Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Year Ended December 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 34-027228
BankAtlantic Bancorp, Inc.
(Exact name of registrant as specified in its Charter)
Florida 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Sunrise Boulevard
Ft. Lauderdale, Florida 33304
(Address of principal executive offices) (Zip Code)
(954) 760-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange on Which Registered
New York Stock Exchange
Title of Each Class
Class A common stock, Par Value $0.01 Per Share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Name of Each Exchange on Which Registered
Nasdaq National Market
Title of Class
Class B common stock, Par Value $0.01 Per Share
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 10K or any
amendment to this Form 10K. [ ]
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 [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at February 26, 1999 was approximately $40.2 million.
The number of shares of Registrant's Class A Common Stock outstanding on
February 26, 1999 was 25,802,978.
The number of shares of Registrant's Class B Common Stock outstanding on
February 26, 1999 was 10,359,994.
Portions of the 1998 Annual Report to Stockholders of Registrant are
incorporated in Parts I, II and IV of this report. Portions of the Proxy
Statement of Registrant relating to the Annual Meeting of shareholders, are
incorporated in Part III of this report.
PART I
ITEM 1. BUSINESS
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, or 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 BankAtlantic
Bancorp, Inc. ("the Company" or "Bancorp") and are subject to a number of risks
and uncertainties, including but not limited to, the risks and uncertainties
associated with the implementation of and the realization of benefits from its
restructuring initiatives and expense reductions, economic, competitive and
other factors affecting the Company and its operations, markets, products and
services, changes in interest rates and economic policies, the success of new
lines of business, significant growth in banking as well as non-banking
initiatives, and other factors discussed elsewhere in this report filed by the
Company with the Securities and Exchange Commission ("SEC"). Many of these
factors are beyond the Company's control.
GENERAL
THE COMPANY
The Company is a unitary savings bank holding company. The Company's
principal assets include the capital stock of:
/bullet/ BankAtlantic, a Federal Savings Bank ("BankAtlantic"), and its
subsidiaries and
/bullet/ Ryan, Beck & Co., Inc. ("RBCO"), an investment
banking firm and its subsidiaries.
The Company is registered with the Office of Thrift Supervision ("OTS") and
is subject to OTS regulations, examinations, supervision and reporting. RBCO is
subject to regulation, examination, supervision and reporting of various
agencies. See "Regulation and Supervision."
BANKATLANTIC
BankAtlantic is a federal savings bank headquartered in Ft. Lauderdale,
Florida. BankAtlantic provides a full range of commercial banking products and
services directly and through subsidiary corporations. The principal business of
BankAtlantic is attracting checking and savings deposits from the public and
general business customers and using these deposits to originate or acquire
commercial, small business, residential and consumer loans and to make permitted
investments such as the purchase of mortgage-backed securities, tax certificates
and other investment securities. On October 31, 1997, BankAtlantic acquired the
St. Lucie West Holding Corp. ("SLWHC") for approximately $20.0 million. SLWHC is
the developer of the master planned community of St. Lucie West, ("SLW") located
in St. Lucie County, Florida. In March 1998, the Company acquired Leasing
Technologies, Inc. ("LTI"), an equipment leasing company. LTI was subsequently
contributed to BankAtlantic during the second quarter of 1998 and operates as a
subsidiary of BankAtlantic.
BankAtlantic currently operates in 17 Florida counties through 67
branch offices, with 10 in Miami-Dade County, 23 in Broward County, 5 in the
Tampa Bay area and 13 in Palm Beach County as well as 16 branches located
throughout Florida in Wal-Mart SuperStores. As reported by an independent
statistical reporting service, BankAtlantic is the second largest independent
financial institution headquartered in the State of Florida based on assets at
September 30, 1998. BankAtlantic is regulated and examined by the OTS and the
Federal Deposit Insurance Corporation ("FDIC") and its deposit accounts are
insured up to applicable limits by the FDIC.
SEGMENTS
Bancorp considers its business segments to be bank loan operations,
bank investment operations, real estate operations and investment banking
operations. Bank loan operations consist primarily of loans originated through
BankAtlantic's salesforce and branch network by building relationships with its
customers. Bank investment operations consist of mortgage-backed securities, tax
certificates, other investment securities and bulk purchases of wholesale
residential loans which have been acquired primarily through dealers, brokers
and investment banking firms. Real estate operations consist of SLW and other
real estate joint ventures operated under BankAtlantic Development Corporation
("BDC"), a wholly owned subsidiary of BankAtlantic. Investment banking
operations consists of RBCO. During the fourth quarter of 1998 management
decided to exit the mortgage servicing business ("MSB") and management
anticipates that all such activities will cease during the second quarter of
1999. The MSB activities are classified as discontinued operations.
BANK LOAN OPERATIONS
General -- BankAtlantic's lending activities include residential real
estate lending, commercial lending (consisting of commercial real estate and
commercial business lending ), international lending, small business lending
(primarily commercial real estate and commercial non-mortgage loans under $1.0
million), lease financing, consumer lending (primarily consisting of loans
secured by subordinate liens on residential real property, loans secured by
automobiles and boats and unsecured signature loans), banker's acceptances and
issuances of standby letters of credit. See "Regulation and Supervision" for a
description of restrictions on BankAtlantic's lending activities.
Commercial Real Estate Loans -- BankAtlantic's commercial real estate
loans normally are secured by property located throughout Florida, primarily in
Miami-Dade, Broward and Palm Beach Counties. BankAtlantic's commercial real
estate loan originations include:
/bullet/ mortgage loans for commercial and industrial properties with five
to seven year maturities,
/bullet/ construction loans secured by income producing properties,
/bullet/ residential development loans and
/bullet/ land acquisition and development loans
BankAtlantic's commercial real estate loans, other than those relating
to BankAtlantic's affiliated joint ventures, typically are based on a minimum of
75% of the collateral's appraised value and typically require the borrower to
maintain escrow accounts for real estate taxes and insurance. The loan and
BankAtlantic's investment in affiliated joint ventures results in consolidated
exposure in excess of the typical 75% loan to value ratio. Prior to making a
loan BankAtlantic considers 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. BankAtlantic normally requires that these loans be
guaranteed by one or more of the principals of the borrowing entity.
Commercial Business Loans -- BankAtlantic's commercial business loans
are generally made to small to medium size companies located throughout Florida,
primarily in the Miami-Dade, Broward and Palm Beach Counties and the Tampa Bay
area. BankAtlantic makes both secured and unsecured loans, although the majority
of these loans are on a secured basis. New commercial business loans are
generally in excess of $1 million and 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.
Commercial real estate and construction and development loans present
more credit risk than residential first mortgages, since many of the loans may
be secured by property in the early stages of development. BankAtlantic's
competitors over the last several years have also increased their available
funding for commercial real estate projects. Increased availability of funds
could result in over-building and a decline in the real estate values. A decline
in the real estate market, or in economic conditions in general, in Florida
could have a material adverse effect on BankAtlantic's financial condition and
results of operations. In addition, any changes in the commercial real estate
market could impact real estate operations as well.
Commercial business loans generally have a higher degree of risk than
residential loans 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 or guarantors.
Residential Real Estate Loans -- BankAtlantic makes residential real
estate loans secured by property located throughout Florida, primarily in
Miami-Dade, Broward and Palm Beach Counties. BankAtlantic originates residential
loans through its branch banking network and through a staff of commissioned
mortgage officers. BankAtlantic originates both fixed rate and adjustable loans
with amortization periods up to 30 years.
Residential real estate loans are generally less risky than other
lending alternatives, since the collateral is secured by residential real estate
of primarily owner occupied properties located primarily in BankAtlantic's
market area.
International Lending -- BankAtlantic's international lending
operations provide the following:
/bullet/ trade financing for correspondent financial institutions in Latin
America, including pre-export financing, advances on letters of
credit and banker's acceptances,
/bullet/ trade financing for local commercial customers who are
primarily importing from or exporting
to Latin America,
/bullet/ term financing of the export of United States goods and
services guaranteed by the EximBank and
/bullet/ other correspondent banking services.
Loans to correspondent banks are generally Libor based and domestic
loans are generally prime-based and have maturities of one year or less.
Small Business Lending -- BankAtlantic's small business loans are
generally made to companies located throughout Florida, primarily in Miami-Dade,
Broward and Palm Beach Counties. Small business loans are originated on a
secured or unsecured basis and do not exceed $1.0 million. These loans are
originated with maturities ranging from one to twenty years or on demand. Lines
of credit are due upon demand. Small business loans typically have fixed and
variable prime-based interest rates.
Lease Financing-- BankAtlantic leases and finances equipment to
corporate customers through its subsidiary, LTI. LTI principally leases or
finances trucks and manufacturing and construction equipment to businesses
located primarily in Miami-Dade, Broward and Palm Beach Counties in Florida.
LTI's loans and leases are secured by the acquired equipment and generally do
not exceed $400,000 per financing. These loans and leases are originated with
terms ranging from two to five years. Residuals are typically less than 10% of
the original purchase price of the equipment. The lease interest component is at
a fixed rate.
Small business loans and lease financing generally have a higher degree
of risk than residential loans 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 quality of the
principals.
Consumer Loans -- During 1998 BankAtlantic originated consumer loans
directly and indirectly. In the fourth quarter of 1998, BankAtlantic ceased the
indirect origination of loans through automobile dealers. Direct consumer loan
originations consist of:
/bullet/ automobile loans,
/bullet/ overdraft lines of credit,
/bullet/ loans secured by deposits, and
/bullet/ second mortgages on owner occupied residences.
Direct consumer loans are originated with fixed and variable prime-based
interest rates with terms ranging from one to 15 years.
The indirect origination of automobile consumer loans required funding
of dealer reserves to dealers. The amount advanced to the dealer is amortized
over the life of the loan. The dealer is normally responsible to BankAtlantic
for the amount of the unamortized reserve if a loan defaults or is prepaid. The
ability of a dealer to refund the unearned dealer reserve to BankAtlantic, upon
default or loan prepayment, is contingent upon the dealer's financial condition.
Consumer loans, especially indirect automobile loans, generally present
more credit risk than other types of loans, such as home equity or residential
real estate loans. Because these loans present a greater risk, they also
generally result in higher level of charge-offs.
Banker's Acceptances -- Banker's Acceptances are collateralized by
inventory and accounts receivable of borrowers of the issuing bank and are
unconditional obligations of the issuing bank.
Standby Letters of Credit -- Standby letters of credit are conditional
commitments issued by BankAtlantic to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of credit is the same
as extending loans to customers. BankAtlantic may retain certificates of deposit
and residential and commercial liens as collateral for letters of credit.
BANK LOAN OPERATIONS - ADMINISTRATION
Underwriting -- BankAtlantic evaluates a borrower's ability to make
principal and interest payments and the value of the collateral securing the
underlying loans. Independent appraisers generally perform on-site inspections
and valuations of the collateral for commercial real estate loans. Commercial
real estate and commercial business loans of $1.0 million or more require the
approval of BankAtlantic's Major Loan Committee. The Major Loan Committee
consists of the Chief Executive Officer, Vice Chairman, Chief Operating Officer,
and certain other Officers of the Bank. Residential and consumer loans of
$500,000 or more also require the approval of BankAtlantic's Major Loan
Committee. The Chief Operating Officer must approve all small business loans at
or above $500,000 but less than $1 million. The President of LTI must approve
all leases in excess of $75,000.
International loan underwriting procedures assess the country risk and
the credit quality of the borrower. International loans to correspondent banks
must be approved by the International Loan Committee ("ILC"). The ILC committee
includes the Chief Executive Officer, certain Executive Vice Presidents,
Miami-Dade County President, and the Manager of International Lending.
The Country Risk Committee ("CRC") also monitors the international
loans. The CRC members include the ILC members and an independent economist. The
CRC meets monthly to review each country and establish guidelines by country,
including amount of exposure, acceptable types of transactions, and duration.
Commitments -- BankAtlantic issues commitments to originate residential
loans. Loan commitments are issued for purchasing and refinancing residential
properties. In most cases, residential loan commitments are limited to 60 days
and are issued after the loan is approved. BankAtlantic offers interest rate
"locks" for a fee for periods of up to 270 days. BankAtlantic issues commitments
for commercial real estate and commercial business loans. In most cases these
commitments are for three months. BankAtlantic extends credit to financial
institutions in Latin America which can be terminated at any time by
BankAtlantic. Financial institutions are evaluated on a case by case basis.
Allowance for Loan Losses, Non-Performing Assets, Classified Assets and
Impaired Loans -- The following is a description of how the allowance for loan
losses is determined.
BankAtlantic's loan portfolio is divided into the following categories:
/bullet/ commercial real estate,
/bullet/ residential real estate,
/bullet/ commercial business,
/bullet/ Lease financing,
/bullet/ international,
/bullet/ small business - real estate,
/bullet/ small business -non-mortgage, and
/bullet/ various types of consumer loans.
In determining the adequacy of its allowance for loan losses management
segregates the loan portfolio into broad categories such as: commercial real
estate; residential real estate; small business; commercial business; lease
financing, international and various types of consumer loans. BankAtlantic
provides for a general allowance for losses inherent in the portfolio by the
above categories, which consists of two components. First, general loss
percentages are calculated based upon historical analyses. In considering this
portion of the provision, greater emphasis is placed on current trends, if such
trends are adverse. Secondly, a supplemental portion of the allowance is
calculated for inherent losses which probably exist as of the evaluation date
even though they might not have been identified by the more objective processes
used for the portion of the allowance described above. This is due to the risk
of error and/or inherent imprecision in the process. This portion of the
allowance is particularly subjective and requires judgments based on qualitative
factors which do not lend themselves to exact mathematical calculations such as:
trends in delinquencies and nonaccruals; trends in the portfolio, volume, terms
and portfolio mix; new credit products and/or changes in the geographic
distribution of these products; changes in lending policies and procedures;
changes in the outlook for local, regional and national economic conditions;
concentrations of credit; and peer group comparisons.
Specific allowances are provided when a collateral analysis on a
classified loan indicates that there will be a probable loss upon liquidation of
collateral.
A loan is considered impaired when collection of principal and
interest, based on the contractual terms of the loan, is not probable.
BankAtlantic measures impairment based on:
/bullet/ the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective
interest rate,
/bullet/ the observable market price of the impaired loan, or
/bullet/ the fair value of the collateral of a collateral-dependent
loan.
BankAtlantic selects the measurement method on a loan-by-loan basis,
except that collateral-dependent loans for which foreclosure is probable are
measured at the fair value of the collateral. Specific allowances are provided
in the event the impairment calculation is in excess of the general allowance
allocation. In a troubled debt restructuring, BankAtlantic measures impairment
by discounting the total expected future cash flows at the loan's original
effective rate of interest.
Loans collectively reviewed by BankAtlantic for impairment include all
residential, consumer small business loans, lease financings and performing
commercial real estate and business loans under $1.0 million, excluding loans
which are individually reviewed based on specific criteria, such as delinquency
and condition of collateral. BankAtlantic's impaired loans that are evaluated
individually include nonaccrual commercial loans, restructured loans, and
performing commercial loans less than 90 days delinquent where management does
not expect the loans to be repaid in accordance with their contractual terms but
which are expected to be collected in full.
BANK INVESTMENT OPERATIONS
Debt and Equity Securities -- The Company has a portfolio (independent
of BankAtlantic) of debt and equity securities. Additionally, BankAtlantic
maintains an investment portfolio consisting primarily of mortgage-backed
securities ("MBS"), treasury notes, real estate mortgage investment conduits
("REMIC") and tax certificates.
BankAtlantic has in the past purchased federal agency obligations,
securities, corporate bonds and other asset backed securities.
MBS are pools of residential loans which are made to consumers and then
generally sold to the Government National Mortgage Corporation ("GNMA"), Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC").
MBS have fixed or variable rates ("ARMs") and either 15-30 year
maturities or 5-7 year balloon maturities. BankAtlantic generally invests in
ARMs or 5-7 year balloon MBS which are insured or guaranteed by the above
agencies.
REMIC's are collateralized mortgage obligations. BankAtlantic generally
invests in highly rated securities with average maturities of three to five
years for fixed rate products and of longer duration for variable rate products.
Asset-backed securities purchased by BankAtlantic consisted of
investment grade pooled automobile receivables. Corporate bonds consisted
generally of investment grade obligations of corporate borrowers with an average
maturity of three years.
During the year ended December 31, 1998, the Company began trading
government securities which are generally bought and sold on the same day.
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 cost, adjusted for amortization of premium or accretion of discount using the
interest method. Securities that may be sold prior to maturity for
asset/liability management purposes, or that may be sold in response to changes
in interest rates, to changes in prepayment risk, to increase regulatory capital
or other similar factors, are classified as securities available-for-sale and
carried at fair value with any adjustments to fair value, after tax, reported as
a separate component of shareholders' equity. 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. The related write-downs are included in earnings as
realized losses. Securities purchased for trading purposes are held in the
trading portfolio at fair value, with changes in fair value included in
noninterest income.
Tax Certificates -- BankAtlantic's tax certificates portfolio is
classified as "held to maturity". Tax certificates are evidences of tax
obligations that are generally auctioned 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. The majority of BankAtlantic's
tax certificates relate to Florida properties. Florida tax certificates
represent a priority lien against the real property for the delinquent real
estate taxes. Interest accrues on the tax certificate at the rate established at
the auction. The minimum repayment on tax certificates, in order to satisfy the
lien, is the certificate amount plus the greater of five percent of the
certificate amount or the interest accrued through the redemption date. Tax
certificates have no payment schedule or stated maturity. The certificate holder
has the right to collect the delinquent tax amount, plus interest. The
certificate holder can file for a deed to the underlying property if the
delinquent tax amount is unpaid at the end of two years. If the certificate
holder does not file for the deed within seven years, the certificate becomes
null and void. BankAtlantic's 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.
BankAtlantic also acquires tax certificates from various municipalities
outside the State of Florida. The nature of priority, statutory periods and deed
procedures vary by applicable taxing authorities but the general characteristics
are similar to those in Florida. There is no significant concentration of tax
certificate holdings in any one taxing authority outside of the State of
Florida.
BankAtlantic establishes an allowance for tax certificate losses in an
amount which it believes is sufficient to provide for future losses. In
establishing its allowances for tax certificate losses, management considers:
/bullet/ past loss experience,
/bullet/ present indicators such as the length of time the
/bullet/ certificate has been outstanding,
/bullet/ economic conditions, and
/bullet/ collateral values.
Tax certificates and tax deed applications are classified as nonaccrual
no later than when a tax certificate is outstanding 48 months or a deed has aged
48 months from BankAtlantic's certificate acquisition date. At that time,
interest ceases to be accrued and previously accrued interest is reversed.
The risks BankAtlantic has experienced with tax certificates have
related to:
/bullet/ the risk that additional funds may be required to purchase other
certificates relating to the property,
/bullet/ the risk that the liened property may be unusable, and
/bullet/ the risk that potential environmental concerns may make
taking title to the property untenable.
Purchased 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 also subjects 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. BankAtlantic sets guidelines for loan purchases relating to:
/bullet/ loan amount,
/bullet/ type of property,
/bullet/ state of residence,
/bullet/ loan-to-value ratios,
/bullet/ borrower's sources of funds,
/bullet/ appraisal, and
/bullet/ loan documentation.
BankAtlantic enters into contracts to purchase residential loans from
mortgage bankers, investment bankers and other financial institutions. These
contracts commit BankAtlantic to purchase the residential loans in 30 to 60 days
subject to the loans meeting BankAtlantic's underwriting guidelines. During
1998, BankAtlantic formed the Capital Markets group which began purchasing
residential loans on the secondary market with the intent to package and sell,
securitize or retain these loans based on their individual characteristics.
These loans are classified as "held for sale" or "held for investment "
depending on management's intent at the time the loans are purchased. The
Company continually evaluates these purchased loans and such evaluations may
result in transfers from the held for investment category; however, such
transfers would not normally exceed 10% of the average annual balance of the
portfolio.
Purchased wholesale residential loans included in bank investment
operations are generally secured by real estate located outside of
BankAtlantic's primary market area. Performance of these loans may be influenced
by the condition of the economy where the collateral is located and collection
risk.
REAL ESTATE OPERATIONS
Real Estate Held for Development and Sale Activities -- BDC acquired SLWHC
in late 1997. SLWHC is the developer of the master planned community of St.
Lucie West, located in St. Lucie County, Florida. SLWHC develops commercial and
residential parcels for sale to large developers. The master planned community
includes:
/bullet/ Fully amenitized residential developments
/bullet/ commercial development
/bullet/ industrial development
/bullet/ 3400 homes
/bullet/ a major league baseball spring training stadium
/bullet/ utilities
/bullet/ two PGA golf courses
/bullet/ medical facilities
/bullet/ shopping centers
/bullet/ banking facilities
/bullet/ educational facilities
/bullet/ religious facilities.
BDC has also invested in six real estate joint ventures. Five of these
joint ventures are in various stages of development. These joint ventures
required equity investments by BDC at the inception of the project of 44.5 - 90%
of the total venture equity with potential profit sharing of 40-50% in future
years. BankAtlantic has also provided financing to these joint ventures on terms
which are generally the same as offered to third parties, except for certain
joint ventures for which BBC has financed the other partners equity contribution
. Such lending activities 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.
Real estate held for development and sale includes land held for
development and land held for sale. Direct costs clearly associated with the
development of a specific parcel are capitalized as a cost of that parcel. Land
and indirect development costs are allocated to the various parcels based upon
the relative sales value method. Selling, general and other expenses not
directly related to the development of the property are expensed as incurred.
Real estate development activities are permissible activities for savings banks,
however, BankAtlantic's investment in BDC is excluded from BankAtlantic's
regulatory capital calculations.
As previously announced, the Company is considering alternatives
relating to its ownership of the real estate operations conducted through BDC
including a possible spin-off of BDC . See further discussion in Management
Discussion and Analysis - Liquidity and Capital Resources.
Risks associated with real estate operations relate to the highly
cyclical nature of the industry and that future market conditions are uncertain.
Factors which adversely affect the real estate and home building industries
include:
/bullet/ decreases in employment levels
/bullet/ the availability and cost of financing
/bullet/ decreases in demand
/bullet/ a slow down in home sales and construction
/bullet/ the significant volatility and fluctuations in
underlying real estate values.
SLWHC incurred $5.2 million in annual operating expenses during the
year ended December 31, 1998. In the future, periodic sales at SLW may not be
adequate to cover operating expenses. Additionally, none of the joint ventures
which are in development, have any operating history. There is no guarantee that
such ventures will be profitable. The current historically low interest rate
levels have had a positive impact on the pace of home sales and construction.
However, increases in interest rates may reverse this effect.
INVESTMENT BANKING OPERATIONS
Investment Banking Operations consist of the Company's subsidiary RBCO
which is an investment banking firm. RBCO is principally engaged in the
underwriting, market making, distribution and trading of tax-exempt obligations
and bank and thrift equity and debt securities. RBCO provides investment
banking, research, and financial advisory services.
RBCO provides these services primarily to financial services companies
with a focus on corporate finance and merger-related services. RBCO offers a
general securities brokerage business with investment products for retail and
institutional clients, as well as life insurance and annuity products. RBCO's
clients consist primarily of:
/bullet/ high net worth individuals (primarily in New Jersey, other
Mid-Atlantic and Northeastern states and Florida),
/bullet/ banking and thrift institutions (primarily in New Jersey,
Pennsylvania and Florida) and
/bullet/ to a much lesser extent, insurance companies and
specialty finance companies.
In February 1998, RBCO acquired Cumberland Advisors, a New Jersey based
money manager with approximately $430 million of assets under management. In the
transaction RBCO also acquired Cumberland Consulting, a financial advisor to
state and local governmental units.
In February 1999, RBCO began offering variable and fixed rate annuities
and mutual fund shares to BankAtlantic customers through BankAtlantic's branch
network. It is anticipated that in the near future, RBCO will offer a full range
of services to BankAtlantic customers.
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. RBCO's business and its profitability
are affected by many factors including:
/bullet/ the volatility and price levels of the securities markets,
/bullet/ the volume, size and timing of securities transactions,
/bullet/ the demand for investment banking services,
/bullet/ the level and volatility of interest rates,
/bullet/ the availability of credit,
/bullet/ legislation affecting the business and financial
communities, and
/bullet/ the economy in general.
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,
RBCO is likely to be adversely affected by negative economic developments in New
Jersey, the mid-Atlantic region or the financial services industry in general.
INTEREST EXPENSE AND OVERHEAD
The Company considers its interest expense and overhead to consist of
interest expense net of non-interest income and operating costs, associated
with:
/bullet/ Deposits
/bullet/ Advances from FHLB
/bullet/ Securities Sold under Agreements to Repurchase
/bullet/ Federal Funds borrowings
/bullet/ Subordinated Debentures, Notes and Bonds Payable
/bullet/ Guaranteed preferred beneficial interest in
Company's Junior Subordinated Debentures Branch
operating expenses, net of income
/bullet/ ATM income, net of expenses
/bullet/ Back office operating expenses, net of income.
BankAtlantic's deposits include:
/bullet/ commercial demand deposit accounts
/bullet/ retail demand deposit accounts
/bullet/ regular passbook savings accounts
/bullet/ statement savings accounts
/bullet/ money market accounts
/bullet/ fixed-rate, fixed-maturity certificates of deposit,
ranging in maturity from 30 days to 8 years
/bullet/ variable-maturity jumbo certificates of deposit
/bullet/ various NOW accounts
/bullet/ IRA and Keogh retirement accounts
/bullet/ Brokered certificates of deposit
/bullet/ Public funds.
BankAtlantic's deposit accounts are insured by the FDIC through the
SAIF and the Bank Insurance Fund ("BIF") up to a maximum of $100,000 for each
insured depositor. BankAtlantic solicits deposits in its market areas through
relationship banking activities primarily conducted through its salesforce and
branch network.
Most of BankAtlantic's depositors are residents of Florida at least
part of the year. BankAtlantic has several facilities, including one with RBCO,
for brokered certificates of deposit. The facilities are considered an
alternative source of borrowings.
Advances from FHLB -- BankAtlantic is a member of the FHLB and is
authorized to apply for secured advances from the FHLB of Atlanta.
BankAtlantic's advances are collateralized by a security lien against its
residential loans. In addition, BankAtlantic must maintain certain levels of
FHLB stock for outstanding advances. BankAtlantic uses the following types of
advances:
/bullet/ fixed rate advances
/bullet/ fixed rate overnight advances - due within 24 hours
/bullet/ adjustable rate advances - indexed to one and three
month LIBOR rates
/bullet/ callable advances - callable at the option of the FHLB,
with the option to convert, at a specific date,
in whole, into a three month LIBOR based floating rate
advance
Securities Sold under Agreements to Repurchase -- BankAtlantic utilizes
wholesale repurchase agreements as an alternative borrowing source. In a
wholesale repurchase transaction, BankAtlantic sells a portion of its current
investment portfolio (usually MBS and REMIC's) at a negotiated rate and agrees
to repurchase the same assets on a specified date. BankAtlantic also issues
repurchase agreements for the benefit of its customers. These transactions are
collateralized by the investment portfolio. Customer repurchase agreements are
not insured by the FDIC. These transactions are classified as borrowings for
financial statement and tax reporting purposes.
Federal Funds Borrowings -- BankAtlantic has established unsecured
facilities with various federally insured banking institutions to purchase
Federal Funds aggregating $65 million. The facilities are used on an overnight
borrowing basis to assist in managing BankAtlantic's cash flow requirements.
These Federal Fund lines are subject to periodic review and may be terminated at
any time by the issuer institution.
Subordinated Debentures -- The Company from time to time has issued,
through public offerings, subordinated debentures to pay for acquisitions or for
working capital. In some instances, the subordinated debentures are convertible
into the Company's Class A Common Stock.
Guaranteed preferred beneficial interest in Company's Junior
Subordinated Debentures -- In March 1997, the Company formed BBC Capital Trust I
. BBC Capital Trust I issued common stock and 9 1/2% Cumulative Trust Preferred
Securities and invested the proceeds in Junior Subordinated Debentures of the
Company. The proceeds from the offering were utilized to contribute capital to
BankAtlantic, repurchase shares of common stock and for working capital.
Branch operating expenses, net of income -- Branch operating expenses,
net of income include:
/bullet/ Costs associated with the operations of the individual branches
/bullet/ Fee income associated with the depository accounts and branch
services
/bullet/ Costs associated with the back-office support of the deposit
operations
/bullet/ Costs associated with the administration of the
branch operations, and
/bullet/ Deposit insurance expense.
ATM expenses, net of income -- ATM's include:
/bullet/ ATM income for non-branch operations
/bullet/ Costs associated with ATM rentals, telephone lines, maintenance
agreements, armored car delivery services, and other
administrative services.
At December 31, 1998, BankAtlantic leased 746 ATMs; of which 274 ATMs
are located in Wal-Mart and Sam's Club locations throughout Florida, Georgia and
Alabama; 185 ATMs are located in K-Mart stores and Cumberland Farms convenience
stores located in Florida and 28 ATMs are located on cruise ships. The remaining
ATMs are at BankAtlantic branch locations and various retail outlets, including
gasoline convenience food stores, malls, entertainment complexes and college
campuses. See "Legislative Developments" for a discussion of proposed
legislation which could prohibit surcharges on ATM transactions.
Interest rates recently have been at historically low levels but
fluctuations in interest rates are not predictable or controllable. BankAtlantic
has attempted to structure its asset and liability management strategies to
mitigate the impact of changing interest rates.
Back office operating expenses, net of income -- Back office operating
expenses, (including corporate headquarters) net of income relate to those
expenses that do not directly relate to any of the above categories.
DISCONTINUED OPERATIONS
Mortgage Servicing Business --During the fourth quarter of 1998,
Management determined that it would discontinue its MSB and all related assets
and liabilities would be disposed of during 1999. BankAtlantic's MSB services
loans relating to servicing agreements with various mortgage loan originators
and purchased blocks of mortgage servicing rights ("MSR") from mortgage bankers.
The amount of net revenue earned from MSB was dependent on period of
time the loan is outstanding contractual servicing fee, cost to service,
realization of late charges, and other fees.
BankAtlantic periodically sold servicing rights based upon market
conditions as well as maintaining predetermined levels set by management.
The fees received from servicing mortgage loans include:
/bullet/ mortgage servicing fees
/bullet/ return check charges
/bullet/ late charge fees
/bullet/ new loan setup fees
COMPETITION
As reported by an independent statistical reporting service,
BankAtlantic is the second largest financial institution headquartered in the
State of Florida based on assets at September 30, 1998, the most recent date
utilized by the reporting service.
BankAtlantic has substantial competition in attracting and retaining
deposits and in lending funds. The primary factors in competing for deposits and
loans are:
/bullet/ the range and quality of financial services offered
/bullet/ the ability to offer attractive rates and fees
/bullet/ the availability of convenient access to products and services
There is direct competition for deposits and loans from:
/bullet/ credit unions
/bullet/ commercial banks
/bullet/ other savings institutions
/bullet/ money market mutual funds
/bullet/ mortgage bankers
/bullet/ corporate and government securities
/bullet/ finance and insurance companies
/bullet/ real estate investment trusts
Legislative developments relating to interstate branching and the
ownership of financial institutions have resulted in consolidation of financial
institutions, and also provide larger financial institutions increased access in
the marketplace. BankAtlantic expects increased competition in the future.
RBCO is engaged in investment banking, securities brokerage and asset
management which are extremely competitive businesses. Competitors include:
/bullet/ all of the member organizations of the New York Stock Exchange and
other registered securities exchanges,
/bullet/ all members of the NASD,
/bullet/ commercial banks, thrift institutions, and
/bullet/ financial consultants.
With respect to RBCO's investment banking and merger-related services,
RBCO also competes with many of the larger Wall Street investment banking firms.
Many of these organizations have substantially more employees and greater
financial resources than RBCO. RBCO also competes for investment funds with:
/bullet/ banks,
/bullet/ insurance companies and
/bullet/ investment companies.
Discount brokerage firms oriented to the retail market, including
electronic brokers, on-line trading firms and firms affiliated with commercial
banks and thrift institutions, are devoting substantial funds to advertising and
direct solicitation of customers in order to increase their share of commission
dollars and other securities-related income. RBCO typically has not engaged in
extensive advertising programs for this type of business. RBCO believes that the
principal competitive factors relating to RBCO's business are the quality of
advice and service provided to investors and financial institutions and the
competitive pricing of their products.
The securities industry has become considerably more concentrated and
more competitive in recent years as numerous securities firms have either ceased
operations or have been acquired by or merged into other firms. In addition,
companies not engaging primarily in the securities business, but having
substantial financial resources, have acquired leading securities firms. These
developments have increased competition from firms with greater capital
resources than those of RBCO . Furthermore, many commercial banks offer various
securities related activities and investment vehicles. While it is presently not
possible to predict the type and extent of competitive services which other
financial institutions may offer or the extent to which administrative or legal
barriers are repealed or modified, ultimately these developments may lead to the
creation of integrated financial services firms that may be able to compete more
effectively than RBCO for investment funds by offering a greater range of
financial services.
Fixed minimum commissions for securities transactions were eliminated
in 1975. The elimination of fixed minimum commission rates has resulted in
substantial commission discounting by broker-dealers competing for institutional
and individual brokerage business. RBCO believes its commission structure
compares favorably with firms with which it competes. Nevertheless, the
anticipated continuation of such discounting and an increase in the number of
new and existing firms offering discounts, including companies which provide
trading over the internet, could adversely affect RBCO.
EMPLOYEES
At December 31, 1998, the Company employed 944 full-time and 95
part-time employees (excluding RBCO) which includes approximately 70 full-time
employees relating to discontinued operations and 15 full-time employees
relating to branch closures. At December 31, 1998, RBCO employed 217 full-time
employees. Management believes that its relations with its employees are
satisfactory. The Company, including RBCO, currently maintains comprehensive
employee benefits programs which are considered by management to be generally
competitive with employee benefits provided by other major employers in its
markets.
At December 31, 1998, the Company froze the benefits relating to its
qualified defined benefit pension plan. All employees were vested based on their
years of service. Employees will not receive any further credit for future
services, while the plan is frozen. Management is exploring alternative benefit
programs, including enhanced 401(k) benefits.BankAtlantic's employees are not
represented by any collective bargaining group.
REGULATION AND SUPERVISION
GENERAL
The following summary describes some of the laws and regulations
applicable to the Company, BankAtlantic and RBCO. The applicable statutes and
regulations are summarized and do not purport to be complete, and are qualified
in their entirety by reference to such statutes and regulations.
The Company is a unitary savings bank holding company and is subject to
regulatory oversight by the OTS because it owns all of the outstanding stock of
BankAtlantic. The Company is required to register with the OTS and is subject to
OTS examination, supervision and reporting requirements. The Company is subject
to the reporting and other requirements of the Securities and Exchange Act due
to their publicly held equity and debt securities. BFC Financial Corporation
("BFC") owns 47% of the Company's voting common stock at December 31, 1998 and
is also subject to the same oversight by the OTS.
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. 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.
HOLDING COMPANY REGULATIONS
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding
company from directly or indirectly acquiring control, including through an
acquisition by merger, consolidation or purchase of assets, of any savings
association (as defined in Section 3 of the Federal Deposit Insurance Act) or
any other savings and loan or savings bank holding company, without prior OTS
approval. In considering whether to grant approval for any such transaction, the
OTS will take into consideration a number of factors, including:
/bullet/ competitive effects of the transaction;
/bullet/ financial and managerial resources;
/bullet/ future prospects of the holding company and its bank or thrift
subsidiaries following the transaction; and
/bullet/ compliance records of such subsidiaries with the CRA.
Generally, a savings bank holding company may not acquire more than 5%
of the voting shares of any savings association unless by merger, consolidation
or purchase of assets, in each case subject to prior OTS approval. Another
provision of HOLA permits a savings bank holding company to acquire up to 15% of
the voting shares of certain undercapitalized savings associations.
Federal law allows the Director of the OTS to take action when it
determines that there is reasonable cause to believe that the continuation by a
savings bank holding company of any particular activity constitutes a serious
risk to the financial safety, soundness, or stability of a savings bank holding
company's subsidiary savings institution. The Director of the OTS has oversight
authority for all holding company affiliates, not just the insured institution.
Specifically, the Director of the OTS may, as necessary:
(i) limit the payment of dividends by the savings institution;
(ii) limit transactions between the savings institution, the holding
company and the subsidiaries or affiliates of either; or
(iii) limit any activities of the savings institution that might create
a serious risk that the liabilities of the holding company and
its affiliates may be imposed on the savings institution.
Activities Limitations -- The Company will remain a unitary savings
bank holding company under applicable law until it acquires as a separate
subsidiary another savings institution. A savings bank holding company whose
sole subsidiary qualifies as a qualified thrift lender ("QTL"), described below,
generally has the broadest authority to engage in various types of business
activities with little to no restrictions on its activities. A holding company
that acquires another institution and maintains it as a separate subsidiary or
whose sole subsidiary fails to meet the QTL test will become subject to the
activities limitations applicable to multiple savings bank holding companies. In
general, a multiple savings bank holding company (or subsidiary thereof that is
not an insured institution) may not commence, or continue for more than a
limited period of time after becoming a multiple savings bank holding company
(or a subsidiary thereof), any business activity other than:
(i) furnishing or performing management services for a subsidiary
insured institution;
(ii) conducting an insurance agency or an escrow business;
(iii) holding, managing or liquidating assets owned by or
acquired from a subsidiary insured institution;
(iv) holding or managing properties used or occupied by a subsidiary
insured institution;
(v) acting as trustee under deeds of trust;
(vi) those activities previously directly authorized by the
OTS by regulation as of March 5, 1987 to be engaged in by
multiple savings bank holding companies; or
(vii) subject to prior approval of the OTS, those activities
authorized by the Federal Reserve Board ("FRB") as permissible
investments for bank holding companies.
These restrictions do not apply to a multiple savings bank holding
company if (a) all, or all but one, of its insured institution subsidiaries were
acquired in emergency thrift acquisitions or assisted acquisitions and (b) all
of its insured institution subsidiaries are QTLs.
Restrictions on Transactions with BankAtlantic -- BankAtlantic is
subject to restrictions in its dealings with the Company and any other companies
that are "affiliates" of the Company under HOLA and certain provisions of the
Federal Reserve Act ("FRA") that are made applicable to savings institutions by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and OTS regulations. See "Regulation and Supervision -- Savings
Institution Regulations -- Transactions with Affiliates" below for a general
discussion of the restrictions on dealing with affiliates.
LEGISLATIVE DEVELOPMENTS
Various bills have been introduced into the United States Congress that
would repeal in some respects the provisions of the Glass-Steagall Act
prohibiting certain banking organizations from engaging in certain securities
activities and the provisions of the Bank Holding Company Act prohibiting
affiliations between banking organizations and non-banking organizations. This
legislation is still under discussion.
In March 1999, a bill was introduced in the Florida legislature which
if passed, would prohibit the owner of an ATM from imposing surcharges on
transactions at ATMs. If this bill is enacted into law, BankAtlantic's future
results of operations would be adversely impacted. Bills similar to this bill
have previously been proposed in other jurisdictions, including at the national
level.
SAVINGS INSTITUTION REGULATIONS
Regulatory Capital -- Both the OTS and the FDIC have promulgated
regulations establishing capital requirements applicable to savings
institutions. The effect and interrelationship of these regulations is discussed
below.
Savings institutions must meet the OTS specific capital standards which
by law must be no less stringent than capital standards applicable to national
banks, with exceptions for risk-based capital requirements to reflect interest
rate risk or other risk. Capital calculated pursuant to the OTS regulations
varies substantially from capital calculated pursuant to GAAP. At December 31,
1998, BankAtlantic exceeded all applicable regulatory capital requirements. The
capital requirements are as follows:
(a) The leverage limit requires savings institutions to maintain core
capital of at least 3% of adjusted total assets. Adjusted total assets are
calculated as GAAP total assets, minus intangible assets (except those included
in core capital as described below). Core capital consists of common
shareholders' equity, including retained earnings, noncumulative perpetual
preferred stock and related surplus, less specified intangible assets (including
goodwill and MSRs as well as the amount equal to BankAtlantic's equity
investment in subsidiaries engaged in activities not permissible to national
banks. However, a portion of MSRs may be included in adjusted assets and core
capital. Generally, an amount may be included equal to the lower of ;
(i) 90% of the fair market value of readily marketable MSRs
(ii) the current amortized book value as determined under
GAAP or
(iii) 50% of core capital.
(b) Under the tangible capital requirement, savings institutions must
maintain tangible capital in an amount not less than 1.5% of adjusted total
assets. Tangible capital is defined in the same manner as core capital. The
percentage of MSRs which may be included in tangible capital is equal to the
lesser of :
(a) 100% of the amount of tangible capital that exists
before the deduction of any disallowed MSRs or
(b) the amount of MSRs allowed to be included in core
capital.
(c) The risk-based standards of the OTS currently require maintenance
of core capital equal to at least 4% of risk-weighted assets, and total capital
equal to at least 8% of risk-weighted assets. Total capital includes core
capital plus supplementary capital, but supplementary capital that may be
included in computing total capital for this purpose may not exceed core
capital. Supplementary capital includes cumulative perpetual preferred stock,
allowable subordinated debt and general loan loss allowances, within specified
limits. Such general loan loss allowances may not exceed 1.25% of risk-weighted
assets. Risk-weighted assets are determined by assigning to all assets
designated risk weights ranging from 0% to 100%, based on the credit risk
assumed to be associated with the particular asset.
In addition to the capital requirements set forth in the OTS
regulations, the OTS has delegated to its Regional Directors the authority to
establish higher individual minimum capital requirements for savings
institutions based upon a determination that the institution's capital is or may
become inadequate in view of its circumstances.
The U.S. banking agencies (Federal Reserve Board, Office of the
Comptroller of the Currency, Federal Deposit Insurance Corporation -
collectively "the Agencies") have each approved an interagency final rule which
incorporates a measure for market risk into their risk-based capital standards.
The final rule is based on an amendment to the Basle Capital Accord which
requires banks to measure and hold capital in support of their exposure to
market risk. Due to the final asset size and trading activity criteria, the rule
is expected to apply to a limited number of very large institutions. The most
significant modification to the rule is the elimination of the "standardized
approach" and introduction of a requirement that all depository institutions and
bank holding companies meeting the applicable criteria use their own internal
model to measure market risk exposure. The standardized approach, however, has
been retained for determining capital charges associated with specific risk in
trading accounts to the extent that such risk is not addressed by an
institution's internal model. Mandatory compliance with the rule is required
beginning January 1, 1998. Back testing must begin one-year after implementation
of market risk calculations. BankAtlantic, based on its asset size and current
trading activity, is not subject to the above rule.
Additionally, the OCC, which is the primary regulator for national
banks, has adopted a final rule increasing the leverage ratio requirements for
all but the most highly rated national banks. Pursuant to FIRREA, the OTS is
required to issue capital standards for savings institutions that are no less
stringent than those applicable to national banks. Based on the OCC rule,
savings institutions would be required to maintain a leverage ratio (defined as
the ratio of core capital to adjusted total assets) of between 4% and 5%. If the
OCC rule was in effect for OTS regulated financial institutions at December 31,
1998, BankAtlantic would have been in full compliance with the requirement.
Insurance of Accounts -- BankAtlantic's deposits are insured by the
SAIF and BIF for up to $100,000 for each insured account holder, the maximum
amount currently permitted by law.
As an insurer, the FDIC issues regulations and conducts examinations of
its insured members. Insurance of deposits by the FDIC may be terminated by the
FDIC, after notice and hearing, upon a finding that an institution has engaged
in unsafe and unsound practices, is in an unsafe and unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or the FDIC. When conditions warrant, the FDIC
may impose less severe sanctions as an alternative to termination of insurance.
BankAtlantic's management does not know of any present condition pursuant to
which the FDIC would seek to impose sanctions on BankAtlantic or terminate
insurance of its deposits.
Restrictions on Dividends and Other Capital Distributions -- 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 and net income. All dividends and capital distributions are
subject to regulatory safety and soundness objections. An institution that meets
or exceeds all of its fully phased-in capital requirements (both before and
after giving effect to the distribution) and is not in need of more than normal
supervision would be a "Tier 1 association." Upon prior notice to, and
non-objection by the OTS, a Tier 1 association may make capital distributions
during a calendar year up to the greater of:
(i) 100% of net income for the current calendar year plus 50%
of its capital surplus, or
(ii) 75% of its net income over the most recent four quarters.
Any additional capital distributions would require prior regulatory
approval.
A "well capitalized" institution must have risk-based capital of 10% or
more, core capital of 5% or more and Tier 1 risk-based capital (based on the
ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive or prompt corrective
action directive issued by the OTS to meet and maintain a specific capital level
or a specific capital measure. An institution will be categorized as:
"adequately capitalized" if it has total risk-based capital of 8% or more, Tier
1 risk-based capital of 4% or more and core capital of 4% or more;
"undercapitalized" if it has total risk-based capital of less than 8%, Tier 1
risk-based capital of less than 4% or core capital of less than 4%;
"significantly undercapitalized" if it has total risk-based capital of less than
6%, Tier 1 risk-based capital of less than 3% or core capital of less than 3%;
and "critically undercapitalized" if it has tangible capital of less than 2%.
