		—			(1,246	)

Total provision for income taxes	$	83,997	$	43,649		$	19,821
Total (benefit) provision for income taxes									$	(9,486	)	$	72,771	$	83,998

Continuing operations:
Current:
Federal	$	56,616	$	27,200		$	18,934		$	13,511		$	45,117	$	46,707
State		9,487		4,287			633			946			6,198		6,405

		66,103		31,487			19,567			14,457			51,315		53,112

Deferred:
Federal		16,556		12,679			(878	)		(13,977	)		7,132		16,356
State		1,338		—			(696	)		(1,008	)		1,119		1,452

		17,894		12,679			(1,574	)		(14,985	)		8,251		17,808

Provision for income taxes	$	83,997	$	44,166		$	17,993
(Benefit) provision for income taxes									$	(528	)	$	59,566	$	70,920

~~F-52~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

The Company’s actual provision for income taxes from continuing operations ~~differ~~differs from the Federal expected income tax provision as follows (dollars in thousands):


	For the Years Ended December 31,															For the Years Ended December 31,
	2004 (1)					2003 (1)					2002 (1)					2006 (1)					2005 (1)					2004 (1)
Income tax provision at expected federal income tax rate of 35%	$	70,777		35.00	%	$	35,428		35.00	%	$	17,605		35.00	%	$	4,263		35.00	%	$	51,294		35.00	%	$	60,664		35.00	%
Increase (decrease) resulting from:
Taxes related to subsidiaries not consolidated for income tax purposes		8,423		4.17	%		5,788		5.72	%		4,214		8.38	%		1,509		12.39			6,359		4.34			7,066		4.08
Tax-exempt interest income		(1,817	)	(0.90	%)		(267	)	(0.26	%)		(275	)	(0.55	%)		(5,110	)	(41.96	)		(5,032	)	(3.43	)		(1,729	)	(1.00	)
Provision (benefit) for state taxes, net of federal effect		7,074		3.50	%		3,991		3.94	%		(370	)	(0.74	%)		(938	)	(7.70	)		4,877		3.33			5,150		2.97
Change in State tax valuation allowance		94		(0.05	%)		(1,168	)	(1.15	%)		1,071		2.13	%		1,694		13.91			777		0.53			94		0.05
Change in valuation allowance for deferred tax assets		—		—			(418	)	(0.41	%)		(3,479	)	(6.92	%)
Levitt spin-off nondeductible		90		0.04	%		1,275		1.26	%		—		—
Low income housing tax credits		(468	)	(0.23	%)		(555	)	(0.55	%)		(416	)	(0.83	%)		(721	)	(5.92	)		(549	)	(0.37	)		(468	)	(0.27	)
Goodwill impairment adjustment																	458		3.76			—		—			—		—
Non-deductible fines and penalties																	—		—			3,500		2.39			—		—
Other – net		(176	)	(0.09	%)		92		0.09	%		(357	)	(0.71	%)		(1,683	)	(13.82	)		(1,660	)	(1.13	)		143		0.08

Provision for income taxes	$	83,997		41.54	%	$	44,166		43.63	%	$	17,993		35.76	%
(Benefit) provision for income taxes																$	(528	)	(4.34	)%	$	59,566		40.66	%	$	70,920		40.91	%


(1)		Expected tax is computed based upon income (loss) from continuing operations before ~~minority interest, discontinued operations, extraordinary items and cumulative effect of a change in accounting principle.~~noncontrolling interest.

~~F-53~~176

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and tax liabilities were (in thousands):


	For the Years Ended December 31,									Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Deferred tax assets:
Provision for restructuring charges and write-downs	$	267		$	294		$	191
Allowance for loans, REO, tax certificate losses and other reserves, for financial statement purposes		20,899			27,539			29,884		$	20,546		$	20,234		$	21,166
Federal and State net operating loss carry forward		22,621			9,277			10,498
Federal and State net operating loss carryforward											30,191			25,612			22,735
Compensation expensed for books and deferred for tax purposes		3,530			3,754			3,915			13,099			10,225			4,746
Goodwill impairment for books in excess of tax amortization		—			—			1,086
Real estate held for development and sale capitalized costs for tax purposes in excess of amounts capitalized for financial statement purposes		7,100			6,891			7,554			6,579			5,762			5,948
Write-down of real estate inventory											12,889			—			—
Accumulated other comprehensive income		243			—			—			43			3,466			243
Share based compensation											1,922			—			—
Purchase accounting adjustments from real estate acquisitions											274			399			1,152
Income recognized for tax purposes and deferred for financial statement purposes											6,949			4,426			1,692
Other		5,788			4,896			4,642			4,727			3,240			3,982

Total gross deferred tax assets		60,448			52,651			57,770			97,219			73,364			61,664
Less valuation allowance		2,564			2,470			4,369			5,035			3,341			2,564

Total deferred tax assets		57,884			50,181			53,401			92,184			70,023			59,100

Deferred tax liabilities:
Subsidiary not consolidated for income tax purposes		48,273			36,006			30,541
Subsidiaries not consolidated for income tax purposes											55,404			55,302			48,273
Investment in Bluegreen		9,282			5,533			—			19,501			15,167			9,282
Deferred loan income		1,190			885			918			1,956			1,452			1,190
Change in investment of unconsolidated real estate subsidiary		—			—			1,762
Purchase accounting adjustments for bank acquisitions		1,920			2,229			1,356			1,929			2,219			1,920
Accumulated other comprehensive income		—			3,887			2,596
Prepaid pension expense		2,517			2,607			2,713			2,438			2,454			2,517
Depreciation for tax greater than book		2,278			—			—			2,685			665			1,146
Property and equipment											985			1,397			1,132
Securities owned recorded at fair value for books and historical cost for tax purposes											188			931			1,216
Other		879			1,929			1,396			1,333			1,128			879

Total gross deferred tax liabilities		66,339			53,076			41,282			86,419			80,715			67,555

Net deferred tax asset (liability)		(8,455	)		(2,895	)		12,119
Plus (less) net deferred tax asset (liability) at beginning of period		2,895			(12,119	)		3,916
Net deferred tax (liability) asset											5,765			(10,692	)		(8,455	)
Less net deferred tax liability at beginning of period											10,692			8,455			2,895
Acquired net deferred tax asset, net of valuation allowance		595			—			(8,175	)		—			—			595
Decrease in deferred tax liability from subsidiaries other capital transactions		3,650			776			(9	)
(Decrease) increase in accumulated other comprehensive income		(369	)		416			(1,145	)
Decrease in deferred tax liability from BFC’s tax effect relating to exercise stock option		(11,016	)		(550	)		—
Increase (decrease) in deferred tax liability from BFC’s tax effect relating to exercise stock option											—			12			(11,016	)
(Decrease) increase in deferred tax liability from subsidiaries other capital transactions											(173	)		(189	)		3,650
Increase (decrease) in BFC’s accumulated other comprehensive income											580			(262	)		(370	)
Increase (decrease) in Levitt’s accumulated other comprehensive income		(1,291	)		361			—			600			981			(1,291	)
Increase (decrease) in BankAtlantic Bancorp accumulated other comprehensive income		(3,903	)		1,019			(6,277	)		3,161			(3,451	)		(3,903	)

(Provision) benefit for deferred income taxes		(17,894	)		(12,993	)		429
(Provision) benefit for deferred income taxes — discontinued operations		—			—			(380	)
Reduction in deferred tax asset associated with GMS sale		—			314			—
Benefit for deferred income taxes — extraordinary item		—			—			2,771
Provision for deferred income taxes — cumulative effect of an accounting change		—			—			(1,246	)
Benefit (provision) for deferred income taxes											20,625			(5,145	)		(17,895	)
Provision (benefit) for deferred income taxes — discontinued operations											(5,640	)		(3,106	)		87

(Provision) benefit for deferred income taxes — continuing operations	$	(17,894	)	$	(12,679	)	$	1,574
Benefit (provision) for deferred income taxes — continuing operations										$	14,985		$	(8,251	)	$	(17,808	)

~~F-54~~177

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

Activity in the deferred tax asset valuation allowance was (in thousands):


	For the Years Ended December 31,								For the Years Ended December 31,
	2004		2003			2002			2006		2005		2004
Balance, beginning of period	$	2,470	$	4,369		$	7,682		$	3,341	$	2,564	$	2,470
Utilization of acquired tax benefits		—		(418	)		(2,638	)
Increase (reduction) in state deferred tax valuation allowance		94		(1,168	)		230			1,694		777		94
Other decreases and reclassifications		—		(313	)		(905	)

Balance, end of period	$	2,564	$	2,470		$	4,369		$	5,035	$	3,341	$	2,564

BankAtlantic Bancorp and Levitt are not included in the Company’s consolidated tax return. At December 31, 2006, the Company (excluding BankAtlantic Bancorp and Levitt, which was included in BankAtlantic Bancorp’s 2003 consolidated tax return) had estimated state and federal net operating loss carry forwards as follows (in thousands):


Expiration Year	State		Federal
2007	$	4,235	$	4,558
2008		2,332		3,322
2011		1,662		1,831
2012		669		984
2021		806		1,422
2022		824		1,515
2023		2,008		3,792
2024		28,059		34,714
2025		4,964		5,797
2026		16,387		18,224

	$	61,946	$	76,159

Except as discussed below, ~~BankAtlantic Bancorp’s~~ management believes that itthe Company will have sufficient taxable income of the appropriate character in future years to realize the net deferred income tax asset. In evaluating the expectation of sufficient future taxable income, management considered the future reversal of temporary differences and available tax planning strategies that could be implemented, if required. A valuation allowance was required by Levitt in 2006 of approximately $425,000 and BankAtlantic Bancorp of approximately $1.3 million, $777,000 and $94,000 at December 31, 2006, 2005 and 2004, ~~2003 and 2002~~respectively, as it was management’s assessment that, based on available information, it is more likely than not that certain State net operating loss ~~carry forwards~~carryforwards (“NOL”) included in the Company’s deferred tax assets will not be realized. A change in the valuation allowance occurs if there is a change in management’s assessment of the amount of the net deferred income tax asset that is expected to be realized.

At December 31, ~~2004, BankAtlantic Bancorp~~2006, Levitt had NOL’s of ~~$73~~$10.0 million for state tax purposes primarily associated with operations in Georgia, South Carolina and Tennessee. Levitt files separate State income tax returns in each these states. Based on current projections Levitt expects Tennessee operations to continue to generate operating losses into the foreseeable future based on current projects and available backlog. As a consequence, management believes that it is more likely than not that the State NOL associated with the Tennessee homebuilding operations will not be realized.

At December 31, 2006, BankAtlantic Bancorp ~~and~~had State tax NOL’s of $142 million of which $129 million was associated with BankAtlantic Bancorp, Leasing Technology, ~~Inc.~~Inc and Palm River Development Corp. BankAtlantic Bancorp files separate State income tax returns in each State jurisdiction. BankAtlantic Bancorp has incurred taxable losses during the past ~~six~~eight years resulting from its debt ~~obligations and~~obligations. Leasing Technology Inc. has incurred significant losses associated with its lease financing ~~activities.~~activities and Palm River Development Corp. has incurred continuing taxable losses associated with a real estate development. As a consequence, ~~BankAtlantic Bancorp’s~~ management believes that it is more likely than not that the State NOL associated with these companies will not be realized.

During the year ended December 31, 2006, Ryan Beck’s State NOL carryforward was $12.8 million. The Ryan Beck State NOL carryforward expires in 2021. Management believes that it is more likely than not than Ryan Beck’s State NOL will be realized through future earnings or from proceeds received in connection with the Stifel acquisition.

Prior to December 31, 1996, BankAtlantic was permitted to deduct from taxable income an allowance for bad debts

178

BFC Financial Corporation
Notes to Consolidated Financial Statements

which was in excess of the provision for such losses charged to income. Accordingly, at December 31, ~~2004,~~2006, BankAtlantic Bancorp had $21.5 million of excess allowance for bad debts for which no provision for income tax has been provided. If, in the future, this portion of retained earnings is distributed, or BankAtlantic no longer qualifies as a bank for tax purposes, federal income tax of approximately $7.5 million would be owed.

~~BankAtlantic Bancorp is not included in~~

21. Stock Based Compensation

The impact of adopting SFAS 123R on the Company’s consolidated ~~tax return. At~~statement of operations for the year ended December 31, ~~2003, the Company (excluding BankAtlantic Bancorp and Levitt, which~~2006, reflected as compensation expense recognized, is ~~included in BankAtlantic Bancorp’s 2003 consolidated tax return) had estimated state and federal net operating loss carry forwards~~ as follows (in ~~thousands):~~thousands:)

Expiration
Year State Federal
2006 $ 429 $ —
2007 4,235 4,557
2008 2,332 3,322
2011 1,662 1,831
2012 669 984
2021 806 1,422
2022 824 1,515
2023 2,008 3,792
2024 18,252 34,457

$ 31,217 $ 51,880


Pre-tax income before noncontrolling interest	$	(7,805	)
Benefit from income tax		2,320
Noncontrolling interest		4,315

Decrease to income from continuing operations		(1,170	)
Discontinued operations, net of noncontrolling interest and income tax		(52	)

Increase to net loss	$	(1,222	)

Basic loss per share from continuing operations	$	(0.04	)

Diluted loss per share from continuing operations	$	(0.04	)

The following table illustrates the pro forma effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for the years ended December 31, 2005 and 2004:


	For the Years Ended December 31,
(In thousands, except per share data)	2005			2004
Pro forma net income
Net income available to common shareholders, as reported	$	12,024		$	13,838
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects and noncontrolling interest		51			38
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax effects and noncontrolling interest		(1,168	)		(897	)

Pro forma net income	$	10,907		$	12,979

Earnings per share:
Basic as reported	$	0.42		$	0.57

Basic pro forma	$	0.38		$	0.54

Diluted as reported	$	0.38		$	0.47

Diluted pro forma	$	0.34		$	0.44

In addition, prior to the adoption of SFAS 123R, the tax benefits of stock option exercises were classified as operating cash flows. Since the adoption of SFAS 123R, tax benefits resulting from tax deductions in excess of the compensation cost recognized for options are classified as financing cash flows. As the Company adopted the modified prospective transition method, the prior period cash flow statements were not adjusted to reflect current period presentation.

~~F-55~~179

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~16. Employee Benefits Plan~~

BFC’s Stock Option ~~Plan~~Plans and Restricted Stock

~~BFC’s Stock Option~~

BFC (excluding BankAtlantic Bancorp and Levitt) has stock based compensation plan (the “2005 Incentive Plan”) under which restricted unvested stock, incentive stock options and non-qualifying stock options are awarded to officers, directors and employees. The 2005 Plan provides up to 3,000,000 shares of Class A Common Stock which may be issued through restricted stock awards and upon the exercise of options granted under the 2005 Plan. BFC may grant incentive stock options only to its employees (as defined in the 2005 Plan). BFC may grant non-qualified stock options and restricted stock awards to directors, independent contractors and agents as well as employees.

BFC also has a stock based compensation plan (“1993 Plan”) which expired in 2004 and no future grants can be made under the 1993 Plan; however, any previously issued options granted under that plan remain effective until either they expire, are forfeited or are exercised. BFC’s 1993 Plan provided for the grant of stock options to purchase shares of ~~the Company’s~~BFC’s Class B Common Stock. The ~~plan provides~~1993 Plan provided for the grant of both incentive stock options and non-qualifying ~~options. The exercise price of a stock option will not be less than the fair market value of the Common Stock on the date of the grant~~options and the maximum term of the option iswas ten years.

Share-based compensation costs are recognized based on the grant date fair value. The grant date fair value for stock options is calculated using the Black-Scholes option pricing model net of an estimated forfeitures rate and recognizes the compensation costs for those options expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of five years. BFC based its estimated forfeiture rate of its unvested option at January 1, 2006 on its historical experience.

Assumptions used in estimating the fair value of employee options granted subsequent to January 1, 2006 was formulated in accordance with guidance under SFAS 123R and the guidance provided by the Securities and Exchange Commission (“SEC”) in Staff Accounting Bulletin No. 107 (“SAB 107”). As part of this assessment, management determined that volatility should be based on its Class A Common Stock and derived from historical price volatility using prices for the period after BFC began trading on the NASDAQ National Market through the grant date. The expected term of an option is an estimate as to how long the option will remain outstanding based upon management’s expectation of employee exercise and post-vesting forfeiture behavior. Because there were no recognizable patterns, the simplified guidance in SAB 107 was used to determine the estimated term of options issued subsequent to the adoption of SFAS 123R. Based on this guidance, the estimated term was estimated to be the midpoint of the vesting term and the contractual term. The estimate of a risk-free interest rate is based on the U.S. Treasury implied yield curve in effect at the time of grant with a remaining term equal to the expected term. BFC has never paid cash dividends and does not currently intend to pay cash dividends, and therefore a 0% dividend yield was assumed.

The option model used to calculate the fair value of the options granted was the Black-Scholes model, the table below presents the weighted average assumptions used to value options granted to employees and directors.


	Weighted Average
	2006			2005			2004
Volatility		44.22	%		41.38	%		57.14	%
Expected dividends		0	%		0	%		0	%
Expected term (in years)		7.5			7.5			9.5
Risk-free rate		5.01	%		4.61	%		4.53	%

180

BFC Financial Corporation
Notes to Consolidated Financial Statements

The following table sets forth information on ~~all~~ outstanding options:

Class B
Options
Outstanding Price per Share
Outstanding at December 31, 2001 8,656,402 $ 0.41 to $ 3.68
Issued —
Exercised (137,575 ) $ 0.41 to $ 1.45
Forfeited (14,040 ) $ 2.14 to $ 2.14

Outstanding at December 31, 2002 8,504,787 $ 0.43 to $ 3.68
Issued 554,547 $ 1.84 to $ 1.84
Exercised (605,222 ) $ 0.43 to $ 0.47

Outstanding at December 31, 2003 8,454,112 $ 0.44 to $ 3.68
Issued 307,427 $ 7.68 to $ 8.40
Exercised (3,521,419 ) $ 0.44 to $ 3.68

Outstanding at December 31, 2004 5,240,120 $ 1.45 to $ 8.40
Exercisable at December 31, 2004 4,445,266 $ 1.45 to $ 8.40

Available for grant at December 31, 2004 —


				Weighted		Weighted Average
				Average		Remaining		Aggregate
	Outstanding			Exercise		Contractual Term		Intrinsic
	Options			Price		(in years)		Value ($000)

Outstanding at December 31, 2003		8,454,112		$	1.54			$	—
Exercised		(3,521,419	)		0.51				—
Forfeited		—			—				—
Expired		—			—				—
Granted		307,427			8.33				—

Outstanding at December 31, 2004		5,240,120		$	2.63		3.80	$	—
Exercised		(113,153	)		1.53				—
Forfeited		(58,898	)		3.74				—
Expired		—			—				—
Granted		231,500			8.92				—

Outstanding at December 31, 2005		5,299,569		$	2.92		3.12	$	—
Exercised		(3,928,982	)		2.32				—
Forfeited		—			—				—
Expired		—			—				—
Granted		236,500			6.36				—

Outstanding at December 31, 2006		1,607,087		$	4.88		6.25	$	3,875

Exercisable at December 31, 2006		364,527		$	2.91		1.95	$	1,406

Available for grant at December 31, 2006		2,479,448

The weighted average grant date fair value of options granted during the years 2006, 2005 and 2004 was $3.54, $4.71, and $5.81, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005, and 2004, was $13.6 million, $744,000 and $28.7 million, respectively.

Total unearned compensation cost related to BFC’s unvested stock options was $2.5 million at December 31, 2006. The cost is expected to be recognized over a weighted average period of 2.5 years.

In 2006, 1,278,985 shares of BFC Class A Common Stock with a fair value of $7.4 million and 1,068,572 shares of BFC Class B Common Stock with a fair value of $5.9 million, respectively, were accepted by BFC as consideration for the exercise price of stock options ~~outstanding~~and optionees’ minimum statutory withholding taxes related to option exercises. In 2005, BFC received net proceeds of approximately $173,000 upon the exercise of stock options

In accordance with SFAS 123R, tax benefits are recognized in the financial statements upon actual realization of the related tax benefit. During the year ended December 31, 2006, the BFC Activities segment’s excess tax benefit of approximately $2.9 million was not recognized and will not be recognized until such deductions are utilized to reduce taxes payable.

181

BFC Financial Corporation
Notes to Consolidated Financial Statements

The following is a summary of BFC’s restricted stock activity:


				Weighted
	Restricted			Average
	Stock			Fair Value
Outstanding at December 31, 2004	$	—		$	—
Granted		22,524			8.88
Vested		(11,262	)		6.68
Forfeited		—			—

Outstanding at December 31, 2005	$	11,262		$	5.52
Granted		30,028			6.66
Vested		(26,276	)		6.29
Forfeited		—			—

Outstanding at December 31, 2006	$	15,014		$	6.65

BFC recognized approximately $200,000 in compensation cost related to vested restricted stock compensation during each year ended December 31, 2006 and 2005. During July 2006, the Board of Directors granted 30,028 shares of restricted stock under the 2005 Incentive Plan. Restricted stock was granted in Class A Common Stock and vest monthly over the twelve-month service period. The fair value of the 30,028 shares of restricted stock granted on the date of grant was $199,986 and the cost is expected to be recognized over the 12 month service period from July 2006 through June 2007.

BankAtlantic Bancorp Restricted Stock and Stock Option Plans:

Stock Option Plans

Maximum

Class of

Vesting

Type of

Term

Authorized (3)

Stock

Requirements

Options (2)

1996 Stock Option Plan

10 years

2,246,094

5 Years (1)

ISO, NQ

1999 Non-qualifying Stock Option Plan

10 years

862,500

(1)

1999 Stock Option Plan

10 years

862,500

(1)

ISO, NQ

2000 Non-qualifying Stock Option Plan

10 years

1,704,148

Immediately

2001 Amended and Restated Stock Option Plan

10 years

3,918,891

5 Years (1)

ISO, NQ

2005 Restricted Stock and Option Plan (4)

10 years

6,000,000

5 Years (1)

ISO, NQ


(1)		Vesting is established by the Compensation Committee in connection with each grant of options or restricted stock. All directors’ stock options vest immediately.

(2)		ISO — Incentive Stock Option

		NQ — Non-qualifying Stock Option

(3)		During 2001 shares underlying options available for grant under all stock options plans except the 2001 stock option plan were canceled. During 2005 restricted stock and options available for grant under the 2001 stock option plan were canceled.

