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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 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, 7,838,709 shares outstanding.
Class B Common Stock of $.01 par value, 2,553,367 shares outstanding.
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of June 30, 2003 and
December 31, 2002 - Unaudited
Consolidated Statements of Operations for the three and six month
periods ended June 30, 2003 and 2002 - Unaudited
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the six months ended June 30, 2003 and 2002 - Unaudited
Consolidated Statements of Cash Flows for the six months ended June 30,
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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition - Unaudited
June 30, 2003 and December 31, 2002
(In thousands, except share data)
2003 2002
---------- ----------
ASSETS
Cash and due from depository institutions $ 129,636 $ 202,432
Federal Funds sold and securities purchased under resell agreements -- 50,145
Securities available for sale (at fair value) 514,252 713,131
Securities owned (at fair value) 224,405 186,454
Investment securities and tax certificates (approximate fair value:
$208,622 and $212,698) 208,621 212,240
Loans receivable, net of allowance for loan losses: $50,648 and $49,094 4,029,508 3,377,870
Federal Home Loan Bank stock, at cost which approximates fair value 69,131 64,943
Accrued interest receivable 34,222 34,050
Real estate held for development and sale and joint ventures 272,559 256,401
Investment in unconsolidated real estate subsidiary 64,381 60,695
Office properties and equipment, net 92,254 92,784
Deferred tax asset, net 10,063 12,119
Goodwill, net 76,674 78,612
Core deposit intangible asset 12,864 13,757
Other assets 66,109 60,300
---------- ----------
Total assets $5,804,679 $5,415,933
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Interest free checking $ 546,805 $ 462,718
NOW accounts 455,514 399,985
Savings accounts 191,586 163,641
Insured money fund savings 850,579 775,175
Certificate accounts 859,896 1,119,036
---------- ----------
Total deposits 2,904,380 2,920,555
---------- ----------
Advances from FHLB 1,332,300 1,297,170
Securities sold under agreements to repurchase 218,141 116,279
Federal Funds purchased 155,000 --
Subordinated debentures, notes and bonds payable 155,950 209,068
Guaranteed preferred beneficial interests in BankAtlantic Bancorp's
Junior Subordinated Debentures 255,375 180,375
Securities sold, but not yet purchased 34,968 38,003
Due to clearing agent 112,410 78,791
Other liabilities 168,028 132,780
---------- ----------
Total liabilities 5,336,552 4,973,021
---------- ----------
Minority interest 386,670 365,501
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 7,838,709 in 2003 and 6,474,994 in 2002 71 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,553,367 in 2003 and 2,362,157 in 2002 23 21
Additional paid-in capital 24,679 24,077
Retained earnings 56,144 52,387
---------- ----------
Total stockholders' equity before
accumulated other comprehensive income 80,917 76,543
Accumulated other comprehensive income 540 868
---------- ----------
Total stockholders' equity 81,457 77,411
---------- ----------
Total liabilities and stockholders' equity $5,804,679 $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 and Six Month Periods Ended June 30, 2003 and 2002
(In thousands, except per share data)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
INTEREST INCOME: 2003 2002 2003 2002
--------- --------- --------- ---------
Interest and fees on loans and leases $ 54,348 $ 59,382 $ 107,437 $ 106,510
Interest and dividends on securities available for sale 7,693 11,818 16,355 23,903
Interest and dividends on other investment securities 5,281 8,453 10,474 16,456
Interest and dividends on securities owned 4,801 3,472 9,148 4,170
--------- --------- --------- ---------
Total interest income 72,123 83,125 143,414 151,039
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 9,758 17,106 20,927 32,432
Interest on advances from FHLB 15,291 15,676 30,607 30,596
Interest on securities sold under agreements to repurchase
and federal funds purchased 1,248 2,113 2,067 3,497
Interest on subordinated debentures, notes and bonds payable
and guaranteed preferred beneficial interests in BankAtlantic Bancorp's
Junior Subordinated Debentures 7,089 7,132 13,593 12,021
Capitalized interest on real estate developments and joint ventures (1,608) (1,613) (3,182) (2,831)
--------- --------- --------- ---------
Total interest expense 31,778 40,414 64,012 75,715
--------- --------- --------- ---------
NET INTEREST INCOME 40,345 42,711 79,402 75,324
Provision for loan losses 1,490 6,139 2,340 8,704
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,855 36,572 77,062 66,620
--------- --------- --------- ---------
NON-INTEREST INCOME:
Investment banking income 58,091 38,191 116,075 51,239
Gains on sales of real estate developed for sale
and joint venture activities 20,515 12,466 34,303 24,443
Income from unconsolidated real estate subsidiary 2,319 1,741 2,438 1,741
Service charges on deposits 9,605 5,687 18,163 10,550
Other service charges and fees 6,071 3,550 9,989 6,655
Losses (gains) on securities activities (19) 3,083 755 6,122
Impairment of securities -- (19,740) -- (19,740)
Other 3,664 2,973 7,177 5,152
--------- --------- --------- ---------
Total non-interest income 100,246 47,951 188,900 86,162
NON-INTEREST EXPENSE:
Employee compensation and benefits 69,658 54,432 137,301 82,022
Occupancy and equipment 9,911 10,569 19,935 17,880
Advertising and promotion 5,298 3,774 9,029 5,984
Selling, general and administrative expenses 3,935 3,142 7,078 5,777
Amortization of intangible assets 439 454 893 454
Restructuring charges and writedowns 1,906 1,007 1,906 1,007
Acquisition related charges and impairments -- 3,922 -- 4,996
Professional fees 4,974 2,472 8,766 3,769
Communications 4,644 3,313 8,909 4,227
Floor broker and clearing fees 2,519 2,467 4,921 3,316
Other 10,048 8,690 19,630 14,518
--------- --------- --------- ---------
Total non-interest expense 113,332 94,242 218,368 143,950
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 25,769 (9,719) 47,594 8,832
Provision (benefit) for income taxes 10,581 (2,986) 19,321 3,152
Minority interest in income of consolidated subsidiaries 13,318 15,218 24,503 13,176
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 1,870 (21,951) 3,770 (7,496)
Extraordinary item (less applicable income taxes of $2,711) -- 23,810 -- 23,810
Cumulative effect of a change in accounting principle (less applicable
income taxes of $1,246) -- -- -- (15,107)
--------- --------- --------- ---------
NET INCOME $ 1,870 $ 1,859 $ 3,770 $ 1,207
========= ========= ========= =========
(continued)
See accompanying notes to unaudited consolidated financial statements.
4
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
For the Three and Six Month Periods Ended June 30, 2003 and 2002
(In thousands, except per share data)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ 0.20 $ (2.38) $ 0.41 $ (0.81)
Basic earnings per share from extraordinary item -- 2.58 -- 2.59
Basic loss per share from cumulative effect of a change
in accounting principle -- -- -- (1.64)
---------- ---------- ---------- ----------
Basic earnings per share $ 0.20 $ 0.20 $ 0.41 $ 0.14
========== ========== ========== ==========
Diluted earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ 0.17 $ (2.38) $ 0.34 $ (0.81)
Diluted earnings per share from extraordinary item -- 2.58 -- 2.59
Diluted loss per share from cumulative effect of a change
in accounting principle -- -- -- (1.64)
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.17 $ 0.20 $ 0.34 $ 0.14
========== ========== ========== ==========
Basic weighted average number of common shares outstanding 9,356 9,213 9,270 9,209
========== ========== ========== ==========
Diluted weighted average number of common and common
equivalent shares outstanding 10,522 9,213 10,340 9,209
========== ========== ========== ==========
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 Six Months Ended June 30, 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 income $ 1,207 -- -- -- 1,207 -- 1,207
---------
Other comprehensive income (loss),
net of tax:
Unrealized loss on securities
available for sale (753)
Accumulated loss associated with
cash flow hedges (139)
Reclassification adjustment
for cash flow hedges 37
Reclassification adjustment
for net gains included
in net income (271)
---------
Other comprehensive loss (1,126)
---------
Comprehensive income $ 81
=========
Net effect of BankAtlantic Bancorp
capital transactions, net
of income taxes -- -- 88 -- -- 88
Issuance of Class B common stock -- 1 144 -- -- 145
Tax effect relating to the exercise
of stock options -- -- 60 -- -- 60
Net change in accumulated
other comprehensive
income, net of income taxes -- -- -- -- (1,126) (1,126)
------------- --------- ------------- --------- --------- ---------
BALANCE, JUNE 30, 2002 $ 58 22 24,498 48,402 1,566 74,546
============= ========= ============= ========= ========= =========
(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 Six Months Ended June 30, 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 $ 3,770 -- -- -- 3,770 -- 3,770
--------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (673)
Minimum pension liability 228
Unrealized gain associated
with investment in
unconsolidated real estate subsidiary 102
Accumulated gain associated with
cash flow hedges 14
Reclassification adjustment
for cash flow hedges 36
Reclassification adjustment
for net gain included
in net income (35)
--------
Other comprehensive loss (328)
--------
Comprehensive income $ 3,442
========
Net effect of BankAtlantic Bancorp
capital transactions, net
of income taxes -- -- (98) -- -- (98)
Common stock split 13 -- -- (13) -- --
Issuance of Class B common stock -- 2 258 -- -- 260
Tax effect relating to the exercise
of stock options -- -- 442 -- -- 442
Net change in accumulated other
comprehensive income,
net of income taxes -- -- -- -- (328) (328)
------------- -------- ------------- -------- -------- --------
BALANCE, JUNE 30, 2003 $ 71 23 24,679 56,144 540 81,457
============= ======== ============= ======== ======== ========
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 Six Months Ended June 30, 2003 and 2002
(In thousands)
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle $ 3,770 $ (7,496)
Income from extraordinary item, net of tax -- 23,810
Cumulative effect of a change in accounting principle, net of tax -- (15,107)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Minority interest in income of consolidated subsidiaries 24,503 13,176
Provision for credit losses * 3,695 9,698
Impairment of goodwill -- 16,353
Impairment of property and equipment 257 205
Impairment of securities -- 19,740
Acquisition related impairment -- 515
Depreciation, amortization and accretion, net 8,789 2,452
Amortization of intangible assets 893 454
Change in real estate inventory (20,303) (39,458)
Securities owned activities, net (37,951) (23,795)
Securities sold but not yet purchased, net (3,035) 28,616
Equity in joint venture earnings (2,235) (1,939)
Equity in earnings of unconsolidated subsidiary (2,438) (1,741)
Loans held for sale activity, net 3,960 14,812
Proceeds from sales of loans classified as held for sale 3,658 2,070
Gains on securities activities (755) (6,122)
(Gains) losses on sales of real estate owned (326) 128
Gain on Gruntal transaction -- (26,521)
Losses on sales of property and equipment 5 336
Gains on sales of in-store branches -- (384)
Loss on debt redemption 1,649 --
Decrease (increase) in deferred tax asset, net 4,286 (13,134)
Issuance of subsidiary stock options -- 770
Increase in accrued interest receivable (172) (107)
Increase in other assets (11,995) (29,645)
Increase (decrease) in due to clearing agent 33,619 (17,355)
Increase in other liabilities 39,338 21,987
--------- ---------
Net cash provided by (used in) operating activities 49,212 (27,682)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from redemption and maturities of investment
securities and tax certificates 101,999 100,071
Purchase of investment securities and tax certificates (99,272) (142,246)
Purchases of securities available for sale (183,134) (212,251)
Proceeds from sales and maturities of securities available for sale 373,163 363,345
(Purchases) redemptions of FHLB stock, net (4,188) 3,759
Purchases and net originations of loans and leases (662,206) (204,512)
Proceeds from sales of real estate owned 1,770 2,874
Net additions to office property and equipment (5,744) (16,265)
Increase in investments in unconsolidated subsidiary -- (53,736)
Investment in and advances to joint ventures, net 7,123 3,143
Net cash proceeds from the sale of Cumberland Advisors, Inc. 1,235 --
Acquisitions, net of cash acquired -- (52,783)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (469,254) (208,601)
--------- ---------
(continued)
See accompanying notes to unaudited consolidated financial statements.
8
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
For the Six Months Ended June 30, 2003 and 2002
(In thousands)
2003 2002
--------- ---------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (16,175) 87,045
Reduction in deposits from sale of in-store branch -- (22,241)
Repayments of FHLB advances (239,368) (99,450)
Proceeds from FHLB advances 275,000 75,000
Net increase in securities sold under agreements
to repurchase 101,862 85,665
Net increase in federal funds purchased 155,000 19,000
Repayment of notes and bonds payable (125,973) (34,047)
Proceeds from notes and bonds payable 73,102 76,315
Issuance of BankAtlantic Bancorp common stock 1,203 872
Issuance of BFC common stock upon exercise of stock options 260 145
Issuance of common stock in unconsolidated subsidiary -- (105)
Issuance of trust preferred securities 75,000 80,375
BankAtlantic Bancorp common stock dividends paid to non-BFC shareholders (2,810) (2,612)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 297,101 265,962
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (122,941) 29,679
Cash and cash equivalents at beginning of period 252,577 124,539
--------- ---------
Cash and cash equivalents at end of period $ 129,636 $ 154,218
========= =========
SUPPLEMENTARY DISCLOSURE ON NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Interest paid $ 69,543 $ 77,390
Income taxes paid by BankAtlantic Bancorp 10,822 14,013
Loans transferred to real estate owned 749 10,822
Net loan charge-offs 52 15,350
Tax certificate net charge-offs 256 1,178
Increase in stockholders' equity for the tax effect related to the
exercise of employee stock options 442 60
Transfer of securities available for sale to investment in
unconsolidated subsidiary -- 2,728
Transfer of relocated branch to real estate held for sale 1,000 --
Issuance of notes payable under the Ryan Beck deferred
compensation plan -- 3,675
Acquisition goodwill adjustments (734) (639)
Change in stockholders' equity resulting from the change
in other comprehensive income, net of taxes (328) (1,126)
Change in stockholders' equity from the net effect
of BankAtlantic Bancorp's capital transactions, net of taxes (98) 88
Decrease in minority interest resulting from the distribution of
its securities investment -- (8,229)
Issuance of BankAtlantic Bancorp's Class A Common Stock upon
conversion of subordinated debentures 211 25
* Provision for credit losses represents provision for loan losses, REO and
tax certificates.
