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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
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)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
preferred and common stock as of the latest practicable date.
OUTSTANDING AT
TITLE OF EACH CLASS AUGUST 2, 2002
------------------- --------------
Class A Common Stock, par value $0.01 per share 53,409,559
Class B Common Stock, par value $0.01 per share 4,876,124
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
REFERENCE
Item 1. Financial Statements 1-22
Consolidated Statements of Financial Condition - June 30, 2002 and 2001
and December 31, 2001 - Unaudited 4
Consolidated Statements of Operations - For the Three and Six Months
Ended June 30, 2002 and 2001 - Unaudited 5-6
Consolidated Statements of Stockholders' Equity and Comprehensive Income -
For the Six Months Ended June 30, 2002 and 2001 - Unaudited 7
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 2002 and 2001 - Unaudited 8-9
Notes to Consolidated Financial Statements - Unaudited 10-22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 23-39
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40-41
Signatures 42
[THIS PAGE INTENTIONALLY LEFT BLANK]
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
JUNE 30, DECEMBER 31, JUNE 30,
(In thousands, except share data) 2002 2001 2001
----------- ----------- -----------
ASSETS
Cash and due from depository institutions $ 150,468 $ 120,049 $ 98,254
Securities purchased under resell agreements 149 156 1,018
Investment securities and tax certificates
(approximate fair value: $461,020 $434,470 and $362,616) 453,778 428,718 356,179
Loans receivable, net 3,564,143 2,774,238 2,972,548
Securities available for sale (at fair value) 801,516 843,867 866,097
Trading securities (at fair value) 210,132 68,296 31,113
Accrued interest receivable 36,687 33,706 37,087
Real estate held for development and sale and joint ventures 232,765 178,273 154,546
Equity method investment 58,205 -- --
Office properties and equipment, net 92,740 61,685 61,649
Federal Home Loan Bank stock, at cost which approximates fair value 60,732 56,428 56,428
Deferred tax asset, net 38,857 17,879 17,495
Goodwill 98,633 39,859 48,463
Core deposit intangible asset 14,664 -- --
Other assets 97,030 31,332 55,220
----------- ----------- -----------
Total assets $ 5,910,499 $ 4,654,486 $ 4,756,097
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,980,098 $ 2,276,567 $ 2,370,505
Advances from FHLB 1,218,926 1,106,030 1,128,555
Securities sold under agreements to repurchase 491,735 406,070 107,000
Federal funds purchased 80,000 61,000 438,714
Subordinated debentures, notes and bonds payable 195,243 131,428 220,508
Guaranteed preferred beneficial interests in Company's
Junior Subordinated Debentures 155,125 74,750 74,750
Securities sold not yet purchased 68,325 38,431 40,250
Due to clearing agent 94,312 9,962 --
Other liabilities 165,300 114,575 101,402
----------- ----------- -----------
Total liabilities 5,449,064 4,218,813 4,481,684
----------- ----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued and outstanding -- -- --
Class A common stock, $.01 par value, authorized 80,000,000 shares;
issued and outstanding 53,392,502, 53,203,159 and 31,794,761 shares 534 532 318
Class B common stock, $.01 par value, authorized 45,000,000 shares;
issued and outstanding 4,876,124, 4,876,124 and 4,876,124 shares 49 49 49
Additional paid-in capital 253,127 251,202 104,237
Unearned compensation - restricted stock grants (1,285) (1,359) (290)
Retained earnings 201,129 170,349 157,910
----------- ----------- -----------
Total stockholders' equity before accumulated other comprehensive income 453,554 420,773 262,224
Accumulated other comprehensive income 7,881 14,900 12,189
----------- ----------- -----------
Total stockholders' equity 461,435 435,673 274,413
----------- ----------- -----------
Total liabilities and stockholders' equity $ 5,910,499 $ 4,654,486 $ 4,756,097
=========== =========== ===========
See Notes to Consolidated Financial Statements - Unaudited
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS FOR THE SIX MONTHS
(In thousands, except share and per share data) ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
Interest income: 2002 2001 2002 2001
--------- --------- --------- ---------
Interest and fees on loans and leases $ 59,325 $ 61,580 $ 106,396 $ 125,431
Interest and dividends on securities available for sale 11,804 13,284 23,870 26,649
Interest and dividends on other investment and trading securities 11,578 8,792 20,279 17,828
--------- --------- --------- ---------
Total interest income 82,707 83,656 150,545 169,908
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 17,106 23,089 32,432 47,533
Interest on advances from FHLB 15,676 14,660 30,596 29,361
Interest on securities sold under agreements to repurchase
and federal funds purchased 2,113 7,142 3,497 16,774
Interest on subordinated debentures, notes and bonds payable
and guaranteed beneficial interests in Company's Junior
Subordinated Debentures 6,473 6,579 11,081 13,327
Capitalized interest on real estate developments and
joint ventures (1,613) (1,447) (2,831) (3,018)
--------- --------- --------- ---------
Total interest expense 39,755 50,023 74,775 103,977
--------- --------- --------- ---------
NET INTEREST INCOME 42,952 33,633 75,770 65,931
Provision for loan losses 6,139 4,040 8,704 6,801
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 36,813 29,593 67,066 59,130
--------- --------- --------- ---------
NON-INTEREST INCOME:
Investment banking income 37,862 10,202 50,910 19,055
Net revenues from sales of real estate 12,466 7,398 24,443 13,341
Income from equity method investment 1,741 -- 1,741 --
Service charges on deposits 5,688 3,890 10,550 7,770
Other service charges and fees 3,550 3,811 6,655 7,372
Gains on trading securities and securities available for sale 3,083 1,695 6,122 2,051
Impairment of securities (18,157) (474) (18,157) (695)
Other 4,990 1,947 6,859 4,262
--------- --------- --------- ---------
Total non-interest income 51,223 28,469 89,123 53,156
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 54,215 23,152 81,228 46,751
Occupancy and equipment 11,348 6,953 18,492 13,836
Advertising and promotion 3,680 2,407 5,879 3,919
Amortization of intangible assets 454 1,049 454 2,074
Restructuring charges and impairment writedowns 1,007 (219) 1,007 (219)
Acquisition related charges and impairments 3,922 -- 4,996 --
Other 18,857 11,483 30,241 21,657
--------- --------- --------- ---------
Total non-interest expense 93,483 44,825 142,297 88,018
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (5,447) 13,237 13,892 24,268
Provision (benefit) for income taxes (3,214) 4,632 3,545 8,838
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (2,233) 8,605 10,347 15,430
Extraordinary item (less applicable income taxes of $2,711) 23,810 -- 23,810 --
Cumulative effect of a change in accounting principle
(less applicable income taxes of $683) -- -- -- 1,138
--------- --------- --------- ---------
NET INCOME 21,577 8,605 34,157 16,568
Amortization of goodwill, net of tax -- 978 -- 1,969
--------- --------- --------- ---------
NET INCOME ADJUSTED TO EXCLUDE GOODWILL AMORTIZATION $ 21,577 $ 9,583 $ 34,157 $ 18,537
========= ========= ========= =========
(CONTINUED)
See Notes to Consolidated Financial Statements - Unaudited
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
EARNINGS PER SHARE
Basic earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ (0.04) $ 0.24 $ 0.18 $ 0.42
Basic earnings per share from extraordinary item 0.41 -- 0.41 --
Basic earnings per share from cumulative effect of a change
in accounting principle -- -- -- 0.03
------------ ------------ ------------ ------------
Basic earnings per share 0.37 0.24 0.59 0.45
Basic earnings per share from amortization of goodwill -- 0.03 -- 0.05
------------ ------------ ------------ ------------
Basic earnings per share adjusted for goodwill amortization $ 0.37 $ 0.27 $ 0.59 $ 0.50
============ ============ ============ ============
Diluted earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ (0.04) $ 0.19 $ 0.17 $ 0.34
Diluted earnings per share from extraordinary item 0.41 -- 0.39 --
Diluted earnings per share from cumulative effect of a change
in accounting principle -- -- -- 0.03
------------ ------------ ------------ ------------
Diluted earnings per share 0.37 0.19 0.56 0.37
Diluted earnings per share from amortization of goodwill -- 0.02 -- 0.04
------------ ------------ ------------ ------------
Diluted earnings per share adjusted for goodwill amortization $ 0.37 $ 0.21 $ 0.56 $ 0.41
============ ============ ============ ============
Basic weighted average number of common shares outstanding 57,973,880 36,535,810 57,918,382 36,519,091
============ ============ ============ ============
Diluted weighted average number of common and common
equivalent shares outstanding 57,973,880 51,275,621 60,887,362 50,909,002
============ ============ ============ ============
See Notes to Consolidated Financial Statements - Unaudited
6
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2002 - UNAUDITED
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 Total
--------- ------- ----------- ------------ ---------- --------- ----------
BALANCE, DECEMBER 31, 2000 $ 366 $ 103,745 $ 143,471 $ (391) $ 1,630 $ 248,821
Net income $ 16,568 -- -- 16,568 -- -- 16,568
---------
Other comprehensive income, net of tax:
Unrealized gain on securities available
for sale 10,515
Accumulated gains associated with cash flow hedge 301
Reclassification adjustment for net gain
included in net income (257)
---------
Other comprehensive income 10,559
---------
Comprehensive income $ 27,127
=========
Dividends on Class A Common Stock -- -- (1,876) -- -- (1,876)
Dividends on Class B Common Stock -- -- (253) -- -- (253)
Exercise of Class A common stock options 1 404 -- -- -- 405
Tax effect relating to the exercise of
stock options -- 63 -- -- -- 63
Issuance of Class A common stock upon
conversion of subordinated debentures -- 25 -- -- -- 25
Amortization of unearned compensation -
restricted stock grants -- -- -- 101 -- 101
Net change in accumulated other comprehensive
income, net of income taxes -- -- -- 10,559 10,559
------- ----------- ------------ ---------- --------- ----------
BALANCE, JUNE 30, 2001 $ 367 $ 104,237 $ 157,910 $ (290) $ 12,189 $ 274,413
======= =========== ============ ========== ========= ==========
BALANCE, DECEMBER 31, 2001 $ 581 $ 251,202 $ 170,349 $ (1,359) $ 14,900 $ 435,673
Net income $ 34,157 -- -- 34,157 -- -- 34,157
---------
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale (2,142)
Accumulated loss associated with cash flow hedges (836)
Reclassification adjustment for cash flow hedges 264
Reclassification adjustment for net gain
included in net income (4,305)
---------
Other comprehensive loss (7,019)
---------
Comprehensive income $ 27,138
=========
Dividends on Class A Common Stock -- -- (3,095) -- -- (3,095)
Dividends on Class B Common Stock -- -- (282) -- -- (282)
Issuance of Class A common stock 2 870 -- -- -- 872
Tax effect relating to the exercise of
stock options -- 365 -- -- -- 365
Issuance of Class A common stock upon
conversion of subordinated debentures -- 25 -- -- -- 25
Issuance of equity method investment common stock -- (105) -- -- -- (105)
Issuance of subsidiary stock options -- 770 -- -- -- 770
Amortization of unearned compensation -
restricted stock grants -- -- -- 74 -- 74
Net change in accumulated other comprehensive
income, net of income taxes -- -- -- -- (7,019) (7,019)
------- ----------- ------------ ---------- --------- ----------
BALANCE, JUNE 30, 2002 $ 583 $ 253,127 $ 201,129 $ (1,285) $ 7,881 $ 461,435
======= =========== ============ ========== ========= ==========
See Notes to Consolidated Financial Statements - Unaudited
7
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS
(In thousands) ENDED JUNE 30,
---------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Income before cumulative effect of a change in
accounting principle $ 10,347 $ 15,430
Cumulative effect of a change in accounting principle, net of tax -- 1,138
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED) PROVIDED IN OPERATING
ACTIVITIES:
Provision for credit losses * 9,698 7,573
Change in real estate inventory (39,572) (1,131)
Equity in joint venture earnings (1,939) (1,196)
Equity in earnings from equity method investment (1,741) --
Net collections (originations) of loans held for sale activity 14,714 (17,813)
Proceeds from sales of loans classified as held for sale 2,070 13,002
Gains on securities activities (6,122) (2,051)
Impairment of securities 18,157 695
Losses (gains) on sales of property and equipment 336 (367)
Gains on sales of in-store branches (384) --
Property and equipment impairment 205 --
Acquisition related impairment 515 --
Depreciation, amortization and accretion, net 2,221 3,298
Amortization of intangible assets 454 2,074
(Increase) decrease in deferred tax asset, net (15,451) 2,667
Issuance of subsidiary stock options 770 --
Trading activities, net (23,073) 12,444
(Increase) decrease in accrued interest receivable (161) 6,959
Increase in other assets (28,250) (25,335)
Decrease in due to clearing agent (17,355) --
Increase in securities sold not yet purchased 28,616 1,819
Increase in other liabilities 21,951 13,013
--------- ---------
Net cash (used) provided in operating activities (23,994) 32,219
--------- ---------
INVESTING ACTIVITIES:
Proceeds from redemption and maturities of investment
securities and tax certificates 100,071 129,813
Purchase of investment securities and tax certificates (142,246) (102,085)
Purchases of securities available for sale (212,650) (237,894)
Proceeds from sales and maturities of securities available for sale 361,415 229,391
Proceeds from sales of FHLB stock 6,509 512
FHLB stock acquired (2,750) (5,000)
Purchases and net (originations) collections of loans and leases (204,512) (123,899)
Proceeds from sales of real estate owned 3,002 3,490
Net additions to office property and equipment (16,265) (5,586)
Increase in equity method investment (53,736) --
Repayments of and (investments in) joint ventures 3,143 (4,464)
Acquisitions, net of cash acquired (52,783) (655)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (210,802) (116,377)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 87,045 136,020
Reduction in deposits from sale of in-store branches (22,241) --
Repayments of FHLB advances (99,450) (275,246)
Proceeds from FHLB advances 75,000 365,000
Net increase (decrease) in securities sold under agreements
to repurchase 85,665 (220,788)
Net increase in federal funds purchased 19,000 97,300
Repayment of notes and bonds payable (33,891) (27,333)
Proceeds from notes and bonds payable 76,315 23,508
Issuance of common stock 872 405
Issuance of equity method investment common stock (105) --
Issuance of trust preferred securities 80,375 --
Common stock dividends paid (3,377) (2,129)
--------- ---------
NET CASH PROVIDED IN FINANCING ACTIVITIES 265,208 96,737
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 30,412 12,579
Cash and cash equivalents at beginning of period 120,205 86,693
--------- ---------
Cash and cash equivalents at end of period $ 150,617 $ 99,272
========= =========
See Notes to Consolidated Financial Statements - Unaudited (Continued)
8
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS
(In thousands) ENDED JUNE 30,
-------------------------
2002 2001
-------- --------
Interest paid $ 76,827 $108,908
Income taxes paid 14,013 10,875
Loans transferred to real estate owned 10,822 2,375
Loan net charge-offs 15,349 10,113
Tax certificate net charge-offs (recoveries) 1,178 1,327
Increase in equity for the tax effect related to the exercise of
employee stock options 365 63
Transfer of securities available for sale to equity
method investment 2,728 --
Issuance of notes payable under the Ryan Beck deferred
compensation plan 3,675 --
Change in other comprehensive income (7,019) 10,559
Change in deferred taxes on other comprehensive income (3,136) 5,811
Issuance of Class A Common Stock upon conversion of
subordinated debentures 25 --
* Provision for credit losses represents provision for loan losses, REO and tax
certificates.
