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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
(State of Organization) (IRS Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock $.01 par Value None
Class B Common Stock $.01 par Value None
(Title of Class) (Name of Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendments to
this form 10-K.
[X]
Aggregate market value of the voting and nonvoting common equity held by
non-affiliates of the Registrant: As of March 21, 2002 $25,240,000
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,461,994 shares outstanding.
Class B Common Stock of $.01 par value, 2,366,157 shares outstanding.
Documents Incorporated by Reference in Part IV of this Form 10-K:
Portions of Registrant's Definitive Proxy Statement relating to the 2002 Annual
Meeting of Shareholders is incorporated in Part III of this report.
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PART I
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve substantial risks and uncertainties. When used in this report and
in the documents incorporated by reference herein, the words "anticipate",
"believe", "estimate", "may", "intend", "expect" and similar expressions
identify certain of such forward-looking statements. Actual results, performance
or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of BFC
Financial Corporation ("the Company", "BFC", or "Registrant" which may be
referred to as "we", "us" or "our") and are subject to a number of risks and
uncertainties that are subject to change based on factors which are, in many
instances, beyond the Company's control. These include, but are not limited to,
the risks and uncertainties associated with: the impact of economic, competitive
and other factors affecting the Company and its operations, markets, products
and services; the impact on the national and local economies of the terrorist
actions of September 11, 2001 and subsequently, as well as military activities
or conflicts; credit risks and the related sufficiency of the allowance for loan
losses; the effects of, and changes in, trade, monetary and fiscal policies and
laws, including but not limited to interest rate policies of the Board of
Governors of the Federal Reserve System; adverse conditions in the stock market,
the public debt market and other capital markets (including changes in interest
rate conditions) and the impact of such conditions on our activities; the impact
of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes; the
impact of changes in accounting policies by the Securities and Exchange
Commission; and with respect to the operations of Levitt Companies, LLC ("Levitt
Companies") and its real estate subsidiaries: the market for real estate
generally and in the areas where Levitt Companies has developments, the
availability and price of land suitable for development, materials prices, labor
costs, interest rates, environmental factors and governmental regulations; and
the Company's success at managing the risks involved in the foregoing. Further,
this report contains forward-looking statements with respect to the acquisition
of BankAtlantic Bancorp, Inc. ("Bancorp") and Community Savings Bankshares, Inc.
("Community"), which is subject to risks and uncertainties, including but not
limited to, the risk that the transaction will cost more, take longer, or be
less advantageous than expected. In addition to the risks and factors identified
above, reference is also made to other risks and factors detailed herein and in
reports filed by the Company with the Securities and Exchange Commission
("SEC"). The Company cautions that the foregoing factors are not exclusive. All
subsequent written and oral forward-looking statements concerning the Company or
other matters and attributable to the Company or any person acting on its behalf
are expressly qualified in their entirety by the cautionary statements above.
ITEM 1. BUSINESS
General Description of Business
BFC Financial Corporation is a unitary savings bank holding company as a
consequence of its ownership interest in the common stock of Bancorp. Bancorp is
also a diversified financial unitary savings bank holding company which owns
100% of the outstanding stock of BankAtlantic, Levitt Companies and Ryan, Beck &
Co., LLC ("Ryan Beck").
In August 2000, Bancorp shareholders approved a corporate transaction that
resulted in the retirement of all publicly held Bancorp Class B Common Stock,
other than the Class B Common Stock held by BFC. As a consequence, BFC became
the sole holder of the Class B Common Stock which represented 100% of the voting
rights of Bancorp at that time. Because BFC controlled greater than 50% of the
vote of Bancorp, commencing in 2000 Bancorp was consolidated in the Company's
financial statements instead of carried on the equity basis. In 2001, Bancorp
amended its articles of incorporation to grant voting rights to holders of
Bancorp Class A Common Stock, make Bancorp Class B Common Stock convertible into
Bancorp Class A Common Stock on a share for share basis, and equalize the cash
dividends payable on Bancorp's Class A Common Stock and Bancorp's Class B Common
Stock. As a consequence of the amendment, Bancorp's Class A shareholders are
entitled to one vote per share, which in the aggregate will represent 53% of the
combined voting power of Bancorp's Class A Common Stock and Bancorp's Class B
Common Stock. Bancorp's Class B Common Stock represents the remaining 47% of the
combined vote.
At December 31, 2001, the Company's ownership in Bancorp Class A Common Stock
and Class B Common Stock was approximately 16% and 100%, respectively, in the
aggregate representing 23% of all of the outstanding Bancorp Common Stock and
55.3% of the vote. The Company acquired control of Bancorp in 1987 for a total
investment of approximately $43 million. From 1987 through June 1993, the
Company increased its ownership in Bancorp to 78%. In November 1993, the
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Company's ownership of Bancorp decreased to 48%, as a consequence of the
Company's and Bancorp's sales of shares of Bancorp Common Stock and since that
time has been further reduced to its current level as a consequence of the
additional issuance of common stock by Bancorp in connection with acquisitions
and the exercise of Bancorp stock options.
Bancorp is a Florida-based diversified financial services holding company which
owns BankAtlantic, Levitt Companies and Ryan Beck. BankAtlantic, a federally
chartered, federally insured savings bank was organized in 1952, and provides
traditional retail banking services and a full range of commercial banking
products and related financial services. On March 22, 2002, BankAtlantic
acquired Community which through its savings and loan association subsidiary
operated 21 offices in Palm Beach, Martin, St. Lucie and Indian River counties
in Florida. Including the branches recently acquired from Community Savings,
BankAtlantic operates 74 branch offices located primarily in Miami-Dade,
Broward, Hillsborough, Palm Beach, Martin, St. Lucie and Indian River Counties
in the State of Florida and has approximately $5.6 billion in assets.
BankAtlantic's activities include: (i) attracting checking and savings deposits
from the public and general business customers, (ii) originating commercial real
estate and business loans, and consumer and small business loans, (iii)
purchasing wholesale residential loans from third parties, and (iv) making other
investments in mortgage-backed securities, tax certificates and other
securities. BankAtlantic is regulated and examined by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC").
Levitt Companies owns Core Communities, LLC ("Core Communities"), a developer of
master planned residential, commercial and industrial communities in Florida and
Levitt and Sons, LLC ("Levitt and Sons"), a developer of single-family home
communities, condominiums and rental apartment complexes. Levitt also has
several other real estate joint venture investments in South Florida.
Ryan Beck provides a full range of investment banking, brokerage and investment
management services. Ryan Beck conducts capital market activities focused on the
financial services and municipal sectors. These activities include investment
banking, trading, research and institutional sales. Ryan Beck also operates
retail-oriented brokerage, conducting such activities on behalf of high net
worth individuals.
During 1999 and 2000, the Company (without consideration of Bancorp) acquired
interests in unaffiliated technology entities. During 2000 and 2001, the
Company's interests in the technology entities were transferred at the Company's
cost to specified asset limited partnerships. Subsidiaries of the Company are
the controlling general partners of these venture partnerships, therefore, they
are consolidated in these financial statements. Interests in such partnerships
were sold in 2000 and 2001 to accredited investors in private offerings. During
2000, approximately $5.1 million of capital was raised from unaffiliated third
parties by these partnerships and officers, directors and affiliates of the
Company invested approximately $4.4 million in the Partnership. The Company and
the general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of the $1.3 million, Alan Levan and Jack Abdo each
borrowed $500,000 from the Company on a recourse basis and Glen Gilbert,
Executive Vice President, and Earl Pertnoy, a director of the Company each
borrowed $50,000 on a non-recourse basis to make their investments. Such amounts
were still outstanding at the end of the year, bear interest at the prime rate
plus 1% and are payable interest only annually with the entire balance due in
February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and BFC Financial
Corporation - 57.5%. Losses net of minority interests for the year ended
December 31, 2001 were $881,000. At December 31, 2001, the Company's net
investment in these partnerships was $4.7 million.
In addition to its other activities, the Company apart from Bancorp and
Bancorp's subsidiaries, owns and manages real estate. Since its inception in
1980, and prior to acquiring control of Bancorp, the Company's primary business
was the organization, sale and management of real estate investment programs. A
subsidiary of the Company continues to serve as the corporate general partner of
a public limited partnership which files periodic reports with the Securities
and Exchange Commission under the Exchange Act. Subsidiaries of the Company also
serve as corporate general partners of a number of private limited partnerships
formed in prior years. The Company ceased the organization and sale of real
estate investment programs in 1987. The Company continues to hold mortgage notes
receivable of approximately $912,000 which were received in connection with the
sale of properties previously owned by the Company.
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo and certain of his affiliates (the "Abdo Group"). Under the
arrangement, the Company and the Abdo Group share equally in profits after
interest earned by the
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Company on advances made by the Company. The Company bears any risk of loss
under the arrangement. Pursuant to this arrangement with the Abdo Group, in
December 1994, an entity controlled by the Company acquired from an unaffiliated
seller approximately 70 acres of unimproved land known as the "Center Port"
property in Pompano Beach, Florida. Through December 31, 2001, all of the
project except for land under two pylon signs, a cell tower site and the lake
had been sold to unaffiliated third parties for approximately $21.4 million and
the Company recognized net gains from the sales of real estate of approximately
$4.8 million. The Abdo Group received approximately $2.6 million in 2000 in
connection with its real estate sales profit participation.
BUSINESS SEGMENTS
The Company is a diversified financial services holding company that provides a
full line of products and services encompassing consumer and commercial banking;
real estate construction and development, and brokerage and investment banking.
Management reports results of operations through seven segments: Bank
Investments, Commercial Banking and Community Banking, which are conducted
through the Bank Operation segments and are operated solely by Bancorp and
BankAtlantic, Levitt Companies, Ryan Beck, Bancorp Parent Company and BFC
Holding Company.
Bank Investments
The Bank Investments segment manages the investments in BankAtlantic's
securities portfolios as well as wholesale and retail residential lending
activities. BankAtlantic securities portfolios include securities available for
sale, investment securities and tax certificates. Additionally, this segment
also handles BankAtlantic's residential loan portfolio.
Securities Available for Sale - Securities available for sale consist of
mortgage-backed securities, treasury notes and real estate mortgage investment
conduits ("REMIC"). BankAtlantic's securities portfolio serves as a source of
liquidity while providing a means to moderate the effects of interest rate
changes. The decision to purchase and sell securities is based upon current
assessment of the economy, the interest rate environment and BankAtlantic's
liquidity requirements.
Investment Securities Held to Maturity and Tax Certificates - Investment
securities held to maturity consist of adjustable rate mortgage-backed
securities issued by government agencies. These securities have minimal credit
and interest rate risk due to the government agency guarantee of the principal
balance and periodic interest rate adjustments.
Tax certificates are evidences of tax obligations that are sold through auctions
or bulk sales by various state taxing authorities on an annual basis. The tax
obligation arises when the property owner fails to timely pay the real estate
taxes on the property. Tax certificates represent a priority lien against the
real property for the delinquent real estate taxes. Interest accrues at the rate
established at the auction or by statute. The minimum repayment, in order to
satisfy the lien, is the certificate amount plus the interest accrued through
the redemption date and applicable penalties, fees and costs. Tax certificates
have no payment schedule or stated maturity. If the certificate holder does not
file for the deed within established time frames, the certificate may become
null and void. Experience with this type of investment has been favorable as
rates earned are generally higher than many alternative investments and
substantial repayments generally occur over a two year period. Other than in
Florida and Georgia, BankAtlantic has no significant concentration of tax
certificate holdings in any one taxing authority.
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The composition, yields and maturities of securities available for sale and
investment securities and tax certificates were as follows (in thousands):
U.S. Corporate
Treasury Mortgage- Bond Weighted
and Tax Backed And Average
Agencies Certificates Securities Other Total Yield
----------- ------------ ----------- ---------- --------- -------
December 31, 2001
Maturity: (1)
One year or less $5,819 $103,121 $ 39 $ -- $ 108,979 10.32%
After one through five years -- 40,956 243 262 41,461 10.70
After five through ten years -- -- 13,060 -- 13,060 3.96
After ten years -- -- 1,071,434 -- 1,071,434 5.84
------ -------- ---------- ---- ---------- -----
Fair values (2) $5,819 $144,077 $1,084,776 $262 $1,234,934 6.37%
====== ======== ========== ==== ========== =====
Amortized cost (2) $5,819 $144,077 $1,063,949 $250 $1,214,095 6.59%
====== ======== ========== ==== ========== =====
Weighted average yield based
on fair values 1.07% 10.76% 5.82% 5.56% 6.37%
Weighted average maturity .01 years 2.0 years 23.53 years 3.67 years 20.90 years
--------- -------- ---------- ---------- ----------
December 31, 2000
Fair values (2) $5,945 $122,352 $1,050,052 $250 $1,178,599 6.90%
====== ======== ========== ==== ========== =====
Amortized cost (2) $5,945 $122,352 $1,056,470 $250 $1,185,017 6.43%
====== ======== ========== ==== ========== =====
(1) Maturities are based on contractual maturities. Tax certificate maturities
are based on historical repayment experience and BankAtlantic's charge-off
policies since tax certificates do not have contractual maturities.
(2) Equity securities held by Bancorp parent company with a cost of $33.4
million and $35.0 million and a fair value of $43.4 million, and $48.4
million at December 31, 2001 and 2000 respectively, were excluded from the
above table.
A summary of the amortized cost and gross unrealized appreciation or
depreciation of estimated fair value compared to cost of tax certificates and
held to maturity and available for sale securities follows (in thousands):
December 31, 2001
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Appreciation Depreciation Fair Value
----------- ------------- ------------ ----------
Tax certificates and investment securities:
Cost equals market $ 144,077 $ -- $ -- $ 144,077
Mortgage-backed securities held to maturity:
Market over cost 196,359 5,878 -- 202,237
Cost over market 68,074 -- 126 67,948
Investment securities available for sale:
Cost equals market 29,631 -- -- 29,631
Market over cost 7,016 10,322 0 17,338
Cost over market 2,867 -- 352 2,515
Mortgage-backed securities available for sale:
Market over cost 706,415 15,561 -- 721,976
Cost over market 93,101 -- 486 92,615
---------- ------- ---- ----------
Total $1,247,540 $31,761 $964 $1,278,337
========== ======= ==== ==========
Residential Loans - BankAtlantic purchases residential loans in the secondary
markets. These loans are secured by property located throughout the United
States. For residential loan purchases, BankAtlantic reviews the seller's
underwriting policies and subject certain of the individual loans to an
additional credit review. These loans are typically purchased in bulk and are
generally non-conforming loans due to the size and characteristics of the
individual loans. Guidelines are set for loan purchases relating to: loan
amount, type of property, state of residence, loan-to-value ratios, borrower's
sources of funds,
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appraisal, and loan documentation. BankAtlantic also originates residential
loans, primarily CRA loans. The underwriting of these loans generally follows
government agency guidelines with independent appraisers generally performing
on-site inspections and valuations of the collateral.
Commercial Banking
The Commercial Banking segment provides a wide range of commercial lending
products. These products include commercial real estate construction,
residential development and land acquisition loans, commercial business loans
and trade finance lending. This segment also provides letters of credit and
standby letters of credit to corporate customers.
Commercial Real Estate - Commercial real estate loans normally are secured by
property located throughout Florida, primarily in Miami-Dade, Broward and Palm
Beach Counties and the Tampa Bay area in Florida. Commercial real estate loans,
typically are based on a maximum of 75% of the collateral's appraised value and
require the borrower to maintain escrow accounts for real estate taxes and
insurance. Prior to making a loan, the value of the collateral, the quality of
the loan, the credit worthiness of the borrowers and guarantors, the location of
the real estate, the projected income stream of the property, the reputation and
quality of management constructing or administering the property, and the
interest rate and fees are considered. It is generally required that these loans
be guaranteed by one or more of the principals of the borrowing entity. Loans
and investments in affiliated joint ventures may result in consolidated exposure
in excess of the typical loan to value ratio and guarantees of the principals
may not be required.
Commercial Business - Commercial business loans are generally made to medium
size companies located throughout Florida, primarily in the Miami-Dade, Broward
and Palm Beach Counties and the Tampa Bay area. Both secured and unsecured loans
are made, although the majority of these loans are on a secured basis. New
commercial business loans are typically secured by the accounts receivable,
inventory, equipment, and/or general corporate assets of the borrowers.
Commercial business loans generally have variable interest rates that are
prime-based. These loans typically are originated for terms ranging from one to
five years. BankAtlantic also provides trade financing for local commercial
customers who are exporting primarily to Latin America utilizing risk mitigation
guarantees and credit insurance programs. Trade finance loans have rates tied to
prime and generally have maturities of one year or less.
Standby Letters of Credit and Commitments - Standby letters of credit are
conditional commitments issued by BankAtlantic to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is the same as extending loans to customers. Certificates of deposit and
residential and commercial liens may be held as collateral for letters of
credit.
BankAtlantic also issues commitments for commercial real estate and commercial
business loans. In most cases these commitments are for three months.
Discontinued lines of business - During 2001, based on an evaluation of the
performance of loan products BankAtlantic discontinued the origination of
international loans to correspondent financial institutions and lease financing.
International lending to correspondent financial institutions - BankAtlantic
lent to correspondent financial institutions in Latin America, including
pre-export financing and advances on letters of credit. These loans have rates
tied to either prime or LIBOR and generally have maturities of one year or less.
At December 31, 2001, $1.4 million of such loans remained outstanding.
Lease Financing - BankAtlantic has leased or financed trucks and manufacturing
and construction equipment to businesses. The leases are secured by the acquired
equipment and are originated with terms ranging from two to five years. The
lease interest component is at a fixed rate. During 2001 lease financing was
discontinued. Lease financing is considered sub-prime lending and generally has
a higher degree of risk, than loans in BankAtlantic's portfolio. These leases
are more likely to be adversely impacted by unfavorable economic conditions and
are highly dependent on the success of the business and the credit worthiness of
the principals. At December 31, 2001, $55 million of such leases remained
outstanding.
Community Banking
The Community Banking segment offers a diverse range of loan products for
individuals and small businesses. These products include home equity loans,
automobile loans, overdraft protection on deposit accounts and small business
lending.
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The above loans are originated by business bankers through the BankAtlantic
branch network. This segment also administers BankAtlantic's ATM network
operations located in retail outlets, cruise ships, Native American reservation
gaming facilities and BankAtlantic branch locations.
SmallBusiness - Small business loans are generally made to companies, primarily
in Miami-Dade, Broward and Palm Beach Counties and the Tampa Bay area in
Florida. Small business loans are originated on a secured or unsecured basis and
do not exceed $1.0 million. These loans are originated with maturities primarily
ranging from one to three years or on demand. Lines of credit are due upon
demand. These loans typically have either fixed or variable prime based interest
rates.
Small business loans generally have a higher degree of risk than other loans in
BankAtlantic's portfolio because they are more likely to be adversely impacted
by unfavorable economic conditions. In addition, these loans typically are
highly dependent on the success of the business and the credit worthiness of the
principals.
Consumer - Consumer loans are primarily loans to individuals originated through
BankAtlantic's branch network and sales force of business bankers. The majority
of our originations are home equity lines of credit secured by a second mortgage
on the primary residence of the borrower. BankAtlantic does not currently use
brokers to originate loans. In the past, BankAtlantic originated automobile
loans through automobile dealers but this activity was discontinued during the
fourth quarter of 1998. Home equity lines of credit have prime-based interest
rates and generally mature in fifteen years. All other consumer loans generally
have fixed interest rates with terms ranging from one to five years.
Underwriting and Credit Management
Bancorp has a centralized underwriting area that establishes policies and
procedures for the banking operations segments and their related products.
However, borrowers or counter-parties may default on their obligations. Credit
risk arises through the extension of loans and leases, certain securities,
letters of credit, financial guarantees and through counter-party exposure on
trading and wholesale loan transactions. In an attempt to manage this risk,
Bancorp has established policies and procedures to manage both on and
off-balance sheet (primarily loan commitments) credit risk and attempts to
monitor the application of these policies and procedures.
BankAtlantic's Chief Credit Officer works with lending officers and various
other line personnel who conduct activities involving credit risk and is
involved in the implementation, refinement and monitoring of credit policies and
procedures.
BankAtlantic attempts to manage credit exposure to individual borrowers and
counter-parties of its banking operations on an aggregate basis including loans,
securities, letters of credit, derivatives and unfunded commitments. The
creditworthiness of individual borrowers or counter-parties is analyzed by
credit personnel, and limits are established for the total credit exposure to
any one borrower or counter-party. Credit limits at BankAtlantic are subject to
varying levels of approval by senior line and credit risk management.
For products in the commercial banking division, a borrower's ability to make
principal and interest payments and the value of the collateral securing the
underlying loans are evaluated. Independent appraisers generally perform on-site
inspections and valuations of the collateral for commercial real estate loans.
Commercial real estate and commercial and syndicated business loans of $1.0
million to $5.0 million at BankAtlantic require Senior Loan Committee approval
and Major Loan Committee ratification. Commercial loans over $5.0 million
require the approval of the Major Loan Committee. BankAtlantic's Senior Loan
Committee includes members of its executive management. BankAtlantic's Major
Loan Committee consists of: the Chief Executive Officer; Vice Chairman; Chief
Credit Officer; Executive Vice President Commercial Lending; and certain other
officers of BankAtlantic.
For consumer and small business lending, credit scoring systems are utilized by
BankAtlantic to assess the relative risks of new underwritings and provide
standards for extensions of credit. Consumer and small business portfolio credit
risk is monitored primarily using statistical models and regular reviews of
actual payment experience to predict portfolio behavior.
Consumer loans for $250,000 or more also require the approval of BankAtlantic's
Major Loan Committee. BankAtlantic's Chief Credit Officer must approve all small
business loans at or above $750,000 but less than $1.0 million.
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Residential loans for over $500,000 require approval by BankAtlantic's Senior
Loan Committee and ratification by BankAtlantic's Major Loan Committee.
Purchased residential loans in pools greater than $50 million require
BankAtlantic Investment Committee approval.
An independent credit review group conducts ongoing reviews of credit activities
and portfolios, reexamining on a regular basis risk assessments for credit
exposure and overall compliance with policy. This group meets monthly to receive
an update on the status of small business, commercial real estate and commercial
business classified loans. The committee discusses the progress of individual
credits, monitors compliance with lending policies and may upgrade or downgrade
the risk grades of specific loans.
Credit exposure is primarily focused in the loan and lease portfolio, which
totaled $2.8 billion and $2.9 billion at December 31, 2001 and 2000,
respectively.
Loans and leases receivable composition are as follows (in thousands):
As of December 31,
--------------------------------------------
2001 2000
-------------------- ---------------------
Amount Percent Amount Percent
-------------------- ---------------------
Loans receivable:
Real estate loans:
Residential real estate $1,111,775 40.07% $1,316,062 46.14%
Construction and development 1,122,628 40.47 937,881 32.88
Commercial real estate 522,006 18.82 369,282 12.95
Small business - real estate 43,196 1.56 28,285 0.99
Other loans:
Second mortgage - direct 166,531 6.00 124,859 4.38
Second mortgage - indirect 2,159 0.08 4,020 0.14
Commercial business 76,146 2.74 86,194 3.02
Small business - non-mortgage 59,041 2.13 69,325 2.43
Lease finance 54,969 1.98 75,918 2.66
Due from foreign banks 1,420 0.05 64,207 2.25
Consumer - other direct 25,811 0.93 33,036 1.16
Consumer - other indirect 23,241 0.84 58,455 2.05
Loans held for sale:
Residential real estate 4,757 0.17 -- 0.00
Syndication loans 40,774 1.47 80,016 2.80
---------- ------ ---------- ------
Total 3,254,454 117.31 3,247,540 113.85
---------- ------ ---------- ------
Adjustments:
Undisbursed portion of loans
in process 434,166 15.65 344,390 12.07
Unearned discounts (premiums) 1,470 0.05 3,675 0.13
Allowance for loan losses 44,585 1.61 47,000 1.65
---------- ------ ---------- ------
Total loans
receivable, net $2,774,233 100.00% $2,852,475 100.00%
========== ====== ========== ======
Bankers acceptances $ 5 100.00% $ 1,329 100.00%
========== ====== ========== ======
Interest Expense and Overhead Allocations to Bank Operation Segments
Interest expense and overhead for Bank Operation segments represents interest
expense and certain revenue and expense items which are allocated to each Bank
Operation segment based on its pro-rata average assets. Items included in
interest expense and overhead include interest expense on all interest bearing
banking liabilities, with an allocation of back office and corporate headquarter
operating expenses, net of deposit account fee income.
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Deposits - Deposits include commercial demand deposit accounts, retail demand
deposit accounts, savings accounts, money market accounts, certificates of
deposit, various NOW accounts, IRA and Keogh retirement accounts, brokered
certificates of deposit and public funds. Deposits are solicited in
BankAtlantic's market areas through advertising and relationship banking
activities primarily conducted through sales force and branch network. Most
depositors are residents of Florida at least part of the year. Bancorp has
several relationships, including one with Ryan Beck, for the placement of
brokered certificates of deposit. These relationships are considered an
alternative source of funding.
Federal Home Loan Bank ("FHLB") Advances - BankAtlantic is a member of the FHLB
and can obtain secured advances from the FHLB of Atlanta. Advances are
collateralized by a security lien against BankAtlantic's residential loans,
certain commercial loans and securities. In addition, certain levels of FHLB
stock must be maintained for outstanding advances. FHLB advances are primarily
used to fund the purchased residential loan portfolio.
Securities Sold Under Agreements To Repurchase And Other Short Term Borrowings
- -- Short term borrowings consist of securities sold under agreements to
repurchase, federal funds borrowings and borrowings from the Federal Reserve
Bank. Securities sold under agreements to repurchase involves a sale of a
portion of the current investment portfolio (usually MBS and REMIC's) at a
negotiated rate with and an agreement to purchase the same assets on a specified
date. Repurchase agreements are issued to institutions and BankAtlantic
customers. These transactions are collateralized by securities in BankAtlantic's
investment portfolio. Customer repurchase agreements are not insured by the
FDIC. Federal funds borrowings occur under established facilities with various
federally insured banking institutions to purchase federal funds. The facilities
are used on an overnight basis to assist in managing cash flow requirements.
These federal fund lines are subject to periodic review, may be terminated at
any time by the issuer institution and are unsecured. BankAtlantic also has
established a facility with the Federal Reserve Bank of Atlanta for secured
advances. These advances are collateralized by a security lien against
BankAtlantic's consumer loans.
Levitt Companies
Levitt Companies is the real estate construction and development segment. Levitt
engages in real estate activities through Levitt and Sons, Core Communities and
several investments in real estate projects in South Florida. Levitt and Sons,
is a developer of single-family home communities and condominium and rental
apartment complexes primarily in Florida. Core Communities owns the unsold land
and other entitlements of the master planned community commonly known as St.
Lucie West in St. Lucie County, Florida. Core Communities also owns two
communities in the planning stages; Westchester in St. Lucie County, Florida and
Live Oak in Hillsboro County, Florida. Changes in the economic conditions of the
area would have an impact on the operations of Levitt.
Levitt Companies' construction activity is summarized as follows:
At or For the Year Ended
December 31,
-------------------------
2001 2000
-------- --------
Levitt and Sons
Pre-sold backlog 724 703
Homes delivered and titled 879 620
Lot inventory (owned or optioned) 1,761 2,613
Average sale price of homes $200,031 $201,000
======== ========
Core Communities
In acres:
Inventory under development 2,098 1,066
Inventory raw acreage 2,032 2,033
Inventory sold in acres 253 145
======== ========
The profitability of our real estate development activities will depend on our
ability to acquire land at attractive prices and future real estate market
conditions.
Levitt Companies and its subsidiaries had outstanding indebtedness to
unaffiliated financial institutions of $64 million at December 31, 2001 which
was collateralized by Levitt Companies' assets. See Note 10 to the consolidated
financial
10
statements for further details regarding this indebtedness. Pursuant to the
terms of the outstanding indebtedness, Levitt Companies is subject to
restrictions on the payment of dividends to Bancorp. See Note 25 to the
consolidated financial statements for a description of an adverse verdict
entered against a joint venture in which a subsidiary of Levitt Companies is a
partner.
Ryan Beck
Ryan Beck is the brokerage and investment banking segment. Ryan Beck is an
investment banking firm engaged in the underwriting, distribution and trading of
tax-exempt, equity and debt securities. Ryan Beck offers a full-service, general
securities brokerage business with investment and insurance products for retail
and institutional clients. Ryan Beck also provides investment and wealth
management advisory services; capital-raising and related advisory services; and
mergers and acquisitions consultation.
As a registered broker-dealer with the Securities and Exchange Commission
("SEC"), Ryan Beck also offers a general securities business with extensive
investment and research products for retail and institutional clients. The firm
operates on a fully disclosed basis with its clearing firm, Credit Suisse First
Boston. Clients consist primarily of:
o High net worth individuals;
o Financial institutions;
o Institutional clients (including mutual funds, pension funds, trust
companies, insurance companies, LBO funds, private equity sponsors,
merchant banks and other long-term investors); and
o To a lesser extent, insurance companies and specialty finance
companies.
Ryan Beck's money management subsidiary, Cumberland Advisors, Inc., was acquired
in 1998 and supervises approximately $500 million in assets for individuals,
institutions, retirement plans, governmental entities and cash management
portfolios.
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, customer fraud,
employee errors and misconduct, failures in connection with the processing of
securities transactions and litigation. Ryan Beck's business and its
profitability are affected by many factors including:
o the volatility and price levels of the securities markets,
o the volume, size and timing of securities transactions,
o the demand for investment banking services,
o the level and volatility of interest rates,
o the availability of credit,
o legislation affecting the business and financial communities,
o the economy in general and
o the volatility of equity and debt securities held in inventory.
Markets characterized by low trading volumes and depressed prices generally
result in reduced commissions and investment banking revenues as well as losses
from declines in the market value of securities positions. Moreover, Ryan Beck
is likely to be adversely affected by negative economic developments in, the
mid-Atlantic region or the financial services industry in general.
The majority of Ryan Beck's assets and liabilities are trading securities or
securities sold not yet purchased. Trading securities and securities sold not
yet purchased are associated with trading activities conducted both as principal
and as agent on behalf of individual and institutional investor clients of Ryan
Beck and are accounted for at fair value in our financial statements. Fair value
is determined by market price quotations and volatility in either the stock or
fixed income markets could result in an adverse change in our financial
statements. Trading transactions as principal involve making markets in
securities held in inventory to facilitate sales to and purchases from
customers. As a result of this activity Ryan Beck may be required to hold
securities during declining markets.
11
Bancorp Parent Company
Bancorp Parent Company segment operations include the costs of acquisitions,
financing of acquisitions, goodwill amortization and impairment, contributions
of capital to its subsidiaries and the ownership and management of a portfolio
of public and private equity investments. Certain affiliates, including certain
of BFC's and Bancorp's executive officers, have independently made investments
with their own funds in both public and private entities in which Bancorp holds
investments. Bancorp Parent Company obtains its funds from issuances of equity
securities, subordinated debentures, convertible subordinated debentures and
subordinated investment notes as well as borrowings from unrelated financial
institutions and dividends from BankAtlantic. These funds are utilized for
additional investments in BankAtlantic, Levitt Companies, and Ryan Beck, as well
as the purchase of equity investments and dividends to its shareholders
including BFC. (See Management Discussion and Analysis "Related Party
Transactions" for a further discussion on equity investments.)
BFC Holding Company
The BFC holding company segment includes all of the operations and all of the
assets which are owned by BFC other than Bancorp and its subsidiaries. BFC owns
and manages real estate which include the ownership of Burlington Manufacturers
Outlet Center ("BMOC"), a shopping center in North Carolina and the unsold land
at Center Port, an industrial office park developed in Florida. BFC also holds
mortgage notes receivable that were received in connection with the sale of
properties previously owned. The BFC holding company segment also includes
overhead and interest expense. The interest expense relates to debts and other
borrowings, primarily utilized for the acquisition of real estate and equity
securities. Equity investments primarily include equity securities in the retail
and technology sectors and ownership interests in private limited partnerships.
Subsidiaries of BFC are the managing general partners of the private limited
partnerships and the partnerships' accounts are included in the consolidated
financial statements of the Company.
EMPLOYEES
Management believes that its relations with its employees are satisfactory. The
Company currently maintains comprehensive employee benefit programs which are
considered by management to be generally competitive with employee benefits
provided by other major employers in its markets.
The Company's number of employees at the indicated dates were:
December 31, 2001 December 31, 2000
----------------- ------------------
Full- Part- Full- Part-
time time time time
------- ------- -------- --------
BFC 6 1 6 1
BankAtlantic 830 85 836 112
Levitt Companies 202 27 170 35
Ryan Beck 300 13 272 18
----- ----- ----- -----
Total 1,338 126 1,284 166
===== ===== ===== =====
BankAtlantic added approximately 166 full time equivalent employees as a direct
result of the Community Savings Bankshares, Inc. acquisition on March 22, 2002.
On January 30, 2002, BankAtlantic announced a seven day banking initiative
scheduled to begin on April 1, 2002. This initiative will include Saturday,
Sunday and extended weekday branch banking and 24 hour call center access.
BankAtlantic's management anticipates that it will be necessary to employ a
significant number of additional employees in connection with the implementation
of the seven day banking initiative.
COMPETITION
BankAtlantic is one of the largest financial institutions headquartered in the
State of Florida. BankAtlantic has substantial competition in attracting and
retaining deposits and in lending funds. BankAtlantic competes not only with
financial institutions headquartered in the State of Florida
12
but also with a growing number of financial institutions headquartered outside
of Florida which are active in Florida. Many of BankAtlantic's competitors have
substantially greater financial resources than BankAtlantic has and, in some
cases, operate under fewer regulatory constraints.
Levitt Companies is engaged in the real estate development and construction
industry. The business of developing and selling residential properties and
planned communities is highly competitive and fragmented. Levitt Companies
competes with numerous large and small builders on the basis of a number of
interrelated factors, including location, reputation, amenities, design, quality
and price. Some competing builders have nationwide operations and substantially
greater financial resources. Levitt Companies' products must also compete with
re-sales of existing homes and available rental housing. In general, the housing
industry is cyclical and is affected by consumer confidence levels, prevailing
economic conditions and interest rates. A variety of factors affect the demand
for new homes, including the availability and cost of labor and materials,
changes in costs associated with home ownership, overbuilding, a surplus of
available real estate offerings in the market or decreases in demand, changes in
consumer preferences, demographic trends and the availability of mortgage
financing.
Ryan Beck is engaged in investment banking, securities brokerage and asset
management activities all of which are extremely competitive businesses.
Competitors include:
o All of the member organizations of the New York Stock Exchange and
NASD,
o Banks,
o Insurance companies,
o Investment companies, and
o Financial consultants.
In addition to its ownership in Bancorp, BFC owns and manages real estate
primarily through its ownership of BMOC. In connection with its leasing
activities, BMOC competes with other shopping centers and outlet centers for
tenants. There are also owners of other buildings within BMOC that compete for
the same tenants as BMOC.
REGULATION AND SUPERVISION
General
As the holder of approximately 23% of all of Bancorp's outstanding Common
Stock, BFC is a unitary savings bank holding company subject to regulatory
oversight by the Office of Thrift Supervision ("OTS"). In addition, Bancorp is
also a savings bank holding company and is subject to the same oversight by the
OTS. As such, both are required to register with the OTS and are subject to OTS
regulations, examinations, supervision and reporting requirements. In addition,
the OTS has enforcement authority non-savings bank subsidiaries including Levitt
Companies and Ryan, Beck & Co. Among other things, this authority permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the financial safety, soundness or stability of a subsidiary savings bank.
HOLA prohibits a savings bank holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring another savings bank or holding
company thereof, without prior written approval of the OTS; acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary savings
bank, a non-subsidiary holding company, or a non-subsidiary company engaged in
activities other than those permitted by HOLA; or acquiring or retaining control
of a depository institution that is not insured by the FDIC. In evaluating an
application by a holding company to acquire a savings bank, the OTS must
consider the financial and managerial resources and future prospects of the
company and savings bank involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
Unitary savings and loan holding companies, generally are not restricted under
existing laws as to the types of business activities in which they may engage,
provided that the Bank continues to satisfy the Qualified Thrift Lender ("QTL")
test. See "- Regulation of Federal Savings Banks - QTL Test" for a discussion of
the QTL requirements. If we were to make a non-supervisory acquisition of
another savings bank or of a savings bank that meets the QTL test and is deemed
to be a savings bank by the OTS and that will be held as a separate subsidiary,
we would become a multiple savings bank holding company and would be subject to
limitations on the types of business activities in which we can engage. HOLA
limits the activities of a multiple savings bank holding company and its
non-insured bank subsidiaries primarily to activities permissible for bank
holding companies under Section 4(c)(8) of the BHC Act, subject to the prior
approval of the OTS, and to other activities authorized by OTS regulation.
13
BankAtlantic is a member of the FHLB system and its deposit accounts are insured
up to applicable limits by the FDIC. BankAtlantic is subject to supervision,
examination and regulation by the OTS and by the FDIC as the insurer of its
deposits. BankAtlantic must file reports with the OTS and the FDIC concerning
its activities and financial condition. BankAtlantic must obtain regulatory
approvals prior to entering into certain transactions and dividends by
BankAtlantic to Bancorp are limited by regulation. The OTS and the FDIC
periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion with respect to the classification of non-performing and
other assets and the establishment of adequate loan loss reserves for regulatory
purposes.
Transactions between the Bank, including any of the Bank's subsidiaries, and us
or any of the Bank's affiliates, are subject to various conditions and
limitations. See "Regulation of Federal Savings Banks - Transactions with
Related Parties." The Bank must file a notice with the OTS prior to any
declaration of the payment of any dividends or other capital distributions to
Bancorp. See - "Regulation of Federal Savings Banks - Limitation on Capital
Distributions."
The Bank
General
The Bank is subject to extensive regulation, examination, and supervision by the
OTS, as its chartering agency, and the FDIC, as its deposit insurer. The Bank's
deposit accounts are insured up to applicable limits by the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF") which are
administered by the FDIC. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approvals prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions or forming subsidiaries. The OTS
and the FDIC conduct periodic examinations to assess the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings bank can engage and is
intended primarily for the protection of the insurance fund and depositors.
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on us, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material statutes
and regulations applicable to savings banks, and it does not purport to be a
comprehensive description of all such statutes and regulations.
Regulation of Federal Savings Banks
Business Activities. The Bank derives its lending and investment powers from the
HOLA and the regulations of the OTS there under. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of debt
securities, and certain other assets. The Bank may also establish service
corporations that may engage in activities not otherwise permissible for the
Bank, including certain real estate equity investments and securities and
insurance brokerage. These investment powers are subject to various limitations,
including (a) a prohibition against the acquisition of any corporate debt
security that is not rated in one of the four highest rating categories; (b) a
limit of 400% of a bank's capital on the aggregate amount of loans secured by
non-residential real estate property; (c) a limit of 20% of a bank's assets on
commercial loans, with the amount of commercial loans in excess of 10% of assets
being limited to small business loans; (d) a limit of 35% of a bank's assets on
the aggregate amount of consumer loans and acquisitions of certain debt
securities; (e) a limit of 5% of assets on non-conforming loans (loans in excess
of the specific limitations of HOLA); and (f) a limit of the greater of 5% of
assets or bank's capital on certain construction loans made for the purpose of
financing what is or is expected to become residential property.
Loans to One Borrower. Under HOLA, savings banks are generally subject to the
same limits on loans to one borrower as are imposed on national banks.
Generally, under these limits, a savings bank may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of the bank's
unimpaired capital and surplus. Additional loans or extensions of credit are
permitted of up to 10% of unimpaired capital and surplus if they are fully
secured by readily-marketable collateral. Such collateral includes certain debt
and equity securities and gold bullion, but generally does not include real
estate. At December 31, 2001, the Bank's limit on loans to one borrower was
$58.8 million. At December 31, 2001, the Bank's largest
14
aggregate amount of loans to one borrower was $41.1 million and the second
largest borrower had an aggregate balance of $40.8 million.
QTL Test. HOLA requires a savings bank to meet a Qualified Thrift Lending
("QTL") test by maintaining at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
twelve-month period. A savings bank that fails the QTL test must either operate
under certain restrictions on its activities or convert to a bank charter. At
December 31, 2001, the Bank maintained 82% of its portfolio assets in qualified
thrift investments. The Bank had also satisfied the QTL test in each of the
prior 12 months and, therefore, was a qualified thrift lender. A savings bank
may also satisfy the QTL test by qualifying as a "domestic building and loan
association" as defined in the Internal Revenue Code of 1986.
Capital Requirements. The OTS regulations require savings banks to meet three
minimum capital standards: a tangible capital ratio requirement of 1.5% of total
assets as adjusted under the OTS regulations and a risk-based capital ratio
requirement of 8% of core and supplementary capital to total risk-based assets.
The OTS regulations also provide that the minimum leverage capital ratio, or
core capital to total adjusted assets, under OTS regulations for a depository
institution that has been assigned the highest composite rating of 1 under the
Uniform Financial Institutions Rating is 3% and that the minimum leverage
capital ratio for any other depository institution is 4%, unless a higher
capital ratio is warranted by the particular circumstances or risk profile of
the depository institution. In determining the amount of risk-weighted assets
for purposes of the risk-based capital requirement, a savings bank must compute
its risk-based assets by multiplying its assets and certain off-balance sheet
items by risk-weights, which range from 0% for cash and obligations issued by
the United States Government or its agencies, to 100% for consumer and
commercial loans, as assigned by the OTS capital regulation based on the risks
OTS believes are inherent in the type of asset.
The table below presents the Bank's regulatory capital as compared to the OTS
regulatory capital requirements at December 31, 2001:
For the Year Ended December 31, 2001
------------------------------------------- Well
Minimum Capital Capitalized
Actual Requirement -------------------
Amount Ratio Amount Ratio Amount Ratio
------------------- ------------------- ---------- -------
(In thousands)
Tangible capital $346,057 8.02% $ 64,707 1.50% $ 64,707 1.50%
Core capital $346,057 8.02% $172,551 4.00% $215,689 5.00%
Risk-based capital $383,295 12.90% $237,648 8.00% $297,060 10.00%
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital for the Bank at December 31, 2001:
Risk-
Tangible Core Based
Capital Capital Capital
----------- ----------- ----------
(In thousands)
GAAP capital $ 370,503 $ 370,503 $ 370,503
Non-allowable assets:
Other comprehensive income (8,292) (8,292) (8,292)
Goodwill (16,154) (16,154) (16,154)
General valuation allowances -- -- 37,238
--------- --------- ---------
Regulatory capital 346,057 346,057 383,295
Minimum capital requirement 64,707 172,551 237,648
--------- --------- ---------
Regulatory capital excess $ 281,350 $ 173,506 $ 145,647
========= ========= =========
15
Limitation on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings banks, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger, and other distributions charged
against capital.
Under the OTS regulations governing capital distributions, certain savings banks
are permitted to pay capital distributions during a calendar year that do not
exceed the bank's net income for the year plus its retained net income for the
prior two years, without notice to, or the approval of, the OTS. In addition,
the OTS can prohibit a proposed capital distribution, otherwise permissible
under the regulation, if the OTS has determined that the savings bank is in need
of more than normal supervision or if it determines that a proposed distribution
by a savings bank would constitute an unsafe or unsound practice. Furthermore,
under the OTS prompt corrective action regulations, the Bank would be prohibited
from making any capital distribution if, after the distribution, the Bank failed
to meet its minimum capital requirements, as described above. See " - Prompt
Corrective Regulatory Action."
