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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 March 31, 2003
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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, 2,362,157 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 March 31,
2003 and December 31, 2002 - Unaudited
Consolidated Statements of Operations for the three months
ended March 31, 2003 and 2002 - Unaudited
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the three months ended March 31, 2003
and 2002 - Unaudited
Consolidated Statements of Cash Flows for the three months
ended March 31, 2003 and 2002 - 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
Item 4. Controls and Procedures
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
March 31, 2003 and December 31, 2002
(In thousands, except share data)
2003 2002
---------- ----------
ASSETS
Cash and due from depository institutions $ 143,472 $ 202,432
Federal Funds sold and securities purchased under resell agreements -- 50,145
Securities available for sale (at fair value) 744,376 713,131
Securities owned (at fair value) 154,319 186,454
Investment securities and tax certificates (approximate fair value:
$175,876 and $212,698) 175,436 212,240
Loans receivable, net 3,886,347 3,377,870
Federal Home Loan Bank stock, at cost which approximates fair value 65,443 64,943
Accrued interest receivable 35,725 34,050
Real estate held for development and sale and joint ventures 270,997 256,401
Investment in unconsolidated real estate subsidiary 61,584 60,695
Office properties and equipment, net 92,917 92,784
Deferred tax asset, net 13,614 12,119
Goodwill, net 77,878 78,612
Core deposit intangible asset 13,303 13,757
Other assets 65,607 60,300
---------- ----------
Total assets $5,801,018 $5,415,933
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Interest free checking $ 516,404 $ 462,718
NOW accounts 446,076 399,985
Savings accounts 180,362 163,641
Insured money fund savings 820,181 775,175
Certificate accounts 920,350 1,119,036
---------- ----------
Total deposits 2,883,373 2,920,555
---------- ----------
Advances from FHLB 1,308,246 1,297,170
Securities sold under agreements to repurchase 341,144 116,279
Federal Funds purchased 115,000 --
Subordinated debentures, notes and bonds payable 208,114 209,068
Guaranteed preferred beneficial interests in BankAtlantic Bancorp's
Junior Subordinated Debentures 245,375 180,375
Securities sold, but not yet purchased 49,760 38,003
Due to clearing agent 36,982 78,791
Other liabilities 160,499 132,780
---------- ----------
Total liabilities 5,348,493 4,973,021
---------- ----------
Minority interest 373,671 365,501
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 2003 and 6,474,994 in 2002 58 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,362,157 in 2003 and 2,362,157 in 2002 21 21
Additional paid-in capital 24,043 24,077
Retained earnings 54,287 52,387
---------- ----------
Total stockholders' equity before
accumulated other comprehensive income 78,409 76,543
Accumulated other comprehensive income 445 868
---------- ----------
Total stockholders' equity 78,854 77,411
---------- ----------
Total liabilities and stockholders' equity $5,801,018 $5,415,933
========== ==========
See accompanying notes to unaudited consolidated financial statements.
3
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands, except per share data)
INTEREST INCOME: 2003 2002
--------- --------
Interest and fees on loans and leases $ 53,089 $ 47,128
Interest and dividends on securities available for sale 8,662 12,085
Interest and dividends on other investment securities 5,193 8,003
Interest and dividends on securities owned 4,347 698
--------- --------
Total interest income 71,291 67,914
--------- --------
INTEREST EXPENSE:
Interest on deposits 11,169 15,326
Interest on advances from FHLB 15,316 14,920
Interest on securities sold under agreements to repurchase and federal funds purchased 819 1,384
Interest on subordinated debentures, notes and bonds payable
and guaranteed beneficial interests in BankAtlantic Bancorp's Junior
Subordinated Debentures 6,504 4,889
Capitalized interest on real estate developments and joint ventures (1,574) (1,218)
--------- --------
Total interest expense 32,234 35,301
--------- --------
NET INTEREST INCOME 39,057 32,613
Provision for loan losses 850 2,565
--------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,207 30,048
--------- --------
NON-INTEREST INCOME:
Investment banking income 57,984 13,048
Gains on sales of real estate developed for sale
and joint venture activities 13,788 11,977
Income from unconsolidated real estate subsidiary 119 --
Service charges on deposits 8,558 4,863
Other service charges and fees 3,918 3,105
Gains on securities activities 774 3,039
Other 3,513 2,179
--------- --------
Total non-interest income 88,654 38,211
--------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits 67,643 27,590
Occupancy and equipment 10,024 7,311
Advertising and promotion 3,731 2,210
Selling, general and administrative 2,609 1,774
Amortization of intangible assets 454 --
Acquisition related charges and impairments -- 1,074
Professional fees 3,792 1,297
Communications 4,265 914
Floor broker and clearing fees 2,402 849
Other 10,116 6,689
--------- --------
Total non-interest expense 105,036 49,708
--------- --------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 21,825 18,551
Provision for income taxes 8,740 6,138
Minority interest in income (loss) of consolidated subsidiaries 11,185 (2,042)
--------- --------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 1,900 14,455
Cumulative effect of a change in accounting principle (less applicable
income taxes of $1,246) -- (15,107)
--------- --------
NET INCOME (LOSS) $ 1,900 $ (652)
========= ========
(Continued)
See accompanying notes to unaudited consolidated financial statements.
4
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands, except per share data)
2003 2002
-------------- --------------
EARNINGS (LOSS) PER SHARE
Basic earnings per share before cumulative effect of a
change in accounting principle $ 0.24 $ 1.81
Basic loss per share from cumulative effect of a change
in accounting principle -- (1.89)
-------------- --------------
Basic earnings (loss) per share $ 0.24 $ (0.08)
============== ==============
Diluted earnings per share before cumulative effect of a
change in accounting principle $ 0.20 $ 1.59
Diluted loss per share from cumulative effect of a change
in accounting principle -- (1.65)
-------------- --------------
Diluted earnings (loss) per share $ 0.20 $ (0.06)
============== ==============
Basic weighted average number of common shares outstanding 7,985 8,004
============== ==============
Diluted weighted average number of common and common
equivalent shares outstanding 8,789 8,939
============== ==============
See accompanying notes to unaudited consolidated financial statements.
5
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands)
Accumulated
Other
Compre- Compre-
hensive Class A Class B Additional hensive
Income Common Common Paid-in Retained Income
(Loss) Stock Stock Capital Earnings (Loss) Total
------- --------- -------- ---------- -------- ------------ -----
BALANCE, DECEMBER 31, 2001 $ 58 21 24,206 47,195 2,692 74,172
Net loss $ (652) -- -- -- (652) -- (652)
-------
Other comprehensive income (loss),
net of tax:
Unrealized loss on securities
available for sale (529)
Accumulated gain associated with
cash flow hedges 37
Reclassification adjustment
for cash flow hedges 18
Reclassification adjustment
for net gain included
in net income (275)
-------
Other comprehensive loss (749)
-------
Comprehensive loss $(1,401)
=======
Net effect of Bancorp capital
transactions, net of income taxes -- -- (7) -- -- (7)
Exercise of stock options -- 1 130 -- -- 131
Net change in other comprehensive
income, net of income taxes -- -- -- -- (749) (749)
--------- ------ ------ ------ ----- ------
BALANCE, MARCH 31, 2002 $ 58 22 24,329 46,543 1,943 72,895
========= ====== ====== ====== ===== ======
(Continued)
See accompanying notes to unaudited consolidated financial statements.
6
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands)
Accumulated
Other
Compre- Compre-
hensive Class A Class B Additional hensive
Income Common Common Paid-in Retained Income
(Loss) Stock Stock Capital Earnings (Loss) Total
------ -------- ----- ---------- -------- ------------ -----
BALANCE, DECEMBER 31, 2002 $ 58 21 24,077 52,387 868 77,411
Net income $ 1,900 -- -- -- 1,900 -- 1,900
-------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (354)
Minimum pension liability (62)
Unrealized loss associated
with investment in
unconsolidated real estate subsidiary 62
Accumulated loss associated with
cash flow hedges (52)
Reclassification adjustment
for cash flow hedges 18
Reclassification adjustment
for net gain included
in net income (35)
-------
Other comprehensive loss (423)
-------
Comprehensive income $ 1,477
=======
Net effect of Bancorp capital
transactions, net
of income taxes -- -- (34) -- -- (34)
Net change in accumulated other
comprehensive income,
net of income taxes -- -- -- -- (423) (423)
-------- -------- ------- --------- ------- -------
BALANCE, MARCH 31, 2003 $ 58 21 24,043 54,287 445 78,854
======== ======== ======= ========= ======= =======
The components of other comprehensive income relate to the net unrealized
appreciation on securities available for sale, net of income taxes and the
Company's proportionate share of non wholly-owned subsidiaries' net unrealized
gains or losses on securities available for sale, net of income taxes, minimum
pension liability, net of income taxes, unrealized gains or loss associated with
investment in unconsolidated real estate subsidiary, net of income taxes,
accumulated loss associated with cash flow hedges, net of income taxes and
reclassification adjustments, net of income taxes.
See accompanying notes to unaudited consolidated financial statements.
7
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands)
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Income before cumulative effect of a change in accounting principle $ 1,900 $ 14,455
Cumulative effect of a change in accounting principle, net of tax -- (15,107)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED IN)PROVIDED
BY OPERATING ACTIVITIES:
Provision for credit losses on loans, REO and tax certificates 1,905 2,922
Impairment of goodwill -- 16,353
Property and equipment impairment -- 515
Minority interest in income of consolidated subsidiaries 11,185 (2,042)
Depreciation, amortization and accretion, net 3,659 1,194
Amortization of intangible assets 454 --
Change in real estate inventory (16,091) (15,646)
Securities owned activities 32,135 33,630
Securities sold but not yet purchased, net 11,757 28,253
Equity in joint venture earnings (17) (899)
Equity in earnings of unconsolidated subsidiary (119) --
Loans held for sale activity, net 200 (12,192)
Proceeds from sales of loans classified as held for sale 695 858
Gains on securities activities (544) (3,039)
Gains on sales of property and equipment (5) (24)
Gains on sales of in-store branches -- (344)
Increase in deferred tax asset, net -- (2,560)
Increase in accrued interest receivable (1,675) (942)
(Increase) decrease in other assets (6,362) 10,257
Decrease in due to clearing agent (41,809) (62,466)
Increase (decrease) in other liabilities 27,194 (12,041)
--------- ---------
Net cash provided by (used in) operating activities 24,462 (18,865)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from redemption and maturities of investment securities and tax certificates 51,096 58,483
Purchase of investment securities and tax certificates (14,930) (40,284)
Purchases of securities available for sale (178,250) (72,301)
Proceeds from sales and maturities of securities available for sale 143,189 124,163
(Purchases) redemptions of FHLB stock, net (500) 5,009
Purchases and net (originations) collections of loans and leases (510,107) (105,614)
Proceeds from sales of real estate owned 451 2,631
Net additions to office property and equipment (2,705) (197)
Investment in and advances to joint ventures, net 1,382 3,668
Acquisitions, net of cash acquired -- (45,322)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (510,374) (69,764)
--------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (37,182) 144,787
Reduction in deposits from sale of in-store branch -- (8,265)
Repayments of FHLB advances (63,660) (70,000)
Proceeds from FHLB advances 75,000 550
Net increase (decrease) in securities sold under agreements to repurchase 224,865 (41,670)
Net increase in federal funds purchased 115,000 24,000
Repayment of notes and bonds payable (43,896) (10,366)
Proceeds from notes and bonds payable 42,916 24,872
Issuance of BankAtlantic Bancorp common stock 165 600
Issuance of BFC common stock upon exercise of stock options -- 131
Issuance of trust preferred securities 65,000 55,375
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders (1,401) (1,307)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 376,807 118,707
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (109,105) 30,078
Cash and cash equivalents at beginning of period 252,577 124,539
--------- ---------
Cash and cash equivalents at end of period $ 143,472 $ 154,617
========= =========
(continued)
See accompanying notes to unaudited consolidated financial statements.
8
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
For the Three Months Ended March 31, 2003 and 2002
(In thousands)
2003 2002
-------- --------
SUPPLEMENARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Interest paid $ 35,022 $ 35,530
Income taxes paid by BankAtlantic Bancorp 822 2,513
Loans transferred to real estate owned 522 2,139
Net loan (recoveries) charge-offs (557) 9,510
Tax certificate net recoveries (31) (44)
Increase in minority interest equity for the tax effect related
to the exercise of Bancorp employee stock options 169 253
Acquisition goodwill adjustments (734)
Change in stockholders' equity resulting from the change
in other comprehensive income, net of taxes (423) (749)
Net loss effect of Bancorp's capital transactions,
net of taxes (34) (7)
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.