See Notes to Consolidated Financial Statements - Unaudited
9
BANKATLANTIC BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
BankAtlantic Bancorp, Inc. (the "Company") is a Florida-based
diversified financial services holding company. The Company's principal assets
include the capital stock of BankAtlantic and its subsidiaries, Levitt
Companies, LLC ("Levitt Companies") and its subsidiaries and Ryan, Beck & Co.
LLC ("Ryan Beck") and its subsidiaries. BankAtlantic is a federal savings bank
headquartered in Fort Lauderdale, Florida which provides traditional retail
banking services and a wide range of commercial banking products and related
financial services. Levitt Companies' principal activities include residential
construction, real estate development and real estate joint venture investments
in Florida. Levitt Companies' principal assets include Core Communities, LLC,
Levitt and Sons, LLC and its investment in Bluegreen Corporation ("Bluegreen").
Core Communities develops land for master planned communities located in
Florida. Levitt and Sons is a developer of single-family home communities and
condominium and rental apartment complexes primarily in Florida. Bluegreen, a
New York Stock Exchange listed company in which we own 40% of the outstanding
common stock, is a developer of drive-to vacation interval resorts, golf
communities and residential land. Ryan Beck is an investment banking firm which
provides a wide range of investment banking, brokerage and investment management
services. All significant inter-company balances and transactions have been
eliminated in consolidation, including $27.8 million of loans from BankAtlantic
to Levitt Companies, $30 million of loans from the Company to Levitt Companies
and $5.0 million of loans from the Company to Ryan Beck.
In management's opinion, the accompanying consolidated financial
statements contain such adjustments necessary to present fairly the Company's
consolidated financial condition at June 30, 2002, December 31, 2001 and June
30, 2001, the consolidated results of operations for the three and six months
ended June 30, 2002 and 2001, the consolidated stockholders' equity and
comprehensive income for the six months ended June 30, 2002 and 2001 and the
consolidated cash flows for the six months ended June 30, 2002 and 2001. Such
adjustments consisted only of normal recurring items except for the
extraordinary item and cumulative effect of a change in accounting principle
discussed in Note 4 and Note 10, respectively. The consolidated financial
statements and related notes are presented as permitted by Form 10-Q and should
be read in conjunction with the notes to the consolidated financial statements
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 and our Form 10-Q for the three months ended March 31, 2002.
2. COMMON UNIT OPTIONS AND RETENTION POOL
Ryan Beck's Board of Directors adopted the Ryan, Beck & Co., LLC Common
Unit Option Plan (the "Plan") effective March 29, 2002. The Plan provides for
the grant of not more than an aggregate 500,000 Common Units representing
limited liability interests of Ryan Beck. As of June 30, 2002, 8,125,000 units
of Ryan Beck were outstanding, all of which are owned by the Company.
During the second quarter, 2002, Ryan Beck's Board of Directors granted,
pursuant to the Plan, common unit options to acquire an aggregate of 470,000
common units of Ryan Beck. The fair value of the common unit options was
determined based on an independent appraisal. A second quarter compensation
charge of $770,000 associated with these options was based on a fair value
estimate from the independent appraiser.
Upon exercise of the common unit options, the Company or Ryan Beck have
the right under certain defined circumstances, starting six months plus one day
after the exercise date, to repurchase the common units at fair value as
determined by an independent appraiser. The Company and Ryan Beck also have the
right of first refusal on any sale of common units, and the Company has the
right to require any common unit holder to sell its units along with the Company
in the event that the Company sells its interest in Ryan Beck.
In connection with the acquisition of Ryan Beck in June 1998, the
Company established a retention pool covering certain key employees of Ryan
Beck, under which 785,866 shares of restricted Class A common stock were issued
to these employees. The retention pool was valued at $8.1 million at the
acquisition date, and the shares, which vested four years from the date of
acquisition, were treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value of the
restricted shares at the date of the Ryan Beck acquisition. The deferred
compensation awards were granted under the BankAtlantic Bancorp, Inc. Deferred
Compensation Plan. All participant accounts under the plan vested on June 28,
2002 and the remaining
10
BANKATLANTIC BANCORP, INC.
participants received in the aggregate 5,941 shares of Class A Common Stock,
$3.8 million in cash and notes payable for an aggregate principal amount of $3.7
million. The notes payable mature on June 28, 2003 and bear interest at 5.75%.
3. TRUST PREFERRED SECURITIES
In June 2002, the Company formed BBC Capital Statutory Trust III ("BBC
Capital III"), a statutory business trust, for the purpose of issuing Trust
Preferred Securities. In June 2002, the Company participated in a pooled trust
preferred securities offering in which BBC Capital III issued 25,000 Trust
Preferred Securities at a price of $1,000 per security. The Trust Preferred
Securities pay interest quarterly at a floating rate equal to 3-month LIBOR plus
345 basis points, with an initial coupon rate of 5.34%. The gross proceeds from
the offering of $25.0 million were invested in an identical principal amount of
the Company's Junior Subordinated Debentures which bear interest at the same
floating rate as the Trust Preferred Securities and have a stated maturity of 30
years. In addition, the Company contributed $774,000 to BBC Capital III in
exchange for BBC Capital III's Common Securities and such proceeds were also
invested in an identical principal amount of floating rate Junior Subordinated
Debentures. BBC Capital III's Common Securities are owned entirely by the
Company. BBC Capital III's sole asset is $25.8 million in aggregate principal
amount of floating rate Junior Subordinated Debentures. Holders of BBC Capital
III's Trust Preferred Securities and the Trust Common Securities are entitled to
receive a cumulative cash distribution at a floating rate equal to 3-month LIBOR
plus 345 basis points of the $1,000 liquidation amount of each security. The
Trust Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Trust Common Securities held by the Company.
The Trust Preferred Securities are considered debt for financial accounting and
tax purposes. The net proceeds to the Company from the Trust Preferred
Securities offering after underwriting discounts and expenses were approximately
$24.2 million.
The Company used the proceeds from the above sale of trust preferred
securities for general corporate purposes, including to augment the capital of
Ryan Beck in conjunction with its acquisition of certain assets and the
assumption of certain liabilities of Gruntal & Co., LLC, and to repay a portion
of outstanding borrowings under the Company's revolving bank line of credit.
4. ACQUISITIONS
On April 26, 2002 Ryan Beck acquired certain of the assets and assumed
certain of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of
the membership interests in The GMS Group, LLC. ("GMS"), a wholly-owned
subsidiary of Gruntal. Gruntal provides securities brokerage and investment
banking services to individual and institutional investors. GMS is primarily
engaged in the business of buying, selling and underwriting municipal
securities. The assets that were acquired from Gruntal include all of Gruntal's
customer accounts, furniture, leasehold improvements and equipment owned by
Gruntal at the offices where Gruntal's investment consultants are located,
assets related to Gruntal's deferred compensation plan and forgivable loans. The
consideration provided by Ryan Beck for this transaction was the assumption of a
note payable related to furniture and equipment in the Gruntal offices,
assumption of non-cancelable leases associated with the Gruntal offices
acquired, obligations owed to investment consultants participating in Gruntal's
deferred compensation plan that accepted employment with Ryan Beck, and the
payment of $6.0 million in cash. Ryan Beck performed an evaluation of each
retail branch office and institutional sales office of Gruntal and put back to
Gruntal the lease obligations and related assets of certain individual offices
with contractual terms it deemed unfavorable.
The deferred compensation plan assumed by Ryan Beck was a nonqualified
plan covering select employees that provided participants the opportunity to
defer up to 20 percent of cash compensation. Gruntal provided an annual matching
contribution and in some cases special allocations both of which would vest if
the employee remains employed for ten years from the plan year for which
contributions were made. The obligations were not required to be funded and were
unsecured general obligations to pay in the future the value of the deferred
compensation, adjusted to reflect the performance of selected investment
measurement options chosen by each participant during the deferral period. On
April 26, 2002 Ryan Beck froze the plan, whereby, the participants could no
longer make future contributions and related matches ceased. The obligation at
April 26, 2002 was $21 million, of which $18.3 million was vested. Ryan Beck is
subject to future expense based on future actuarial values of the plan
obligations. Subsequently, Ryan Beck put in place a retention plan for certain
Gruntal investment consultants, key employees and others during July 2002.
Pursuant to the retention plan, the participants received a length of service
award and a retention award in forgivable notes in the aggregate amounts of
$900,000 and $9.5 million, respectively. The participants received the length of
service award and 50% of the retention award in forgivable notes in the
aggregate amount of $5.7 million in July 2002. The participants can elect to
receive their remaining 50% of the retention award in forgivable notes in
February 2003, or the participants can elect to receive an enhanced award based
on
11
BANKATLANTIC BANCORP, INC.
production goals which will be paid out in the form of forgivable notes in
January 2004. The award based on production goals can be no less than the amount
they would have received on February 2003 assuming all participants remained
employed through the retention award date. Each forgivable note will have a term
of five years. A pro-rata portion of the principal amount of the note is
forgiven each month over the five year term. If a participant terminates
employment with Ryan Beck prior to the end of the term of the Note, the
outstanding balance becomes immediately due to Ryan Beck.
The Gruntal transaction was accounted for by the purchase method of
accounting. Under this method of accounting, the acquired assets and assumed
liabilities of Gruntal are recorded at their estimated fair value, and the
amount of estimated fair value of net assets in excess of the purchase price is
used to write down non-financial assets and the remaining balance is recorded as
an extraordinary income item. The operations of the Gruntal transaction were
included in the Company's statement of operations and the assets acquired and
liabilities assumed from Gruntal were included in the Company's statement of
financial condition since April 26, 2002.
On March 22, 2002 BankAtlantic acquired Community Savings Bankshares
Inc., the parent company of Community Savings, F.A. ("Community"), for $170.3
million in cash and immediately merged Community into BankAtlantic. The fair
value of Community's assets acquired and liabilities assumed was included in the
Company's statement of financial condition and Community's results of operations
have been included in the Company's consolidated financial statements since
March 22, 2002.
The following table summarizes the fair value of assets acquired and
liabilities assumed in connection with the acquisition of Community and the
Gruntal transaction effective March 22, 2002 and April 26, 2002, respectively.
The Company is in the process of obtaining third party valuations; therefore,
the allocation of the purchase price is subject to change.
