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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number
34-027228
BANKATLANTIC BANCORP, INC.
(Exact name of registrant as specified in its Charter)
UNITED STATES OF AMERICA 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(Address of principal executive offices) (Zip Code)
(954) 760-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(NOT APPLICABLE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
- -------------------
Class A common stock, Par Value $0.01 Per Share
Class B common stock, Par Value $0.01 Per Share
Indicate, by check mark, if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such short period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 7, 1997 was approximately $73,260,734.
The number of shares of Registrant's Class A Common Stock outstanding
on March 7, 1997 was 7,807,258
The number of shares of Registrant's Class B Common Stock outstanding
on March 7, 1997 was 10,542,116
Portions of the 1996 Annual Report to Stockholders of Registrant are
incorporated in Parts I, II and IV of this report. Portions of the Proxy
Statement of Registrant relating to the Annual Meeting of shareholders, are
incorporated in Part III of this report.
PART I
BUSINESS
ITEM 1
Except for historical information contained herein, the matters
discussed in this report are forward-looking statements made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company's operations,
markets, products and services, expansion strategies and other factors discussed
elsewhere in this report filed by the Company with the Securities and Exchange
Commission. Many of these factors are beyond the Company's control. Actual
results could differ materially from these forward-looking statements. In light
of these risks and uncertainties, there is no assurance that the forward-looking
information contained in this report will, in fact, occur.
GENERAL
BankAtlantic Bancorp, Inc. (the "Company"), is the holding company
for BankAtlantic, a Federal Savings Bank ("BankAtlantic"). The Company
acquired all of the capital stock of BankAtlantic on July 13, 1994 pursuant to a
holding company reorganization. The Company's principal asset is its ownership
of all of the capital stock of BankAtlantic. As a unitary savings bank holding
company, the Company is registered with the Office of Thrift Supervision
("OTS") and is subject to OTS regulations, examinations, supervision and
reporting. See "Regulation and Supervision."
BankAtlantic is headquartered in Ft. Lauderdale, Florida and provides a
full range of commercial banking products and related financial services
directly and through subsidiary corporations. The principal business of
BankAtlantic is attracting checking and savings deposits from the public and
general business customers and using these deposits to originate or acquire
commercial, residential and consumer loans and to make other permitted
investments such as the purchase of mortgage-backed securities, tax certificates
and other investment securities. BankAtlantic has shifted its activities from
those of a traditional savings and loan to those generally associated with
commercial banking. In February 1995, BankAtlantic acquired MegaBank, a
Miami-based commercial bank with deposits of approximately $120 million. The
MegaBank acquisition added 5 branches to BankAtlantic's branch network. In
October 1996, BankAtlantic acquired Bank of North America ("BNA"), a
Florida chartered commercial bank with deposits of approximately $470 million
and 13 branches, 5 of which were closed upon acquisition. See Note 20 of the
Consolidated Financial Statements.
BankAtlantic operates through 56 branch offices located primarily in Dade,
Broward and Palm Beach Counties in South Florida. As reported by an independent
statistical reporting service, BankAtlantic is currently the largest independent
savings bank headquartered in the State of Florida and third in size among all
independent financial institutions headquartered in the State of Florida, based
on deposits at September 30, 1996, the most recent date utilized by such
reporting service. BankAtlantic is regulated and examined by the OTS and the
Federal Deposit Insurance Corporation ("FDIC") and its deposit accounts
are insured up to applicable limits by the FDIC.
BankAtlantic's revenues are derived principally from interest earned on
loans, mortgage-backed securities, tax certificates, investment securities, fees
and interest earned from its mortgage servicing operations and fees earned on
deposits and ATMs. BankAtlantic's major expense items are interest paid on
deposits and borrowings, provision for loan losses and general and
administrative expenses.
LENDING ACTIVITIES
GENERAL-BankAtlantic's lending activities are currently divided into three
primary segments: residential real estate lending (including purchases of
wholesale residential real estate loans), commercial lending (consisting of
commercial real estate and commercial business lending); and consumer lending
(primarily consisting of loans secured by second liens on residential real
property, loans secured by automobiles and boats and unsecured signature loans).
See "Regulation and Supervision" for a description of restrictions on
BankAtlantic's lending activities.
Interest rates and origination fees charged on loans originated by
BankAtlantic are generally competitive with other financial institutions and
other mortgage originators in BankAtlantic's general market area. BankAtlantic
has an affirmative obligation, under the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA"), to serve the credit
needs of the communities in which it operates, and management believes that
BankAtlantic fulfills its obligations under the CRA. See "Regulation and
Supervision-Community Reinvestment."
UNDERWRITING PROCEDURES-BankAtlantic's loan origination underwriting
procedures are designed to assess both the borrower's ability to make principal
and interest payments and the value of the
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collateral securing the loan. BankAtlantic's loan purchasing underwriting
procedures are designed to assess the seller's underwriting procedures, as well
as individual loan quality including credit review. BankAtlantic obtains a
current credit history for each loan. The Company has developed comprehensive
purchase guidelines for its loan eligibility requirements with respect to loan
amount, type of property, state of residence, loan-to-value ratios, borrower's
sources of funds, appraisal and loan documentation, among other things. An
underwriting and legal due diligence review is completed prior to purchase. A
legal review of every file is conducted to determine the adequacy of the legal
documentation. In its loan purchases, BankAtlantic generally reserves the right
to reject particular loans from a loan package being considered for purchase and
does so for loans in a package that do not meet its eligibility requirements.
Commitments to purchase residential loans are made to mortgage bankers,
investment bankers and unrelated financial institutions typically thirty to
sixty days in advance of delivery, subject to due diligence.
Loan officers or other loan production personnel in a position to directly
benefit monetarily through loan solicitation fees from individual loan
transactions do not have approval authority and commercial real estate and
business and residential loans of $500,000 or more and consumer loans of
$100,000 or more require the approval of BankAtlantic's Major Loan Committee.
The Major Loan Committee consists of the Chairman of the Board, the Vice
Chairman, the Senior Executive Vice President, certain Executive Vice Presidents
and certain other officers of BankAtlantic.
COMMERCIAL REAL ESTATE LOANS-Substantially all of BankAtlantic's
commercial real estate loans relate to property located in Dade, Broward and
Palm Beach Counties, Florida. BankAtlantic has, however, made commercial real
estate loans elsewhere in Florida and anticipates increasing lending outside the
South Florida area in the future. BankAtlantic's commercial real estate loans
include permanent mortgage loans on commercial and industrial properties
(generally having five to seven year maturities), construction loans secured by
income producing properties (or for residential development and land
acquisition) and development loans. These loans are originated on both a one
year line of credit basis and on a fixed-term basis generally ranging from one
to five years. BankAtlantic generally lends not more than 75% of the
collateral's appraised value and requires borrowers to maintain, appropriate
escrow accounts at BankAtlantic for real estate taxes and insurance. In making
lending decisions, BankAtlantic generally considers, among other things, the
overall quality of the loan, the credit of the borrower, the location of the
real estate, the projected income stream of the property and the reputation and
quality of management constructing or administering the property. No one factor
is determinative and such factors may be accorded different weight in any
particular lending decision. As a general rule, BankAtlantic also requires that
these loans be guaranteed by one or more of the individuals who have made a
significant equity investment in the property. Commercial real estate loans
generally have shorter terms, prime-based interest rates which adjust more
rapidly to interest rate fluctuations and bear higher rates of interest than
alternative investments. Accordingly, income from this type of loan should be
more responsive to changes in the general level of interest rates. However,
permanent commercial real estate and construction lending is generally
considered to have higher credit risk than single-family residential lending
because the concentration of principal is on a limited number of loans and
borrowers and repayment is significantly dependent on the successful operation
of the related real estate project and thus may be subject, to a greater extent,
to adverse conditions in the real estate market or the economy, generally.
BankAtlantic's risk of loss on a construction loan is dependent largely upon
the accuracy of the initial estimate of the property's sell-out value upon
completion of the project and the estimated cost of the project. If the
estimated cost of construction or development proves to be inaccurate,
BankAtlantic may be compelled to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value proves
to be inaccurate, BankAtlantic may be confronted, at or prior to the maturity of
the loan, with a project value which is insufficient to assure full repayment.