Liquidity. The Bank is required to maintain sufficient liquidity to ensure its
safe and sound operation. The Bank's average liquidity ratio at December 31,
2001 was 17%.
Assessments. Savings banks are required by OTS regulation to pay assessments to
the OTS to fund the operations of the OTS. The general assessment, paid on a
semi-annual basis, is based on the savings bank's total assets, including
consolidated subsidiaries, as reported in the bank's latest quarterly Thrift
Financial Report. The Bank's assessment expense during the year ended December
31, 2001 totaled $697,000.
Branching. Subject to certain limitations, HOLA and the OTS regulations permit
federally chartered savings banks to establish branches in any state of the
United States.
Community Reinvestment. Under the CRA, as implemented by OTS regulations, a
savings bank has a continuing and affirmative obligation consistent with its
safe and sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA requires the OTS, in
connection with its examination of a savings bank, to assess the bank's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such bank. The CRA also
requires all institutions to make public disclosure of their CRA ratings. The
Bank received a "satisfactory" CRA performance evaluation. Regulations
implementing the requirements under Gramm-Leach that insured depository
institutions publicly disclose certain agreements that are in fulfillment of CRA
became effective on April 1, 2001. BankAtlantic has no such agreements in place
at this time.
Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act ("FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the Federal Reserve Bank has proposed treating any subsidiary of a bank that
is engaged in activities not permissible for bank holding companies under the
BHCA as an affiliate for purposes of Sections 23A and 23B. The OTS regulations
prohibit a savings bank (a) from lending to any of its affiliates that is
engaged in activities that are not permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act ("BHC Act") and (b) from purchasing
the securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings bank and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings bank's capital and
surplus. Extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
provides that certain transactions with affiliates, including loans and asset
purchases, must be on terms and under circumstances, including credit standards,
that are substantially the same or at least as favorable to the Bank as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transactions, such transactions may only occur
under terms and circumstances, including credit standards that in good faith
would be offered to or would apply to non-affiliated companies. On October 1,
2001, the Bank made a special dividend to Bancorp of all the outstanding stock
of Levitt Companies, and Levitt Companies thereupon became a subsidiary of
Bancorp instead of the Bank. As a consequence, transactions between the Bank and
Levitt Companies became subject to the regulations and statutes described above
and in connection with the transaction the OTS issued a "no action" letter which
effectively grandfathered all then-outstanding loans, commitments and letters of
credit ("Levitt Loans") from the Bank to Levitt. In addition, the Bank agreed
that it would
16
not engage in any covered transactions with any affiliates until the aggregate
amount of all covered transactions, including the Levitt Loans, falls below
twenty percent of the Bank's capital stock and surplus.
The Bank's authority to extend credit to its directors, executive officers, and
10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Federal Reserve Board ("FRB") thereunder. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the bank's capital. In addition, extensions of credit in excess of
certain limits must be approved by the Bank's board of directors.
Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS has
primary enforcement responsibility over savings banks and has the authority to
bring enforcement action against all "institution-affiliated parties," including
any controlling stockholder or any shareholder, attorney, appraiser and
accountant who knowingly or recklessly participates in any violation of
applicable law or regulation or breach of fiduciary duty or certain other
wrongful actions that cause or are likely to cause a more than a minimal loss or
other significant adverse effect on an insured savings bank.
Standards for Safety and Soundness. Pursuant to the requirements of the FDI Act,
as amended by FDICIA and the Riegle Community Development and Regulatory
Improvement Act of 1994 ("Community Development Act"), the OTS, together with
the other federal bank regulatory agencies, have adopted a set of guidelines
prescribing safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings and
compensation, fees and benefits. In general, the guidelines require, among other
things, appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines.
Real Estate Lending Standards. The OTS and the other federal banking agencies
adopted regulations to prescribe standards for extensions of credit that (a) are
secured by real estate or (b) are made for the purpose of financing the
construction of improvements on real estate. The OTS regulations require each
savings bank to establish and maintain written internal real estate lending
standards that are consistent with OTS guidelines and with safe and sound
banking practices and which are appropriate to the size of the bank and the
nature and scope of its real estate lending activities.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain, and is authorized to take
other, supervisory actions against undercapitalized savings banks. For this
purpose, a savings bank would be placed in one of five categories based on the
bank's capital. Generally, a savings bank is treated as "well capitalized" if
its ratio of total capital to risk-weighted assets is at least 10.0%, its ratio
of core capital to risk-weighted assets is at least 6.0%, its ratio of core
capital to total assets is at least 5.0%, and it is not subject to any order or
directive by the OTS to meet a specific capital level. The most recent
notification from the Office of Thrift Supervision categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the institution's category. See "- Capital Requirements."
The severity of the action authorized or required to be taken under the prompt
corrective action regulations increases as a bank's capital deteriorates within
the three undercapitalized categories. All banks are prohibited from paying
dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. An undercapitalized bank is required to file a capital
restoration plan within 45 days of the date the bank receives notice that it is
within any of the three undercapitalized categories. The OTS is required to
monitor closely the condition of an undercapitalized bank and to restrict the
asset growth, acquisitions, branching, and new lines of business of such a bank.
If one or more grounds exist for appointing a conservator or receiver for a
bank, the OTS may require the bank to issue additional debt or stock, sell
assets, be acquired by a depository bank holding company or combine with another
depository bank. The OTS and the FDIC have a broad range of grounds under which
they may appoint a receiver or conservator for an insured depository bank. When
appropriate, the OTS can require corrective action by a savings bank holding
company under the "prompt corrective action" provisions of FDICIA.
Insurance of Deposit Accounts. Savings banks are subject to a risk-based
assessment system for determining the deposit insurance assessments to be paid
by insured depository institutions. Under the risk-based assessment system,
which began in 1993, the FDIC assigns an institution to one of three capital
categories based on the institution's financial information as of
17
the reporting period. The supervisory subgroup to which an institution is
assigned is based upon a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance funds. An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Assessment
rates currently range from 0.0% of deposits for an institution in the highest
category (i.e., well-capitalized and financially sound, with no more than a few
minor weaknesses) to 0.27% of deposits for an institution in the lowest category
(i.e., undercapitalized and substantial supervisory concern). The FDIC is
authorized to raise the assessment rates as necessary to maintain the required
reserve ratio of 1.25%. Both the BIF and SAIF currently satisfy the reserve
ratio requirement. If the FDIC determines that assessment rates should be
increased, institutions in all risk categories could be affected. The FDIC has
exercised this authority several times in the past and could raise insurance
assessment rates in the future. If such action is taken, it could have an
adverse effect upon the earnings of the Bank
Privacy and Security Protection. The OTS has recently adopted regulations
implementing the privacy protection provisions of Gramm-Leach. The regulations,
which require each financial institution to adopt procedures to protect
customers' and customers' "non-public personal information" became effective
November 13, 2000. The Bank has a privacy protection policy which we believe
complies with applicable regulations. In February 2001, the OTS and other
federal banking agencies finalized guidelines establishing standards for
safeguarding customer information to implement certain provisions of
Gramm-Leach. The guidelines describe the agencies' expectations for the
creation, implementation and maintenance of an information security program. The
new regulation became effective on July 1, 2001. BankAtlantic believes that
these regulations will not have a material impact upon our operations.
Insurance Activities. As a federal savings bank, BankAtlantic is generally
permitted to engage in certain insurance activities through subsidiaries. OTS
regulations promulgated pursuant to Gramm-Leach prohibit depository institutions
from conditioning the extension of credit to individuals upon either the
purchase of an insurance product or annuity or an agreement by the consumer not
to purchase an insurance product or annuity from an entity that is not
affiliated with the depository institution. The regulation also requires prior
disclosure of this prohibition to potential insurance product or annuity
customers.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Atlanta,
which is one of the regional FHLBs composing the FHLB System. Each FHLB provides
a central credit facility primarily for its member institutions. The Bank, as a
member of the FHLB of Atlanta, is required to acquire and hold shares of capital
stock in the FHLB. The Bank was in compliance with this requirement with an
investment in FHLB stock at December 31, 2001, of $56.4 million. Any advances
from a FHLB must be secured by specified types of collateral, and all long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance. The FHLB of Atlanta paid dividends on the capital stock of $3.7
million during the year ended December 31, 2001. If dividends were reduced, or
interest on future FHLB advances increased, the Bank's net interest income would
likely also be reduced.
Federal Reserve System. The Bank is subject to provisions of the FRA and the
FRB's regulations, pursuant to which depository institutions may be required to
maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3% of
the aggregate of transaction accounts up to $42.8 million. The amount of
aggregate transaction accounts in excess of $42.8 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 14%.
The FRB regulations currently exempt $5.5 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but FRB
regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
18
Federal Securities Laws
BFC's Class A Common Stock, BFC's Class B Common Stock and Bancorp's Class A
Common Stock are registered with the SEC under the Exchange Act. As such, both
BFC and Bancorp are subject to the information, proxy solicitation, insider
trading restrictions and other requirements under the Exchange Act.
Levitt Companies
Homes, residential communities and commercial developments built by Levitt
Companies and its subsidiaries must comply with state and local laws and
regulations relating to, among other things, zoning, environmental matters,
treatment of waste, construction materials which must be used, sales, density
requirements, building design and minimum elevation of properties. These include
laws requiring use of construction materials which reduce the need for
energy-consuming heating and cooling systems and to better withstand hurricanes.
These laws and regulations are subject to frequent change and often increase
construction costs. In some cases, there are laws which require that commitments
to provide roads and other offsite infrastructure be in place prior to the
commencement of new construction. These laws and regulations are usually
administered by individual counties and municipalities and may result in fees
and assessments or building moratoriums. In addition, certain new development
projects are subject to assessments for schools, parks, streets and highways and
other public improvements, the costs of which can be substantial. Compliance
with these regulations has extended the time required to market projects by
prolonging the time between the initiation of projects and the commencement and
completion of construction. Levitt Companies is currently in various stages of
securing governmental approvals for its development and homebuilding projects.
Delay or inability to obtain all required approvals for a project could have a
material adverse effect on the marketability or profitability of a project.
The residential homebuilding and commercial construction industry also is
subject to a variety of local, state and federal statutes, ordinances, rules and
regulations concerning the protection of health and the environment.
Environmental laws and conditions may result in delays, may cause Levitt
Companies to incur substantial compliance and other costs, and can prohibit or
severely restrict building activity in environmentally sensitive regions or
areas.
Ryan Beck
The securities industry in the United States is subject to extensive regulation
under both federal and state laws. The SEC is the federal agency charged with
administration of the federal securities laws. Much of the regulation of
broker-dealers has been delegated to self-regulatory authorities, principally
the NASD and, in the case of broker-dealers that are members of a securities
exchange, the particular securities exchange. These self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with rules they have adopted and amended from time to time, subject
to approval by the SEC.
Securities firms are also subject to regulation by state securities commissions
in those states in which they do business. As of December 31, 2001, Ryan Beck
was registered as a broker-dealer in 50 states and the District of Columbia. The
principal purpose of regulation and discipline of broker-dealers is the
protection of clients and the securities markets, rather than protection of
creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business,
including sales methods, trading practices among broker-dealers, uses and
safekeeping of clients' funds and securities, capital structure of securities
firms, recordkeeping and reporting, fee arrangements, disclosure to clients and
the conduct of directors, officers and employees.
Additionally, legislation, changes in rules promulgated by the SEC and
self-regulatory authorities, or changes in the interpretation or enforcement of
existing laws and rules, may directly affect the operations and profitability of
broker-dealers. The SEC, self-regulatory authorities and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, suspension or expulsion of a broker-dealer, its officers or employees.
Such administrative proceedings, whether or not resulting in adverse findings,
can require substantial expenditures. The profitability of broker-dealers could
also be affected by rules and regulations which impact the business and
financial communities in general, including changes to the laws governing
taxation, antitrust regulation and electronic commerce.
As a broker-dealer, Ryan Beck is required by federal law to belong to, and is a
member of, the Securities Investor Protection Corp. ("SIPC"), which provides, in
the event of the liquidation of a broker-dealer, protection for securities held
in client
19
accounts held by the firm of up to $500,000 per client, subject to a limitation
of $100,000 for claims of cash balances. SIPC is funded through assessments on
registered broker-dealers
Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934. The Net Capital Rule specifies minimum net
capital requirements that are intended to ensure the general financial soundness
and liquidity of broker-dealers. Failure to maintain the required net capital
may subject a firm to suspension or expulsion by the NYSE and the NASD, certain
punitive actions by the SEC and other regulatory bodies, and ultimately may
require a firm's liquidation. At December 31, 2001, Ryan Beck was in compliance
with all applicable capital requirements.
Ryan Beck operates under the provisions of paragraph (K)(2)(ii) of Rule 15c3-3
of the SEC as a fully-disclosed broker and, accordingly, customer accounts are
carried on the books of the clearing broker. However, Ryan Beck safe keeps and
redeems municipal bond coupons for the benefit of its customers. Accordingly,
Ryan Beck is subject to the provisions of SEC Rule 15c3-3 relating to possession
or control and customer reserve requirements and was in compliance with such
provisions at December 31, 2001.
Restrictions on Bancorp's Ability to Pay Dividends to BFC
While there is no assurance that Bancorp will pay dividends in the future,
Bancorp has paid a regular quarterly dividend to its common stockholders since
August 1993 and management of Bancorp has indicated that it will seek to declare
regular quarterly cash dividends on the Bancorp Common Stock. However, the
payment of dividends by Bancorp is subject to declaration by Bancorp's Board of
Directors and applicable indenture restrictions and loan covenants and will also
depend upon, among other things, the results of operations, financial condition
and cash requirements of Bancorp and on the ability of BankAtlantic to pay
dividends or otherwise advance funds to Bancorp, which in turn is subject to OTS
regulations and is based upon BankAtlantic's regulatory capital levels and net
income.
BankAtlantic must file a capital distribution notice or a capital distribution
application with the OTS in connection with distributions to Bancorp. Current
regulations applicable to the payment of cash dividends by savings institutions
impose limits on capital distributions based on an institution's regulatory
capital levels.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement No. 141, "Business Combinations", and
Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria which intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The Company was required to adopt the provisions of Statement 141
immediately and adopted Statement 142 on January 1, 2002.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify our reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in our statement of operations.
20
As of December 31, 2001, the Company had unamortized goodwill in the amount of
$39.9 million with annual amortization of approximately $4.0 million, which
ceased upon the adoption of Statement No. 142. The Company is currently
evaluating the transitional goodwill impairment criteria of Statement No. 142
but is not able to estimate the impact, if any, that Statement No. 142 may have
on the recorded goodwill. The impairment, if any, will have to be identified by
June 30, 2002 and measured and recorded by the Company no later than December
31, 2002. The impairment adjustment, if any, will be recognized as a cumulative
effect of a change in accounting principle in the results for the first quarter
of 2002.
On July 5, 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations". That standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
a cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. Management does not believe that Statement No. 143 will
have a material impact on the Company's consolidated financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" This statement retains the
requirements of Statement No. 121 to (a) recognize an impairment loss only if
the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flows and (b) measure an impairment loss as the difference
between the carrying amount and fair value of the asset. This statement requires
that a long-lived asset to be abandoned, exchanged for a similar productive
asset, or distributed to owners in a spinoff be considered held and used until
it is disposed of. This statement requires that the depreciable life of a
long-lived asset to be abandoned be revised and that an impairment loss be
recognized at the date a long-lived asset is exchanged for a similar productive
asset or distributed to owners in a spinoff if the carrying amount of the asset
exceeds its fair value. The accounting model for long-lived assets to be
disposed of by sale is used for all long-lived assets, whether previously held
and used or newly acquired. That accounting model measures a long-lived asset
classified as held for sale at the lower of its carrying amount or fair value
less cost to sell and requires depreciation (amortization) to cease.
Discontinued operations are no longer measured on a net realizable value basis,
and future operating losses are no longer recognized before they occur. This
statement retains the basic provisions of Accounting Principles Board Opinion 30
for the presentation of discontinued operations in the income statement but
broadens that presentation to include a component of an entity (rather than a
segment of a business). A component of an entity comprises operations and cash
flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. A component of an entity that
is classified as held for sale or that has been disposed of is presented as a
discontinued operation if the operations and cash flows of the component will be
(or have been) eliminated from the ongoing operations of the entity and the
entity will not have any significant continuing involvement in the operations of
the component. The provisions of this statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early application encouraged.
The provisions of this statement generally are to be applied prospectively.
Management does not believe that the adoption of Statement No. 144 will have a
material impact on the Company's consolidated financial statements.
ITEM 2. PROPERTIES
The Company's and Bancorp's principal and executive offices are located at 1750
East Sunrise Boulevard, Fort Lauderdale, Florida 33304. In addition to
BankAtlantic's branches, BankAtlantic owns three buildings and leases four
locations which house its back office operations. The following table sets forth
owned and leased BankAtlantic branch offices at December 31, 2001:
Miami - Wal*Mart (1)
Dade Broward Palm Beach Tampa Bay Superstores
--------------- -------------- --------------- --------------- ----------------
Owned full-service branches 4 10 10 3 --
Leased full-service branches 8 12 3 4 4
--------------- -------------- --------------- --------------- ----------------
Total full-service branches 12 22 13 7 4
=============== ============== =============== =============== ================
Lease expiration dates 2002-2005 2002-2009 2003-2006 2002-2003 2002-2006
=============== ============== =============== =============== ================
(1) BankAtlantic expects to sell or close down the remaining four Wal*Mart
Superstore branches during 2002.
21
BankAtlantic also maintains two ground leases in Broward County expiring between
2002 - 2072.
Levitt Companies leases administrative space. The leases expire in 2004 - 2005.
Ryan Beck's office space includes leased facilities in the following states with
year of lease expiration:
Lease
Locations Expiration
----------------------------------------
New Jersey 2003 - 2007
New York 2002 - 2007
Pennsylvania 2005
Florida 2002 - 2004
Massachusetts 2004
In connection with the acquisition of Community in March 2002, BankAtlantic
acquired 21 additional branch locations in Palm Beach, Martin, St. Lucie and
Indian River Counties in Florida (19 of which are owned and two of which are
leased with leases expiring in 2002 and 2004), two buildings which house back
office operations and land for three possible future branch sites.
The Company owns a shopping center known as the Burlington Manufacturers Outlet
Center located in Burlington, North Carolina containing approximately 265,265
leaseable square feet. It is not utilized by the Company but is held by the
Company as an investment.
ITEM 3. LEGAL PROCEEDINGS
The following is a description of legal proceedings other than ordinary routine
litigation incidental to the Company's business:
Smith & Company, Inc., Plaintiff vs. Levitt-Ansca Towne Partnership, Bellaggio
By Levitt Homes, Inc., et al., Defendants/Counter-Plaintiffs vs. Smith &
Company, Inc. and The American Home Assurance Company, filed in the Circuit
Court of Florida, Palm Beach County, Fifteenth Circuit, Case No. CL00-12783 AF.
On December 29, 2000, Smith & Company, Inc. ("Smith") filed this action against
Levitt-Ansca Towne Partnership (the "Partnership"), Bellaggio By Levitt Homes,
Inc. ("BLHI"), Bellaggio By Ansca, Inc. a/k/a Bellaggio By Ansca Homes, Inc.,
and Liberty Mutual Insurance Company seeking damages and other relief in
connection with an August 21, 2000 contract entered into with the Partnership.
BLHI is a 50% partner of the Partnership and is wholly owned by Levitt and Sons.
The Complaint alleged that the Partnership wrongfully terminated the contract,
failed to pay for extra work performed outside the scope of the contract and
breached the contract. The Partnership denied the claims, asserted defenses and
asserted a number of counterclaims. This case was tried before a jury, and on
March 7, 2002, the jury returned a verdict against the Partnership. On March 11,
2002, the Court entered a final judgment against the Defendants in the amount of
$3.68 million. In addition, under the final judgment it is likely that Smith and
its surety company will be entitled to recover legal fees and other costs. Since
BLHI is a 50% partner of the Partnership, its share of potential liability under
the judgment and for attorneys' fees is estimated to be approximately $2.6
million. The Partnership has filed several post-trial motions and intends to
vigorously pursue those motions and all available appeals.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Class A Common Stock and the Class B Common Stock have substantially
identical terms except that (i) the Class B Common Stock is entitled to one vote
per share while the Class A Common Stock will have no voting rights other than
those required by Florida law and (ii) each share of Class B Common Stock is
convertible at the option of the holder thereof into one share of Class A Common
Stock.
The following table sets forth, for the periods indicated, the high bid and low
asking prices of the Class A Common Stock and the Class B Common Stock, as
reported by the National Quotation Bureau, L.L.C. The Company's Class A and
Class B common stock trade on the OTC Bulletin Board under the symbols BFCFA and
BFCFB, respectively.
Year:
Class A Common Stock Class B Common Stock Price
-------------------- --------------------------
Quarter High Low High Low
------- ---- --- ---- ---
1999:
1st Quarter $ 7.00 $ 4.88 $ 7.50 $ 6.00
2nd Quarter $ 6.38 $ 3.88 $ 7.00 $ 5.00
3rd Quarter $ 5.88 $ 4.75 $ 5.88 $ 5.00
4th Quarter $ 5.13 $ 2.94 $ 5.75 $ 3.00
2000:
1st Quarter $ 3.50 $ 2.94 $ 3.75 $ 3.13
2nd Quarter $ 3.31 $ 2.88 $ 3.25 $ 3.00
3rd Quarter $ 3.13 $ 2.63 $ 3.19 $ 2.56
4th Quarter $ 3.00 $ 2.00 $ 3.75 $ 2.25
2001:
1st Quarter $ 4.19 $ 2.06 $ 4.25 $ 2.31
2nd Quarter $ 6.40 $ 4.00 $ 6.15 $ 4.06
3rd Quarter $ 7.90 $ 4.75 $ 7.95 $ 5.00
4th Quarter $ 6.00 $ 5.45 $ 6.25 $ 5.25
On March 21, 2002, there were approximately 1,100 record holders of the Class A
Common Stock and 1,050 record holders of Class B common stock.
The last sale price during 2001 of the Company's Class A and Class B common
stock as reported to the Registrant by the National Quotation Bureau was $5.90
and $5.65 per share, respectively.
There are no restrictions on the payment of cash dividends by BFC.
As noted in Part I, Item I under "Business - Regulation and Supervision -
Restrictions on Bancorp's Ability to Pay Dividends to BFC" there are
restrictions on the payment of dividends by BankAtlantic to Bancorp and by
Bancorp to its common shareholders, including BFC. The primary source of funds
for payment by Bancorp of dividends to BFC is currently dividend payments
received by Bancorp from BankAtlantic.
23
ITEM 6. Selected Consolidated Financial Data
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for share data and percentages)
For the Years Ended December 31,
----------------------------------------------------------------------------
Income Statement 2001 2000 1999 1998 1997
--------- --------- -------- ------- --------
Total interest income $ 326,001 $ 328,896 $ 1,529 $ 1,336 $ 666
Total interest expense 188,838 211,406 1,613 1,912 2,719
--------- --------- -------- ------- --------
Net interest income (expense) 137,163 117,490 (84) (576) (2,053)
Provision for loan losses 16,905 29,132 300 -- --
(Losses) gains on securities, net (781) (2,329) -- -- 1,349
Other non-interest income 122,149 116,586 14,110 2,729 15,849
Non-interest expense 193,262 179,580 2,292 2,202 2,157
--------- --------- -------- ------- --------
Income (loss) before income taxes,
minority interest, discontinued operations,
extraordinary items and cumulative
effect of a change in accounting principle 48,364 23,035 11,434 (49) 12,988
Provision (benefit) for income taxes 25,396 13,362 4,183 (368) 4,222
Minority interest in income of
consolidated subsidiaries 18,379 14,655 -- -- --
--------- --------- -------- ------- --------
Income (loss) before discontinued operations,
extraordinary items and cumulative
effect of a change in accounting principle 4,589 (4,982) 7,251 319 8,766
Discontinued operations, net of taxes -- 669 -- -- --
Extraordinary items, net of taxes (253)(j) 7,948(i) 175(h) 61(g) 1,052
Cumulative effect of a change in accounting
principle, net of taxes 1,138(k) -- -- -- --
--------- --------- -------- ------- --------
Net income $ 5,474 $ 3,635 $ 7,426 $ 380 $ 9,818
========= ========= ======== ======= ========
Common share data (d & e)
Basic earnings (loss) per share before
discontinued operations, extraordinary items
and cumulative effect of a change in
accounting principle $ 0.58 $ (0.63) $ 0.91 $ 0.04 $ 1.10
Discontinued operations -- 0.09 -- -- --
Extraordinary items (0.03) 1.00 0.02 0.01 0.13
Cumulative effect of a change in
accounting principle 0.14 -- -- -- --
--------- --------- -------- ------- --------
Basic earnings per share $ 0.69 $ 0.46 $ 0.93 $ 0.05 $ 1.23
--------- --------- -------- ------- --------
Diluted earnings (loss) per share before
discontinued operations, extraordinary
items and cumulative effect of a change in
accounting principle $ 0.52 $ (0.58) $ 0.82 $ 0.04 $ 1.00
Discontinued operations -- 0.08 -- -- --
Extraordinary items (0.03) 0.93 0.02 -- 0.12
Cumulative effect of a change in
accounting principle 0.13 -- -- -- --
--------- --------- -------- ------- --------
Diluted earnings per share $ 0.62 $ 0.43 $ 0.84 $ 0.04 $ 1.12
--------- --------- -------- ------- --------
Basic weighted average of common
shares outstanding (e) 7,957 7,957 7,957 7,954 7,938
Diluted weighted average of common
shares outstanding (e) 8,773 8,521 8,818 9,101 8,731
Ratio of earnings to fixed charges (c) 0.95 (0.14) 2.34 2.33 1.69
Dollar deficiency of earnings to fixed charges (c) 68 1,586 -- -- --
24
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data - (continued)
(In thousands, except for share data and percentages)
December 31,
--------------------------------------------------------------------
Balance Sheet (at year end) 2001 2000 1999 1998 1997
------------ ------------ --------- ---------- ----------
Loans and leases, net(l) $ 2,776,624 $ 2,855,015 $ 1,325 $ 1,740 $ 1,859
Securities 1,356,497 1,315,122 8,663 450 1,478
Total assets 4,665,359 4,654,954 96,745 91,257 98,871
Deposits 2,276,567 2,234,485 -- -- --
Securities sold under agreements to repurchase
and other short term borrowings 467,070 669,202 -- -- --
Other borrowings (m) 1,326,264 1,351,881 18,253 12,236 24,674
Stockholders' equity 74,172 72,615 58,965 57,631 54,142
Book value per share (e) 9.30 9.13 7.41 7.24 6.81
Return on average equity 7.44% 5.77% 12.61% 0.67% 21.10%
Asset quality ratios
Non-performing assets as a percent of total loans,
tax certificates and real estate owned 1.11% 0.89% -- -- --
Loan loss allowance as a percent of
non-performing loans 122.60% 254.00% -- -- --
Loan loss allowance as a percent of total loans 1.62% 1.66% -- -- --
Capital Ratios for BankAtlantic:
Total risk based capital 12.90% 11.00% 13.30% 13.92% 18.64%
Tier I risk based capital 11.65% 9.74% 12.04% 12.67% 17.38%
Leverage 8.02% 6.66% 7.71% 8.48% 11.12%
(a) Ratios were computed using quarterly averages.
(b) Since its inception, BFC has not paid any dividends.
(c) The operations of Bancorp have been eliminated since there is a dividend
restriction between BankAtlantic and Bancorp.
(d) Prior to 1997 there were no Class A common shares outstanding. All shares
outstanding prior to 1997 were Class B common shares. While 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.
(e) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 shares of BFC's
Class A Common Stock and 500,000 shares of BFC Class B Common Stock.
Because the Company owns 45.5% of the outstanding common stock of RAG,
624,938 shares of Class A Common Stock and 227,500 shares of Class B Common
Stock are eliminated from the number of shares outstanding for purposes of
computing earnings per share and book value per share.
(f) Gain on settlements of Exchange litigation of approximately $756,000 (net
of income tax), net gain from extinguishment of debt of $115,000 (net of
income tax) and net gain from debt restructuring of approximately $181,000
(net of income tax).
(g) Gain from extinguishment of debt of $61,000 net of income taxes of $39,000.
(h) Net loss from extinguishment of debt of approximately $179,000 (net of
income tax benefit) and net gain on settlement of litigation of
approximately $354,000 (net of income tax).
(i) Bancorp purchased $53.8 million aggregate principal amount of its 5-5/8%
Debentures and recognized a $7.9 million (net of income tax) extraordinary
gain in conjunction with these purchases.
(j) Loss from early retirement of Bancorp's subordinated investment notes of
$253,000, net of taxes.
(k) Cumulative effect of change in accounting principle related to the
implementation of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities".
(l) Includes $5 thousand and $1.3 million, of bankers acceptances in 2001 and
2000, respectively.
(m) Other borrowings consist of FHLB advances, subordinated debentures, notes
and bonds payable and guaranteed preferred beneficial interests in
Bancorp's junior subordinated debentures.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
BFC Financial Corporation ("BFC" or "the Company") is a unitary savings bank
holding company that owns approximately 16% and 100%, respectively, of the
outstanding BankAtlantic Bancorp, Inc. ("Bancorp") Class A and Class B Common
Stock, in the aggregate representing 23% of all the outstanding Bancorp Common
Stock. Bancorp is the holding company for BankAtlantic by virtue of its
ownership of 100% of the outstanding BankAtlantic common stock.
In August 2000, Bancorp shareholders approved a corporate transaction that
resulted in the retirement of all publicly held Bancorp Class B Common Stock,
other than the Class B Common Stock held by BFC. As a consequence, BFC became
the sole holder of the Class B Common Stock which represented 100% of the voting
rights of Bancorp at that time. Based on BFC's control of more than 50% of the
vote of Bancorp, commencing in 2000, Bancorp was consolidated in the Company's
financial statements instead of carried on the equity basis. In 2001, Bancorp
amended its articles of incorporation to grant voting rights to holders of
Bancorp Class A Common Stock, make Bancorp Class B Common Stock convertible into
Bancorp Class A Common Stock on a share for share basis, and equalize the cash
dividends payable on Bancorp's Class A Common Stock and Bancorp's Class B Common
Stock. As a consequence of the amendment, Bancorp's Class A shareholders are
entitled to one vote per share, which in the aggregate will represent 53% of the
combined voting power of Bancorp's Class A Common Stock and Bancorp's Class B
Common Stock. Bancorp's Class B Common Stock represents the remaining 47% of the
combined vote. Adjustments to operations relating to changes in the Company's
percentage ownership are reflected in minority interest.
For the Year Ended December 31, 2001 Compared to the Same 2000 Period
CONSOLIDATED RESULTS OF OPERATIONS
Income before income taxes, minority interest in income of consolidated
subsidiaries, discontinued operations, extraordinary items and cumulative effect
of a change in accounting principle increased by 110% from 2000. The increased
earnings primarily resulted from significant improvements in net interest income
and the provision for loan losses as well as higher earnings associated with
Levitt Companies. The above improvements in earnings were partially offset by a
goodwill impairment charge related to Bancorp's leasing subsidiary, Leasing
Technology, Inc. ("LTI"), lower earnings linked to Bancorp's investment banking
subsidiary, Ryan Beck and higher compensation, data processing and consulting
expenses.
Net interest income increased by 17% from 2000. The improvement in net interest
income primarily resulted from the rapid decline in interest rates during the
year ended December 31, 2001 as interest-bearing liabilities re-priced more
rapidly than interest earning assets. Net interest income also improved due to
interest earning asset growth. Bancorp experienced growth in all categories of
interest earning assets associated with loan originations and securities
purchases.
The provision for loan losses declined by 42% from 2000. The decrease reflects
decisions made in prior periods to strengthen the loan underwriting process and
discontinue loan products which had experienced adverse delinquency trends. As a
consequence of these decisions the origination of indirect consumer loans,
syndication loans and lease financings was discontinued and the small business
loan underwriting process was overhauled. These four categories had given rise
to over 92% of net charge-offs since December 31, 1998.
Losses on securities transactions decreased by 66% from 2000. During 2001,
securities transaction losses primarily related to write-downs in equity
securities at BFC and the venture partnerships. These losses were offset in part
by gains on sale of mortgage-backed securities. Securities transaction losses
during 2000 primarily related to investments write downs as a consequence of
declines associated with the value of the investments not considered temporary.
These losses were offset in part by sake if of equity securities and unrealized
gains on forward contracts. These gains were offset with investments write-downs
Other non-interest income increased by 5% from 2000. The increase largely
related to gains on real estate sales associated with the construction and
development activities of Levitt Companies, sales of assets and higher customer
transaction fees. These gains were partially offset by lower investment banking
revenues. The improved sales at Levitt Companies resulted
26
from higher revenues from land sales to developers and a 42% growth in home
sales to individuals during the year ended December 31, 2001. Investment banking
revenues declined due to a substantial reduction in underwriting and consulting
fees as well as lower commissions from equity and mutual fund sales.
Non-interest expense increased by 8% from 2000. The increase primarily resulted
from a $6.6 million goodwill impairment charge, a $2.6 million litigation
accrual and higher compensation expense. The higher compensation expense was due
to increased real estate development activities at Levitt Companies and higher
salaries, employee benefits and compensation expenses associated with banking
operations. The litigation accrual relates to a March 2002 jury verdict entered
against a partnership in which a subsidiary of Levitt Companies is a 50%
partner. The higher compensation expense was partially offset by lower
restructuring charges and impairment write-downs. The restructuring charges and
impairment write-downs were associated with a decision to exit in-store branches
during the year ended December 31, 2001 and the restructuring charges and
impairment write-downs during the same 2000 period were associated with a
strategic decision to terminate BankAtlantic's ATM relationships with certain
retailers.
During the year ended December 31, 2001 a $253,000 (net of taxes) extraordinary
loss was recorded from the early retirement of Bancorp's subordinated investment
notes. A $1.1 million income (net of tax) adjustment was recorded relating to
the cumulative effect of a change in accounting principle in accordance with the
implementation of Financial Accounting Standards Board Statement Number 133
"Accounting for Derivative Instruments and Hedging Activities". During the year
ended December 31, 2000, a gain of $669,000, net of tax was recognized from
discontinued operations associated with the sale of a facility used in Bancorp's
mortgage servicing business and $7.9 million (net of tax) extraordinary gain
from the early retirement of a portion of our convertible debentures was
recorded.
Net Interest income
27
The following table summarizes net interest income before capitalized interest
expense:
For the Year Ended For the Year Ended
December 31, 2001 December 31, 2000
-------------------------------------------- ---------------------------------------
(Dollars in thousands) Average Revenue/ Yield/ Average Revenue/ Yield/
- ---------------------- Balance Expense Rate Balance Expense Rate
------------- ------------- ------------- -------------- ----------- ----------
Interest earning assets
Loans: (a)
Residential real estate $ 1,327,571 $ 94,199 7.10% $ 1,372,034 $ 100,178 7.30%
Commercial real estate 1,108,732 93,809 8.46% 862,694 83,226 9.65%
Consumer 210,813 17,296 8.20% 226,515 21,809 9.63%
International 32,831 2,518 7.67% 51,860 4,145 7.99%
Lease financing 69,240 8,835 12.76% 57,649 8,260 14.33%
Commercial business 166,689 12,850 7.71% 193,067 18,053 9.35%
Small business 73,835 7,797 10.56% 102,748 11,461 11.15%
------------ ------------ ----------- ------------- ---------- --------
Total loans 2,989,711 237,304 7.94% 2,866,567 247,132 8.62%
------------ ------------ ----------- ------------- ---------- --------
Securities available for sale (b) 886,832 52,813 5.96% 829,608 50,799 6.12%
------------ ------------ ------------- ----------
Investment securities (c) 455,209 35,863 7.88% 341,678 29,175 8.854%
Federal funds sold 564 21 3.72% 629 40 6.36%
------------ ------------ ----------- ------------- ---------- --------
Total investment securities 455,773 35,884 7.87% 342,307 29,215 8.83%
------------ ------------ ----------- ------------- ---------- --------
Total interest earning assets 4,332,316 326,001 7.52% 4,038,482 327,146(e) 8.10%
------------ ------------ ----------- ------------- ---------- --------
Non-interest earning assets
Total non-interest earning assets 408,027 363,755
------------ -------------
Total assets $ 4,740,343 $ 4,402,237
============ =============
Interest bearing liabilities
Deposits:
Savings $ 102,996 1,451 1.41% $ 99,545 $ 1,268 1.27%
NOW, money funds and checking 757,922 20,241 2.67% 692,680 26,156 3.78%
Certificate accounts 1,182,094 63,976 5.41% 1,119,319 64,299 5.74%
------------ ------------ ----------- ------------- ---------- --------
Total interest bearing deposits 2,043,012 85,668 4.19% 1,911,544 91,723 4.80%
------------ ------------ ----------- ------------- ---------- --------
Securities sold under agreements
to repurchase and federal funds
purchased 596,463 24,270 4.07% 563,178 34,617 6.15%
Advances from FHLB 1,077,876 60,472 5.61% 1,031,255 61,331 5.95%
Subordinated debentures and notes
payable 203,764 16,980 8.33% 237,353 23,024 9.70%
Trust preferred securities (f) 74,750 7,197 9.63% 74,750 7,197 9.63%
------------ ------------ ----------- ------------- ---------- --------
Total interest bearing liabilities 3,995,865 194,587(d) 4.87% 3,818,080 217,892(d) 5.71%
------------ ------------ ----------- ------------- ---------- --------
Non-interest bearing liabilities
Demand deposit and escrow accounts 277,254 253,456
Other liabilities 152,113 96,453
------------ -------------
Total non-interest bearing
liabilities 429,367 349,909
------------ -------------
Minority interest 241,583 171,208
------------ -------------
Stockholders' equity 73,528 63,040
------------ -------------
Total liabilities and stockholders'
equity $ 4,740,343 $ 4,402,237
============ =============
Net interest income/net
interest spread $ 131,414 2.65% $ 109,254 2.39%
============ =========== ========== ========
Margin
Interest income/interest earning
assets 7.52% 8.10%
Interest expense/interest earning
assets 4.49% 5.40%
----------- ----------
Consolidated net interest margin 3.03% 2.70%
=========== ==========
Net interest margin excluding Levitt
Companies notes payable 3.13% 2.85%
=========== ==========
(a) Includes non-accruing loans.
(b) Average balances were based on amortized cost.
(c) Includes securities purchased under agreements to resell, tax certificates,
mortgage-backed securities held to maturity, interest-bearing deposits and
trading securities.
(d) Does not reflect reduction due to capitalized interest on real estate
investments.
(e) Excludes Core Communities utility receivable interest income accretion of
$1.7 million for December 31, 2000.
(f) Trust preferred securities are guaranteed preferred beneficial interests in
Bancorp's junior subordinated debentures.
28
The following table summarizes the changes in net interest income before
capitalized interest expense: (in thousands)
Year Ended
December 31, 2001
Compared to Year Ended
December 31, 2000 (c)
------------------------------------------
Volume (a) Rate Total
------------- -------------- ------------
Increase (decrease) due to:
Loans $ 9,774 $(19,602) $ (9,828)
Securities available for sale 3,408 (1,394) 2,014
Investment securities (b) 8,944 (2,256) 6,688
Federal funds sold (2) (17) (19)
-------- -------- --------
Total earning assets 22,124 (23,269) (1,145)
-------- -------- --------
Deposits:
Savings 49 134 183
NOW, money funds, and checking 1,742 (7,657) (5,915)
Certificate accounts 3,397 (3,720) (323)
-------- -------- --------
Total deposits 5,188 (11,243) (6,055)
-------- -------- --------
Securities sold under agreements to
repurchase 1,354 (11,701) (10,347)
Advances from FHLB 2,616 (3,475) (859)
Subordinated debentures and notes payable (2,798) (3,246) (6,044)
-------- -------- --------
1,172 (18,422) (17,250)
-------- -------- --------
Total interest bearing liabilities 6,360 (29,665) (23,305)
-------- -------- --------
Change in net interest income $ 15,764 $ 6,396 $ 22,160
======== ======== ========
(a) Changes attributable to rate/volume have been allocated to volume.
(b) Average balances were based on amortized costs.
(c) Does not reflect reduction due to capitalized interest on investments in
real estate.
Net interest income excluding capitalized interest and interest accretion on
Core Communities utility receivable increased by $22.2 million, or 20% from
2000. The substantial improvement reflects an increased net interest margin,
growth in average earning assets, an increase in deposit transaction account
average balances and the retirement of subordinated debentures.
The net interest margin improved by 33 basis points from 2000. The substantial
improvement primarily resulted from a rapid decline in interest rates during
2001 as interest bearing liabilities re-priced downward faster than interest
earning assets. Interest bearing liabilities rates declined by 84 basis points
while interest earning asset yields declined by 58 basis points. Rate declines
on interest-bearing liabilities were due to lower rates on deposit products,
notes payable, short term borrowings and the retirement of subordinated
debentures. The decline in deposit average rates primarily resulted from time
deposits re-pricing at lower interest rates and secondarily from growth in low
cost transaction deposit accounts. The average balance on transaction accounts
increased from $1,046 million to $1,138 million, an increase of 9%. Also
contributing to the rate declines were the retirement of subordinated investment
notes and 6-3/4% convertible subordinated debentures. The subordinated
investment notes had an average interest rate of 11%, and the rates on
convertible debentures were higher than the average rates on other borrowings.
Market rates on short-term borrowings were significantly lower during 2001
compared to 2000. The decline in interest earning asset yields was due to the
refinancing of residential loans and lower yields earned on floating rate loans
and securities.
Growth was achieved in the interest earning assets category. Loan growth was
primarily attributable to an increase in commercial real estate and home equity
loans partially offset by declines in syndication, small business, international
and indirect consumer loan portfolios. Declines in these portfolios reflected
decisions by management in prior periods to cease indirect automobile and
syndication lending, and terminate its lease financing originations, withdraw
from lending to international banks and substantially reduce its small business
loan originations. Growth in securities available for sale and investment
securities portfolios resulted primarily from the purchase of adjustable rate
mortgage-backed securities. The purchases were made as part of a portfolio
repositioning strategy in reaction to the rapidly declining interest rates
during the
29
year ended December 31, 2001. This increase in our securities available for sale
and investment securities portfolios was decreased by write-offs of certain
investments and decreases in unrealized appreciation.
During 2001, average earning assets and average rate paying liabilities
increased compared to 2000. The declining interest rate environment resulted in
decreased yields on earning assets with a corresponding decline in rates on
interest paying liabilities. The lower rates paid on average interest bearing
liabilities decreased interest expense by $29.7 million while the lower yields
on interest earning assets decreased interest income by $23.3 million. The
growth in interest earning assets increased interest income by $22.1 million and
higher average interest bearing liabilities increased interest expense by $6.4
million. Average earning assets increased by $294 million while average interest
bearing liabilities increased by $178 million. Bancorp utilized $53.5 million
net proceeds from its July 2001 equity offering to repay higher rate borrowings
resulting in an improved net interest margin.
