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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2002
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Commission File Number: 333-72213
BFC FINANCIAL CORPORATION
State of Incorporation: Florida
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I.R.S. Employer Identification Number: 59-2022148
1750 East Sunrise Boulevard, Fort Lauderdale, Florida 33304
(954) 760-5200
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding for each of the Registrant's classes
of common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,474,994 shares outstanding.
Class B Common Stock of $.01 par value, 2,402,157 shares outstanding.
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of June 30, 2002
and December 31, 2001 - Unaudited
Consolidated Statements of Operations for the six and three month
periods ended June 30, 2002 and 2001 - Unaudited
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the six months ended June 30, 2002 and 2001 - Unaudited
Consolidated Statements of Cash Flows for the six months ended June
30, 2002 and 2001 - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition - Unaudited
June 30, 2002 and December 31, 2001
(In thousands, except share data)
2002 2001
---------- ----------
ASSETS
Cash and due from depository institutions $ 154,069 $ 124,383
Securities purchased under resell agreements 149 156
Investment securities and tax certificates (approximate fair value:
$461,020 and $434,470) 453,778 428,718
Loans receivable, net 3,566,452 2,776,624
Securities available for sale, at fair value 806,961 859,483
Trading securities, at fair value 210,132 68,296
Accrued interest receivable 36,714 33,787
Real estate held for development and sale and joint ventures 237,297 183,163
Equity method investment 58,205 --
Office properties and equipment, net 92,833 61,786
Federal Home Loan Bank stock, at cost which approximates fair value 60,732 56,428
Deferred tax asset, net 16,108 --
Goodwill 98,633 39,859
Core deposit intangible asset 14,664 --
Other assets 98,521 32,676
---------- ----------
Total assets $5,905,248 $4,665,359
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $2,980,098 $2,276,567
Advances from FHLB 1,218,926 1,106,030
Securities sold under agreements to repurchase 491,735 406,070
Federal Funds purchased 80,000 61,000
Subordinated debentures, notes and bonds payable 209,143 145,484
Guaranteed preferred beneficial interests in Bancorp's Junior
Subordinated Debentures 155,125 74,750
Deferred tax liability, net -- 3,916
Securities sold not yet purchased 68,325 38,431
Due to clearing agent 94,312 9,962
Other liabilities 171,251 120,557
---------- ----------
Total liabilities 5,468,915 4,242,767
---------- ----------
Minority interest 359,683 348,420
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 6,474,994 in 2002 and 6,461,994 in 2001 58 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,402,157 in 2002 and 2,366,157 in 2001 22 21
Additional paid-in capital 24,498 24,206
Retained earnings 50,680 47,195
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Total stockholders' equity before
accumulated other comprehensive income 75,258 71,480
Accumulated other comprehensive income 1,392 2,692
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Total stockholders' equity 76,650 74,172
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Total liabilities and stockholders' equity $5,905,248 $4,665,359
========== ==========
See accompanying notes to unaudited consolidated financial statements.
3
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
For the Three and Six Month Periods Ended June 30, 2002 and 2001
(In thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ------------------------
Interest income: 2002 2001 2002 2001
-------- -------- --------- ---------
Interest and fees on loans and leases $ 59,382 $ 61,645 $ 106,510 $ 125,549
Interest and dividends on securities available for sale 11,818 13,324 23,903 26,733
Interest and dividends on other investment and trading securities 11,578 8,792 20,279 17,828
-------- -------- --------- ---------
Total interest income 82,778 83,761 150,692 170,110
-------- -------- --------- ---------
Interest expense:
Interest on deposits 17,106 23,089 32,432 47,533
Interest on advances from FHLB 15,676 14,660 30,596 29,361
Interest on securities sold under agreements to repurchase
and federal funds purchased 2,113 7,142 3,497 16,774
Interest on subordinated debentures, notes and bonds payable
and guaranteed beneficial interests in Bancorp's Junior
Subordinated Debentures 6,751 6,897 11,640 13,965
Capitalized interest on real estate developments and joint ventures (1,613) (1,447) (2,831) (3,018)
-------- -------- --------- ---------
Total interest expense 40,033 50,341 75,334 104,615
-------- -------- --------- ---------
Net interest income 42,745 33,420 75,358 65,495
Provision for loan losses 6,139 4,040 8,704 6,801
-------- -------- --------- ---------
Net interest income after provision for loan losses 36,606 29,380 66,654 58,694
-------- -------- --------- ---------
Non-interest income:
Investment banking income 37,862 10,202 50,910 19,055
Net revenues from sales of real estate and joint venture activities 12,466 7,420 24,443 14,687
Income from equity method investment 1,741 -- 1,741 --
Service charges on deposits 5,688 3,890 10,550 7,770
Other service charges and fees 3,550 3,811 6,655 7,372
Gains on trading securities and securities available for sale 3,083 1,695 6,122 2,051
Impairment of securities (19,740) (1,570) (19,740) (1,791)
Other 5,248 2,232 7,448 4,874
-------- -------- --------- ---------
Total non-interest income 49,898 27,680 88,129 54,018
-------- -------- --------- ---------
Non-interest expense:
Employee compensation and benefits 54,746 23,595 82,486 47,730
Occupancy and equipment 11,366 6,974 18,527 13,897
Advertising and promotion 3,680 2,407 5,879 3,919
Amortization of intangible assets 454 1,049 454 2,074
Restructuring charges and impairment write-downs 1,007 (219) 1,007 (219)
Acquisition related charges and impairments 3,922 -- 4,996 --
Other 19,118 11,613 30,672 21,975
-------- -------- --------- ---------
Total non-interest expense 94,293 45,419 144,021 89,376
-------- -------- --------- ---------
(Loss) income before income taxes, minority interest,
extraordinary itme and cumulative effect
of a change in accounting principle (7,789) 11,641 10,762 23,336
(Benefit) provision for income taxes (2,201) 5,273 5,259 10,782
Minority interest in consolidated subsidiaries 16,189 4,983 25,828 9,952
-------- -------- --------- ---------
(Loss) income before extraordinary item and cumulative
effect of a change in accounting principle (21,777) 1,385 (20,325) 2,602
Extraordinary item (less applicable income taxes of $2,711) 23,810 -- 23,810
Cumulative effect of a change in accounting principle
(less applicable income taxes of $683) -- -- -- 1,138
-------- -------- --------- ---------
Net income 2,033 1,385 3,485 3,740
Amortization of goodwill, net of tax and minority interest -- 215 -- 432
-------- -------- --------- ---------
Net income adjusted to exclude goodwill amortization $ 2,033 $ 1,600 $ 3,485 $ 4,172
======== ======== ========= =========
(continued)
See accompanying notes to unaudited consolidated financial statements.
4
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
For the Three and Six Month Periods Ended June 30, 2002 and 2001
(In thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Basic (loss) earnings per share before extraordinary item
and cumulative effect of a change in accounting principle $ (2.72) $ 0.17 $ (2.54) $ 0.33
Basic earnings per share from extraordinary item 2.97 -- 2.97 --
Basic earnings per share from cumulative effect of a change
in accounting principle -- -- -- 0.14
--------- --------- --------- ---------
Basic earnings per share $ 0.25 $ 0.17 $ 0.43 $ 0.47
========= ========= ========= =========
Diluted (loss) earnings per share before extraordinary item
and cumulative effect of a change in accounting principle $ (2.72) $ 0.16 $ (2.54) $ 0.30
Diluted earnings per share from extraordinary item 2.97 -- 2.97 --
Diluted earnings per share from cumulative effect of a change
in accounting principle -- 0.13
--------- --------- --------- ---------
Diluted earnings per share $ 0.25 $ 0.16 $ 0.43 $ 0.43
========= ========= ========= =========
Basic weighted average number of common shares outstanding 8,011 7,957 8,008 7,957
Diluted weighted average number of common and common
equivalent shares outstanding 8,011 8,722 8,008 8,613
5
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Unaudited
For the Six Months Ended June 30, 2001 and 2002
(In thousands)
Accumulated
Other
Compre- Class A Class B Additional Compre-
hensive Common Common Paid-in Retained hensive
income Stock Stock Capital Earnings Income Total
------- ------ ------ ---------- -------- ----------- -------
Balance, December 31, 2000 $ 58 21 25,788 41,721 5,027 72,615
Net income $ 3,740 -- -- -- 3,740 -- 3,740
-------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (1,231)
Accumulated gains associated
with cash flow hedges 108
Reclassification adjustment for
net gain included in net income (2)
-------
Other comprehensive loss (1,125)
-------
Comprehensive income $ 2,615
=======
Net effect of Bancorp capital
transactions, net of income taxes -- -- (48) -- -- (48)
Net change in accumulated
other comprehensive income,
net of income taxes -- -- -- -- (1,125) (1,125)
------ ------ ------ ------ ------ -------
Balance, June 30, 2001 $ 58 21 25,740 45,461 3,902 75,182
====== ====== ====== ====== ====== =======
Balance, December 31, 2001 $ 58 21 24,206 47,195 2,692 74,172
Net income $ 3,485 -- -- -- 3,485 -- 3,485
-------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (615)
Accumulated loss associated
with cash flow hedges (116)
Reclassification adjustment
for cash flow hedges 37
Reclassification adjustment for
net gain included in net income (606)
-------
Other comprehensive loss (1,300)
-------
Comprehensive income $ 2,185
=======
Net effect of Bancorp capital
transactions, net of income taxes -- -- 88 -- -- 88
Net change in accumulated
other comprehensive income,
net of income taxes -- -- -- -- (1,300) (1,300)
Exercise of stock options -- 1 204 -- -- 205
------ ------ ------ ------ ------ -------
Balance, June 30, 2002 $ 58 22 24,498 50,680 1,392 76,650
====== ====== ====== ====== ====== =======
See accompanying notes to unaudited consolidated financial statements.
6
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
For the Six Months Ended June 30, 2002 and 2001
(In thousands)
For the Six Months
Ended June 30,
------------------------
2002 2001
--------- ---------
Operating activities:
(Loss) income before cumulative effect of a change in accounting principle $ (20,325) $ 2,602
Cumulative effect of a change in accounting principle, net of tax -- 1,138
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Provision for credit losses 9,698 7,573
Change in real estate inventory (39,458) (819)
Minority interest in income of consolidated subsidiaries 25,828 9,952
Equity in joint venture earnings (1,939) (1,196)
Income from equity method investment (1,741) --
Net collections (originations) of loans held for sale activity 14,812 (19,193)
Proceeds from sales of loans classified as held for sale 2,070 13,002
Gains on securities activities (6,122) (2,051)
Impairment of securities 19,740 1,791
Losses (gains) on sales of property and equipment 336 (367)
Gains on sales of in-store branches (384) --
Property and equipment impairment 205 --
Acquisition related impairment 515 --
Depreciation, amortization and accretion, net 2,452 3,546
Amortization of intangible assets 454 2,074
(Increase) decrease in deferred tax asset, net (13,738) 4,617
Bancorp issuance of subsidiary stock options 770 --
Trading activities, net (23,073) 12,444
(Increase) decrease in accrued interest receivable (107) 6,916
Increase in other assets (28,399) (25,467)
Decrease in due to clearing agent (17,355) --
Increase in securities sold not yet purchased 28,616 1,819
Increase in other liabilities 21,987 13,118
--------- ---------
Net cash (used in) provided by operating activities (25,158) 31,499
--------- ---------
Investing activities:
Proceeds from redemption and maturities of investment
securities and tax certificates 100,071 129,813
Purchase of investment securities and tax certificates (142,246) (102,085)
Purchases of securities available for sale (212,973) (238,013)
Proceeds from sales and maturities of securities available for sale 361,415 229,391
Proceeds from sales of FHLB stock 6,509 512
FHLB stock acquired (2,750) (5,000)
Purchases and net (originations) collections of loans and leases (204,512) (123,899)
Proceeds from sales of real estate owned 3,002 3,490
Net additions to office property and equipment (16,265) (5,586)
Increase in equity method investment (53,736) --
Repayments of and (investment in) joint ventures 3,143 (4,464)
Acquisitions, net of cash acquired (52,783) (655)
--------- ---------
Net cash used in investing activities $(211,125) $(116,496)
--------- ---------
(continued)
7
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
For the Six Months Ended June 30, 2002 and 2001
(In thousands)
For the Six Months
Ended June 30,
------------------------
2002 2001
--------- ---------
Financing activities:
Net increase in deposits 87,045 136,020
Reduction in deposits from sale of in-store branches (22,241) --
Repayments of FHLB advances (99,450) (275,246)
Proceeds from FHLB advances 75,000 365,000
Net increase (decrease) in securities sold under agreements to repurchase 85,665 (220,788)
Net increase in federal funds purchased 19,000 97,300
Repayment of notes and bonds payable (34,047) (31,622)
Proceeds from notes and bonds payable 76,315 28,023
Minority interest capital contributions -- 2,241
Issuance of BFC common stock upon exercise of stock options 145 --
Bancorp issuance of common stock 872 405
Issuance of equity method investment common stock (105) --
Issuance of trust preferred securities 80,375 --
Bancorp common stock dividends paid to non-BFC shareholders (2,612) (1,422)
--------- ---------
Net cash provided by financing activities 265,962 99,911
--------- ---------
Increase in cash and cash equivalents 29,679 14,914
Cash and cash equivalents at beginning of period 124,539 88,609
--------- ---------
Cash and cash equivalents at end of period $ 154,218 $ 103,523
========= =========
Supplementary disclosure of non-cash investing and
financing activities
Interest paid $ 77,390 $ 109,725
Income taxes paid 14,013 10,875
Loans transferred to real estate owned 10,822 2,375
Loan net charge-offs 15,349 10,113
Tax certificate net charge-offs 1,178 1,327
Transfer of securities available for sale to equity
method investment 2,728 --
Issuance of notes payable under the Ryan Beck deferred
compensation plan 3,675 --
Increase in equity for the tax effect related to the exercise
of stock option 60 --
Change in stockholders' equity resulting from the change
in other comprehensive income, net of taxes (1,300) (1,125)
Change in stockholders' equity from the net effect
of Bancorp's capital transactions, net of taxes 88 (48)
Decrease in minority interest resulting from the distribution of
its securities investment (8,229) --
Issuance of Bancorp Class A Common Stock upon
conversion of subordinated debentures 25 --
See accompanying notes to unaudited consolidated financial statements.