As loan payments become due, the cash flow from the project may not be adequate
to service total debt and the borrower may seek to modify the terms of the loan.
In addition, the nature of these loans is such that they are generally less
predictable and more difficult to evaluate and monitor and collateral may be
difficult to dispose of. BankAtlantic has sought to minimize these risks by
lending primarily to established developers.
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COMMERCIAL BUSINESS LOANS-BankAtlantic's corporate lending activities are
generally directed towards small to medium size companies located in Dade,
Broward and Palm Beach Counties, Florida. BankAtlantic's corporate lending
division makes both secured and unsecured loans, although the majority of such
lending is done on a secured basis. The average balance of new commercial
business loans is in excess of $1 million and such loans are generally secured
by the receivables, inventory, equipment, and/or general corporate assets of the
borrowers. These loans are originated on both a one year line of credit basis
and on a fixed-term basis ranging from one to five years. Commercial business
loans generally have annual maturities and prime-based interest rates. However,
commercial business loans generally have a higher degree of credit risk than
residential loans because they are more likely to be adversely affected by
unfavorable economic conditions. The development of ongoing customer
relationships with commercial borrowers is an important part of BankAtlantic's
efforts to attract more low-interest and non-interest bearing demand deposits
and to generate other fee-based, non-lending services.
RESIDENTIAL REAL ESTATE LOANS-BankAtlantic's residential real estate
lending includes home mortgage loans originated by BankAtlantic and secured by
residential real estate located in Dade, Broward and Palm Beach Counties,
Florida. and commencing in 1996, substantially increased the purchase of
wholesale residential real estate loans located throughout the United States.
BankAtlantic's residential loans have been originated through its branch
banking network, a staff of commissioned lending officers, and outside brokers.
These outside brokers had received a fee for services rendered upon the
successful underwriting and closing of a loan. Applicable regulations require
that all loans in excess of 90% of appraised value be insured by private
mortgage insurance. BankAtlantic's policy is in compliance with these
regulations and generally requires insurance on loan to value ratios greater
than 80%. In connection with residential loans insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans Administration
("VA"), BankAtlantic may lend up to the maximum percentage of the
appraised value acceptable to the insuring or guaranteeing agency. Appraised
values are determined by on-site inspections conducted by qualified independent
appraisers. BankAtlantic generally follows regulatory and agency guidelines when
it originates such loans for sale. BankAtlantic originates fixed rate loans with
amortization periods of up to 30 years; however, substantially all of these
loans are sold to correspondents. BankAtlantic also originates adjustable rate
mortgage loans ("ARMs") with amortization periods of up to 30 years, the
majority of which have been sold to correspondents with a lesser number retained
for portfolio investment based on specific needs and criteria.
During 1996, BankAtlantic purchased approximately $465.9 million of
one-to-four family of fixed and adjustable residential loans from various
mortgage bankers, investment bankers and unrelated financial institutions
throughout the United States. Purchases of residential loans throughout the
United States reduces BankAtlantic's loan concentration in South Florida.
BankAtlantic primarily purchases loans in the secondary market where yields are
generally lower than on originated loans, however, management believes that the
lower yield is significantly offset by lower administrative costs based on the
volume of activity and the ability to partially hedge the interest rate risk
associated with these loans due to the size and generally homogenous nature of
the purchases.
CONSUMER LOANS-BankAtlantic originates consumer loans bearing both fixed
and prime-based interest rates primarily ranging in terms up to 5 years other
than second mortgage loans which may have longer terms. Loans are originated
directly through the branch network. Consumer loans typically involve a higher
degree of credit risk than one-to-four family residential loans secured by first
mortgages, but they generally carry higher yields and have shorter terms to
maturity. The volume of direct consumer lending increased in 1996 from 1995
levels but is expected to decline during 1997. Prior to 1997, direct consumer
loans were solicited through mass and direct marketing and through the
distribution and display of advertising materials at branch offices and,
brokers. During 1997, direct consumer loans will primarily be solicited through
branch offices. BankAtlantic also obtains automobile loans indirectly through
automobile dealerships located in South Florida.
BankAtlantic's primary focus of its consumer lending in recent years has
been the origination of direct second mortgage loans (home equity loans secured
by a junior lien on residential real property).
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These loans are typically based on a maximum 80% loan-to-value ratio. Second
mortgage loans generally are originated on both a line of credit and a fixed
term basis ranging from 5 to 15 years.
BankAtlantic also extends personal loans which may be secured by various
forms of collateral, both real and personal, or to a minimal extent, may be made
on an unsecured basis. Such loans generally bear interest at floating rates.
For several years, BankAtlantic eliminated its indirect lending activities
and through its acquisition of MegaBank in February 1995, BankAtlantic reentered
the indirect automobile lending market, which consists of automobile loans made
by others and acquired by BankAtlantic. MegaBank historically obtained
fixed-rate automobile loans indirectly through various automobile dealerships
located in Dade County, Florida and BankAtlantic has continued this practice and
has increased its indirect lending activities with various dealerships
throughout South Florida.
The indirect origination of consumer loan products generally requires
funding of dealer reserves to dealers who originated such loans. The risk of
amounts previously advanced to the dealer is primarily dependent upon loan
performance but, secondarily, is dependent upon the financial condition of the
dealer. The dealer is generally responsible to BankAtlantic for the amount of
the reserve only if a loan giving rise to the reserve becomes delinquent or is
prepaid. However, the dealer's ability to refund any portion of the unearned
reserve to BankAtlantic is subject to economic conditions, generally, and the
financial condition of the dealer. A decline in economic conditions could
adversely affect both the performance of the loans and the financial condition
of the dealer. There is no assurance that BankAtlantic can successfully recover
amounts advanced in the event it pursues the dealer for amounts due. See Note 15
of the Consolidated Financial Statements regarding BankAtlantic's experience
relating to the Subject Portfolio.
LOAN COMMITMENTS-BankAtlantic issues commitments to originate residential
and commercial real estate loans and commercial business loans on specified
terms which are conditioned upon the occurrence of stated events. Loan
commitments are generally issued in connection with (i) the origination of loans
for the financing of residential properties by prospective purchasers, (ii)
construction or permanent loans secured by commercial and multi-unit residential
income-producing properties, (iii) loans to corporate borrowers in connection
with loans secured by corporate assets, and (iv) the origination of loans for
the refinancing of residential properties by existing owners.
The commitment procedure followed by BankAtlantic depends on the type of
loan underlying the commitment. Residential loan commitments are generally
limited to 60 days and are issued after the loan is approved. However, loan
commitments may be extended based on the circumstances. BankAtlantic offers
interest rate "locks" for a fee for periods of up to 270 days.
BankAtlantic also issues short-term commitments on commercial real estate loans
and commercial business loans. Short-
term commitments generally remain open for no more than 90 days. BankAtlantic
usually charges a commitment fee of 1% to 2% on short-term commitments relating
to commercial real estate loans and commercial business loans. In most cases,
half of the fee is payable upon the acceptance of the commitment and is
non-refundable. If the loan is ultimately made, the remainder of the commitment
fee is collected at closing.
FACTORING-In January 1997, BankAtlantic Factors, Inc. ("Factors
Inc.") was established as a subsidiary of BankAtlantic. Factors Inc.
purchases accounts receivable from a client with recourse. Clients are generally
manufacturers, distributors, importers and service companies in various
industries. Factors Inc. will advance funds to the client based on the eligible
collateral. However, it may suffer a loss if the client's customer fails to pay
and the client does not meet its recourse obligations to Factors, Inc. Credit
facilities of $500,000 or more require the approval of BankAtlantic's Major
Loan Committee. Discounts will generally vary between 11/4% to 2% per month
based on various criteria up to statutory limits. Outside brokers may be used to
obtain certain relationships and will be paid commissions based on a percentage
of earnings from an account as collected. During 1997, it is anticipated that
the average balances of factored receivables will not exceed $10.0 million.
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MORTGAGE SERVICING RIGHTS-As part of its strategic business plan,
BankAtlantic periodically purchases mortgage servicing rights in small volumes
through concurrent flow servicing arrangements supplemented with small bulk
purchases and sells such rights in larger volumes where the premiums available
are generally greater.