Subordinated debentures and notes payable in the above average balance sheet
includes Levitt Companies' notes payable and associated interest expense. These
borrowings reduced the net interest margin by 10 basis points during the year
ended December 31, 2001. The net interest margin was negatively impacted by
these borrowings because the interest expense was included in the average
balance sheet but the income associated with those borrowings was recognized in
non-interest income as gains on the sale of real estate.
Provision for Loan Losses
Changes in the allowance for loan losses were as follows (dollars in thousands):
For the Year Ended
December 31,
-------------------------
2001 2000
--------- ---------
Balance, beginning of period $ 48,072 $ 45,522
Charge-offs:
Syndication loans (7,235) (3,659)
Commercial business loans -- (24)
Commercial real estate loans -- --
Small business (4,487) (14,114)
Lease financing (10,340) (3,930)
Consumer loans - direct (2,629) (2,233)
Consumer loan - indirect (2,981) (7,546)
Residential real estate loans (244) (715)
-------- --------
Total charge-offs (27,916) (32,221)
-------- --------
Recoveries:
Commercial business loans 331 94
Commercial real estate loans 10 8
Small business 2,623 1,240
Lease financing 2,388 335
Consumer loans - direct 769 645
Consumer loans - indirect 2,252 3,211
Residential real estate loans 223 106
-------- --------
Total recoveries 8,596 5,639
-------- --------
Net charge-offs (19,320) (26,582)
Provision for loan losses 16,905 29,132
-------- --------
Balance, end of period $ 45,657 $ 48,072
======== ========
The provision for loan losses declined by $12.2 million or 42% from 2000. During
2000 the provision for loan losses was significantly increased to reflect losses
experienced in indirect consumer and small business lending activities. The
origination of indirect consumer loans was discontinued in 1998 and major
modifications to the underwriting process for small business loans in 2000 were
made. As a consequence, Bancorp's loss experience declined significantly in
these lines of business during 2001. Partially offsetting these improvements
were higher net charge-offs associated with lease financing and syndication loan
portfolios. During 2000 and 2001, these lines of business were discontinued.
30
The outstanding loan balances relating to consumer indirect, syndication, and
lease financing lending (discontinued lines of business) declined from $218.4
million at December 31, 2000 to $121.1 million at December 31, 2001. The balance
of small business loans originated before the implementation of new underwriting
standards declined from $67.0 million at December 31, 2000 to $32.1 million at
December 31, 2001. Net charge-offs from discontinued lines of business and small
business loans originated before implementation of the new underwriting
standards represented approximately 92% of total net charge-offs during the year
ended December 31, 2001.
In addition to net charge-offs, the provision for loan losses in 2001 also
included an increase in reserves for loans associated with in the hospitality
and aviation industries. These industries were adversely affected by September
11, 2001 terrorist attacks and a subsequent general decline in tourism. As a
consequence, loans to the hospitality industry were evaluated and the allowance
for loan losses was increased by $2.1 million. In addition, Bancorp made an $8.0
million specific valuation allowance relating to a syndication loan to a
borrower in the aviation industry. The $8.0 million loan which was the subject
of the specific allowance was subsequently charged-off during the first quarter
of 2002.
31
Non-performing Assets and Potential Problem Loans
(in thousands) December 31,
-------------------------------
2001 2000
-------------- ------------
Nonperforming Assets
Non-Accrual
Tax certificates $ 1,727 $ 2,491
Residential 9,203 11,229
Syndication 10,700 --
Commercial real estate and business 13,066 1,705
Small business - real estate 905 2,532
Lease financing 2,585 1,515
Consumer 796 1,944
----------- -----------
38,982 21,416
Repossessed (1)
Residential real estate owned 2,033 2,562
Commercial real estate owned 1,871 1,937
Consumer 17 95
Lease financing -- 1,647
----------- -----------
3,921 6,241
----------- -----------
Total Non-Performing Assets 42,903 27,657
Specific valuation allowances (9,936) (819)
----------- -----------
Total Non-Performing Assets, Net $ 32,967 $ 26,838
=========== ===========
Total non-performing assets, net as a percentage of:
Total assets 0.71% 0.58%
=========== ===========
Loans, tax certificates and net real estate owned 1.11% 0.89%
=========== ===========
Total Assets $ 4,665,359 $ 4,654,954
=========== ===========
Total Loans, Tax Certificates And Net
Real Estate Owned $ 2,970,262 $ 3,029,938
=========== ===========
Allowance for loan losses $ 45,657 $ 48,072
=========== ===========
Total tax certificates $ 145,598 $ 124,289
=========== ===========
Allowance for tax certificate losses $ 1,521 $ 1,937
=========== ===========
Other Potential Problem Loans
Contractually Past Due 90
Days Or More
Small business $ -- $ --
Commercial real estate and business (2) -- 7,086
----------- -----------
-- 7,086
Performing Impaired Loans, Net Of
Specific Valuation Allowances
Corporate syndication loans -- 15,001
Restructured Loans
Commercial real estate and business 743 --
Delinquent Residential Loans Purchased 1,705 5,389
----------- -----------
Total Potential Problem Loans $ 2,448 $ 27,476
=========== ===========
1) Amounts are net of specific allowances.
2) The majority of these loans have matured and the borrower continues to make
payments under the matured loan agreement. The 2000 amount represents one
loan that was repaid during February 2001.
Non-performing assets, net of reserves increased by $6.1 million to $33.0
million at December 31, 2001 compared to $26.8 million at December 31, 2000.
Non-accrual assets increased by $17.6 million and repossessed assets declined by
$2.3 million. The increase in non-accrual assets primarily resulted from a
commercial construction loan and a syndication loan
32
which had outstanding balances of $12.3 million and $10.7 million, respectively.
These two loans were evaluated for impairment and a $9.8 million specific
valuation allowance was established based on the estimated collateral value less
cost to sell. Also contributing to the increase in non-accrual assets was higher
non-performing lease financings. The above increases were partially offset by
improvement in non-performing tax certificates and non-performing residential,
small business and consumer loans. The reduction in small business, consumer and
residential non-performing loans resulted from a declining portfolio and
improved delinquency trends. The decline in repossessed asset balances resulted
from the charge off of leased equipment.
Potential problem assets were $2.4 million at December 31, 2001 compared to
$27.5 million at December 31, 2000. Commercial real estate and business loans
contractually past due 90 days or more at December 31, 2000 was comprised of one
commercial real estate loan that was fully repaid in February 2001. The
performing impaired loans during 2000 reflected two syndication loans that did
not meet their loan covenants resulting in serious doubts as to the ability of
such borrowers to comply with the loan repayment terms. One of the loans was
paid in full and the other loan resulted in a $7.3 million charge off during
2001. The decline in delinquent residential loans purchased primarily resulted
from the sale of loans to an unrelated third party.
During February 2002, a $17 million loan collateralized by a hotel was placed on
a non-accrual status when the borrower failed to comply with the contractual
terms of the loan agreement. This loan is not included in nonperforming loans as
of December 31, 2001 but will be included as of March 31, 2002.
The table below presents the allocation of the allowance for loan and lease
losses by various loan classifications ("ALL by category"), the percent of
allowance to each loan category ("ALL to gross loans in each category") and sets
forth the percentage of loans in each category to gross loans excluding banker's
acceptances ("Loans by category to gross loans"). The allowance shown in the
table should not be interpreted as an indication that charge-offs in future
periods will occur in these amounts or proportions or that the allowance
indicates future charge-off amounts or trends. There is no assurance that the
allowance will be sufficient.
December 31, 2001 December 31, 2000
-------------------------------------------- ---------------------------------------
ALL Loans ALL Loans
to gross by to gross by
(Dollars in thousands) ALL loans category ALL loans category
by in each to gross by in each to gross
category category loans category category loans
--------------- -------------- ------------ ------------- ---------- ------------
Commercial business $ 1,563 2.02% 2.38% $ 1,502 1.00% 4.6%
Syndications 8,602 21.10% 1.25% 8,480 10.60% 2.4%
Commercial real estate 14,754 0.83% 50.54% 11,144 0.77% 40.2%
Small business 5,178 5.06% 3.14% 10,750 11.01% 3.0%
Lease financing 8,639 15.72% 1.69% 2,879 3.79% 2.3%
Residential real estate 1,304 0.12% 34.31% 1,540 0.12% 40.5%
Consumer - direct 2,064 1.07% 5.91% 2,989 1.89% 4.8%
Consumer - indirect 1,247 4.91% 0.78% 5,388 8.62% 1.9%
Unassigned 2,306 N/A% N/A% 3,400 N/A% N/A%
------- ------- ------- ------
$45,657 1.37% 100.00% $48,072 1.45% 100.0%
====== ====== ======= =====
The assigned portion of the allowance for loan and lease losses primarily
relates to discontinued lines of business and commercial real estate loans. The
allowance assigned to the discontinued lines of business was $22.6 million. The
$8.6 million amount assigned to the lease financing portfolio was significantly
higher than the December 31, 2000 reserve of $2.9 million. The increase resulted
from adverse delinquency trends and the potential for higher individual losses.
The $8.6 million amount assigned to syndication loans was primarily a $8.0
million specific valuation allowance associated with one syndication loan
associated with the aviation industry which was charged off in February 2002.
The small business allowance has declined from $10.8 million at December 31,
2000 to $5.2 million at December 31, 2001. Likewise, our consumer indirect
allowance declined from $5.4 million at December 31, 2000 to $1.2 million at
December 31, 2001. Included in the small business allowance at December 31, 2001
was a $4.1 million reserve for loans originated before the implementation of new
underwriting standards during the first quarter of 2000. The consumer - indirect
loan allowance reduction reflects
33
charge-offs of loans throughout the periods without a corresponding increase in
the provision. Consumer - indirect lending was discontinued in December 1998.
The increase in the allowance for commercial real estate loans from $11.1
million at December 31, 2000 to $14.8 million at December 31, 2001 primarily
resulted from portfolio growth associated with high balance loans and
secondarily from the establishment of a $2.1 million reserve associated with
loans relating to the hospitality industry discussed above. At December 31,
2001, commercial real estate portfolio included large lending relationships,
including 15 relationships with unaffiliated borrowers involving individual
lending commitments in excess of $30 million with an aggregate outstanding
balance of $411 million.
As discussed earlier, in order to improve the credit quality of BankAtlantic's
loan portfolio, BankAtlantic discontinued certain lines of business and
strengthened its underwriting process for small business loans. Lending
activities are currently primarily focused on collateral based loans such as
residential second mortgage products, small business loans originated utilizing
the new underwriting process, and commercial real estate and commercial business
loans. These loan types have historically had much lower loss ratios than the
discontinued lines of business. The loss experience for collateral-based loans
for the past five years resulted in a ratio of net charge-offs to total loans of
0.07% and the ratio of average allowances for loan losses to loans in these
lines of business have averaged 0.70%. It is anticipated that focusing on
collateral-based loans will improve credit quality with a corresponding
reduction in the allowance for loan losses as a percentage of total gross loans.
The remaining $2.3 million unassigned portion of the allowance for loan losses
addresses certain industry and geographic concentrations, including economic
conditions, in an attempt to address the imprecision inherent in the estimation
of the assigned allowance for loan losses. Due to the subjectivity involved in
the determination of the unassigned portion of the allowance for loan and lease
losses, the relationship of the unassigned component to the total allowance for
loan and lease losses may fluctuate from period to period.
NON-INTEREST INCOME
For the Year
Ended December 31, Change
------------------------- ---------------------
2001 2000 Amount Percent
--------- --------- -------- ------
(Dollars in thousands)
Banking Operations
Loan late fees and other loan income $ 4,224 $ 4,144 $ 80 1.93%
Gains (losses) on sales of loans held for sale, net 60 (528) 588 (111.36)%
Gains on trading securities and available for sale, net 3,597 2,226 1,371 61.59%
Transaction fees 16,372 13,666 2,706 19.80%
ATM fees 10,507 10,881 (374) (3.44)%
Other 5,492 4,511 981 21.75%
--------- --------- -------- ------
Non-interest income 40,252 34,900 5,352 15.34%
--------- --------- -------- ------
Levitt Companies Operations
Net revenues from sales of real estate and joint venture 36,583 23,217 13,366 57.57%
activities
Other 2,024 5,914 (3,890) (65.78)%
--------- --------- -------- ------
Non-interest income 38,607 29,131 9,476 32.53%
--------- --------- -------- ------
Ryan Beck Operations
Principal transactions 18,930 14,778 4,152 28.10%
Investment banking 11,745 15,387 (3,642) (23.67)%
Commissions 12,761 20,936 (8,175) (39.05)%
Other 978 1,032 (54) (5.23)%
--------- --------- -------- ------
Non-interest income 44,414 52,133 (7,719) (14.81)%
--------- --------- -------- ------
BFC Holding Company
Net revenues from sales of real estate and
joint venture activities 1,345 1,701 (356) (20.93)%
Losses on securities available for sale (4,378) (4,556) 178 (3.91)%
Other 1,128 948 180 18.99%
--------- --------- -------- ------
Non-interest income (loss) (1,905) (1,907) 2 (0.10)%
--------- --------- -------- ------
Total non-interest income $ 121,368 $ 114,257 $ 7,111 6.22%
========= ========= ======== ======
34
Banking Operations
Loan late fees and other loan income remained at 2000 amounts. Included in loan
and late fee income were prepayment penalties on commercial loans and fees
associated with unused commitments, stand-by letters of credit and trade finance
activities. During 2001 BankAtlantic experienced increased fees associated with
commercial lending which were substantially offset by lower late fees.
The loss on sales of loans during 2000 resulted from the sale of a problem
syndication loan for a $695,000 loss as well as losses associated with bank
investments activities. In September 2000, BankAtlantic discontinued the
purchase for resale of residential loans and reclassified $222 million of loans
held for sale to loans held for investment realizing a $654,000 loss at the
transfer date. Currently residential lending activities consist of originating
and selling CRA loans and referring all other residential loan customers to a
correspondent for a referral fee. The gains on sales of loans during 2001
represent sales of CRA loans.
Gains on sales of trading securities and securities available for sale during
2001 related to gains of $6.7 million, $0.5 million and $1.4 million from the
sale of equity securities, mortgage-backed securities and the settling of
interest rate swap contracts, respectively. The above gains were partially
offset by $3.5 million of other than temporary write-downs associated with
equity securities and $1.4 million of unrealized losses related to interest rate
swap and forward contracts. Bancorp sold its equity securities based on its
evaluation of the future prospects of the companies and market conditions.
Mortgage-backed securities and interest rate swap contracts were sold to
reposition the portfolio in reaction to declining interest rates during 2001.
The write-downs of equity securities resulted from significant declines in their
value that were considered other than temporary due to the financial condition
and near term prospects of the issuers of the securities.
Gains on sales of trading securities and securities available for sale during
2000 resulted from gains of $2.1 million and $0.4 million from the sale of
equity securities and mortgage-backed securities, respectively, and a $0.3
million unrealized gain from a forward contract, partially offset by $0.6
million write-down of equity investments.
The sales of securities available for sale were in reaction to changes in the
interest rate environment during 2000.
The significant increase in transaction fee income during 2001 compared to 2000
was primarily associated with higher revenues earned on commercial accounts and
the introduction of a new checking deposit product. Since its introduction in
September 2001, 22,000 new checking accounts have been opened resulting in a
substantial increase in overdraft revenues. Additionally, the rapid decline in
interest rates decreased the earnings credit for commercial accounts which have
analysis charges, which further increased transaction fee income.
During 2001, ATM fee income was slightly lower compared to the prior year. The
decline in revenues reflects the termination of BankAtlantic's ATM relationship
with K-Mart and the removal of all ATM machines from Wal*Mart stores in
September 2001. The above relationships did not meet strategic goals or required
investment returns. The removal of the ATM from retail outlets is expected to
lower ATM fee income in subsequent periods, while the overall performance of the
ATM division is expected to improve due to significantly lower expenses. The
above declines in revenues were partially offset by higher fees earned from
cruise ship ATM operations and increases in interchange and card fees.
The increase in other income during 2001 compared to 2000 primarily resulted
from the sale of branches and back office facilities. During 2001, BankAtlantic
sold twelve in-store branches for a gain of $1.6 million. During 2000, gains on
the sales of branch facilities and back office equipment were $0.9 million. The
exiting of in-store branches was part of a bank-wide program to review all lines
of business with a view towards improving overall earnings. BankAtlantic expects
to sell or close the remaining four in-store branches during the first half of
2002.
Levitt Companies Operations
The significant increase in gains on sales of real estate primarily resulted
from increased gains on land and home sales as well as higher earnings from
joint venture activities. Gains on land sales increased from $9.0 million during
the year ended December 31, 2000 to $11.0 million during the same 2001 period.
Likewise, gains on home sales increased from $12.3 million during the year ended
December 31, 2000 to $19.8 million during 2001 due to a 42% growth in sales of
homes in 2001 and the effect of reduced land costs resulting from the
acquisition of Levitt and Sons. Earnings from joint venture activities increased
from $1.1 million during the year ended December 31, 2000 to $2.9 million during
the same 2001 period.
35
Levitt and Sons gross margin is currently higher than it is anticipated to be in
the future primarily due to the effects of purchase accounting associated with
the Levitt and Sons acquisition. As it completes a full construction cycle
following acquisition, the effects of that accounting will disappear, resulting
in lower reported gross margins in future years.
The decline in other income resulted from the sale of a utility expansion
receivable during 2000 partially offset by an increase in rental income. During
February 2000, Core Communities received a cash payment of $8.5 million relating
to a receivable from a public municipality providing water and wastewater
services to St. Lucie West, resulting in a $4.3 million gain. The payment was in
full settlement of the receivable pursuant to an agreement dated December 1991
between Core Communities and the municipality. The 1991 agreement required the
municipality to reimburse Core Communities for its cost of increasing the
service capacity of the utility plant via payment to Core Communities of the
future connection fees generated from such capacity.
During 2002, Levitt Companies anticipates that Core Communities may make land
sales to Levitt and Sons rather than to unaffiliated developers. The effect of
these sales for accounting purposes will be to defer recognition of the related
gains to subsequent periods over the Levitt and Sons construction cycle.
Ryan Beck Operations
Ryan Beck's investment banking and commission revenues decreased 24% and 39%,
respectively, from 2000. The reduced commission revenues were attributable to
lower investor transaction volume due to a decline in overall financial market
transactions along with decreases in equity and mutual fund fees. Investment
banking revenues were adversely affected by a significant decline in initial
public offering closings during 2001 and a substantial reduction in equity
underwriting and advisory and placement fees. The increase in principal
transaction revenues reflects the addition of a new taxable fixed income group
and the addition of two retail offices. Excluding the additions of that line of
business and the new retail offices, principal transactions remained at 2000
levels.
NON-INTEREST EXPENSES
For the Year
Ended December 31, Change
------------------- ------------------
(In thousands) 2001 2000 Amount Percent
-------- -------- -------- -------
Banking Operations
Employee compensation and benefits $ 49,933 $ 46,890 $ 3,043 6.49%
Occupancy and equipment 25,204 23,622 1,582 6.7%
Advertising and promotion 3,771 4,154 (383) (9.22)%
Restructuring charges and write-downs 331 2,656 (2,325) (87.54)%
Impairment of cost over fair value of 6,624 -- 6,624 --
of net assets acuired Amortization of cost over .. 2,753 2,833 (80)
fair value of net assets acquired
Other 2 2 (2.82)%
24,604 24,137 467 1.93%
-------- -------- -------- -----
Non-interest expenses 113,220 104,292 8,928 8.56%
-------- -------- -------- -----
Levitt Companies Operations
Employee compensation and benefits 9,730 6,846 2,884 42.13%
Advertising and promotion 2,611 2,684 (73) (2.72)%
Selling, general and administrative 13,770 9,201 4,569 49.66%
-------- -------- -------- -----
Non-interest expenses 26,111 18,731 7,380 39.4%
-------- -------- -------- -----
Ryan Beck Operations
Employee compensation and benefits 35,435 37,191 (1,756) (4.72)%
Occupancy and equipment 3,287 3,632 (345) (9.50)%
Advertising and promotion 1,515 1,381 134 9.70%
Amortization of cost over fair value of net assets 1,320 1,248 72 5.77%
acquired
Other 9,488 10,732 (1,244) (11.59)%
-------- -------- -------- -----
Non-interest expenses 51,045 54,184 (3,139) (5.79)%
-------- -------- -------- -----
BFC Holding Company Operations
Employee compensation and benefits 1,902 1,389 513 36.93%
Occupancy and equipment 85 48 37 77.08%
Other 899 936 (37) (3.95)%
-------- -------- -------- -----
Non-interest expenses 2,886 2,373 513 21.62%
-------- -------- -------- -----
Total non-interest expenses $193,262 $179,580 $ 13,682 7.62%
======== ======== ======== =====
36
Banking Operations
The increase in compensation expense during 2001 compared to 2000 reflects
increased bonuses, health insurance expenses, 401(k) retirement benefits and a
reduction in income associated with Bancorp defined benefit pension plan. Higher
discretionary bonuses and incentive compensation were paid based on individual
performance and the achievement of corporate goals. The additional 401(k)
benefits reflected an increased employer match and the additional health
insurance costs resulted from generally higher medical costs.
Included in compensation expense during 2000 was a $1.3 million one-time charge
resulting from the retirement of all publicly held outstanding shares of Class B
Common Stock. The compensation charge resulted from retirement of shares of
Bancorp Class B Common Stock from holders who received these shares upon
exercise of options to acquire Class B Common Stock within six months of the
date of retirement.
The increase in occupancy and equipment expenses primarily resulted from higher
depreciation expense associated with the upgrading of Bancorp data processing
infrastructure as well as online banking operations. The higher depreciation
expense was partially offset by lower rental expenses from the termination of
ATM relationships with certain retail outlets and the sale of twelve in-store
branches.
During 2001 advertising expenses related primarily to the introduction of
BankAtlantic's no-charge checking accounts and the promotion of its home equity
lines of credit. During 2000, significant advertising costs were incurred
associated with promotions for new deposit and loan products as well as
promotional costs associated with internet banking.
During 2001, upon review of the performance and anticipated prospects of
BankAtlantic's in-store branches, management of BankAtlantic decided to exit
this line of business. This resulted in a $550,000 impairment write-down
assigned to fixed assets of certain in-store branches. During the fourth quarter
of 2000, a strategic decision was made to terminate BankAtlantic's ATM
relationships with Wal*Mart and K-Mart resulting in the restructuring charge and
impairment write-down shown on the above table. The restructuring charge was
reduced by $219,000 during 2001 to reflect lower ATM lease termination costs
than had been projected.
During September 2001, Bancorp closed the offices of Leasing Technology, Inc.
("LTI"), an equipment leasing and finance company acquired in 1998, and halted
lease originations. As a consequence, the remaining $6.6 million of goodwill
associated with the LTI acquisition was eliminated. Lease losses at LTI have
been increasing since December 2000, and the subsidiary's net charge-offs were
$8.0 million during the year ended December 31, 2001.
Other expenses increased slightly from 2000. The increase was primarily due to
higher telephone, consulting, professional fees and operating expenses. The
higher operating expenses were associated with upgrading Bancorp's call center
and technology infrastructure. The above expense increases were partially offset
by a $1.2 million gain on the sale of an REO property.
On January 30, 2002, BankAtlantic announced a seven day banking initiative
scheduled to begin on April 1, 2002. This initiative will include Saturday,
Sunday and extended weekday branch banking and 24 hour call center access.
BankAtlantic expects its non-interest expenses to increase with this initiative
with a corresponding potential impact on its short term performance; however,
management believes that seven day banking will position BankAtlantic as the
consumer bank of choice in its market.
Levitt Companies Operations
The increase in compensation and benefits primarily resulted from the expansion
of Levitt and Sons' activities. The number of Levitt Companies employees
increased from 188 at January 1, 2001 to 216 at December 31, 2001. The expansion
also resulted in higher selling, general and administrative expenses. Included
in selling, general and administrative expenses was a $2.6 million legal accrual
reflecting an adverse verdict in a jury trial against a subsidiary of Levitt
Companies. The Complaint alleged that a partnership in which Levitt and Sons'
wholly owned subsidiary is a 50% partner wrongfully terminated a contract,
failed to pay for extra work performed outside the scope of the contract and
breached the contract. The jury rendered its verdict on March 7, 2002. Levitt
Companies intends to vigorously pursue an appeal of the verdict, but there can
be no assurance that such appeal will be successful.
37
Ryan Beck Operations
The decline in employee compensation and benefits during 2001 compared to 2000
was primarily due to lower commission expenses associated with a significant
decline in transactional business from levels attained during 2000.
Occupancy and equipment expense decreases primarily resulted from a decline in
depreciation expense.
The declines in other expense during 2001 compared to the same 2000 period
primarily resulted from lower floor brokerage and clearing fees attributed to a
significant reduction in commission revenues and a new fee schedule negotiated
with the clearing agent during the third quarter of 2000.
During 2001, management of Ryan Beck took several steps to improve its
performance, including reductions in staff in certain underperforming areas.
These reductions resulted in relatively improved performance in the latter half
of 2001. In addition, Ryan Beck has successfully attracted several retail
account executives and opened two new offices in the State of New York, both of
which are expected to improve future performance.
BFC Holding Company Operations
The increase in employee compensation and benefits was primarily associated with
bonuses paid to employees.
Discontinued Operations
During 2000, Bancorp recognized a $669,000 gain, net of taxes, from discontinued
operations. The gain resulted from a higher than projected gain on the sale of a
building formerly used by the discontinued mortgage servicing unit.
Extraordinary Items
During the third quarter of 2001, Bancorp redeemed $34.8 million of its
subordinated investment notes and recognized a $253,000 extraordinary loss, net
of income tax.
During 2000, Bancorp purchased $53.8 million aggregate principal amount of its 5
5/8% convertible debentures through two tender offers and unsolicited open
market purchases. These debentures were purchased at a discount resulting in a
$7.9 million extraordinary gain, net of income tax.
Cumulative Effect of a Change in Accounting Principle
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") was adopted on
January 1, 2001. At the adoption date Bancorp recognized all derivative
instruments as defined by FAS 133 in the statement of financial position as
either assets or liabilities and measured them at fair value resulting in a $1.1
million gain associated with the cumulative effect of a change in accounting
principle, net of tax.
SEGMENT REPORTING
Management reports the results of operations of the Company and its subsidiaries
through seven operating segments. The operating segments are regularly reviewed
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
contribution of the operating segments may not reflect the actual economic
costs, contribution or results of operations of the unit as a stand alone
business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in the
segments would, in management's view, likely not be impacted.
38
Bank Operations
--------------------------------------------------------------------------------------
(In thousands) Bank Investments Commercial Banking Community Banking
-------------------------- -------------------------- --------------------------
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
Interest income $ 179,694 $ 178,229 $ 118,430 $ 116,196 $ 27,151 $ 33,238
Interest expense and
Overhead (135,160) (145,565) (68,864) (68,030) (16,325) (20,229)
Provision for loan losses 215 (449) (21,096) (15,866) 3,976 (12,817)
Non-interest income 919 731 3,074 2,359 11,073 11,693
Segment net income (loss) 24,785 17,898 15,993 17,774 4,063 (5,969)
Average assets $ 2,571,246 $ 2,484,625 $ 1,368,850 $ 1,173,581 $ 323,430 $ 350,973
(In thousands) Total Bank Operations Levitt Companies Ryan Beck
-------------------------- -------------------------- --------------------------
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
Interest income $ 325,275 327,663 $ 1,989 2,264 1,978 $ 2,151
Interest expense and
Overhead (220,349) (233,824) (180) (1,315) (517) (551)
Provision for loan losses (16,905) (29,132) -- -- -- --
Non-interest income 15,066 14,783 38,358 29,670 44,683 52,133
Segment net income (loss) 44,841 29,703 7,522 6,955 (1,317) 867
Average assets $ 4,263,526 $ 4,009,179 $ 173,437 $ 157,090 $ 74,108 $ 43,890
(In thousands) Bancorp Parent Company BFC Holding Company Consolidated Total
-------------------------- -------------------------- --------------------------
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
Interest income $ 229 $ 1,206 $ 383 $ 1,005 $ 329,854 $ 334,289
Interest expense and
overhead (18,990) (22,990) (4,125) (3,767) (244,161) (262,447)
Provision for loan losses -- -- -- -- (16,905) (29,132)
Non-interest income 3,123 1,506 (1,905) (1,907) 99,325 96,185
Segment net income (loss) (19,559) (19,753) (8,307) (6,424) 23,180 11,348
Average assets $ 99,220 $ 88,844 $ 28,751 $ 37,654 $ 4,639,042 $ 4,336,657
Business Segment Results of Operations
Allocation of Overhead - Bank Operations
The Bank Operations overhead allocation rate decreased for all bank segments due
to a substantial reduction in interest expense associated with lower average
rates on interest bearing liabilities partially offset by higher interest
bearing liabilities average balances and higher operating expenses. The
substantial decline in average rates was due to the declining interest rate
environment during 2001. The increased interest bearing liabilities were
primarily associated with the funding of asset growth. The higher operating
expenses resulted from increased compensation, data processing and consulting
expenses. The increases in data processing and consulting fees were primarily
associated with upgrades to technology infrastructure and Internet banking. The
overall decline in bank operations overhead was allocated to each bank operation
segment pro-rata based on its average assets.
Bank Investments
Segment net income increased by 38% from 2000. The higher net income primarily
resulted from a lower overhead allocation, increased interest income, higher
non-interest income and a reduction in the provision for loan losses. The
increase in non-interest income primarily resulted from write-downs of purchased
residential loans held for sale during 2000 with no corresponding write-downs
during 2001. The increase in interest income resulted from higher segment
average balances partially offset by lower yields on earning assets. The
improvement in the provision for loan losses reflects a decline in residential
loan charge-off during 2001 compared to the same 2000 period.
39
Commercial Banking
Segment net income declined by 10% from 2000. The primary reasons for the
decline were a substantial increase in the provision for loan losses (primarily
in syndications and lease activities) and secondarily an increase in the
overhead allocation. The above declines in segment net income were partially
offset by higher interest income, a gain on the sale of an REO property and an
increase in non-interest income.
The higher overhead allocation resulted from a significant increase in average
assets during 2001 partially offset by a decline in the overhead allocation
rate.
The improvement in interest income resulted from higher segment average balances
partially offset by lower yields on earning assets.
The increase in non-interest income reflects a $695,000 loss on the sale of a
syndicated loan during 2000.
Included in segment net income during 2001 was the sale of an REO property for a
$1.2 million gain.
Community Banking
Segment net income increased by $10.0 million during 2001 compared to 2000. The
higher net income primarily resulted from a significant improvement in the
provision for loan losses. The majority of the provision for loan losses in this
segment related to small business loans originated prior to the 2000 fiscal year
and indirect automobile loans. These portfolios declined substantially during
2000 with a corresponding reduction in charge-offs and the provision for loan
losses during 2001.
The decline in interest income was also due to lower average portfolio balances
during 2001 compared to 2000.
Non-interest income declined slightly due to lower ATM fee income from the
termination of ATM relationships with certain retail outlets.
Levitt Companies
Segment net income from Levitt Companies' operations increased by 8% from 2000.
The improvement in segment net income primarily resulted from gains on the sales
of real estate and a decline in interest expense partially offset by a decline
in joint venture income, higher compensation and selling, general and
administrative expenses and a gain on a utility receivable sale during 2000. The
decline in interest expense resulted from an increase in capitalized interest
during 2001 compared to 2000 due to the expansion of Levitt Companies' real
estate development activities. Included in selling, general and administrative
expenses was a $2.6 million litigation accrual.
Ryan Beck
Ryan Beck posted a segment loss of $1.3 million during 2001 compared to segment
net income of $867,000 during 2000. The decline in segment income during 2001
primarily reflects lower investment banking income and commission revenues
partially offset by an increase in principal transactions from the opening of
new retail branches as well as revenues from a new institutional fixed income
office. Investment banking revenues were lower due to a reduction in equity
underwritings , initial public offerings and consulting fees. The reduction in
commissions was due to a decline in transactional volume during 2001 compared to
2000.
Bancorp Parent Company
Bancorp Parent Company's loss was slightly lower during 2001 compared to 2000.
The decline in interest expense and compensation expense was offset by a
goodwill impairment charge and lower interest income.
The substantial decline in interest expense resulted from the redemption of
subordinated investment notes and convertible debentures during 2000 and 2001.
During 2000, Bancorp parent company incurred a one-time charge to compensation
expense of $1.3 million in connection with the redemption and retirement of all
publicly held outstanding shares of Bancorp's Class B Common Stock.
40
The slight increase in non-interest income resulted from sales in Bancorp's
equity securities portfolios. During 2001, Bancorp parent company sold $3.6
million of equity securities for a $6.7 million gain. The gains on sales were
partially offset by $2.6 million and $0.9 million of other than temporary
declines in value of equity securities available for sale and Bancorp's equity
investments in private companies, respectively. During 2000, Bancorp parent
company sold $3.6 million of equity securities for a $2.9 million gain and
recognized a $780,000 and $630,000 loss on the write down of an equity security
available for sale and equity investments in private companies, respectively.
BFC Holding Company
BFC Holding Company segment net loss in 2001 and 2000 was approximately $8.3
million and $6.4 million, respectively. The increase in the loss was primarily
due to a decrease in interest income and an in increase in overhead expense.
Interest income decreased in 2001 as compared to 2000 because of lower interest
earned from advances associated with the Company's development and construction
of the Center Port property. Overhead expenses increased primarily due to
bonuses paid in 2001. Since 2000, BFC controls greater than 50% of the vote of
Bancorp and accordingly Bancorp is consolidated in the financial statements of
the Company. Therefore, BFC's equity in earnings is excluded from the BFC
Holding Company segment results. However the provision for income taxes relating
to these earnings is included in the BFC Holding Company segment.
For the Year Ended December 31, 2000 Compared to the Same 1999 Period
RESULTS OF OPERATIONS
Based on the fact that Bancorp is consolidated into BFC's financial statements,
the following management's discussion and analysis deals primarily with the
activities of Bancorp, since it now represents substantially all of the
Company's assets and business operations. Comparative analysis is provided for
Bancorp, although Bancorp was not consolidated in the comparable accompanying
financial statements of the Company prior to 2000.
Overview of Bancorp
Bancorp's income from continuing operations declined 44% to $16.1 million. The
primary reasons for the reduced income were higher compensation, advertising and
consulting expenses, lower gains from the sale of loans held for sale, losses
from Bank Investments activities, lower earnings from investment banking
operations, and a restructuring charge associated with ATM activities.
Additionally, Bancorp recognized a $7.9 million extraordinary gain from the
repurchase of its 5 5/8% Convertible Debentures at a discount and recorded
$669,000 of gains from discontinued operations primarily from the sale of the
building occupied by the former mortgage servicing unit.
Net Interest Income
Net interest income excluding capitalized interest and accretion of Core
Communities utility receivable decreased from $114.9 million during 1999 to
$109.6 million during 2000. The reduction in net interest income resulted from
the narrowing of the net interest margin due to the rising interest rate
environment which began in July 1999 and the acquisition of Levitt and Sons. The
acquisition of Levitt and Sons resulted in a 14 basis point decline in the net
interest margin during 2000 primarily because Levitt and Sons' interest expense
was included in the margin calculation whereas the income associated with those
borrowings was recognized in non-interest income as gains on the sales of real
estate. The unfavorable effects of the lower interest rate margin were partially
offset by growth in average earning assets. During the 2000 period, average
earning assets significantly increased due to growth in the commercial real
estate loan portfolio and the purchase of mortgage-backed securities held to
maturity.
The net interest margin declined by 42 basis points from 1999. The reduced
margin was primarily the result of the fact that rates on interest bearing
liabilities increased faster than yields on interest earning assets. Rate
increases on interest-bearing liabilities were due to higher rates paid on
deposit products, notes payable acquired in connection with the Levitt and Sons
acquisition, short term borrowings and additional borrowings by Bancorp Parent
Company segment to fund the corporate transaction, which retired the publicly
held Class B Common shares, and to retire a portion of Bancorp's 5 5/8%
convertible debentures. The increased deposit average rates reflect the
introduction of new transaction and time deposit products with higher rates than
the existing portfolio. Market rates on short-term borrowings were higher during
2000 compared to 1999.
41
During 2000, average earning assets and average rate paying liabilities
increased compared to 1999. The rising interest rate environment resulted in
increased yields on earning assets with a corresponding increase in rates on
interest paying liabilities. The higher balances and yields increased interest
income by $41.9 million. Likewise, the higher balances and rates paid on average
interest bearing liabilities increased interest expense by $47.1 million.
Provision for Loan Losses
The provision for loan losses declined by 50% from 1999. The decrease reflected
Bancorp's management assessment of the inherent risk associated with small
business and indirect loan portfolios due to declining portfolio balances while
at the same time recognizing a need for additional allowances associated with
syndication and lease financing portfolios.
Gains on Trading Securities and Securities Available for Sale
Gains on securities transactions increased by 15% from 1999. Securities
transaction gains during 2000 primarily resulted from the sales of equity
securities and unrealized gains on forward contracts. Securities transactions
gains during 1999 resulted primarily from sales of mortgage-backed securities.
Non-interest Income
Other non-interest income increased by 16% from 1999. The increase was
attributed to significantly higher gains on real estate sales associated with
the construction and development activities of Levitt Companies. These gains
were partially offset by losses on the sale of loans held for sale during 2000
compared to gains during 1999. Losses on loan sales during 2000 were due to
unfavorable market conditions caused by a rising interest rate environment
during 2000 and the sale of a syndicated loan for a $695,000 loss.
Non-interest Expense
Non-interest expense increased by 27% from 1999. The increase reflects the
inclusion of Levitt and Sons' operations during the 2000 period, higher
compensation, advertising and consulting expenses associated with banking
operations and higher investment banking operating expenses associated with Ryan
Beck's diversification into the analytical coverage of new industries.
Additionally, a $2.7 million restructuring charge and impairment write-down was
incurred associated with a strategic decision to terminate BankAtlantic's ATM
relationships with two retailers.
Discontinued Operations
During 1999, a $2.1 million gain, net of taxes was recognized from discontinued
operations. The gain resulted from lower than anticipated costs associated with
the mortgage servicing portfolio sale along with higher servicing balances based
on slower than anticipated loan repayments.
Business Segment Results of Operations
Bank Investments
Segment net income declined by 21% from 1999. The lower net income primarily
resulted from lower gains on the sale of residential loans held for sale,
write-downs of loans held for sale and an increase in the interest expense and
overhead allocation to this segment.
The decrease in non-interest income was primarily associated with lower gains
associated with loans held for sale and write-downs of purchased residential
loans held for sale. The declines in gains on sales of residential loans held
for sale and write-downs of residential loans resulted from unfavorable market
conditions during 2000.
The above declines in segment net income were partially offset by an increase in
interest income primarily associated with higher rates earned on average assets
caused by higher interest rates during 2000 compared to 1999.
42
Commercial Banking
Segment net income declined by 20% from 1999. The primary reasons for the
decline were a substantial increase in the provision for loan losses (primarily
in syndications and lease activities), a significant gain on the sale of a REO
property during 1999 for which no similar gain was realized in 2000, losses on
the sale of a problem syndicated loan and an increase in interest expense and
overhead allocated to this segment.
The above declines in segment net income were partially offset by an increase in
interest income attributed to a substantial increase in the commercial real
estate loan portfolio and higher rates earned on average assets compared to
1999.
The decline in non-interest income resulted from a $1.5 million gain on the sale
of an REO property during 1999 and a $695,000 loss on the sale of a syndicated
loan during 2000. There were no significant gains on the sale of REO in the
segment during 2000 and there were no loans sold from this segment during 1999.
Community Banking
Segment net loss declined by $3.6 million during 2000 compared to 1999. The
improvement in the community banking segment operations primarily resulted from
a significantly lower provision for loan losses. This improvement reflected
reduced originations in the small business loan portfolio and the discontinuing
of the origination of indirect automobile loans in December 1998. The majority
of the provision for loan losses in this segment related to small business loans
originated prior to the 2000 fiscal year and indirect automobile loans. These
portfolios declined substantially during 2000 with a corresponding reduction in
charge-offs and the provision for loan losses.
The decline in interest income was also due to lower average portfolio balances
during 2000 compared to 1999.
Non-interest income decreased slightly due to higher ATM fee income partially
offset by declines in loan fees.
Levitt Companies
Segment net income from Levitt Companies' operations increased by 72% from 1999.
The improvement in segment net income primarily resulted from the acquisition of
Levitt and Sons during December 1999 and secondarily higher income from Core
Communities operations due to the utility receivable sale. Excluding the
acquisition of Levitt and Sons, interest income increased by $300,000,
non-interest income increased by $3.0 million and non-interest expense increased
by $1.8 million.
Ryan Beck
Segment income from operations declined by 63% from 1999. The decline in segment
income during 2000 primarily reflects lower investment banking income and higher
operating expenses.
Total non-interest income increased from 1999. While investment banking revenues
declined during 2000, revenues from principal transactions and commissions
increased 22% and 24%, respectively. This increase reflected a strategic
expansion of operations, in the latter half of 1999, which added analytical
coverage of new industries, including the consumer services, energy,
homebuilding, healthcare and pharmaceuticals industries. The decline in
investment banking revenue can be attributed to an all-time record-size offering
during 1999. The increase in operating expenses resulted from the significant
expansion of Ryan Beck's operations discussed above.
Bancorp Parent Company
Bancorp Parent Company's loss increased by $6.7 million during 2000 compared to
1999. This additional net loss reflected additional borrowings associated with
redemption of Bancorp's Class B Common Stock and lower interest income due to
the repayment of a $10 million note receivable from Ryan Beck.
BFC Holding Company
BFC Holding Company segment net loss in 2000 was approximately $6.4 million and
segment net income in 1999 was approximately $7.3 million. In 1999, BFC's
investment in Bancorp was carried on the equity basis and accordingly the
non-interest income component includes $10.5 million in equity in earnings of
Bancorp. Since 2000, BFC has controlled greater
43
than 50% of the vote of Bancorp and accordingly Bancorp is consolidated in the
financial statements of the Company. Therefore, BFC's equity in earnings is
excluded from the BFC Holding Company segment results in 2000. Reflected in 2000
is an impairment loss on securities of approximately $4.6 million.
Financial Condition
We consider the interest rate sensitivity, credit risk, liquidity risk and
equity pricing risk of our assets and liabilities, general economic conditions
and our capital position in managing our financial condition.
Our total assets for each of the years at December 31, 2001 and 2000 were $4.7
billion. Components of total assets changed. These changes primarily resulted
from an increase in: investment securities and tax certificates, trading
securities, cash, FHLB stock and real estate held for development and sale and
joint ventures. The above increases were offset by declines in securities
available for sale, loans receivable, accrued interest receivable and deferred
tax assets and cost over fair value of net assets acquired, net.
The increase in investment securities and tax certificates was primarily due to
the purchase of adjustable rate mortgage-backed securities and secondarily due
to growth in Bancorp's tax certificate portfolio. The increase in trading
securities relates to Ryan Beck's trading activities. The higher cash balances
reflect an increase in amounts due from correspondent banks. The additional FHLB
stock was due to higher required balances associated with FHLB advances at
December 31, 2001 compared to 2000. The increase in real estate held for
development and sale and joint ventures primarily resulted from purchases of
land for future development at Core Communities and the commencement of
additional real estate projects at Levitt and Sons.