9
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 comm2on stock of BankAtlantic Bancorp, Inc.
("BankAtlantic Bancorp" or "Bancorp"). BankAtlantic Bancorp is a Florida-based
diversified financial services holding company. BankAtlantic Bancorp's principal
assets include the capital stock of BankAtlantic and its subsidiaries
("BankAtlantic"), Levitt Corporation and its subsidiaries ("Levitt") and Ryan
Beck & Co., Inc. and its subsidiaries ("Ryan Beck"). The Company's primary asset
is the capital stock of BankAtlantic Bancorp and its primary activities
currently relate to the operations of BankAtlantic Bancorp.
BFC owns shares of BankAtlantic Bancorp Class A and Class B Common Stock which
represent 55.2% of the combined voting power and 22.6% of BankAtlantic Bancorp's
outstanding Common Stock. Because BFC controls greater than 50% of the vote of
BankAtlantic Bancorp, BankAtlantic 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
BankAtlantic 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 March 31, 2003 and December 31, 2002, the consolidated
results of operations for the three months ended March 31, 2003 and 2002, the
consolidated stockholders' equity and comprehensive income for the three months
ended March 31, 2003 and 2002 and the consolidated cash flows for the three
months ended March 31, 2003 and 2002. Such adjustments consisted only of normal
recurring items except for the cumulative effect of a change in accounting
principle discussed in Note 10. The 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, 2002.
2. INVESTMENT IN BANKATLANTIC BANCORP
At March 31, 2003, the Company's ownership of BankAtlantic Bancorp was as
follows:
SHARES PERCENT
OWNED OWNED
------ -------
Class A Common Stock 8,296,891 15.5%
Class B Common Stock 4,876,124 100.0%
Total 13,173,015 22.6%
At March 31, 2003 the shares of BankAtlantic Bancorp 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 BankAtlantic Bancorp's Common Stock.
3. STOCK BASED COMPENSATION
Under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
there are two methods of accounting for stock options, the intrinsic value
method and the fair value method. The Company elects to value its options under
the intrinsic value method. As a consequence, the Company accounts for its stock
based compensation plans under the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation.
10
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002
------------- -------------
PRO FORMA NET INCOME
Net income (loss), as reported $ 1,900 $ (652)
Deduct: Total stock-based employee compensation
expense determined under,
fair value based method for all awards,
net of related income tax effects 126 146
------------- -------------
Pro forma net income (loss) $ 1,774 $ (798)
============= =============
EARNINGS (LOSS) PER SHARE:
Basic as reported $ .24 $ (0.08)
============= =============
Basic pro forma $ .22 (0.10)
============= =============
Diluted as reported $ .20 $ (0.06)
============= =============
Diluted pro forma $ .19 $ (0.07)
============= =============
In February 2003, the BFC Board of Directors granted incentive and
non-qualifying stock options to acquire an aggregate of 197,500 shares of BFC
Class B Common Stock under the BFC Stock Option Plan. In April 2003, the
BankAtlantic Bancorp Board of Directors granted, incentive and non-qualifying
stock options to acquire an aggregate of 758,100 shares of BankAtlantic Bancorp
Class A Common Stock under the Amended and Restated BankAtlantic Bancorp 2001
Stock Option Plan. The options vest in five years and expire ten years after the
grant date except for stock options granted to Directors of BFC and BankAtlantic
Bancorp (non-employees), which vested immediately. The stock options were
granted with an exercise price of $5.15 per share for BFC and $9.68 per share
for BankAtlantic Bancorp, which represented the fair market value of the common
stock at the date of grant. No compensation expense was recognized in connection
with the options granted since the exercise price equaled the market value of
the underlying common stock on the date of grant. The options granted in BFC had
a fair value of $3.63 per option and the options granted by BankAtlantic Bancorp
had a fair value of $4.76 per option based on the fair value recognition
provisions of SFAS No. 123.
4. TRUST PREFERRED SECURITIES AND CONVERTIBLE DEBENTURES
During the three months ended March 31, 2003, BankAtlantic Bancorp participated
in two pooled trust preferred securities offerings in which an aggregate of $65
million of trust preferred securities were issued in two separate transactions.
The trust preferred securities pay interest quarterly at fixed rates ranging
from 6.40% to 6.65% per annum until 2008, and thereafter at a floating rate
equal to 3-month LIBOR plus 315 to 325 basis points. The securities are
redeemable in five years and are due in 2033. The securities have a liquidation
value of $1,000 per security. The trust preferred securities were issued by
statutory trusts established by BankAtlantic Bancorp. BBC Capital Trust X issued
50,000 trust preferred securities and BBC Capital Trust XII issued 15,000 trust
preferred securities. The sales of the trust preferred securities were part of
larger pooled trust preferred securities offerings and were not registered under
the Securities Act of 1933. The net proceeds to BankAtlantic Bancorp from the
trust preferred securities offerings after placement fees and expenses were
approximately $63 million. These net proceeds were used to redeem $45.8 million
of BankAtlantic Bancorp's 5.625% Convertible Subordinated Debentures due 2007,
pay down $16 million of borrowings under BankAtlantic Bancorp's credit facility
with an unrelated financial institution and for general corporate purposes.
The Convertible Subordinated Debentures were redeemed in April 2003 at a
redemption price of 102% of the
11
principal amount plus accrued and unpaid interest through the redemption date.
During the period between the mailing of the notice of redemption and the
redemption, approximately $211,000 of Convertible Subordinated Debentures were
converted by holders into an aggregate of 18,754 shares of BankAtlantic Bancorp
Class A Common Stock. The Company in April 2003 wrote off $730,000 of deferred
offering costs and incurred a $917,000 call premium in connection with this
redemption.
In March 2002, BankAtlantic Bancorp completed an underwritten public offering in
which BankAtlantic Bancorp's wholly-owned statutory trust ("BBC Capital Trust
II") issued $55.4 million of trust preferred securities. These trust preferred
securities pay distributions quarterly at an 8.50% fixed rate. The net proceeds
to BankAtlantic Bancorp from the publicly offered trust preferred securities
after underwriting discounts and expenses were approximately $53.3 million.
In April 2003, BankAtlantic Bancorp participated in a pooled trust preferred
securities offering in which an aggregate of $10 million of trust preferred
securities were issued. The trust preferred securities pay interest quarterly at
a fixed rate of 6.448% per annum until 2008, and thereafter at a floating rate
equal to 3-month LIBOR plus 325 basis points. The securities are redeemable in
five years and are due in 2033. The securities have a liquidation value of
$1,000 per security. The trust preferred securities were issued by a statutory
trust established by BankAtlantic Bancorp. BBC Capital Trust XI issued 10,000
trust preferred securities. The net proceeds to BankAtlantic Bancorp from the
trust preferred securities offering after placement fees and expenses were
approximately $9.7 million. These net proceeds were used by BankAtlantic Bancorp
for general corporate purposes.
5. SECURITIES OWNED
Ryan Beck's securities owned activities 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. Ryan Beck also realizes gains and losses from
proprietary trading activities which includes the activities of its wholly owned
subsidiary, The GMS Group ("GMS").
Ryan Beck's securities owned (at fair value) consisted of the following (in
thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Debt obligations:
States and municipalities (1) $ 84,745 $119,417
Corporations 4,958 5,344
U.S. Government and agencies 35,355 26,004
Corporate equities 10,029 19,280
Mutual funds 17,022 16,409
Certificates of deposit 2,210 --
-------- --------
$154,319 $186,454
======== ========
(1) Includes $77.4 million and $108.3 million of securities owned by
GMS, of which approximately $8.0 million and $9.7 million were not
accruing interest at March 31, 2003 and December 31, 2002,
respectively. The ability to realize Ryan Beck's investment in these
securities will depend on future market conditions.
In the ordinary course of business, Ryan Beck borrows under an agreement with
its clearing broker by pledging securities owned as collateral primarily to
finance inventories. As of March 31, 2003 and December 31, 2002 the balances due
to the clearing broker were $37.0 million and $78.8 million, respectively.
12
Ryan Beck's securities sold not yet purchased consisted of the following (in
thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
States and municipalities $ 3,277 $ 9,566
Corporations 4,903 1,159
U.S. Government and agencies 16,172 23,587
Corporate equities 3,981 3,691
Certificates of deposit 21,427 --
------- -------
$49,760 $38,003
======= =======
6. LOANS RECEIVABLE
The loan and lease portfolio consisted of the following components (in
thousands):
MARCH 31, DECEMBER 31,
2003 2002
----------- -----------
REAL ESTATE LOANS:
Residential $ 1,824,329 $ 1,378,041
Construction and development 1,247,747 1,218,410
Commercial 803,634 758,261
Small Business 98,455 98,494
OTHER LOANS:
Second mortgages - direct 275,385 261,579
Second mortgages - indirect 1,565 1,714
Commercial business 86,293 82,174
Lease financing 24,876 31,279
Small business - non-mortgage 60,516 62,599
Deposit overdrafts 2,557 2,487
Consumer loans - other direct 21,778 22,394
Consumer loans - other indirect 3,729 6,392
Other 4,175 4,175
LOANS HELD FOR SALE:
Commercial syndication 13,953 14,499
----------- -----------
Total gross loans 4,468,992 3,942,498
----------- -----------
Adjustments:
Undisbursed portion of loans in process (536,406) (511,861)
Premiums related to purchased loans 10,399 2,159
Deferred profit on commercial real estate loans (622) (632)
Deferred fees (6,249) (5,200)
Allowance for loan and lease losses (49,767) (49,094)
----------- -----------
Loans receivable - net $ 3,886,347 $ 3,377,870
=========== ===========
BankAtlantic originates CRA loans designated as held to maturity and also
originates CRA loans that are pre-sold to correspondents. Prior to September
2002, BankAtlantic Bancorp originated CRA loans for resale. During June 2000,
BankAtlantic discontinued its commercial non-mortgage syndication lending
activities and transferred the entire portfolio to loans held for sale.
7. 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 Levitt and its subsidiaries as well as Levitt's
joint venture activities and a joint venture acquired in connection with the
Community Savings Bankshares, Inc. ("Community") acquisition. Also included in
real estate held for development and sale and joint venture activities is BFC's
real estate which includes Burlington Manufacturers Outlet Center
13
("BMOC"), a shopping center in North Carolina and the unsold land at Center
Port.
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Land and land development costs $171,519 $161,826
Construction costs 29,400 23,412
Other costs 13,350 12,888
Investments and loans to joint ventures 50,539 51,904
Other 6,189 6,371
-------- --------
$270,997 $256,401
======== ========
The components of gains on sales of real estate developed for sale were as
follows (in thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2003 2002
------- --------
Sales of real estate $52,964 $37,853
Cost of sales 39,193 26,775
------- -------
Gains on sales of real estate
13,771 11,078
Gains on joint venture activities 17 899
------- -------
Gains on sales of real estate developed for sale
and joint venture activities $13,788 $11,977
======= =======
8. DERIVATIVES
The following table outlines the notional amount and fair value of the Company's
derivatives outstanding at March 31, 2003 (in thousands).
PAYING RECEIVING
NOTIONAL INDEX/FIXED INDEX/FIXED TERMINATION
AMOUNT FAIR VALUE AMOUNT AMOUNT DATE
-------- ---------- ----------- ----------- -----------
Five year pay fixed swaps $25,000 $(2,398) 5.73% 3 mo. LIBOR 1/5/2006
Three year pay fixed swaps $50,000 $(1,678) 5.81% 3 mo. LIBOR 12/28/2003
======= ======= ======= =========== ==========
Forward contract to purchase
adjustable rate mortgages $27,812 $ 42
======= =======
The above interest rate swap contracts were originated in prior periods to hedge
the variable cash flows relating to forecasted interest payments on certain
variable rate FHLB advances. BankAtlantic Bancorp's risk management strategy was
to fix the variability of cash outflows on floating rate advances at a rate of
5.09%. The changes in fair value of the interest rate swap contracts designated
as cash flow hedges were recorded in other comprehensive income and the
receivables and payables from the swap contracts were recorded as an adjustment
to interest expense on FHLB advances in the Company's Statements of Operations
for the three months ended March 31, 2003 and 2002.
During the year ended December 31, 2000, BankAtlantic Bancorp entered into a
forward contract to purchase the underlying collateral from a government agency
pool of securities in May 2005. The underlying collateral is five year hybrid
adjustable rate mortgage loans that will adjust annually after May 2005. The
forward contract is held for trading purposes and recorded at fair value.