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 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 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 22.5% 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 June 30, 2003 and December 31, 2002, the consolidated
results of operations for the six and three month periods ended June 30, 2003
and 2002, the consolidated stockholders' equity and comprehensive income for the
six months ended June 30, 2003 and 2002 and the consolidated cash flows for the
six months ended June 30, 2003 and 2002. Such adjustments consisted only of
normal recurring items. The results of operations for the six months ended June
30, 2003 are not necessarily indicative of results of operations that may be
expected for the year ended December 31, 2003. 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 and our Form 10-Q for the three months ended March 31, 2003.
2. INVESTMENT IN BANKATLANTIC BANCORP
At June 30, 2003, the Company's ownership of BankAtlantic Bancorp was as
follows:
SHARES PERCENT
OWNED OWNED
----- -----
Class A Common Stock 8,296,891 15.4%
Class B Common Stock 4,876,124 100.0%
Total 13,173,015 22.5%
At June 30, 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
10
value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2003 2002
---------- ---------- ---------- ----------
PRO FORMA NET INCOME
Net income, as reported $ 1,870 $ 1,859 $ 3,770 $ 1,207
Add: Stock-based employee compensation
expense included in reported net income, net of
related tax effects and minority interest 20 184 32 191
Deduct: Total stock-based employee compensation
expense determined under
fair value based method for all awards,
net of related income tax effects and minority interest (175) (285) (338) (394)
---------- ---------- ---------- ----------
Pro forma net income $ 1,715 $ 1,758 $ 3,464 $ 1,004
========== ========== ========== ==========
EARNINGS PER SHARE:
Basic as reported $ 0.20 $ 0.20 $ 0.41 $ 0.14
========== ========== ========== ==========
Basic pro forma $ 0.18 $ 0.19 $ 0.38 $ 0.12
========== ========== ========== ==========
Diluted as reported $ 0.17 $ 0.20 $ 0.34 $ 0.14
========== ========== ========== ==========
Diluted pro forma $ 0.16 $ 0.19 $ 0.31 $ 0.12
========== ========== ========== ==========
In February 2003, BFC Board of Directors granted incentive and non-qualifying
stock options to acquire an aggregate of 227,125 shares of BFC Class B Common
Stock under the BFC 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 which vested immediately. The stock options were granted with an exercise
price of $5.15 per share 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 based on the fair value recognition provisions
of SFAS No. 123. In April 2003, options issued in 1994 under the BFC Stock
Option Plan for 226,334 shares of BFC Class B Common Stock were exercised.
During the second quarter, 2002, Ryan Beck's Board of Directors granted,
pursuant to the Ryan Beck & Co., Inc. Common Stock Option Plan (the "Plan"),
options to acquire an aggregate of 470,000 common shares of Ryan Beck. The fair
value of the common stock options was determined based on an independent
appraisal. The second quarter 2002 compensation charge of $770,000 associated
with these options was based on a fair value estimate from the independent
appraiser.
In connection with the acquisition of Ryan Beck in June 1998, BankAtlantic
Bancorp established a retention pool covering certain key employees of Ryan
Beck. All participant accounts under the plan vested on June 28, 2002 and the
participants received in the aggregate 5,941 shares of BankAtlantic Bancorp
Class A Common Stock, $3.8 million in cash and notes payable for an aggregate
principal amount of $3.7 million bearing interest at 5.75%. In May 2003,
BankAtlantic Bancorp repaid the notes payable at face value plus accrued
interest.
4. TRUST PREFERRED SECURITIES AND CONVERTIBLE DEBENTURES
During the six months ended June 30, 2003, BankAtlantic Bancorp participated in
pooled trust preferred securities offerings in which an aggregate of $75 million
of trust preferred securities were issued in three 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 315-325 basis points. The securities are redeemable in five
years and are due in 2033. 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 from the trust preferred
securities offerings, after placement fees and expenses, were approximately $73
million. These
11
net proceeds were used to redeem $45.8 million of BankAtlantic Bancorp's 5.625%
Convertible Subordinated Debentures due 2007, repay $16 million of borrowings
under BankAtlantic Bancorp's credit facility with an unrelated financial
institution and for general corporate purposes.
The BankAtlantic Bancorp Convertible Subordinated Debentures were redeemed in
April 2003 at a redemption price of 102% of the principal amount plus accrued
and unpaid interest through the redemption date. During the period between the
mailing of the notice of redemption and the redemption, approximately $211,000
of Convertible Subordinated Debentures were converted by holders into an
aggregate of 18,754 shares of BankAtlantic Bancorp Class A Common Stock.
Included in restructuring charges and writedowns in the Company's statement of
operations during the three months ended June 30, 2003 was a $732,000 write off
of deferred offering costs and a $917,000 call premium incurred 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
from the publicly offered trust preferred securities, after underwriting
discounts and expenses, were approximately $53.3 million. BankAtlantic Bancorp
used the net proceeds to fund acquisitions and for general corporate purposes.
In June 2002, BankAtlantic Bancorp participated in a pooled trust preferred
securities offering in which $25 million of trust preferred securities were
issued. The trust preferred securities pay interest quarterly at floating rate
equal to 3-month LIBOR plus 345 basis points. The $24.2 million of 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 realized gains and losses from
proprietary trading activities which included the activities of its wholly owned
subsidiary, The GMS Group, LLC ("GMS").
Ryan Beck's securities owned (at fair value) consisted of the following: (in
thousands)
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
Debt obligations (1):
States and municipalities $ 111,254 $ 119,417
Corporations 43,950 5,344
U.S. Government and agencies 33,107 26,004
Corporate equities 11,744 19,280
Mutual funds 22,013 16,409
Certificates of deposit 2,337 --
------------- -------------
$ 224,405 $ 186,454
============= =============
(1) Includes $133.7 million and $108.3 million of securities owned by GMS, of
which approximately $9.2 million and $9.7 million were not accruing
interest at June 30, 2003 and December 31, 2002, respectively. These
securities are not readily marketable and the ability of Ryan Beck to
realize its investment in these securities will depend on future market
conditions.
Primarily to finance its securities inventory, Ryan Beck borrows under an
agreement with its clearing broker by pledging securities owned as collateral.
As of June 30, 2003 and December 31, 2002 the balances due to the clearing
broker were $112.4 million and $78.8 million, respectively.
12
Ryan Beck's securities sold but not yet purchased consisted of the following
(in thousands):
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
States and municipalities $ 2,221 $ 9,566
Corporations 3,706 1,159
U.S. Government and agencies 14,599 23,587
Corporate equities 12,712 3,691
Certificates of deposit 1,730 --
------------- -------------
$ 34,968 $ 38,003
============= =============
6. IMPAIRMENT OF SECURITIES
During the second quarter of 2002, a limited partnership in which BFC has an
approximately 57% controlling interest recognized $1.1 million and BankAtlantic
Bancorp recognized $15 million impairment charges associated with their
investments in a privately held technology company. Alan B. Levan and John E.
Abdo were directors of the technology company and each held direct and indirect
interests in the common stock of the technology company. Additionally, during
the second quarter of 2002, BFC and BankAtlantic Bancorp also recognized
impairment charges of $499,000 and $3.2 million, respectively, on publicly
traded equity securities resulting from significant declines in value that were
other than temporary. As a result of BankAtlantic Bancorp's losses, BankAtlantic
Bancorp has revised its policy for holding company equity investments to provide
that future equity investments will be limited to liquid securities and will be
subject to significant concentration restrictions. No impairment of securities
was recognized by the Company or BankAtlantic Bancorp in 2003.
7. LOANS RECEIVABLE
The loan and lease portfolio consisted of the following components (in
thousands):
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
Real estate loans:
Residential $ 1,869,668 $ 1,378,041
Commercial and construction 2,173,180 1,976,672
Small business 99,760 98,494
Other loans:
Second mortgages - direct 287,761 261,579
Second mortgages - indirect 1,312 1,713
Commercial business 87,374 82,174
Lease financing 19,710 31,279
Small business - non-mortgage 54,965 62,599
Deposit overdrafts 3,278 2,487
Consumer loans - other direct 19,694 22,394
Consumer loans - other indirect 2,718 6,392
Other 4,175 4,175
Loans held for sale:
Commercial syndications 14,707 14,499
------------- -------------
Total gross loans 4,638,302 3,942,498
------------- -------------
Adjustments:
Undisbursed portion of loans in process (563,132) (511,861)
Premiums related to purchased loans 11,172 2,159
Deferred profit on commercial real estate loans (611) (632)
Deferred fees (5,575) (5,200)
Allowance for loan losses (50,648) (49,094)
------------- -------------
Loans receivable - net $ 4,029,508 $ 3,377,870
============= =============
13
8. REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND JOINT VENTURE ACTIVITIES
Real estate held for development and sale and joint venture activities consisted
of the combined activities of 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 ("BMOC"), a
shopping center in North Carolina and the unsold land at the Center Port
development.
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
JUNE 30 DECEMBER 31,
2003 2002
------------- -------------
Land and land development costs $ 170,746 $ 161,826
Construction costs 34,673 23,412
Other costs 13,054 12,888
Investments and loans to joint ventures 47,016 51,904
Other (1) 7,070 6,371
------------- -------------
$ 272,559 $ 256,401
============= =============
(1) During the second quarter of 2003, BankAtlantic Bancorp relocated a
branch, transferred the real estate associated with the closed branch to
real estate held for sale and recognized an impairment loss of $257,000.
The components of gains on sales of real estate developed for sale and joint
venture activities were as follows (in thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Sales of real estate $ 67,039 $ 46,864 $ 120,003 $ 84,717
Cost of sales 48,741 35,438 87,935 62,213
---------- ---------- ---------- ----------
Gains on sales of real estate 18,298 11,426 32,068 22,504
Gains on joint venture activities 2,217 1,040 2,235 1,939
---------- ---------- ---------- ----------
Gains on sales of real estate
developed for sale and joint venture
activities $ 20,515 $ 12,466 $ 34,303 $ 24,443
========== ========== ========== ==========
9. DERIVATIVES
The following table outlines the notional amount and fair value of BankAtlantic
Bancorp's derivatives outstanding at June 30, 2003 (in thousands):
PAYING RECEIVING
NOTIONAL INDEX/FIXED INDEX/FIXED TERMINATION
AMOUNT FAIR VALUE AMOUNT AMOUNT DATE
------------ ------------ ------------ ------------ ------------
Five year pay fixed swaps $ 25,000 $ (2,467) 5.73% 3 mo. LIBOR 1/5/06
Three year pay fixed swaps $ 50,000 $ (1,154) 5.81% 3 mo. LIBOR 12/28/03
============ ============ ============ ============ ============
Forward contract to purchase
adjustable rate mortgages $ 17,745 $ 23
============ ============
14
The above interest rate swap contracts were originated by BankAtlantic Bancorp
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 and six months ended June 30,
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.
10. 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 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, including a 5% equity investment in
Bluegreen.
BFC Holding Company BFC's real estate owned which includes BMOC and
Center Port. Loans receivable that relate to
previously owned
15
properties, other securities and investments and
BFC's overhead and interest expense. Provision for
income taxes includes the tax effect from BFC's
equity from 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, 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,
extraordinary item and the cumulative effect of a change in accounting principle
for the three months ended June 30, 2003 and 2002.
BANCORP BFC
BANK LEVITT PARENT HOLDING ELIMINATION
(IN THOUSANDS) OPERATIONS CORPORATION RYAN BECK COMPANY COMPANY ENTRIES TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
2003
Interest income $ 67,336 $ 233 $ 4,801 $ 509 $ 98 $ (854) $ 72,123
Interest expense (26,877) (8) (850) (4,260) (297) 514 (31,778)
Provision for loan losses (1,490) -- -- -- -- -- (1,490)
Non-interest income 19,286 20,669 59,484 245 197 365 100,246
Non-interest expense (38,193) (10,530) (61,212) (2,331) (1,041) (25) (113,332)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment profits and
(losses) before taxes 20,062 10,364 2,223 (5,837) (1,043) -- 25,769
(Provision) benefit
for income taxes (7,103) (3,997) (544) 2,041 (978) -- (10,581)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 12,959 $ 6,367 $ 1,679 $ (3,796) $ (2,021) $ -- $ 15,188
=========== =========== =========== =========== =========== =========== ===========
Segment average assets $ 5,251,318 $ 324,907 $ 254,158 $ 82,498 $ 17,666 $ (125,655) $ 5,804,892
=========== =========== =========== =========== =========== =========== ===========
2002
Interest income $ 79,622 $ 384 $ 3,472 $ 454 $ 71 $ (878) $ 83,125
Interest expense (35,140) (312) (693) (4,522) (279) 532 (40,414)
Provision for loan losses (6,139) -- -- -- -- -- (6,139)
Non-interest income 13,542 13,344 39,631 (17,539) (1,375) 348 47,951
Non-interest expense (36,299) (7,611) (46,827) (2,744) (759) (2) (94,242)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment profits and
(losses) before taxes 15,586 5,805 (4,417) (24,351) (2,342) -- (9,719)
(Provision) benefit
for income taxes (4,147) (2,032) 1,546 8,523 (904) -- 2,986
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 11,439 $ 3,773 $ (2,871) $ (15,828) $ (3,246) $ -- $ (6,733)
=========== =========== =========== =========== =========== =========== ===========
Segment average assets $ 5,214,011 273,357 $ 218,784 $ 98,436 $ 17,497 $ (184,454) $ 5,637,631
=========== =========== =========== =========== =========== =========== ===========
16
The table below is segment information for income before minority interest,
extraordinary item and cumulative effect of a change in accounting principle for
the six months ended June 30, 2003 and 2002.