The decrease in securities available for sale resulted from a decline in fair
value and write-downs of equity securities at BFC. This decrease was partially
offset by an increase in Bancorp's securities available for sale balances,
reflecting the purchase of adjustable rate mortgage-backed securities partially
offset by principal repayments primarily on REMIC securities. The decrease in
net loans receivable primarily resulted from declining loan balances in
BankAtlantic's discontinued lines of business and residential loans. Bancorp
discontinued the origination of indirect consumer loans, syndication loans,
international loans to correspondent banks and lease financing lending. The
origination of small business loans was also significantly reduced. The decline
in residential loan balances reflects accelerated loan prepayments due to the
declining interest rate environment during 2001. The decrease in accrued
interest receivable resulted from lower balances and yields on loans as well as
a decline in amounts receivable associated with interest rate swap contracts.
The decline in deferred tax assets primarily resulted from an increase in the
deferred tax liability on unrealized appreciation on securities available for
sale and secondarily from reductions in deferred tax assets from the sale of
real estate. The reduction in cost over fair value of net assets acquired
reflects a $6.6 million goodwill impairment charge associated with Bancorp's
leasing subsidiary, LTI as well as amortization of goodwill during 2001.
Our total liabilities at December 31, 2001 and 2000 were $4.2 billion and $4.4
billion, respectively. The decrease in total liabilities primarily resulted from
a decrease in short term borrowings and subordinated debentures partially offset
by higher deposit balances, advances from the FHLB, deferred tax liability and
other liabilities.
The decline in short term borrowings reflects an increase in deposits and FHLB
advance borrowings. The reduction in subordinated debentures primarily resulted
from the redemption of Bancorp's subordinated investment notes and conversion of
Bancorp's convertible subordinated debentures.
The increase in deposit accounts was due to higher transaction account balances
partially offset by a decline in certificate accounts. The transaction account
increase reflects the introduction of no charge checking products and the
declining interest rate environment resulting in the migration of deposit
balances from certificate accounts to money market accounts. The increase in
other liabilities reflects higher "securities sold not yet purchased" associated
with Ryan Beck's trading activities and an increase in current income taxes
payable.
The increase in minority interest was primarily due to an increase in Bancorp's
equity transactions. This increase was partially offset with a decrease in the
venture partnerships minority interest primarily attributed to decreases in
other comprehensive income.
44
The increase in BFC's stockholders' equity was primarily due to net income of
$5.5 million partially offset by a decrease in other comprehensive income of
$2.3 million primarily associated with a decrease in unrealized appreciation on
securities available for sale and a $1.6 million reduction in additional paid in
capital as a result of a decrease in BFC's percentage ownership of Bancorp.
The regulatory capital ratios of BankAtlantic as well as a description of the
components of risk-based capital and capital adequacy requirements are included
in Note 16 to the consolidated financial statements.
Asset and Liability Management
Bancorp's asset liability management is governed by policies that are reviewed
and approved BankAtlantic's Board of Directors. The asset and liability
committee, which is comprised of members of BankAtlantic's executive management,
meets quarterly and monitors market risks to develop risk management strategies
that are in accordance with BankAtlantic's policies.
Bancorp originates commercial real estate loans, commercial business loans,
small business loans, and consumer loans which generally have higher yields and
shorter durations than residential real estate loans. In the past, Bancorp
originated residential loans with both fixed and adjustable rates, however
currently the majority of residential loans originated are CRA loans sold to
correspondents. Bancorp also purchases both fixed and variable rate residential
loans which are retained for portfolio. Bancorp also acquires mortgage-backed
securities (including REMIC) and Treasury securities with intermediate terms.
Bancorp emphasizes the origination of low cost transaction accounts that are
generally less interest rate sensitive than time deposits. Bancorp has
introduced numerous deposit products to promote growth of transaction deposit
accounts. Bancorp has also obtained brokered deposits in conjunction with
interest rate swap contracts in order to fund LIBOR based commercial loans. The
interest rate swap contracts have the effect of converting fixed rate deposits
to LIBOR based borrowings. Bancorp has also entered into variable rate FHLB
advances along with interest rate swap contracts in order to fix the variability
of cash outflows on floating rate advances. Bancorp has also increased its
participation in the State of Florida's public funds program because rates paid
were lower than current certificate rates.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuations which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is interest rate risk and its secondary market risk is equity price
risk. BFC's primary market risk, without consideration of Bancorp, is equity
price risk relating to its equity investments. At December 31, 2001, BFC held
$10.7 million in publicly traded securities and $4.9 million in non-publicly
traded companies. During 2001, BFC wrote-off $4.4 million of investment in
equity securities due to a decline in value not considered to be other than
temporary.
Interest Rate Risk
The majority of Bancorp's assets and liabilities are monetary in nature
subjecting Bancorp to significant interest rate risk which would arise if the
relative values of each of its assets and liabilities change in conjunction with
a general rise or decline in interest rates. Bancorp has developed a model using
standard industry software to quantify its interest rate risk. A sensitivity
analysis was performed measuring potential gains and losses in net portfolio
fair values of interest rate sensitive instruments at December 31, 2001
resulting from a change in interest rates. Interest rate sensitive instruments
included in the model were:
o Loan portfolio,
o Debt securities available for sale,
o Investment securities,
o FHLB stock,
o Federal Funds sold,
o Deposits,
o Advances from FHLB,
o Securities sold under agreements to repurchase,
o Federal Funds purchased,
o Subordinated Debentures,
o Notes and bonds payable,
45
o Interest rate swaps,
o Forward contracts,
o Trust Preferred Securities, and
o Off-balance sheet loan commitments.
The model calculates the net potential gains and losses in net portfolio fair
value by:
(i) discounting anticipated cash flows from existing assets,
liabilities and off-balance sheet contracts and derivatives at
market rates to determine fair values at December 31, 2001,
(ii) discounting the above expected cash flows based on instantaneous
and parallel shifts in the yield curve to determine fair values;
and
(iii) the difference between the fair value calculated in (i) and (ii)
is the potential gains and losses in net portfolio fair values.
Management of Bancorp has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no quoted market for many
of these financial instruments, there is no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
Additionally, these fair value estimates do not consider the tax effect that
would be associated with the disposition of the assets or liabilities at their
fair value estimates.
Subordinated debentures, notes and bonds payable and Trust Preferred Securities
were valued for this purpose based on their contractual maturities or redemption
date. Bancorp's interest rate risk policy has been approved by Bancorp's Board
of Directors and establishes guidelines for tolerance levels for net portfolio
value changes based on interest rate volatility. Management of Bancorp has
maintained the portfolio within these established tolerances.
Certain assumptions by Bancorp in assessing the interest rate risk were utilized
in preparing the table below. These assumptions related to:
o Interest rates,
o Loan prepayment rates,
o Deposit decay rates,
o Market values of certain assets under various interest rate scenarios,
and
o Repricing of certain borrowings.
The prepayment assumptions used in the model are:
a) Fixed rate mortgages 25%
b) Fixed rate securities 12-13%
c) Tax certificates 10%
Deposit runoff assumptions used in the model are as follows:
Within 1-3 3-5 Over 5
1 Year Years Years Years
------ ----- ----- ------
Money fund savings accounts decay rates 17% 17% 16% 14%
NOW and savings accounts decay rates 37% 32% 17% 17%
46
Presented below is an analysis of Bancorp's interest rate risk at December 31,
2001. 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 $485,315 $(40,950)
+100 bp $519,686 $ (6,579)
0 $526,265 $ --
-100 bp $491,845 $(34,420)
-200 bp $451,960 $(74,305)
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that the assets and liabilities would perform as indicated in
the table above. In addition, a change in U.S. Treasury rates in the designated
amounts, accompanied by a change in the shape of the yield curve could cause
significantly different changes to the fair values than indicated above.
Furthermore, the results of the calculations in the preceding table are subject
to significant deviations based upon actual future events, including
anticipatory and reactive measures which we may take in the future.
Equity Price Risk
The Company maintains a portfolio of trading and available for sale securities
which subjects the Company to equity pricing risks which would arise as the
relative values of our equity securities changed in conjunction with market or
economic conditions. The change in fair values of equity securities represents
instantaneous changes in all equity prices segregated by trading, securities
sold not yet purchased and available for sale securities. The following are
hypothetical changes in the fair value of the Company's trading and available
for sale securities at December 31, 2001 based on percentage changes in fair
value. Actual future price appreciation or depreciation may be different from
the changes identified in the table below.
Available Securities
Percent Trading for Sale Sold Not
Change in Securities Securities Yet Dollar
Fair Value Fair Value Fair Value Purchased Change
---------- ---------- ---------- ---------- ---------
(dollars in thousands)
20% $ 81,955 $ 46,573 $ 46,117 $ 29,107
10% $ 75,126 $ 42,692 $ 42,274 $ 14,554
0% $ 68,296 $ 38,811 $ 38,431 $ 0
-10% $ 61,466 $ 34,930 $ 34,588 $(14,554)
-20% $ 54,637 $ 31,049 $ 30,745 $(29,107)
Excluded from the above table is $20.2 million of investments held by Bancorp in
private companies for which no current market exists. The ability to realize on
or liquidate these investments will depend on future market conditions and is
subject to significant risk. Investments in private companies are recorded in
our financial statements at historical cost. Declines in the fair value of
individual equity securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. These
fair values are determined based on the information available to management at
the valuation date and the actual fair value of the securities may vary from the
estimated fair value and may change based on changes in future conditions or
changes in industry.
Ryan Beck is a market maker in equity securities which could result, from time
to time in Ryan Beck holding securities during declining markets.
47
Interest Rate Sensitivity
Changes in interest rates can impact net interest income as well as the
valuation of assets and liabilities, as the relative spreads between assets and
our liabilities can widen or narrow due to changes in the overall levels of and
changes in market interest rates.
Profitability is dependent to a large extent on net interest income. Net
interest income is the difference between interest income on interest-earning
assets, such as loans, and interest expense on interest-bearing liabilities,
such as deposits. Changes in market interest rates, changes in the relationships
between short-term and long-term market interest rates, or changes in the
relationships between different interest rate indices, can affect the interest
rates charged on interest-earning assets differently than the interest rates
paid on interest-bearing liabilities. This difference could result in an
increase in interest expense relative to interest income. While an attempt has
been made to structure asset and liability management strategies to mitigate the
impact on net interest income of changes in market interest rates, such strategy
may not successful.
Generally, as interest rates fall, loan prepayments accelerate. Prepayments in a
declining interest rate environment reduce net interest income and adversely
impact earnings due to accelerated amortization of loan premiums and the
reinvestment of loan payoffs at lower rates than the loans that have been
repaid. Significant loan prepayments in the purchased residential loan portfolio
in the future could have an adverse effect on future earnings.
BFC's Liquidity and Capital Resources
The primary sources of funds to the Company (without consideration of Bancorp's
liquidity and capital resources which except as noted, are not available to BFC)
were dividends from Bancorp, funds received from the sale of the Company's
ownership interest in Delray Industrial Park and a building at BMOC, revenues
from property operations, principal and interest payments on loan receivables
and borrowings. Funds were primarily utilized by BFC to invest in equity
securities, reduce mortgage payable and other borrowings and to fund operating
expenses and general and administrative expenses. BFC has an $8.0 million
revolving line of credit that can be utilized for working capital as needed. At
December 31, 2001, approximately $3.48 million was available under this facility
that matures in December 2002 and bears interest at the prime rate plus 1%.
During 1999 and 2000, the Company (without consideration of Bancorp) acquired
interests in unaffiliated technology entities. During 2000 and 2001, the
Company's interests in the technology entities were transferred at the Company's
cost to specified asset limited partnerships. Subsidiaries of the Company are
the controlling general partners of these venture partnerships, therefore, they
are consolidated in these financial statements. Interests in such partnerships
were sold in 2000 and 2001 to accredited investors in private offerings. During
2000, approximately $5.1 million of capital was raised from unaffiliated third
parties by these partnerships and officers, directors and affiliates of the
Company invested approximately $4.4 million in the Partnership. The Company and
the general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of the $1.3 million, Alan Levan and Jack Abdo each
borrowed $500,000 from the Company on a recourse basis and Glen Gilbert,
Executive Vice President, and Earl Pertnoy, a director of the Company each
borrowed $50,000 on a non-recourse basis to make their investments. Such amounts
were still outstanding at the end of the year, bear interest at the prime rate
plus 1% and are payable interest only annually with the entire balance due in
February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and BFC Financial
Corporation - 57.5%. Losses net of minority interests for the year ended
December 31, 2001 were $881,000. At December 31, 2001, the Company's net
investment in these partnerships was $4.7 million.
As previously indicated the Company holds approximately 23% of the outstanding
Bancorp Common Stock. The payment of dividends by Bancorp is subject to
declaration by Bancorp's Board of Directors and applicable indenture
restrictions and loan covenants and will also depend upon, among other things,
the results of operations, financial condition and cash requirements of Bancorp
and the ability of BankAtlantic to pay dividends or otherwise advance funds to
Bancorp, which in turn is subject to OTS regulation and is based upon
BankAtlantic's regulatory capital levels and net income. While there is no
assurance that Bancorp will pay dividends in the future, Bancorp has paid a
regular quarterly dividend to its common stockholders since August 1993 and
management of Bancorp has indicated that it will seek to declare regular
quarterly cash dividends on the Bancorp Common Stock. Bancorp pays a quarterly
dividend of $.029 per share on its Class A and Class B Common Stock.
48
Based on its current level of ownership and Bancorp's current dividend rate, BFC
receives approximately $382,000 per quarter in dividends from Bancorp.
Bancorp's Liquidity and Capital Resources
On March 22, 2002 BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A. ("Community"), for approximately $170
million in cash and immediately merged Community into BankAtlantic. At the
acquisition date Bancorp made a $78.5 million capital contribution to
BankAtlantic. BankAtlantic funded the acquisition of Community from $78.5
million of the capital contribution received from Bancorp and the liquidation of
investments...Community was a federally chartered savings and loan association
founded in 1955 and headquartered in North Palm Beach, Florida. Community had 21
branches, with 13 located in Palm Beach County, 4 located in Martin County, 3
located in St. Lucie County and 1 located in Indian River County.
Bancorp's principal source of liquidity are dividends from BankAtlantic. Bancorp
also obtains funds through the issuance of equity securities, sales of
securities available for sale, borrowings from financial institutions and
issuance of debt securities. Bancorp's annual debt service at December 31, 2001
associated with its subordinated debentures, Trust Preferred Securities, and
financial institution borrowings was $12.1 million and was increased to $16.8
million as a result of the March 2002 trust preferred securities issuance.
Bancorp's estimated current annual dividends to common shareholders are $6.7
million. During 2001, Bancorp received $22.2 million of dividends from
BankAtlantic. The declaration and payment of dividends and the ability of
Bancorp to meet its debt service obligations will depend upon, among other
things, the results of operations, financial condition and cash requirements of
Bancorp as well as indenture restrictions and loan covenants and on the ability
of BankAtlantic to pay dividends or otherwise advance funds to Bancorp. Payments
and distributions by BankAtlantic are subject to OTS approval and regulations
and are based upon BankAtlantic's regulatory capital levels and net income.
Certain covenants contained in a Levitt Companies loan agreement prohibit it
from paying dividends to Bancorp. Ryan Beck has not paid dividends to Bancorp
and it is not anticipated that Ryan Beck will pay dividends to Bancorp during
2002. For a further discussion on dividend restrictions see Note 10 and 16 to
the consolidated financial statements.
Bancorp maintains a revolving credit facility of $30 million from 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.
At December 31, 2001, approximately $100,000 was outstanding under this credit
facility and Bancorp was in compliance with all loan covenants at December 31,
2001. Amounts outstanding accrue interest at the prime rate minus 50 basis
points and the note matures on September 1, 2004. This facility may be used for
general corporate purposes.
From time to time, Bancorp borrows funds under a margin account with an
unrelated broker/dealer. The terms of this account are ordinary and customary
for such accounts.
In October 2001, Bancorp filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to an aggregate
of $150 million of debt securities, Class A Common Stock and trust preferred
securities. During December 2001, Bancorp sold 6.9 million shares of its Class A
Common Stock under this registration statement in an underwritten public
offering at a price of $8.25 per share. The net proceeds after underwriting
discounts and expenses were approximately $53.5 million.
Bancorp formed Bancorp Capital Trust II ("Bancorp Capital II"), a statutory
business trust which was formed for the purpose of issuing Trust Preferred
Securities and investing the proceeds thereof in Bancorp Junior Subordinated
Debentures. In March 2002, Bancorp completed an underwritten public offering
under this shelf registration statement in which Capital II issued 2.22 million
shares of 8.5% Trust Preferred Securities, at a price of $25 per share. The
gross proceeds from the offering of $55.4 million were invested in an identical
principal amount of our 8.50% Junior Subordinated Debentures which bear interest
at the same rate as the 8.50% Trust Preferred Securities and have a stated
maturity of 30 years. In addition, Bancorp contributed $1.7 million to Bancorp
Capital II in exchange for Bancorp Capital II's Common Securities and such
proceeds were also invested in an identical principal amount of Junior
Subordinated Debentures. Bancorp Capital II's sole asset is $57.1 million in
aggregate principal amount of 8.50% Junior Subordinated Debentures. Holders of
Bancorp Capital II's Trust Preferred Securities and the Trust Common Securities
are entitled to receive a cumulative cash distribution at a fixed 8.50% rate of
the $25 liquidation amount of each security and the Trust Preferred Securities
will have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the Trust Common Securities held by Bancorp. The Trust Preferred Securities are
considered debt for financial accounting and tax
49
purposes. The net proceeds from this Trust Preferred Securities offering after
underwriting discounts and expenses were approximately $53.5 million.
In March 1997, Bancorp formed Bancorp Capital Trust I ("Bancorp Capital").
Bancorp Capital is a statutory business trust which was formed for the purpose
of issuing 9 1/2% Cumulative Trust Preferred Securities and investing the
proceeds thereof in Bancorp Junior Subordinated Debentures. In April 1997,
Bancorp Capital issued 2.99 million shares of Trust Preferred Securities at a
price of $25 per share. The gross proceeds from the offering of $74.75 million
were invested in identical principal amount of our 9.50% Junior Subordinated
Debentures which bear interest at the same rate as the Trust Preferred
Securities and have a stated maturity of 30 years. In addition, Bancorp
contributed $2.3 million to Bancorp Capital in exchange for Bancorp Capital's
Common Securities (the "Common Securities") and such proceeds were also invested
in an identical principal amount of Junior Subordinated Debentures. Bancorp
Capital's sole asset is $77.1 million in aggregate principal amount of 9 1/2%
Junior Subordinated Debentures. Holders of Trust Preferred Securities and the
Trust Common Securities are entitled to receive a cumulative cash distribution
at a fixed 9.50% rate of the $25 liquidation amount of each Security and the
Trust Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Trust Common Securities held by Bancorp. The
Trust Preferred Securities are considered debt for financial accounting and tax
purposes.
On November 25, 1997, Bancorp issued $100.0 million of 5 5/8% Debentures
maturing on December 1, 2007. The 5 5/8% Debentures are convertible at an
exercise price of $11.25 per share into Bancorp's Class A common stock. The 5
5/8% Debentures are redeemable at Bancorp's option, in whole or in part, at
fixed redemption prices. The outstanding balance of Bancorp's 5 5/8% Debentures
at December 31, 2001 was $46.1 million.
Bancorp's currently outstanding 9% Subordinated Debentures provide that Bancorp
cannot declare or pay dividends on, or purchase, redeem or acquire for value
Bancorp's capital stock, return any capital to holders of capital stock as such,
or make any distributions of assets to holders of capital stock as such, unless,
from and after the date of any such dividend declaration or purchase,
redemption, payment or distribution, Bancorp retains cash, cash equivalents or
marketable securities sufficient to cover the two consecutive semi-annual
interest payments that will be next due and payable. Bancorp is in compliance
with this requirement.
In connection with Bancorp's acquisition of Ryan Beck in June 1998, Bancorp
established a retention pool covering certain key officers of Ryan Beck, under
which 785,866 shares of Bancorp restricted Class A Common Stock were issued to
key employees. The retention pool was valued at $8.1 million at the acquisition
date, and the shares vest four years from the date of acquisition and are
treated as compensation expense. In January 2000, each participant in the
retention pool was provided the opportunity to exchange the restricted shares
that were allocated to such participant for a cash-based deferred compensation
award in an amount equal to the aggregate value at the date of the Ryan Beck
acquisition. The deferred compensation awards were granted under the
BankAtlantic Bancorp, Inc., Deferred Compensation Plan ("Plan"). The purpose of
the plan was to provide employees of Ryan Beck with a cash-based deferred
compensation plan in exchange for their interest in the restricted Class A
Common Stock issued upon the establishment of the retention pool. On March 1,
2000, 749,533 shares of Bancorp Class A restricted Common Stock out of the
755,474 shares outstanding under the retention pool were retired in exchange for
the establishment of interests in the new plan in the aggregate amount of $7.8
million. Bancorp may at their option terminate the Plan at any time without the
consent of the participants or stockholders and distribute to the participants
the amount credited to their deferred account (in whole or in part). The
participant's account will be settled by Bancorp in cash on the vesting date
(June 28, 2002) except that Bancorp can elect to defer payment of up to 50% of a
participant's interest in the plan for up to one year following the vesting
date. If Bancorp elects to exercise its rights to defer 50% of the cash payment,
Bancorp will issue a note bearing interest at prime plus 1% for the deferred
portion of the payment.
On October 1, 2001, BankAtlantic transferred its direct ownership in Levitt
Companies to Bancorp. There is no assurance that periodic sales of properties
from real estate investments will be sufficient to fund operating expenses as
incurred in future years. To the extent real estate sales are not adequate to
cover operating expenses as incurred, it may be necessary to fund an operating
deficit from other sources. While Bancorp is not obligated to repay any third
party debt of Levitt Companies under any circumstances, Bancorp has a
significant investment in Levitt Companies and BankAtlantic has loans to Levitt
Companies and Levitt Companies' joint ventures. Levitt Companies borrowed $15
million from an unaffiliated financial institutuion to finance the purchase of
Levitt and Sons. The obligation is secured by the stock of Levitt and Sons and
contains covenants in the loan agreement that prohibit the payment of dividends
or other advances by Levitt Companies to Bancorp. There is currently $12.4
million outstanding on this loan. The loan bears interest at the prime plus 50
basis points and is scheduled to have an outstanding balance of $4.9 million at
the September 1, 2005 maturity date.
50
BankAtlantic's liquidity will depend on its ability to generate sufficient cash
to meet funding needs to support loan demand, to meet deposit withdrawals and to
pay operating expenses. BankAtlantic's securities portfolio provides an internal
source of liquidity as a consequence of its short-term investments as well as
scheduled maturities and interest payments. Loan repayments and sales also
provide an internal source of liquidity.
Total commitments to originate and purchase loans and mortgage-backed
securities, excluding the undisbursed portion of loans in process, were
approximately $268.5 million, $143.8 million and $217.2 million at December 31,
2001, 2000 and 1999, respectively. BankAtlantic also entered into a 5 year
forward commitment to purchase the remaining balance of an identified portfolio
of government agency securities in March 2005. The original principal balance of
the portfolio was $225 million and the outstanding principal balance at December
31, 2001 was $110.8 million. The portfolio is estimated to paydown to $14.9
million during the 5 year commitment period. BankAtlantic has historically
funded its commitments out of loan repayments, deposit growth, and short and
intermediate term borrowings. At December 31, 2001, loan commitments were
approximately 9.7% of loans receivable, net.
BankAtlantic's primary sources of funds have been deposits, principal repayments
of loans and tax certificates; securities available for sale; maturities of
securities held to maturity; proceeds from the sale of loans and investment
securities; sales of branch facilities, proceeds from securities sold under
agreements to repurchase; advances from FHLB; operations; other borrowings; and
capital contributions from Bancorp. These funds were primarily utilized to fund
loan disbursements and purchases, repayments of securities sold under agreements
to repurchase, maturities of advances from FHLB, purchases of tax certificates
and payments of maturing certificates of deposit and payment of dividend to
Bancorp. The FHLB has granted BankAtlantic a $1.4 billion line of credit subject
to available collateral, with a maximum term of ten years secured by a blanket
lien on all of BankAtlantic's residential mortgage loans and certain commercial
real estate loans. BankAtlantic has established for up to $110 million lines of
credit with other banks to purchase federal funds and has established a $161.1
million potential advance with the Federal Reserve Bank of Atlanta. BankAtlantic
has various relationships to acquire brokered deposits. These relationships may
be utilized as an alternative source of borrowings, if needed. See Note 8 to the
Consolidated Financial Statements for further details on lines of credit.
A significant source of Bancorp's liquidity is repayments and maturities of
loans and securities. The table below presents the contractual principal
repayments and maturity dates of Bancorp's loan portfolio, securities available
for sale and mortgage-backed securities held to maturity at December 31, 2001.
The total amount of principal repayments on loans and securities contractually
due after December 31, 2002 was $3.5 billion, of which $1.0 billion have fixed
interest rates and $2.5 billion have floating or adjustable interest rates.
Actual principal repayments may differ from the information shown below.
Principal
Balance
Outstanding Schedule of Principal repayments
On ------------------------------------------------------------------------------
December 31, For the Period Ending December 31, (1)
---------- ------------------------------------------------------------------------------
(in thousands) 2001 2002 2003-2004 2005-2009 2010-2014 2015-2019 >2020
---------- -------- -------- -------- -------- -------- --------
Commercial real estate $ 565,202 $169,584 $206,416 $123,132 $ 37,689 $ 23,730 $ 4,651
Residential real estate 1,116,532 576 24,219 24,703 54,068 198,360 814,606
Real estate construction 1,122,628 511,436 489,065 122,127 -- -- --
Consumer (2) 217,742 9,009 25,416 17,013 46,975 119,131 198
Commercial business (4) 232,350 142,225 54,114 35,133 505 373 --
---------- -------- -------- -------- -------- -------- --------
Total loans $3,254,454 $832,830 $799,230 $322,108 $139,237 $341,594 $819,455
========== ======== ======== ======== ======== ======== ========
Total securities available
for sale (3) $ 843,867 $ 29,053 $ 68 $ 13,331 $249,472 $ 24,006 $527,937
========== ======== ======== ======== ======== ======== ========
Total mortgage-backed
securities held to
maturity $ 264,433 $ -- $ -- $ -- $ -- $ -- $264,433
========== ======== ======== ======== ======== ======== ========
(1) Does not include banker's acceptances, deductions for undisbursed portion
of loans in process, deferred loan fees, unearned discounts and allowances
for loan losses.
(2) Includes second mortgage loans.
(3) Includes in 2001 marketable equity securities available for sale of $23.2
million.
(4) Includes due from foreign banks and lease financing.
51
Loan maturities and sensitivity of loans to changes in interest rates for
commercial business and real estate construction loans at December 31, 2001 were
(in thousands):
Commercial Real Estate
Business Construction Total
---------- ------------ ----------
One year or less $ 172,826 $ 764,093 $ 936,919
Over one year, but less than five years 55,626 348,262 403,888
Over five years 3,898 10,273 14,171
---------- ---------- ----------
$ 232,350 $1,122,628 $1,354,978
========== ========== ==========
Due After One Year:
Pre-determined interest rate $ 59,524 $ 27,569 $ 87,093
Floating or adjustable interest rate -- 330,966 330,966
---------- ---------- ----------
$ 59,524 $ 358,535 $ 418,059
========== ========== ==========
Loan Concentration - BankAtlantic's geographic loan concentration at December
31, 2001 was:
Florida 54%
California 6%
Northeast 9%
Other 31%
------
Total 100%
======
The loan concentration for BankAtlantic's originated portfolio is primarily in
Florida where economic conditions have generally remained stable during the
three years ended December 31, 2001. The concentration in California, the
Northeast, and other locations primarily relates to purchased wholesale
residential real estate loans.
A summary of the Company's consolidated cash flows follows (in thousands):
For the Year Ended December 31,
--------------------------------------
2001 2000 1999
-------- --------- -------
Net cash provided (used) by:
Operating activities $ 79,191 $ 106,982 $ 2,176
Investing activities (6,113) (461,344) (8,135)
Financing activities (37,148) 351,043 4,981
-------- --------- -------
Increase (decrease) in cash and cash
equivalents and due from banks $ 35,930 $ (3,319) $ (978)
======== ========= =======
Cash flows from operating activities decreased during 2001 compared to 2000 due
primarily to declines in loan sales , provision for credit losses and additional
investments in real estate. The above declines in cash flows were partially
offset by a substantial increase in earnings and other liabilities, as well as a
decrease in accrued interest receivable.
Cash used by investing activities decreased during 2001 compared to 2000
resulting primarily from lower purchases and originations of loans and leases
and a significant increase in sales and maturities of securities available for
sale and investment securities. These increases in cash flows from investing
activities were partially offset by higher purchases of securities.
Cash used by financing activities declined during 2001 compared to 2000
resulting primarily from decreases in short term borrowings, deposits and notes
payable. The decreases were partially offset by proceeds from the issuance of
Bancorp common stock.
Commencing in 2000, Bancorp was consolidated into BFC's financial statements,
therefore the 1999 cash flow activities represents BFC's amounts, without
consideration of Bancorp consolidated amounts.
52
A summary of BFC's cash flow without consideration of Bancorp is as follows (in
thousands):
For the Year Ended December 31,
------------------------------------
2001 2000 1999
------- -------- -------
Net cash provided (used) by:
Operating activities $(1,441) $ 4,088 $ 2,176
Investing activities (144) (10,753) (8,135)
Financing activities 4,003 7,035 4,981
------- -------- -------
Increase (decrease) in cash and cash
equivalents and due from banks $ 2,418 $ 370 $ (978)
======= ======== =======
Cash flows from operating activities decreased during 2001 compared to 2000
primarily due to decreases in other assets. Cash used in investing activities
decrease during 2001 compared to 2000 primarily due to decreases in purchase of
securities for the venture partnerships. Cash provided by financing activities
decreased during 2001 compared to 2000 primarily due to decreases in venture
partnerships minority interest.
Contractual Obligations and Commercial Commitments
The tables below summarizes Bancorp's contractual obligations and commercial
commitments at December 31, 2001 (in thousands).
Payments Due by Period
---------------------------------------------------------------
Less
Contractual Than 1 1-3 4-5 After 5
Obligations Total Year Years Years Years
- ---------------------------------- -------- -------- ------- -------- --------
Long-Term Debt $206,178 $ 26,919 $19,213 $ 34,386 $125,660
Operating Lease Obligations 27,842 7,381 11,312 4,938 4,211
-------- -------- ------- -------- --------
Total Contractual Cash Obligations $234,020 $ 34,300 $30,525 $ 39,324 $129,871
======== ======== ======= ======== ========
Amount of Commitment Expiration Per Period
---------------------------------------------------------------
Total Less
Other Commercial Amounts Than 1 1-3 4-5 After 5
Commitments Committed Year Years Years Years
- ---------------------------------- -------- -------- ------- -------- --------
Lines of Credit $303,849 $107,300 $59,074 $ -- $137,475
Standby Letters of Credit 30,509 30,509 -- -- --
Other Commercial Commitments 208,147 208,147 -- -- --
Other Commitments 171,146 60,394 -- 110,752
-------- -------- ------- -------- --------
Total Commercial Commitments $713,651 $406,350 $59,074 $110,752 $137,475
======== ======== ======= ======== ========
Related Party Transactions
During 1998, Levitt Companies entered into an agreement with the Abdo Companies,
a company in which John E. Abdo, Vice Chairman of Bancorp and the Company, is
the principal shareholder and CEO, whereby the Abdo Companies receive monthly
management fees from Levitt Companies. Abdo Companies management fees for the
years ended December 31, 2001 and 2000 were approximately $291,000 and $475,000,
respectively. The Abdo Group received approximately $2.6 million in 2000 from
the Company for their real estate sales profit participation under a 1994
arrangement.
During the years ended December 31, 2001, 2000 and 1999, the Company received
compensation for administrative and accounting services to affiliated limited
partnerships of approximately $44,000, $42,000 and $50,000.
During 1999 and 2000, the Company (without consideration of Bancorp) acquired
interests in unaffiliated technology entities. During 2000 and 2001, the
Company's interests in the technology entities were transferred at the Company's
cost to specified asset limited partnerships. Subsidiaries of the Company are
the controlling general partners of these venture partnerships, therefore, they
are consolidated in these financial statements. Interests in such partnerships
were sold in 2000 and 2001 to accredited investors in private offerings. During
2000, approximately $5.1 million of capital was raised from unaffiliated third
53
parties by these partnerships and officers, directors and affiliates of the
Company invested approximately $4.4 million in the Partnership. The Company and
the general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of the $1.3 million, Alan Levan and Jack Abdo each
borrowed $500,000 from the Company on a recourse basis and Glen Gilbert,
Executive Vice President, and Earl Pertnoy, a director of the Company each
borrowed $50,000 on a non-recourse basis to make their investments. Such amounts
were still outstanding at the end of the year, bear interest at the prime rate
plus 1% and are payable interest only annually with the entire balance due in
February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and BFC Financial
Corporation - 57.5%. Losses net of minority interests for the year ended
December 31, 2001 were $881,000. At December 31, 2001, the Company's net
investment in these partnerships was $4.7 million.
During 1999, BFC Financial Corporation entered into an agreement with John E.
Abdo, Jr., son of John E. Abdo, Pursuant to the agreement, the Company will pay
to John E. Abdo, Jr. an amount equal to 1% of the amount of the Company's
investment in identifies venture capital investments for the Company and will
grant him a profit participation of 3 1/2% of the net profit realized by the
Company through his interest in the general partner of the technology venture
partnership that receives the identified investment. Additionally, the Company
pays him an expense allowance of $300 per month. During 2001, the Company paid
John E. Abdo, Jr. expense allowances of $3,600 pursuant to the agreement.
One of the technology limited partnerships and Bancorp are investors in Seisint,
Inc., a privately held technology company located in Boca Raton, Florida
("Seisint"). Seisint owns 748,000 shares of Bancorp's Class A Common Stock. The
technology limited partnership has a $2 million investment in 219,300 shares and
Bancorp has a $15 million investment in 3,033,386 shares of Seisint Common Stock
included in investment securities in the Company's Statement of Financial
Condition. Both Alan B. Levan and John E. Abdo were directors of Seisint and
each own direct and indirect interests in an aggregate of 216,517 shares of
Seisint Common Stock. The shares owned by the Bancorp, Mr. Levan and Mr. Abdo
were acquired in October 1999 at a price of $4.95. The shares acquired by the
technology limited partnership were acquired in October 2000 at a price of
$9.12. At December 31, 2001, the carrying value of this investment by the
technology limited partnership had been written down to $4.95 per share. Bancorp
and its affiliates collectively own approximately 7% of Seisint's outstanding
Common Stock. During 2001, Mr. Levan and Mr. Abdo resigned from Seisint's Board
of Directors and initiated a lawsuit on behalf of the Company and others against
the founder of Seisint personally regarding his role in Seisint. Seisint is not
a party to the lawsuit. Seisint also serves as an Application Service Provider
("ASP") for the Company for one customer service information technology
application. This ASP relationship is in the ordinary course of business, and
fees aggregating $169,377 and $368,000 were paid to Seisint for its services
during the years ended December 31, 2001 and 2000, respectively.
Certain officers of Levitt Companies have minority ownership interests in joint
venture partnerships in which Levitt Companies is also a limited or general
partner.
Certain of the Company's affiliates, including its executive officers have
independently made investments with their own funds in both public and private
entities in which the Company holds investments.
Critical Accounting Policies
Management views critical accounting policies as accounting policies that are
important to the understanding of the Company's financial statements which also
involve estimates and judgments about inherently uncertain matters. We have
identified five accounting policies that management views as critical to the
portrayal of our financial condition and results of operations. The five
accounting policies are: (i) allowance for loan and lease losses, (ii) valuation
of securities and derivative instruments, (iii) other than temporary declines in
fair value, (iv) impairment of long lived assets and (v) real estate held for
development and sale and joint venture activities.
54
Allowance For Loan And Lease Losses
Monthly detailed reviews of the loan and lease portfolios are performed in an
effort to identify inherent risks, assess the overall collectibility of those
portfolios and to establish the allowance for loan and lease losses. These
ongoing reviews are performed by a credit review group that is independent of
loan origination activities. The first component of the allowance is for
non-homogenous loans that are individually evaluated for impairment. A
non-homogenous loan is deemed impaired when collection of principal and interest
based on the contractual terms of the loan is not likely to occur. These are
high balance loans that management considers to be high risk. The process for
identifying loans to be evaluated individually for impairment is based on
management identification of classified loans. Classified loans are identified
by Bancorp based upon established criteria and represent loans of lesser quality
than the general portfolio. These classifications are "special mention",
"substandard", "doubtful" or "loss". The special mention category applies to
loans not warranting classification as substandard but possessing credit
deficiencies or potential weaknesses necessitating management's close attention.
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that we will sustain some loss if the deficiencies are
not corrected. Doubtful loans have the weaknesses of substandard loans with the
additional characteristic that such weaknesses make collection of the loan or
liquidation in full on the basis of currently existing facts, conditions, and
values highly questionable or improbable. Loss loans are charged-off. All
non-homogenous classified loans are evaluated for impairment. Once an individual
loan is found to be impaired, a specific valuation allowance is assigned to the
loan based on one of the following three methods: (1) present value of expected
future cash flows, (2) fair value of collateral less costs to sell, or (3)
observable market price. An observable market price of an impaired loan is the
best indication of its fair value. The majority of Bancorp's impaired loans do
not have an observable market price and are valued based on the other two
methods. Loans that are collateral dependent are valued at the fair value of the
collateral less the cost to dispose of the collateral . Unsecured loans are fair
valued based on the present value of expected future cash flows. These
valuations require estimates and subjective judgments about fair values of the
collateral or expected future cash flows. It is likely that there would be
materially different results if different assumptions or conditions were to
prevail. This would include updated information that came to management's
attention about the loans or a change in the current economic environment.
The second component of the allowance is for homogenous loans in which groups of
loans with common characteristics are evaluated for impairment. Homogenous loans
and leases have certain characteristics that are common to the entire portfolio
so as to form a basis for predicting losses on historical data and delinquency
trends as it relates to the group. Management segregates homogenous loans into
groups such as: residential real estate; small business mortgage; small business
non-mortgage; lease financing, and various types of consumer loans. The
methodology utilized in establishing the allowance for homogenous loans includes
consideration of the current economic environment, trends in industries,
analysis of historical losses, static pool analysis, delinquency trends,
classified loan grades and credit scores. Based on statistical data management
assigns loss percentages to groups of loans by product type and classified loan
grades. Loans that are not classified are also assigned a loss percentage based
on historical loss experiences for the specific loan category.
The above two components are the assigned portion of the allowance for loan and
lease losses. The remaining component of the allowance is the unassigned
component determined separately from the procedures outlined above. This
component addresses certain industry and geographic concentrations, including
economic conditions, in an attempt to address the imprecision inherent in the
estimation of the assigned allowance for loan and lease losses. Due to the
subjectivity involved in the determination of the unassigned portion of the
allowance, the relationship of the unassigned component to the total allowance
may fluctuate from period to period.
Management evaluates the adequacy of the allowance for loan and lease losses
based on the combined total of the assigned and unassigned components and
believes that the allowance for loan and leases losses reflects management's
best estimate of incurred credit losses as of the balance sheet date. As of
December 31, 2001 the allowance for loan losses was $45.7 million. See
"Provision for Loan Losses" for a discussion on the amounts of allowance
assigned to each loan product and the amount of the unassigned allowance. The
estimated allowance derived from the above methodology may be significantly
different from actual realized losses. Actual losses incurred in the future are
highly dependent upon future events, including the economies of geographic areas
in which loans are held. These uncertainties are beyond management's control. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan and lease losses. Such
agencies may require Bancorp to recognize additions to the allowance based on
their judgments and information available to them at the time of their
examination.
55
Valuation Of Securities, Trading Activities And Derivative Instruments
Securities available for sale, trading activities and derivative instruments are
recorded in the statement of financial condition at fair value Three methods for
valuation are used: i) obtaining prices actively quoted on national markets,
using a price matrix and (ii) applying a management valuation model .
The following table provides the sources of fair value for our securities
available for sale, trading activities and derivative instruments at December
31, 2001 (in thousands).
National
Market price Price Valuation
Quotes Matrix Model Total
------------ -------- --------- ---------
Securities available for sale
Mortgage-backed securities $ -- $814,591 $ -- $ 814,591
U.S. treasury notes -- 5,819 -- 5,819
Other bonds -- 262 -- 262
Equity securities 38,811 -- -- 38,811
-------- -------- ------- ---------
Total securities available for sale 38,811 820,672 -- 859,483
-------- -------- ------- ---------
Trading activities
Trading securities 68,296 -- -- 68,296
Securities sold not yet purchased (38,431) -- -- (38,431)
-------- -------- ------- ---------
Total trading activities 29,865 -- -- 29,865
-------- -------- ------- ---------
Derivative instrument
Interest rate swap contracts -- -- (1,829) (1,829)
-------- -------- ------- ---------
Total $ 68,676 $820,672 $(1,829) $ 887,519
======== ======== ======= =========
Equity securities available for sale trade daily on various stock exchanges. The
fair value of these securities in our statement of financial condition was based
on the closing price quotations at period end. The closing quotation represents
inter-dealer quotations without retail markups, markdowns or commissions and do
not necessarily represent actual transactions. The number of shares owned in
some of these equity securities is in excess of the securities average daily
trading volume. As a consequence it may not be possible to realize the quoted
market price upon sale. Our equity securities available for sale are adjusted to
fair value monthly with a corresponding increase or decrease to other
comprehensive income.
A third party service provides a price matrix fair value of debt securities
available for sale. The pricing matrix computes a fair value of debt securities
based on inputting the securities' coupon rate, maturity date and estimates of
future prepayment rates. The valuations obtained from the pricing matrix are not
actual transactions and will not be the actual amount realized upon sale. It is
likely that results would vary materially if different interest rate and
prepayment assumptions were used in the valuation. Debt securities available for
sale are adjusted to fair value monthly with a corresponding increase or
decrease to other comprehensive income.
Interest rate swap contracts are valued against the swap curve obtained from a
financial information provider. Future value estimated cash flows are present
valued against intervals of time on the swap curve in order to calculate the
estimated fair value at period end. Changes in the fair value of derivatives
designated as part of a hedge transaction are recorded each period in current
earnings for fair value hedges or other comprehensive income for cash flow
hedges. The fair value of interest rate swap contracts may significantly
increase or decrease based on changes in interest rates. Interest rate swap
contracts are originated in conjunction with a hedge strategy in order to
attempt to reduce interest rate risk.
The fair value of trading securities and securities sold but not yet purchased
are listed on national market exchanges and have quoted market values. The fair
value of these securities are highly sensitive to changes in the interest rate
environment and economic conditions.
56
Other Than Temporary Declines In Value Of Investment Securities
Declines in the fair value of individual equity securities available for sale or
equity investments in private companies below their cost that are other than
temporary result in write-downs of the individual securities to their fair value
with a corresponding charge in our statement of operations. Equity securities
available for sale are recorded in our financial statement at fair value with a
corresponding increase or decrease in comprehensive income. Other than temporary
declines in the value of equity securities available for sale are based on the
length of time that the market value of the security was at least 20% below its
cost, the financial condition and near term prospects of the issuer and the
likelihood of the market value of the security increasing in the foreseeable
future.