(4)		The Plan provides that up to 6,000,000 shares of BankAtlantic Bancorp Class A common stock may be issued for restricted stock awards and upon the exercise of options granted under the Plan.

182

BFC Financial Corporation
Notes to Consolidated Financial Statements

BankAtlantic Bancorp recognizes stock based compensation costs based on the grant date fair value. The grant date fair value for stock options is calculated using the Black-Scholes option pricing model incorporating an estimated forfeiture rate and recognizes the compensation costs for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of five years. BankAtlantic Bancorp based the estimated forfeiture rate of its nonvested options at January 1, 2006 on its historical experience during the preceding five years.

BankAtlantic Bancorp formulated its assumptions used in estimating the fair value of employee options granted subsequent to January 1, 2006 in accordance with guidance under SFAS 123R and the guidance provided by SAB 107. As part of this assessment, management determined that the historical volatility of BankAtlantic Bancorp’s stock should be adjusted to reflect the spin-off Levitt on December 31, 2003 because BankAtlantic Bancorp’s historical volatility prior to the Levitt spin-off was not a good indicator of future volatility. Management reviewed BankAtlantic Bancorp’s stock volatility subsequent to the Levitt spin-off along with the stock volatility of other companies in its peer group. Based on this information, management determined that BankAtlantic Bancorp’s stock volatility was similar to its peer group subsequent to the Levitt spin-off. As a consequence, management estimates BankAtlantic Bancorp’s stock volatility over the estimated life of the stock options granted using peer group experiences instead of BankAtlantic Bancorp’s historical data. As part of its adoption of SFAS 123R, BankAtlantic Bancorp examined its historical pattern of option exercises in an effort to determine if there were any patterns based on certain employee populations. From this analysis, BankAtlantic Bancorp could not identify any employee population patterns in the exercise of its options. As such, BankAtlantic Bancorp used the guidance of SAB 107 to determine the estimated term of options issued subsequent to the adoption of SFAS 123R. Based on this guidance, the estimated term was deemed to be the midpoint of the vesting term and the contractual term.

The table below presents the weighted average assumptions used by BankAtlantic Bancorp to value options granted to employees and directors.


	Weighted Average
	2006			2005			2004

Expected volatility		31.00-32.00	%		31.00	%		41.00	%
Volatility		31.44	%		31.00	%		41.00	%
Expected dividends		1.03	%		0.76	%		0.73	%
Expected term (in years)		7.45			7.00			7.00
Risk-free rate		5.19	%		4.10	%		4.32	%

183

BFC Financial Corporation
Notes to Consolidated Financial Statements

The following is a summary of BankAtlantic Bancorp’s Class A common stock option activity:


				Weighted		Weighted Average
	Class A			Average		Remaining		Aggregate
	Outstanding			Exercise		Contractual Term		Intrinsic
	Options			Price		(in years)		Value ($000)

Outstanding at December 31, 2003		6,938,220		$	4.62			$	—
Exercised		(1,461,678	)		2.56				—
Forfeited		(77,797	)		8.15				—
Expired		—			—				—
Granted		776,100			18.20				—

Outstanding at December 31, 2004		6,174,845			6.79		5.4	$	—
Exercised		(923,140	)		2.52				—
Forfeited		(71,023	)		11.13				—
Expired		—							—
Granted		858,571			18.74				—

Outstanding at December 31, 2005		6,039,253			9.08		5.7	$	—
Exercised		(1,459,740	)		4.13				—
Forfeited		(259,776	)		13.58				—
Expired		(32,100	)		9.30				—
Granted		951,268			14.75				—

Outstanding at December 31, 2006		5,238,905		$	11.29		6.4	$	13,222

Exercisable at December 31, 2006		1,248,778		$	4.94		3.05	$	11,083

Available for grant at December 31, 2006		4,254,717

The weighted average grant date fair value of options granted during the years 2006, 2005 and 2004 was $5.99, $7.27, and $8.42, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005, and 2004, was $14.0 million, $14.2 million and $20.9 million, respectively.

Total unearned compensation cost related to BankAtlantic Bancorp’s unvested Class A common stock options was $11.2 million at December 31, ~~2004,~~2006. The cost is expected to be recognized over a weighted average period of 2.3 years.

During the years ended December 31, ~~2003~~2006, 2005 and ~~2002 was $2.63, $1.54~~2004, BankAtlantic Bancorp received net consideration of $6.0 million, $2.3 million and ~~$1.44, respectively. The weighted average~~$3.7 million, respectively, from the exercise of stock options. During the years ended December 31, 2006, 2005 and 2004, BankAtlantic Bancorp redeemed 528,896, 260,417 and 268,644 shares of Class A common stock as consideration for the payment of the exercise price of stock options ~~exercised~~and for the payment of the optionee’s minimum statutory withholding taxes amounting to $7.3 million, $4.7 million and $4.4 million.

184

BFC Financial Corporation
Notes to Consolidated Financial Statements

The following is a summary of BankAtlantic Bancorp’s Class A restricted common share activity:


	BankAtlantic Bancorp			Weighted
	Class A			Average
	Restricted			Grant date
	Stock			Fair Value
Outstanding at December 31, 2003		183,287		$	7.38
Vested		(19,500	)		7.17
Forfeited		—			—
Granted		—			—

Outstanding at December 31, 2004		163,787		$	7.40
Vested		(40,421	)		8.10
Forfeited		—			—
Granted		9,268			18.88

Outstanding at December 31, 2005		132,634		$	8.75
Vested		(34,826	)		11.12
Forfeited		—			—
Granted		31,389			14.74

Outstanding at December 31, 2006		129,197		$	8.79

As of December 31, 2006, approximately $951,000 of total unrecognized compensation cost was ~~$.51~~related to unvested restricted stock compensation. The cost is expected to be recognized over a weighted-average period of approximately 5 years. The fair value of shares vested during the years ended December 31, 2006, 2005 and 2004 ~~$0.47 during~~was $579,000, $980,000 and $433,000, respectively.

Levitt Restricted Stock and Stock Option Plan

On May 11, 2004, Levitt’s shareholders approved the 2003 Levitt Corporation Stock Incentive Plan (“Plan”). In March 2006, subject to shareholder approval, the Board of Directors of Levitt approved the amendment and ~~$1.05 during 2002.~~

~~The adoption~~restatement of ~~FAS 123~~Levitt’s 2003 Stock Incentive Plan to increase the maximum number of shares of Levitt’s Class A Common Stock, $0.01 par value, that may be issued for restricted stock awards and upon the exercise of options under the plan from 1,500,000 to 3,000,000 shares. Levitt’s shareholders approved the Amended and Restated 2003 Stock Incentive Plan on May 16, 2006.

The maximum term of options granted under the Plan is 10 years. The vesting period for each grant is established by Levitt’s Compensation Committee of the Board of Directors and for employees is generally five years utilizing cliff vesting and for directors the option awards are immediately vested. Option awards issued to date become exercisable based solely on fulfilling a service condition. Since the inception of the Plan there have been no expired stock options.

185

BFC Financial Corporation
Notes to Consolidated Financial Statements

The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on certain assumptions. The fair value of Levitt’s stock option awards, which are primarily subject to five year cliff vesting, is expensed over the vesting life of the stock options under the straight-line method.

The fair value of each option granted was estimated using the following assumptions:


	Year ended		Years ended
	December 31,		December 31, 2005 and
	2006		2004
Expected volatility		37.37%-39.80%		37.99%-50.35%
Expected dividend yield		0.39%-0.61%		0.00%-0.33%
Risk-free interest rate		4.57%-5.06%		4.02%-4.40%
Expected life	5-7.5 years		7.5 years
Forfeiture rate – executives		5%		—
Forfeiture rate – non-executives		10%		—

Expected volatility is based on the historical volatility of Levitt’s stock. Due to the short period of time Levitt has been publicly traded, the historical volatilities of similar publicly traded entities are reviewed to validate Levitt’s expected volatility assumption. The expected dividend yield is based on an expected quarterly dividend of $.02 per share. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield of US Treasury bonds on the date the stock option award is granted with a maturity equal to the expected term of the stock option award granted. The expected life of stock option awards granted is based upon the “simplified” method ~~would have increased~~for “plain vanilla” options contained in SEC Staff Accounting Bulletin No. 107. Due to the limited history of stock option activity, forfeiture rates are estimated based on historical employee turnover rates.

Levitt’s non-cash stock compensation expense byfor the year ended December 31, 2006 related to unvested stock options amounted to $3.1 million, with an expected or estimated income tax benefit of $849,000. At December 31, 2006, Levitt had approximately ~~$487,000, $355,000 and $177,000~~$10.2 million of unrecognized stock compensation expense related to outstanding stock option awards which is expected to be recognized over a weighted-average period of 3.5 years.

Stock option activity under the Plan for the year ended December 31, 2006 was as follows:


			Weighted		Weighted Average	Aggregate
			Average		Remaining	Intrinsic
	Number of		Exercise		Contractual	Value
	Options		Price		Term	(thousands)
Options outstanding at December 31, 2005		1,305,176	$	25.59		$	—
Granted		759,655		13.53			—
Exercised		—		—			—
Forfeited		172,650		25.79			—

Options outstanding at December 31, 2006		1,892,181	$	20.73	8.33 years	$	—

Vested and expected to vest in the future at December 31, 2006		1,558,860	$	20.73	8.34 years	$	—

Options exercisable at December 31, 2006		99,281	$	19.56	8.28 years	$	—

Stock available for equity compensation grants at December 31, 2006		1,107,819

186

BFC Financial Corporation
Notes to Consolidated Financial Statements

A summary of Levitt’s non-vested shares activity for the years ended December 31, 2005 and 2006 was as follows:


			Weighted Average		Weighted Average		Aggregate Intrinsic
			Grant Date		Remaining		Value
	Shares		Fair Value		Contractual Term		(in thousands)
Non-vested at December 31, 2005		1,250,000	$	13.44		—		—
Grants		759,655		6.44
Vested		44,105		6.33
Forfeited		172,650		12.98				—

Non-vested at December 31, 2006		1,792,900	$	10.70	8.28 years		$	—

The following table summarizes Levitt’s stock options activity as of December 31, 2006:


	Options Outstanding				Options Exercisable
			Remaining
Range of	Number of		Contractual Life
Exercise Price	Stock Options		(in years)		Options		Exercise Price
$9.64-$12.85		15,000		9.85		—		—
$12.86-$16.07		658,300		9.46		—		—
$16.08-$19.28		51,605		9.50		44,105	$	16.09
$19.29-$22.49		612,100		7.11		45,000	$	20.15
$22.50-$25.70		70,750		6.89		—		—
$25.71-$32.13		484,426		8.39		10,176	$	31.95

		1,892,181		8.33		99,281	$	9.56

Levitt also grants restricted stock, which is valued based on the market price of the common stock on the date of grant. Compensation expense arising from restricted stock grants is recognized using the straight-line method over the vesting period. Unearned compensation for restricted stock is a reduction of shareholders’ equity in the consolidated statements of financial condition. During the year ended December 31, 2004, ~~2003~~Levitt granted no restricted stock. During the year ended December 31, 2005, Levitt granted 6,887 restricted shares of Class A common stock to non-employee directors under the Plan, having a market price on date of grant of $31.95. During the year ended December 31, 2006, Levitt granted 4,971 restricted shares of Class A common stock to non-employee directors under the Plan, having a market price on date of grant of $16.09. The restricted stock vests monthly over a 12 month period. Levitt’s non-cash stock compensation expense for the year ended December 31, 2006 and ~~2002,~~2005 related to restricted stock awards amounted to $150,000 and $110,000, respectively.

Levitt’s total non- cash stock compensation expense related to stock options and restricted stock awards for the years ended December 31, 2006 and 2005 amounted to $3.3 million and $110,000, respectively. Stock compensation expense is included in selling, general and administrative expenses in the audited consolidated statements of operations.

22. Pension, Profit Sharing Plan, 401(k) Plans and Deferred Retirement Agreement

BFC

BFC Defined Contribution 401(k) Plan

During 2006, the BFC 401(k) Plan was merged into the BankAtlantic 401(k) Plan. The ~~option model used~~BankAtlantic 401(k) Plan is a defined contribution plan established pursuant to ~~calculate~~Section 401(k) of the ~~FAS 123 compensation adjustment~~Internal Revenue Code. Employees who have completed 90 days of service and have reached the age of 18 are eligible to participate. Employer match was 100% of the ~~Black-Scholes model with~~first 3% of employee contributions and 50% of the ~~following grant date fair values and assumptions:~~

Number of Risk Free Expected Expected
Date of Options Grant Date Type of Exercise Interest Life Expected Dividend
Grant Granted Fair Value Grant Price Rate (Years) Volatility Yield
07/01/97 473,801 $ 0.58 * $ 1.45 5.80 % 6.0 27.40 % 0 %
07/01/97 2,105,718 $ 0.53 NQ $ 1.59 5.80 % 6.0 27.40 % 0 %
01/13/98 1,474,018 $ 2.09 * $ 3.68 5.53 % 7.5 44.46 % 0 %
04/06/99 505,394 $ 1.78 * $ 2.14 5.28 % 7.5 92.21 % 0 %
02/07/03 547,525 $ 1.29 * $ 1.84 4.50 % 7.0 72.36 % 0 %
01/05/04 29,301 $ 4.68 * $ 7.68 4.40 % 7.5 53.36 % 0 %
07/28/04 262,501 $ 6.02 * $ 8.40 4.61 % 10.0 57.63 % 0 %
10/04/04 12,500 $ 4.32 * $ 8.40 3.44 % 5.0 56.06 % 0 %

~~Both non-qualified and incentive stock options were granted.~~

~~The~~next 2% of employee ~~turnover was considered~~contributions. During the year ended December 31, 2006, the Company’s contributions amounted to ~~be none.~~

$147,000.

~~F-56~~187

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~The following table summarizes information about stock options outstanding at December 31, 2004:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
$1.45 to $1.68 2,449,441 2.5 years $ 1.57 2,449,441 $ 1.57
$1.68 to $2.52 1,030,294 6.3 years $ 1.97 517,867 $ 2.11
$3.36 to $4.20 1,452,958 2.9 years $ 3.68 1,452,958 $ 3.68
$7.68 to $8.40 307,427 9.4 years $ 8.33 25,000 $ 8.40

5,240,120 3.8 years $ 2.63 4,445,266 $ 2.36

~~The following table summarizes information about stock options outstanding at December 31, 2003:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
$0.44 to $.84 3,435,393 .7 years $ 0.45 3,435,393 $ 0.45
$.84 to $1.68 2,470,718 3.5 years $ 1.57 2,470,718 $ 1.57
$1.68 to $2.52 1,052,923 7.2 years $ 1.98 42,120 $ 1.84
$3.36 to $3.68 1,495,078 3.9 years $ 3.68 1,495,078 $ 3.68

8,454,112 2.9 years $ 1.54 7,443,309 $ 1.48

~~The following table summarizes information about stock options outstanding at December 31, 2002:~~

Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
$0.43 to $.84 4,040,615 1.6 years $ 0.46 4,040,615 $ 0.46
$.84 to $1.68 2,470,718 4.5 years $ 1.57 2,470,718 $ 1.57
$1.68 to $2.52 498,376 6.2 years $ 2.14 — $ —
$3.36 to $3.68 1,495,078 4.9 years $ 3.68 1,495,078 $ 3.68

8,504,787 3.3 years $ 1.44 8,006,411 $ 1.40

~~F-57~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

BFC Profit Sharing Plan

The Company ~~has~~had an employee’s profit sharing plan which ~~provides~~provided for contributions to a fund of a defined amount, but not to exceed the amount permitted under the Internal Revenue Code as deductible expense. The provision charged to operations was approximately $50,000 for each of the years ended December 31, ~~2004, 2003~~2005 and ~~2002. Contributions are funded~~2004. No contributions were made in 2006.

BFC Deferred Retirement Agreement

On September 13, 2005 the Company entered into an agreement with the Company’s Chief Financial Officer, pursuant to which the Company has agreed to pay him a monthly retirement benefit of $5,672 beginning January 1, 2010, regardless of his actual retirement date. The monthly payment will continue through his life or until such time as at least 120 monthly payments have been made to him and his beneficiaries. However, as permitted by the agreement, he may elect to choose an available actuarially equivalent form of payment. The Company’s obligation under the agreement is unfunded. In September 2005, the Company recorded the present value of the retirement benefit payment in the amount of $482,444. The Company will recognize monthly the amortization of interest on ~~a current basis.~~

the retirement benefit as compensation expense. At December 31, 2006 and 2005, the retirement benefit obligation included in other liabilities in the Company’s Consolidated Statements of Financial Condition was approximately $526,000 and $493,000, respectively. The compensation expense of approximately $33,000 and $493,000, for the years ended December 31, 2006 and 2005, respectively, is included in BFC Activities Employee Compensation and Benefits in the Company’s Consolidated Statements of Operations.

BankAtlantic Bancorp

~~BankAtlantic~~Defined Benefit Pension Plan:

At December 31, 1998, BankAtlantic ~~Bancorp~~ froze its defined benefit pension plan ~~(the “Pension~~(“ the Plan”). All participants in the ~~Pension~~ Plan ceased accruing service benefits beyond that date and became vested. BankAtlantic ~~Bancorp~~ is subject to future pension expense or income based on future actual plan returns and actuarial values of the ~~Pension~~ Plan obligations to employees.

The following tables set forth the ~~Pension~~ Plan’s funded status and the minimum pension liability ~~or prepaid pension cost~~at December 31, 2006 and 2005 included in the consolidated statements of financial condition at (in thousands):

December 31,
2004 2003
Projected benefit obligation at the beginning of the year $ 23,094 $ 22,276
Interest cost 1,508 1,485
Actuarial loss 2,421 148
Benefits paid (789 ) (815 )

Projected benefit obligation at end of year $ 26,234 $ 23,094

December 31,
2004 2003
Fair value of the Pension Plan assets at the beginning of year $ 23,927 $ 17,860
Actual return on the Pension Plan assets 1,959 6,132
Employer contribution — 750
Benefits paid (789 ) (815 )

Fair value of the Pension Plan assets as of actuarial date $ 25,097 $ 23,927


	December 31,
	2006			2005
Projected benefit obligation at the beginning of the year	$	29,381		$	26,234
Interest cost		1,624			1,565
Actuarial loss (gain)		(557	)		2,361
Benefits paid		(828	)		(779	)

Projected benefit obligation at end of year	$	29,620		$	29,381

December 31,
2004 2003
Actuarial present value of projected benefit obligation for service rendered to date $ (26,234 ) $ (23,094 )
Pension Plan assets at fair value as of the actuarial date 25,097 23,927
(Unfunded) funded accumulated benefit obligation (1) (1,137 ) 833
Unrecognized net loss (gain) from past experience different from that assumed and effects of changes in assumptions 7,661 5,924

Prepaid pension cost(2) $ 6,524 $ 6,757


	December 31,
	2006			2005
Fair value of Plan assets at the beginning of year	$	26,151		$	25,097
Actual return on Plan assets		3,303			1,833
Employer contribution		—			—
Benefits paid		(828	)		(779	)

Fair value of Plan assets as of actuarial date	$	28,626		$	26,151

188

BFC Financial Corporation
Notes to Consolidated Financial Statements


	December 31,
	2006			2005
Actuarial present value of projected benefit obligation for service rendered to date	$	(29,620	)	$	(29,381	)
Plan assets at fair value as of the actuarial date		28,626			26,151

Unfunded accumulated benefit obligation (1)		(994	)		(3,230	)
Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions		7,315			9,917

Prepaid pension cost (2)	$	6,321		$	6,687


(1)		The measurement date for the ~~accumulated~~projected benefit obligation was December 31, ~~2004~~2006 and ~~2003.~~2005. The ~~December 31, 2004~~ unfunded accumulated benefit obligation was recorded in other liabilities in the Company’s consolidated statement of financial condition.

(2)		The ~~December 31, 2003 prepaid pension cost was recorded in other assets in the Company’s consolidated statement of financial condition. In 2004, the~~ prepaid pension cost was reversed into other comprehensive income and a minimum pension liability was recorded for the unfunded accumulated benefit ~~obligation.~~obligation at December 31, 2005.

For the ~~year~~years ended December 31, ~~2004, BankAtlantic Bancorp recorded~~2006 and 2005, a minimum pension liability was recorded in other comprehensive income associated with the unfunded accumulated benefit obligation as follows (in thousands):

~~F-58~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

December 31,
2006 2005
Net periodic pension expense $ 367 $ 163
Change in minimum pension liability 2,236 (2,094 )
Change in deferred tax assets (1,204 ) 942

Increase (decrease) in BankAtlantic Bancorp other comprehensive income $ 1,399 $ (989 )

Amount
Change in prepaid pension cost in other assets $ (6,524 )
Minimum pension liability in other liabilities (1,137 )
Change in deferred tax assets 2,758

Decrease in other comprehensive income $ (4,903 )

Net pension expense ~~(benefit)~~ includes the following components (in thousands):


	For the Years Ended December 31,									For the Years Ended December 31,
	2004			2003			2002			2006			2005			2004
Service cost benefits earned during the period	$	—		$	—		$	—
Interest cost on projected benefit obligation		1,508			1,485			1,424		$	1,624		$	1,565		$	1,508
Expected return on plan assets		(1,998	)		(1,470	)		(1,989	)		(2,190	)		(2,100	)		(1,998	)
Amortization of unrecognized net gains and losses		723			1,212			314			933			698			723

Net periodic pension expense (benefit)(1)	$	233		$	1,227		$	(251	)
Net periodic pension expense (1)										$	367		$	163		$	233

~~(1) Periodic pension expense (benefit) is included as an increase/decrease in compensation expense.~~


(1)		Periodic pension expense is included as an increase in compensation expense.