BANCORP BFC
BANK LEVITT PARENT HOLDING ELIMINATION
(IN THOUSANDS) OPERATIONS CORPORATION RYAN BECK COMPANY COMPANY ENTRIES TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
2003
Interest income $ 134,264 $ 461 $ 9,148 $ 962 $ 196 $ (1,617) $ 143,414
Interest expense (54,647) (249) (1,575) (7,904) (582) 945 (64,012)
Provision for loan losses (2,340) -- -- -- -- -- (2,340)
Non-interest income 33,644 34,189 119,111 441 848 667 188,900
Non-interest expense (73,427) (18,668) (121,712) (2,787) (1,779) 5 (218,368)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment profits and
(losses) before taxes 37,494 15,733 4,972 (9,288) (1,317) -- 47,594
(Provision) benefit
for income taxes (13,134) (6,072) (1,386) 3,248 (1,977) -- (19,321)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 24,360 $ 9,661 $ 3,586 $ (6,040) $ (3,294) $ -- $ 28,273
=========== =========== =========== =========== =========== =========== ===========
Segment average assets $ 5,117,173 $ 316,904 $ 232,575 $ 85,219 $ 18,060 $ (111,476) $ 5,658,455
=========== =========== =========== =========== =========== =========== ===========
2002 --
Interest income $ 146,724 $ 798 $ 4,170 $ 765 $ 147 $ (1,565) $ 151,039
Interest expense (66,983) (314) (1,021) (7,845) (560) 1,008 (75,715)
Provision for loan losses (8,704) -- -- -- -- -- (8,704)
Non-interest income 22,896 25,398 53,229 (14,856) (1,064) 559 86,162
Non-interest expense (64,603) (13,789) (60,562) (3,341) (1,653) (2) (143,950)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment profits and
(losses) before taxes 29,330 12,093 (4,184) (25,277) (3,130) -- 8,832
(Provision) benefit
for income taxes (8,950) (4,233) 1,464 8,850 (283) -- (3,152)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 20,380 $ 7,860 $ (2,720) $ (16,427) $ (3,413) $ -- $ 5,680
=========== =========== =========== =========== =========== =========== ===========
Segment average assets $ 4,774,506 $ 239,528 $ 159,079 $ 106,474 $ 22,165 $ (141,194) $ 5,160,558
=========== =========== =========== =========== =========== =========== ===========
The changes in the carrying amounts of goodwill for the six months ended June
30, 2003 were as follows:
BANKATLANTIC
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)
Sale of Cumberland Advisors, Inc. -- (1,204) -- (1,204)
---------- ---------- ---------- ----------
Balance as of June 30, 2003 $ 70,490 $ 454 $ 5,730 $ 76,674
========== ========== ========== ==========
17
Bank Operations consists of three reportable segments. The table below is
segment information for the three months ended June 30, 2003 and 2002 associated
with the three Bank Operations reportable segments.
BANK OPERATIONS
--------------------------------------------------------
BANK COMMERCIAL COMMUNITY BANK OPS
(IN THOUSANDS) INVESTMENTS BANKING BANKING TOTAL
----------- ----------- ----------- -----------
2003
Interest income $ 35,323 $ 25,607 $ 6,406 $ 67,336
Interest expense and overhead (25,609) (12,733) (3,547) (41,889)
Provision for loan losses 30 (1,394) (126) (1,490)
Direct non-interest income 60 1,929 2,598 4,587
=========== =========== =========== ===========
Segment profits and losses
before taxes 6,849 11,389 1,824 20,062
Provision for income taxes (2,425) (4,032) (646) (7,103)
----------- ----------- ----------- -----------
Segment net income $ 4,424 $ 7,357 $ 1,178 $ 12,959
=========== =========== =========== ===========
Segment average assets (1) $ 2,772,231 $ 1,718,471 $ 478,825 $ 4,969,527
=========== =========== =========== ===========
2002
Interest income $ 46,202 $ 26,906 $ 6,514 $ 79,622
Interest expense and overhead (31,477) (15,767) (3,963) (51,207)
Provision for loan losses 59 (5,933) (265) (6,139)
Direct non-interest income 3,101 752 2,538 6,391
=========== =========== =========== ===========
Segment profits and losses
before taxes 14,107 2,571 (1,092) 15,586
Provision for income taxes (3,753) (684) 290 (4,147)
----------- ----------- ----------- -----------
Segment net income (loss) $ 10,354 $ 1,887 $ (802) $ 11,439
=========== =========== =========== ===========
Segment average assets (1) $ 2,891,958 $ 1,616,326 $ 406,204 $ 4,914,488
=========== =========== =========== ===========
(1) Segment average assets excludes Bank operation overhead assets such as
property and equipment and assets that benefit multiple reportable
segments.
Bank Operations consists of three reportable segments. The table below is
segment information for the six months ended June 30, 2003 and 2002 associated
with the three Bank Operations reportable segments:
BANK OPERATIONS
--------------------------------------------------------
BANK COMMERCIAL COMMUNITY BANK OPS
(IN THOUSANDS) INVESTMENTS BANKING BANKING TOTAL
----------- ----------- ----------- -----------
2003
Interest income $ 70,515 $ 50,841 $ 12,908 $ 134,264
Interest expense and overhead (50,528) (26,500) (7,364) (84,392)
Provision for loan losses (343) (2,625) 628 (2,340)
Direct non-interest income 120 2,830 5,026 7,976
=========== =========== =========== ===========
Segment profits and losses
before taxes 13,200 19,780 4,514 37,494
Provision for income taxes (4,622) (6,935) (1,577) (13,134)
----------- ----------- ----------- -----------
Segment net income (loss) $ 8,578 $ 12,845 $ 2,937 $ 24,360
=========== =========== =========== ===========
Segment average assets (1) $ 2,641,812 $ 1,711,489 $ 475,910 $ 4,829,211
=========== =========== =========== ===========
2002
Interest income $ 83,877 $ 50,837 $ 12,010 $ 146,724
Interest expense and overhead (58,362) (29,745) (7,179) (95,286)
Provision for loan losses (141) (8,148) (415) (8,704)
Direct non-interest income 3,289 1,380 4,727 9,396
=========== =========== =========== ===========
Segment profits and losses
before taxes 22,339 8,354 (1,363) 29,330
Provision for income taxes (6,631) (2,704) 385 (8,950)
----------- ----------- ----------- -----------
Segment net income (loss) $ 15,708 $ 5,650 $ (978) $ 20,380
=========== =========== =========== ===========
Segment average assets (1) $ 2,615,143 $ 1,565,515 $ 371,653 $ 4,552,311
=========== =========== =========== ===========
(1) Segment average assets excludes Bank operation overhead assets such as
property and equipment and assets that benefit multiple reportable
segments.
18
Bank Operations changes in the carrying amounts of goodwill for the six months
ended June 30, 2003 were as follows:
BANK OPERATIONS
------------------------------------------------------
BANK COMMERCIAL COMMUNITY BANK OPS
(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 June 30, 2003 $ 34,322 $ 35,243 $ 925 $ 70,490
=========== =========== =========== ===========
11. TRANSITIONAL GOODWILL IMPAIRMENT EVALUATION
In connection with the transitional goodwill impairment evaluation required
under FASB Statement 142, the Company and BankAtlantic Bancorp performed an
assessment of whether there was an indication that goodwill was impaired as of
January 1, 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.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial instruments with off-balance sheet risk were (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
Commitment to sell fixed rate residential loans $ 339 $ 88
Forward contract to purchase mortgage-backed securities 17,745 39,128
Commitments to purchase other investment securities -- 200
Commitments to purchase variable rate residential loans 29,000 300,643
Commitments to extend credit, including the undisbursed
portion of loans in process 1,147,818 1,126,384
Standby letters of credit 23,012 35,927
Commercial lines of credit 148,931 209,708
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 $15.9 million at June 30, 2003. BankAtlantic also issues
standby letters of credit to commercial lending customers guaranteeing the
payment of goods and services. These types of standby letters of credit had a
maximum exposure of $7.1 million at June 30, 2003. These guarantees are
primarily issued to support public and private borrowing arrangements and have
maturities of one year or less. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending 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.
Levitt has provided guarantees on indebtedness to joint ventures accounted for
under the equity method of accounting. The guarantees arose in order to obtain
joint venture financing. Levitt and its joint venture partners would have to
perform on their guarantees if the joint ventures default on the various loan
agreements. At June 30, 2003 and December 31, 2002, Levitt had guarantees on
$25.3 million and $26.2 million, respectively, of joint venture debt. Included
in these guarantees were $23.9 million and $25.5 million of loans from
BankAtlantic. Levitt's management believes that based on the loans' collateral,
no payments will be required under the guarantees. The other joint venture
partners are also guarantors to the joint venture debt and any payments
associated with the guarantees may be recovered from these third parties.
19
A development district for Levitt's Tradition master planned community issued
$28.8 million of bond anticipation notes to provide funding for phase I common
infrastructure. The bond anticipation notes are direct obligations of the
development district and are projected to be refinanced prior to maturity into
long-term assessment or revenue bonds. The development district assesses
property owners to fund debt service and the ultimate repayment of the bonds.
Levitt is assessed based on its pro-rata ownership in the property. Levitt's
pro-rata share of the assessment transfers to third parties upon property sales.
The assessment will be levied beginning in 2004.
13. ACQUISITIONS AND SALES OF SUBSIDIARIES
On May 28, 2003, Ryan Beck sold its entire interest in Cumberland Advisors, Inc.
for $1.5 million and recognized a $228,000 loss. Cumberland's loss before income
taxes during the period from January 1, 2003 to May 28, 2003 was $4,000.
Cumberland's income before income taxes for the six months ended June 30, 2002
was $30,000.
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. The consideration provided by Ryan Beck for this
transaction was the assumption of a note payable related to furniture and
equipment in the Gruntal offices, assumption of non-cancelable leases associated
with the Gruntal offices acquired, obligations owed to investment consultants
participating in Gruntal's deferred compensation plan that accepted employment
with Ryan Beck, and the payment of $6.0 million in cash. Ryan Beck has been
named as a defendant in a number of arbitration claims filed by former Gruntal
clients whose claims arose prior to the Gruntal transaction based on allegations
that Ryan Beck is the "successor to Gruntal." Ryan Beck has also been sued by a
former Gruntal employee seeking a declaratory judgment that Ryan Beck is liable
for all pre-April 26, 2002 claims against Gruntal whether pending or filed in
the future. This action has been stayed by the court pursuant to an order dated
August 1, 2003, until the resolution of the Gruntal bankruptcy proceedings. Ryan
Beck did not assume any of these liabilities in connection with these
transactions. Gruntal filed for bankruptcy protection under Chapter 11 of the
Federal Bankruptcy Laws in October, 2002 and Ryan Beck has filed a Proof of
Claim with the Bankruptcy Court in the amount of $43.9 million asserting its
right to indemnification from Gruntal under the asset purchase agreement for the
costs of defending the above-referenced claims as well as any liability that may
be assessed against Ryan Beck in such matters. For further information see
"Legal Proceedings" in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
On March 22, 2002 BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A. ("Community"), for $170.8 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 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 and the Gruntal
transaction effective March 22, 2002 and April 26, 2002, respectively (in
thousands).
COMMUNITY GRUNTAL TOTAL
----------- ----------- -----------
Cash and interest earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 -- 79,768
Trading securities -- 151,909 151,909
Loans receivable, net 621,964 -- 621,964
FHLB Stock 8,063 -- 8,063
Investments and advances to joint ventures 16,122 -- 16,122
Goodwill 58,775 -- 58,775
Core deposit intangible asset 15,117 -- 15,117
Other assets 45,070 12,597 57,667
----------- ----------- -----------
Fair value of assets acquired 969,856 165,392 1,135,248
----------- ----------- -----------
Deposits 639,111 -- 639,111
20
FHLB advances 138,981 -- 138,981
Other borrowings 14,291 3,427 17,718
Securities sold not yet purchased -- 1,201 1,201
Payable to clearing broker -- 101,705 101,705
Other liabilities 6,674 27,402 34,076
----------- ----------- -----------
Fair value of liabilities assumed 799,057 133,735 932,792
Fair value of net assets acquired over cost -- (23,810) (23,810)
----------- ----------- -----------
Purchase price 170,799 7,847 178,646
Cash acquired (124,977) (886) (125,863)
----------- ----------- -----------
Purchase price net of cash acquired $ 45,822 $ 6,961 $ 52,783
=========== =========== ===========
Acquisition related charges and impairments during the three and six months
ended June 30, 2002 included various data conversion and system integration
expenses as well as facilities impairment write-downs associated with the
Community acquisition and the Gruntal transaction. In connection with the
Community acquisition, BankAtlantic closed two of its Palm Beach county branches
during the second quarter of 2002.
14. 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
is entitled to receive a majority of the entity's residual returns or both. The
interpretation also requires that the primary beneficiary is the only entity
that can consolidate the variable interest entity. A primary beneficiary is the
enterprise that has the majority of the risks and rewards of ownership. Upon
consolidation of a variable interest entity, the assets, liabilities and
non-controlling interest of the variable interest entity are measured at their
carrying amounts with any difference between the net amount added to the
statement of financial condition and any previously recognized interest being
recognized as the cumulative effect of a change in accounting principle. 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. BankAtlantic Bancorp completed its initial evaluation of
Interpretation No. 46, and concluded that one of BankAtlantic Bancorp's real
estate joint ventures ("Riverclub") and eleven of its statutory business trusts
were variable interest entities. Management of BankAtlantic Bancorp is currently
reviewing various other contracts with third parties to determine if these
arrangements represent variable interests. Management of BankAtlantic Bancorp
does not expect that the outcome of this review will have a material impact on
the Company's and BankAtlantic Bancorp's results of operations or financial
condition.
The statutory business trusts were formed to issue trust preferred securities.
BankAtlantic Bancorp, in its historical financial statements, has consolidated
the statutory business trusts. The interpretation requires BankAtlantic Bancorp
to deconsolidate the statutory business trusts, because BankAtlantic Bancorp is
not the primary beneficiary of these entities. If these trusts were
deconsolidated as of June 30, 2003, the effect on the Company's statement of
financial condition would be an increase in investments in unconsolidated
subsidiaries of $7.8 million with a corresponding increase in guaranteed
preferred beneficial interest in BankAtlantic Bancorp's Junior Subordinated
Debentures. The effect of the deconsolidation on the Company's statement of
operations for the three and six months ended June 30, 2003 would be an increase
in income from unconsolidated subsidiaries of $78,000 and $196,000,
respectively, with a corresponding increase in interest expense on guaranteed
preferred beneficial interests in BankAtlantic Bancorp's Junior Subordinated
Debentures. The Company intends to initially deconsolidate the trusts during the
third quarter of 2003; however, deconsolidation of the trusts in accordance with
Interpretation No. 46 is currently under consideration by the FASB.
The Riverclub joint venture was acquired by BankAtlantic in the Community
acquisition. BankAtlantic has
21
accounted for the Riverclub joint venture on the equity method of accounting in
its historical financial statements. Based on the Company's evaluation of the
Riverclub operating and developer agreement, BankAtlantic is the primary
beneficiary of the Riverclub joint venture and accordingly will include the
activities of Riverclub in its consolidated financial statements. Upon
acquisition on March 22, 2002, BankAtlantic's investment in Riverclub was
written down to fair value based on an appraisal. As a consequence, the
consolidation of the Riverclub joint venture as of July 1, 2003 did not result
in any gain or loss from the cumulative effect of a change in accounting
principle.