14
During the first quarter of 2003, BankAtlantic Bancorp exercised its option to
call $33 million of time deposits resulting in the termination of interest rate
swap contracts with a notional amount of $33 million. The time deposits were
redeemed due to the historically low interest rate environment. The interest
rate swaps were originated in prior periods as fair value hedges for the
issuance of fixed rate time deposits.
9. 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.
Results of operations are reported through seven reportable segments. Bank
Investments, Commercial Banking, and Community Banking are our Bank Operations
segments, which are conducted through BankAtlantic. The remaining reportable
segments consist of the activities of Levitt, Ryan Beck, BankAtlantic Bancorp
parent company and BFC Holding Company. Our Bank Operations segment interest
expense and certain of its revenue and expense items are allocated to the three
Bank Operations reportable segments as interest expense and overhead. The
presentation and allocation of interest expense and overhead and the net income
calculated under the management approach associated with the Bank Operations
reportable segments and BankAtlantic Bancorp parent company and BFC Holding
Company may not reflect the actual economic costs, contribution or results of
operations of the units as stand alone businesses. If a different basis of
allocation were utilized, the relative contributions of the segments might
differ but the relative trends in 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 Corporation Levitt Corporation, which includes Levitt and
Sons, Core Communities, 35% equity investment in
Bluegreen and real estate joint ventures.
Ryan Beck Investment banking and brokerage operations.
Bancorp Parent Company BankAtlantic Bancorp's operations, costs of
acquisitions, financing of acquisitions, and
equity investments.
BFC Holding Company BFC's real estate owned which includes BMOC and
Center Port. Loans receivable that relate to
previously owned properties, other securities and
investments and BFC's overhead and interest
expense. Provision for income taxes includes the
tax effect from BFC's equity earnings in
BankAtlantic Bancorp.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Inter-segment transactions consist
of borrowings by and brokerage operations and investment banking and brokerage
operations which are recorded based upon the terms of the underlying loan
agreements and are eliminated. The elimination entries consist of the
inter-company loan interest income and interest expense,
15
management fees, consulting fees, facilities rent and brokerage commission.
The Company evaluates segment performance based on net income after tax. The
table below is segment information for income before minority interest and the
cumulative effect of a change in accounting principle for the three months ended
March 31, 2003 and 2002 (in thousands).
BANCORP BFC
BANK LEVITT PARENT HOLDING ELIMINATION SEGMENT
OPERATIONS CORPORATION RYAN BECK COMPANY COMPANY ENTRIES TOTAL
----------- ----------- --------- --------- -------- ----------- -----------
2003
Interest income $ 66,928 $ 228 $ 4,347 $ 453 $ 98 $ (763) $ 71,291
Interest expense (27,770) (241) (725) (3,644) (285) 431 (32,234)
Provision for loan losses (850) -- -- -- -- -- (850)
Non-interest income 14,358 13,520 59,627 196 651 302 88,654
Non-interest expense (35,234) (8,138) (60,500) (456) (738) 30 (105,036)
----------- --------- --------- --------- -------- --------- -----------
Segment profits and
losses before taxes 17,432 5,369 2,749 (3,451) (274) -- 21,825
(Provision) benefit
for income taxes (6,031) (2,075) (842) 1,207 (999) -- (8,740)
----------- --------- --------- --------- -------- --------- -----------
Segment net income (loss) $ 11,401 $ 3,294 $ 1,907 $ (2,244) $ (1,273) $ -- $ 13,085
=========== ========= ========= ========= ======== ========= ===========
Segment average assets $ 4,688,894 $ 308,900 $ 210,991 $ 87,939 $ 18,258 $ 195,206 $ 5,510,188
=========== ========= ========= ========= ======== ========= ===========
2002
Interest income $ 67,102 $ 414 $ 698 $ 311 $ 76 $ (687) $ 67,914
Interest expense (31,843) (2) (328) (3,323) (281) 476 (35,301)
Provision for loan losses (2,565) -- -- -- -- -- (2,565)
Non-interest income 9,354 12,054 13,598 2,683 311 211 38,211
Non-interest expense (28,304) (6,178) (13,735) (597) (894) -- (49,708)
----------- --------- --------- --------- -------- --------- -----------
Segment profits and
losses before taxes 13,744 6,288 233 (926) (788) -- 18,551
(Provision) benefit
for income taxes (4,803) (2,201) (82) 327 621 -- (6,138)
----------- --------- --------- --------- -------- --------- -----------
Segment net income (loss) $ 8,941 $ 4,087 $ 151 $ (599) $ (167) $ -- $ 12,413
=========== ========= ========= ========= ======== ========= ===========
Segment average assets $ 4,190,133 $ 205,698 $ 99,374 $ 114,511 $ 24,499 $ 67,590 $ 4,701,805
=========== ========= ========= ========= ======== ========= ===========
16
The changes in the carrying amounts of goodwill for the three months ended March
31, 2003 were as follows:
BANCORP
BANK PARENT
(IN THOUSANDS) OPERATIONS RYAN BECK COMPANY TOTAL
---------- --------- --------- ----------
Balance as of December 31, 2002 $ 71,224 $ 1,658 $ 5,730 $ 78,612
Adjustments:
Allowance for Community loan losses acquired (734) -- -- (734)
---------- --------- --------- ----------
Balance as of March 31, 2003 $ 70,490 $ 1,658 $ 5,730 $ 77,878
========== ========= ========= ==========
Bank Operations consists of three reportable segments. The table below is
segment information for the three months ended March 31, 2003 and 2002
associated with the three Bank Operations reportable segments.
BANK OPERATIONS
------------------------------------------------------------
BANK COMMERCIAL COMMUNITY
(IN THOUSANDS) INVESTMENTS BANKING BANKING TOTAL
----------- ----------- --------- -----------
2003
Interest income $ 35,192 $ 25,234 $ 6,502 $ 66,928
Interest expense and overhead (24,919) (13,767) (3,817) (42,503)
Provision for loan losses (373) (1,231) 754 (850)
Direct non-interest income 60 901 2,428 3,389
=========== =========== ========= ===========
Segment profits and losses
before taxes 6,351 8,391 2,690 17,432
Provision for income taxes (2,197) (2,903) (931) (6,031)
----------- ----------- --------- -----------
Segment net income $ 4,154 $ 5,488 $ 1,759 $ 11,401
=========== =========== ========= ===========
Segment average assets $ 2,511,393 $ 1,704,507 $ 472,994 $ 4,688,894
=========== =========== ========= ===========
2002
Interest income $ 37,675 $ 23,931 $ 5,496 $ 67,102
Interest expense and overhead (26,885) (13,978) (3,216) (44,079)
Provision for loan losses (200) (2,215) (150) (2,565)
Direct non-interest income $ 188 628 2,189 3,005
=========== =========== ========= ===========
Segment profits and losses
before taxes $ 8,232 $ 5,783 $ (271) $ 13,744
Provision for income taxes (2,878) (2,020) 95 (4,803)
----------- ----------- --------- -----------
Segment net income (loss) $ 5,354 $ 3,763 $ (176) $ 8,941
=========== =========== ========= ===========
Segment average assets $ 2,338,327 $ 1,514,704 $ 337,102 $ 4,190,133
=========== =========== ========= ===========
The changes in the carrying amounts of goodwill for the three months ended March
31, 2003 were as follows:
BANK OPERATIONS
----------------------------------------------------------
BANK COMMERCIAL COMMUNITY
(IN THOUSANDS) INVESTMENTS BANKING BANKING TOTAL
----------- ---------- ---------- ----------
Balance as of December 31, 2002 $ 34,322 $ 35,977 $ 925 $ 71,224
Allowance for Community loan losses acquired -- (734) -- (734)
----------- ---------- ---------- ----------
Balance as of March 31, 2003 $ 34,322 $ 35,243 $ 925 $ 70,490
=========== ========== ========== ==========
10. TRANSITIONAL GOODWILL IMPAIRMENT EVALUATION
In connection with the transitional goodwill impairment evaluation required
under FASB Statement 142, the Company performed an assessment of whether there
was an indication that goodwill was impaired as of January 1,
17
2002, the date of adoption. The fair values of all reporting units, except for
the Ryan Beck reportable segment, exceeded their respective carrying amounts at
the adoption date. For the Ryan Beck reportable segment, a $15.1 million
impairment loss (net of a $1.2 million tax benefit) was recorded effective as of
January 1, 2002 as a cumulative effect of a change in accounting principle.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments with off-balance sheet risk were:
MARCH 31, DECEMBER 31,
----------------------------
2003 2002
----------------------------
(IN THOUSANDS)
Commitment to sell fixed rate residential loans $ 135 $ 88
Forward contract to purchase mortgage-backed securities 27,813 39,128
Commitments to purchase other investment securities -- 200
Commitments to purchase variable rate residential loans 124,547 300,643
Commitments to extend credit, including the undisbursed
portion of loans in process 1,141,639 1,126,384
Standby letters of credit 29,517 35,927
Commercial lines of credit 160,149 209,708
Standby letters of credit are conditional commitments issued by BankAtlantic to
guarantee the performance of a customer to a third party. BankAtlantic standby
letters of credit are generally issued to customers in the construction industry
guaranteeing project performance. These types of standby letters of credit had a
maximum exposure of $19.2 million at March 31, 2003. BankAtlantic also issues
standby letters of credit to commercial lending customers guaranteeing the
payment of goods and services. These guarantees are primarily issued to support
public and private borrowing arrangements and have maturities of one year or
less. These types of standby letters of credit had a maximum exposure of $10.3
million at March 31, 2003. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers. BankAtlantic may hold certificates of deposit and residential and
commercial liens as collateral for such commitments which are collateralized
similar to other types of borrowings.
12. 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 GMS, a wholly-owned subsidiary of Gruntal ("the Gruntal
transaction"). In July 2002, Ryan Beck established a retention plan for certain
Gruntal financial consultants, key employees and others. Pursuant to the
retention plan, the participants were granted a length of service award and a
retention award in forgivable notes in the aggregate amounts of $900,000 and
$9.5 million, respectively, of which the entire service award and 50% of the
retention award in forgivable notes in the aggregate of $5.7 million was paid in
July 2002. The participants were given the choice to receive their remaining 50%
of the retention award in forgivable notes in February 2003, or elect to receive
an enhanced award based on production goals to be paid out in the form of
forgivable notes in January 2004. In February 2003, $2.9 million of forgivable
notes were issued to plan participants. Participants that would have been
entitled to receive $1.3 million of forgivable notes elected to receive a
potential enhanced award in January 2004. The award based on production goals
can be no less than the amount they would have received in 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.
On March 22, 2002, BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A., for $170.3 million in cash and
immediately merged Community into BankAtlantic. The fair value of Community's
assets acquired and liabilities assumed is included in the Company's statement
of financial condition and Community's results of operations have been included
in the Company's consolidated
18
financial statements since March 22, 2002.
The following table summarizes the fair value of assets acquired and liabilities
assumed in connection with the acquisition of Community (in thousands).
FAIR
VALUE
---------
Cash and interest earning deposits $ 124,977
Securities available for sale 79,015
Loans receivable, net 621,325
FHLB Stock 8,063
Investments and advances to joint ventures 16,122
Goodwill 60,102
Core deposit intangible asset 15,117
Other assets 45,070
---------
Fair value of assets acquired 969,791
---------
Deposits 639,111
FHLB advances 138,981
Mortgage-backed bond 14,291
Other liabilities 7,109
---------
Fair value of liabilities assumed 799,492
---------
Community Savings purchase price 170,299
Cash acquired (124,977)
---------
Purchase of Community Savings net of
cash acquired $ 45,322
=========
Acquisition related charges and impairments during the three months ended March
31, 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.
13. NEW ACCOUNTING PRONOUNCEMENTS:
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("Consolidation of Variable Interest Entities"). The
interpretation defines a variable interest entity as a corporation, partnership,
trust or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the equity to support its
activities. A variable interest entity often holds financial assets, including
loans or receivables, real estate or other property. A variable interest entity
may be essentially passive or it may engage in research and development or other
activities on behalf of another company. This interpretation requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. The
Company would have to consolidate any of its variable interest entities that
meet the above criteria as of July 1, 2003. The interpretation also requires
disclosures about variable interest entities that the company is not required to
consolidate but in which it has a significant variable interest. Management is
in the process of determining if its interests in unconsolidated entities
qualify as variable interest entities and, if so, whether the assets,
liabilities, non-controlling interest, and results of activities are required to
be included in the Company's consolidated financial statements. Our investments
and advances to unconsolidated entities was $50.5 million at March 31, 2003.