8
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Presentation of Interim Financial Statements
BFC Financial Corporation and its subsidiaries, identified herein as the
"Company" and "BFC", is a unitary savings bank holding company as a consequence
of its ownership interest in the common stock of BankAtlantic Bancorp, Inc.
("Bancorp"). Bancorp is a diversified financial services holding company that
owns 100% of the outstanding stock of BankAtlantic, Levitt Companies, LLC
("Levitt Companies") and Ryan Beck & Co., LLC ("Ryan Beck"). The Company's
primary asset is the capital stock of Bancorp and its primary activities
currently relate to the operations of Bancorp.
BFC owns shares of Bancorp Class A and Class B Common Stock which represent
55.2% of the combined voting power and 22.6% of Bancorp's outstanding Common
Stock. Because BFC controls greater than 50% of the vote of Bancorp, Bancorp is
consolidated in the Company's financial statements. The percentage of votes
controlled by the Company will determine the Company's consolidation policy,
whereas, the percentage of ownership of total outstanding common stock will
determine the amount of Bancorp's net income recognized by the Company.
In management's opinion, the accompanying consolidated financial statements
contain such adjustments necessary to present fairly the Company's consolidated
financial condition at June 30, 2002 and December 31, 2001, the consolidated
results of operations for the six and three months ended June 30, 2002 and 2001,
the consolidated stockholders' equity and comprehensive income for the six
months ended June 30, 2002 and 2001 and the consolidated cash flows for the six
months ended June 30, 2002 and 2001. Such adjustments consisted only of normal
recurring items except for the extraordinary item and cumulative effect of a
change in accounting principle discussed in Note 4 and Note 10. The accompanying
unaudited consolidated financial statements and related notes are presented as
permitted by Form 10-Q and should be read in conjunction with the notes to the
consolidated financial statements appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 and Form 10-Q for the three
months ended March 31, 2002.
2. Investment in Bancorp and Bancorp's Equity Transactions
At June 30, 2002, the Company owned 8,296,891 shares of Bancorp Class A Common
Stock and 4,876,124 shares of Bancorp Class B Common Stock representing 22.6% of
all outstanding Bancorp Common Stock. At June 30, 2002, the Company's ownership
percentage of Bancorp Class A and Class B Common Stock was approximately 15.5%
and 100%, respectively. At June 30, 2002, the shares of Class A Common Stock and
Class B Common Stock owned by the Company represented approximately 55.2% of the
voting power of all outstanding shares of Bancorp's Common Stock.
The following transactions are additional equity transactions of Bancorp that
impact or could impact the Company's ownership percentage of Bancorp and the
minority interest of others in Bancorp.
Ryan Beck's Board of Directors adopted the Ryan, Beck & Co., LLC Common Unit
Option Plan (the "Plan") effective March 29, 2002. The Plan provides for the
grant of not more than an aggregate 500,000 Common Units representing limited
liability interests of Ryan Beck. As of June 30, 2002, 8,125,000 units of Ryan
Beck were outstanding, all of which are owned by Bancorp.
During the second quarter, 2002, Ryan Beck's Board of Directors granted,
pursuant to the Plan, common unit options to acquire an aggregate of 470,000
common units of Ryan Beck The fair value of the common unit options was
determined based on an independent appraisal. A second quarter compensation
charge of $770,000 associated with these options was based on a fair value
estimate from the independent appraiser.
Upon exercise of the common unit options, Bancorp or Ryan Beck have the right
under certain defined circumstances, starting six months plus one day after the
exercise date to repurchase the common units at fair value as determined by an
independent appraiser. Bancorp and Ryan Beck also have the right of first
refusal on any sale
9
of common units, and Bancorp has the right to require any common unit holder to
sell its units along with Bancorp in the event that Bancorp sells its interest
in Ryan Beck.
In connection with the acquisition of Ryan Beck in June 1998, Bancorp
established a retention pool covering certain key employees of Ryan Beck, under
which 785,866 shares of Bancorp restricted Class A common stock were issued to
these employees. The retention pool was valued at $8.1 million at the
acquisition date and the shares, which vested four years from the date of
acquisition, were treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value of the
restricted shares at the date of the Ryan Beck acquisition. The deferred
compensation awards were granted under the BankAtlantic Bancorp, Inc. Deferred
Compensation Plan. All participant accounts under the plan vested on June 28,
2002 and the remaining participants received in the aggregate 5,941 shares of
Bancorp Class A Common Stock, $3.8 million in cash and notes payable for an
aggregate principal amount of $3.7 million. The notes payable mature on June 28,
2003 and bear interest at 5.75%.
3. Trust Preferred Securities
In June 2002, Bancorp formed BBC Capital Statutory Trust III ("BBC Capital
III"), a statutory business trust, for the purpose of issuing Trust Preferred
Securities. In June 2002, Bancorp participated in a pooled trust preferred
securities offering in which BBC Capital III issued 25,000 Trust Preferred
Securities at a price of $1,000 per security. The Trust Preferred Securities pay
interest quarterly at a floating rate equal to 3-month LIBOR plus 345 basis
points with an initial coupon rate of 5.34%. The gross proceeds from the
offering of $25.0 million were invested in an identical principal amount of
Bancorp's Junior Subordinated Debentures which bear interest at the same
floating rate as the Trust Preferred Securities and have a stated maturity of 30
years. In addition, Bancorp contributed $774,000 to BBC Capital III in exchange
for BBC Capital III's Common Securities and such proceeds were also invested in
an identical principal amount of floating rate Junior Subordinated Debentures.
BBC Capital III's Common Securities are owned entirely by Bancorp. BBC Capital
III's sole asset is $25.8 million in aggregate principal amount of floating rate
Junior Subordinated Debentures. Holders of BBC Capital III's Trust Preferred
Securities and the Trust Common Securities are entitled to receive a cumulative
cash distribution at a floating rate equal to 3-month LIBOR plus 345 basis
points of the $1,000 liquidation amount of each security. The Trust Preferred
Securities will have a preference under certain circumstances with respect to
cash distributions and amounts payable on liquidation, redemption or otherwise
over the Trust Common Securities held by Bancorp. The Trust Preferred Securities
are considered debt for financial accounting and tax purposes. The net proceeds
to Bancorp from the Trust Preferred Securities offering after underwriting
discounts and expenses were approximately $24.2 million.
Bancorp used the proceeds from the above sale of trust preferred securities for
general corporate purposes, including to augment the capital of Ryan Beck in
conjunction with its acquisition of certain assets and the assumption of certain
liabilities of Gruntal & Co., LLC, and to repay a portion of outstanding
borrowings under Bancorp's revolving bank line of credit.
4. Acquisitions
On April 26, 2002, Ryan Beck acquired certain of the assets and assumed certain
of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of the
membership interests in The GMS Group, LLC. ("GMS"), a wholly- owned subsidiary
of Gruntal. Gruntal provides securities brokerage and investment banking
services to individual and institutional investors. GMS is primarily engaged in
the business of buying, selling and underwriting municipal securities. The
assets that were acquired from Gruntal include all of Gruntal's customer
accounts, furniture, leasehold improvements and equipment owned by Gruntal at
the offices where Gruntal's investment consultants are located, assets related
to Gruntal's deferred compensation plan and forgivable loans. 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 investment consultants participating in Gruntal's deferred compensation
plan that accepted employment with Ryan Beck, and the payment of $6.0 million in
cash. Ryan Beck performed an evaluation of each retail branch office and
institutional sales office of Gruntal and put back to Gruntal the lease
obligations and related assets of certain
10
individual offices with contractual terms it deemed unfavorable.
The deferred compensation plan assumed by Ryan Beck was a nonqualified plan
covering select employees that provided participants the opportunity to defer up
to 20 percent of cash compensation. Gruntal provided an annual matching
contribution and in some cases special allocations both of which would vest if
the employee remains employed for ten years from the plan year for which
contributions were made. The obligations were not required to be funded and were
unsecured general obligations to pay in the future the value of the deferred
compensation, adjusted to reflect the performance of selected investment
measurement options chosen by each participant during the deferral period. On
April 26, 2002 Ryan Beck froze the plan, whereby the participants could no
longer make future contributions and related matches ceased. The obligation at
April 26, 2002 was $21 million of which $18.3 million was vested. Ryan Beck is
subject to future expense based on future actuarial values of the plan
obligations. Subsequently, Ryan Beck put in place a retention plan for certain
Gruntal investment consultants, key employees and others during July 2002.
Pursuant to the retention plan, the participants received a length of service
award and a retention award in forgivable notes in the aggregate amounts of
$900,000 and $9.5 million, respectively. The participants received the length of
service award and 50% of the retention award in forgivable notes in the
aggregate amount of $5.7 million in July 2002. The participants can elect to
receive their remaining 50% of the retention award in forgivable notes in
February 2003, or the participants can elect to receive an enhanced award based
on production goals, which will be paid out in the form of forgivable notes in
January 2004. The award based on production goals can be no less than the amount
they would have received on February 2003 assuming all participants remained
employed through the retention award date. 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 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.
The Gruntal transaction was accounted for by the purchase method of accounting.
Under this method of accounting, the acquired assets and assumed liabilities of
Gruntal are recorded at their estimated fair value, and the amount of estimated
fair value of net assets in excess of the purchase price is used to write down
non-financial assets and the remaining balance is recorded as an extraordinary
income item. The operations of the Gruntal transaction were included in the
Company's statement of operations, and the assets and liabilities assumed from
Gruntal were included in the Company's statement of financial condition since
April 26, 2002.
On March 22, 2002, BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A. ("Community"), for $170.3 million in
cash and immediately merged Community into BankAtlantic. The fair value of
Community's assets acquired and liabilities assumed was included in the
Company's statement of financial condition and Community's results of operations
have been included in the Company's consolidated financial statements since
March 22, 2002.
11
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. The
Company is in the process of obtaining third party valuations; therefore, the
allocation of the purchase price is subject to change (in thousands).
Community Gruntal Total
--------- --------- -----------
Cash and interest earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 33,146 112,914
Trading securities -- 118,763 118,763
Loans receivable, net 621,964 -- 621,964
FHLB Stock 8,063 -- 8,063
Investments and advances to joint ventures 16,122 -- 16,122
Goodwill 58,775 -- 58,775
Core deposit intangible asset 15,117 -- 15,117
Other assets 45,070 12,597 57,667
--------- --------- -----------
Fair value of assets acquired 969,856 165,392 1,135,248
--------- --------- -----------
Deposits 639,111 -- 639,111
FHLB advances 138,981 -- 138,981
Other borrowings 14,291 3,427 17,718
Securities sold not yet purchased -- 1,201 1,201
Payable to clearing broker -- 101,705 101,705
Other liabilities 6,674 27,402(1) 34,076
--------- --------- -----------
Fair value of liabilities assumed 799,057 133,735 932,792
Fair value of net assets acquired over cost -- (23,810)(2) (23,810)
--------- --------- -----------
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
========= ========= ===========
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 to Gruntal, $750,000 of acquisition professional
fees and an estimated $1.05 of million contingent consideration payable to
Gruntal. The $1.05 million of contingent consideration to Gruntal relates to
possible deferred compensation plan participant forfeitures and represents the
maximum amount of additional consideration. Pursuant to the terms of the
Acquisition Agreement, during each of the three years beginning October 27,
2002, Ryan Beck is obligated to pay Gruntal & Co. LLC up to $350,000 of
forfeitures each year under the Amended and Restated Gruntal & Co. LLC Deferred
Compensation Plan for each of the years in the three year period ended October
26, 2005.
1. Included in Gruntal's other liabilities were $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. Bancorp recognized an extraordinary gain of $23.8 million, net of
income taxes of $2.7 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 transaction.
Bancorp did not establish a deferred tax liability for the
extraordinary gain associated with the GMS membership interest
acquisition based on the fact that Bancorp acquired the membership
interest in GMS instead of the net assets. Any change in the
purchase accounting adjustments as a result of third party
valuations will be reflected as an adjustment to the extraordinary
gain.
The following is pro forma information for the three and six months ended June
30, 2002 and 2001 and is presented as if the Gruntal and Community transactions
had been consummated on January 1, 2002 and 2001, respectively. The pro forma
information is not necessarily indicative of the combined financial position or
results of operations
12
which would have been realized had the transaction been consummated during the
period or as of the dates for which the pro forma financial information is
presented (in thousands, except for share data).