It is BankAtlantic's intent to maintain servicing right balances below 35%
of core capital. Further, BankAtlantic generally retains servicing rights on
loans that its sells, and purchases wholesale residential real estate loans on
both a servicing retained and servicing released basis. Sales of servicing
rights are made based on market conditions as well as maintaining servicing
rights below the determined level. The fees derived from servicing mortgage
loans include mortgage servicing fees as well as return check and late charge
fees. The amount of revenue earned from loan servicing is dependent on the
prepayments of the underlying loans. Generally, as interest rates fall, loan
prepayments accelerate, resulting in higher amortization of mortgage servicing
rights due to the write-
off of rights relating to loans that are prepaid. A decline in the value of
mortgage servicing rights may also reduce regulatory capital. (See "Savings
Institutions Regulation"). Conversely, as interest rates rise, loan
prepayments decline, resulting in a longer average life of the rights and higher
cumulative net revenues earned on mortgage servicing rights. . Premiums paid in
connection with the purchase of mortgage loan servicing rights are amortized by
BankAtlantic using prepayment assumptions that management believes are on the
conservative end of a probable range which results in higher expenses on a
monthly basis but may result in increased gains on a sale of the mortgage
servicing rights.
USURY LIMITATIONS-The maximum rate of interest that BankAtlantic may charge
for any particular loan transaction varies depending upon the purpose of the
loan, the nature of the borrower, the security and other various factors set
forth in Florida and federal interest rate laws. Under Florida law, BankAtlantic
is not subject to any usury ceiling on loans secured by a first lien on
residential real estate and certain other secured loans. Other types of loans
are subject to Florida's statutory usury ceiling which is currently 18% per
annum, although certain types of loans, such as automobile loans, factored
receivables and loans in excess of $500,000 may legally carry an interest rate
of up to 25% per annum.
NON-PERFORMING AND CLASSIFIED ASSETS, LOAN DELINQUENCIES AND DEFAULTS-When
a borrower fails to make a required payment on a loan, BankAtlantic attempts to
have the deficiency cured by communicating with the borrower. In most cases,
deficiencies are cured promptly. If the delinquency is not cured within 90 days
the loan is placed on non-accrual. It is BankAtlantic's general policy to
institute appropriate legal action to collect the loan, including foreclosing on
any collateral securing the loan and obtaining a deficiency judgment against the
borrower, if appropriate.
Current regulations provide for the classification of loans and other
assets considered by examiners to be of lesser quality as "special
mention," "substandard," "doubtful" or "loss" assets. The
special mention category applies to assets not warranting classification as
substandard but possessing credit deficiencies or potential weaknesses
necessitating management's close attention. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that such weaknesses make collection of the loan or
liquidation in full on the basis of currently existing facts, conditions and
values, highly questionable or improbable.
For components of the portfolio that are not classified, or classified as
special mention, estimated losses for the upcoming twelve months are provided
for. For loans classified as substandard or doubtful, whether analyzed and
provided for individually or as part of pools, all estimated credit losses over
the lives of these loans are provided for. Prompt charge-off is required for
loans or portions of loans that available information confirms to be
uncollectible. Assets classified as a loss are considered uncollectible and of
such little value that their continued treatment as assets is not warranted.
The asset classification regulations require insured institutions to
classify their own assets and to establish prudent general allowances for loan
losses. However, regulators have considerable discretion
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to review asset classifications and loss allowances of insured institutions,
and, if a regulator concludes that the valuation allowances established by an
institution are inadequate, the regulator may determine, subject to certain
reviews, the need for, and extent of, any increase necessary in the
institution's general allowance for loan losses.
Management of BankAtlantic has identified certain loans as non-performing
or restructured assets. These assets include: (i) loans accounted for on a
non-accrual basis; (ii) loans not included in category (i) which have matured or
are contractually 90 days or more past due as to interest or principal payments;
(iii) assets acquired in settlement of loans; (iv) restructured loans, and (v)
non-accrual tax certificates. Non-accrual loans are loans on which interest
recognition has been suspended until realized because of doubts as to the
borrower's ability to repay principal or interest. Restructured loans are loans
on which the terms have been altered to provide a reduction or deferral of
interest or principal because of a deterioration in the borrower's financial
position. Such restructured loans may be removed from the restructured category
based upon various factors, including a period of satisfactory loan performance
under the revised terms.
ALLOWANCE FOR LOAN LOSSES-BankAtlantic prospectively adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" ("FAS 114"), effective January 1, 1995. There was no
impact to the consolidated statement of financial condition or the consolidated
statement of operations upon implementation. FAS 114 does not apply to large
groups of smaller balance homogeneous loans that are collectively evaluated for
impairment. Loans collectively reviewed by BankAtlantic for impairment include
all residential and consumer loans and performing commercial real estate and
business loans under $500,000, excluding loans which are individually reviewed
based on specific criteria, such as delinquency and condition of collateral
property. BankAtlantic's impaired loans within the scope of FAS 114 include
nonaccrual commercial loans, restructured loans, and performing commercial loans
less than 90 days delinquent, where management does not expect the loans to be
repaid in accordance with their contractual terms but which are expected to be
collected in full. Generally, BankAtlantic recognizes interest income on
impaired loans on a cash basis.
BankAtlantic bases the measurement of loan impairment on the fair value of
the loan's collateral in accordance with FAS 114. Non-collateral dependent loan
impairment is based on the present value of the estimated future cash flows. For
collateral dependent loans, impairment is based on the fair value of the
underlying collateral. Impairment losses are included in the allowance for loan
losses through a charge to the provision for loan losses. Adjustments to
impairment losses resulting from changes in the fair value of an impaired
loan's collateral or projected cash flows are included in the provision for
loan losses. Upon disposition of an impaired loan, any related valuation
allowance is relieved from the allowance for loan losses.
The allowance for loan losses is maintained by additions charged to
operations as a provision for loan losses and by loan recoveries, while
charge-offs reduce the allowance. BankAtlantic's process for evaluating the
adequacy of the allowance for loan losses has three basic elements: first, the
identification of impaired loans; second, the establishment of appropriate loan
loss allowances once individual specific impaired loans are identified; and
third, a methodology for estimating loan losses based on the inherent risk in
the remainder of the loan portfolio.
INVESTMENT ACTIVITIES
GENERAL-BankAtlantic maintains an investment portfolio consisting primarily
of MBS, tax certificates, Treasury Notes, Federal agency obligations, and
asset-backed securities. Additionally, BankAtlantic has, in the past, purchased
banker's acceptances and corporate bonds. Federal regulations limit the types
and quality of instruments in which BankAtlantic may invest.
MBS are pools of residential loans which are made to consumers and then
generally sold to governmental agencies, such as the Government National
Mortgage Corporation ("GNMA"), Federal
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National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). MBS have fixed or variable rates ("ARMs") and
either 15-30 year maturities or 5-7 year balloon maturities. BankAtlantic
generally invests in ARMs or 5-7 year balloon MBS insured or guaranteed by these
government agencies. Banker's acceptances are unconditional obligations of the
issuing bank and are collateralized by various means, including the inventory
and receivables of borrowers of the issuing bank. Asset-backed securities
purchased by BankAtlantic consist of pooled automobile receivables and are
limited to only those that are investment grade. Corporate bonds consist of
investment grade obligations of corporate borrowers with an average duration not
to exceed three years.
Investments in debt securities which BankAtlantic has a positive intent and
ability to hold to maturity are classified as "securities held to
maturity" and are carried at cost, adjusted for discounts and premiums which
are accreted or amortized to estimated maturity under the interest method. A
security cannot be classified as held to maturity if it might be sold in
response to changes in market interest rates, related changes in the security's
prepayment risk, liquidity needs, changes in the availability of and the yield
on alternative investments, and changes in funding sources and terms. .
Currently, debt and equity securities and options related thereto,
purchased or sold for the purpose of a short-term profit are classified as
"trading account securities" and are recorded at fair value. Unrealized
gains and losses in trading account securities are reflected in operations.
Debt and equity securities not classified as held to maturity or trading
account securities are classified as "available for sale". Debt and equity
securities available for sale are carried at fair value, with the related
unrealized appreciation or depreciation, net of deferred income taxes, reported
as a separate component of stockholders' equity.