If the Riverclub joint venture were consolidated as of June 30, 2003, the effect
on the Company's consolidated statement of financial condition would be as
follows:
(In thousands) INCREASE (DECREASE)
-------------------
ASSETS
Real estate held for development and sale and joint ventures $ (346)
Other assets 1,382
-------
Change in total assets $ 1,036
=======
LIABILITIES AND NONCONTROLLING INTEREST
Interest free checking $ (191)
Subordinated debentures, notes and bonds payable 1,651
Other liabilities 957
Noncontrolling interest (1,381)
-------
Change in total liabilities and noncontrolling interest $ 1,036
=======
If the Riverclub joint venture were consolidated as of January 1, 2003, the
effect on the Company's consolidated statement of operations would be as
follows:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2003 JUNE 30, 2003
INCREASE INCREASE
(In thousands) (DECREASE) (DECREASE)
------------- -------------
Gains on sales of real estate developed for sale
and joint venture activities $ 2,249 $ 3,404
------------- -------------
Employee compensation and benefits 385 904
Occupancy and equipment 26 55
Advertising and promotion 110 298
Selling and general administrative expenses 494 710
Other 29 106
------------- -------------
Change in non-interest expense 1,205 1,331
Non-controlling interest (1,205) (1,331)
------------- -------------
Change in income before income taxes $ -- $ --
============= =============
The purpose of the Riverclub joint venture is to develop 199 single-family
homes, condominium units and duplexes that are located in Indian River County,
Florida. The joint venture as of June 30, 2003 had total assets of $28.3
million. The maximum exposure to loss as a result of the Company's involvement
in the Riverclub joint venture at June 30, 2003 was estimated at $20.2 million.
In May 2003, the FASB issued Statement No. 150 ("Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity").
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The Statement requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. The Company is
currently classifying financial instruments within the scope of this Statement
in accordance with this Statement.
22
This Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Management does not believe that
this Statement will have a material impact on the Company's financial
statements.
15. 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. Earnings per share have been adjusted to reflect the stock
split effected in the form of a 15% stock dividend as discussed in Note 16.
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 and six month periods ended June 30, 2003 and 2002.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
(In thousands, except per share data) 2003 2002 2003 2002
-------- -------- -------- --------
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary item and cumulative effect
of a change in accounting principle $ 1,870 $(21,951) $ 3,770 $ (7,496)
Basic weighted average number of common shares outstanding 9,356 9,213 9,270 9,209
-------- -------- -------- --------
Basic earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ 0.20 $ (2.38) $ 0.41 $ (0.81)
======== ======== ======== ========
Extraordinary items, net of taxes $ -- $ 23,810 $ -- $ 23,810
Basic weighted average number of common shares outstanding 9,356 9,213 9,270 9,209
-------- -------- -------- --------
Basic earnings per share from extraordinary items $ -- $ 2.58 $ -- $ 2.59
======== ======== ======== ========
Cumulative effect of a change in accounting principle, net of taxes $ -- $ -- $ -- $(15,107)
Basic weighted average number of common shares outstanding 9,356 9,213 9,270 9,209
-------- -------- -------- --------
Basic loss per share from cumulative effect
of a change in accounting principle $ -- $ -- $ -- $ (1.64)
======== ======== ======== ========
Net income $ 1,870 $ 1,859 $ 3,770 $ 1,207
Basic weighted average number of common shares outstanding 9,356 9,213 9,270 9,209
-------- -------- -------- --------
BASIC EARNINGS PER SHARE $ 0.20 $ 0.20 $ 0.41 $ 0.14
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary item and cumulative effect
of a change in accounting principle $ 1,870 $(21,951) $ 3,770 $ (7,496)
Dilution from securities issuable by a subsidiary (118) -- (252) --
-------- -------- -------- --------
Income (loss) available after assumed dilution $ 1,752 $(21,951) $ 3,518 $ (7,496)
-------- -------- -------- --------
Basic weighted average shares outstanding 9,356 9,213 9,270 9,209
Common stock equivalents resulting from stock-based compensation 1,166 -- 1,070 --
-------- -------- -------- --------
Diluted weighted average shares outstanding 10,522 9,213 10,340 9,209
-------- -------- -------- --------
Diluted earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ 0.17 $ (2.38) $ 0.34 $ (0.81)
======== ======== ======== ========
Extraordinary items, net of taxes $ -- $ 23,810 $ -- $ 23,810
Dilution from securities issuable by a subsidiary -- -- -- --
-------- -------- -------- --------
23
Extraordinary items, net of taxes after assumed dilution $ -- $ 23,810 $ -- $ 23,810
-------- -------- -------- --------
Diluted weighted average number of common shares outstanding 10,522 9,213 10,340 9,209
-------- -------- -------- --------
Diluted earnings per share from extraordinary items $ -- $ 2.58 $ -- $ 2.59
======== ======== ======== ========
Cumulative effect of a change in accounting principle, net of taxes $ -- $ -- $ -- $(15,107)
Dilution from securities issuable by a subsidiary -- -- -- --
-------- -------- -------- --------
Cumulative effect of a change in accounting principle, net
of taxes after assumed dilution $ -- $ -- $ -- $(15,107)
-------- -------- -------- --------
Diluted weighted average shares outstanding 10,522 9,213 10,340 9,209
-------- -------- -------- --------
Diluted loss per share from cumulative effect
of a change in accounting principle $ -- $ -- $ -- $ (1.64)
======== ======== ======== ========
Net income available after assumed dilution $ 1,752 $ 1,859 $ 3,518 $ 1,207
Diluted weighted average shares outstanding 10,522 9,213 10,340 9,209
-------- -------- -------- --------
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.20 $ 0.34 $ 0.14
======== ======== ======== ========
16. OTHER MATTERS
On May 22, 2003, the Board of Directors of the Company declared a stock split
effected in the form of a 15% stock dividend, payable in shares of the Company's
Class A Common Stock for each share of the outstanding Class A and Class B
Common Stock. Due to accounting and tax considerations, outstanding options to
purchase Class B Common Stock previously granted under the Company's stock
option plans were adjusted to reflect additional Class B stock options instead
of options on Class A Common Stock. Where appropriate, amounts throughout this
report have been adjusted to reflect the stock split.
17. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with the
statement presentation for 2003.
24
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 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 and 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 June 30, 2003, the Company's ownership of BankAtlantic Bancorp was as
follows:
SHARES PERCENT
OWNED OWNED
---------- ----------
Class A Common Stock 8,296,891 15.4%
Class B Common Stock 4,876,124 100.0%
Total 13,173,015 22.5%
At June 30, 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 any documents incorporated by reference herein, the words "anticipate",
"believe", "estimate", "may", "intend", "expect" and similar expressions
identify certain of such forward-looking statements. Actual results, performance
or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of the Company
and are subject to a number of risks and uncertainties that are subject to
change based on factors which are, in many instances, beyond the Company's
control. These include, but are not limited to, 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;
changes in interest rates and the effects of, and changes in, trade, monetary
and fiscal policies and laws; adverse conditions in the stock market, the public
debt market and other capital markets and the impact of such conditions on our
activities and the value of our assets; 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 not being successful or
producing results which do not 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, and
with respect to the operations of Levitt Corporation ("Levitt") and its real
estate subsidiaries: 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. This report also contains forward-looking
statements with respect to the proposed spin-off of Levitt Corporation 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,
25
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 the Board of
BankAtlantic Bancorp may in the future conclude that it is not in the best
interest of BankAtlantic Bancorp or its shareholders to pursue the spin-off.
Further, this report contains forward-looking statements with respect to Ryan
Beck & Co. and its subsidiary, which are subject to a number of risks and
uncertainties including but not limited to the risks and uncertainties
associated with its operations, products and services, changes in economic or
regulatory policies, the volatility of the stock market and fixed income markets
and the ability of Ryan Beck to realize the carrying value of its securities
upon a sale and the success of new lines of business. In addition to the risks
and factors identified above, reference is also made to other risks and factors
detailed in reports filed by the Company with the Securities and Exchange
Commission. 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 consolidated statement of operations for the periods presented.
Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change in 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 FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ---------------------
(IN THOUSANDS) 2003 2002 2003 2002
--------- --------- --------- ---------
Net interest income $ 40,345 $ 42,711 $ 79,402 $ 75,324
Provision for loan losses 1,490 6,139 2,340 8,704
(Losses) gains on sales of securities (19) 3,083 755 6,122
Other non-interest income 100,265 44,868 188,145 80,040
Non-interest expense 113,332 94,242 218,368 143,950
--------- --------- --------- ---------
Income (loss) before income taxes, minority interest
extraordinary item and cumulative effect
of a change in accounting principle 25,769 (9,719) 47,594 8,832
Provision (benefit) for income taxes 10,581 (2,986) 19,321 3,152
Minority interest in income of consolidated subsidiaries 13,318 15,218 24,503 13,176
--------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle 1,870 (21,951) 3,770 (7,496)
Extraordinary item, net of tax -- 23,810 -- 23,810
Cumulative effect of a change in accounting
principle, net of tax -- -- -- (15,107)
--------- --------- --------- ---------
Net income $ 1,870 $ 1,859 $ 3,770 $ 1,207
========= ========= ========= =========
26
FOR THE THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
Income before extraordinary item and cumulative effect of a change in accounting
principle was adversely impacted during 2002 by $18.2 million of impairment
charges on equity securities at BankAtlantic Bancorp parent company and $1.5
million at BFC, $3.9 million of acquisition related charges and impairments
associated with Ryan Beck's Gruntal transaction and $1.1 million of ATM
restructuring charges and impairments associated with banking activities. Income
before extraordinary item and cumulative effect of a change in accounting
principle was adversely impacted during 2003 by a $1.7 million charge associated
with unamortized offering costs and call premiums on the early redemption of
parent company 5.625% convertible subordinated debentures and a $257,000
impairment charge associated with a Bank branch relocation. Higher earnings from
the Company's principal business units contributed to the improvement in income
during 2003. Higher Bank earnings reflect a decline in the provision for loan
losses and a substantial increase in revenues from service charges on deposits.
Levitt's increased earnings resulted from higher revenues from home and land
closings. Ryan Beck's improved earnings resulted from a significant increase in
principal transaction revenues associated with improving stock market
conditions.
The Company's net interest income decreased by 6% from the 2002 period. The
decline in net interest income primarily resulted from a decline in the Bank's
net interest margin. This was partially offset by an increase in net interest
income at Ryan Beck associated with the increased securities trading activities
of financial consultants hired in connection with the Gruntal transaction.
As mentioned, the provision for loan losses declined from the 2002 period. The
76% decrease reflected a significant decline in loan delinquencies,
non-performing assets and net charge-offs in the commercial real estate and
lease financing portfolios.
Losses on securities activities during the 2003 second quarter resulted from
unrealized losses on derivative instruments. Gains on securities activities
during the 2002 second quarter primarily resulted from sales of the Bank's
securities available for sale and BankAtlantic Bancorp parent company equity
securities.
Other non-interest income increased by 123% from the 2002 period. The increase
primarily resulted from a substantial increase in revenues from Ryan Beck,
higher revenues attributed to Levitt's real estate activities and a significant
increase in revenues from service charges from Bank operations. The substantial
increase in income associated with Ryan Beck's operations primarily resulted
from the April 26, 2002 Gruntal transaction, which added approximately 500
financial consultants to Ryan Beck's approximately 100 consultants. The increase
in Bank operations revenues from service charges on deposits primarily resulted
from an increase in checking accounts attributed to our new checking products
and our seven-day branch banking initiative. The enhanced revenues from Levitt's
real estate operations reflect an increase in the number of homes sold at Levitt
and Sons as well as an increase in land sales at Core Communities during the
2003 quarter compared to the 2002 quarter.
Non-interest expense increased by 20% from 2002. Ryan Beck's non-interest
expense increased from $46.8 million during 2002 to $61.2 million during 2003
primarily as a result of the Gruntal transaction. Bank operations non-interest
expense increased from $36.3 million to $38.2 million primarily due to increased
compensation expenses and advertising costs associated with the implementation
of the "Florida's Most Convenient Bank" initiatives. Levitt's non-interest
expense increased from $7.6 million to $10.5 million due to the development of
various new projects.
During the 2002 second quarter, an extraordinary gain was recognized in
connection with the Gruntal transaction. The extraordinary gain was recognized
because the fair value of the net assets acquired, after reducing the carrying
value of non-financial assets to zero, exceeded the cost of the transaction by
$23.8 million, net of income taxes of $2.7 million. Included in the assets
acquired in the Gruntal transaction was the membership in GMS. The Company did
not establish a deferred tax liability for the extraordinary gain associated
with the acquisition of the GMS membership interest because BankAtlantic Bancorp
acquired the membership interest in GMS instead of the net assets.
Minority interest in income of consolidated subsidiaries during the three months
ended June 30, 2003 was $13.3 million as compared to $15.2 million during the
same 2002 period. The 2003 decrease in income to the minority
27
holders resulted from BankAtlantic Bancorp net income during the three months
ended June 30, 2003 of $17.2 million as compared to $20.3 million during the
same 2002 period. The 2002 period includes a $23.8 million extraordinary gain
from the Gruntal transaction as previously discussed. Minority interest in
BankAtlantic Bancorp was approximately 77.5% in 2003 and 77.4% in 2002.
FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
The increase in net income for the six months ended June 30, 2003 as compared to
the 2002 period was primarily the result of the items discussed above. Net
income for the 2002 period was negatively impacted by a cumulative effect of a
change in accounting principle. 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 of consolidated subsidiaries in 2003 was $24.5
million as compared to $13.2 million during the same 2002 period. The 2003
increase in income to the minority holders primarily resulted from BankAtlantic
Bancorp increase in net income of $31.6 million in 2003 as compared to $17.8
million in 2002. The 2002 period includes a $23.8 million extraordinary gain
from the Gruntal transaction and a loss of $15.1 million from the cumulative
effect of a change in accounting principle associated with goodwill impairment
as previously discussed. Minority interest in BankAtlantic Bancorp was
approximately 77.5% in 2003 and 77.4% in 2002.