Equity investments in private companies are recorded in our financial statements
at historical cost. These securities are considered speculative investments.
Investments in these companies are evaluated for other than temporary declines
in value based on their performance compared to initial business plans, future
cash flow projections, success of subsequent fund raising and current financial
condition. These evaluations are subjective and management attempts to consider
all available evidence to evaluate an other than temporary write down of these
securities including financial statements, industry statistics and near term
prospects of the companies. Due to the subjectivity of our evaluations and due
to the uncertainty of future events, including economic conditions, the
realizable value is highly uncertain and may differ substantially from our
evaluations. We have $25.1 million of equity investments in private companies at
December 31, 2001. Many of these companies are in the development stage. As a
consequence, the realization of our investment is dependent upon each company's
ability to successfully implement its respective business plan and to obtain
future funding if required and achieve market acceptance of its products.
Impairment of Long Lived Assets
Long-lived assets and cost over fair value of net assets acquired ("goodwill")
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying amount
is not deemed to be recoverable if it is greater than the sum of the
undiscounted cash flows expected from the asset. An impairment loss is the
amount by which the carrying value exceeds the asset's fair value. In performing
a review for recoverability, future cash flows expected to result from the use
of the asset and its eventual disposition are estimated. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. The
estimates of future cash flows are subjective and involve a significant amount
of judgment. Fair values are not available for many of our long-lived assets and
estimates must be based on available information, including prices of similar
assets and present value valuation techniques. Based on the adoption of SFAS No.
142, "Goodwill and Other Intangible Assets" on January 1, 2002 we are required
to evaluate goodwill for impairment by comparing the carrying value of each
reporting unit to the fair value of the reporting unit instead of comparing
undiscounted estimated cash flows to the carrying amount of the asset. This
change in accounting policy may result in an impairment loss associated with our
existing goodwill. The impairment loss, if any, will be recognized as the
cumulative effect of a change in accounting principle in our statement of
operations. We are currently evaluating our goodwill under the new accounting
policy for impairment and we are not yet able to estimate the impact, if any,
that Statement No. 142 may have on our existing goodwill.
Real Estate Held For Development And Sale And Joint Venture Activities
Our real estate development activities includes land, acquisition costs, land
development costs, and other construction costs and are accounted for at the
lower of accumulated cost or estimated fair value in our financial statements.
Start-up costs, construction overhead and selling expenses are expensed as
incurred. Land, land development, amenities and other costs are accumulated by
specific area and allocated to homes within the respective areas. The allocation
of common costs to homes is based on actual costs incurred plus estimated costs
to complete. These estimated costs are subjective and may change based on future
market conditions. The estimated fair value of real estate is evaluated annually
based on disposition of real estate in the normal course of business under
existing and anticipated market conditions. The evaluation attempts to take into
consideration the current status of the property, various restrictions, carrying
costs, debt service requirements, costs of disposition and any other
circumstances which may affect fair value including management's plans for the
property. Due to the large acreage of land holdings, disposition in the normal
course of business is expected to extend over a number of years. Uncertainties
associated with the economy, interest rates and the real estate market in
general may significantly change the valuation of our real estate investments.
Bancorp accounts for its joint venture partnership interests in which Bancorp
has a 50% or less ownership interest using the equity method of accounting.
Under the equity method, the initial investment in a joint venture is recorded
at cost and is subsequently adjusted to recognize the share of the joint
venture's earnings or losses.
57
Joint venture investments are evaluated annually for other than temporary losses
in value. Evidence of other than temporary losses includes the inability of the
joint venture to sustain an earnings capacity which would justify the carrying
amount of the investment and consistent joint venture operating losses. The
evaluation is based on available information including condition of the property
and current and anticipated real estate market conditions.
At December 31, 2001, the balance of real estate held for development and sale
and joint venture activities was $183.2 million.
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Factors which adversely affect the real estate and
home building industries include: a surplus of available real estate offerings
in the market or decreases in demand; over-building; an unfavorable interest
rate environment; changes in general economic conditions; a scarcity of land
available for development which can be obtained at prices that are viable from a
business perspective; and significant volatility and fluctuations in underlying
real estate values. We are susceptible to downturns in the South Florida real
estate market since the majority of our developments are located in South
Florida. Additionally, our periodic sales of properties may be insufficient to
ensure that revenues are generated as expenses are incurred. Further, if sales
are not adequate to cover operating expenses as incurred, it may be necessary to
seek a source of additional operating funds and this may have a negative impact
on our earnings.
Dividends
BFC has not paid any dividends since its inception. As stated above, a source of
BFC's liquidity is dividends from Bancorp. While there is no assurance that
Bancorp will pay dividends in the future, Bancorp management has stated that it
intends to pay regular quarterly cash dividends on its common stock. The
availability of funds for dividend payments depends upon BankAtlantic's ability
to pay dividends to Bancorp. Current regulations applicable to the payment of
cash dividends by savings institutions impose limits on capital distributions
based on an institution's regulatory capital levels, retained net income and net
income. See "Regulation and Supervision - Restriction on Dividends and Other
Capital Distributions."
Bancorp's outstanding 9% Debentures imposes restrictions on Bancorp's ability to
pay dividends to its common shareholders. See Note 10 to the consolidated
financial statements for further details on dividend restrictions related to
Debenture Indentures.
Impact of Inflation
The financial statements and related financial data and notes presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
BankAtlantic are monetary in nature. As a result, interest rates have a more
significant impact on BankAtlantic's performance than the effects of general
price levels. Although interest rates generally move in the same direction as
inflation, the magnitude of such changes varies. The possible effect of
fluctuating interest rates is discussed more fully under the previous section
entitled "Interest Rate Sensitivity."
58
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Financial Condition as of December 31, 2001 and
2000
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 2001
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the years in the three year period ended December 31, 2001
Consolidated Statements of Cash Flows for each of the years in the three
year period ended December 31, 2001
Notes to Consolidated Financial Statements
59
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BFC Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of BFC Financial Corporation and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFC Financial
Corporation and subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.
KPMG LLP
Fort Lauderdale, Florida
January 29, 2002
(except for Note 25, as to which the date
is March 22, 2002)
60
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 2001 and 2000
(In thousands, except share data)
2001 2000
---------- ----------
ASSETS
Cash and due from depository institutions $ 124,383 $ 87,025
Federal Funds sold and securities purchased under resell agreements 156 1,584
Investment securities and tax certificates (approximate fair value:
$434,470 and $387,971) 428,718 383,619
Loans receivable, net 2,776,624 2,855,015
Securities available for sale, at fair value 859,483 887,946
Trading securities, at fair value 68,296 43,557
Accrued interest receivable 33,787 44,046
Real estate held for development and sale and joint ventures 183,163 153,380
Office properties and equipment, net 61,786 59,961
Federal Home Loan Bank stock, at cost which approximates fair value 56,428 51,940
Deferred tax asset, net -- 4,345
Cost over fair value of net assets acquired, net 39,859 49,882
Other assets 32,676 32,654
---------- ----------
Total assets $4,665,359 $4,654,954
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $2,276,567 $2,234,485
Advances from FHLB 1,106,030 1,038,801
Federal Funds purchased 61,000 9,700
Securities sold under agreements to repurchase 406,070 659,502
Subordinated debentures, notes and bonds payable 145,484 238,330
Guaranteed preferred beneficial interests in Bancorp's Junior
Subordinated Debentures 74,750 74,750
Deferred tax liability, net 3,916 --
Other liabilities 168,950 132,523
---------- ----------
Total liabilities 4,242,767 4,388,091
---------- ----------
Minority interest 348,420 194,248
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 6,461,994 in 2001 and 6,454,494 in 2000 58 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,366,157 in 2001 and 2,354,904 in 2000 21 21
Additional paid-in capital 24,206 25,788
Retained earnings 47,195 41,721
---------- ----------
Total stockholders' equity before
accumulated other comprehensive income 71,480 67,588
Accumulated other comprehensive income 2,692 5,027
---------- ----------
Total stockholders' equity 74,172 72,615
---------- ----------
Total liabilities and stockholders' equity $4,665,359 $4,654,954
========== ==========
See accompanying notes to consolidated financial statements.
61
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in three year period ended December 31, 2001
(In thousands, except per share data)
Interest income: 2001 2000 1999
--------- --------- ---------
Interest and fees on loans and leases $ 237,304 $ 247,132 $ 1,284
Interest and dividends on securities available for sale 52,956 51,053 245
Interest and dividends on other investments and trading securities 35,741 30,711 --
--------- --------- ---------
Total interest income 326,001 328,896 1,529
--------- --------- ---------
Interest expense:
Interest on deposits 85,668 91,723 --
Interest on advances from FHLB 60,472 61,331 --
Interest on securities sold under agreements to repurchase and
federal funds purchased 24,270 34,617 --
Interest on subordinated debentures, guaranteed preferred interest in
Bancorp's Junior Subordinated Debentures and notes and bonds payable 24,177 30,222 1,613
Capitalized interest on real estate developments and joint ventures (5,749) (6,487) --
--------- --------- ---------
Total interest expense 188,838 211,406 1,613
--------- --------- ---------
Net interest income (expense) 137,163 117,490 (84)
Provision for loan losses 16,905 29,132 300
--------- --------- ---------
Net interest income (expense) after provision for loan losses 120,258 88,358 (384)
--------- --------- ---------
Non-interest income:
Investment banking income 43,436 51,101 --
Gains on sales of real estate held for sale and joint venture activities 37,928 24,725 1,391
Transaction fees 16,372 13,666 --
ATM fees 10,507 10,881 --
Loan late fees and other loan income 4,224 4,144 --
Gains (losses) on sales of loans held for sale, net 60 (528) --
Losses on trading securities and securities available for sale, net (781) (2,329) --
Equity in earnings of Bancorp -- -- 10,501
Other 9,622 12,597 2,218
--------- --------- ---------
Total non-interest income 121,368 114,257 14,110
--------- --------- ---------
Non-interest expense:
Employee compensation and benefits 97,000 92,316 1,264
Occupancy and equipment 28,576 27,302 53
Advertising and promotion 7,897 8,219 --
Amortization of cost over fair value of net assets acquired 4,073 4,081 --
Impairment of cost over fair value of net assets acquired 6,624 -- --
Restructuring charge and impairment write-downs 331 2,656 --
Other 48,761 45,006 975
--------- --------- ---------
Total non-interest expense 193,262 179,580 2,292
--------- --------- ---------
Income before income taxes, minority interest,
discontinued operations, extraordinary items
and cumulative effect of a change in accounting principle 48,364 23,035 11,434
Provision for income taxes 25,396 13,362 4,183
Minority interest in income of consolidated subsidiaries 18,379 14,655 --
--------- --------- ---------
Income (loss) before discontinued operations, extraordinary items
and cumulative effect of a change in accounting principle 4,589 (4,982) 7,251
Income from discontinued operations, net of taxes -- 669 --
(Loss) income from extraordinary items, net of taxes (253) 7,948 175
Cumulative effect of a change in accounting principle, net of taxes 1,138 -- --
--------- --------- ---------
Net income $ 5,474 $ 3,635 $ 7,426
========= ========= =========
(continued)
See accompanying notes to consolidated financial statements.
62
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in the three year period ended December 31, 2001
(In thousands, except per share data)
2001 2000 1999
--------- --------- ---------
Earnings per share:
Basic earnings (loss) per share before discontinued operations,
extraordinary items and cumulative effect of
a change in accounting principle $ 0.58 $ (0.63) $ 0.91
Basic earnings per share from discontinued operations -- 0.09 --
Basic (loss) earnings per share from extraordinary items (0.03) 1.00 0.02
Basic earnings per share from cumulative effect of a change
in accounting principle 0.14 -- --
--------- --------- ---------
Basic earnings per share $ 0.69 $ 0.46 $ 0.93
========= ========= =========
Diluted earnings (loss) per share before discontinued operations,
extraordinary items and cumulative effect of
a change in accounting principle $ 0.52 $ (0.58) $ 0.82
Diluted earnings per share from discontinued operations -- 0.08 --
Diluted (loss) earnings per share from extraordinary items (0.03) 0.93 0.02
Diluted earnings per share from cumulative effect of a change
in accounting principle 0.13 -- --
--------- --------- ---------
Diluted earnings per share $ 0.62 $ 0.43 $ 0.84
========= ========= =========
Basic weighted average number of common shares outstanding 7,957 7,957 7,957
Diluted weighted average number of common and common
equivalent shares outstanding 8,773 8,521 8,818
See accompanying notes to consolidated financial statements.
63
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For each of the years in the three year period ended December 31, 2001
(in thousands)
Accumulated
Other
Compre-
Compre- Class A Class B Additional hensive
hensive Common Common Paid-in Retained Income
income Stock Stock Capital Earnings (loss) Total
-------- -------- -------- ---------- -------- ----------- --------
Balance, December 31, 1998 58 21 26,095 30,660 797 57,631
Net income $ 7,426 -- -- -- 7,426 -- 7,426
--------
Other comprehensive income,
net of tax:
Unrealized losses on securities
available for sale (5,663)
Reclassification adjustment
for gains included
in net income (224)
--------
Other comprehensive loss (5,887)
--------
Comprehensive income $ 1,539
========
Net effect of Bancorp capital
transactions, net
of income taxes -- -- (205) -- -- (205)
Net change in unrealized
appreciation on securities
available for sale, net of
income taxes -- -- -- -- (5,887) (5,887)
-------- -------- --------- -------- -------- --------
Balance, December 31, 1999 $ 58 21 25,890 38,086 (5,090) 58,965
Net income $ 3,635 -- -- -- 3,635 -- 3,635
--------
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale 10,527
Reclassification adjustment
for gains included
in net income (410)
--------
Other comprehensive income 10,117
--------
Comprehensive income $ 13,752
========
Net effect of Bancorp capital
transactions, net
of income taxes -- -- (102) -- -- (102)
Net change in unrealized
appreciation on securities
available for sale, net of
income taxes -- -- -- -- 10,117 10,117
-------- -------- --------- -------- -------- --------
Balance, December 31, 2000 $ 58 21 25,788 41,721 5,027 72,615
======== ======== ========= ======== ======== ========
(continued)
64
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For each of the years in the three year period ended December 31, 2001
(in thousands)
Accumulated
Other
Compre-
Compre- Class A Class B Additional hensive
hensive Common Common Paid-in Retained Income
income Stock Stock Capital Earnings (loss) Total
---------- ----------- ---------- ----------- ---------- ----------- -----------
Balance, December 31, 2000 $ 58 21 25,788 41,721 5,027 72,615
Net income $ 5,474 -- -- -- 5,474 -- 5,474
----------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (1,570)
Accumulated losses associated
with cash flow hedges (319)
Reclassification adjustment
for cash flow hedges 129
Reclassification adjustment
for net gain included in
net income (575)
----------
Other comprehensive loss (2,335)
----------
Comprehensive income $ 3,139
==========
Net effect of Bancorp capital
transactions, net
of income taxes -- -- (1,636) -- -- (1,636)
Net change in other
comprehensive income, net
of income taxes -- -- -- -- (2,335) (2,335)
Exercise of stock options -- -- 54 -- -- 54
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2001 $ 58 21 24,206 47,195 2,692 74,172
========== ========== ========== ========== ========== ==========
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
appreciation on securities available for sale, net of income taxes and
accumulated losses associated with cash flow hedges, net of income taxes.
See accompanying notes to consolidated financial statements.
65
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2001
(In thousands)
2001 2000 1999
--------- --------- ---------
Operating activities:
Income (loss) before discontinued operations, extraordinary items
and cumulative effect of a change in accounting principle $ 4,589 $ (4,982) $ 7,251
Income from discontinued operations -- 669 --
(Loss) income from extraordinary items, net of taxes (253) 7,948 175
Cumulative effect of a change in accounting principle, net of taxes 1,138 -- --
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 18,222 30,166 300
Change in real estate inventory (28,789) 353 (46)
Loans held for sale activity, net 14,068 (34,596) 154
Losses from securities activities, net 781 2,329 --
Gains on sales of property and equipment, net (386) (874) --
Gains on sales of in-store branches (1,577) -- --
Depreciation, amortization and accretion, net 1,111 5,575 487
Restructuring charges and impairment write-downs, net 331 2,656 --
Impairment of cost over fair value of net assets acquired 6,624 -- --
Provision (benefit) for deferred income taxes 3,257 (743) 4,103
Proceeds from sales of loans classified as held for sale 24,017 50,109 --
Trading activities, net (24,739) (20,246) --
Decrease (increase) in accrued interest receivable 10,259 (13,452) --
Amortization of cost over fair value of net assets acquired 4,073 4,081 --
Compensation in connection with corporate transaction -- 1,320 --
Equity in earnings of Bancorp -- -- (10,501)
Minority interest in income of consolidated subsidiaries 18,379 14,655 --
Equity in joint venture earnings (2,888) (1,141) --
(Increase) decrease in other assets (3,666) 7,368 (262)
Increase in other liabilities 34,640 55,787 515
--------- --------- ---------
Net cash provided by operating activities 79,191 106,982 2,176
--------- --------- ---------
Investing activities:
Purchase of investment securities and tax certificates $(267,025) $(426,177) $ --
Proceeds from redemption and maturity of
investment securities and tax certificates 221,434 155,256 --
Purchase of securities available for sale (485,862) (162,753) (8,065)
Proceeds from sales and maturities of
securities available for sale 509,833 259,867 --
Purchases and net repayments (originations) of loans and leases 24,039 (291,500) --
Proceeds from sales of real estate owned 5,860 5,053 --
Net additions to office property and equipment (11,441) (11,374) --
Proceeds from sales of properties and equipment 529 1,577 --
Investments and repayments (advances) to joint ventures 1,348 4,700 82
Purchases of FHLB stock net of redemptions (4,488) 4,470 --
Acquisitions, net of cash acquired (340) (222) --
Improvements to real estate owned -- (241) (152)
--------- --------- ---------
Net cash used in investing activities $ (6,113) $(461,344) $ (8,135)
--------- --------- ---------
(continued)
66
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2001
(In thousands)
2001 2000 1999
----------- ----------- -----------
Financing activities:
Net increase in deposits $ 125,252 206,593 --
Reduction in deposits from sale of in-store branches, net (81,593) -- --
Proceeds from FHLB advances 365,000 1,359,004 --
Repayment of FHLB advances (297,771) (1,418,389) --
Net increase in federal funds purchased 51,300 3,800 --
Proceeds from notes and bonds payable 66,651 113,586 8,079
Repayment of notes and bonds payable (72,285) (68,352) (4,334)
Retirement of subordinated investment notes and
subordinated debentures (35,042) (53,896) --
Net (decrease) increase in securities sold under
agreements to repurchase (253,432) 236,279 --
Payments to acquire and retire publicly held
Bancorp Class B Common Stock -- (33,243) --
Payment to acquire and retire Bancorp common stock -- (4,363) --
Bancorp common stock dividends to non-BFC shareholders (3,814) (2,736) --
Bancorp common stock dividends paid to BFC -- -- 1,236
Issuance of Bancorp common stock 95,595 2,169 --
Issuance of BFC common stock upon exercise of stock options 54 -- --
Change in minority interest 2,397 10,028 --
Increase in advances by borrowers for taxes and insurance, net 540 563 --
----------- ----------- -----------
Net cash (used in) provided by financing activities (37,148) 351,043 4,981
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 35,930 (3,319) (978)
Cash and cash equivalents at beginning of period 88,609 1,545 2,523
Cash resulting from consolidation of Bancorp -- 90,383 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 124,539 $ 88,609 $ 1,545
=========== =========== ===========
Supplementary disclosure of non-cash investing and
financing activities:
Interest paid $ 20,265 $ 22,035 $ 3,381
Income taxes paid by Bancorp 17,884 2,466 --
Income taxes paid by BFC -- 69 69
Change in minority interest resulting from issuance of Bancorp
Class A Common Stock upon conversion of
subordinated debentures 49,935 34 --
Change in minority interest resulting from issuance of
Bancorp Class A Common Stock upon acquisitions 335 178
Change in stockholders' equity resulting from net change
in other comprehensive income, net of taxes (2,335) 10,117 (5,887)
Transfer from escrow accounts to reflect payments on
subordinated debentures -- 163 356
Net (loss) effect of Bancorp capital transactions,
net of income taxes (1,636) (102) (205)
Decrease in other liabilities associated with the Ryan Beck
deferred compensation plan 3,052 -- --
Capital contributions associated with the Ryan Beck
deferred compensation plan (1,292) -- --
See accompanying notes to consolidated financial statements.
67
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation - BFC Financial Corporation ("BFC" or
the "Company") is a unitary savings bank holding company as a consequence of its
ownership of the Common Stock of BankAtlantic Bancorp, Inc. ("Bancorp").
BankAtlantic is a wholly-owned subsidiary of Bancorp. The Company's primary
asset is the capital stock of Bancorp and its primary activities currently
relate to the operations of Bancorp. The financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America. ("GAAP").
Because BFC controls greater than 50% of the vote of Bancorp, by virtue of its
ownership of Bancorp Class A and Class B Common Stock, which currently
represents 55.3% of the combined voting power, Bancorp is consolidated in the
Company's financial statements. The percentage of votes controlled by the
Company determines the Company's consolidation policy, whereas, the percentage
of ownership of total outstanding common stock determines the amount of
Bancorp's net income, recognized by the Company.
In August 2000, Bancorp shareholders approved a corporate transaction structured
as a merger in which each share of Bancorp's Class B Common Stock was converted
into .0000002051 of a share of Bancorp's Class B Common Stock as the surviving
corporation in the transaction. No fractional shares were issued. The corporate
transaction resulted in the retirement of all publicly held Bancorp Class B
Common Stock, leaving BFC the sole holder of Bancorp's Class B Common Stock at
that time. The Class B Common Stock represented 100% of the voting rights of
Bancorp. On May 24, 2001 Bancorp amended its articles of incorporation to grant
voting rights to holders of Bancorp Class A Common Stock, make Bancorp Class B
Common Stock convertible into Bancorp Class A Common Stock on a share for share
basis, and equalize the cash dividends payable on Bancorp's Class A Common Stock
and Bancorp's Class B Common Stock. As a consequence of the amendment, Bancorp's
Class A shareholders are entitled to one vote per share, which in the aggregate
represent 53% of the combined voting power of Bancorp's Class A Common Stock and
Bancorp's Class B Common Stock. Bancorp's Class B Common Stock represents the
remaining 47% of the combined vote. The fixed voting percentages will be
eliminated, and shares of Bancorp's Class B Common Stock will be entitled to
only one vote per share, from and after the date that BFC or its affiliates no
longer own in the aggregate at least 2,438,062 shares of Class B Common Stock.
Bancorp's principal assets include BankAtlantic and its subsidiaries, Ryan Beck
& Co., LLC ("Ryan Beck") and its subsidiaries and Levitt Companies and its
subsidiaries.
BankAtlantic is a federal savings bank headquartered in Fort Lauderdale, Florida
which provides traditional retail banking services and a wide range of
commercial banking products and related financial services.
Levitt Companies is the real estate construction and development segment. Levitt
Companies engages in real estate activities through Levitt and Sons, LLC
("Levitt and Sons"), Core Communities, LLC ("Core Communities") and several
investments in real estate projects in South Florida. Levitt and Sons is a
developer of single-family home communities and condominium and rental apartment
complexes primarily in Florida. Core Communities owns the unsold land and other
entitlements of the master planned community commonly known as St. Lucie West in
St. Lucie County, Florida. Core Communities also owns two communities in the
planning stages; Westchester in St. Lucie County, Florida and Live Oak in
Hillsboro County, Florida.
Ryan Beck is an investment banking firm which provides a wide range of
investment banking, brokerage and investment management services.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the statements of financial condition and operations for the periods
presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the next year relate to the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with foreclosure or in
satisfaction of loans, the valuation of equity securities that are not publicly
traded, the valuation of derivatives, the valuation of securities available for
sale and the valuation of real estate held for development, real estate joint
venture investments and the cost to complete development work on real estate
projects. In connection with the determination of the allowances for loan
losses, real estate owned, real estate held for development and real estate
joint venture investments, management obtains independent appraisals for
significant properties when it is deemed prudent.
68
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain amounts for prior years have been reclassified to conform with revised
statement presentation for 2001.
Consolidation Policy - The consolidated financial statements include the
accounts of BFC, its wholly owned subsidiaries and majority controlled
subsidiaries including Bancorp and venture partnerships. Adjustments to
operations relating to changes in the Company's percentage ownerships are
reflected in minority interest. All significant intercompany accounts and
transactions have been eliminated in consolidation. Because of BFC's increase in
voting control of Bancorp since 2000, Bancorp is consolidated for these
financial statements instead of carried on the equity basis. At December 31,
2001, BFC owned 22.7% of Bancorp's total common stock, which represents 55.3% of
the combined vote of Bancorp. Prior to 2000, Bancorp was carried using the
equity method and prior year amounts have not been restated.
Cash Equivalents - Cash and due from depository institutions include demand
deposits at other financial institutions. Federal funds sold are generally sold
for one-day periods and securities purchased under resell agreements are settled
in less than 30 days.
Securities - Debt securities are classified based on management's intention on
the date of purchase. Debt securities that management has both the positive
intent and ability to hold to maturity are classified as securities
held-to-maturity and are carried at amortized cost. Trading account securities
consist of securities inventories held for the purpose of brokerage activities
and are carried at fair value with unrealized gains and losses recognized in
non-interest income. All other debt securities are classified as available for
sale and carried at fair value with the net unrealized gains and losses included
in shareholders' equity on an after tax basis. Declines in the fair value of
individual held to maturity and available for sale securities below their cost
that are other than temporary result in write-downs of the individual securities
to their fair value.
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported in interest and dividends on securities
using the interest method over the lives of the securities, adjusted for actual
prepayments. Gains and losses on the sale of securities are recorded on the
trade date and are calculated using the specific-identification method.
Marketable equity securities, which are included in securities available for
sale are carried at fair value with the net unrealized gains and losses included
in shareholders' equity on an after- tax basis. Declines in the fair value of
individual equity securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. Equity
securities that do not have readily determinable fair value are classified as
investment securities and carried at historical cost. These securities are
evaluated for other than temporary declines in value and if impaired the
historical cost of the securities is written down to estimated fair value.
Tax Certificates - Tax certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent. Tax certificates
are classified as investment securities and are carried at cost, net of an
allowance for probable losses, which approximates fair value.
Loans and Leases - Loans are reported at their outstanding principal balances
net of any unearned income, unamortized deferred fees and costs on originated
loans and premiums or discounts on purchased loans. Loan origination fees and
certain direct origination costs are deferred and recognized as adjustments to
income over the lives of the related loans. Unearned income, discounts and
premiums are amortized to income using methods that approximate the interest
method. Equipment leases are carried at the aggregate of lease payments
receivable plus estimated residual value of the leased property, less unearned
income. Unearned income on equipment leases is amortized over the lease terms by
the interest method.
Allowance for Loan and Lease Losses - The allowance for loan and lease losses
reflects management's estimate of incurred credit losses in the loan and lease
portfolios. A loan is impaired when collection of principal and interest based
on the contractual terms of the loan is not probable. The first component of the
allowance is for non-homogenous loans that are individually evaluated for
impairment. These are high balance loans that management considers to be high
risk. The process for identifying loans to be evaluated individually for
impairment is based on management's identification of classified loans. Once an
individual loan is found to be impaired, a specific valuation allowance is
assigned to the loan based on one of the following three methods: (1) present
value of expected future cash flows, (2) fair value of collateral less costs to
sell, or (3) observable market price. Non-homogenous loans that are not impaired
are assigned an allowance based on historical data by product. The second
component of the allowance is for homogenous loans in which groups of loans with
common characteristics are evaluated to estimate the inherent losses in the
portfolio. Homogenous loans and leases have certain characteristics that are
common to the entire portfolio so as to form a basis for predicting losses on
historical data and
69
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
delinquency trends as it relates to the group. Management segregates homogenous
loans into groups, such as: residential real estate; small business mortgage;
small business non-mortgage; lease financing, and various types of consumer
loans. The methodology utilized in establishing the allowance for homogenous
loans includes consideration of the current economic environment, trends in
industries, analysis of historical losses, static pool analysis, delinquency
trends, classified loan grades and credit scores.
Management believes the allowance for loan and lease losses is adequate and that
it has a sound basis for estimating the adequacy of the allowance for loan
losses. Actual losses incurred in the future are highly dependent upon future
events, including the economy of the geographical areas in which BankAtlantic
holds loans.
Non-performing Loans and Leases -- Interest income on loans, including the
recognition of discounts and loan fees, is accrued based on the outstanding
principal amount of loans using the interest method. A loan or lease is
generally placed on non-accrual status at the earlier of the loan becoming past
due 90 days as to either principal or interest or when the borrower has entered
bankruptcy proceedings and the loan is delinquent. Exceptions to placing 90 day
past due loans on non-accrual may be made if there exists an abundance of
collateral and the loan is in the process of collection. When a loan is placed
on non-accrual status, interest accrued but not received is reversed against
interest income. A non-accrual loan may be restored to accrual status when
delinquent loan payments are collected and the loan is expected to perform in
the future according to its contractual terms.
Consumer non-mortgage loans and lease financing contracts that are 120 days past
due are charged off. Real estate secured consumer and residential loans that are
120 days past due are charged down to fair value less cost to sell.
Allowance for Tax Certificate Losses - This allowance represents the amount
which management believes is sufficient to provide for future losses that are
probable and subject to reasonable estimation. In establishing its allowance for
tax certificate losses, management considers past loss experience, present
indicators, such as the length of time the certificate has been outstanding,
economic conditions and collateral values. Tax certificates and resulting deeds
are classified as non-accrual when a tax certificate is 24 to 60 months
delinquent, depending on the municipality, from BankAtlantic's acquisition date.
At that time interest ceases to be accrued.
Loans Held for Sale -- Such loans are reported at the lower of aggregate cost or
estimated fair value, based on current market prices for similar loans. Loan
origination fees and related direct loan origination costs and premiums and
discounts on purchased loans held for sale are deferred until the related loan
is sold.
Real Estate Owned ("REO") -- BankAtlantic's REO is recorded at the lower of cost
or estimated fair value, less estimated selling costs. Write-downs required at
the time of acquisition are charged to the allowance for loan losses.
Expenditures for capital improvements made thereafter are generally capitalized.
Real estate acquired in settlement of loans is anticipated to be sold and
valuation allowance adjustments are made to reflect any subsequent changes in
fair values from the initially recorded amount. The costs of holding REO are
charged to operations as incurred. Provisions and reversals in the REO valuation
allowance are reflected in operations. The construction and development
activities of Levitt Companies are not accounted for as REO.
Investment Banking Activities - Investment banking activities includes
investment banking revenues, principal transactions and commissions. Ryan Beck's
securities transactions are recorded on a trade date basis. Ryan Beck's selling
concessions, consulting fees, management fees and underwriting fees, less
related expenses, are recorded in income as earned. All securities owned and
sold, but not yet purchased are valued at fair value, which results in
unrealized gains and losses being reflected in operations.
Real Estate Held for Development and Sale - Real estate held for development and
sale includes land, land development costs, and other construction costs and are
stated at the lower of accumulated cost or estimated fair value. The estimated
fair value of real estate is evaluated based on disposition of real estate in
the normal course of business under existing and anticipated market conditions.
The evaluation takes into consideration the current status of property, various
restrictions, carrying costs, debt service requirements, costs of disposition
and any other circumstances which may affect fair value including management's
plans for the property. Due to the large acreage of certain land holdings,
disposition in the normal course of business is expected to extend over a number
of years.
70
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventory costs include direct acquisition, development and construction costs,
interest and other indirect construction costs. Land and indirect land
development costs are accumulated by specific area and allocated proportionately
to various parcels or housing units within the respective area based upon the
most practicable methods, including specific identification and allocation based
upon the relative sales value method or acreage methods.
Start-up costs, construction overhead and selling expenses are expensed as
incurred. Land, land development, amenities and other costs are accumulated by
specific area and allocated to homes within the respective areas.
Interest is capitalized at the effective interest rates paid on borrowings for
interest costs incurred on real estate inventory components during the
preconstruction and planning stage and the periods that projects are under
development. Capitalization of interest is discontinued if development ceases at
a project.
Revenue and all related costs and expenses from house and land sales are
recognized at the time that closing has occurred, when title to and possession
of the property and risks and rewards of ownership transfer to the buyer and
other sale and profit recognition criteria are satisfied as required under
generally accepted accounting principles for real estate transactions.
Title and mortgage operations include agency and other fees received for the
processing of title insurance policies and mortgage loans. Revenues from title
and mortgage operations are recognized when the transfer of the corresponding
property or mortgages to third parties has been consummated.
Investments in Joint Ventures -- The Company accounts for its general
partnership interests in its joint ventures in which it has a 50% or less
ownership interest using the equity method of accounting. Under the equity
method, the Company's initial investment in a joint venture is recorded at cost
and is subsequently adjusted to recognize its share of the joint venture's
earnings or losses. Distributions received from joint ventures reduce the
carrying amount of the investment. All intercompany profits and losses are
eliminated until realized through third party transactions. Interest is
capitalized on real estate joint ventures while the venture has activities in
progress necessary to commence its planned principal operations based on the
average balance outstanding of investments and advances to joint ventures.
Interest income on loans from BankAtlantic to joint ventures is eliminated based
on the Company's ownership percentage in consolidation until realized by the
joint venture.
Profit or loss on real estate sold including REO, joint ventures and real estate
held for development and sale is recognized in accordance with Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate."
Any estimated loss is recognized in the period in which it becomes apparent.
Impairment -- Long-lived assets, assets to be disposed of, investment
securities, equity securities, cost over fair value of net assets acquired and
certain identifiable intangibles to be held and used by the Company are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets, assets to be disposed
of, and identifiable intangibles that the Company expects to hold and use is
based on the fair value of the asset.
Office Properties and Equipment -- Land is carried at cost. Office properties,
equipment and computer software are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which generally range up to 40 years for
buildings and 3-10 years for equipment and software. The cost of leasehold
improvements is being amortized using the straight-line method over the terms of
the related leases.
Expenditures for new properties and equipment and major renewals and betterments
are capitalized. Expenditures for maintenance and repairs are charged to expense
as incurred and gains or losses on disposal of assets are reflected in current
operations.
Cost Over Fair Value of Net Assets Acquired and Other Intangible Assets - Cost
over fair value of net assets acquired and other intangible assets are being
amortized on a straight-line basis over estimated useful lives, ranging from 7
to 25 years. The Company periodically reviews its cost over fair value of net
assets acquired and other intangible assets for events or changes in
circumstances that may indicate that the carrying amount may not be recoverable,
in which an impairment charge is recorded.
71
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising -- Advertising expenditures are expensed as incurred.
Income Taxes - The Company does not include Bancorp and its subsidiaries in its
consolidated income tax return with its wholly owned subsidiaries since the
Company owns less than 80% of the outstanding stock of Bancorp. Deferred income
taxes are provided on elements of income or expense that are recognized for
financial accounting purposes in periods different than such items are
recognized for income tax purposes.
The Company utilizes the asset and liability method to account for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the statutory enactment
date. A valuation allowance is provided to the extent it is more likely than not
that deferred tax assets will not be realized.
Derivative Instruments --The Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and
SFAS No. 138 (collectively, "SFAS No. 133"), on January 1, 2001. All derivatives
are recognized on the statement of financial condition at their fair value. On
the date the derivative contract is entered into, the Company designates the
derivative as either a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment ("fair value" hedge), or a hedge
of a forecasted transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability ("cash flow" hedge). The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair-value or cash-flow hedges to specific assets and
liabilities on the statement of financial condition or to specific firm
commitments or forecasted transactions. The Company also formally assesses, both
at the hedge's inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Company discontinues hedge accounting prospectively.
Changes in the fair value of a derivative that is highly effective and that is
designated and qualifies as a fair-value hedge, along with the loss or gain on
the hedged asset or liability or unrecognized firm commitment of the hedged item
that is attributable to the hedged risk are recorded in earnings. Changes in the
fair value of a derivative that is highly effective and that is designated and
qualifies as a cash-flow hedge are recorded in other comprehensive income, until
earnings are affected by the variability in cash flows of the designated hedged
item. Changes in the fair value of derivative trading instruments are reported
in current-period earnings.
The Company discontinues hedge accounting prospectively when it is determined
that the derivative is no longer effective in offsetting changes in the fair
value or cash flows of the hedged item, the derivative expires or is sold,
terminated, or exercised, the derivative is designated as a hedging instrument,
because it is unlikely that a forecasted transaction will occur, a hedged firm
commitment no longer meets the definition of a firm commitment, or management
determines that designation of the derivative as a hedging instrument is no
longer appropriate.
When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair-value hedge, the Company
continues to carry the derivative on the statement of financial condition at its
fair value, and no longer adjusts the hedged asset or liability for changes in
fair value. The adjustment of the carrying amount of the hedged asset or
liability is accounted for in the same manner as other components of the
carrying amount of that asset or liability. When hedge accounting is
discontinued because the hedged item no longer meets the definition of a firm
commitment, the Company continues to carry the derivative on the statement of
financial condition at its fair value, removes any asset or liability that was
recorded pursuant to recognition of the firm commitment from the balance sheet
and recognizes any gain or loss in earnings. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not
occur, the Company continues to carry the derivative on the statement of
financial condition at its fair value, and gains and losses that were
accumulated in other comprehensive income are recognized immediately in
earnings. In all other situations in which hedge accounting is discontinued, the
Company continues to carry the derivative at its fair value on the statement of
financial condition , and recognizes any changes in its fair value in earnings.
72
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 1, 2001, Bancorp had outstanding interest rate swap contracts
utilized in its interest rate risk management strategy. In conjunction with the
adoption of SFAS No. 133 on January 1, 2001, Bancorp accounted for the interest
rate swap contracts in accordance with the transition provisions of SFAS No. 133
and recorded a cumulative effect adjustment gain of approximately $1.1 million,
net of tax.
During the year ended December 31, 2001, Bancorp executed various fair value
hedges utilizing interest rate swap contracts to reduce the exposure of fixed
rate time deposits to changes in fair value. Gains and losses associated with
these interest rate swap contracts are recognized in earnings and the carrying
amount of the time deposits are adjusted to fair value. Bancorp during the year
ended December 31, 2001 entered into cash flow hedges whereby interest rate swap
contracts were executed to hedge the variable cash flows relating to forecasted
interest payments on certain variable rate FHLB advances. The changes in the
fair value of the interest rate swaps designated as cash flow hedges are
recorded in other comprehensive income.
During the year ended December 31, 2000 Bancorp entered into various interest
rate swap contracts. The interest rate swap contracts were executed to convert
Bancorp's fixed rate callable time deposits to a variable interest rate and to
hedge the variability in expected cash flows of variable rate FHLB advances. The
interest rate swaps were accounted for as a synthetic alteration. The net
interest receivable or payable on the interest rate swaps was accrued and
recognized as an adjustment to interest expense. Bancorp has also utilized
forward delivery contracts to purchase mortgage-backed securities. The forward
contracts were carried at fair value with unrealized gains recognized in gains
on trading securities in the Statement of Operations.
During the year ended December 31, 1999, Bancorp did not purchase, sell or enter
into derivative financial instruments or derivative commodity instruments as
defined by Statement of Financial Accounting Standards No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments"
other than fixed rate loan commitments.
Earnings Per Share - While 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. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
shares were exercised. Common stock options, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options are
included in the weighted average number of dilutive common shares outstanding
based on the treasury stock method. For all periods, the shares of the Company
issued in connection with a 1984 acquisition are considered outstanding after
elimination of the Company's percentage ownership of the entity that received
the shares issued in that acquisition.
Stock Based Compensation Plans - The Company maintains both qualifying and
non-qualifying stock-based compensation plans for its employees and directors.
The Company has elected to account for its employee stock-based compensation
plans under Accounting Principles Board ("APB") Opinion No. 25.
New Accounting Pronouncements --In July 2001, the FASB issued Statement No. 141,
"Business Combinations", and Statement No. 142, "Goodwill and Other Intangible
Assets". Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. Statement
141 also specifies criteria which intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The Company is required to adopt the provisions of Statement 141
immediately and adopted Statement 142 on January 1, 2002.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an
73
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
indication exists that the reporting unit's goodwill may be impaired and the
Company must perform the second step of the transitional impairment test. In the
second step, the Company must compare the implied fair value of the reporting
unit's goodwill, determined by allocating the reporting unit's fair value to all
of its assets (recognized and unrecognized) and liabilities in a manner similar
to a purchase price allocation in accordance with Statement 141, to its carrying
amount, both of which would be measured as of the date of adoption. This second
step is required to be completed as soon as possible, but no later than the end
of the year of adoption. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in the statement of
operations.
As of December 31, 2001, the Company had unamortized goodwill in the amount of
$39.9 million with annual amortization of approximately $4.0 million. This
amortization ceased upon the adoption of Statement No. 142. The Company is
currently evaluating the transitional goodwill impairment criteria of Statement
No. 142 and is not able to estimate the impact, if any, that Statement No. 142
may have on the recorded goodwill. The impairment adjustment, if any, will have
to be identified by June 30, 2002 and measured and recorded by the Company no
later than December 31, 2002. The impairment, if any, will be recognized as a
cumulative effect of a change in accounting principle in the results for the
first quarter of 2002.
On July 5, 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations". That standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
a cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. Management believes that Statement 143 will not have a
material impact on the Company's consolidated financial statements.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement retains the
requirements of Statement 121 to (a) recognize an impairment loss only if the
carrying amount of a long-lived asset is not recoverable from its undiscounted
cash flows and (b) measure an impairment loss as the difference between the
carrying amount and fair value of the asset. This statement requires that a
long-lived asset to be abandoned, exchanged for a similar productive asset, or
distributed to owners in a spinoff be considered held and used until it is
disposed of. This statement requires that the depreciable life of a long-lived
asset to be abandoned be revised and that an impairment loss be recognized at
the date a long-lived asset is exchanged for a similar productive asset or
distributed to owners in a spinoff if the carrying amount of the asset exceeds
its fair value. The accounting model for long-lived assets to be disposed of by
sale is used for all long-lived assets, whether previously held and used or
newly acquired. That accounting model measures a long-lived asset classified as
held for sale at the lower of its carrying amount or fair value less cost to
sell and requires depreciation (amortization) to cease. Discontinued operations
are no longer measured on a net realizable value basis, and future operating
losses are no longer recognized before they occur. This statement retains the
basic provisions of Accounting Principles Board Opinion 30 for the presentation
of discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). A component of an entity comprises operations and cash flows that can
be clearly distinguished, operationally and for financial reporting purposes,
from the rest of the entity. A component of an entity that is classified as held
for sale or that has been disposed of is presented as a discontinued operation
if the operations and cash flows of the component will be (or have been)
eliminated from the ongoing operations of the entity and the entity will not
have any significant continuing involvement in the operations of the component.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early application encouraged. The provisions of this
statement generally are to be applied prospectively. Management believes that
the adoption of Statement 144 will not have a material impact on the Company's
consolidated financial statements.
2. Earnings (Loss) 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. The number of options considered outstanding shares for diluted
earnings per share is based upon application of the treasury stock method to the
options outstanding as of the end of the period. I.R.E. Realty Advisory Group,
Inc. ("RAG") owns 1,375,000 of BFC Financial Corporation's Class A Common Stock
and 500,000 shares of BFC Financial Corporation
74
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Class B Common Stock. Because the Company owns 45.5% of the outstanding common
stock of RAG, 624,938 shares of Class A Common Stock and 227,500 shares of Class
B Common Stock are eliminated from the number of shares outstanding for purposes
of computing earnings per share.