TAX CERTIFICATES-BankAtlantic's portfolio also includes tax certificates
issued by various counties in the State of Florida. Tax certificates are
evidences of tax obligations that are auctioned by county taxing authorities on
an annual basis when the property owner fails to pay the real estate taxes on
the property when due. Tax certificates represent a priority lien against the
real property for which the assessed real estate taxes are delinquent. Interest
accrues on the tax certificates at the rate established at the auction. The
minimum repayment on tax certificates in order to satisfy the lien is the
certificate amount plus the greater of five percent of the certificate amount or
the interest accrued through the redemption date. Although tax certificates have
no payment schedule or stated maturity, the certificate holder has the right to
collect the delinquent tax amount, plus interest and can file for a deed to the
underlying property if the delinquent tax amount is unpaid at the end of two
years. If the certificate holder does not file for the deed within seven years,
the certificate becomes null and void. BankAtlantic's experience with this type
of investment has been favorable as rates earned are generally higher than many
alternative investments, substantial repayment generally occurs over a two year
period and losses to date have been minimal. The primary risks BankAtlantic has
experienced with tax certificates have related to the risk that additional funds
may be required to purchase other certificates relating to the property, the
risk that the liened property may be unusable and the risk that potential
environmental concerns may make taking title to the property untenable. During
1997, BankAtlantic intends to acquire tax certificates from various
municipalities outside of the State of Florida. The nature of priority,
statutory periods and deed procedures does vary by applicable taxing
authorities. It is not anticipated that there will be any significant
concentration of tax certificate purchases in any one taxing authority outside
of the State of Florida.
The OTS has reviewed the amount invested in, and procedures utilized in the
acquisition and administration of, tax certificates by savings institutions.
After such review, the Southeast Regional Office of the OTS recommended that the
maximum amount of tax certificates purchased be based on a formula whereby the
rolling twelve month average of aggregate investments in tax certificates,
including interest thereon, not exceed 100% of risk-based capital. Based on
market conditions, BankAtlantic purchased approximately $49 million, $44 million
and $47 million in tax certificates at auctions in 1996, 1995 and 1994,
respectively, less than that permitted by the OTS recommendation. At December
31,
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1996, BankAtlantic had an outstanding balance of approximately $54.5 million in
tax certificates. For descriptions of BankAtlantic's investments in tax
certificates and other investment securities, see Note 2 to the Consolidated
Financial Statements. For a discussion of regulatory limitations on
BankAtlantic's investments, see "Regulation and Supervision."
Management of BankAtlantic establishes allowances for tax certificate
losses in amounts which it believes is sufficient to provide for potential
future losses. In establishing its allowances for tax certificates, management
considers past loss experience, present indicators such as the length of time
the certificate has been outstanding, economic conditions and collateral values.
Tax certificates and resulting deed applications are classified as nonaccrual
when a tax certificate is outstanding 48 months and a deed has aged 48 months
from BankAtlantic's acquisition date. At that time, interest ceases to be
accrued and previously accrued interest is reversed.
SOURCES OF FUNDS
GENERAL-Historically, deposits have been the principal source of
BankAtlantic's funds for use in lending and for other general business
purposes. Loan repayments, sales of securities, capital contributions from the
Company, advances from the Federal Home Loan Bank ("FHLB") of Atlanta and
other borrowings, and the use of repurchase agreements have been additional
sources of funds. Loan amortization payments and deposit inflows and outflows
are significantly influenced by general interest rates. Borrowings may be used
by BankAtlantic on a short to intermediate term basis to compensate for
reductions in normal sources of funds such as savings inflows, and to provide
additional liquidity investments. On a long-term basis, borrowings may support
expanded lending activities and purchases of investments. Historically,
BankAtlantic has borrowed primarily from the FHLB of Atlanta and through the use
of repurchase agreements.
DEPOSIT ACTIVITIES-BankAtlantic offers several types of deposit programs
designed to attract both short-term and long-term funds from the general public
by providing an assortment of accounts and rates. BankAtlantic believes that its
product line is comparable to that offered by its competitors. BankAtlantic
offers the following accounts: commercial and retail demand deposit accounts;
regular passbook and statement savings accounts; money market accounts;
fixed-rate, fixed-maturity certificates of deposit, ranging in maturity from 30
days to 8 years; variable-maturity jumbo certificates of deposit; and various
NOW accounts. BankAtlantic also offers IRA and Keogh retirement accounts.
BankAtlantic's deposit accounts are insured by the FDIC through the SAIF and
the Bank Insurance Fund ("BIF") up to a maximum of $100,000 for each
insured depositor.
BankAtlantic solicits deposits through advertisements in newspapers and
magazines of general circulation and on radio and television in Dade, Broward
and Palm Beach Counties, Florida. Most of its depositors are residents of these
three counties at least part of the year. BankAtlantic does not currently hold
any deposits obtained through brokers. In November 1996, Merrill Lynch granted
BankAtlantic a facility of up to $150 million for brokered deposits. The
facility is considered to be an alternative source of borrowings.
BORROWINGS-BankAtlantic has utilized wholesale repurchase agreements as a
means of obtaining funds and increasing yields on its investment portfolio. In a
wholesale repurchase transaction, BankAtlantic sells a portion of its current
investment portfolio (usually government and mortgage-
backed securities) at a negotiated rate and agrees to repurchase the same assets
on a specified date. Proceeds from such transactions are treated as secured
borrowings pursuant to applicable regulations. See Note 9 to the Consolidated
Financial Statements.
BankAtlantic is a member of the FHLB and is authorized to apply for secured
advances from the FHLB of Atlanta. See "Regulation and Supervision."
BankAtlantic uses advances from the FHLB to match fund or partially match fund
fixed rate wholesale residential real estate loans purchased, to repay other
borrowings, meet deposit withdrawals and expand its lending and short-term
investment activities. See Note 8 to the Consolidated Financial Statements.
8
FEDERAL FUNDS BORROWINGS-BankAtlantic has established three $5.0 million
unsecured facilities with three federally insured banking institutions to
purchase Federal Funds. The facilities are used on an overnight borrowing basis
to assist in managing BankAtlantic's cash flow requirements. These Federal Fund
lines are subject to periodic review and may be terminated at any time by the
issuer institution.
COMPETITION
As reported by an independent statistical reporting service, BankAtlantic
is currently the largest independent savings bank and third largest independent
financial institution headquartered in the State of Florida based on deposits at
September 30, 1996, the most recent date utilized by such reporting service.
BankAtlantic's operating goal is to provide a broad range of financial services
with a strong emphasis on customer service.
BankAtlantic has substantial competition in attracting and retaining
deposits and in lending funds. The primary factors in competing for deposits are
the range and quality of financial services offered, the ability to offer
attractive rates and the availability of convenient locations. There is direct
competition for deposits from credit unions and commercial banks and other
savings institutions. Additional significant competition for savings deposits
comes from other investment alternatives, such as money market funds, credit
unions, and corporate and government securities. The primary factors in
competing for loans are the range and quality of lending services offered,
interest rates and loan origination fees. Competition for the origination of
real estate loans normally comes from other savings and financial institutions,
commercial banks, mortgage bankers, finance and insurance companies.
Legislative developments relating to interstate branching and the ownership
of financial institutions are expected to result in continued consolidation of
financial institutions, and also provide larger financial institutions increased
access in the marketplace. Accordingly, BankAtlantic expects increased
competition in the immediate future. See further discussion under "Regulation
and Supervision- Legislative Developments".
EMPLOYEES
The Company does not have any employees who are not also employees of
BankAtlantic. At December 31, 1996, BankAtlantic employed 961 full-time and 56
part-time employees. Management believes that its relations with its employees
are satisfactory. BankAtlantic currently maintains a comprehensive employee
benefits program providing, among other benefits, a qualified pension plan,
managed health care programs and life insurance. These employee benefits are
considered by management to be generally competitive with employee benefits
provided by other major employers in Florida. BankAtlantic's employees are not
represented by any collective bargaining group.
REGULATION AND SUPERVISION
GENERAL
The Company, by virtue of its ownership of all of the outstanding stock of
BankAtlantic, is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is subject to the reporting and the other requirements of the Securities
and Exchange Act. In addition, BFC Financial Corporation ("BFC") which
owns 46% of the Company's voting common stock, is subject to the same oversight
by the OTS as discussed herein with respect to the Company.