For the Three Months Ended
----------------------------------------------------
June 30, 2002 June 30, 2001
----------------------------------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Interest income $ 82,778 $ 84,227 $ 83,761 $105,246
Interest expense 40,033 44,450 50,341 62,054
Provision for loan losses 6,139 6,139 4,040 4,130
--------- --------- -------- --------
Net interest income after provision for
loan losses 36,606 33,638 29,380 39,062
--------- --------- -------- --------
(Loss) income before extraordinary item $ (21,777) $ (21,795) $ 1,385 $ 1,130
========= ========= ======== ========
Basic (loss) earnings per share $ (2.72) $ (2.72) $ 0.17 $ 0.14
========= ========= ======== ========
Diluted (loss) earnings per share $ (2.72) $ (2.72) $ 0.16 $ 0.13
========= ========= ======== ========
For the Six Months Ended
----------------------------------------------------
June 30, 2002 June 30, 2001
----------------------------------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Interest income $ 150,692 $ 169,154 $170,110 $214,053
Interest expense 75,334 82,644 104,615 128,869
Provision for loan losses 8,704 10,748 6,801 6,981
--------- --------- -------- --------
Net interest income after provision for
loan losses 66,654 75,762 58,694 78,203
--------- --------- -------- --------
(Loss) income before extraordinary item and cumulative
effect of a change in accounting principles $ (20,325) $ (20,771) $ 2,602 $ 1,531
========= ========= ======== ========
Basic (loss) earnings per share before
extraordinary item and cumulative effect
of a change in accounting principle $ (2.54) $ (2.59) $ 0.33 $ 0.19
========= ========= ======== ========
Diluted (loss) earnings per share before
extraordinary item and cumulative effect
of a change in accounting principle $ (2.54) $ (2.59) $ 0.30 $ 0.18
========= ========= ======== ========
During April 2002, Bancorp and Levitt Companies ownership interest in Bluegreen
Corporation ("Bluegreen"), a New York Stock Exchange-listed company engaged in
the acquisition, development, marketing and sale of 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. Bancorp acquired approximately 5% of Bluegreen
common stock during the first quarter of 2001 and Levitt Companies acquired
approximately 35% of Bluegreen common stock in April 2002. As a consequence of
the acquisition of this interest in Bluegreen at various acquisition dates, it
is accounted for as a step acquisition under the equity method of accounting. In
a step acquisition the purchase price allocation is performed at each
acquisition date and goodwill is recognized with each step purchase.
Additionally, prior period financial statements should be restated to reflect
the results of applying the equity method of accounting to the initial
acquisition; however, Bancorp did not restate its prior year financial
statements due to lack of significance. Under the equity method of accounting
the investment in Bluegreen was recorded at cost and the carrying amount of the
investment is adjusted to recognize our 40% interest in the earnings or loss of
Bluegreen after the acquisition date. Levitt is in the process of determining
the Bluegreen purchase price allocation. The funds for the investment in
Bluegreen were obtained from $29.9 million of borrowings from Bancorp's existing
bank line of credit, proceeds of its trust preferred securities offering,
proceeds from the sale of equity securities from Bancorp's portfolio and Levitt
Companies' working capital.
13
5. Impairment of Securities
During 1999, Bancorp entered into a strategic relationship and invested $10
million in cash and issued 848,364 shares of Class A common stock to acquire an
investment in Seisint, Inc. ("Seisint"), a privately held technology company.
During 2000, a limited partnership in which BFC has approximately a 57%
controlling interest (the "Partnership") also invested $2.0 million in Seisint.
Bancorp had anticipated benefits from this strategic relationship through the
exchange of ideas and cooperation in the development by Seisint of technology
and support systems for use by financial institutions. Additionally, both Alan
B. Levan and John E. Abdo were directors of Seisint and each acquired direct and
indirect interests in Seisint common stock.
Because Seisint has not been able to meet the objectives of its business plan or
its financial performance goals, Bancorp performed an evaluation of its
investment in Seisint to determine if there was an other than temporary decline
in value associated with this investment. As a consequence of this evaluation,
Bancorp wrote off its entire $15 million investment in Seisint during the three
months ended June 30, 2002 and the Partnership wrote off $1.1 million. In
December 2001, the Partnership had written off $916,000 in its investment in
Seisint.
Bancorp also recognized an impairment charge of $3.2 million during the three
months ended June 30, 2002 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. BFC also recognized an impairment charge of $499,000 and $1.1
million during the six month periods ended June 30, 2002 and 2001, respectively,
on other equity securities that were considered other than temporary decline in
value. As a result of Bancorp losses, Bancorp has revised its policy for its
equity investments. Any future equity investments by Bancorp will be limited to
liquid securities and will be subject to significant concentration restrictions.
At June 30, 2002 private equity investments totaled $14.1 million, including
BFC.
6. Trading Securities and Securities Sold Not Yet Purchased
The Ryan Beck gains on trading securities were associated with sales and trading
activities conducted both as principal and as agent on behalf of 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. Included in investment banking income during the
three and six months ended June 30, 2002, realized net revenues from Ryan Beck's
principal transactions of $17.3 million and $24.8 million, respectively, as
compared to net revenues of $3.9 million and $8.4 million during the same 2001
periods.
Ryan Beck's trading securities consisted of the following (in thousands):
June 30, December 31,
2002 2001
-------- ------------
States and municipalities $133,448 $ 7,593
Corporate debt securities 19,535 20,989
U.S. Government and agencies 46,306 32,308
Corporate equities 10,843 7,406
-------- -------
$210,132 $68,296
======== =======
Ryan Beck's securities sold not yet purchased consisted of the following (in
thousands):
June 30, December 31,
2002 2001
-------- ------------
States and municipalities $ 16,367 $ --
Corporate debt securities 11,728 21,305
U.S. Government and agencies 33,487 15,244
Corporate equities 6,743 1,882
-------- -------
$ 68,325 $38,431
======== =======
14
7. Loans Held for Sale
BankAtlantic currently originates CRA residential loans for resale and refers
its residential loan customers to an unaffiliated lender. During June 2000,
BankAtlantic discontinued its commercial non-mortgage syndication lending
activities and transferred the entire portfolio to loans held for sale.
Loans held for sale consisted of the following (in thousands):
June 30, December 31,
2002 2001
-------- ------------
Residential $ 9,241 $ 4,757
Commercial syndication 19,506 40,774
------- -------
Total loans held for sale $28,747 $45,531
======= =======
In February 2001, BFC originated several loans to officers and directors
totaling approximately $1.1 million, $100,000 of which are nonrecourse 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 1,019,564 shares of BFC
Class A Common Stock and 370,750 shares of BFC Class B Common Stock.
8. Real Estate Held for Development and Sale and Joint Venture Activities
Real estate held for development and sale and joint venture activities consisted
of the combined activities of Core Communities, Levitt and Sons, Levitt
Companies' joint venture activities and a joint venture acquired in connection
with the Community Savings acquisition. Core Communities is a developer of
master planned residential commercial and industrial communities in Florida.
Levitt and Sons is a developer of single-family home communities and condominium
and rental apartment complexes primarily in Florida. BankAtlantic's investment
and advances to the joint venture development acquired in connection with the
Community Savings acquisition was $17.8 million at June 30, 2002. This
development of single family homes, condominium units and duplexes is located on
117 acres of land in Indian River County, Florida. Also included in real estate
held for development and sale and joint venture activities is BFC's real estate
which include Burlington Manufacturers Outlet Center ("BMOC"), a shopping center
in North Carolina and the unsold land at Center Port. In March 2001, the
Company's 50% ownership interest in Delray Industrial Park was sold and the
Company recognized a net gain of approximately $1.3 million.
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
June 30, December 31,
2002 2001
-------- ------------
Land and land development costs $148,802 $114,499
Construction costs 23,399 17,949
Other costs 9,804 9,985
Equity investments in joint venture 1,598 7,127
Loans to joint ventures 49,162 28,713
Other 4,532 4,890
-------- --------
$237,297 $183,163
======== ========
15
The components of net revenues from sales of real estate and joint venture
activities were as follows (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2002 2001 2002 2001
------- ------- ------- -------
Sales of real estate $46,864 $33,751 $84,717 $59,648
Cost of sales 35,438 26,787 62,213 46,157
------- ------- ------- -------
Gains on sales of real estate 11,426 6,964 22,504 13,491
Gains on joint venture activities 1,040 456 1,939 1,196
------- ------- ------- -------
Net revenues from sales of real estate
and joint venture activities $12,466 $ 7,420 $24,443 $14,687
======= ======= ======= =======
9. Comprehensive Income
The components of other comprehensive income relate to the 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 net unrealized gains (losses) on securities
available for sale and accumulated gains (losses) associated with cash flow
hedges. The income tax provision relating to the comprehensive income
reclassification adjustment in the Consolidated Statements of Stockholders'
Equity and Comprehensive Income for the six months ended June 30, 2002 and 2001
was $543,000 and $52,000, respectively. Comprehensive income for the three
months ended June 30, 2002 and 2001 was $1.2 million and $2.4 million,
respectively.
10. Derivatives
The Company adopted Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") on
January 1, 2001. At the adoption date we recognized all derivative instruments
as defined by FAS 133 in the statement of financial position as either assets or
liabilities and measured them at fair value resulting in a $1.1 million gain
associated with Bancorp's cumulative effect of a change in accounting principle
net of tax.
The derivatives utilized by Bancorp during the six months ended June 30, 2002
were interest rate swaps. During the six months ended June 30, 2002, Bancorp
created fair value hedges by entering into various interest rate swap contracts
with a notional amount of $33 million to convert $33 million of designated fixed
rate time deposits to a three-month LIBOR interest rate. Bancorp funds LIBOR
based assets such as commercial real estate loans with fixed rate time deposits.
During the year ended December 31, 2000, Bancorp entered into forward contracts
to purchase the underlying collateral from a government agency pool of
securities in May 2005. Included in securities gains in the Statement of
Operations for the three and six months ended June 30, 2002 were $48,000 and
$27,000 of unrealized losses associated with the forward contracts compared to
unrealized gains of $21,000 and $34,000 during the same 2001 periods.
16
The following table outlines the notional amount and fair value of Bancorp's
derivatives outstanding at June 30, 2002 (in thousands):
Paying Receiving
Notional Index/Fixed Index/Fixed Termination
Amount Fair Value Amount Amount Date
-------- ---------- ----------- ----------- -----------
Fifteen year callable receive fixed swaps $10,000 $ (136) 3 mo. LIBOR 6.15% 11/13/2016
Ten year callable receive fixed swaps 30,000 33 3 mo. LIBOR 6.03% 12/20/2011
Ten year callable receive fixed swaps 20,000 441 3 mo. LIBOR 6.08% 2/14/2012
Seven year callable receive fixed swaps 13,000 224 3 mo. LIBOR 5.60% 9/19/2009
Five year pay fixed swaps 25,000 (1,393) 5.73% 3 mo. LIBOR 1/5/2006
Three year pay fixed swaps $50,000 $(2,242) 5.81% 3 mo. LIBOR 12/28/2003
======= ======= =========== ========== ==========
Forward contract to purchase
adjustable rate mortgages $95,324 $ 103
======= =======
The net amount of existing losses on the swaps included in other liabilities
that are projected to be reclassified into earnings within the next 12 months is
$526,862. The hedging relationships are expected to last over the term of the
swaps.
11. Restructuring Charges and Impairment Write-Downs
During June 2002, BankAtlantic adopted a plan to discontinue certain ATM
relationships resulting in a $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet BankAtlantic's performance
expectations and were unlikely to meet future profitability goals. The remaining
ATM machines (approximately 150 machines) are primarily located in
BankAtlantic's branch network and on cruise ships. The restructuring plan is
scheduled to be completed during the fourth quarter of 2002.
Restructuring charges at June 30, 2002 included in other liabilities consisted
of (in thousands):
Initial Amount paid Ending
Type of restructuring charge Amount during period Balance
---------------------------- ------- ------------- -------
Lease contract termination costs $664 $(31) $633
De-installation costs 87 -- 87
Other 50 -- 50
---- ---- ----
Total restructuring charge $801 $(31) $770
==== ==== ====
12. Transitional Goodwill Impairment Evaluation
In connection with the transitional goodwill impairment evaluation under FASB
Statement 142, the Company performed an assessment of whether there is an
indication that goodwill is impaired as of January 1, 2002, the date of
adoption. During the six months ended June 30, 2002, Bancorp identified its
reporting units and determined the carrying value of each of its reporting units
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. Bancorp
then determined the fair value of each reporting unit and compared it to the
reporting unit's carrying amount. If the fair value of the reportable unit
exceeded the carrying amount, no further evaluation needed to be performed, and
the goodwill in the reporting unit is not impaired. The fair values of all
reporting units, except for the Ryan Beck reportable segment, exceeded its
carrying amount at the adoption date. As a consequence, Bancorp may have to
recognize an impairment loss relating to the Ryan Beck reportable segment.
Bancorp has contracted with an independent appraiser to measure the loss and
anticipates recognizing the goodwill impairment charge during the 2002 third
quarter. Any transitional impairment loss associated with the Ryan Beck
reportable segment will be recognized as the cumulative effect of a change in
accounting principle in the statement of operations and this non-cash charge
will be recorded effective as of January
17
1, 2002. The charge will have no impact on operating earnings or tangible
capital impact.
13. 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 deciding how to allocate resources and in
assessing performance. 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 information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
income calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in the
segments would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating segments
into reportable segments:
Reportable Segment Operating Segments Aggregated
- -----------------------------------------------------------
Bank Investments Investments, tax certificates, residential loan
purchases, CRA lending and real estate capital
services
Commercial Banking Commercial lending, syndications, international,
lease finance, trade finance and a real estate
joint venture development
Community Banking Indirect and direct consumer lending, small
business lending and ATM operations
Levitt Companies Levitt Companies, which includes Levitt and Sons,
Core Communities, 35% of equity investment in
Bluegreen and real estate joint ventures.