(in thousands) COMMUNITY GRUNTAL TOTAL
----------- ----------- -----------
Cash and interest earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 33,146 112,914
Trading securities -- 118,763 118,763
Loans receivable, net 621,964 -- 621,964
FHLB Stock 8,063 -- 8,063
Investments and advances to joint
ventures 16,122 -- 16,122
Goodwill 58,775 -- 58,775
Core deposit intangible asset 15,117 -- 15,117
Other assets 45,070 12,597 57,667
----------- ----------- -----------
Fair value of assets acquired 969,856 165,392 1,135,248
----------- ----------- -----------
Deposits 639,111 -- 639,111
FHLB advances 138,981 -- 138,981
Other borrowings 14,291 3,427 17,718
Securities sold not yet purchased -- 1,201 1,201
Payable to clearing broker -- 101,705 101,705
Other liabilities 6,674 27,402(1) 34,076
----------- ----------- -----------
Fair value of liabilities assumed 799,057 133,735 932,792
Fair value of net assets acquired over cost -- (23,810)(2) (23,810)
----------- ----------- -----------
Purchase price 170,799 7,847 178,646
Cash acquired (124,977) (886) (125,863)
----------- ----------- -----------
Purchase price net of cash acquired $ 45,822 $ 6,961 $ 52,783
=========== =========== ===========
The purchase price of Community consisted of $170.3 million in cash and
$500,000 of acquisition professional fees. The cost of the Gruntal transaction
consisted of a $6.0 million cash payment to Gruntal, $750,000 of acquisition
professional fees and an estimated $1.05 million of contingent consideration
payable to Gruntal. The $1.05 million contingent consideration to Gruntal
relates to possible deferred compensation plan participant forfeitures and
represents the maximum amount of additional consideration. Pursuant to the terms
of the Acquisition Agreement, during each of the three years beginning October
27, 2002 Ryan Beck is obligated to
12
BANKATLANTIC BANCORP, INC.
pay Gruntal & Co. LLC up to $350,000 of forfeitures each year under the Amended
and Restated Gruntal & Co. LLC Deferred Compensation Plan for each of the years
in the three year period ended October 26, 2005.
1. Included in Gruntal's other liabilities were $675,000 of
termination costs for contract obligations related to leased
equipment and $654,000 of contract termination obligations
associated with closing certain Gruntal branches.
2. The Company recognized an extraordinary gain of $23.8 million,
net of income taxes of $2.7 million, and reduced the carrying
amount of non-financial assets by $11.2 million as a result of
the fair value of the assets acquired exceeding the cost of the
transaction. The Company did not establish a deferred tax
liability for the extraordinary gain associated with the GMS
membership interest acquisition based on the fact that the
Company acquired the membership interest in GMS instead of the
net assets. Any change in the purchase accounting adjustments as
a result of third party valuations will be reflected as an
adjustment to the extraordinary gain.
The following is pro forma information for the three and six months
ended June 30, 2002 and 2001 and is presented as if the Gruntal and Community
transactions had been consummated on January 1, 2002 and 2001, respectively. The
pro forma information is not necessarily indicative of the combined financial
position or results of operations which would have been realized had the
transaction been consummated during the period or as of the dates for which the
pro forma financial information is presented. (in thousands, except for share
data).
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
-------------------------- -------------------------
(in thousands) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
Interest income $ 82,707 $ 84,156 $ 83,656 $105,141
Interest expense 39,755 44,172 50,023 61,736
Provision for loan losses 6,139 6,139 4,040 4,130
-------- -------- -------- --------
Net interest income after provision for
loan losses 36,813 33,845 29,593 39,275
-------- -------- -------- --------
Income (loss) before extraordinary item $ (2,233) $ (2,361) $ 8,605 $ 7,449
======== ======== ======== ========
Basic earnings (loss) per share before
extraordinary item $ (0.04) $ (0.04) $ 0.24 $ 0.20
======== ======== ======== ========
Diluted earnings (loss) per share before
extraordinary item $ (0.04) $ (0.04) $ 0.19 $ 0.17
======== ======== ======== ========
FOR THE SIX MONTHS ENDED
---------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
------------------------- -------------------------
(in thousands) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
Interest income $150,545 $169,007 $169,908 $213,851
Interest expense 74,775 82,085 103,977 128,231
Provision for loan losses 8,704 10,748 6,801 6,981
-------- -------- -------- --------
Net interest income after provision for
loan losses 67,066 76,174 59,130 78,639
-------- -------- -------- --------
Income before extraordinary item and cumulative
effect of a change in accounting principles $ 10,347 $ 7,131 $ 15,430 $ 10,572
======== ======== ======== ========
Basic earnings per share before extraordinary
item and cumulative effect of a change in
accounting principle $ 0.18 $ 0.12 $ 0.42 $ 0.29
======== ======== ======== ========
Diluted earnings per share before extraordinary
item and cumulative effect of a change in
accounting principle $ 0.17 $ 0.12 $ 0.34 $ 0.25
======== ======== ======== ========
During April 2002, the Company and Levitt Companies ownership in
Bluegreen Corporation ("Bluegreen"), a New York Stock Exchange-listed company
engaged in the acquisition, development, marketing and sale of drive-to vacation
interval resorts, golf communities and residential land increased from
approximately 5% to 40%. This interest in
13
BANKATLANTIC BANCORP, INC.
Bluegreen was acquired for an aggregate purchase price of approximately $56
million. The Company acquired approximately 5% of Bluegreen common stock during
the first quarter of 2001 and Levitt Companies acquired approximately 35% of
Bluegreen common stock in April 2002. As a consequence of the acquisition of
this interest in Bluegreen at various acquisition dates, it is accounted for as
a step acquisition under the equity method of accounting. In a step acquisition
the purchase price allocation is performed at each acquisition date and goodwill
is recognized with each step purchase. Additionally, prior period financial
statements should be restated to reflect the results of applying the equity
method of accounting to the initial acquisition; however, the Company did not
restate its prior year financial statements due to lack of significance. Under
the equity method of accounting the investment in Bluegreen was recorded at cost
and the carrying amount of the investment is adjusted to recognize our 40%
interest in the earnings or loss of Bluegreen after the acquisition date. The
Company is in the process of determining the Bluegreen purchase price
allocation. The funds for the investment in Bluegreen were obtained from $29.9
million of borrowings from the Company's existing bank line of credit, proceeds
of its trust preferred securities offering, proceeds from the sale of equity
securities from the Company's portfolio and Levitt Companies' working capital.
5. IMPAIRMENT OF SECURITIES
During 1999, the Company entered into a strategic relationship and
invested $10 million in cash and issued 848,364 shares of Class A common stock
to acquire an investment in Seisint, Inc., a privately held technology company.
The Company anticipated benefits from this strategic relationship through the
exchange of ideas and cooperation in the development by Seisint of technology
and support systems for use by financial institutions. Additionally, both Alan
B. Levan and John E. Abdo were directors of Seisint and each acquired direct and
indirect interests in Seisint common stock.
However, because Seisint has not been able to meet the objectives of its
business plan or its financial performance goals, the Company performed an
evaluation of its investment in Seisint to determine if there was an other than
temporary decline in value associated with this investment. As a consequence of
this evaluation, the Company wrote off its entire $15 million investment in
Seisint during the three months ended June 30, 2002.
The Company also recognized an impairment charge of $3.2 million during
the three months ended June 30, 2002 on other equity securities resulting from
significant declines in their value that were considered other than temporary
due to the financial condition and near term prospects of the issuers of the
equity securities. The Company recognized a $474,000 and $695,000 impairment
charge associated with equity securities during the three and six-month periods
ended June 30, 2001. As a result of these losses, the Company has revised its
policy for holding company equity investments. Any future equity investments
will be limited to liquid securities and will be subject to significant
concentration restrictions. At June 30, 2002 equity investments totaled $8.7
million.
6. TRADING SECURITIES AND SECURITIES SOLD NOT YET PURCHASED
The Ryan Beck gains on trading securities were associated with sales and
trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of Ryan Beck. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. Included in investment banking
income during the three and six months ended June 30, 2002, respectively, was
realized net revenues from Ryan Beck's principal transactions of $17.3 million
and $24.8 million compared to net revenues of $3.9 million and $8.4 million
during the same 2001 periods.
Ryan Beck's trading securities consisted of the following (in
thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
States and municipalities $133,448 $ 7,593 $ 9,791
Corporate debt securities 19,535 20,989 290
U.S. Government and agencies 46,306 32,308 16,640
Corporate equities 10,843 7,406 4,094
Certificates of deposit -- -- 298
-------- -------- --------
$210,132 $ 68,296 $ 31,113
======== ======== ========
14
BANKATLANTIC BANCORP, INC.
Ryan Beck's securities sold not yet purchased consisted of the following
(in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
States and municipalities $16,367 $ -- $18,734
Corporate debt securities 11,728 21,305 --
U.S. Government and agencies 33,487 15,244 16,880
Corporate equities 6,743 1,882 4,636
------- ------- -------
$68,325 $38,431 $40,250
======= ======= =======
7. LOANS HELD FOR SALE
The Company currently originates CRA residential loans for resale and
refers its residential loan customers to an unaffiliated lender. During June
2000, the Company discontinued its commercial non-mortgage syndication lending
activities and transferred the entire portfolio to loans held for sale.
Loans held for sale consisted of the following (in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
Residential $ 9,241 $ 4,757 $ 4,904
Commercial real estate -- -- 22,713
Commercial syndication 19,506 40,774 79,901
-------- -------- --------
Total loans held for sale $ 28,747 $ 45,531 $107,518
======== ======== ========
8. REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND JOINT VENTURE ACTIVITIES
Real estate held for development and sale and joint venture activities
consisted of the combined activities of Core Communities and Levitt and Sons as
well as Levitt Companies' joint venture activities and a joint venture acquired
in connection with the Community Savings acquisition. Core Communities is a
developer of master planned residential commercial and industrial communities in
Florida. Levitt and Sons is a developer of single-family home communities and
condominium and rental apartment complexes primarily in Florida. The Company's
investment and advances to the joint venture development acquired in connection
with the Community Savings acquisition was $17.8 million at June 30, 2002. This
development of single family homes, condominium units and duplexes is located on
117 acres of land in Indian River County, Florida.
Real estate held for development and sale and joint ventures consisted
of the following:
(in thousands) JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
Land and land development costs $148,802 $114,499 $ 86,907
Construction costs 23,399 17,949 19,657
Other costs 9,804 9,985 8,022
Equity investments in joint venture 1,598 7,127 6,151
Loans to joint ventures 49,162 28,713 33,809
-------- -------- --------
$232,765 $178,273 $154,546
======== ======== ========
15
BANKATLANTIC BANCORP, INC.
The components of net revenues from sales of real estate were as
follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
(IN THOUSANDS) 2002 2001 2002 2001
------- ------- ------- -------
Sales of real estate $46,864 $33,176 $84,717 $57,954
Cost of sales 35,438 26,234 62,213 45,809
------- ------- ------- -------
Gains on sales of real estate 11,426 6,942 22,504 12,145
Gains on joint venture activities 1,040 456 1,939 1,196
------- ------- ------- -------
Gains on sales of real estate
held for sale and joint venture
activities $12,466 $ 7,398 $24,443 $13,341
======= ======= ======= =======
9. COMPREHENSIVE INCOME
The income tax provision relating to the comprehensive income
reclassification adjustment in the Consolidated Statements of Stockholders'
Equity and Comprehensive Income for the six months ended June 30, 2002 and 2001
was $2.4 million and $145,000, respectively. Comprehensive income for the three
months ended June 30, 2002 and 2001 was $18.6 million and $11.0 million,
respectively.
10. DERIVATIVES
The Company adopted Financial Accounting Standards Board Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133")
on January 1, 2001. At the adoption date we recognized all derivative
instruments as defined by FAS 133 in the statement of financial position as
either assets or liabilities and measured them at fair value resulting in a $1.1
million gain associated with the cumulative effect of a change in accounting
principle, net of tax.
The derivatives utilized by the Company during the six months ended June
30, 2002 were interest rate swaps. During the six months ended June 30, 2002,
the Company created fair value hedges by entering into various interest rate
swap contracts with a notional amount of $33 million to convert $33 million of
designated fixed rate time deposits to a three-month LIBOR interest rate. The
Company funds LIBOR based assets such as commercial real estate loans with fixed
rate time deposits.
During the year ended December 31, 2000, the Company entered into
forward contracts to purchase the underlying collateral from a government agency
pool of securities in May 2005. Included in securities gains in the Statement of
Operations for the three and six months ended June 30, 2002 were $48,000 and
$27,000 of unrealized losses associated with the forward contracts compared to
unrealized gains of $21,000 and $34,000 during the same 2001 periods.
16
BANKATLANTIC BANCORP, INC.
The following table outlines the notional amount and fair value of the
Company's derivatives outstanding at June 30, 2002:
PAYING RECEIVING
NOTIONAL INDEX/FIXED INDEX/FIXED TERMINATION
AMOUNT FAIR VALUE AMOUNT AMOUNT DATE
--------- ------------ ------------- -------------- --------------
Fifteen year callable receive
fixed swaps $ 10,000 $ (136) 3mo. LIBOR 6.15% 11/13/2016
Ten year callable receive fixed
swaps 30,000 33 3mo. LIBOR 6.03% 12/20/2011
Ten year callable receive fixed
swaps 20,000 441 3mo. LIBOR 6.08% 2/14/2012
Seven year callable receive fixed
swaps 13,000 224 3mo. LIBOR 5.60% 9/19/2009
Five year pay fixed swaps 25,000 (1,393) 5.73% 3 mo. LIBOR 1/5/2006
Three year pay fixed swaps $ 50,000 $ (2,242) 5.81% 3 mo. LIBOR 12/28/2003
========= ============ ============ ============ ============
Forward contract to purchase
adjustable rate mortgages $ 95,324 $ 103
========= ============
The net amount of existing losses on the swaps included in other
liabilities that are projected to be reclassified into earnings within the next
12 months is $526,862. The hedging relationships are expected to last over the
term of the swaps.