28
BANK RESULTS OF OPERATIONS
NET INTEREST INCOME
AVERAGE BALANCE SHEET - YIELD / RATE ANALYSIS
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, 2003 JUNE 30, 2002
------------------------------------ ------------------------------------
(In thousands) AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- ---------- ---------- ---------- ---------- ----------
Loans:
Residential real estate $1,880,890 $ 22,556 4.80% $1,570,598 $ 25,139 6.40%
Commercial real estate 1,554,965 23,373 6.01 1,499,812 24,826 6.62
Consumer 306,740 3,520 4.59 245,209 3,522 5.75
Lease financing 22,713 648 11.41 46,315 1,453 12.55
Commercial business 106,323 1,496 5.63 96,711 1,387 5.74
Small business 158,798 2,895 7.29 152,670 2,995 7.85
---------- ---------- ---------- ---------- ---------- ----------
Total loans 4,030,429 54,488 5.41 3,611,315 59,322 6.57
---------- ---------- ---------- ---------- ---------- ----------
Investments 900,224 12,848 5.71 1,264,991 20,300 6.42
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets 4,930,653 67,336 5.46% 4,876,306 79,622 6.53%
---------- ---------- ---------- ----------
Goodwill and core deposit intangibles 83,591 90,678
Other non-interest earning assets 237,074 247,027
---------- ----------
Total Assets $5,251,318 $5,214,011
========== ==========
Deposits:
Savings $ 185,685 268 0.58% $ 148,926 375 1.01%
NOW 454,108 561 0.50 337,707 735 0.87
Money funds 836,246 2,625 1.26 778,630 3,659 1.88
Certificate accounts 913,564 6,304 2.77 1,340,929 12,337 3.69
---------- ---------- ---------- ---------- ---------- ----------
Total deposits 2,389,603 9,758 1.64 2,606,192 17,106 2.63
---------- ---------- ---------- ---------- ---------- ----------
Short-term borrowed funds 436,975 1,337 1.23 488,986 2,134 1.75
Advances from FHLB 1,313,896 15,291 4.67 1,169,404 15,676 5.38
Long-term debt 33,684 491 5.85 14,294 224 6.29
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities 4,174,158 26,877 2.58 4,278,876 35,140 3.29
Non-interest bearing deposits 535,567 422,215
Non-interest bearing other liabilities 71,454 65,143
---------- ----------
Total liabilities 4,781,179 4,766,234
Stockholder's equity 470,139 447,777
---------- ----------
Total liabilities and stockholder's equity $5,251,318 $5,214,011
========== ==========
Net interest income/ net interest spread $ 40,459 2.88% $ 44,482 3.24%
========== ========== ========== ==========
MARGIN
Interest income/interest earning assets 5.46% 6.53%
Interest expense/interest earning assets 2.19 2.89
---------- ----------
Net interest margin 3.27% 3.64%
========== ==========
FOR THE THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
The decline in net interest income during the period primarily resulted from a
significant decline in the net interest margin. This was partially offset by
earning asset growth.
The net interest margin was negatively impacted by the historically low interest
rates during the 2003 quarter. This low interest rate environment resulted in
accelerated prepayments of mortgage loans and investment securities with
29
higher yields than the current market rates. BankAtlantic invested the proceeds
from these repayments primarily in residential and commercial loans at the lower
current rates. Mortgage loans and investment securities were also adversely
affected by the downward re-pricing of floating rate securities. As a
consequence, BankAtlantic had a greater decline in its yield on interest earning
assets than in rates paid on interest bearing liabilities. The reduction in the
net interest margin was partially offset by 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 comprised of checking and
savings accounts. Low cost average deposits increased from $909 million during
the 2002 second quarter to $1,175 million during the same 2003 quarter, while
certificate of deposit accounts declined from $1,341 million during the 2002
quarter to $914 million during the same 2003 period. Additionally, BankAtlantic
experienced growth in its insured money fund accounts that bear lower rates than
other interest bearing accounts. Our growth in low cost deposits resulted
primarily from the "Florida's Most Convenient Bank" initiatives that include
seven-day branch banking and high performance checking accounts. BankAtlantic
opened over 35,000 new checking and savings accounts during the 2003 quarter
compared to over 24,000 new accounts during the same 2002 period.
The growth in earning assets primarily resulted from the purchase and
origination of commercial real estate, residential and home equity loans. During
the six months ended June 30, 2003, BankAtlantic purchased $1.0 billion of
residential loans and originated $675 million of loans, compared to residential
loan purchases of $336 million and loan originations of $520 million during the
same 2002 period. The above increases in earning assets were partially offset by
repayments of residential loans and mortgage-backed securities and lower average
balances related to several discontinued or curtailed lines of business,
including our 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.
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 FHLB
advance balances.
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 in November 2002. Interest expense on long-term
debt for the 2002 quarter represents interest expense associated with the
mortgage-backed bonds.
AVERAGE BALANCE SHEET / RATE ANALYSIS
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, 2003 JUNE 30, 2002
------------------------------------ -------------------------------------
(In thousands) AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- ---------- ---------- ---------- ---------- ----------
Loans:
Residential real estate $1,721,109 $ 44,142 5.13% $1,331,126 $ 43,160 6.48%
Commercial real estate 1,542,751 46,239 5.99 1,402,857 45,357 6.47
Consumer 301,735 6,988 4.63 231,669 6,754 5.83
Lease financing 26,318 1,482 11.26 49,593 3,044 12.28
Commercial business 103,553 2,945 5.69 103,678 3,046 5.88
Small business 161,460 5,932 7.35 130,969 5,248 8.01
---------- ---------- ---------- ---------- ---------- ----------
Total loans 3,856,926 107,728 5.59 3,249,892 106,609 6.56
---------- ---------- ---------- ---------- ---------- ----------
Investments 926,628 26,536 5.73 1,257,912 40,117 6.38
---------- ---------- ---------- ---------- ---------- ----------
Total interest earning assets 4,783,554 134,264 5.61% 4,507,804 146,726 6.51%
---------- ---------- ---------- ----------
Goodwill and core deposit intangibles 84,170 54,552
Other non-interest earning assets 249,449 212,150
---------- ----------
Total Assets $5,117,173 $4,774,506
========== ==========
Deposits:
Savings $ 178,531 584 0.66% $ 127,955 644 1.01%
NOW 439,944 1,103 0.51 286,372 1,085 0.76
Money funds 822,938 5,278 1.29 708,528 6,627 1.89
Certificate accounts 940,069 13,962 3.00 1,232,917 24,077 3.94
---------- ---------- ---------- ---------- ---------- ----------
Total deposits 2,381,482 20,927 1.77 2,355,772 32,433 2.78
---------- ---------- ---------- ---------- ---------- ----------
Short-term borrowed funds 361,763 2,174 1.21 425,377 3,715 1.76
30
Advances from FHLB 1,299,519 30,608 4.75 1,128,039 30,597 5.47
Long-term debt 34,543 938 5.48 7,941 240 6.09
---------- ---------- ---------- ---------- ---------- ----------
Total interest bearing liabilities 4,077,307 54,647 2.70 3,917,129 66,985 3.45
Non-interest bearing deposits 507,119 370,505
Non-interest bearing other liabilities 67,518 76,912
---------- ----------
Total Liabilities 4,651,944 4,364,546
Stockholder's equity 465,229 409,960
---------- ----------
Total liabilities and stockholder's equity $5,117,173 $4,774,506
========== ==========
Net interest income/net
interest spread $ 79,617 2.91% $ 79,741 3.06%
========== ========== ========== ==========
MARGIN
Interest income/interest earning assets 5.61% 6.51%
Interest expense/interest earning assets 2.30 3.00
---------- ----------
Net interest margin 3.31% 3.51%
========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
Net interest income for the six month period remained at 2002 levels as the
decline in the net interest margin was offset by higher average earning assets.
The decline in total interest income and total interest expense resulted from
the items discussed above, except that the Community acquisition had a greater
impact on the six month comparison, primarily on earning asset growth, as
Community was acquired on March 22, 2002.
BANKATLANTIC PROVISION FOR LOAN LOSSES
FOR THREE MONTHS ENDED FOR SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
BALANCE, BEGINNING OF PERIOD $ 48,695 $ 48,927 48,022 $ 44,585
CHARGE-OFFS:
Syndication loans -- -- -- (8,000)
Commercial real estate loans -- (4,309) -- (4,309)
Small business (1,433) (1,261) (2,053) (2,192)
Lease financing (536) (1,972) (2,989) (4,185)
Consumer loans - direct (310) (237) (545) (649)
Consumer loan - indirect (180) (299) (350) (736)
Residential real estate loans (98) (3) (212) (142)
---------- ---------- ---------- ----------
TOTAL CHARGE-OFFS (2,557) (8,081) (6,149) (20,213)
---------- ---------- ---------- ----------
RECOVERIES:
Syndication loans 204 -- 2,331 683
Commercial business loans 21 19 49 37
Commercial real estate loans -- 3 1 17
Small business 575 698 1,408 1,089
Lease financing 673 963 1,312 1,898
Consumer loans - direct 130 116 306 233
Consumer loans - indirect 284 382 572 843
Residential real estate loans 61 60 118 63
---------- ---------- ---------- ----------
TOTAL RECOVERIES 1,948 2,241 6,097 4,863
---------- ---------- ---------- ----------
NET CHARGE-OFFS (609) (5,840) (52) (15,350)
Provision for loan losses 1,490 6,139 2,340 8,704
Allowance for loan losses acquired -- (639) (734) 10,648
---------- ---------- ---------- ----------
BALANCE, END OF PERIOD $ 49,576 $ 48,587 $ 49,576 $ 48,587
========== ========== ========== ==========
The substantial reduction in net charge-offs during the second quarter of 2003,
compared to the same 2002 period, resulted from a $4.3 million partial
charge-off of a commercial real estate residential construction loan during the
2002 period and a significant reduction in lease charge-offs associated with
declining portfolio balances during 2003.
31
The improvement in net charge-offs during the six months ended June 30, 2003
compared to the same 2002 period primarily resulted from recoveries of
previously charged off loans and significant syndication and commercial real
estate loan charge-offs during the 2002 period. During 2003, BankAtlantic
recovered $2.1 million from the settlement of a syndication loan that was
written down by $8.0 million in 2002. During the 2002 period, BankAtlantic
recovered $683,000 from another syndication loan that was charged-off in a prior
period. The remaining improvement in net charge-offs resulted primarily from
lower net charge-offs associated with discontinued or curtailed lines of
business (former small business, indirect consumer and syndication lending
programs and lease financing).
The decline in the provision for loan losses reflects a substantial decline in
charge-offs as indicated above. This was partially offset by a large increase in
loan receivable balances and additional allowances for loan losses established
in connection with borrowers in the hospitality industry.
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.
At the indicated dates, BankAtlantic's non-performing assets and potential
problem loans were (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
------------- -------------
NONPERFORMING ASSETS
NONACCRUAL:
Tax certificates $ 1,418 $ 1,419
Loans and leases 11,890 18,918
------------- -------------
Total nonaccrual 13,308 20,337
------------- -------------
REPOSSESSED ASSETS:
Real estate owned, net of allowance 8,159 9,607
Vehicles and equipment 434 4
------------- -------------
Total repossessed assets 8,593 9,611
------------- -------------
Total non-performing assets 21,901 29,948
Specific valuation allowances -- (1,386)
------------- -------------
TOTAL NON-PERFORMING ASSETS, NET $ 21,901 $ 28,562
============= =============
ALLOWANCES
Allowance for loan losses $ 49,576 $ 48,022
Allowance for tax certificate losses 2,217 1,873
------------- -------------
TOTAL ALLOWANCES $ 51,793 $ 49,895
============= =============
POTENTIAL PROBLEM LOANS
Contractually past due 90 days or more $ -- $ 100
Restructured loans 1,439 1,882
Delinquent residential loans purchased 1,301 1,464
------------- -------------
TOTAL POTENTIAL PROBLEM LOANS $ 2,740 $ 3,446
============= =============
Non-performing assets continued to decline during 2003. Non-performing assets
represented 0.51% of total loans, tax certificates and repossessed assets at
June 30, 2003 compared to 0.83% at December 31, 2002. The improvement in the
ratio reflects a significant increase in total loans as well as a significant
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, a $1.3 million payoff of
an aviation lease and a $960,000 payoff of a commercial real estate loan
acquired in connection with the Community acquisition. Additionally, non-accrual
residential loans declined from $12.8 million at December 31, 2002 to $11.2
million at June 30, 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 first quarter
of 2003 and the sale of a commercial real estate REO property. The REO property
sold had a carrying value of $566,000 at December 31, 2002. A $200,000 gain was
recognized on
32
the sale of the property. The increase in repossessed vehicles and equipment
resulted from the repossession of leased aviation equipment.
The allowance for loan losses was 1.24% and 1.34% of total loans at June 30,
2003 and 2002, respectively. The decline in the ratio resulted from improved
credit quality and a significant increase in loans receivable at June 30, 2003
compared to the same 2002 period end. Loans receivable increased from $3,613
million at June 30, 2002 to $4,074 million at June 30, 2003. The loan growth
primarily resulted from the purchase of $1.1 billion of residential loans during
the six months ended June 30, 2003. Although BankAtlantic's loans receivable
substantially increased, the allowance for loan losses only slightly increased
from December 31, 2002 due to a change in the mix of loan portfolio resulting
from lower lease financings and non-mortgage loan balances to higher commercial
real estate and residential real estate loan balances. Historically, mortgage
loans require lower allowances for loan losses than lease financings and
non-mortgage loans. The above improvements in allowance for loan losses
associated with the change in BankAtlantic's loan portfolio mix was partially
offset by higher allowances on loan balances associated with the hospitality
industry. Based on an evaluation of hospitality loans in BankAtlantic's
portfolio and economic trends in the industry, BankAtlantic adjusted its
hospitality allowance for loan losses to reflect perceived adverse trends in the
industry.
The decline in potential problem loans was due to the improved performance or
repayment of loans that were previously categorized as potential problem loans.
NON-INTEREST INCOME
FOR THE THREE MONTHS FOR THE SIX MONTHS
BANKING OPERATIONS ENDED JUNE 30, ENDED JUNE 30,
---------------------------------- ----------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
--------- --------- --------- --------- --------- ---------
Other service charges and fees $ 6,071 $ 3,550 $ 2,521 $ 9,989 $ 6,655 $ 3,334
Service charges on deposits 9,605 5,687 3,918 18,163 10,550 7,613
Income from real estate joint venture 1,985 561 1,424 2,315 561 1,754
Securities activities, net (18) 2,771 (2,789) (38) 2,792 (2,830)
Other 1,643 973 670 3,215 2,338 877
--------- --------- --------- --------- --------- ---------
Non-interest income $ 19,286 $ 13,542 $ 5,744 $ 33,644 $ 22,896 $ 10,748
========= ========= ========= ========= ========= =========
Other service charges and fees increased 71% and 50% during the 2003 second
quarter and year to date, respectively, compared to the same 2002 periods. This
increase primarily resulted from prepayment penalties associated with commercial
loans and check card income. During the quarter and year-to-date periods of
2003, BankAtlantic experienced a significant increase in prepayment penalties
assessed on borrowers refinancing commercial loans in response to historically
low interest rates. Also BankAtlantic's debit card income increased
substantially, reflecting the opening of approximately 172,000 new deposit
accounts since January 2002. During the 2003 periods, check card income was also
favorably impacted by card conversion fees received from MasterCard in
consideration for converting BankAtlantic's customer check cards from Visa.