Ryan Beck Investment banking and brokerage operations
Bancorp Parent Company Costs of acquisitions, financing of acquisitions,
and equity investments
BFC Holding Company BFC's real estate owned which includes BMOC,
Center Port and 50% interest in the Delray
property (sold in 2001). Loans receivable that
relate to previously owned properties, other
securities and investments and BFC's overhead and
interest expense.
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead allocations.
18
The Company evaluates segment performance based on net income after tax. The
table below is segment information for income before minority interest,
extraordinary item and the cumulative effect of a change in accounting principle
for the three months ended June 30, 2002 and 2001:
Bank Operations
-------------------------------------------------
Bank Commercial Community Levitt Ryan
(In thousands) Investments Banking Banking Companies Beck
----------- ----------- ----------- --------- ---------
2002
Interest income $ 46,354 $ 26,906 $ 6,514 $ 477 $ 3,125
Interest expense and overhead (31,477) (15,767) (3,963) (312) (313)
Provision for loan losses 59 (5,933) (265) -- --
Non-interest income 3,101 752 2,538 11,490 41,528
Segment profits and (losses)
before taxes 14,107 2,571 (1,092) 5,805 (2,487)
Provision (benefit) for income taxes 3,753 684 (290) 2,032 (870)
----------- ----------- ----------- --------- ---------
Segment net income (loss) $ 10,354 $ 1,887 $ (802) $ 3,773 $ (1,617)
=========== =========== =========== ========= =========
Segment average assets $ 2,891,958 $ 1,616,326 $ 406,204 $ 273,357 $ 218,784
=========== =========== =========== ========= =========
Bancorp BFC
Parent Holding Segment
(In thousands) Company Company Total
----------- ----------- -----------
2002
Interest income $ 454 $ 71 $ 83,901
Interest expense and overhead (4,522) (1,088) (57,442)
Provision for loan losses -- -- (6,139)
Non-interest income (17,845) (1,325) 40,239
Segment profits and (losses)
before taxes (24,351) (2,342) (7,789)
Provision (benefit) for income taxes (8,523) 1,013 (2,201)
----------- ----------- -----------
Segment net income (loss) $ (15,828) $ (3,355) $ (5,588)
=========== =========== ===========
Segment average assets $ 98,436 $ 17,497 $ 5,522,562
=========== =========== ===========
Bank Operations
-------------------------------------------------
Bank Commercial Community Levitt Ryan
(In thousands) Investments Banking Banking Companies Beck
----------- ----------- ----------- --------- ---------
2001
Interest income $ 46,487 $ 30,178 $ 7,016 $ 344 $ 580
Interest expense and overhead (35,687) (17,761) (4,225) (60) (206)
Provision for loan losses 43 (5,404) 1,321 -- --
Non-interest income 589 868 2,868 8,106 10,338
Segment profits and (losses)
before taxes 9,856 6,234 1,837 2,078 (915)
Provision (benefit) for income taxes 3,621 2,291 675 421 (327)
----------- ----------- ----------- --------- ---------
Segment net income (loss) $ 6,235 $ 3,943 $ 1,162 $ 1,657 $ (588)
=========== =========== =========== ========= =========
Segment average assets $ 2,654,965 $ 1,360,428 $ 323,421 $ 166,661 $ 76,306
=========== =========== =========== ========= =========
19
Bancorp BFC
Parent Holding Segment
(In thousands) Company Company Total
----------- ----------- -----------
2001
Interest income $ (34) $ 105 $ 84,676
Interest expense and overhead (5,118) (912) (63,969)
Provision for loan losses -- -- (4,040)
Non-interest income 758 (789) 22,738
Segment profits and (losses)
before taxes (5,853) (1,596) 11,641
Provision (benefit) for income taxes (2,049) 641 5,273
----------- ----------- -----------
Segment net income (loss) $ (3,804) $ (2,237) $ 6,368
=========== =========== ===========
Segment average assets $ 108,570 $ 35,428 $ 4,725,779
=========== =========== ===========
The table below is segment information for income before minority interest,
extraordinary item and cumulative effect of a change in accounting principle for
the six months ended June 30, 2002 and 2001:
Bank Operations
-------------------------------------------------
Bank Commercial Community Levitt Ryan
(In thousands) Investments Banking Banking Companies Beck
----------- ----------- ----------- --------- ---------
2002
Interest income $ 84,072 $ 50,837 $ 12,010 $ 891 $ 3,823
Interest expense and overhead (58,362) (29,748) (7,179) (313) (641)
Provision for loan losses (141) (8,148) (415) -- --
Non-interest income 3,289 1,380 4,727 23,831 55,126
Segment profits and (losses)
before taxes 22,343 8,354 (1,363) 12,093 (2,254)
Provision (benefit) for income taxes 6,631 2,704 (385) 4,233 (788)
----------- ----------- ----------- --------- ---------
Segment net income (loss) $ 15,712 $ 5,650 $ (978) $ 7,860 $ (1,466)
=========== =========== =========== ========= =========
Segment average assets $ 2,615,383 $ 1,565,515 $ 371,653 $ 168,502 $ 66,836
=========== =========== =========== ========= =========
Bancorp BFC
Parent Holding Segment
(In thousands) Company Company Total
----------- ----------- -----------
2002
Interest income $ 764 $ 147 $ 152,544
Interest expense and overhead (7,845) (2,284) (106,372)
Provision for loan losses -- -- (8,704)
Non-interest income (14,827) (993) 72,533
Segment profits and (losses)
before taxes (25,281) (3,130) 10,762
Provision (benefit) for income taxes (8,850) 1,714 5,259
----------- ----------- -----------
Segment net income (loss) $ (16,431) $ (4,844) $ 5,503
=========== =========== ===========
Segment average assets $ 102,944 $ 22,165 $ 4,912,998
=========== =========== ===========
20
Bank Operations
-------------------------------------------------
Bank Commercial Community Levitt Ryan
(In thousands) Investments Banking Banking Companies Beck
----------- ----------- ----------- --------- ---------
2001
Interest income $ 93,106 $ 62,153 $ 14,613 $ 795 $ 1,156
Interest expense and overhead (71,332) (36,954) (8,927) (150) (309)
Provision for loan losses (120) (9,650) 2,969 -- --
Non-interest income 711 1,595 5,625 14,775 19,471
Segment profits and (losses)
before taxes 18,636 14,201 3,277 3,629 (2,753)
Provision (benefit) for income taxes 6,923 5,287 1,217 844 (980)
----------- ----------- ----------- --------- ---------
Segment net income (loss) $ 11,713 $ 8,914 $ 2,060 $ 2,785 $ (1,773)
=========== =========== =========== ========= =========
Segment average assets $ 2,624,098 $ 1,308,896 $ 364,290 $ 166,210 $ 68,064
=========== =========== =========== ========= =========
Bancorp BFC
Parent Holding Segment
(In thousands) Company Company Total
----------- ----------- -----------
2001
Interest income $ 9 $ 202 $ 172,034
Interest expense and overhead (10,734) (1,996) (130,402)
Provision for loan losses -- -- (6,801)
Non-interest income 1,080 862 44,119
Segment profits and (losses)
before taxes (12,722) (932) 23,336
Provision (benefit) for income taxes (4,453) 1,944 10,782
----------- ----------- -----------
Segment net income (loss) $ (8,269) $ (2,876) $ 12,554
=========== =========== ===========
Segment average assets $ 97,882 $ 43,428 $ 4,672,868
=========== =========== ===========
The difference between total segment average assets and consolidated average
assets, segment non-interest income and total consolidated non-interest income,
segment interest income and total consolidated interest income and segment
income (loss) to consolidated income (loss) is as follows:
For the Three Months For the Six Months
(In thousands) Ended June 30, Ended June 30,
---------------------------- ----------------------------
Average Assets 2002 2001 2002 2001
----------- ----------- ----------- -----------
Average assets for reportable segments $ 5,522,562 $ 4,725,779 $ 4,912,998 $ 4,672,868
Average assets in overhead 130,176 110,451 265,330 120,707
----------- ----------- ----------- -----------
Total average consolidated assets $ 5,652,738 $ 4,836,230 $ 5,178,328 $ 4,793,575
=========== =========== =========== ===========
Non-interest income
Total non-interest income for reportable segments $ 40,239 $ 22,738 $ 72,533 $ 44,119
Items included in interest expense and overhead:
Transaction fee income 5,689 3,890 10,550 7,770
(Losses) gains on sales of assets (319) 20 49 367
Other fees 4,290 1,032 4,997 1,762
----------- ----------- ----------- -----------
Total consolidated non-interest income $ 49,898 $ 27,680 $ 88,129 $ 54,018
=========== =========== =========== ===========
21
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
(In thousands) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest income
Total interest income for reportable segments $ 83,901 $ 84,676 $ 152,544 $ 172,034
Deferred interest income on real estate activities (504) (107) (875) (282)
Elimination entries (619) (808) (977) (1,642)
----------- ----------- ----------- -----------
Total consolidated interest income $ 82,778 $ 83,761 $ 150,692 $ 170,110
=========== =========== =========== ===========
Segment (loss) income
Total segment profits (loss) before taxes for
reportable segments $ (5,588) $ 6,368 $ 5,503 $ 12,554
Minority interest in income of consolidated subsidiaries 16,189 4,983 25,828 9,952
----------- ----------- ----------- -----------
Total consolidated (loss) income before extraordinary item and
cumulative effect of a change in accounting principle $ (21,777) $ 1,385 $ (20,325) $ 2,602
=========== =========== =========== ===========
14. Earnings Per Share
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.
15. New Accounting Pronouncements
In April 2002, Financial Accounting Standards Board ("FASB") issued Statement
No. 145 ("Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections"). This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Any gain or loss on the extinguishment of debt that was classified
as an extraordinary item in prior periods will be reclassified into continuing
operations.
In June 2002, the FASB issued Statement No. 146 ("Costs Associated with Exit or
Disposal Activities") This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred compared to prior literature, which recognized a liability when the
entity committed to an exit plan. Management believes that this Statement will
not have a material impact on the Company's financial statements; however, the
Statement will result in a change in accounting policy associated with the
recognition of liabilities in connection with future restructuring charges.
16. Reclassifications
Certain amounts for prior periods have been reclassified to conform with the
statement presentation for 2002.
22
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
BFC Financial Corporation, identified herein as the "Company" and "BFC", is a
unitary savings bank holding company as a consequence of its ownership interest
in the common stock of BankAtlantic Bancorp, Inc. ("Bancorp"). Bancorp is a
diversified financial services holding company that owns 100% of the outstanding
stock of BankAtlantic, Levitt Companies, LLC ("Levitt Companies") and Ryan Beck
& Co., LLC ("Ryan Beck"). The Company's primary asset is the capital stock of
Bancorp and its primary activities currently relate to the operations of
Bancorp.
BFC owns approximately 15.5% and 100%, respectively of the outstanding Bancorp
Class A and Class B Common Stock for an aggregate ownership of 22.6% of total
common stock outstanding. The shares of Bancorp Class A and Class B Common Stock
owned by BFC represent 55.2% of the combined voting power of Bancorp's
outstanding Common Stock. Because BFC controls greater than 50% of the vote of
Bancorp, Bancorp is consolidated in the Company's financial statements. The
percentage of votes controlled by the Company will determine the Company's
consolidation policy, whereas, the percentage of ownership of total outstanding
common stock will determine the amount of Bancorp's net income recognized by the
Company.
Except for historical information contained herein, the matters discussed in
this report 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 report and
in the 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 the Company
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. These include, but are not limited to, the risks and uncertainties
associated with: the impact of economic, competitive and other factors affecting
the Company and Bancorp and its operations, markets, products and services;
credit risks and loan losses, and the related sufficiency of the allowance for
loan losses; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including but not limited to interest rate policies of the Board of
Governors of the Federal Reserve System; adverse conditions in the stock market,
the public debt market and other capital markets (including changes in interest
rate conditions) and the impact of such conditions on our activities; the impact
of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes; the
impact of changes in accounting policies by the Securities and Exchange
Commission; the impact of periodic testing of goodwill and other intangible
assets for impairment, and with respect to the operations of Levitt Companies
and its real estate subsidiaries: the market for real estate generally and in
the areas where Levitt Companies has developments, the availability and price of
land suitable for development, materials prices, labor costs, interest rates,
environmental factors and governmental regulations; and the Company's success at
managing the risks involved in the foregoing. Further, this report contains
forward-looking statements with respect to recent acquisitions, each of which
are subject to risks and uncertainties, including the risk that the acquisitions
could involve additional costs or that the future financial and operating
performance of these acquisitions will not be advantageous. Since BFC's primary
asset is the investment in Bancorp, all of the above risks also relate to BFC.
In addition to the risks and factors identified above, reference is also made to
other risks and factors detailed in reports filed by the Company with the
Securities and Exchange Commission ("SEC"). The Company cautions that the
foregoing factors are not exclusive.