The actuarial assumptions used in accounting for the ~~Pension~~ Plan were:


	For the Years Ended									For the Years Ended
	December 31,									December 31,
	2004			2003			2002			2006			2005			2004
Weighted average discount rate		6.00	%		6.75	%		6.75	%		5.75	%		5.50	%		6.00	%
Rate of increase in future compensation levels		N/A			N/A			N/A			N/A			N/A			N/A
Expected long-term rate of return		8.50	%		8.50	%		9.00	%		8.50	%		8.50	%		8.50	%

Actuarial estimates and assumptions are based on various market factors and are evaluated on an annual basis, and changes in such assumptions may impact future pension costs. The discount rate assumption is based on rates of high quality corporate bonds, and the ~~reduction~~increase in the discount rate at December 31, ~~2004~~2006 reflects ~~historically low interest~~higher corporate bond rates at December 31, 2006 compared to corporate bond rates at December 31, 2005. The expected long-term rate ~~trends related to these bonds.~~of return was estimated using historical long-term returns based on the expected asset allocations. Current participant data was used for the actuarial

189

BFC Financial Corporation
Notes to Consolidated Financial Statements

assumptions for each of the three years ended December 31, ~~2004. BankAtlantic Bancorp contributed $750,000 to the Pension Plan during the year ended December 31, 2003.~~2006. BankAtlantic Bancorp did not make any contributions to the ~~Pension~~ Plan during the years ended December 31, ~~2004~~2006 and ~~2002. BankAtlantic Bancorp~~2005 nor will ~~not be~~it required to contribute to the ~~Pension~~ Plan for the year ending December 31, ~~2005.~~

2007.

BankAtlantic Bancorp’s pension plan weighted-average asset allocations at December 31, ~~2004~~2006 and ~~2003~~2005 by asset category are as follows:


	Pension Plan Allocation						Plan Assets
	At December 31,						At December 31,
	2004			2003			2006			2005
Equity securities		76.62	%		57.45	%		74.66	%		76.19	%
Debt securities		21.57			38.13			20.87			20.54
Cash		1.81			4.42			4.47			3.27

Total		100.00	%		100.00	%		100.00	%		100.00	%

The ~~Pension~~ Plan’s investment policies and strategies are to invest in mutual funds that are rated with at least a 3-star rating awarded by Morningstar at the initial purchase. If a fund’s Morningstar rating falls below a 3-star rating after an initial purchase, it is closely monitored to ensure that its under-performance can be attributed to market conditions rather than fund management deficiencies. Fund ~~manger~~manager changes or changes in fund objectives could be cause for replacement of any mutual fund. The ~~Pension~~ Plan also maintains an aggressive growth investment category which includes investments in equity securities and mutual funds. Both public and private securities are eligible for this category of investment, but no more than 5% of total ~~Pension~~ Plan assets at the time of the initial investment may be invested in any one company. Beyond the initial

~~F-59~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

cost limitation (5% at time of purchase), there will be no limitation as to the percentage that any one investment can represent if it is achieved through growth. As a means to reduce negative market volatility, and to invoke a sell discipline for concentrated positions, the ~~Pension~~ Plan has a strategy of selling call options against certain stock positions within the portfolio when considered timely. At December 31, ~~2004, 9.6%~~2006, 8.7% of the ~~Pension~~ Plan’s assets were invested in the aggressive growth category.

The ~~Pension~~ Plan’s targeted asset allocation is ~~68%~~75% equity securities, ~~30%~~20% debt securities and 2%5% cash during the year ended December 31, ~~2005.~~2006. A rebalancing of the portfolio takes place on a quarterly basis when there has been a 5% or greater change from the prevailing benchmark allocation.

The following benefit payments ~~which reflect expected future service, as appropriate,~~ are expected to be paid (in thousands):

Pension
Expected Future Service Benefits
2005 $ 821
2006 895
2007 920
2008 989
2009 1,180
Years 2010-2014 $ 7,297


		Pension
Expected Future Service		Benefits
	2007	$	938
	2008		1,008
	2009		1,212
	2010		1,415
	2011		1,433
	Years 2012-2016		8,330

~~There are large increases in annual benefit payouts expected in 2009 and 2010 when four key employees reach normal retirement age.~~

~~BankAtlantic~~Defined Contribution 401(k) Plan:

The table below outlines the terms of the BankAtlantic Bancorp Security Plus 401(k) Plan and the associated employer costs (dollars in thousands):

For the Years Ended December 31,
2004 2003 2002
Employee Salary Contribution Limit (1) $ 13 $ 12 $ 11
Percentage of Salary Limitation 75 % 75 % 75 %
Total Match Contribution (2) $ 1,790 $ 1,558 $ 1,800
Vesting of Employer Match Immediate Immediate Immediate


	For the Years Ended December 31,
	2006			2005			2004
Employee salary contribution limit (1)	$	15		$	14		$	13
Percentage of salary limitation		75	%		75	%		75	%
Total match contribution (2)	$	2,461		$	2,037		$	1,790
Vesting of employer match	Immediate			Immediate			Immediate

190

BFC Financial Corporation
Notes to Consolidated Financial Statements


(1)		For the ~~2004, 2003~~2006, 2005 and ~~2002~~2004 plan year, employees over the age of 50 were entitled to contribute ~~$16,000, $14,000~~$20,000, $18,000 and ~~$12,000,~~$16,000, respectively.

(2)		The employer matched 100% of the first 3% of employee contributions and 50% of the next 2% of employee contributions.

~~BankAtlantic~~ Profit Sharing Plan

At January 1, 2003, BankAtlantic established the BankAtlantic Profit Sharing Stretch Plan ~~(the “Plan”)~~ for all employees of BankAtlantic and its subsidiaries. The profit sharing awards are paid in cash quarterly and are based on achieving specific performance goals. Included in employee compensation ~~expense~~and benefits in the consolidated statement of operations during the years ended December 31, 2006, 2005 and 2004 ~~and 2003~~ was ~~$5.7~~$4.4 million, $4.4 million and ~~$3.6~~$5.7 million, respectively, of expenses associated with the ~~Plan.~~

~~Ryan Beck Plans~~:

~~Retirement Plans~~

As of December 31, 2004 and 2003, Ryan Beck maintains one retirement plan for eligible employees, the 401(k) Savings Plan. In 2002 Ryan Beck maintained two retirement plans for eligible employees, the 401(k) Savingsplan.

Levitt 401 (K) Plan ~~and the Money Purchase Pension Plan.~~
~~F-60~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

Ryan Beck maintained a nonvoluntary Money Purchase Pension Plan to which Ryan Beck contributed in 2002, 5% of an employee’s eligible earnings, subject to certain limitations. Contributions to the Ryan Beck Money Purchase Pension Plan totaled $729,000 during the year ended December 31, 2002. The Ryan Beck Money Purchase Pension Plan was liquidated into the Ryan Beck 401(k) Savings Plan during 2003.

Ryan Beck’s employees may contribute up to 25% of their eligible earnings, subject to certain limitations, to the 401(k) Savings Plan. In 2004 and 2003, Ryan Beck began an employer match of 50% on the first 6% of contributions for salaried employees. Additionally, Ryan Beck awarded an additional 2% and 1% of contributions for salaried employees as a discretionary match during 2004 and 2003, respectively. Included in employee compensation and benefits on the consolidated statement of operations was $1.6 million, $332,420 and $0 of expenses and employer contributions related to the 401(k) Savings Plan during the years ended December 31, 2004, 2003 and 2002, respectively.

Effective January 1, 2004, the RB Holdings, Inc. Supplemental Executive Retirement Plan was established. Retirement benefits of $2.3 million under the plan are payable in equal monthly installments over 120 months commencing at retirement. Normal retirement is at age 60. If the participant retires early or has an involuntary termination without cause, or for good reason or change in control the participant shall be entitled to receive an amount equal to his/her retirement benefit multiplied by 10% for each year of participation in the Plan not to exceed 10 years.

~~Deferred Compensation Plans~~

During the year ended December 31, 2002, Ryan Beck established the Ryan Beck & Co., Inc. Voluntary Deferred Compensation Plan for certain employees whereby the employee may elect to defer a portion of his or her compensation for a minimum of 3 years or until retirement. These contributions are fully vested. The obligations under the terms of this plan are not required to be funded. The obligations are unsecured general obligations to pay, in the future, the value of the deferred compensation, adjusted to reflect the performance of selected measurement options chosen by each participant. Ryan Beck has elected to invest in the mutual fund options chosen by the participants to manage the market risk of this obligation. For the years ended December 31, 2004, 2003 and 2002 the deferred compensation obligation payable under this plan totaled $17.0 million, $13.8 million and $9.7 million, respectively. During the year ended December 31, 2004 and 2003, Ryan Beck realized compensation expense of $3.1 million and $3.0 million, respectively, associated with the increase in the deferred compensation plan obligations. During the year ended December 31, 2002, Ryan Beck realized a $1.5 million reduction in compensation expense associated with the decrease in the plan obligation.

During 2002, Ryan Beck amended the Ryan Beck & Co., Inc. Supplemental Bonus Plan whereby Ryan Beck may establish incentive deferred compensation which vests over multiple years. During the years ended December 31, 2004, 2003, and 2002, Ryan Beck awarded deferred bonuses under this Plan of $1.0 million, $0, and $1.5 million respectively. The 2002 awards vest and are payable 25% per year and the 2004 awards vest and are payable in three equal installments on the first business day in January 2006, 2007 and 2008.

~~2002 Retention Program~~

In connection with the Gruntal transaction, a nonqualified deferred compensation plan was assumed by Ryan Beck covering select employees of Gruntal. Gruntal provided an annual contribution which would vest if the employee remained employed for ten years from the contribution date. All unvested amounts will vest no later than 2011. The Gruntal nonqualified deferred compensation plan was merged into the Ryan Beck & Co., Inc. Voluntary Deferred Compensation Plan during 2002.

In July 2002, Ryan Beck established a retention plan for certain financial consultants, key employees and others. During 2003 Ryan Beck expanded this plan to recruit financial consultants. Pursuant to this plan the participants received forgivable notes of $8.0 million, $6.3 million and $10.5 million during the years ended December 31, 2004, 2003 and 2002, respectively. Each forgivable note will have a term of five years. A pro-rata portion of the principal amount of the note is forgiven each month over the five or seven year term. If a participant terminates employment with Ryan Beck prior to the end of the term of the Note, the outstanding balance becomes immediately due to Ryan Beck. Ryan Beck acquired $15.1 million of forgivable notes in connection with the Gruntal transaction. Included in other assets at December 31, 2004 and 2003 were $16.7 million and $15.1 million, respectively, of forgivable notes. Included in compensation expense for the year ended December 31, 2004, 2003 and 2002 was $5.4 million, $4.9 million and $3.7 million, respectively, of forgivable note amortization.

~~F-61~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Levitt Plans:~~

~~Performance-Based Annual Incentive Plan~~

On May 11, 2004, Levitt’s shareholders approved the Levitt Corporation 2004 Performance-Based Annual Incentive Plan. The purpose of the plan is to advance the interests of Levitt and its shareholders by providing certain key executives with annual incentive compensation which is tied to the achievement of performance goals. The amount accrued as of December 31, 2004 for payment under the plan was approximately $731,000, which is included in other liabilities in the accompanying statement of financial condition.

~~401(k) Plan~~

Levitt has a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code. Employees ~~that~~who have completed three months of service and have reached the age of 18 are eligible to participate. During the years ended December 31, ~~2003~~2006, 2005, and ~~2002, Levitt’s employees participated the BankAtlantic Security Plus Plan and Levitt’s contributions amounted to $495,000 and $344,000 respectively. During the year ended December 31,~~ 2004, Levitt’s employees participated in the Levitt Corporation Security Plus Plan and Levitt’s contributions amounted to ~~$857,000. These amounts are included in selling, general~~$1.3 million, $1.1 million, and ~~administrative expense in the accompanying consolidated statements of operations.~~

~~17.~~$857,000, respectively.

23. Commitments and Contingencies

The Company is a lessee under various operating leases for real estate and equipment extending to the year 2072. The approximate minimum future rentals under ~~such~~non-cancellable leases with a remaining term of at least one year at December 31, ~~2004,~~2006, for the periods shown are as follow (in thousands):

Year Ending December 31, Amount
2005 $ 14,227
2006 12,595
2007 10,565
2008 8,511
2009 6,932
Thereafter 22,786

Total $ 75,616

For the Years Ended December 31,
(In thousands) 2004 2003 2002
BFC rent expense $ 46 $ 31 $ 31

BankAtlantic Bancorp rental expense for premises and equipment $ 18,885 $ 17,697 $ 16,327

Levitt rent expense $ 1,281 $ 875 $ 435


Year Ending December 31,	Amount

2007	$	10,953
2008		10,871
2009		9,086
2010		7,365
2011		6,038
Thereafter		52,534

Total	$	96,847

~~F-62~~


	For the Years Ended December 31,
(In thousands)	2006		2005		2004
Rental expense for premises and equipment	$	13,037	$	8,211	$	6,992

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~Financial instruments with off-balance sheet risk were (in thousands):~~

December 31,
2004 2003
Commitments to sell fixed rate residential loans $ 19,537 $ 12,962
Commitments to sell variable rate residential loans 6,588 3,740
Forward contract to purchase mortgage-backed securities 3,947 8,611
Commitments to purchase fixed rate residential loans — 40,242
Commitments to purchase variable rate residential loans 40,015 3,500
Commitments to originate loans held for sale 21,367 14,271
Commitments to originate loans held to maturity 238,429 370,071
Commitments to extend credit, including the undisbursed portion of loans in process 1,170,191 1,034,467
Standby letters of credit 55,605 31,722
Commercial lines of credit 121,688 162,623
Commitment to acquire Benihana Preferred Stock 10,000 —

Other than the Benihana Preferred Stock commitment, BFC did not directly have any financial instruments with off-balance sheet risk and the remaining instruments indicated above are those of our controlled entities, BankAtlantic Bancorp and Levitt and their affiliates and are all non-recourse to BFC.

In the normal course of its business, ~~BankAtlantic~~the Company is a party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit and to issue standby and documentary letters of credit. Those instruments involve, to varying degrees, elements of credit risk. BankAtlantic’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. BankAtlantic uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

191

BFC Financial Corporation
Notes to Consolidated Financial Statements

Commitments and Financial instruments with off-balance sheet risk were (in thousands):


	December 31,		December 31,
	2006		2005
BFC Activities
Guaranty agreements	$	34,396	$	21,660
Financial Services
Commitments to sell fixed rate residential loans		30,696		13,634
Commitments to sell variable rate residential loans		2,921		4,438
Commitments to purchase variable rate residential loans		69,525		6,689
Commitments to originate loans held for sale		26,346		16,220
Commitments to originate loans held to maturity		223,060		311,081
Commitments to extend credit, including the undisbursed portion of loans in process		890,036		1,151,054
Commitments to purchase branch facilities land		11,180		5,334
Standby letters of credit		67,831		67,868
Commercial lines of credit		86,992		119,639
Homebuilding & Real Estate Development
Levitt’s commitments to purchase properties for development		14,200		186,200

BFC Activities

BFC has entered into guaranty agreements in connection with the purchase of two shopping centers in South Florida by two separate limited liability companies. A wholly owned subsidiary of CCC has a one percent non-managing general partner interest in a limited partnership that has a 15 percent interest in each of the limited liability companies. Pursuant to the guaranty agreements, BFC has guaranteed amounts on two nonrecourse loans. BFC’s maximum exposure under the guaranty agreements is estimated to be approximately $21.4 million, the full amount of the indebtedness. Based on the value of the assets securing the indebtedness, it is reasonably likely that no payment will be required by BFC under the guaranty. As non-managing general partner of the limited partnership and managing member of the limited liability companies, CCC does not control or have the ability to make major decisions without the consent of all partners.

In March 2006, BFC invested $1.0 million in a real estate limited partnership which represents an 8% limited partnership interest in the Partnership. A subsidiary of CCC also has a 10% interest in the limited partnership as a non-managing general partner. The Partnership owns an office building located in Boca Raton, Florida and in connection with the purchase, CCC guaranteed a portion of the nonrecourse loan on the property. CCC’s maximum exposure under the guaranty agreement is $8.0 million representing approximately one-third of the current indebtedness of the commercial property. Based on the value of the limited partnership assets securing the indebtedness, it is reasonably likely that no payment by CCC will be required under the guaranty. The Company’s $1.0 million investment is included in other assets in the Company’s Consolidated Statements of Financial Condition.

A wholly owned subsidiary of CCC (“CCC East Tampa”) and an unaffiliated third party entered into a joint venture to purchase two commercial properties in Hillsborough County, Tampa, Florida. CCC East Tampa has a 10% interest in the joint venture and is the managing member with an initial contribution of approximately $765,500 and the unaffiliated member has a 90% interest in the joint venture by contributing approximately $6,889,500. In December 2006, the joint venture purchased the commercial properties in the aggregate amount of $29.8 million and in connection with the purchase, BFC and the unaffiliated member each guarantee certain amounts on the nonrecourse loan with a maximum exposure under the guaranty agreement estimated at approximately $5.0 million for BFC and $5.0 million for the unaffiliated member. The BFC guaranty represents approximately twenty-one percent of the current indebtedness of the commercial property. However, based on the assets securing the indebtedness, it is reasonably likely that no payment will be required under the agreements. CCC does not control or have the ability to make major decisions without the consent of all partners. CCC East Tampa $765,500 investment is included in other assets in the Company’s Consolidated Statements of Financial Condition.

Other than these guarantees, the remaining instruments indicated in the table are direct commitments of BankAtlantic Bancorp or Levitt and their subsidiaries.

192

BFC Financial Corporation
Notes to Consolidated Financial Statements

Financial Services

Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BankAtlantic has ~~$28.5~~$80 million of commitments to extend credit at a fixed interest rate and ~~$1.4~~$1.1 billion of commitments to extend credit at a variable rate. BankAtlantic evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral required by BankAtlantic in connection with an extension of credit is based on management’s credit evaluation of the counter-party.

Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. BankAtlantic standby letters of credit are generally issued to customers in the construction industry guaranteeing project performance. These types of standby letters of credit had a maximum exposure of ~~$36.7~~$50.4 million at December 31, ~~2004.~~2006. BankAtlantic also issues standby letters of credit to commercial lending customers guaranteeing the payment of goods and services. These types of standby letters of credit had a maximum exposure of ~~$18.9~~$17.4 million at December 31, ~~2004.~~2006. Those guarantees are primarily issued to support public and private borrowing arrangements and generally have maturities of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. BankAtlantic may hold certificates of deposit and residential and commercial liens as collateral for such commitments which are collateralized similar to other types of borrowings. Included in other liabilities at December 31, ~~2004~~2006 was ~~$114,000~~$44,000 of unearned guarantee fees. There were no obligations recorded in the financial statements associated with these guarantees.

BankAtlantic is required to maintain reserve balances with the Federal Reserve Bank. Such reserves consisted of cash and amounts due from banks of ~~$51.3~~$58.2 million and ~~$50.1~~$60.8 million at December 31, ~~2004~~2006 and ~~2003,~~2005, respectively.

As a member of the FHLB system, BankAtlantic is required to purchase and hold stock in the FHLB of Atlanta. As of December 31, ~~2004~~2006 BankAtlantic was in compliance with this requirement, with an investment of approximately ~~$78.6~~$80.2 million in stock of the FHLB of Atlanta.

~~F-63~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

During the year ended December 31, 2004 BankAtlantic ~~is taking steps to correct~~ identified deficiencies in its compliance with the USA PATRIOT Act, anti-money laundering laws and the Bank Secrecy Act (“AML-BSA”) and ~~has been cooperating~~cooperated with its regulators and other federal agencies concerning those deficiencies. ~~BankAtlantic cannot predict whether or to what extent monetary or other~~Management established a $10 million reserve as of December 31, 2005 for fines and penalties ~~will be imposed by its regulators or other federal~~from government agencies ~~relating~~with respect to these compliance ~~deficiencies. No amount has been recorded at December 31, 2004~~matters and the $10 million fine was paid in April 2006. In connection with the ~~accompanying financial statements~~payment of the fine, BankAtlantic entered into a deferred prosecution agreement with the U.S. Department of Justice and simultaneously entered into a cease and desist order with the Office of Thrift Supervision (OTS) and a consent agreement with the Financial Crimes Enforcement Network (FinCEN) relating to ~~possible penalties from federal agencies.~~

deficiencies in its compliance with the Bank Secrecy Act. The Department of Justice deferred prosecution agreement will expire if BankAtlantic ~~Bancorp through~~complies with the obligations under the deferred prosecution agreement for a period of twelve months. While BankAtlantic believes that it has appropriate policies and procedures in place to maintain full compliance with the terms of the Department of Justice agreement and the OTS order, compliance with the Bank Secrecy Act is inherently difficult and there is no assurance that BankAtlantic will remain in full compliance with the Bank Secrecy Act or the terms of the Department of Justice agreement or the OTS order. Management believes that BankAtlantic is currently in compliance with all AML-BSA laws and regulations.

Pursuant to the Stifel Financial Corp merger agreement the Company indemnified Stifel and its ~~ownership~~affiliates against any claims of any third party losses attributable to disclosed or undisclosed liabilities that arise out of the conduct or activities of Ryan Beck ~~is subject~~prior to the ~~risks~~Stifel acquisition of ~~investment banking.~~ Ryan ~~Beck’s customers’ securities transactions are introduced on a fully disclosed basis to its clearing broker.~~Beck. The ~~clearing broker carries all~~indemnification of the ~~accounts~~third party losses is limited to those losses which individually exceed $100,000, and in the aggregate exceed $5 million with a $20 million limitation on the indemnity. The indemnified losses include federal taxes and litigation claims.

Homebuilding & Real Estate Development

Levitt is obligated to fund homeowner association operating deficits incurred by its communities under development. This obligation ends upon turnover of the ~~customers~~association to the residents of ~~Ryan Beck~~the community.

Tradition Development Company, LLC, a wholly-owned subsidiary of Core Communities (“TDC”), entered into an advertising agreement with the operator of a Major League Baseball team pursuant to which, among other advertising rights, TDC obtained royalty-free license to use, among others, the trademark “Tradition Field” at the sports complex located in Port

193

BFC Financial Corporation
Notes to Consolidated Financial Statements

St. Lucie and ~~is responsible for execution, collection and~~the naming rights to that complex. Unless otherwise renewed, the agreement terminates on December 31, 2013; provided, however, upon payment of ~~funds,~~a specified buy-out fee and receipt and delivery of securities relative to customer transactions. Customers’ securities activities are transacted on a cash and margin basis. These transactions may expose Ryan Beck to off-balance-sheet risk, wherein the clearing broker may charge Ryan Beck for any losses it incurs in the event that customers may be unable to fulfill theircompliance with other contractual commitments and margin requirements are not sufficient to fully cover losses. As the right to charge Ryan Beck has no maximum amount and applies to all trades executed through the clearing broker. Ryan Beck believes there is no maximum amount assignable to this right. At December 31, 2004, Ryan Beck recorded liabilities of approximately $188,000 with regard to this right. Ryan beckprocedures, TDC has the right to ~~pursue collection~~terminate the agreement on or ~~performance from~~after December 31, 2008. Required cumulative payments under the ~~counter parties who do not perform under their contractual obligations. Ryan Beck seeks to minimize this risk~~agreement through ~~procedures designed to monitor the creditworthiness of its customers and ensure that customer transactions~~December 31, 2013 are ~~executed properly by the clearing broker.~~

Ryan Beck, in its capacity as a market-maker and dealer in corporate and municipal fixed-income and equity securities, may enter into transactions in a variety of cash and derivative financial instruments in order to facilitate customer order flow and hedge market risk exposures. These financial instruments include securities sold, but not yet purchased and future contracts. Securities sold, but not yet purchased represent obligations of BankAtlantic Bancorp to deliver specified financial instruments at contracted prices, thereby creating a liability to purchase the financial instrument in the market at prevailing prices. Accordingly, these transactions result in off-balance-sheet risk as BankAtlantic Bancorp’s ultimate obligation may exceed the amount recognized in the Consolidated Statement of Financial Condition.

approximately $2.3 million.