BankAtlantic is a member of the FHLB system and its deposit accounts are
insured up to applicable limits by the FDIC. BankAtlantic is subject to
supervision, examination and regulation by
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the OTS and to a lesser extent by the FDIC as the insurer of its deposits.
BankAtlantic must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions. The OTS and the FDIC
periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion in connection with their with respect to the classification
of non-performing and other assets and the establishment of adequate loan loss
reserves for regulatory purposes.
HOLDING COMPANY REGULATIONS
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding
company from directly or indirectly acquiring control, including through an
acquisition by merger, consolidation or purchase of assets, of any savings
association (as defined in Section 3 of the Federal Deposit Insurance Act) or
any other savings and loan or savings bank holding company, without prior OTS
approval. In considering whether to grant approval for any such transaction, the
OTS will take into consideration a number of factors, including the competitive
effects of the transaction, the financial and managerial resources and future
prospects of the holding company and its bank or thrift subsidiaries following
the transaction, and the compliance records of such subsidiaries with the CRA.
Generally, a savings bank holding company may not acquire more than 5% of the
voting shares of any savings association unless by merger, consolidation or
purchase of assets, in each case subject to prior OTS approval. A savings bank
holding company may not acquire as a separate subsidiary an insured institution
which has its principal offices outside of the state where the principal offices
of its subsidiary institution is located, except in the case of certain
emergency acquisitions approved by the FDIC, or when the laws of the state in
which the insured institution to be acquired is located specifically authorize
such an acquisition. However, a savings bank holding company may acquire up to
5% of the voting shares of any savings association or savings bank holding
company not a subsidiary thereof without prior regulatory approval. Another
provision of HOLA permits a savings bank holding company to acquire up to 15% of
the voting shares of certain undercapitalized savings associations.
Federal law empowers the Director of the OTS to take substantive action
when it determines that there is reasonable cause to believe that the
continuation by a savings bank holding company of any particular activity
constitutes a serious risk to the financial safety, soundness, or stability of a
savings bank holding company's subsidiary savings institution. The Director of
the OTS has oversight authority for all holding company affiliates, not just the
insured institution. Specifically, the Director of the OTS may, as necessary,
(i) limit the payment of dividends by the savings institution; (ii) limit
transactions between the savings institution, the holding company and the
subsidiaries or affiliates of either; or (iii) limit any activities of the
savings institution that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings institution.
Any such limits would be issued in the form of a directive having the legal
effect of a cease and desist order.
ACTIVITIES LIMITATIONS-The Company will remain a unitary savings bank
holding company under applicable law until it acquires as a separate subsidiary
another savings institution. A savings bank holding company whose sole
subsidiary qualifies as a qualified thrift lender ("QTL"), described
below, generally has the broadest authority to engage in various types of
business activities with little to no restrictions on its activities, except
that historically savings bank holding companies have not been permitted to
acquire or be acquired by an entity engaged in securities underwriting or market
making. A holding company that acquires another institution and maintains it as
a separate subsidiary or whose sole subsidiary fails to meet the QTL test will
become subject to the activities limitations applicable to multiple savings bank
holding companies. In general, a multiple savings bank holding company (or
subsidiary thereof that is not an insured institution) may not commence, or
continue for more than a limited period of time after becoming a multiple
savings bank holding company (or a subsidiary thereof), any business activity
other than (i) furnishing or performing management services for a subsidiary
insured institution; (ii) conducting an insurance agency or an escrow business;
(iii) holding, managing or liquidating assets owned by or acquired from a
subsidiary insured institution; (iv) holding or managing properties used or
occupied by a subsidiary insured institution; (v) acting as trustee under
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deeds of trust; (vi) those activities previously directly authorized by the OTS
by regulation as of March 5, 1987 to be engaged in by multiple savings bank
holding companies; or (vii) subject to prior approval of the OTS, those
activities authorized by the Federal Reserve Board ("FRB") as permissible
investments for bank holding companies. These restrictions do not apply to a
multiple savings bank holding company if (a) all, or all but one, of its insured
institution subsidiaries were acquired in emergency thrift acquisitions or
assisted acquisitions and (b) all of its insured institution subsidiaries are
QTLs.
RESTRICTIONS ON TRANSACTIONS WITH BANKATLANTIC-BankAtlantic is subject to
restrictions in its dealings with the Company and any other companies that are
"affiliates" of the Company under HOLA and certain provisions of the
Federal Reserve Act ("FRA") that are made applicable to savings
institutions by the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") and OTS regulations. See "Regulation and
Supervision-Savings Institution Regulations-Transactions with Affiliates"
below for a general discussion of the restrictions on dealing with affiliates.
LEGISLATIVE DEVELOPMENTS
INTERSTATE BANKING-The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("RNA") authorizes interstate acquisition of banks
and bank holding companies without geographic limitation beginning one year
after enactment. In addition, beginning June 1, 1997, a bank may merge with a
bank in another state as long as neither of the states has opted out of
interstate branching between the date of enactment of the RNA and May 31, 1997.
The RNA further provides that states may enact laws permitting interstate merger
transactions prior to June 1, 1997. A bank may establish and operate a de novo
branch in a state in which the bank does not maintain a branch if that state
expressly permits de novo branching. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where any bank involved
in the interstate merger transaction could have established or acquired branches
under applicable federal or state law. A bank that has established a branch in a
state through DE NOVO branching may establish and acquire additional branches in
such state in the same manner and to the same extent as a bank having a branch
in such state as a result of an interstate merger. If a state opts out of
interstate branching within the specified time period, no bank in any other
state may establish a branch in the opting out state, whether through an
acquisition or DE NOVO.
EXPANDED NON-BANKING ACTIVITIES-Various bills have been introduced into the
United States Congress that would repeal in some respects the provisions of the
Glass-Steagall Act prohibiting certain banking organizations from engaging in
certain securities activities and the provisions of the Bank Holding Company Act
prohibiting affiliations between banking organizations and non-banking
organizations. This legislation is still under discussion.
FDIC DEPOSIT INSURANCE-On September 30, 1996, President Clinton signed into
law H.R. 3610, which recapitalized the SAIF and substantially bridged the
assessment rate disparity existing between SAIF and BIF insured institutions.
The new law subjected institutions with SAIF assessable deposits, including
BankAtlantic, to a one-time assessment of 0.657% of covered deposits at March
31, 1995. BankAtlantic's one-time assessment, which was paid in November 1996,
resulted in a pre-tax charge of $7.2 million for the year ended December 31,
1996, and under provisions of the law, was treated as a fully deductible
"ordinary and necessary business expense" for tax purposes. The $7.2
million charge excludes the $2.3 million amount assessed on BNA deposits which
was included considered in recording the acquisition of BNA under the purchase
method of accounting. in As a result of the special assessment, discussed
herein, the SAIF was capitalized at the target Designated Reserve Ratio
("DRR") of 1.25 percent of estimated insured deposits on October 1, 1996.
On December 1, 1996 the FDIC finalized a rule lowering the rates on
insurance assessments paid to the SAIF, effective October 1, 1996. The rule also
separates, effective January 1, 1997, the Financing Corporation ("FICO")
assessment to service the interest on its bond obligations from the SAIF
assessment. The amount assessed on individual institutions by the FICO will be
in addition to the
11
amount paid for deposit insurance according to the FDIC's risk-related
assessment rate schedules. The FICO assessment rate for the first semi-annual
period in 1997 was set at 6.48 basis points annually for SAIF-assessable
deposits and 1.30 basis points for BIF assessable deposits. By law, the FICO
rate on BIF-assessable deposits must be one-fifth the rate on SAIF-assessable
deposits until pro-rata sharing begins, when the insurance funds merge or
January 1, 2000, whichever occurs first. The rule established a special interim
rate schedule of 18 to 27 basis points annually between October 1, 1996 and
January 1, 1997. Excess assessments were refunded during January 1997. Insurance
premiums range from zero to 27 basis points annually, with well capitalized
institutions in the highest supervisory subgroup paying zero basis points and
undercapitalized institutions in the lowest supervisory subgroup paying 27 basis
points. At December 31, 1996, BankAtlantic met the capital requirements for a
well capitalized institution and anticipates paying zero basis points for
insurance premiums and anticipates paying 6.48 basis points for its
SAIF-assessable deposits and 1.30 for its BIF-assessable deposits based on it
supervisory subgroup for FICO assessments. BankAtlantic pays deposit insurance
premiums primarily to the SAIF and secondarily to the BIF in connection with the
deposits it acquired as a result of the acquisition of MegaBank. All BNA
deposits acquired are subject to SAIF premiums. At December 31, 1996,
BankAtlantic had approximately $143.8 million of deposits subject to BIF
premiums and $1.7 billion subject to SAIF premiums.