3. Securities and Short-Term Investments
The following tables summarize available-for-sale securities, investment
securities and tax certificates (in thousands):
December 31, 2001
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Appreciation Depreciation Fair Value
--------- ------------ ------------ ----------
Mortgage-Backed Securities:
Mortgage-backed securities $410,796 9,976 1 420,771
Real estate mortgage investment conduits 388,720 5,585 485 393,820
-------- ------ ------ -------
Total mortgage-backed securities $799,516 15,561 486 814,591
-------- ------ ------ -------
Investment Securities:
U.S. Treasury Notes 5,819 -- -- 5,819
Other Bonds 250 12 -- 262
Equity securities 23,530 15,665 384 38,811
-------- ------ ------ -------
Total investment securities 29,599 15,677 384 44,892
-------- ------ ------ -------
Total $829,115 31,238 870 859,483
======== ====== ====== =======
December 31, 2000
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Appreciation Depreciation Fair Value
--------- ------------ ------------ ----------
Mortgage-Backed Securities:
Mortgage-backed securities $198,957 1,255 86 200,126
Real estate mortgage investment conduits 619,238 114 12,053 607,299
-------- ------ ------ -------
Total mortgage-backed securities 818,195 1,369 12,139 807,425
-------- ------ ------ -------
Investment Securities:
U.S. Treasury Notes 5,945 -- -- 5,945
Other Bonds 250 -- -- 250
Equity securities 26,507 48,119 300 74,326
-------- ------ ------ -------
Total investment securities 32,702 48,119 300 80,521
-------- ------ ------ -------
Total $850,897 49,488 12,439 887,946
======== ====== ====== =======
During 1999 and 2000, the Company (without consideration of Bancorp) acquired
interests in unaffiliated technology entities. During 2000 and 2001, the
Company's interests in the technology entities were transferred at the Company's
cost to specified asset limited partnerships. Subsidiaries of the Company are
the controlling general partners of these venture partnerships, therefore, they
are consolidated in these financial statements. Interests in such partnerships
were sold in 2000 and 2001 to accredited investors in private offerings. During
2000, approximately $5.1 million of capital was raised from unaffiliated third
parties by these partnerships and officers, directors and affiliates of the
Company invested approximately $4.4 million in the Partnership. The Company and
the general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of the $1.3 million, Alan Levan and Jack Abdo each
borrowed $500,000 from the Company on a recourse basis and Glen Gilbert,
Executive Vice President, and Earl Pertnoy, a director of the Company each
borrowed $50,000 on a non-recourse basis to make their investments. Such amounts
were still outstanding at the end of the year, bear interest at the prime rate
plus 1% and are payable interest only annually with the entire balance due in
February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and
75
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BFC Financial Corporation - 57.5%. Losses net of minority interests for the year
ended December 31, 2001 were $881,000. At December 31, 2001, the Company's net
investment in these partnerships was $4.7 million.
The scheduled maturities of debt securities and tax certificates were (in
thousands):
Tax Certificates/Debt
Debt Securities Securities
Available for Sale Held to Maturity
--------------------- ---------------------
Estimated Estimated
Amortized Fair Amortized Fair
December 31, 2001(1) Cost Value Cost Value
- -------------------- -------- ------- ------- -------
Due within one year $ 5,858 5,858 103,121 103,121
Due after one year, but within five years 483 505 40,956 40,956
Due after five years, but within ten years 12,659 13,060 -- --
Due after ten years 786,585 801,249 264,433 270,185
-------- ------- ------- -------
Total $805,585 820,672 408,510 414,262
======== ======= ======= =======
(1) Scheduled maturities in the above table may vary significantly from actual
maturities due to prepayments.
Investment Securities and Tax Certificates
December 31, 2001 (1)
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ ---------
Tax certificates
Net of allowance of $1,521 $144,077 -- -- 144,077
Mortgage-backed securities (3) 264,433 5,878 126 270,185
Investment securities (2) 20,208 -- -- 20,208
-------- ----- ------- -------
$428,718 5,878 126 434,470
======== ===== ======= =======
Investment Securities and Tax Certificates
December 31, 2000 (1)
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------ ------------ ---------
Tax certificates
Net of allowance of $1,937 $122,352 -- -- 122,352
Mortgage-backed securities (3) 238,275 4,352 -- 242,627
Investment securities (2) 22,992 -- -- 22,992
-------- ----- ------- -------
$383,619 4,352 -- 387,971
======== ===== ======= =======
(1) Management considers estimated fair value equivalent to book value for tax
certificates and investment securities since these securities have no
readily traded market and are deemed to approximate fair value.
(2) Investment securities consist of equity instruments purchased through
private placements.
(3) Mortgage-backed securities are classified as held to maturity.
76
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for tax certificate losses was (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------- -------
Balance, beginning of period $ 1,937 1,504
------- -------
Charge-offs (2,162) (796)
Recoveries 546 329
------- -------
Net recoveries (charge-offs) (1,616) (467)
------- -------
Provision charged to operations 1,200 900
------- -------
Balance, end of period $ 1,521 1,937
======= =======
The components of gains and losses on sales of securities were (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------ ------
Gross gains on securities activities $7,130 3,775
Gross losses on securities activities -- 1,235
------ ------
Net gains on the sales of securities available
for sale and trading securities $7,130 2,540
====== ======
The specific identification method was used in determining cost in computing
realized gains and losses. Included in gains on sales of securities available
for sale and trading securities in the Statement of Operations were write-downs
of equity securities of $7.9 million and $5.2 million and unrealized gains from
forward contracts of $108,000 and $316,000 during the years ended December 31,
2001 and 2000, respectively. During the year ended December 31, 2001, the
Company realized a $1.4 million gain related to the settlement of interest rate
swap contracts and recorded an unrealized loss of $1.5 million prior to the
designation of interest rate swap contracts as cash flow hedges.
The Company's trading account consisted of the following (in thousands):
December 31,
-----------------
2001 2000
------- -------
Debt obligations:
States and municipalities $ 7,593 11,731
Corporations 20,989 227
U.S. Government and agencies 32,308 24,476
Corporate equity 7,406 3,401
Certificates of deposit -- 3,722
------- -------
Total $68,296 43,557
======= =======
All the trading securities outstanding at December 31, 2001 and 2000 were
associated with 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
realized income from principal transactions of $18.9 million and $14.8 million
for the years ended December 31, 2001, and 2000, respectively.
77
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities sold, but not yet purchased included in other liabilities consists of
the following (in thousands):
December 31,
-----------------
2001 2000
------- -------
Corporate equity $ 1,882 363
Corporate bonds 21,305 --
U.S. Government agencies 15,244 11,662
------- -------
$38,431 12,025
======= =======
Securities sold, but not yet purchased are a part of Ryan Beck's normal
activities as a broker and dealer in securities and are subject to
off-balance-sheet market risk of loss should Ryan Beck be unable to acquire the
securities for delivery to the purchaser at prices equal to or less than the
current recorded amounts.
The following table provides information on securities purchased under
agreements to resell (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------ ------
Ending Balance $ 156 $1,584
Maximum outstanding at any month end within period $3,651 $9,421
Average amount invested during period $1,152 $3,034
Average yield during period 2.80% 5.79%
The underlying securities associated with the securities purchased under
agreements to resell during the years ended December 31, 2001 and 2000 were in
Bancorp's possession.
The following table provides information on Federal Funds sold (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------- -------
Ending Balance $ -- $ --
Maximum outstanding at any month end within period $16,500 $10,500
Average amount invested during period $ 564 $ 629
Average yield during period 3.73% 6.31%
The estimated fair value of securities available for sale, investment securities
and mortgage-backed securities held to maturity pledged for the following
obligations were (in thousands):
December 31,
-------------------
2001 2000
-------- --------
FHLB advances $167,255 $120,691
Treasury tax and loan 3,200 3,200
Repurchase agreements 419,820 683,518
Public funds 155,502 69,165
Subordinated debentures 1,890 5,300
Interest rate swap and forward contracts 5,966 981
-------- --------
$753,633 $882,855
======== ========
The change in net unrealized holding gains or losses on available for sale
securities included as a separate component of stockholders' equity was as
follows (in thousands):
For the Year Ended December 31,
-------------------------------
2001 2000 1999
------- ------- --------
Net change in unrealized (depreciation) appreciation
on securities available for sale $(1,620) $16,472 $(9,423)
Change in deferred taxes (benefits) on net unrealized
(depreciation) appreciation on securities available for sale (625) 6,355 (3,536)
------- ------- -------
Change in stockholders' equity from net unrealized
(depreciation) appreciation on securities available for sale $ (995) $10,117 $(5,887)
======= ======= =======
78
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Loans Receivable
The loan and lease portfolio consisted of the following components (in
thousands):
December 31,
--------------------------
2001 2000
----------- -----------
Real estate loans:
Residential $ 1,111,775 $ 1,316,062
Construction and development 1,122,628 937,881
Commercial 524,954 372,351
Small business 43,196 28,285
Other loans:
Second mortgages - direct 166,531 124,859
Second mortgages - indirect 2,159 4,020
Commercial business 76,146 86,194
Lease financing 54,969 75,918
Small business - non-mortgage 59,041 69,325
Due from foreign banks 1,420 64,207
Banker's acceptances 5 1,329
Deposit overdrafts 2,040 2,325
Consumer loans - other direct 23,771 30,711
Consumer loans - other indirect 23,241 58,455
Other 1,184 --
Loans held for sale:
Residential 4,757 --
Commercial syndication 40,774 80,016
----------- -----------
Total gross loans 3,258,591 3,251,938
Adjustments:
Undisbursed portion of loans in process (434,166) (344,390)
Premiums related to purchased loans 3,065 127
Unearned discounts on commercial real estate loans (119) (178)
Deferred profit on commercial real estate loans (674) (786)
Deferred fees (4,416) (3,624)
Allowance for loan and lease losses (45,657) (48,072)
----------- -----------
Loans receivable - net $ 2,776,624 $ 2,855,015
=========== ===========
In February 2001, BFC originated several recourse and nonrecourse loans to
officers and directors totaling approximately $1.1 million. These loans bear
interest at the prime rate plus 1% and are due in February 2006.
BankAtlantic's loan portfolio had the following geographic concentration at
December 31, 2001:
Florida 54%
California 6
Northeast 9
Other 31
----------
Total 100%
==========
Securitization Activity:
During the year ended December 31, 2000, BankAtlantic securitized $77.9 million
of purchased residential loans into government agency mortgage-backed
securities. The resulting securities were classified as securities available for
sale. BankAtlantic did not securitize loans during the year ended December 31,
2001.
79
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Lending Activity:
Bancorp continuously evaluates its business units for profitability, growth and
overall efficiency. As a consequence of these evaluations Bancorp closed the
offices of its leasing subsidiary, Leasing Technology, Inc. and ceased new lease
originations during the third quarter of 2001. Included in the allowance for
loan losses was $8.6 million and $2.9 million, respectively, of valuation
allowances relating to lease financing contracts as of December 31, 2001 and
2000.
In September 2000, Bancorp made a determination to discontinue its purchasing
and reselling of mortgage loans and its participation in syndication commercial
lending. Bancorp periodically purchased residential loans with the intent to
package sell or securitize these loans based on individual characteristics. As a
consequence of Bancorp discontinuing these activities, $222 million of
residential loans held for sale were transferred to the held for investment
portfolio, resulting in Bancorp realizing a loss of $654,000 at the transfer
date. Bancorp intends to continue to purchase residential loans for its
portfolio.
As a result of Bancorp's decision to discontinue its syndication lending
activities the entire portfolio of $123.9 million of syndication loans was
transferred from loans held for investment to loans held for sale. Included in
the allowance for loan losses was $9.1 million and $8.5 million, respectively of
valuation allowances relating to syndication loans as of December 31, 2001 and
2000.
Transfer of Loans:
During the year ended December 31, 2001, Bancorp transferred $4.8 million of
residential loans from held for investment to held for sale and sold the loans
for book value. The majority of the loans were delinquent when purchased as part
of residential loan bulk purchases during 1999 and 2000. Management of Bancorp
decided to sell the loans for book value instead of foreclosing on the
properties.
Allowance for Loan and Lease Losses (in thousands):
For the Year Ended December 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Balance, beginning of period $ 48,072 $ 1,072 $ 772
Balance, beginning of period resulting from
consolidation of Bancorp 44,450
Loans and leases charged-off (27,916) (32,221) --
Recoveries of loans and leases previously charged-off 8,596 5,639 --
-------- -------- --------
Net charge-offs (19,320) (26,582) --
Additions charged to operations 16,905 29,132 300
-------- -------- --------
Balance, end of period $ 45,657 $ 48,072 $ 1,072
======== ======== ========
The following summarizes impaired loans (in thousands):
December 31, 2001 December 31, 2000
------------------------- -------------------------
Gross Gross
Recorded Specific Recorded Specific
Investment Allowances Investment Allowances
----------- ----------- ----------- -----------
Impaired loans with specific valuation allowances $ 23,171 $ 9,936 $ 23,090 $ 8,057
Impaired loans without specific valuation allowances 16,533 -- 30,548 --
----------- ----------- ----------- -----------
Total $ 39,704 $ 9,936 $ 53,638 $ 8,057
=========== =========== =========== ===========
The average gross recorded investment in impaired loans (in thousands) was
$54,181 and $35,916 during the years ended December 31, 2001 and 2000,
respectively.
80
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foregone Interest Income:
Interest income which would have been recorded under the contractual terms of
impaired loans and the interest income actually recognized was (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------- -------
Contracted interest income $ 2,815 $ 5,254
Interest income recognized (1) (941) (4,129)
------- -------
Foregone interest income $ 1,874 $ 1,125
======= =======
(1) Interest income on impaired loans was recognized on a cash basis.
Non-performing assets (in thousands):
At December 31,
--------------------
2001 2000
-------- --------
Non-accrual -- tax certificates $ 1,727 $ 2,491
Non-accrual -- loans
Residential 9,203 11,229
Syndication 10,700 --
Commercial real estate and business 13,066 1,705
Small business 905 2,532
Lease financing 2,585 1,515
Consumer 796 1,944
Real estate owned, net of allowance 3,904 4,499
Other repossessed assets 17 1,742
-------- --------
Total non-performing assets 42,903 27,657
Specific valuation allowance (9,936) (819)
-------- --------
Total non-performing assets, net $ 32,967 $ 26,838
======== ========
Non-performing assets consist of non-accrual loans, non-accrual tax
certificates, REO and repossessed assets. Non-accrual loans are loans on which
interest recognition has been suspended because of doubts as to the borrower's
ability to repay principal or interest. Non-accrual tax certificates are tax
deeds or securities in which interest recognition has been suspended due to the
aging of the certificate or deed.
Other potential problem loans (in thousands):
At December 31,
-----------------
2001 2000
------- -------
Loans contractually past due 90 days or more
and still accruing $ -- $ 7,086
Performing impaired loans, net of specific allowances -- 15,001
Restructured loans 743 --
Delinquent residential loans purchased 1,705 5,389
------- -------
Total potential problem loans $ 2,448 $27,476
======= =======
Other potential problem loans consist of loans contractually past due 90 days or
more and still accruing, restructured loans, performing impaired loans and
delinquent residential loans. Loans contractually past due 90 days or more
represent loans that have matured and the borrower continues to make the
payments under the matured loan agreement. BankAtlantic is in the process of
renewing or extending these matured loans. Restructured loans are loans in which
the original terms were modified granting the borrower loan concessions due to
financial difficulties. Performing impaired loans are still accruing impaired
loans, and delinquent purchased loans were non-performing residential loans
purchased at a discount. The purchased
81
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
discount on the delinquent purchased loans was $120,000 and $442,000 at December
31, 2001 and 2000, respectively. During the year ended December 31, 2001, $3.7
million of delinquent residential loans purchased were sold at book value. There
were no commitments to lend additional funds to non-performing loans or
potential problem loans at December 31, 2001.
During February 2002, a $17 million loan collateralized by a hotel was placed on
a non-accrual status when the borrower failed to comply with the contractual
terms of the loan agreement. This loan is not included in the above table as of
December 31, 2001, but will be reported as a non-accruing loan in future
periods.
Foreclosed Asset Activity in non-interest expense (in thousands):
For the Year Ended
December 31,
------------------
2001 2000
------- -------
Real estate acquired in settlement of loans and
tax certificates:
Operating expenses, net $ 160 $ 186
Provisions for losses on REO 117 134
Net (gains) losses on sales (1,053) 107
------- -------
Total (income) loss $ (776) $ 427
======= =======
Activity in the allowance for real estate owned consisted of (in thousands):
For the Year Ended
December 31,
-------- --------
2001 2000
-------- --------
Balance, beginning of period $ 310 $ 310
Net charge-offs:
Commercial real estate (1) (220) --
Residential real estate (207) (134)
-------- --------
Total net charge-offs (427) (134)
Provision for losses on REO 117 134
-------- --------
Balance, end of period $ -- $ 310
======== ========
(1) Acquired through tax deed.
Accrued interest receivable consisted of (in thousands):
December 31,
-----------------
2001 2000
------- -------
Loans receivable $16,494 $22,824
Investment securities and tax certificates 12,003 10,645
Interest rate swaps 317 5,356
Securities available for sale 4,973 5,221
------- -------
$33,787 $44,046
======= =======
5. Restructuring Charges, Impairment Write-downs and Discontinued Operations
Restructuring Charges and Impairment Write-downs:
During 2001, BankAtlantic evaluated the performance of its in-store branches in
relation to its core business strategy and decided to exit the line of business.
The in-store branches were evaluated for asset impairment resulting in a
$550,000 write-down. The fair value of impaired assets was estimated through
sales contracts on specific in-store branches and discounted cash flows on
in-store branches anticipated to be closed in subsequent periods. During the
year ended December 31, 2001, twelve in-store branches were sold to unrelated
financial institutions for a $1.6 million gain. BankAtlantic expects to sell or
close down the remaining four in-store branches during the first half of 2002.
82
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During December 2000, a plan was adopted to terminate BankAtlantic's ATM
relationships with Wal*Mart and K-Mart resulting in a $2.1 million restructuring
charge and a $509,000 impairment write-down. The above relationships did not
meet strategic goals or required investment returns.
Restructuring charges at December 31, 2000 included in other liabilities,
consisted of (in thousands):
December 31,
2000
------------
Lease contract termination costs $ 1,768
De-installation costs 305
Other 74
------------
Total restructuring charge $ 2,147
============
During the second quarter of 2001, the restructuring charge liability was
adjusted downward by $219,000 to reflect lower ATM lease termination costs than
projected when the restructuring charge was first determined. The restructuring
plan was completed during the fourth quarter of 2001.
Discontinued Operations:
At December 31, 1998, the Board of Directors of Bancorp adopted a formal plan to
dispose of its mortgage servicing business ("MSB") operations. It was concluded
that this business line no longer met Bancorp's standards for profitability. The
exit plan was substantially completed during the year ended December 31, 1999
following the sale of the servicing portfolio in July 1999.
During the year ended December 31, 2000, Bancorp recognized a $669,000 gain, net
of taxes from discontinued operations. The gain primarily resulted from a higher
than projected gain on the sale of a building formerly used by the mortgage
servicing unit.
6. Office Properties and Equipment
Office properties and equipment was comprised of (in thousands):
December 31,
-------------------
2001 2000
-------- --------
Land $ 14,977 $ 15,102
Buildings and improvements 45,365 45,927
Furniture and equipment 40,548 39,726
-------- --------
Total 100,890 100,755
Less accumulated depreciation 39,104 40,794
-------- --------
Office properties and equipment - net $ 61,786 $ 59,961
======== ========
83
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Deposits
The weighted average nominal interest rate payable on deposit accounts at
December 31, 2001 and 2000 was 2.74% and 4.62%, respectively. The stated rates
and balances at which BankAtlantic paid interest on deposits were:
December 31,
--------------------------------------------------
2001 2000
----------------------- -----------------------
Amount Percent Amount Percent
---------- ---------- ---------- ----------
(Dollars in thousands)
Interest free checking $ 285,918 12.56% $ 245,320 10.98%
Insured money fund savings
1.81% at December 31, 2001,
5.38% at December 31, 2000, 589,045 25.87 539,355 24.14
NOW accounts
0.70% at December 31, 2001,
0.70% at December 31, 2000, 218,261 9.59 199,589 8.93
Savings accounts
0.90% at December 31, 2001,
1.20% at December 31, 2000, 98,202 4.31 90,989 4.07
---------- ---------- ---------- ----------
Total non-certificate accounts 1,191,426 52.33 1,075,253 48.12
---------- ---------- ---------- ----------
Certificate accounts:
0.00% to 4.00% 258,936 11.37 32,785 1.47
4.01% to 5.00% 430,741 18.92 68,837 3.08
5.01% to 6.00% 212,362 9.33 144,341 6.46
6.01% to 7.00% 170,970 7.51 812,250 36.35
7.01% and greater 5,399 0.24 92,144 4.12
---------- ---------- ---------- ----------
Total certificate accounts 1,078,408 47.37 1,150,357 51.48
---------- ---------- ---------- ----------
Total deposit accounts 2,269,834 99.70 2,225,610 99.60
---------- ---------- ---------- ----------
Fair value adjustment related to hedged deposits 1,326 0.06 -- 0.00
---------- ---------- ---------- ----------
Interest earned not credited to deposit accounts 5,407 0.24 8,875 0.40
---------- ---------- ---------- ----------
Total $2,276,567 100.00% $2,234,485 100.00%
========== ========== ========== ==========
Interest expense by deposit category was (in thousands):
For the Year Ended
December 31,
--------------------
2001 2000
-------- --------
Money fund savings and NOW accounts $ 20,241 $ 26,156
Savings accounts 1,451 1,267
Certificate accounts -- below $100,000 30,324 40,394
Certificate accounts, $100,000 and above 33,960 24,246
Less early withdrawal penalty (308) (340)
-------- --------
Total $ 85,668 $ 91,723
======== ========
At December 31, 2001, the amounts of scheduled maturities of certificate
accounts were (in thousands):
Year Ending December 31,
----------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter
-------- -------- -------- -------- -------- ----------
0.00% to 4.00% $241,671 $ 10,788 $ 5,315 $ 59 $ 725 $ 378
4.01% to 5.00% 243,450 129,355 37,058 1,750 19,118 10
5.01% to 6.00% 89,415 51,165 58,877 1,013 1,847 10,045
6.01% to 7.00% 126,057 8,712 3,018 3,061 81 30,041
7.01% and greater 3,435 719 349 896 -- --
-------- -------- -------- -------- -------- --------
Total $704,028 $200,739 $104,617 $ 6,779 $ 21,771 $ 40,474
======== ======== ======== ======== ======== ========
84
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Time deposits of $100,000 and over had the following maturities (in thousands):
December 31,
2001
------------
3 months or less $112,065
4 to 6 months 61,166
7 to 12 months 86,794
More than 12 months 310,383
--------
Total $570,408
========
Included in certificate accounts (in thousands):
December 31.
-------------------
2001 2000
-------- --------
Brokered deposits $ 48,000 31,182
Public deposits 307,026 92,914
-------- --------
Total institutional deposits $355,026 124,096
======== ========
Ryan Beck acted as principal dealer in obtaining $28.0 million and $31.2 million
of the brokered deposits outstanding as of December 31, 2001 and 2000,
respectively. BankAtlantic has various relationships for obtaining brokered
deposits. These relationships are considered as an alternative source of
borrowings, when and if needed. Included in brokered deposits at December 31,
2001, were $40 million of ten and fifteen year callable fixed rate time deposits
with an average interest rate of 6.06%. The callable interest rate swap
contracts were written to swap the 6.06% average fixed interest rate to a three
month LIBOR interest rate.
8. Advances from Federal Home Loan Bank and Federal Funds Purchased
Advances from Federal Home Loan Bank ("FHLB") (in thousands):
December 31,
Repayable During Year --------------------------
Ending December 31, Year Callable Interest Rate 2001 2000
- --------------------------------------- ----------------- ------------------ ------------ ------------
2001 6.29% to 7.09% $ -- $ 37,778
2002 5.16% to 7.18% 126,490 66,468
2003 5.39% to 7.25% 144,540 84,555
2004 5.52% to 5.68% 85,000 --
2005 6.09% to 6.15% 75,000 --
------------ ------------
Total fixed rate advances 431,030 188,801
------------ ------------
2003 2001 5.39% -- 25,000
2005 2001 6.09% to 6.15% -- 75,000
2007 2002 5.68% 25,000 25,000
2008 2001 5.18% -- 25,000
2008 2003 4.87% to 5.67% 465,000 465,000
2010 2002 5.84% 30,000 30,000
2011 2004 4.50% to 4.90% 50,000 --
2011 2005 5.05% 30,000 --
------------ ------------
Total callable fixed rate advances 600,000 645,000
------------ ------------
Adjustable rate advances
2001 6.60% to 6.78% -- 205,000
2003 4.90% 50,000 --
2006 5.46% 25,000 --
------------ ------------
Total adjustable rate advances 75,000 205,000
------------ ------------
Total FHLB advances $ 1,106,030 $ 1,038,801
============ ============
Average cost during period 5.61% 5.95%
============ ============
85
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Callable advances give the FHLB the option to re-price the advance, at a
specific future date. Upon the FHLB's exercising its call option, BankAtlantic
has the option to convert to a three month LIBOR-based floating rate advance,
payoff the advance or convert to a fixed rate advance. BankAtlantic has
established a blanket floating lien with the FHLB against its residential loans.
At December 31, 2001, $1.1 billion of 1-4 family residential loans and $209.2
million of commercial real estate loans were pledged against FHLB advances. In
addition, FHLB stock is pledged as collateral for outstanding FHLB advances.
BankAtlantic's line of credit with the FHLB is limited to 30% of assets, subject
to available collateral, with a maximum term of 10 years at December 31, 2001.
On December 31, 2001, BankAtlantic pledged $201.4 million of consumer loans to
the Federal Reserve Bank of Atlanta ("FRB") as collateral for potential advances
of $161.1 million. The FRB line of credit has not been utilized.
Federal Funds Purchased:
BankAtlantic established $110.0 million of lines of credit with other banking
institutions for the purchase of federal funds. The following table provides
information on federal funds purchased: (dollars in thousands).
2001 2000
-------- --------
Ending balance $ 61,000 $ 9,700
Maximum outstanding at any month end
within period $107,000 $ 21,500
Average amount outstanding during period $ 54,167 $ 12,300
Average cost during period 3.86% 6.57%
9. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are summarized below (in
thousands):
December 31,
-------------------
2001 2000
-------- --------
Agreements to repurchase the same security $255,408 $532,172
Customer repurchase agreements 150,662 127,330
-------- --------
Total $406,070 $659,502
======== ========
Securities sold under agreements to repurchase is a transaction whereby Bancorp
sells a portion of its current investment portfolio (usually MBS's and REMIC's)
at a negotiated rate and agrees to repurchase the same assets on a specified
date. Bancorp issues repurchase agreements to institutions and to its customers.
These transactions are collateralized by investment securities. Customer
repurchase agreements are not insured by the FDIC.
The following table provides information on the agreements to repurchase
(dollars in thousands):
For the Year Ended
December 31,
------------------------
2001 2000
---------- ----------
Maximum borrowing at any month-end within the period $ 714,121 $ 686,586
Average borrowing during the period $ 542,296 $ 550,850
Average interest cost during the period 4.16% 5.27%
Average interest cost at end of the period 1.52% 6.40%
The following table lists the amortized cost and estimated fair value of
securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
86
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted
Estimated Average
Amortized Fair Repurchase Interest
Cost Value Balance Rate
----------- ----------- ----------- -----------
December 31, 2001 (1)
Mortgage-backed securities $ 220,259 $ 225,494 $ 217,630 1.73%
REMIC 191,204 194,326 188,440 1.30
----------- ----------- ----------- -----------
Total $ 411,463 $ 419,820 $ 406,070 1.52%
=========== =========== =========== ===========
December 31, 2000 (1)
Mortgage-backed securities $ 264,612 $ 268,070 $ 252,140 6.55%
REMIC 423,565 415,448 407,362 6.16
----------- ----------- ----------- -----------
Total $ 688,177 $ 683,518 $ 659,502 6.40%
=========== =========== =========== ===========
(1) At December 31, 2001 $249.4 million of these securities were
classified as available for sale and $170.4 million of these
securities were classified as held to maturity. The available for sale
securities were recorded at fair value and the held to maturity
securities were recorded at amortized cost in the consolidated
statements of financial condition. At December 31, 2000 all securities
were classified as available for sale.
Repurchase agreements at December 31, 2001 matured and were repaid in January
2002. These securities were held by unrelated broker dealers.
10. Subordinated Debentures and Other Debt, Other Liabilities and Trust
Preferred Securities
The following subordinated debentures, Trust Preferred Securities and notes and
bonds payable were outstanding (in thousands):
Beginning
December 31, Conver- Class Optional
Issue ------------------- Interest Maturity sion of Redemption
Date 2001 2000 Rate Date Price Stock Date
-------- -------- -------- ---------- --------- --------- --------- ----------
Bancorp Borrowings
9% Debentures 09/22/95 $ 21,000 $ 21,000 9% 10/1/05 N/A N/A 10/1/1998
6 3/4% Debentures (1) 07/03/96 -- 51,118 6.75% 7/1/06 $ 5.7 A 7/1/1999
5 5/8% Debentures (1) 11/25/97 46,067 46,103 5.63% 12/1/07 $ 11.25 A 12/1/2000
Investment Notes Various -- 34,790 10.00-11.75% 2002(2) N/A N/A N/A
Bank line of credit 08/24/00 100 19,964 Prime -.50% 9/1/04 N/A N/A N/A
Brokerage margin account 08/18/00 -- 1,131 7.63% N/A N/A N/A N/A
-------- --------
Total Bancorp
borrowings 67,167 174,106
-------- --------
Levitt Companies
Borrowings
Acquisition Note 09/15/00 12,400 14,000 Prime+1/2% 9/1/05 N/A N/A N/A
Working Capital Line 09/15/00 3,500 3,000 Prime+1% 9/15/03 N/A N/A N/A
Land Acquisition Loan 09/17/01 7,000 -- Prime+1/2% 5/1/02 N/A N/A N/A
Acquisition and
Development Notes Various 29,673 29,015 Various% Various N/A N/A N/A
Development Bond 03/31/00 638 1,052 8.5% 1/1/22 N/A N/A N/A
Land Acquisition Loan 09/25/01 11,050 -- Prime+1% 9/24/02 N/A N/A N/A
Notes payable 07/15/98 -- 3,185 Prime+1.5% 7/15/03 N/A N/A N/A
-------- --------
Total Levitt Companies 64,261 50,252
-------- --------
BFC Borrowings
Working Capital Various 4,515 4,080 Prime + 1% 2002 N/A N/A N/A
Mortgage payables Various 9,541 9,892 Various 2002-2010 N/A N/A N/A
-------- --------
Total BFC borrowings 14,056 13,972
-------- --------
Total Borrowings $ 145,484 $ 238,330
======== ========
Trust Preferred
Securities 04/24/97 $ 74,750 $ 74,750 9.5% 6/30/27 N/A N/A 6/30/2002
======== ========
Total $220,234 $313,080
======== ========
-----------------------------------------------------------------------------------------------------
87
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Convertible at the option of the holder into shares of Bancorp Class A
Common Stock.
(2) Extendable at Bancorp's option until 2003.
Included in other assets was $3.6 million and $5.3 million of unamortized
underwriting discounts and costs at December 31, 2001 and 2000, respectively,
associated with the issuance of subordinated debentures and other debt.
Annual Maturities of Subordinated Debentures and Other Debt (in thousands):
Year Ending
December 31, Amount
- --------------- --------------
2002 $ 31,737
2003 13,784
2004 5,892
2005 34,647
2006 276
Thereafter 133,898
--------------
$ 220,234
==============
Retirement of Debt:
During the year ended December 31, 2001, Bancorp redeemed $34.8 million of
subordinated investment notes and recognized a $253,000 (net of taxes)
extraordinary loss.
In August 2001, Bancorp called for redemption approximately $51 million in
principal amount of its outstanding 6-3/4% convertible subordinated debentures
due 2006. At the redemption date on September 19, 2001, all but approximately
$251,000 of the 6-3/4% convertible debentures were converted by holders into an
aggregate of 8,919,649 shares of Bancorp Class A Common Stock. The debentures
were convertible into Bancorp Class A Common Stock at a conversion price of
$5.70. During the year ended December 31, 2000 Bancorp issued 5,965 shares of
Bancorp Class A Common Stock upon conversion of $34,000 of Bancorp's 6-3/4%
debentures.
During the year ended December 31, 2000, Bancorp repurchased $53.8 million
aggregate principal amount of Bancorp's 5-5/8% Debentures and recognized a $7.9
million (net of income tax) extraordinary gain in conjunction with these
purchases.
Revolving Credit Facility:
On August 24, 2000, Bancorp entered into a revolving credit facility of $20
million from 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. On September 17, 2001 the maturity date of the credit facility
was extended to September of 2004 and the maximum outstanding balance of the
credit facility was increased from $20 million to $30 million. Bancorp was in
compliance with all loan covenants at December 31, 2001.
Investment Notes and Margin Debt:
During the year ended December 31, 2000, Bancorp issued $34.8 million of
subordinated investment notes. The interest rates and maturity dates were fixed
upon issuance. Bancorp may have elected at any time prior to maturity to
automatically extend the maturity date of the investment notes for an additional
one year. The investment notes were subordinated to all existing and future
senior indebtedness. The subordinated investment notes were redeemed in full in
September 2001.
From time to time, Bancorp borrows funds under a margin account with an
unrelated broker/dealer. The terms of this account are ordinary and customary
for such accounts.
88
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trust Preferred Securities:
Bancorp Capital Trust I ("Bancorp Capital ") is a statutory business trust which
was formed for the purpose of issuing 9-1/2% Cumulative Trust Preferred
Securities ("Trust Preferred Securities") and investing the proceeds thereof in
Junior Subordinated Debentures of Bancorp. Bancorp Capital issued 2.99 million
shares of Trust Preferred Securities at a price of $25 per share in April 1997
for $74.75 million. Bancorp Capital used these proceeds and $2.3 million of
contributed capital from Bancorp to purchase $77.1 million of 9 1/2% Junior
Subordinated Debentures from Bancorp which mature on June 30, 2027. The net
proceeds to Bancorp from the sale of the Junior Subordinated Debentures were
$71.8 million after deduction of the underwriting discount and expenses. At
December 31, 2001 and 2000, the amount of Trust Preferred Securities outstanding
was $74.75 million. Interest on the Junior Subordinated Debentures and
Distributions on the Trust Preferred Securities are fixed at 9 1/2% per annum
and are payable quarterly in arrears. Distributions on the Trust Preferred
Securities are cumulative and based upon the liquidation value of $25 per Trust
Preferred Security. Bancorp has the right, at any time, so long as there are no
continuing events of default to defer payments of interest on the Junior
Subordinated Debentures for a period not exceeding 20 consecutive quarters; but
not beyond the stated maturity of the Junior Subordinated Debentures. To date no
interest has been deferred. The Trust Preferred Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. Bancorp has the
right to redeem the Junior Subordinated Debentures after June 30, 2002 and also
has the right to redeem the Junior Subordinated Debentures in whole (but not in
part) within 180 days following certain events, as defined, whether occurring
before or after June 30, 2002, and therefore cause a mandatory redemption of the
Preferred Securities. The exercise of such right is subject to Bancorp having
received regulatory approval to do so if then required under applicable capital
guidelines or regulatory policies. In addition, Bancorp has the right, at any
time, to shorten the maturity of the Junior Subordinated Debentures to a date
not earlier than June 30, 2002. Exercise of this right is also subject to
Bancorp's having received regulatory approval to do so if then required under
applicable capital guidelines or regulatory policies.
Indentures
The Indenture relating to all of the Debenture indentures (including those
related to the Junior Subordinated Debentures) contain certain customary
covenants found in Indentures under the Trust Indenture Act, including covenants
with respect to the payment of principal and interest, maintenance of an office
or agency for administering the Debentures, holding of funds for payments on the
Debentures in Trust, payment by Bancorp of taxes and other claims, maintenance
by Bancorp of its properties and its corporate existence and delivery of annual
certifications to the Trustee.
The Debenture indenture for the 9% subordinated debenture provides that Bancorp
cannot declare or pay dividends on, or purchase, redeem or acquire for value its
capital stock, return any capital to holders of capital stock as such, or make
any distributions of assets to holders of capital stock as such, unless, from
and after the date of any such dividend declaration or purchase, redemption,
payment or distribution, Bancorp retains cash, cash equivalents or marketable
securities sufficient to cover the two consecutive semi-annual interest payments
that will be next due and payable. Bancorp is in compliance with this
requirement.
Levitt Companies
Levitt Companies' acquisition and development loan obligations are secured by
land acquisitions, construction and development of various residential projects
located in Florida. The unused commitments on these various mortgage obligations
were $27.0 million at December 31, 2001. The fixed rate loans total $9.9 million
and have interest rates ranging from 5.88% to 8.50% and maturity dates ranging
from April 2002 to May 2009. The variable rate loans total $19.8 million and are
indexed to the prime rate of interest with maturity dates ranging from May 2002
to April 2004.
Levitt Companies borrowed $15 million from an unaffiliated financial institution
to finance the purchase of Levitt and Sons. The obligation is secured by the
stock of Levitt and Sons and covenants in the loan agreement prohibit the
payment of dividends or other advances by Levitt Companies to Bancorp. There is
currently $12.4 million outstanding on this loan.
Levitt and Sons entered into a credit agreement with a non-affiliated financial
institution to provide a working capital line of credit of $4.5 million on
September 15, 2001 and will be reduced to $3.5 million on September 15, 2002.
The outstanding balance at December 31, 2001 and 2000 was $3.5 million and $3.0
million, respectively. The credit agreement requires Levitt and Sons to maintain
financial covenants during the term of the agreement.
89
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Core Communities entered into a credit agreement with a non-affiliated financial
institution to provide a line of credit of $8.4 million. At December 31, 2001,
Core Communities had an available credit of $8.4 million and no balance was
outstanding.
Bancorp is not a guarantor on Levitt Companies' obligations. Bancorp's
inter-company loans to Levitt Companies of $27.9 million and $28.5 million were
eliminated in consolidation at December 31, 2001 and 2000, respectively.
Ryan Beck
At December 31, 2001, Ryan Beck had a line of credit facility with an unrelated
financial institution in the amount of $20 million with an interest rate of
LIBOR plus one percent. The line expires on April 1, 2002 and 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
December 31, 2001.
BFC
All mortgage payables and other borrowings are from unaffiliated parties. At
December 31, 2001, the Company had a line of credit in the amount of $8.0
million requiring only interest payments at prime plus 1% and maturing in
January 2002. The outstanding balance at December 31, 2001 and 2000 was $4.5
million and $4.1 million, respectively. In January 2002, this line of credit was
paid-off and a new line of credit was issued in the amount of $8.0 million
requiring only interest payments at prime plus 1% and maturing in December 2002
with a balance outstanding of $4.5 million. Approximately 21% of the shares of
Bancorp's Class A Common Stock owned by BFC are pledged as collateral.
At December 31, 2001 and 2000, approximately $8.7 million and $8.8 million,
respectively, of the mortgage payables relate to real estate with an interest
rate of 9.2% and maturity date in May 2007. At December 31, 2001 and 2000,
approximately $872,000 and $1.1 million, respectively, of the mortgage payables
relate to mortgage receivables in connection with the sale of properties
previously owned by the Company, with interest rates at 6% and maturity dates
ranging from 2009 to 2010.
Included in other liabilities at December 31, 2001 and 2000 is approximately
$5.0 million, representing amounts due in connection with the settlement of
class action litigation that arose in connection with exchange transactions that
the Company entered into in 1989 and 1991.
11. Investment in Bancorp, and Bancorp's Equity Transactions
At December 31, 2001, the Company owned 8,296,891 shares of Bancorp Class A
Common Stock and 4,876,124 shares of Bancorp Class B Common Stock representing
22.7% of all outstanding Bancorp Common Stock. On May 24, 2001 Bancorp amended
its articles of incorporation to grant voting rights to holders of Bancorp Class
A Common Stock, make Bancorp Class B Common Stock convertible into Bancorp Class
A Common Stock on a share for share basis, and equalize the cash dividends
payable on Bancorp's Class A Common Stock and Bancorp's Class B Common Stock. As
a consequence of the amendment, Bancorp's Class A shareholders are entitled to
one vote per share, which in the aggregate represent 53% of the combined voting
power of Bancorp's Class A Common Stock and Bancorp's Class B Common Stock.
Bancorp's Class B Common Stock represents the remaining 47% of the combined
vote. The fixed voting percentages will be eliminated, and shares of Bancorp's
Class B Common Stock will be entitled to only one vote per share, from and after
the date that BFC or its affiliates no longer own in the aggregate at least
2,438,062 shares of Class B Common Stock.
The percentage of votes controlled by the Company determines the Company's
consolidation policy, whereas, the percentage of ownership of total outstanding
common stock determines the amount of Bancorp net income, recognized by the
Company. Since BFC controls greater than 50% of the vote of Bancorp, Bancorp is
consolidated in the Company's financial statements.
The following table reflects BFC's percentage ownership in Bancorp:
Class A Class B
Common Common Total Combined
Stock Stock Outstanding Vote
----------------------------------------------
December 31, 2001 15.60% 100% 22.70% 55.30%
December 31, 2000 26.20% 100% 36.00% 100.00%
December 31, 1999 26.10% 47.50% 31.30% 100.00%
90
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of Bancorp was accounted for as a purchase and accordingly, the
assets and liabilities acquired were revalued to reflect market values at the
dates of acquisition. The discounts and premiums arising as a result of such
revaluation were generally being accreted or amortized (i.e. added into income
or deducted from income), net of tax, using the level yield or interest method
over the remaining life of the assets and liabilities. The net impact of such
accretion, amortization and other purchase accounting adjustments was to
increase consolidated net earnings during the year ended December 31, 2000 and
1999 by approximately $149,000 and $658,000, respectively, and none for the year
ended December 31, 2001.
The payment of dividends by Bancorp is subject to declaration by Bancorp's Board
of Directors and compliance with applicable indenture covenants and will depend
upon, among other things, the results of operations, financial condition and
cash requirements of Bancorp and the ability of BankAtlantic to pay dividends or
otherwise advance funds to Bancorp, which in turn is subject to OTS regulation
and is based upon BankAtlantic's regulatory capital levels and net income.
Currently, Bancorp pays a quarterly dividend of $0.029 per share for Class A and
Class B Common Stock.
The following are additional equity transactions of Bancorp that impact or could
impact the Company's ownership percentage of Bancorp and minority interest
Issuance of Bancorp Class A Common Stock
During December 2001, Bancorp sold 6.9 million shares of its Class A Common
Stock in an underwritten public offering at a price of $8.25 per share. The net
proceeds after underwriting discounts and expenses were approximately $53.5
million. Bancorp used the proceeds to fund a portion of the purchase price to
acquire Community Savings Bankshares, Inc. on March 22, 2002.