Any savings institution that fails its regulatory capital requirement is subject
to enforcement action by the OTS or the FDIC. At December 31, 1998 BankAtlantic
met the capital requirements of a "well capitalized" institution as defined
above.
The Federal Home Loan Bank ("FHLB") System -- BankAtlantic is a member
of the FHLB system, which consists of 12 regional FHLBs governed and regulated
by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central
credit facility for member institutions. BankAtlantic, as a member of the FHLB
of Atlanta, is required to acquire and hold shares of capital stock in the FHLB
of Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on BankAtlantic's behalf). BankAtlantic is currently
in compliance with this requirement.
Each FHLB makes loans (advances) to members in accordance with policies
and procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the FHLB. All
advances from the FHLB must be fully secured by sufficient collateral as
determined by the FHLB of Atlanta. All long-term advances are required to be
used to fund residential home financings. The FHLB of Atlanta has established
standards of community service that members must meet to maintain access to
long-term advances.
Fees and Assessments of the OTS -- The OTS has adopted regulations to
assess fees on savings institutions to fund the operations of the OTS. The
regulations provide for the OTS assessments to be made based on the total
consolidated assets of a savings institution as shown on its most recent report
to the agency. Troubled savings institutions (generally, those operating in
conservatorship or with the lowest two (of five) supervisory subgroup ratings)
are to be assessed at a rate 50% higher than similarly sized thrifts that are
not experiencing problems.
Investment Activities -- As a federally-chartered savings bank,
BankAtlantic is subject to various restrictions and prohibitions with respect to
its investment activities. These restrictions and prohibitions are set forth in
HOLA and in the rules of the OTS and include dollar amount and procedural
limitations. BankAtlantic is in compliance with these restrictions.
Under the Federal Deposit Insurance Act ("FDIA"), a savings institution
is required to provide 30 days prior notice to the FDIC and the OTS of its
desire to establish or acquire a new subsidiary or conduct any new activity
through a subsidiary. The institution is also required to conduct the activities
of the subsidiary in accordance with the OTS orders and regulations. The
Director of the OTS has the power to force divestiture of any subsidiary or the
termination of any activity it determines is a serious threat to the safety,
soundness or stability of the savings institution or is otherwise inconsistent
with sound banking principles. Additionally, the FDIC is authorized to determine
whether any specific activity poses a threat to SAIF and to prohibit any member
of SAIF from engaging directly in the activity, even if it is an activity that
is permissible for a federally-chartered savings institution or for a subsidiary
of a state-chartered savings institution.
Safety and Soundness -- Operational and managerial standards for
internal controls, information systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation and benefits for bank
officers, employees, directors and principal shareholders are all the subject of
extensive guidelines. Additionally, the OTS is empowered to set standards for
any other facet of an institution's operations, not specifically covered by
regulations. The OTS is required to prescribe asset quality, earnings and stock
valuation standards specifying:
(i) a maximum ratio of classified assets to capital;
(ii) minimum earnings sufficient to absorb losses without
impairing capital;
(iii) to the extent feasible, a minimum ratio of market value to
book value for publicly traded shares of the institution;
and
(iv) such other standards relating to asset quality, earnings
and valuation as the OTS deems appropriate.
Loans to One Borrower -- Generally, a savings institution's total loans
and extensions of credit to one borrower or related group of borrowers,
outstanding at one time and not fully secured by readily marketable collateral,
may not exceed 15% of the institution's unimpaired capital and surplus. Except
as set forth below for certain highly rated securities, an institution's
investment in commercial paper and corporate debt securities of any one issuer
or related entity must be aggregated "loans" for purposes of the immediately
preceding sentence. Savings institutions may invest, in addition to the 15%
general limitation, up to 10% of unimpaired capital and surplus in commercial
paper of one issuer rated by two nationally recognized rating services in the
highest category, or in corporate debt securities rated in one of the two
highest categories by at least one such service. A savings institution may also
lend up to 10% of unimpaired capital and surplus, if the loan is fully secured
by readily marketable collateral. Readily marketable collateral is defined to
include certain securities and bullion, but generally does not include real
estate. At December 31, 1998, BankAtlantic was in compliance with the loans to
one borrower limitations.
Qualified Thrift Lender ("QTL") -- BankAtlantic, like all savings
institutions, is required to meet the QTL test for, among other things, future
eligibility for advances from the FHLB. The QTL test requires that a savings
institution's qualified thrift investments equal or exceed 65% of the savings
institution's portfolio assets calculated on a monthly average basis in nine out
of every twelve months. For the purposes of the QTL test, portfolio assets are
total assets less intangibles, properties used to conduct business and liquid
assets (up to 20% of total assets).
Any savings institution that fails to meet the QTL test must convert to
a commercial bank charter or limit its future investments and activities to
those permitted for both savings institutions and national banks. Additionally,
any such savings institution that does not convert to a commercial bank charter
will be ineligible to receive future advances from the FHLB and, beginning three
years after the loss of QTL status, will be required to repay all outstanding
advances from the FHLB except for special liquidity advances, and dispose of or
discontinue all preexisting investments and activities not permitted for both
savings institutions and national banks. If an institution converts to a
commercial bank charter, its deposits remain insured by SAIF until the FDIC
permits it to transfer to BIF. If any institution that fails the QTL test is
controlled by a holding company, then, within one year after the failure, the
holding company must register as a bank holding company and will be subject to
all applicable restrictions on bank holding companies. At December 31, 1998,
BankAtlantic was in compliance with current QTL requirements.
Transaction with Affiliates -- As a federally chartered savings
institution, BankAtlantic is subject to the OTS' regulations relating to
transactions with affiliates, including officers and directors. BankAtlantic is
subject to substantially similar restrictions regarding affiliate transactions
as those imposed on member banks under Sections 22(g), 22(h), 23A, and 23B of
the FRA.
Sections 22(g) and 22(h) establish restrictions on loans to directors,
controlling shareholders and their related companies and certain officers.
Section 22(g) provides that no institution may extend credit to an executive
officer unless
(i) the bank would be authorized to make such extension of
credit to borrowers other than its officers
(ii) the extension of credit is on terms not more favorable
than those afforded to other borrowers
(iii) the officer has submitted a detailed current financial
statement and
(iv) the extension of credit is on the condition that it
shall become due and payable on demand at any time that
the officer is indebted to any other bank or banks on
account of extensions of credit in any one of the
following three categories, in an aggregate amount
greater than the amount of credit of the same category
that could be extended to the officer by the
institution:
(a) an extension of credit secured by a first lien on
a dwelling which is expected to be owned by the
officer and used by the officer as his or her
residence;
(b) an extension of credit to finance the education of
the children of the officer; or
(c) for any other purpose prescribed by the OTS.
Section 22(g) also imposes reporting requirements on both the officers
to whom it applies and on the institution. Section 22(h) requires that loans to
directors, controlling shareholders and their related companies and certain
officers be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and that those loans do not involve more than the normal risk of
repayment or present other unfavorable features or give preference to insiders
over other employees.
Section 23A limits transactions with any one affiliate to 10% of the
institution's capital and surplus and limits aggregate affiliate transactions to
20% of such capital and surplus. Sections 23A and 23B provide that a loan
transaction with an affiliate generally must be collateralized (other than by a
low-quality asset or by securities issued by an affiliate) and that all covered
transactions as well as the sale of assets, the payment of money or the
providing of services by a savings institution to an affiliate must be on terms
and conditions that are substantially the same, or at least as favorable to the
savings institution, as those prevailing for comparable non-affiliated
transactions. A covered transaction is defined as a loan to an affiliate, the
purchase of securities issued by an affiliate, the purchase of assets from an
affiliate (with some exceptions), the acceptance of securities issued by an
affiliate as collateral for a loan or the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate. The OTS regulations clarify that
transactions between either a thrift or a thrift subsidiary and an unaffiliated
person that benefit an affiliate are considered covered transactions. A savings
institution may make loans to or otherwise extend credit to an affiliate only if
the affiliate is engaged solely in activities permissible for bank holding
companies. In addition, no savings institution may purchase the securities of
any affiliate other than the shares of a subsidiary. The Director of the OTS may
further restrict these transactions in the interest of safety and soundness. At
December 31, 1998, BankAtlantic was in compliance with the restrictions
regarding transactions with affiliates.
Liquidity Requirements of the OTS -- The OTS regulations currently
require all member savings institutions to maintain an average daily balance of
liquid assets (cash, certain time deposits, banker's acceptances, specified
United States government, state or Federal agency obligations and other
corporate debt obligations, certain mortgage related securities and commercial
paper) equal to between 4% and 10% of the sum of the average daily balance
during the preceding calendar month of net withdrawable accounts maturing in one
year or less and short-term borrowings payable in one year or less. Monetary
penalties may be imposed by the OTS for failure to meet liquidity requirements.
During the year ended December 31, 1998 the liquidity requirement was 4% and
BankAtlantic was in compliance with all applicable liquidity requirements.
The Federal Reserve System ("FRB") -- BankAtlantic is subject to
certain regulations promulgated by the FRB. Pursuant to such regulations,
savings institutions are required to maintain non-interest bearing reserves
against their transaction accounts (which include deposit accounts that may be
accessed by writing checks) and non-personal time deposits. The FRB has
authority to adjust reserve percentages and to impose in specified circumstances
emergency and supplemental reserves in excess of the percentage limitations
otherwise prescribed. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy liquidity requirements which may be
imposed by the OTS. In addition, FRB regulations limit the periods within which
depository institutions must provide availability for and pay interest on
deposits to transaction accounts. Depository institutions are required to
disclose their check holding policies and any changes to those policies in
writing to customers. BankAtlantic believes that it is in compliance with all
such FRB regulations.
Community Reinvestment Act -- Under the CRA, as implemented by OTS
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA, as amended by FIRREA, requires public disclosure
of an institution's CRA rating and requires that the OTS provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system. An institution's CRA rating is taken into account in
determining whether to grant charters, branches and other deposit facilities,
relocations, mergers, consolidations and acquisitions. Poor CRA performance may
be the basis for denying an application.
SECURITIES INDUSTRY REGULATIONS
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, 1998,
RBCO was registered as a broker-dealer in 50 states and the District of
Columbia.
Broker-dealers are subject to regulations which cover all aspects of
the securities business, including:
/bullet/ sales methods,
/bullet/ trade practices among broker-dealers,
/bullet/ uses and safekeeping of customers funds and securities,
/bullet/ capital structure of securities firms,
/bullet/ record-keeping, and
/bullet/ 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 principal purpose of regulation and
discipline of broker/dealers is the protection of customers and the securities
market, rather than protection of creditors and shareholders of broker-dealers.
As a broker-dealer, RBCO is required by federal law to belong to the
Securities Investor Protection Corp. ("SIPC"). Currently, all members, including
RBCO, pay a fixed annual assessment of $150. However, should the SIPC fund fall
below a certain minimum amount, as it did in 1983, members are required to pay
annual assessments in amounts (based upon adjusted gross revenues) necessary to
restore the fund. The first $500,000 of insurance protection is provided by SIPC
and the balance to $150.0 million is provided by RBCO's clearing broker under a
separate policy issued by a private insurer. There is a limitation of $100,000
on claims for cash balances.
RBCO is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934 which requires that RBCO's aggregate
indebtedness shall not exceed 15 times net capital as defined under such
provision. Additionally, RBCO, as a market marker, 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 RBCO, not to exceed $1.0 million. At December 31, 1998, RBCO's regulatory net
capital was approximately $12.1 million, which exceeded minimum net capital rule
requirements by $11.1 million.
RBCO 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, RBCO
safekeeps and redeems municipal bond coupons for the benefit of its customers.
Accordingly, RBCO 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, 1998.
NEW ACCOUNTING STANDARDS AND POLICIES
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") was issued in June
1998. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as:
(a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm
commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or
(c) a hedge of the foreign currency exposure of a net investment in
a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. For a derivative designated as hedging the exposure to
changes in the fair value of a recognized asset or liability or a firm
commitment (referred to as a fair value hedge), the gain or loss is recognized
in earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. The effect of that
accounting is to reflect in the results of operations the extent to which the
hedge is not effective in achieving offsetting changes in fair value. For a
derivative designated as hedging the exposure to variable cash lows of a
forecasted transaction (referred to as a cash flow hedge), the effective portion
of the derivative as a gain or loss is initially reported as a component of
other comprehensive income (outside the results of operations ) and subsequently
reclassified into earnings when the forecasted transaction affects the results
of operations . The ineffective portion of the gain or loss is reported in the
results of operations immediately. For a derivative designated as hedging the
foreign currency exposure of a net investment in a foreign operation, the gain
or loss is reported in other comprehensive income (outside the results of
operations) as part of the cumulative translation adjustment. The accounting for
a fair value hedge described above applies to a derivative designated as a hedge
of the foreign currency exposure of an unrecognized firm commitment or an
available-for-sale security. Similarly, the accounting for a cash flow hedge
described above applies to a derivative designated as a hedge of the foreign
currency exposure of a foreign-currency-denominated forecasted transaction. For
a derivative not designated as a hedging instrument, the gain or loss is
recognized in the results of operations in the period of change.
Under this statement, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated and documented pursuant to the provisions of
this statement. This statement should not be applied retroactively to financial
statements of prior periods. The Company intends to implement FAS 133, as of
January 1, 2000 and its potential impact on the Statement of Operations and
Statement of Condition is currently under review by management.
Financial Accounting Standards Board Statement No. 134 "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" was issued in October 1998. This
statement requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interest based on its ability and
intent to sell or hold those investments. This statement shall be effective for
the first fiscal quarter beginning after December 15, 1998. The Company
implemented this statement on January 1, 1999 and this statement did not have a
material impact on the Company's financial condition or results of operations.
Financial Accounting Standards Board Statement No. 135 "Rescission of
FASB Statement No. 75 and Technical Corrections" was issued in February 1999.
This statement rescinds certain accounting requirements for pension plans to
state and local governmental units and amends other existing authoritative
literature to make various technical corrections, clarify meanings, or describe
applicability under changed conditions. The statement is effective for financial
statements issued for fiscal years ending after February 15, 1999. This
statement will not have a material impact on the Company's financial statements.
ITEM 2. PROPERTIES
The Company's and BankAtlantic's principal and executive offices are
located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida 33304.
BankAtlantic owns five buildings and leases four locations which house its back
office operations. At December 31, 1998, the aggregate net book value of
premises and equipment, including leasehold improvements and equipment, was
$58.1 million. The following table sets forth at December 31, 1998 owned and
leased branch offices:
Miami- Palm Wal-Mart Tampa
Dade Broward Beach SuperStores Bay
---- ------- ----- ----------- ---
Owned full-service branches 2 14 9 0 2
Leased full-service branches 9 11 4 16 3
- -- - -- -
Total full-service branches 11 25 13 16 5
-- -- -- -- -
Lease expiration dates 1999-2005 1999-2007 1999-2003 1999-2003 2000-2003
BankAtlantic also maintains:
/bullets/ three ground leases in Broward County expiring in
1999-2072 and
/bullets/ one ground lease in Palm Beach Countyexpiring in 2000.
BankAtlantic's leased branch offices in Wal-Mart SuperStores are
located in the following Florida counties:
Brevard Orlando
Charlotte Osceola
Flagler Sarasota
Hernando St. John
Lee St. Lucie
Manatee Volusia
RBCO's office space includes leased facilities in the following cities
and states with year of lease expiration:
Lease
Location Expiration
-------- ----------
Livingston, New Jersey 2007
Shrewsbury, New Jersey 2002
Bala Cynwyd, Pennsylvania 1999
West Palm Beach, Florida 1999
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to BankAtlantic's business to which the Company or
BankAtlantic is a party:
Jose Daniel Ruiz Coronado vs. BankAtlantic Bancorp, Inc. in the United
States District Court for the Southern District of Florida. Case No.
96-7115-Civ-Gonzalez. This action was filed as a purported class action on
September 27, 1996 on behalf of certain account holders of BankAtlantic whose
bank accounts were seized by federal authorities. The complaint alleges that the
financial privacy rights of the account holders under various federal and state
laws were violated. On January 22, 1997, the Court entered an order dismissing
the complaint against BankAtlantic. The Court found that BankAtlantic complied
with applicable federal statutes. On appeal, the trial court decision was
reversed and the action remanded on the grounds that a factual basis must be
shown to establish the right to immunity. BankAtlantic filed a motion for
summary judgment asserting the same grounds as the motion to dismiss but
providing the factual basis for the immunity. On January 27, 1999 the Court
granted BankAtlantic's motion for summary judgment and on January 31, 1999
Plaintiff filed a motion for relief from such order. BankAtlantic has responded
to Plaintiff's motion, objecting in part and recommending an alternative
procedure from that requested by Plaintiff. On March 10, 1999, the Court denied
Plaintiff's motion for determination that the action is maintainable as a class
action. The Court also granted Plaintiff's motion for relief on BankAtlantic's
motion for summary judgment. Accordingly, the January 27, 1999 Court Order
granting BankAtlantic's motion for summary judgment was vacated. Plaintiff' was
directed to respond to BankAtlantic's motion for summary judgment within 30 days
of March 10, 1999.
In Re Sterling Resources - Two actions were filed in New Jersey. One of the
actions was brought on behalf of the State of New Jersey and was resolved in
1995. The other action, entitled - Frances Scott, on behalf of herself and all
other similarly situated against Mayflower Home Improvement Corp., EquiCredit
Corporation of America, Bernard Perry, Gino Ciuffetelli, Hyman Beyer, Jeffrey
Beyer, Bruce Beyer, MNC Credit Corp., Shawmut Bank, First Tennessee Bank, CIT
Group/Credit Finance, Inc., Security Pacific Financial Services, Inc., Jerome
Goldman, BankAtlantic, FSB., Michael Bisceglia and Gerald Annabel, was filed in
the Superior Court of New Jersey, Law Division-Passaic County-Docket No:
PAS-L-2628-95, Honorable Frank M. Donato, J.S.C. and was commenced immediately
after the resolution of the State of New Jersey action. This action purported to
be a class action on behalf of the named and unnamed plaintiffs that may have
obtained loans from dealers who subsequently sold the loans to financial
institutions, including BankAtlantic. This action sought, among other things,
recision of the loan agreements and damages. In November 1995, the court in this
action entered an order dismissing the complaint against BankAtlantic;
plaintiff's appealed this ruling. In January 1996, the Appellate Court reversed
the lower court's decision and remanded the case back to the trial court to
determine whether the action could be maintained as a class action. The reversal
was without prejudice to BankAtlantic's right to renew their summary judgment
motion after the trial court made a determination as to plaintiff's ability to
maintain this case as a class action. In December 1997, the trial court denied
the plaintiff's motion for class certification and in January 1998 granted
BankAtlantic's summary judgment motion. The Plaintiffs have appealed the order
to the Appellate Division, which decline to hear the interlocutory appeal.
Plaintiffs appealed that decision to the New Jersey Supreme Court, which
reversed the Appellate Division's decision refusing to consider the appeal and
ordered the Appellate Division to render a decision with respect to the merits
of Plaintiff's class certification motion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Class A common stock is quoted on the New York Stock Exchange
under the symbol "BBX" and the Company's Class B common stock is quoted on the
Nasdaq National Market under the symbol "BANC". On February 26,1999 there were
approximately 1,220 record holders of the Class A common stock and 25,802,978
shares issued and outstanding and 605 record holders of the Class B common stock
and 10,359,994 shares issued and outstanding.
The following table sets forth, for the periods indicated, the high and low
closing sale prices of the Class A common stock and the Class B common stock:
Class A Common Class B Common
Stock Price Stock Price
------------------- -----------------
High Low High Low
- --------------------------------------------------------------------------------
For the Year ended December 31, 1998 $14 3/4 $ 5 $ 15 1/2 $ 6 1/4
Fourth Quarter .................... 8 5 9 7/8 6 1/4
Third Quarter ..................... 12 1/16 7 13 8 1/2
Second Quarter .................... 14 3/8 11 3/16 15 1/2 12 1/4
First Quarter ..................... 14 3/4 11 35/64 15 3/8 11 13/32
- --------------------------------------------------------------------------------
For the Year ended December 31, 1997 13 1/16 6 9/16 13 3/8 6 5/8
Fourth Quarter .................... 13 1/16 10 1/2 13 3/8 10 11/16
Third Quarter ..................... 12 13/16 9 1/16 12 3/16 9 9/16
Second Quarter .................... 9 7 5/16 9 1/4 7 3/4
First Quarter ..................... 8 7/16 6 9/16 8 3/4 6 5/8
On December 31, 1998, the last sale price of the Class A common stock as
reported by the New York Stock Exchange was $6.44 per share, and the last sale
price of the Class B common stock as reported by the Nasdaq National Market was
$7.13 per share.
On July 3, 1996, the Company consummated a public offering of $57.5 million
aggregate principal amount of 6 3/4% Convertible Subordinated Debentures due
July 1, 2006 (the "6 3/4% Debentures"). The 6 3/4% Debentures are convertible
into shares of Class A common stock at an exercise price of $6.55 per share.
The Company's 6 3/4% Debentures are quoted on the Nasdaq SmallCap Market
under the symbol "BANCG". On December 31, 1998 $51.2 million aggregate principal
amount of the 6 3/4% Debentures were outstanding. The following table sets
forth, for the periods indicated, the high and low closing sale prices as
reported by the Nasdaq SmallCap Market for the 6 3/4% Debentures.
High Low
----------------------------------------------------------------
For the Year Ended December 31, 1998 $ 215 $ 96
Fourth Quarter .................... 117 96
Third Quarter ..................... 178 117
Second Quarter .................... 208 176 1/2
First Quarter ..................... 215 182
---------------------------------------------------------------
For the Year Ended December 31, 1997 $ 199 $109 3/4
Fourth Quarter .................... 196 164
Third Quarter ..................... 199 142
Second Quarter .................... 143 1/4 121
First Quarter ..................... 131 109 3/4
On November 26, 1997, the Company consummated a public offering of $100
million aggregate principal amount of 5 5/8% Convertible Subordinated Debentures
due December 1, 2007, ("the 5 5/8% Debentures"). The 5 5/8% Debentures are
convertible into shares of Class A common stock at an exercise price of $12.94
per share. The Company's 5 5/8% Debentures are quoted on the Nasdaq SmallCap
Market under the symbol "BANCH". On December 31, 1998 there was $100.0 million
aggregate principal amount of 5 5/8% Debentures issued and outstanding. The
following table sets forth, for the periods indicated, the high and low closing
sale prices as reported by the Nasdaq SmallCap Market for the 5 5/8% Debentures.
High Low
- --------------------------------------------------------------
For the Year Ended December 31, 1998 $122 3/16 $ 71 1/2
Fourth Quarter .................... 89 1/2 71 1/2
Third Quarter ..................... 109 91 1/2
Second Quarter .................... 121 1/4 107 3/4
First Quarter ..................... 122 3/16 107 1/4
-------------------------------------------------------------
For the Year Ended December 31, 1997 $108 $ 100 1/4
Fourth Quarter .................... 108 100 1/4
See Regulation and Supervision "Restrictions on Dividends and Other Capital
Distributions" and "Management's Discussion and Analysis - Liquidity and Capital
Resources" for a description of certain limitations on the payment of dividends
by BankAtlantic. Subject to the results of operations and regulatory capital
requirements, the Company has indicated that it will seek to declare regular
quarterly cash dividends on its common stock. The declaration and payment of
dividends will depend upon, among other things, the results of operations,
financial condition and cash requirements of the Company and on the ability of
BankAtlantic to pay dividends or otherwise advance funds to the Company, which
in turn is subject to OTS regulations and is based upon BankAtlantic's
regulatory capital levels and net income.
Cash Dividends Per Cash Dividends Per
Share of Class B Share of Class A
Common Stock Common Stock
- ----------------------------------------------------------------------------
Fiscal Year Ended December 31, 1998 $ 0.0980 $ 0.1078
Fourth Quarter .................. $ 0.0250 $ 0.0275
Third Quarter ................... $ 0.0250 $ 0.0275
Second Quarter .................. $ 0.0240 $ 0.0264
First Quarter ................... $ 0.0240 $ 0.0264
- ----------------------------------------------------------------------------
Fiscal Year Ended December 31, 1997 $ 0.0852 $ 0.0942
Fourth Quarter .................. $ 0.0240 $ 0.0264
Third Quarter ................... $ 0.0240 $ 0.0264
Second Quarter .................. $ 0.0186 $ 0.0207
First Quarter ................... $ 0.0186 $ 0.0207
- ----------------------------------------------------------------------------
Fiscal Year Ended December 31, 1996 $ 0.07 $ 0.0828
Fourth Quarter .................. $ 0.01 $ 0.0207
Third Quarter ................... $ 0.01 $ 0.0207
Second Quarter .................. $ 0.01 $ 0.0207
First Quarter ................... $ 0.01 $ 0.0207
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been
derived from the audited Consolidated Financial Statements of the Company and
are qualified in their entirety by reference to the more detailed Consolidated
Financial Statements and Independent Auditors Reports, included elsewhere
within.
AT DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
STATEMENT OF FINANCIAL CONDITION:
Total assets ........................................ $3,788,975 $3,064,480 $2,605,527 $1,750,689 $1,539,653
Loans receivable-net (1)............................. 2,635,369 2,072,825 1,824,856 828,630 546,396
Mortgage-backed securities held to maturity ......... 0 0 0 0 573,913
Securities available for sale ....................... 597,520 607,490 439,345 691,803 53,969
Investment and trading securities, net (2)........... 81,816 60,280 54,511 49,856 211,776
Mortgage servicing rights ........................... 44,315 38,789 25,002 20,738 20,584
Cost over fair value of net assets acquired
and other intangibles ............................. 55,493 26,327 29,008 11,521 0
Deposits ............................................ 1,925,772 1,763,733 1,832,780 1,300,377 1,085,782
Subordinated debentures, notes and bonds payable .... 177,114 179,600 78,500 21,001 0
Guaranteed preferred beneficial interest in Company's
Junior Subordinated Debentures .................... 74,750 74,750 0 0 0
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase .... 1,225,165 758,923 486,288 269,222 311,879
Total stockholders' equity .......................... 240,440 207,171 147,704 120,561 105,520
(1) Includes $9.7 million and $160.1 million of banker's acceptances in 1998 and
1997.
(2) Excludes FHLB stock. Includes interest-bearing deposits in other banks,
securities purchased under agreements to resell and trading securities of
$30.0 million, $5.1 million and $9.1 million in 1998, 1997 and 1994,
respectively. At December 31, 1998, trading securities of $30.0 million
related to RBCO operations.
27
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
OPERATING RESULTS
Total interest income ................................ $ 254,138 $ 210,554 $ 152,631 $ 130,077 $ 98,549
Total interest expense ............................... 151,853 116,024 76,365 66,156 41,994
--------- --------- --------- --------- ---------
Net interest income .................................. 102,285 94,530 76,266 63,921 56,555
Provision for loan losses ............................ 21,788 11,268 5,844 4,182 2,299
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses .. 80,497 83,262 70,422 59,739 54,256
--------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Loan late fees and other loan income ................. 4,299 2,293 1,590 1,042 857
Gains on sales of loans held for sale ................ 4,104 6,820 534 395 773
Gains on sales of real estate held for sale .......... 6,055 470 0 0 0
Gains on sales of securities available for sale, net . 309 2,367 5,959 0 0
Trading securities gains (losses) .................... 898 2,463 0 589 (558)
Gain (losses) on sales of property and equipment, net (11) 852 3,061 18 272
Principal transactions ............................... 4,417 0 0 0 0
Investment banking ................................... 8,345 0 0 0 0
Commissions .......................................... 4,132 103 21 0 0
Other ................................................ 24,332 17,998 15,653 11,930 9,339
--------- --------- --------- --------- ---------
Total non-interest income ............................ 56,880 33,366 26,818 13,974 10,683
--------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation/benefits excluding RBCO and
real estate operations ............................. 45,063 37,666 30,893 24,145 20,813
Employee compensation/benefits for RBCO and real
estate operations .................................. 12,443 144 0 0 0
Occupancy and equipment .............................. 21,444 17,693 12,823 10,243 7,783
SAIF special assessment .............................. 0 0 7,160 0 0
Federal insurance premium ............................ 1,042 1,084 2,495 2,750 2,673
Advertising and promotion ............................ 5,749 2,203 2,061 2,142 1,492
Foreclosed asset activity, net ....................... 754 82 (725) (3,178) (2,290)
Pension curtailment gain, net ........................ (3,128) 0 0 0 0
Restructuring charges and write-downs ................ 2,565 0 0 0 0
Other excluding RBCO and real estate operations ...... 26,952 18,595 13,514 12,683 9,235
Other for RBCO and real estate operations ............ 7,781 255 0 0 0
--------- --------- --------- --------- ---------
Total non-interest expense ........................... 120,665 77,722 68,221 48,785 39,706
--------- --------- --------- --------- ---------
Income before income taxes and discontinued operations 16,712 38,906 29,019 24,928 25,233
Provision for income taxes ........................... 6,526 15,248 11,380 8,664 9,174
--------- --------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS ................ 10,186 23,658 17,639 16,264 16,059
Income (loss) from operations of mortgage servicing
business ........................................... (18,220) 4,111 1,372 2,155 776
--------- --------- --------- --------- ---------
Net income (loss) .................................... (8,034) 27,769 19,011 18,419 16,835
--------- --------- --------- --------- ---------
Total dividends on non-cumulative preferred stock .... 0 0 0 2,030(1) 880
--------- --------- --------- --------- ---------
Net income (loss) available for common shares ........ $ (8,034) $ 27,769 $ 19,011 $ 16,389 $ 15,955
========= ========= ========= ========= =========
28
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
CLASS A COMMON SHARES
Basic earnings per share from continuing operations... $ 0.30 $ 0.84 $ 0.59 $ N/A $ N/A
Basic earnings (loss) per share from
discontinued operations............................. (0.54) 0.14 0.05 N/A N/A
----------- ----------- ----------- ----------- -----------
Basic earnings (loss) per share....................... $ (0.24) $ 0.98 $ 0.64 $ N/A $ N/A
=========== =========== =========== =========== ===========
Diluted earnings per share from continuing operations. $ 0.29 $ 0.67 $ 0.54 $ N/A $ N/A
Diluted earnings (loss) per share from discontinued
operations.......................................... (0.51) 0.11 0.04 N/A N/A
----------- ----------- ----------- ----------- -----------
Diluted earnings (loss) per share..................... $ (0.22) $ 0.78 $ 0.58 $ N/A $ N/A
=========== =========== =========== =========== ===========
Basic weighted average number of common shares
outstanding ........................................ 24,161,923 18,029,784 17,616,000 N/A N/A
=========== =========== =========== =========== ===========
Diluted weighted average number of common and common
equivalent shares outstanding....................... 24,792,545 27,893,534 21,968,058 N/A N/A
=========== =========== =========== =========== ===========
Actual common shares outstanding at period end ....... 26,799,368 21,509,159 18,128,782 N/A N/A
=========== =========== =========== =========== ===========
CLASS B COMMON SHARES
Basic earnings per share from continuing operations .. $ 0.27 $ 0.81 $ 0.68 $ 0.56 $ 0.61
Basic earnings (loss) per share from
discontinued operations............................. (0.49) 0.13 0.04 0.08 0.03
----------- ----------- ----------- ----------- -----------
Basic earnings (loss) per share ...................... $ (0.22) $ 0.94 $ 0.72 $ 0.64(1) $ 0.64
=========== =========== =========== =========== ===========
Diluted earnings per share from continuing operations. $ 0.26 $ 0.67 $ 0.62 $ 0.54 $ 0.59
Diluted earnings (loss) per share from discontinued
operations.......................................... (0.48) 0.10 0.04 0.08 0.03
----------- ----------- ----------- ----------- -----------
Diluted earnings (loss) per share .................... $ (0.22) $ 0.77 $ 0.66 $ 0.62(1) $ 0.62
=========== =========== =========== =========== ===========
Basic weighted average number of common shares
outstanding ........................................ 10,483,522 10,649,135 10,589,000 25,411,604 24,747,116
=========== =========== =========== =========== ===========
Diluted weighted average number of common and common
equivalent shares outstanding ...................... 11,383,033 11,765,385 11,576,500 26,441,902 25,610,718
=========== =========== =========== =========== ===========
Actual common shares outstanding at period end........ 10,356,431 10,690,231 10,542,116 25,861,814 24,798,811
=========== =========== =========== =========== ===========
Book value per common share (all classes) $ 6.47 $ 6.43 $ 5.15 $ 4.66 $ 3.92
=========== =========== =========== =========== ===========
Tangible book value per common share (all classes) $ 4.98 $ 5.62 $ 4.14 $ 4.22 $ 3.92
=========== =========== =========== =========== ===========
29
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
OTHER FINANCIAL AND STATISTICAL DATA
PERFORMANCE RATIOS:
Return on average assets(2)(8) ................... 0.28% 0.86% 0.88% 0.94% 1.12%
Return on average equity(2)(8) ................... 4.39 14.85 13.07 14.16 16.28
Cash dividend payout ratio(3)(8).................. 37.35 11.03 12.24 12.22 10.38
Average equity to average assets.................. 6.48 5.77 6.70 6.66 6.86
Average yield on loans, mortgage-backed
securities, tax certificates and
investment securities........................... 7.83 8.29 8.23 8.16 7.45
Average cost of deposits and borrowings(8)........ 5.00 4.88 4.46 4.59 3.48
Net interest spread -- during period(4)(8)........ 2.83 3.41 3.77 3.57 3.97
Interest rate margin -- during period(4)(8)....... 3.12 3.72 4.12 4.01 4.28
Efficiency ratio(5)(8)............................ 75.81 60.77 66.12 62.63 59.05
OTHER FINANCIAL DATA:
Cash dividends per common share Class A(7)........ $ 0.1078 $ 0.094 $ 0.082 $ N/A $ N/A
Cash dividends per common share Class B........... $ 0.0980 $ 0.085 $ 0.073 $ 0.068 $ 0.064
ASSET QUALITY RATIOS:
Non-performing assets as a percent of total
loans, tax certificates and real estate owned... 1.27% 1.36% 1.26% 2.37% 3.66%
Net charge-offs as a percent of average loans..... 0.51 0.44 0.47 0.45 0.59
Loan loss allowance as a percent of total
loans including banker's acceptances............ 1.42 1.35 1.39 2.24 2.89
Loan loss allowance as a percent of
non-performing loans............................ 142.95 156.18 167.37 149.49 134.87
Non-performing loans as a percent of
total loans..................................... 0.99 0.87 0.83 1.50 2.14
Non-performing assets as a percent of
total assets.................................... 0.92 0.96 0.93 1.23 1.51
RATIO OF EARNINGS TO FIXED CHARGES:(6)(8)
Including interest on deposits.................... 1.11 1.33 1.37 1.37 1.59
Excluding interest on deposits.................... 1.19 1.80 2.26 2.22 3.33
NUMBER OF:
Offices (all full-service)........................ 70 65 56 43 32
Branches with ATMs................................ 70 65 56 43 29
Non-Branch ATMs................................... 676 184 164 154 153
Deposit accounts.................................. 223,792 229,272 218,061 120,067 110,002
Loans ............................................ 48,483 39,427 37,707 23,172 15,319
(1) Includes $677,000 of regular dividends and $1.4 million which relates to
the redemption of the preferred stock. The excess of the redemption price
above the recorded amount of preferred stock is considered a preferred
stock dividend. The October 1995 preferred stock redemption for the year
ended December 31, 1995 resulted in a $0.05 reduction of basic and diluted
earnings per share.
(2) ROA and ROE excluding the $7.2 million SAIF one-time special assessment
would have been 1.09% and 16.33%, respectively, for the year ended December
31, 1996.
(3) Cash dividends declared on common shares divided by net income available
for common shares. The cash dividend payout ratio for the year ended
December 31, 1995 excluding the October 1995 preferred stock redemption was
11.16%.
(4) Interest rate spread is equal to total interest earned on interest earning
assets divided by average interest earning assets, less the total of
interest expense divided by average interest-bearing liabilities. Interest
rate margin is equal to total interest earned on average interest earning
assets divided by average interest earning assets less the total of
interest expense divided by average interest earning assets. Interest rate
spread and margin during periods is based upon daily average balances of
interest-bearing assets and liabilities.
(5) The efficiency ratio is operating expenses (non-interest expenses) as a
percent of net interest income plus non-interest income. Excluding the $7.2
million SAIF one-time special assessment, this ratio for the year ended
December 31, 1996 would have been 62.79%.
(6) Represents earnings before fixed charges, income taxes, and extraordinary
items and non-cumulative preferred stock dividends and redemption. Fixed
charges include interest expense (inclusive or exclusive of interest on
deposits as indicated).
(7) Prior to 1996 there were no Class A common shares outstanding. All shares
outstanding in 1995 were Class B common shares.
(8) Restated for continuing operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
The Company is a unitary savings bank holding company. The Company's
principal assets include the capital stock of BankAtlantic and RBCO. Under
applicable law, the Company generally has broad authority with few restrictions
to engage in various types of business activities. The Company's recent
activities include the acquisition of RBCO on June 30, 1998 and the acquisition
of LTI on March 20, 1998. LTI originates equipment and vehicle leases generally
for amounts up to $400,000 . LTI is now operated as a wholly owned subsidiary of
BankAtlantic. During the latter part of 1997, BankAtlantic, utilizing capital
contributed by the Company, acquired SLWHC and subsidiaries, a developer of the
master planned community of St. Lucie West located in St. Lucie County, Florida.
BDC has also invested in six real estate joint ventures. Five of these joint
ventures are in various stages of development.
The Company requires funds to pay certain operating expenses, payments
required for the 9 1/2% Cumulative Trust Preferred Securities ("Trust Preferred
Securities"), interest on the 5 5/8%, 6 3/4% and 9% Debentures and regular
quarterly cash dividend payments to its common shareholders, subject to
regulatory restrictions. It is anticipated that funds for payment of these
items, which currently aggregate approximately $22.0 million, will be provided
by dividends received from BankAtlantic.
Results of Operations
(In thousands, except per share data) For the Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
Income from continuing operations ............................ $ 10,186 $ 23,658 $ 17,639
Income (loss) from discontinued operations net of taxes ...... (18,220) 4,111 1,372
---------- ---------- ----------
Net income (loss) ............................................ $ (8,034) $ 27,769 $ 19,011
========== ========== ==========
CLASS A COMMON SHARES
Basic earnings per share from continuing operations ......... $ 0.30 $ 0.84 $ 0.59
Basic earnings (loss) per share from discontinued operations . (0.54) 0.14 0.05
---------- ---------- ----------
Basic earnings (loss) per share .............................. $ (0.24) $ 0.98 $ 0.64
========== ========== ==========
Diluted earnings per share from continuing operations ....... $ 0.29 $ 0.67 $ 0.54
Diluted earnings (loss) per share from discontinued operations (0.51) 0.11 0.04
---------- ---------- ----------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.78 $ 0.58
========== ========== ==========
Basic weighted average number of common shares outstanding ... 24,161,923 18,029,784 17,616,000
========== ========== ==========
Diluted weighted average number of common and common
equivalent shares outstanding ............................... 24,792,545 27,893,534 21,968,058
========== ========== ==========
CLASS B COMMON SHARES
Basic earnings per share from continuing operations ......... $ 0.27 $ 0.81 $ 0.68
Basic earnings (loss) per share from discontinued operations . (0.49) 0.13 0.04
---------- ---------- ----------
Basic earnings (loss) per share .............................. $ (0.22 $ 0.94 $ 0.72
========== ========== ==========
Diluted earnings per share from continuing operations ....... $ 0.26 $ 0.67 $ 0.62
Diluted earnings (loss) per share from discontinued operations (0.48) 0.10 0.04
---------- ---------- ----------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.77 $ 0.66
========== ========== ==========
Basic weighted average number of common equivalent shares
outstanding ................................................ 10,483,522 10,649,135 10,589,000
========== ========== ==========
Diluted weighted average number of common and common
equivalent shares outstanding .............................. 11,383,033 11,765,385 11,576,500
========== ========== ==========
Continuing Operations --Income from continuing operations decreased by 57%
during the year ended December 31, 1998 compared to the same period during 1997
whereas income from continuing operations increased by 34% during the year ended
December 31, 1997 compared to the same period during 1996. The primary reasons
for the decline in income from continuing operations during 1998 compared to
1997 was:
1) a significant increase in the provision for loan losses resulting from
recent delinquency trends in the consumer indirect and small business
loan portfolios and growth in small business loans,
2) an increase in employee compensation and benefits (excluding RBCO and
real estate operations) reflecting the hiring of more than 100 new
officers and employees to expand BankAtlantic's product lines and
improve customer service on existing product lines,
3) higher occupancy expenses due to the opening of 10 branches and the
expansion of BankAtlantic's ATM network ,
4) increased advertising and promotion expenses to introduce
BankAtlantic's new corporate logo and to promote new product lines,
5) increased expenses associated with the higher administrative costs of
managing a larger branch and ATM network , and
6) restructuring charges and write-downs.
The above items were partially offset by an increase in net interest income
relating to the larger loan portfolio, income from real estate operations and a
net pension curtailment gain.
Included in the Company's statement of operations for the year ended
December 31, 1998 was a $3.1 million net pension curtailment gain and a $2.6
million restructuring charge. The pension curtailment gain net resulted from the
freezing of benefits relating to the Company's defined benefit pension plan and
the termination of employees at the end of 1998. The restructuring charges
relating to continuing operations was for:
1) severance and benefits relating to 115 full time employees that
were terminated,
2) write-down of assets associated with facility closures, and
3) liabilities established for lease contracts on closed branches.
Included in the restructuring was the elimination of indirect consumer loan
originations, the closing and merging of branches and the consolidation of
mortgage banking operations in the Tampa Bay market into a centralized
processing operation.
The primary reasons for the increase in income from continuing operations
during 1997 compared to 1996 was:
1) an increase in net interest income resulting from the purchase of
wholesale residential loans and the October 1996 acquisition of
BNA,
2) increased noninterest income from trading securities gains, gains
on sales of loans held for sale, and gains on sales of securities
available for sale, and
3) higher fee income from loans, deposits, and ATM customers due to
an expanded branch and ATM network and a larger loan portfolio.
Discontinued Operations -- Historically, the MSB has been a positive source
of income for the Company by generating net fee income and by providing a
substantial interest free source of funds from escrow balances, as well as
periodic gains from servicing portfolio sales. The rapidly changing interest
rate environment during 1998, coupled with competition and technological
advances, produced a refinancing climate that had not been experienced in recent
years and, as a result, caused significant volatility. The effect of significant
prepayments of loans underlying MSRs and an increase in the anticipated rate of
future prepayments resulted in the establishment at September 30, 1998 of a $15
million valuation allowance for impairment of MSRs. No such allowance was
required at the prior quarter end when anticipated prepayments were more
comparable to recent historical rates. The Company determined in December 1998
to discontinue the MSB. Included in the loss from discontinued operations during
the year ended December 31, 1998 was a $6.1 million provision for the disposal
of the MSB (net of income taxes). The remaining loss from discontinued
operations during 1998 primarily resulted from rapidly declining interest rates
during 1998 causing prepayments and declines in the value of the MSR asset.
The increase in income from discontinued operations during the year ended
December 31, 1997 compared to the 1996 period resulted from higher gains on the
sale of MSRs.