Revenues from service charges on deposits increased by 69% and 72% during the
2003 quarter and year to date, respectively, from the comparable 2002 periods.
The increase in service charge revenues primarily resulted from a higher volume
of overdrafts. This was partially offset by lower monthly checking account fee
income. Overdraft fee income increased by 99% and 115% for the three and six
months ended June 30, 2003, respectively, compared to the same 2002 period. The
substantial increase in overdraft fee income was a direct result of an increase
in checking accounts attributed to BankAtlantic's totally free checking products
and "Florida's Most Convenient Bank" initiatives. The above increase in service
charge income was partially offset by 36% and 30% declines in monthly checking
account fee income for the three and six months ended June 30, 2003,
respectively, compared to the same 2002 periods, as BankAtlantic discontinued
its promotion of fee-based checking products.
Income from real estate joint venture represents equity earnings from a real
estate joint venture acquired in connection with the Community acquisition on
March 22, 2002. The substantial increase in equity earnings during the 2003
quarter compared to the same 2002 period resulted from an increase in units
closed. During the 2003 quarter, the joint venture closed 12 units compared to 3
units during the same 2002 period.
33
Securities activities, net for the three and six months ended June 30, 2003
represent unrealized losses on derivative instruments.
Securities activities for the three and six months ended June 30, 2002 resulted
primarily from the sale of REMIC securities and corporate bonds for gains of
$2.4 million and $367,000, respectively.
Other income during the 2003 quarter and year-to-date period was favorably
impacted by the expansion of a branch brokerage business unit during the fourth
quarter of 2002, which earned $282,000 and $650,000 in commissions during the
three and six months ended June 30, 2003, respectively. Other income during the
three and six months ended June 30, 2002 included a $294,000 loss from the sale
in June 2002 of servicing rights associated with residential loans acquired in
connection with the Community acquisition.
NON-INTEREST EXPENSE
FOR THE THREE MONTHS FOR THE SIX MONTHS
BANKING OPERATIONS ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- ---------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
--------- --------- --------- --------- --------- ---------
Employee compensation and benefits $ 20,264 $ 16,880 $ 3,384 $ 39,303 $ 30,957 $ 8,346
Occupancy and equipment 6,699 7,832 (1,133) 13,335 14,303 (968)
Advertising and promotion 2,764 2,034 730 4,175 3,047 1,128
Amortization of intangible assets 439 454 (15) 893 454 439
Acquisition related charges and impairments -- 731 (731) -- 1,805 (1,805)
Restructuring charges and impairments 257 1,007 (750) 257 1,007 (750)
Professional fees 883 793 90 1,889 1,373 516
Other 6,887 6,568 319 13,575 11,657 1,918
--------- --------- --------- --------- --------- ---------
Non-interest expense $ 38,193 $ 36,299 $ 1,894 $ 73,427 $ 64,603 $ 8,824
========= ========= ========= ========= ========= =========
Compensation and benefits expense increased by 20% for the three months ended
June 30, 2003 from the comparable 2002 quarter. The increase primarily resulted
from the implementation of a profit sharing plan on January 1, 2003, higher
pension obligations and an increase in the number of employees. Total full-time
equivalent employees increased from 1,244 at March 31, 2002 to 1,322 at June 30,
2003. The significant increase in personnel resulted from the implementation of
the "Florida's Most Convenient Bank" initiatives, including seven-day branch
banking, extended weekday branch hours and a 24/7 customer service center. The
implementation commenced on April 1, 2002. During the 2003 quarter a $1.5
million employee profit sharing expense was recorded and $600,000 of pension
expenses were incurred compared to no profit sharing expense and $120,000 of
pension expenses during the same 2002 quarter. The pension expense was
associated with a frozen defined benefit plan and a 401(k) plan.
Compensation and benefits expense for the 2003 six month period increased by 27%
from the comparable 2002 six-month period. The increase in compensation expense
resulted from the items discussed above as well as the addition of 172 employees
hired following the Community acquisition on March 22, 2002. Total full-time
equivalent employees increased from 873 at December 31, 2001 to 1,322 at June
30, 2003. During the six-months ended June 30, 2003, we recorded a $2.8 million
profit sharing expense and $1.4 million of pension expenses compared to no
profit sharing expense and $357,000, respectively, during the same 2002 period.
Occupancy and equipment expenses decreased by 14% and 7% for the 2003 second
quarter and six month period, respectively, compared to the same 2002 periods.
The decline in occupancy and equipment expenses primarily resulted from lower
data processing costs and depreciation expense. The decline in data processing
expenses was associated with the renewal of a contract at significantly lower
rates than the contract that existed during the 2002 periods. The decrease in
depreciation expense reflects $500,000 of accelerated depreciation expense
during the second quarter of 2002 associated with BankAtlantic's on-line banking
delivery system which was upgraded during 2002. The decrease in occupancy
expense during the six months ended June 30, 2003 compared to the same 2002
period was partially offset by additional costs associated with the branches
acquired in connection with the March, 2002 Community acquisition.
34
Advertising expenses during the three and six months ended June 30, 2003 and
2002 reflect marketing initiatives to promote BankAtlantic's new "high
performance checking" account products and BankAtlantic's "Florida's Most
Convenient Bank" initiatives. Amortization of intangible assets consisted of the
amortization of core deposit intangible assets acquired in connection with the
Community acquisition. The core deposit intangible assets are being amortized
over an estimated life of seven years. Acquisition related charges and
impairments included various data conversion and system integration expenses as
well as facilities impairment write-downs associated with the Community
acquisition. In connection with the acquisition, BankAtlantic closed two of its
Palm Beach county branches during the second quarter of 2002.
During the second quarter of 2003, BankAtlantic relocated a branch, transferred
the real estate associated with the closed branch to real estate held for sale
and recognized an impairment loss as shown in the above table.
During June 2002, BankAtlantic adopted a plan to discontinue certain ATM
relationships primarily at convenience stores and gas stations. This resulted in
an $801,000 restructuring charge and a $206,000 impairment write-down. It was
determined that these relationships did not meet BankAtlantic's performance
expectations and were unlikely to meet future profitability goals.
The higher professional fees for the three and six months ended June 30, 2003,
compared to the same 2002 periods, were primarily associated with legal fees
incurred in connection with a lawsuit filed against BankAtlantic in October 2002
relating to BankAtlantic's "Florida's Most Convenient Bank" initiative. See Note
16 to Notes to consolidated financial statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002 for a description of this
lawsuit.
The increase in other expenses during the three months ended June 30, 2003,
compared to the same 2002 period, primarily resulted from check card conversion
costs associated with switching customers' check cards from Visa to MasterCard.
The increase in other expenses for the six months ended June 30, 2003, compared
to the same 2002 period, primarily resulted from a $750,000 write-down of an REO
property as well as an increase in operating expenses associated with the
foreclosed property during 2003. The remaining increase in other expenses
resulted from additional check losses attributed to a significant increase in
transaction account volume as well as higher general operating expenses
associated with the Community acquisition.
LEVITT CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------------- ---------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME:
Interest on loans and investments $ 233 $ 384 $ (151) $ 461 $ 798 $ (337)
Interest on notes and bonds payable (1,957) (2,250) 293 (4,104) (3,654) (450)
Capitalized interest 1,949 1,938 11 3,855 3,340 515
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME 225 72 153 212 484 (272)
-------- -------- -------- -------- -------- --------
NON-INTEREST INCOME:
Net revenues from sales of real estate 18,139 11,470 6,669 31,267 23,161 8,106
Income from unconsolidated subsidiary 1,940 1,522 418 1,806 1,522 284
Other 590 352 238 1,116 715 401
-------- -------- -------- -------- -------- --------
Non-interest income 20,669 13,344 7,325 34,189 25,398 8,791
-------- -------- -------- -------- -------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits 4,708 3,538 1,170 8,390 6,158 2,232
Advertising and promotion 1,442 818 624 2,411 1,566 845
Selling, general and administrative 3,935 3,142 793 7,078 5,777 1,301
Professional fees 411 107 304 508 184 324
35
Other 34 6 28 281 104 177
-------- -------- -------- -------- -------- --------
Non-interest expense 10,530 7,611 2,919 18,668 13,789 4,879
-------- -------- -------- -------- -------- --------
Income before income taxes $ 10,364 $ 5,805 $ 4,559 $ 15,733 $ 12,093 $ 3,640
======== ======== ======== ======== ======== ========
The tables set forth below summarize Levitt and Sons backlog of homes, margin on
sales of homes, homes delivered and new home sales contracts. They also
summarize Core Communities' inventory in acres as well as its margin on land
sales and acres sold.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------------- ---------------------------------------
2003 2002 2003 2002
------------------- ------------------- ---------------- ---------------------
LEVITT AND SONS AND JOINT VENTURES:
Margin on sales of homes 23% 18% 23% 18%
New homes sale contracts - units 570 236 1,063 425
New homes sale contracts - dollars $128.8 million $48.3 million $235.4 million $90.6 million
Homes delivered 210 188 372 325
Joint venture homes delivered -- 42 -- 111
CORE COMMUNITIES:
Margin on land sales 37% 62% 38% 70%
Acres sold 1,214 64 1,350 329
AS OF JUNE 30,
------------------------------------------
2003 2002
------------------- ---------------------
LEVITT AND SONS AND JOINT VENTURES:
Backlog of homes 1,576 713
Backlog sales value $336.5 million $152.7 million
Unsold lot inventory 3,162 3,570
CORE COMMUNITIES:
Inventory in acres 5,214 5,857
FOR THE THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
Income before income taxes increased 79%, to $10.4 million for the three months
ended June 30, 2003, from $5.8 million for the same 2002 period. Levitt's
increase in income before taxes primarily resulted from higher gains on sales of
real estate and joint venture activities of $6.7 million and increased income
from an unconsolidated real estate subsidiary of $418,000. These increases in
income were partially offset by increases in employee compensation and benefits,
advertising, professional fees and selling, general and administrative expenses.
Gains on sales of real estate developed for sale and joint venture activities
represent 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 ventures activities. During the three months ended June 30, 2003,
Core Communities' net margin on land sales increased 65%, to $7.6 million for
the quarter ended June 30, 2003 from $4.6 million for the same 2002 period.
During 2003, 1,214 acres were sold, as compared to 64 acres sold in 2002. The
1,214 acres sold during 2003 were sold at a margin of 37%, as compared to the 64
acres sold in 2002, were sold with a margin of 62%. The primary reason for the
reduction in the margin was the decrease in commercial land sales in 2003 as
compared to 2002. Levitt and Sons margin from home sales increased 48%, to $10.2
million for the quarter ended June 30, 2003 from $6.9 million for the same 2002
period. During the 2003 period, 210 homes were delivered, as compared to 188
homes delivered during the 2002 period. Levitt Commercial's margin on the sales
of its inventory for the quarter ended June 30, 2003 was approximately $361,000.
Equity from earnings in real estate joint venture activities during the second
quarter of 2003 and 2002 were approximately $231,000 and $476,000, respectively.
Gains from sales of
36
real estate also include Levitt Corporation's parent company amortization of
previously capitalized interest of $347,000 and $415,000 for the 2003 and 2002
periods, respectively.
In April 2002, Levitt Corporation acquired 35% of Bluegreen Corporation's common
stock. Levitt's investment in Bluegreen Corporation is accounted for under the
equity method. Income from unconsolidated real estate subsidiary represents
Levitt's ownership interest in the earnings of Bluegreen Corporation adjusted
for the amortization of purchase accounting adjustments that arose at the
acquisition date. Bluegreen's reported net income for the quarter ended June 30,
2003 and 2002 were $6.3 million and $5.2 million, respectively. Levitt's income
from Bluegreen for the quarters ended June 30, 2003 and 2002 were $2.1 million
and $1.5 million, respectively. BankAtlantic Bancorp's 5% interest in Bluegreen
and the income associated with that interest is included in "BankAtlantic
Bancorp Parent Company Results of Operation".
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, professional fees 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. Levitt's number of full time employees increased to
269 at June 30, 2003 from 216 at June 30, 2002, and the number of part time
employees increased to 43 at June 30, 2003 from 29 at June 30, 2002. New
projects and an increase in home deliveries resulted in an increase in
advertising, selling, general and administrative expenses. The increase in
professional fees during the quarter ended June 30, 2003, as compared to the
same 2002 period, primarily resulted from legal and consulting fees associated
with the filing of a registration statement with the SEC for a proposed debt
offering.
FOR THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SAME 2002 PERIOD:
Income before income taxes increased 30%, to $15.7 million for the six months
ended June 30, 2003 from $12.1 million for the same 2002 period. This increase
in income resulted from an $8.1 million increase in Levitt's net profit from the
sales of real estate and joint venture activities, as well as increases in other
income of $401,000 and $284,000 in income from Bluegreen. These increases in
Levitt's income were partially offset by increases in employee compensation and
benefits, advertising, professional fees and selling, general and administrative
expenses.
Levitt and Sons margin from home sales increased 53%, to $18.7 million for the
six months ended June 30, 2003 from $12.3 million for the same 2002 period,
resulting from an increase in home deliveries, as well as an increase in the
average sales price of homes. During the 2003 period, 372 homes were delivered,
as compared to 325 homes delivered during the 2002 period, and the average sales
price of homes delivered increased from $210,960 to $221,840. During the six
months ended June 30, 2003, Core Communities' margin on land sales was $12.3
million, as compared to $15.6 million in 2002. During 2003, 1,350 acres were
sold with a margin of 38%, as compared to 329 acres sold in 2002 with a margin
of 70%. The primary reason for the reduction in the margin was the decrease in
commercial land sales in 2003 as compared to 2002. Margin on land sales in 2002
included the sale of two commercial properties which yielded gross revenue and a
margin of $10.6 million and $9.3 million, respectively. In 2002, approximately
$4.9 million is included in Core Communities' margin on land sales to Levitt and
Sons. This inter-company transaction was eliminated in consolidation. During the
first quarter of 2003, Levitt Commercial commenced the delivery of its flex
warehouse units and the margin on the sales of its inventory for the six months
ended June 30, 2003 was approximately $908,000. Equity from earnings (loss) in
real estate joint venture activities resulted in a loss of $82,000 during 2003
and income of $1.4 million during the 2002 period. This decrease in earnings
from our real estate joint venture activities primarily resulted from declines
in home deliveries from a joint venture because the joint venture project was
nearing sell-out in 2002. Gains from the sales of real estate and joint venture
activities includes Levitt Corporation's parent company amortization of interest
previously capitalized of $617,000 and $922,000 for the 2003 and 2002 period,
respectively.