These entities were primarily real estate joint ventures. We believe that the
majority of these entities will not be consolidated; however, we cannot give any
assurances that this will be the case until we complete our evaluation. We
expect to complete our evaluation by July 1, 2003, the deadline imposed by this
interpretation.
19
In April 2003, the FASB issued Statement No. 149 ("Amendment of Statement 133 on
Derivative Instruments and Hedging Activities".) This Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. The new guidance amends Statement 133 for decisions made as part
of the Derivatives Implementation Group process that effectively required
amendments to Statement 133, in connection with other FASB projects dealing with
financial instruments, and regarding implementation issues raised in relation to
the application of the definition of a derivative, particularly regarding the
meaning of an "underlying" and the characteristics of a derivative that contains
financing components. This Statement is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The guidance should be applied prospectively. Management believes
that this Statement will not have a material impact on the Company's financial
statements.
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.
20
The following table shows the computation of earnings per share and reconciles
the numerators and denominators of the basic and diluted earnings per share
computation for the three months ended March 31, 2003 and 2002.
FOR THE THREE MONTHS
ENDED MARCH 31
---------------------
(In thousands, except per share data) 2003 2002
------- --------
BASIC EARNINGS (LOSS) PER SHARE
Income before cumulative effect
of a change in accounting principle $ 1,900 $ 14,455
Basic weighted average number of common shares outstanding 7,985 8,004
------- --------
Basic earnings per share before cumulative
effect of a change in accounting principle $ 0.24 $ 1.81
======= ========
Cumulative effect of a change in accounting principle, net of taxes $ -- $(15,107)
Basic weighted average number of common shares outstanding 7,985 8,004
------- --------
Basic loss per share from cumulative effect
of a change in accounting principle $ -- $ (1.89)
======= ========
Net income (loss) $ 1,900 $ (652)
Basic weighted average number of common shares outstanding 7,985 8,004
------- --------
BASIC EARNINGS (LOSS) PER SHARE $ 0.24 $ (0.08)
======= ========
DILUTED EARNINGS (LOSS) PER SHARE
Income before cumulative effect
of a change in accounting principle $ 1,900 $ 14,455
Dilution from securities issuable by a subsidiary (136) (281)
------- --------
Income available after assumed dilution $ 1,764 $ 14,174
------- --------
Basic weighted average shares outstanding 7,985 8,004
Common stock equivalents resulting from stock-based compensation 804 935
------- --------
Diluted weighted average shares outstanding 8,789 8,939
------- --------
Diluted earnings per share before cumulative effect
of a change in accounting principle $ 0.20 $ 1.59
======= ========
Cumulative effect of a change in accounting principle, net of taxes $ -- $(15,107)
Dilution from securities issuable by a subsidiary -- 375
------- --------
Cumulative effect of a change in accounting principle, net
of taxes after assumed dilution $ -- $(14,732)
Diluted weighted average shares outstanding 8,789 8,939
------- --------
Diluted loss per share from cumulative effect
of a change in accounting principle $ -- $ (1.65)
======= ========
Net income (loss) available after assumed dilution $ 1,764 $ (558)
Diluted weighted average shares outstanding 8,789 8,939
------- --------
DILUTED EARNINGS (LOSS) PER SHARE $ 0.20 $ (0.06)
======= ========
15. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with the
statement presentation for 2003.
21
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
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.
("BankAtlantic Bancorp" or "Bancorp"). BankAtlantic Bancorp is a diversified
financial services holding company. BankAtlantic Bancorp's principal assets
include the capital stock of BankAtlantic an its subsidiaries ("BankAtlantic"),
a federal savings bank headquartered in Fort Lauderdale, Florida, Levitt
Corporation and its subsidiaries ("Levitt"), a real estate development company
and Ryan Beck & Co., Inc. and its subsidiaries ("Ryan Beck"), a brokerage and
investment banking firm. The Company's primary asset is the capital stock of
BankAtlantic Bancorp and its primary activities currently relate to the
operations of BankAtlantic Bancorp.
At March 31, 2003, the Company's ownership of BankAtlantic Bancorp was as
follows:
SHARES PERCENT
OWNED OWNED
---------- -------
Class A Common Stock 8,296,891 15.5%
Class B Common Stock 4,876,124 100.0%
Total 13,173,015 22.6%
At March 31, 2003, the shares of BankAtlantic Bancorp Class A Common Stock and
BankAtlantic Bancorp Class B Common Stock owned by the Company represented
approximately 55.2% of the voting power of all outstanding shares of
BankAtlantic Bancorp's Common Stock. Because BFC controls greater than 50% of
the vote of BankAtlantic 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 BFC
Financial Corporation ("the Company", "BFC", or "Registrant" which may be
referred to as "we", "us" or "our") and are subject to a number of risks and
uncertainties that are subject to change based on factors which are, in many
instances, beyond the Company's control. 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 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 valuation of our debt and equity securities and our ability to
liquidate these securities; the impact of changes in financial services' laws
and regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; BankAtlantic's seven-day banking initiative
and other growth initiatives which may not produce results which justify their
costs; 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; the potential consolidation of variable
interest entities, if any, and with respect to the operations of Levitt: the
market for real estate generally and in the areas where Levitt 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
22
to the proposed spin-off of Levitt which is subject to a number of risks and
uncertainties that are subject to change based on factors including that the
conditions relating to regulatory approval and the tax-free nature of the
spin-off may not be met, that business, economic, or market conditions may make
the spin-off less advantageous, that Levitt will not be successful as a separate
publicly-traded company, that Levitt will not have additional access to capital
or debt markets or that such markets may prove to be more expensive than
currently available, and that BankAtlantic Bancorp's Board of Directors may in
the future conclude that it is not in the best interest of BankAtlantic Bancorp
or its shareholders to pursue the spin-off. In addition to the risks and factors
identified above, reference is also made to other risks and factors detailed
herein and in reports filed by the Company with the Securities and Exchange
Commission ("SEC"). The Company cautions that the foregoing factors are not
exclusive.
CRITICAL ACCOUNTING POLICIES
Management views critical accounting policies as accounting policies that are
important to the understanding of our financial statements and also involve
estimates and judgments about inherently uncertain matters. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the consolidated statements
of financial condition and assumptions that affect the recognition of income and
expenses on the statement of operations for the periods presented. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the next year relate to
the determination of the allowance for loan losses, evaluation of goodwill for
impairment, the valuation of real estate acquired in connection with foreclosure
or in satisfaction of loans, the valuation of the fair market value of assets
and liabilities in the application of the purchase method of accounting, the
amount of the deferred tax asset valuation allowance, the valuation of
derivatives, the valuation of securities available for sale and the valuation of
real estate held for development and equity method investments. The six
accounting policies that we have identified as critical accounting policies are:
(i) allowance for loan and lease losses, (ii) valuation of securities and
derivative instruments, (iii) impairment of goodwill and other intangible
assets, (iv) impairment of long-lived assets; (v) real estate held for
development and sale and equity method investments and (vi) accounting for
business combinations.
For a more detailed discussion on these critical accounting policies see
"Critical Accounting Policies" appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 2002.
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
(IN THOUSANDS) 2003 2002
-------- --------
Net interest income $ 39,057 $ 32,613
Provision for loan losses 850 2,565
Securities activities 774 3,039
Other non-interest income 87,880 35,172
Non-interest expense 105,036 49,708
-------- --------
Income before income taxes, minority interest and
cumulative effect of a change in accounting principle 21,825 18,551
Provision for income taxes 8,740 6,138
Minority interest in income of consolidated subsidiaries 11,185 (2,042)
-------- --------
Income before cumulative effect of a change in
accounting principle 1,900 14,455
Cumulative effect of a change in accounting principle, net of tax -- (15,107)
-------- --------
Net income (loss) $ 1,900 $ (652)
======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE SAME 2002 PERIOD:
Income before income taxes, minority interest and cumulative effect of a change
in accounting principle increased
23
by 18% from 2002. The increased earnings primarily resulted from a significant
improvement in net interest income, a decline in our provision for loan losses,
a substantial increase in service charges on deposits, and higher earnings
associated with Ryan Beck. The above improvements in earnings were partially
offset by lower earnings from Levitt's real estate operations and reduced gains
from securities activities.
Net interest income increased by 20% from 2002. The improvement in net interest
income primarily resulted from earning asset growth associated with the
Community acquisition and the origination and purchase of real estate loans as
well as a large increase in net interest income from Ryan Beck's securities
owned trading activities. The increase in trading securities activities
primarily resulted from the April 2002 Gruntal transaction.
The provision for loan losses declined by 67% from 2002. The decrease reflects a
$2.1 million recovery on a syndication loan that was charged off during March
2002 and a change in BankAtlantic loan mix from indirect consumer loans,
syndication commercial business loans and lease financings to a loan portfolio
predominately collateralized by real estate. Real estate loans have lower
historical loss experiences than the loan products emphasized in prior periods.
Gains on securities activities during the 2003 quarter resulted from a
liquidating dividend associated with an investment that BankAtlantic Bancorp and
BFC had in equity securities. Gains on securities activities during the 2002
quarter primarily resulted from sales of BankAtlantic Bancorp owned equity
securities.
Other non-interest income increased by 151% from 2002. The increase primarily
resulted from a substantial increase in income from Ryan Beck as well as a
significant increase in service charges from bank operations. The substantial
increase in brokerage and investment banking income and other income resulted
from the Gruntal transaction, which added approximately 500 financial
consultants to Ryan Beck's approximately 100 consultants. The increase in
service charges on deposits primarily resulted from an increase in checking
accounts primarily attributed to BankAtlantic's new checking products and
BankAtlantic's seven-day branch banking initiative. In addition, revenues from
real estate activities increased by 15% from 2002. The enhanced revenues from
real estate operations reflect an increase in the number of homes sold at Levitt
and Sons as well as an increase in the average home sales price during the 2003
quarter compared to the same 2002 period. Also included in real estate revenues
was $330,000 of equity in earnings from a joint venture acquired in connection
with the Community acquisition.
Non-interest expense increased by 111% from 2002. The increase primarily
resulted from higher non-interest expenses associated with the Gruntal
transaction, the Community acquisition, implementation of seven-day banking and
growth in our real estate operations. Ryan Beck's non-interest expense increased
from $13.7 million during 2002 to $60.5 million during 2003 primarily as a
result of the Gruntal transaction. Bank operations non-interest expense
increased from $28.3 million to $35.2 million primarily relating to the
Community acquisition and the seven-day banking initiative. Levitt's
non-interest expense increased from $6.2 million to $8.1 million due to the
development of various new projects. The increase in non-interest expenses was
partially offset by $1.1 million of acquisition related charges associated with
BankAtlantic's acquisition of Community Savings Bankshares in March 2002.
Upon the implementation of FASB Statement 142, BankAtlantic Bancorp performed
the required goodwill impairment test as of January 1, 2002 and concluded that
the goodwill assigned to the Ryan Beck reportable segment was impaired. As a
consequence, the Company recorded a $15.1 million impairment loss (net of tax)
effective as of January 1, 2002 as a cumulative effect of a change in accounting
principle.
Minority interest in income (loss) of consolidated subsidiaries in 2003 was
approximately $11.2 million as compared to a loss of approximately $2.0 million
in 2002. The 2003 income to the minority holders resulted from an increase in
earnings from BankAtlantic Bancorp of $14.4 million as compared to a net loss of
approximately $2.5 million during the 2002 period. Minority interest in
BankAtlantic Bancorp was approximately 77.4% in 2003 and 2002.