Levitt is subject to obligations associated with entering into contracts for the purchase, development and sale of real estate in the routine conduct of its business. At December 31, ~~2004,~~2006, Levitt had ~~commitments~~a commitment to purchase ~~properties~~property for development for an agreed upon price of ~~$208.3 million, of which approximately $107.6 million is subject~~$14.2 million. The table below summarizes certain information relating to ~~due diligence and satisfaction of certain requirements and conditions, as well as the obtaining of financing.~~Levitt’s outstanding purchase contracts:

Purchase

Units/

Expected

Price

Acres

Closing

(unaudited)

Homebuilding Division

$14.2 million

690 Units

2007

At December 31, ~~2004,~~2006, cash deposits of approximately ~~$5.2 million~~$400,000 secured Levitt’s commitments under these contracts.

Levitt is obligated to fund homeowner association operating deficits incurred by its communities under development. This obligation ends upon turnover of the association to the residents of the community.

At December 31, ~~2004,~~2006 Levitt had outstanding surety bonds and letters of credit of approximately ~~$43.3~~$139.4 million related primarily to its obligations to various governmental entities to construct improvements in ~~the~~ Levitt’s various communities. Levitt estimates that approximately ~~$20.7~~$68.6 million of work remains to complete these improvements. Levitt does not believe that any outstanding bonds or letters of credit will likely be drawn upon.

~~18.~~

Levitt entered into an indemnity agreement in April 2004 with a joint venture partner at Altman Longleaf, relating to, among other obligations, that partner’s guarantee of the joint venture’s indebtedness. The liability under the indemnity agreement is limited to the amount of any distributions from the joint venture which exceeds our original capital and other contributions. Original capital contributions were approximately $585,000. In 2004, Levitt received a distribution that totaled approximately $1.1 million. In January 2006, Levitt received an additional distribution of approximately $138,000. Accordingly, the potential obligation of indemnity after the January 2006 distribution is approximately $664,000.

24. Regulatory Matters

The Company is a unitary savings bank holding company that owns approximately 15% and 100%, respectively of the outstanding BankAtlantic Bancorp Class A and Class B Common Stock, in the aggregate representing approximately 22% of all the outstanding BankAtlantic Bancorp Common Stock. BankAtlantic Bancorp is the holding company for BankAtlantic ~~Bank~~ by virtue of its ownership of 100% of the outstanding BankAtlantic common stock. BFC is subject to regulatory oversight and examination by the OTS as discussed herein with respect to BankAtlantic Bancorp. BankAtlantic Bancorp is a unitary savings bank holding company subject to regulatory oversight and examination by the OTS, including normal supervision and reporting requirements. The Company is subject to the reporting and other requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). BankAtlantic Bancorp is also subject to the reporting and other requirements of the Exchange Act.

BankAtlantic’s deposits are insured by the FDIC for up to $100,000 for each insured account holder and $250,000 for retirement account holders, the maximum amount currently permitted by law. BankAtlantic is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can cause regulators to initiate certain mandatory and possibly additional discretionary actions ~~by regulators~~ that, if undertaken, could have a direct material effect on

~~F-64~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

BankAtlantic’s financial statements. At December 31, ~~2004,~~2006, BankAtlantic met all capital adequacy requirements to which it is subject and was considered a well capitalized institution.

The OTS imposes limits applicable to the payment of cash dividends by BankAtlantic to BankAtlantic Bancorp which are based on an institution’s regulatory capital levels and its net income. BankAtlantic is permitted to pay capital distributions during a calendar year that do not exceed its net income for the year plus its retained net income for the prior two years, without notice to, or the approval of, the OTS. At December 31, ~~2004,~~2006, this capital distribution limitation was ~~$78.8~~$85.7 million. During the years ended December 31, ~~2004, 2003~~2006, 2005 and ~~2002,~~2004 BankAtlantic paid ~~$15~~$20 million, $20 million and ~~$22~~$15 million, respectively, of dividends to ~~the~~ BankAtlantic Bancorp. During the years ended December 31, 2006, 2005 and 2004

194

~~Ryan Beck paid $5~~

BFC Financial Corporation
Notes to Consolidated Financial Statements

BFC received approximately $2.1 million, in$1.9 million and $1.8 million, respectively, of dividends ~~to the Company during 2004. Future dividend payments by Ryan Beck will depend upon the results of operations, financial condition and capital requirements of Ryan Beck.~~

~~Bank Atlantic’s~~from BankAtlantic Bancorp.

BankAtlantic’s actual capital amounts and ratios are presented in the table (dollars in thousands):


						For Capital					To Be Considered										For Capital					To Be Considered
	Actual					Adequacy Purposes					Well Capitalized					Actual					Adequacy Purposes					Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2004:
As of December 31, 2006:
Total risk-based capital	$	476,600		10.80	%	$	352,886		8.00	%	$	441,107		10.00	%	$	529,497		12.08	%	$	350,714		8.00	%	$	438,392		10.00	%
Tier I risk-based capital	$	405,482		9.19	%	$	176,443		4.00	%	$	264,664		6.00	%	$	460,359		10.50	%	$	175,357		4.00	%	$	263,035		6.00	%
Tangible capital	$	405,482		6.83	%	$	89,030		1.50	%	$	89,030		1.50	%	$	460,359		7.55	%	$	91,425		1.50	%	$	91,425		1.50	%
Core capital	$	405,482		6.83	%	$	237,413		4.00	%	$	296,766		5.00	%	$	460,359		7.55	%	$	243,799		4.00	%	$	304,749		5.00	%
As of December 31, 2003:
As of December 31, 2005:
Total risk-based capital	$	447,967		12.06	%	$	297,208		8.00	%	$	371,509		10.00	%	$	512,664		11.50	%	$	356,526		8.00	%	$	445,657		10.00	%
Tier I risk-based capital	$	379,505		10.22	%	$	148,604		4.00	%	$	222,906		6.00	%	$	446,419		10.02	%	$	178,263		4.00	%	$	267,394		6.00	%
Tangible capital	$	379,505		8.52	%	$	66,802		1.50	%	$	66,802		1.50	%	$	446,419		7.42	%	$	90,235		1.50	%	$	90,235		1.50	%
Core capital	$	379,505		8.52	%	$	178,138		4.00	%	$	222,673		5.00	%	$	446,419		7.42	%	$	240,627		4.00	%	$	300,784		5.00	%

Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital. Additionally, Ryan Beck, as a market maker, is subject to supplemental requirements of Rule 15c3-1(a)4, which provides for the computation of net capital to be based on the number of and price of issues in which markets are made by Ryan Beck, not to exceed $1.0 million. Ryan Beck’s regulatory net capital was approximately $35.3 million, which was $34.3 million in excess of its required net capital of $1.0 million at December 31, 2004.

Ryan Beck operates under the provisions of paragraph (k)(2)(ii) of Rule 15c3-3 of the Securities and Exchange Commission as a fully disclosed introducing broker and, accordingly, customer accounts are carried on the books of the clearing broker. However, Ryan Beck safekeeps and redeems municipal bond coupons for the benefit of its customers. Accordingly, Ryan Beck is subject to the provisions of SEC Rule 15c3-3 relating to possession or control and customer reserve requirements and was in compliance with such provisions at December 31, 2004.

~~F-65~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~19.~~25. Legal Proceedings

~~Benihana of Tokyo, Inc., Individually and on behalf of Benihana, Inc., v. Benihana, Inc., et.al., Civil Action 550-N, In the Court of Chancery in the State of Delaware in and for New Castle County.~~

On July 2, 2004, Benihana of Tokyo, Inc. a major shareholder of Benihana filed suit against Benihana, Inc., the members of the Benihana Board of Directors and BFC Financial Corporation, seeking to rescind BFC’s transaction with Benihana. Benihana of Tokyo, a major shareholder of Benihana, Inc., ~~claims~~claimed the transaction was created for the sole or primary purpose of diluting the stock interest of Benihana of Tokyo. It further ~~claims~~claimed that, in light of the relationship of certain members of the Benihana Board with BFC, the Benihana Board breached the fiduciary duties owed to the Benihana shareholders. The Complaint also ~~alleges~~alleged that through ~~John Abdo, as a member of the Benihana Board and~~ BFC’s Vice-Chairman ~~and Darwin Dornbush, as a member of the Benihana Board~~ and a member of Levitt’s Board, both as members of Benihana Board, BFC has aided and abetted in the Board’s breaches of fiduciary duty. On December 8, 2005, the Delaware Court of Chancery rejected all claims asserted by Benihana ~~has indicated it intends~~of Tokyo ruling that Benihana, Inc. and its board of directors fulfilled its fiduciary responsibilities in approving and completing the BFC investment transaction. Thereafter, Benihana of Tokyo filed an appeal with respect to ~~vigorously contest~~ the ~~allegations. The terms~~decision of the ~~agreement pursuant~~Chancery Court and on August 24, 2006, the Delaware Supreme Court issued an opinion affirming the trial court’s ruling in favor of Benihana and its board of directors in all respects.

On May 26, 2005, a suit was filed in the 9th Judicial Circuit in and for Orange County, Florida against Levitt in Frank Albert, Dorothy Albert, et al. v. Levitt and Sons, LLC, a Florida limited liability company, Levitt Homes, LLC, a Florida limited liability company, Levitt Corporation, a Florida corporation, Levitt Construction Corp. East, a Florida corporation and Levitt and Sons, Inc., a Florida corporation. The suit purports to be a class action on behalf of residents in one of Levitt’s communities in Central Florida. The complaint alleges, among other claims, construction defects and unspecified damages ranging from $50,000 to $400,000 per house. While there is no assurance that Levitt will be successful, Levitt believes it has valid defenses and is engaged in a vigorous defense of the action. The amount of loss related to this matter is estimated to be $320,000 which ~~BFC acquired~~is recorded in the consolidated statement of financial condition as of December 31, 2006 as an accrued expense.

On December 12, 2006 Levitt Corporation received a letter from the Internal Revenue Service advising that Levitt and its ~~interest~~subsidiaries has been selected for an examination of the tax period ending December 31, 2004. The scope of the examination was not indicated in ~~Benihana provides that Benihana is obligated to indemnify BFC against any losses, including attorneys’ fees, incurred by BFC including litigation arising out of its purchase.~~

the letter.

In the ordinary course of business, the Company and its subsidiaries are parties to other lawsuits as plaintiff or defendant involving its bank operations lending, tax certificates, securities sales, brokerage and underwriting, acquisitions and real estate development activities. Although the Company believes it has meritorious defenses in all current legal actions, the outcome of the various legal actions is uncertain. Management, based on discussions with legal counsel, believes financial position, results of operations or ~~financial position~~cash flow will not be ~~significantly~~materially impacted by the resolution of these matters.

195

~~20.~~

BFC Financial Corporation
Notes to Consolidated Financial Statements

26. Parent Company Financial Information

The accounting policies of BFC’s Parent Company are generally the same as those described in the summary of significant accounting policies. The Company’s investments in venture partnerships, BankAtlantic Bancorp, Levitt Corporation and wholly-owned subsidiaries in the Parent Company’s financial statements are presented under the equity method of accounting. BFC’s Condensed Statements of Financial Condition at December 31, ~~2004~~2006 and ~~2003,~~2005, Condensed Statements of Operations and Condensed Statements of Cash Flows for each of the years in the three-year period ended December 31, ~~2004~~2006 are shown below:

Parent Company Condensed Statements of Financial Condition
~~December 31, 2004 and 2003~~(In thousands)


	December 31,
	2006		2005
Assets
Cash and cash equivalents	$	17,815	$	26,683
Investment securities		2,262		2,034
Investment in Benihana, Inc.		20,000		20,000
Investment in venture partnerships		908		950
Investment in BankAtlantic Bancorp, Inc.		113,586		112,218
Investment in Levitt Corporation		57,009		58,111
Investment in and advances to wholly owned subsidiaries		1,525		1,631
Loans receivable		2,157		2,071
Other assets		2,261		960

Total assets	$	217,523	$	224,658


Liabilities and Shareholders’ Equity

Advances from and negative basis in wholly owned subsidiaries	$	1,290	$	462
Other liabilities		7,351		7,417
Deferred income taxes		31,297		33,699

Total liabilities		39,938		41,578
Total shareholders’ equity		177,585		183,080

Total liabilities and shareholders’ equity	$	217,523	$	224,658

Parent Company Condensed Statements of Operations
(In ~~thousands except share data)~~thousands)

December 31,
2004 2003
Assets

Cash and cash equivalents $ 1,520 $ 1,536
Securities available for sale, at market value 11,800 1,218
Investment in venture partnerships 971 626
Investment in BankAtlantic Bancorp, Inc. 103,125 91,869
Investment in Levitt Corporation 48,983 27,885
Investment in other subsidiaries 14,219 13,680
Loans receivable 3,364 4,175
Other assets 2,596 484

Total assets $ 186,578 $ 141,473

Liabilities and Shareholders’ Equity

Mortgages payable and other borrowings $ 10,483 $ 6,015
Other liabilities 23,816 23,234
Deferred income taxes 27,028 26,549

Total liabilities 61,327 55,798

Total shareholders’ equity 125,251 85,675

Total liabilities and shareholders’ equity $ 186,578 $ 141,473


	For the Years Ended December 31,
	2006			2005			2004
Revenues	$	2,232		$	1,775		$	3,514
Expenses		8,413			14,904			6,717

(Loss) before earnings (loss) from subsidiaries		(6,181	)		(13,129	)		(3,203	)
Equity from earnings in BankAtlantic Bancorp		5,807			9,053			11,817
Equity from (loss) earnings in Levitt		(1,522	)		9,125			10,265
Equity from (loss) earnings in other subsidiaries		(658	)		6,671			(35	)

(Loss) income before income taxes		(2,554	)		11,720			18,844
(Benefit) provision for income taxes		(1,857	)		4,000			6,826

(Loss) income from continuing operations		(697	)		7,720			12,018
Equity in subsidiaries’ discontinued operations, net of tax		(1,524	)		5,054			2,212

Net (loss) income		(2,221	)		12,774			14,230
5% Preferred Stock dividends		750			750			392

Net (loss) income allocable to common stock	$	(2,971	)	$	12,024		$	13,838


(a)		During the year ended December 31, 2005, expenses includes the write-off of wholly-owned subsidiaries’ inter-company advances of approximately $6.6 million, and the equity from earnings in other subsidiaries includes the earnings recognized by BFC’s wholly-owned subsidiaries in connection with this write-off. These inter-company advances were eliminated in consolidation.

~~F-66~~196

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~Condensed Statements of Operations~~
~~For Each of the Years in the Three Year Period Ended December 31, 2004~~
~~(In thousands)~~

For the Years Ended December 31,
2004 2003 2002
Revenues $ 3,514 $ 1,051 $ 763
Expenses 6,717 3,954 3,898

(Loss) before undistributed earnings from subsidiaries (3,203 ) (2,903 ) (3,135 )
Equity from earnings in BankAtlantic Bancorp 15,694 15,222 11,380
Equity from earnings in Levitt 10,265 — —
Equity from loss in other subsidiaries (311 ) (1,583 ) (633 )

Income before income taxes 22,445 10,736 7,612
Provision for income taxes 8,215 3,714 2,420

Net income 14,230 7,022 $ 5,192
5% Preferred Stock dividends 392 — —

Net Income available to common shareholders $ 13,838 $ 7,022 5,192

Parent Company Condensed Statements of Cash ~~Flows~~
~~For Each of the Years in the Three Year Period Ended December 31, 2004~~Flow
(In thousands)

For the Years Ended December 31,
2004 2003 2002
Operating Activities:
Income (loss) from continuing operations $ 14,230 5,879 $ (5,986 )
Income from discontinued operations, net of tax — 1,143 2,536
Income from extraordinary item, net of tax — — 23,749
Loss from cumulative effect of a change in accounting principle, net of tax — — (15,107 )
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity from earnings in BankAtlantic Bancorp (15,694 ) (15,222 ) (11,380 )
Equity from earnings in Levitt (10,265 ) — —
Equity from (earnings) loss in other subsidiaries (1,981 ) 1,583 633
Depreciation 50 10 24
Provision for deferred income taxes 8,216 3,646 2,556
Loss on investment securities 72 — 499
Gain from securities activities, net — (270 ) —
Advances from other subsidiaries 208 444 503
(Increase) decrease in loans receivable 737 — (2,991 )
(Increase) decrease in other assets (2,032 ) 274 49
Increase other liabilities 372 155 213

Net cash used in operating activities $ (6,087 ) $ (2,358 ) $ (4,702 )

Investing Activities:
Common stock dividends received from BankAtlantic Bancorp 1,924 1,686 1,581
Capital contribution to subsidiaries (1,000 ) — —
Dividends from other subsidiaries 150 — —
Distributions from venture partnerships 1,423 344 —
Decrease (increase) in securities available for sale (10,000 ) 785 (173 )

Net cash (used in) provided by investing activities (7,503 ) 2,815 1,408

Financing Activities:
Borrowings 4,468 — 1,500
Issuance of preferred stock 14,988 — —
Exercise stock options 1,791 — —
Retirement of common stock (7,281 ) — (319 )
Issuance of common stock — 282 204
Preferred stock dividends paid (392 ) — —

Net cash provided by financing activities 13,574 282 1,385

Increase (decrease) in cash and cash equivalents (16 ) 739 (1,909 )
Cash and cash equivalents at beginning of period 1,536 797 2,706

Cash and cash equivalents at end of period $ 1,520 $ 1,536 $ 797

Supplementary disclosure of non-cash investing and financing activities

Interest paid on borrowings $ 357 $ 333 $ 302


	For the Years Ended December 31,
	2006			2005			2004
Operating Activities:
(Loss) income from continuing operations	$	(697	)	$	7,720		$	12,018
Discontinued operations, net of tax		(1,524	)		5,054			2,212
Cash (used in) provided by in other operating activities		(820	)		(12,709	)		(18,243	)

Net cash (used in) provided by operating activities		(3,041	)		65			(4,013	)

Investing Activities:
Capital contribution to subsidiaries		—			—			(1,000	)
Investment in real estate limited partnership		(1,000	)		—			—
Distribution from venture partnerships		—			—			1,423
Additions to property and equipment		77			(29	)		—
Investment in Benihana convertible preferred stock		—			(10,000	)		(10,000	)

Net cash used in investing activities		(923	)		(10,029	)		(9,577	)

Financing Activities:
Borrowing		—			1,000			4,468
Repayments of borrowing		—			(11,483	)		—
Proceeds from issuance of Class A Common Stock net of issuance costs		—			46,188			—
Proceeds from the issuance of Class B Common Stock upon exercise of stock options		—			172			1,791
Proceeds from issuance of 5% Preferred Stock, net of issuance cost		—			—			14,988
Payment of the minimum withholding tax upon the exercise of stock options		(4,154	)
Retirement of common stock		—			—			(7,281	)
5% Preferred Stock dividends paid		(750	)		(750	)		(392	)

Net cash (used in) provided by financing activities		(4,904	)		35,127			13,574

(Decrease) increase in cash and cash equivalents		(8,868	)		25,163			(16	)
Cash at beginning of period		26,683			1,520			1,536

Cash at end of period	$	17,815		$	26,683		$	1,520


Supplementary disclosure of non-cash investing and financing activities
Interest paid on borrowings	$	—		$	320		$	357
Net increase in shareholders’ equity from the effect of subsidiaries’ capital transactions, net of income taxes		16			474			5,812
Increase (decrease) in accumulated other comprehensive income, net of taxes		926			(417	)		(588	)
Issuance and retirement of Common Stock accepted as consideration for the exercise price of stock options		4,154			—			—
(Decrease) increase in shareholders’ equity for the tax effect related to the exercise of employee stock options		—			(12	)		11,017
Decrease in advances due from wholly-owned subsidiaries		—			(23,744	)		—
Dividends from wholly-owned subsidiaries		—			23,744			—

During the year ended December 31, 2006, 2005 and 2004, BFC received dividends from BankAtlantic Bancorp and Levitt for a total of approximately $2.4 million, $2.3 million and $2.1 million, respectively. These dividends are included in operating activities in the Parent Company Condensed Statements of Cash Flow.