The Company has been considering converting BankAtlantic's charter to that
of a commercial bank, however, the Company is not presently pursuing a
conversion of BankAtlantic's charter since it is awaiting the outcome of the
legislative proposals relating to the possible consolidation of bank and thrift
charters.
SAVINGS INSTITUTION REGULATIONS
REGULATORY CAPITAL-Both the OTS and the FDIC have promulgated regulations
establishing capital requirements applicable to savings institutions. The effect
and interrelationship of these regulations is discussed below.
Savings institutions must meet the OTS' specific capital standards which
by law must be no less stringent than capital standards applicable to national
banks, with exceptions for risk-based capital requirements to reflect interest
rate risk or other risk. Capital calculated pursuant to the OTS' regulations
varies substantially from capital calculated pursuant to generally accepted
accounting principles ("GAAP"). At December 31, 1996, BankAtlantic
exceeded all applicable regulatory capital requirements. The capital
requirements are as follows:
(a) The leverage limit requires savings institutions to maintain core
capital of at least 3% of adjusted total assets. Adjusted total assets are
calculated as GAAP total assets, minus intangible assets (except those included
in core capital as described below). Core capital consists of common
shareholders' equity, including retained earnings, noncumulative perpetual
preferred stock and related surplus, less specified intangible assets (including
goodwill and mortgage servicing rights ("MSR")). However, a portion of MSR
may be included in adjusted assets and core capital. Generally, an amount may be
included equal to the lower of (i) 90% of the fair market value of readily
marketable MSR (ii) the current amortized book value as determined under GAAP or
(iii) 50% of core capital.
(b) Under the tangible capital requirement, savings institutions must
maintain tangible capital in an amount not less than 1.5% of adjusted total
assets. Tangible capital is defined in the same manner as core capital, except
that all intangible assets, except MSR, must be deducted. The percentage of MSR
which may be included in tangible capital is equal to the lesser of (a) 100% of
the amount of tangible capital that exists before the deduction of any
disallowed MSR or (b) the amount of MSR allowed to be included in core capital.
(c) The risk-based standards of the OTS currently require maintenance of
core capital equal to at least 4% of risk-weighted assets, and total capital
equal to at least 8% of risk-weighted assets. Total capital includes core
capital plus supplementary capital, but supplementary capital that may be
included
12
in computing total capital for this purpose may not exceed core capital.
Supplementary capital includes cumulative perpetual preferred stock, allowable
subordinated debt and general loan loss allowances, within specified limits.
Such general loss allowances may not exceed 1.25% of risk-weighted assets.
Risk-weighted assets are determined by assigning to all assets designated
risk weights ranging from 0% to 100%, based on the credit risk assumed to be
associated with the particular asset. Generally, zero weight is assigned to
risk-free assets, such as cash and unconditionally guaranteed United States
government securities, including mortgage-backed securities issued or guaranteed
by GNMA. A weight of 20% is assigned to, among other things, certain obligations
of United States government-sponsored agencies (such as the FNMA and the FHLMC),
stock of a FHLB and high quality mortgage-related securities. A weight of 50% is
assigned to qualifying mortgage loans and certain other residential
mortgage-related securities. A weight of 100% is assigned to consumer,
commercial and other loans, repossessed assets and assets that are 90 days or
more past due and all other assets not identified in the categories above. See
"Liquidity and Capital Resources" and Note 14 of the Consolidated
Financial Statements for a discussion on BankAtlantic's capital position.
In addition to the capital requirements set forth in the OTS' regulations,
the OTS has delegated to its Regional Directors the authority to establish
higher individual minimum capital requirements for savings institutions based
upon a determination that the institution's capital is or may become inadequate
in view of its circumstances.
In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest-rate risk will
be subject to a deduction of its interest-rate risk component from total capital
for purposes of calculating the risk-based capital requirement. As a result,
such an institution will be required to maintain additional capital in order to
comply with the risk-based capital requirement. An institution with a greater
than normal interest-rate risk is defined as an institution that would suffer a
loss of net portfolio value exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest-rate risk component is
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest-rate risk, and 2.0% multiplied by the market
value of its assets. The rule also authorizes the director of the OTS, or his
designee, to waive or defer an institution's interest-rate risk component on a
case-by-case basis. The OTS implemented the interest-rate risk capital deduction
on June 30, 1995. However, in a letter dated March 20, 1995, the OTS stated that
no institution would be required to deduct capital for interest rate risk or to
report such a deduction until guidance is issued describing the appeals process
for the deduction. The December 31, 1996 deduction would have been based on the
lesser of the March 1996, June 1996 or September 1996 interest rate risk
components. At December 31, 1996, based on the above, no interest rate risk
deduction to capital would have been required by BankAtlantic.
Additionally, the OCC, which is the primary regulator for national banks,
has adopted a final rule increasing the leverage ratio requirements for all but
the most highly rated national banks. Pursuant to FIRREA, the OTS is required to
issue capital standards for savings institutions that are no less stringent than
those applicable to national banks. Based on the OCC rule, savings institutions
would be required to maintain a leverage ratio (defined as the ratio of core
capital to adjusted total assets) of between 4% and 5%. If the OCC rule was in
effect for OTS regulated financial institutions at December 31, 1996,
BankAtlantic would have been in full compliance with the requirement.
Effective March 1, 1994, core deposit intangibles ("CDIs") have been
excluded in the determination of regulatory capital. BankAtlantic did not have
CDIs since the effective date of the final rule and accordingly, BankAtlantic
was not affected by this exclusion from capital. However, as a result of the
MegaBank and BNA acquisitions, BankAtlantic recorded as intangible assets
amounts representing the excess of the cost of the net assets acquired over the
fair value of such assets and the cost of the non-competition agreement with a
principal of MegaBank. Such amounts are deducted in full from tangible, core and
risk-based capital. At December 31, 1996, $29.0 million has been deducted
13
in connection with the MegaBank and BNA acquisitions based upon the intangible
exclusion. For a further discussion of the acquisitions, see Note 20 of the
Consolidated Financial Statements.
INSURANCE OF ACCOUNTS-BankAtlantic's deposits are insured by the SAIF and
BIF for up to $100,000 for each insured account holder, the maximum amount
currently permitted by law. Pursuant to the FDICIA, the FDIC adopted
transitional regulations implementing risk-based insurance premiums that became
effective on January 1, 1993. Under these regulations, institutions are divided
into groups based on criteria consistent with those established pursuant to the
prompt regulatory action provisions of the FDICIA (see "Savings Institution
Regulations-Prompt Regulatory Action", below). Each of these groups is
further divided into three subgroups, based on a subjective evaluation of
supervisory risk to the insurance fund posed by the institution. See also
"Legislative Developments-FDIC Deposit Insurance."
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. Insurance of deposits by the FDIC may be terminated by the
FDIC, after notice and hearing, upon a finding that an institution has engaged
in unsafe and unsound practices, is in an unsafe and unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or the FDIC. When conditions warrant, the FDIC
may impose less severe sanctions as an alternative to termination of insurance.