11. RESTRUCTURING CHARGE AND IMPAIRMENT WRITE-DOWN
During June 2002, we adopted a plan to discontinue certain ATM
relationships, resulting in a $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet our performance expectations
and were unlikely to meet our future profitability goals. The remaining ATM
machines (approximately 150 machines) are primarily located in our branch
network and on cruise ships. The restructuring plan is scheduled to be completed
during the fourth quarter of 2002.
Restructuring charges at June 30, 2002 included in other liabilities
consisted of (in thousands)
INITIAL AMOUNT PAID ENDING
TYPE OF RESTRUCTURING CHARGE AMOUNT DURING PERIOD BALANCE
- ---------------------------- --------------- -------------- ---------------
Lease contract termination
costs $ 664 $ (31) $ 633
De-installation costs 87 - 87
Other 50 - 50
--------------- -------------- ---------------
Total restructuring charge $ 801 $ (31) $ 770
=============== ============== ===============
12. TRANSITIONAL GOODWILL IMPAIRMENT EVALUATION
In connection with the transitional goodwill impairment evaluation under
FASB Statement 142, the Company performed an assessment of whether there is an
indication that goodwill is impaired as of January 1, 2002, the date of
adoption. During the six months ended June 30, 2002, the Company identified its
reporting units and determined the carrying value of each of its reporting units
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company then determined the fair value of each reporting unit and compared it to
the reporting unit's carrying amount. If the fair value of the reportable unit
exceeded the carrying amount, no further evaluation needed to be performed, and
the goodwill in the reporting unit is not impaired. The fair values of all
reporting units, except for the Ryan Beck reportable segment, exceeded its
carrying amount at the adoption date. As a consequence, the Company may have to
recognize an impairment loss relating to the Ryan Beck reportable segment. The
Company has contracted with an independent appraiser to measure the loss and
anticipates recognizing the goodwill impairment charge during the 2002 third
quarter. Any transitional impairment loss associated with the Ryan Beck
reportable segment will be recognized as the cumulative effect of a change in
accounting principle in the statement of operations and this non-cash charge
will be recorded effective as of January 1, 2002. The charge will have no impact
on operating earnings or tangible capital.
17
BANKATLANTIC BANCORP, INC.
13. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about
which separate financial information is available that is regularly reviewed by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
income calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation were utilized, the relative
contributions of the segments might differ but the relative trends in the
segments would, in management's view, likely not be impacted.
18
BANKATLANTIC BANCORP, INC.
The following summarizes the aggregation of the Company's operating segments
into reportable segments:
REPORTABLE SEGMENT OPERATING SEGMENTS AGGREGATED
------------------ -----------------------------
Bank Investments Investments, tax certificates,
residential loans purchased, CRA
lending and real estate capital
services
Commercial Banking Commercial lending, syndications,
international, lease finance, trade
finance and a real estate joint
venture development
Community Banking Indirect and direct consumer
lending, small business lending and
ATM operations
Levitt Companies Real estate and joint venture
operations
Ryan Beck Investment banking and brokerage
operations
Parent Company Costs of acquisitions, financing of
acquisitions, and equity investments
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead allocations.
19
BANKATLANTIC BANCORP, INC.
The Company evaluates segment performance based on net income after tax.
The table below is segment information for income before extraordinary
item and cumulative effect of a change in accounting principle for the
three months ended June 30, 2002 and 2001:
BANK OPERATIONS
---------------------------------------
BANK COMMERCIAL COMMUNITY LEVITT PARENT SEGMENT
(IN THOUSANDS) INVESTMENTS BANKING BANKING COMPANIES RYAN, BECK COMPANY TOTALS
----------- ----------- --------- --------- ---------- --------- ----------
2002
Interest income $ 46,354 $ 26,906 $ 6,514 $ 477 $ 3,125 $ 454 $ 83,830
Interest expense and overhead (31,477) (15,767) (3,963) (312) (313) (4,522) (56,354)
Provision for loan losses 59 (5,933) (265) 0 0 0 (6,139)
Non-interest income 3,101 752 2,538 11,490 41,528 (17,845) 41,564
Segment profits and losses
before taxes 14,107 2,571 (1,092) 5,805 (2,487) (24,351) (5,447)
Provision for income taxes 3,753 684 (290) 2,032 (870) (8,523) (3,214)
---------- ----------- --------- --------- --------- --------- ----------
Segment net income (loss) $ 10,354 $ 1,887 $ (802) $ 3,773 $ (1,617) $ (15,828) $ (2,233)
========== =========== ========= ========= ========= ========= ==========
Segment average assets $2,891,958 $ 1,616,326 $ 406,204 $ 273,357 $ 218,784 $ 98,436 $5,505,065
========== =========== ========= ========= ========= ========= ==========
2001
Interest income $ 46,487 $ 30,178 $ 7,016 $ 344 $ 580 $ (34) $ 84,571
Interest expense and overhead (35,687) (17,761) (4,225) (60) (206) (5,118) (63,057)
Provision for loan losses 43 (5,404) 1,321 0 0 0 (4,040)
Non-interest income 589 868 2,868 8,106 10,338 758 23,527
Segment profits and losses
before taxes 9,856 6,234 1,837 2,078 (915) (5,853) 13,237
Provision for income taxes 3,621 2,291 675 421 (327) (2,049) 4,632
---------- ----------- --------- --------- --------- --------- ----------
Segment net income (loss) $ 6,235 $ 3,943 $ 1,162 $ 1,657 $ (588) $ (3,804) $ 8,605
========== =========== ========= ========= ========= ========= ==========
Segment average assets $2,654,965 $ 1,360,428 $ 323,421 $ 166,661 $ 76,306 $ 108,570 $4,690,351
========== =========== ========= ========= ========= ========= ==========
20
BANKATLANTIC BANCORP, INC.
The table below is segment information for income before extraordinary
item and cumulative effect of a change in accounting principle for the six
months ended June 30, 2002 and 2001:
BANK OPERATIONS
----------------------------------------
BANK COMMERCIAL COMMUNITY LEVITT PARENT SEGMENT
(IN THOUSANDS) INVESTMENTS BANKING BANKING COMPANIES RYAN, BECK COMPANY TOTAL
----------- ----------- ---------- ---------- ----------- ----------- -----------
2002
Interest income $ 84,073 $ 50,837 $ 12,010 $ 891 $ 3,823 $ 764 $ 152,398
Interest expense and overhead (58,362) (29,745) (7,179) (313) (641) (7,845) (104,085)
Provision for loan losses (141) (8,148) (415) 0 0 0 (8,704)
Non-interest income 3,289 1,380 4,727 23,831 55,126 (14,827) 73,526
Segment profits and losses
before taxes 22,343 8,354 (1,363) 12,093 (2,254) (25,281) 13,892
Provision for income taxes 6,631 2,704 (385) 4,233 (788) (8,850) 3,545
----------- ----------- ---------- ---------- ----------- ----------- -----------
Segment net income (loss) $ 15,712 $ 5,650 $ (978) $ 7,860 $ (1,466) $ (16,431) $ 10,347
=========== =========== ========== ========== =========== =========== ===========
Segment average assets $ 2,615,383 $ 1,565,515 $ 371,653 $ 168,502 $ 66,836 $ 102,944 $ 4,890,833
=========== =========== ========== ========== =========== =========== ===========
2001
Interest income $ 93,106 $ 62,153 $ 14,613 $ 795 $ 1,156 $ 9 $ 171,832
Interest expense and
overhead (71,332) (36,954) (8,927) (150) (309) (10,734) (128,406)
Provision for loan losses (120) (9,650) 2,969 0 0 0 (6,801)
Non-interest income 711 1,595 5,625 14,775 19,471 1,080 43,257
Segment profits and losses
before taxes 18,636 14,201 3,277 3,629 (2,753) (12,722) 24,268
Provision for income taxes 6,923 5,287 1,217 844 (980) (4,453) 8,838
----------- ----------- ---------- ---------- ----------- ----------- -----------
Segment net income (loss) $ 11,713 $ 8,914 $ 2,060 $ 2,785 $ (1,773) $ (8,269) $ 15,430
=========== =========== ========== ========== =========== =========== ===========
Segment average assets $ 2,624,098 $ 1,308,896 $ 364,290 $ 166,210 $ 68,064 $ 97,882 $ 4,629,440
=========== =========== ========== ========== =========== =========== ===========
21
BANKATLANTIC BANCORP, INC.
The difference between total segment average assets and consolidated
average assets, segment non-interest income and total consolidated non-interest
income, and segment interest income and total consolidated interest income is as
follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(IN THOUSANDS) JUNE 30, JUNE 30,
----------------------------- -----------------------------
TOTAL AVERAGE ASSETS 2002 2001 2002 2001
----------- ----------- ----------- -----------
Total average assets for reportable segments $ 5,505,065 $ 4,690,351 $ 4,890,833 $ 4,629,440
Average assets in overhead 130,176 110,451 265,329 120,707
----------- ----------- ----------- -----------
Total average consolidated assets $ 5,635,241 $ 4,800,802 $ 5,156,162 $ 4,750,147
=========== =========== =========== ===========
NON-INTEREST INCOME
Total non-interest income for reportable segments $ 41,564 $ 23,527 $ 73,526 $ 43,257
Items included in interest expense and overhead:
Transaction fee income 5,688 3,890 10,550 7,770
Gains on sales of assets (319) 20 49 367
Other fees 4,290 1,032 4,998 1,762
----------- ----------- ----------- -----------
Total consolidated non-interest income $ 51,223 $ 28,469 $ 89,123 $ 53,156
=========== =========== =========== ===========
INTEREST INCOME
Total interest income for reportable segments $ 83,830 $ 84,571 $ 152,398 $ 171,832
Deferred interest income on real estate activities (505) (107) (875) (282)
Elimination entries (618) (808) (978) (1,642)
----------- ----------- ----------- -----------
Total consolidated interest income $ 82,707 $ 83,656 $ 150,545 $ 169,908
=========== =========== =========== ===========
14. NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145 ("Rescission of FASB Statement No. 4,44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections.") This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Any gain or loss on the extinguishment of debt that was classified
as an extraordinary item in prior periods will be reclassified into continuing
operations.
In June 2002, the FASB issued Statement No. 146 ("Accounting for Costs
Associated with Exit or Disposal Activities.") This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred compared to current literature, which recognized
a liability when the entity committed to an exit plan. Management believes that
this Statement will not have a material impact on the Company's financial
statements; however, the Statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
15. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with
the statement presentation for 2002.
22
BANKATLANTIC BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The objective of the following discussion is to provide an understanding
of the financial condition and results of operations of BankAtlantic Bancorp,
Inc. ("the Company", which may also be referred to as "we", "us", or "our") and
its wholly owned subsidiaries for the three and six months ended June 30, 2002
and 2001, respectively. The principal assets of the Company consist of its
ownership of these subsidiaries which include BankAtlantic, Levitt Companies,
LLC ("Levitt Companies"), a real estate development company, and Ryan, Beck &
Co., LLC ("Ryan Beck"), an investment banking firm.
Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties. When used in
this report and in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of BankAtlantic
Bancorp, Inc. ("the Company") and are subject to a number of risks and
uncertainties that are subject to change based on factors which are, in many
instances, beyond the Company's control. These include, but are not limited to,
the risks and uncertainties associated with: the impact of economic, competitive
and other factors affecting the Company and its operations, markets, products
and services; credit risks and loan losses, and the related sufficiency of the
allowance for loan losses; the effects of, and changes in, trade, monetary and
fiscal policies and laws, including but not limited to interest rate policies of
the Board of Governors of the Federal Reserve System; adverse conditions in the
stock market, the public debt market and other capital markets (including
changes in interest rate conditions) and the impact of such conditions on our
activities; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; the impact of changes in accounting policies by the
Securities and Exchange Commission; the impact of periodic testing of goodwill
and other intangible assets for impairment; and with respect to the operations
of Levitt Companies and its real estate subsidiaries: the market for real estate
generally and in the areas where Levitt Companies has developments, the
availability and price of land suitable for development, materials prices, labor
costs, interest rates, environmental factors and governmental regulations; and
the Company's success at managing the risks involved in the foregoing. Further,
this report contains forward-looking statements with respect to recent
acquisitions, each of which are subject to risks and uncertainties, including
the risk that the acquisitions could involve additional costs or that the future
financial and operating performance of these acquisitions will not be
advantageous. In addition to the risks and factors identified above, reference
is also made to other risks and factors detailed in reports filed by the Company
with the Securities and Exchange Commission ("SEC"). The Company cautions that
the foregoing factors are not exclusive.