NET-INTEREST INCOME
The following table summarizes net interest income before capitalized
interest expense:
YIELDS EARNED AND RATES PAID (D)
For the Years Ended
---------------------------------------------------------------
December 31, 1998 December 31, 1997
----------------------------- ----------------------------
(Dollars in thousands) Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
--------- --------- ----- --------- --------- -----
INTEREST EARNING ASSETS
LOANS: (A)
Residential real estate .......... $ 164,562 $ 13,458 8.18% $ 397,240 $ 32,177 8.10%
Purchased residential real estate 1,313,309 92,720 7.06 589,888 45,440 7.70
Commercial real estate ........... 557,247 52,982 9.51 544,264 53,943 9.91
Consumer ......................... 325,736 31,678 9.73 338,568 32,751 9.67
International .................... 39,258 2,577 6.57 177 14 7.91
Lease financing .................. 14,299 2,365 16.54 0 0 0.00
Commercial business .............. 125,860 12,314 9.78 69,923 6,887 9.84
--------- --------- ----- --------- --------- -----
Total loans ....................... 2,540,271 208,094 8.19 1,940,060 171,212 8.83
--------- --------- ----- --------- --------- -----
Banker's acceptances .............. 16,790 1,062 6.33 7,966 473 5.94
--------- --------- ----- --------- --------- -----
Securities available for sale(B) 583,753 34,924 5.98 506,568 31,177 6.15
--------- --------- ----- --------- --------- -----
Investment securities (C) ......... 102,726 9,909 9.65 83,898 7,604 9.06
Federal funds sold ................ 2,688 149 5.54 1,401 88 6.28
--------- --------- ----- --------- --------- -----
Total investment securities ....... 105,414 10,058 9.54 85,299 7,692 9.02
--------- --------- ----- --------- --------- -----
Total interest earning assets...... 3,246,228 254,138 7.83% 2,539,893 210,554 8.29%
--------- --------- ----- --------- --------- -----
NON-INTEREST EARNING ASSETS
Total non-interest earning assets.. 339,241 219,359
--------- ---------
Total assets ...................... $3,585,469 $2,759,252
========= =========
Deposits:
Savings ......................... $ 234,198 $ 7,018 3.00% $ 220,821 $ 6,617 3.00%
NOW, money funds and checking 551,344 14,038 2.55 534,428 13,970 2.61
Certificate accounts ............ 845,918 45,658 5.40 875,625 47,644 5.44
--------- --------- ----- --------- --------- -----
Total interest bearing deposits .. 1,631,460 66,714 4.09 1,630,874 68,231 4.18
Securities sold under agreements
to repurchase and fed funds
purchased........................ 270,277 13,767 5.09 169,477 8,906 5.25
Advances from FHLB ............... 901,324 52,763 5.85 441,610 27,345 6.19
Subordinated debentures .......... 178,209 12,446 6.98 86,811 6,744 7.77
interest in Company's Junior
Subordinated Debentures ......... 74,750 7,197 9.63 50,041 4,798 9.59
--------- --------- ----- --------- --------- -----
Total interest bearing liabilities 3,056,020 152,887(E) 5.00 2,378,813 116,024 4.88
--------- --------- ----- --------- --------- -----
Demand deposit and escrow accounts 233,099 186,814
Other liabilities ............... 64,143 34,345
--------- ---------
Total non-interest bearing
liabilities..................... 297,242 221,159
--------- ---------
Stockholders' equity ............. 232,207 159,280
--------- ---------
Total liabilities and stockholders'
equity .......................... $3,585,469 $2,759,252
========= =========
Net interest income/net interest
spread (E) ...................... $ 101,251 2.83% $ 94,530 3.41%
========= ===== ========= =====
Interest income/interest earning
assets ......................... 7.83% 8.29%
Interest expense/interest earning
assets .......................... 4.71 4.57
----- -----
Net interest margin .............. 3.12% 3.72%
===== =====
For the Years Ended
-----------------------------
December 31, 1996
----------------------------
(Dollars in thousands) Average Revenue/ Yield/
Balance Expense Rate
--------- --------- -----
INTEREST EARNING ASSETS
LOANS: (A)
Residential real estate .......... $ 279,520 $ 23,142 8.28%
Purchased residential real estate 147,452 10,435 7.08
Commercial real estate ........... 442,204 43,700 9.88
Consumer ......................... 242,876 24,285 10.00
International .................... 0 0 0.00
Lease financing .................. 0 0 0.00
Commercial business .............. 65,273 6,360 9.74
--------- --------- -----
Total loans ....................... 1,177,325 107,922 9.17
--------- --------- -----
Banker's acceptances .............. 329 22 6.69
--------- --------- -----
Securities available for sale(B) 605,766 38,159 6.30
--------- --------- -----
Investment securities (C) ......... 68,996 6,419 9.30
Federal funds sold ................ 2,670 109 4.08
--------- --------- -----
Total investment securities ....... 71,666 6,528 9.11
--------- --------- -----
Total interest earning assets...... 1,855,086 152,631 8.23%
--------- -------- ----
NON-INTEREST EARNING ASSETS
Total non-interest earning assets.. 160,588
---------
Total assets ...................... $2,015,674
=========
INTEREST BEARING LIABILITIES
Deposits:
Savings ......................... $ 118,306 $ 2,150 1.81%
NOW, money funds and checking 478,127 11,772 2.46
Certificate accounts ............ 738,254 40,724 5.50
--------- -------- ----
Total interest bearing deposits... 1,334,687 54,646 4.09
--------- -------- ----
Securities sold under agreements
to repurchase and fed funds
purchased........................ 174,787 8,480 4.85
Advances from FHLB ............... 152,138 9,221 6.04
Subordinated debentures .......... 49,750 4,018 8.05
Guaranteed preferred beneficial
interest in Company's Junior
Subordinated Debentures ......... 0 0 0.00
--------- -------- ----
Total interest bearing liabilities 1,711,362 76,365 4.46
--------- -------- ----
NON-INTEREST BEARING LIABILITIES
Demand deposit and escrow accounts 153,928
Other liabilities ............... 15,396
--------
Total non-interest bearing
liabilities..................... 169,324
---------
Stockholders' equity ............. 134,988
---------
Total liabilities and stockholders'
equity .......................... $2,015,674
=========
Net interest income/net interest
spread (E) ...................... $ 76,266 3.77%
======= ====
MARGIN
Interest income/interest earning
assets ......................... 8.23%
Interest expense/interest earning
assets .......................... 4.11
-----
Net interest margin .............. 4.12%
=====
(A) Includes non-accruing loans.
(B) Average balances were based on amortized cost.
(C) Includes securities purchased under agreements to resell, tax
certificates and interest-bearing deposits and trading securities.
(D) Applicable amounts and rates have been adjusted for discontinued
operations.
(E) Does not reflect reduction due to capitalized interest on investments in
and advances to real estate joint ventures.
The following table summarizes the changes in net interest income before
capitalized interest expense: (in thousands)
Year Ended Year Ended
December 31, 1998 December 31, 1997
Compared to Year Ended Compared to Year Ended
December 31, 1997 (C) December 31, 1996
--------------------- -----------------
Volume (A) Rate Total Volume (A) Rate Total
---------- ------- -------- ---------- ------- --------
Increase (decrease) due to:
- ---------------------------
Loans ...................................... $ 49,298 $(12,416) $ 36,882 $ 67,351 $ (4,061) $ 63,290
Banker's acceptances ....................... 558 31 589 453 (2) 451
Securities available for sale .............. 4,608 (861) 3,747 (6,101) (881) (6,982)
Investment securities (B) .................. 1,810 495 2,305 1,348 (163) 1,185
Federal funds sold ......................... 71 (10) 61 (80) 59 (21)
------- -------- -------- -------- ------- -------
Total earning assets ....................... 56,345 (12,761) 43,584 62,971 (5,048) 57,923
------- ------- -------- -------- ------- -------
Deposits:
Savings .................................. 401 0 401 3,063 1,404 4,467
NOW, money funds, and checking ........... 389 (321) 68 1,481 717 2,198
Certificate accounts ..................... (1,636) (350) (1,986) 7,355 (435) 6,920
------ ------- ------ ------- ------ ------
Total deposits ............................. (846) (671) (1,517) 11,899 1,686 13,585
------ ------- ------ ------- ------ ------
Securities sold under agreements to repurchase 5,132 (271) 4,861 (273) 699 426
Advances from FHLB ......................... 26,919 (1,501) 25,418 17,893 231 18,124
Subordinated debentures..................... 6,388 (686) 5,702 2,866 (140) 2,726
Guaranteed preferred beneficial interest in
Company's Junior Subordinated Debentures... 2,379 20 2,399 4,798 0 4,798
------ ------- ------- ------- ------ -------
40,818 (2,438) 38,380 25,284 790 26,074
Total interest bearing liabilities ......... 39,972 (3,109) 36,863 37,183 2,476 39,659
------ ------- ------- ------- ------ -------
Change in net interest income .............. $ 16,373 $ (9,652) $ 6,721 $ 25,788 $ (7,524) $ 18,264
======== ======= ======== ======== ======= ========
(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
and advances to real estate joint ventures.
Loan Activity -- The following table shows loan activity by major
categories for the periods indicated (in thousands):
For the Year
Ended December 31,
1998 1997 1996 1995 1994
Loan Fundings: (1)
Residential real estate loans ........... $ 144,586 $ 68,513 $ 133,184 $ 111,361 $ 40,706
Construction and development loans ...... 365,913 194,752 147,200 93,102 22,958
Commercial real estate and business loans 388,079 355,566 314,319 319,530 259,285
Small business loans .................... 135,239 20,467 0 0 0
Consumer loans (2) ...................... 165,927 161,154 154,940 114,607 45,159
Lease financing ......................... 19,214 0 0 0 0
--------- --------- --------- -------- ---------
Total loan fundings ................... 1,218,958 800,452 749,643 638,600 368,108
--------- --------- --------- -------- ---------
Purchases: (3)(4)
Residential real estate loans ........... 1,256,185 524,498 465,942 9,930 0
Commercial real estate and business loans 37,314 0 0 0 3,989
Lease financing ......................... 6,054 0 0 0 0
--------- --------- --------- -------- ---------
Total purchases ....................... 1,299,553 524,498 465,942 9,930 3,989
--------- --------- --------- -------- ---------
Total loan production ................. 2,518,511 1,324,950 1,215,585 648,530 372,097
--------- --------- --------- -------- ---------
Loan sales ................................ (279,034) (273,901) (59,408) (34,153) (38,168)
Principal reduction on loans (1) .......... (1,498,352) (947,281) (548,536) (444,867) (270,986)
Transfer to real estate owned (5) ......... (4,852) (5,076) (1,788) (1,029) (1,282)
--------- --------- --------- -------- ---------
Net loan activity ..................... $ 736,273 $ 98,692 $ 605,853 $ 168,481 $ 61,661
========= ========= ========= ======== =========
(1) Does not include banker's acceptances.
(2) Includes second mortgage loans.
(3) Does not include indirect consumer loans purchased through dealers; such
loans are included as originations.
(4) Excludes $395.0 million in 1996 of loans acquired in the BNA acquisitions.
(5) Includes foreclosures
Net interest income increased for each of the years in the three year
period ended December 31, 1998. Interest income increased by 21% during the year
ended December 31, 1998 compared to the same 1997 period and interest income
increased 38% during the year ended December 31, 1997 compared to the same 1996
period. Interest expense also increased for each of the years in the three year
period ended December 31, 1998. The increase in interest income generally
resulted from increased volume of interest earning assets, particularly higher
average loan portfolio balances partially offset by lower yields. The increased
loan average balances resulted from:
1) significant purchases of wholesale residential real estate loans, and
2) the increased funding of new loan products, such as small business and
international loans, lease financing and international banker's
acceptances.
The increased loan portfolio balances were partially offset by lower
originated residential real estate loan average balances resulting from loan
sales and principal repayments.
The lower loan yields resulted from:
1) an increase in the percentage of the loan portfolio represented by
purchased residential loans and international loans, which are lower
yielding than commercial and consumer loans,
2) a reduction in the prime interest rate as well as lower residential
loan rates resulting in the origination and purchase of loans at lower
rates than the existing portfolio, and
3) the rapid repayments of wholesale residential loans which accelerated
premium amortization.
The increase during 1998 in securities available for sale interest income
primarily resulted from higher average balances partially offset by lower
average yields compared to 1997. The higher average balances were caused by
purchases of mortgage-backed securities and REMICs during 1998. The lower yields
reflects the fact that securities were purchased at lower rates than the
existing portfolio.
The increase during 1998 compared to 1997 in investment and trading
securities interest income reflects higher average balances and yields. The
higher average balances resulted from increased FHLB stock average balances.
Increases in FHLB stock were required based on higher FHLB advance levels. The
increased investment yields reflect the purchase of tax certificates outside the
State of Florida with higher yields than the existing portfolio.
During the year ended December 31, 1997, loan, investment and trading
securities interest income increased while securities available for sale
interest income declined compared to the same 1996 period. The increase in
interest on loans during 1997 compared to 1996 was primarily due to higher
average balances, partially offset by lower average yields. The higher loan
average balances resulted from the October 1996 BNA acquisition, wholesale
residential loan purchases, and increased loan fundings.
The lower loan portfolio average yields resulted from an increase in the
percentage of lower yielding residential loans in the loan portfolio compared to
higher yielding commercial and consumer loans, and a decline in consumer and
residential loan yields based on market conditions.
The decrease in consumer loan yields reflects the origination of loans at
lower rates than the existing portfolio, and the acquisition of the BNA loan
portfolio.
The decline in residential loan yields resulted from originating loans at
lower rates than the existing portfolio due to the declining interest rate
environment during 1997.
Interest income on securities available for sale, which consisted primarily
of mortgage backed securities, declined for the year ended December 31, 1997
compared to the 1996 period due to lower average balances and yields. The lower
average balances and yields were the result of sales of mortgage backed
securities available for sale. The lower yields earned on mortgage-backed
securities reflect the prepayment of higher yielding securities and the
declining interest rate environment throughout 1997.
Total investment and trading securities interest income increased in 1997
compared to 1996 due to higher average balances partially offset by lower
average yields. The higher average balances and lower yields were primarily the
result of increased FHLB stock purchases.
During the year ended December 31, 1998, deposit expense declined while all
other categories of total interest expense increased. The decrease in interest
expense on deposits during the year ended December 31, 1998 compared to the same
period during 1997 resulted from lower yields on interest bearing deposits. The
lower yields reflect:
1) a decline in the percentage of deposits attributed to higher yielding
certificate accounts compared to lower yielding transaction accounts,
and
2) lower deposit interest rates during 1998 compared to 1997.
Interest expense on securities sold under agreements to repurchase and FHLB
advances increased during the year ended December 31, 1998 compared to the same
period during 1997 due to higher average balances partially offset by lower
yields. The higher average balances on securities sold under agreements to
repurchase were used to fund loan growth and the lower yields reflect the
declining interest rate environment during 1998. The higher FHLB advance average
balances were primarily intermediate term advances used to fund the purchase of
wholesale residential loans. The lower average rates on FHLB advances resulted
from the declining interest rate environment and the use of callable advances
which bear lower interest rates than traditional advances.
The increase during 1998 in interest expense on subordinated debentures and
guaranteed preferred beneficial interests in the Company's Junior Subordinated
Debentures resulted from the fact that $100.0 million of 5 5/8% convertible
subordinated debentures which were issued in November 1997, and $74.75 million
of Trust Preferred Securities which were issued in April 1997 were outstanding
for all of 1998.
During the year ended December 31, 1997, all categories of interest expense
increased compared to the 1996 prior period. The increased deposit interest
expense resulted from higher deposit average balances and higher rates paid on
deposits. The increased deposit average balances primarily resulted from
deposits acquired in connection with the acquisition of BNA. The higher deposit
average rates during 1997 were generally caused by higher rates paid on
transaction accounts compared to 1996 rates. The increased interest rates
reflect an increase in competition for deposits in the South Florida market,
resulting in new savings products which pay higher rates based on account
balances. During 1997, certificate account rates declined due to lower rates
paid in 1997 and run-off of a portion of the higher rate BNA certificate
accounts.
The higher interest expense on securities sold under agreements to
repurchase during the year ended December 31, 1997 compared to 1996 resulted
from higher borrowing rates, partially offset by lower average balances. The
lower average balances in 1997 of securities sold under agreements to repurchase
compared to 1996 resulted from the availability of funds provided by the
issuance of debt and equity securities. The majority of the net proceeds from
the issuance of Class A common stock and the issuance of subordinated debentures
during 1997 were used to pay down short term borrowings.
The increased interest expense on advances from FHLB during 1997 compared
to 1996 was primarily due to higher average balances and secondarily to higher
rates. During 1997, BankAtlantic used FHLB advances with expected terms of one
to six years to finance the purchase of wholesale residential loans. Average
interest rates on FHLB advances increased during 1997 compared to 1996 as a
result of the use of longer term borrowings.
The increase in interest expense on subordinated debentures and guaranteed
preferred beneficial interest in the Company's Junior Subordinated Debenture
during 1997 related to the 1996 issuance of $57.5 million of the 6 3/4%
Debentures and in 1997 of the Trust Preferred Securities and convertible
subordinated debentures noted above.
Provision for Loan Losses and Provision for (Reversal of) Losses on Real
Estate Owned
RISK ELEMENTS
December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
(Dollars in thousands)
CONTRACTUALLY PAST DUE 90
DAYS OR MORE
Small business ........................ $ 349 $ 0 $ 0 $ 0 $ 0
Commercial real estate and business (1) 2,833 647 2,961 1,536 736
-------- -------- --------- -------- --------
3,182 647 2,961 1,536 736
NON-ACCRUAL (2)
Residential ........................... 4,896 5,573 4,679 2,228 1,718
Purchased residential ................. 2,060 2,453 1,798 0 0
Commercial real estate and business ... 10,904 4,377 3,868 8,361 9,325
Small business - real estate .......... 1,416 0 0 0 0
Small business - nonmortgage .......... 187 0 0 0 0
Lease financing ....................... 893 0 0 0 0
Consumer .............................. 3,008 5,166 2,079 585 270
Tax certificates ...................... 765 880 1,835 2,044 3,578
-------- -------- --------- -------- --------
24,129 18,449 14,259 13,218 14,891
REPOSSESSED (2)
Residential real estate owned ......... 2,169 3,825 748 231 303
Commercial real estate owned .......... 3,334 3,703 4,170 6,048 6,935
Consumer .............................. 1,572 2,912 1,992 461 350
Lease financing ....................... 324 0 0 0 0
-------- -------- --------- -------- --------
7,399 10,440 6,910 6,740 7,588
-------- -------- --------- -------- --------
TOTAL NON-PERFORMING ASSETS ........... 34,710 29,536 24,130 21,494 23,215
-------- -------- --------- -------- --------
RESTRUCTURED LOANS
Commercial real estate and business ... 7 4,043 3,718 2,533 1,648
-------- -------- --------- -------- --------
TOTAL RISK ELEMENTS ................... $ 34,717 $ 33,579 $ 27,848 $ 24,027 $ 24,863
========= ========= ========= ========= =========
Total risk elements as a percentage of:
Total assets ........................ 0.92 % 1.10 % 1.07 % 1.37 % 1.61 %
========= ========= ========= ========= =========
Loans, tax certificates and net real
estate owned ........................ 1.27 % 1.55 % 1.46 % 2.65 % 3.92 %
========= ========= ========= ========= =========
TOTAL ASSETS .......................... $3,788,975 $3,064,480 $2,605,527 $1,750,689 $1,539,653
========= ========= ========= ========= =========
TOTAL LOANS, TAX CERTIFICATES
AND NET REAL ESTATE OWNED ........... $2,729,739 $2,164,965 $1,911,501 $ 905,413 $ 634,001
========= ========= ========= ========= =========
Allowance for loan losses ............. $ 37,950 $ 28,450 $ 25,750 $ 19,000 $ 16,250
========= ========= ========= ========= =========
Total tax certificates ................ $ 50,916 $ 56,162 $ 55,977 $ 51,504 $ 64,117
========= ========= ========= ========= =========
Allowance for tax certificate losses .. $ 1,020 $ 949 $ 1,466 $ 1,648 $ 2,985
========= ========= ========= ========= =========
(1) The majority of these loans have matured and the borrower continues to make
payments under the matured loan agreement. BankAtlantic is in the process
of renewing or extending these matured loans.
(2) Amounts are net of allowances for losses.
The above schedule reflects, at December 31, 1998 all loans where known
information about the possible credit problems of the borrower caused management
to have serious doubts as to the ability of the borrower to comply with present
loan repayment terms and which may result in disclosure of such loans in the
future.
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,
1998 1997 1996
------ ------- -------
Interest income which would have
been recorded ... $ 3,058 $ 2,487 $ 1,795
Interest income recognized...... (1,850) (1,548) (988)
------ ------- -------
Interest income forgone......... $ 1,208 $ 939 $ 807
====== ======= =======
Changes in the allowance for loan losses were as follows (dollars in
thousands):
For the Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
Balance, beginning of period ....................... $ 28,450 $ 25,750 $ 19,000 $ 16,250 $ 17,000
Charge-offs:
Commercial business loans ........................ (896) (180) (1,048) (382) (1,647)
Commercial real estate loans ..................... (562) (276) (266) (222) (220)
Small business - real estate ..................... (72) 0 0 0 0
Small business - nonmortgage ..................... (1,971) 0 0 0 0
Lease financing .................................. (1,233) 0 0 0 0
Consumer loan - indirect.......................... (9,446) (7,885) (4,581) (2,535) (1,154)
Consumer loans - direct .......................... (1,746) (2,809) (1,756) (2,031) (2,675)
Residential real estate loans .................... (61) (76) (67) (263) (272)
Purchased residential real estate loans .......... (108) (104) 0 0 0
------- ------- ------ ------ ------
(16,095) (11,330) (7,718) (5,433) (5,968)
------- ------- ------ ------ ------
Recoveries:
Small business - real estate ..................... 30 0 0 0 0
Lease financing .................................. 229 0 0 0 0
Commercial business loans ........................ 489 301 518 738 565
Commercial real estate loans ..................... 9 208 47 102 18
Consumer loans - indirect ........................ 1,449 1,462 382 66 1,154
Consumer loans - direct .......................... 844 791 1,277 1,153 1,182
------- ------- ------ ------ ------
3,050 2,762 2,224 2,059 2,919
------- ------- ------ ------ ------
Net charge-offs .................................... (13,045) (8,568) (5,494) (3,374) (3,049)
Additions charged to operations .................... 21,788 11,268 5,844 4,182 2,299
Allowance for loan losses acquired ................. 757 0 6,400 1,942 0
------- ------- ------ ------ ------
Balance, end of period ............................. $ 37,950 $ 28,450 $ 25,750 $ 19,000 $ 16,250
======= ======= ======= ======= =======
Allowance as a percentage of:
Total loans ...................................... 1.42% 1.35% 1.39% 2.24% 2.89%
Total loans excluding banker's acceptances ....... 1.42 % 1.47% 1.39% 2.24% 2.89%
======= ======= ======= ======= =======
Non-performing assets (1) ........................ 111.80% 99.28% 115.50% 97.69% 82.75%
======= ======= ======= ======= =======
Ratio of net charge-offs to average
outstanding loans ................................ 0.51% 0.44% 0.47% 0.45% 0.59%
======= ======= ======= ======= =======
Ratio of net charge-offs to average outstanding
loans plus banker's acceptances .................. 0.51% 0.44% 0.47% 0.45% 0.57%
======= ======= ======= ======= =======
(1) Excluding tax certificates. The allowance for tax certificates as a
percentage of total tax certificates was 2.01%, 1.69%, 2.62%, 3.20%, and
4.66%, for each of the years in the five-year period ended December 31,
1998, and as a percentage of non-performing tax certificates was 133.46%,
107.84%, 79.89% 80.63% and 83.43% at December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
The table below presents the allocation of the allowance for loan losses by
various loan classifications and sets forth the percentage of loans in each
category to gross loans excluding banker's acceptances. 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 (dollars in thousands).
December 31, 1998 December 31, 1997 December 31, 1996
---------------------------- ------------------------- ------------------------
Allocation Percent of Allocation Percent of Allocation Percent of
of gross loans of gross loans of gross loans
allowance in each allowance in each allowance in each
for loan category to for loan category to for loan category to
loss by total gross loss by total gross loss by total gross
category loans category loans category loans
---------- ----------- ----------- ----------- ----------- -----------
Commercial business ............. $ 3,242 4.14% $ 1,941 2.57% $ 4,439 3.83%
Commercial real estate .......... 11,100 27.21 9,559 33.59 6,673 35.75
Small business-real estate ...... 487 0.71 176 0.84 0 0.00
Small business-nonmortgage ...... 5,211 3.43 275 0.66 0 0.00
Lease financing ................. 1,557 0.87 0 0.00 0 0.00
Residential real estate ......... 483 5.90 1,511 9.55 3,719 22.50
Purchased residential real estate 1,645 46.53 926 36.84 146 21.02
Consumer - indirect (1) ......... 1,948 3.53 4,690 5.60 3,738 7.98
Consumer - direct (1) .......... 12,277 7.68 9,372 10.35 7,035 8.92
------ ------ ------ ------ ------- ------
$37,950 100.00% $28,450 100.00% $25,750 100.00%
====== ====== ====== ====== ====== ======
December 31, 1995 December 31, 1994
------------------------ -------------------------
Allocation Percent of Allocation Percent of
of gross loans of gross loans
allowance in each allowance in each
for loan category to for loan category to
loss by total gross loss by total gross
category loans category loans
-------- ------------ ---------- -----------
Commercial business ............. $ 3,042 6.84% $ 1,535 4.00%
Commercial real estate .......... 7,607 50.35 10,357 56.94
Residential real estate ......... 1,243 19.14 860 18.88
Purchased residential real estate 0 0.00 0 0.00
Consumer - indirect (1) ......... 3,686 12.96 1,433 10.90
Consumer - direct (1) ........... 3,422 10.71 2,065 9.28
-- ----- ----- ------ -----
$19,000 100.00% $16,250 100.00%
====== ====== ====== ======
(1) Includes second mortgage loans.
The provision for loan losses increased in each of the years in the three
years ended December 31, 1998. The higher provision for loan losses during the
year ended December 31, 1998 compared to 1997 resulted from:
1) consumer loan charge-offs primarily from the indirect consumer lending
portfolio,
2) charge-offs from small business loans which the Company began
originating during the 1997 fourth quarter,
3) charge-offs from LTI lease financing operations which was acquired in
March 1998,
4) charge-offs in commercial business loans relating to the Company's
factoring operations, and
5) a significant increase in the allowance for loan losses reflecting
recent growth in small business lending and indirect consumer and
small business delinquency trends.
Since 1987 the Company has made a number of attempts to profitably enter
the indirect consumer loan market.
From 1987 to 1992 the majority of indirect loans generated were home
improvement and automobile loans. Purchases of home improvement loans ceased in
1990 and indirect automobile lending ceased in 1992. In connection with the
acquisition of MegaBank in 1995 and the acquisition of BNA in 1996, BankAtlantic
again commenced offering indirect consumer loans, primarily automobile loans.
Throughout the 1995 to 1998 period delinquencies and charge-offs of indirect
automobile loans continued to increase in either absolute dollars or as a
percentage of the portfolio; particularly in the latter part of 1998. These
trends resulted in a further 1998 increase in losses associated with indirect
consumer loans. The increased allowance for consumer loans reflects the fact
that 1998 charge-offs were higher than for 1997 even though the average balance
of loans declined in 1998. Although there have been numerous management and
system changes for this product, the number of delinquencies, charge-offs and
yields of this product resulted in management's decision at the end of 1998 to
again cease, acquiring indirect consumer loans.
During the latter part of 1997, BankAtlantic began originating small
business loans. Initial allowances were based upon industry information and
internal experience with similar products. As the program progressed,
delinquencies and charge-offs increased, particularly in the fourth quarter of
1998. In response to these trends, the allowance for loan losses was increased.
Personnel and operating changes have been and are continuing to be made,
including the use of more restrictive underwriting standards.
The acquisition of LTI in 1998 also resulted in an increase in the
allowance for the year due to the expansion of LTI's activities and the
establishment of an allowance based upon charge-offs experienced after
acquisition which were higher than those historically experienced by LTI.
A significant factor used by BankAtlantic in determining the adequacy of
the allowance for loan losses is historical loan loss experience with greater
emphasis placed on current trends in delinquencies and charge-offs.
Determinations may also be impacted by geographic and personnel factors.
The Company also terminated its factoring operations in mid 1998 since the
credit quality and yields associated with the product were not consistent with
the Company's goals.
The provision for loan losses increased during the year ended December 31,
1997 compared to the same 1996 period due to:
1) charge-offs in the indirect consumer loan portfolio,
2) an increase in specific reserves primarily related to a real estate
construction loan acquired in connection with the BNA acquisition, and
3) higher aggregate loan balances and delinquency trends in 1997.
The 1996 net commercial business loan charge-offs primarily reflect
charge-offs of unsecured loans acquired in connection with the BNA and MegaBank
acquisitions. The 1996 charge-offs were partially offset by commercial business
loan recoveries relating to loans charged-off in prior periods. During 1996 the
allowance for loan losses was increased by the allowances acquired in connection
with the BNA acquisition.
Risk elements at December 31, 1998 increased from December 31, 1997. The
increase in loans contractually past due 90 days or more and nonaccrual loans
were partially offset by decreases in repossessed assets and restructured loans.
The increase in loans contractually past due 90 days or more primarily resulted
from two commercial real estate loans which have matured on which the borrower
is continuing to make payments under the matured loan agreement. The increase in
nonaccrual loans reflected:
1) two commercial nonresidential real estate nonaccrual loans totaling
$7.7 million,
2) nonaccrual lease financing contracts from LTI, and
3) nonaccrual small business loans.
The above increases in nonaccrual loans were partially offset by lower
nonaccrual balances from:
1) residential loans,
2) purchased residential loans,
3) tax certificates, and
4) consumer loans.
The decline in consumer nonaccrual balances reflected a reduction in home
equity nonaccrual loans from December 1997. Repossessed assets declined at
December 31, 1998 compared to December 31, 1997. The decline reflected lower
residential and commercial real estate owned and automobile repossessed assets,
partially offset by lease finance repossessions. The decline in restructured
loans reflected the reclassification from non-performing to performing status of
two loans that performed based on the terms of their agreements.
The increase in risk elements from 1997 to 1996 primarily resulted from
increases in nonaccrual assets, repossessed assets, and restructured loans. The
above increases were partially offset by a decrease in loans contractually past
due 90 days or more and still accruing. The increase in nonaccrual loans was
primarily due to higher residential and consumer loan nonaccrual balances,
partially offset by lower tax certificate nonaccrual balances. The increase in
nonaccrual residential loans was primarily due to higher residential loan
balances in 1997 compared to 1996. Non-accrual consumer loans increased at
December 31, 1997 compared to 1996 due to increased direct consumer loan
nonaccrual balances and higher indirect nonaccrual consumer loans acquired in
connection with the BNA and MegaBank acquisitions. The nonaccrual direct
consumer loans were primarily home equity loans, and the nonaccrual indirect
loans were primarily automobile loans. The higher nonaccrual consumer loan
balances resulted from the growth of the consumer loan portfolio. The increase
in repossessed assets resulted from higher residential real estate owned and
consumer repossessed asset, partially offset by lower commercial real estate
owned. The increase in repossessed assets resulted from higher loan balances
mentioned above. The decline in nonaccrual tax certificates reflects the current
aging of the tax certificates in the portfolio. Loans contractually past due 90
days or more have matured and are in the process of renewing or extending their
terms while the borrower continues to make payments under the matured loan
agreement.
The loan loss allowance as a percentage of total loans (excluding banker's
acceptances) was 1.39% at December 31, 1996, 1.47% at December 31, 1997 and
1.42% at December 31, 1998. At December 31, 1998 gross real estate loans
amounted to $2.3 billion of which $1.5 billion were residential real estate
loans. The remaining real estate loans at December 31, 1998 consisted of $341.7
million of commercial real estate loans, $439.4 million of construction and
development loans and $20.3 million of small business real estate loans. Gross
other loans, excluding banker's acceptances, amounted to $564.4 million and
included commercial business loans, lease financing, international loans, small
business - nonmortgage and consumer loans (including second mortgages) of $91.6
million, $25.1 million, $27.3 million, $98.5 million and $321.9 million,
respectively, at December 31, 1998. Commercial real estate, commercial business,
small business non-mortgage and consumer loans generally involve greater risks
of collectibility than residential loans.
During the year ended December 31, 1998, the provision for REO increased
$1.2 million compared to the 1997 period. The increase resulted from $657,000 of
higher residential REO charge-offs and $514,000 of increased commercial real
estate charge-offs. The commercial real estate properties charged off were
acquired through tax deeds.
During the year ended December 31, 1997, reversals of losses on REO
declined $141,000. During the year ended December 31, 1997, management reversed
$56,000 of the REO allowance and charged off $244,000 of residential REO. During
the year ended December 31, 1996, management reversed $197,000 from the
allowance for real estate owned. Real estate owned charge-offs during the year
ended December 31, 1996 were $803,000 primarily relating to three REO
properties. Two of the properties were sold during 1996. The allowance for REO
is established by management based on its evaluation of foreclosed properties
(see Non-Interest Expense "Components of Foreclosed Asset Activity, Net").
NON-INTEREST INCOME
A summary of non-interest income follows:
1998 1997
For the Year to to
Ended December 31, 1997 1996
---------------------------- ------- -------
------- ------- ------- ------- -------
(In thousands)
INCOME EXCLUDING RBCO AND REAL ESTATE OPERATIONS
Loan late fees and other loan income .............................. $ 4,299 $ 2,293 $ 1,590 $ 2,006 $ 703
Gains on sales of loans held for sale ............................. 4,104 6,820 534 (2,716) 6,286
Trading securities gains .......................................... 898 2,463 0 (1,565) 2,463
Gains on sales of securities available for sale, net of write-downs 309 2,367 5,959 (2,058) (3,592)
Gains (losses) on sales of property and equipment, net ............ (11) 852 3,061 (863) (2,209)
Commissions ....................................................... 108 103 21 5 82
Transaction fees .................................................. 12,589 9,302 8,600 3,287 702
ATM fees .......................................................... 6,650 5,329 3,944 1,321 1,385
Other ............................................................. 4,200 3,284 3,109 916 175
------- ------ ------ ------ ------
Total non-interest income excluding RBCO and
real estate operations ......................................... 33,146 32,813 26,818 333 5,995
------- ------ ------ ------ ------
RBCO OPERATIONS
Principal transactions ............................................ 4,417 0 0 4,417 0
Investment banking ................................................ 8,345 0 0 8,345 0
Commissions ....................................................... 4,024 0 0 4,024 0
Other ............................................................. 240 0 0 240 0
------- ------ ------ ------ ------
Non-interest income - RBCO ........................................ 17,026 0 0 17,026 0
------- ------ ------ ------ ------
REAL ESTATE OPERATIONS
Gains on sales of real estate held for development and sale ....... 6,055 470 0 5,585 470
Other ............................................................. 653 83 0 570 83
------- ------ ------ ------ ------
Non-interest income - real estate operations ...................... 6,708 553 0 6,155 553
------- ------ ------ ------ ------
Total non-interest income ......................................... $ 56,880 $ 33,366 $26,818 $ 23,514 $ 6,548
======= ======= ====== ====== ======
For a discussion relating to gains on sales of securities available for
sale and trading securities gains, see "Mortgage-Backed Securities and
Investments."
Loan late fees and other loan income increased during each of the years in
the three year period ended December 31,1998. The increase in loan fees during
the three year period resulted from higher late fees, commitment fees, and loan
prepayment penalties. The additional fees earned were caused by a larger loan
portfolio throughout the three year period.
During the year ended December 31, 1998 and 1997, BankAtlantic transferred
$108.5 million and $321.4 million, respectively, of purchased residential loans
to held for sale and sold $279.0 million and $273.9 million, respectively, of
loans for gains as reported in the above table. During 1996 BankAtlantic sold
$59.4 million primarily fixed rate loans originated for resale for gains shown
on the above table.
As part of its normal operations the Company makes bulk purchases of
residential loans which are generally categorized, at the time of purchase, as
held for investment. The Company continually evaluates these purchased loans and
such evaluations may result in transfers from the held for investment category;
however, such transfers would not normally exceed 10% of the average annual
balance of the portfolio. The majority of the residential loans transferred into
the available for sale category during 1997 were acquired in connection with the
BNA acquisition.
During the year ended December 31, 1996, BankAtlantic sold properties
leased to others with a book value of $5.0 million for gains as reported in the
above table. During 1997, land adjacent to the above properties with a book
value of $197,000 was sold for gains.
Transaction fee income increased during each of the years in the three year
period ended December 31, 1998. The higher transaction fee income during 1998
compared to 1997 resulted from:
1) the Company shifting its deposit mix from certificate accounts to
transaction accounts, and
2) changes made to the pricing of the Company's deposit products based on
an analysis by an outside consulting firm.
The increased transaction fee income during the year ended December 31,
1997 compared to the 1996 period reflects:
1) higher transaction account balances relating to accounts obtained in
connection with the acquisition of BNA, and
2) higher average non-interest bearing deposits.
ATM fee income increased during each of the years in the three year period
ended December 31, 1998. The significant increase in ATM fee income during 1998
was primarily the result of an expanded ATM network. The Company's ATM network
increased from 220 machines at December 31, 1996 to 249 machines at December 31,
1997 and at December 31, 1998 the Company had 746 ATM machines. The increase in
ATM fee income during 1997 compared to 1996 was primarily the result of a
surcharge fee initiated in April 1996 to non-customers. BankAtlantic established
its ATM network to enhance fee income and to expand banking services throughout
Florida. Currently, BankAtlantic has 274 ATM machines located in Wal-Mart
SuperStores in Florida, Georgia, and Alabama, 185 ATM machines located in K-Mart
and Cumberland Farms convenience stores and 28 ATM machines on cruise ships. The
remaining ATM machines are located in gasoline stations, convenience food
stores, malls, entertainment complexes, college campuses and BankAtlantic's
branches. See "Business - Regulation and Supervision - Legislative Developments"
for a discussion of recently proposed legislation which could prohibit the
imposition of surcharges to non-customers.
Non-interest income, other increased during each of the years in the three
year period ended December 31, 1998. The increase in non-interest income, other
during the year ended December 31, 1998 compared to the 1997 period resulted
from increased commissions from teller check outsourcing, and higher fees earned
on deposit customer services such as teller check fees and account research.
The higher non-interest income - other during 1997 compared to 1996
resulted from higher fees earned on safe deposit rentals, and increased
commissions from teller check outsourcing.
RBCO OPERATIONS
RBCO revenues are primarily generated from principal transactions,
investment banking and commissions. Principal transactions are sales and trading
activities of tax exempt debt securities, taxable debt securities and equity
securities. Investment banking revenues include management fees and underwriting
fees earned in connection with all underwriting participations and selling
concessions earned in connection with RBCO's participation in tax-exempt debt,
corporate debt and equity underwriting. Commission revenues include fees earned
from retail customers upon the execution of equity security and mutual fund
trades. During the year ended December 31, 1998 RBCO earned revenues on
principal transactions, investment banking and commissions as shown in the
preceding table. As previously noted, RBCO was acquired by the Company on June
30, 1998 in a transaction recorded under the purchase method of accounting.
Accordingly, only the operations of RBCO subsequent to June 30, 1998 are
included in the Company's Consolidated Statement of Operations.
REAL ESTATE OPERATIONS
Real estate held for development and sale represents the net profits on
sales of real estate by SLWHC and the net loss from real estate joint venture
operations. Other income during the year ended December 31, 1998 included a
$263,000 net loss from real estate joint venture operations and $916,000 of
income recognized related to various impact fees. The increases in gains during
1998 compared to 1997 relates to a full year of operations in 1998 compared to
only two months in 1997. Other income during 1997 reflected the accretion of
impact fees.
NON-INTEREST EXPENSE
A summary of non-interest expense follows:
1998 1997
For the Year to to
Ended December 31, 1997 1996
----------------------------- -------- --------
1998 1997 1996 Change Change
-------- -------- -------- -------- --------
(In thousands)
EXPENSES EXCLUDING RBCO AND REAL ESTATE OPERATIONS
Employee compensation and benefits ............................. $ 45,063 $ 37,666 $ 30,893 $ 7,397 $ 6,773
Occupancy and equipment ........................................ 20,518 17,693 12,823 2,825 4,870
SAIF special assessment ........................................ 0 0 7,160 0 (7,160)
Federal insurance premium ...................................... 1,042 1,084 2,495 (42) (1,411)
Advertising and promotion ...................................... 4,749 2,188 2,061 2,561 127
Foreclosed asset activity, net ................................. 754 82 (725) 672 807
Restructuring charges and write-downs .......................... 2,565 0 0 2,565 0
Pension curtailment gain, net .................................. (3,128) 0 0 (3,128) 0
Amortization of cost over fair value of net assets acquired .... 2,770 2,508 1,545 262 963
Other excluding RBCO and real estate operations ................ 23,641 16,087 11,969 7,554 4,118
------- ------- ------- ------- -------
Non-interest expense ......................................... 97,974 77,308 68,221 20,666 9,087
------- ------- ------- ------- -------
RBCO OPERATIONS
Employee compensation and benefits ............................. 11,673 0 0 11,673 0
Occupancy and equipment ........................................ 926 0 0 926 0
Advertising and promotion ...................................... 411 0 0 411 0
Amortization of cost over fair value of net assets acquired .... 541 0 0 541 0
Other .......................................................... 3,975 0 0 3,975 0
------- ------- ------- ------- -------
Non-interest expense ........................................... 17,526 0 0 17,526 0
------- ------- ------- ------- ------
REAL ESTATE OPERATIONS
Employee compensation and benefits ............................. 770 144 0 626 144
Advertising and promotion ...................................... 589 15 0 574 15
Selling, general and administrative ............................ 3,806 255 0 3,551 255
------- ------- ------- ------ ---
Non-interest expense ........................................... 5,165 414 0 4,751 414
------- ------- ------- ------ ---
Total non-interest expenses.................................... $ 120,665 $ 77,722 $ 68,221 $ 42,943 $ 9,501
======= ======= ======= ======= =====
Employee compensation and benefits increased in each of the years in the
three year period ended December 31, 1998. The increase in employee compensation
and benefits during the year ended December 31, 1998 compared to 1997 primarily
resulted from:
1) the hiring of over 100 new officers and employees to establish, expand
and reorganize departments including small business, trade finance,
capital markets, sales management, telebanking, direct consumer
lending, retail delivery, cash management, government trading, and
loan syndications,
2) the opening of ten new full service branches including five in the
Tampa Bay market and
3) annual salary and benefit increases.
The increase in employee compensation and benefits during the year ended
December 31, 1997 compared to 1996 resulted from:
1) an increase in the number of full-time equivalent employees,
2) 160 new employees from the October 1996 BNA acquisition,
3) annual salary and benefit increases.
The increase in the number of employees during 1997 resulted from the
expansion of BankAtlantic's branch network. During 1997, BankAtlantic opened
nine full-service branches and began two new business units (International
Lending and Small Business Lending).
Occupancy and equipment expenses increased during each of the years in the
three year period ended December 31, 1998. The increase in occupancy and
equipment expenses during the year ended December 31, 1998 compared to 1997
primarily resulted from:
1) a significant increase in depreciation expense,
2) an increase in rent expense, and
3) higher repairs and maintenance expenses.
These additional expenses were caused by:
1) an expanded branch and ATM network, and
2) technology expenditures to support a larger organization.
The increase in occupancy and equipment expenses during the year ended
December 31, 1997 compared to 1996 primarily
resulted from:
1) an expanded branch network,
2) the acquisition of BNA, and
3) data processing expenses.
The new branches and the BNA acquisition resulted in increased depreciation
and rent expense. The higher data processing fees reflect the October 1996
conversion of all data processing functions to an outside service bureau.
On September 30, 1996, all institutions with SAIF assessable deposits,
including BankAtlantic, were required to pay a one-time assessment of 0.657% of
covered deposits as of March 31, 1995. BankAtlantic's one-time assessment
resulted in a pre-tax charge of $7.2 million for the year ended December 31,
1996. The $7.2 million charge excluded the $2.3 million amount assessed on BNA
deposits which was considered in recording the acquisition of BNA under the
purchase method of accounting. SAIF assessments during the year ended December
31, 1998 and 1997 were reduced from prior years' levels as a consequence of the
one-time assessment.
The significant increase in advertising expense during the year ended
December 31, 1998 compared to 1997 reflects:
1) the introduction of BankAtlantic's new corporate logo using a TV
identity campaign,
2) costs to launch BankAtlantic's new products, and
3) promotions to introduce BankAtlantic's new branches in Miami-Dade
County and the Tampa Bay market.
The increase in advertising expenses during the year ended December 31,
1997 compared to 1996 resulted from promotions in the Miami-Dade County market.
Advertising and promotional expenses are expensed as incurred.
The components of "Foreclosed asset activity, net" were (in thousands):
For the Year
Ended December 31,
---------------------------
1998 1997 1996
------ ------ ------
Real estate acquired in settlement of loans and
tax certificates:
Operating expenses, net ....................... $ 651 $ 492 $ 47
Provision for (reversal of) losses on REO .... 1,115 (56) (197)
Net gains on sales ............................ (1,012) (354) (575)
------ ---- ----
(Income) loss ................................. $ 754 $ 82 $ (725)
====== ====== ======
The loss in foreclosed asset activity, net during the year ended December
31, 1998 compared to 1997 resulted from:
1) higher charge-offs of residential real estate owned acquired on
defaulted loans generally reflecting higher residential loan balances
2) charge-offs of commercial non-residential real estate acquired through
tax deed, and
3) additional operating expenses due to a larger number of residential
loans foreclosed and disposed of during the year .
The additional charge-offs during 1998 were partially offset by gains on
the sale of residential and commercial real estate owned.
The loss in foreclosed asset activity, net during 1997 compared to 1996
resulted from higher residential foreclosure expenses associated with the larger
residential loan portfolio and an increase in commercial REO operating expenses
due to the sale of rental REO properties during 1997 and 1996. For further
discussion, see "Provision for Loan Losses and Provision for (Reversal of)
Losses on Real Estate Owned."
During the fourth quarter of 1998, the Company restructured its operations
as part of a year long efficiency study conducted by an outside consulting firm.
Included in the restructuring was the elimination of indirect consumer loan
originations, the closing and merging of branches and the consolidation of
mortgage banking operations in the Tampa Bay market to a centralized processing
operation. The restructuring reduced the Company's number of full time employees
by approximately 115. Included in the restructuring charge was:
1) employee severance and benefits,
2) write-downs of assets associated with facility closures, and
3) liabilities established for lease contracts on closed branches.