BankAtlantic's management does not know of any present condition pursuant to
which the FDIC would seek to impose sanctions on BankAtlantic or terminate
insurance of its deposits. See "Competition" for potential changes in
insurance assessments.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS-Current
regulations applicable to the payment of cash dividends by savings institutions
impose limits on capital distributions based on an institution's regulatory
capital levels and net income. An institution that meets or exceeds all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association." Upon prior notice to, and non-objection by, the OTS,
a Tier 1 association may make capital distributions during a calendar year up to
the greater of (i) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
An institution that meets the minimum regulatory capital requirements but
does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of
its net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined
as an institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
A "well capitalized" institution must have risk-based capital of 10%
or more, core capital of 5% or more and Tier 1 risk-based capital (based on the
ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive or prompt corrective
action directive issued by the OTS to meet and maintain a specific capital level
or a specific capital measure. An institution will be categorized as:
"adequately capitalized" if it has total risk-based capital of 8% or more,
Tier 1 risk-based capital of 4% or more and core capital of 4% or more;
"undercapitalized" if it has total risk-based capital of less than 8%,
Tier 1 risk-based capital of less than 4% or core capital of less than 4%;
"significantly undercapitalized" if it has total risk-based capital of
less than 6%, Tier 1 risk-based capital of less than 3% or core capital of less
than 3%; and "critically undercapitalized" if it has tangible capital of
less than 2%. Any savings institution that fails its regulatory capital
requirement is subject to enforcement action by the OTS or the FDIC. At December
31, 1996 BankAtlantic met the capital requirements of a "well capitalized"
institution as defined above.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All capital distributions are
subject to the OTS' right to object to a distribution on
14
safety and soundness grounds. While proposed regulations would eliminate the
notice requirement for certain institutions, the proposal would not apply to
BankAtlantic because it is owned by a holding company.
THE FEDERAL HOME LOAN BANK ("FHLB") SYSTEM-BankAtlantic is a member
of the FHLB system, which consists of 12 regional FHLBs governed and regulated
by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central
credit facility for member institutions. BankAtlantic, as a member of the FHLB
of Atlanta, is required to acquire and hold shares of capital stock in the FHLB
of Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on BankAtlantic's behalf). BankAtlantic is currently
in compliance with this requirement.
Each FHLB makes loans (advances) to members in accordance with policies and
procedures established by the board of directors of the FHLB. These policies and
procedures are subject to the regulation and oversight of the FHLB. The FHLB Act
establishes collateral requirements for advances from the FHLB. All advances
from the FHLB must be fully secured by sufficient collateral as determined by
the FHLB of Atlanta. The FHLB Act prescribes eligible collateral as first
mortgage loans less than 90 days delinquent or securities evidencing interests
therein, securities (including mortgage-backed securities) issued, insured or
guaranteed by the Federal government or any agency thereof, deposits with the
FHLB and, to a limited extent, real estate with readily ascertainable value in
which a perfected security interest may be obtained. All long-term advances are
required to provide funds for residential home financing. The FHLB of Atlanta
has established standards of community service that members must meet to
maintain access to long-term advances.
FEES AND ASSESSMENTS OF THE OTS-The OTS has adopted regulations to assess
fees on savings institutions to fund the operations of the OTS. The regulations
provide for the OTS' assessments to be made based on the total consolidated
assets of a savings institution as shown on its most recent report to the
agency. Troubled savings institutions (generally, those operating in
conservatorship or with the lowest two (of five) supervisory subgroup ratings)
are to be assessed at a rate 50% higher than similarly sized thrifts that are
not experiencing problems.
INVESTMENT ACTIVITIES-As a federally-chartered savings bank, BankAtlantic
is subject to various restrictions and prohibitions with respect to its
investment activities. These restrictions and prohibitions are set forth in HOLA
and in the rules of the OTS and include dollar amount and procedural
limitations. BankAtlantic is in compliance with these restrictions.
Under the Federal Deposit Insurance Act ("FDIA"), a savings
institution is required to provide 30 days prior notice to the FDIC and the OTS
of its desire to establish or acquire a new subsidiary or conduct any new
activity through a subsidiary. The institution is also required to conduct the
activities of the subsidiary in accordance with the OTS' orders and
regulations. The Director of the OTS has the power to force divestiture of any
subsidiary or the termination of any activity it determines is a serious threat
to the safety, soundness or stability of the savings institution or is otherwise
inconsistent with sound banking principles. Additionally, the FDIC is authorized
to determine whether any specific activity poses a threat to SAIF and to
prohibit any member of SAIF from engaging directly in the activity, even if it
is an activity that is permissible for a federally-chartered savings institution
or for a subsidiary of a state-chartered savings institution.
SAFETY AND SOUNDNESS-Operational and managerial standards for internal
controls, information systems, loan documentation, credit underwriting, interest
rate exposure, asset growth and compensation and benefits for bank officers,
employees, directors and principal shareholders are all the subject of extensive
guidelines. Additionally, the OTS is empowered to set standards for any other
facet of an institution's operations, not specifically covered by regulations.
The OTS is required to prescribe asset quality, earnings and stock valuation
standards specifying: (i) a maximum ratio of classified assets
15
to capital; (ii) minimum earnings sufficient to absorb losses without impairing
capital; (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly traded shares of the institution; and (iv) such other
standards relating to asset quality, earnings and valuation as the OTS deems
appropriate.
LOANS TO ONE BORROWER-Generally, a savings institution's total loans and
extensions of credit to one borrower or related group of borrowers, outstanding
at one time and not fully secured by readily marketable collateral, may not
exceed 15% of the institution's unimpaired capital and surplus. Except as set
forth below for certain highly rated securities, an institution's investment in
commercial paper and corporate debt securities of any one issuer or related
entity must be aggregated "loans" for purposes of the immediately
preceding sentence.
Savings institutions may invest, in addition to the 15% general limitation,
up to 10% of unimpaired capital and surplus in commercial paper of one issuer
rated by two nationally recognized rating services in the highest category, or
in corporate debt securities rated in one of the two highest categories by at
least one such service. A savings institution may also lend up to 10% of
unimpaired capital and surplus, if the loan is fully secured by readily
marketable collateral. Readily marketable collateral is defined to include
certain securities and bullion, but generally does not include real estate.
A savings institution which meets its capital requirements may make loans
to one borrower to develop domestic residential housing units, up to the lesser
of $30,000,000 or 30% of the savings institution's unimpaired capital and
surplus if certain other conditions are satisfied. BankAtlantic has requested
and received approval for one construction lending relationship under the above
exception. This exception is an alternative to the 15% limitation and not in
addition to that limitation. At December 31, 1996, BankAtlantic was in
compliance with the loans to one borrower limitations. During 1997, BankAtlantic
originated a $35.0 million commercial real estate loan in which the Company
participated $6.5 million of the loan.
QUALIFIED THRIFT LENDER-BankAtlantic, like all savings institutions, is
required to meet the QTL test for, among other things, future eligibility for
advances from the FHLB. The QTL test requires that a savings institution's
qualified thrift investments equal or exceed 65% of the savings institution's
portfolio assets calculated on a monthly average basis in nine out of every
twelve months. For the purposes of the QTL test, portfolio assets are total
assets less intangibles, properties used to conduct business and liquid assets
(up to 20% of total assets). The following assets are included as qualified
thrift investments without limit: (i) domestic residential housing or
manufactured housing loans; (ii) home equity loans and mortgage-backed
securities secured by residential housing or manufactured housing loans; and
(iii) certain obligations of the FDIC and other related entities. Other
qualifying assets which may be included up to an aggregate of 20% of portfolio
assets are: (i) 50% of originated residential mortgage loans sold within 90 days
of origination; (ii) investments in debt or equity securities of service
corporations that derive at least 80% of their gross revenues from
housing-related activities; (iii) 200% of certain loans to and investments in
low-cost, one-to-four family housing; (iv) 200% of loans for residential real
property, churches, nursing homes, schools and small businesses in areas where
credit needs of low-to-moderate income families are not met; (v) other loans for
churches, schools, nursing homes and hospitals; and (vi) consumer and education
loans up to 10% of total portfolio assets.
Any savings institution that fails to meet the QTL test must convert to a
commercial bank charter or limit its future investments and activities to those
permitted for both savings institutions and national banks. Additionally, any
such savings institution that does not convert to a commercial bank charter will
be ineligible to receive future advances from the FHLB and, beginning three
years after the loss of QTL status, will be required to repay all outstanding
advances from the FHLB except for special liquidity advances and dispose of or
discontinue all preexisting investments and activities not permitted for both
savings institutions and national banks. If an institution converts to a
commercial bank charter, its deposits remain insured by SAIF until the FDIC
permits it to transfer to BIF. If any institution that fails the QTL test and is
controlled by a holding company, then, within one year after the failure, the
16
holding company must register as a bank holding company and will be subject to
all applicable restrictions on bank holding companies. At December 31, 1996,
BankAtlantic was in compliance with current QTL requirements.