23
RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
(IN THOUSANDS) 2002 2001 2002 2001
--------- --------- --------- ---------
INCOME STATEMENT
Total interest income $ 82,707 $ 83,656 $ 150,545 $ 169,908
Total interest expense 39,755 50,023 74,775 103,977
--------- --------- --------- ---------
Net interest income 42,952 33,633 75,770 65,931
Provision for loan losses 6,139 4,040 8,704 6,801
Gains on sales of securities 3,083 1,695 6,122 2,051
Impairment of securities (18,157) (474) (18,157) (695)
Other non-interest income 66,297 27,248 101,158 51,800
Non-interest expense 93,483 44,825 142,297 88,018
--------- --------- --------- ---------
Income (loss) before income taxes, extraordinary item and
cumulative effect of a change in accounting principle (5,447) 13,237 13,892 24,268
Provision (benefit) for income taxes (3,214) 4,632 3,545 8,838
--------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle (2,233) 8,605 10,347 15,430
Extraordinary item, net of tax 23,810 -- 23,810 --
Cumulative effect of a change in accounting principle, net of tax -- -- -- 1,138
--------- --------- --------- ---------
Net income $ 21,577 $ 8,605 $ 34,157 $ 16,568
========= ========= ========= =========
RECONCILIATION OF NET INCOME TO OPERATING NET INCOME
Net income $ 21,577 $ 8,605 $ 34,157 $ 16,568
Amortization of goodwill -- 1,049 -- 2,074
Restructuring charges and impairment write-downs 655 (140) 655 (140)
Acquisition and conversion related charges 4,350 -- 5,037 --
Impairment of securities 11,801 308 11,802 452
Extraordinary item and cumulative accounting
change (23,810) -- (23,810) (1,138)
--------- --------- --------- ---------
Operating net income
$ 14,573 $ 9,822 $ 27,841 $ 17,816
========= ========= ========= =========
FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net income was significantly affected by non-recurring items during the
current quarter. The Company recognized an extraordinary gain associated with
the acquisition of certain assets and the assumption of certain liabilities of
Gruntal and the acquisition of all of the membership interest in The GMS Group,
LLC. ("GMS"). The extraordinary gain was recognized because the fair value of
the assets acquired, after reducing the carrying value of non-financial assets
to zero, exceeded the cost of the transaction by $23.8 million, net of income
taxes of $2.7 million. The Company did not establish a deferred tax liability
for the extraordinary gain associated with the GMS membership interest
acquisition because the Company acquired the membership interest in GMS instead
of the net assets.
The extraordinary gain was partially offset by a restructuring charge
and an impairment write-down associated with our ATM network,
acquisition-related charges and impairments associated with the Community and
Gruntal transactions and an other than temporary decline in the fair value of
equity securities. The equity securities impairment reflected the write-off of
three equity investments which had experienced poor financial performance. As a
consequence, we have revised our policy for equity investments, and any future
equity investments will be limited to liquid securities subject to certain
stringent concentration restrictions. The acquisition-related expenses were
integration expenses, long-lived asset impairments and professional fees
associated with the Gruntal and Community transactions. The ATM network
24
BANKATLANTIC BANCORP, INC.
restructuring charge and impairment write down resulted from the termination of
convenience store and gas station relationships which did not meet our
performance expectations.
The non-recurring items during the 2001 second quarter were the
amortization of goodwill, an adjustment to the estimated restructuring charge
recorded in a prior period and an other than temporary decline in the fair value
of equity securities.
During the current quarter, the Company also experienced a significant
increase in non-interest expenses associated with the Gruntal and Community
transactions and higher provision for loan losses and operating expenses related
to banking operations.
The increased provision for loan losses primarily related to two
commercial real estate loans. The higher banking operations expenses were
associated with the Community acquisition and BankAtlantic's "Seven Day Banking"
initiative as well as advertising for related new deposit products.
The above non-recurring charges and higher non-interest expenses were
partially offset by a significant improvement in our net interest income,
increased earnings at Levitt Companies, higher banking operations transaction
fee income, a large increase in investment banking income as a result of the
Gruntal transaction and gains on the sale of securities.
The improvement in net interest income reflects earning asset growth
from loan originations and the Community acquisition as well as an improvement
in the net interest margin caused by declining interest rates and a change in
the deposit mix from higher yielding time deposits to lower yielding transaction
accounts. Income from Levitt Companies increased significantly, reflecting
increased sales of real estate by Core Communities and Levitt and Sons, as well
as equity in earnings associated with Levitt Companies' investment in Bluegreen.
The improvement on gains on securities sales reflected the sale of
mortgage-backed securities during the 2002 quarter in response to declining
interest rates. The gains on securities sales during the 2001 quarter were
primarily gains associated with the sale of equity securities. The substantial
increase in investment banking income related to the increase in investment
consultants as a result of the Gruntal transaction and the higher banking
operation transaction fees were linked to our new deposit products and the
Community acquisition.
Included in the benefit for income taxes during the 2002 quarter was a
$930,000 reduction in the deferred tax asset valuation allowance primarily
associated with Levitt Companies' election to be taxed as a corporation and the
utilization of tax benefits from real estate sales. Additionally, the Company
acquired, as part of the Community transaction, low income housing tax credit
investments which reduced the Company's tax liability by $140,000 during the
three months ended June 30, 2002.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net Income increased by 106% from the prior 2001 period. The increase in
earnings primarily resulted from the items discussed above as well as a
non-recurring gain in the 2001 period recognized as a cumulative effect of a
change in accounting principle. The Company adopted Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133") on January 1, 2001. At the adoption date, we
recognized all derivative instruments as defined by FAS 133 in the statement of
financial position as either assets or liabilities and measured them at fair
value, resulting in a $1.1 million gain recognized during the first quarter of
2001. This was accounted for as a cumulative effect of a change in accounting
principle, net of tax.
25
BANKATLANTIC BANCORP, INC.
NET INTEREST INCOME
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN THOUSANDS) 2002 2001 CHANGE 2002 2001 CHANGE
--------- --------- --------- --------- --------- ---------
Interest and fees on loans and leases $ 59,325 $ 61,580 $ (2,255) $ 106,396 $ 125,431 $ (19,035)
Interest on securities available for sale 11,804 13,284 (1,480) 23,870 26,649 (2,779)
Interest and dividends on other investment and
trading securities 11,578 8,792 2,786 20,279 17,828 2,451
Interest on deposits (17,106) (23,089) 5,983 (32,432) (47,533) 15,101
Interest on advances from FHLB (15,676) (14,660) (1,016) (30,596) (29,361) (1,235)
Interest on securities sold under agreements
to repurchase (2,113) (7,142) 5,029 (3,497) (16,774) 13,277
Interest on subordinated debentures, notes and
bonds payable and guaranteed preferred interests
in the Company's Junior Subordinated Debentures (6,473) (6,579) 106 (11,081) (13,327) 2,246
Capitalized interest on real estate developments and
joint ventures 1,613 1,447 166 2,831 3,018 (187)
--------- --------- --------- --------- --------- ---------
Net interest income $ 42,952 $ 33,633 $ 9,319 $ 75,770 $ 65,931 $ 9,839
========= ========= ========= ========= ========= =========
Net interest margin 3.32 3.03 0.29 3.14 2.97 0.17
========= ========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
The substantial improvement in net interest income primarily resulted
from significant asset growth, increased income from trading securities and an
improvement in the net interest margin.
The growth in earning assets primarily resulted from the Community
acquisition, which added $709 million of earning assets, and continued growth in
our commercial real estate and home equity loan portfolios. The above increases
in earning assets were partially offset by accelerated repayments of residential
loans due to declining mortgage rates during the period and lower average
balances related to several discontinued or curtailed lines of business,
including our lease finance business, indirect consumer loans, syndication
loans, international loans to correspondence banks and small business loans
originated under previous policies prior to January 1, 2000. Interest income on
loans and securities available for sale declined during 2002 compared to the
same 2001 period. The decline in interest income reflects the rapid decline in
interest rates during the latter half of 2001 which resulted in the refinancing
of residential loans and the downward repricing of floating rate loans. These
significant declines in yields on earning assets were substantially offset by
the growth in earning assets mentioned above.
The increased interest income from trading securities resulted from the
Gruntal transaction. Trading securities interest income increased from $580,000
during the 2001 period to $3.1 million during the same 2002 period. Trading
securities balances increased from $31.1 million at June 30, 2001 to $210.1
million at June 30, 2002.
The net interest margin was impacted by a rapid decline in interest
rates during 2001, a change in the composition of our loan portfolio and a
change in the mix of our deposit portfolio. The prime interest rate declined
from 9.00% at January 1, 2001 to 4.75% at December 31, 2001, which resulted in
the yield on our interest earning assets declining from 7.66% during 2001 to
6.67% during 2002 and the rates on our interest paying liabilities declining
from 4.99% to 3.63% during the same period. During the 2002 quarter, we
continued to increase our transaction accounts, which contributed to the
reduction in our cost of funds. Our deposit mix changed from 53% time deposits
and 47% transaction accounts at June 30, 2001 to 44% time deposits and 56%
transaction accounts during the same 2002 period. The composition of our loan
portfolio changed from higher yielding loans associated with discontinued lines
of business to lower yielding residential loans acquired in connection with the
acquisition of Community and lower yielding floating rate commercial and home
equity loans. The decline in interest expense on deposits was partially offset
by average interest bearing deposits increasing by $474 million from the same
2001 period. The increase was primarily due to the Community acquisition.
Interest expense on short term borrowings was substantially lower during 2002.
The significant decline in short term borrowings
26
BANKATLANTIC BANCORP, INC.
interest expense reflected lower short term interest rates and a decline in
short term borrowings linked to an increase in deposit balances. The rates on
short term borrowings declined from 4.40% during the 2001 period to 1.79% during
the same 2002 period.
Interest on subordinated debentures, notes and bonds payable remained at
2001 levels. During 2001, we retired our subordinated investment notes and our
6-3/4% convertible subordinated debentures. The interest rates on these
borrowings were higher than the average rates on other borrowings. The above
reduction in borrowings was substantially offset by additional borrowings by
Levitt Companies to fund real estate purchases and the Company's issuance of
$80.4 million of trust preferred securities during the 2002 period.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net interest income increased by 15% from 2001. Total interest income
decreased by $19.4 million and total interest expense decreased by $29.2
million. The decrease in interest income primarily resulted from rapidly
declining interest rates which impacted the repricing of floating rate loans and
securities and contributed to refinancings of residential loans. The yield on
interest earning assets declined from 7.86% during 2001 to 6.55% during 2002.
The decline in yields on earnings assets was partially offset by $277 million of
average earning asset growth associated with the Community acquisition. The
decline in interest expense primarily resulted from the items discussed above.
The rates on our interest paying liabilities declined from 5.25% during 2001 to
3.77% during the same 2002 period, and the rates on our short term borrowings
declined from 5.10% during 2001 to 1.80% during the same 2002 period.
PROVISION FOR LOAN LOSSES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
(in thousands) 2002 2001 2002 2001
-------- -------- -------- --------
Balance, beginning of period $ 48,927 $ 47,128 $ 44,585 $ 47,000
Charge-offs:
Syndication loans -- -- (8,000) --
Commercial real estate loans (4,309) -- (4,309) --
Small business - real estate -- -- -- (12)
Small business - non-mortgage (1,261) (840) (2,192) (2,184)
Lease financing (1,972) (3,397) (4,184) (5,382)
Consumer loans - indirect (299) (669) (737) (1,692)
Consumer loans - direct (237) (314) (649) (691)
Residential real estate loans (3) -- (142) (152)
-------- -------- -------- --------
(8,081) (5,220) (20,213) (10,113)
-------- -------- -------- --------
Recoveries:
Syndication loans -- -- 683 --
Small business - non-mortgage 698 637 1,089 1,478
Lease financing 963 705 1,898 989
Commercial business loans 19 18 37 229
Commercial real estate loans 3 7 17 7
Residential real estate loans 60 91 63 156
Consumer loans - indirect 382 480 843 1,248
Consumer loans - direct 116 132 233 223
-------- -------- -------- --------
2,241 2,070 4,863 4,330
-------- -------- -------- --------
Net charge-offs (5,840) (3,150) (15,350) (5,783)
Allowance for loan losses acquired (639) -- 10,648 --
Provision for loan losses 6,139 4,040 8,704 6,801
-------- -------- -------- --------
Balance, end of period $ 48,587 $ 48,018 $ 48,587 $ 48,018
======== ======== ======== ========
27
BANKATLANTIC BANCORP, INC.
Annualized net charge-offs to average loans were 0.65% for the 2002
second quarter and 0.41% for the 2001 second quarter. Included in charge-offs
for the second quarter of 2002 was a $4.3 million partial charge-off of a
commercial real estate residential construction loan for which a $1.8 million
specific valuation allowance was established in late 2001. This loan was
transferred to real estate owned effective June 30, 2002. Excluding this one
loan, net charge-offs would have equaled 0.17% of average loans on an annualized
basis for the second quarter of 2002.
Annualized net charge-offs to average loans were 0.94% for 2002 year to
date and 0.38% for the corresponding 2001 period. Included in charge-offs for
the year was an $8 million partial charge-off of a syndication loan to a company
in the commercial aviation repair parts and maintenance industry for which a
specific valuation allowance was established for the entire amount of the
charge-off in late 2001 as well as the $4.3 million partial charge-off mentioned
above. Excluding these two loans, net charge-offs would have equaled 0.19% of
average loans for 2002.
The allowance for loan losses was 1.34% and 1.59% of total loans at June
30, 2002 and 2001, respectively. Included in the allowance for loan losses was a
$10.6 million allowance acquired in connection with the Community acquisition.
This allowance was reduced by $639,000 in the second quarter of 2002 as a result
of loan payoffs in the acquired portfolio. Also included in the allowance for
loan losses was a valuation allowance of $4.1 million established on a $17.1
million commercial real estate loan to a company in the hospitality industry and
a $670,000 valuation allowance established on a $2.1 million airplane lease.