On August 15, 2001, Bancorp called for redemption approximately $51 million in
principal amount of its outstanding 6-3/4% Convertible Subordinated Debentures
due 2006. The 6 3/4% Convertible Debentures were convertible into Bancorp's
Class A Common Stock at $5.70 per share. At the redemption date on September 19,
2001, all but approximately $251,000 of the 6 3/4% Convertible Debentures were
converted by holders into an aggregate of 8,919,649 million shares of Bancorp's
Class A Common Stock.
During July 2001, Bancorp sold 5.1 million shares of its Class A Common Stock in
an underwritten public offering at a price of $8.50 per share. The net proceeds
after underwriting discounts and expenses were approximately $40.3 million and
were used to redeem approximately $34.8 million of its subordinated investment
notes and for general corporate purposes.
Retirement of Bancorp Public Class B Common Stock:
On August 17, 2000, Bancorp's Class A and Class B shareholders approved a
transaction which resulted in the redemption and retirement of all publicly held
shares of Bancorp Class B Common Stock at a price of $6.00 per share. Pursuant
to the transaction, Bancorp paid $33.2 million (including $1.5 million of
transaction expenses) to retire 5,275,752 shares of its Class B Common Stock. As
a result of the transaction, the Company became the sole holder of the Class B
Common Stock. Bancorp's Class A Common Stock remained outstanding and unchanged
by the transaction.
Outstanding options to purchase Bancorp Class A Common Stock remained
exercisable for the same number of shares of Bancorp Class A Common Stock as the
surviving corporation for the same exercise price and upon the same terms as in
effect before the corporate transaction. Likewise, Bancorp's 6-3/4% Convertible
Subordinated Debentures due 2006 and 5-5/8% Convertible Subordinated Debentures
due 2007 remained convertible into the same number of shares of Bancorp Class A
Common Stock at the same conversion price and upon the same terms as in effect
before the corporate transaction.
The redemption and retirement of all publicly held outstanding shares of Bancorp
Class B Common Stock resulted in compensation expense of $1.3 million for the
year ended December 31, 2001. The compensation charge resulted from retirement
of shares of Bancorp Class B Common Stock in the corporate transaction from
holders who received these shares upon exercise of options to acquire Bancorp
Class B Common Stock within six months of the date of retirement.
91
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bancorp Restricted Stock Incentive Plan and Retention Pool:
During the year ended December 31, 2001, Bancorp issued 196,500 shares of
Bancorp restricted Class A Common Stock to certain key employees of
BankAtlantic. The restricted stock vests over designated periods and had a fair
market value of $1.4 million on the issue date.
Bancorp in December 1998, adopted a Restricted Stock Incentive Plan
("BankAtlantic Bancorp-Ryan Beck Restricted Stock Incentive Plan") to provide
additional incentives to officers and key employees of Bancorp's subsidiary,
Ryan Beck. The Plan provided up to 862,500 Bancorp Class A common shares of
restricted stock, of which not more than 287,500 shares may be granted to any
one person. The Plan allows the Board of Directors of Bancorp to impose an
annual cap on awards.
The Board of Bancorp granted 16,287, 0, and 127,002 shares of Bancorp restricted
Class A Common Stock under this plan to key employees of Ryan Beck in 2001, 2000
and 1999, respectively. The fair value of the awards was recorded as
compensation expense over the vesting period. The restricted stock vests over
designated periods and had a fair market value of $100,000, $0, and $801,000 on
the issue date in 2001, 2000 and 1999, respectively.
In connection with the acquisition of Ryan Beck in June 1998, Bancorp
established a retention pool covering certain key officers of Ryan Beck, under
which 785,866 shares of Bancorp restricted Class A Common Stock were issued to
key employees. The retention pool was valued at $8.1 million at the acquisition
date, and the shares vest four years from the date of acquisition and are
treated as compensation expense. In January 2000, each participant in the
retention pool was provided the opportunity to exchange the restricted shares
that were allocated to such participant for a cash-based deferred compensation
award in an amount equal to the aggregate value at the date of the Ryan Beck
acquisition. The deferred compensation awards were granted under the
BankAtlantic Bancorp, Inc., Deferred Compensation Plan ("Plan"). The purpose of
the plan was to provide employees of Ryan Beck with a cash-based deferred
compensation plan in exchange for their interest in Bancorp's restricted Class A
Common Stock issued upon the establishment of the retention pool. On March 1,
2000, 749,533 shares of Bancorp Class A restricted common stock out of the
755,474 shares of Bancorp restricted common stock outstanding were retired in
exchange for the establishment of interests in the new plan in the aggregate
amount of $7.8 million. Bancorp may at its option terminate the Plan at any time
without the consent of its participants or stockholders and distribute to the
participants the amount credited to their deferred account (in whole or in
part). The participant's account will be settled by Bancorp in cash on the
vesting date (June 28, 2002) except Bancorp can elect to defer payment of up to
50% of a participant's interest in the plan for up to one year following the
vesting date. If Bancorp elects to exercise its rights to defer 50% of the cash
payment, Bancorp will issue a note bearing interest at prime plus 1%. Included
in the Company's Statement of Financial Condition in other liabilities was a
$6.5 million obligation associated with the Plan. Included in the Statement of
Operations during 2001and 2000 was $2.0 million and $1.9 million, respectively
of compensation expense associated with the Plan.
Bancorp Stock Repurchases:
In March 1998, Bancorp Board of Directors announced a plan to purchase up to 2.3
million shares of its common stock and in July 1999, Bancorp's Board approved a
plan to purchase up to an additional 3.5 million shares of its common stock. The
repurchase plans were canceled as of December 31, 2000.
Bancorp repurchased and retired the following shares pursuant to the above
announced purchase plans (in thousands except share data):
For the Year
Ended December 31,
-----------------------
2000 1999
---------- ----------
Bancorp Class A shares purchased -- 1,149,655
Bancorp Class B shares purchased 736,000 221,375
Amount paid to purchase Bancorp Class A shares $ -- $ 8,394
Amount paid to purchase Bancorp Class B shares $ 4,363 $ 1,564
92
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bancorp Stock Option Plans:
Stock Option Plans
-----------------------------------------------------------------------------
Maximum Term Shares Class of Vesting Type of
(3) Authorized (6) Stock Requirements Options (5)
-----------------------------------------------------------------------------
1996 Stock Option Plan 10 years 2,246,094 A 5 Years (1) ISO, NQ
1998 Ryan Beck Option Plan 10 years 362,417 A (4) ISO, NQ
1998 Stock Option Plan 10 years 920,000 A 5 Years (1) ISO, NQ
1999 Non-qualifying Stock Option Plan 10 years 862,500 A (2) NQ
1999 Stock Option Plan 10 years 862,500 A (2) ISO, NQ
2000 Non-qualifying Stock Option Plan 10 years 1,704,148 A immediately NQ
2001 Stock Option Plan 10 years 1,500,000 A 5 Years (1) ISO, NQ
(1) All Bancorp directors' stock options vest immediately.
(2) Options vest at the discretion of the compensation committee.
(3) All outstanding options could be exercised 10 years after their grant date.
(4) Upon acquisition of Ryan Beck, Bancorp assumed all options outstanding
under Ryan Beck's existing stock option plans at various exercise prices
based upon the exercise prices of the assumed option. No new options will
be issued under the 1998 Ryan Beck option plan and the plan will terminate
when the outstanding options expire. The value of such options at the
acquisition date was included in the cost of the Ryan Beck acquisition and
credited to additional paid-in-capital.
(5) ISO - Incentive Stock Option NQ - Non-qualifying Stock Option
(6) During 2001 shares available for granting but not then granted from all
stock options plans except the 2001 stock option plan were canceled.
Bancorp's Board has increased the number of shares authorized under the
2001 stock option plan to 3,000,000 subject to shareholder approval at
Bancorp 2002 Annual Meeting.
In August 2000, Bancorp's Class B Common Stock shareholder approved the
BankAtlantic Bancorp 2000 non-qualifying stock option plan which authorized the
issuance of options to acquire up to 1,704,148 shares of Bancorp Class A Common
Stock. The plan was established pursuant to the corporate transaction in order
to exchange options to acquire Bancorp Class B Common Stock that were converted
in the transaction into options to acquire Bancorp's Class A Common Stock. All
outstanding options to acquire Bancorp Class B Common Stock were exchanged for
1,704,148 non-qualifying options to acquire Bancorp Class A Common Stock at an
exercise price ranging from $2.26 to $2.32, based upon the exercise price of the
relevant Bancorp Class B option. The options issued had the same intrinsic value
as Bancorp Class B options canceled and had substantially the same terms and
conditions as the former options to purchase shares of Bancorp Class B Common
Stock, including vesting and term. The 1994 option plan for the issuance of
options to acquire Bancorp Class B Common Stock was terminated.
93
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of Bancorp stock option activity segregated by class of stock was:
Bancorp Bancorp
Class A Class B
Outstanding Outstanding
Options Options
----------- -----------
Outstanding December 31, 1998 2,513,631 1,885,581
Exercised (51,997) (118,420)
Forfeited (408,052) (7,693)
Issued 1,534,754 --
---------- ----------
Outstanding December 31, 1999 3,588,336 1,759,468
Issued in connection with corporate transaction 1,704,148 --
Canceled in connection with corporate transaction -- (1,136,108)
Exercised (16,456) (623,360)
Forfeited (145,642) --
Issued 360,000 --
---------- ----------
Outstanding at December 31, 2000 5,490,386 --
Exercised (361,085) --
Forfeited (227,097) --
Issued 553,875 --
----------
Outstanding at December 31, 2001 5,456,079 --
========== ==========
Available for grant at December 31, 2001 955,125 --
========== ==========
For the Year Ended
December 31,
---------------------
2001 2000 1999
----- ----- -----
Weighted average exercise price of options outstanding $4.70 $4.80 $5.25
Weighted average exercise price of options exercised 4.32 3.40 3.90
Weighted average price of options forfeited $6.06 $6.05 $5.92
With respect to Bancorp's stock option plan, the adoption of FAS 123 under the
fair value based method would have increased compensation expense (net of tax)
by $538,000 for the year ended December 31, 2001 and $1.1 million for each of
the years in the two year period ended December 31, 2001. The Company's net
income would have decreased by approximately $122,000, $396,000 and $344,000 for
the years ended December 31, 2001, 2000 and 1999.
The option method used to calculate the FAS 123 compensation adjustment was the
Black-Scholes model with the following grant date fair values and assumptions:
Weighted Average
----------------------------------------------------------------------
Number of Risk Free Expected
Year of Options Grant Date Exercise Interest Expected Dividend
Grant Granted Fair Value Price Rate Volatility Yield
- --------------- ----------- ----------- ----------- ----------- ----------- ------------
1999 1,534,754 $ 3.39 $ 6.28 5.17% 50.00% 1.34%
2000 270,000 $ 1.78 $ 3.84 6.47% 50.00% 2.61%
2000 90,000 $ 1.70 $ 4.05 6.47% 50.00% 2.61%
2001 553,875 $ 1.69 $ 3.94 5.04% 50.00% 3.00%
Bancorp's employee turnover factor was 13.00% for incentive stock options and
1.50% for non-qualifying stock options during the year ended December 31, 2001.
Bancorp's employee turnover factor was 6.00% for officer incentive and
non-qualifying stock options during the year ended December 31, 2000 Bancorp
employee turnover factor was 6.00% for incentive stock options and 25% for
non-qualifying stock options for the year ended December 31, 1999. The expected
life for all options issued was 7.5 years.
94
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about Bancorp's stock options
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Weighted- Weighted- Weighted-
Class of Range of Number Average Average Number Average
Common Exercise Outstanding Remaining Exercise Exercisable Exercise
Stock Prices at 12/31/01 Contractual Price at 12/31/01 Price
Life
- ------------ --------------- -------------- --------------- ----------- ------------- -----------
A $2.26 to 4.44 2,474,742 5.0 years $ 2.89 1,597,866 $ 2.34
A $4.45 to 7.83 2,684,066 6.0 years 5.93 851,406 5.24
A $7.84 to 12.23 297,271 5.3 years 8.71 105,459 9.35
------------- -------------- ---------- ------------ ----------
5,456,079 5.5 years $ 4.70 2,554,731 $ 3.60
============= ============== ========== ============ ==========
95
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes
The provision for income taxes consisted of (in thousands):
2001 2000 1999
-------- -------- --------
Continuing operations provision $ 25,396 $ 13,362 $ 4,183
Discontinued operations -- 361 --
Extraordinary items (136) 4,280 110
Cumulative effect of a change in
accounting principle 683 -- --
-------- -------- --------
Total $ 25,943 $ 18,003 $ 4,293
======== ======== ========
Continuing operations:
Current:
Federal $ 21,661 $ 13,483 $ 80
State 478 869 --
-------- -------- --------
22,139 14,352 80
-------- -------- --------
Deferred:
Federal 1,410 (2,098) 3,528
State 1,847 1,108 575
-------- -------- --------
3,257 (990) 4,103
-------- -------- --------
Provision for income taxes $ 25,396 $ 13,362 $ 4,183
======== ======== ========
A reconciliation from the statutory federal income tax rate of 35% for the years
ended December 31, 2001, 2000 and 1999 to the effective tax rate is as follows
(in thousands):
2001 (1) 2000 (1) 1999 (1)
-------- -------- --------
Income tax provision at expected federal income tax rate of 35% $ 16,927 $ 8,062 $ 4,002
Increase (decrease) resulting from:
Taxes related to subsidiaries not consolidated for income tax purpose 4,823 3,577 --
Tax-exempt interest income (165) (129) --
Provision for state taxes net of federal benefit 501 565 374
Change in valuation allowance for deferred tax assets (1,286) (800) --
Change in State tax valuation allowance 1,637 926 --
Impairment and amortization of costs over
fair value of net assets acquired 3,590 1,300 --
Other - net (631) (139) (193)
-------- -------- --------
Provision for income taxes $ 25,396 $ 13,362 $ 4,183
======== ======== ========
(1) Expected tax is computed based upon income (loss) before minority interest,
discontinued operations, extraordinary items and cumulative effect of a
change in accounting principle.
96
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities at December 31, 2001
and 2000 were (in thousands):
December 31,
--------------------
2001 2000
-------- --------
Deferred tax assets
Provision for discontinued operations, restructuring charges and write-downs $ 404 $ 1,106
Allowance for loans, REO, tax certificate losses, investment losses and
other reserves for financial statement purposes 20,536 20,780
Net operating loss carryforward 8,252 6,905
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes 10,669 13,192
Other 5,461 4,391
-------- --------
Total gross deferred tax assets 45,322 46,374
Less valuation allowance 7,682 7,331
-------- --------
Total deferred tax assets 37,640 39,043
-------- --------
Deferred tax liabilities:
Subsidiary not consolidated for income tax purposes 26,853 24,375
Tax bad debt reserve in excess of base year reserve 546 819
Deferred loan income, due to differences in the recognition of loan origination
fees and discounts 688 1,984
Accumulated other comprehensive income 10,018 3,955
Other 3,451 3,565
-------- --------
Total gross deferred tax liabilities 41,556 34,698
-------- --------
Net deferred tax (liability) asset (3,916) 4,345
Less net deferred income tax (asset) liability at beginning of period (4,345) 13,594
Less deferred income tax assets at beginning of period resulting from
Bancorp consolidation -- (41,487)
Less deferred provision for income tax applicable to extraordinary items -- --
(Decrease) in deferred tax liability from Bancorp's other capital transaction (1,026) (66)
(Decrease) increase in BFC's accumulated other comprehensive income (1,467) 6,355
Increase (decrease) in Bancorp's accumulated other comprehensive income 7,497 18,002
-------- --------
(Provision) benefit for deferred income taxes (3,257) 743
Provision for deferred income taxes - discontinued operations -- 247
-------- --------
(Provision) benefit for deferred income taxes - continuing operations $ (3,257) $ 990
======== ========
For the Year Ended
December 31,
------------------
2001 2000
Activity in the deferred tax valuation allowance -------- --------
was (in thousands):
Balance, beginning of period $ 7,331 $ --
Bancorp balance at beginning of period -- 5,140
Utilization of acquired tax benefits (1,163) (470)
Increase in state deferred tax valuation allowance 1,637 2,991
Other decreases in deferred tax valuation allowance (123) (330)
------- ------
Balance, end of period $ 7,682 $7,331
======= ======
Except as discussed below, Bancorp's management believes that Bancorp will have
sufficient taxable income of the appropriate character in future years to
realize its net deferred income tax asset. In evaluating the expectation of
sufficient future taxable income, management considered the future reversal of
temporary differences and available tax planning strategies that could be
implemented, if required. A valuation allowance was required for the years ended
December 31, 2001
97
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 2000 as it was management's assessment that, based on available information,
it is more likely than not that a portion of the deferred tax asset will not be
realized. A change in the valuation allowance will occur if there is a change in
management's assessment of the amount of the net deferred income tax asset that
is expected to be realized. The valuation allowance was established in order to
reflect uncertainties associated with the utilization of certain tax benefits
acquired in connection with the Core Communities and Levitt Companies
acquisitions.
For the years ended December 31, 2001 and 2000, the activity in the valuation
allowance included increases of $1.6 million and $3.0 million, respectively
relating to state deferred tax assets for which realizability is limited due to
the deconsolidation of Bancorp and its subsidiaries for Florida income tax
purposes. The remaining activity in the valuation allowance relates to
utilization of tax benefits and adjustments of estimated future tax benefits
associated with Levitt Companies' real estate activities.
Approximately $2.0 million of net operating loss carryforwards ("NOL's")
acquired in connection with the Core Communities acquisition remain as of
December 31, 2001 which expire through the year 2011. The NOL carryforwards can
only be realized if Core Communities has taxable income of an appropriate
character.
Bancorp is not included in the Company's consolidated tax return. At December
31, 2001, the Company (excluding Bancorp) had estimated state and federal net
operating loss carry forwards as follows (in thousands):
Expiration
Year State Federal
---------- ------------ --------------
2006 429 --
2007 4,235 4,558
2008 2,332 3,322
2011 1,662 1,831
2012 669 984
2021 1,160 1,857
----------- -------------
10,487 12,552
=========== =============
Prior to December 31, 1996, Bancorp was permitted to deduct from taxable income
an allowance for bad debts which was in excess of the provision for such losses
charged to income. Accordingly, retained earnings at December 31, 2001 includes
$10.1 million for which no provision for income tax has been provided. If in the
future this portion of retained earnings is distributed, or Bancorp no longer
qualifies as a bank for tax purposes, federal income tax of approximately $3.9
million would be imposed.
13. Employee Benefits Plan
BFC's Stock Option Plan provides for the grant of stock options to purchase
shares of the Company's Common Stock. The plan provides for the grant of both
incentive stock options and non-qualifying options. The exercise price of a
stock option will not be less than the fair market value of the Common Stock on
the date of the grant and the maximum term of the option is ten years. The
following table sets forth information on all outstanding options:
98
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Class B
Outstanding
Options Price per Share
------------- ---------------
Outstanding at December 31, 1998 2,919,407 1.13 to 10.34
Issued 182,500 6.00 to 6.00
Exercised --
-------------
Outstanding at December 31, 1999 3,101,907 1.13 to 10.34
Issued --
Exercised --
-------------
Outstanding at December 31, 2000 3,101,907 1.13 to 10.34
Issued --
Exercised (18,750) 1.20 to 1.20
-------------
Outstanding at December 31, 2001 3,083,157 1.13 to 10.34
=============
Exercisable at December 31, 2001 2,900,657 1.13 to 10.34
=============
Available for grant at December 31, 2001 543,125
=============
The weighted average exercise price of options outstanding at December 31, 2001,
2000 and 1999 was $3.92, $4.03 and $4.03, respectively. The weighted average
price of options exercised was $1.20 during the year 2001 and none in 2000 and
1999.
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $182,000, $183,000 and $134,000 for the
years ended December 31, 2001, 2000 and 1999, respectively. The effect of FAS
123 under the fair value based method would have affected net income and
earnings per share as follows:
For the Year Ended
December 31,
2001 2000 1999
--------- --------- ---------
Net income :
As reported $ 5,474 3,635 7,426
Proforma 5,362 3,523 7,344
Basic earnings per share:
As reported .69 .46 .93
Proforma .67 .45 .92
Diluted earnings per share:
As reported .62 .43 .84
Proforma .61 .42 .83
The option model used to calculate the FAS 123 compensation adjustment was the
Black-Scholes model with the following grant date fair values and assumptions:
Number of Risk Free Expected Expected
Date of Options Grant Date Type of Exercise Interest Life Expected Dividend
Grant Granted Fair Value Grant Price Rate (Years) Volatility Yield
----- ------- ---------- ----- ----- ---- ----- ---------- -----
7/1/97 49,176 $1.623 ISO $ 4.067 5.800% 6.0 27.40% 0%
7/1/97 119,574 $1.849 NQ $ 4.067 5.820% 7.5 27.40% 0%
7/1/97 750,000 $1.703 NQ $ 4.467 5.820% 7.5 27.40% 0%
1/13/98 532,500 $5.873 * $10.334 5.530% 7.5 44.46% 0%
4/6/99 182,500 $4.990 * $ 6.000 5.280% 7.5 92.21% 0%
* Both non-qualified and incentive stock options were granted.
The employee turnover was considered to be none. The weighted average fair value
of options granted during the years ended December 31, 1999 was $4.99. There
were no options issued during 2001 and 2000.
99
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------------------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/01 Contractual Life Exercise Price at 12/31/01 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$1.00 to $5.00 2,368,157 3.7 Years $2.47 2,368,157 $ 2.47
$5.01 to $10.00 182,500 7.3 Years $6.00 -- --
$10.01 to $10.34 532,500 6.0 Years $10.34 532,500 $10.34
BFC Profit Sharing Plan
The Company has an employee's profit-sharing plan which provides for
contributions to a fund of a defined amount, but not to exceed the amount
permitted under the Internal Revenue Code as deductible expense. The provision
charged to operations was approximately $35,000, $35,000 and $30,000 for the
years ended December 31, 2001, 2000 and 1999, respectively. Contributions are
funded on a current basis.
Bancorp's Pension Plan
At December 31, 1998, Bancorp froze its defined benefit pension plan ("Plan")
pursuant to which then-current participants in the Plan ceased accruing service
benefits beyond that date and all participants became vested in the Plan.
Bancorp will be subject to future pension expense or income based on future
actual plan returns and actuarial values of the plan obligations to employees.
The following tables set forth the Plan's funded status and the prepaid pension
cost included in the Consolidated Statements of Financial Condition in other
assets at:
December 31,
-----------------------------
2001 2000
------------- -------------
(In thousands)
Projected benefit obligation at the beginning of the year $ 18,938 $ 17,665
Interest cost 1,429 1,353
Actuarial loss 1,503 712
Benefits paid (782) (792)
----------- -----------
Projected benefit obligation at end of year $ 21,088 $ 18,938
=========== ===========
December 31,
-----------------------------
2001 2000
------------- -------------
(In thousands)
Fair value of Plan assets at the beginning of year $ 26,822 $ 28,278
Actual return on Plan assets (1,474) (664)
Employer contribution -- --
Benefits paid (782) (792)
------------ ------------
Fair value of Plan assets as of actuarial date $ 24,566 $ 26,822
============ ============
100
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
----------------------------
2001 2000
------------- ------------
(In thousands)
Actuarial present value of projected benefit obligation for service
rendered to date $ (21,088) $ (18,938)
Plan assets at fair value as of the actuarial date 24,566 26,822
------------ ------------
Plan assets in excess of projected benefit obligation 3,478 7,884
Unrecognized net loss (gain) from past experience different from
that assumed and effects of changes in assumptions 3,505 (1,853)
------------ ------------
Prepaid pension cost $ 6,983 $ 6,031
============ ============
Net pension cost includes the following components:
For the Year Ended
December 31,
-----------------------
2001 2000
--------- ---------
Service cost benefits earned during the period $ -- $ --
Interest cost on projected benefit obligation 1,429 1,353
Expected return on plan assets (2,381) (2,511)
Amortization of unrecognized net gains and losses -- (309)
--------- ---------
Net periodic pension benefit (1) $ (952) $ (1,467)
========= =========
(1) Periodic pension benefit is included in employee compensation expense.
The actuarial assumptions used in accounting for the Plan were:
For the Year Ended
December 31,
-------------------
2001 2000
-------- -------
Weighted average discount rate 7.25% 7.50%
Rate of increase in future compensation levels N/A N/A
Expected long-term rate of return 9.00% 9.00%
Actuarial estimates and assumptions are based on various market factors and are
evaluated on an annual basis, and changes in such assumptions may impact future
pension costs. Participant data at December 31, 2001 and 2000, was used for the
actuarial assumption for the years ended December 31, 2001 and 2000. Bancorp did
not fund the plan during the years ended December 31, 2001 and 2000.
BankAtlantic 401(k) Plan:
BankAtlantic sponsors a defined contribution plan ("401(k) Plan") for all
employees who have completed three months of service. Employees can contribute
up to 14% of their salary, not to exceed $10,500 for 2001 and 2000. For
employees that fall within the highly compensated criteria, maximum
contributions were 7% of salary. Included in employee compensation and benefits
on the consolidated statement of operations was $1.5 million and $1.1 million of
expenses and employer contributions related to the 401(k) Plan for the years
ended December 31, 2001 and 2000, respectively. The discretionary employer match
was 100% of the first 4% of an employee's contribution for the years ended
December 31, 2001 and 2000, vesting according to a schedule over a period of
five years. Beginning January 1, 2002, the 401(k) Plan was amended to provide
for an employer match of 100% of the first 3% of an employee's contribution and
50% of the next 1% of an employee's contribution, paid each pay day and vesting
immediately.
BFC 401(k) Plan
BFC sponsors a defined contribution plan ("401(k) Plan") for all employees who
are at least 21 years of age. Employees can contribute up to 50% of their salary
not to exceed the maximum dollar limitations contained in the Internal Revenue
Code in
101
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effect for such calendar year. Under the 401(k) Plan, BFC may make a
discretionary match as deemed appropriate by the BFC Board of Directors. BFC did
not make any matching contributions during 1999, 2000 or 2001.
Ryan Beck Plans:
Ryan Beck maintains two retirement plans for eligible employees, the 401(k)
Savings Plan and the Money Purchase Pension Plan.
Ryan Beck's Money Purchase Pension Plan contributions totaled $1.4 million, $1.6
million and $1.0 million during the years ended December 31, 2001, 2000 and
1999, respectively. Ryan Beck contributes 8% of an employee's eligible earnings,
as defined, subject to certain limitations.
Ryan Beck's employees may contribute up to 12% of their earnings, subject to
certain limitations, to the 401(k) Savings Plan. For the period January 1, 2001
to March 31, 2001, Ryan Beck matched dollar-for-dollar on the first 4% of
contributions for salaried employees and the first 2.5% for investment
consultants. Effective April 1, 2001, Ryan Beck suspended the matching
contributions to its 401(k) Savings Plan. Included in employee compensation and
benefits on the consolidated statement of operations was $224,000 and $560,000
of expenses and employer contributions related to the 401(k) Savings Plan during
the years ended December 31, 2001 and 2000, respectively.
14. Stockholders' Equity
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $.01 par value preferred stock. The Board of Directors has
the authority to divide the authorized preferred stock into series or classes
having the relative rights, preferences and limitations as may be determined by
the Board of Directors without the prior approval of shareholders. The Board of
Directors has the power to issue this preferred stock on terms that would create
a preference over the Company's Common Stock with respect to dividends,
liquidation and voting rights. No further vote of security holders would be
required prior to the issuance of the shares.
The Company's Articles of Incorporation authorize the Company to issue both a
Class A Common Stock, par value $.01 per share and a Class B Common Stock, par
value $.01 per share. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's Class B Common Stock to shareholders of record
on January 21, 1997. Each Right will become exercisable only upon the occurrence
of certain events, including the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing control shareholders (as
specified in the Rights Plan), and will entitle the holder to purchase either
BFC stock or shares in the acquiring entity at half the market price of such
shares. The Rights may be redeemed by the Board of Directors at $.01 per Right
until the tenth day following the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing controlling shareholders. The
Board may also, in its discretion, extend the period for redemption. The Rights
will expire on January 10, 2007.
102
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Commitments and Contingencies
Bancorp is lessee under various operating leases for real estate and equipment
extending to the year 2072. The approximate minimum future rentals under such
leases, at December 31, 2001, for the periods shown was (in thousands):
Year Ending December 31, Amount
------------
2002 $ 7,381
2003 6,814
2004 4,498
2005 2,750
2006 2,188
Thereafter 4,211
-----------
Total $ 27,842
===========
For the Year Ended
December 31,
-------------------
2001 2000
-------- --------
Rental expense for premises and equipment $ 10,545 $ 9,683
-------- --------
Allowance for future rental payments on closed branches
(included in other liabilities) $ -- $ 75
======== ========
The allowance for closed branches includes branches closed in prior periods, and
those branches included in the restructuring plan (see Note 5).
At December 31, 2001, BankAtlantic leased 327 ATM's located in BankAtlantic
branch locations, cruise ships, Native American Reservation gaming facilities
and various retail outlets.
In the normal course of its business, Bancorp is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit and to issue standby and documentary letters of
credit. Those instruments involve, to varying degrees, elements of credit risk.
BankAtlantic's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. BankAtlantic uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Financial instruments with off-balance sheet risk were:
December 31,
----------------------
2001 2000
---------- ----------
(in thousands)
Commitment to sell fixed rate residential loans $ 462 $ 599
Commitments to purchase mortgage backed securities 60,394 11,564
Forward contract to purchase mortgage-backed securities 110,752 225,163
Commitments to extend credit, including the undisbursed
portion of loans in process 779,788 476,545
Letters of credit 196,883 187,596
Commitments to extend credit are agreements to lend funds to a customer as long
as there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. BankAtlantic has $28.0 million of
commitments to extend credit at a fixed interest rate and $751.8 million of
commitments to extend credit at a variable rate. BankAtlantic evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
required by BankAtlantic in connection with an extension of credit is based on
management's credit evaluation of the counter-party.
103
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standby letters of credit written are conditional commitments issued by or for
the benefit of BankAtlantic to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. 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.
BankAtlantic is required to maintain reserve balances with the Federal Reserve
Bank. Such reserves consisted of cash and amounts due from banks of $43.7
million and $40.6 million at December 31, 2001 and 2000, respectively.
As a member of the FHLB system, BankAtlantic is required to purchase and hold
stock in the FHLB of Atlanta. As of December 31, 2001 BankAtlantic was in
compliance with this requirement, with an investment of approximately $56.4
million in stock of the FHLB of Atlanta.
Levitt Companies is subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate in the
routine conduct of its business. Levitt Companies provides home purchasers with
warranties against certain defects for a period of up to two years from the date
of purchase. Levitt Companies provides for estimated warranty costs when the
home is sold and continuously monitors its warranty exposure and service
program.
Core Communities entered into a connection fee Guarantee Agreement with the St.
Lucie West Services District ("District"). The agreement provides the District
with assurance that sufficient water and sewer connection fees will be prepaid
by Core Communities to service outstanding bonds of the District. Core
Communities has no underlying guarantee obligation in connection with the
District Bonds.
Upon the acquisition of Ryan Beck, the Company became subject to the risks of
investment banking. Ryan Beck's customers' securities transactions are
introduced on a fully disclosed basis to its clearing broker. The clearing
broker carries all of the accounts of the customers of Ryan Beck and is
responsible for execution, collection of and payment of funds and, receipt and
delivery of securities relative to customer transactions. Customers' securities
activities are transacted on a cash and margin basis. These transactions may
expose Ryan Beck to off-balance-sheet risk, wherein the clearing broker may
charge Ryan Beck for any losses it incurs in the event that customers may be
unable to fulfill their contractual commitments and margin requirements are not
sufficient to fully cover losses. Ryan Beck seeks to minimize this risk through
procedures designed to monitor the creditworthiness of its customers and that
customer transactions are executed properly by the clearing broker. Ryan Beck
does not utilize futures as a hedge against interest rate risk for its trading
inventory or use derivatives in its trading activities.
16. Regulatory Matters
BFC Financial Corporation is a unitary savings bank holding company that owns
approximately 16% and 100%, respectively of the outstanding Bancorp Class A and
Class B Common Stock, in the aggregate representing 23% of all the outstanding
Bancorp Common Stock. Bancorp is the holding company for BankAtlantic Bank by
virtue of its ownership of 100% of the outstanding BankAtlantic common stock.
BFC is subject to regulatory oversight and examination by the OTS as discussed
herein with respect to Bancorp. Bancorp is a unitary savings bank holding
company subject to regulatory oversight and examination by the OTS, including
normal supervision and reporting requirements. The Company is subject to the
reporting and other requirements of the Securities Exchange Act of 1934.
BankAtlantic's deposits are insured by the FDIC for up to $100,000 for each
insured account holder, the maximum amount currently permitted by law.
BankAtlantic is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on
BankAtlantic's financial statements. BankAtlantic's ability to pay dividends to
Bancorp is subject to regulatory approvals. Current regulations applicable to
the payment of cash dividends by savings institutions impose limits on capital
distributions based on an institution's regulatory capital levels. At December
31, 2001, BankAtlantic met all capital adequacy requirements to which it is
subject and was considered a well capitalized institution.
The OTS imposes limits applicable to the payment of cash dividends by
BankAtlantic to Bancorp. BankAtlantic is permitted to pay capital distributions
during a calendar year that do not exceed its net income
104
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the year plus its retained net income for the prior two years, without
notice to, or the approval of, the OTS. At December 31, 2001 this capital
distribution limitation was $46.2 million.
Certain covenants contained in Levitt Companies loan agreement prohibit it from
paying dividends to Bancorp. Ryan Beck has not paid dividends to Bancorp and it
is not anticipated that Ryan Beck will pay dividends to Bancorp during 2002.
BankAtlantic's actual capital amounts and ratios are presented in the table:
For Capital To Be Considered
Actual Adequacy Purposes Well Capitalized
--------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in Thousands)
As of December 31, 2001:
Total risk-based capital $ 383,295 12.90% $>/= 237,648 >/= 8.00% $ 297,060 >/=10.00%
Tier I risk-based capital $ 346,057 11.65% $>/= 118,824 >/= 4.00% $ 178,236 >/= 6.00%
Tangible capital $ 346,057 8.02% $>/= 64,707 >/= 1.50% $ 64,707 >/= 1.50%
Core capital $ 346,057 8.02% $>/= 172,551 >/= 4.00% $ 215,689 >/= 5.00%
As of December 31, 2000:
Total risk-based capital $ 328,973 11.00% $>/= 239,356 >/= 8.00% $ 299,194 >/=10.00%
Tier I risk-based capital $ 291,544 9.74% $>/= 119,678 >/= 4.00% $ 179,517 >/= 6.00%
Tangible capital $ 291,544 6.66% $>/= 65,653 >/= 1.50% $ 65,653 >/= 1.50%
Core capital $ 291,544 6.66% $>/= 175,077 >/= 4.00% $ 218,846 >/= 5.00%
Bancorp's wholly owned subsidiary, Ryan Beck is subject to the net capital
provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that Ryan Beck's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. Additionally, Ryan Beck, as a market
maker, is subject to supplemental requirements of Rule 15c3-1(a)4, which
provides for the computation of net capital to be based on the number and price
of issues in which markets are made by Ryan Beck, not to exceed $1,000,000. At
December 31, 2001, Ryan Beck's regulatory net capital was approximately $6.2
million, which exceeded minimum net capital rule requirements by $5.2 million.
Ryan Beck operates under the provisions of paragraph (K)(2)(ii) of Rule 15c3-3
of the Securities and Exchange Commission as a fully-disclosed broker and,
accordingly, customer accounts are carried on the books of the clearing broker.
However, Ryan Beck safekeeps and redeems municipal bond coupons for the benefit
of its customers. Accordingly, Ryan Beck is subject to the provisions of SEC
Rule 15c3-3 relating to possession or control and customer reserve requirements
and was in compliance with such provisions at December 31, 2001.
17. Litigation
The Company and its subsidiaries may be parties to other lawsuits as plaintiff
or defendant involving its securities sales and underwriting, lending, tax
certificates and real estate development activities. Although the Company
believes it has meritorious defenses in all current legal actions, the outcome
of the various legal actions is uncertain. Management, based on discussions with
legal counsel, believes results of operations or financial position will not be
significantly impacted by the resolution of these matters. None of this
litigation is other than in the ordinary course of business.
105
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Parent Company Financial Information
Condensed Statements of Financial Condition at December 31, 2001 and 2000,
Condensed Statements of Operations and Condensed Statements of Cash Flows for
each of the years in the three year period ended December 31, 2001 are shown
below:
Condensed Statements of Financial Condition
December 31, 2001 and 2000
(in thousands except share data)
December 31,
-------------------
Assets 2001 2000
------ -------- --------
Cash and cash equivalents $ 2,706 $ 172
Securities available for sale, at market value 859 827
Investment in venture partnerships 4,691 8,483
Investment in BankAtlantic Bancorp, Inc. ("Bancorp") 98,815 89,603
Investment in other subsidiaries 13,887 13,380
Loans receivable 1,184 --
Other assets 831 6,369
-------- --------
Total assets $122,973 $118,834
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Borrowings $ 4,515 $ 4,080
Other liabilities 22,491 20,511
Deferred income taxes 21,795 21,628
-------- --------
Total liabilities 48,801 46,219
-------- --------
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000
shares;
issued and outstanding 6,461,994 in 2001 and 6,454,494 in 2000 58 58
Class B common stock, of $.01 par value; authorized 20,000,000
shares;
issued and outstanding 2,366,157 in 2001 and 2,354,907 in 2000 21 21
Additional paid-in capital 24,206 25,788
Retained earnings 47,195 41,721
-------- --------
Total stockholders' equity before
accumulated other comprehensive income 71,480 67,588
Accumulated other comprehensive income 2,692 5,027
-------- --------
Total stockholders' equity 74,172 72,615
-------- --------
Total liabilities and stockholders' equity $122,973 $118,834
======== ========
Condensed Statements of Operations
For Each of the Years in the Three Year Period Ended December 31, 2001
(in thousands)
2001 2000 1999
-------- -------- --------
Revenue - interest and other $ 1,010 $ 479 $ 1,423
Expenses - interest and other 4,022 4,541 2,958
-------- -------- --------
(Loss) before undistributed earnings from subsidiaries (3,012) (4,062) (1,535)
Equity in income from Bancorp 10,551 8,264 10,501
Equity in income from other subsidiaries 595 1,188 2,468
-------- -------- --------
Income before income taxes and extraordinary items 8,134 5,390 11,434
Provision for income taxes 2,660 1,755 4,183
-------- -------- --------
Income from continuing operations 5,474 3,635 7,251
Extraordinary items, net of income taxes of $110 in 1999 -- -- 175
-------- -------- --------
Net income $ 5,474 $ 3,635 $ 7,426
======== ======== ========
106
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Cash Flows
For Each of the Years in the Three Year Period Ended December 31, 2001
(in thousands)
2001 2000 1999
-------- -------- --------
Operating Activities:
Income from continuing operations $ 5,474 $ 3,635 $ 7,251
Income from extraordinary items -- -- 175
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in earnings of Bancorp (10,551) (8,264) (10,501)
Equity in earnings of other subsidiaries (595) (1,188) (2,468)
Depreciation, amortization and accretion, net 25 5 17
Provision for deferred income taxes 2,660 1,745 4,103
Loss on investment securities 920 1,776 --
Increase in deferred interest on subordinated debentures -- -- 403
Proceeds from escrow for called debenture liability -- 2,455 --
Advances (to) from other subsidiaries 1,538 4,837 (5,405)
Increase in loans receivable (1,184) -- --
Decrease (increase) in other assets 1,671 (529) (330)
Increase (decrease) in other liabilities 719 (144) 152
-------- -------- --------
Net cash provided by (used in) operating activities 677 4,328 (6,603)
-------- -------- --------
Investing Activities:
Common stock dividends received from Bancorp 1,468 1,288 1,236
(Increase) decrease in securities available for sale (100) (2,637) 343
-------- -------- --------
Net cash provided by (used in) investing activities 1,368 (1,349) 1,579
-------- -------- --------
Financing Activities:
Borrowings 4,515 -- 8,079
Repayment of borrowings (4,080) (4,000) (4,074)
Issuance of common stock upon exercise of stock option 54 -- --
-------- -------- --------
Net cash provided by (used in) financing activities 489 (4,000) 4,005
-------- -------- --------
Increase (decrease) in cash and cash equivalents 2,534 (1,021) (1,019)
Cash at beginning of period 172 1,193 2,212
-------- -------- --------
Cash at end of period $ 2,706 $ 172 $ 1,193
======== ======== ========
107
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Selected Quarterly Results (Unaudited)
The following tables summarize the quarterly results of operations for the years
ended December 31, 2001 and 2000 (in thousands except for per share data):
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter Total
Interest income $ 86,349 $ 83,761 $ 83,186 $ 72,705 $ 326,001
Interest expense 54,274 50,341 45,829 38,394 188,838
--------- --------- --------- --------- ---------
Net interest income 32,075 33,420 37,357 34,311 137,163
Provision for loan losses 2,761 4,040 7,258 2,846 16,905
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses 29,314 29,380 30,099 31,465 120,258
--------- --------- --------- --------- ---------
Income before income taxes and minority interest 11,695 11,641 9,972 15,056 48,364
Provision for income taxes 5,509 5,273 7,468 7,146 25,396
Minority interest in income
of consolidated subsidiaries 4,969 4,983 1,618 6,809 18,379
--------- --------- --------- --------- ---------
Income from continuing operations 1,217 1,385 886 1,101 4,589
Extraordinary loss, net of taxes -- -- (253) -- (253)
Cumulative effect of a change in accounting
principle, net of tax 1,138 -- -- -- 1,138
--------- --------- --------- --------- ---------
Net income $ 2,355 $ 1,385 $ 633 $ 1,101 $ 5,474
========= ========= ========= ========= =========
Basic earnings per share from
continuing operations $ 0.15 $ 0.17 $ 0.11 $ 0.14 $ 0.58
Basic loss per share from extraordinary items -- -- (0.03) -- (0.03)
Basic earnings per share from cumulative effect
of a change in accounting principle 0.14 -- -- -- 0.14
--------- --------- --------- --------- ---------
Basic earnings per share $ 0.29 $ 0.17 $ 0.08 $ 0.14 $ 0.69
========= ========= ========= ========= =========
Diluted earnings per share from
continuing operations $ 0.14 0.16 0.10 0.12 0.52
Diluted loss per share from extraordinary items -- -- (0.03) -- (0.03)
Diluted earnings per share from cumulative
effect of a change in accounting principle 0.13 -- -- -- 0.13
--------- --------- --------- --------- ---------
Diluted earnings per share $ 0.27 $ 0.16 $ 0.07 $ 0.12 $ 0.62
========= ========= ========= ========= =========
Basic weighted average number of common
shares outstanding 7,957 7,957 7,957 7,957 7,957
========= ========= ========= ========= =========
Diluted weighted average number of common
shares outstanding 8,552 8,722 8,938 8,857 8,773
========= ========= ========= ========= =========
Included in net income during the third quarter of 2001 was a $6.6 million
impairment of goodwill relating to Bancorp's leasing subsidiary. Included in
interest income during the third quarter was $2.8 million of discount accretion
from the repayment of a commercial real estate loan. The improvement in net
income during the fourth quarter reflects a significant decline in Bancorp's
provision for loan losses, increased earnings from real estate operations and
improvements in the net interest margin. The above improvements in net income
during the fourth quarter were partially offset by a $2.6 million litigation
accrual associated with Levitt Companies.