The restructuring charges were established effective December 31, 1998; and
accordingly, there have been no amounts paid or subsequent adjustments made to
the initial restructuring charge at December 31, 1998.
At December 31, 1998 the Company froze the benefits relating to its defined
benefit pension plan. All employees were vested based on their years of service.
Employees will not receive any further credit for future services, while the
plan is frozen. The freezing of the plan and the termination of employees
resulted in a net pension curtailment gain at December 31, 1998.
Other non-interest expense increased for each of the years in the three
year period ended December 31, 1998. The increased other non-interest expenses
during the year ended December 31, 1998 compared to 1997 reflect the expanded
ATM network, the expanded branch network, and the increased number of
departments and personnel. As a consequence of the 1998 expansion, the Company
experienced a significant increase in the following expense categories:
1) stationary printing and supplies,
2) telephone,
3) ATM ,
4) legal,
5) postage,
6) local tangible taxes, and
7) Federal Reserve charges.
The additional other expenses in 1997 compared to 1996 were related to the
expanded branch network, a larger loan portfolio and the acquisition of BNA.
During 1997 compared to 1996, the Company experienced a significant increase in
the following expense categories:
1) stationery, printing and supplies,
2) telephone,
3) postage,
4) check printing, and
5) armored car services.
The increase in amortization of cost over fair value of net assets acquired
during the year ended December 31, 1998 compared to the 1997 periods related to
the acquisition of LTI effective March 1, 1998. The increase in amortization of
cost over fair value of net assets acquired during the year ended December 31,
1997 compared to 1996 relates to the BNA and MegaBank acquisitions.
RBCO NON-INTEREST EXPENSES
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock were allocated to key employees of RBCO. Included in employee compensation
and benefits in 1998 was $1.0 million of retention pool compensation
amortization. The retention pool was valued at $8.1 million at the acquisition
date and the shares vest in four years. As a result, the Company is amortizing
the $8.1 million value of the retention pool into compensation expense over the
vesting period. Occupancy and equipment expense primarily consisted of rent
expense, depreciation expense and data processing charges. Other expenses were
primarily floor broker and clearing fees, consulting costs and quotation
services. The remaining expenses were general and administrative costs. Upon
acquisition, cost over fair value of net assets acquired amounted to
approximately $25 million of which $2.5 million relates to RBCO's acquisition of
Cumberland Advisors, an asset management firm, and is being amortized over 15
years. The remaining goodwill is being amortized over its expected life of 25
years.
REAL ESTATE OPERATIONS NON-INTEREST EXPENSES
Real estate operations non-interest expenses primarily related to SLWHC
expenses. Selling, general and administrative expenses were mainly real estate
taxes on developed land. The increase in 1998 related to a full year of activity
in 1998 compared to only 2 months in 1997.
DISCONTINUED OPERATIONS
Effective December 31, 1998, the Company began implementing its plan to
exit the MSB. The estimated loss of exiting
the MSB is as follows (in thousands):
Employee severance and benefits ...................... $ 925
Provision for servicing contract cancellation ........ 900
Fixed asset write-downs .............................. 430
Estimated cost to sell MSR ........................... 3,600
Anticipated loss from operations through disposal date 4,145
------
$10,000
======
Such anticipated loss is included, net of income taxes, in loss from
operations of discontinued mortgage servicing business.
MORTGAGE-BACKED SECURITIES AND INVESTMENT SECURITIES
During the year ended December 31, 1998 and 1997, the Company purchased and
sold the following securities from of the available for sale portfolio: (in
thousands)
Purchases (1) Sales (1)
------------- ---------
1998 l997 1998 l997
------- -------- -------- -------
7 year balloon mortgage-backed
securities ................... $ 0 $ 219,198 $ 127,915 $ 66,021
5 year balloon mortgage-backed
securities ..................... 0 18,443 27,151 28,096
30 year mortgage backed
securities ..................... 0 0 0 6,412
15 year mortgage backed
securities ..................... 0 0 0 1,066
Real estate mortgage investment
conduit ........................ 324,020 0 0 5,900
U.S. treasury notes .............. 176,605 148,835 181,558 231,038
Federal agency obligations ....... 0 0 0 7,600
Corporate bonds .................. 0 2,367 9,977 0
Repurchase agreements ............. 62,000 0 0 0
------- ------- ------- -------
Total fixed rate securities ....... 562,625 388,843 346,601 346,133
5-1 adjustable rate mortgage-backed
securities ...................... 127,125 271,028 253,129 9,363
3-1 adjustable rate mortgage-backed
securities ....................... 214,865 0 103,183 0
Marketable equity securities ....... 11,830 5,122 675 0
------- ------- ------- -------
Total securities available for
sale activity .................. $916,445 $ 664,993 $ 703,588 $355,496
======= ======= ======= =======
(1) Purchases and sales are stated at cost
Other investment activity during 1998 and 1997 included the purchase of
$1.6 million and $6.2 million, respectively, of marketable equity trading
securities and the sale of $7.8 million and $2.9 million, respectively, of these
securities. BankAtlantic purchased and sold the above available for sale
securities during 1998 and 1997 in order to react to changes in the interest
rate environment during 1998 and 1997. During the year ended December 31, 1998
the Company began trading government securities and realized a $62,000 gain.
During the last quarter of 1998, investments in two marketable equity securities
available for sale were written down by $2.1 million. The write-downs were made
due to significant declines in the market value of the securities. These
declines were considered other than temporary due to the magnitude and length of
time of the decline and the financial condition and the near term prospects for
the issuers of the securities.
A summary of the cost and gross unrealized appreciation or depreciation of
estimated fair value compared to cost of investment securities held to maturity,
mortgage-backed securities available for sale, and securities available for
sale, follows (in thousands):
December 31, 1998
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Appreciation Depreciation Fair Value
--------- ------------ ------------ ----------
Investments securities held to maturity:
Cost equals market ............................. $ 51,811 $ 0 $ 0 $ 51,811
Investment securities available for sale (1):
Cost equals market ............................. 2,483 0 0 2,483
Market over cost ............................... 14,513 4,073 0 18,586
Cost over market ............................... 3,488 0 439 3,049
Mortgage-backed securities available for sale (1):
Market over cost ............................... 495,655 3,803 0 499,458
Cost over market ............................... 75,522 0 1,578 73,944
------- ----- ----- -------
Total .................................. $643,472 $7,876 $2,017 $649,331
======= ===== ===== ========
1) Amortized cost excludes net unrealized appreciation of $2.2 million and
$3.6 million on mortgage-backed securities and on investment securities
available for sale, respectively.
At December 31, 1998 and 1997 all mortgage-backed and investment debt
securities, excluding tax certificates, wereavailable for sale. The composition,
yields and maturities of securities were as follows (in thousands):
U.S. Corporate
Treasury Mortgage Asset Bond Weighted
and Investment Backed Backed and Average
Agencies Securities Securities Securities Other Total Yield
-------- ------------ ---------- ---------- --------- ----------- --------
December 31, 1998:
Maturity: (1)
One year or less $ 5,041 $ 37,711 $ 26,715 $ 0 $ 0 $ 69,467 7.54 %
After one through five years 0 14,100 36,902 0 1,980 52,982 7.13
After five through ten years 0 0 11,660 0 0 11,660 5.94
After ten years 0 0 498,125 0 0 498,125 5.59
Fair values (2) (3) $ 5,041 $ 51,811 $ 573,402 $ 0 $ 1,980 $ 632,234 5.93 %
======== =========== =========== ======== ========= ========== ====
Amortized cost (2) (3) $ 4,992 $ 51,811 $ 571,177 $ 0 $ 2,342 $ 630,322 6.42 %
======== =========== =========== ======== ========= ========== ====
Weighted average yield based
on fair value 4.66% 9.76 % 5.57% 0.00% 16.70% 5.93%
======== =========== =========== ======== ========= ==========
Weighted average maturity .62 years 2.0 years 21.44 years 0 years 4.0 years 19.68 years
======== =========== =========== ======== ========= ==========
December 31, 1997
Fair value (2) (3) $ 20,054 $ 55,213 $ 576,117 $ 3,176 $ 2,980 $ 657,540 6.31 %
======== =========== =========== ======== ========= ========== ====
Amortized cost (2) (3) $ 19,959 $ 55,213 $ 574,767 $ 3,194 $ 3,270 $ 656,403 6.35 %
======== =========== =========== ======== ========= ========== ====
December 31, 1996
Fair value $115,638 $ 54,511 $ 294,740 $ 28,967 $ 0 $ 493,856 6.06 %
======== =========== =========== ======== ========= ========== ====
Amortized cost $115,295 $ 54,511 $ 293,889 $ 28,943 $ 0 $ 492,638 6.08 %
======== =========== =========== ======== ========= ========== ====
_____________
(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 with a cost of $13.2 million and $5.1 million and a fair
value of $17.1 million and $5.2 million were excluded from the above table.
(3) Trading securities of $30.0 million and $5.1 million for 1998 and 1997,
respectively, were excluded from the above table.
Activity in the allowance for tax certificate losses was (in thousands):
For the Year Ended December 31,
------------------------------
1998 1997 1996
------ ------ ------
Balance, beginning of period ...................... $ 949 $ 1,466 $ 1,648
Charge-offs ....................................... (976) (1,444) (909)
Recoveries ........................................ 813 1,025 911
------ ------ ------
Net (charge-offs) recoveries ...................... (163) (419) 2
(Reversals) provision charged to operations ....... 234 (98) (184)
------ ------ ------
Balance, end of period ............................ $ 1,020 $ 949 $ 1,466
====== ====== ======
Average yield on tax certificates during the period 10.24% 9.95% 9.73%
====== ====== ======
SEGMENT REPORTING - CONTINUING OPERATIONS
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information".
Operating segments are determined by the type of business activity from which
revenues and expenses are incurred, products or services offered and the
internal reporting reviewed by management and by business activity for which
discrete financial information is available. Reportable segments consist of one
or more operating segments with similar economic characteristics, products and
services, production processes, types of customer, distribution systems and
regulatory environments. 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 calculated under the management approach may not reflect
the actual economic costs, contribution or results of operations of the unit as
a stand alone business as it is based on information developed solely for the
benefit of management. 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. The reports
utilized by management are prepared specifically to track trends and changes in
these operating segments. (See "Business - Segments" for a further discussion on
Segments)
(in thousands) For the Year Ended December 31,
- -------------- -------------------------------
1998 1997 1996
------ ------ -------
Net contribution after income taxes
Bank investment operations - wholesale
residential ............................. $ 6,549 $ 4,804 $ 641
Bank investment operations - other ....... 448 3,845 3,798
Bank loan operations - retail products ... (5,622) 3,263 (373)
Bank loan operations - commercial products 8,166 11,711 13,573
Real estate operations.................... 913 27 0
Investment banking operations ............ (268) 8 0
------ ------ ------
Net contribution ......................... $10,186 $23,658 $17,639
====== ====== ======
BANK INVESTMENT OPERATIONS
The net contribution from bank investment operations - wholesale
residential lending increased in each of the years in the three year period
ended December 31, 1998. The improvement in net contribution during the periods
resulted from gains on sales of purchased wholesale residential loans during
1998, while no wholesale residential loans were sold during 1997 and 1996, and
an increased net interest margin resulting from purchases of wholesale
residential loans and significant asset growth during 1998 compared to 1997 and
1996. The growth of average assets of the segment out paced its allocated
interest expense and overhead.
Such increase was partially offset in 1998 by depreciation and amortization
expense increasing significantly during 1998 compared to 1997 and 1996 due to
accelerated premium amortization on the wholesale residential loan portfolio
which was caused by increased actual and anticipated prepayments due to the
declining interest rate environment.
The bank investment operations - other net contribution declined in each of
the years in the three year period ended December 31, 1998 reflecting an other
than temporary write-down in the value of certain securities available for sale
in 1998and lower levels of trading gains during 1998 compared to 1997. The
decline in net contribution during 1997 compared to 1996 resulted from lower
gains on sales of securities available for sale during 1997 compared to 1996.
The lower levels of securities gains were partially offset by an increased net
interest margin during 1997 due to higher average investment balances.
BANK LOAN OPERATIONS
The net contribution from bank loan operations - retail products
significantly decreased during the year ended December 31, 1998 compared to 1997
and increased during the year ended December 31, 1997 compared to 1996. The
primary reasons for the decline in net contribution during 1998 compared to 1997
was:
1) an increase in direct expenses resulting from the establishment and
reorganization of numerous departments and the hiring of over 100
officers and employees,
2) lower gains on sales of residential loans held for sale during 1998
compared to 1997,
3) an increase in the provision for loan losses for small business and
indirect consumer lending, and
4) a decline in the net interest margin resulting from lower average
assets during 1998 compared to 1997.
The above decreases in net contribution were partially offset by higher
loan late fee and other loan income earned on consumer and small business loans
during 1998 compared to 1997.
The increase in net contribution during the year ended December 31, 1997
compared to 1996 reflects:
1) a significant increase in residential loan sales during 1997 compared
to 1996,
2) higher loan fee income during 1997 due to a larger loan portfolio, and
3) a higher 1996 interest expense and overhead allocation (experienced by
all segments based on the 1996 $7.2 million SAIF special assessment).
The net contribution from bank loan operations - commercial products
decreased during each of the years in the three year period ended December 31,
1998. The primary reasons for the decline in net contribution during 1998
compared to 1997 and 1996 was increased provision for loan losses caused by
lower loan recoveries and a growing loan portfolio. In addition, net interest
margin was impacted by a decline in the prime rate during 1998 whereby interest
expense and overhead did not decline by the same rate.
REAL ESTATE OPERATIONS
Real estate operations were primarily the activities of SLWHC which was
acquired on October 31, 1997. The increase in net contribution during the year
ended December 31, 1998 compared to 1997 resulted from a full year of activity
being included in 1998 compared to two months during 1997.
INVESTMENT BANKING OPERATIONS
Investment banking operations were primarily the operations of RBCO. RBCO
was acquired on June 30, 1998.
FINANCIAL CONDITION
The Company's total assets at December 31, 1998 and 1997 were $3.8 billion
and $3.1 billion, respectively. The increase in total assets primarily resulted
from increased:
1) loans receivable balances from the purchase of wholesale residential
loans and additional loan fundings,
2) cash balances reflecting a larger ATM network,
3) trading securities balances due to the acquisition of RBCO,
4) accrued interest receivable balances reflecting a larger loan
portfolio,
5) real estate held for development and sale and joint venture balances
from investments in real estate joint ventures and additional
investments in SLWHC,
6) property, and equipment balances reflecting the acquisition of RBCO
and an expanded branch network,
7) FHLB stock balances required because of higher FHLB advance balances,
8) mortgage servicing rights balances due to significant purchases during
1998,
9) cost over fair value of net assets balances related to the RBCO and
LTI acquisitions, and
10) deferred tax assets balances.
The increased deferred tax assets primarily resulted from:
1) the restructuring charge,
2) provision for the disposal of the MSB, and
3) higher provision for loan losses.
The above items were expensed for financial reporting purposes during 1998
and are not currently fully deductible for income tax purposes.
The Company's total liabilities at December 31, 1998 and 1997 were $3.5
billion and $2.9 billion, respectively. The increase in total liabilities
primarily resulted from increased:
1) deposits reflecting higher noninterest bearing deposits and
transaction account balances, the use of brokered certificate
accounts, and higher public fund balances,
2) FHLB advance balances used to fund the purchase of wholesale
residential loans,
3) securities sold under agreements to repurchase and federal funds
purchased to fund a larger loan and investment portfolio,
4) advances by borrowers for taxes and insurance reflecting increases in
loans serviced for others relating to the MSB, and
5) other liabilities resulting from:
(a) the acquisition of RBCO and LTI,
(b) the restructuring charge,
(c) discontinued operations, and
(d) higher amounts due investors for loans serviced .
OFF-BALANCE SHEET RISK
In the normal course of its business, BankAtlantic is a party to financial
instruments with off-balance-sheet risk when appropriate in order to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and 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 at December 31, 1998 were
(in thousands):
Weighted
Average
Fixed Floating Interest
Rate Rate Rate
------- ------- --------
Commitments to extend credit to foreign banks $ 0 $ 57,229 7.40 %
Commitments to extend credit including the
undisbursed portion of loans in process .... $ 22,509 $414,440 8.63 %
In addition, BankAtlantic extends letters of credit to its commercial
customers. At December 31, 1998, BankAtlantic had $123.4 million of letters and
lines of credit outstanding. BankAtlantic receives an annual commitment fee on
outstanding letters of credit.
Principal Repayments -- The following table sets forth the scheduled
contractual principal repayments at maturitydates of BankAtlantic's loan
portfolios and securities available for sale at December 31, 1998. As of
December 31, 1998, the total amount of principal repayments on loans and
securities available for sale contractually due after December 31, 1999 was $2.0
billion having fixed interest rates and $1.1 billion having floating or
adjustable interest rates.
Outstanding
on
December 31, For the Period Ending December 31, (1)
------------ ----------------------------------------------------------------
(in thousands) 1998 1999 2000-2001 2002-2006 2007-2011 2012-2016 >2017
--------- ------- --------- --------- --------- --------- ---------
Commercial real estate ............ $ 362,013 $ 61,759 $141,624 $ 133,795 $ 18,285 $ 5,562 $ 988
Residential real estate ........... 169,368 401 945 3,025 10,118 24,159 130,720
Purchased residential real estate . 1,336,100 0 146 10,609 15,432 153,737 1,156,176
Real estate construction .......... 439,418 120,342 239,682 79,021 0 373 0
Consumer (2) ...................... 346,991 10,269 60,968 216,779 33,255 25,613 107
Commercial business (5) ........... 217,427 143,934 43,471 18,497 11,087 438 0
--------- ------- ------- -------- -------- -------- ---------
Total loans (3).................... $2,871,317 $336,705 $486,836 $ 461,726 $ 88,177 $ 209,882 $1,287,991
========= ======== ======== ========= ========= ========= ==========
Total securities available for
sale (3)(4)....................... $ 597,520 $ 48,853 $ 36,227 $ 3,051 $ 45,094 $ 0 $ 464,295
========= ======= ======= ======== ======== ======== ==========
(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 and lease financing.
(3) Actual principal repayments may differ from information shown above.
(4) Includes in 1999 marketable equity securities available for sale of $17.1
million.
(5) Includes due from foreign banks.
Loan Concentration -- BankAtlantic's geographic loan concentration at
December 31, 1998 was:
Florida .............. 45%
California............ 10%
Northeast............. 12%
Other ................ 33%
---
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, 1998. The concentration in California, Northeast,
and other locations primarily relates to purchased wholesale residential real
estate loans.
Loan maturities and sensitivity of loans to changes in interest rates for
commercial business and real estate construction loans at December 31, 1998 were
(in thousands):
Commercial Real Estate
Business Construction Total
---------- ------------ --------
One year or less ....................... $189,308 $371,623 $560,931
Over one year, but less than five years 19,535 67,795 87,330
Over five years ....................... 8,584 0 8,584
------- ------- -------
$217,427 $439,418 $656,845
======= ======= =======
Due After One Year:
Pre-determined interest rate .......... $ 28,119 $ 67,795 $ 95,914
Floating or adjustable interest rate .. 0 0 0
------- ------- -------
$ 28,119 $ 67,795 $ 95,914
======= ======= =======
DEPOSITS -- Deposit accounts consisted of the following (in thousands):
December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
Interest free checking ........... $ 235,124 $ 162,788 $ 163,616
Interest bearing deposits:
Insured money fund savings (1) . 421,978 289,413 358,927
NOW account .................... 234,185 223,679 216,587
Savings account (1) ............ 127,747 262,685 170,352
Time deposits less than $100,000 582,225 648,906 739,622
Time deposits $100,000 and over 324,513 176,262 183,676
--------- --------- ---------
Total .................. $1,925,772 $1,763,733 $1,832,780
========= ========= =========
(1) During 1998, the Company streamlined its deposit products, shifting savings
accounts with large balances to the insured money fund savings category.
Time deposits $100,000 and over had the following maturities (in
thousands):
December 31,
1998
-----------
Less than 3 months.......... $ 91,434
3 to 6 months .............. 42,551
6 to 12 months ............. 61,933
More than 12 months......... 128,595
-------
Total ..................... $324,513
=======
BankAtlantic solicits deposits through advertisements in newspapers and
magazines of general circulation and on radio and television. Most of its
depositors are residents of Miami-Dade, Broward, and Palm Beach Counties,
Florida at least part of the year. BankAtlantic at December 31, 1998 had $38.2
million of brokered time deposits. RBCO acted as principal agent in obtaining
the deposits. BankAtlantic has several facilities for brokered certificates of
deposit. These facilities are considered an alternative source of borrowings.
The stated rates and balances at which BankAtlantic paid interest on
deposits were (dollars in thousands):
December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
Interest free checking ................................. $ 235,124 $ 162,788 $ 163,616
Insured money fund savings: 3.86% at December 31,
1998, 3.90% at December 31, 1997, and 3.76% at
December 31, 1996 .................................... 421,978 289,413 358,927
NOW accounts: 1.00% at December 31, 1998, 2.20 % at
December 1997, and 1.60% at December 31, 1996, ....... 234,185 223,679 216,587
Savings accounts: 1.06% at December 31, 1998, 2.04%
at December 31, 1997, 1.30% at December 31, 1996 ..... 127,747 262,685 170,352
--------- --------- ---------
Total non-certificate accounts ......................... 1,019,034 938,565 909,482
--------- --------- ---------
Certificate accounts:
0.00% to 4.00% ....................................... 77,146 14,275 23,361
4.01% to 5.00% ....................................... 238,943 37,803 275,991
5.01% to 6.00% ....................................... 521,570 184,800 478,148
6.01% to 7.00% ....................................... 52,937 493,845 112,865
7.01% and greater .................................... 11,478 90,882 30,749
--------- --------- ---------
Total certificate accounts ............................. 902,074 821,605 921,114
--------- --------- ---------
Total deposit accounts ................................. 1,921,108 1,760,170 1,830,596
--------- --------- ---------
Interest earned not credited to deposit accounts ....... 4,664 3,563 2,184
--------- --------- ---------
Total deposit accounts ....................... $1,925,772 $1,763,733 $1,832,780
========= ========= =========
Weighted average stated interest rate on deposits at the
end of each period ................................... 3.42 % 3.70 % 3.78 %
========= ======== =========
The amounts of scheduled maturities of certificate accounts were (dollars
in thousands):
Year Ending December 31,
--------------------------------------------------------
December 31, 1998 1999 2000 2001 2002 2003 THEREAFTER
- ----------------- ------- ------- ------ ------ ----- ----------
0.00% to 4.00% .. $ 68,986 $ 6,700 $ 980 $ 221 $ 184 $ 75
4.01% to 5.00% .. 151,960 81,630 3,092 437 1,690 134
5.01% to 6.00% .. 439,583 62,593 7,432 6,264 5,340 358
6.01% to 7.00% .. 29,178 7,980 7,079 8,015 565 120
7.01% and greater 1,138 10,167 47 126 0 0
------- ------- ------ ------ ----- -----
Total .......... $690,845 $169,070 $18,630 $15,063 $7,779 $ 687
======= ======= ====== ====== ===== =====
The following table sets forth the deposit activities for the periods
indicated (in thousands):
For the Year Ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
Net increase (decrease) before interest credited ........ $ 108,462 $(122,938) $ 15,905
Deposits acquired net of purchase accounting amortization 0 0 469,065
Interest credited ....................................... 53,577 53,754 47,433
------ ------ ------
Total increase (decrease) ........................... $ 162,039 $ (69,184) $ 532,403
======= ========= =========
Loans receivable composition, including mortgage-backed securities, at the
dates indicated was (dollars in thousands):
DECEMBER 31,
1998 1997 1996 1995
---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
Loans receivable:
Real estate loans:
Residential real estate .......... $ 0 0.00 % $ 37,813 1.98 % $ 438,359 24.02 % $ 157,361 18.99 %
Purchased residential real estate 1,336,100 50.89 772,932 40.41 428,722 23.50 0 0.00
Residential real estate held for sale . 168,881 6.43 161,562 8.45 16,207 0.89 17,122 2.07
Construction and development .......... 439,418 16.74 325,951 17.04 301,813 16.54 122,371 14.77
FHA and VA insured .................... 487 0.02 1,025 0.05 4,013 0.22 5,183 0.63
Commercial real estate ................ 341,738 13.02 378,718 19.80 427,235 23.41 350,256 42.27
Small business - real estate ........... 20,275 0.77 17,639 0.92 0 0.00 0 0.00
Other loans:
Second mortgage - direct ............... 60,403 2.30 65,810 3.44 86,234 4.73 63,052 7.61
Second mortgage - indirect ............. 8,032 0.31 12,461 0.65 9,894 0.54 25,621 3.09
Commercial business .................... 91,591 3.49 41,858 2.19 78,177 4.28 64,194 7.75
Small business - non-mortgage .......... 98,543 3.75 13,757 0.72 0 0.00 0 0.00
Lease finance .......................... 25,055 0.95 0 0.00 0 0.00 0 0.00
Due from foreign banks ................. 27,293 1.04 12,256 0.64 0 0.00 0 0.00
Consumer - other direct ................ 40,930 1.56 51,558 2.69 76,506 4.19 37,502 4.53
Consumer - other indirect .............. 212,571 8.09 204,689 10.70 172,056 9.43 96,042 11.59
------- ---- ------- ----- ------- ---- ------ -----
Total ............................ 2,871,317 109.36 2,098,029 109.68 2,039,216 111.75 938,704 113.30
--------- ------ --------- ------ --------- ------ ------- ------
Adjustments:
Undisbursed portion of loans in process .. 218,937 8.34 163,237 8.53 190,874 10.45 89,896 10.85
Other .................................... 0 0.00 0 0.00 0 0.00 0 0.00
Unearned discounts on commercial
real estate loans ........................ 286 0.01 669 0.03 705 0.04 793 0.10
Unearned discounts (premium) on purchased
real estate and consumer loans ....... (11,563) (0.44) (7,047) (0.37) (2,762) (0.15) 385 0.05
Allowance for loan losses ......... .. 37,950 1.45 28,450 1.49 25,750 1.41 19,000 2.30
------ ---- ------ ---- ------ ---- ------ ----
Total loans receivable, net .. $ 2,625,707 100.00%$1,912,720 100.00% $1,824,649 100.00% $ 828,630 100.00 %
=========== ====== ========== ====== ========== ====== ========== ======
Mortgage-backed securities:
FNMA mortgage backed securities ...... $ 117,111 20.42% $ 207,738 36.06 % $ 101,381 34.40 % $132,554 22.18 %
GNMA and FHLMC mortgage-backed securities 149,743 26.12 368,379 63.94 193,359 65.60 465,197 77.82
FNMA real estate mortgage investment
conduits ............................. 32,980 5.75 0 0.00 0.00 0.00 0 0.00
FHLMC real estate mortgage investment
conduits ............................ 273,568 47.71 0 0.00 0.00 0.00 0 0.00
------- ----- - ---- ---- ---- - ----
Total mortgage-backed
securities (1) $ 573,402 100.00 % $576,117 100.00 % $ 294,740 100.00 % $ 597,751 100.00 %
== =========== ====== ======== ====== ========= ====== ========= ======
Banker's acceptances ........ $ 9,662 100.00 % $160,105 100.00 % $ 207 100.00 % $ 0 0.00 %
========== ====== ======== ====== === ====== ========= ====
DECEMBER 31,
1994
Amount Percent
------ -------
Loans receivable:
Real estate loans:
Residential real estate .......... $ 102,677 18.79 %
Purchased residential real estate 0 0.00
Residential real estate held for sale 6,843 1.25
Construction and development ......... 45,725 8.37
FHA and VA insured ................... 6,395 1.17
Commercial real estate ................303,877 55.61
Small business - real estate .......... 0 0.00
Other loans:
Second mortgage - direct .............. 40,564 7.42
Second mortgage - indirect ............ 34,585 6.33
Commercial business ................... 24,566 4.50
Small business - non-mortgage ......... 0 0.00
Lease finance .......................... 0 0.00
Due from foreign banks ................. 0 0.00
Consumer - other direct ................16,386 3.00
Consumer - other indirect ..............32,373 5.93
------- ----
Total ...........................613,991 112.37
-------- ------
Adjustments:
Undisbursed portion of loans in process . 49,981 9.15
Other .................................... 63 0.01
Unearned discounts on commercial
real estate loans ........................ 874 0.16
Unearned discounts (premium) on purchased
real estate and consumer loans ....... 427 0.08
Allowance for loan losses ......... .. 16,250 2.97
------ ----
Total loans receivable, net . $546,396 100.00 %
======== ======
Mortgage-backed securities:
FNMA mortgage backed securities ...... $147,652 23.52 %
GNMA and FHLMC mortgage-backed
securities 480,230 76.48
FNMA real estate mortgage investment
conduits ............................ 0 0.00
FHLMC real estate mortgage investment
conduits ........................... 0 0.00
- ----
Total mortgage-backed
securities (1) $627,882 100.00 %
== ======== ======
Banker's acceptances ........ $ 0 0.00 %
==== ====
(1) Includes net unrealized appreciation on mortgage-backed securities
available for sale of $2.1 million, $1.4 million, $851,000, $8.8 million
and $314,000 at December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
ASSET AND LIABILITY MANAGEMENT
BankAtlantic 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. BankAtlantic
originates residential loans with both fixed and adjustable rates, however the
majority of residential loans originated are currently sold to correspondents.
BankAtlantic also purchases residential loans with both fixed and adjustable
rates, which are retained for portfolio. Since these bulk loan purchases are
acquired periodically, management believes it is in a better position (unlike
the case of individual loan originations) to manage the interest rate risk in
this portfolio due to the size and generally homogeneous nature of these
purchases. BankAtlantic also acquires mortgage-backed securities and Treasury
securities with intermediate terms. During recent years in order to lower its
cost of funds, BankAtlantic has not emphasized certificates of deposit and seeks
to generate low cost transaction accounts as market opportunities allow. See
"Mortgage-Backed Securities and Investment Securities." In managing its asset
and liabilities, management continually assesses:
1) general economic conditions,
2) the interest rate environment, and
3) the yields and credit risk associated with alternative investments.
MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes in
market valuation 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.
EQUITY PRICE RISK
The Company (including RBCO) maintains a portfolio of trading and available
for sale securities which subjects the Company to equity pricing risks. The
change in fair values of equity securities represents instantaneous changes in
all equity prices segregated by trading, securities 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, 1998 based on percentage changes in fair value. Actual future price
appreciation or depreciation may be different from the changes identified in the
table below.
Total
Available Securities Dollar
Percent Trading for Sale Sold Not Change
Change in Securities Securities Yet from
Fair Value Fair Value Fair Value Purchased 0%
---------- ---------- ---------- --------- --------
(dollars in thousands)
20 % $ 36,006 $ 20,516 $ 3,446 $ 9,994
10 % $ 33,006 $ 18,807 $ 3,159 $ 4,998
0 % $ 30,005 $ 17,097 $ 2,872 $ 0
(10)% $ 27,005 $ 15,387 $ 2,585 $ (4,998)
(20)% $ 24,004 $ 13,678 $ 2,298 $ (9,994)
During 1998, the Company began trading government securities which are
generally bought and sold on the same day. In addition, RBCO is a market maker
in equity securities which could, from time to time require them to hold
securities during declining markets. The Company attempts to manage its equity
price risk by maintaining a relatively small portfolio of securities and
evaluating equity securities as part of the Company's overall asset and
liability management process.
The majority of the Company's assets and liabilities are monetary in nature
subjecting the Company to significant interest rate risk. The Company has
developed a model using vendor software to quantify its interest rate risk. A
sensitivity analysis was performed measuring the Company's potential gains and
losses in net portfolio fair values of interest rate sensitive instruments at
December 31, 1998 resulting from a change in interest rates. Interest rate
sensitive instruments included in the model were the Company's:
/Bullet/ loan portfolio,
/Bullet/ debt securities available for sale,
/Bullet/ investment securities,
/Bullet/ FHLB stock,
/Bullet/ Federal Funds sold,
/Bullet/ deposits,
/Bullet/ advances from FHLB,
/Bullet/ securities sold under agreements to repurchase,
/Bullet/ Federal Funds purchased,
/Bullet/ Subordinated Debentures,
/Bullet/ Trust Preferred Securities, and
/Bullet/ off-balance sheet loan commitments.
The Company has no off-balance sheet derivatives other than fixed rate loan
commitments aggregating $71.8 million at December 31, 1998.
The model calculates the net potential gains and losses in net portfolio
fair value by:
(i) discounting anticipated cash flows from existing assets, liabilities
and off-balance sheet contracts at market rates to determine fair
values at December 31, 1998,
(ii) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values,
(iii) the difference between the fair value calculated in (i) and (ii) is
the potential gains and losses in net portfolio fair values.
Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no quoted market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
BankAtlantic's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
The prepayment assumptions used in the model are disclosed in
BankAtlantic's Cumulative Rate Sensitivity GAP at December 31, 1998.
Subordinated debentures and Trust Preferred Securities were valued for this
purpose based on their contractual maturities or redemption date. The Company's
interest rate risk policy has been approved by the Board of Directors and
establishes guidelines for tolerance levels for net portfolio value changes
based on interest rate volatility. Management has maintained the portfolio
within these established tolerances.
Presented below is an analysis of the Company's interest rate risk at
December 31, 1998 as calculated utilizing the Company's model. The table
measures changes in net portfolio value for instantaneous and parallel shifts in
the yield curve in 100 basis point increments up or down.
Net Portfolio
Changes Value Dollar
in Rate Amount Change
-------- ------------- ---------
(dollars in thousands)
+200 bp $ 297,510 $ (70,272)
+100 bp $ 351,652 $ (16,130)
0 bp $ 367,782 $ 0
(100) bp $ 310,908 $ (56,874)
(200) bp $ 259,775 $ (108,007)
Certain assumptions by the Company in assessing the interest rate risk were
utilized in preparing the preceding table. These assumptions related to:
/Bullet/ interest rates,
/Bullet/ loan prepayment rates,
/Bullet/ deposit decay rates,
/Bullet/ market values of certain assets under various interest rate
scenarios, and.
/Bullet/ repricing of certain borrowings
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that the Company's 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 result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory and reactive measures which the Company may take in the future.
INTEREST RATE SENSITIVITY
BankAtlantic's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on its
interest-earning assets (such as loans) and its interest expense on its
interest-bearing liabilities (such as deposits). Like most financial
institutions, changes in general interest rate levels and other economic factors
affect BankAtlantic's profitability. If there is a mismatch between the dollar
amount of repricing or maturing assets ( such as loans) and liabilities (such as
time deposits), a financial institution is said to have an "interest rate
sensitivity gap." A financial institution's interest rate risk arises from an
interest rate sensitivity gap. Financial institutions measure this interest rate
risk in terms of the ratio of the interest rate sensitivity gap to the
institution's total assets. If more assets reprice or mature over a given time
frame than liabilities, the financial institution is considered
"asset-sensitive." This risk is reflected as a positive gap. Conversely, if more
liabilities reprice or mature over a given time frame than assets, the financial
institution will be considered "liability-sensitive." This risk is reflected as
a negative gap.
An asset-sensitive position (i.e., a positive gap) will generally enhance
earnings in a rising interest rate environment (because more interest-earning
assets will be repriced or replaced at higher interest rates than
interest-paying liabilities). In a falling interest environment an
asset-sensitive position will generally negatively impact earnings (since more
interest-earning assets will be repriced or replaced at lower interest rates
than interest-bearing liabilities). Conversely, a liability-sensitive position
(i.e., a negative gap) will generally enhance earnings in a falling interest
rate environment (more interest-bearing liabilities are replaced or repriced at
lower rates than interest-earning assets) and negatively impact earnings in a
rising interest rate environment (more interest-bearing liabilities will be
replaced or repriced at higher rates than interest-earning assets).
At December 31, 1998, BankAtlantic had a one year positive cumulative gap
of 7.83%. This positive one year gap position may, as noted above, have a
negative impact on BankAtlantic's earnings in a declining interest rate
environment. However, it is important to note that the Company makes a number of
assumptions to calculate its interest rate sensitivity gap. These assumptions
relate to interest rates, loan prepayment rates and deposit decay rates and the
assumptions may not prove to be correct. Accordingly, the Company's interest
rate sensitivity gap may not accurately reflect the impact of changes in
interest rates on the Company's profitability. In addition, management of
BankAtlantic may take anticipatory or reactive measures in response to changes
in interest rates that are not reflected in the interest rate sensitivity
calculation. While BankAtlantic has attempted to structure its asset and
liability management strategies to mitigate the impact on net interest income of
changes in market interest rates, there is no assurance that these strategies
will be successful.
ADVERSE IMPACT OF ACCELERATED PREPAYMENTS ON NET INTEREST INCOME
Generally, as interest rates fall, loan prepayments accelerate. Due in
significant part to current historically lowinterest rates, BankAtlantic has
experienced a high volume of loan prepayments in its mortgage portfolio and in
its servicing portfolio during the year ended December 31, 1998. Those
prepayments adversely affected its results of operations during this period.
BankAtlantic completely amortizes the remaining MSRs upon prepayment of the
associated loan. The yields earned with respect to the portion of BankAtlantic's
mortgage portfolio which were prepaid were greater than alternative short term
investments in which BankAtlantic reinvested such funds, also adversely
impacting the results of operations for the period. Significant loan prepayments
in BankAtlantic's mortgage portfolio and MSR portfolio in the future could have
a similar adverse effect on results of operations. Prepayments of the underlying
loans also may have an adverse effect on BankAtlantic's ability to sell MSRs at
the value estimated at December 31, 1998. Additionally, increased prepayments
associated with purchased residential loans may result in increased amortization
of premiums on acquired loans, which would reduce interest income. At December
31, 1998, BankAtlantic serviced approximately 36,000 loans with outstanding
principal balances serviced of $3.5 billion representing net MSRs of $44.3
million. See the discussion below relating to the Company's decision to exit the
MSB.
ADVERSE IMPACT OF ACCELERATED PREPAYMENTS ON VALUATION OF FINANCIAL INSTRUMENTS
Changes in general interest rate levels also affect the valuation of the
Company's assets and liabilities, including MSRs, that are interest rate
sensitive. The Company may be required under generally accepted accounting
principles to establish a valuation allowance to reflect a decline in the market
value of its assets as a result of changes in interest rates. For the year ended
December 31, 1998, BankAtlantic established a valuation allowance of $10.7
million ($15 million at September 30, 1998) to reflect the decline in the market
value of its MSRs primarily as a result of historically low interest rate levels
causing anticipated acceleration of prepayments of the loans associated with the
MSRs. While the Company intends to exit the MSB the Company's results of
operations would be adversely affected in future periods if changes in interest
rates adversely impact the market value of its assets and liabilities. The MSB
has been categorized as a discontinued operation in the accompanying
Consolidated Statement of Operations.
BankAtlantic's Cumulative Rate Sensitivity Gap at December 31, 1998
181 Days
0-90 91-180 to 1 1 - 3 3 - 5 5 - 10 10 - 20
Dollars in thousands) Days Days Year Years Years Years Years
- --------------------- ---- ---- ---- ----- ----- ----- -----
Interest earning assets:
Investment securities (5)(6) ............... $ 65,730 $ 9,864 $ 12,432 1,126 0$ 0 $ 0
Conventional single family (1).............. 100,923 92,248 163,337 438,691 195,747 145,539 8,756
Adjustable single family (2) ............... 59,019 15,239 39,027 135,936 68,480 42,216 0
Securities available for sale-fixed rates .. 2,132 3,460 15,819 81,236 71,539 102,122 0
Securities available for sale floating
rates (2)................................. 62,264 25,576 20,367 57,795 138,112 0 0
Commercial real estate loans(1)............. 12,700 6,457 21,812 89,334 98,414 7,417 0
Adjustable commercial real estate loans (2) 303,981 10,183 251,133 0 0 0 0
Commercial business including banker's
acceptances................................ 41,943 22,691 8,006 16,686 2,849 8,584 0
Commercial business adjustable ............. 126,330 0 0 0 0 0 0
Lease financing ............................ 1,561 1,632 3,489 17,500 873 0 0
Consumer........................................ 51,370 36,089 58,949 115,887 21,056 2,316 0
Consumer prime rate ........................ 36,269 0 0 0 0 0 0
------ - - - - - -
Total interest earning assets .............. 864,222 223,439 594,371 966,039 598,196 308,194 8,756
------- ------- ------- ------- ------- ------- -----
Interest bearing liabilities:
Money fund savings (4) ..................... 83,340 66,881 107,344 86,136 41,009 37,268 0
Savings and NOW (4) ........................ 26,354 24,246 43,998 119,368 44,796 103,170 0
Certificate accounts (8) ................... 301,207 168,136 221,502 187,700 22,842 687 0
Borrowings:
Securities sold under agreements to ........ 175,424 0 0 0 0 0 0
repurchase
Advances from FHLB and Federal Funds
purchased (7) ........................... 132,000 15,550 27,343 92,171 231,008 565,000 0
-- ------- ------ ------ ------ ------- ------- -
Total interest-bearing liabilities ......... $ 718,325 $ 274,813 $ 400,187 $ 485,375 $339,655 $ 706,125 $ 0
========= ========= ========== =========== ======== ========= ===========
Interest rate sensitivity GAP (repricing ... $ 145,897 $(51,374) 194,184 480,664 258,541 (397,931) 8,756
difference)
Cumulative GAP ............................. $ 145,897 $ 94,523 $ 288,707 $769,371 $1,027,912 $ 629,981 $ 638,737
Cumulative ratio of GAP to total assets .... 3.96% 2.56 % 7.83 % 20.87 27.88 % 17.09% 17.32
==== ==== ==== ===== ===== ===== =====
BankAtlantic's Cumulative Rate Sensitivity Gap at December 31, 1998
>20
Dollars in thousands) Years Total
Interest earning assets:
Investment securities (5)(6) .............. 0 102,126
Conventional single family (1)............. 311 1,145,552
Adjustable single family (2) .............. 0 359,917
Securities available for sale-fixed rates .. 0 276,308
Securities available for sale floating
rates (2)................................. 0 304,114
Commercial real estate loans ............... 0 236,134
Adjustable commercial real estate loans (2) 0 565,297
Commercial business including banker's
acceptances................................ 0 100,759
Commercial business adjustable ............. 0 126,330
Lease financing ............................ 0 25,055
Consumer..................................... 0 285,667
Consumer prime rate ........................ 0 36,269
- ------
Total interest earning assets .............. 311 3,563,528
--- ---------
Interest bearing liabilities:
Money fund savings (4) ..................... 0 421,978
Savings and NOW (4) ........................ 0 361,932
Certificate accounts (8) ................... 0 902,074
Borrowings:
Securities sold under agreements to ........ 0 175,424
repurchase
Advances from FHLB and Federal Funds
purchased (7) ........................... 0 1,063,072
- ---------
Total interest-bearing liabilities ......... 0 2,924,480
= =========
Interest rate sensitivity GAP (repricing ... 8,756 $ 311
difference)
Cumulative GAP ............................. 638,737 $ 639,048
Cumulative ratio of GAP to total assets .... 17.32 % 17.33 %
===== =====
(1) Fixed rate mortgages are shown in periods which reflect normal amortization plus prepayments of 20-32% per annum,
depending on coupon.
(2) Adjustable rate mortgages and securities available for sale-floating rate are shown in the periods in which the
mortgages are scheduled for repricing.
(3) Fixed rate securities available for sale are shown in periods which reflect normal amortization plus prepayments equal
to BankAtlantic's experience of 18-25% per annum.
(4) BankAtlantic determines deposit run-off on money fund checking, savings and NOW accounts based on statistics obtained
from external sources. BankAtlantic does not believe its experience differs significantly from these sources.
Interest-free transaction accounts are non-interest bearing liabilities and are accordingly, excluded from the
cumulative rate sensitivity gap analysis.
Within 1 - 3 3 - 5 Over 5
1 Year Years Years Years
------ ----- ----- -----
Money fund savings accounts decay rates 17 % 17 % 16 % 16 %
NOW and savings accounts decay rates .. 37 % 32 % 17 % 17 %
=== === === ===
(5) Includes FHLB stock and federal funds sold.
(6) Tax certificates are shown in periods which reflects normal repayment equal to BankAtlantic's experience of 10% of the
outstanding monthly balance.
(7) Included in advances from FHLB were $765.0 million of European callable advances. The repricing date of the callable
advance utilized in the above table was the final maturity date due to lower advance rates at December 31, 1998.
(8) The amounts of scheduled maturities of certificate accounts and related interest rates are disclosed under the heading
"Financial Condition - Deposits" elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash flow is dividends from BankAtlantic.
The Company also obtains funds upon the exercise of outstanding stock options to
acquire its stock and, as previously noted, through the sale of common shares
and issuance of debt securities. The Company's annual debt service associated
with its $246.9 million of 9%, 6 3/4%, and 5 5/8% Debentures and its Trust
Preferred Securities is approximately $18 million. The Company's estimated
current annual dividends to common shareholders is $4 million. During 1998, the
Company received $22 million of dividends from BankAtlantic.