These allowances were established as a result of the deteriorating financial
condition of the borrowers and the estimated value of the collateral.
Net charge-offs associated with our discontinued or curtailed lines of
business were 16% of total net charge-offs during the second quarter of 2002
compared to 91% during the same 2001 period. Year to date, these charge-offs
represented 62% of total net charge-offs compared to 84% during 2001.
At the indicated dates, the Company's non-performing assets and
potential problem loans were (in thousands):
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
NONPERFORMING ASSETS
NON-ACCRUAL:
Tax certificates $ 1,431 $ 1,727
Loans and leases 39,497 37,255
-------- --------
Total non-accrual 40,928 38,982
-------- --------
REPOSSESSED ASSETS:
Real estate owned, net of allowance 11,603 3,904
Vehicles and equipment -- 17
-------- --------
Total repossessed assets 11,603 3,921
-------- --------
Total non-performing assets 52,531 42,903
Specific valuation allowances (4,890) (9,936)
-------- --------
TOTAL NON-PERFORMING ASSETS, NET $ 47,641 $ 32,967
======== ========
POTENTIAL PROBLEM LOANS
Contractually past due 90 days or more 12 --
Restructured loans 698 743
Delinquent residential loans purchased 1,562 1,705
-------- --------
TOTAL POTENTIAL PROBLEM LOANS $ 2,272 $ 2,448
======== ========
Non-performing assets represented 1.38% of total loans, tax certificates
and repossessed assets at June 30, 2002. This compares to 1.45% at December 31,
2001. The reduction in the percentage of non-performing assets to total loans
tax certificates and repossessed assets during the six-month period reflects a
significant increase in total loans and tax certificate balances at June 30,
2002 compared to December 31, 2001. The increase in non-performing assets was
primarily attributable to the $17 million commercial real estate loan and the
$2.1 million lease referred to above, and secondarily to $3.1 million of
non-performing loans acquired in connection with the Community acquisition. The
above increases in non-accrual loans were partially offset by an $8.0
28
BANKATLANTIC BANCORP, INC.
million charge-off on a syndication loan described above. Included in real
estate owned at June 30, 2002 was repossessed property associated with the
residential construction loan discussed above. The property was transferred to
REO at $8.0 million, its estimated fair value less anticipated cost to sell.
NON-INTEREST INCOME
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------------------- --------------------------------------
2002 2001 CHANGE 2002 2001 CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
BANKING OPERATIONS
Other service charges and fees $ 3,550 $ 3,811 $ (261) $ 6,655 $ 7,372 $ (717)
Service charges on deposits 5,688 3,890 1,798 10,550 7,770 2,780
Gains on securities available for sale 3,083 1,695 1,388 6,122 2,051 4,071
Impairment of securities (18,157) (474) (17,683) (18,157) (695) (17,462)
Income from equity method investment 219 -- 219 219 -- 219
Other 973 1,128 (155) 2,338 2,437 (99)
-------- -------- -------- -------- -------- --------
Non-interest income (4,644) 10,050 (14,694) 7,727 18,935 (11,208)
-------- -------- -------- -------- -------- --------
LEVITT COMPANIES OPERATIONS
Net revenues from sales of real estate 12,466 7,398 5,068 24,443 13,341 11,102
Income from equity method investment 1,522 -- 1,522 1,522 -- 1,522
Other 351 681 (330) 715 1,407 (692)
-------- -------- -------- -------- -------- --------
Non-interest income 14,339 8,079 6,260 26,680 14,748 11,932
-------- -------- -------- -------- -------- --------
RYAN BECK OPERATIONS
Principal transactions 17,299 3,935 13,364 24,806 8,405 16,401
Investment banking 4,097 3,078 1,019 6,606 4,038 2,568
Commissions 16,466 3,189 13,277 19,498 6,612 12,886
Other 3,666 138 3,528 3,806 418 3,388
-------- -------- -------- -------- -------- --------
Non-interest income 41,528 10,340 31,188 54,716 19,473 35,243
-------- -------- -------- -------- -------- --------
Total non-interest income $ 51,223 $ 28,469 $ 22,754 $ 89,123 $ 53,156 $ 35,967
======== ======== ======== ======== ======== ========
NON-INTEREST INCOME - BANKING OPERATIONS
The decline in other service charges and fees during the quarter and
year to date resulted from a 26% and 32% decrease in ATM fee income related to
the termination of our ATM relationship with Wal*Mart in September 2001. The
decline in ATM fee income associated with the removal of our ATM machines from
Wal*Mart stores was partially offset by higher fees earned on check cards. Check
card fees increased by 163% during the second quarter compared to the same 2001
period and 143% during 2002 year to date compared to the same 2001 period. The
increase in check card fees was linked to a significant increase in transaction
accounts associated with our high performance checking products and our "Seven
Day Banking" initiative.
During the 2002 period, service charges on deposits increased by over
46% during the second quarter, and 36% year to date, from the comparable 2001
periods. The increase in service charges primarily resulted from an increase in
overdraft fees from transaction accounts and deposit fees associated with the
Community acquisition. The increase in overdraft fees was associated with our
new high performance checking product. Since the inception of this product, we
have opened 44,000 accounts with total deposit balances of $90.2 million as of
June 30, 2002. Additionally, the rapid decline in interest rates decreased the
earnings credit for commercial accounts which have analysis charges, which
further increased service charges on deposits during the 2002 periods.
Gains on securities available for sale during the three months ended
June 30, 2002 resulted primarily from the sale of REMIC securities, corporate
bonds and equity securities for a $2.4 million, $367,000 and $341,000 gain,
respectively. Additionally, we also recorded a $48,000 unrealized loss on
derivative instruments during the second quarter. Gains on
29
BANKATLANTIC BANCORP, INC.
securities available for sale during the six months ended June 30, 2002 included
sales discussed above as well as the sale of equity securities for a $3.0
million gain and a $27,000 unrealized gain on derivative instruments.
Gains on securities available for sale during the three months ended
June 30, 2001 consisted of the sale of equity securities for a gain of $1.2
million and the sale of fixed rate mortgage backed securities for a $497,000
gain. Gains on securities available for sale during the six months ended June
30, 2001 also included the sale of a mutual fund investment for a $322,000 gain
and a $34,000 unrealized gain on derivative instruments.
During 1999, the Company entered into a strategic relationship with
Seisint Inc. and invested $10 million in cash and issued 848,364 shares of Class
A common stock for $15 million of Seisint, Inc. common stock. Seisint is a
privately held technology company, which provides marketing information,
application solutions and customer relationship management applications. The
Company anticipated benefits from this strategic relationship through the
exchange of ideas and cooperation in the development by Seisint of technology
and support systems for use by financial institutions. Additionally, both Alan
B. Levan and John E. Abdo were directors of Seisint and each acquired direct and
indirect interests in Seisint common stock.
However, because Seisint has not been able to meet the objectives of its
business plan or financial performance goals, the Company performed an
evaluation of its investment in Seisint to determine if there was an other than
temporary decline in value associated with this investment. As a consequence of
this evaluation, the Company wrote off its entire $15 million investment in
Seisint during the three months ended June 30, 2002. The Company also recognized
an impairment charge of $3.2 million during the three months ended June 30, 2002
on equity securities resulting from significant declines in their value that
were considered other than temporary due to the financial condition and near
term prospects of the issuers of the equity securities. The Company recognized a
$474,000 and $695,000 impairment charge associated with equity securities during
the three and six-month period ended June 30, 2001.
As a result of these losses, the Company has revised its policy for
holding company equity investments. Any future equity investments will be
limited to liquid securities and will be subject to significant concentration
restrictions. At June 30, 2002 equity investments totaled $8.7 million.
Income from equity method investment represents BankAtlantic Bancorp's
4.9% ownership interest in the earnings of Bluegreen Corporation during the
three and six months ended June 30, 2002. In April 2002, Levitt Companies
acquired an additional 34% of Bluegreen Corporation's common stock. See the
discussion below concerning the investment in Bluegreen Corporation by Levitt
Companies.
Included in other income during the 2002 quarter was a $294,000 loss
from the sale of the servicing rights associated with the residential loans
acquired in connection with the Community acquisition. Included in other income
during the six months ended June 30, 2001 was the sale of a branch facility for
a $386,000 gain.
NON-INTEREST INCOME - LEVITT COMPANIES OPERATIONS
Net revenues from sales of real estate represented the net profits on
sales of real estate by Levitt and Sons and Core Communities as well as equity
in earnings from real estate joint venture activities. The significant increase
in net revenues from sales of real estate during the 2002 quarter compared to
the same 2001 quarter primarily resulted from Core Communities' land sales as
well as an increase in Levitt and Sons' home sales. Gains on land sales for the
quarter ended June 30, 2002 was $4.6 million as compared to $1.3 million for the
same period in 2001. The 2002 land sales included the sale of one commercial
property for a $3.6 million gain. Gains on home sales for the quarter ended June
30, 2002 was $6.8 million as compared to $5.0 million for the same period in
2001. Gains on joint venture activities were $1.0 million during the 2002
quarter and $456,000 during the 2001 quarter. The 2001 revenues from sales of
real estate include a net gain of $680,000 on the sale of a marine rental
property.
During the six months ended June 30, 2002, net revenues from the sales
of real estate and joint venture activities was $24.4 million as compared to
$13.3 million during the same 2001 period. During the six months ended June 30,
2002, Core Communities' net gain on land sales was $10.6 million as compared to
$2.8 million in 2001. The 2002 land sales included the sale of two commercial
properties for a $9.3 million gain. During the six months ended June 30, 2002,
gains on homes sales were $11.9 million as compared to $8.6 million during the
same 2001 period. During the six months ended June 30, 2002 gains on joint
venture activities were $1.9 million as compared to $1.2 million during the same
period in 2001. In 2001, Levitt Companies sold a marine rental property for a
$680,000 gain.
30
BANKATLANTIC BANCORP, INC.
In April 2002, Levitt Companies acquired 34% of Bluegreen Corporation's
common stock. Bluegreen Corporation is a developer of drive-to vacation interval
resorts, golf communities and residential land. Levitt Companies' investment in
Bluegreen Corporation is accounted for under the equity method. Accordingly,
Levitt Companies recorded in income its ownership interest in the earnings of
Bluegreen Corporation of approximately $1.5 million during the three months
ended June 30, 2002.
The increase in non-interest income was partially offset by a decline in
rental income associated with a marine property sold during the second quarter
of 2001.
NON-INTEREST INCOME - RYAN BECK OPERATIONS
During the second quarter of 2002 compared to the same 2001 period,
revenues increased by 302%. The increase was primarily the result of increased
agency commissions and principal transaction revenues. The increase resulted
from the additional investment consultants and trading personnel hired in
connection with the Gruntal transaction.
During the six months ended June 30, 2002 compared to the same 2001
period, revenues increased by 181%. Principal transactions and commission
revenues increased by 195% and 195%, respectively, from the corresponding 2001
period. The substantial increase in revenues was attributed to the additional
investment consultants and trading personnel hired in connection with the
Gruntal transaction.
NON-INTEREST EXPENSES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
2002 2001 CHANGE 2002 2001 CHANGE
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
BANKING OPERATIONS
Employee compensation and benefits $ 17,167 $ 12,562 $ 4,605 $ 31,327 $ 25,749 $ 5,578
Occupancy and equipment 7,555 6,172 1,383 13,876 12,191 1,685
Advertising and promotion 2,034 970 1,064 3,036 1,557 1,479
Amortization of cost over fair value of net
assets acquired 454 711 (257) 454 1,419 (965)
Restructuring charges and impairment write-downs 1,007 (219) 1,226 1,007 (219) 1,226
Acquisition related charges and impairments 731 -- 731 1,805 -- 1,805
Other 7,450 6,447 1,003 13,274 11,702 1,572
-------- -------- -------- -------- -------- --------
Non-interest expense 36,398 26,643 9,755 64,779 52,399 12,380
-------- -------- -------- -------- -------- --------
LEVITT OPERATIONS
Employee compensation and benefits 3,538 2,133 1,405 6,158 4,269 1,889
Advertising and promotion 818 779 39 1,566 1,579 (13)
Selling, general and administrative 3,383 2,951 432 6,194 5,325 869
-------- -------- -------- -------- -------- --------
Non-interest expense 7,739 5,863 1,876 13,918 11,173 2,745
-------- -------- -------- -------- -------- --------
RYAN BECK OPERATIONS
Employee compensation and benefits 33,510 8,457 25,053 43,743 16,733 27,010
Occupancy and equipment 3,793 781 3,012 4,616 1,645 2,971
Advertising and promotion 828 658 170 1,277 783 494
Amortization of cost over fair value of net
assets acquired -- 338 (338) -- 655 (655)
Acquisition related charges and impairments 3,191 -- 3,191 3,191 -- 3,191
Other 8,024 2,085 5,939 10,773 4,630 6,143
-------- -------- -------- -------- -------- --------
Non-interest expense 49,346 12,319 37,027 63,600 24,446 39,154
-------- -------- -------- -------- -------- --------
Total non-interest expenses $ 93,483 $ 44,825 $ 48,658 $142,297 $ 88,018 $ 54,279
======== ======== ======== ======== ======== ========
31
BANKATLANTIC BANCORP, INC.