~~F-67~~197

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

For the Years Ended December 31,
2004 2003 2002
Increase in securities available for sale resulting from venture partnerships distribution of its securities investment — — 506
Change in shareholders’ equity resulting from net change in other comprehensive income, net of taxes (588 ) 662 (1,824 )
Net increase (decrease) in shareholders’ equity from the effect of subsidiaries’ capital transactions, net of income taxes 5,812 (252 ) (15 )
Increase in shareholders’ equity for the tax effect related to the exercise of stock options 11,017 550 60
Levitt investment transfer from BankAtlantic Bancorp resulting from the spin-off transaction — 27,885 —

~~21.~~27. Selected Quarterly Results (Unaudited)

The following tables summarize the quarterly results of operations for the years ended December 31, ~~2004~~2006 and ~~2003~~2005 (in thousands except for per share data):

First Second Third Fourth
2004 Quarter Quarter Quarter Quarter Total
Revenues $ 264,696 $ 289,684 $ 280,160 $ 332,061 $ 1,166,601
Costs and expenses 217,306 243,933 238,984 283,760 983,983

Income before income taxes and equity in earnings from unconsolidated subsidiaries 47,390 45,751 41,176 48,301 182,618
Equity in earnings from unconsolidated subsidiaries 5,811 5,023 5,888 2,881 19,603

Income before income taxes and minority interest 53,201 50,774 47,064 51,182 202,221
Provision for income taxes 22,207 21,938 19,113 20,739 83,997

Minority interest in income of consolidated subsidiaries 26,622 25,575 24,291 27,506 103,994

Net income $ 4,372 3,261 3,660 2,937 14,230

Basic earnings per share from continuing operations $ 0.18 $ 0.13 $ 0.14 $ 0.11 $ 0.57

Diluted earnings per share from continuing operations $ 0.15 $ 0.11 $ 0.12 $ 0.09 $ 0.47

Basic weighted average number of common shares outstanding 23,824 24,195 24,215 24,507 24,183

Diluted weighted average number of common shares outstanding 27,706 27,795 27,761 27,892 27,806


	First			First			Second			Second
	Quarter			Quarter (1)			Quarter			Quarter (1)
	(As-Reported)			(As-Adjusted)			(As-Reported)			(As-Adjusted)
2006
Revenues	$	246,561		$	246,561		$	261,314		$	261,314
Costs and expenses		238,764			239,180			252,319			252,395

		7,797			7,381			8,995			8,919
Equity in earnings from unconsolidated affiliates		771			771			2,353			2,353

Income before income taxes and noncontrolling interest		8,568			8,152			11,348			11,272
Provision (benefit) for income taxes		2,696			2,514			3,498			3,465
Noncontrolling interest		5,928			5,728			7,610			7,573

(Loss) income from continuing operations		(56	)		(90	)		240			234
Loss from discontinued operations, net of tax		(209	)		(209	)		(313	)		(313	)

Net loss		(265	)		(299	)		(73	)		(79	)
5% Preferred Stock dividends		188			188			188			188

Net income (loss) allocable to common stock	$	(453	)	$	(487	)	$	(261	)	$	(267	)


Basic loss per share from continuing operations	$	(0.01	)	$	(0.01	)	$	0.00		$	0.00
Basic loss per share from discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.01	)

Basic loss per share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)


Diluted loss per share from continuing operations	$	(0.01	)	$	(0.01	)	$	0.00		$	0.00
Diluted loss per share from discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.01	)

Diluted loss per share	$	(0.01	)	$	(0.02	)	$	(0.01	)	$	(0.01	)


Basic weighted average number of common shares outstanding		32,692			32,692			33,422			33,422

Diluted weighted average number of common shares outstanding		32,692			32,692			33,422			33,422


	Third			Third			Fourth
	Quarter			Quarter (1)			Quarter			Total
	(As-Reported)			(As-Adjusted)
2006
Revenues	$	267,023		$	267,023		$	323,299		$	1,098,197
Costs and expenses		262,458			262,152			343,226			1,096,953

		4,565			4,871			(19,927	)		1,244
Equity in earnings from unconsolidated affiliates		7,061			7,061			750			10,935

Income before income taxes and noncontrolling interest		11,626			11,932			(19,177	)		12,179
Provision (benefit) for income taxes		4,048			4,181			(10,688	)		(528	)
Noncontrolling interest		8,106			8,253			(8,150	)		13,404

(Loss) income from continuing operations		(528	)		(502	)		(339	)		(697	)
Loss from discontinued operations, net of tax		(640	)		(640	)		(362	)		(1,524	)

Net loss		(1,168	)		(1,142	)		(701	)		(2,221	)
5% Preferred Stock dividends		187			187			187			750

Net income (loss) allocable to common stock	$	(1,355	)	$	(1,329	)	$	(888	)	$	(2,971	)


Basic loss per share from continuing operations	$	(0.02	)	$	(0.02	)	$	(0.02	)	$	(0.04	)
Basic loss per share from discontinued operations		(0.02	)		(0.02	)		(0.01	)		(0.05	)

Basic loss per share	$	(0.04	)	$	(0.04	)	$	(0.03	)	$	(0.09	)


Diluted loss per share from continuing operations	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.05	)
Diluted loss per share from discontinued operations		(0.02	)		(0.02	)		(0.01	)		(0.05	)

Diluted loss per share	$	(0.04	)	$	(0.05	)	$	(0.03	)	$	(0.10	)


Basic weighted average number of common shares outstanding		33,427			33,427			33,436			33,249

Diluted weighted average number of common shares outstanding		33,427			33,427			33,436			33,249


(1)		Upon the implementation of SAB No. 108, the Company identified misstatements in its prior financial statements that were immaterial and the amounts were adjusted to retained earnings at January 1, 2006 as a cumulative effect adjustment. The Company adjusted the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006 to reflect these adjustments. See “Note 2 Cumulative-Effect Adjustment for Quantifying Financial Statement Misstatements” for a discussion of the adoption of SAB No. 108 and descriptions of the misstatements.

~~F-68~~198

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

The first quarter net income reflects the Company’s gain from the technology company litigation settlement. The litigation gain was partially offset by BankAtlantic Bancorp prepaying $108 million of FHLB advances.

First Second Third Fourth
2003 Quarter Quarter Quarter Quarter Total
Revenues $ 191,693 $ 210,188 $ 197,034 $ 233,389 $ 832,304
Costs and expenses 169,387 187,885 172,786 211,234 741,292

Income before income taxes and equity in earnings from unconsolidated subsidiaries 22,306 22,303 24,248 22,155 91,012
Equity in (loss) earnings from unconsolidated subsidiaries (114 ) 2,719 4,054 3,467 10,126

Income before income taxes, minority interest and discontinued operations 22,192 25,022 28,302 25,622 101,138
Provision for income taxes 9,190 10,588 11,995 12,393 44,166

Minority interest in income of consolidated subsidiaries 11,185 13,318 14,352 12,238 51,093

Income from continuing operations 1,817 1,116 1,955 991 5,879
Discontinued operations, net of taxes 83 754 306 — 1,143

Net income $ 1,900 $ 1,870 $ 2,261 $ 991 $ 7,022

Basic earnings per share from continuing operations $ 0.08 $ 0.05 $ 0.09 $ 0.04 $ 0.26
Basic earnings per share from discontinued operations 0.00 0.03 0.01 — 0.05

Basic earnings per share $ 0.08 $ 0.08 $ 0.10 $ 0.04 $ 0.31

Diluted earnings per share from continuing operations $ 0.07 $ 0.04 $ 0.07 $ 0.03 $ 0.21
Diluted earnings per share from discontinued operations — 0.03 0.01 — 0.04

Diluted earnings per share $ 0.07 $ 0.07 $ 0.08 $ 0.03 $ 0.25

Basic weighted average number of common shares outstanding 22,419 22,842 22,979 23,023 22,818

Diluted weighted average number of common shares outstanding 24,677 25,688 26,195 27,019 26,031

~~The third and~~ fourth quarter ~~earnings were~~was unfavorably impacted by BankAtlantic ~~Bancorp prepaying $185~~Bancorp’s $8.2 million provision for loan losses associated with a $7.0 million charge-down of ~~FHLB advances~~a commercial construction real estate loan and a $1.0 million increase in the ~~third quarter and $140 million of FHLB advances in~~allowance for loan losses assigned to commercial real estate loans. Also the fourth quarter ~~incurring prepayment penalties~~was unfavorably impacted by Levitt’s $31.1 million impairment charges which included $29.7 million of ~~$2.0~~homebuilding inventory impairment charges and $1.4 million of write-offs of deposits and ~~$8.9 million, respectively. The discontinued operations reflect~~pre-acquisition costs related to land under option that Levitt does not intend to purchase. Projections of future cash flows related to the ~~operations of GMS. (See Note 2.)~~

~~22.~~remaining assets were discounted and used to determine the estimated impairment charge.


	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter		Total
2005
Revenues	$	305,742	$	221,621	$	246,980		$	249,147	$	1,023,490
Costs and expenses		235,773		202,106		214,793			237,669		890,341

		69,969		19,515		32,187			11,478		133,149
Equity in earnings from unconsolidated affiliates		2,359		4,908		5,886			251		13,404

Income before income taxes and noncontrolling interest		72,328		24,423		38,073			11,729		146,553
Provision for income taxes		29,769		9,129		14,625			6,043		59,566
Noncontrolling interest		38,392		14,219		21,356			5,300		79,267

Income from continuing operations		4,167		1,075		2,092			386		7,720
Income (loss) from discontinued operations, net of tax		233		1,656		(35	)		3,200		5,054

Net income		4,400		2,731		2,057			3,586		12,774
5% Preferred Stock dividends		188		187		187			188		750

Net income allocable to common stock	$	4,212	$	2,544	$	1,870		$	3,398	$	12,024


Basic earnings per share from continuing operations	$	0.15	$	0.04	$	0.06		$	0.01	$	0.24
Basic earnings per share from discontinued operations		0.01		0.06		(0.00	)		0.10		0.18

Basic earnings per share	$	0.16	$	0.10	$	0.06		$	0.11	$	0.42


Diluted earnings per share from continuing operations	$	0.13	$	0.02	$	0.05		$	0.01	$	0.22
Diluted earnings per share from discontinued operations		0.01		0.06		(0.00	)		0.09		0.15

Diluted earnings per share	$	0.14	$	0.08	$	0.05		$	0.10	$	0.37


Basic weighted average number of common shares outstanding		25,750		26,381		31,751			31,829		28,952

Diluted weighted average number of common shares outstanding		28,336		28,902		34,121			33,625		31,219

28. Estimated Fair Value of Financial Instruments

The information set forth below provides disclosure of the estimated fair value of the Company’s financial instruments presented in accordance with the requirements of ~~Statement of Financial Accounting Standards~~SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” ~~(“FAS 107”)~~.

Management has made estimates of fair value that it believes to be reasonable. However, because there is no market for many of these financial instruments, management has no basis to determine whether the fair value presented would be indicative of the value negotiated in an actual sale. The Company’s 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.

Fair values are estimated for loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing

~~F-69~~

categories.

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~categories.~~

The fair value of performing loans, except residential mortgage and adjustable rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the ~~credit and~~ interest rate risk inherent in the loan. The estimate of average maturity is based on BankAtlantic’s historical experience with prepayments for each loan classification, modified as required, by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows, which are adjusted for national historical prepayment estimates. The discount rate is based on secondary market sources and is adjusted to reflect differences in servicing and credit costs.

Fair values of non-performing loans are based on the assumption that the loans are on a non-accrual status,

199

BFC Financial Corporation
Notes to Consolidated Financial Statements

discounted at market rates during a 24 month work-out period. ~~Assumptions regarding~~The adjustments for credit risk ~~are determined using available market information and specific borrower information.~~

were based on the amounts recorded for the allowance for loan loss.

The book value of tax certificates approximates market value. The fair value of mortgage-backed and investment securities are estimated based upon a price matrix obtained from a third party or market price quotes.

Under ~~FAS~~SFAS No. 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings and NOW accounts, and money market and checking accounts, is considered the same as book value. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using current rates offered by BankAtlantic for similar remaining maturities.

The fair value of Federal Home Loan Bank stock is its carrying amount.

The book value of securities sold under agreements to repurchase and federal funds purchased approximates fair value.

The fair value of FHLB advances is based on discounted cash flows using rates offered for debt with comparable terms to maturity and issuer credit standing.

The fair value of securities owned and securities sold but not yet purchased was based on dealer price quotations or price quotations from similar instruments traded.

The fair value of secured borrowings is its carrying amount.

The fair values of subordinated debentures, junior subordinated debentures, ~~trust preferred securities~~ and notes payable were based on discounted ~~value~~values of contractual cash flows at a ~~market.~~market discount rate or price quotes. Carrying amounts of notes and mortgage notes payable that provide for variable interest rates approximate fair value, as the terms of the credit facilities require periodic market adjustment of interest rates. The fair value of ~~the Company’s~~ fixed rate indebtedness, including development bonds payable, was estimated using discounted cash flow analyses, based on ~~the Company’s~~ current borrowing rates for similar types of borrowing arrangements.

~~F-70~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

The following table presents information for the Company’s financial instruments at December 31, ~~2004~~2006 and ~~2003~~2005 (in thousands):


	December 31, 2004				December 31, 2003				December 31, 2006				December 31, 2005
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	224,720	$	224,720	$	143,542	$	143,542	$	201,123	$	201,123	$	300,071	$	300,071
Securities available for sale		749,001		749,001		360,442		360,442		653,659		653,659		676,660		676,660
Securities owned		125,443		125,443		124,565		124,565
Investment securities		317,891		317,416		192,706		192,706		227,208		229,546		221,242		220,920
Federal Home Loan Bank stock		78,619		78,619		40,325		40,325
Federal home loan bank stock										80,217		80,217		69,931		69,931
Loans receivable including loans held for sale, net		4,561,073		4,568,883		3,611,612		3,620,487		4,603,505		4,566,158		4,628,744		4,602,181

Financial liabilities:
Deposits	$	3,457,202	$	3,451,853	$	3,058,142	$	3,062,565	$	3,867,036	$	3,872,703	$	3,752,676	$	3,755,089
Short term borrowings		362,002		362,002		120,874		120,874		128,411		128,411		249,263		249,263
Advances from FHLB		1,544,497		1,564,188		782,205		830,939		1,517,058		1,507,264		1,283,532		1,288,012
Securities sold but not yet purchased		39,462		39,462		37,813		37,813
Subordinated debentures, notes, mortgage notes and bonds payable		278,605		277,998		164,100		163,827
Junior subordinated debentures		263,266		265,955		263,266		257,647
Secured borrowings										—		—		138,270		138,270
Subordinated debentures, notes and and junior subordinated debentures										908,942		909,433		710,174		702,096

The carrying amount and fair values of BankAtlantic’s commitments to extend credit, standby letters of credit, financial guarantees and forward ~~FHLB~~ commitments are not significant. (See Note 1723 for the contractual amounts of BankAtlantic’s financial instrument commitments).

200

~~Derivatives~~

~~During the year ended December 31, 2000, BankAtlantic Bancorp entered into a forward contract~~

BFC Financial Corporation
Notes to purchase the underlying collateral from a government agency pool of securities in May 2005. The underlying collateral is $8.6 million of five-year hybrid adjustable rate mortgage loans that will adjust annually after May 2005. The hybrid adjustable rate mortgage loans are loans in which the rate at inception remains fixed for five years and then adjusts to a spread over the U.S. Treasury note annually thereafter. The forward contract was held for trading purposes and recorded at fair value with changes in fair value included in earnings.
During the year ended December 31, 2002, BankAtlantic Bancorp utilized interest rate swaps to manage its interest rate risk. The Company entered into callable time deposits with its customers and entered into callable interest rate swaps. BankAtlantic Bancorp designated these callable interest rate swaps as fair value hedges. During the year ended December 31, 2003, interest rate swap contracts with a notional amount of $33 million were called by the counter-party, resulting in BankAtlantic Bancorp redeeming $33 million of fixed rate time deposits. BankAtlantic Bancorp’s loss on the termination of the interest rate swaps was offset by a corresponding gain on the call of the time deposits. There were no interest rate swaps outstanding at December 31, 2004 and 2003.
BankAtlantic Bancorp also created cash flow hedges by entering into interest rate swap contracts to hedge the variable cash flows relating to forecasted interest payments on certain variable rate FHLB advances. The changes in fair value of the interest rate swap contracts designated as cash flow hedges were recorded in other comprehensive income and the receivables and payables from the swap contracts were recorded as an adjustment to interest expense in the Company’s statement of operations for the year ended December 31, 2002. BankAtlantic Bancorp terminated the above mentioned interest rate swap contracts with a notional amount of $75 million during the year ended December 31, 2003 and recognized a $1.9 million loss included in other income in the Company’s statement of operations.

Consolidated Financial Statements

Derivatives

Commitments to originate residential loans held for sale and to sell residential loans are derivatives. The fair value of these derivatives was not included in the Company’s financial statements as the amount was not considered significant. These

~~F-71~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

derivatives relate to a loan origination program with an independent mortgage company whereby the mortgage company purchases the originated loans from BankAtlantic 14 days after the funding date at a price negotiated quarterly for all loans sold during the quarter.

Concentration of Credit Risk

BankAtlantic purchases residential loans located throughout the country. Included in these purchased residential loans are interest-only loans. These loans result in possible future increases in a borrower’s loan payments when the contractually required repayments increase due to interest rate movement and the required amortization of the principal amount. These payment increases could affect a borrower’s ability to repay the loan and lead to increased defaults and losses. At December 31, 2006, BankAtlantic’s residential loan portfolio included $1.1 billion of interest-only loans with the collateral primarily located in California and surrounding states. BankAtlantic manages this credit risk by purchasing interest-only loans originated to borrowers that it believes to be credit worthy, with loan-to-value and total debt to income ratios within agency guidelines.

201

~~23.~~

BFC Financial Corporation
Notes to Consolidated Financial Statements

29. Earnings (Loss) per Share
The Board of Directors of the Company declared stock splits effected in the form of a 15% stock dividend to holders of record on June 3, 2003 and a 25% stock dividend to each holders of record on November 17, 2003, February 20, 2004, May 17, 2004 and March 7, 2005, payable in shares of the Company’s Class A Common Stock for each share of the outstanding Class A and Class B Common Stock. Where appropriate, amounts throughout this report have been adjusted to reflect the stock splits.

The Company has two classes of common stock outstanding. The two-class method is not presented because the Company’s capital structure does not provide for different dividend rates or other preferences, other than voting rights, between the two classes. The number of options considered outstanding shares for diluted earnings per share is based upon application of the treasury stock method to the options outstanding as of the end of the period. I.R.E. Realty Advisory Group, Inc. (“RAG”) owns ~~4,764,282 to confirm~~4,764,285 shares of BFC Financial Corporation’s Class A Common Stock and 500,000 shares of BFC Financial Corporation Class B Common Stock. Because the Company owns 45.5% of the outstanding common stock of RAG, 2,165,367 shares of Class A Common Stock and 227,250 shares of Class B Common Stock are eliminated from the number of shares outstanding for purposes of computing earnings per share.

~~F-72~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

The following reconciles the numerators and denominators of the basic and diluted earnings per share computation for the years ended December 31, ~~2004, 2003~~2006, 2005 and ~~2002.~~2004:

For the Year Ended December 31,
(In thousands, except per share data) 2004 2003 2002
Basic earnings per share

Numerator:

Income from continuing operations $ 14,230 $ 5,879 $ (5,986 )
Less: Preferred stock dividends 392 — —

Income available to common shareholders 13,838 5,879 (5,986 )
Discontinued operations, net of taxes — 1,143 2,536
Extraordinary item, net of taxes — — 23,749
Cumulative effect of a change in accounting principle, net of taxes — — (15,107 )

Net income available to common shareholders
$ 13,838 $ 7,022 $ 5,192

Denominator:

Weighted average number of common shares outstanding 26,576 25,211 24,847
Eliminate RAG weighted average number of common shares (2,393 ) (2,393 ) (2,393 )

Basic weighted average number of common shares outstanding 24,183 22,818 22,454

Basic earnings per share:

Earnings per share from continuing operations $ 0.57 $ 0.26 $ (0.27 )
Earnings per share from discontinued operations — 0.05 0.11
Earnings per share from extraordinary item — — 1.06
(Loss) earnings per share from cumulative effect of a change in accounting principle — — (0.67 )

Basic earnings per share
$ 0.57 $ 0.31 $ 0.23

Diluted earnings per share

Numerator

Income available to common shareholders $ 13,838 $ 5,879 $ (5,986 )
Effect of securities issuable by subsidiaries (780 ) (505 ) (206 )

Income available after assumed dilution $ 13,058 $ 5,374 $ (6,192 )

Discontinued operations, net of taxes $ — $ 1,143 $ 2,536
Effect of securities issuable by subsidiaries — (17 ) (56 )

Discontinued operations, net of taxes after assumed dilution $ — $ 1,126 $ 2,480

Extraordinary items, net of taxes $ — $ — $ 23,749
Effect of securities issuable by a subsidiary — — (511 )

Extraordinary items, net of taxes after assumed dilution $ — $ — $ 23,238

Cumulative effect of a change in accounting principle, net of taxes $ — $ — $ (15,107 )
Effect of securities issuable by a subsidiary — — 325

Cumulative effect of a change in accounting principle, net of taxes after assumed dilution $ — $ — $ (14,782 )

Net income available after assumed dilution
$ 13,058 $ 6,500 $ 4,744

Denominator

Weighted average number of common shares outstanding 26,576 25,211 24,847
Eliminate RAG weighted average number of common shares (2,393 ) (2,393 ) (2,393 )
Common stock equivalents resulting from stock-based compensation 3,623 3,213 —

Diluted weighted average shares outstanding 27,806 26,031 22,454

Diluted earnings per share

Earnings per share from continuing operations $ 0.47 $ 0.21 $ (0.28 )
Earnings per share from discontinued operations — 0.04 0.11
Earnings per share from extraordinary items — — 1.04
Loss per share from cumulative effect of a change in accounting principle — — (0.66 )

Diluted earnings per share
$ 0.47 $ 0.25 $ 0.21


	For the Years Ended December 31,
(In thousands, except per share data)	2006			2005			2004
Basic (loss) earnings per share
Numerator:
(Loss) income from continuing operations allocable to common stock	$	(1,447	)	$	6,970		$	11,626
Discontinued operations, net of taxes		(1,524	)		5,054			2,212

Net (loss) income allocable to common shareholders	$	(2,971	)	$	12,024		$	13,838


Denominator:
Weighted average number of common shares outstanding		35,642			31,345			26,576
Eliminate RAG weighted average number of common shares		(2,393	)		(2,393	)		(2,393	)

Basic weighted average number of common shares outstanding		33,249			28,952			24,183


Basic (loss) earnings per share:
(Loss) earnings per share from continuing operations	$	(0.04	)	$	0.24		$	0.48
(Loss) earnings per share from discontinued operations		(0.05	)		0.18			0.09

Basic (loss) earnings per share	$	(0.09	)	$	0.42		$	0.57


Diluted (loss) earnings per share
Numerator
(Loss) income from continuing operations allocable to common stock	$	(1,447	)	$	6,970		$	11,626
Effect of securities issuable by subsidiaries		(93	)		(142	)		(562	)

(Loss) income available after assumed dilution	$	(1,540	)	$	6,828		$	11,064


Discontinued operations, net of taxes	$	(1,524	)	$	5,054		$	2,212
Effect of securities issuable by subsidiaries		—			(200	)		(218	)

Discontinued operations, net of taxes after assumed dilution	$	(1,524	)	$	4,854		$	1,994


Net (loss) income available after assumed dilution	$	(3,064	)	$	11,682		$	13,058


Denominator
Weighted average number of common shares outstanding		35,642			31,345			26,576
Eliminate RAG weighted average number of common shares		(2,393	)		(2,393	)		(2,393	)
Common stock equivalents resulting from stock-based compensation		—			2,267			3,623

Diluted weighted average shares outstanding		33,249			31,219			27,806


Diluted (loss) earnings per share
(Loss) earnings per share from continuing operations	$	(0.05	)	$	0.22		$	0.40
(Loss) earnings per share from discontinued operations		(0.05	)		0.15			0.07

Diluted (loss) earnings per share	$	(0.10	)	$	0.37		$	0.47

~~F-73~~202

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~24.~~

Options to acquire 769,177 and 503,376 of common stock were anti-dilutive for the years ended December 31, 2006 and 2005 respectively. None were anti-dilutive for the year ended December 31, 2004.