23
Results of Operations
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ------------------------
(In thousands) 2002 2001 2002 2001
-------- -------- --------- ---------
Income Statement
Total interest income $ 82,778 $ 83,761 $ 150,692 $ 170,110
Total interest expense 40,033 50,341 75,334 104,615
-------- -------- --------- ---------
Net interest income 42,745 33,420 75,358 65,495
Provision for loan losses 6,139 4,040 8,704 6,801
Gains on sales of securities 3,083 1,695 6,122 2,051
Impairment of securities (19,740) (1,570) (19,740) (1,791)
Other non-interest income 66,555 27,555 101,747 53,758
Non-interest expense 94,293 45,419 144,021 89,376
-------- -------- --------- ---------
(Loss) income before income taxes, minority interest,
extraordinary item and cumulative effect of a change
in accounting principle (7,789) 11,641 10,762 23,336
(Benefit) provision for income taxes (2,201) 5,273 5,259 10,782
Minority interest in consolidated subsidiaries 16,189 4,983 25,828 9,952
-------- -------- --------- ---------
(Loss) income before extraordinary item and cumulative
effect of a change in accounting principle (21,777) 1,385 (20,325) 2,602
Extraordinary item, net of tax 23,810 -- 23,810 --
Cumulative effect of a change in accounting
principle, net of tax -- -- -- 1,138
-------- -------- --------- ---------
Net income $ 2,033 $ 1,385 $ 3,485 $ 3,740
======== ======== ========= =========
For the Three Months Ended June 30, 2002 Compared to the Same 2001 Period:
Net income was significantly affected by non-recurring items during the current
quarter. Bancorp recognized an extraordinary gain associated with the
acquisition of certain assets and the assumption of certain liabilities of
Gruntal and the acquisition of all of the membership interest in The GMS Group,
LLC. ("GMS"). The extraordinary gain was recognized because the fair value of
the assets acquired, after reducing the carrying value of non-financial assets
to zero, exceeded the cost of the transaction by $23.8 million, net of income
taxes of $2.7 million. Bancorp did not establish a deferred tax liability for
the extraordinary gain associated with the GMS membership interest acquisition
because Bancorp's acquired the membership interest in GMS instead of the net
assets.
The extraordinary gain was partially offset by a restructuring charge and an
impairment write-down associated with BankAtlantic's ATM network,
acquisition-related charges and impairments associated with the Community and
Gruntal transactions and an other than temporary decline in the fair value of
equity securities. The equity securities impairment reflected the write-off of
equity investments which had experienced poor financial performance. As a
consequence, Bancorp has revised its policy for equity investments, and any
future equity investments will be limited to liquid securities subject to
certain stringent concentration restrictions. The acquisition-related expenses
were integration expenses, long-lived asset impairments and professional fees
associated with the Gruntal and Community transactions. The ATM network
restructuring charge and impairment write down resulted from the termination of
convenience store and gas station relationships which did not meet Bancorp's
performance expectations.
The non-recurring items during the 2001 second quarter were the amortization of
goodwill, an adjustment to the estimated restructuring charge recorded in a
prior period and an other than temporary decline in the fair value of equity
securities.
24
During the quarter, Bancorp also experienced a significant increase in
non-interest expenses associated with the Gruntal and Community transactions and
higher provision for loan losses and operating expenses related to banking
operations.
The increased provision for loan losses primarily related to two commercial real
estate loans. The higher banking operations expenses were associated with the
Community acquisition and BankAtlantic's "Seven Day Banking" initiative as well
as advertising for related new deposit products.
The above non-recurring charges and higher non-interest expenses were partially
offset by a significant improvement in net interest income, increased earnings
at Levitt Companies, higher banking operations transaction fee income, a large
increase in investment banking income as a result of the Gruntal transaction and
gains on the sale of securities.
The improvement in net interest income reflects earning asset growth from loan
originations and the Community acquisition as well as an improvement in the net
interest margin caused by declining interest rates and a change in the deposit
mix from higher yielding time deposits to lower yielding transaction accounts.
Income from Levitt Companies increased significantly, reflecting increased sales
of real estate by Core Communities and Levitt and Sons as well as equity in
earnings associated with Levitt Companies' investment in Bluegreen. The
improvement on gains on securities sales reflected the sale of mortgage-backed
securities during the 2002 quarter in response to declining interest rates. The
gains on securities sales during the 2001 quarter were primarily gains
associated with the sale of equity securities. The substantial increase in
investment banking income related to the increase in investment consultants as a
result of the Gruntal transaction and the higher banking operation transaction
fees were linked to BankAtlantic's new deposit products and the Community
acquisition.
Included in the benefit for income taxes during the 2002 quarter was a $930,000
reduction in the deferred tax asset valuation allowance primarily associated
with Levitt Companies election to be taxed as a corporation and the utilization
of tax benefits from real estate sales. Additionally, Bancorp acquired, as part
of the Community transaction, low-income housing tax credit investments which
reduced the Company's tax liability by $140,000 during the three months ended
June 30, 2002.
For the Six Months Ended June 30, 2002 Compared to the Same 2001 Period:
Net income, not considering minority interest in consolidated subsidiary,
increased by 114% from the prior 2001 period. The increase in earnings primarily
resulted from the items discussed above, as well as a non-recurring gain in the
2001 period recognized as a cumulative effect of a change in accounting
principle. The Company adopted Financial Accounting Standards Board Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133") on January 1, 2001. At the adoption date, Bancorp recognized all
derivative instruments as defined by FAS 133 in the statement of financial
position as either assets or liabilities and measured them at fair value,
resulting in a $1.1 million gain recognized during the first quarter of 2001.
This was accounted for as a cumulative effect of a change in accounting
principle, net of tax.
Minority interest in consolidated subsidiaries increased for both the 2002
quarter and the 2002 six month period as compared to the 2001 corresponding
periods due to an increase in Bancorp's earnings and ownership interest of the
minority owners.
25
Net interest income
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------------- --------------------------------------
(In thousands) 2002 2001 Change 2002 2001 Change
-------- -------- ------- --------- --------- --------
Interest and fees on loans and leases $ 59,382 $ 61,645 $(2,263) $ 106,510 $ 125,549 $(19,039)
Interest on securities available for sale 11,818 13,324 (1,506) 23,903 26,733 (2,830)
Interest and dividends on other investment
and trading securities 11,578 8,792 2,786 20,279 17,828 2,451
Interest on deposits (17,106) (23,089) 5,983 (32,432) (47,533) 15,101
Interest on advances from FHLB (15,676) (14,660) (1,016) (30,596) (29,361) (1,235)
Interest on securities sold under agreements
to repurchase (2,113) (7,142) 5,029 (3,497) (16,774) 13,277
Interest on subordinated debentures,
notes and bonds payable and
guaranteed preferred interests in Bancorp's
Junior Subordinated Debentures (6,751) (6,897) 146 (11,640) (13,965) 2,325
Capitalized interest on real estate
developments and joint ventures 1,613 1,447 166 2,831 3,018 (187)
-------- -------- ------- --------- --------- --------
Net interest income $ 42,745 $ 33,420 $ 9,325 $ 75,358 $ 65,495 $ 9,863
======== ======== ======= ========= ========= ========
Net interest margin 3.32% 3.03% 0.29% 3.14% 2.97% 0.17%
======== ======== ======= ========= ========= ========
For the Three Months Ended June 30, 2002 Compared to the Same 2001 Period:
The substantial improvement in net interest income primarily resulted from
significant asset growth, increased income from trading securities and an
improvement in the net interest margin.
The growth in earning assets primarily resulted from the Community acquisition
which added $709 million of earning assets, and continued growth in Bancorp's
commercial real estate and home equity loan portfolios. The above increases in
earning assets were partially offset by accelerated repayments of residential
loans due to declining mortgage rates during the period and lower average
balances related to several discontinued or curtailed lines of business,
including Bancorp's lease finance business, indirect consumer loans, syndication
loans, international loans to correspondence banks and small business loans
originated under previous policies prior to January 1, 2000. Interest income on
loans and securities available for sale declined during 2002 compared to the
same 2001 period. This decline in interest income reflects the rapid decline in
interest rates during the latter half of 2001 which resulted in the refinancing
of residential loans and the downward repricing of floating rate loans. These
significant declines in yields on earning assets were substantially offset by
the growth in earning assets mentioned above.
The increased interest income from trading securities resulted from the Gruntal
transaction. Trading securities interest income increased from $580,000 during
the 2001 period to $3.1 million during the same 2002 period. Trading securities
balances increased from $31.1 million at June 30, 2001 to $210.1 million at June
30, 2002.
The net interest margin was impacted by a rapid decline in interest rates during
2001, a change in the composition of Bancorp's loan portfolio and a change in
the mix of its deposit portfolio. The prime interest rate declined from 9.00% at
January 1, 2001 to 4.75% at December 31, 2001, which resulted in the yield on
Bancorp's interest earning assets declining from 7.66% during 2001 to 6.67%
during 2002 and the rates on interest paying liabilities declining from 4.99% to
3.63% during the same period. During the 2002 quarter, Bancorp continued to
increase its transaction accounts, which contributed to the reduction in its
cost of funds. Bancorp's deposit mix changed from 53% time deposits and 47%
transaction accounts at June 30, 2001 to 44% time deposits and 56% transaction
accounts during the same 2002 period. The composition of Bancorp's loan
portfolio changed from higher yielding loans associated with discontinued lines
of business to lower yielding residential loans acquired in connection with the
acquisition of Community and lower yielding floating rate commercial and home
equity loans. The decline in
26
interest expense on deposits was partially offset by average interest bearing
deposits increasing by $474 million from the same 2001 period. The increase was
primarily due to the Community acquisition. Interest expense on short-term
borrowings was substantially lower during 2002. The significant decline in short
term borrowings interest expense reflected lower short term interest rates and a
decline in short term borrowings linked to an increase in deposit balances. The
rates on short-term borrowings declined from 4.40% during the 2001 period to
1.79% during the same 2002 period.
Interest on subordinated debentures, notes and bonds payable remained at 2001
levels. During 2001, Bancorp retired its subordinated investment notes and
6-3/4% convertible subordinated debentures. The interest rates on these
borrowings were higher than the average rates on other borrowings. The above
reduction in borrowings was substantially offset by additional borrowings by
Levitt Companies to fund real estate purchases and Bancorp's issuance of $80.4
million of trust preferred securities during the 2002 period.
For the Six Months Ended June 30, 2002 Compared to the Same 2001 Period:
Net interest income increased by 15% from 2001. Total interest income decreased
by $19.4 million and total interest expense decreased by $29.3 million. The
decrease in interest income primarily resulted from rapidly declining interest
rates which impacted the repricing of floating rate loans and securities and
contributed to refinancing of residential loans. The yield on interest earning
assets declined from 7.86% during 2001 to 6.55% during 2002. The decline in
yields on earnings assets was partially offset by $277 million of average
earning asset growth associated with the Community acquisition. The decline in
interest expense primarily resulted from the items discussed above. The rates in
Bancorp's interest paying liabilities declined from 5.25% during 2001 to 3.77%
during the same 2002 period and the rates on Bancorp's short-term borrowings
declined from 5.10% during 2001 to 1.80% during the same 2002 period.
Provision for Loan Losses
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
(In thousands) 2002 2001 2002 2001
-------- -------- -------- --------
Balance, beginning of period $ 49,999 $ 48,200 $ 45,657 $ 48,072
Charge-offs:
Syndication loans -- -- (8,000) --
Commercial real estate loans (4,309) -- (4,309) --
Small business - real estate -- -- -- (12)
Small business - non-mortgage (1,261) (840) (2,192) (2,184)
Lease financing (1,972) (3,397) (4,184) (5,382)
Consumer loans - indirect (299) (669) (737) (1,692)
Consumer loans - direct (237) (314) (649) (691)
Residential real estate loans (3) -- (142) (152)
-------- -------- -------- --------
(8,081) (5,220) (20,213) (10,113)
-------- -------- -------- --------
Recoveries:
Syndication loans -- -- 683 --
Small business - non-mortgage 698 637 1,089 1,478
Lease financing 963 705 1,898 989
Commercial business loans 19 18 37 229
Commercial real estate loans 3 7 17 7
Residential real estate loans 60 91 63 156
Consumer loans - indirect 382 480 843 1,248
Consumer loans - direct 116 132 233 223
-------- -------- -------- --------
2,241 2,070 4,863 4,330
-------- -------- -------- --------
Net charge-offs (5,840) (3,150) (15,350) (5,783)
Allowance for loan losses acquired (639) -- 10,648 --
Provision for loan losses 6,139 4,040 8,704 6,801
-------- -------- -------- --------
Balance, end of period $ 49,659 $ 49,090 $ 49,659 $ 49,090
======== ======== ======== ========
27
Annualized net charge-offs to average loans were 0.65% for the 2002 second
quarter and 0.41% for the 2001 second quarter. Included in charge-offs for the
second quarter of 2002 was a $4.3 million partial charge-off of a commercial
real estate residential construction loan for which a $1.8 million specific
valuation allowance was established in late 2001. This loan was transferred to
real estate owned effective June 30, 2002. Excluding this one loan, net
charge-offs would have equaled 0.17% of average loans on an annualized basis for
the second quarter of 2002.
Annualized net charge-offs to average loans were 0.94% for 2002 year to date and
0.38% for the corresponding 2001 period. Included in charge-offs for the year
was an $8 million partial charge-off of a syndication loan to a company in the
commercial aviation repair parts and maintenance industry for which a specific
valuation allowance was established for the entire amount of the charge-off in
late 2001 as well as the $4.3 million partial charge-off mentioned above.
Excluding these two loans, net charge-offs would have equaled 0.19% of average
loans for 2002.
The allowance for loan losses was 1.34% and 1.59% of total loans at June 30,
2002 and 2001, respectively. Included in the allowance for loan losses was a
$10.6 million allowance acquired in connection with the Community acquisition.
This allowance was reduced by $639,000 in the second quarter of 2002 as a result
of loan payoffs in the acquired portfolio. Also included in the allowance for
loan losses was a valuation allowance of $4.1 million established on a $17.1
million commercial real estate loan to a company in the hospitality industry and
a $670,000 valuation allowance established on a $2.1 million lease. These
allowances were established as a result of the deteriorating financial condition
of the borrowers and estimated value of the collateral.