Liquidity relates to BankAtlantic's 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.
Deposits have been the principal source of BankAtlantic's funds for use in
lending and for other general business purposes, however, loan repayments, sales
of securities, capital contributions from the Company, advances from the Federal
Home Loan Bank ("FHLB") of Atlanta and other borrowings, and the use of
repurchase agreements have been additional sources of funds. Loan principal
prepayments and deposit inflows and outflows are significantly influenced by
general interest rates. Borrowings may be used by BankAtlantic on a short to
intermediate term basis to compensate for reductions in normal sources of funds
such as savings inflows, and to provide additional liquidity investments. On a
long-term basis, borrowings may support expanded lending activities and
purchases of loans and investments. BankAtlantic has borrowed primarily from the
FHLB of Atlanta and through the use of repurchase agreements and in 1998,
brokered deposits.
The Company and BankAtlantic currently engage in real estate development
and investment activities through the ownership of SLWHC and equity investments
in real estate limited partnerships and there is significant volatility in the
timing of real estate sales. There is no assurance that periodic sales of
properties from SLWHC or the real estate investments will be sufficient to fund
operating expenses in future years. SLWHC had approximately $5.2 million in
operating expenses during 1998. To the extent real estate sales are not adequate
to cover operating expenses, it may be necessary to fund the operating deficit.
A summary of the Company's consolidated cash flows follows (in thousands):
For the Years Ended December 31,
------------------------------------
1998 1997 1996
-------- -------- --------
Net cash provided (used) by:
Operating activities .............. $ 177,180 $ 246,386 $ 29,159
Investing activities .............. (792,562) (684,645) (336,615)
Financing activities .............. 633,418 411,903 346,732
-------- -------- --------
Increase (decrease) in cash and cash
equivalents and due from banks .... $ 18,036 $ (26,356) $ 39,276
======== ======== ========
Cash flows from operations decreased from 1998 to 1997 primarily due to
$157.2 million of loan fundings and purchases of residential loans held for sale
during 1998 compared to $79.8 million of loan fundings during 1997.
Cash flows from operations increased in 1997 from 1996 principally due to
proceeds from sales of loans held for sale of $280.7 million net of fundings of
such loans of $79.8 million.
Cash used by investing activities increased by $107.9 million for 1998
compared to 1997. The increase primarily resulted from $2.3 billion in loan
fundings and purchases during 1998 compared to $1.2 billion during 1997. The
loan funding increases were partially offset by $1.5 billion of loan repayments
during 1998 compared to $947.3 million of loan repayments during 1997.
Cash used by investing activities increased by $348.0 million from 1996 to
1997. Such increase was principally the result of increases of $433.2 million
and $159.7 million in purchases of available for sale securities and banker's
acceptances, respectively, net of an increase of $398.7 million in principal
reductions on loans.
Cash provided by financing activities increased by $222.1 million in 1998
compared to 1997. The increase primarily resulted from higher deposits, and
short term borrowings of $231.4 million and $235.2 million, respectively. The
above were partially offset by $168.4 million of net proceeds from debentures in
1997 compared to $0 in 1998 and a $55.1 million decline in net proceeds received
from FHLB advances.
Cash provided by financing activities increased $65.2 million in 1997. Such
increase was primarily the result of a net increase of $313.1 million in FHLB
advances and an increase of $113.2 million in proceeds from Debentures. The
above increases were partially offset by a $138.8 million decrease in net
deposits and a decrease of $254.2 million in net securities sold under
agreements to repurchase.
In March 1998, the Company announced a plan to repurchase up to 2.0 million
shares of the Company's common stock. As of December 31, 1998, the Company had
repurchased, in the secondary market, 769,500 shares of Class B common stock for
$10.9 million and from January 1, 1999 through March 15, 1999, the Company
repurchased, in the secondary market, 999,700 shares of Class A common stock for
$8.4 million. These shares were retired at the time of repurchase.
Management believes that the Company, BankAtlantic and RBCO have adequate
liquidity to meet their business needs and regulatory requirements.
The Indentures relating to the Company's 9% and 6 3/4% Debentures provide
that the Company 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 (a
"Declaration Date") or the date of any such purchase, redemption, payment or
distribution (a "Redemption Date"), the Company retains cash, cash equivalents
(as determined in accordance with generally accepted accounting principles) or
marketable securities (with a market value as measured on the applicable
Declaration Date or Redemption Date) in an amount sufficient to cover the two
consecutive semi-annual interest payments that will be due and payable on the
Debentures following such Declaration Date or Redemption Date, as the case may
be. These Indentures further provide that the amount of any interest payment
made by the Company with respect to the Debentures after any applicable
Declaration Date or Redemption Date shall be deducted from the aggregate amount
of cash or cash equivalents which the Company shall be required to retain
pursuant to the foregoing provision. At December 31, 1998 and 1997 the Company
designated $5.8 million of securities available for sale to satisfy the above
provisions.
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital"). BBC
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 the Company. In a public offering in April 1997, BBC 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
an identical principal amount of the Company's 9.50% Junior Subordinated
Debentures (the "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, the Company contributed $2.3 million to BBC Capital in
exchange for BBC Capital's Common Securities (the "Common Securities") and such
proceeds were also invested in an identical principal amount of Junior
Subordinated Debentures. Offering costs of $2.9 million were paid by the
Company. BBC Capital's sole asset is $77.1 million in aggregate principal amount
Junior Subordinated Debentures. In October 1998, Jasper Eanes resigned as an
administrative trustee of BBC Capital and was replaced by Jarett Levan.
Holders of the Trust Preferred Securities and the Common Securities will be
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 Common
Securities held by the Company. The Trust Preferred Securities are considered
debt for financial accounting and tax purposes.
On November 25, 1997, in a public offering, the Company issued 4,312,500
shares of Class A common stock and $100.0 million of 5 5/8% Debentures maturing
on December 1, 2007. The net proceeds to the Company from the sale of Class A
common stock were $43.4 million net of $107,000 expenses and $96.5 million from
the issuance of the 5 5/8% Debentures net of $3.5 million of deferred offering
costs. The 5 5/8% Debentures are convertible at an exercise price of $12.94 per
share into an aggregate of 7,727,975 shares of Class A common stock. The 5 5/8%
Debentures are redeemable at any time on or after December 1, 2000 at the option
of the Company, in whole or in part, at fixed redemption prices. The Company
contributed the entire net proceeds of the offering to BankAtlantic where it was
available to support BankAtlantic's growth, both internal and via acquisitions.
The Company previously announced that it is considering alternatives
relating to its 100% ownership of its real estate operations conducted through
BDC. The alternatives include a full or partial spin-off to shareholders, a
public offering for all or a portion of such operations or continued total
ownership and operation. Any partial or total disposition would be subject to
regulatory approval and the structure of the transaction could also be impacted
by income tax considerations. As of December 31, 1998, the Company's investment
in BDC amounted to $43 million and included SLW and six joint ventures. Such
investment is currently excluded for purposes of calculation of BankAtlantic's
regulatory capital compliance. The impact to the Company of any type of
disposition of BDC is dependent upon the consideration to be received by the
Company for such disposition. Any form of disposition which results in
consideration to the Company or BankAtlantic at less than the value of its
investment in BDC could negatively impact the Company and BankAtlantic's
financial condition and results of operations. However, as discussed elsewhere
herein, there are significant risks associated with real estate development
activities and there is no assurance that the Company's continued involvement in
these activities will positively contribute to the Company's or BankAtlantic's
financial condition or results of operations. (See "Regulation and
Supervision--Dividends and Other Capital Distributions".)
BankAtlantic's primary sources of funds have been deposits, principal
repayments of loans, securities available for sale and tax certificates,
proceeds from the sale of loans, mortgage servicing rights and investment
securities, proceeds from securities sold under agreements to repurchase,
advances from FHLB, operations, other borrowings, and capital transactions.
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. The FHLB has granted BankAtlantic an unused $1.1
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.. BankAtlantic has various facilities to acquire broker deposits.
These facilities may be exercised as an alternative source of borrowings, when
and if needed. BankAtlantic during 1998 acquired brokered deposits through RBCO.
BankAtlantic has established $65.0 million lines of credit with four federally
insured banking institutions to purchase Federal Funds. At December 31, 1998,
BankAtlantic held $18.5 million of Federal funds.
Regulations currently require that savings institutions maintain an average
daily balance of liquid assets (cash and short-term United States Government and
other specified securities) equal to 4% of net withdrawable accounts and
borrowings payable in one year or less. BankAtlantic had a liquidity ratio of
20.94% under these regulations at December 31, 1998. See "Regulation and
Supervision -- Savings Institution Regulations -- Liquidity Requirements of the
OTS."
Total commitments to originate and purchase loans and mortgage-backed
securities, excluding the undisbursed portion of loans in process, were
approximately $217.2 million, $336.4 million and $83.7 million at December 31,
1998, 1997 and 1996, respectively. BankAtlantic has historically funded its
commitments out of loan repayments, short and intermediate term borrowings. At
December 31, 1998, loan commitments were approximately 8.24% of loans
receivable, net.
As more fully described under "Regulation and Supervision -- Savings
Institution Regulations -- Capital Requirements," BankAtlantic is required to
meet all capital standards promulgated pursuant to FIRREA and FDICIA.
SUBJECT PORTFOLIO -- From 1987 through 1990, BankAtlantic purchased in
excess of $50 million of indirect homeimprovement loans from certain dealers,
primarily in the northeastern United States. BankAtlantic ceased purchasing
loans from such dealers in the latter part of 1990. These dealers were
affiliated with each other but were not affiliated with BankAtlantic. In
connection with loans originated through these dealers, BankAtlantic funded
amounts to the dealers as a dealer reserve. Such loans and related dealer
reserves are referred to herein as the "Subject Portfolio."
In late 1990, questions arose relating to this portfolio and such questions
revolved around practices which were intended to defraud BankAtlantic. As a
consequence of this activity BankAtlantic filed a claim with its insurance
carrier which resulted in payments of $18 million by the carrier to BankAtlantic
during 1992 through 1994. The carrier has no obligation to make further payments
on this matter to BankAtlantic. As part of the settlement agreement with the
carrier ("Covenant"), BankAtlantic agreed to and did file suit against certain
third parties. The Covenant provides that in the event of recovery by
BankAtlantic of damages against third party wrongdoers, BankAtlantic will be
entitled to retain such amount until such amounts plus any payments received
from National Union equal $22 million plus the costs incurred by BankAtlantic to
obtain such recoveries. A trial against various wrongdoers was held in February
1998 and judgment was entered in favor of BankAtlantic and the carrier against
over fifty third party defendants, individuals and corporations. A number of
these third party defendants have been convicted of criminal fraud.
Additionally, BankAtlantic has been named as a defendant in various litigation
instituted by or for the benefit of various consumers who were mortgagors of the
loans. At December 31, 1998, all such litigation had been resolved except for
the ongoing action in New Jersey, discussed below.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions, including BankAtlantic. This action
sought, among other things, rescission of the loan agreements and damages. In
November 1995, the court in this action entered an order dismissing the
complaint against BankAtlantic; and plaintiff's appealed this ruling. In January
1996, the Appellate Court reversed the lower court's decision and remanded the
case back to the trial court to determine whether the action could be maintained
as a class action. The reversal was without prejudice to BankAtlantic's right to
renew its summary judgment motion after the trial court made a determination as
to plaintiff's ability to maintain this case as a class action. In December
1997, the trial court denied the plaintiff's motion for class certification and
in January 1998 granted BankAtlantic's summary judgment motion. The plaintiffs
appealed this ruling to the Superior Court of New Jersey Appellate Division
which, in March 1998, denied the plaintiffs motion to appeal. Plaintiff
subsequently appealed to the Supreme Court of New Jersey which, on June 30,
1998, granted plaintiffs motion to appeal and remanded the matter to the
Appellate Division to consider the class issue on its merit. The Appellate
Division has set March 24, 1999 for oral arguments on this matter.
DIVIDENDS
The Company intends to pay regular quarterly cash dividends on its common
stock. Funds for dividend payments and interest expense on the 9%, 6 3/4%, 5
5/8% Debentures and 9 1/2% Trust Preferred Securities are or will be dependent
upon BankAtlantic's ability to pay dividends to the Company. Current regulations
applicable to the payment of cash dividends by savings institutions impose
limits on capital distributions based on an institution's regulatory capital
levels and net income. See "Regulation and Supervision - Restriction on
Dividends and Other Capital Distributions."
Subject to the results of operations and regulatory capital requirements
for BankAtlantic, the Company will seek to declare regular quarterly cash
dividends on its common stock. The Company has previously effected stock splits
in the form of a stock dividend of Class A common stock to both Class A and
Class B common shareholders. Due to accounting and tax considerations,
adjustment for such stock dividends to Class B common stock options previously
granted under the Company's option plans are made only in Class B common stock.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The consequences of incomplete or untimely resolution of year 2000 issues
represent an uncertainty that could affect future financial results. The year
2000 issue affects virtually all companies and organizations.
The Company has undertaken various initiatives intended to ensure that
computer applications will function properly with respect to dates in the year
2000 and thereafter. The Company has established a year 2000 action plan which
was presented to the Board of Directors on December 2, 1997. The action plan was
developed using the guidelines outlined in the Federal Financial Institutions
Examination Council's "The Effect of 2000 on Computer Systems". The six phases
of the Company's action plan are: (1) Awareness - Define the Year 2000 issues,
gain executive level support, establish a project team and develop a strategy
which encompasses technology and business issues, (2) Assessment - Assess the
size and complexity of the issues and detail the magnitude of the effort
necessary to address them, (3) Renovation - Code enhancements, hardware and
software upgrades, and system replacements, (4) Validation - Testing of
software, system components and connections between systems, (5) Implementation
- - Systems should be certified as Year 2000 ready by the business users, and (6)
Contingency planning - determination of strategy to handle the most likely worst
case scenarios on year 2000 issues.
The Company believes that it has completed the awareness and assessment
phases of its action plan. Renovation, validation and implementation phases were
approximately 80% completed at December 31, 1998 with anticipated 95% and 100%
completion as of March 31, 1999 and June 30, 1999, respectively. The contingency
planning phase was 50% completed as of December 31, 1998, and is scheduled to be
90% complete as of March 31, 1999 and 100% completed as of June 30, 1999.
Although the Company expects to meet its action plan schedule, there is no
assurance that this timetable will be
completed according to schedule.
The majority of the Company's mission critical information technology
system structure ("IT") has been outsourced to third party vendors. The
Company's internal IT primarily consists of a minicomputer for item processing
and a personal computer based wide area network. The wide area network's primary
function is to communicate with third party service bureaus and secondarily to
run non-critical personal computer applications such as E-mail, word processing
and spreadsheet programs. The Company has various non-IT systems with embedded
microcontrollers, including but not limited to, vault security equipment, branch
security equipment, telephone systems, circuit boards on building equipment,
building elevators, and appliances. The above IT and non-IT systems could fail
or create erroneous results by or at the year 2000.
The Company relies on third party vendors to perform loan, deposit, general
ledger and other application processing. The Company is monitoring the progress
of these third party vendors in meeting their year 2000 obligations and is
actively involved in the implementation and testing of the modified application
programs. The third party vendors completed the update of the application
programs during the fourth quarter of 1998 with the Company testing the programs
during the first quarter of 1999. Although the Company currently has no
indication that its third party vendors will not be able to operate as a result
of year 2000 related problems, there is no assurance that these third party
vendors will meet their obligations to the Company. Included in the Statement of
Operations during the year ended December 31, 1998 were $210,000 of third party
expenses related to the year 2000 action plan. The Company estimates that it
will spend approximately $100,000 on year 2000 consulting services, $300,000 on
software and hardware maintenance specifically related to year 2000, $100,000 on
RBCO system upgrades and consulting services and $100,000 for contingency
planning during the year ended December 31, 1999. The above items will be
expensed as incurred and do not include employee compensation allocated for time
spent on the year 2000 project.
Risk factors associated with the year 2000 event include the risk that the
Company's business could be disrupted due to vendors, suppliers, and customer
system failures, or even the possible loss of electrical power or phone service.
The Company is currently assessing the probability of these events occurring and
is formulating contingency plans. The Company could be also subjected to
litigation due to year 2000 noncompliance from customers, borrowers and
suppliers as a result of both internal and third party system failures. The
Company as part of its action plan has sent brochures to customers, and
questionnaires to borrowers and suppliers, and as mentioned above is addressing
both IT and non-IT year 2000 issues. Further, the credit quality of the
Company's loans may be affected by the failure of a borrower's operating or
other systems as a consequence of a year 2000 issue or the related failure of a
borrower's key suppliers, customers, or service providers resulting in higher
provisions for loan losses. The Company's underwriting and credit policies
include consideration of a borrower's potential year 2000 issues. There is no
assurance that the Company's borrowers will be able to meet their obligations to
the Company if these borrowers experience year 2000 problems.
Certain assets of the Company may have to be replaced, based on upgrades to
equipment and software that are part of the Company's normal business needs,
rapidly developing technology, and a three year capital equipment and software
replacement plan. The Company does not anticipate impairment or significant
replacement of assets related to the year 2000 issue.
There is no assurance that the foregoing has identified all costs, risks or
possible losses which the Company may experience associated with year 2000
issues. The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-party suppliers, borrowers and
customers, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The goal of the Year
2000 Project is to significantly reduce the Company's level of uncertainty about
the year 2000 problem and, the Company believes that, with the implementation of
new business systems and completion of the project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
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."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report.............................................. F-3
Consolidated Statements of Financial Condition
as of December 31, 1998 and 1997........................................ F-4
Consolidated Statements of Operations for
each of the years in the three year period ended
December 31, 1998 ...................................................... F-5
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for each of the years in the three year
period ended December 31, 1998.......................................... F-7
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1998 .............................. F-9
Notes to Consolidated Financial Statements ............................... F-12
[THIS PAGE INTENTIONALLY LEFT BLANK]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BankAtlantic Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of BankAtlantic Bancorp, Inc. and subsidiaries as of December 31, 1998
and 1997, 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, 1998. 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 generally accepted auditing
standards. 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 BankAtlantic
Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
fort Lauderdale, Florida
January 29, 1999
F-3
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------------
(In thousands, except share data) 1998 1997
----------- -----------
ASSETS
Cash and due from depository institutions ................................................ $ 100,823 $ 82,787
Investment securities, net - held to maturity, at cost which approximates market value ... 51,811 55,213
Loans receivable, net .................................................................... 2,466,488 1,911,263
Loans held for sale ...................................................................... 168,881 161,562
Securities available for sale (at market value) .......................................... 597,520 607,490
Trading securities (at market value) ..................................................... 30,005 5,067
Accrued interest receivable .............................................................. 27,771 22,624
Real estate held for development and sale and joint ventures ............................. 67,845 18,638
Real estate owned, net ................................................................... 5,503 7,528
Office properties and equipment, net ..................................................... 58,090 51,130
Federal Home Loan Bank stock, at cost which approximates market value .................... 52,230 34,887
mortgage servicing rights, net ........................................................... 44,315 38,789
Deferred tax asset, net .................................................................. 20,148 3,197
Cost over fair value of net assets acquired, net ......................................... 55,493 26,188
Other assets ............................................................................. 42,052 38,117
----------- ----------
Total assets .................................................................... $ 3,788,975 $3,064,480
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................................. $ 1,925,772 $1,763,733
Advances from FHLB ....................................................................... 1,044,572 697,707
Federal Funds purchased .................................................................. 18,500 2,500
Securities sold under agreements to repurchase ........................................... 162,093 58,716
Subordinated debentures, notes and bonds payable ......................................... 177,114 179,600
Guaranteed preferred beneficial interests in Company's Junior Subordinated Debentures .... 74,750 74,750
Advances by borrowers for taxes and insurance ............................................ 62,346 39,397
Other liabilities ........................................................................ 83,388 40,906
---------- ----------
Total liabilities ............................................................... 3,548,535 2,857,309
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding 0 0
Class A common stock, $.01 par value, authorized 80,000,000 shares;
issued and outstanding 26,799,368 and 21,509,159 shares ............................... 268 215
Class B common stock, $.01 par value, authorized 45,000,000 shares;
issued and outstanding 10,356,431 and 10,690,231 shares ............................... 104 107
Additional paid-in capital ............................................................... 147,686 98,475
Unearned compensation - restricted stock grants .......................................... (7,062) 0
Retained earnings ........................................................................ 95,818 107,650
----------- ----------
Total stockholders' equity before accumulated other comprehensive income ................. 236,814 206,447
Accumulated other comprehensive income - net unrealized appreciation on securities
available for sale - net of deferred income taxes ...................................... 3,626 724
----------- ----------
Total stockholders' equity ...................................................... 240,440 207,171
----------- ----------
Total liabilities and stockholders' equity ...................................... $ 3,788,975 $3,064,480
=========== ==========
See Notes to Consolidated Financial Statements
F-4
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
INTEREST INCOME: 1998 1997 1996
--------- -------- ---------
Interest and fees on loans ..................................................... $ 208,094 $171,212 $ 107,922
Interest on banker's acceptances ............................................... 1,062 473 22
Interest on securities available for sale ...................................... 34,924 31,177 38,159
Interest and dividends on investment and trading securities .................... 10,058 7,692 6,528
--------- -------- ---------
Total interest income .................................................. 254,138 210,554 152,631
--------- -------- ---------
INTEREST EXPENSE:
Interest on deposits ........................................................... 66,714 68,231 54,646
Interest on advances from FHLB ................................................. 52,763 27,345 9,221
Interest on securities sold under agreements to repurchase and federal
funds purchased .............................................................. 13,767 8,906 8,480
Interest on subordinated debentures, notes and bonds payable and
guaranteed
beneficial interests in Company's Junior Subordinated Debentures ............. 19,643 11,542 4,018
Capitalized interest on investments in and advances to real estate joint ....... (1,034) 0 0
ventures
--------- -------- ---------
Total interest expense ................................................. 151,853 116,024 76,365
--------- -------- ---------
Net interest income ............................................................ 102,285 94,530 76,266
Provision for loan losses ...................................................... 21,788 11,268 5,844
--------- -------- ---------
Net interest income after provision for loan losses ............................ 80,497 83,262 70,422
--------- -------- ---------
NON-INTEREST INCOME:
Loan late fees and other loan income ........................................... 4,299 2,293 1,590
Gains on sales of loans held for sale .......................................... 4,104 6,820 534
Trading securities gains ....................................................... 898 2,463 0
Gains on sales of real estate held for sale .................................... 6,055 470 0
Gains on sales of securities available for sale, net of write-downs ............ 309 2,367 5,959
Gains (losses) on sales of property and equipment, net ......................... (11) 852 3,061
Principal transactions ......................................................... 4,417 0 0
Investment banking ............................................................. 8,345 0 0
Commissions .................................................................... 4,132 103 21
Transaction fees ............................................................... 12,589 9,302 8,600
ATM fees ....................................................................... 6,650 5,329 3,944
Other .......................................................................... 5,093 3,367 3,109
---------
-------- ---------
Total non-interest income .............................................. 56,880 33,366 26,818
--------- -------- ---------
NON-INTEREST EXPENSE:
Employee compensation/benefits excluding RBCO and real estate operations ....... 45,063 37,666 30,893
Employee compensation/benefits for RBCO and real estate operations ............. 12,443 144 0
Occupancy and equipment ........................................................ 21,444 17,693 12,823
SAIF special assessment ........................................................ 0 0 7,160
Federal insurance premium ...................................................... 1,042 1,084 2,495
Advertising and promotion ...................................................... 5,749 2,203 2,061
Foreclosed asset activity, net ................................................. 754 82 (725)
Restructuring charges and write-downs .......................................... 2,565 0 0
Pension curtailment gain, net .................................................. (3,128) 0 0
Amortization of cost over fair value of net assets acquired .................... 3,311 2,508 1,545
Other excluding RBCO and real estate operations ................................ 23,641 16,087 11,969
Other for RBCO and real estate operations ...................................... 7,781 255 0
-------- ---------
---------
Total non-interest expense ............................................. 120,665 77,722 68,221
--------- -------- ---------
Income before income taxes and discontinued operations ......................... 16,712 38,906 29,019
Provision for income taxes ..................................................... 6,526 15,248 11,380
--------- -------- ---------
Income from continuing operations .............................................. 10,186 23,658 17,639
Income (loss) from operations of discontinued mortgage servicing business
(less applicable income taxes (benefit) of ($11,101), $2,505 and $861) ....... (18,220) 4,111 1,372
--------- -------- ---------
Net income (loss) .............................................................. $ (8,034) $ 27,769 $ 19,011
========= ======== =========
(Continued)
F-5
(In thousands, except per share data) FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996
------------- -------------- --------------
CLASS A COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.30 $ 0.84 $ 0.59
Basic earnings (loss) per share from discontinued operations . (0.54) 0.14 0.05
------------- -------------- --------------
Basic earnings (loss) per share .............................. $ (0.24) $ 0.98 $ 0.64
============= ============== ==============
Diluted earnings per share from continuing operations ........ $ 0.29 $ 0.67 $ 0.54
Diluted earnings (loss) per share from discontinued operations (0.51) 0.11 0.04
------------- -------------- --------------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.78 $ 0.58
============= ============== ==============
Basic weighted average number of common shares outstanding ... 24,161,923 18,029,784 17,616,000
============= ============== ==============
Diluted weighted average number of common and common
equivalent shares outstanding .............................. 24,792,545 27,893,534 21,968,058
============= ============== ==============
CLASS B COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.27 $ 0.81 $ 0.68
Basic earnings (loss) per share from discontinued operations . (0.49) 0.13 0.04
------------- -------------- --------------
Basic earnings (loss) per share .............................. $ (0.22) $ 0.94 $ 0.72
============= ============== ==============
Diluted earnings per share from continuing operations ........ $ 0.26 $ 0.67 $ 0.62
Diluted earnings (loss) per share from discontinued operations (0.48) 0.10 0.04
------------- -------------- --------------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.77 $ 0.66
============= ============== ==============
Basic weighted average number of common shares outstanding ... 10,483,522 10,649,135 10,589,000
============= ============== ==============
Diluted weighted average number of common and common
equivalent shares outstanding .............................. 11,383,033 11,765,385 11,576,500
============= ============== ==============
See Notes to Consolidated Financial Statements
F-6
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
ACCUMUL-
ATED
OTHER
COMPRE- ADDITIONAL COMPRE-
HENSIVE COMMON PAID-IN RETAINED HENSIVE
(In thousands) INCOME STOCK CAPITAL EARNINGS INCOME (A) TOTAL
--------- --------- --------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1995............................... $ 106 $ 48,905 $ 65,817 $ 5,733 $ 120,561
Net income .............................................. $ 19,011 0 0 19,011 0 19,011
Other comprehensive income (A) .......................... (4,985)
--------
Comprehensive income .................................... 14,026
========
Proceeds from issuance of Class A common stock, net...... 12 17,992 0 0 18,004
Dividends on Class A common stock ....................... 0 0 (460) 0 (460)
Dividends on Class B common stock........................ 0 0 (1,699) 0 (1,699)
Exercise of Class B common stock options................ 0 413 0 0 413
Tax effect relating to the exercise of stock options..... 0 118 0 0 118
Purchase and retirement of Class A common stock.......... (1) (1,856) 0 0 (1,857)
Purchase and retirement of Class B common stock.......... (1) (1,401) 0 0 (1,402)
5 for 4 stock split July 1996............................ 30 0 (30) 0 0
5 for 4 stock split February 1997 ....................... 37 0 (37) 0 0
Net change in unrealized appreciation on securities
available for sale - net of deferred income taxes...... 0 0 0 (4,985) (4,985)
--------- --------- -------- ---------- --------
BALANCE, DECEMBER 31,1996................................ 183 64,171 82,602 748 147,704
Net income .............................................. 27,769 0 0 27,769 0 27,769
Other comprehensive income .............................. (24)
--------
Comprehensive income (A) ................................ $ 27,745
========
Proceeds from issuance of Class A common stock, net ..... 35 43,339 0 0 43,374
Issuance of Class A common stock upon conversion of
subordinated debentures ............................... 0 375 0 0 375
Dividends on Class A common stock ....................... 0 0 (1,365) 0 (1,365)
Dividends on Class B common stock........................ 0 0 (1,244) 0 (1,244)
Exercise of Class A common stock options ................ 0 97 0 0 97
Exercise of Class B common stock options ............... 3 1,757 0 0 1,760
Tax effect relating to the exercise of stock options.... 0 913 0 0 913
Purchase and retirement of Class A common stock ......... (3) (3,340) 0 0 (3,343)
Purchase and retirement of Class B common stock ......... (8) (8,837) 0 0 (8,845)
5 for 4 stock split July 1997............................ 48 0 (48) 0 0
5 for 4 stock split February 1998 ....................... 64 0 (64) 0 0
Net change in unrealized appreciation on securities
available for sale - net of deferred income taxes...... 0 0 0 (24) (24)
--------- --------- -------- ---------- --------
BALANCE, DECEMBER 31, 1997............................... $ 322 $ 98,475 $107,650 $ 724 $207,171
========= ========= ======== ========== ========
F-7
(Continued)
UNEARNED ACCUMUL-
COMPEN- ATED
ADDI- SATION- OTHER
COMPRE- TIONAL RESTRICTED COMPRE-
HENSIVE COMMON PAID-IN RETAINED STOCK HENSIVE
(IN THOUSANDS) INCOME STOCK CAPITAL EARNINGS GRANTS INCOME (A) TOTAL
---------- --------- --------- ----------- ---------- ----------- --------
BALANCE, DECEMBER 31, 1997 ....................... $ 322 $ 98,475 $ 107,650 $ 0 $ 724 $207,171
Net loss .........................................$(8,034) 0 0 (8,034) 0 0 (8,034)
-------
Other comprehensive income, net of income tax:
Unrealized gains on securities available
for sale..................................... 3,705
Reclassification adjustment for losses
included in net loss ........................ (803)
------
Other comprehensive income (A) ................... 2,902
------
Comprehensive loss ...............................$(5,132)
=======
Dividends on Class A common stock ................ 0 0 (2,773) 0 0 (2,773)
Dividends on Class B common stock ................ 0 0 (1,025) 0 0 (1,025)
Exercise of Class A common stock options ......... 0 200 0 0 0 200
Exercise of Class B common stock options ......... 4 1,380 0 0 0 1,384
Tax effect relating to the exercise of stock
options......................................... 0 709 0 0 0 709
Purchase and retirement of Class B common stock .. (7) (10,853) 0 0 0 (10,860)
Issuance of Class A common stock for
acquisitions.................................... 43 41,819 0 0 0 41,862
Issuance of Class A restricted stock ............. 1 583 0 0 0 584
Issuance of Class A common stock options
upon acquisition of RBCO ....................... 0 1,582 0 0 0 1,582
Issuance of Class A common stock upon
conversion of subordinated debentures, net ..... 9 5,720 0 0 0 5,729
Unearned compensation - restricted stock grants .. 0 8,071 0 (8,071) 0 0
Amortization of unearned compensation --
restricted stock grants ....................... 0 0 0 1,009 0 1,009
Net change in unrealized appreciation on
securities available for sale-net of deferred
income taxes ................................... 0 0 0 0 2,902 2,902
------- --------- ---------- ---------- ----------- --------
BALANCE, DECEMBER 31, 1998 ....................... $ 372 $ 147,686 $ 95,818 $ (7,062) $ 3,626 $240,440
======= ========= ========== ========== =========== ========
(A) The components of comprehensive income relate to the net unrealized
appreciation (depreciation) on securities available for sale, net of
income taxes.
See Notes to Consolidated Financial Statements
F-8
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
(In thousands) 1998 1997 1996
--------- -------- --------
OPERATING ACTIVITIES:
Income from continuing operations .................................................... $ 10,186 23,658 $ 17,639
Income (loss) from discontinued operations ........................................... (18,220) 4,111 1,372
ADJUSTMENT TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Provision for loan losses ............................................................ 21,788 11,268 5,844
Provision for (reversal of) losses on real estate owned .............................. 1,115 (56) (197)
Gain on sales of real estate held for development and sale ........................... (6,055) (470) 0
Gains on sales of securities available for sale ...................................... (2,445) (2,367) (5,959)
Gains on sales of mortgage servicing rights .......................................... (2,611) (7,905) (4,182)
Gains on sales of real estate owned .................................................. (1,012) (354) (575)
Gains on sales of loans held for sale ................................................ (4,104) (6,820) (534)
(Gains) losses on sales of office properties and equipment ........................... 11 (852) (3,061)
Depreciation, amortization and accretion, net ........................................ 13,157 10,853 6,476
Amortization of mortgage servicing rights ............................................ 18,977 8,210 6,849
Restructuring charges and write-downs ................................................ 2,565 0 0
Provision for disposal of mortgage servicing business ................................ 10,000 0 0
Provision for valuation of mortgage servicing rights ................................. 10,690 0 0
Provision (benefit) for deferred income taxes ........................................ (18,263) 173 1,495
Proceeds from sales of loans held for sale ........................................... 283,138 280,703 59,942
Fundings of loans held for sale ...................................................... (127,214) (79,832) (57,097)
Loans purchased, classified as held for sale ......................................... (29,997) 0 0
Purchase of trading securities, net .................................................. (4,142) (6,243) 0
Proceeds from sales of trading securities ............................................ 8,712 3,640 0
Trading securities gains ............................................................ (898) (2,463) 0
Write-down of securities available for sale .......................................... 2,136 0 0
Increase in accrued interest receivable .............................................. (5,147) (1,869) (2,021)
Amortization of cost over fair value of net assets acquired .......................... 3,311 2,508 1,545
Increase (decrease) in other assets .................................................. (919) 1,720 804
Pension curtailment gain, net ........................................................ (3,128) 0 0
Increase in other liabilities ........................................................ 15,700 8,859 740
Write down of office properties and equipment ........................................ 0 0 263
Loss on joint venture operations ..................................................... 77 12 0
Provision for (reversal of ) allowance for tax certificate losses .................... 234 (98) (184)
Decrease in securities sold not yet purchased ........................................ (462) 0 0
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................ 177,180 246,386 29,159
--------- -------- --------
(Continued)
F-9
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
(In thousands) 1998 1997 1996
----------- -------- ----------
INVESTING ACTIVITIES:
Purchase of investment securities .............................................. (53,214) (47,822) (56,884)
Proceeds from redemption and maturity of investment securities ................. 58,297 47,218 52,413
Purchase of securities available for sale ...................................... (916,445) (664,993) (231,765)
Principal collected on securities available for sale ........................... 224,565 141,775 43,236
Proceeds from sales of securities available for sale ........................... 706,033 357,863 374,413
Loans purchased ................................................................ (1,263,502) (524,498) (465,942)
Principal reduction on loans ................................................... 1,498,352 947,299 548,536
Loan fundings for portfolio .................................................... (1,072,530) (720,620) (692,546)
Banker's acceptances funded .................................................... (110,180) (159,709) (86)
Proceeds from maturity of banker's acceptances ................................. 219,808 287 108
Proceeds from sales of banker's acceptances .................................... 41,877 0 0
Cost of equipment acquired for lease ........................................... (19,214) 0 0
Leases purchased ............................................................... (6,054) 0 0
Principal collected on mortgage-backed securities held to maturity ............. 0 0 131,361
Proceeds from sales of real estate owned ....................................... 6,774 2,876 4,938
Additions to dealer reserve .................................................... (7,525) (9,409) (4,203)
Additions to office properties and equipment ................................... (9,994) (7,934) (10,326)
Proceeds from sales of properties and equipment ................................ 0 1,144 2,666
Investments and advances to joint ventures ..................................... (38,339) (1,325) 0
Purchases of FHLB stock net of redemptions ..................................... (17,343) (20,100) (1,923)
Proceeds from maturities of interest bearing deposits with banks ............... 0 0 19,795
Proceeds from sales of mortgage servicing rights ............................... 31,454 35,550 15,586
Mortgage servicing rights purchased and originated ............................. (64,176) (45,840) (27,681)
Proceeds for sales of real estate held for development and sale ................ 12,922 2,133 0
Additional investment in real estate held for development and sale ............. (14,561) (623) 0
Acquisitions, net of cash acquired ............................................. 433 (17,917) (38,311)
----------- -------- ---------
NET CASH USED BY INVESTING ACTIVITIES .......................................... (792,562) (684,645) (336,615)
----------- -------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ............................................ 108,462 (122,938) 15,905
Interest credited to deposits .................................................. 53,577 53,754 47,433
Proceeds from FHLB advances .................................................... 1,727,000 763,006 577,643
Repayments of FHLB advances .................................................... (1,380,135) (360,999) (488,755)
Net increase (decrease) in federal funds purchased ............................ 16,000 2,500 (1,200)
Proceeds from notes and bonds payable .......................................... 4,135 563 0
Repayment of notes and bonds payable .......................................... (9,051) (903) (1)
Net increase (decrease) in securities sold under agreements to repurchase ...... 103,377 (131,872) 122,329
Proceeds from the issuance of subordinated debentures .......................... 0 100,000 57,500
Deferred costs on the issuance of subordinated debentures ...................... 0 (3,488) (2,356)
Proceeds from issuance of guaranteed preferred interests in the Company's
Junior Subordinated Debentures ............................................... 0 74,750 0
Deferred offering costs from issuance of guaranteed preferred interests
in the Company's Junior Subordinated Debentures .............................. 0 (2,908) 0
Payment to acquire and retire common stock ..................................... (10,860) (12,188) (3,259)
Issuance of common stock, net .................................................. 0 43,374 18,004
Issuance of common stock upon exercise of stock options ........................ 1,584 1,857 413
Receipts of advances by borrowers for taxes and insurance, net ................. 22,949 9,738 5,235
Common stock dividends paid .................................................... (3,620) (2,343) (2,159)
----------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 633,418 411,903 346,732
----------- -------- ---------
Increase (decrease) in cash and cash equivalents ............................... 18,036 (26,356) 39,276
Cash and cash equivalents at the beginning of period ........................... 82,787 109,143 69,867
----------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 100,823 82,787 $ 109,143
=========== ======== =========
(Continued)
F-10
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
(In thousands) 1998 1997 1996
--------- --------- --------
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid on borrowings and deposits ........................................... $ 149,375 $ 112,161 $ 71,656
Income taxes paid .................................................................. 9,372 15,060 8,600
Loans transferred to real estate owned ............................................. 4,852 5,076 1,788
Residential loans transferred to held for sale ..................................... 108,465 321,360 0
Loans charged-off .................................................................. 16,095 11,330 7,718
Real estate owned charged-off ...................................................... 1,415 244 803
Tax certificates charged-off (recoveries), net ..................................... 163 419 (2)
Issuance of Class A common stock upon conversion of subordinated
debentures ....................................................................... 5,729 375 0
Issuance of Class A common stock upon acquisitions ................................. 41,862 0 0
Issuance of Class A common stock options upon acquisition of RBCO .................. 1,582 0 0
Issuance of Class A restricted stock ............................................... 584 0 0
Increase in real estate held for development and sale resulting from
St. Lucie West Holding Company ("SLWHC") purchase accounting adjustments ......... 1,502 0 0
Decrease in other assets resulting from SLWHC purchase accounting
adjustment ....................................................................... (1,502) 0 0
Increase in equity for the tax effect related to the exercise of
stock options .................................................................... 709 913 118
Class A common stock cash dividends declared and paid in subsequent
period ........................................................................... 737 496 168
Class B common stock cash dividends declared and paid in subsequent
period ........................................................................... 260 321 384
Net change in unrealized appreciation (depreciation) on securities
available for sale ................................................................ 4,678 (39) (8,115)
Change in deferred taxes on net unrealized (depreciation) appreciation
on securities available for sale ................................................. 1,776 (15) (3,130)
Change in stockholders' equity from net unrealized (depreciation)
appreciation on securities available for sale, less related deferred
income taxes ..................................................................... 2,902 (24) (4,985)
Proceeds receivable from sales of mortgage servicing rights ........................ 7,639 7,388 9,522
Originated mortgage servicing rights ............................................... 111 1,668 311
Proceeds receivable from sales of properties leased to others ...................... 0 0 5,401
Transfer from securities available for sale to trading securities .................. 1,755 6,230 0
See Notes to Consolidated Financial Statements
F-11
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION -- BankAtlantic Bancorp, Inc.
(the "Company") is a unitary savings bank holding company. The Company's
principal assets include the capital stock of BankAtlantic and Ryan Beck & Co.
("RBCO") and its wholly owned subsidiaries. Under applicable law, the Company
generally has broad authority with few restrictions to engage in various types
of business activities. During 1997 BankAtlantic acquired St. Lucie West Holding
Company ("SLWHC"). SLWHC is the developer of a master planned community located
in Port St. Lucie, Florida. The Company acquired Leasing Technologies Inc.
("LTI") and contributed the common stock to BankAtlantic in June 1998. The
Company and BankAtlantic invested in various real estate limited partnerships
during the latter part of 1997 and during 1998. At December 31, 1998, BFC
Financial Corporation ("BFC") owned 47% of the Company's voting common stock and
31% of the Company's total common stock.
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, real estate held for development and
sale, and the provision for disposal of the Company's mortgage servicing
business which includes the estimation of the value of mortgage servicing rights
upon sale. In connection with the determination of the allowances for loan
losses and real estate owned, management obtains independent appraisals for
significant properties when it is deemed prudent.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1998. Prior years Statements of Operations were
restated for discontinued operations.
CONSOLIDATION POLICY -- The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All the Company's
subsidiaries are 100% owned except for investments in joint ventures accounted
for under the equity method of accounting. The Company's non-consolidated
ownership interest in these joint ventures range from 40% to 50%. All
intercompany transactions and balances have been eliminated.
CASH EQUIVALENTS -- Cash and due from depository institutions include
demand deposits at other financial institutions and federal funds sold.
Generally, federal funds are sold for one-day periods.
SECURITIES -- 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 cost, adjusted for amortization of premium or accretion of
discount using the interest method. Securities that may be sold prior to
maturity for asset/liability management purposes, or that may be sold in
response to changes in interest rates, to changes in prepayment risk, to
increase regulatory capital or other similar factors, are classified as
securities available-for-sale and carried at fair value with any adjustments to
fair value, after tax, reported as a separate component of stockholders' equity.
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. The related write-downs are
included in earnings as realized losses. Securities purchased for trading
purposes are held in the trading portfolio at fair value, with changes in fair
value included in noninterest income.
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. Gains and losses on the sale of
securities are recorded on the trade date and are calculated using the
specific-identification method.
TAX CERTIFICATES -- Tax certificates are carried at cost. All tax
certificates are classified as held to maturity because management has the
positive intent and ability to hold such certificates to maturity. Tax
certificates and resulting deeds are classified as non-accrual when a tax
certificate is 48 months delinquent and a deed has aged 48 months from
BankAtlantic's acquisition date. At that time interest ceases to be accrued.
F-12
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for tax certificate losses 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
certificates, management considers past loss experience, present indicators,
such as the length of time the certificate has been outstanding, economic
conditions and collateral values.
CONSTRUCTION AND DEVELOPMENT LENDING -- BankAtlantic's construction and
development lending generally requires an equity investment in the form of
contributed assets or direct cash investment from the borrower. BankAtlantic had
no loans with participation in profits at December 31, 1998, 1997 and 1996.
Accordingly, all construction and development lending arrangements have been
classified and accounted for as loans other than loans to joint ventures (see
"investment in joint ventures" below).
NON-ACCRUAL LOANS AND IMPAIRED LOANS -- 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 is
generally placed on nonaccrual status at the earlier of management becoming
aware that the borrower has entered bankruptcy proceedings and the loan is
delinquent or when the loan is past due 90 days as to either principal or
interest. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. A nonaccrual loan may be restored
to accrual status when delinquent loan payments are collected and the loan is
expected to perform according to its contractual terms.
Management considers a loan to be impaired when, based upon current
information and events, it believes it is probable that BankAtlantic will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Loans collectively reviewed by BankAtlantic for impairment include
residential and consumer loans and performing commercial real estate and
commercial business loans (including small business loans) under $500,000,
excluding loans which are individually reviewed based on specific criteria, such
as delinquency and condition of collateral property. Generally, BankAtlantic
recognizes interest income on impaired loans on a cash basis.
ALLOWANCE FOR LOAN LOSSES -- In determining the adequacy of its
allowance for loan losses management segregates the loan portfolio into broad
categories , such as: commercial real estate; residential real estate; small
business; commercial business; lease financing, international and various types
of consumer loans. BankAtlantic provides for a general allowance for losses
inherent in the portfolio by the above categories, which consists of two
components. First, general loss percentages are calculated based upon historical
analyses. In considering this portion of the provision, greater emphasis is
placed on current trends, if such trends are adverse. Secondly, a supplemental
portion of the allowance is calculated for inherent losses which probably exist
as of the evaluation date even though they might not have been identified by the
more objective processes used for the portion of the allowance described above.
This is due to the risk of error and/or inherent imprecision in the process.