108
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter Total
Interest income $ 77,883 $ 80,442 $ 85,334 $ 85,237 $ 328,896
Interest expense 47,596 50,783 56,053 56,974 211,406
--------- --------- --------- --------- ---------
Net interest income 30,287 29,659 29,281 28,263 117,490
Provision for loan losses 10,787 4,533 6,696 7,116 29,132
--------- --------- --------- --------- ---------
Net interest income after provision for loan 19,500 25,126 22,585 21,147 88,358
losses
--------- --------- --------- --------- ---------
Income before income taxes, minority interest
discontinued operations and extraordinary items 6,307 7,695 3,005 6,028 23,035
Provision for income taxes 3,430 2,998 2,107 4,827 13,362
Minority interest in income
of consolidated subsidiaries 4,759 3,590 3,637 2,669 14,655
--------- --------- --------- --------- ---------
(Loss) income from continuing operations (1,882) 1,107 (2,739) (1,468) (4,982)
Income from discontinued operations -- 259 165 245 669
Extraordinary item, net of taxes 3,466 0 3,966 516 7,948
--------- --------- --------- --------- ---------
Net income (loss) $ 1,584 $ 1,366 $ 1,392 $ (707) $ 3,635
========= ========= ========= ========= =========
Basic (loss) earnings per share from
continuing operations $ (0.24) $ 0.14 $ (0.34) $ (0.18) $ (0.63)
Basic earnings per share from --
discontinued operations -- 0.03 0.02 0.03 0.09
Basic earnings per share from extraordinary items 0.44 -- 0.50 0.06 1.00
--------- --------- --------- --------- ---------
Basic earnings (loss) per share $ 0.20 $ 0.17 $ 0.18 $ (0.09) $ 0.46
========= ========= ========= ========= =========
Diluted (loss) earnings per share from
continuing operations $ (0.22) 0.13 (0.32) (0.17) (0.58)
Diluted earnings per share from
discontinued operations -- 0.03 0.02 0.03 0.08
Diluted earnings per share from extraordinary
items 0.41 -- 0.46 0.06 0.93
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share $ 0.19 $ 0.16 $ 0.16 $ (0.08) $ 0.43
========= ========= ========= ========= =========
Basic weighted average number of common
shares outstanding 7,957 7,957 7,957 7,957 7,957
========= ========= ========= ========= =========
Diluted weighted average number of common
shares outstanding 8,525 8,506 8,492 8,516 8,521
========= ========= ========= ========= =========
In August 2000, BankAtlantic Bancorp, Inc. shareholders approved a corporate
transaction in which each share of Bancorp's Class B Common Stock was converted
into .0000002051 of a share of Bancorp's Class B Common Stock as the surviving
corporation in the transaction which was structured as a merger. No fractional
shares were issued. The corporate transaction resulted in the retirement of all
publicly held Bancorp Class B Common Stock, leaving BFC Financial Corporation as
the sole holder of Bancorp's Class B Common Stock. The Class B Common Stock
represented 100% of the voting rights of Bancorp at that time. Since that time,
BFC has controlled greater than 50% of the vote of Bancorp and Bancorp is
consolidated in the financial statements of BFC instead of carried on the equity
basis.
Income from continuing operations during the first quarter was adversely
affected by increased provision for loan losses resulting from historical loss
experiences in small business and consumer loan portfolios. Income from
continuing operations during the third quarter was affected by losses relating
to Ryan Beck operations and compensation expense recognized in connection with
the corporate transaction.
109
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107") issued by
the FASB.
Management has made estimates of fair value that it believes to be reasonable.
However, because there is no market for many of these financial instruments,
management has no basis to determine whether the fair value presented would be
indicative of the value negotiated in an actual sale. The fair value estimates
do not consider the tax effect that would be associated with the disposition of
the assets or liabilities at their fair value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, and each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and non-performing categories.
The fair value of performing loans, except residential mortgage and adjustable
rate loans, is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the credit
and interest rate risk inherent in the loan. The estimate of average maturity is
based on BankAtlantic's historical experience with prepayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for national
historical prepayment estimates using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit costs. For
adjustable rate loans, the fair value is estimated at book value after adjusting
for credit risk inherent in the loan. Interest rate risk for adjustable rate
loans is considered insignificant since the majority of BankAtlantic's
adjustable rate loans are based on prime rates or one year Constant Maturity
Treasuries ("CMT") rates and adjust monthly or generally not greater than
annually.
Fair values of non-performing loans are based on the assumption that the loans
are on a non-interest received status, discounted at market rates during a 24
month work-out period. Assumptions regarding credit risk are determined using
available market information and specific borrower information.
The book value of tax certificates approximates market value. Fair value of
mortgage-backed and investment securities is estimated on a price matrix
obtained from a third party.
Under FAS 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, should be considered the same as book value. The fair
value of certificates of deposit is based on the discounted value of contractual
cash flows. The discount rate is estimated using current rates offered by
BankAtlantic for similar remaining maturities.
The book value of securities sold under agreements to repurchase approximates
fair value.
The fair value of advances from FHLB is based on discounted cash flows using
rates offered for debt with comparable terms to maturity and issuer credit
standing.
110
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of convertible subordinated debentures and guaranteed preferred
beneficial interests in Bancorp's junior subordinated debentures was based on
quoted market prices on NASDAQ. The fair values of other subordinated
debentures, notes payable and brokerage margin account were based on discounted
value of contractual cash flows at a market discount rate.
The following table presents information for the Company's financial instruments
at December 31, 2001 and 2000 (in thousands):
December 31, 2001 December 31, 2000
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Financial assets:
Cash and other short term investments $ 124,539 $ 124,539 $ 88,609 $ 88,609
Securities available for sale 859,483 859,483 887,946 887,946
Trading securities 68,296 68,296 43,557 43,557
Investment securities 428,718 434,470 383,619 387,971
Loans receivable including loans held for sale, net 2,776,624 2,823,933 2,855,015 2,885,021
Financial liabilities:
Deposits $2,276,567 $2,287,898 $2,234,485 $2,185,471
Securities sold under agreements to repurchase and federal
funds purchased 467,070 467,070 669,202 669,202
Advances from FHLB 1,106,030 1,126,479 1,038,801 1,035,334
Subordinated debentures and notes payable 145,484 142,935 238,330 215,680
Guaranteed preferred beneficial interests in Bancorp's
junior subordinated debentures 74,750 73,405 74,750 54,194
The contract amount and related fees of BankAtlantic's commitments to extend
credit, standby letters of credit, financial guarantees and forward FHLB
commitments are not significant. (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments)
Derivatives
The primary derivatives utilized by Bancorp during the year ended December 31,
2001 were interest rate swaps and forward contracts. Interest rate swap
agreements are contracts between two entities that typically involve the
exchange of cash flows based on agreed-upon prices, rates and indices. Financial
forward contracts are agreements to buy financial instruments at a predetermined
future date and price.
Bancorp uses interest rate swap contracts to manage its interest rate risk.
During the year ended December 31, 2001, Bancorp created fair value hedges by
entering into various interest rate swap contracts to convert designated fixed
rate time deposits to a three-month LIBOR interest rate. Bancorp funds LIBOR
based assets such as commercial real estate loans with fixed rate time deposits.
In issuing time deposits Bancorp is exposed to changes in interest rates, which
could adversely affect the fair value of the time deposits if rates were to
decline. To reduce this exposure Bancorp originated interest rate swaps to
convert fixed rate time deposits to a LIBOR floating rate. The hedged deposits
and swap contracts were recorded at fair value as an adjustment to deposit
interest expense and receivables and payables from the swap contracts were also
recorded as an adjustment to deposit expense in the Company's Statement of
Operations for the year ended December 31, 2001.
Additionally, Bancorp also created cash flow hedges by entering into interest
rate swap contracts to hedge the variable cash flows relating to forecasted
interest payments on certain variable rate FHLB advances. 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 Statement of
Operations for the year ended December 31, 2001.
111
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table outlines the notional amount and fair value of Bancorp's
interest rate swaps outstanding at December 31, 2001: (in thousands)
Paying Receiving
Notional Index/Fixed Index/Fixed Termination
Amount Fair Value Amount Amount Date
---------- ---------- ----------- ----------- -----------
Fifteen year callable receive fixed swaps $ 10,000 $ 284 3 mo. LIBOR 6.15% 11/13/2016
Ten year callable receive fixed swaps $ 30,000 $ 1,042 3 mo. LIBOR 6.03% 12/17/2011
Five year pay fixed swaps $ 25,000 $ (909) 5.73% 3 mo. LIBOR 1/05/2006
Three year pay fixed swaps $ 50,000 $ (2,245) 5.82% 3 mo. LIBOR 12/28/2003
The method used to estimate the fair value of the interest rate swaps was
discounted cash flows of the net change between the paying index and the
receiving index.
During the year ended December 31, 2000, 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 was held for trading purposes and recorded at fair value. Included in
gains on trading securities and securities available for sale in the Statement
of Operations were $108,000 and $316,000 of unrealized gains associated with the
above forward contract during the year ended December 31 2001 and 2000,
respectively.
21. Acquisitions
In June 2001, 2000 and 1999, pursuant to the February 1998 acquisition agreement
under which Ryan Beck acquired Cumberland Advisors, Bancorp issued 43,991,
55,239 and 40,968 shares of Class A Common Stock and made a cash payment of
$340,000, $210,000 and $266,000, respectively, to the former Cumberland Advisors
partners. Such additional consideration was paid under earn-out provisions in
accordance with the acquisition agreement and was recorded as an adjustment to
the purchase price of Cumberland Advisors. Bancorp Class A Common Stock issued
under this agreement is subject to restrictions prohibiting transfers for two
years.
Effective March 1, 1998, Bancorp acquired Leasing Technology Inc. ("LTI"), a
company engaged in the equipment leasing and finance business, in exchange for
826,175 shares of Bancorp Class A Common Stock and $300,000 in cash in a merger
accounted for under the purchase method of accounting. Bancorp was amortizing
$7.9 million of goodwill from the transaction over 25 years on a straight line
basis. During the third quarter of 2001, after an extensive review by Bancorp of
LTI's operations, Bancorp's management concluded that LTI will not be able to
meet performance expectations and its products did not complement Bancorp's
product mix. As a consequence, Bancorp closed the offices of LTI and ceased new
lease originations. Bancorp determined that the goodwill associated with the LTI
acquisition was impaired resulting in the write-off of the remaining unamortized
LTI goodwill of $6.6 million.
22. Real Estate Held for Development and Sale and Joint Ventures
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
December 31,
-----------------------------
2001 2000
------------- -------------
Land and land development costs $ 114,499 $ 87,989
Construction costs 17,949 15,254
Other costs 9,985 4,775
Equity investments in Joint Ventures 7,127 7,559
Loans to joint ventures 28,713 29,125
Other 4,890 8,678
------------- -------------
Total $ 183,163 $ 153,380
============= =============
Bancorp had commitments to loan an additional $5.0 million to joint ventures at
December 31, 2001.
Levitt Companies invests in various real estate joint ventures. These joint
ventures are in various stages of development and required equity investments by
Levitt Companies at the inception of the project of 44.5% - 90% of the total
venture equity
112
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with profit sharing of 40% - 50% in future years. Certain of the joint venture
partners have not made substantive equity investments in the partnerships.
Additionally, some of the joint ventures have financed their projects through
BankAtlantic. BankAtlantic's loans to joint ventures have resulted in deferral
of the recognition of interest income on the financing activity and/or the
deferral of profit recognition from the joint venture. The less than 50% owned
joint ventures are accounted for under the equity method of accounting and
primarily develop residential and multifamily properties.
The components of gains on sales of real estate held for development and sale
were:
For the Year Ended December 31,
-------------------------------------------------
(In thousands) 2001 2000 1999
---------------- ---------------- -----------
Sales of real estate $ 144,677 $ 107,393 $ 3,488
Cost of sales on real estate 109,637 83,809 2,097
---------------- ---------------- -----------
Gains on sales of real estate 35,040 23,584 1,391
Equity in joint venture earnings 2,888 1,141 --
---------------- ---------------- -----------
Gains on sales of real estate held for sale
and joint venture activities $ 37,928 $ 24,725 $ 1,391
================ ================ ===========
The Condensed Statements of Financial Condition and Condensed Statements of
Operations for joint ventures is as follows for December 31, 2001 and 2000: (In
thousands) (unaudited)
2001 2000
------- -------
Statement of Financial Condition as of December 31
Real estate assets $48,234 $50,455
Other assets 10,158 9,460
------- -------
Total Assets $58,392 $59,915
======= =======
Notes payable - BankAtlantic $28,832 $27,743
Other notes payable 3,445 5,605
Other liabilities 11,665 11,444
------- -------
Total Liabilities 43,942 44,792
Partners' capital 14,450 15,123
------- -------
Total Liabilities and Equity $58,392 $59,915
======= =======
For the Year Ended
December 31,
------------------
2001 2000
------- -------
Statement of Operations
Revenues $79,655 $74,487
Selling, general and administrative expenses 74,617 68,055
------- -------
Net income $ 5,038 $ 6,432
======= =======
23. Related Party Transactions
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of Bancorp and BankAtlantic.
John E. Abdo, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of Bancorp and BankAtlantic and is a director
and President of Levitt Companies, a wholly owned subsidiary of Bancorp.
Glen R. Gilbert, Executive Vice President of the Company also serves as
Executive Vice President of Levitt Companies.
Alan B. Levan and John E. Abdo have investments or are partners in real estate
joint ventures with developers, that in connection with other ventures, have
loans from BankAtlantic or are partners with Levitt Companies. Additionally,
Levitt
113
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Companies paid the Abdo Companies, Inc., which is controlled by Mr. Abdo,
$291,246 for the year ended December 31, 2001 for services and management,
including activities relating to BankAtlantic, Bancorp, Core Communities, Levitt
and Sons, and the Levitt Companies joint ventures. Levitt Companies paid the
Company $80,000 for the year ended December 31, 2001 for management and
accounting services provided to Levitt Companies.
The Company paid BankAtlantic approximately $67,000 during 2001 for office space
used by the Company in BankAtlantic's headquarters and for miscellaneous
administrative and other related expenses.
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo and certain of his affiliates (the "Abdo Group"). Under the
arrangement, the Company and the Abdo Group share equally in profits after
interest earned by the Company on advances made by the Company. The Company
bears any risk of loss under the arrangement with the Abdo Group. Pursuant to
this arrangement with the Abdo Group, in December 1994, an entity controlled by
the Company acquired from an unaffiliated seller approximately 70 acres of
unimproved land known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 2001, all of the project except for land under two pylon
signs, a cell tower site and the lake had been sold to unaffiliated third
parties for approximately $21.4 million and the Company recognized net gains
from the sales of real estate of approximately $4.8 million. The Abdo Group
received approximately $2.6 million in 2000 from the Company for their real
estate sales profit participation.
During 1999 and 2000, the Company (without consideration of Bancorp) acquired
interests in unaffiliated technology entities. During 2000 and 2001, the
Company's interests in the technology entities were transferred at the Company's
cost to specified asset limited partnerships. Subsidiaries of the Company are
the controlling general partners of these venture partnerships, therefore, they
are consolidated in these financial statements. Interests in such partnerships
were sold in 2000 and 2001 to accredited investors in private offerings. During
2000, approximately $5.1 million of capital was raised from unaffiliated third
parties by these partnerships and officers, directors and affiliates of the
Company invested approximately $4.4 million in the Partnership. The Company and
the general partners retained ownership interests of approximately $1.8 million.
Additionally, during 2001, approximately $895,000 of capital was raised from
unaffiliated third parties by these partnerships and officers, directors and
affiliates of the Company invested approximately $1.3 million in the
partnerships. The Company and the general partners retained ownership interests
of approximately $3.8 million increasing the Company's total investment in these
partnerships to $5.6 million. Of the $1.3 million, Alan Levan and Jack Abdo each
borrowed $500,000 from the Company on a recourse basis and Glen Gilbert,
Executive Vice President, and Earl Pertnoy, a director of the Company each
borrowed $50,000 on a non-recourse basis to make their investments. Such amounts
were still outstanding at the end of the year, bear interest at the prime rate
plus 1% and are payable interest only annually with the entire balance due in
February 2006. After the limited partners receive a specified return from the
partnerships, the general partners are entitled to receive 20% of all cash
distributions from the partnerships. The general partners are limited liability
companies of which the members are: John E. Abdo - 13.75%; Alan B. Levan -
9.25%; Glen R. Gilbert - 2.0%; John E. Abdo, Jr. - 17.5% and BFC Financial
Corporation - 57.5%. Losses net of minority interests for the year ended
December 31, 2001 were $881,000. At December 31, 2001, the Company's net
investment in these partnerships was $4.7 million.
During 1999, BFC Financial Corporation entered into an agreement with John E.
Abdo, Jr., son of John E. Abdo, a Director and Vice Chairman of the Board.
Pursuant to the agreement, the Company will pay to John E. Abdo, Jr. an amount
equal to 1% of the amount of the Company's investment in venture capital
investments identified by him for the Company and will grant him a profit
participation of 3 1/2% of the net profit realized by the Company through his
interest in the general partner of the technology venture partnership that
receives the identified investment. Additionally, the Company pays him an
expense allowance of $300 per month. During 2001, the Company paid John E. Abdo,
Jr. expense allowances of $3,600 pursuant to the agreement.
One of the technology limited partnerships and Bancorp are investors in Seisint,
Inc., a privately held technology company located in Boca Raton, Florida
("Seisint"). Seisint owns 748,000 shares of Bancorp's Class A Common Stock. The
technology limited partnership has a $2 million investment in 219,300 shares and
Bancorp has a $15 million investment in 3,033,386 shares of Seisint Common Stock
included in investment securities in the Company's Statement of Financial
Condition. Both Alan B. Levan and John E. Abdo were directors of Seisint and
each own direct and indirect interests in an aggregate of 216,517 shares of
Seisint Common Stock. The shares owned by the Bancorp, Mr. Levan and Mr. Abdo
were acquired in October 1999 at a price of $4.95. The shares acquired by the
technology limited partnership were acquired in October 2000 at a price of
$9.12. At December 31, 2001, the carrying value of this investment by the
technology limited partnership had been written down to $4.95 per share. Bancorp
and its affiliates collectively own approximately 7% of Seisint's outstanding
Common Stock. During 2001, Mr. Levan and Mr. Abdo resigned from Seisint's Board
of Directors and initiated a lawsuit on behalf of the Company and others against
the founder of Seisint personally regarding his role in Seisint.
114
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seisint is not a party to the lawsuit. Seisint also serves as an Application
Service Provider ("ASP") for the Company for one customer service information
technology application. This ASP relationship is in the ordinary course of
business, and fees aggregating $169,377 and $368,000 were paid to Seisint for
its services during the years ended December 31, 2001 and 2000, respectively.
Certain of the Company's affiliates, including its executive officers, have
independently made investments with their own funds in both public and private
entities in which the Company holds investments.
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment, approximately $441,000, was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. During 1999, the Company
received distributions of approximately $588,000 from the partnership due to the
sale of 31 of 34 convenience stores that it owned. During 2001 the Company
received distributions of approximately $25,000 from the partnership.
Included in other assets at December 31, 2001 and 2000 was approximately
$396,000 and $557,000, respectively due from affiliates.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan
may be deemed to beneficially be the principal shareholder and is a member of
the Board of Florida Partners Corporation. Glen R. Gilbert, Executive Vice
President and Secretary of the Company holds similar positions at Florida
Partners Corporation.
Related party transactions arise from transactions with affiliated entities. In
addition to transactions described in notes elsewhere herein, a summary of
originating related party transactions is as follows (in thousands):
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Property management fee revenue $ 8 14 7
==== ==== ====
Abdo Companies management fees $291 475 --
==== ==== ====
Reimbursement revenue for
administrative, accounting
and legal services $ 44 42 167
==== ==== ====
24. Segment Reporting
Management reports the results of operations of the Company and its subsidiaries
through seven operating segments. The operating segments are regularly reviewed
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
contribution for the operating segments may not reflect the actual economic
costs, contribution or results of operations of the unit as a stand alone
business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
115
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and trade finance
Community Banking Indirect and direct consumer lending, small business
lending and ATM operations
Levitt Companies Levitt Companies which includes Levitt and Sons, Core
Communities, and real estate joint ventures.
Ryan Beck Investment banking and brokerage operations
Bancorp Parent Company Costs of acquisitions, financing of acquisitions,
goodwill amortization and impairment, and equity
investments
BFC Holding Company BFC's real estate owned which includes
BMOC, Center Port and 50% interest in the Delray
property (sold in 2001). Loans receivable that relate
to previously owned properties, other securities and
investments and BFC's overhead and interest expense.
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead.
Segment performance is evaluated based on net contribution after tax. The
following table presents segment information for income (loss) from continuing
operations for the three years ended December 31, 2001. Since, the Company
acquired control of Bancorp voting rights in August 2000, the 1999 table
excludes Bancorp's segment performance on a consolidated basis. In 1999, the
Company's ownership position of approximately 31.3% in Bancorp was carried under
the equity method.
116
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank Operations
-----------------------------------------
Bank Commercial Community Levitt
(in thousands) Investments Banking Banking Companies Ryan Beck
----------- ----------- ----------- ----------- -----------
2001
Interest income $ 179,694 $ 118,430 $ 27,151 $ 1,989 $ 1,978
Interest expense and overhead (135,160) (68,864) (16,325) (180) (517)
Benefit (provision) for loan
losses 215 (21,096) 3,976 -- --
Non-interest income 919 3,074 11,073 38,358 44,683
Depreciation and amortization (2,534) (319) (759) (96) (1,580)
Segment profits and losses
before taxes 39,383 25,413 6,456 11,640 (2,026)
Provision (benefit) for income
taxes 14,598 9,420 2,393 4,118 (709)
----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 24,785 $ 15,993 $ 4,063 $ 7,522 $ (1,317)
=========== =========== =========== =========== ===========
Segment average assets $ 2,571,246 $ 1,368,850 $ 323,430 $ 173,437 $ 74,108
=========== =========== =========== =========== ===========
Equity method investments
included in total assets $ -- $ -- $ -- $ 7,127 $ --
=========== =========== =========== =========== ===========
Expenditures for segment
Assets $ 137 $ 3 $ 157 $ -- $ 1,003
=========== =========== =========== =========== ===========
Bancorp BFC
Parent Holding Segment
(in thousands) Company Company Total
----------- ----------- -----------
2001
Interest income $ 229 $ 383 $ 329,854
Interest expense and overhead (18,990) (4,125) (244,161)
Provision for loan losses 0 0 (16,905)
Non-interest income 3,123 (1,905) 99,325
Depreciation and amortization (7,749) (570) (13,607)
Segment profits and losses
before taxes (26,524) (5,647) 48,695
Provision (benefit) for income
taxes (6,965) 2,660 25,515
----------- ----------- -----------
Segment net income (loss) $ (19,559) $ (8,307) $ 23,180
=========== =========== ===========
Segment average assets $ 99,220 $ 28,751 $ 4,639,042
=========== =========== ===========
Equity method investments
included in total assets $ 1,107 $ -- $ 8,234
=========== =========== ===========
Expenditures for segment
Assets $ -- $ -- $ 1,300
=========== =========== ===========
117
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank Operations
-----------------------------------------
Bank Commercial Community Levitt
(in thousands) Investments Banking Banking Companies Ryan Beck
----------- ----------- ----------- ----------- -----------
2000
Interest income $ 178,229 $ 116,196 $ 33,238 $ 2,264 $ 2,151
Interest expense and overhead (145,565) (68,030) (20,229) (1,315) (551)
Provision for loan losses (449) (15,866) (12,817) -- --
Non-interest income 731 2,359 11,693 29,670 52,133
Depreciation and
Amortization (1,870) 654 (239) (78) (1,677)
Segment profits and losses
before taxes 27,474 27,756 (9,595) 10,163 1,849
Provision (benefit)
for income taxes 9,576 9,982 (3,626) 3,208 982
----------- ----------- ----------- ----------- -----------
Segment net income (loss) $ 17,898 $ 17,774 $ (5,969) $ 6,955 $ 867
=========== =========== =========== =========== ===========
Segment average assets $ 2,484,625 $ 1,173,581 $ 350,973 $ 157,090 $ 43,890
=========== =========== =========== =========== ===========
Equity method investments
included in total assets $ -- $ -- $ -- $ 7,559 $ --
=========== =========== =========== =========== ===========
Expenditures for segment
Assets $ 35 $ 14 $ 201 $ -- $ 800
=========== =========== =========== =========== ===========
Bancorp BFC
Parent Holding
Company Company Total
----------- ----------- -----------
2000
Interest income $ 1,206 $ 1,005 $ 334,289
Interest expense and overhead (22,990) (3,767) (262,447)
Provision for loan losses -- -- (29,132)
Non-interest income 1,506 (1,907) 96,185
Depreciation and
Amortization (2,946) (556) (6,712)
Segment profits and losses
before taxes (27,287) (4,669) 25,691
Provision (benefit)
for income taxes (7,534) 1,755 14,343
----------- ----------- -----------
Segment net income (loss) $ (19,753) $ (6,424) $ 11,348
=========== =========== ===========
Segment average assets $ 88,844 $ 37,654 $ 4,336,657
=========== =========== ===========
Equity method investments
included in total assets $ 1,500 $ -- $ 9,059
=========== =========== ===========
Expenditures for segment
Assets $ -- $ -- $ 1,050
=========== =========== ===========
118
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BFC Holding
Company
Segment
1999 Total
-----------
Interest income $ 1,529
Interest expense and overhead (3,905)
Provision for loan losses (300)
Non-interest income 14,110
Depreciation and amortization (509)
Segment profit before taxes 11,434
Provision for income taxes 4,183
-----------
Segment net income $ 7,251
===========
Segment average assets $ 96,134
===========
Equity method investments
included in total assets $ 73,764
===========
The differences between segment average assets, and consolidated average assets,
and segment interest income and consolidated interest income and segment
non-interest income and consolidated non-interest income are as follows:
For the Year Ended
December 31,
-----------------------------------------
Average Assets 2001 2000 1999
----------- ----------- -----------
Average assets for reportable segments $ 4,639,042 $ 4,336,657 $ 96,134
Average assets in overhead 85,128 94,375 --
----------- ----------- -----------
Total average consolidated assets $ 4,724,170 $ 4,431,032 $ 96,134
=========== =========== ===========
Non-interest Income
Total non-interest income for reportable segments $ 99,325 $ 96,185 $ 14,110
Items included in interest expense and overhead:
Transaction fee income 16,372 13,666 --
Gains on sales of assets 178 874 --
Other deposit related fees 5,493 3,532 --
----------- ----------- -----------
Total consolidated non-interest income $ 121,368 $ 114,257 $ 14,110
=========== =========== ===========
Interest Income
Total interest income for reportable segments $ 329,854 $ 334,289 $ 1,529
Deferred interest income on real estate activities (3,456) (4,168) --
Elimination entries (397) (1,225) --
----------- ----------- -----------
Total consolidated interest income $ 326,001 $ 328,896 $ 1,529
=========== =========== ===========
119
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended
December 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Segment Profits
Total segment profits before taxes for reportable segments $ 48,695 $ 25,691 $ 11,434
Restructuring charges
(331) (2,656) --
-------- -------- --------
48,364 23,035 11,434
-------- -------- --------
Total provision for income taxes for reportable segments 25,515 14,343 4,183
Income tax benefit relating to restructuring charges 119 981 --
-------- -------- --------
Total consolidated provision for income taxes 25,396 13,362 4,183
-------- -------- --------
Minority interest in income of consolidated subsidiaries 18,379 14,655 --
-------- -------- --------
Total consolidated income (loss) from continuing operations $ 4,589 $ (4,982) $ 7,251
======== ======== ========
Depreciation and amortization consist of: depreciation on property and
equipment, amortization of premiums and discounts on loans and investments,
amortization of cost over fair value of net assets acquired, and amortization of
the retention pool.
25. Subsequent Events
On December 29, 2000, Smith & Company, Inc. ("Smith") filed an action against
Levitt-Ansca Towne Partnership (the "Partnership"), Bellaggio By Levitt Homes,
Inc. ("BLHI"), Bellaggio By Ansca, Inc. a/k/a Bellaggio By Ansca Homes, Inc.,
and Liberty Mutual Insurance Company seeking damages and other relief in
connection with an August 21, 2000 contract entered into with the Partnership.
BLHI is a 50% partner of the Partnership and is wholly owned by Levitt and Sons.
The Complaint alleged that the Partnership wrongfully terminated the contract,
failed to pay for extra work performed outside the scope of the contract and
breached the contract. The Partnership denied the claims, asserted defenses and
asserted a number of counterclaims. This case was tried before a jury, and on
March 7, 2002, the jury returned a verdict against the Partnership. On March 11,
2002, the Court entered a final judgment against the Defendants in the amount of
$3.68 million. In addition, under the final judgment it is likely that Smith and
its surety company will be entitled to recover legal fees and costs of up to
$750,000 in the aggregate. Since BLHI is a 50% partner of the Partnership, its
share of potential liability under the judgment and for attorneys' fees is
estimated to be approximately $2.6 million. The Partnership has filed several
post-trial motions and intends to vigorously pursue those motions and all
available appeals. Included in non-interest expense in the Company's Statement
of Operations during the year ended December 31, 2001 was a $2.6 million
litigation accrual associated with the above litigation.
On March 22, 2002 BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A. ("Community"), for approximately $170
million in cash and immediately merged Community into BankAtlantic. At the
acquisition date Bancorp made a $78.5 million capital contribution to
BankAtlantic. BankAtlantic funded the acquisition of Community from $78.5
million of the capital contribution received from Bancorp and the liquidation of
investments...Community was a federally chartered savings and loan association
founded in 1955 and headquartered in North Palm Beach, Florida. Community had 21
branches, with 13 located in Palm Beach County, 4 located in Martin County, 3
located in St. Lucie County and 1 located in Indian River County.
In October 2001, Bancorp filed a shelf registration statement with the
Securities and Exchange Commission to offer from time to time up to an aggregate
of $150 million of debt securities, shares of Class A Common Stock and trust
preferred securities. During December 2001, Bancorp sold 6.9 million shares of
its Class A Common Stock under this registration statement in an underwritten
public offering at a price of $8.25 per share. The net proceeds after
underwriting discounts and expenses were approximately $53.5 million. Bancorp
formed Bancorp Capital Trust II ("Bancorp Capital II") a statutory business
trust for the purpose of issuing Trust Preferred Securities and investing the
proceeds thereof in Bancorp Junior Subordinated Debentures. Bancorp completed an
underwritten public offering under this shelf registration statement in which
Bancorp Capital II issued 2.22 million shares of 8.50% Trust Preferred
Securities, at a price of $25 per share. The gross proceeds from the offering of
$55.4 million were invested in an identical principal amount of Bancorp 8.50%
Junior Subordinated Debentures which bear interest at the same rate as the 8.50%
Trust Preferred Securities and have a stated maturity of 30 years. In addition,
Bancorp contributed $1.7 million to Bancorp Capital II in exchange for Bancorp
Capital II's Common Securities and such proceeds were also invested in an
identical principal amount of 8.50% Junior Subordinated debentures. Bancorp
Capital II's sole asset is $57.1 million in aggregate principal amount of 8.50%
Junior Subordinated Debentures.
120
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Holders of Bancorp Capital II's Trust Preferred Securities and the Trust Common
Securities are entitled to receive a cumulative cash distribution at a fixed
8.50% rate of the $25 liquidation amount of each security and the Trust
Preferred Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Trust Common Securities held by Bancorp. The Trust Preferred
Securities are considered debt for financial accounting and tax purposes. The
net proceeds from this Trust Preferred Securities offering after underwriting
discounts and expenses were approximately $53.5 million. Bancorp used the
proceeds from the above equity and trust preferred securities offerings to fund
a portion of the purchase price to acquire Community Savings and for general
corporate purposes.
121
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Items 10 through 13 are incorporated by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission, no
later than 120 days after the end of the year covered by this Form 10-K, or,
alternatively, by amendment to this Form 10-K under cover of Form 10K/A not
later than the end of such 120 day period.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)-1 Financial Statements - See Item 8
(a)-2 Financial Statement Schedules - All schedules are omitted as the
required information is either not applicable or presented in the
financial statements or related notes.
(a)-3 Index to Exhibits
3.1 Articles of Incorporation, as amended and restated - See Exhibit 3.1 of
Registrant's Registration Statement on Form 8-A filed October 16, 1997.
3.2 By-laws - See Exhibit 3.2 of Registrant's Registration Statement on
Form 8-A filed October 16, 1997.
10.1 BFC Financial Corporation Stock Option Plan - See Exhibit A to
Registrant's Definitive Proxy Statement filed September 24, 1997.
12.1 Statement re computation of ratios - Ratio of earnings to fixed charges
- attached as Exhibit 12.1
21.1 Subsidiaries of the registrant:
======================================================= ================ =============== ===========================================
Date of State of
Subsidiary Name Incorporation Incorporation Business Purpose
======================================================= ================ =============== ===========================================
Subsidiaries of BFC Financial Corporation
====================================================================================================================================
BankAtlantic Bancorp, Inc. April 1994 Florida Savings bank holding company.
Eden Services, Inc. May 1978 Florida Real estate holding company.
U.S. Capital Securities, Inc. July 1980 Florida Securities broker.
I.R.E. Realty Advisory Group, Inc. May 1981 Florida Holding company.
I.R.E. Real Estate Investments Series 2, Inc. February 1991 Florida Real estate owner and operator.
I.R.E. Property Management, Inc. August 1984 Florida Manages commercial real estate.
I.R.E. Pension Advisors II, Corp. July 1985 Florida General partner of real estate
limited partnership.
Center Port Development, Inc. December 1985 Florida General partner of real estate
limited partnership.
I.R.E. BMOC, Inc. February 1991 Florida Real estate owner and operator.
I.R.E. BMOC II, Inc. March 1997 Florida Real estate owner and operator.
BankAtlantic Financial Technology Venture Partners, LLC November 2000 Florida General partner of technology
limited partnership.
N & N Partners, LLC July 2000 Florida General partner of technology
limited partnership.
nC Partners, LLC July 2000 Florida General partner of technology
limited partnership.
BankAtlantic Financial Ventures II, LLC July 2000 Florida General partner of technology
limited partnership.
122
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Date of State
Subsidiary Name Incorporation Incorporated Business Purpose
====================================================================================================================================
Subsidiaries of BankAtlantic Bancorp, Inc.
====================================================================================================================================
BankAtlantic 2/1952 US A federal savings bank which provides traditional
retail and commercial banking service.
ATM Services, LLC 5/1991 Florida Inactive
Bancorp Capital Trust I 3/1997 Delaware A statutory business trust
Bancorp Capital Trust II 10/2001 Delaware A statutory business trust
BankAtlantic Bancorp Partners, Inc. 3/1998 Florida Inactive
TSC Holding, LLC 11/1995 Florida Invests in tax certificates
Ryan, Beck & Co., LLC * 1/1995 New Jersey Investment bankers
- ------------------------------------------------------------------------------------------------------------------------------------
Levitt Companies,
LLC 12/1982 Florida Holding Company
====================================================================================================================================
Subsidiaries of Ryan Beck & Co. LLC
====================================================================================================================================
Ryan Beck Asset Sales, Inc. 11/1988 New Jersey Inactive
Cumberland Advisors, Inc. 7/1993 Maine Money manager
Ryan Beck Financial Corp. 3/1983 New Jersey Broker/dealer
Ryan Beck Planning and Insurance Agency Inc. 7/1988 New Jersey Insurance Services
====================================================================================================================================
Subsidiaries of BankAtlantic
====================================================================================================================================
Banc Servicing Center, LLC 9/1995 Florida Inactive
BankAtlantic Asset Management, Inc. 12/2001 New Jersey Inactive
BankAtlantic Factors, LLC 1/1997 Florida Inactive
BankAtlantic Financial Services, LLC 12/2001 Florida Insurance and alternative investments.
BA Holdings Inc. 5/2001 New Jersey Manages R.E.I.T.
BankAtlantic Leasing Inc. 8/1989 Florida Inactive
BankAtlantic Mortgage, LLC 5/1991 Florida Inactive
Fidelity Service, LLC 10/1970 Florida Inactive
Fidelity Tax, LLC 3/2000 Florida Invests in tax Certificates
Hammock Homes, LLC 10/1990 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 1, LLC 2/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 11, LLC 5/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 13, LLC 5/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 14, LLC 5/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 16, LLC 6/1992 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 18, LLC 6/1992 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 19, LLC 6/1992 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
123
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Date of State
Subsidiary Name Incorporation Incorporated Business Purpose
Heartwood 2, LLC 2/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 20, LLC 6/1992 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 21, LLC 2/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 3, LLC 2/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 4, LLC 2/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 7, LLC 5/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 87, LLC 3/1987 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 88, LLC 5/1988 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 90, LLC 11/1990 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 91, LLC 1/1991 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 91-1, LLC 2/1986 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 91-2, LLC 7/1987 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 91-3, LLC 12/1985 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Heartwood 91-4, LLC 1/1986 Florida Takes title, manages, and disposes of
BankAtlantic's foreclosures.
Sunrise Atlantic, LLC 1/1990 Florida Invests in Tax Certificates
Professional Valuation Services, LLC 10/1987 Florida Inactive
Heartwood Holdings, Inc. 7/1988 Florida Real estate investment trust.
Leasing Technology, Inc. 2/1998 Florida Lease financing of vehicles and equipment.
====================================================================================================================================
Subsidiaries of Leasing Technology Inc.
====================================================================================================================================
LTI Aviation Finance Corp. 11/1991 Florida Financing of aviation vehicles
LTI Vehicle Finance Corp. 12/1997 Florida Financing of motor vehicles
LTI Vehicle Leasing Corp. 5/1987 Florida Leasing of motor vehicles
====================================================================================================================================
Subsidiaries of Levitt Companies, LLC
====================================================================================================================================
Levitt and Sons, LLC 12/1988 Florida Real estate developer
Core Communities, LLC 5/17/1996 Florida Holding Company
BankAtlantic Venture Partners 1, LLC 12/1985 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 2, LLC 12/1986 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 3, LLC 12/1987 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 4, LLC 12/1987 Florida Invests in real estate joint ventures
Westchester Development Company, LLC 3/1998 Florida Develops real estate.
BankAtlantic Venture Partners 7, Inc. 3/1998 Florida Invests in real estate joint ventures
124
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Date of State
Subsidiary Name Incorporation Incorporated Business Purpose
BankAtlantic Venture Partners 8, Inc. 3/1998 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 9, Inc. 3/1998 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 10, Inc. 3/1998 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 11, Inc. 4/1999 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 14, Inc. 4/1999 Florida Invests in real estate joint ventures
BankAtlantic Venture Partners 15, Inc. 4/1999 Florida Invests in real estate joint ventures
Levitt Commercial Development LLC 1/2001 Florida Develops real estate.
Levitt Commercial LLC 1/2001 Florida Develops real estate.
Miami River Partners, LLC 5/1998 Florida Invests in real estate joint ventures
Levitt Corporation 12/2001 Florida Inactive
====================================================================================================================================
Subsidiaries of Core Communities, LLC
====================================================================================================================================
St. Lucie West Development Company, LLC 5/17/1996 Florida Holds real estate
St. Lucie West Realty, LLC 7/1986 Florida Sale of real estate
St. Lucie West Utilities, Inc. 4/1986 Florida Manages utilities
St. Lucie Farms, LLC 9/2000 Florida Holds real estate
Lake Charles Development Company, LLC 5/1996 Florida Develops real estate
Core Commercial Realty, LLC 10/1999 Florida Sells real estate
Live Oak Development 1, LLC 4/1999 Florida Develops real estate
Horizons St. Lucie Development, LLC 4/1999 Florida Develops real estate
Wiregrass Ranch, LLC 12/2001 Florida Develops real estate
====================================================================================================================================
Subsidiaries of Levitt and Sons, LLC
====================================================================================================================================
Levitt and Sons, Inc. 12/2001 Florida Inactive
Levitt & Sons Incorporated 12/1997 Delaware Inactive
BankAtlantic Venture Partners 5, LLC 12/1987 Florida Invests in real estate joint ventures
LD Company of Broward, LLC 5/1988 Florida Inactive
Cascades by Levitt and Sons, LLC 11/1992 Florida Real estate developer
Regency Hills by Levitt and Sons, LLC 10/1988 Florida Real estate developer
Levitt Homes, LLC 2/1976 Florida Real estate developer
Levitt Industries, LLC 10/1979 Florida Inactive
Magnolia Lakes by Levitt and Sons, LLC 12/1985 Florida Real estate developer
Levitt Realty Services, Inc. 10/1990 Florida Real estate broker
Levitt Realty Services, LLC 12/2001 Florida Inactive
Levitt Springs, LLC 6/1990 Florida Inactive
Avalon Park by Levitt and Sons, LLC 8/1996 Florida Real estate developer
Levitt Construction Corp., East 10/1979 Florida General contractor
Levitt Construction East, LLC 12/2001 Florida General contractor
Levitt Homes Bellaggio Partners, LLC 5/1987 Florida Invests in real estate joint ventures
Subsidiaries of Levitt Industries, LLC
====================================================================================================================================
LD Financial Management, LLC 8/1996 Florida Inactive
Lev-Brn, LLC 7/1988 Florida Invests in real estate joint ventures
Subsidiaries of Levitt Homes, LLC
====================================================================================================================================
Bellaggio by Levitt and Sons, LLC 6/1986 Florida Real estate developer
Hamshire Homes, LTD 6/1986 Maryland Holds real estate.
125
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Date of State
Subsidiary Name Incorporation Incorporated Business Purpose
Levitt at Amherst, LLC 10/1987 Florida General partner in real estate development
Levitt at Huntington Lakes, LLC 10/1994 Florida Develops real estate
Levitt at Twin Acres, LLC 12/1993 Florida General partner in real estate development
Levitt at Westchester West, LLC 9/1988 Florida General partner in real estate development
Levitt at Westchester, LLC 10/1987 Florida Inactive
Levitt Hagen Ranch, LLC 3/1998 Florida General partner in real estate development
Levitt Homes at Waters Edge, Inc. 8/1988 New York Inactive
LM Mortgage Company, LLC 4/1999 Florida Mortgage broker
The Villages at Emerald Lakes, LLC 7/1990 Florida Inactive
U.F.C. Title Insurance Agency, LLC 11/1984 Florida Title agent
* Original partnership founded in 1946.
23.1 Consent of KPMG LLP - Attached as Exhibit 23.1
(b) Reports on Form 8-K
None
(c) Exhibits - See Item 14(a) - 3 above.
126
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BFC FINANCIAL CORPORATION
Registrant
By: /S/ Alan B. Levan March 26, 2002
-----------------------------------
ALAN B. LEVAN, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/S/ Alan B. Levan March 26, 2002
- ----------------------------------------
ALAN B. LEVAN, Director and
Principal Executive Officer
/S/ Glen R. Gilbert March 26, 2002
- ----------------------------------------
GLEN R. GILBERT, Chief Financial Officer
/S/ John E. Abdo March 26, 2002
- ----------------------------------------
JOHN E. ABDO, Director
/S/ Earl Pertnoy March 26, 2002
- ----------------------------------------
EARL PERTNOY, Director
127