Net charge-offs associated with Bancorp's discontinued or curtailed lines of
business were 16% of total net charge-offs during the second quarter of 2002
compared to 91% during the same 2001 period. Year to date, these charge-offs
represented 62% of total net charge-offs compared to 84% during 2001.
At the indicated dates, Bancorp's non-performing assets and potential problem
loans were (in thousands):
June 30, December 31,
2002 2001
-------- ------------
NONPERFORMING ASSETS
Non-accrual:
Tax certificates $ 1,431 $ 1,727
Loans and leases 39,497 37,255
-------- --------
Total non-accrual 40,928 38,982
-------- --------
Repossessed assets:
Real estate owned, net of allowance 11,603 3,904
Vehicles and equipment -- 17
-------- --------
Total repossessed assets 11,603 3,921
-------- --------
Total non-performing assets 52,531 42,903
Specific valuation allowances (4,890) (9,936)
-------- --------
Total non-performing assets, net $ 47,641 $ 32,967
======== ========
POTENTIAL PROBLEM LOANS
Contractually past due 90 days or more 12 --
Restructured loans 698 743
Delinquent residential loans purchased 1,562 1,705
-------- --------
TOTAL POTENTIAL PROBLEM LOANS $ 2,272 $ 2,448
======== ========
Non-performing assets represented 1.38% of total loans, tax certificates and
repossessed assets at June 30, 2002. This compares to 1.45% at December 31,
2001. The reduction in the percentage of non-performing assets to total loans,
tax certificates and repossessed assets during the six month period reflects a
significant increase in total loans and tax certificate balances at June 30,
2002 compared to December 31, 2001. The increase in non-performing assets was
primarily attributable to the $17 million commercial real estate loan and the
$2.1 million lease referred to above, and secondarily to $3.1 million of
non-performing loans acquired in connection with the Community acquisition. The
above increases in non-accrual
28
loans were partially offset by an $8.0 million charge-off on a syndication loan
described above. At June 30, 2002, included in real estate owned was repossessed
property associated with the residential construction loan discussed above. The
property was transferred to REO at $8.0 million, its estimated fair value less
anticipated cost to sell.
Non-Interest Income
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------------ ------------------------------------
2002 2001 Change 2002 2001 Change
-------- -------- -------- -------- -------- --------
(In thousands)
Banking Operations:
Other service charges and fees $ 3,550 $ 3,811 $ (261) $ 6,655 $ 7,372 $ (717)
Service charges on deposits 5,688 3,890 1,798 10,550 7,770 2,780
Gains on securities available for sale 3,083 1,695 1,388 6,122 2,051 4,071
Impairment of securities (18,157) (474) (17,683) (18,157) (695) (17,462)
Income from equity method investment 219 -- 219 219 -- 219
Other 973 1,128 (155) 2,338 2,437 (99)
-------- -------- -------- -------- -------- --------
Non-interest income (4,644) 10,050 (14,694) 7,727 18,935 (11,208)
-------- -------- -------- -------- -------- --------
Levitt Companies Operations:
Net revenues from sales of real estate 12,466 7,398 5,068 24,443 13,341 11,102
Income from equity method investment 1,522 -- 1,522 1,522 -- 1,522
Other 351 681 (330) 715 1,407 (692)
-------- -------- -------- -------- -------- --------
Non-interest income 14,339 8,079 6,260 26,680 14,748 11,932
-------- -------- -------- -------- -------- --------
Ryan Beck Operations:
Principal transactions 17,299 3,935 13,364 24,806 8,405 16,401
Investment banking 4,097 3,078 1,019 6,606 4,038 2,568
Commissions 16,466 3,189 13,277 19,498 6,612 12,886
Other 3,666 138 3,528 3,806 418 3,388
-------- -------- -------- -------- -------- --------
Non-interest income 41,528 10,340 31,188 54,716 19,473 35,243
-------- -------- -------- -------- -------- --------
BFC Holding Company Operations:
Net revenues from sales of real estate -- 22 (22) -- 1,346 (1,346)
Impairment of securities (1,583) (1,096) (487) (1,583) (1,096) (487)
Other 258 285 (27) 589 612 (23)
-------- -------- -------- -------- -------- --------
Non-interest income (1,325) (789) (536) (994) 862 (1,856)
-------- -------- -------- -------- -------- --------
Total non-interest income $ 49,898 $ 27,680 $ 22,218 $ 88,129 $ 54,018 $ 34,111
======== ======== ======== ======== ======== ========
Non-Interest Income - Banking Operations
The decline in other service charges and fees during the quarter and year to
date resulted from a 26% and 32% decrease in ATM fee income related to the
termination of BankAtlantic's ATM relationship with Wal*Mart in September 2001.
The decline in ATM fee income associated with the removal of BankAtlantic's ATM
machines from Wal*Mart stores was partially offset by higher fees earned on
check cards. Check card fees increased by 163% during the second quarter
compared to the same 2001 period and 143% during 2002 year to date compared to
the same 2001 period. The increase in check card fees was linked to a
significant increase in transaction accounts associated with BankAtlantic's high
performance checking products and "Seven Day Banking" initiative.
During the 2002 period, service charges on deposits increased by over 46% during
the second quarter and 36% year to date from the comparable 2001 periods. The
increase in service charges primarily resulted from an increase in overdraft
fees from transaction accounts and deposit fees associated with the Community
acquisition. The increase in overdraft fees was associated with BankAtlantic's
new high performance checking product. Since the inception of this product
BankAtlantic has opened 44,000 accounts with total deposit balances of $90.2
million as of June 30,
29
2002. Additionally, the rapid decline in interest rates decreased the earnings
credit for commercial accounts which have analysis charges, which further
increased service charges on deposits during the 2002 periods.
Gains on securities available for sale during the three months ended June 30,
2002 resulted primarily from the sale of REMIC securities, corporate bonds and
equity securities for a $2.4 million, $367,000 and $341,000 gain, respectively.
Additionally, BankAtlantic also recorded a $48,000 unrealized loss on derivative
instruments during the second quarter. Gains on securities available for sale
during the six months ended June 30, 2002 included sales discussed above as well
as the sale of equity securities for a $3.0 million gain and a $27,000
unrealized gain on derivative instruments.
Gains on securities available for sale during the three months ended June 30,
2001 consisted of the sale of equity securities for a gain of $1.2 million and
the sale of fixed rate mortgage backed securities for a $497,000 gain. Gains on
securities available for sale during the six months ended June 30, 2001 also
included the sale of a mutual fund investment for a $322,000 gain and a $34,000
unrealized gain on derivative instruments.
During 1999, Bancorp entered into a strategic relationship with Seisint, Inc.
and invested $10 million in cash and issued 848,364 shares of Bancorp Class A
common stock for $15 million of Seisint, Inc. common stock. Seisint is a
privately held technology company, which provides marketing information,
application solutions and customer relationship management applications. Bancorp
anticipated benefits from this strategic relationship through the exchange of
ideas and cooperation in the development by Seisint of technology and support
systems for use by financial institutions. Additionally, both Alan B. Levan and
John E. Abdo were directors of Seisint and each acquired direct and indirect
interest in Seisint common stock.
Because Seisint has not been able to meet the objectives of its business plan or
financial performance goals, Bancorp performed an evaluation of its investment
in Seisint to determine if there was an other than temporary decline in value
associated with this investment. As a consequence of this evaluation, Bancorp
wrote off its entire $15 million investment in Seisint during the three months
ended June 30, 2002. Bancorp also recognized an impairment charge of $3.2
million during the three months ended June 30, 2002 on 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. Bancorp recognized a $474,000 and $695,000
impairment charge associated with equity securities during the three and six
month period ended June 30, 2001.
As a result of these losses, Bancorp has revised its policy for holding company
equity investments. Any future equity investments will be limited to liquid
securities and will be subject to significant concentration restrictions. At
June 30, 2002 equity investments totaled $8.7 million.
Income from equity method investment represents BankAtlantic Bancorp's 4.9%
ownership interest in the earnings of Bluegreen Corporation during the three and
six months ended June 30, 2002. In April 2002, Levitt Companies acquired an
additional 34% of Bluegreen Corporation's common stock. See the discussion below
concerning the investment in Bluegreen Corporation by Levitt Companies.
Included in other income during the 2002 quarter was a $294,000 loss from the
sale of the servicing rights associated with the residential loans acquired in
connection with the Community acquisition. Included in other income during the
six months ended June 30, 2001 was the sale of a branch facility for a $386,000
gain.
Non-Interest Income - Levitt Companies Operations
Net revenues from sales of real estate represented the net profits on sales of
real estate by Levitt and Sons and Core Communities as well as equity in
earnings from real estate joint venture activities. The significant increase in
net revenues from sales of real estate during the 2002 quarter compared to the
2001 quarter primarily resulted from Core Communities' land sales as well as an
increase in Levitt and Sons' home sales. Gains on land sales for the quarter
ended June 30, 2002 was $4.6 million as compared to $1.3 million for the same
period in 2001. The 2002 land sales included the sale of one commercial property
for a $3.6 million gain. Gains on home sales for the quarter ended June 30, 2002
was $6.8 million as compared to $5.0 million for the same period in 2001. Gains
on joint venture activities were $1.0 million during the 2002 quarter and
$456,000 during the 2001 quarter. The 2001 revenues from sales of real estate
include a net gain of $680,000 on the sale of a marine rental property.
30
During the six months ended June 30, 2002, net revenues from the sales of real
estate and joint venture activities was $24.4 million as compared to $13.3
million during the same 2001 period. During the six months ended June 30, 2002,
Core Communities' net gain on land sales was $10.6 million as compared to $2.8
million in 2001. The 2002 land sales included the sale of two commercial
properties for a $9.3 million gain. During the six months ended June 30, 2002,
gains on homes sales were $11.9 million as compared to $8.6 million during the
same 2001 period. During the six months ended June 30, 2002 gains on joint
venture activities were $1.9 million as compared to $1.2 million during the same
period in 2001. In 2001, Levitt Companies sold a marine rental property for a
net gain of $680,000.
In April 2002, Levitt Companies acquired 34% of Bluegreen Corporation's common
stock. Bluegreen Corporation is a developer of drive-to vacation interval
resorts, golf communities and residential land. Levitt Companies' investment in
Bluegreen Corporation is accounted for under the equity method. Accordingly,
Levitt Companies recorded in income its ownership interest in the earnings of
Bluegreen Corporation of approximately $1.5 million during the three months
ended June 30, 2002.
The increase in non-interest income was partially offset by a decline in rental
income associated with a marine property sold during the second quarter of 2001.
Non-Interest Income - Ryan Beck Operations
During the second quarter of 2002 compared to the same 2001 period revenues
increased by 302%. The increase was primarily the result of increased agency
commissions and principal transaction revenues. The increase resulted from the
additional investment consultants and trading personnel hired in connection with
the Gruntal transaction.
During the six months ended June 30, 2002 compared to the same 2001 period
revenues increased by 181%. Principal transactions and commission revenues each
increased by 195% from the corresponding 2001 period. The substantial increase
in revenues was attributed to the additional investment consultants and trading
personnel hired in connection with the Gruntal transaction.
Non Interest Income - BFC Holding Company
BFC recognized an impairment charge of $1.6 million and $1.1 million during the
three months ended June 30, 2002 and 2001, respectively, on equity securities
resulting from significant declines in their value that were considered other
than temporary.
Gain on sales of real estate in 2001 reflected a gain of $1.3 million on the
sale of BFC's ownership interest in Delray Industrial Park and $22,000 from the
sale of a building at BMOC.
31
Non-Interest Expenses
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------------- -----------------------------------
2002 2001 Change 2002 2001 Change
------- -------- -------- -------- -------- --------
(In thousands)
Banking Operations:
Employee compensation and benefits $17,167 $ 12,562 $ 4,605 $ 31,327 $ 25,749 $ 5,578
Occupancy and equipment 7,555 6,172 1,383 13,876 12,191 1,685
Advertising and promotion 2,034 970 1,064 3,036 1,557 1,479
Amortization of cost over fair value of
net assets, acquired 454 711 (257) 454 1,419 (965)
Restructuring charges and impairment write-downs 1,007 (219) 1,226 1,007 (219) 1,226
Acquisition related charges and impairments 731 -- 731 1,805 -- 1,805
Other 7,450 6,447 1,003 13,274 11,702 1,572
------- -------- -------- -------- -------- --------
Non-interest expense 36,398 26,643 9,755 64,779 52,399 12,380
------- -------- -------- -------- -------- --------
Levitt Companies Operations:
Employee compensation and benefits 3,538 2,133 1,405 6,158 4,269 1,889
Advertising and promotion 818 779 39 1,566 1,579 (13)
Selling, general and administrative 3,383 2,951 432 6,194 5,325 869
------- -------- -------- -------- -------- --------
Non-interest expense 7,739 5,863 1,876 13,918 11,173 2,745
------- -------- -------- -------- -------- --------
Ryan Beck Operations:
Employee compensation and benefits 33,510 8,457 25,053 43,743 16,733 27,010
Occupancy and equipment 3,793 781 3,012 4,616 1,645 2,971
Advertising and promotion 828 658 170 1,277 783 494
Amortization of cost over fair value of
net assets, acquired -- 338 (338) -- 655 (655)
Acquisition related charges and impairments 3,191 -- 3,191 3,191 -- 3,191
Other 8,024 2,085 5,939 10,773 4,630 6,143
------- -------- -------- -------- -------- --------
Non-interest expense 49,346 12,319 37,027 63,600 24,446 39,154
------- -------- -------- -------- -------- --------
BFC Holding Company Operations:
Employee compensation and benefits 531 443 88 1,258 979 279
Occupancy and equipment 18 21 (3) 35 61 (26)
Other 261 130 131 431 318 113
------- -------- -------- -------- -------- --------
Non-interest expense 810 594 216 1,724 1,358 366
------- -------- -------- -------- -------- --------
Total non-interest expenses $94,293 $ 45,419 $ 48,874 $144,021 $ 89,376 $ 54,645
======= ======== ======== ======== ======== ========
Non-Interest Expenses - Banking Operations
Compensation expenses increased 37% and 22% from the comparable 2001 quarter and
six month periods, respectively. The increase in compensation expenses was the
result of the implementation of seven day banking on April 1, 2002 and the
addition of 172 employees following the Community acquisition. Total full time
equivalent employees increased from 894 at June 30, 2001 to 1,330 at June 30,
2002.