NON-INTEREST EXPENSES - BANKING OPERATIONS
Compensation expenses increased 37% and 22% from the comparable 2001
quarter and six-month periods, respectively. The increase in compensation
expenses was the result of the implementation of seven day banking on April 1,
2002 and the addition of 172 employees following the Community acquisition.
Total full time equivalent employees increased from 894 at June 30, 2001 to
1,330 at June 30, 2002.
Occupancy and equipment expenses increased 22% and 14% from the
comparable 2001 quarter and six-month periods, respectively. The increase was
primarily due to the Community acquisition which added 21 branches to our
community banking division. Additionally, we recognized approximately $500,000
of accelerated depreciation expense during the second quarter on equipment
associated with our on-line banking delivery system. This equipment will be
replaced as we upgrade the technology with new equipment and software during the
fourth quarter of 2002.
The increase in advertising expense during the 2002 quarter and year to
date reflect marketing initiatives to increase our transaction accounts and to
promote our "Seven Day Banking" initiative.
Amortization of intangible assets during the three and six months ended
June 30, 2002 consisted of the amortization of core deposits intangible assets
acquired in connection with the Community acquisition. The core deposits
intangible asset is being amortized over its estimated life of seven years.
Amortization of intangible assets during the three and six months ended
June 30, 2001 consisted of the amortization of goodwill. Upon the implementation
of Financial Accounting Standard Number 142 on January 1, 2002, we discontinued
the amortization of goodwill. We will evaluate goodwill for impairment in
subsequent periods in accordance with FASB Statement 142. In connection with the
transitional goodwill impairment evaluation under FASB Statement 142, the
Company performed an assessment of whether there is an indication that any
goodwill is impaired as of January 1, 2002, the date of adoption. As a result of
this analysis, the Company determined that goodwill associated with bank
operations reportable segments was not impaired at the adoption date.
Acquisition related charges and impairments during the three and six
months ended June 30, 2002 include various data conversion and system
integration expenses as well as facilities impairment write-downs associated
with the Community acquisition. As a consequence of the acquisition,
BankAtlantic closed two of its Palm Beach county branches during the second
quarter of 2002.
During June 2002, we adopted a plan to discontinue certain ATM
relationships. This resulted in an $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet our performance expectations
and were unlikely to meet our future profitability goals. The remaining ATM
machines (approximately 150 machines) are primarily located in our branch
network and on cruise ships.
Other expenses increased by 16% and 13% from the comparable 2001 quarter
and six-month periods, respectively. Included in other expenses during the three
months ended June 30, 2002 was a $400,000 increase in check losses and $275,000
of additional loss provisions associated with tax certificates. The additional
check losses reflects a substantial increase in the number of checking accounts
during the 2002 quarter compared to the same 2001 period due to the "high
performance checking" campaign. The higher tax certificate provision primarily
resulted from lower tax certificate repayments than projected. The remaining
increase in other expenses during the quarter represents additional general
operating expenses associated with the Community acquisition. During the six
months ended June 30, 2001 we recognized $1.1 million of gains on the sales of
REO property compared to an $128,000 net loss from REO property sales during the
same 2002 period.
32
BANKATLANTIC BANCORP, INC.
NON-INTEREST EXPENSES - LEVITT COMPANIES OPERATIONS
The significant increase in compensation and benefits during the three
and six months ended June 30, 2002 compared to the same 2001 period primarily
resulted from Core Communities increase in incentive accruals and Levitt and
Sons increase in personnel resulting from the addition of several new
development projects. These new projects and an increase in home deliveries
resulted in an increase in selling and other general and administrative expenses
during the three and six months ended June 30, 2002 compared to the same 2001
periods.
NON-INTEREST EXPENSES - RYAN BECK OPERATIONS
The increase in employee compensation and benefits during the three and
six months ended June 30, 2002 compared to the same 2001 periods was primarily
due to 500 former Gruntal investment consultants and 80 trading personnel hired
in connection with the Gruntal transaction.
In connection with the transitional goodwill impairment evaluation under
FASB Statement 142, the Company performed an assessment of whether there is an
indication that any goodwill is impaired as of January 1, 2002, the date of
adoption. As a result of this analysis, the Company determined that the carrying
amount of the Ryan Beck reportable segment exceeded its fair value at the
adoption date. As a consequence, the Company may have to recognize an impairment
loss relating to the Ryan Beck reportable segment. The Company has retained an
independent appraiser to measure the loss and the goodwill impairment charge
should be recognized during the 2002 third quarter. Any transitional impairment
loss associated with the Ryan Beck reportable segment will be recognized as the
cumulative effect of a change in accounting principle in the statement of
operations and this non-cash charge will be recorded effective as of January 1,
2002. There will be no operating earnings or tangible capital impact of this
charge.
The increase in other expenses during the three and six months ended
June 30, 2002 compared to the same 2001 period related to increased floor
brokerage and clearing fees attributed to a significant increase in commission
revenues. Increased rent, occupancy and communication expenses were associated
with the additional offices acquired in connection with the Gruntal transaction.
During the second quarter of 2002, in response to the Gruntal
transaction, the management of Ryan Beck initiated measures to reduce staff in
departments with overlapping responsibilities.
SEGMENT REPORTING
The table below provides segment information for income before
extraordinary item and cumulative effect of a change in accounting principle for
the three and six-month periods ended June 30, 2002 and 2001:
FOR THE THREE MONTHS FOR THE SIX MONTHS
(IN THOUSANDS) ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
SEGMENT NET INCOME 2002 2001 2002 2001
-------- -------- -------- --------
Bank Investments $ 10,354 $ 6,235 $ 15,712 $ 11,713
Commercial banking 1,887 3,943 5,650 8,914
Community banking (802) 1,162 (978) 2,060
Levitt Companies 3,773 1,657 7,860 2,785
Ryan Beck (1,617) (588) (1,466) (1,773)
Parent Company (15,828) (3,804) (16,431) (8,269)
-------- -------- -------- --------
Segment net income (loss) $ (2,233) $ 8,605 $ 10,347 $ 15,430
======== ======== ======== ========
BANK INVESTMENTS
The increase in segment net income for the three and six months ended
June 30, 2002 compared to the same 2001 periods reflect lower interest expense
and overhead resulting from the general decline in interest rates. Additionally,
approximately $3 million in segment non-interest income was realized from the
gain on sale of securities available for sale during the three and six months
ended June 30, 2002. This compares to gains of $518,000 and $553,000 for the
three and six months ended June 30, 2001, respectively.
33
BANKATLANTIC BANCORP, INC.
COMMERCIAL BANKING
Segment net income declined for the three and six month periods ended
June 30, 2002 from the comparable 2001 periods. The lower earnings primarily
resulted from a significant decrease in interest income. The majority of the
loans in our commercial banking loan portfolio have floating interest rates. The
rapid decline in interest rates during 2001 resulted in yields on interest
earning assets declining faster than the segment's interest expense and
overhead. The increase in the provision for loan losses resulted from two
commercial real estate non-performing loans and a non-performing lease in the
aviation industry. Direct expenses in this segment increased due to start up
expenses related to the opening of new commercial lending offices in central and
north Florida.
COMMUNITY BANKING
Segment net income declined by $1.96 million from the comparable 2001
quarter, and by $3.04 million from the comparable six-month period. During the
three and six month periods ended June 30, 2002, the provision for loan losses
increased by $1.6 million and $3.4 million, respectively, over the comparable
2001 periods. The 2001 provision reflects a net recovery, which can be
attributed to declining small business and consumer indirect loan average
balances. In 2001, management dramatically reduced originations and changed the
underwriting criteria of small business loans. In December 1998, management
discontinued the origination of indirect consumer loans.
Also contributing to the decline in segment net income was lower
interest income from the community banking loan portfolio primarily resulting
from a decline in interest rates during the period.
LEVITT COMPANIES
The increase in segment net income for the three and six-month periods
ended June 30, 2002 compared to the same 2001 period resulted from higher net
revenues from real estate sales and earnings from Levitt's investment in
Bluegreen Corporation.
RYAN BECK
Segment net income declined from a net loss of $588,000 during the
second quarter of 2001 to a segment net loss of $1.6 million during the same
2002 period. During the most recent quarter, Ryan Beck incurred approximately
$4.0 million in transaction related expenses associated with the Gruntal
transaction. Excluding these non-recurring expenses, segment net income would
have been approximately $0.9 million. The substantial increase in revenues
resulted from a higher volume of business associated with the addition of
approximately 500 former Gruntal investment consultants and approximately $14.4
billion in customers' portfolio assets.
Segment net income increased from a net loss of $1.8 million during the
first six months of 2001 to a segment net loss of $1.5 million during the same
2002 period. Excluding the non-recurring expenses, segment net income in 2002
would have been $1.1 million for the six-month period ended June 30, 2002.
PARENT COMPANY
The parent company loss increased during the three and six-month periods
ending June 30, 2002 compared to the same 2001 periods. The decline in earnings
primarily resulted from the impairment of equity securities available for sale
in the amount of approximately $18 million during the second quarter of 2002.
FINANCIAL CONDITION
Our total assets at June 30, 2002 were $5.9 billion compared to $4.7
billion at December 31, 2001. The increase in total assets primarily resulted
from:
- The acquisition of Community Savings, which added approximately
$969 million in assets.
- The Gruntal transaction which added $165 million in assets.
34
BANKATLANTIC BANCORP, INC.
- A $58.2 million investment in Bluegreen Corporation, a New York
Stock Exchange company which engages in the acquisition,
development, marketing and sale of drive-to vacation resorts,
golf communities and residential land.
- The purchase of a $14.3 million office facility to consolidate
BankAtlantic's headquarters and back office operations into a
centralized facility.
- The acquisition of tax certificates during the 2002 second
quarter.
- The origination of commercial real estate and home equity loans.
- Increases in real estate held for development and sale and joint
venture activities due to an increase in Levitt and Sons real
estate inventory and the purchase of land for development by
Core Communities.
- Increases in deferred tax assets related to the impairment of
securities.
- Increases in cash and due from depository institutions due to
higher in-transit cash letter balances.
- Higher other assets balances associated with the sale of
mortgage-backed securities that settled in July 2002.
The above increases in total assets were partially offset by:
- Decreased balances of residential loans due to accelerated loan
repayments.
- Continued run-off in the syndications, leasing, small business,
international and indirect lending areas, which were
discontinued or curtailed activities.
- Reduction in securities available for sale related to the sale
of $78 million of mortgage backed securities.
The Company's total liabilities at June 30, 2002 were $5.4 billion
compared to $4.2 billion at December 31, 2001. The increase in total liabilities
primarily resulted from:
- The acquisition of Community Savings, which added approximately
$799 million in liabilities.
- The Gruntal transaction, which added approximately $134 million
in liabilities.
- The issuance in the aggregate of $80.4 million of trust
preferred securities in March 2002 and June 2002.
- Additional borrowings from the Company's bank line of credit and
at Levitt Companies to fund land purchases and its investment in
Bluegreen.
- Higher securities sold not yet purchased and due to clearing
agent balances associated with Ryan Beck's trading activities.
- Increased short term borrowings to fund asset growth.
- Increased other liabilities related to a higher accrued expenses
and compensation associated with the Gruntal acquisition.
MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes
in market valuations that arise from interest rate risk, foreign currency
exchange rate risk, commodity price risk and equity price risk. Our primary
market risk is interest rate risk and our secondary market risk is equity price
risk.
INTEREST RATE RISK
The majority of our assets and liabilities are monetary in nature,
subjecting us to significant interest rate risk which would arise if the
relative values of each of our assets and liabilities changed in conjunction
with a general rise or decline in interest rates. We have developed a model
using standard industry software to quantify our interest rate risk. A
sensitivity analysis was performed measuring our potential gains and losses in
net portfolio fair values of interest rate sensitive instruments at June 30,
2002 resulting from a change in interest rates. Interest rate sensitive
instruments included in the model were our:
- Loan portfolio,
- Debt securities available for sale,
- Investment securities,
- FHLB stock,
- Federal Funds sold,
- Deposits,
- Advances from FHLB,
- Securities sold under agreements to repurchase,
35
BANKATLANTIC BANCORP, INC.
- Federal Funds purchased,
- Notes and Bonds payable
- Subordinated Debentures,
- Trust Preferred Securities,
- Forward contracts,
- Interest rate swaps, and
- Off-balance sheet loan commitments.
The model calculates the net potential gains and losses in net portfolio
fair value by:
(i) discounting anticipated cash flows from existing assets,
liabilities and off-balance sheet contracts at market
rates to determine fair values at June 30, 2002, and
(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 gain or loss 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.
Presented below is an analysis of the Company's interest rate risk at
June 30, 2002 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 $ 552,772 $ (14,725)
+100 bp $ 580,347 $ 12,850
0 $ 567,497 $ 0
-100 bp $ 527,990 $ (39,507)
-200 bp $ 464,576 $ (102,921)
In preparing the above table, the Company makes various assumptions to
determine the net portfolio value at the assumed changes in interest rate. These
assumptions include:
- loan prepayment rates,
- deposit decay rates,
- market values of certain assets under the representative
interest rate scenarios, and
- repricing of certain deposits and borrowings
It was also assumed that delinquency rates would not change as a result
of changes in interest rates although there can be no assurance that this would
be the case. Even if interest rates change in the designated increments, there
can be no assurance that our assets and liabilities would be impacted as
indicated in the table above. In addition, a change in U.S. Treasury rates in
the designated amounts, accompanied by a change in the shape of the yield curve,
could cause significantly different changes to the fair values than indicated
above. Furthermore, the result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory or reactive measures which we may take in the future.