This portion of the allowance is particularly subjective and requires judgments
based on qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and nonaccruals; volume terms and
portfolio mix; new credit products and/or changes in the geographic distribution
of these products; changes in lending policies and procedures; loan review
reports on the efficacy of the risk identification process; changes in the
outlook for local, regional and national economic conditions; concentrations of
credit; and peer group comparisons.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the probable loss
upon liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is increased or decreased in order to
adjust the allowance for loan losses to the required level as determined above.
A loan is impaired when collection of principal and interest based on
the contractual terms of the loan is not probable. BankAtlantic measures
impairment based on (a) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective interest rate, (b)
the observable market price of the impaired loans, or (c) the fair value of the
collateral of a collateral-dependent loan. BankAtlantic selects the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for which
foreclosure is probable are measured at the fair value of the collateral.
Specific allowances are provided, as noted above, in the event the impairment
calculation is in excess of the general allowance allocation. In a troubled debt
restructuring, BankAtlantic measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
Management believes the allowance for loan loss is adequate and that it
has a sound basis for estimating the adequacy of the allowance for loan losses,
however actual charge-offs incurred in the future are highly dependent upon
future events, including the economy of the geographical areas in which
BankAtlantic holds loans. In addition, various regulatory agencies, as an
integral
F-13
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
part of their examination process, periodically review BankAtlantic's allowance
for loan losses. Such agencies may require BankAtlantic to recognize additions
to the allowance based on their judgments about information available to them at
the time of their examination.
REAL ESTATE OWNED ("REO") -- REO is recorded at the lower of the loan
balance, plus acquisition costs, or fair value, less estimated disposition
costs. Expenditures for capital improvements made thereafter are generally
capitalized. Real estate acquired in settlement of loans are anticipated to be
sold and valuation allowance adjustments are made to reflect any subsequent
changes in fair values from the initially recorded amount. Costs of holding REO
are charged to operations as incurred. Provisions and reversals in the REO
valuation allowance are reflected in operations.
LOANS HELD FOR SALE AND LOANS HELD FOR INVESTMENT -- Residential first
mortgage loans held for sale are reported at the lower of cost or estimated
aggregate 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 are deferred until the related loan is sold. As
part of its normal operations the Company makes bulk purchases of residential
loans which are generally categorized, at the time of purchase, as held for
investment. The Company continually evaluates these purchased loans and such
evaluations may result in transfers from the held for investment category;
however, such transfers would not normally exceed 10% of the average annual
balance of the portfolio.
LOAN ORIGINATION AND COMMITMENT FEES, PREMIUMS AND DISCOUNTS ON LOANS
AND RESIDENTIAL LOAN PORTFOLIO PURCHASES -- Origination and commitment fees
collected are deferred net of direct costs and are being amortized to interest
income over the estimated life of the loan, adjusted for prepayments using the
level yield method. Amortization of deferred fees is discontinued when the
related loan is placed on non-accrual status. Commitment fees related to expired
commitments are recognized as income when the commitment expires.
Unearned discounts on installment, second mortgage and home improvement
loans are amortized to income using the level yield method over the terms of the
related loans. Unearned discounts and premiums on purchased loans are amortized
to income using the level yield method over the estimated life of the loans,
adjusted for prepayments.
INVESTMENT BANKING ACTIVITIES -- RBCO securities transactions (and
related revenues and expenses) are recorded on a trade date basis. RBCO 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 by RBCO are valued at market, which results in
unrealized gains and losses being reflected in operations.
Investment banking revenues include gains, losses and fees, net of
syndicate expense, arising from securities offerings in which RBCO acts as an
underwriter or agent. Investment banking revenues also include fees earned from
providing merger and acquisition and financial restructuring advisory services.
Principal Transactions - Principal transactions are sales and trading
activities of tax exempt debt securities, taxable debt securities and equity
securities conducted by RBCO.
COMMISSIONS -- Commission revenues reflect fees earned by RBCO from
retail customers upon the execution of equity and mutual fund trades.
LOAN SERVICING FEES -- BankAtlantic services mortgage loans for its own
account and for investors. The Company in December 1998 decided to exit the
mortgage servicing business ("MSB"). Accordingly, results of operations of the
mortgage servicing business are presented as "Discontinued Operations" in the
Consolidated Statements of Operations for all periods presented. Mortgage loans
serviced for investors are not included in the accompanying consolidated
statements of financial condition. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and are
recognized as income when related loan payments from mortgagors are collected.
Loan servicing costs are charged to expense as incurred. BankAtlantic recognizes
as an asset the right to service mortgage loans whether such servicing rights
are purchased or originated. Originated servicing rights are measured at the
date of sale based on the relative fair value of the servicing rights and
related loans. Mortgage servicing rights ("MSR") are stated at the lower of
amortized cost or fair value. The amortization of MSR are on an individual loan
basis. Both purchased and originated MSR are amortized to expense using the
level yield method over the estimated life of the loan and continually adjusted
for prepayments. For the purpose of evaluating and measuring impairment of MSR,
and determining the amount of any valuation allowance, BankAtlantic stratifies
those rights based on the
F-14
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
predominant risk characteristics of the underlying loans. Those characteristics
include loan type, note rate and term. Adjustments to the valuation allowance
are reflected in operations.
DEALER RESERVES, NET -- The dealer reserve receivable represents the
portion of interest rates passed through to dealers on indirect consumer loans.
BankAtlantic funds 100% of the dealer reserves at the inception of the loan.
Dealer reserves are amortized over the contractual life of the related loans,
adjusted for actual prepayments and losses, using the interest method and
classified as an adjustment to interest income except for the Subject Portfolio
discussed further in Note 17 herein. Dealer reserves are stated net of
accumulated amortization, allowances, and any unfunded amounts due to the
dealer.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE -- Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Land and indirect land development costs
are allocated to the various parcels based upon the relative sales value method.
Real estate held for sale is stated at the lower of carrying amount or fair
value less cost to sell. Real estate held for development is evaluated for
impairment based upon the undiscounted future cash flows of the property
compared to the carrying value of the property. If the undiscounted future cash
flows are lower than the carrying value of the property, a valuation allowance
is established for the difference between the carrying amount of the parcel and
the fair value of the parcel, less cost to sell. The fair value of real estate
is evaluated based on existing and anticipated market conditions. The evaluation
takes into consideration the current status of the property, various
restrictions, carrying costs, costs of disposition and any other circumstances
which may affect estimated fair value.
INVESTMENTS IN JOINT VENTURES -- Investments in joint ventures are
accounted for by the equity method of accounting. All intercompany profits and
losses are eliminated until realized through third party transactions. Interest
is capitalized on real estate joint ventures while the investee 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, 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 and equipment 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 50 years for buildings and 3-10
years for equipment. The cost of leasehold improvements is being amortized using
the straight-line method over the terms of the related leases.
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 assets acquired and other intangible assets are being
amortized on a straight-line basis over its estimated useful life of 7-25 years.
A non-competition agreement, originated in 1995, was amortized on a
straight-line basis over its useful life of approximately three years.
ADVERTISING -- Advertising expenditures are expensed as incurred.
F-15
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALLOCATION OF INTEREST INCOME (EXPENSE) TO DISCONTINUED OPERATIONS --
Interest income (expense) was imputed to discontinued operations based on the
discontinued operations net assets and the Company's short term borrowing rate
during the years ended December 31, 1998, 1997 and 1996.
INCOME TAXES -- The Company and its subsidiaries file consolidated
federal and state income tax returns. The Company utilizes the asset and
liability method to account for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the statutory enactment date. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be utilized.
DERIVATIVE INSTRUMENTS -- The Company does 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. Such commitments were $71.8 million at
December 31, 1998, which the Company believes are at market value.
COMMON STOCK -- The Company has two classes of common stock; Class A
non-voting common stock and Class B voting common stock. 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 has no voting rights other than those which may be required
by Florida law in certain limited circumstances and (ii) the Class A common
stock is entitled to receive cash dividends equal to at least 110% of any cash
dividends declared and paid on the Class B common stock.
EARNINGS PER COMMON SHARE -- The Company is required to use the
two-class method to report its earnings per share, since it has a capital
structure which includes two classes of common stock with different dividend
rates. Holders of Class A common stock are entitled to receive cash dividends
equal to at least 110% of any cash dividends declared and paid on Class B common
stock. Non-cash distributions on Class A common stock must be identical to those
declared and issued on Class B common stock, except that a distribution to
holders of Class A common stock may be declared and issued in Class A common
stock while a distribution to holders of Class B common stock may be declared
and issued in either Class A common stock or Class B common stock. Under the
"two class method", net income available to common shareholders is allocated to
Class A and Class B common shares first by actual cash dividends paid for actual
shares outstanding during the period and secondly, through the allocation of
undistributed earnings. Since Class A common shareholders are entitled to
receive cash dividends equal to at least 110% of any cash dividend declared and
paid on Class B common shares, undistributed earnings are allocated to Class A
and Class B shares on a 110 to 100 basis, respectively, based upon the ratio of
the weighted average number of shares for each class outstanding during the
period to total shares (allocation percentage). Because the allocation
percentage for each class differs for basic and diluted EPS purposes, allocated
undistributed earnings differs for such calculations. Outstanding shares during
the period are retroactively restated for stock splits declared in subsequent
periods. The impact of retroactively restating Class A common stock outstanding
during each period for Class A common stock issued to Class B common
shareholders in stock splits is to change the allocation percentage for
undistributed earnings that was originally utilized in the calculation of EPS in
prior periods such that the ratio of Class A EPS declines in relation to Class B
EPS for such restated periods. 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, convertible securities or warrants to
issue common shares were exercised. In calculating diluted income per share,
interest expense net of taxes on convertible securities is added back to net
income, with the resulting amount divided by the weighted average number of
dilutive common shares outstanding, when dilutive. Common stock options,
warrants, convertible securities and restricted stock, if dilutive, are
considered in the weighted average number of dilutive common shares outstanding.
The options, warrants and restricted stock are included in the weighted average
number of dilutive common shares outstanding based on the treasury stock method.
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 continue to account for its employee
stock-based compensation plans under APB No. 25.
NEW ACCOUNTING PRONOUNCEMENTS -- Financial Accounting Standards Board
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133") was issued in June 1998. This statement establishes
accounting and
F-16
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as:
(a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm
commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or
(c) a hedge of the foreign currency exposure of a net investment in
a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. For a derivative designated as hedging the exposure to
changes in the fair value of a recognized asset or liability or a firm
commitment (referred to as a fair value hedge), the gain or loss is recognized
in earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. The effect of that
accounting is to reflect in the results of operations the extent to which the
hedge is not effective in achieving offsetting changes in fair value. For a
derivative designated as hedging the exposure to variable cash flows of a
forecasted transaction (referred to as a cash flow hedge), the effective portion
of the derivative as a gain or loss is initially reported as a component of
other comprehensive income (outside the results of operations) and subsequently
reclassified into results of operations when the forecasted transaction affects
the results of operations. The ineffective portion of the gain or loss is
reported in the results of operations immediately. For a derivative designated
as hedging the foreign currency exposure of a net investment in a foreign
operation, the gain or loss is reported in other comprehensive income (outside
the results of operations) as part of the cumulative translation adjustment. The
accounting for a fair value hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security. Similarly, the accounting for a
cash flow hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of a foreign-currency-denominated forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in the results of operations in the period of change.
Under this statement, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. This statement should not be applied retroactively to
financial statements of prior periods. The Company intends to implement FAS 133,
as of January 1, 2000 and its potential impact on the Statement of Operations
and Statement of Financial Condition is currently under review by management.
Financial Accounting Standards Board Statement No. 134 "ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE" was issued in October 1998. This
statement requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interest based on its ability and
intent to sell or hold those investments. This statement shall be effective for
the first fiscal quarter beginning after December 15, 1998. The Company
implemented this statement on January 1, 1999 and this statement did not have a
material impact on the Company's financial condition or results of operations.
Financial Accounting Standards Board Statement No. 135 "RECISION OF
FASB STATEMENT NO. 75 AND TECHNICAL CORRECTIONS" was issued in February 1999.
This statement rescinds certain accounting requirements for pension plans to
state and local governmental units and amends other existing authoritative
literature to make various technical corrections, clarify meanings, or describe
applicability under changed conditions. The statement is effective for financial
statements issued for fiscal years ending after February 15, 1999. This
statement will not have a material impact on the Company's financial statements.
F-17
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations and the allocation of earnings (loss)
between Class A and Class B common shares for the years ended:
(In thousands,
except per
share data DECEMBER 31, DECEMBER 31, DECEMBER 31,
and percentages) 1998 1997 1996
----------------------------------- ---------------------------------- ----------------------------------
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
---------- ----------- --------- ---------- ---------- ---------- ---------- ---------- ----------
BASIC NUMERATOR
Actual dividends
declared.............$ 2,773 $ 1,025 $ 3,798 $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159
Basic allocated
undistributed
earnings from
continuing
operations........... 4,583 1,805 6,388 13,695 7,354 21,049 10,010 5,470 15,480
---------- ----------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Income from
continuing
operations.......... 7,356 2,830 10,186 15,060 8,598 23,658 10,470 7,169 17,639
Income (loss) from
discontinued
operations.......... (13,066) (5,154) (18,220) 2,675 1,436 4,111 887 485 1,372
---------- ----------- --------- ---------- ----------- ---------- ---------- ---------- ---------
Net income (loss).....$ (5,710) $ (2,324) $ (8,034) $ 17,735 $ 10,034 $ 27,769 $ 11,357 $ 7,654 $ 19,011
========== =========== ========= ========== ========== ========== ========== ========== =========
BASIC DENOMINATOR
Weighted average
shares
outstanding ........24,161,923 10,483,522 18,029,784 10,649,135 17,616,000 10,589,000
========== =========== ========== ========== ========== ==========
Allocation
percentage.......... 71.71 28.29 65.06 34.94% 64.66 35.34
========== =========== ========== ========== ========== ==========
Basic earnings
per share
from
continuing
operations..........$ 0.30 $ 0.27 $ 0.84 $ 0.81 $ 0.59 $ 0.68
Basic earnings
(loss) per
share from
discontinued
operations ......... (0.54) (0.49) 0.14 0.13 0.05 0.04
---------- ------------ ---------- ---------- ---------- ----------
Basic earnings
(loss) per share....$ (0.24) $ (0.22) $ 0.98 $ 0.94 $ 0.64 $ 0.72
========== ============ ========== ========== ========== ==========
DILUTED NUMERATOR
Actual dividends
declared............$ 2,773 $ 1,025 $ 3,798 $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Basic allocated
undistributed
earnings from
continuing
operations ......... 4,583 1,805 6,388 13,695 7,354 21,049 10,010 5,470 15,480
Reallocation of
basic
undistributed
earnings due to
change in
allocation
percentage ......... (74) 74 0 1,520 (1,520) 0 456 (456) 0
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Diluted allocated
undistributed
earnings from
continuing
operations.......... 4,509 1,879 6,388 15,215 5,834 21,049 10,466 5,014 15,480
Interest expense
on convertible
debt................ 0 0 0 2,091 802 2,893 984 471 1,455
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Dilutive net
income from
continuing
operations.......... 7,282 2,904 10,186 18,671 7,880 26,551 11,910 7,184 19,094
Dilutive net
income (loss)
from
discontinued
operations.......... (12,855) (5,365) (18,220) 2,971 1,140 4,111 928 444 1,372
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss).....$ (5,573) $ (2,461) $ (8,034) $ 21,642 $ 9,020 $ 30,662 $ 12,838 $ 7,628 $ 20,466
========== ============ ========= ========== ========== ========== ========== ========== =========
DILUTED DENOMINATOR
Basic weighted
average
shares
outstanding ........24,161,923 10,483,522 18,029,784 10,649,135 17,616,000 10,589,000
Convertible
debentures.......... 0 0 9,513,000 0 4,352,058 0
Options, warrants
and restricted
common stock........ 630,622 899,511 350,750 1,116,250 0 987,500
---------- ------------ ---------- ----------- ---------- ----------
Diluted weighted
average shares
outstanding.........24,792,545 11,383,033 27,893,534 11,765,385 21,968,058 11,576,500
========== ============ =========== =========== ========== ==========
Allocation
percentage.......... 70.55% 29.45% 72.28% 27.72% 67.61% 32.39%
========== ============ =========== =========== ========== ==========
Diluted earnings
per share
from
continuing
operations..........$ 0.29 $ 0.26 $ 0.67 $ 0.67 $ 0.54 $ 0.62
Diluted earnings
(loss) per
share from
discontinued
operations.......... (0.51) (0.48) 0.11 0.10 0.04 0.04
----------- ------------ ----------- ----------- ---------- ----------
Diluted earnings
(loss) per
share...............$ (0.22) $ (0.22) $ 0.78 $ 0.77 $ 0.58 $ 0.66
=========== ============ =========== =========== ========== ==========
F-18
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
3. SECURITIES AND SHORT-TERM INVESTMENTS
The following summarizes securities available-for-sale and
held-to-maturity (in thousands):
AVAILABLE FOR SALE
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1998 COST APPRECIATION DEPRECIATION FAIR VALUE
- ----------------- -------- ------------ ------------ ----------
MORTGAGE-BACKED SECURITIES(1):
FNMA mortgage-backed securities .............. $116,255 $ 856 $ 0 $117,111
FHLMC mortgage-backed securities ............. 148,745 1,057 59 149,743
FNMA real estate mortgage investment conduits 34,333 0 1,353 32,980
FHLMC real estate mortgage investment conduits 271,844 1,890 166 273,568
-------- ------ ------ --------
Total mortgage-backed securities ........ 571,177 3,803 1,578 573,402
-------- ------ ------ --------
INVESTMENT SECURITIES:
U.S. Treasury Notes .......................... 4,992 49 0 5,041
Corporate Bonds .............................. 2,342 0 362 1,980
Equity securities(2) ......................... 13,150 4,024 77 17,097
-------- ------ ------ --------
Total investment securities ............. 20,484 4,073 439 24,118
-------- ------ ------ --------
Total .............................. $591,661 $7,876 $2,017 $597,520
======== ====== ====== ========
AVAILABLE FOR SALE
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST APPRECIATION DEPRECIATION FAIR VALUE
- ----------------- ----------- ------------ ------------ ----------
MORTGAGE-BACKED SECURITIES(1):
FNMA mortgage backed securities .............. $206,980 $ 839 $ 81 $207,738
FHLMC mortgage backed securities ............. 367,787 797 205 368,379
-------- ------ ------ --------
Total mortgage-backed securities......... 574,767 1,636 286 576,117
-------- ------ ------ --------
INVESTMENT SECURITIES:
FHLB Bonds ................................... 10,000 4 0 10,004
Asset-backed securities ...................... 3,194 0 18 3,176
U.S. Treasury Notes .......................... 9,959 91 0 10,050
Corporate Bonds .............................. 2,360 0 290 2,070
Equity securities ............................ 5,122 456 415 5,163
Other ........................................ 910 0 0 910
-------- ------ ------ --------
Total investment securities ............. 31,545 551 723 31,373
-------- ------ ------ --------
Total .............................. $606,312 $2,187 $1,009 $607,490
======== ====== ====== ========
(1) The estimated fair value of securities pledged for the following obligations
are (in thousands):
1998 1997
--------- ---------
FHLB advances................................. $ 90,600 $ 0
Commercial letters of credit.................. 0 4,900
Treasury tax and loan......................... 3,500 5,900
Repurchase agreements......................... 181,210 65,402
Public funds.................................. 52,977 23,900
Subordinated debentures....................... 5,800 5,800
---------- ---------
$ 334,087 $ 105,902
========== =========
(2) Amortized cost reflects a $2.1 million impairment resulting from other than
temporary declines in the fair value.
F-19
The scheduled maturities of mortgage-backed and debt securities available for
sale were (in thousands):
AVAILABLE FOR SALE
--------------------------
ESTIMATED
AMORTIZED FAIR
DECEMBER 31, 1998(1) COST VALUE
- ------------------- -------- ---------
Due within one year .......................... $ 36,864 $ 37,035
Due after one year, but within five years .... 33,672 33,603
Due after five years, but within ten years ... 12,074 11,660
Due after ten years .......................... 495,901 498,125
-------- --------
Total ................................... $578,511 $580,423
======== ========
(1) Scheduled maturities in the above table may vary significantly from actual
maturities due to prepayments.
HELD TO MATURITY
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 COST APPRECIATION DEPRECIATION VALUE
- ----------------- --------- ------------ ------------ ---------
Tax certificates --
Net of allowance of $ $1,020 ......... $49,896 $0 $0 $49,896
Other ...................................... 1,915 0 0 1,915
------- -- -- -------
$51,811 $0 $0 $51,811
======= == == =======
DECEMBER 31, 1997
- -----------------
Tax certificates --
net of allowance of $949(1) ............... $55,213 $0 $0 $55,213
======= == == =======
(1) Management considers estimated fair value equivalent to book value for tax
certificates since these securities have no readily traded market.
The estimated repayments of investment securities held to maturity were (in
thousands):
BOOK ESTIMATED
DECEMBER 31, 1998 VALUE FAIR VALUE
- ----------------- ------- ----------
Due in one year or less .................... $37,711 $37,711
Due after one year through five years ...... 14,100 14,100
Due after five years through ten years ..... 0 0
------- -------
Total ............................ $51,811 $51,811
======= =======
F-20
Securities held to maturity primarily consist of tax certificates which
represent a priority lien against real property for which assessed real estate
taxes are delinquent. BankAtlantic's experience with this type of investment has
been favorable as rates earned are generally higher than many alternative
investments and substantial repayment occurs over a two year period. The primary
risks BankAtlantic has experienced with tax certificates have related to the
risk that additional funds may be required to purchase other certificates
related to the property, the risk that the liened property may be unusable and
the risk that potential environmental concerns may make taking title to the
property untenable. See Note 6 for activity in the allowance for tax certificate
losses.
During the years ended December 31, 1998, 1997 and 1996, the Company
sold the following securities available for sale for realized gains of $2.4
million, $2.4 million and $6.0 million, respectively.
SALES (1)
------------------------------------------
1998 1997 1996
-------- ------- --------
7 year balloon mortgage-backed securities ...... $127,915 $ 66,021 $ 5,900
5 year balloon mortgage-backed securities ...... 27,151 28,096 0
30 year mortgage backed securities ............. 0 6,412 0
15 year mortgage backed securities ............. 0 1,066 20,500
Real estate mortgage investment conduit ........ 0 5,900 205,454
U.S. treasury notes ............................ 181,558 231,038 0
Federal agency obligations ..................... 0 7,600 0
Corporate bonds ................................ 9,977 0 0
-------- -------- --------
Total fixed rate securities ............... 346,601 346,133 231,854
5-1 Adjustable rate mortgages .................. 253,129 9,363 0
3-1 Adjustable rate mortgages .................. 103,183 0 136,600
Marketable equity securities ................... 675 0 0
-------- -------- --------
Total securities available for sale activity. $703,588 $355,496 $368,454
======== ======== ========
(1) Stated at cost.
During the year ended December 31, 1997, the Company purchased $6.2
million of marketable equity trading securities and sold $2.9 million of these
trading securities for a $699,000 realized gain. During the year ended December
31, 1998, the Company began trading government securities which are generally
bought and sold on the same day. The Company realized a $62,000 gain from
trading government securities during the year ended December 31, 1998.
The Company's trading account consists of the following (in thousands):
DECEMBER 31, DECEMBER 31,
1998 1997
------------ -----------
Debt obligations:
States and municipalities ............. $18,476 $ 0
Corporations .......................... 615 0
U.S. Government and agencies .......... 172 0
Corporate equity ........................ 10,448 5,067
Other ................................... 294 0
------- ------
Total .............................. $30,005 $5,067
======= ======
All the trading securities outstanding at December 31, 1998 were
associated with trading activities conducted both as principal and as agent on
behalf of individual and institutional investor clients of RBCO. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. During the period from
acquisition through December 31, 1998, RBCO realized net gains from principal
transactions of $4.4
F-21
million. Included in other liabilities at December 31, 1998 were $2.9 million of
securities sold not yet purchased relating to RBCO trading activity. All of the
trading securities outstanding at December 31, 1997 were associated with the
Company's trading activities.
Securities sold, but not yet purchased consists of the following (in
thousands):
Corporate equity............... $ 2,842
Corporate debt obligations..... 15
Municipal debt obligations..... 15
-------
Total..................... $ 2,872
=======
Securities sold, but not yet purchased are a part of RBCO's normal
activities as a broker and dealer in securities and are subject to
off-balance-sheet market risk of loss should RBCO 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 repurchase agreements (in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------- ------- --------
Ending Balance ..................................... $ 0 $ 0 $ 0
Maximum outstanding at any month end within period.. $4,000 $ 0 $ 0
Average amount invested during period .............. $3,000 $2,900 $1,900
Average yield during period ........................ 4.66% 5.45% 5.47%
The underlying securities associated with the repurchase agreements
during the years ended December 31, 1998, 1997 and 1996 were in BankAtlantic's
possession.
The following table provides information on Federal Funds sold (in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
Ending Balance ..................................... $ 0 $ 0 $ 6,100
Maximum outstanding at any month end within period.. $21,000 $12,400 $16,000
Average amount invested during period .............. $ 2,688 $ 1,401 $ 2,670
Average yield during period ........................ $ 5.54% 6.28% 4.08%
F-22
4. LOANS RECEIVABLE
Loans receivable net were:
DECEMBER 31,
---------------------------------
1998 1997
------------ -----------
(IN THOUSANDS)
Real estate loans:
Residential ...................................... $ 0 $ 37,813
Purchased residential ............................ 1,336,100 772,932
Construction and development ..................... 439,418 325,951
FHA and VA insured ............................... 487 1,025
Commercial ....................................... 341,738 378,718
Small business - real estate ..................... 20,275 17,639
Other loans:
Second mortgages - direct ........................ 60,403 65,810
Second mortgages - indirect ...................... 8,032 12,461
Commercial business .............................. 91,591 41,858
Lease financing .................................. 25,055 0
Small business - non-mortgage .................... 98,543 13,757
Due from foreign banks ........................... 27,293 12,256
Banker's acceptances ............................. 9,662 160,105
Deposit overdrafts ............................... 1,638 1,211
Consumer loans - other direct .................... 39,292 50,347
Consumer loans - other indirect .................. 212,571 204,689
----------- -----------
Total gross loans ........................ 2,712,098 2,096,572
----------- -----------
Adjustments:
Undisbursed portion of loans in process .......... (218,937) (163,237)
Premiums related to purchased loans .............. 11,563 7,047
Unearned discounts on commercial real estate loans (286) (669)
Allowance for loan losses ........................ (37,950) (28,450)
----------- -----------
Loans receivable -- net .................. $ 2,466,488 $ 1,911,263
=========== ===========
BankAtlantic is subject to economic conditions which could adversely
affect both the performance of the borrower or the collateral securing the loan.
At December 31, 1998, 45% of total aggregate outstanding loans were to borrowers
in Florida, 12% of total loans were to borrowers in the Northeastern United
States 10% of the total loans were to borrowers in California, and 33% were to
borrowers located elsewhere. Additionally, deferred loan fees netted against
loan balances were $2.8 million and $3.6 million at December 31, 1998 and 1997,
respectively. Commitments to sell residential mortgage loans were $45.4 million
and $11.9 million at December 31, 1998 and 1997, respectively. Variable rate
commitments to sell residential mortgage loans were zero and $832,000, whereas,
fixed rate commitments to sell residential mortgage loans were $45.4 million and
$11.1 million at December 31, 1998 and 1997, respectively. Such residential
mortgage loan sales related to loans originated for sale.
Included in other assets were $10.0 million and $10.4 million of
prepaid dealer reserves at December 31, 1998 and 1997, respectively.
During the year ended December 31, 1998 and 1997, the Company
transferred $108.5 million and $321.4 million of purchased residential loans
from the held for investment category to the loans held for sale category,
respectively. As part of its normal operations, the Company purchases bulk
residential loans and continually evaluates the portfolio. These evaluations may
result in transfers from the held for investment category to the held for sale
category; however, such transfers would not normally exceed 10% of the average
annual balance of the portfolio.
F-23
Activity in the allowance for loan losses was (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Balance, beginning of period .................................. $ 28,450 $ 25,750 $ 19,000
Charge-offs:
Commercial business loans ................................... (896) (180) (1,048)
Commercial real estate loans ................................ (562) (276) (266)
Lease financing ............................................. (1,233) 0 0
Small business - real estate ................................ (72) 0 0
Small business - non-mortgage ............................... (1,971) 0 0
Consumer loans - indirect ................................... (9,446) (7,885) (4,581)
Consumer loans - direct ..................................... (1,746) (2,809) (1,756)
Residential real estate loans ............................... (61) (76) (67)
Purchased residential real estate loans .................... (108) (104) 0
----------- ----------- -----------
(16,095) (11,330) (7,718)
----------- ----------- -----------
Recoveries:
Commercial business loans ................................... 489 301 518
Small business - non-mortgage ............................... 30 0 0
Commercial real estate loans ................................ 9 208 47
Lease financing ............................................. 229 0 0
Consumer loans - indirect ................................... 1,449 1,462 382
Consumer loans - direct ..................................... 844 791 1,277
----------- ----------- -----------
Net charge-offs ............................................... (13,045) (8,568) (5,494)
Additions charged to operations ............................... 21,788 11,268 5,844
Allowance for loan losses acquired ............................ 757 0 6,400
----------- ----------- -----------
Balance, end of period ........................................ $ 37,950 $ 28,450 $ 25,750
=========== =========== ===========
Average outstanding loans during the period ................... $ 2,540,271 $ 1,940,060 $ 1,177,325
=========== =========== ===========
Average outstanding banker's acceptances during the period .... $ 16,790 $ 7,966 $ 329
=========== =========== ===========
Ratio of net charge-offs to average outstanding loans ......... 0.51% 0.44% 0.47%
=========== =========== ===========
Ratio of net charge-offs to average outstanding loans including
banker's acceptances ........................................ 0.51% 0.44% 0.47%
=========== =========== ===========
Aggregate loans to and repayments of loans by directors, executive
officers, principal stockholders and other related interests for the years ended
December 31, 1998 and 1997 were (in thousands):
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 ADDITIONS DELETIONS 1997 ADDITIONS DELETIONS 1998
-------------- ------------ ------------ -------------- ------------ ------------ ---------------
$ 367 86 68 385 0 122 $ 263
============== ============ ============ ============== ============ ============ ===============
Certain directors, who are also executive officers, have investments or
are partners in real estate joint ventures with developers that have loans with
BankAtlantic or are partners in BDC joint ventures. Also, beginning in September
1998, BDC agreed to pay a company controlled by the Vice Chairman of the Company
$50,000 per month for services and management relating to SLWHC and the joint
ventures.
F-24
Accrued interest receivable consisted of (in thousands):
DECEMBER 31,
-----------------------
1998 1997
------- -------
Loans receivable ....................... $19,127 $14,432
Investment securities held to maturity.. 4,077 3,828
Securities available for sale .......... 4,567 4,364
------- -------
$27,771 $22,624
======= =======
5. DISCONTINUED OPERATIONS, RESTRUCTURING CHARGES AND OTHER WRITE-DOWNS
DISCONTINUED OPERATIONS
At December 31, 1998, the Board of Directors adopted a formal plan to
dispose of the Company's MSB operations. The Company concluded that the MSB no
longer met the Company's standards for profitability and the Company decided to
exit the MSB. It is anticipated that the exit plan will be substantially
completed by June 30, 1999. The Company intends to exit the MSB by: (1) selling
the mortgage servicing rights ("MSR") along with the related MSB facilities to
unrelated third parties; (2) terminating 70 full-time employees and (3)
terminating contracts associated with the MSB operations. The MSB had total
assets of $49.6 million and total liabilities of $79.7 million at December 31,
1998. The assets primarily consist of MSR and receivables from previous sales of
MSR. The liabilities are primarily advances by borrowers for taxes and insurance
and collections of principal and interest payments due to investors. Loss from
discontinued operations includes the results of operations through December 31,
1998, the measurement date, as well as the anticipated loss from operations
through the anticipated disposal date (including estimated losses on sale of MSB
assets). The Company recognized a $10.0 million ($6.1 million net of tax)
estimated loss on exiting the MSB.
The Company, effective December 31, 1998, began implementing a plan to
exit the MSB. The estimated pre-tax loss on exiting the MSB is as follows (in
thousands):
Employee severance and benefits .............................. $ 925
Provision for servicing contract cancellation ................ 900
Fixed asset write-downs ...................................... 430
Estimated cost to sell MSR ................................... 3,600
Anticipated loss from operations through disposal date ....... 4,145
-------
Total ...................................................... $10,000
=======
The disposal costs of exiting the MSB are estimates and are subject to
change based on market conditions, actual prepayment rates, completeness of
underlying loan documents and transferability issues and amount of time
necessary to complete the exit plan. Changes in estimates will be accounted for
prospectively and included in income (loss) from discontinued operations in the
Company's Consolidated Statement of Operations during the year ending December
31, 1999.
F-25
The components of earnings (loss) from discontinued operations are as
follows:
1998 1997 1996
--------- -------- --------
Net interest income (expense) ......................... $ 1,038 $ 833 $ (666)
Loan servicing fees, net of amortization .............. (6,574) 2,478 2,737
Provision for valuation of mortgage servicing rights... (10,690) 0 0
Gain on sale of mortgage servicing rights ............. 2,661 7,887 4,182
Non-interest expenses ................................. (5,756) (4,582) (4,020)
-------- ------- -------
Income (loss) before income taxes from operations ..... (19,321) 6,616 2,233
Income tax provision (benefit) ........................ (7,315) 2,505 861
-------- ------- -------
Income (loss) from operations net of tax .............. (12,006) 4,111 1,372
-------- ------- -------
Estimated loss on disposal of MSB ..................... (10,000) 0 0
Income tax benefit .................................... (3,786) 0
-------- ------- -------
Estimated loss on disposal of MSB, net of tax benefit.. (6,214) 0 0
-------- ------- -------
Income (loss) from discontinued operations ............ $(18,220) $ 4,111 $ 1,372
-------- ------- -------
At December 31, 1998, 1997 and 1996 BankAtlantic serviced loans for the
benefit of others amounting to approximately $3.5 billion, $2.9 billion, and
$2.7 billion, respectively. At December 31, 1998 and 1997 other liabilities
includes approximately $16.5 million (included in total liabilities above) and
$10.3 million, respectively, of loan payments due to others. The activity in
mortgage servicing rights was (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- -------- ---------
Balance, beginning of period .......................... $ 38,789 $ 25,002 $ 20,738
Mortgage servicing rights acquired in BNA acquisition.. 0 0 4,047
Servicing rights originated ........................... 111 1,668 311
Servicing rights purchased ............................ 64,176 45,840 27,681
Servicing rights sold ................................. (29,094) (25,511) (20,926)
Write-downs of mortgage servicing rights .............. (10,690) 0 0
Amortization of servicing rights ...................... (18,977) (8,210) (6,849)
-------- -------- --------
Balance, end of period ................................ $ 44,315 $ 38,789 $ 25,002
======== ======== ========
MSRs were valued at the lower of cost or market at December 31, 1998.
The market value was calculated by an independent appraiser using average market
prepayment assumptions of 295% PSA, weight average gross coupon of 7.42% and a
discount rate of 9.87%.
The activity in the MSR valuation allowance was as follows:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- ------- -------
Beginning valuation allowance ...... $ 0 $0 $0
Provision for valuation of MSR (1).. 15,000 0 0
Reversals of provision (2) ......... (4,310) 0 0
-------- -- --
Ending valuation allowance ......... $ 10,690 $0 $0
======== == ==
(1) Quarter ended September 30, 1998.
(2) Quarter ended December 31, 1998.
RESTRUCTURING CHARGES AND WRITE-DOWNS
During December 1998, the Company commenced a restructuring of its
operations as part of a year long efficiency study conducted with the assistance
of an outside consulting firm. As part of the restructuring, the Company ceased
the
F-26
origination of indirect automobile loans and consolidated its mortgage banking
operations in the Tampa Bay area into a centralized processing operation on
December 15, 1998. Three branch offices will close by March 31, 1999 and the
facilities will be closed, subleased or sold. In addition, one drive-through
facility was closed on December 15, 1998. It is anticipated that the facility
will be sold by the fourth quarter of 1999. The restructuring reduced the
Company's number of full time employees by approximately 115.
Restructuring charges and other write-downs during 1998 consisted of
(in thousands)
Employee severance and benefits .................. $1,000
Impairment of assets due to facility closures .... 1,085
Provision for lease contracts on closed branches.. 247
Other ............................................ 233
------
Total restructuring charges ................. $2,565
======
The items in the above table were established on December 31, 1998 and
included in other liabilities in the Company's Statement of Financial Condition
at December 31, 1998.
The employee severance benefits will be substantially paid during the
three months ended March 31, 1999. The book value of assets to be disposed of
was $2.8 million at December 31, 1998 and the impairment thereon was based on an
independent third party appraisal.
6. RISK ELEMENTS
Risk elements consist of non-accrual loans, non-accrual tax
certificates, restructured loans, past-due loans, REO, repossessed assets, and
other impaired loans which management has doubts about the borrower's ability to
comply with the contractual repayment terms. 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. Restructured loans include loans for
which the terms have been altered to provide a reduction or deferral of interest
or principal because of a deterioration in the borrower's financial position.
Impaired loans are loans in which the collection of principal and interest based
on the contractual term of the loan is not probable. BankAtlantic did not have
any commitments outstanding to lend additional funds on restructured loans at
December 31, 1998 and 1997.
Risk elements were (in thousands):
DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
Non-accrual -- tax certificates .................. $ 765 $ 880 $ 1,835
Non-accrual -- loans, net of specific allowances.. 23,364 17,569 12,424
Loans contractually past due 90 days or more (1).. 3,182 647 2,961
Real estate owned, net of allowance .............. 5,503 7,528 4,918
Other repossessed assets ......................... 1,896 2,912 1,992
------- ------- -------
Total non-performing ................... 34,710 29,536 24,130
Restructured (2) ................................. 7 4,043 3,718
------- ------- -------
Total risk elements .................... $34,717 $33,579 $27,848
======= ======= =======
Allowance for tax certificate losses ............. $ 1,020 $ 949 $ 1,466
======= ======= =======
Allowance for loan losses ........................ $37,950 $28,450 $25,750
======= ======= =======
(1) The majority of these amounts 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.
(2) The 1997 restructured loans either were paid in full by the borrower or
were performing to the terms of the amended loan agreement for over one
year.
F-27
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes impaired loans (in thousands):
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ---------------------------
GROSS GROSS
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
---------- ---------- ---------- ----------
Nonaccrual loans:
With specific allowances .................................... $ 1,913 $ 619 $ 2,491 $ 1,117
Without specific allowances ................................. 22,070 0 16,195 0
-------- ------- ------- -------
23,983 619 18,686 1,117
-------- ------- ------- -------
Restructured loans:
Without specific allowances .................................. 7 0 4,043 0
-------- ------- ------- -------
Loans contractually past due 90 days or more .................. 3,182 0 647 0
-------- ------- ------- -------
Other impaired loans:
Other impaired commercial loans with specific allowances(1).... 414 189 1,038 539
Other impaired commercial loans without specific allowances(1). 5,861 0 0 0
-------- ------- ------- -------
Total ............................................... $ 33,447 $ 808 $24,414 $ 1,656
======== ======= ======= =======
(1) These loans are not included in risk elements, since subsequent to the date
of impairment these loans have performed based on their contractual terms.
Recorded investment of impaired loans reflects direct deferrals of
interest of $1.2 million, zero, and $240,000 at December 31, 1998, 1997 and
1996, respectively.
There was no net interest forgone related to restructured loans at
December 31, 1998, 1997 and 1996. Interest income of $1,000, $799,000, and
$336,000 was recognized on restructured loans during 1998, 1997 and 1996,
respectively.
The average net recorded investment in impaired loans for the years
ended December 31, 1998, 1997 and 1996 was $24.3 million, $20.2 million and
$15.4 million, respectively. 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 YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
Interest income which would have been recorded.. $ 3,058 $ 2,487 $ 1,795
Interest income recognized ..................... (1,850) (1,548) (988)
------- ------- -------
Interest income forgone ........................ $ 1,208 $ 939 $ 807
======= ======= =======
F-28
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RISK ELEMENTS- REAL ESTATE OWNED, NET
The components of "Foreclosed asset activity, net" were (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------ ------
Real estate acquired in settlement of loans and tax
certificates:
Operating expenses, net ........................... $ 651 $ 492 $ 47
Provisions (reversals) of losses on REO ........... 1,115 (56) (197)
Net gains on sales ................................ (1,012) (354) (575)
------- ----- -----
Total (income) loss ..................... $ 754 $ 82 $(725)
======= ===== =====
Activity in the allowance for real estate owned consisted of (in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- ------- --------
Balance, beginning of period ............... $ 1,500 $ 1,800 $ 2,800
Charge-offs:
Commercial real estate (A) ............... (514) 0 (781)
Residential real estate .................. (901) (244) (22)
------- ------- -------
(1,415) (244) (803)
Provision for (reversal of) losses on REO 1,115 (56) (197)
------- ------- -------
Balance, end of period ..................... $ 1,200 $ 1,500 $ 1,800
======= ======= =======
(A) Acquired through tax deed.
RISK ELEMENTS - TAX CERTIFICATES
Activity in the allowance for tax certificate losses was: (in
thousands)
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------- ------- -------
Balance, beginning of period ................ $ 949 $ 1,466 $ 1,648
Charge-offs ................................. (976) (1,444) (909)
Recoveries .................................. 813 1,025 911
------- ------- -------
Net recoveries (charge-offs) ................ (163) (419) 2
Provision (reversals) charged to operations.. 234 (98) (184)
------- ------- -------
Balance, end of period ...................... $ 1,020 $ 949 $ 1,466
======= ======= =======
F-29
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment was comprised of (in thousands):
DECEMBER 31,
-------------------------
1998 1997
--------- ---------
Land ...................................... $ 14,543 $ 12,112
Building and improvements.................. 47,464 46,384
Furniture and equipment.................... 33,493 25,921
--------- ---------
Total............................ 95,500 84,417
Less accumulated depreciation.............. 37,410 33,287
--------- ---------
Office properties and equipment -- net..... $ 58,090 $ 51,130
========= =========
Properties leased to third parties during the year ended December 31,
1996 were sold for $8.1 million (net of selling costs) during 1996 for a net
gain of $3.1 million. During 1997 land adjacent to the above properties with a
net book value of $197,000 was sold for a net gain on $882,000.
Net rental income for the years ended December 31, 1998, 1997 and 1996
was zero, zero and $368,000, respectively.
8. DEPOSITS
The weighted average nominal interest rate payable on deposit accounts
at December 31, 1998 and 1997 was 3.42% and 3.70% , respectively. The stated
rates and balances at which BankAtlantic paid interest on deposits were:
DECEMBER 31,
----------------------------------------------------
1998 1997
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
Interest free checking ........................... $ 235,124 12.21% $ 162,788 9.23%
Insured money fund savings
3.86% at December 31, 1998,
3.90% at December 31, 1997 ..................... 421,978 21.91 289,413 16.41
NOW accounts
1.00% at December 31, 1998,
2.20% at December 31, 1997 ..................... 234,185 12.16 223,679 12.68
Savings accounts
1.06% at December 31, 1998,
2.04% at December 31, 1997 ..................... 127,747 6.63 262,685 14.90
---------- ------ ---------- ------
Total non-certificate accounts ................... 1,019,034 52.91 938,565 53.22
---------- ------ ---------- ------
Certificate accounts:
0.00% to 4.00% ................................. 77,146 4.01 14,275 0.81
4.01% to 5.00% ................................. 238,943 12.41 37,803 2.14
5.01% to 6.00% ................................. 521,570 27.08 184,800 10.48
6.01% to 7.00% ................................. 52,937 2.75 493,845 28.00
7.01% and greater .............................. 11,478 0.60 90,882 5.15
---------- ------ ---------- ------
Total certificate accounts ....................... 902,074 46.85 821,605 46.58
---------- ------ ---------- ------
Total deposit accounts ........................... 1,921,108 99.76 1,760,170 99.80
---------- ------ ---------- ------
Interest earned not credited to deposit accounts.. 4,664 0.24 3,563 0.20
---------- ------ ---------- ------
Total ............................................ $1,925,772 100.00% $1,763,733 100.00%
========== ====== ========== ======
F-30
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interest expense by deposit category was (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- ---------- ----------
Money fund savings and NOW accounts.................. $ 14,038 $ 13,970 $ 11,772
Savings accounts..................................... 7,018 6,617 2,150
Certificate accounts -- below $100,000............... 29,447 37,973 32,416
Certificate accounts, $100,000 and above............. 16,543 9,882 8,513
Less early withdrawal penalty........................ (332) (211) (205)
--------- ---------- ----------
Total................................. $ 66,714 $ 68,231 $ 54,646
========= ========== ==========
At December 31, 1998, the amounts of scheduled maturities of
certificate accounts were (in thousands):
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER
---------- ---------- ---------- ----------- ----------- -----------
0.00% to 4.00%........... $ 68,986 $ 6,700 $ 980 $ 221 $ 184 $ 75
4.01% to 5.00%........... 151,960 81,630 3,092 437 1,690 134
5.01% to 6.00%........... 439,583 62,593 7,432 6,264 5,340 358
6.01% to 7.00%........... 29,178 7,980 7,079 8,015 565 120
7.01% and greater........ 1,138 10,167 47 126 0 0
----------- ----------- ----------- ------------ ------------ ------------
Total.......... $ 690,845 $ 169,070 $ 18,630 $ 15,063 $ 7,779 $ 687
=========== =========== =========== ============ ============ ============
Time deposits of $100,000 and over had the following maturities at (in
thousands):
DECEMBER 31,
1998
------------
Less than 3 months........ $ 91,434
3 to 6 months............. 42,551
6 to 12 months............ 61,933
More than 12 months....... 128,595
---------
Total........... $ 324,513
=========
Included in certificate accounts at December 31, 1998 and 1997 were
$38.2 million and zero of brokered deposits and $114.8 million and $30.9 million
of State of Florida public deposits, respectively. RBCO acted as the principal
dealer in obtaining the brokered deposits. BankAtlantic did not have brokered
deposits in prior years. BankAtlantic has various facilities for obtaining
brokered deposits. These facilities are considered as an alternative source of
borrowings, when and if needed.