30. Certain Relationships and Related Party Transactions

~~Alan B. Levan, President and Chairman of~~

BFC is the ~~Board of the Company also serves as Chairman of the Board and Chief Executive Officer~~controlling shareholder of BankAtlantic Bancorp and ~~BankAtlantic. Alan B. Levan~~Levitt. BFC also has a direct non-controlling interest in Benihana and, through Levitt, an indirect ownership interest in Bluegreen. The majority of BFC’s capital stock is ~~also~~owned or controlled by the Company’s Chairman, ofChief Executive Officer and President, and by the ~~Board of Bluegreen and Levitt. John E. Abdo,~~Company’s Vice Chairman, both of ~~the Board~~whom are also directors of the Company, ~~also serves as Vice Chairman of the Board of Directors~~executive officers and directors of BankAtlantic Bancorp and Levitt, and directors of Bluegreen. The Company’s Vice Chairman is also a director of Benihana.

The following table presents BFC, BankAtlantic Bancorp, Levitt and Bluegreen related party transactions at December 31, 2006, 2005 and ~~is President of Levitt. Glen R. Gilbert, Executive Vice President of the Company also serves as Senior Executive Vice President~~2004 and ~~Secretary of Levitt.~~

~~These executive officers separately receive compensation from our affiliates~~ for ~~services rendered for such affiliates.~~

~~The BankAtlantic Bancorp, BFC, Levitt~~years ended December 31, 2006, 2005 and ~~Bluegreen share various office premises and employee services, pursuant to the arrangements described below.~~

During 2004, BankAtlantic Bancorp maintains service arrangements with BFC and Levitt, pursuant to which BankAtlantic Bancorp provided the following back-office support functions to Levitt and BFC: human resources, risk management, project planning, system support and investor and public relation services. BankAtlantic Bancorp received compensation for such services on a percentage of cost basis. Additionally, BankAtlantic Bancorp rents office space to Levitt and BFC on a month-to-month basis and receives rental payments based on market rates. These2004. Such amounts were eliminated in the Company’s ~~statement of operations.~~consolidated financial statements.


			At December 31, 2006 and
			For the Year Ended December 31, 2006
					BankAtlantic
(in thousands)			BFC		Bancorp			Levitt			Bluegreen
Cash and cash equivalents and (securities sold under agreements to repurchase)	(c	)	$	996	$	(5,547	)	$	4,552		$	—
Shared service receivable (payable)	(a	)	$	312	$	(142	)	$	(107	)	$	(63	)
Shared service income (expense)	(a	)	$	2,035	$	(647	)	$	(1,134	)	$	(254	)
Interest income (expense) from cash balance/securities sold under agreements to repurchase	(c	)	$	43	$	(479	)	$	436		$	—


			At December 31, 2005 and
			For the Year Ended December 31, 2005
						BankAtlantic
(in thousands)			BFC			Bancorp			Levitt			Bluegreen
Cash and cash equivalents and (securities sold under agreements to repurchase)	(c	)	$	1,115		$	(6,238	)	$	5,123		$	—
Notes receivable (payable)			$	—		$	223		$	(223	)	$	—
Shared service income (expense)	(b	)	$	(368	)	$	1,329		$	(883	)	$	(78	)
Consulting service income (expense)	(f	)	$	127		$	(218	)	$	(127	)	$	218
Property development reimbursement (cost incurred)	(d	)	$	—		$	(438	)	$	438		$	—
Interest income (expense) from notes receivable /payable	(h	)	$	—		$	892		$	(892	)	$	—
Interest income (expense) from cash balance/securities sold under agreements to repurchase	(c	)	$	32		$	(348	)	$	316		$	—
Fees received (paid) relating to the issuance of BFC Class A Common Stock	(e	)	$	(1,950	)	$	1,950		$	—		$	—


			At December 31, 2004 and
			For the Year Ended December 31, 2004
						BankAtlantic
(in thousands)			BFC			Bancorp			Levitt			Bluegreen
Cash and cash equivalents and (securities sold under agreements to repurchase)	(c	)	$	1,803		$	(39,641	)	$	37,838		$	—
Notes receivable (payable)	(g	)	$	—		$	46,621		$	(46,621	)	$	—
Shared service income (expense)	(b	)	$	(124	)	$	728		$	(604	)	$
Interest income (expense) from notes receivable/payable	(h	)	$	—		$	2,574		$	(2,574	)	$	—
Interest income (expense) from cash balance/securities sold under agreements to repurchase	(c	)	$	21		$	(251	)	$	230		$	—
Advisory services fees received (paid)	(e	)	$	(280	)	$	280		$	—		$	—

203

~~The table below shows the service fees and rent payments~~

BFC Financial Corporation
Notes to Consolidated Financial Statements


(a)		Effective January 1, 2006, BFC maintained arrangements with BankAtlantic Bancorp, Levitt and Bluegreen to provide shared service operations in the areas of human resources, risk management, investor relations and executive office administration. Pursuant to this arrangement, certain employees from BankAtlantic were transferred to BFC to staff BFC’s shared service operations. The costs of shared services are allocated based upon the usage of the respective services. Also as part of the shared service arrangement, the Company reimburses BankAtlantic Bancorp and Bluegreen for office facilities costs relating to the Company and its shared service operations.

(b)		In 2005, BankAtlantic Bancorp maintained service arrangements with BFC and Levitt, pursuant to which BankAtlantic Bancorp provided certain human resources, risk management, project planning, system support and investor and public relations services. For such services BankAtlantic Bancorp was compensated on a cost plus 5% basis. Additionally, in 2005 Levitt reimbursed BankAtlantic for office facilities costs.

(c)		BFC and Levitt entered into securities sold under agreements to repurchase (“Repurchase Agreements”) with BankAtlantic and the balance in those accounts in the aggregate was approximately $5.5 million, $6.2 million and $39.6 million at December 31, 2006, 2005 and 2004, respectively. Interest in connection with the Repurchase Agreements was approximately $479,000, $348,000 and $2.6 million for the year ended December 31, 2006, 2005 and 2004, respectively. These transactions have the same terms as other BankAtlantic repurchase agreements.

(d)		During the years ended December 31, 2005 and 2004, actions were taken by Levitt with respect to the development of certain property owned by BankAtlantic. Levitt’s efforts included the successful rezoning of the property and obtaining the permits necessary to develop the property for residential and commercial use. At December 31, 2006, BankAtlantic had reimbursed Levitt $438,000 for the costs incurred by it in connection with the development of this project. Levitt has no further involvement in the project.

(e)		During the year ended December 31, 2005, BFC sold 5,957,555 shares of its Class A Common Stock in an underwritten public offering at a price of $8.50 per share. The $1.95 million represents Ryan Beck’s participation as lead underwriter in this offering. Additionally during the year ended December 31, 2004, the Company paid Ryan Beck $280,000 for advisory service.

(f)		In 2005, a subsidiary of BFC received $127,000 in consulting fees for assisting a subsidiary of Levitt in obtaining financing of certain properties. Also during 2005, BankAtlantic Bancorp paid Bluegreen approximately $218,000 for risk management services.

(g)		In connection with the spin-off of Levitt as of December 31, 2003, BankAtlantic Bancorp converted an outstanding $30.0 million demand note owed by Levitt to BankAtlantic Bancorp to a five year term note and prior to the spin-off, BankAtlantic Bancorp transferred its 4.9% ownership interest in Bluegreen Corporation to Levitt in exchange for a $5.5 million note and additional shares of Levitt common stock (which additional shares were distributed as part of the spin-off transaction.) Additionally, prior to the spin-off, Levitt declared an $8.0 million dividend to BankAtlantic Bancorp payable in the form of a five year note. The $5.5 million note was repaid during the year ended December 31, 2004 and the remaining two notes were repaid during the year ended December 31, 2005. Amount remaining in 2005 represents construction loans due from Levitt to BankAtlantic. There were no such loans as of December 31, 2006.

(h)		The interest income (expense) relates to the loans due from Levitt to BankAtlantic and BankAtlantic Bancorp. In 2006 there were no such loans and interest.

BankAtlantic Bancorp in prior periods issued options to acquire shares of BankAtlantic Bancorp’s Class A common stock to employees of Levitt prior to the spin-off and BankAtlantic Bancorp employees that were transferred to BFC on January 1, 2006. BankAtlantic Bancorp has elected, in accordance with the terms of its stock option plans, not to cancel the stock options held by those former employees. BankAtlantic Bancorp accounts for ~~office space rent and back-office support functions for~~these options to former employees as employee stock options because these individuals were employees of BankAtlantic Bancorp on the ~~year ended December 31, 2004 (in thousands):~~

BFC Levitt Total
Service fees and rent to BankAtlantic Bancorp $ 127,327 $ 499,000 $ 627,327

~~The following table sets forth the Company’s management fees in connection with providing general and administrative services to Levitt for~~grant date. During the years ended December 31, 2006, 2005 and 2004, ~~2003~~former employees exercised 51,464, 41,146 and ~~2002~~0 options, respectively, to acquire BankAtlantic Bancorp Class A common stock at a weighted average exercise price of $3.28, $3.52 and $0, respectively.

BankAtlantic Bancorp options outstanding to former employees consisted of ~~(in thousands):~~

For the Years Ended December 31,
2004 2003 2002
Levitt $ 311 $ 213 $ 170

Other affiliates $ 10 $ 10 $ 41

~~In connection with~~ the ~~spin-off of Levitt~~following as of December 31, 2003, BankAtlantic Bancorp converted an outstanding $30.0 million demand note owed by Levitt to BankAtlantic Bancorp to a five year term note with interest only payable monthly initially at the prime rate and thereafter at a prime rate plus increments of an additional 0.25% every six months. Prior to the spin-off, BankAtlantic Bancorp transferred its 4.9% ownership interest in Bluegreen Corporation to Levitt in exchange for a $5.5 million note and additional shares of Levitt common stock (which additional shares were distributed as part of the spin-off transaction.) The note was repaid in May 2004. Additionally, prior to the spin-off, Levitt declared an $8.0 million dividend to BankAtlantic Bancorp payable in the form of a five year note with the same payment terms as the $30.0 million note described above. The outstanding balance of these notes at December 31, 2004 and 2003 was $38.0 million. BankAtlantic also has $8.6 million and $18.1 million of construction loans to Levitt secured by land and improvements at December 31, 2004 and 2003, respectively. The total interest income to BankAtlantic Bancorp and BankAtlantic for the year ended December 31, 2004 and 2003 was $2.4 million and $2.3 million related to loans to Levitt. The outstanding balance of these notes and related interest were not included in the Company’s financial statements as those amounts were eliminated in consolidation. At December 31, 2003, Levitt’s investment in real estate joint ventures included BankAtlantic’s loans of approximately $23.2 million at December 31, 2003. In January 2004, a joint venture loan due to BankAtlantic was repaid in connection with the sale of the joint venture project.2006:


	BankAtlantic Bancorp
	Class A		Weighted
	common		Average
	stock		Price
Options outstanding		306,598	$	10.48
Options unvested		245,143	$	11.39

During the year ended December 31, 2003, BankAtlantic paid a subsidiary of Levitt a $540,000 management fee to operate and sell a residential construction property acquired by BankAtlantic through foreclosure. The property was sold to an unrelated developer during the fourth quarter of 2003.

~~F-74~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

BFC, Levitt and several technology venture partnerships that BFC has controlling interests maintain cash balances at BankAtlantic amounting to $39.6 million as of December 31, 2004. The interest in connection with the above accounts of approximately $251,000 and the cash balances were not included in the Company’s financial statements as those amounts were eliminated in consolidation.

During 1999 and 2000, the Company (without consideration of BankAtlantic Bancorp) acquired interests in unaffiliated technology entities. During 2000 and 2001, the Company’s interests in the technology entities were transferred at the Company’s cost to specified asset limited partnerships. Subsidiaries of the Company are the controlling general partners of these venture partnerships, and therefore, they are consolidated in the Company’s financial statements. The general partners are limited liability companies of which the members are: BFC Financial Corporation – 57.5%, John E. Abdo - 13.75%; Alan B. Levan – 9.25%; Glen R. Gilbert – 2.0% and John E. Abdo, Jr. – 17.5%. At December 31, 2003, the Company’s net investment in these partnerships was $626,000.

In connection with the venture partnerships described above, Alan Levan and John Abdo each borrowed $500,000 from the Company on a recourse basis and Glen Gilbert, Executive Vice President, and Earl Pertnoy, a director of the Company each borrowed $50,000 on a non-recourse basis to make their investments. Subsequently, on July 16, 2002, John Abdo borrowed an additional $3.0 million from the Company on a recourse basis. All borrowings bear interest at the prime rate plus 1% and are, except for the Abdo borrowing, is payable interest only annually with the entire balance due in February 2006. The Abdo borrowing requires monthly interest payments, is due on demand and is secured by 2,127,470 shares of BFC Class A Common Stock and 370,750 shares of BFC Class B Common Stock. Amounts outstanding at December 31, 2004 are $0 from Mr. Levan, $3,282,758 from Mr. Abdo, $19,151 from Mr. Gilbert and $24,854 from Mr. Pertnoy.

~~An affiliated limited partnership,~~2006, BankAtlantic Bancorp and affiliates of the Company were investors in a privately held technology company located in Boca Raton, Florida. The affiliated limited partnership invested $2 million in 219,300 shares in the technology company’s common stock, which shares were acquired in October 2000 at a price per share of $9.12. At December 31, 2001, the carrying value of this investment by the limited partnership had been written downissued to ~~$4.95 per share and in 2002, based on its performance, the technology company was written off entirely by the Company and BankAtlantic Bancorp.~~BFC employees that perform services for BankAtlantic Bancorp ~~invested $15 million in 3,033,386~~options to acquire 50,300 shares of the technology company’s common stock in cash and by issuance to the technology company of 848,364 shares of BankAtlantic Bancorp Class A Common Stock. BankAtlantic Bancorp’s shares in the technology company were acquired in October 1999 at an average price per share of $4.95. Both Alan B. Levan and John E. Abdo became directors of the technology company in connection with the investment. Alan B. Levan owned or controlled direct and indirect interests in an aggregate of 286,709 shares of the technology company common stock, purchased at an average price per share of $8.14 and Mr. John E. Abdo owned or controlled direct and indirect interests in an aggregate of 368,408 shares of the technology company common stock purchased at an average price per share of $7.69. Jarett Levan, a director of BankAtlantic Bancorp and Executive Vice President of BankAtlantic, and Bruno DiGiulian, a director of BankAtlantic Bancorp had a 0.15% and 0.7% ownership interest, respectively, in the limited partnership. BFC and its affiliates collectively owned approximately 7% of the technology company’s outstanding common stock at December 31, 2003. During 2001, Mr. Levan and Mr. Abdo resigned from the Board of Directors of the technology company and initiated a lawsuit on behalf of the Company and others against the founder of the technology company, personally, regarding his role. In early 2003, the technology company initiated a lawsuit against BankAtlantic Bancorp seeking to have a restrictive legend on its BankAtlantic Bancorp’s Class A ~~Common Stock removed. In March 2004,~~common stock at an exercise price of $14.69. These options vest in five years and expire ten years from the ~~technology company settled~~grant date. The Company recognized an expense of $26,000 for the ~~lawsuit with the~~twelve months ended December 31, 2006.

The Company ~~and it affiliates resulting in the Company recognizing a $24 million litigation settlement gain.~~

~~BankAtlantic Bancorp~~ and its subsidiaries utilized certain services of Ruden, McClosky, Smith, Schuster & Russell, P.A. (“Ruden, McClosky”), a law firm to which Bruno DiGiulian, a director of BankAtlantic Bancorp, is of counsel. ~~BankAtlantic paid fees~~ Fees

204

BFC Financial Corporation
Notes to Consolidated Financial Statements

aggregating ~~$239,000~~$526,000, $206,800 and ~~$110,000 and $30,000~~$239,000 were paid by ~~Ryan Beck~~BankAtlantic Bancorp to Ruden, McClosky ~~in 2003~~during the year ended December 31, 2006, 2005 and ~~none in 2004.~~2004, respectively. In addition, fees aggregating ~~$845,000~~$1.6 million and $1.3 million were paid to Ruden, McClosky by Levitt in ~~2003 prior to the spin off of Levitt from BankAtlantic Bancorp. In 2002, fees aggregating $1.0 million were paid to the law firm by BankAtlantic~~2006 and ~~Levitt Corporation.~~2005. Ruden, McClosky also represents Alan B. Levan and John E. Abdo with respect to certain other business interests.

Since 2002, Levitt has utilized certain services of Conrad & Scherer, a law firm in which William R. Scherer, a member of the Levitt’s Board of Directors, is a member. Levitt paid fees aggregating ~~$110,00, $79,000~~$470,000, $914,000 and ~~$364,000~~$110,000 to this firm during the years ended December 31, 2006, 2005 and 2004, ~~2003~~respectively.

In February 2001, John E. Abdo, Vice Chairman of the Company, borrowed $500,000 from the Company on a recourse basis and Glen R. Gilbert, Executive Vice President, and Earl Pertnoy, a director of the Company, each borrowed $50,000 on a non-recourse basis in each case to make investments in a technology company sponsored by the Company. In July 2002, ~~respectively.~~

John E. Abdo borrowed an additional $3.0 million from the Company on a recourse basis. All borrowings bear interest at the prime rate plus 1% payable annually, except for Mr. Abdo payable monthly. The Abdo borrowing required monthly interest payments, was due on demand and was secured by 2,127,470 shares of Class A Common Stock and 370,750 shares of Class B Common Stock. In February 2006, Mr. Gilbert and Mr. Pertnoy paid in full their outstanding loan balance. Amount outstanding at December 31, 2006 for Mr. Abdo was $425,000. Amounts outstanding at December 31, 2005 were $1,990,000 from Mr. Abdo, $19,151 from Mr. Gilbert and $24,854 from Mr. Pertnoy. Amounts outstanding at December 31, 2004 were $3,282,758 from Mr. Abdo, $19,151 from Mr. Gilbert and $24,854 from Mr. Pertnoy. In March 2006, Mr. Abdo paid in full his outstanding loan balance of $425,000.

In March 2004, BankAtlantic Bancorp and a limited partnership settled litigation with a technology company. In connection with that settlement, a $1.1 million gain was recognized. Additionally, in September 2004, a limited partnership in which the Company has a 57% controlling interest delivered its shares of common stock in a technology company for approximately $3.5 million in cash pursuant to the technology company merger agreement. The limited partnership had previously written off its investment in the technology company and accordingly a $3.5 million gain was recognized in September 2004.

Florida Partners Corporation owns 133,314 shares of the Company’s Class B Common Stock and 1,270,294 shares of the Company’s Class A Common Stock. Alan B. Levan may be deemed to beneficially be the principal shareholder and is a member of the Board of Directors of Florida Partners Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the Company holds similar positions at Florida Partners Corporation.

Certain of the Company’s affiliates, including its executive officers, have independently made investments with their own funds in both public and private entities in which the Company holds investments.

Included in BFC’s other assets at December 31, 2006 and 2005 were approximately $7,000 and $131,000, respectively, due from affiliates.

31. Noncontrolling Interest

At December 31, 2006 and 2005, noncontrolling interest was approximately $698.3 million and $696.5 million, respectively. The following table summarizes the noncontrolling interest held by others in our subsidiaries (in thousands):


	December 31,		December 31,
	2006		2005
BankAtlantic Bancorp	$	411,396	$	404,118
Levitt		286,230		291,675
Joint Venture Partnerships		697		729

	$	698,323	$	696,522

~~F-75~~205

BFC Financial Corporation ~~and Subsidiaries~~
Notes to Consolidated Financial Statements

~~The~~

32. Common Stock, 5% Cumulative Convertible Preferred Stock and Dividends

Common Stock

During 2005, the Company ~~has~~sold 5,957,555 shares of its Class A Common Stock pursuant to a ~~49.5% interest~~registered underwritten public offering at $8.50 per share. Net proceeds from the sale by the Company totaled approximately $46.4 million, after underwriting discounts, commissions and ~~affiliates~~offering expenses. Approximately $10.5 million of the net proceeds of the offering were used to repay indebtedness and ~~third parties have a 50.5% interest in a limited partnership formed in 1979, for which~~an additional $10.0 million was used to purchase the ~~Company’s Chairman serves as~~second tranche of Benihana convertible preferred stock. As part of the individual General Partner. The partnership’s primary asset is real estate subject to net lease agreements. The Company’s cost for this investment, approximately $441,000, was written off in 1990 duesame registered offering, certain shareholders of the Company sold to the ~~bankruptcy of the entity leasing the real estate. During each of the years 2004 and 2003, the Company received distributions of approximately $25,000 from the partnership.~~

~~Florida Partners Corporation owns 133,314 shares of the Company’s Class B Common Stock and 1,270,294 confirm~~underwriters 550,000 shares of the Company’s Class A Common Stock. ~~Alan B. Levan may be deemed to beneficially be~~The Company did not receive any proceeds from the ~~principal shareholder and is a member~~sale of ~~the Board~~shares of ~~Florida Partners Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the Company holds similar positions at Florida Partners Corporation.~~

~~Included in BFC’s other assets at December 31, 2004 and 2003 were approximately $101,000 and $138,000, respectively, due from affiliates.~~

~~25. Segment Reporting~~

~~Operating segments are components of an enterprise about which separate financial information is available that is regularly reviewed~~Class A Common Stock by the chief operating decision maker in assessing performance and deciding how to allocate resources. Reportable segments consist of one or more operating segments with similar economic characteristics, products and services, production processes, type of customer, distribution system and regulatory environment. The activities of reportable segments exclude discontinued operations, extraordinary gains (losses) and income (loss) from changes in accounting principles.