36
BANKATLANTIC BANCORP, INC.
EQUITY PRICE RISK
The Company maintains a portfolio of trading and available for sale
securities which subjects the Company to equity pricing risks. The change in
fair values of equity securities represents instantaneous changes in all equity
prices segregated by trading securities, securities sold not yet purchased and
available for sale securities. The following are hypothetical changes in the
fair value of our securities sold, not yet purchased, trading and available for
sale securities at June 30, 2002 based on percentage changes in fair value.
Actual future price appreciation or depreciation may be different from the
changes identified in the table below.
AVAILABLE SECURITIES
PERCENT TRADING FOR SALE SOLD NOT
CHANGE IN SECURITIES SECURITIES YET DOLLAR
FAIR VALUE FAIR VALUE FAIR VALUE PURCHASED CHANGE
- --------------- -------------- --------------- --------------- -------------
(DOLLARS IN THOUSANDS)
20 % $ 252,158 $ 6,326 $ 81,990 $ 56,746
10 % $ 231,145 $ 5,799 $ 75,158 $ 28,373
0 % $ 210,132 $ 5,272 $ 68,325 $ -
(10) % $ 189,119 $ 4,745 $ 61,493 $ (28,373)
(20) % $ 168,106 $ 4,218 $ 54,660 $ (56,746)
Excluded from the above table are $3.4 million of investments in private
companies for which no current market exists. The ability to realize on or
liquidate our investments will depend on future market conditions and is subject
to significant risk.
Ryan Beck, in its capacity as a market-maker and dealer in corporate and
municipal fixed-income and equity securities, may enter into transactions in a
variety of cash and derivative financial instruments in order to facilitate
customer order flow and hedge market risk exposures. These financial instruments
include securities sold, not yet purchased and futures contracts. Securities
sold, not yet purchased represent obligations of the Company to deliver
specified financial instruments at contracted prices, thereby creating a
liability to purchase the financial instrument in the market at prevailing
prices. Accordingly, these transactions result in off-balance-sheet risk as the
Company's ultimate obligation may exceed the amount recognized in the
Consolidated Statement of Financial Condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity is dividends from
BankAtlantic. The Company also obtains funds through the issuance of equity
securities, sales of securities available for sale, borrowings from financial
institutions and issuance of debt securities. The Company's annual debt service
at June 30, 2002 associated with its subordinated debentures, Trust Preferred
Securities, and financial institution borrowings was $18.7 million. The
Company's estimated current annual dividends to common shareholders are
approximately $6.8 million, of which $3.4 million has been declared and paid
during 2002. The declaration and payment of dividends and the ability of the
Company to meet its debt service obligations will depend upon, among other
things, the results of operations, financial condition and cash requirements of
the Company as well as indenture restrictions and loan covenants and on the
ability of BankAtlantic to pay dividends to the Company, which payments are
subject to OTS approval and regulations and based upon BankAtlantic's regulatory
capital levels and net income. During 2001, the Company received $22.2 million
of dividends from BankAtlantic. Certain covenants contained in a Levitt
Companies loan agreement prohibit it from paying dividends to the Company. Ryan
Beck has not paid dividends to the Company and it is not anticipated that Ryan
Beck will pay dividends to the Company during 2002.
In connection with the acquisition of Ryan Beck in June 1998, the
Company established a retention pool covering certain employees of Ryan Beck,
under which 785,866 shares of restricted Class A common stock were issued to
these employees. The retention pool was valued at $8.1 million at the
acquisition date, and the shares, which vested four years from the date of
acquisition, were treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value of the
restricted shares at the date of the Ryan Beck acquisition. The deferred
compensation awards were granted under the BankAtlantic Bancorp, Inc. Deferred
37
BANKATLANTIC BANCORP, INC.
Compensation Plan. All participant accounts under the plan vested on June 28,
2002 and the remaining participants received in the aggregate 5,941 shares of
Class A Common Stock, $3.8 million in cash and notes payable for an aggregate
principal amount of $3.7 million. The notes payable mature on June 28, 2003 and
bear interest at 5.75%.
The Company maintains a revolving credit facility of $30 million with an
independent financial institution. The credit facility contains customary
covenants, including financial covenants relating to regulatory capital and
maintenance of certain loan loss reserves and is secured by the common stock of
BankAtlantic. In April 2002 the Company borrowed $29.9 million under this credit
facility to fund Levitt Companies' investment in Bluegreen Corporation. In June
2002 the Company used a portion of the proceeds from its participation in a
pooled trust preferred offering to reduce outstanding borrowings under this
credit facility to $16 million. As a consequence of the Community acquisition,
the Company requested and received from the lender under the credit facility
certain waivers of financial covenants through December 31, 2002. The Company
does not believe that it will need additional waivers beyond December 31, 2002.
Amounts outstanding accrue interest at the prime rate minus 50 basis points and
the facility matures on September 1, 2004.
In June 2002, the Company participated in a pooled trust preferred
securities offering in which $25 million of trust preferred securities were
issued. The net proceeds to the Company from the Trust Preferred Securities
offering after underwriting discounts and expenses were approximately $24.2
million. The Company used the proceeds from the trust preferred securities
offering for general corporate purposes, including to augment the capital of
Ryan Beck in conjunction with its acquisition of certain assets and the
assumption of certain liabilities of Gruntal & Co., LLC, and to pay down the
revolving credit facility discussed above.
In October 2001, the Company filed a shelf registration statement with
the Securities and Exchange Commission to offer from time to time up to an
aggregate of $150 million of debt securities, shares of Class A Common Stock and
trust preferred securities. During December 2001, the Company sold 6.9 million
shares of its Class A Common Stock under this registration statement in an
underwritten public offering at a price of $8.25 per share. The net proceeds
after underwriting discounts and expenses were approximately $53.5 million. In
March 2002, $55.4 million of trust preferred securities were issued under this
registration statement for net proceeds of $53.5 million. The proceeds from the
above equity and trust preferred securities offerings were used to fund a
portion of BankAtlantic's purchase of Community Savings, Levitt Companies'
investment in Bluegreen Corporation and Ryan Beck's purchase of certain assets
and the assumption of certain liabilities from Gruntal & Co. In connection with
Gruntal transaction, the Company contributed $15 million to the capital of Ryan
Beck.
BankAtlantic's primary sources of funds during the first six months of
2002 were from principal collected on loans, securities available for sale and
investment securities held to maturity, sales of securities available for sale,
borrowings from FHLB advances, securities sold under agreements to repurchase,
sales of property and equipment and REO, capital contributions from BankAtlantic
Bancorp and deposit inflows. These funds were primarily utilized to fund
operating expenses and deposit outflows, and to fund or purchase loans, FHLB
stock, tax certificates, trading securities, and securities available for sale
and to acquire Community. At June 30, 2002, BankAtlantic met all applicable
liquidity and regulatory capital requirements.
BankAtlantic's commitments to originate and purchase loans at June 30,
2002 were $394.8 million and $87.7 million compared to $174.5 million and $20.4
million at June 30, 2001. Additionally, BankAtlantic had commitments to purchase
mortgage-backed securities of $77.6 million at June 30, 2002 compared to $138.0
million at June 30, 2001. At June 30, 2002, loan commitments represented
approximately 13.5% of net loans receivable, net.
38
BANKATLANTIC BANCORP, INC.
At the indicated date BankAtlantic's capital amounts and ratios were
(dollars in thousands):
MINIMUM RATIOS
----------------------------------
ACTUAL ADEQUATELY WELL
------------------------- CAPITALIZED CAPITALIZED
AMOUNT RATIO RATIO RATIO
------------ --------- ---------------- ----------------
AT JUNE 30, 2002:
Total risk-based capital $ 387,513 10.55% 8.00% 10.00%
Tier 1 risk-based capital $ 341,552 9.30% 4.00% 6.00%
Tangible capital $ 341,552 6.55% 1.50% 1.50%
Core capital $ 341,552 6.55% 4.00% 5.00%
AT DECEMBER 31, 2001:
Total risk-based capital $ 383,295 12.90% 8.00% 10.00%
Tier 1 risk-based capital $ 346,057 11.65% 4.00% 6.00%
Tangible capital $ 346,057 8.02% 1.50% 1.50%
Core capital $ 346,057 8.02% 4.00% 5.00%
Savings institutions are also subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). Regulations
implementing the prompt corrective action provisions of FDICIA define specific
capital categories based on FDICIA's defined capital ratios, as discussed more
fully in our Annual Report on Form 10-K for the year ended December 31, 2001.
Our wholly owned subsidiary, Ryan Beck, is subject to the net capital
provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that Ryan Beck's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. Additionally, Ryan Beck, as a market
maker, is subject to supplemental requirements of Rule 15c3-1(a)4, which
provides for the computation of net capital to be based on the number and price
of issues in which markets are made by Ryan Beck, not to exceed $1,000,000. At
June 30, 2002, Ryan Beck's regulatory net capital was approximately $13.9
million, which exceeded minimum net capital rule requirements by $12.9 million.
Ryan Beck operates under the provisions of paragraph (K)(2)(ii) of Rule
15c3-3 of the Securities and Exchange Commission as a fully-disclosed broker
and, accordingly, customer accounts are carried on the books of the clearing
broker; However, Ryan Beck safekeeps and redeems municipal bond coupons for the
benefit of its customers. Accordingly, Ryan Beck is subject to the provisions of
SEC Rule 15c3-3 relating to possession or control and customer reserve
requirements and was in compliance with such provisions at June 30, 2002.
Levitt Companies' primary source of funds during the six months ended
June 30, 2002 were proceeds from the sale of real estate inventory, capital
contributions from BankAtlantic Bancorp and borrowings from financial
institutions. These funds were primarily utilized to purchase real estate
inventory, repay borrowings and invest in Bluegreen Corporation. In April 2002,
Levitt Companies received an $18.6 million capital contribution and borrowed $30
million. Levitt Companies utilized these funds plus $5.1 million of working
capital to purchase a 34% interest in Bluegreen Corporation's common stock.
Levitt Companies' borrowings with financial institutions require Levitt
Companies to comply with certain financial covenants during the term of the
agreements. At June 30, 2002 Levitt Companies was in compliance with all loan
agreement financial covenants.
39
BANKATLANTIC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 14, 2002. At
the meeting the holders of the Company's Class A and Class B Common Stock voting
together as a single class elected the following three Directors to a three year
term by the following votes:
DIRECTOR FOR WITHHELD
- -------------------------- ------------------ -----------------
Bruno L. DiGiulian 93,132,509 1,499,794
Alan B. Levan 86,902,767 7,729,536
Ben A. Plotkin 86,878,254 7,754,049
The holders of the Company's Class A and Class B Common Stock voting
together as a single class elected the following Director to a one year term by
the following votes:
DIRECTOR FOR WITHHELD
- ----------------------------- ------------------ ----------------
Jonathon D. Mariner 93,827,515 1,499,219
Additionally, holders of the Company's Class A and Class B Common Stock voting
together as a single class adopted the Company's Amended and Restated 2001 Stock
Option Plan with 87,827,515 votes for, 6,699,281 votes against and 105,502
abstained.
EXHIBITS AND REPORTS ON FORM 8K
(a) EXHIBITS
Exhibit 10.1 Amended and restated Declaration of Trust of BBC
Capital Statutory Trust III, dated June 26,
2002.
Exhibit 10.2 Indenture for the Company's Floating Rate Junior
Subordinated Deferrable Interest Debentures Due
2032
Exhibit 10.3 Amended and restated BankAtlantic Bancorp 2001
stock option plan incorporated by reference to
Appendix B to the Registrant's Definitive Proxy
Statement filed on April 18, 2002.
Exhibit 10.4 Ryan, Beck & Co., LLC Common Unit Option program
filed with this report.
Exhibit 11 Statement re: Computation of Per Share Earnings
Exhibit 99.1 Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adapted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99.2 Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adapted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) REPORTS ON FORM 8-K
Form 8-K/A filed on July 10, 2002 for the filing of required
financial statements and financial information associated with the
acquisition by Ryan Beck of certain of the assets and the assumption
of certain of the liabilities of Gruntal Financial, LLC.
Form 8-K filed on July 1, 2002 for the purpose of reporting the
private sale of $25 million of trust preferred securities.
Form 8-K/A filed on May 30, 2002 for the filing of required financial
information relating to the Community Savings Bankshare, Inc.
acquisition.
40
BANKATLANTIC BANCORP, INC.
Form 8-K/A filed on May 17, 2002 to file exhibits for certain
financial information associated with the Community Savings
Bankshares, Inc. acquisition on March 22, 2002.
Form 8-K filed on May 8, 2002 in connection with the completion of
Ryan Beck's acquisition of certain assets and assumption of certain
liabilities of Gruntal & Co. on April 26, 2002.
41
BANKATLANTIC BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANKATLANTIC BANCORP, INC.
August 14, 2002 By: /s/Alan B. Levan
- ------------------ --------------------------
Date Alan B. Levan
Chief Executive Officer/
Chairman/President
August 14, 2002 By: /s/James A. White
- ------------------ --------------------------
Date James A. White
Executive Vice President,
Chief Financial Officer
42