Bluegreen's reported net income for the six months ended June 30, 2003 was $8.4
million and for the period of ownership in 2002, was $5.2 million. Levitt's
ownership interest in the earnings of Bluegreen for the 2003 and 2002 periods
were approximately $2.8 million and $1.5 million, respectively. Levitt's 2003
income was reduced by $1.0 million due to the effects of purchase accounting
adjustments primarily related to Bluegreen's sale of retained interests in notes
receivable at the acquisition date.
37
The increase in non-interest expense primarily resulted from the items discussed
for the three months ended June 30, 2003, as compared to the same 2002 period.
RYAN BECK & CO. AND SUBSIDIARIES RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME:
Interest on securities owned $ 4,801 $ 3,472 $ 1,329 $ 9,148 $ 4,170 $ 4,978
Interest expense (850) (693) (157) (1,575) (1,021) (554)
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME 3,951 2,779 1,172 7,573 3,149 4,424
--------- --------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Principal transactions 30,028 16,725 13,303 60,069 24,232 35,837
Investment banking 6,019 5,080 939 14,532 7,999 6,533
Commissions 22,219 16,386 5,833 42,108 19,418 22,690
Other 1,218 1,440 (222) 2,402 1,580 822
--------- --------- --------- --------- --------- ---------
Non-interest income 59,484 39,631 19,853 119,111 53,229 65,882
--------- --------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 43,985 30,959 13,026 88,274 40,673 47,601
Occupancy and equipment 3,192 2,719 473 6,563 3,542 3,021
Advertising and promotion 1,092 922 170 2,443 1,371 1,072
Professional fees 3,215 1,358 1,857 5,570 1,897 3,673
Communications 4,644 3,313 1,331 8,909 4,227 4,682
Floor broker and clearing fees 2,519 2,467 52 4,921 3,316 1,605
Acquisition related charges and impairments -- 3,191 (3,191) -- 3,191 (3,191)
Other 2,565 1,898 667 5,032 2,345 2,687
--------- --------- --------- --------- --------- ---------
Non-interest expense 61,212 46,827 14,385 121,712 60,562 61,150
--------- --------- --------- --------- --------- ---------
Income before income taxes $ 2,223 $ (4,417) $ 6,640 $ 4,972 $ (4,184) $ 9,156
========= ========= ========= ========= ========= =========
The significant increase in net interest income during the three and six months
ended June 30, 2003 compared to the same 2002 periods primarily resulted from an
increase in corporate, government bond, and municipal bond inventory average
balances. The average inventory increased from $70.8 million for the three
months ended June 30, 2002 to $148 million for the same 2003 period. The
increase in the average inventory during the three and six months ended June 30,
2003, compared to the same 2002 periods, was impacted by higher inventories
associated with the April 26, 2002 Gruntal transaction. Also contributing to the
increase in interest income for the three and six months ended June 30, 2003,
compared to the same 2002 periods, was Ryan Beck's participation in interest
income associated with approximately $296 million of customer margin debit
balances and fees earned in connection with approximately $1.5 billion in
customer money market balances. The majority of these accounts were acquired in
connection with the Gruntal acquisition. The above increases in net interest
income were partially offset by the interest expense associated with $5.0
million of borrowings from the Company, as well as an increased level of
borrowings from Ryan Beck's clearing agent as a result of a higher volume of
trading.
Principal transaction revenue increased during the three and six months ended
June 30, 2003, by 80% and 148% respectively. The primary reason for the increase
in both periods was the inclusion of the additional financial consultants and
trading personnel hired as a result of the Gruntal transaction. The three months
ended June 30, 2002 includes the former Gruntal personnel for the month of May
and June 2002, as the transaction was completed on April 26, 2002. This increase
was also due to valuation gains associated with the firm's deferred compensation
plans. These increases were offset by $2.5 million of valuation losses on
certain securities positions held by Ryan Beck's subsidiary, GMS. This is the
second consecutive quarter that Ryan Beck realized a sizable loss associated
with GMS's portfolio of not readily marketable securities.
38
Investment banking revenue increased during the three and six months ended June
30, 2003 by 18% and 82%, respectively. The improvement during the quarter was
due to an increase in the number and size of deals transacted during 2003,
compared to the same 2002 period. The improvement during the six month period
was mainly attributable to approximately $4 million in fees generated from a
large transaction for one of Ryan Beck's institution group clients.
For the three and six months ended June 30, 2003, as compared to the same
periods during 2002, commission revenue increased by 36% and 117%, respectively.
The improvement was mainly attributable to the additional financial consultants
hired as a result of the Gruntal transaction.
For the three and six months ended June 30, 2003, as compared to the same
periods during 2002, employee compensation and benefits increased by 42% and
117%, respectively. The increase was mainly attributable to the additional
personnel hired and increases in discretionary bonus accruals associated with
the increase in firm revenue resulting from the Gruntal transaction. Occupancy
and equipment expense increased by 17% and 85%, respectively. The increase was
primarily due to the additional offices acquired in the Gruntal transaction, as
well as two additional offices that were added in the first quarter of 2003. The
increase in communications, floor brokers, clearing fees, and other expenses
related primarily to increased commission revenue and principal transactions
revenue associated with the additional financial consultants. The higher
professional fees primarily resulted from a significant increase in legal costs
associated with third party litigation involving Gruntal in which claims have
been asserted against Ryan Beck. See Note 16 to the consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 for a description of claims. The acquisition related charges
and impairments represent costs associated with the Gruntal transaction such as
professional fees, stay bonuses and branch closures.
BANKATLANTIC BANCORP PARENT COMPANY RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME:
Interest and fees on loans $ 419 $ 419 $ -- $ 835 $ 517 $ 318
Interest on short term investments 90 35 55 127 248 (121)
Interest on subordinated debentures, notes payable
and guaranteed preferred interests in
Junior Subordinated Debentures (4,260) (4,522) 262 (7,904) (7,845) (59)
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME (3,751) (4,068) 317 (6,942) (7,080) 138
--------- --------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Gains on joint venture activities 51 87 (36) 49 162 (113)
Income from unconsolidated real estate subsidiary 379 219 160 632 219 413
Securities activities -- (17,845) 17,845 404 (14,827) 15,231
--------- --------- --------- --------- --------- ---------
Non-interest income 430 (17,539) 17,969 1,085 (14,446) 15,531
--------- --------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Investment banking expense 175 -- 175 634 410 224
Employee compensation and benefits 58 2,525 (2,467) 80 2,977 (2,897)
Professional fees 383 165 218 700 237 463
Loss on debt redemption 1,648 -- 1,648 1,648 -- 1,648
Other 252 54 198 369 127 242
--------- --------- --------- --------- --------- ---------
Non-interest expense 2,516 2,744 (228) 3,431 3,751 (320)
--------- --------- --------- --------- --------- ---------
Loss before income taxes $ (5,837) $ (24,351) $ 18,514 $ (9,288) $ (25,277) $ 15,989
========= ========= ========= ========= ========= =========
Interest and fees on loans during the three months ended June 30, 2003 and 2002
represent interest income associated with a $5 million loan to Ryan Beck and a
$30 million loan to Levitt. Interest and fees on loans during
39
the six months ended June 30, 2002 represent interest income on the $5.0 million
loan to Ryan Beck and three months of interest income associated with the Levitt
loan. The $30 million loan was made to Levitt in April 2002.
Interest on short term investments during the three and six months ended June
30, 2003 and 2002 represent interest income earned on repurchase agreement
investments with BankAtlantic.
The decrease in interest expense during the three months ended June 30, 2003,
compared to the same 2002 period, resulted from lower rates on borrowings
partially offset by higher average balances. During 2002 and the first six
months of 2003, we redeemed higher rate trust preferred securities and
subordinated debentures from the proceeds associated with the issuance of lower
rate trust preferred securities. During the year ended December 31, 2002,
BankAtlantic Bancorp issued $180.4 million of trust preferred securities, and
during the six months ended June 30, 2003, BankAtlantic Bancorp issued $75
million of trust preferred securities. The average rate of these securities was
6.02% at June 30, 2003. A portion of the proceeds from the issuance of those
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.
The average balance of subordinated debentures and trust preferred securities
increased from $226.8 million during the 2002 quarter to $278.4 million during
the corresponding 2003 quarter.
The slight increase in interest expense during the six months ended June 30,
2003, compared to the same 2002 period, primarily resulted from higher average
balances partially offset by lower average rates. The higher average balances
and lower rates resulted from the issuance of trust preferred securities
mentioned above. The average balance of subordinated debentures and trust
preferred securities increased from $197.0 million during the 2002 six month
period to $266.8 million during the corresponding 2003 period.
Gains associated with joint venture activities resulted from the elimination of
intercompany 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.
Income from unconsolidated real estate subsidiary represents BankAtlantic
Bancorp's 5% ownership interest in the earnings of Bluegreen Corporation,
adjusted for purchase accounting valuations.
Securities activities during the three months ended June 30, 2002 represented
gains on sales of equity securities. There were no sales of securities during
the three months ended June 30, 2003.
Securities activities during the six months ended June 30, 2003 represented a
gain realized on a liquidating dividend from an equity security. Securities
activities during the six months ended June 30, 2002 included sales discussed
above as well as the sale of equity securities for a $3.0 million gain.
During the second quarter of 2002, BankAtlantic Bancorp recognized a $15 million
impairment charge associated with its investment in a privately held technology
company. Both Alan B. Levan and John E. Abdo were directors of the technology
company and each held direct and indirect interests in the common stock of the
technology company. Additionally, during the second quarter of 2002,
BankAtlantic Bancorp also recognized an impairment charge of $3.2 million on
publicly traded equity securities resulting from significant declines in value
that were other than temporary. BankAtlantic Bancorp did not recognize
impairments on securities during the three and six months ended June 30, 2003.
At June 30, 2003, BankAtlantic Bancorp Parent Company equity investments totaled
$6.1 million.
Investment banking expense represents underwriting and placement fees paid to
Ryan Beck in connection with the issuance of trust preferred securities. These
fees were included in investment banking income in Ryan Beck's business segment
results of operations. These fees were eliminated in consolidation.
Compensation expense during the three months ended June 30, 2003 primarily
resulted from payroll taxes associated with the redemption of notes payable
issued in connection with the Ryan Beck retention pool established upon the
acquisition of Ryan Beck in June 1998. The compensation expense during the same
2002 quarter primarily resulted from $2.0 million of compensation accruals
established for incentive bonuses associated with the Gruntal transaction and
the recognition of compensation expense associated with the Ryan Beck retention
pool.
40
Compensation expense during the six months ended June 30, 2003 and 2002 was
primarily associated with the items discussed above.
The increase in professional fees during the 2003 quarter and six month period
compared to the same 2002 periods consisted of higher fees associated with
litigation relating to BankAtlantic Bancorp's investment in the privately held
technology company discussed above and the consideration of a potential Levitt
spin-off described below.
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. 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.
Loss on debt redemption during the three and six months ended June 30, 2003
resulted from BankAtlantic Bancorp redeeming its 5.625% convertible debentures
at a redemption price of 102% of the principal amount. The loss on the
redemption reflects a $732,000 write-off of deferred offering costs and a
$917,000 call premium.
The increase in other non-interest expenses for the three and six months ended
June 30, 2003, compared to the same 2002 period, resulted from a $228,000 loss
on the sale of Ryan Beck's entire interest in Cumberland Advisors, Inc.
BFC HOLDING COMPANY RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN THOUSANDS) 2003 2002 CHANGE 2003 2002 CHANGE
--------- --------- --------- --------- --------- ---------
NET INTEREST INCOME:
Interest and dividends on securities $ 98 $ 71 $ 27 $ 196 $ 147 $ 49
Interest on notes payable (297) (279) (18) (582) (560) (22)
--------- --------- --------- --------- --------- ---------
NET INTEREST EXPENSE (199) (208) 9 (386) (413) 27
--------- --------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Gains on securities activities -- -- -- 390 -- 390
Impairment of securities -- (1,583) 1,583 (1,583) 1,583
Other 197 208 (11) 458 519 (61)
--------- --------- --------- --------- --------- ---------
Non-interest income 197 (1,375) 1,572 848 (1,064) 1,912
--------- --------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 643 531 112 1,254 1,258 (4)
Occupancy and equipment 20 18 2 37 35 2
Professional fees 57 48 9 94 77 17
Other 321 162 159 394 283 111
--------- --------- --------- --------- --------- ---------
Non-interest expense 1,041 759 282 1,779 1,653 126
--------- --------- --------- --------- --------- ---------
Loss before income taxes $ (1,043) $ (2,342) $ 1,299 $ (1,317) $ (3,130) $ 1,813
========= ========= ========= ========= ========= =========
Gain on securities activities during the six months ended June 30, 2003
primarily represents a gain realized on liquidating dividends from an equity
security.
During the second quarter of 2002, a limited partnership in which BFC has a 57%
controlling interest recognized an impairment charge of approximately $1.1
million, associated with an investment in a privately held technology company.
Also, during the second quarter of 2002 BFC recognized impairment charges of
$499,000 on publicly traded equity securities resulting from significant
declines in value that were considered other than temporary.
The increase in employee compensation and benefits during the quarter ended June
30, 2003 as compared the same period in 2002 was due to an increase in levels of
compensation.
41
The increase in other non-interest expense during the three and six month
periods ended June 30, 2003 as compared to the same 2002 periods was primarily
due to expenses associated with listing the Company's Class A Common Stock on
the Nasdaq National Market.
FINANCIAL CONDITION
The Company's total assets at June 30, 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 $1.04 billion 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 Increases in real estate held for development and sale and joint
venture activities due to higher Levitt real estate inventory.
o Increases in securities owned associated with Ryan Beck's trading
activities.
o Increases in investment in unconsolidated subsidiary associated with
equity in earnings and unrealized gains associated with Bluegreen's
loan sale activities included in other comprehensive income.
o Increases in Federal Home Loan Bank stock associated with higher
FHLB advance balances.
o Higher other assets balances associated with the issuance of
forgivable loans primarily associated with the Gruntal transaction
as well as 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 repayments of residential
real estate loans.
o Accelerated repayments of loan and mortgage-backed securities
available for sale due to the low interest rate environment.