BANK OPERATIONS RESULTS OF OPERATIONS
NET INTEREST INCOME
24
AVERAGE BALANCE SHEET - YIELD / RATE ANALYSIS
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------------
MARCH 31, 2003 MARCH 31, 2002
------------------------------------ ------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
(In thousands) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- -------- ------ ---------- -------- -------
Loans:
Residential real estate $1,559,553 21,586 5.5% $1,091,653 $18,021 6.60%
Commercial real estate 1,530,402 22,866 5.98 1,305,903 20,531 6.29
Consumer 296,675 3,467 4.67 218,130 3,231 5.92
International -- -- -- 1,236 20 6.47
Lease financing 29,962 834 11.13 52,871 1,591 12.04
Commercial business 100,753 1,450 5.76 109,407 1,625 5.94
Small business 164,151 3,037 7.40 109,268 2,266 8.30
---------- ------ ------ ---------- ------- -----
Total loans 3,681,496 53,240 5.78 2,888,468 47,285 6.55
---------- ------ ------ ---------- ------- -----
Investments 953,326 13,688 5.74 1,250,833 19,817 6.34
---------- ------ ------ ---------- ------- -----
Total interest earning assets 4,634,822 66,928 5.78% 4,139,301 67,102 6.48%
------ ------ ------- -----
Goodwill and core deposit intangibles 84,754 18,427
Other non-interest earning assets 261,961 177,273
---------- ----------
Total Assets $4,981,537 $4,335,001
========== ==========
Deposits:
Savings $ 171,298 316 0.75% $ 106,984 $ 269 1.02%
NOW, money funds and checking 1,235,104 3,194 1.05 873,464 3,318 1.54
Certificate accounts 966,869 7,659 3.21 1,124,904 11,739 4.23
---------- ------ ------ ---------- ------- -----
Total deposits 2,373,271 11,169 1.91 2,105,352 15,326 2.95
---------- ------ ------ ---------- ------- -----
Short-term borrowed funds 285,716 837 1.19 361,768 1,581 1.77
Advances from FHLB 1,284,983 15,316 4.83 1,086,675 14,920 5.57
Long-term debt 35,411 448 5.12 1,588 16 4.09
---------- ------ ------ ---------- ------- -----
Total interest bearing liabilities 3,979,381 27,770 2.83 3,555,383 31,843 3.63
Non-interest bearing deposits 478,355 318,795
Non-interest bearing other liabilities 63,538 88,680
---------- ----------
Total Liabilities 4,521,274 3,962,858
BankAtlantic stockholder's equity 460,263 372,143
---------- ----------
Total liabilities and BankAtlantic
stockholder's equity $4,981,537 $4,335,001
========== ==========
Net interest income/ net interest spread $39,158 2.95% $35,259 2.85%
======= ====== ======= ======
MARGIN
Interest income/interest earning assets 5.78% 6.48%
Interest expense/interest earning assets 2.43 3.12
------ ------
Net interest margin 3.35% 3.36%
====== ======
FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE SAME 2002 PERIOD:
The substantial improvement in net interest income primarily resulted from
significant asset growth and lower rates on interest bearing liabilities.
The growth in earning assets primarily resulted from the Community acquisition
as well as the purchase and origination of commercial real estate, residential
and home equity loans. BankAtlantic acquired $709 million of earning assets in
connection with the Community acquisition. During the three months ended March
31, 2003, BankAtlantic purchased $675 million of residential loans and
originated $256 million of loans compared to residential loan purchases of $220
million and loan originations of $224 million during the same 2002 period. The
above increases in earning assets were partially offset by accelerated
repayments of residential loans due to
25
declining mortgage rates during the period and lower average balances related to
several discontinued or curtailed lines of business, including BankAtlantic
lease finance business, indirect consumer loans, syndication loans,
international loans to correspondent banks and small business loans originated
under policies in place prior to January 1, 2000.
The decline in interest income on investments resulted from lower average
balances and yields. The decrease in average balances was attributed to the
historically low interest rates throughout 2002 and the first quarter of 2003
which resulted in accelerated repayments of mortgage-backed securities. The
significant decline in average yields was due to the downward re-pricing of
floating rate securities and the purchase of securities at lower rates than the
existing portfolio. The reduced interest income from investments was partially
offset by an increase in tax certificate interest income.
The substantial reduction in BankAtlantic deposit interest expense was
attributed to a significant reduction in average deposit rates, partially offset
by an increase in average interest bearing deposits. The decline in average
deposit rates primarily resulted from historically low interest rates throughout
the period and a change in BankAtlantic's deposit mix from higher rate
certificate of deposit accounts to low cost deposits and insured money fund
accounts. Low cost deposits are checking and savings accounts. Low cost deposits
increased from $894.6 million at March 31, 2002 to $1,143 million at March 31,
2003, while certificate of deposit accounts declined from $1,384 million at
March 31, 2002 to $920.4 million at March 31, 2003. Additionally, non-interest
bearing checking accounts included in low cost deposits grew from $393.0 million
at March 31, 2002 to $516.4 million at March 31, 2003. Insured money fund
accounts increased from $772.9 million at March 31, 2002 to $820.2 million at
March 31, 2003. BankAtlantic's growth in checking and saving accounts resulted
from BankAtlantic's seven-day banking and totally free checking initiatives.
BankAtlantic opened 37,000 new checking and savings accounts during the 2003
quarter compared to 17,000 new accounts during the same 2002 period.
Interest expense on short-term borrowings was substantially lower during 2003.
The significant decline in short term borrowings interest expense reflected
lower average short-term interest rates and a decline in average short term
borrowings. The lower average balances were linked to higher average deposit and
FHLB advance balances. The lower rates on short term borrowings resulted from
the historically low interest rate environment during 2003.
Interest expense on long-term debt for the 2003 quarter represents interest
expense associated with mortgage-backed bonds acquired in connection with the
Community acquisition and interest expense associated with $22 million of
subordinated debentures issued by BankAtlantic Bancorp in November 2002.
Interest expense on long-term debt for the 2002 quarter represents interest
expense associated with the mortgage-backed bonds.
26
BANKATLANTIC PROVISION FOR LOAN LOSSES
FOR THREE MONTHS ENDED
---------------------
MARCH 31,
---------------------
2003 2002
-------- --------
BALANCE, BEGINNING OF PERIOD 48,022 $ 44,585
CHARGE-OFFS:
Syndication loans -- (8,000)
Small business (620) (931)
Lease financing (2,453) (2,213)
Consumer loans - direct (235) (412)
Consumer loan - indirect (170) (437)
Residential real estate loans (114) (139)
-------- --------
TOTAL CHARGE-OFFS (3,592) (12,132)
-------- --------
RECOVERIES:
Syndication loans 2,127 683
Commercial business loans 28 18
Commercial real estate loans 1 14
Small business 833 391
Lease financing 639 935
Consumer loans - direct 176 117
Consumer loans - indirect 288 461
Residential real estate loans 57 3
-------- --------
TOTAL RECOVERIES 4,149 2,622
-------- --------
NET RECOVERIES (CHARGE-OFFS) 557 (9,510)
Provision for loan losses 850 2,565
Adjustments to the allowance for loan losses
acquired (734) --
Allowance for loan losses acquired -- 11,287
-------- --------
BALANCE, END OF PERIOD $ 48,695 $ 48,927
======== ========
During the first quarter of 2003, recoveries on previously charged off loans
exceeded BankAtlantic gross charge-offs by $557,000. BankAtlantic recovered $2.1
million during the first quarter of 2003 from the settlement of a syndication
loan that was charged down by $8.0 million during the first quarter of 2002.
During the 2002 period $683,000 was recovered from another syndication loan that
was charged-off in a prior period. The remaining net recoveries during the 2003
period resulted primarily from lower net charge-offs associated with
discontinued lines of business (BankAtlantic's former small business indirect
consumer and syndication lending programs), partially offset by lease financing
charge-offs. The lease financing charge-offs primarily related to loans in the
aviation industry. The provision for loan losses was increased during 2003 by
additional reserves established for leases in the hospitality industry as a
result of deteriorating occupancy rates and debt service ratios compared to
previous periods.
The allowance for loan losses was 1.24% and 1.38% of total loans at March 31,
2003 and 2002, respectively. The decline in the ratio resulted from a
significant increase in loans receivable at March 31, 2003 compared to the same
2002 period. The loan growth primarily resulted from the purchase of $675
million of residential loans during the 2003 quarter. BankAtlantic's historical
loss experience in its residential loan portfolio has been approximately 0.10%.
Allowance for loan losses acquired and adjustments to the allowance for loan
losses acquired represents the loan loss allowance acquired in connection with
the Community acquisition.
27
At the indicated dates, BankAtlantic 's non-performing assets and potential
problem loans were (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
NONPERFORMING ASSETS
NON-ACCRUAL:
Tax certificates $ 1,147 $ 1,419
Loans and leases 13,747 18,918
-------- --------
Total non-accrual 14,894 20,337
-------- --------
REPOSSESSED ASSETS:
Real estate owned, net of allowance 9,045 9,607
Vehicles and equipment 513 4
-------- --------
Total repossessed assets 9,558 9,611
-------- --------
Total non-performing assets 24,452 29,948
Specific valuation allowances (48) (1,386)
-------- --------
Total non-performing assets, net $ 24,404 $ 28,562
======== ========
ALLOWANCES
Allowance for loan losses $ 48,695 $ 48,927
Allowance for tax certificate losses 2,205 1,865
-------- --------
Total Allowances $ 50,900 $ 50,792
-------- --------
POTENTIAL PROBLEM LOANS
Contractually past due 90 days or more $ -- $ 100
Restructured loans 1,628 1,882
Delinquent residential loans purchased 1,311 1,464
-------- --------
Total Potential Problem Loans $ 2,939 $ 3,446
======== ========
Non-performing assets continued to decline during 2003. Non-performing assets
represented 0.60% of total loans, tax certificates and repossessed assets at
March 31, 2003 compared to 0.83% at December 31, 2002. The improvement in the
ratio reflects a significant increase in total loans due to loan purchases as
well as a decline in non-accrual loans. The decline in non-accrual loans
reflects a $2.1 million charge-off of a lease in the aviation industry, and the
payoff of a $1.3 million aviation lease that was a non-accrual lease at December
31, 2002. Additionally, non-accrual residential loans declined from $12.8
million at December 31, 2002 to $11.2 million at March 31, 2003.
The decline in repossessed assets was primarily due to a $750,000 write down of
an REO property based on a reassessment of the property during the quarter. The
reduction in repossessed assets was partially offset by aircraft repossessions
associated with the charge-off of the non-accrual loan mentioned above.
The decline in potential problem loans was due to repayment of loans that were
previously categorized as potential problem loans.
28
NON-INTEREST INCOME
FOR THREE MONTHS
ENDED MARCH 31,
BANKING OPERATIONS ----------------------
(IN THOUSANDS) 2003 2002 CHANGE
--------- -------- --------
Other service charges and fees $ 3,918 $ 3,105 $ 813
Service charges on deposits 8,558 4,863 3,695
Income from real estate joint venture 330 -- 330
Securities activities (20) 21 (41)
Other 1,572 1,365 207
--------- -------- --------
Non-interest income $ 14,358 $ 9,354 $ 5,004
========= ======== ========
The increase in other service charges and fees during the 2003 first quarter
compared to the same 2002 period primarily resulted from higher check card and
ATM fees. Check card fees increased by 218% and ATM fees increased by 10%. This
additional fee income was linked to a significant increase in transaction
accounts associated with BankAtlantic's new checking account products and
BankAtlantic's seven-day banking initiative. Since January 1, 2002, BankAtlantic
has opened in excess of 136,000 new checking and savings accounts. The increase
in ATM fees was partially offset by the removal of certain ATM machines from
retail outlets, gas stations and convenience stores during the second quarter of
2002. Aggregate loan and late fee income remained at 2002 levels. While loan
fees were higher during 2003 because of an increase in commercial loan
prepayment penalties assessed to borrowers refinancing commercial loans in
response to historically low interest rates, this increase was offset by lower
late fee income attributed to lower collections of late fees assessed in
BankAtlantic's consumer and leasing portfolios in proportion to declines in the
outstanding balances in the portfolios.
Service charges on deposits increased by 76% during 2003 compared to the same
2002 period. The increase in service charges primarily resulted from overdraft
fees from transaction accounts, fees associated with the accounts acquired in
connection with the Community acquisition, and from higher fees associated with
checking account services. The above increases were partially offset by lower
monthly checking account fee income. Overdraft fee income increased by 116% as a
result of a substantial increase in checking accounts attributed to
BankAtlantic's totally free checking products and its seven-day branch banking
initiative. Additionally, the significant growth in checking accounts resulted
in additional income from check printing charges and checking account related
services. Monthly checking account fee income declined by 24% as BankAtlantic
discontinues the promotion of fee-based products.
Income from real estate joint venture was the equity in earnings from a real
estate joint venture acquired in connection with the Community acquisition.
Securities activities during the three months ended March 31, 2003 and 2002
consists of unrealized losses and gains on derivative instruments.
Other income during the 2003 quarter was favorably impacted by the expansion of
a branch brokerage business unit during the fourth quarter of 2002, which earned
$370,000 in commissions during the 2003 quarter compared to $18,000 during the
same 2002 period.