Occupancy and equipment expenses increased 18% and 14% from the comparable 2001
quarter and six month periods, respectively. The increase was primarily due to
the Community acquisition that added 21 branches to BankAtlantic community
banking division. Additionally, BankAtlantic recognized approximately $500,000
of accelerated depreciation expense during the second quarter on equipment
associated with its on-line banking delivery system. This equipment will be
replaced as BankAtlantic upgrades the technology with new equipment and software
during the fourth quarter of 2002.
32
The increase in advertising expense during the 2002 quarter and year to date
reflects marketing initiatives to increase BankAtlantic's transaction accounts
and to promote BankAtlantic's "Seven Day Banking" initiative.
Amortization of intangible assets during the three and six months ended June 30,
2002 consisted of the amortization of core deposits intangible assets acquired
in connection with the Community acquisition. The core deposits intangible asset
is being amortized over its estimated life of seven years.
Amortization of intangible assets during the three and six months ended June 30,
2001 consisted of the amortization of goodwill. Upon the implementation of
Financial Accounting Standard Number 142 on January 1, 2002, the amortization of
goodwill was discontinued. Bancorp will evaluate goodwill for impairment in
subsequent periods, in accordance with FASB Statement 142. In connection with
the transitional goodwill impairment evaluation under FASB Statement 142,
Bancorp performed an assessment of whether there is an indication that any
goodwill is impaired as of January 1, 2002, the date of adoption. As a result of
this analysis, Bancorp determined that goodwill associated with bank operations
reportable segments was not impaired at the adoption date.
Acquisition related charges and impairments during the three and six months
ended June 30, 2002 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 Palm Beach county branches during the second quarter of 2002.
During June 2002, BankAtlantic adopted a plan to discontinue certain ATM
relationships. This resulted in an $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet BankAtlantic performance
expectations and were unlikely to meet its future profitability goals. The
remaining ATM machines (approximately 150 machines) are primarily located in
branch network and on cruise ships.
Other expenses increased by 16% and 13% from the comparable 2001 quarter and six
month periods, respectively. Included in other expenses during the three months
ended June 30, 2002 was a $400,000 increase in check losses and $275,000 of
additional loss provisions associated with tax certificates. The additional
check losses reflects a substantial increase in the number of checking accounts
during the 2002 quarter compared to the same 2001 period due to the "high
performance checking" campaign. The higher tax certificate provision primarily
resulted from lower tax certificate repayments than projected. The remaining
increase in other expenses during the quarter represents additional general
operating expenses associated with the Community acquisition. During the six
months ended June 30, 2001 Bancorp recognized $1.1 million of gains on the sales
of REO property compared to a $128,000 net loss from REO property sales during
the same 2002 period.
Non-Interest Expenses - Levitt Companies Operations
The significant increase in compensation and benefits during the three and six
months ended June 30, 2002 compared to the same 2001 period primarily resulted
from Core Communities increase in incentive accruals and Levitt and Sons
increase in personnel resulting from the addition of several new development
projects. These new projects and an increase in home deliveries resulted in an
increase in selling and other general and administrative expenses during the
three and six months ended June 30, 2002 compared to the same 2001 periods.
Non-Interest Expenses - Ryan Beck Operations
The increase in employee compensation and benefits during the three and six
months ended June 30, 2002 compared to the same 2001 periods was primarily due
to 500 former Gruntal investment consultants and 80 trading personnel hired in
connection with the Gruntal transaction.
In connection with the transitional goodwill impairment evaluation under FASB
Statement 142, Bancorp performed an assessment of whether there is an indication
that any goodwill is impaired as of January 1, 2002, the date of adoption. As a
result of this analysis, Bancorp determined that the carrying amount of the Ryan
Beck reportable segment exceeded its fair value at the adoption date. As a
consequence, Bancorp may have to recognize an impairment loss relating to the
Ryan Beck reportable segment. Bancorp has retained an independent appraiser to
measure the loss and the goodwill impairment charge should be recognized during
the 2002 third quarter. Any
33
transitional impairment loss associated with the Ryan Beck reportable segment
will be recognized as the cumulative effect of a change in accounting principle
in the statement of operations and this non-cash charge will be recorded
effective as of January 1, 2002. There will be no operating earnings or tangible
capital impact of this charge.
The increase in other expenses during the three and six months ended June 30,
2002 compared to the same 2001 period related to increased floor brokerage and
clearing fees attributed to a significant increase in commission revenues.
Increased rent, occupancy and communication expenses were associated with the
additional offices acquired in connection with the Gruntal transaction.
During the second quarter of 2002, in response to the Gruntal transaction, the
management of Ryan Beck initiated measures to reduce staff in departments with
overlapping responsibilities.
Non-Interest Expense - BFC Holding Company Operations
The increase in employee compensation and benefits for the three and six month
periods ended June 30, 2002 as compared to the same periods in 2001 was
primarily due to an increase in levels of compensation.
Segment Reporting
The table below provides segment information for income before minority interest
in income of consolidated subsidiaries, extraordinary item and cumulative effect
of a change in accounting principle for the three and six-month periods ended
June 30, 2002 and 2001:
For the Three Months For the Six Months
(In thousands) Ended June 30, Ended June 30,
--------------------- ----------------------
Segment net income 2002 2001 2002 2001
-------- ------- -------- --------
Bank Investments $ 10,354 $ 6,235 $ 15,712 $ 11,713
Commercial Banking 1,887 3,943 5,650 8,914
Community Banking (802) 1,162 (978) 2,060
Levitt Companies 3,773 1,657 7,860 2,785
Ryan Beck (1,617) (588) (1,466) (1,773)
Bancorp Parent Company (15,828) (3,804) (16,431) (8,269)
BFC Holding Company (3,355) (2,237) (4,844) (2,876)
-------- ------- -------- --------
Segment net income (loss) $ (5,588) $ 6,368 $ 5,503 $ 12,554
======== ======= ======== ========
Bank Investments
The increase in segment net income for the three and six months ended June 30,
2002 compared to the same 2001 periods reflect lower interest expense and
overhead resulting from the general decline in interest rates. Additionally,
approximately $3.0 million in segment non-interest income was realized from the
gain on sale of securities available for sale during the three and six months
ended June 30, 2002. This compares to gains of $518,000 and $553,000 for the
three and six months ended June 30, 2001, respectively.
Commercial Banking
Segment net income declined for the three and six month periods ended June 30,
2002 from the comparable 2001 periods. The lower earnings primarily resulted
from a significant decrease in interest income. The majority of the loans in
BankAtlantic's commercial banking loan portfolio have floating interest rates.
The rapid decline in interest rates during 2001 resulted in yields on interest
earning assets declining faster than the segment's interest expense and
overhead. The increase in the provision for loan losses resulted from two
commercial real estate non-performing loans and a non-performing lease in the
aviation industry. Direct expenses in this segment increased due to start up
expenses related to the opening of new commercial lending offices in central and
north Florida.
34
Community Banking
Segment net income declined by $1.96 million from the comparable 2001 quarter,
and by $3.04 million from the comparable six month period. During the three and
six month periods ended June 30, 2002, the provision for loan losses increased
by $1.6 million and $3.4 million, respectively, over the comparable 2001
periods. The 2001 provision reflects a net recovery, which can be attributed to
declining small business and consumer indirect loan average balances. In 2001,
management dramatically reduced originations and changed the underwriting
criteria of small business loans. In December 1998, management of BankAtlantic
discontinued the origination of indirect consumer loans.
Also contributing to the decline in segment net income was lower interest income
from the community banking loan portfolio primarily resulting from a decline in
interest rates during the period.
Levitt Companies
The increase in segment net income for the three and six-month periods ended
June 30, 2002 compared to the same 2001 periods resulted from higher net
revenues from real estate sales and earnings from Levitt's investment in
Bluegreen.
Ryan Beck
Segment net income declined from a net loss of $588,000 during the second
quarter of 2001 to a segment net loss of $1.6 million during the same 2002
period. During the most recent quarter, Ryan Beck incurred approximately $3.9
million in transaction related expenses associated with the Gruntal transaction.
Excluding these non-recurring expenses, segment net income would have been
approximately $0.9 million. The substantial increase revenues resulted from a
higher volume of business associated with the addition of approximately 500
former Gruntal investment consultants and approximately $14.4 billion in
customers' portfolio assets.
Segment net income increased from a net loss of $1.8 million during the first
six months of 2001 to a segment net loss of $1.5 million during the same 2002
period. Excluding the non-recurring expenses, segment net income in 2002 would
have been $1.1 million for the six month period ended June 30, 2002.
Bancorp Parent Company
Bancorp parent company loss increased during the three and six-month periods
ended June 30, 2002 as compared to the same 2001 periods. The decline in
earnings primarily resulted from the impairment of equity securities in the
amount of approximately $18.0 million during the second quarter of 2002.
BFC Holding Company
BFC holding company net loss increased during three and six month periods ended
June 30, 2002 as compared to the same periods in 2001. The net loss increase was
primarily due to the gain on the sale of the ownership interest in Delray during
2001 of $1.3 million. Additionally, during the second quarter of 2002 and 2001,
the Company recognized impairment losses from equity securities of $1.6 million
and $1.1 million, respectively.
Financial Condition
The Company's total assets at June 30, 2002 were $5.9 billion compared to $4.7
billion at December 31, 2001. The increase in total assets primarily resulted
from:
o The acquisition of Community Savings, which added approximately $969
million in assets.
o The Gruntal transaction, which added $165 million in assets.
o A $58.2 million investment in Bluegreen Corporation, a New York
Stock Exchange company which engages in the acquisition,
development, marketing and sale of drive-to vacation resorts, golf
communities and residential land.
o The purchase of a $14.3 million office facility to consolidate
BankAtlantic's headquarters and back office operations into a
centralized facility.
35
o The acquisition of tax certificates during the 2002 second quarter.
o The origination of commercial real estate and home equity loans.
o Increases in real estate held for development and sale and joint
venture activities due to an increase in Levitt and Sons real estate
inventory and the purchase of land for development by Core
Communities.
o Increases in deferred tax assets related to the impairment of
securities.
o Increases in cash and due from depository institutions due to higher
in-transit cash letter balances.
o Higher other assets balances associated with the sale of
mortgage-backed securities that settled in July 2002.
The above increases in total assets were partially offset by:
o Decreased balances of residential loans due to accelerated loan
repayments.
o Continued run-off in the syndications, leasing, small business,
international and indirect lending areas, which were discontinued or
curtailed activities.
o Reduction in securities available for sale related to the sale of
$78 million of mortgage-backed securities.
The Company's total liabilities at June 30, 2002 were $5.5 billion
compared to $4.2 billion at December 31, 2001. The increase in total
liabilities primarily resulted from:
o The acquisition of Community Savings, which added approximately $799
million in liabilities.
o The Gruntal transaction, which added approximately $134 million in
liabilities.
o The issuance in the aggregate of $80.4 million of trust preferred
securities in March 2002 and June 2002.
o Additional borrowings from Bancorp's bank line of credit and at
Levitt Companies to fund land purchases and its investment in
Bluegreen.
o Higher securities sold not yet purchased and due to clearing agent
balances associated with Ryan Beck's trading activities.
o Increased short-term borrowings to fund asset growth.
o Increased other liabilities related to a higher accrued expenses and
compensation associated with the Gruntal acquisition.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuations, which arise from interest rate risk, foreign currency
exchange rate risk, commodity price risk, and equity price risk. The Company's
primary market risk is interest rate risk and our secondary market risk is
equity price risk. BFC's primary market risk, without consideration of Bancorp,
is equity price risk relating to its equity investments.
Interest Rate Risk
The majority of Bancorp assets and liabilities are monetary in nature,
subjecting Bancorp to significant interest rate risk which would arise if the
relative values of each of its assets and liabilities changed in conjunction
with a general rise or decline in interest rates. Bancorp has developed a model
using standard industry software to quantify its interest rate risk. A
sensitivity analysis was performed measuring the potential gains and losses in
net portfolio fair values of interest rate sensitive instruments at June 30,
2002 resulting from a change in interest rates. Interest rate sensitive
instruments included in the model were:
o Loan portfolio,
o Debt securities available for sale,
o Investment securities,
o FHLB stock,
o Federal Funds sold,
o Deposits,
o Advances from FHLB,
36
o Securities sold under agreements to repurchase,
o Federal Funds purchased,
o Notes and Bonds payable
o Subordinated Debentures,
o Trust Preferred Securities,
o Forward contracts,
o Interest rate swaps, and
o 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 at market rates to
determine fair values at June 30, 2002,
(ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to
determine fair values, and
(iii) The difference between the fair value calculated in (i) and
(ii) is the potential gain or loss in net portfolio fair
values.