BankAtlantic made significant purchases of hybrid adjustable rate residential
loans during the six months ended June 30, 2003 in order to replace loans and
mortgage-backed securities which experienced accelerated repayments.
The Company's total liabilities at June 30, 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 $75.0 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 FHLB advance and short term borrowings to fund certificate
account outflows, loan originations and loan purchases.
o Increase in due to clearing agent used to finance Ryan Beck's higher
securities owned inventory.
o Increased other liabilities related to customer deposits at Levitt
associated with a significant increase in backlog of homes, higher
escrow balances associated with commercial real estate loans and
increased amounts owed to municipalities for tax certificate
acquisitions in June 2003.
The above increases in total liabilities were partially offset by the redemption
of BankAtlantic Bancorp's 5.625% Subordinated Convertible Debentures and the
repayment of a bank line of credit and Ryan Beck's retention pool notes payable
from the proceeds of trust preferred securities offerings.
At June 30, 2003 and December 31, 2002 minority interest was approximately
$386.7 million and $365.5 million, respectively. The increase in minority
interest was due to earnings of $24.5 in BankAtlantic Bancorp and the issuance
of additional shares of BankAtlantic Bancorp's common stock upon the exercise of
stock options,
42
conversion of BankAtlantic Bancorp subordinated debentures and in connection
with grants of restricted Class A Common Stock. Offsetting the above increases
were reductions in the minority interest associated with BankAtlantic Bancorp's
other comprehensive income and the payment of dividend on its common stock.
Stockholders' equity at June 30, 2003 was $81.5 million compared to $77.4 at
December 31, 2002. The increase was due to earnings of $3.8 million, the
issuance of the Company's Class B Common Stock upon the exercise of stock
options of $260,000, and $442,000 on the tax effect relating to the exercise of
stock options. Offsetting the above increase were reductions in stockholders'
equity of $328,000 associated with activities in other comprehensive income, and
a reduction of $98,000 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 $708,000 decline in unrealized gains on securities
available for sale, a $228,000 gain associated with BankAtlantic Bancorp's
minimum pension liability, a $50,000 unrealized gain on BankAtlantic Bancorp's
interest rate swap activity and a $102,000 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,
liquidating dividends received from investment securities and proceeds from the
exercise of stock options. 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 June 30, 2003, approximately $6.0
million was outstanding. While the facility matured in December 2002, it has
been extended until May 2004, under the same terms and conditions. 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 22.5% 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
uses these funds to contribute capital to its subsidiaries, pay debt service,
repay borrowings, purchase equity securities available for sale and for
administrative expenses. BankAtlantic Bancorp's annual debt service associated
with its subordinated debentures, trust preferred securities, and financial
institution borrowings is approximately $15.4 million. BankAtlantic
43
Bancorp's estimated current annual dividends to common shareholders are
approximately $7.3 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 dividends to BankAtlantic Bancorp. These
payments are subject to regulations and OTS approval and are based upon
BankAtlantic's regulatory capital levels and net income. During 2002 and the
first six months of 2003, BankAtlantic Bancorp received $22.0 million and $10.0
million, respectively, of dividends from BankAtlantic.
During the six months ended June 30, 2003, BankAtlantic Bancorp participated in
three pooled trust preferred securities offerings in which an aggregate of $75
million of trust preferred securities were issued by statutory business trusts.
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 from the trust
preferred securities offerings, after placement fees and expenses, were
approximately $73 million. The trust preferred securities are considered debt
for financial accounting and tax purposes.
The net proceeds from the above trust preferred securities offerings were used
to redeem $45.8 million of BankAtlantic Bancorp 5.625% Convertible Subordinated
Debentures due 2007, repay $16 million of outstanding borrowings under a credit
facility from an unrelated financial institution, repay $3.7 million of Ryan
Beck retention pool notes payable and for general corporate purposes.
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 June 30, 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 during 2003.
BANKATLANTIC LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic's liquidity will depend on its ability to generate sufficient cash
to support 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 six months ended June 30,
2003 were deposits; principal repayments of loans and tax certificates and
securities available for sale; 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 $1.7 billion line of credit subject
to available collateral, with a maximum term of ten years secured by a blanket
lien on BankAtlantic's residential mortgage loans and certain commercial real
estate loans. BankAtlantic has established lines of credit for up to $245
million with other banks to purchase federal funds and has established a $12.7
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 June 30, 2003,
BankAtlantic met all applicable liquidity and regulatory capital requirements.
BankAtlantic's commitments to originate and purchase loans at June 30, 2003 were
$329.8 million and $29.0 million, respectively, compared to $394.8 million and
$87.7 million, respectively, at June 30, 2002. Additionally, BankAtlantic had
commitments to purchase mortgage-backed securities of $17.7 million and $77.6
million at June
44
30, 2003 and 2002, respectively. At June 30, 2003, loan commitments represented
approximately 8.7% of net loans receivable.
As of June 30, 2003, BankAtlantic had approximately $227.3 million in
investments and mortgage-backed securities pledged against securities sold under
agreements to repurchase. During the second quarter of 2003, BankAtlantic
obtained a $100 million letter of credit from the FHLB to secure public
deposits. BankAtlantic pledged approximately $135 million of residential loans
as collateral for the FHLB letter of credit.
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 JUNE 30, 2003:
Total risk-based capital $439,364 11.38% 8.0% 10.0%
Tier 1 risk-based capital $369,067 9.56% 4.0% 6.0%
Tangible capital $369,067 7.22% 1.5% 1.5%
Core capital $369,067 7.22% 4.0% 5.0%
AT DECEMBER 31, 2002:
Total risk-based capital $413,469 11.89% 8.0% 10.0%
Tier 1 risk-based capital $347,927 10.01% 4.0% 6.0%
Tangible capital $347,927 7.26% 1.5% 1.5%
Core capital $347,927 7.26% 4.0% 5.0%
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 management assesses liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Historically, Levitt has funded
its operations, development, construction and acquisitions with internally
generated cash flows, debt from independent third parties and capital
contributions and debt from BankAtlantic Bancorp. It is not anticipated that
Levitt will receive any future capital contributions from BankAtlantic Bancorp.
It is anticipated that these other sources will be adequate for current needs,
however, in order to fund desired growth, additional sources of funding will be
required. These may take the form of equity offerings, issuance of secured
indebtedness or issuance of unsecured subordinated or senior debt. In July 2003,
Levitt filed a registration statement with the Securities and Exchange
Commission to offer up to an aggregate of $100 million of subordinated
investment notes. Levitt intends to use the net proceeds from the sale of the
investment notes for operations and growth, both internally and through
acquisitions (which may include an additional investment in Bluegreen
Corporation), for the repayment of debt, including debt owed to BankAtlantic
Bancorp, and for general corporate purposes.
As of June 30, 2003 and December 31, 2002, Levitt had cash and cash equivalents
of $28.0 million and $16.0 million, respectively.
Levitt's primary source of funds for the six months ended June 30, 2003 were
proceeds from the sale of real estate inventory, distributions from real estate
joint ventures, borrowings and proceeds from development bonds. These funds were
primarily utilized for development, construction and acquisition of real estate,
to repay borrowings, to pay general and administrative expenses and to invest in
real estate joint ventures.
45
Levitt has entered into various loan agreements which provide financing for
acquisition and site improvements and construction of residential units. As of
June 30, 2003, these loan agreements provided for advances, subject to available
collateral, on a revolving basis of up to a maximum of $198.5 million, of which
$120.8 million was outstanding. The loans are secured by mortgages on
properties, including improvements. Principal payments are required as sales of
the collateral are consummated. Certain notes and mortgage notes provide that an
event of default may result from a change in ownership, management or executive
management.
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 June 30, 2003, Levitt was in compliance with all loan
agreement financial covenants.
Levitt entered into a $30.0 million note agreement with BankAtlantic Bancorp
primarily to finance its investment in Bluegreen. The loan is payable on demand
and bears interest at prime minus 25 basis points. The loan from BankAtlantic
Bancorp to Levitt was eliminated in the Company's consolidated financial
statements.
BankAtlantic Bancorp announced a plan to pursue a spin-off of Levitt in a
tax-free transaction and has filed a private letter ruling with the Internal
Revenue Service ("IRS"). Pending a favorable ruling from the IRS, BankAtlantic
Bancorp intends to convert the $30.0 million demand note to a five year term
note, and sell its 5% interest in Bluegreen Corporation to Levitt accepting a
$5.5 million one year note as sales proceeds. Additionally, Levitt prior to the
spin-off will declare an $8.0 million dividend to BankAtlantic Bancorp payable
in the form of a note. The $8.0 million note will have the same terms as the
$30.0 million note described above.
In connection with the development of certain communities, community development
or improvement districts have been established to utilize bond financing to fund
construction or acquisition of certain on-site and off-site infrastructure
improvements, near or at these communities. During February 2003, $28.8 million
of bond anticipation notes were issued in order to provide funding for certain
common infrastructure for the Tradition master planned community in Port St.
Lucie, Florida. The bond anticipation notes are direct obligations of the
community development district and are projected to be refinanced prior to
maturity into long-term assessment bonds and/or revenue bonds, and to ultimately
be repaid from revenues, fees and assessments designated to cover principal and
interest payments, which are not fixed and determinable. Core Communities will
recognize an expense for its pro rata portion of assessments, based upon its
ownership of benefited property.
RYAN BECK & CO., INC. LIQUIDITY AND CAPITAL RESOURCES
Ryan Beck's primary source of funds during the six months ended June 30, 2003
were clearing broker borrowings, proceeds from the sale of securities owned,
sale of Cumberland Advisors, 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.
Primarily to finance its trading inventories, Ryan Beck borrows 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 as collateral.
At June 30, 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
June 30, 2003.
Ryan Beck entered into a $5.0 million subordinated note with BankAtlantic
Bancorp in order to fund the Gruntal transaction. The note matures in January
2005 and bears interest at 9.25% per annum. The note is considered capital in
computing net capital under the Securities and Exchange Commission's uniform net
capital rule. The loan from BankAtlantic Bancorp to Ryan Beck was eliminated in
the Company's consolidated financial statements.
As part of the Gruntal transaction, Ryan Beck acquired all of the membership
interests in GMS. A part of GMS's business is investing in below investment
grade securities. These securities are not readily marketable and the fair
46
values of these securities may change significantly from period to period
resulting in the potential for considerable markups or markdowns occurring from
period to period. Approximately $53.5 million par value of GMS's securities
owned with an estimated fair value and carrying value of approximately $9.2
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 $11.6 million, which was $10.6 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 June 30,
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 June 30, 2003, BFC held $1.0
million in publicly traded securities and $3.6 million in private companies for
which no trading market exists.
INTEREST RATE RISK
The majority of BankAtlantic Bancorp 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 our 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 potential gains and losses in net portfolio fair values of interest rate
sensitive instruments at June 30, 2003 resulting from a change in interest
rates. See the Company's Annual Report on Form 10-K for the year ended December
31, 2002 for a detailed explanation of the model methodology and the assumptions
utilized in the model.
Presented below is an analysis of BankAtlantic Bancorp's interest rate risk at
June 30, 2003 as calculated utilizing BankAtlantic Bancorp's model. The table
measures changes in net portfolio value for instantaneous and parallel shifts in
the yield curve in 100 basis point increments up or down.
NET
PORTFOLIO
CHANGES VALUE DOLLAR
IN RATE AMOUNT CHANGE
------------ ----------- -------------
(DOLLARS IN THOUSANDS)
+200 bp $567,265 $ 82,973
+100 bp $535,148 $ 50,856
0 $484,292 $ --
-100 bp $426,212 $ (58,080)
-200 bp $358,059 $(126,233)
47
BankAtlantic Bancorp net interest margin has declined since September 2002.
BankAtlantic Bancorp does not expect its net interest margin to improve so long
as rates remain at these historically low levels, and this could continue to
negatively impact our earnings for the foreseeable future.
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 our securities owned,
securities sold but not yet purchased, and available for sale securities at June
30, 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% $ 269,286 $ 8,522 $ (41,962) $ 39,308
10% $ 246,846 $ 7,812 $ (38,465) $ 19,654
0% $ 224,405 $ 7,102 $ (34,968) $ --
-10% $ 201,965 $ 6,392 $ (31,471) $ (19,654)
-20% $ 179,524 $ 5,682 $ (27,974) $ (39,308)
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. In July 2003, BankAtlantic Bancorp sold $3.1
million of private equity investments at book value, leaving $300,000 in book
value of private equity investments.
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
As of the end of the period covered by 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
48
In addition, we reviewed our internal control over financial reporting, and
there have been no significant changes in our internal control over financial
reporting 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 over financial reporting will prevent all errors and all
improper conduct. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Due to 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. Due to 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 as Exhibits 31.1 and 31.2 to this quarterly report are Certifications
of the principal 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.
49
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 20, 2003. At the
meeting the holders of the Company's Class A and Class B Common Stock voting
together as a single class elected the following Directors for the terms
indicated by the following votes:
DIRECTOR TERM FOR WITHHELD
- ----------------- ------------------ ----------------- ----------------
Neil Sterling One Year 28,212,364 61,977
Oscar Holzmann Two Years 28,212,778 61,563
Earl Pertnoy Three Years 28,212,778 61,563
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits
Exhibit 31.1 Certification pursuant to Regulation S-X Section 302
Exhibit 31.2 Certification pursuant to Regulation S-X Section 302
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 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 April 29, 2003 to disclose that the Company's Class A
Common Stock will begin trading on the Nasdaq National Market effective
May 5, 2003.
Form 8-K filed on May 5, 2003 to disclose that the Company's Class A
Common Stock began trading on the Nasdaq National Market under the symbol
"BFCF".
Form 8-K filed on May 22, 2003 to disclose that the Company's Board of
Directors declared a fifteen percent common stock dividend payable in
Class A Common Stock to BFC Financial Corporation Class A and Class B
common stockholders of record on June 3, 2003.
50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC FINANCIAL CORPORATION
Date: August 14, 2003 By: /s/ Alan B. Levan
---------------------------------------------
Alan B. Levan, President
Date: August 14, 2003 By: /s/ Glen R. Gilbert
---------------------------------------------
Glen R. Gilbert, Executive Vice President,
Chief Accounting Officer and
Chief Financial Officer
51