29
NON-INTEREST EXPENSE
FOR THREE MONTHS
ENDED MARCH 31,
BANKING OPERATIONS -----------------------
(IN THOUSANDS) 2003 2002 CHANGE
--------- --------- ---------
Employee compensation and benefits $ 19,039 $ 14,077 $ 4,962
Occupancy and equipment 6,636 6,471 165
Advertising and promotion 1,411 1,013 398
Amortization of intangible assets 454 -- 454
Acquisition related charges and impairments -- 1,074 (1,074)
Professional fees 1,006 580 426
Other 6,688 5,089 1,599
--------- --------- ---------
Non-interest expense $ 35,234 $ 28,304 $ 6,930
========= ========= =========
Compensation and benefits expense increased by 35% from the comparable 2002
quarter. The increase in compensation expenses during the 2003 quarter compared
to 2002 was the result of the implementation of seven-day banking on April 1,
2002 and the addition of 172 employees following the Community acquisition on
March 22, 2002. Total full-time equivalent employees increased from 873 at
December 31, 2001 to 1,244 at March 31, 2003, an increase of 42%. Bonus and
incentive compensation rose by $1.3 million primarily due to the implementation
of a profit sharing plan on January 1, 2003. Additionally, BankAtlantic Bancorp
recorded approximately $450,000 of additional pension expense associated with a
defined benefit plan that was frozen in December 1998.
Occupancy and equipment expenses remained at 2002 levels. Higher occupancy and
equipment expenses associated with the Community acquisition were offset by a
reduction in data processing costs. The reduced data processing costs resulted
from the renewal of a contract with significantly lower rates than the contract
that existed during the 2002 period.
Advertising expenses during the 2003 and 2002 quarters reflected marketing
initiatives to promote BankAtlantic's new checking account products and
BankAtlantic's seven-day banking initiative.
The higher professional fees were associated with legal fees incurred in
connection witha lawsuit filed against BankAtlantic in October 2002 relating to
its "Florida's Most Convenient Bank" initiative.
Amortization of intangible assets during the three months ended March 31, 2003
consisted of the amortization of core deposit intangible assets acquired in
connection with the Community acquisition. The core deposit intangible assets
are being amortized over an estimated life of seven years.
Acquisition related charges and impairments during the three months ended March
31, 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.
The increase in other expenses during the three months ended March 31, 2003
compared to the same 2002 period primarily resulted from a $750,000 write-down
of an REO property. This write-down resulted from a reassessment of a
residential construction real estate property that was transferred to real
estate owned during the second quarter of 2002. The remaining increase in other
expenses resulted from additional check losses attributed to BankAtlantic's
totally free checking campaign as well as higher general operating expenses
associated with the Community acquisition.
30
LEVITT CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS
FOR THREE MONTHS
ENDED MARCH 31,
----------------------
(IN THOUSANDS) 2003 2002 CHANGE
-------- -------- -------
NET INTEREST INCOME:
Interest on loans and investments $ 228 $ 414 $ (186)
Interest on notes and bonds payable (2,147) (1,404) (743)
Capitalized interest 1,906 1,402 504
-------- -------- -------
NET INTEREST INCOME (EXPENSE) (13) 412 (425)
-------- -------- -------
NON-INTEREST INCOME:
Net revenues from sales of real estate 13,128 11,691 1,437
Income from unconsolidated subsidiary (134) -- (134)
Other 526 363 163
-------- -------- -------
Non-interest income 13,520 12,054 1,466
-------- -------- -------
NON-INTEREST EXPENSE:
Employee compensation and benefits 3,682 2,620 1,062
Advertising and promotion 969 748 221
Selling, general and administrative 2,609 1,774 835
Professional fees 97 77 20
Other 781 959 (178)
-------- -------- -------
Non-interest expense 8,138 6,178 1,960
-------- -------- -------
Income before income taxes $ 5,369 $ 6,288 $ (919)
======== ======== =======
AT OR FOR THE QUARTER ENDED MARCH 31,
---------------------------------------
2003 2002
-------------- -------------
LEVITT AND SONS AND JOINT VENTURES
Backlog of homes 1,216 707
Homes delivered and titled 162 206
Lot inventory 4,944 4,635
Average sale price of homes $232,000 $215,000
Homes sales contracted $106.6 million $42.3 million
Homes sales contracted units 493 189
CORE
Inventory in acres 4,592 3,881
Inventory sold in acres 136 265
FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE SAME 2002 PERIOD:
Income before income taxes decreased 15%, to $5.4 million for the three months
ended March 31, 2003 from $6.3 million for the same 2002 period. This decrease
primarily resulted from increases in non-interest expense of $2.0 million as
well as decreases in net interest income of $425,000. These increases in
expenses and reduction in net interest income were partially offset by an
increase in revenues from the sales of real estate and joint venture activities
of $1.4 million.
The decline in net interest income of $425,000 was primarily associated with a
decrease in interest income on loans and investments resulting from lower
average balances and yields and higher interest expense, net. Interest on notes
and bonds payable totaled $2.2 million and $1.4 million for the 2003 period and
2002 period, respectively. The increase in interest expense was primarily due to
increases in borrowings resulting from several new real estate development
projects. Capitalized interest totaled $1.9 million and $1.4 million for the
2003 period and 2002 period,
31
respectively. At the time of home closings and land sales, capitalized interest
is charged to cost of sales. Cost of sales of real estate for the three months
ended March 31, 2003 and 2002 included previously capitalized interest of
approximately $ 1.2 million and $ 1.1 million, respectively.
Gains on sales of real estate developed for sale and joint venture activities
represented the net profits on sales of real estate by Levitt and Sons, Core
Communities and Levitt Commercial, as well as equity from earnings in real
estate joint venture activities. Levitt and Sons net gains from home sales
increased 62% to $8.5 million for the quarter ended March 31, 2003 from $5.3
million for the same 2002 period. This increase was attributable to increased
deliveries of homes and increases in the average selling price of homes. During
the 2003 period, 162 homes closed as compared to 137 homes closed during the
2002 period. The average selling price during the 2003 period was approximately
$232,000, increasing 8% from $215,000 in 2002. During the three months ended
March 31, 2003, Core Communities' net gains on land sales were $4.7 million as
compared to $5.9 million in 2002. During 2003, 136 acres were sold compared to
265 acres sold in 2002. The decline in Core Communities' revenues and acreage
sold was due to the sale of a large commercial tract of land during the 2002
quarter. During the quarter ended March 31, 2003, Levitt Commercial commenced
the selling of its flex warehouse units and reported a gross profit on the sales
of its inventory of approximately $547,000. Equity earnings (loss) from real
estate joint venture activities resulted in a loss of $313,000 during 2003 and
income of $899,000 during the 2002 period. This decrease in earnings from
Levitt's real estate joint venture activities primarily resulted from declines
in home deliveries by a joint venture because the joint venture project was
nearing sell-out in 2002. Included in net revenues from sales of real estate
during the 2003 and 2002 periods is Levitt's amortization of interest previously
capitalized of $269,000 and $507,000, respectively.
In April 2002, Levitt acquired 35% of Bluegreen Corporation's common stock.
Levitt's investment in Bluegreen Corporation is accounted for under the equity
method. Levitt's loss from unconsolidated real estate subsidiary represents
Levitt's ownership interest in the earnings of Bluegreen Corporation. While
Levitt's share of Bluegreen's reported net income was $745,000 during the first
quarter, the loss recognized by Levitt with respect to its investment resulted
from purchase accounting adjustments associated with Bluegreen's retained
interests in notes receivable sold unrealized gains at the acquisition date.
The increase in non-interest expense during the 2003 period as compared to the
same 2002 period resulted from an increase in employee compensation and
benefits, advertising and selling, general and administrative. The increase in
employee compensation and benefits was primarily associated with an increase in
personnel resulting from the addition of several new development projects in
central and southeast Florida. Levitt's number of full time employees increased
to 250 at March 31, 2003 from 206 at March 31, 2002. These new projects and an
increase in home deliveries resulted in an increase in selling, general and
administrative expenses.
32
RYAN BECK & CO. AND SUBSIDIARIES RESULTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
(IN THOUSANDS) 2003 2002 CHANGE
-------- -------- --------
NET INTEREST INCOME:
Interest on trading securities $ 4,347 $ 698 $ 3,649
Interest expense (725) (328) (397)
-------- -------- --------
NET INTEREST INCOME 3,622 370 3,252
-------- -------- --------
NON-INTEREST INCOME:
Principal transactions 30,041 7,507 22,534
Investment banking 8,513 2,919 5,594
Commissions 19,889 3,032 16,857
Other 1,184 140 1,044
-------- -------- --------
Non-interest income 59,627 13,598 46,029
-------- -------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits 44,289 9,714 34,575
Occupancy and equipment 3,371 823 2,548
Advertising and promotion 1,351 449 902
Professional fees 2,355 539 1,816
Communications 4,265 914 3,351
Floor broker and clearing fees 2,402 849 1,553
Other 2,467 447 2,020
-------- -------- --------
Non-interest expense 60,500 13,735 46,765
-------- -------- --------
Income before income taxes $ 2,749 $ 233 $ 2,516
======== ======== ========
The increased pre-tax income primarily resulted from the Gruntal transaction
which occurred in April 2002. Each line item was impacted by this transaction,
resulting in significant differences between 2003 and 2002.
Net interest income increased by 879% from 2002. The increase in net interest
income primarily resulted from expansion of municipal, corporate and government
bond trading and the associated spread between the interest on the bonds and the
financing costs incurred. Also included in interest income was Ryan Beck's
participation in interest income associated with approximately $275 million of
customer margin debit balances and fees earned in connection with approximately
$1.5 billion in customer money market balances. This increase in net interest
income was partially offset by interest expense associated with the increased
level of borrowings by Ryan Beck from its clearing agent as a result of a higher
volume of trading activity.
Principal transaction revenue increased by 300% from 2002. The increase in
principal transaction revenue was primarily the result of additional financial
consultants and trading personnel hired in connection with the Gruntal
transaction. This increase was offset by mark to market losses on mutual funds
associated with a deferred compensation plan acquired in connection with the
Gruntal transaction, as well as markdowns of approximately $2.9 million on
certain securities held by Ryan Beck's subsidiary, The GMS Group, LLC.
Investment banking revenue increased by 192% from 2002. The increase was mainly
attributable to a second step mutual to stock conversion and best efforts
offering of approximately $410 million of capital raised for one of Ryan Beck's
financial institution group clients.
Commission revenue increased by 556% from 2002. The increase is mainly
attributable to the additional financial consultants hired in connection with
the Gruntal transaction.
The increase in employee compensation and benefits of 356% from 2002 is
primarily due to the additional personnel hired in connection with the Gruntal
transaction.
33
Occupancy and rent expenses increased by 310% from 2002. This increase is
primarily due to the additional offices acquired from the Gruntal transaction as
well as the opening of two offices during the first quarter of 2003.
The higher professional fees primarily resulted from a significant increase in
legal costs associated with third party litigation involving Gruntal which has
been asserted against Ryan Beck..
The increase in advertising, communications, floor broker and clearing fees and
other expenses from 2002 relates primarily to increased commission revenue and
principal transactions revenue associated with the additional financial
consultants.
BANKATLANTIC BANCORP PARENT COMPANY RESULTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
(IN THOUSANDS) 2003 2002 CHANGE
------- ------- -------
NET INTEREST INCOME:
Interest and fees on loans and leases $ 416 $ 98 $ 318
Interest on short term investments 37 213 (176)
Interest on subordinated debentures, notes payable
and guaranteed preferred interests in
BankAtlantic Bancorp Junior Subordinated Debentures (3,644) (3,323) (321)
------- ------- -------
NET INTEREST EXPENSE (3,191) (3,012) (179)
------- ------- -------
NON-INTEREST INCOME:
(Losses) gains on joint venture activities (2) 75 (77)
Income from unconsolidated real estate subsidiary 253 -- 253
Securities activities 404 3,018 (2,614)
------- ------- -------
Non-interest income 655 3,093 (2,438)
------- ------- -------
NON-INTEREST EXPENSE:
Investment banking expense 459 410 49
Employee compensation and benefits 22 452 (430)
Professional fees 317 72 245
Other 117 73 44
------- ------- -------
Non-interest expense 915 1,007 (92)
------- ------- -------
Loss before income taxes $(3,451) $ (926) $(2,525)
======= ======= =======
Interest and fees on loans during the 2003 quarter represented interest income
associated with a $5 million loan to Ryan Beck and a $30 million loan to Levitt.
Interest and fees on loans during the same 2002 period represented interest
income on the $5.0 million loan to Ryan Beck.
Interest on short term investments during the three months ended March 31, 2003
and 2002 represented interest income earned on a repurchase agreement investment
with BankAtlantic.
The increase in interest expense on debentures and trust preferred securities
resulted from higher average balances during the 2003 quarter compared to the
same 2002 period. During 2002, BankAtlantic Bancorp issued $180.4 million of
trust preferred securities. The additional interest expense from the issuance of
trust preferred securities was partially offset by lower average rates. A
portion of the proceeds from the issuance of trust preferred securities were
used to retire $74.8 million of 9.50% fixed rate trust preferred securities and
$21.0 million of 9.00% subordinated debentures.