The information provided for Segment Reporting is based on internal reports utilized by management. The presentation and allocation of interest expense and overhead and the net contribution for the operating segments may not reflect the actual economic costs, contribution or results of operations of the segments as stand alone businesses. If a different basis of allocation were utilized, the relative contributions of the segments might differ but the relative trends in segments would, in management’s view, likely not be impacted.

As of January 1, 2004, the Company implemented a new internal reporting methodology for evaluating our reportable segment performance. As a result, the Company is currently organized into three reportable segments: Financial Services, Homebuilding and Real Estate Development and Other Operations.

~~The following summarizes the aggregation of the Company’s operating segments into reportable segments:~~

~~Financial Services~~

Financial Services division consists of BankAtlantic Bancorp and its subsidiaries’ operations. Financial Services activities consist of a broad range of banking operations including investments, tax certificates, residential loans purchased, CRA lending, real estate capital services, commercial lending, commercial deposits, consumer and small business lending, ATM operations and branch banking. Also included in Financial Services is a broad range of investment banking and brokerage operations.

~~Homebuilding and Real Estate Development~~

Homebuilding and Real Estate Development division consists of Levitt and its subsidiaries’ operations including Levitt’s investment in Bluegreen. Homebuilding and real estate development are centered around homebuilding, land development of master planned communities, commercial real estate development and investments in other real estate ventures.

~~Other Operations~~

Other Operations results includes of BFC’s real estate owned; loans receivable that relate to previously owned properties; other securities and investments; BFC’s overhead and interest expense and the financial results of venture partnerships which BFC controls. Segment results do not reflect the Company’s equity from earnings in BankAtlantic Bancorp or Levitt, but include the provision for income taxes relating to the tax effect of the Company’s earnings from BankAtlantic Bancorp and Levitt. BankAtlantic Bancorp and Levitt are consolidated in our financial statements, as described earlier.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies. Inter-company loans, interest income and interest expense and management and consulting fees are eliminated for consolidated presentation. The Company evaluates segment performance based on net income after tax.

~~F-76~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The table below reflects the Company’s consolidated data of our business segments for the three years ended December 31, 2004 (in thousands):~~

Homebuilding Adjusting
Financial and Real Estate Other and
2004 Services Development Operations Eliminations Total
Revenues:

Sales of real estate $ — $ 549,652 $ — $ — $ 549,652
Interest and dividend income 260,555 1,338 680 (2,625 ) 259,948
Investment banking 227,949 — — (280 ) 227,669
Other income 116,355 8,078 5,837 (938 ) 129,332

604,859 559,068 6,517 (3,843 ) 1,166,601

Costs and Expenses:

Cost of sale of real estate — 406,274 — (2,374 ) 403,900
Interest expense, net 87,722 259 1,171 (251 ) 88,901
Recovery for loan losses (5,109 ) — — — (5,109 )
Other expenses 412,053 78,269 7,187 (1,218 ) 496,291

494,666 484,802 8,358 (3,843 ) 983,983

110,193 74,266 (1,841 ) — 182,618
Equity in earnings from unconsolidated Subsidiaries 485 19,118 — — 19,603

Income before income taxes 110,678 93,384 (1,841 ) — 202,221
Provision for income taxes 39,910 36,022 8,065 — 83,997

Income (loss) from continuing operations before minority interest 70,768 57,362 (9,906 ) — 118,224
Minority interest in income of consolidated subsidiaries 55,074 47,098 1,822 — 103,994

Income (loss) from continuing operations 15,694 10,264 (11,728 ) — 14,230

Total assets at December 31, 2004 $ 6,356,777 $ 678,467 $ 26,596 $ (106,993 ) $ 6,954,847

~~F-77~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

Homebuilding Adjusting
Financial and Real Estate Other and
2003 Services Development Operations Eliminations Total
Revenues:

Sales of real estate $ — $ 283,058 $ — $ — $ 283,058
Interest and dividend income 261,849 863 390 (1,228 ) 261,874
Investment banking 207,788 — — — 207,788
Other income 73,501 4,765 1,532 (214 ) 79,584

543,138 288,686 1,922 (1,442 ) 832,304

Costs and Expenses:

Cost of sale of real estate — 209,431 — — 209,431
Interest expense, net 113,217 233 1,163 (1,228 ) 113,385
Recovery for loan losses (547 ) — — — (547 )
Other expenses 368,872 43,718 6,646 (213 ) 419,023

481,542 253,382 7,809 (1,441 ) 741,292

61,596 35,304 (5,887 ) (1 ) 91,012
Equity in earnings from unconsolidated subsidiaries 425 7,916 — 1,785 10,126

Income before income taxes 62,021 43,220 (5,887 ) 1,784 101,138
Provision for income taxes 23,424 16,400 3,714 628 44,166

Income (loss) from continuing operations before minority interest 38,597 26,820 (9,601 ) 1,156 56,972
Minority interest in income of consolidated subsidiaries 31,709 20,785 (1,401 ) — 51,093

Income (loss) from continuing operations 6,888 6,035 (8,200 ) 1,156 5,879

Total assets at December 31, 2003 $ 4,831,549 $ 393,505 $ 14,388 $ (103,207 ) $ 5,136,235

selling shareholders.

Homebuilding Adjusting
Financial and Real Estate Other and
2002 Services Development Operations Eliminations Total
Revenues:

Sales of real estate $ — $ 207,808 $ — $ — $ 207,808
Interest and dividend income 303,387 1,259 354 (300 ) 304,700
Investment banking 130,738 — — — 130,738
Other income 58,519 3,014 1,161 (179 ) 62,515

492,644 212,081 1,515 (479 ) 705,761

Costs and Expenses:

Cost of sale of real estate — 159,675 — — 159,675
Interest expense, net 148,891 389 1,153 1,445 151,878
Provision for loan losses 14,077 — — — 14,077
Other expenses 302,768 31,670 4,791 (72 ) 339,157

465,736 191,734 5,944 1,373 664,787

26,908 20,347 (4,429 ) (1,852 ) 40,974
Equity in earnings from unconsolidated subsidiaries 1,293 5,419 — 2,615 9,327

Income before income taxes 28,201 25,766 (4,429 ) 763 50,301
Provision for income taxes 9,051 6,254 2,420 268 17,993

Income (loss) from continuing operations before minority interest 19,150 19,512 (6,849 ) 495 32,308
Minority interest in income of consolidated subsidiaries 23,853 15,102 (661 ) — 38,294

Income (loss) from continuing operations (4,703 ) 4,410 (6,188 ) 495 (5,986 )

Total assets at December 31, 2002 $ 5,125,550 $ 295,461 $ 18,118 $ (23,196 ) $ 5,415,933

~~F-78~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

~~The changes in the carrying amount of goodwill for the year ended December 31, 2004 was as follows (in thousands):~~

Homebuilding
Financial and Real Estate
Services Development Total
Balance as of December 31, 2003 $ 76,674 $ — $ 76,674
Bowden acquisition — 1,307 1,307

Balance as of December 31, 2004 $ 76,674 $ 1,307 $ 77,981

~~26. Shareholders’ Equity~~

On February 7, 2005, the Company amended Article IV, Article V and Article VI of its Articles of Incorporation to increase the authorized number of shares of the Company’s Class A Common Stock, par value $.01 per share from 20 million shares to 70 million shares. The Amendment was approved by the written consent of the holders of shares of the Company’s Class A Common Stock and Class B Common Stock representing a majority of the votes entitled to be cast by all shareholders on the Amendment.

The Company’s Articles of Incorporation authorize the Company to issue both a Class A Common Stock, par value $.01 per share, and a Class B Common Stock, par value $.01 per share. On May 22, 2002, the Company’s Articles of Incorporation were amended to, among other things, grant holders of the Company’s Class A Common Stock one vote for each share held, which previously had no voting rights except under limited circumstances provided by Florida law, with all holders of Class A Common Stock possessing in the aggregate 22% of the total voting power. Holders of Class B Common Stock have the remaining 78% of the total voting power. When the number of shares of Class B Common Stock outstanding decreases to 1,800,000 shares, the Class A Common Stock aggregate voting power will increase to 40% and the Class B Common Stock will have the remaining 60%. When the number of shares of Class B Common Stock outstanding decreases to 1,400,000 shares, the Class A Common Stock aggregate voting power will increase to 53% and the Class B Common Stock will have the remaining 47%. Also, each share of Class B Common Stock is convertible at the option of the holder thereof into one share of Class A Common Stock.

The Company’s Articles of Incorporation authorize the issuance of up to 10 million shares of $.01 par value preferred stock. The Board of Directors has the authority to divide the authorized preferred stock into series or classes having the relative rights, preferences and limitations as may be determined by the Board of Directors without the prior approval of shareholders. The Board of Directors has the power to issue this preferred stock on terms that would create a preference over the Company’s Common Stock with respect to dividends, liquidation and voting rights. No further vote of security holders would be required prior to the issuance of the shares. During 2004. 15,000 shares of 5% cumulative convertible preferred stock were issued with a stated valued of $1,000 per share.

On January 10, 1997, the Company’s Board of Directors adopted a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a dividend distribution of one preferred stock purchase right (the “Right”) for each outstanding share of BFC’s Class B Common Stock to shareholders of record on January 21, 1997. Each Right will become exercisable only upon the occurrence of certain events, including the acquisition of 20% or more of BFC’s Class B Common Stock by persons other than the existing control shareholders (as specified in the Rights Plan), and will entitle the holder to purchase either BFC stock or shares in the acquiring entity at half the market price of such shares. The Rights may be redeemed by the Board of Directors at $.01 per Right until the tenth day following the acquisition of 20% or more of BFC’s Class B Common Stock by persons other than the existing controlling shareholders. The Board may also, in its discretion, extend the period for redemption. The Rights ~~will expire~~Plan expired on January 10, 2007.

~~27.~~

5% Cumulative Convertible Preferred Stock

The Company’s authorized capital stock includes 10 million shares of preferred stock at a par value of $.01 per share. On June 7, 2004 the Board of Directors of the Company designated 15,000 shares of the preferred stock as 5% Cumulative Convertible Preferred Stock (the “5% Preferred Stock”) and on June 21, 2004 sold the shares of the 5% Preferred Stock to an investor group in a private offering. The 5% Preferred Stock has a stated value of $1,000 per share, with conversion rights into the Company’s Class A Common Stock subject to and upon compliance with certain provisions. The shares of 5% Preferred Stock may be redeemed at the option of the Company, at any time and from time to time on or after April 30, 2005, at redemption prices (the “Redemption Price”) ranging from ~~$1,050~~$1,040 per share for the year ~~2005~~2007 to $1,000 per share for the year 2015 and thereafter. The 5% Preferred Stock liquidation preference is equal to its stated value of $1,000 per share plus

~~F-79~~

~~BFC Financial Corporation and Subsidiaries~~
~~Notes to Consolidated Financial Statements~~

any accumulated and unpaid dividends or an amount equal to the Redemption Price in a voluntary liquidation or winding up of the Company. Holders of the 5% Preferred Stock are entitled to receive when and as declared by the Board of Directors, cumulative quarterly cash dividends on each such share at a rate per annum of 5% of the stated value from the date of issuance, payable quarterly. The 5% Preferred Stock has no voting rights except as required by Florida law. Since inception the Company has paid the 5% Preferred Stock dividend.

206

BFC Financial Corporation
Notes to Consolidated Financial Statements

Holders of the 5% Preferred Stock have the option at any time on or after April 30, 2007 to convert the 5% Preferred Stock into shares of the Company’s Class A Common Stock, with the number of shares determined by dividing the stated value of $1,000 per share by the conversion price of ~~$12~~$9.60 per share (“Conversion Price”). The Conversion Price is subject to customary anti-dilution adjustments. The holders may convert their shares of 5% Preferred Stock before April 30, 2007 if i) the Class A Common Stock has a closing price equal to 150% of the Conversion Price then in effect for the 20 consecutive trading days prior to the delivery of a conversion notice or ii) the Company has delivered a redemption notice on or after April 30, 2005.

~~28.~~

Dividends

There are no restrictions on the payment of cash dividends by BFC. BFC has never paid cash dividends.

There are restrictions on the payment of dividends by BankAtlantic to BankAtlantic Bancorp and in certain circumstances on the payment of dividends by BankAtlantic Bancorp to its common shareholders, including BFC. The primary source of funds for payment by BankAtlantic Bancorp of dividends to BFC is currently dividend payments received by BankAtlantic Bancorp from BankAtlantic which are limited by regulations. During the years ended December 31, 2006, 2005 and 2004, BFC received approximately $2.1 million, $1.9 million and $1.8 million, respectively, of dividends from BankAtlantic Bancorp.

Commencing in July 2004, Levitt’s Board of Directors has declared quarterly cash dividends of $0.02 per share on its Class A common stock and Class B common stock. Levitt’s Board has not adopted a policy of regular dividend payments. The payment of dividends in the future is subject to approval by Levitt’s Board of Directors and will depend upon, among other factors, Levitt’s results of operations and financial condition. Levitt cannot assure you that they will declare additional cash dividends in the future. BFC received approximately $66,000 at the time of each of Levitt’s dividends.

33. Subsequent Event

On ~~February 18, 2005, the Company filed~~January 30, 2007, BFC entered into a ~~registration statement on Form S-3 for~~definitive agreement (“Merger Agreement”) with Levitt pursuant to which Levitt will become a ~~proposed underwritten public offering for 3,600,000 shares (4,140,000 shares including the underwriters over-allotment provision)~~wholly-owned subsidiary of ~~the Company’s~~BFC. BFC currently owns all of Levitt’s Class B Common Stock and approximately 11% of Levitt’s Class A Common Stock.

Under the terms of the merger agreement, which has been approved by Special Independent Committees and Boards of Directors of both companies, holders of Levitt’s Class A Common Stock other than BFC will receive 2.27 shares of BFC Class A Common Stock for each share of Levitt Class A Common Stock they hold. Based on BFC’s closing stock price of $6.35 on January 30, 2007, the transaction values each share of Levitt’s Class A Common Stock at $14.41, which represented an approximate 32% premium over market on that date. On that date, the aggregate transaction value was estimated to be approximately $286 million. Levitt’s stock options and restricted stock awards will be converted into BFC options and restricted stock awards. The merger agreement contains certain customary representations, warranties and covenants on the part of BFC and Levitt, and the consummation of the merger is subject to a number of customary closing and termination conditions as well as the approval of both BFC’s and Levitt’s shareholders. Further, in addition to the shareholder approvals required by Florida law, the merger will also be subject to the approval of the holders of Levitt’s Class A Common Stock other than BFC and certain other shareholders.

Based on an ongoing evaluation of costs in view of current market conditions, Levitt reduced their headcount in February by 89 employees resulting in a $440,000 severance charge to be recorded in the first quarter of 2007.

~~F-80~~207

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) to make known material information concerning the Company, including its subsidiaries, to those officers who certify our financial reports and to other members of our senior management. As of ~~the end of the period covered by this report, we~~December 31, 2006, our management carried out an evaluation, ~~under the supervision and~~ with the participation of our principal executive officer and principal financial officer, ~~of the effectiveness of the design and operation~~ of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective ~~in timely alerting them~~ to ~~material~~ensure that information required to be ~~included~~disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information was accumulated and communicated to our ~~periodic SEC reports.~~

management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal controls over financial reporting will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

Further, the design of any control system is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial ~~reporting;~~reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Internal control over financial reporting also includes controls over the preparation of financial statements in accordance with the ~~instructions~~instruction to the ~~Consolidated Financial Statements of Bank Holding Companies (Form FR Y-9C)~~consolidated financial statements for savings and loan holding companies (OTS Form H-(b) 11) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement ~~Act (FDICIA).~~Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ~~Under the supervision and~~Our management, with the participation of ~~our management, including~~ our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~Commission (COSO). Based on ~~our~~such evaluation, ~~under the framework in~~~~Internal Control – Integrated Framework~~, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2004. Our~~2006.

Pricewaterhouse Coopers LLP, our independent registered certified public accountant firm, has audited management’s assessment of the effectiveness of ~~our~~the company’s internal control over financial reporting as of December 31, ~~2004 has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm,~~2006 as stated in their report which ~~is included herein.~~appears in this Annual Report on Form 10-K. See “Financial Statements and Supplementary Data.”

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting


/s/ Alan B. Levan Alan B. Levan
Chief Executive Officer ~~March 15, 2005~~
March 14, 2007

/s/ Glen R. Gilbert Glen R. Gilbert
Chief Financial Officer
March ~~15, 2005~~14, 2007

~~Changes in Internal Controls~~

In addition, we reviewed our internal control over financial reporting, and there were no significant changes in our internal control over financial reporting or in other factors that could significantly affect those controls during the quarter ended December 31, 2004.

ITEM 9B. OTHER INFORMATION

None.

PART III

Items 10 through 14 will be provided by incorporating the information required under such items by reference to the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission, no later than 120 days after the end of the year covered by this Form 10-K, or, alternatively, by amendment to this Form 10-K under cover of 10-K/A no later than the end of such 120 day period.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ~~AND REPORTS ON FORM 8-K~~

(a)

Documents Filed as Part of this Report:

	(1)		Financial Statements

			The following consolidated financial statements of BFC Financial Corporation and its subsidiaries are included herein under Part II, Item 8 of this Report.

~~Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP dated March 16, 2005.~~
~~Report of Independent Registered Public Accounting Firm of KPMG LLP dated February 3, 2003, except as to note 25 which is as of February 11, 2005~~
~~Consolidated Statements of Financial Condition as of December 31, 2004 and 2003.~~
~~Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2004.~~
~~Consolidated Statements of Comprehensive Income for each of the years in the three year period ended December 31, 2004~~
~~Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2004.~~
~~Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2004.~~
~~Notes to Consolidated Financial Statements for each of the years in the three year period ended December 31, 2004.~~

Report of Independent Registered Certified Public Accounting Firm of PricewaterhouseCoopers LLP dated March 14, 2007.

Report of Independent Registered Public Accounting Firm of Ernst & Young LLP

Consolidated Statements of Financial Condition as of December 31, 2006 and 2005.

Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2006.

Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three year period ended December 31, 2006.

Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended December 31, 2006.

Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2006.

Notes to Consolidated Financial Statements for each of the years in the three year period ended December 31, 2006.

	(2)		Financial Statement Schedules

			All schedules are omitted as the required information is either not applicable or presented in the financial statements or related notes.

(3)		Exhibits

~~(3)~~	~~Exhibits~~

The following exhibits are either filed as a part of this Report or are incorporated herein by reference to documents previously filed as indicated below:


Exhibit
Number	Description	Reference

3.1	Articles of Incorporation, as amended and restated	Exhibit 3.1 of Registrant’s Registration Statement on Form 8-A filed October 16, 1997

3.2	Amendment to Articles of Incorporation, as amended and restated	Exhibit 4 of Registrant’s Registration Statement on Form 8-K filed June 18, 2002 and Appendix A of Registrant’s Schedule 14c filed January 18, 2005

3.3	By-laws	Exhibit 3.2 of Registrant’s Registration Statement on Form 8-A filed October 16, 1997

10.1	BFC Financial Corporation 2005 Stock Incentive Plan	Appendix A to the Registrant’s Definitive Proxy Statement filed on April 18, 2005

10.5	Agreement and Plan of Merger dated as of January 30, 2007 by and among BFC Financial Corporation, LEV Merger Sub, Inc. and Levitt Corporation	Exhibit 2.1 to the Registrant’s Form 8-K filed on January 31, 2007

12.1	~~Statement re computation of ratios —~~ Ratio of earnings to fixed charges	Filed with this Report.

~~14.1~~	~~Code of Business Conduct and Ethics~~

21.1	Subsidiaries of the registrant	Filed with this Report

23.1	Consent of PricewaterhouseCoopers LLP	Filed with this Report

23.2	Consent of ~~KPMG~~Ernst & Young LLP	Filed with this Report


~~Exhibit~~
~~Number~~	~~Description~~	~~Reference~~
31.1	Certification of Chief Executive Officer pursuant
~~31.1~~	to Section 302 of the Sarbanes-Oxley Act of 2002	Filed with this Report

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed with this Report


32.1	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed with this Report

32.2	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed with this Report

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BFC FINANCIAL CORPORATION

March ~~15, 2005~~14, 2007	By:	/s/ Alan B. Levan
	Alan B. Levan, Chairman of the Board,
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Alan B. Levan Alan B. Levan	Chairman of the Board, President and Chief Executive Officer	March 14, 2007
		~~March 15, 2005~~
~~Alan B. Levan~~ /s/ John E. Abdo John E. Abdo	Vice Chairman of the Board ~~President~~
	~~and Chief Executive~~
	~~Officer~~	March 14, 2007

/s/ Glen R. Gilbert Glen R. Gilbert		~~March 15, 2005~~
~~Glen R. Gilbert~~	Executive Vice President ~~And~~
	and Chief Financial Officer

~~/s/ John E. Abdo~~		March ~~15, 2005~~
~~John E. Abdo~~	~~Vice Chairman of the Board~~	14, 2007

/s/ D. Keith Cobb D. Keith Cobb	Director	March ~~15, 2005~~
~~D. Keith Cobb~~	~~Director~~	14, 2007

/s/ Earl Pertnoy Earl Pertnoy	Director	March ~~15, 2005~~
~~Earl Pertnoy~~	~~Director~~	14, 2007

/s/ Oscar J. Holzmann Oscar J. Holzmann	Director	March ~~15, 2005~~
~~Oscar J. Holzmann~~	~~Director~~	14, 2007

/s/ Neil A. Sterling Neil A. Sterling	Director	March ~~15, 2005~~
~~Neil A. Sterling~~	~~Director~~	14, 2007

INDEX TO EXHIBITS


Exhibit		Description

12.1		~~Statement re: computation of ratios —~~ Ratio of earnings to fixed charges

~~14.1~~		~~Code of Business Conduct and Ethics~~

21.1		Subsidiaries of the Registrant

23.1		Consent of PricewaterhouseCoopers LLP

23.2		Consent of ~~KPMG~~Ernst & Young LLP

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	•		Maintaining its Strong Credit Culture.BankAtlantic believes it has put in place ~~stringent~~strong underwriting standards and has ~~developed and~~ instituted credit training programs for its banking officers which emphasize underwriting and credit analysis. It has also developed systems and programs which it believes will enable it to offer sophisticated products and services without exposing ~~the Bank~~BankAtlantic to unnecessary credit ~~risks.~~risk. However, the real estate market in Florida is currently experiencing a slow down and there is no assurance that the credit quality of our assets will not be adversely impacted.