Management of Bancorp 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 Bancorp has no basis to determine
whether the fair value presented would be indicative of the value negotiated 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.
Presented below is an analysis of Bancorp's interest rate risk at June 30, 2002
as calculated utilizing the Bancorp's model. The table measures changes in net
portfolio value for instantaneous and parallel shifts in the yield curve in 100
basis point increments up or down.
Net
Portfolio
Changes Value Dollar
in Rate Amount Change
------- --------- ---------
(Dollars in thousands)
+200 bp $552,772 $ (14,725)
+100 bp $580,347 $ 12,850
0 $567,497 $ 0
-100 bp $527,990 $ (39,507)
-200 bp $464,576 $(102,921)
In preparing the above table, Bancorp made various assumptions to determine the
net portfolio value at the assumed changes in interest rate. These assumptions
include:
o loan prepayment rates,
o deposit decay rates,
o market values of certain assets under the representative interest
rate scenarios, and
o repricing of certain deposits and borrowings
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 Bancorp assets and liabilities would be impacted 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 result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory or reactive measures which we may take in the future.
37
Equity Price Risk
The Company maintains a portfolio of trading and available for sale securities
which subjects the Company to equity pricing risks. The change in fair values of
equity securities represents instantaneous changes in all equity prices
segregated by trading securities, securities sold not yet purchased and
available for sale securities. The following are hypothetical changes in the
fair value of our securities sold, not yet purchased, trading and available for
sale securities at June 30, 2002 based on percentage changes in fair value.
Actual future price appreciation or depreciation may be different from the
changes identified in the table below.
Available Securities
Percent Trading for Sale Sold Not
Change in Securities Securities Yet Dollar
Fair Value Fair Value Fair Value Purchased Change
---------- ---------- ---------- ---------- ------
(Dollars in thousands)
20% $252,158 $8,544 $81,990 $ 57,115
10% $231,145 $7,832 $75,158 $ 28,558
0% $210,132 $7,120 $68,325 $ --
(10)% $189,119 $6,408 $61,493 $(28,558)
(20)% $168,106 $5,696 $54,660 $(57,115)
Excluded from the above table are $7.0 million of investments in private
companies for which no current market exists. The ability to realize on or
liquidate our investments will depend on future market conditions and is subject
to significant risk.
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, not yet purchased and futures contracts. Securities
sold, not yet purchased represent obligations of 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 Bancorp's
ultimate obligation may exceed the amount recognized in the Consolidated
Statement of Financial Condition.
BFC's Liquidity and Capital Resources
The primary sources of funds to the Company (without consideration of Bancorp's
liquidity and capital resources which except as noted, are not available to BFC)
were dividends from Bancorp, revenues from property operations, principal and
interest payments on loan receivables and borrowings. Funds were primarily
utilized by BFC to invest in equity securities, reduce mortgage payable and
other borrowings and to fund operating expenses and general and administrative
expenses. BFC has an $8.0 million revolving line of credit that can be utilized
for working capital as needed. At June 30, 2002, approximately $3.48 million was
available under this facility that matures in December 2002 and bears interest
at the prime rate plus 1%. In July 2002, the Company borrowed from the revolving
line of credit $1.5 million, leaving an available balance under this facility of
$1.98 million.
The Company (without consideration of 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, therefore, they are consolidated
in these financial statements. Interests in such partnerships were sold in 2000
and 2001 to accredited investors in private offerings. During 2000,
approximately $5.1 million of capital was raised from unaffiliated third parties
by these partnerships and officers, directors and affiliates of the Company
invested approximately $4.4 million in the Partnership. The Company and the
general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of
38
the $1.3 million, Alan Levan, Chairman, and John Abdo, Vice Chairman, 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. Such amounts
were still outstanding at the end of the quarter, bear interest at the prime
rate plus 1% and are payable interest only annually with the entire balance due
in February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and BFC Financial
Corporation - 57.5%. In January 2002, two of these venture partnerships
distributed the shares of its investments that it owned. At June 30, 2002 and
December 31, 2001, the Company's net investments in these partnerships were $2.6
million and $4.7 million, respectively.
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 1,019,564 shares of BFC Class A
Common Stock and 370,750 shares of BFC Class B Common Stock.
As previously indicated the Company holds approximately 22.6% of the outstanding
Bancorp Common Stock. The payment of dividends by Bancorp is subject to
declaration by 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 Bancorp
and the ability of BankAtlantic to pay dividends or otherwise advance funds to
Bancorp, which in turn is subject to OTS regulation and is based upon
BankAtlantic's regulatory capital levels and net income. While there is no
assurance that Bancorp will pay dividends in the future, Bancorp has paid a
regular quarterly dividend to its common stockholders since August 1993 and
management of Bancorp has indicated that it will seek to declare regular
quarterly cash dividends on the Bancorp Common Stock. Bancorp currently pays a
quarterly dividend of $.029 per share on its Class A and Class B Common Stock.
Based on its current level of ownership and Bancorp's current dividend rate, BFC
receives approximately $382,000 per quarter in dividends from Bancorp.
Bancorp's Liquidity and Capital Resources
Bancorp's principal source of liquidity is dividends from BankAtlantic. Bancorp
also obtains funds through the issuance of equity securities, sales of
securities available for sale, borrowings from financial institutions and
issuance of debt securities. Bancorp's annual debt service at June 30, 2002
associated with its subordinated debentures, Trust Preferred Securities, and
financial institution borrowings was $18.7 million. Bancorp's estimated current
annual dividends to common shareholders are approximately $6.8 million of which
$3.4 million has been declared and paid during 2002. The declaration and payment
of dividends and the ability of Bancorp to meet its debt service obligations
will depend upon, among other things, the results of operations, financial
condition and cash requirements of Bancorp as well as indenture restrictions and
loan covenants and on the ability of BankAtlantic to pay dividends to Bancorp,
which payments are subject to OTS approval and regulations and based upon
BankAtlantic's regulatory capital levels and net income. During 2001, Bancorp
received $22.2 million of dividends from BankAtlantic. Certain covenants
contained in a Levitt Companies loan agreement prohibit it from paying dividends
to Bancorp. Ryan Beck has not paid dividends to Bancorp and it is not
anticipated that Ryan Beck will pay dividends during 2002.
In connection with the acquisition of Ryan Beck in June 1998, Bancorp
established a retention pool covering certain employees of Ryan Beck, under
which 785,866 shares of Bancorp restricted Class A common stock were issued to
these employees. The retention pool was valued at $8.1 million at the
acquisition date, and the shares, which vested four years from the date of
acquisition, were treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value of the
restricted shares at the date of the Ryan Beck acquisition. The deferred
compensation awards were granted under the BankAtlantic Bancorp, Inc. Deferred
Compensation Plan. All participant accounts under the plan vested on June 28,
2002 and the remaining participants received in the aggregate 5,941 shares of
Bancorp's Class A Common Stock, $3.8 million in cash and notes payable for an
aggregate principal amount of $3.7 million. The notes payable mature on June 28,
2003 and bear interest at prime plus 1%.
39
Bancorp maintains a revolving credit facility of $30 million with an independent
financial institution. The credit facility contains customary covenants
including financial covenants relating to regulatory capital and maintenance of
certain loan loss reserves and is secured by the common stock of BankAtlantic.
In April 2002 Bancorp borrowed $29.9 million under this credit facility to fund
Levitt Companies' investment in Bluegreen Corporation. In June 2002 Bancorp used
a portion of the proceeds from its participation in a pooled trust preferred
offering to reduce outstanding borrowings under this credit facility to $16
million. As a consequence of the Community acquisition, Bancorp requested and
received from the lender under the credit facility certain waivers of financial
covenants through December 31, 2002. Bancorp does not believe that it will need
additional waivers beyond December 31, 2002. Amounts outstanding accrue interest
at the prime rate minus 50 basis points and the facility matures on September 1,
2004.
In June 2002, Bancorp participated in a pooled trust preferred securities
offering in which $25 million of trust preferred securities were issued. The net
proceeds to Bancorp from the Trust Preferred Securities offering after
underwriting discounts and expenses were approximately $24.2 million. Bancorp
used the proceeds from the trust preferred securities offering for general
corporate purposes, including to augment the capital of Ryan Beck in conjunction
with its acquisition of certain assets and the assumption of certain liabilities
of Gruntal & Co., LLC, and to pay down the revolving credit facility discussed
above.
In October 2001, Bancorp filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to an aggregate
of $150 million of debt securities, shares of Bancorp Class A Common Stock and
trust preferred securities. During December 2001, Bancorp sold 6.9 million
shares of its Class A Common Stock under this registration statement in an
underwritten public offering at a price of $8.25 per share. The net proceeds
after underwriting discounts and expenses were approximately $53.5 million. In
March 2002, $55.4 million of trust preferred securities were issued under this
registration statement for net proceeds of $53.5 million. The proceeds from the
above equity and trust preferred securities offerings were used to fund a
portion of BankAtlantic's purchase of Community Savings, Levitt Companies'
investment in Bluegreen Corporation and Ryan Beck's purchase of certain assets
and the assumption of certain liabilities from Gruntal & Co. In connection with
Gruntal transaction, Bancorp contributed $15 million to the capital of Ryan
Beck.
BankAtlantic's primary sources of funds during the first six months of 2002 were
from principal collected on loans, securities available for sale and investment
securities held to maturity, sales of securities available for sale, borrowings
from FHLB advances, securities sold under agreements to repurchase, sales of
property and equipment and REO, capital contributions from BankAtlantic Bancorp
and deposit inflows. These funds were primarily utilized to fund operating
expenses and deposit outflows, and to fund or purchase loans, FHLB stock, tax
certificates, trading securities, and securities available for sale and to
acquire Community. At June 30, 2002, BankAtlantic met all applicable liquidity
and regulatory capital requirements.
BankAtlantic's commitments to originate and purchase loans at June 30, 2002 were
$394.8 million and $87.7 million compared to $174.5 million and $20.4 million at
June 30, 2001. Additionally, BankAtlantic had commitments to purchase
mortgage-backed securities of $77.6 million at June 30, 2002 compared to $138.0
million at June 30, 2001. At June 30, 2002, loan commitments represented
approximately 13.5% of net loans receivable, net.
40
At the indicated date BankAtlantic's capital amounts and ratios were (dollars in
thousands):
Minimum Ratios
------------------------
Actual Adequately Well
----------------- Capitalized Capitalized
Amount Ratio Ratio Ratio
------ ----- ----------- -----------
At June 30, 2002:
Total risk-based capital $387,513 10.55% 8.00% 10.00%
Tier 1 risk-based capital $341,552 9.30% 4.00% 6.00%
Tangible capital $341,552 6.55% 1.50% 1.50%
Core capital $341,552 6.55% 4.00% 5.00%
At December 31, 2001:
Total risk-based capital $383,295 12.90% 8.00% 10.00%
Tier 1 risk-based capital $346,057 11.65% 4.00% 6.00%
Tangible capital $346,057 8.02% 1.50% 1.50%
Core capital $346,057 8.02% 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 Bancorp's Annual Report on Form 10-K for the year ended December 31,
2001.
Bancorp's wholly owned subsidiary, Ryan Beck, is subject to the net capital
provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that Ryan Beck's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. 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 and price
of issues in which markets are made by Ryan Beck, not to exceed $1,000,000. At
June 30, 2002, Ryan Beck's regulatory net capital was approximately $13.9
million, which exceeded minimum net capital rule requirements by $12.9 million.
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 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 June 30, 2002.
Levitt Companies primary source of funds during the six months ended June 30,
2002 were proceeds from the sale of real estate inventory, capital contributions
from BankAtlantic Bancorp and borrowings from financial institutions. These
funds were primarily utilized to purchase real estate inventory, repay
borrowings and invest in Bluegreen Corporation. In April 2002, Levitt Companies
received an $18.6 million capital contribution and borrowed $30 million. Levitt
Companies utilized these funds plus $5.1 million of working capital to purchase
a 34% interest in Bluegreen Corporation's common stock. Levitt Companies
borrowings with financial institutions require Levitt Companies to comply with
certain financial covenants during the term of the agreements. At June 30, 2002,
Levitt Companies was in compliance with all loan agreement financial covenants.
41
PART II - OTHER INFORMATION
Item 1 through 3. - Not applicable.
Item 4. - Submission of Matters to a Vote of Security Holders
The Company held it Annual Meeting of Shareholders on May 22, 2002. At
that meeting, shareholders adopted an Amendment to the Company's
Articles of Incorporation. The adoption required the majority vote of
the Class A shares voted on the Amendment and a majority vote of the
Class B shares outstanding. The vote on the Amendment was:
Shares voted were as follows: Class A Class B
------- -------
For 4,404,131 1,618,732
Against 18,979 5,996
Abstain 1,362 1,943
No vote n/a 634,851
Also at that meeting, the holders of the Class B Common Stock elected
the following Directors for the terms indicated:
Director Term For Withheld
-------- ---- --- --------
Earl Pertnoy One Year 2,239,938 21,081
John E. Abdo Three Years 2,239,938 21,081
Item 5. - Not applicable
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K:
Form 8-K filed on June 27, 2002 for the purpose of reporting an amendment
to the BFC Articles of Incorporation.
SIGNATURES
Pursuant to the requirements 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
Date: August 9, 2002 By: /s/ Alan B. Levan
-----------------------------------------
Alan B. Levan, President
Date: August 9, 2002 By: /s/ Glen R. Gilbert
-----------------------------------------
Glen R. Gilbert, Executive Vice President
Chief Accounting Officer and
Chief Financial Officer
42