Gains or losses associated with joint venture activities resulted from the
elimination of inter-company interest expense that was capitalized into real
estate inventory on Levitt's books. The deferred credit is subsequently
recognized as a reduction of cost of sales when the real estate is sold.
34
Income from unconsolidated real estate subsidiary represents BankAtlantic
Bancorp's 5% ownership interest in the earnings of Bluegreen Corporation.
Securities activities during the three months ended March 31, 2003 represents a
gain realized from a liquidating dividend from an equity security. Securities
activities during the same 2002 period represented the sale of $2.5 million of
equity securities and gains of approximately $3.0 million was recognized.
Investment banking expense represents fees paid to Ryan Beck in connection with
the underwriting of the Company's trust preferred securities. These fees were
included in investment banking income in Ryan Beck's business segment results of
operations.
Compensation expense during the three months ended March 31, 2003 primarily
resulted from the issuance of BankAtlantic Bancorp Class A restricted stock and
the amortization of a forgivable loan. The compensation expense during the same
2002 quarter primarily resulted from the Ryan Beck retention pool established in
connection with the BankAtlantic Bancorp's acquisition of Ryan Beck in 1998.
The increase in professional fees during the 2003 quarter compared to the same
2002 period consisted of higher fees associated with the Seisint litigation and
the consideration of a potential Levitt spin-off. For a more detailed discussion
on the Seisint litigation see "Related Party Transactions" appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
In April 2003, BankAtlantic Bancorp announced its plan to pursue a spin-off of
Levitt in a tax-free transaction. BankAtlantic Bancorp determined that Levitt's
future growth prospects would be enhanced as a freestanding entity with
independent access to the capital markets. The proposed spin-off is subject to
several conditions, including the receipt of a private letter ruling from the
Internal Revenue Service that the distribution will be tax-free to BankAtlantic
Bancorp and its shareholders and any required regulatory approvals. Depending on
the timing of the receipt of the ruling and any required regulatory approvals,
BankAtlantic Bancorp expects the spin-off to take place by the end of the fourth
quarter of 2003.
BFC HOLDING COMPANY RESULTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
(IN THOUSANDS) 2003 2002 CHANGE
--------- --------- ---------
NET INTEREST INCOME:
Interest and dividends on securities $ 98 $ 76 $ 22
Interest on notes payable (285) (281) (4)
--------- --------- ---------
NET INTEREST EXPENSE (187) (205) 18
--------- --------- ---------
NON-INTEREST INCOME:
Securities activities 390 -- 390
Other 261 311 (50)
--------- --------- ---------
Non-interest income 651 311 340
--------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 611 727 (116)
Occupancy and equipment 17 17 --
Professional fees 37 29 8
Other 73 121 (48)
--------- --------- ---------
Non-interest expense 738 894 (156)
--------- --------- ---------
Loss before income taxes $ (274) $ (788) $ 514
========= ========= =========
Non-interest income increased during the three months ended March 31, 2003 as
compared to the same 2002 period due to increases in securities activities from
gains realized on liquidating dividends. This increase was partially
35
offset by a decrease in other income primarily relating to lower rental income
at BMOC, a shopping center in North Carolina owned by the Company.
The decrease in employee compensation and benefits was due to an increase in
levels of compensation during 2002.
FINANCIAL CONDITION
The Company's total assets at March 31, 2003 were $5.8 billion compared to $5.4
billion at December 31, 2002. The increase in total assets primarily resulted
from:
o The purchase of approximately $675 million of hybrid adjustable rate
residential loans in response to the historically low interest rate
environment during the period.
o The origination of and participation in commercial real estate
loans.
o The origination of home equity loans
o The purchase of approximately $125 million of callable agency
securities classified as available for sale.
o Increases in real estate held for development and sale and joint
venture activities due to higher Levitt and Sons real estate
inventory.
o Higher other assets balances associated with the issuance of
forgivable loans and an increase in deferred offering costs in
connection with the trust preferred securities offerings.
The above increases in total assets were partially offset by:
o Declines in short term investments due to purchase of residential
real estate loans.
o Accelerated loan repayments due to the historically low interest
rate environment.
o Continued run-off in the syndications, leasing, international and
indirect lending areas, which were discontinued activities.
o Reduction in tax certificate balances primarily related to
certificate repayments.
o Lower securities owned associated with a decline in The GMS Group's
municipal securities balances.
BankAtlantic Bancorp made significant purchases of hybrid adjustable rate
residential loans during the first quarter of 2003 in order to replace loans and
mortgage-backed securities, which experienced accelerated repayments.
The Company's total liabilities at March 31, 2003 were $5.3 billion compared to
$5.0 billion at December 31, 2002.
The increase in total liabilities primarily resulted from:
o The issuance in the aggregate of $65.0 million of trust preferred
securities.
o Additional borrowings by Levitt to fund land purchases and
construction activities.
o Higher transaction and savings account balances resulting from
BankAtlantic's seven-day banking and totally free checking account
initiatives.
o Higher short term borrowings to fund loan and securities available
for sale purchases.
o Increase in securities sold but not yet purchased associated with
Ryan Beck trading activities.
o Increased other liabilities related to customer deposits at Levitt
associated with a significant increase in backlog of homes as well
as higher current income tax liability at BankAtlantic Bancorp.
The above increases in total liabilities were partially offset by:
o Lower deposit balances due to certificate of deposit account
withdrawals.
o Reduced due to clearing agent balances associated with Ryan Beck's
trading activities
o Repayments of a bank line of credit from the proceeds of the trust
preferred securities offerings.
At March 31, 2003 and December 31, 2002 minority interest was approximately
$373.7 million and $365.5 million, respectively. The increase in minority
interest was primarily due to an increase of $11.2 million which primarily
36
resulted from BankAtlantic Bancorp's earnings and reduced by BankAtlantic
Bancorp's stockholders' activities associated with other comprehensive income
and the payment of dividends by BankAtlantic Bancorp in 2003.
Stockholders' equity at March 31, 2003 was $78.9 million compared to $77.4 at
December 31, 2002. The increase was primarily attributable to earnings of $1.9
million. Offsetting the above increase were reductions in stockholders' equity
of $423,000 associated with activities in other comprehensive income, and a
reduction of $34,000 to additional paid-in capital relating to the net effect of
BankAtlantic Bancorp capital transactions, net of income taxes.
The components of other comprehensive income relate to the Company's net
unrealized gains or loss on securities available for sale, net of income taxes
and the Company's proportionate share of non-wholly owned subsidiaries'
activities in other comprehensive income. Included in the change in other
comprehensive income was a $62,000 loss associated with BankAtlantic Bancorp
minimum pension liability, a $389,000 decline in unrealized gains on securities
available for sale, a $34,000 unrealized loss on BankAtlantic Bancorp's interest
rate swap activity and a $62,000 unrealized gain associated with the activities
of Bluegreen Corporation.
BFC'S LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funds to BFC (without consideration of BankAtlantic
Bancorp's liquidity and capital resources which except as noted, are not
available to BFC) were dividends from BankAtlantic Bancorp, revenues from
property operations, principal and interest payments on loan receivables and
liquidating dividends received from investment securities. Funds were primarily
utilized by BFC to reduce mortgage payables 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. The facility bears interest at the prime rate plus 1% and at December
31, 2002, approximately $6.0 million was outstanding. While the facility matured
in December 2002, it has been extended until May 2003. The lender has agreed to
extend this facility under the same terms and conditions until May 2004. 1.75
million shares of BankAtlantic Bancorp's Class A Common Stock owned by BFC are
pledged as collateral for the facility.
As previously indicated the Company holds approximately 22.6% of the outstanding
BankAtlantic Bancorp Common Stock. The payment of dividends by BankAtlantic
Bancorp is subject to declaration by BankAtlantic Bancorp's Board of Directors
and applicable indenture restrictions and loan covenants and will also depend
upon, among other things, the results of operations, financial condition and
cash requirements of BankAtlantic Bancorp and, as discussed below, the ability
of BankAtlantic to pay dividends or otherwise advance funds to BankAtlantic
Bancorp, which in turn is subject to OTS regulation and is based upon
BankAtlantic's regulatory capital levels and net income. While there is no
assurance that BankAtlantic Bancorp will pay dividends in the future,
BankAtlantic Bancorp has paid a regular quarterly dividend to its common
stockholders since August 1993 and management of BankAtlantic Bancorp has
indicated that it will seek to declare regular quarterly cash dividends on the
BankAtlantic Bancorp Common Stock in the future. BankAtlantic Bancorp currently
pays a quarterly dividend of $.031 per share on its Class A and Class B Common
Stock. Based on its current level of ownership and BankAtlantic Bancorp's
current dividend rate, BFC currently receives approximately $408,000 per quarter
in dividends from BankAtlantic Bancorp.
On May 5, 2003, the Company's Class A Common Stock began trading on the Nasdaq
National Market under the symbol BFCF. The Company's Class A Common Stock
previously listed on the OTC Bulletin Board under the ticker symbol BFCFA ceased
trading at market close on May 2, 2003.
BANKATLANTIC BANCORP, INC. LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic Bancorp's principal source of liquidity is dividends from
BankAtlantic. BankAtlantic Bancorp also obtains funds through the issuance of
equity securities, borrowings from financial institutions, issuance of debt
securities and liquidation of equity securities it holds. BankAtlantic Bancorp's
annual debt service associated with its subordinated debentures, trust preferred
securities, and financial institution borrowings is approximately $16.0 million.
BankAtlantic Bancorp's estimated current annual dividends to common shareholders
are approximately $7.2 million. The declaration and payment of dividends and the
ability of BankAtlantic Bancorp to meet its debt service obligations will depend
upon the results of operations, financial condition and cash requirements of
BankAtlantic Bancorp as well as indenture restrictions and loan covenants and on
the ability of BankAtlantic to pay
37
dividends to BankAtlantic Bancorp, which payments are subject to regulation and
OTS approval and are based upon BankAtlantic's regulatory capital levels and net
income. During 2002, BankAtlantic Bancorp received $22.0 million of dividends
from BankAtlantic.
During the three months ended March 31, 2003, BankAtlantic Bancorp participated
in two pooled trust preferred securities offerings in which an aggregate of $65
million of trust preferred securities were issued and in April 2003 BankAtlantic
Bancorp participated in a third pooled trust preferred securities offering in
which $10 million of trust preferred securities were issued. The trust preferred
securities pay distributions quarterly at a fixed rate ranging from 6.40% to
6.65% per annum until 2008, and thereafter at a floating rate equal to 3-month
LIBOR plus 315-325 basis points. The securities are redeemable in five years and
are due in 2033. The net proceeds to BankAtlantic Bancorp from the trust
preferred securities offerings after placement fees and expenses were
approximately $72.5 million. The trust preferred securities are considered debt
for financial accounting and tax purposes.
BankAtlantic Bancorp used the net proceeds from the above trust preferred
securities offerings to redeem $45.8 million of 5.625% Convertible Subordinated
Debentures due 2007, repay $16 million of outstanding borrowings under a credit
facility from an unrelated financial institution and for general corporate
purposes. The floating rate trust preferred securities increases BankAtlantic
Bancorp's interest rate risk.
BankAtlantic 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. BankAtlantic Bancorp has used this credit facility to temporarily
fund acquisitions and asset purchases as well as for general corporate purposes.
The credit facility had an outstanding balance of $100,000 at March 31, 2003,
and BankAtlantic Bancorp was in compliance with all loan covenants. Amounts
outstanding accrue interest at the prime rate minus 50 basis points and the
facility matures on September 1, 2004.
Certain covenants contained in a Levitt loan agreement restrict its ability to
pay dividends to BankAtlantic Bancorp. Ryan Beck has not paid dividends to
BankAtlantic Bancorp and it is not anticipated that Ryan Beck will pay dividends
to BankAtlantic Bancorp during 2003.
In April 2003, BankAtlantic Bancorp announced its plans to pursue a spin-off of
Levitt Corporation in a tax-free transaction. BankAtlantic Bancorp determined
that Levitt's future growth prospects would be enhanced as a freestanding entity
with independent access to the capital markets. The proposed spin-off is subject
to several conditions, including the receipt of a private letter ruling from the
Internal Revenue Service that the distribution will be tax-free to BankAtlantic
Bancorp and its shareholders and any required regulatory approvals. Depending on
the timing of the receipt of the ruling and any required regulatory approvals,
BankAtlantic Bancorp expects the spin-off to take place during the fourth
quarter of 2003.