F-31
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Advances from Federal Home Loan Bank ("FHLB") incur interest and were
repayable as follows (in thousands):
DECEMBER 31,
REPAYABLE DURING YEAR -----------------------
ENDING DECEMBER 31, INTEREST RATE 1998 1997
- ------------------------------------ -------------- ---------- ---------
1998................................ 6.60% to 6.64% $ 0 $ 153,143
1999................................ 5.15% to 6.83% 156,393 56,393
2000................................ 6.13% to 7.00% 54,393 54,393
2001................................ 6.29% to 7.09% 37,778 37,778
2002................................ 6.35% to 7.18% 21,468 21,460
2003................................ 7.24% to 7.25% 9,540 9,540
---------- ---------
Total fixed rate advances..... 279,572 332,707
---------- ---------
2002................................ 5.68% to 6.20% 175,000 175,000
2003................................ 5.39% 25,000 0
2007................................ 5.68% 25,000 25,000
2008................................ 4.87% to 5.67% 540,000 0
---------- ---------
Total callable advances........ 765,000 200,000
---------- ---------
1998................................ 5.78% to 5.91% 0 165,000
---------- ---------
Total adjustable rate advances. 0 165,000
---------- ---------
Total FHLB advances............ $1,044,572 $ 697,707
========== =========
Included in fixed rate advances at December 31, 1998 and 1997 was
$100.0 million and $110.0 million of overnight advances, respectively. At
December 31, 1998 $90.6 million of mortgage-backed securities were pledged as
collateral on overnight advances. Callable advances give the FHLB the option to
convert, at a specific date, in whole, into a three month Libor-based floating
rate advance. BankAtlantic has established a blanket floating lien with the
FHLB. Under the lien, BankAtlantic assigns a security lien against its
residential loans. At December 31, 1998 and 1997, $1.6 billion and $891.9
million of 1-4 family residential loans were pledged against FHLB advances. In
addition, FHLB stock is pledged as collateral for outstanding FHLB advances.
BankAtlantic has an unused $1.1 billion line of credit with the FHLB, subject to
available collateral, with a maximum term of 10 years at December 31, 1998.
BankAtlantic established $65.0 million of lines of credit with four
federally insured banking institutions for the purchase of Federal Funds. At
December 31, 1998 and 1997, the outstanding balance of these lines of credit was
$18.5 million and $2.5 million, respectively. The average balance outstanding
during the years ended December 31, 1998 and 1997, of the Federal Funds
purchased lines of credit was $5.4 million and $1.9 million, respectively. The
maximum outstanding balance at any month end during 1998 and 1997 of the Federal
Funds purchased lines of credit was $18.5 million and $7.0 million,
respectively.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized below (in
thousands):
DECEMBER 31,
----------------------
1998 1997
-------- ---------
Agreements to repurchase the same security......... $103,204 $ 0
Customer repurchase agreements..................... 58,889 58,716
-------- ---------
Total.................................... $162,093 $ 58,716
======== =========
F-32
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table provides information on the agreements to
repurchase (dollars in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
Maximum borrowing at any month-end within the period... $404,874 $255,967 $362,147
Average borrowing during the period ................... $264,866 $167,569 $173,008
Average interest cost during the period ............... 5.09% 5.26% 4.83%
Average interest cost at end of the period ............ 4.94% 4.80% 5.13%
Average borrowing was computed based on average daily balances during
the period. Average interest rates during the period were computed by dividing
interest expense for the period by the average borrowing during the period.
Customer repurchase agreements at December 31, 1998 and 1997 included a
$2.3 million and $4.7 million customer repurchase agreements, respectively,
relating to a BFC escrow account. Total interest expense related to this reverse
repurchase agreement was approximately $105,000, $210,000 and $312,000 during
the years ended December 31, 1998, 1997 and 1996, respectively.
The following table lists the amortized cost and estimated fair value
of securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
WEIGHTED
ESTIMATED AVERAGE
AMORTIZED FAIR REPURCHASE INTEREST
COST VALUE BALANCE RATE (COST)
----------- ---------- ---------- ---------
DECEMBER 31, 1998 (1)
- ---------------------
FNMA mortgage-backed securities $ 7,610 $ 7,669 $ 6,053 4.00%
FHLMC mortgage-backed securities 66,167 66,650 58,143 4.86
FHLMC REMIC 76,338 76,796 74,115 5.09
FNMA REMIC 31,286 30,095 23,782 4.00
----------- ---------- ---------- ----
Total $ 181,401 $ 181,210 $ 162,093 4.94%
=========== ========== ========== ====
DECEMBER 31, 1997(1)
- --------------------
FHLB Bonds $ 2,650 $ 2,651 $ 2,380 4.80
FNMA 8,440 8,462 7,597 4.80
FHLMC 54,302 54,289 48,739 4.80
----------- ---------- ---------- ----
Total $ 65,392 $ 65,402 $ 58,716 4.80%
=========== ========== ========== ====
(1) At December 31, 1998 and 1997 these securities are classified as available
for sale and recorded at market value in the consolidated statements of
financial condition.
Repurchase agreements at December 31, 1998 matured and were repaid in
January 1999. These securities were held by unrelated broker dealers. All
repurchase agreements at December 31, 1997 were customer repurchase agreements
which are due on demand.
11. SUBORDINATED DEBENTURES AND OTHER DEBT
On March 31, 1991, BankAtlantic issued to certain of its existing
shareholders, 18,611 shares of common stock and $8,000 of 14% subordinated
debentures, having a March 1998 maturity date, with related detachable warrants
to purchase 17,548 shares of common stock. The $8,000 of subordinated debentures
were redeemed on August 31, 1993. The warrants relating to such debentures were
detachable and expired on March 31, 1998.
F-33
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has the following subordinated debentures and notes and
bonds payable outstanding at December 31, 1998 and 1997 (in thousands):
BEGINNING
OPTIONAL
ISSUE DECEMBER 31, INTEREST MATURITY CONVERSION CLASS OF REDEMPTION
--------------------
DATE 1998 1997 RATE DATE PRICE STOCK DATE
-------- -------- -------- ----- ---------- ------ ----- ----------
9% Debentures ........... 9/22/95 $ 21,000 $ 21,000 9.00% 10/01/2005 N/A N/A 10/01/1998
6 3/4% Debentures(1)..... 7/03/96 51,182 57,125 6.75% 7/01/2006 $ 6.55 A 7/01/1999
5 5/8% Debentures(1)..... 11/25/97 100,000 100,000 5.63% 12/01/2007 $12.94 A 12/01/2000
Capital Improvement
Bond series 1995(2)..... 2/01/95 1,192 1,475 7.50% 2/01/2000 N/A N/A N/A
Capital Improvement
Bond series 1997(2)..... 2/01/97 553 0 6.38% 8/01/2002 N/A N/A N/A
Acquisition note(2)...... 4/01/98 2,500 0 8.00% 4/01/2002 N/A N/A N/A
St. Lucie Fire District
obligation(2) .......... 3/26/88 600 0 7.00% 3/26/2007 N/A N/A N/A
Notes payable(3) ........ Various 87 0 9.20% Various N/A N/A N/A
-------- --------
$177,114 $179,600
======== ========
(1) Convertible at the option of the Debenture holder.
(2) Acquired with SLWHC.
(3) Acquired with LTI.
Included in other assets was $5.4 million and $6.3 million of
unamortized underwriting discounts and costs at December 31, 1998 and 1997,
respectively, associated with the issuance of subordinated debentures.
The Indenture relating to the Trust Preferred Securities and all of the
Debenture indentures 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 the Company of taxes and other claims, maintenance by the Company of
its properties and its corporate existence and delivery of annual certifications
to the Trustee.
The Debenture indentures for the 9% and 6 3/4% Debentures provide that
the Company 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 (a "Declaration
Date") or the date of any such purchase, redemption, payment or distribution (a
"Redemption Date"), the Company retains cash, cash equivalents (as determined in
accordance with generally accepted accounting principles) or marketable
securities (with a market value as measured on the applicable Declaration Date
or Redemption Date) in an amount sufficient to cover the two consecutive
semi-annual interest payments that will be due and payable on the Debentures
following such Declaration Date or Redemption Date, as the case may be. These
indentures further provide that the amount of any interest payment made by the
Company with respect to the Debentures after any applicable Declaration Date or
Redemption Date shall be deducted from the aggregate amount of cash or cash
equivalents which the Company shall be required to retain pursuant to the
foregoing provision. At December 31, 1998 and 1997 the Company designated $5.8
million of securities available for sale to satisfy the above provision.
During the year ended December 31, 1998, the Company issued 907,319
shares of Class A common stock upon the conversion of $5.9 million in principal
amount of the Company's 6 3/4% Convertible Subordinated Debentures due 2006 at a
conversion price of $6.55.
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital").
BBC 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 the Company. In a public offering in April 1997, BBC Capital
issued for $74.75 million, 2.99 million shares of Trust Preferred Securities at
a price of $25 per share. BBC Capital used the gross proceeds received from the
sale of the Trust Preferred Securities and $2.3 million of contributed capital
from the Company to purchase $77.1 million of 9 1/2% Junior Subordinated
Debentures from the
F-34
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company which mature on June 30, 2027. The net proceeds to the Company from the
sale of the Junior Subordinated Debentures were $71.8 million after deduction of
the underwriting discount and expenses. At December 31, 1998 and 1997, the
balance of Trust Preferred Securities was $74.75 million. The net proceeds from
the sale of the Junior Subordinated Debentures were utilized as follows: $21.2
million of the proceeds were contributed to BankAtlantic, $12.2 million of the
proceeds were used to repurchase the Company's common stock and the remaining
proceeds are being used by the Company for general corporate purposes.
BankAtlantic used $21.2 million of the contributed capital to acquire St. Lucie
West Holding Corp, and subsidiaries and to invest in a real estate joint
venture. 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, with the first payment paid June 30, 1997. Distributions
on the Trust Preferred Securities are cumulative and based upon the liquidation
value of $25 per Trust Preferred Security. The Company has the right, at any
time, so long as no event of default, as defined, has occurred and is
continuing, to defer payments of interest on the Junior Subordinated Debentures
for a period not exceeding 20 consecutive quarters; provided, that such deferral
may not extend 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. The
Company 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
the Company having received regulatory approval to do so if then required under
applicable capital guidelines or regulatory policies. In addition to the above
right, the Company 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 the Company having received regulatory
approval to do so if then required under applicable capital guidelines or
regulatory policies.
On November 25, 1997, the Company issued, in a public offering, 4.3
million shares of Class A common stock and $100.0 million of 5 5/8% convertible
subordinated debentures ("5 5/8% Debentures"). The net proceeds to the Company
from the sale of Class A common stock was $43.4 million net of $107,000 of
offering costs and $96.5 million from the sale of the 5 5/8% Debentures net of
$3.5 million of offering costs.
In March 1998, the Company announced a plan to purchase up to 2.0
million shares of common stock. During the year ended December 31, 1998 the
company paid $10.9 million to repurchase and retire 769,500 shares of Class B
common stock. In August 1996, the company announced a plan to purchase up to
1.56 million shares of common stock. During the year ended December 31, 1997 the
company paid $12.2 million to repurchase and retire 1,040,625 and 365,625 shares
of the Company's Class A and Class B common stock, respectively.
12. STOCK OPTION PLANS
On April 6, 1984, the Company's stockholders approved a Stock Option
Plan ("1984 Plan") under which options to purchase up to 1,182,556 shares of
Class B common stock could have been granted. The plan provided for the grant of
both incentive stock options and non-qualifying options. The exercise price of
an incentive stock option was not to be less than the fair market value of the
common stock on the date of the grant. The exercise price of non-qualifying
options was determined by a committee of the Board of Directors. The "1984 Plan"
expired on May 25, 1998, and all outstanding options were exercised on or before
such date.
On May 31, 1994, the stockholders of the Company approved the
BankAtlantic 1994 Stock Option Plan ("1994 Plan"), authorizing the issuance of
options to acquire up to 2,288,819 shares of Class B common stock. All employee
stock options under the 1994 Plan vest and are exercisable five years from the
date of grant while directors' stock options vested immediately. The plan
expires ten years from the date of adoption and outstanding options could be
exercised ten years after their grant date.
F-35
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On May 21, 1996 the shareholders of the Company approved the
BankAtlantic Bancorp 1996 Stock Option Plan (the "1996 Plan") which authorized
the issuance of options to acquire up to 1.95 million shares of Class A common
stock. All of the incentive and non-qualifying stock options are exercisable for
Class A common stock, with an exercise price equal to the fair market value at
the date of grant. All employee stock options vest and are exercisable five
years from the date of grant while directors' stock options vested immediately.
The plan expires ten years from the date of adoption and outstanding options
could be exercised ten years after their grant date.
Upon acquisition of RBCO, the Company assumed all options outstanding
under RBCO's existing stock option plans resulting in the addition issuance of
options to purchase 315,145 shares of Class A common stock at various exercise
prices based upon the exercise prices of the assumed option. No new options will
be issued under the RBCO Plans and such Plans will terminate when the
outstanding options expire. The value of such options at the acquisition date
was included in the cost of the RBCO acquisition and credited to additional
paid-in-capital.
On March 13, 1998, the Company's shareholders approved the BankAtlantic
Bancorp 1998 Employee Stock Option Plan ("1998 Plan") authorizing the issuance
of options to acquire up to 800,000 shares of Class A common stock and 150,000
shares of Class B common stock. Employee stock options vest at the discretion of
the Compensation Committee and directors stock options vest immediately. The
plan expires ten years from the date of adoption and outstanding options could
be exercised ten years after their grant date. On December 14, 1998, the
Compensation Committee approved an exchange program whereby stock options held
by employees other than executive management and members of the Board of
Directors of the Company with an exercise price greater than $7.25 per share
could be surrendered for cancellation and exchanged for new options with an
exercise price equal to the fair market value for Class A common stock at
December 14, 1998, contingent upon such offer being accepted by such option
holders by December 14, 1998. The number of new options, vesting schedule and
terms other than the exercise price were the same as the options canceled.
On December 1, 1998 the Board of Directors of the Company adopted a
Restricted Stock Incentive Plan to provide additional incentives to officers and
key employees of its subsidiary, RBCO. As part of the Plan, the Board of
Directors delegated administration of the Plan to the Directors or a committee
of RBCO. The Plan provides for the granting of up to 750,000 Class A common
shares of restricted stock, of which not more than 250,000 shares may be granted
to any one person. The Plan allows the Board of Directors of the Company to
impose an annual cap on awards. The Plan generally makes awards to a broad-based
group of employees.
The Board of Directors or Committee administering the Plan has
discretion about which RBCO employees receive awards and the vesting of the
awards under the Plan. During the restricted period, dividends paid on the
shares may be accumulated and paid out at the end of the restricted period or
may be paid out currently to the employee. The vesting for these purposes is
usually approximately one year from the date of grant. Under these awards, the
participants receive the dividends and vote the restricted stock during the
restricted period, if applicable. The employee forfeits the restricted stock if
he leaves the employment of RBCO prior to vesting. All awards were granted
subject to shareholder approval. In December 1998, the Board granted 89,751
shares of restricted Class A common stock under this plan to key employees of
RBCO which vest one year from the grant date. The fair value of such awards were
recorded as compensation expense in 1998, since such awards related to services
performed in 1998.
F-36
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of stock option activity segregated by class of stock was:
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
--------- -----------------
Outstanding December 31, 1995................................. 3,063,130 $ 2.28 to $ 4.00
Exercised..................................................... (138,392) 2.96 to 3.01
Forfeited..................................................... (189,677) 3.90 to 4.00
--------- ------ ------
Outstanding December 31, 1996................................. 2,735,061 2.28 to 4.00
Exercised..................................................... (547,740) 2.28 to 3.90
Forfeited..................................................... (71,774) 3.90 to 3.90
--------- ------ -----
Outstanding December 31, 1997................................. 2,115,547 3.01 to 4.00
Exercised..................................................... (442,015) 3.01 to 4.00
Forfeited..................................................... (33,896) 3.90 to 4.00
--------- ------ -----
Outstanding December 31, 1998................................. 1,639,636 $ 3.90 to $ 4.00
========= ====== ======
Exercisable at December 31, 1998.............................. 67,816 $ 3.90 to $ 4.00
========= ====== ======
Available for grant at December 31, 1998...................... 421,586
=========
CLASS A
OUTSTANDING
OPTIONS PRICE PER SHARE
------------ -----------------
Outstanding December 31, 1995................................. 0 $ 0.00 to $ 0.00
Issued........................................................ 1,029,440 5.74 to 6.25
Forfeited..................................................... (101,023) 5.74 to 5.74
--------- ------ ------
Outstanding December 31, 1996................................. 928,417 5.74 to 6.25
Exercised..................................................... (16,775) 5.74 to 7.17
Forfeited..................................................... (104,994) 5.74 to 8.64
Issued........................................................ 809,984 5.74 to 12.35
--------- ------ ------
Outstanding December 31, 1997................................. 1,616,632 5.74 to 12.35
Options issued in connection with the acquisition of RBCO..... 315,145 3.97 to 9.70
Exercised..................................................... (18,371) 5.26 to 7.92
Forfeited..................................................... (1,045,296) 5.74 to 14.38
Issued........................................................ 1,317,655 5.18 to 14.38
--------- ------ ------
Outstanding at December 31, 1998.............................. 2,185,765 $ 3.97 to $14.06
========= ====== ======
Exercisable at December 31, 1998.............................. 230,144 $ 3.97 to $14.06
========= ====== ======
Available for grant at December 31, 1998...................... 841,653
=========
The weighted average exercise price of options outstanding at December
31, 1998, 1997 and 1996 was $5.64, $5.14 and $4.21, respectively. The weighted
average exercise price of stock options exercised was $3.42, $3.28 and $3.01 for
the years ended December 31, 1998, 1997 and 1996, respectively. The weighted
average exercise price of options forfeited during the years ended December 31,
1998, 1997 and 1996 was $7.80, $5.27 and $4.56, respectively.
During the years ended December 31, 1998, 1997 and 1996, 164,818,
373,328 and 12,736 of non-qualifying and 295,568, 191,187 and 125,656 of
incentive stock options issued under the 1984, 1994 and 1996 plans were
exercised resulting in increases of $2.3 million, $2.8 million and $531,000 in
stockholders' equity, respectively. The tax effect, included in the preceding
amounts, of the exercised stock options for December 31, 1998, 1997 and 1996 was
$709,000, $913,000 and $118,000, respectively, and has been reflected in
additional paid in capital. During the years ended December 31, 1998, 1997 and
1996, 325,000 of options were forfeited under the 1998 plan, 720,296, 104,994
and 101,023 of options were forfeited under the 1996 Plan and 33,896, 71,774 and
189,677 of options were forfeited under the 1994 Plan, respectively.
F-37
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During the latter part of 1996 and early 1997, certain executives and
officers received prorata vesting as part of their severance arrangements
relating to previously granted 1994 and 1996 Plan options. Forfeited and vested
options were 148,778 shares and 194,559 shares for the 1994 plan and 84,231
shares and 25,634 shares for the 1996 plan, respectively. During 1998 certain
executives and officers received accelerated prorata vesting as part of their
severance package from the 1994, 1996 and 1998 plans. These options will vest in
1999 and 2000. Forfeited options were 18,158, 99,167 and 35,104 from the 1994,
1996 and 1998 plans, respectively and vested options were 124,970, 85,535 and
4,771 from the 1994, 1996 and 1998 plans. Under the exchange program mentioned
previously, 303,903, and 292,000 of options to purchase Class A common stock
issued pursuant to the 1996 and 1998 stock options plans to all optionees other
than executive management and members of the Board of Directors with an exercise
price of $7.92 and $9.50, respectively were exchanged for options with the same
terms except the exercise price was reduced to $6.50. Also on December 14, 1998,
161,323 of options to purchase Class A common stock issued pursuant to RBCO
stock option plans with various exercise prices greater than $7.25 were
exchanged for similar options with a $6.50 exercise price.
The adoption of FAS 123 under the fair value based method would have
increased compensation expense (net of tax) by $884,000, $497,000 and $474,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The effect
of FAS 123 under the fair value based method would have effected net income and
earnings per share as follows:
FOR THE YEAR ENDED
(In thousands, except per share data) DECEMBER 31,
---------------------------------------------
1998 1997 1996
------- ---------- ---------
Net income (loss) As reported........ $(8,034) $ 27,769 19,011
======= ========== =========
Pro forma.......... (8,918) 27,272 18,537
======= ========== =========
Basic earnings (loss) per share Class A As reported........ $ (0.24) $ 0.98 0.64
======= ========== =========
Pro forma.......... (0.26) 0.97 0.63
======= ========== =========
Basic earnings (loss) per share Class B As reported........ $ (0.22) $ 0.94 0.72
======= ========== =========
Pro forma.......... (0.25) 0.93 0.71
======= ========== =========
Diluted earnings (loss) per share Class A As reported........ $ (0.22) $ 0.78 0.58
======= ========== =========
Pro forma.......... (0.25) 0.77 0.57
======= ========== =========
Diluted earnings (loss) per share Class B As reported........ $ (0.22) $ 0.77 0.66
======= ========== =========
Pro forma.......... (0.25) 0.76 0.64
======= ========== =========
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
- --------------- --------- ---------- -------- --------- ---------- ---------
1996 1,029,440 $ 2.95 $ 5.77 6.86% 18.60% 0.36%
1997 809,984 $ 3.36 $ 8.08 6.60% 27.40% 0.99%
1998 560,429 $ 4.40 $ 8.63 5.02% 50.00% 1.03%
The employee turnover factor was 5.88% for incentive and non-qualifying stock
options during the year ended December 31, 1998 and 5.97 % and 13.40% for
incentive stock options and 3.55% and 5.20% for non-qualifying stock options,
for the years ended December 31, 1997 and 1996, respectively. The expected life
for all options issued was 7.5 years.
F-38
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
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 12/31/98 CONTRACTUAL LIFE PRICE AT 12/31/98 PRICE
- ------------ --------------- -------------- ---------------- ----------- ----------- ---------
B $3.90 to 4.00 1,639,636 5.3 years $ 3.94 67,816 $ 3.90
A $3.90 to 9.00 1,909,723 7.9 years 6.48 191,007 6.62
A $9.01 to 14.06 276,042 9.9 years 9.98 39,137 11.78
--------- --------- ------ ------- ------
3,825,401 6.9 years $ 5.64 297,960 $ 6.68
========= ========= ====== ======= ======
13. INCOME TAXES
For federal income tax purposes, BankAtlantic reports its income and
expenses on the accrual method of accounting. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code of 1986 (the "Code") relating primarily to the
composition of their assets and the nature of their business activities were,
within certain limitations, permitted to establish, and deduct additions to,
reserves for bad debts in amounts in excess of those which would otherwise be
allowable on the basis of actual loss experience. A qualifying savings
institution could elect annually, and was not bound by such election in any
subsequent year, one of the following two methods for computing additions to its
bad debt reserves for losses on "qualifying real property loans" (generally,
loans secured by interests in improved real property): (i) the experience method
or (ii) the percentage of taxable income method. BankAtlantic has utilized both
the percentage of taxable income method and the experience method in computing
the tax-deductible addition to its bad debt reserves. Additions to the reserve
for losses on non-qualifying loans, however, must be computed under the
experience method and reduce the current year's addition to the reserve for
losses on qualifying real property loans, unless the qualifying addition also is
determined under the experience method. The sum of the addition to each reserve
for each year was BankAtlantic's annual bad debt deduction.
The Small Business Job Protection Act of 1996 repealed the reserve
method of accounting for bad debts for tax years beginning after 1995. As a
"large" thrift (more than $500 million in assets), BankAtlantic had to change to
the specific charge-off method to compute its bad debt deduction starting in
1996. BankAtlantic is required to recapture into taxable income the portion of
its bad debt reserves that exceeds its base year reserves. For financial
reporting purposes, deferred taxes have previously been provided for amounts in
excess of the base year tax bad debt reserve and accordingly, recapture of such
amounts for tax purposes will not trigger expense for financial reporting
purposes. BankAtlantic will have to recapture $1.7 million (after tax) of bad
debt reserve due to the law change. BankAtlantic's recapture amount will be
taken into taxable income ratably (on a straight-line basis) over a six-year
period beginning in 1998 at $306,000 per year ($1.4 million remaining at
December 31, 1998), for which deferred income taxes have been provided.
BankAtlantic met the residential loan requirement for the tax years beginning in
1996 and 1997, and recapture of the reserves was suspended for such tax years.
During the year ended December 31, 1998 BankAtlantic recaptured $306,000 of tax
effected reserves into current taxable income. At December 31, 1998,
BankAtlantic had a $3.9 million (after tax) base year reserve for which deferred
taxes have not been provided which is subject to recapture if BankAtlantic
redeems its common stock or certain other events occur.
F-39
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes consisted of (in thousands):
1998 1997 1996
----------- ---------- ---------
Continuing operations................ $ 6,526 $ 15,248 $ 11,380
Discontinued operations.............. (11,101) 2,505 861
--------- -------- --------
Total................................ (4,575) 17,753 12,241
========= ======== ========
Continuing operations:
Current:
Federal............................ 14,051 13,462 8,566
State.............................. 1,658 2,539 1,323
---------- -------- --------
15,709 16,001 9,889
---------- -------- --------
Deferred:
Federal............................. (7,571) (651) 1,283
State.............................. (1,612) (102) 208
---------- -------- --------
(9,183) (753) 1,491
---------- -------- --------
Provision for income taxes.......... $ 6,526 $ 15,248 $ 11,380
========== ======== ========
The December 31, 1998, 1997, and 1996 amounts above do not include
deferred taxes of $2.2 million, $455,000 and $470,000, respectively, related to
unrealized appreciation on securities available for sale which is a separate
component of stockholders' equity.
BankAtlantic's actual provision for continuing operations differs from
the Federal expected income tax provision as follows (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- ----------
Income tax provision (benefit) at expected federal income tax rate(1)............. $ 5,849 $13,617 $10,156
Increase (decrease) resulting from:
Tax-exempt interest income...................................................... (36) (22) (26)
Provision (benefit) for state taxes net of federal benefit...................... 478 1,351 1,038
Change in valuation allowance for deferred tax assets.......................... (827) 0 0
Amortization of costs over fair value of net assets acquired.................... 1,217 878 541
Other -- net.................................................................... (155) (576) (329)
------- ------- ------
Provision for income taxes............................................. $ 6,526 $15,248 $11,380
======= ======= =======
- -------------
(1) The expected federal income tax rate is 35% for the years ended December
31, 1998, 1997 and 1996.
F-40
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities were:
DECEMBER 31,
---------------------------------
1998 1997 1996
------- -------- -------
DEFERRED TAX ASSETS: (IN THOUSANDS)
Provision for discontinued operations, restructuring charges and write-downs......... $ 4,758 $ 0 $ 0
Allowance for loans, REO and tax certificate losses, for
financial statement purposes...................................................... 14,360 10,700 8,692
Other allowances and expense accruals recorded for financial statement
purposes not currently recognized for tax purposes................................ 3,655 412 1,495
Deferred compensation accrued for financial statement purposes not
currently recognized for tax purposes............................................... 351 353 266
RBCO unearned compensation........................................................... 333 0 0
Unearned commitment fees............................................................. 167 125 114
Amortization of mortgage servicing rights for financial
reporting purposes in excess of amount amortized for tax purposes................. 5,370 146 251
Amortization of intangible assets for financial statement purposes in excess of
amounts amortized for tax purposes................................................. 128 169 225
Net operating loss carryforward acquired............................................. 1,387 1,222 0
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes.................. 1,670 1,414 0
Purchase accounting adjustments for SLWHC acquisition................................ 1,336 1,548 0
Purchase accounting adjustments for bank acquisitions................................ 136 (501) 170
Other................................................................................ 54 10 10
------- ------- -------
Total gross deferred tax assets........................................................ 33,705 15,598 11,223
Less valuation allowance relating to SLWHC acquisition................................. 3,357 4,184 0
------- ------- -------
Total deferred tax assets.............................................................. 30,348 11,414 11,223
------- ------- -------
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base year reserve 1,378 1,684 1,684
Office properties and equipment and real estate owned due to depreciation differences 140 447 1,172
FHLB stock, due to differences in the recognition of stock dividends 1,049 1,610 1,740
Deferred loan income, due to differences in the recognition of loan origination
fees and discounts 2,917 1,962 2,039
Discount on securities, due to the accretion of discounts 0 0 286
Prepaid pension expenses 1,429 995 313
Deferred tax liability on unrealized appreciation on securities available for sale 2,231 455 470
Prepaid insurance 192 219 142
Mortgage servicing rights recognized for financial statement purposes in excess of
amounts recognized for tax purposes 743 826 0
Other 121 19 22
------- ------- -------
Total gross deferred tax liabilities 10,200 8,217 7,868
------- ------- -------
Net deferred tax asset 20,148 3,197 3,355
Less deferred income tax (assets) liabilities at beginning of period (3,197) (3,355) 744
Acquired net deferred tax asset, net of valuation allowance (464) 0 (2,464)
Increase (decrease) in deferred tax liability on unrealized appreciation on debt
securities available for sale included as a separate component of stockholders' equity 1,776 (15) (3,130)
------- ------- -------
Benefit (provision) for deferred income taxes $18,263 $ (173) $(1,495)
======= ======= =======
F-41
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Due to IRS limitations, the net operating loss ("NOL") carryforward
acquired in connection with the SLWHC acquisition can only be utilized if SLW
has taxable income. The NOL carryforward will expire in varying amounts through
the year 2011.
The unrecognized tax attributes acquired on October 31, 1997 in
connection with the SLWHC acquisition were (in thousands):
DECEMBER 31,
1998 1997
--------- ---------
Net operating loss carryforward................................................. $ 1,206 $ 1,222
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes............ 815 1,414
Fair value of real estate held for development and sale lower than tax basis.... 1,336 1,548
------- -------
Total deferred tax assets....................................................... 3,357 4,184
Valuation allowance............................................................. 3,357 4,184
------- -------
Deferred tax assets, net........................................................ $ 0 $ 0
======= =======
On December 31, 1998 and 1997, the Company had a valuation allowance
relating to the deferred tax assets acquired in connection with the SLWHC
acquisition. These acquired deferred tax assets can only be realized if SLWHC
has taxable income of an appropriate character.
14. PENSION PLAN
BankAtlantic sponsors a non-contributory defined benefit pension plan
(the "Plan") covering substantially all of its employees. The benefits are based
on years of service and the employee's average earnings received during the
highest five consecutive years out of the last ten years of employment. The
funding policy is to contribute an amount not less than the ERISA minimum
funding requirement nor more than the maximum tax-deductible amount under
Internal Revenue Service rules and regulations. At December 31, 1998, the
Company froze its defined benefit pension plan whereby participants of the Plan
will not accrue service benefits beyond December 31, 1998 and vested all
participants in the plan. The Company will be subject to future pension expense
or income based on future actual plan returns and actuarial values of the plan
obligations incurred prior to January 1, 1999. Additionally, the Company is
exploring employee benefit alternatives such as enhanced 401K benefits and other
types of benefit plans. Plan assets consist of cash equivalents, common stocks
and mutual funds.
F-42
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth the Plan's funded status and the prepaid
pension cost included in the Consolidated Statements of Financial Condition at:
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
Projected benefit obligation at the beginning of the year .................. $ 20,478 $ 17,300
Service cost ............................................................... 1,791 1,260
Interest cost .............................................................. 1,443 1,270
Amendments ................................................................. 135 618
Termination benefits ....................................................... 162 0
Actuarial loss ............................................................. 1,246 511
Benefits paid .............................................................. (545) (481)
Gross curtailment gain ..................................................... (5,113) 0
-------- --------
Projected benefit obligation at end of year ................................ $ 19,597 $ 20,478
======== ========
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
Fair value of Plan assets at the beginning of year ......................... $ 20,169 $ 15,728
Actual return on Plan assets ............................................... 3,096 3,580
Employer contribution ...................................................... 652 1,342
Benefits paid .............................................................. (545) (481)
-------- --------
Fair value of Plan assets as of actuarial date ............................. $ 23,372 $ 20,169
======== ========
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
Actuarial present value of projected benefit obligation for service
rendered to date ......................................................... $(19,597) $(20,478)
Plan assets at fair value as of the actuarial date ......................... 23,372 20,169
-------- --------
Plan assets in excess (below) projected benefit obligation ................. 3,775 (309)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions ..................................... 0 2,248
Prior service (cost) benefit not yet recognized in net periodic pension cost 0 611
Unrecognized net asset at October 1, 1987, being recognized over 15 years .. 0 (1,272)
-------- --------
Prepaid pension cost ....................................................... $ 3,775 $ 1,278
======== ========
F-43
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Net pension cost includes the following components:
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
Service cost benefits earned during the period ............ $ 1,791 $ 1,260 $ 1,065
Interest cost on projected benefit obligation ............. 1,443 1,270 1,151
Expected return on plan assets ............................ (1,814) (1,520) (1,297)
Amortization of transition asset .......................... (268) (268) (268)
Amortization of prior service costs ....................... 68 68 9
Amortization of unrecognized net gains and losses ........ 63 71 256
Curtailment gain less termination benefits, and recognition
of
previously unrecognized deferred items .................. (3,128) 0 0
------- ------- -------
Net periodic pension expense (benefit) (1) ................ $(1,845) $ 881 $ 916
======= ======= =======
(1) Periodic pension expense, excluding the curtailment gain, is included in
employee compensation/benefits excluding RBCO and real estate operations
on the Consolidated Statements of Operations.
The actuarial assumptions used in accounting for the Plan were:
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------ ----- -----
Weighted average discount rate.......................... 6.50% 7.00% 7.50%
Rate of increase in future compensation levels.......... N/A 4.75% 5.00%
Expected long-term rate of return....................... 9.00% 9.00% 9.00%
Actuarial assumptions for the years ended December 31, 1997 and 1996
were projected based upon participant data at October 1 of the same year.
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. With respect to the years ended December 31, 1997 and 1996,
management believes that the impact, if any, of the difference between actuarial
assumptions utilized on October 1 and those appropriate at December 31 is
immaterial. Participant data at December 31, 1998 was used for the actuarial
assumption for the year ended December 31, 1998. During the years ended December
31, 1998, 1997 and 1996, BankAtlantic funded $577,000, $954,000 and $500,000,
respectively, to the plan.
BankAtlantic sponsors a defined contribution plan ("401k Plan") for all
employees who have completed six months of service. Employees can contribute up
to 14% of their salary, not to exceed $10,000 for 1998 and $9,500 for 1997 and
1996. For employees that fall within the highly compensated criteria, maximum
contributions are currently 10% of salary. Effective October 1991,
BankAtlantic's 401k Plan was amended to include only a discretionary match as
deemed appropriate by the Board of Directors. Included in employee compensation
and benefits on the consolidated statement of operations was $225,000, $194,000
and $147,000 of expenses and employer contributions related to the 401k Plan for
the years ended December 31, 1998, 1997 and 1996, respectively. For the years
ended December 31, 1998, 1997 and 1996, the Board of Directors declared a
discretionary match of 25% of the first 4% of an employee's contribution.
F-44
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
The Company is lessee under various operating leases for real estate
and equipment including ATMs extending to the year 2072. The approximate minimum
rental under such leases, at December 31, 1998, for the periods shown was (in
thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
1999.......................................... $ 6,135
2000.......................................... 4,978
2001.......................................... 4,209
2002.......................................... 3,700
2003.......................................... 2,839
Thereafter.................................... 4,464
--------
Total............................... $ 26,325
========
Rental expense for premises and equipment was $6.7 million, $5.1 million
and $3.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Included in other liabilities at December 31, 1998 and 1997, is an
allowance of $409,000 and $67,000, respectively, for future rental payments on
closed branches. The allowance for closed branches includes branches closed in
prior periods, branches closed during 1998, and those branches included in the
restructuring plan (see Note 5).
At December 31, 1998, BankAtlantic leased 746 ATMs, 274 of which are in
Wal-Mart and Sam's Club locations throughout Florida, Georgia and Alabama.. An
additional 185 machines are located in K-Mart stores and Cumberland Farms
convenience stores located in Florida and 28 machines are on cruise ships. The
remaining ATMs are at BankAtlantic branch locations and various retail outlets
including gasoline, convenience food stores, malls, entertainment complexes and
college campuses.
During the ordinary course of business, the Company c and its
subsidiaries including RBCO are involved as plaintiff or defendant in various
lawsuits. Although the Company believes it and its subsidiaries have 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. (See also Note 17.)
In the normal course of its business, the Company is a party to
financial instruments with off-balance-sheet risk, when it is deemed appropriate
in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and 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,
-----------------------
1998 1997
--------- ---------
(IN THOUSANDS)
Commitments to extend credit to foreign institutions......... $ 57,229 $ 49,894
Commitment to sell residential loans......................... 45,353 11,886
Commitments to sell investment securities.................... 0 4,979
Commitment to purchase REMIC's............................... 40,878 153,946
Commitments to extend credit, including the undisbursed
portion of loans in process................................ 436,949 295,776
Letters of credit............................................ 123,480 56,435
Commitments to purchase residential loans.................... 1,200 0
Commitments to purchase trading securities................... 1,000 0
Commitments to sell trading securities....................... $ 1,000 0
========= =========
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
F-45
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. BankAtlantic evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral required by
BankAtlantic in connection with an extension of credit is based on management's
credit evaluation of the counter-party. Collateral held varies but may include
first mortgages on commercial and residential real estate.
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 has commitments to extend credit to foreign financial
institutions in Latin America. The commitments can be terminated at any time.
Each financial institution is evaluated on a case by case basis.
BankAtlantic is required to maintain average reserve balances with the
Federal Reserve Bank. Such reserves consisted of cash and amounts due from banks
of $39.7 million and $33.4 million at December 31, 1998 and 1997, respectively.
BankAtlantic is a member of the FHLB system. As a member, BankAtlantic
is required to purchase and hold stock in the FHLB of Atlanta, in amounts at
least equal to the greater of (i) 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year or (ii) 5% of its outstanding advances from the FHLB of Atlanta. As
of December 31, 1998, BankAtlantic was in compliance with this requirement with
an investment of approximately $52.2 million in stock of the FHLB of Atlanta.
Upon acquisition of LTI, the Company became obligated on leases sold
with full recourse by LTI to investors prior to the Company's acquisition. Under
the terms of such agreements, LTI is subject to recourse for 100% of the
remaining balance of the lease receivable sold upon a default by the lessees. At
December 31, 1998, the amount of lease payments subject to such recourse
provisions was approximately $7.0 million and a $162,000 estimated liability on
leases sold with recourse is included in other liabilities in the Company's
Statement of Financial Condition.
Upon the acquisition of RBCO the Company became subject to the risks of
investment banking. RBCO'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 RBCO 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 RBCO to
off-balance-sheet risk, wherein the clearing broker may charge RBCO 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. RBCO 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. RBCO 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
The Company, by virtue of its ownership of all of the common stock of
BankAtlantic, is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is subject to the reporting and the other requirements of the Securities
Exchange Act of 1934. In addition, BFC Financial Corporation ("BFC") owns
6,578,671 and 4,876,124 shares of Class A and Class B common stock,
respectively, which amounts to 25% and 47% of the Company's outstanding Class A
and Class B common stock, respectively. BFC is subject to the same oversight by
the OTS as discussed herein with respect to the Company.
On September 30, 1996, President Clinton signed into law H.R. 3610,
which recapitalized the SAIF and substantially bridged the assessment rate
disparity existing between SAIF and BIF insured institutions. The new law
subjected institutions with SAIF assessable deposits, including BankAtlantic, to
a one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment, which was paid in November 1996, resulted in
a pre-tax charge of $7.2 million for the year ended December 31, 1996, and under
provisions of the law, was treated as a fully deductible "ordinary and necessary
business expense" for tax purposes. The $7.2 million charge excludes the $2.3
million amount assessed on BNA deposits which was previously expensed by BNA
prior to the acquisition date and was considered a liability of BNA in recording
the acquisition of
F-46
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
BNA under the purchase method of accounting. As a result of the special
assessment, discussed herein, the SAIF was capitalized at the target Designated
Reserve Ratio ("DRR") of 1.25 percent of estimated insured deposits on October
1, 1996.
BankAtlantic's deposits are insured by the SAIF and BIF for up to
$100,000 for each insured account holder, the maximum amount currently permitted
by law. Pursuant to the FDICIA, the FDIC adopted transitional regulations
implementing risk-based insurance premiums that became effective on January 1,
1993. Under these regulations, institutions are divided into groups based on
criteria consistent with those established pursuant to the prompt regulatory
action provisions of the FDICIA (see "Savings Institution Regulations -- Prompt
Regulatory Action", below). Each of these groups is further divided into three
subgroups, based on a subjective evaluation of supervisory risk to the insurance
fund posed by the institution.
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. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
BankAtlantic must meet specific capital guidelines that involve quantitative
measures of BankAtlantic's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. BankAtlantic's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Certain of
BankAtlantic's activities, such as its investment in real estate held for
development and sale and real estate joint ventures, result in a deduction from
capital for regulatory capital measurement.
Quantitative measures established by regulation to ensure capital
adequacy require BankAtlantic to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998, that
BankAtlantic meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, BankAtlantic is considered a well capitalized
institution under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BankAtlantic must maintain minimum total
risk-based, Tier I risk-based, tangible and core capital ratios as set forth in
the table. There are no conditions or events since December 31, 1998 that
management believes have changed the institution's category.
BankAtlantic's actual capital amounts and ratios are presented in the
table:
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ------ ---------- ------ --------- ------
(IN THOUSANDS)
As of December 31, 1998:
Total risk-based capital................. $ 336,131 13.92% $> 193,150 > 8.00% $ 241,438 > 10.00%
- - -
Tier I risk-based capital................ $ 305,860 12.67% $> 96,575 > 4.00% $ 144,863 > 6.00%
- - -
Tangible capital......................... $ 305,860 8.48% $> 54,111 > 1.50% $ 54,111 > 1.50%
- - -
Core capital............................. $ 305,860 8.48% $> 144,297 > 4.00% $ 180,371 > 5.00%
- - -
As of December 31, 1997:
Total risk-based capital................. $ 355,930 18.64% $> 152,785 > 8.00% $ 190,981 > 10.00%
- - -
Tier I risk-based capital................ $ 332,010 17.38% $> 76,392 > 4.00% $ 114,588 > 6.00%
- - -
Tangible capital......................... $ 332,010 11.12% $> 44,798 > 1.50% $ 44,798 > 1.50%
- - -
Core capital............................. $ 332,010 11.12% $> 89,595 > 3.00% $ 149,325 > 5.00%
- - -
The Company's wholly owned subsidiary, RBCO is subject to the net
capital provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that RBCO's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. Additionally, RBCO, as a market marker,
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 RBCO, not
F-47
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
to exceed $1,000,000. At December 31, 1998, RBCO's regulatory net capital was
approximately $12.1 million, which exceeded minimum net capital rule
requirements by $11.1 million.
RBCO 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, RBCO safekeeps and redeems municipal bond coupons for the
benefit of its customers. Accordingly, RBCO 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, 1998.
17. SUBJECT PORTFOLIO
From 1987 through 1990, BankAtlantic purchased in excess of $50 million
of indirect home improvement loans from certain dealers, primarily in the
northeastern United States. BankAtlantic ceased purchasing loans from such
dealers in the latter part of 1990. These dealers were affiliated with each
other but were not affiliated with BankAtlantic. In connection with loans
originated through these dealers, BankAtlantic funded amounts to the dealers as
a dealer reserve. Such loans and related dealer reserves are referred to herein
as the "Subject Portfolio."
In late 1990, questions arose relating to this portfolio and such
questions revolved around practices which were intended to defraud BankAtlantic.