	•	BankAtlantic often pays premiums to acquire loans and mortgage-backed securities, which it amortizes over the life of the asset. If loans or securities are prepaid, the unamortized premium is charged off; and

	•	~~The yield BankAtlantic earns on the reinvestment of funds that it receives on the prepayment of loans and securities is generally less than the yield that it earned on the prepaid assets.~~

	•	~~Investment Banking~~. Ryan Beck has a well established investment banking group proactively focused on financial institutions. Recently, Ryan Beck’s strategy has been to diversify its operations through the addition of investment bankers and capital markets expertise focused on other sector, such as consumer products and services, and business services. Ryan Beck’s investment banking activities includes managing underwritten public offerings, serving as placement agent on institution private financings and acting as an advisor on merger and acquisitions.

	•	~~Private Client Group~~. In April 2002, Ryan Beck acquired certain of the assets and assumed certain of the liabilities of Gruntal & Co., LLC. This transaction enabled Ryan Beck to significantly increase its private client group revenues. The table below shows Ryan Beck’s private client group statistics before the Gruntal transaction and at December 31, 2004.


	December 31, 2004	December 31, 2001
Financial Consultants	450	80
Customer Accounts	136,000	27,000
Customer Assets	$18 billion	$4 billion

	•	~~high net worth individuals,~~

	•	financial institutions, institutional clients (including mutual funds, pension funds, trust companies, insurance companies, LBO funds, private equity sponsors, merchant banks and other long-term investors), and

	•	~~other corporate clients.~~

	•	~~the volatility and price levels of the securities markets,~~

	•	~~the volume, size and timing of securities transactions,~~

	•	~~the demand for investment banking services,~~

	•	~~the level and volatility of interest rates,~~

	•	~~the availability of credit,~~

	•	~~legislation affecting the business and financial communities,~~

	•	~~the economy in general and~~

	•	~~the volatility of equity and debt securities held in inventory.~~

(1)		~~Boomers”~~Investment securities consist of equity instruments purchased through private placements and ~~continuing new employment opportunities. As it completes existing developments~~are accounted for at historical cost adjusted for other-than-temporary declines in ~~these markets, it expects to acquire new land that will not only replenish but also increase its inventory of real estate.~~value.

(2)	•	~~Continuing to acquire land and to develop master-planned communities in desirable markets.~~Levitt intends to acquire land parcels in desirable markets that are suited for developing large master-planned communities. Generally, land sale revenues tend to be sporadic and fluctuate more than home sale revenues, but land sale transactions result in higher margins, which typically exceed 40%. Its land development activities in its master-planned communities complement its homebuilding activities by offering a potential source of land for future homebuilding. At the same time, its homebuilding activities complement its master-planned community development activities since it believes that its strong merchandising and quality developments support future land sales in its master-planned communities. Levitt expects that its Homebuilding Division will continue to purchase land for its residential home developments in its master-planned communities in the future.

	•	~~Exploring joint ventures and/or acquisitions to expand its penetration throughout~~The table excludes the ~~United States.~~~~Levitt believes that its brands and its core competence~~equity securities of Stifel received as a homebuilder and real estate developer can be extended to new markets both inside and outside of Florida and the Southeastern United States. Its plans to supplement its growth through selective acquisitions and joint ventures in both new and existing markets to enable it to more rapidly extend its competencies in active adult communities and land development.

	•	~~Maintain a conservative risk profile.~~Levitt attempts to apply a disciplined risk management approach to its business activities. Other than its model homes, the majority of its homes are pre-sold before construction begins. Levitt generally requires customer deposits of 5% to 10%result of the ~~base sales price~~merger of its homes, and requires a higher percentage deposit for design customizations and upgrades. As a result, it strengthens its backlog and lowers its risk of cancellation. It seeks to maintain its homebuilding land inventory at levels that can be absorbed within three to five years. While its land inventoryRyan Beck into Stifel because the transaction closed in Tradition, its newest master-planned community, can support eight to ten years of development, it can mitigate the risk associated with this investment by selling parcels to other developers throughout the development period. Alternatively, early sales can provide it with funds that allow it to assemble substantially more acreage with less required additional capital investment. It can also utilize this early sales strategy to improve the attractiveness of the development. For instance, it sold approximately 1,000 acres adjacent to Tradition which it expects to be developed with one or more golf courses, thereby adding an attractive amenity to the area near the development.

	•	~~Utilizing community development districts to fund development costs~~. Levitt establishes community development or improvement districts to access bond financing to fund infrastructure and other projects at its master-planned community developments. The ultimate owners of the property within the district are responsible for amounts owed on these bonds as part of an assessment on their property tax bills. Generally, no payments under the bonds are required from property owners during the first two years after issuance. While Levitt is responsible for these amounts until the affected property is sold, this strategy allows it to more effectively manage the cash required to fund development of the project.

	•	~~Pursuing other strategic real estate opportunities.~~Currently, Levitt owns approximately 31% of the outstanding common stock of Bluegreen. Bluegreen is an independently operated company that primarily acquires, develops, markets and sells vacation ownership interests in “drive-to” resorts and develops and sells residential home sites around golf courses or other amenities. In the future, Levitt may pursue strategic investments in other real estate related businesses.February 2007.

	•	~~the availability and cost of financing;~~

	•	~~unfavorable interest rates and increases in inflation;~~

	•	~~overbuilding or decreases in demand;~~

	•	~~changes in the general availability of land and competition for available land;~~

	•	construction defects and warranty claims arising in the ordinary course of business, including mold related property damage and bodily injury claims and homeowner and homeowners’ association lawsuits;

	•	~~potential adverse customer reaction to the requirement to assume Community Development District bond obligations;~~

	•	~~changes in national, regional and local economic conditions;~~

	•	~~cost overruns, inclement weather, and labor and material shortages;~~

	•	~~the impact of present or future environmental legislation, zoning laws and other regulations;~~

	•	~~availability, delays and costs associated with obtaining permits, approvals or licenses necessary to develop property; and~~

	•	~~increases in real estate taxes and other governmental fees.~~


	Number of		Planned		Closed				Sold		Net Units
	Communities		Units (a)		Units		Inventory		Backlog		Available
Active Adult Communities
Current Developments (includes optioned lots)		15		10,629		3,262		7,367		767		6,600
Properties Under Contract to be Acquired (b)		1		690		0		690		0		690

Total Active Adult		16		11,319		3,262		8,057		767		7,290


Family Communities
Current Developments (includes optioned lots)		33		7,271		3,200		4,071		481		3,590
Properties Under Contract to be Acquired (b)		0		0		0		0		0		0

Total Family		33		7,271		3,200		4,071		481		3,590


TOTAL HOMEBUILDING
Current Developments (includes optioned lots)		48		17,900		6,462		11,438		1,248		10,190
Properties Under Contract to be Acquired (b)		1		690		0		690		0		690

TOTAL HOMEBUILDING		49		18,590		6,462		12,128		1,248		10,880


													Third
									Non-				party
	Date		Acres		Closed		Current		Saleable		Saleable		Backlog		Acres
	Acquired		Acquired		Acres		Inventory		Acres (a)		Acres (a)		(b)		Available
Currently in Development
Tradition, Florida		1998 – 2004		8,246		1,757		6,489		2,431		4,058		37		4,021
Tradition, South Carolina		2005		5,390		160		5,230		2,417		2,813		37		2,776

Total Currently in Development				13,636		1,917		11,719		4,848		6,871		74		6,797


	Full		Part
	Time		Time
Homebuilding		544		25
Land		59		7
Other Operations		63		—


Total		666		32


	Miami-
	Dade		Broward		Palm Beach		Tampa Bay
Owned full-service branches		4		11		26		3
Leased full-service branches		8		12		5		5

Total full-service branches		12		23		31		8


Lease expiration dates		2005-2012		2005-2012		2005-2011		2006-2008


	Miami -				Palm		Tampa		Orlando /
	Dade		Broward		Beach		Bay		Jacksonville
Owned full-service stores		7		10		24		4		—
Leased full-service stores		13		12		5		9		—
Ground leased full-service stores (1)		1		2		1		—		—

Total full-service stores		21		24		30		13		—

Lease expiration dates		2007-2026		2007-2015		2008-2012		2007-2027		—

Ground lease expiration dates		2026		2020-2072		2026		—		—


	Lease		Number of
Locations	Expiration		Offices

California		2006		1
Connecticut		2005 — 2009		3
Florida		2005 — 2010		2
Georgia		2005		1
Illinois		2008		1
Maryland		2009		1
Massachusetts		2006 — 2008		4
Nevada		2005		1
New Jersey		2006 — 2019		7
New York		2005 — 2011		7
Ohio		2008		1
Pennsylvania		2006 — 2011		5
Virginia		2007		1

				35


Class A Common Stock:	High		Low
2003
First Quarter	$	2.31	$	1.78
Second Quarter		3.89		1.87
Third Quarter		5.30		3.42
Fourth Quarter		7.60		5.07

2004
First Quarter	$	11.04	$	6.86
Second Quarter		10.99		8.06
Third Quarter		9.35		7.37
Fourth Quarter		10.65		8.12


Class B Common Stock:	High		Low
2003
					High		Low
Class A Common Stock:

2005
First Quarter	$	2.14	$	1.82	$	11.34	$	9.04
Second Quarter		3.89		2.14		10.29		7.81
Third Quarter		4.87		3.44		9.00		6.81
Fourth Quarter		8.19		4.91		7.05		4.90

2004
2006
First Quarter	$	10.88		6.66	$	6.64	$	5.35
Second Quarter		10.88		7.36		8.16		5.69
Third Quarter		9.04		7.28		7.10		4.35
Fourth Quarter		10.40		8.20		7.06		4.80


	High		Low
Class B Common Stock:

2005
First Quarter	$	11.12	$	9.20
Second Quarter		10.70		7.80
Third Quarter		8.70		7.00
Fourth Quarter		6.75		4.85
2006
First Quarter	$	6.50	$	5.25
Second Quarter		7.70		5.70
Third Quarter		8.25		5.00
Fourth Quarter		6.80		4.85


						Total Number of
						Shares Purchased as		Maximum Number of shares that
						Part of Publicly		May Yet Be Purchased
	Total Number of			Average price		Announced Plans		Under the Plans or
Period	Shares Purchased			per share		or Programs (2)		Programs
October 1, 2004 through October 31, 2004		—		$	—		—		—
November 1, 2004 through November 30, 2004		—			—		—		—
December 1, 2004 through December 31, 2004		629,852	(1)		9.40		—		—

Total		629,852		$	9.40		—		—



	12/31/2001		12/31/2002		12/31/2003		12/31/2004		12/31/2005		12/31/2006
BFC Financial Corporation		100		100		343		499		263		321
DJ Wilshire 5000 Index		100		78		101		112		117		133
Nasdaq Bank Index		100		105		136		151		144		160


	For the Years Ended December 31,
Income Statement	2004		2003		2002			2001		2000
Revenues
Financial Services	$	601,578	$	541,910	$	492,344		$	412,091	$	425,538
Homebuilding and Real Estate Development		558,838		288,686		212,081			147,977		109,126
Other Operations		6,185		1,708		1,336			3,261		9,217

		1,166,601		832,304		705,761			563,329		543,881


Costs and Expenses
Financial Services		494,415		480,314		467,181			372,505		396,940
Homebuilding and Real Estate Development		481,618		253,169		191,662			136,885		98,933
Other Operations		7,950		7,809		5,944			8,852		13,886

		983,983		741,292		664,787			518,242		509,759

Income before income taxes and equity in earnings from unconsolidated subsidiaries		182,618		91,012		40,974			45,087		34,122
Equity in earnings from unconsolidated subsidiaries		19,603		10,126		9,327			2,888		1,141


Income before income taxes, minority interest, discontinued operations, extraordinary items and cumulative effect of a change in accounting principle		202,221		101,138		50,301			47,975		35,263
Provision for income taxes		83,997		44,166		17,993			25,260		17,642
Minority interest in income of consolidated subsidiaries		103,994		51,093		38,294			18,379		14,655

Income (loss) from continuing operations		14,230		5,879		(5,986	)		4,336		2,966
Income from discontinued operations, net of taxes		—		1,143		2,536			—		669
Income from extraordinary items, net of taxes		—		—		23,749			—		—
Income (loss) from cumulative effect of a change in accounting principle, net of taxes		—		—		(15,107	)		1,138		—

Net income	$	14,230	$	7,022	$	5,192		$	5,474	$	3,635
Amortization of goodwill, net of tax		—		—		—			735		791

Net income adjusted to exclude goodwill amortization		14,230		7,022		5,192			6,209		4,426
5% Preferred Stock dividends		392		—		—			—		—

Net income available to common shareholders	$	13,838	$	7,022	$	5,192		$	6,209	$	4,426


	National
	Market price			Price		Valuation
	Quotes			Matrix		Model		Total
Investment securities
Mortgage-backed securities	$	—		$	500,517	$	—	$	500,517
Tax exempt securities		—			353,441		—		353,441
Other securities		—			—		585		585
Equity securities		27,545			—		—		27,545

Total investment securities		27,545			853,958		585		882,088

Trading securities
Securities owned		125,443			—		—		125,443
Securities sold not yet purchased		(39,462	)		—		—		(39,462	)

Total Trading securities		85,981			—		—		85,981

Derivatives		—			—		49		49

Total	$	113,526		$	853,958	$	634	$	968,118


										Change			Change
	For the Ended Years December 31,									2004 vs.			2003 vs.
(In thousands)	2004			2003			2002			2003			2002
Revenues
Interest and dividend income	$	260,555		$	261,849		$	303,387		$	(1,294	)	$	(41,538	)
Investment banking		227,949			207,788			130,738			20,161			77,050
Other income		116,355			73,501			58,519			42,854			14,982

		604,859			543,138			492,644			61,721			50,494

Cost and Expenses
Interest expense, net		87,722			113,217			148,891			(25,495	)		(35,674	)
(Recovery) provision for loan losses		(5,109	)		(547	)		14,077			(4,562	)		(14,624	)
Employee compensation and benefits		255,064			226,940			166,979			28,124			59,961
Occupancy and equipment		48,146			40,036			39,196			8,110			840
Advertising and promotion		21,036			12,724			10,447			8,312			2,277
Impairment of securities		—			—			18,801			—			(18,801	)
Amortization of intangible assets		1,715			1,772			1,360			(57	)		412
Cost associated with debt redemption		11,741			12,543			3,125			(802	)		9,418
Acquisition-related charges and impairments		—			—			4,925			—			(4,925	)
Other expenses		74,351			74,857			57,935			(506	)		16,922

		494,666			481,542			465,736			13,124			15,806

		110,193			61,596			26,908			48,597			34,688

Equity in earnings from unconsolidated subsidiaries		485			425			1,293			60			(868	)

Income before income taxes		110,678			62,021			28,201			48,657			33,820
Provision for income taxes		39,910			23,424			9,051			16,486			14,373

Income from continuing operations before minority interest		70,768			38,597			19,150			32,171			19,447
Minority interest		55,074			31,709			23,853			23,365			7,856

Income from continuing operations	$	15,694		$	6,888		$	(4,703	)	$	8,806		$	11,591


	December 31, 2004						December 31, 2003						December 31, 2002
			ALL		Loans				ALL		Loans				ALL		Loans
	Allowance		to gross		to gross		Allowance		to gross		to gross		Allowance		to gross		to gross
	for		Loans		loans		for		loans		loans		for		loans		loans
(Dollars in thousands)	Loan Losses		Percent		Percent		Loan Losses		Percent		Percent		Loan Losses		Percent		Percent
Commercial business	$	2,507		2.94		1.59	$	1,715		2.15		1.81	$	1,437		1.75		2.06
Commercial real estate		23,345		0.92		47.28		24,005		0.99		55.12		21,124		1.05		50.75
Small business		2,403		1.26		3.55		2,300		1.44		3.63		2,863		1.99		3.61
Residential real estate		2,565		0.12		38.57		2,111		0.16		30.56		2,512		0.18		34.60
Consumer		4,281		0.90		8.86		3,900		1.10		8.07		3,239		1.13		7.19
Discontinued loan products		1,431		17.26		0.15		4,553		12.81		0.81		10,290		14.46		1.79

Total assigned		36,532						38,584						41,465
Unassigned		9,478		N/A		N/A		7,011		N/A		N/A		6,557		N/A		N/A

	$	46,010		0.86		100.00	$	45,595		1.04		100.00	$	48,022		1.21		100.00


	December 31, 2001						December 31, 2000
			ALL		Loans				ALL		Loans
	Allowance		to gross		to gross		Allowance		to gross		to gross
	for		loans		loans		for		loans		loans
	Loan Losses		Percent		Percent		Loan Losses		Percent		Percent
Commercial business	$	1,563		2.02		2.37	$	1,502		1.00		4.64
Commercial real estate		13,682		0.82		50.87		10,072		0.77		40.25
Small business		1,073		1.53		2.14		785		2.56		0.94
Residential real estate		1,304		0.12		34.08		1,540		0.12		40.52
Consumer — direct		2,064		1.07		5.86		2,989		1.89		4.86
Discontinued loan products		22,593		14.74		4.68		26,712		9.36		8.79

Total assigned		42,279						43,600
Unassigned		2,306		N/A		N/A		3,400		N/A		N/A

	$	44,585		1.36		100.00	$	47,000		1.45		100.00

	•	The number of full time equivalent BankAtlantic employees increased to 1,650 at year-end 2004 versus 1,403 at year-end 2003 and 1,244 at year-end 2002. In 2002, 172 employees were added as a result of the Community acquisition. The remainder of personnel growth during the past three years primarily related to the additional personnel required to implement BankAtlantic’s commitment to provide extended banking hours and high service levels to the increased number of BankAtlantic customers resulting from the Florida’s Most Convenient Bank campaign.

	•	~~In addition to the increase in the number of employees, the cost of BankAtlantic Bancorp regular benefit programs also increased, primarily due to rising health insurance costs.~~

	•	~~Approximately $5.7 million in bonuses were paid in 2004 to employees of BankAtlantic for exceeding targeted performance goals, versus $3.6 million in 2003 and zero in 2002.~~

	•	An increase in Ryan Beck’s employee compensation and benefits of 8% from 2003 primarily due to the increase in the firm’s bonuses which is correlated to the increased investment banking revenues and the increase in Ryan Beck’s revenues from 2003.

	•	~~BFC’s direct purchase of $10 million of Benihana’s Series B Convertible Preferred Stock securities;~~

	•	~~BankAtlantic’s purchase of approximately $1.3 billion of residential real estate loans;~~

	•	~~BankAtlantic’s origination of and participation in $16 billion of commercial real estate loans;~~

	•	~~BankAtlantic’s origination of approximately $400 million of home equity loans;~~

	•	~~BankAtlantic’s purchase of approximately $800 million of securities available for sale and investment securities;~~

	•	BankAtlantic Bancorp’s additions of $49 million of fixed assets associated with BankAtlantic Bancorp’s new corporate headquarter building and BankAtlantic’s branch renovation and expansion initiatives;

	•	~~Levitt’s increase of $26.8 million associated with its acquisition of an office building in Fort Lauderdale, Florida and the construction of an irrigation facility in Tradition;~~

	•	~~Receivable from Ryan Beck’s clearing agent associated with Ryan Beck’s trading activities;~~

	•	Levitt’s net increase in real estate held for development and sale of approximately $158.5 million resulting from land acquisitions in Florida, the acquisition of Bowden and land acquisitions in Tennessee by Levitt, as well as increases in land development and construction costs. These increases in inventory of real estate were partially offset by Levitt’s sales of homes and land.

	•	~~Higher real estate inventory related to increased construction activity by the Riverclub real estate joint venture acquired by BankAtlantic in connection with the Community acquisition;~~

	•	~~BankAtlantic’s increases in accrued interest receivable due to higher loan receivable and securities balances; and~~

	•	~~BankAtlantic’s higher Federal Home Loan Bank stock balances associated with a substantial increase in FHLB advance borrowings.~~

	•	~~BankAtlantic’s higher deposit account balances resulting from the growth in low-cost deposits associated with Florida’s Most Convenient Bank and totally free checking account initiatives.~~

	•	~~BankAtlantic’s increases in short-term borrowings and FHLB advances to fund loan and securities growth;~~

	•	Increases in notes and mortgage notes payable at Levitt of $94.1 million, primarily related to the land acquisitions, the assumption of debt in connection with the Bowden acquisition and the issuance of a $16.5 million bridge loan to finance the purchase of an office building by Levitt;


	Outstanding
	on
	December 31,		For the Period Ending December 31, (1)
					2008-						2020-
	2006		2007		2009		2010-2014		2015-2019		2024		>2025
Commercial real estate	$	2,109,741	$	942,068	$	688,677	$	230,436	$	184,308	$	60,380	$	3,872
Residential real estate		2,167,819		55,641		26,893		42,059		334,732		15,316		1,693,178
Consumer (2)		588,164		1,477		2,257		69,892		389,972		124,566		—
Commercial business		255,334		122,103		42,937		88,569		1,725		—		—

Total loans	$	5,121,058	$	1,121,289	$	760,764	$	430,956	$	910,737	$	200,262	$	1,697,050


Total securities Available for sale (3)	$	558,863	$	996	$	3,410	$	83,905	$	150,424	$	1,771	$	318,357


	Commercial		Real Estate
	Business		Construction		Total
One year or less	$	243,118	$	846,216	$	1,089,334
Over one year, but less than five years		11,959		11,683		23,642
Over five years		257		1,657		1,914

	$	255,334	$	859,556	$	1,114,890


Due After One Year:
Pre-determined interest rate	$	12,216	$	13,340	$	25,556
Floating or adjustable interest rate		—		—		—

	$	12,216	$	13,340	$	25,556


						Minimum Ratios
						Adequately			Well
	Actual					Capitalized			Capitalized
	Amount		Ratio			Ratio			Ratio
At December 31, 2006:
Total risk-based capital	$	529,497		12.08	%		8.00	%		10.00	%
Tier 1 risk-based capital	$	460,359		10.50	%		4.00	%		6.00	%
Tangible capital	$	460,359		7.55	%		1.50	%		1.50	%
Core capital	$	460,359		7.55	%		4.00	%		5.00	%

At December 31, 2005:
Total risk-based capital	$	512,664		11.50	%		8.00	%		10.00	%
Tier 1 risk-based capital	$	446,419		10.02	%		4.00	%		6.00	%
Tangible capital	$	446,419		7.42	%		1.50	%		1.50	%
Core capital	$	446,419		7.42	%		4.00	%		5.00	%