BANKATLANTIC LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic's liquidity will depend on its ability to generate sufficient cash
tosupport loan demand, to meet deposit withdrawals, and to pay operating
expenses. BankAtlantic's securities portfolio provides an internal source of
liquidity through its short-term investments as well as scheduled maturities and
interest payments. Loan repayments and sales also provide an internal source of
liquidity.
BankAtlantic's primary sources of funds during the three months ended March 31,
2003 were deposits; principal repayments of loans and tax certificates; and
securities available for sale; maturities of securities held to maturity;
proceeds from the sale of loans and securities available for sale; proceeds from
securities sold under agreements to repurchase; advances from FHLB; and
operations. These funds were primarily utilized to fund loan disbursements and
purchases, deposit outflows, repayments of securities sold under agreements to
repurchase, maturities of advances from FHLB, purchases of tax certificates and
payments of maturing certificates of deposit, to pay operating expenses, and to
pay dividends to BankAtlantic Bancorp. The FHLB has granted BankAtlantic a $1.4
billion line of credit subject to available collateral, with a maximum term of
ten years secured by a blanket lien on all of BankAtlantic's residential
mortgage loans and certain commercial real estate loans. BankAtlantic has
established lines of credit for up to $160 million with other banks to purchase
federal funds and has established a $17.1 million potential advance with the
Federal Reserve Bank of Atlanta. BankAtlantic has various relationships to
acquire brokered deposits. These relationships may be utilized as an alternative
source of borrowings, if needed. At
38
March 31, 2003, BankAtlantic met all applicable liquidity and regulatory capital
requirements.
BankAtlantic's commitments to originate and purchase loans at March 31, 2003
were $368.8 million and $124.5 million, respectively, compared to $262.4
million, and $108.0 million, respectively at March 31, 2002. Additionally,
BankAtlantic had commitments to purchase mortgage-backed securities of $27.8
million and zero, respectively at March 31, 2003 and at March 31, 2002,
respectively. At March 31, 2003, loan commitments represented approximately 9.4%
of loans receivable, net.
As of March 31, 2003, BankAtlantic Bancorp had approximately $358 million in
investments and mortgage-backed securities pledged against securities sold under
agreements to repurchase.
At the indicated date BankAtlantic's capital amounts and ratios were (dollars in
thousands):
MINIMUM RATIOS
--------------------------
ACTUAL ADEQUATELY WELL
------------------ CAPITALIZED CAPITALIZED
(in thousands) AMOUNT RATIO RATIO RATIO
-------- ----- ----------- -----------
AT MARCH 31, 2003:
Total risk-based capital $424,846 11.29% 8.00% 10.00%
Tier 1 risk-based capital $355,780 9.46% 4.00% 6.00%
Tangible capital $355,780 6.87% 1.50% 1.50%
Core capital $355,780 6.87% 4.00% 5.00%
AT DECEMBER 31, 2002:
Total risk-based capital $413,469 11.89% 8.00% 10.00%
Tier 1 risk-based capital $347,927 10.01% 4.00% 6.00%
Tangible capital $347,927 7.26% 1.50% 1.50%
Core capital $347,927 7.26% 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 our Annual Report on Form 10-K for the year ended December 31, 2002.
LEVITT CORPORATION LIQUIDITY AND CAPITAL RESOURCES
Levitt's primary source of funds during the three months ended March 31, 2003
were proceeds from the sale of real estate inventory and borrowings from
financial institutions. These funds were primarily utilized for the development,
construction and acquisition of real estate inventory and to repay borrowings,
to invest in a joint venture and to fund operations.
Levitt has entered into various loan agreements to provide financing for
acquisitions and site improvements and construction of residential units. As of
March 31, 2003, these loan agreements provided for advances on a revolving loan
basis of up to a maximum of $203.0 million, of which approximately $115.1
million was outstanding at March 31, 2003 and approximately $87.9 million was
available for future fundings, subject to available collateral. The loans are
secured by mortgages on subject properties including improvements with carrying
values aggregating $169.2 million at March 31, 2003.
Some of Levitt's borrowings contain covenants that, among other things, require
Levitt to maintain certain financial ratios and a minimum net worth. These
covenants may have the effect of limiting the amount of debt that Levitt can
incur in the future and restricting the payment of dividends from Levitt to
BankAtlantic Bancorp. At March 31, 2003, Levitt was in compliance with all loan
agreement financial covenants.
39
In many cases, Levitt provides home purchasers with warranties against certain
defects for a period of up to two years from the date of purchase. Levitt
provides for estimated warranty costs when the home is sold and continuously
monitors its warranty exposure and service program.
RYAN BECK & CO., INC. LIQUIDITY AND CAPITAL RESOURCES
Ryan Beck's primary source of funds during the three months ended March 31, 2003
were clearing broker borrowings, proceeds from the sale of securities owned,
proceeds from securities sold but not yet purchased, and fees from customers.
These funds were primarily utilized to pay operating expenses, fund the purchase
of securities owned and fund capital expenditures.
In the ordinary course of business, Ryan Beck borrows amounts primarily to
finance its trading inventories under an agreement with its clearing broker, by
pledging securities owned as collateral. The amount and terms of the borrowings
are subject to the lending policies of the clearing broker and can be changed at
the clearing broker's discretion. Additionally, the amount financed is also
impacted by the market value of the securities owned which are pledged at
collateral.
At March 31, 2003, Ryan Beck had a line of credit facility with an unrelated
financial institution in the amount of $10 million with an interest rate of
LIBOR plus 1.50%. The line expires on April 1, 2004, and it is secured by
certificates of deposit ("CDs") from Ryan Beck's certificate of deposit
wholesale business. There were no amounts outstanding under this facility at
March 31, 2003.
As part of the Gruntal transaction, Ryan Beck acquired the operations of GMS. A
part of GMS's business is investing in below investment grade securities. These
securities are not readily marketable and the fair values of these securities
may change significantly from period to period resulting in considerable markups
or markdowns occurring from period to period. Approximately $51.0 million par
value of GMS's securities owned with an estimated fair value and carrying value
of approximately $8.0 million were in default. These securities are not readily
marketable, and Ryan Beck's ability to liquidate these investments will depend
on market conditions and is subject to significant risk. While Ryan Beck
believes that the carrying amount of these securities is at fair value, it may
not be possible to realize that value upon sale.
Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934, which requires the maintenance of minimum net
capital and requires the ratio of aggregate indebtedness to net capital, both as
defined, not to exceed 15 to 1. Additionally, Ryan Beck, as a market maker, is
subject to supplemental requirements of Rule 15c3-1(a)4, which provides for the
computation of net capital to be based on the number of and price of issues in
which markets are made by Ryan Beck, not to exceed $1.0 million. Ryan Beck's
regulatory net capital was approximately $14.2 million, which was $13.2 million
in excess of its required net capital of $1.0 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 introducing
broker and, accordingly, customer accounts are carried on the books of the
clearing broker. However, Ryan Beck safekeeps and redeems municipal bond coupons
for the benefit of its customers. Accordingly, Ryan Beck is subject to the
provisions of SEC Rule 15c3-3 relating to possession or control and customer
reserve requirements and was in compliance with such provisions at March 31,
2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes in
market valuations that arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. Our primary market risk
is interest rate risk and our secondary market risk is equity price risk. BFC's
primary market risk, without consideration of BankAtlantic Bancorp, is equity
price risk relating to its equity investments. At March 31, 2003, BFC held
$714,000 in publicly traded securities and $3.6 million in private companies for
which no trading market exists.
40
INTEREST RATE RISK
The majority of BankAtlantic Bancorp's assets and liabilities are monetary in
nature, subjecting BankAtlantic Bancorp to significant interest rate risk which
would arise if the relative values of each of BankAtlantic Bancorp assets and
liabilities changed in conjunction with a general rise or decline in interest
rates. BankAtlantic Bancorp has developed a model using standard industry
software to quantify its interest rate risk. A sensitivity analysis was
performed measuring BankAtlantic Bancorp's potential gains and losses in net
portfolio fair values of interest rate sensitive instruments at March 31, 2003
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,
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 March 31, 2003, and
(ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to
determine fair values.
The difference between the fair value calculated in (i) and (ii) is the
potential gain or loss in net portfolio fair values.
Management of BankAtlantic 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 has no basis to
determine whether the fair value presented is indicative of the value that would
be realized in a sale. BankAtlantic Bancorp'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 BankAtlantic Bancorp's interest rate risk at
March 31, 2003 as calculated utilizing the 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.
41
NET
PORTFOLIO
CHANGES VALUE DOLLAR
IN RATE AMOUNT CHANGE
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
+200 bp $ 553,146 $ 64,910
+100 bp $ 537,857 $ 49,621
0 $ 488,236 $ --
-100 bp $ 423,216 $ (65,020)
-200 bp $ 357,866 $ (130,370)
In preparing the above table, BankAtlantic Bancorp makes various assumptions to
determine the net portfolio value at the assumed changes in interest rate. These
assumptions include:
o Interest rates
o Loan prepayment rates,
o Deposit decay rates,
o Market values of certain assets under the representative interest
rate scenarios, and
o Re-pricing 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 the 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.
BankAtlantic Bancorp's net interest margin has declined since September 2002.
BankAtlantic Bancorp's expects this situation could continue to negatively
impact our earnings for at least two quarters or for as long as rates remain at
these historically low levels.
EQUITY PRICE RISK
The Company also maintains a portfolio of securities owned and available for
sale securities which subjects it to equity pricing risks which would arise as
the relative values of its securities change in conjunction with market or
economic conditions. The change in fair values of securities represents
instantaneous changes in all equity prices segregated by securities owned,
securities sold but not yet purchased, and available for sale securities. The
following are hypothetical changes in the fair value of securities owned,
securities sold but not yet purchased, and available for sale securities at
March 31, 2003 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 SECURITIES FOR SALE SOLD
CHANGE IN OWNED SECURITIES NOT YET DOLLAR
FAIR VALUE FAIR VALUE FAIR VALUE PURCHASED CHANGE
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
20% $ 185,183 $ 1,499 $ (59,712) $ 21,162
10% $ 169,751 $ 1,374 $ (54,736) $ 10,581
0% $ 154,319 $ 1,249 $ (49,760) $ --
-10% $ 138,887 $ 1,124 $ (44,784) $ (10,581)
-20% $ 123,455 $ 999 $ (39,808) $ (21,162)
42
Excluded from the above table was $3.6 million and $3.4 million of investments
in private companies held by BFC and BankAtlantic Bancorp, respectively, for
which no current market exists. The ability to realize on or liquidate these
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 to hedge market risk exposures. These financial
instruments include securities sold but not yet purchased and futures contracts.
Securities sold but not yet purchased represent obligations of Ryan Beck to
deliver specified financial instruments at contracted prices, thereby creating a
liability to purchase the financial instrument in the market at prevailing
prices. Accordingly, these transactions result in off-balance-sheet risk as Ryan
Beck's ultimate obligation may exceed the amount recognized in the Consolidated
Statement of Financial Condition. As a securities broker and dealer, Ryan Beck
is engaged in various securities trading and brokerage activities servicing a
diverse group of domestic corporations, governments, institutional, and
individual investors. Ryan Beck has exposure to risks associated with the
nonperformance of these counter parties in fulfilling their contractual
obligations. Ryan Beck is also exposed to risks associated with its securities
owned and GMS's investments in below investment grade securities.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC reports.
Changes in Internal Controls
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of the last
evaluation.
Limitations on the Effectiveness of Controls
Our management, including our principal executive officer and principal
financial officer, does not expect that our disclosure controls and procedures
and internal controls will prevent all errors and all improper conduct. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of improper conduct, if any, within the Company
have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Appearing immediately following the Signatures section of this report there are
Certifications of the principal
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executive officer and the principal financial officer. The Certifications are
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This
Item of this report, which you are currently reading, is the information
concerning the evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics presented.
44
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 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 January 13, 2003 for the purpose of announcing the
dismissal of KPMG as the Company's independent public accountants and the
engagement of PricewaterhouseCoopers ("PWC") as the Company's principal
independent public accountants.
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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: May 14, 2003 By: /s/ Alan B. Levan
------------------------------------------
Alan B. Levan, President
Date: May 14, 2003 By: /s/ Glen R. Gilbert
------------------------------------------
Glen R. Gilbert, Executive Vice President,
Chief Accounting Officer and
Chief Financial Officer
46
I, Glen R. Gilbert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BFC Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ Glen R. Gilbert
-----------------------------
Glen R. Gilbert,
Chief Financial Officer
47
I, Alan B. Levan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BFC Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
By: /s/ Alan B. Levan
------------------------------
Alan B. Levan,
Chief Executive Officer
48