As a consequence of this activity BankAtlantic filed a claim with its insurance
carrier which resulted in payments of $18 million by the carrier to BankAtlantic
during 1992 through 1994. The carrier has no obligation to make further payments
on this matter to BankAtlantic. As part of the settlement agreement with the
carrier ("Covenant"), BankAtlantic agreed to and did file suit against certain
third parties. The Covenant provides that in the event of recovery by
BankAtlantic of damages against third party wrongdoers, BankAtlantic will be
entitled to retain such amount until such amounts plus any payments received
from National Union equal $22 million plus the costs incurred by BankAtlantic to
obtain such recoveries. A trial against various wrongdoers was held in February
1998 and judgment was entered in favor of BankAtlantic and the carrier against
over fifty third party defendants, individuals and corporations. A number of
these third party defendants have been convicted of criminal fraud.
Additionally, BankAtlantic has been named as a defendant in various litigation
instituted by or for the benefit of various consumers who were mortgagors of the
loans. At December 31, 1998, all such litigation had been resolved except for
the ongoing action in New Jersey, discussed below.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions, including BankAtlantic. This action
sought, among other things, rescission of the loan agreements and damages. In
November 1995, the court in this action entered an order dismissing the
complaint against BankAtlantic; and plaintiff's appealed this ruling. In January
1996, the Appellate Court reversed the lower court's decision and remanded the
case back to the trial court to determine whether the action could be maintained
as a class action. The reversal was without prejudice to BankAtlantic's right to
renew its summary judgment motion after the trial court made a determination as
to plaintiff's ability to maintain this case as a class action. In December
1997, the trial court denied the plaintiff's motion for class certification and
in January 1998 granted BankAtlantic's summary judgment motion. The plaintiffs
appealed this ruling to the superior Court of New Jersey Appellate Division
which, in March 1998, denied the plaintiffs motion to appeal. Plaintiff
subsequently appealed to the Supreme Court of New Jersey which, on June 30,
1998, granted plaintiffs motion to appeal and remanded the matter to the
Appellate Division to consider the class issue on its merit. The Appellate
Division has set March 24, 1999 for oral arguments on this matter.
The balance of the loans associated with the Subject Portfolio amounted
to approximately $4.5 million and $6.8 million at December 31, 1998 and 1997,
respectively. The related dealer reserve had been completely charged-off by
December 31, 1993. Net charge-offs relating to the Subject Portfolio amounted to
$103,000, $370,000 and $666,000, for the years ended December 31, 1998, 1997 and
1996, respectively. At December 31, 1998, 11% of the loans were secured by
collateral in South Florida and 89% of such loans were secured by collateral in
the northeastern United States, respectively. Collateral for these loans is
generally a second mortgage on the borrower's property. However, it appears that
in most cases, the property is encumbered with loans having high loan to value
ratios. Loans in the Subject Portfolio are charged-off if payments are more than
90 days delinquent.
Since discovery of this issue, appropriate consideration has been given
to insurance coverage availability, the Covenant, loan collectibility and
related dealer reserves. Management believes it has meritorious defenses to the
remaining litigation in New Jersey, but there is no assurance that BankAtlantic
will ultimately be successful in defending this litigation.
F-48
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statements of Financial Condition at December 31, 1998 and
1997 and Condensed Statements of Operations for each of the years in the three
year period ended December 31, 1998 are shown below. (in thousands):
CONDENSED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31,
---------------------------
ASSETS 1998 1997
--------- --------
Cash deposited at BankAtlantic ................................................. $ 13,496 $ 48,514
Securities available for sale (at market value) ................................. 19,276 7,233
Loan receivable from subsidiary, net ............................................ 10,000 6,275
Trading securities (at market value) ........................................... 0 5,067
Investment in subsidiaries ...................................................... 426,243 383,126
Investment and advances in joint ventures ....................................... 12,629 1,749
Due from BankAtlantic ........................................................... 657 0
Deferred offering costs on junior subordinated and subordinated debentures ...... 8,087 9,107
Income tax receivable from BankAtlantic ......................................... 3,145 5,312
Other assets .................................................................... 208 263
--------- --------
Total assets .......................................................... $ 493,741 $466,646
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior subordinated debentures and subordinated debentures ...................... $ 249,244 $255,187
Due to BankAtlantic ............................................................. 0 39
Other liabilities ............................................................... 4,057 3,976
--------- --------
Total liabilities ............................................................... 253,301 259,202
--------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value 10,000,000 shares authorized; none outstanding 0 0
Class A common stock, $0.01 par value, authorized 80,000,000 shares; issued and
outstanding, 26,799,368 and 21,509,159 shares .............................. 268 215
Class B common stock, $0.01 par value, authorized 45,000,000 shares; issued and
outstanding, 10,356,431 and 10,690,231 shares .............................. 104 107
Additional paid-in capital .................................................... 147,686 98,475
Unearned compensation - restricted stock awards ............................... (7,062) 0
Retained earnings ............................................................. 95,818 107,650
--------- --------
Total stockholders' equity before net unrealized appreciation on debt securities
available for sale-net of deferred income taxes ............................... 236,814 206,447
Net unrealized appreciation (depreciation) on securities available for sale owned
by the Company and BankAtlantic - net of deferred income taxes ................ 3,626 724
--------- --------
Total stockholders' equity ...................................................... 240,440 207,171
--------- --------
Total liabilities and stockholders' equity ............................ $ 493,741 $466,373
========= ========
CONDENSED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Interest income on repurchase agreements and deposits at BankAtlantic .......... $ 1,096 $ 2,337 $ 597
Interest income on loans and investments ....................................... 1,055 837 209
-------- -------- --------
Total interest income ................................................. 2,151 3,174 806
-------- -------- --------
Interest expense on subordinated debentures and junior subordinated debentures 18,823 11,689 4,018
Capitalized interest ........................................................... (732) 0 0
-------- -------- --------
Net interest (expense) ....................................................... 18,091 (8,515) (3,212)
Gains of trading account securities, unrealized and realized ................... 834 2,463 0
Loss on investment securities available for sale ............................... (2,074) 0 0
Other expenses ................................................................. (495) (544) (39)
-------- -------- --------
Loss before income tax benefit and earnings of subsidiaries .................... (17,675) (6,596) (3,251)
Income tax benefit ........................................................... 6,572 2,481 1,253
-------- -------- --------
(Loss) before income of subsidiaries ......................................... (11,103) (4,115) (1,998)
Equity in undistributed net income (loss) of subsidiaries excluding BankAtlantic (317) 152 27
Equity in income from BankAtlantic's continuing operations ..................... 21,606 27,621 19,610
Equity in income (loss) from BankAtlantic's discontinued operations ............ (18,220) 4,111 1,372
-------- -------- --------
Net income (loss) .................................................... $ (8,034) $ 27,769 $ 19,011
======== ======== ========
F-49
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FROM THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1998 1997 1996
-------- --------- --------
OPERATING ACTIVITIES:
Income from continuing operations ....................................... $ 10,186 $ 23,658 $ 17,639
Income from discontinued operations ..................................... (18,220) 4,111 1,372
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Equity in net earnings of BankAtlantic and other subsidiaries ........... (3,069) (31,884) (21,009)
Amortization and accretion, net ......................................... 792 388 13
Other than temporary impairment of securities available for sale ........ 2,136 0 0
Gains on sales of securities available for sale ......................... (62) 0 0
Purchase of trading securities, net ..................................... (1,621) (6,243) 0
Proceeds from sales of trading securities ............................... 8,648 3,640 0
Trading securities gains ................................................ (834) (2,463) 0
Increase (decrease) in accrued interest payable ......................... (282) 599 1,859
Increase (decrease) in other liabilities ................................ 394 78 (42)
(Decrease) increase in receivable (payable) from (to) BankAtlantic ..... (696) (2,703) 3,381
Increase in other assets ................................................ 86 (35) 0
Increase in income tax receivable ....................................... 984 (2,474) (1,371)
-------- --------- --------
Net cash provided (used) by operating activities ........................ (1,558) (13,328) 1,842
-------- --------- --------
INVESTING ACTIVITIES:
Loan participations with BankAtlantic ................................... 0 (6,500) 0
Loans originated to subsidiaries ........................................ (10,000) 0 0
Principal reduction on loans ............................................ 6,275 358 0
Investment in BBC Capital Trust I ....................................... 0 (2,312) 0
Investment and advances to joint ventures ............................... (10,696) (1,870) 0
Additional investment in BankAtlantic ................................... (17,325) (161,200) (54,000)
Dividends from subsidiaries ............................................. 22,025 13,386 6,080
Purchase of securities available for sale ............................... (12,030) (7,482) (13,617)
Proceeds from maturity of securities available for sale ................. 0 5,900 9,700
Proceeds from sales of securities available for sale .................... 603 0 0
-------- --------- --------
Net cash used by investing activities ................................... (21,148) (159,720) (51,837)
-------- --------- --------
FINANCING ACTIVITIES:
Issuance of common stock upon exercise of options ....................... 1,584 1,857 413
Issuance of Class A restricted common stock ............................ 584 0 0
Proceeds from issuance of Class A common stock, net ..................... 0 43,374 18,004
Common stock dividends paid ............................................. (3,620) (2,343) (2,159)
Proceeds from issuance of junior subordinated debentures ................ 0 77,062 0
Deferred costs on junior subordinated debentures ........................ 0 (2,908) 0
Repayment of notes payable .............................................. 0 0 (1)
Proceeds from issuance of subordinated debentures ....................... 0 100,000 57,500
Deferred costs on subordinated debentures ............................... 0 (3,518) (2,356)
Payment to acquire and retire common stock .............................. (10,860) (12,188) (3,259)
-------- --------- --------
Net cash provided (used) by financing activities ........................ (12,312) 201,336 68,142
-------- --------- --------
Increase in cash and cash equivalents ................................... (35,018) 28,288 18,147
Cash and cash equivalents at beginning of period ........................ 48,514 20,226 2,079
-------- --------- --------
Cash and cash equivalents at end of period .............................. $ 13,496 $ 48,514 $ 20,226
======== ========= ========
(CONTINUED)
F-50
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(In thousands) 1998 1997 1996
------- -------- -------
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid .............................................................. $18,541 $ 11,090 $ 1,937
Issuance of class A common stock upon acquisitions ......................... 41,862 0 0
Issuance of common stock options upon acquisition of RBCO .................. 1,582 0 0
Common stock dividends declared and not paid until subsequent period ....... 997 817 552
Increase (decrease) in stockholders' equity from net unrealized appreciation
on debt securities available for sale by BankAtlantic, less related
deferred income taxes .................................................... 2,902 (24) (4,985)
Increase in equity for the tax effect related to the exercise of employee
stock options ............................................................ 709 913 118
Issuance of Class A common stock upon conversion of subordinated debentures 5,729 375 0
During each of the years in the three year period ended December 31,
1998, the Company received $22.0 million, $13.2 million and $6.1 million,
respectively, in dividends from BankAtlantic.
F-51
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. SELECTED QUARTERLY RESULTS (Unaudited)
The following tables summarize the quarterly results of operations for
the years ended December 31, 1998 and 1997 (in thousands except per share data):
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ------------ ------------ ------------ ------------
Interest income .............................. $ 59,810 $ 65,023 $ 66,372 $ 62,933 $ 254,138
Interest expense ............................. 35,336 38,494 39,770 38,253 151,853
----------- ------------ ------------ ------------ ------------
Net interest income .......................... 24,474 26,529 26,602 24,680 102,285
Provision for loan losses .................... 3,407 3,371 3,033 11,977 21,788
----------- ------------ ------------ ------------ ------------
Net interest income after provision for loan
losses ..................................... 21,067 23,158 23,569 12,703 80,497
----------- ------------ ------------ ------------ ------------
Income before income taxes (benefit) ......... 7,652 11,767 4,478 (7,185) 16,712
----------- ------------ ------------ ------------ ------------
Income (loss) from continuing operations ..... $ 4,846 $ 7,019 $ 2,644 $ (4,323) $ 10,186
=========== ============ ============ ============ ============
Income (loss) from discontinued operations ... $ 410 $ (628) $ (12,188) $ (5,814) $ (18,220)
=========== ============ ============ ============ ============
Net income (loss) ............................ $ 5,256 $ 6,391 $ (9,544) $ (10,137) $ (8,034)
=========== ============ ============ ============ ============
Class A basic earnings (loss) per share from
continuing operations ....................... $ 0.15 $ 0.22 $ 0.07 $ (0.12) $ 0.30
Class A basic earnings (loss) per share from
discontinued operations ..................... 0.02 (0.02) (0.34) (0.17) (0.54)
----------- ------------ ------------ ------------ ------------
Class A basic earning (loss) per share ....... $ 0.17 $ 0.20 $ (0.27) $ (0.29) $ (0.24)
=========== ============ ============ ============ ============
Class B basic earnings (loss) per share from
continuing operations ..................... $ 0.14 $ 0.20 $ 0.07 $ (0.11) $ 0.27
Class B basic earnings (loss) per share from
discontinued operations .................... 0.01 (0.02) (0.32) (0.15) (0.49)
----------- ------------ ------------ ------------ ------------
Class B basic earning (loss) per share ....... $ 0.15 $ 0.18 $ (0.25) $ (0.26) $ (0.22)
=========== ============ ============ ============ ============
Class A diluted earnings (loss) per share from
continuing operations ...................... $ 0.13 $ 0.17 $ 0.07 $ (0.12) $ 0.29
Class A diluted earnings (loss) per share from
discontinued operations .................... 0.01 (0.01) (0.33) (0.17) (0.51)
----------- ------------ ------------ ------------ ------------
Class A diluted earning (loss) per share ..... $ 0.14 $ 0.16 $ (0.26) $ (0.29) $ (0.22)
=========== ============ ============ ============ ============
Class B diluted earnings (loss) per share from
continuing operations ...................... $ 0.12 $ 0.17 $ 0.06 $ (0.11) $ 0.26
Class B diluted earnings (loss) per share from
discontinued operations .................... 0.01 (0.01) (0.30) (0.15) (0.48)
----------- ------------ ------------ ------------ ------------
Class B diluted earning (loss) per share ..... $ 0.13 $ 0.16 $ (0.24) $ (0.26) $ (0.22)
=========== ============ ============ ============ ============
Basic weighted average number of common
Class A shares outstanding ................. 21,809,903 22,724,683 26,020,125 26,026,255 24,161,923
=========== ============ ============ ============ ============
Basic weighted average number of common
Class B shares outstanding ................. 10,768,956 10,425,815 10,384,137 10,360,757 10,483,522
=========== ============ ============ ============ ============
Diluted weighted average number of common
Class A shares outstanding ................. 38,764,353 39,320,600 26,482,163 26,026,255 24,792,545
=========== ============ ============ ============ ============
Diluted weighted average number of common
Class B shares outstanding ................. 11,879,110 11,384,648 11,188,378 10,360,757 11,383,033
=========== ============ ============ ============ ============
F-52
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Income from continuing operations was adversely affected in the fourth
quarter by: (1) an increase in the provision for loan losses resulting from
recent delinquency trends in the small business and consumer indirect
portfolios, and charge-offs and growth in the small business loan portfolio ;
(2) write-downs of securities available for sale due to other than temporary
declines in fair value, (3) realized losses in the Company's trading portfolio
reflecting market declines during the fourth quarter of 1998 compared to the
third quarter of 1998, (4) accelerated premium amortization on purchased
residential loans due to prepayments of the underlying loans, (5) increases in
all categories of noninterest expense due to growth in asset size and number of
departments and personnel, and (6) a restructuring charge and asset write-downs
resulting from employee terminations, branch closings, and the consolidation of
the Tampa Bay area mortgage banking operations. The above declines in income
from continuing operations were partially offset by a $3.1 million net pension
curtailment gain.
Income from discontinued operations during the last two quarters of
1998 were impacted by accelerated amortization of mortgage servicing rights
caused by mortgage prepayments of the underlying loans during the periods.
Additionally, during the third quarter of 1998 a $15 million provision for
valuation of mortgage servicing rights was recognized due to anticipated
accelerated prepayments of underlying mortgages. Income from discontinued
operations during the fourth quarter of 1998 reflects a $10 million estimated
cost to exit the MSB. The estimated cost includes the anticipated loss from MSB
operations through the anticipated disposal date and losses on the sale of the
MSB assets. The exit costs were partially offset by a $4.3 million reversal in
the fourth quarter of the provision for valuation of mortgage servicing rights
established during the third quarter.
F-53
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ----------- ----------- ----------- -----------
Interest income ................................... $ 50,444 $ 52,046 $ 53,520 $ 54,544 $ 210,554
Interest expense .................................. 26,297 28,587 29,872 31,268 116,024
----------- ----------- ----------- ----------- -----------
Net interest income ............................... 24,147 23,459 23,648 23,276 94,530
Provision for loan losses ......................... 2,476 2,686 3,671 2,435 11,268
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan losses 21,671 20,773 19,977 20,841 83,262
----------- ----------- ----------- ----------- -----------
Income before income taxes ........................ 7,877 9,166 9,088 12,775 38,906
----------- ----------- ----------- ----------- -----------
Net income from continuing operations ............. $ 4,656 $ 5,582 $ 5,635 $ 7,785 $ 23,658
=========== =========== =========== =========== ===========
Income from discontinued operations ............... $ 1,585 $ 1,239 $ 894 $ 393 $ 4,111
=========== =========== =========== =========== ===========
Net income) ....................................... $ 6,241 $ 6,821 $ 6,529 $ 8,178 $ 27,769
=========== =========== =========== =========== ===========
Class A basic earnings per share from
continuing operations ........................... $ 0.16 $ 0.19 $ 0.21 $ 0.27 $ 0.84
Class A basic earnings per share from
discontinuing operations ........................ 0.06 0.05 0.03 0.01 0.14
----------- ----------- ----------- ----------- -----------
Class A basic earning per share ................... $ 0.22 $ 0.24 $ 0.24 $ 0.28 $ 0.98
=========== =========== =========== =========== ===========
Class B basic earnings per share from
continuing operations ........................... $ 0.16 $ 0.19 $ 0.20 $ 0.25 $ 0.81
Class B basic earnings per share from
discontinuing operations ........................ 0.06 0.04 0.02 0.01 0.13
----------- ----------- ----------- ----------- -----------
Class B basic earning per share ................... $ 0.22 $ 0.23 $ 0.22 $ 0.26 $ 0.94
=========== =========== =========== =========== ===========
Class A diluted earnings per share from
continuing operations ........................... $ 0.13 $ 0.16 $ 0.16 $ 0.21 $ 0.67
Class A diluted earnings per share from
discontinued operations ......................... 0.05 0.03 0.02 0.01 0.11
----------- ----------- ----------- ----------- -----------
Class A diluted earning per share ................. $ 0.18 $ 0.19 $ 0.18 $ 0.22 $ 0.78
=========== =========== =========== =========== ===========
Class B diluted earnings per share from
continuing operations ........................... $ 0.14 $ 0.16 $ 0.16 $ 0.20 $ 0.67
Class B diluted earnings per share from
discontinued operations .......................... 0.04 0.03 0.02 0.01 0.10
----------- ----------- ----------- ----------- -----------
Class B diluted earning per share ................. $ 0.18 $ 0.19 $ 0.18 $ 0.21 $ 0.77
=========== =========== =========== =========== ===========
Basic weighted average number of common
Class A shares outstanding ...................... 18,146,296 17,940,645 17,170,265 18,863,989 18,029,784
=========== =========== =========== =========== ===========
Basic weighted average number of common
Class B shares outstanding ...................... 10,569,392 10,742,040 10,603,426 10,680,958 10,649,135
=========== =========== =========== =========== ===========
Diluted weighted average number of common
Class A shares outstanding ...................... 27,107,912 26,933,436 26,474,831 31,175,239 27,893,534
=========== =========== =========== =========== ===========
Diluted weighted average number of common
Class B shares outstanding ...................... 11,673,630 11,767,040 12,072,176 11,812,208 11,765,385
=========== =========== =========== =========== ===========
F-54
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
BankAtlantic's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category such as commercial, commercial
real estate, residential mortgage, second mortgages, and other installment. 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. BankAtlantic's interest
rate risk 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
non-performing loans are on a non-accrual 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 based on bid
prices available from security dealers.
Fair value of mortgage-backed securities is estimated based on bid
prices available from security dealers.
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, is equal to the amount payable on demand at
December 31, 1998 and 1997. 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 such remaining
maturities.
The book value of securities sold under agreements to repurchase
approximates fair value.
The fair values of advances from FHLB, were based upon comparable terms
to maturity, interest rates and issuer credit standing.
The fair value of convertible subordinated debentures and guaranteed
preferred beneficial interests in the Company's junior subordinated debentures
was based on quoted market prices on NASDAQ. The fair value of other
subordinated debentures and notes payable was based on discounted value of
contractual cash flows based on a market discount rate.
F-55
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents information for the Company's financial
instruments at December 31, 1998 and 1997 (in thousands):
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Financial assets:
Cash and due from depository institutions ............ $ 100,823 $ 100,823 $ 82,787 $ 82,787
Securities available for sale ........................ 597,520 597,520 607,490 607,490
Trading securities ................................... 30,005 30,005 5,067 5,067
Investment securities ................................ 51,811 51,811 55,213 55,213
Loans receivable including loans held for sale, net .. 2,635,369 2,667,362 2,072,825 2,093,956
Financial liabilities:
Deposits ............................................. $1,925,772 $1,873,311 $1,763,733 $1,769,849
Securities sold under agreements to repurchase and
federal funds purchased ............................ 180,593 180,593 61,216 61,216
Advances from FHLB ................................... 1,044,572 1,052,354 697,707 704,042
Subordinated debentures and note payable ............. 177,114 157,208 179,600 242,440
Guaranteed preferred beneficial interests in Company's
junior subordinated debentures ..................... 74,750 71,013 74,750 78,488
The contract amount and related fees of BankAtlantic's commitments to
extend credit, standby letters of credit, financial guarantees and forward FHLB
commitments approximates fair value (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments).
21. ACQUISITIONS AND EQUITY METHOD INVESTMENTS
ACQUISITIONS
In March 1998, the Company acquired LTI, a company engaged in the
equipment leasing and finance business. For financial accounting purposes the
acquisition was effective on March 1, 1998. LTI principally leases or finances
trucks, and manufacturing and construction equipment to businesses located
primarily in South Florida. LTI was acquired by the Company in exchange for
718,413 shares of Class A common stock and $300,000 cash in a merger accounted
for under the purchase method of accounting. The results of LTI are included in
the Company's results of Operations since March 1, 1998. The Company will
amortize goodwill over 25 years on a straight line basis. The Class A common
stock received by the LTI shareholders was subject to restrictions prohibiting
transfers for periods ranging from one to three years. The estimated fair value
of Class A common stock issued in the acquisition was based upon the average
market price for the common stock immediately prior to and after the terms of
the acquisition were agreed to and announced, reduced by a factor based on an
appraisal from an independent third party to reflect contractual transfer
restrictions on the Company's stock received by the former LTI shareholders.
Effective June 30, 1998, the Company contributed LTI at its book value to
BankAtlantic, after receipt of regulatory approval. Proforma information
relating to LTI is not presented due to lack of significance.
On June 30, 1998 the Company acquired all of RBCO's outstanding shares
of common stock in exchange for shares of the Company's Class A common stock in
an acquisition accounted for under the purchase method of accounting. Results of
operations of RBCO are included as of July 1, 1998. RBCO is operated as an
autonomous independent wholly owned subsidiary under RBCO's management. RBCO is
an investment firm that is principally engaged in the underwriting, distribution
and trading of tax-exempt obligations and bank and thrift equity and debt
securities. RBCO provides investment banking, research and financial advisory
services primarily to financial services companies with a focus on corporate
finance and merger-related services. RBCO offers a general securities brokerage
business with investment products for retail and institutional clients, as well
as life insurance and annuity products. RBCO's retail and institutional
brokerage clients consist primarily of high net worth individuals (primarily
residents of New Jersey, other Mid-Atlantic and Northeastern states and
Florida), banking and thrift
F-56
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
institutions (primarily located in New Jersey, Pennsylvania and Florida) and, to
a much lesser extent, insurance companies and specialty finance companies. The
principal executive office of RBCO is located in Livingston, New Jersey. RBCO is
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") and is a member of the National Association of Securities Dealers, Inc.
("NASD") and the Securities Investor Protection Corporation ("SIPC"). RBCO is
not a member of any securities exchange. Brokerage services to retail and
institutional customers are provided through RBCO's sales force located in the
Livingston and Shrewsbury, New Jersey, Bala Cynwyd, Pennsylvania, and West Palm
Beach, Florida offices.
The fair value of assets acquired and liabilities assumed in connection
with the acquisitions of RBCO and LTI effective June 30, 1998 and March 1, 1998,
respectively, is as follows:
IN THOUSANDS RBCO LTI TOTAL
- ------------ -------- ------- --------
Cash acquired ................................................ $ 733 $ 0 $ 733
Leases receivable, net ....................................... 0 8,419 8,419
Securities available for sale ................................ 0 121 121
Trading account securities ................................... 27,484 0 27,484
Investment securities ........................................ 1,915 0 1,915
Property and equipment ....................................... 2,916 119 3,035
Deferred income tax (liability) assets ....................... 1,015 (551) 464
Other assets ................................................. 1,895 975 2,870
Securities sold not yet purchased ............................ (3,334) 0 (3,334)
Notes payable ................................................ (1,704) (6,670) (8,374)
Other liabilities ............................................ (7,709) (4,151) (11,860)
Subordinated loan from the Company ........................... (10,000) 0 (10,000)
-------- ------- --------
Fair value of net tangible assets acquired ................... 13,211 (1,738) 11,473
-------- ------- --------
Estimated fair value of Class A common stock issued .......... 35,017 0 35,017
Estimated fair value of restricted Class A common stock issued 1,062 5,783 6,845
Estimated fair value of Class A common stock options issued .. 1,582 0 1,582
Cash paid to shareholder ..................................... 0 300 300
Acquisition costs ............................................ 500 100 600
-------- ------- --------
Total purchase price ......................................... 38,161 6,183 44,344
-------- ------- --------
Cost over fair value of net assets acquired .................. $ 51,372 $ 4,445 $ 55,817
======== ======= ========
The net cash acquired in connection with both of the above acquisitions
was $433,000. During March 1998, the Company extended RBCO a $10.0 million
subordinated loan on an arms length basis to enable RBCO to expand into new
products and markets. Upon acquisition, the loan was eliminated in
consolidation. Included in cost over fair value of net assets acquired was $2.6
million of goodwill related to the February 1998 acquisition by RBCO of
Cumberland Advisors and Cumberland Consulting. The goodwill associated with the
Cumberland entities is amortized on a straight line basis over 15 years
resulting in an annual tax deductible expense of $171,000. The remaining
goodwill of $22.4 million associated with RBCO is amortized on a straight line
basis over 25 years resulting in an annual expense of approximately $900,000
that is not tax deductible.
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock representing 20% of the total transaction value was allocated to key
employees of RBCO. The retention pool consists of 683,362 shares of restricted
Class A common stock which will vest in four years to employees who remain for
the period. The retention pool was valued at $8.1 million based upon the average
market price for the Company's stock at the grant date, will be amortized to
compensation expense over the four year vesting period and is tax deductible at
the vesting date.
The following is proforma information for the year ended December 31,
1998 and 1997 as if the RBCO acquisition were consummated on January 1, 1998 and
1997, respectively. The proforma information is not necessarily indicative of
the
F-57
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
combined financial position or results of operations which would have been
realized had the acquisition been consummated during the period or as of the
dates for which the proforma financial information is presented (dollars in
thousands, except for per share data).
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997
--------------------------- -------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
----------- ----------- ---------- -----------
Net interest income after provision for loan loss ............ $ 80,497 $ 80,776 $ 83,262 $ 83,655
----------- ----------- ---------- -----------
Noninterest income ........................................... 56,880 79,386 33,366 65,291
Noninterest expenses ......................................... 120,665 143,943 77,722 111,412
----------- ----------- ---------- -----------
Income before provision for income taxes ..................... 16,712 16,219 38,906 37,534
Provision for income taxes ................................... 6,526 6,949 15,248 14,872
----------- ----------- ---------- -----------
Income from continuing operations ............................ $ 10,186 $ 9,270 $ 23,658 $ 22,662
Income (loss) from discontinued operations ................... (18,220) (18,220) 4,111 4,111
----------- ----------- ---------- -----------
Net income (loss) ............................................ $ (8,034) $ (8,950) $ 27,769 $ 26,773
=========== =========== ========== ===========
CLASS A COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.30 $ 0.27 $ 0.84 $ 0.73
Basic earnings (loss) per share from discontinued operations . (0.54) (0.52) 0.14 0.13
--------- ----------- ---------- -----------
Basic earnings (loss) per share .............................. $ (0.24) $ (0.25) $ 0.98 $ 0.86
========= =========== ========== ===========
Diluted earnings per share from continuing operations ........ $ 0.29 $ 0.25 $ 0.67 $ 0.59
Diluted earnings (loss) per share from discontinued operations (0.51) (0.50) 0.11 0.10
--------- ----------- ---------- -----------
Diluted earnings (loss) per share ............................ $ (0.22) $ (0.25) $ 0.78 $ 0.69
========= =========== ========== ===========
CLASS B COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.27 $ 0.24 $ 0.81 $ 0.70
Basic earnings (loss) per share from discontinued operations . (0.49) (0.47) 0.13 0.13
--------- ----------- ---------- -----------
Basic earnings (loss) per share .............................. $ (0.22) $ (0.23) $ 0.94 $ 0.83
========= =========== ========== ===========
Diluted earnings per share from continuing operations ........ $ 0.26 $ 0.22 $ 0.67 $ 0.60
Diluted earnings (loss) per share from discontinued operations (0.48) (0.45) 0.10 0.09
--------- ----------- ---------- -----------
Diluted earnings (loss) per share ............................ $ (0.22) $ (0.23) $ 0.77 $ 0.69
========= =========== ========== ===========
EQUITY METHOD INVESTMENTS
During the fourth quarter of 1997 and during 1998 the Company invested
in six real estate joint ventures. Five of these joint ventures are in various
stages of development. These joint ventures required equity investments by BDC
at the inception of the project of 44.5%-90% of the total venture equity with
profit sharing of 40%-50% in future years. Certain of the joint venture partners
have not made substantive equity investments in the partnerships. BankAtlantic
has also provided financing to these joint ventures typically in accordance with
its usual lending and underwriting policies prior to considering the equity
contribution provided by BDC or BBC. Such lending activities 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 joint ventures
are accounted for under the equity method of accounting and primarily develop
residential and multifamily properties. Additionally, during 1998 the Company
originated a loan to a developer with an ownership potential. The loan was
accounted for as a joint venture with the Company deferring the recognition of
interest income on the loan. In January 1999, the Company relinquished its
equity participation rights in exchange for a substantial principal repayment on
the loan and a guarantee from a real estate investment trust. Included in real
estate held for development and sale and joint ventures, net in the Company's
Statement of Condition at December 31, 1998 was $7.3 million of equity
investments, $9.3 million of advances to real estate limited partnerships, a
$21.4 million loan, and a $2.0 million equity investment compared to $1.2
million of equity investment at December 31, 1997. The Company had commitments
to loan an additional $7.2 million to joint ventures at December 31, 1998.
Included in the
F-58
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company's Statement of Operations for the year ended December 31, 1998 was $1.0
million of capitalized interest expense, a $257,000 loss from joint venture
activities and $629,000 of interest income recognized on loans to joint
ventures.
The Condensed Statement of Condition and Condensed Statement of
Operations for the six joint ventures is as follows for December 31, 1998:
(In thousands)
Statement of Financial Condition as of December 31, 1998
Real estate assets ......................................... $ 30,176
Other assets ............................................... 3,601
--------
Total Assets ............................................ $ 33,777
========
Due to St. Lucie West ...................................... $ 1,421
Due to BankAtantic ......................................... 9,327
Other liabilities .......................................... 9,007
--------
Total Liabilities ....................................... 19,755
BDC equity ................................................. 7,281
Other partner equity ....................................... 6,741
--------
Equity .................................................. 14,022
--------
Total Liabilities and Equity ............................... $ 33,777
========
Statement of Operations for the year ended December 31, 1998
Revenues ................................................... $ 253
Selling, general and administrative expenses ............... 609
--------
Net loss ................................................... $ (356)
========
Company's share of net loss ................................ $ (257)
========
22. SUBSEQUENT EVENTS AND OTHER INFORMATION (UNAUDITED)
The Company previously announced that it is considering alternatives
relating to its 100% ownership of its real estate operations conducted through
BDC, including a possible spin-off of BDC to the Company's shareholders. The
alternatives include a full or partial spin-off to shareholders, a public
offering for all or a portion of such operations or continued total ownership
and operation. Any partial or total disposition would be subject to regulatory
approval and the structure of the transaction could also be impacted by income
tax considerations. As of December 31, 1998, the Company's investment in BDC
amounted to $43 million and included SLW and six joint ventures. Such investment
is currently excluded for purposes of BankAtlantic's regulatory capital. The
impact to the Company of any type of disposition of BDC is dependent upon the
consideration to be received by the Company for such disposition. Any form of
disposition which results in consideration to the Company or BankAtlantic of
less than the value of its investment in BDC could negatively impact the Company
and BankAtlantic's financial condition and results of operations. However, as
discussed elsewhere herein, there are significant risks associated with real
estate development activities and there is no assurance that the Company's
continued involvement in these activities will positively contribute to the
Company's or BankAtlantic's financial condition or results of operations.
Alan B. Levan serves as the Chairman, Chief Executive Officer and
President of BankAtlantic, the Company and BFC. John E. Abdo is the Vice
Chairman of BankAtlantic, the Company, and BFC and also President and Chief
Executive Officer of St. Lucie West Holding Corp., a wholly owned subsidiary of
BankAtlantic Development Corporation and President of BankAtlantic Development
Corporation, a wholly owned subsidiary of BankAtlantic.
On February 26, 1999 the Compensation Committee approved the
BankAtlantic Bancorp 1999 Non-qualified Stock Option Plan ("1999 Plan")
authorizing the issuance of options to acquire 750,000 shares of the Company's
Class A common stock. Employee stock options vest at the discretion of the
Compensation Committee. The plan expires ten years from the date of adoption
while outstanding options could be exercised ten years after their grant date.
On March 2, 1999, the Compensation
F-59
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Committee approved the issuance of 500 options to every employee of the Company
other than executive management or members of the Board of Directors.
23. SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information". This
standard establishes standards for reporting information about operating
segments and related disclosures about products and services. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is regularly reviewed by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Reportable segments consist of one or more operating segments with
similar economic characteristics, products and services, production processes,
type of customer, distribution system and regulatory environment. The
information provided for Segment Reporting is based on internal reports utilized
by management. Interest expense and certain revenue and expense items are
allocated to the various segments as interest expense and overhead. The
presentation and allocation of interest expense and overhead and the net
contribution calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating
segments into reportable segments:
REPORTABLE SEGMENT OPERATING SEGMENTS AGGREGATED
- ------------------ -----------------------------
Bank Investment Operations-Other Investment Division, Tax Certificate Department, Government Trading,
Equity Portfolio
Bank Investment Operations-Wholesale
Residential Real Estate Capital Services, Capital Markets
Bank Loan Operations-Commercial Commercial Lending, Syndications, BA Factors, Inc.
Bank Loan Operations-Retail Residential Lending, CRA Lending, BankAtlantic Mortgage,
Indirect and Direct Consumer Lending, Small Business
Lending, International and Trade Finance, Lease financing
Real Estate Operations BankAtlantic Development Corp. (includes SLW and real estate
joint ventures)
Investment Banking Operations Ryan, Beck & Co.
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.
F-60
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company evaluates segment performance based on net contribution
after tax. The table below is segment information for continuing operations the
three years ended December 31, 1998:
BANK INVESTMENT BANK LOAN
OPERATIONS OPERATIONS
-------------------------- -----------------------
INVESTMENT
WHOLESALE COM- REAL ESTATE BANKING SEGMENT
(in thousands) OTHER RESIDENTIAL MERCIAL RETAIL OPERATIONS OPERATIONS TOTAL
---------- ----------- --------- --------- ---------- ---------- ------------
DECEMBER 31, 1998
Interest income ............ $ 45,528 $ 92,118 $ 58,526 $ 57,329 $ 0 $ 637 $ 254,138
Interest expense and ....... (43,964) (80,996) (39,084) (39,564) (496) (596) (204,700)
overhead
Provision for loan losses .. 0 (712) (3,758) (17,318) 0 0 (21,788)
Non-interest income ........ 1,953 1,036 1,309 6,361 6,965 17,092 34,716
Depreciation and ........... (28) (4,287) 135 (367) 0 (1,873) (6,420)
amortization
Segment profits before taxes 722 10,563 13,172 (9,059) 1,473 (159) 16,712
Provision for income taxes . 274 4,014 5,006 (3,437) 560 109 6,526
Segment net income ......... $ 448 $ 6,549 $ 8,166 $ (5,622) $ 913 $ (268) $ 10,186
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 696,617 $ 1,411,577 $ 711,001 $ 540,743 $ 35,791 $ 38,840 $ 3,434,569
========= =========== ========= ========= ======== ======== ===========
Equity method investments
included in total assets .. $ 20,758 $ 0 $ 0 $ 0 $ 7,281 $ 2,000 $ 30,039
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 36 $ 0 $ 21 $ 251 $ 0 $ 43 $ 351
========= =========== ========= ========= ======== ======== ===========
DECEMBER 31, 1997
Interest income ............ $ 39,006 $ 46,477 $ 58,915 $ 66,156 $ 0 $ 0 $ 210,554
Interest expense and ....... (36,449) (36,248) (37,045) (46,693) (20) 0 (156,455)
overhead
Provision for loan losses .. 0 (241) 165 (11,192) 0 0 (11,268)
Non-interest income ........ 7,353 109 1,259 7,792 781 0 17,294
Depreciation and ........... (63) (1,759) (445) (159) 0 0 (2,426)
amortization
Segment profits before taxes 6,318 7,906 19,274 5,351 44 13 38,906
Provision for income taxes . 2,473 3,102 7,563 2,088 17 5 15,248
Segment net income ......... $ 3,845 $ 4,804 $ 11,711 $ 3,263 $ 27 $ 8 $ 23,658
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 846,345 $ 825,652 $ 617,469 $ 520,943 $ 24,156 $ 1,805 $ 2,836,370
========= =========== ========= ========= ======== ======== ===========
Equity method investments
included in total assets . $ 0 $ 0 $ 0 $ 0 $ 1,200 $ 249 $ 1,449
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 66 $ 9 $ 12 $ 278 $ 0 $ 0 $ 365
========= =========== ========= ========= ======== ======== ===========
DECEMBER 31, 1996
Interest income ............ $ 46,400 $ 12,216 $ 50,220 $ 43,795 $ 0 $ 0 $ 152,631
Interest expense and ....... (43,679) (10,360) (30,146) (33,581) 0 0 (117,766)
overhead
Provision for loan losses .. 0 (459) 2,442 (7,827) 0 0 (5,844)
Non-interest income ........ 6,021 0 809 810 0 0 7,640
Depreciation and ........... (7) (539) 1,327 67 0 0 848
amortization
Segment profits before taxes 6,126 1,034 21,892 (33) 0 0 29,019
Provision for income taxes . 2,328 393 8,319 340 0 0 11,380
Segment net income ......... $ 3,798 $ 641 $ 13,573 $ (373) $ 0 $ 0 $ 17,639
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 515,519 $ 480,806 $ 572,057 $ 747,866 $ 0 $ 0 $ 2,316,248
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 38 $ 16 $ 17 $ 359 $ 0 $ 0 $ 430
========= =========== ========= ========= ======== ======== ===========
F-61
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The difference between segment total assets, net contribution, and
non-interest income and consolidated assets, and noninterest income are as
follows:
(in thousands) FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
----------- ----------- ----------
TOTAL ASSETS
Total assets for reportable segments ............. $ 3,434,569 $2,836,370 $2,316,248
Assets in discontinued operations ................ 49,600 45,493 23,848
Assets in overhead ............................... 304,806 182,617 265,431
----------- ---------- ----------
Total consolidated assets ........................ $ 3,788,975 $3,064,480 $2,605,527
=========== ========== ==========
NONINTEREST INCOME
Total non-interest income for reportable segments $ 34,716 $ 17,294 $ 7,640
Items included in interest expense and overhead:
Transaction fee income .......................... 12,589 9,302 8,600
ATM fees ........................................ 6,650 5,329 3,944
Gains (losses) on sales of property and equipment (11) 852 3,061
Other deposit related fees ...................... 2,936 589 3,573
----------- ---------- ----------
Total consolidated non-interest income ........... $ 56,880 $ 33,366 $ 26,818
=========== ========== ==========
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.
F-62
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 will be provided by incorporating the information
required under such items by reference to the registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission, no later than
120 days after the end of the year covered by this Form 10K, or, alternatively,
by amendment to this Form 10K under cover of 10K-A no later than the end of such
120 day period.
F-63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of
BankAtlantic Bancorp, Inc. and its subsidiaries are included
herein under Part II, Item 8 of this Report.
Independent Auditors' Report dated January 29, 1999.
Consolidated Statements of Financial Condition as of
December 31, 1998 and 1997.
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 1998.
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for each of the years in the three
year period ended December 31, 1998.
Consolidated Statements of Cash Flows for each of the years
in the three year period ended December 31, 1998.
Notes to Consolidated Financial Statements for the three
years ended December 31, 1998.
(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.
F-64
(3) EXHIBITS
The following exhibits are either filed as a part of this Report or are
incorporated herein by reference to documents previously filed as indicated
below:
EXHIBIT
NUMBER DESCRIPTION REFERENCE
- ---------------------------------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation Exhibit 3.1 to the Registrant's Registration
Statement on Form S-3, filed on June 5, 1996
(Registration No. 333-05287).
3.2 Amendment to the Articles of Incorporation Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1997, filed on March 13, 1998
3.3 Bylaws Exhibit 3.2 to the Registrant's Registration
Statement on Form S-4, filed on May 5, 1994
(Registration No. 33-77708).
10.1 Indenture for the Registrant's 9% Subordinated Exhibit 4.1 to the Registrant's Registration
Debentures due 2005 Statement on Form S-2, filed on August 25, 1995
(Registration No. 33-96184).
10.2 Indenture for the Registrant's 6-3/4% Convertible Exhibit 4.1 to the Registrant's Registration
Subordinated Debentures due 2006 Statement on Form S-3, filed on June 5, 1996
(Registration No. 333-05287).
10.3 Indenture for the Registrant's 9-1/2% Junior Exhibit 4.1 to the Registrant's Registration
Subordinated Debentures due 2027 Statement on Form S-3, filed on March 21, 1997
(Registration No. 333-23771 and 333-23771-01).
10.4 Indenture for the Registrant's 5-5/8% Convertible Exhibit 4.1 to the Registrant's Registration
Subordinated Debentures due 2007 Statement on Form S-3, filed on October 27,
1997 (Registration No. 333-38799).
10.5 Key Employees' Stock Option Plan* Exhibit 10.1 to the Registrant's Registration
Statement on Form S-4, filed on May 5, 1994
(Registration No. 33-77708).
10.6 BankAtlantic Bancorp 1994 Stock Option Plan* Exhibit 10.2 to the Registrant's Registration
Statement on Form S-4, filed on May 5, 1994
(Registration No. 33-77708).
10.7 BankAtlantic Bancorp 1996 Stock Option Plan* Appendix A to the Registrant's Definitive
Proxy Statement filed on April 25, 1996
10.8 BankAtlantic Bancorp 1998 Stock Option Plan* Appendix A to the Registrant's Definitive
Proxy Statement filed on March 16 , 1998
10.9 BankAtlantic Bancorp, Inc. Restricted Stock
Award Plan for Key Employees of Ryan,
Beck & Co., Inc.* Filed with this Report.
10.10 BankAtlantic Bancorp, Inc. Restricted Stock
Incentive Plan* Filed with this Report.
12.1 Ratio of Earnings to Fixed Charges. Filed with this Report.
21.1 Subsidiaries of the Registrant. Filed with this Report.
23.1 Consent of KPMG LLP Filed with this Report.
27 Financial Data Schedule. Filed with this Report.
(b) Reports on Form 8-K None
- ---------------------------------------------------------------------------------------------------------------------------------
*Compensatory Plan
F-65
SIGNATURES
Pursuant to the requirements of Sections 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.
BANKATLANTIC BANCORP, INC.
March 26, 1999 By:/S/ALAN B. LEVAN
----------------
Alan B. Levan, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/Alan B. Levan Chairman of the Board, President and Chief Executive
- ------------------------------------- Officer
Alan B. Levan
/s/John E Abdo Vice Chairman of the Board; President of BankAtlantic
- ------------------------------------- Development Corporation
John E. Abdo
/s/Frank V. Grieco Senior Executive Vice President and Chief Accounting
- ------------------------------------- Officer
Frank V. Grieco
/s/Ben A. Plotkin Director
- -------------------------------------
Ben A. Plotkin
/s/Steven M. Coldren Director
- -------------------------------------
Steven M. Coldren
/s/Mary E. Ginestra Director
- -------------------------------------
Mary E. Ginestra
/s/Bruno Di Giulian Director
- -------------------------------------
Bruno Di Giulian
/s/Charlie C. Winningham, II Director
- -------------------------------------
Charlie C. Winningham, II