TRANSACTION WITH AFFILIATES-As a federally chartered savings institution,
BankAtlantic is subject to the OTS' regulations relating to transactions with
affiliates, including officers and directors. BankAtlantic is subject to
substantially similar restrictions regarding affiliate transactions as those
imposed on member banks under Sections 22(g), 22(h), 23A, and 23B of the FRA.
Sections 22(g) and 22(h) establish restrictions on loans to directors,
controlling shareholders and their related companies and certain officers.
Section 22(g) provides that no institution may extend credit to an executive
officer unless (i) the bank would be authorized to make such extension of credit
to borrowers other than its officers, (ii) the extension of credit is on terms
not more favorable than those afforded to other borrowers, (iii) the officer has
submitted a detailed current financial statement and (iv) the extension of
credit is on the condition that it shall become due and payable on demand at any
time that the officer is indebted to any other bank or banks on account of
extensions of credit in any one of the following three categories, in an
aggregate amount greater than the amount of credit of the same category that
could be extended to the officer by the institution: (a) an extension of credit
secured by a first lien on a dwelling which is expected to be owned by the
officer and used by the officer as his or her residence; (b) an extension of
credit to finance the education of the children of the officer; or (c) for any
other purpose prescribed by the OTS. Section 22(g) also imposes reporting
requirements on both the officers to whom it applies and on the institution.
Section 22(h) requires that loans to directors, controlling shareholders and
their related companies and certain officers be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and that those loans do not
involve more than the normal risk of repayment or present other unfavorable
features. On September 30, 1996, Congress amended Section 22(h) by adding an
exception for extensions of credit made pursuant to a program that is widely
available to all employees of the lending institution and does not give
preference to insiders over other employees. Effective November 4, 1996, the FRB
amended Regulation O to implement this amendment to 22(h).
Section 23A limits transactions with any one affiliate to 10% of the
institution's capital and surplus and limits aggregate affiliate transactions
to 20% of such capital and surplus. Sections 23A and 23B provide that a loan
transaction with an affiliate generally must be collateralized (other than by a
low-quality asset or by securities issued by an affiliate) and that all covered
transactions as well as the sale of assets, the payment of money or the
providing of services by a savings institution to an affiliate must be on terms
and conditions that are substantially the same, or at least as favorable to the
savings institution, as those prevailing for comparable non-affiliated
transactions. A covered transaction is defined as a loan to an affiliate, the
purchase of securities issued by an affiliate, the purchase of assets from an
affiliate (with some exceptions), the acceptance of securities issued by an
affiliate as collateral for a loan or the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate. The OTS regulations clarify that
transactions between either a thrift or a thrift subsidiary and an unaffiliated
person that benefit an affiliate are considered covered transactions. A savings
institution may make loans to or otherwise extend credit to an affiliate only if
the affiliate is engaged solely in activities permissible for bank holding
companies. In addition, no savings institution may purchase the securities of
any affiliate other than the shares of a subsidiary. The Director of the OTS may
further restrict these transactions in the interest of safety and soundness. At
December 31, 1996, BankAtlantic was in compliance with the restrictions
regarding transactions with affiliates.
LIQUIDITY REQUIREMENTS OF THE OTS-The OTS' regulations currently require
all member savings institutions to maintain an average daily balance of liquid
assets (cash, certain time deposits, banker's acceptances, specified United
States government, state or Federal agency obligations and other corporate debt
obligations and commercial paper) equal to 5% of the sum of the average daily
balance during the preceding calendar month of net withdrawable accounts and
short-term borrowings payable in one year or less. The liquidity requirement may
vary from time to time (between 4% and 10%)
17
depending upon economic conditions and savings flows of all savings
institutions. All savings institutions are also required to maintain an average
daily balance of short-term liquid assets (generally having maturities of 12
months or less) equal to at least 1% of the average daily balance of net
withdrawable accounts and current borrowings. Monetary penalties may be imposed
by the OTS for failure to meet liquidity requirements. At December 31, 1996,
BankAtlantic was in compliance with all applicable liquidity requirements.
THE FEDERAL RESERVE SYSTEM-BankAtlantic is subject to certain regulations
promulgated by the FRB. Pursuant to such regulations, savings institutions are
required to maintain non-interest bearing reserves against their transaction
accounts (which include deposit accounts that may be accessed by writing checks)
and non-personal time deposits. The FRB has authority to adjust reserve
percentages and to impose in specified circumstances emergency and supplemental
reserves in excess of the percentage limitations otherwise prescribed. The
balances maintained to meet the reserve requirements imposed by the FRB may be
used to satisfy liquidity requirements which may be imposed by the OTS. In
addition, FRB regulations limit the periods within which depository institutions
must provide availability for and pay interest on deposits to transaction
accounts. Depository institutions are required to disclose their check holding
policies and any changes to those policies in writing to customers. BankAtlantic
believes that it is in compliance with all such FRB regulations.
COMMUNITY REINVESTMENT ACT-Under the CRA, as implemented by OTS
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
its examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. The CRA, as
amended by FIRREA, requires public disclosure of an institution's CRA rating
and requires that the OTS provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The four ratings
are "outstanding record of meeting community credit needs",
"satisfactory record of meeting community credit needs", "needs to
improve record of meeting community credit needs" and "substantial
non-compliance in meeting community credit needs." An institution's CRA
rating is taken into account in determining whether to grant charters, branches
and other deposit facilities, relocations, mergers, consolidations and
acquisitions. Poor CRA performance maybe the basis for denying an application.
BankAtlantic received an "outstanding record of meeting community credit
needs" during its most recent OTS examination.
NEW ACCOUNTING STANDARDS AND POLICIES
Financial Accounting Standards Board Statement No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
("FAS 125") was issued in June 1996. FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a
financial-components approach that focuses on control. If a transfer does not
meet the criteria for a sale, the transfer is accounted for as a secured
borrowing with pledge of collateral. FAS 125 must be implemented, prospectively
on January 1, 1997. Implementation of FAS 125 is not expected to have a material
impact on BankAtlantic's Statement of Operations or Statement of Financial
Condition upon adoption.
18
ITEM 2. PROPERTIES
The Company's and BankAtlantic's principal and executive offices are
located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida 33304. In
addition to its principal office, BankAtlantic currently conducts business at 55
branch offices primarily located in Dade, Broward, and Palm Beach Counties,
Florida. BankAtlantic owns the land and building on which its executive offices
are located and also owns 23 of its branch office locations. BankAtlantic leases
either the land, the building or both in connection with the operation of its 34
other branch offices. BankAtlantic has twelve leased branch office sites in
Broward County, with lease expiration dates ranging from 1997 to 2001; nine
leased branch office sites in Dade County, with lease expiration dates ranging
from 1997 to 2005; two leased branch office in Palm Beach County with leases
expiring in 1999 and 2001; and nine leased branch offices located in Wal-Mart
stores in Lee, Sarasota, Osceola, Flagler, Manatee and Charlotte Counties, with
leases expiring in 1999 and 2001. BankAtlantic also maintains two ground leases
in Broward County expiring in 1999 and 2072 and one ground lease in Palm Beach
County expiring in 2000. BankAtlantic owns the land and buildings relating to
four future branch sites. BankAtlantic also leases two properties for future
branch sites in Broward and Palm Beach Counties. BankAtlantic owns a building
and the associated land which houses its mortgage-servicing operations. At
December 31, 1996, the aggregate net book value of premises and equipment,
including leasehold improvements and equipment, was $48.3 million.
19
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to BankAtlantic's business to which BankAtlantic
is a party:
JOSE DANIEL RUIZ CORONADO VS. BANKATLANTIC BANCORP, INC. IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA. CASE NO.
96-7115-CIV-GONZALEZ. This action was filed as a purported class action on
September 27, 1996 on behalf of certain account holders of BankAtlantic whose
bank accounts were seized by federal authorities. The complaint alleges that the
financial privacy rights of the account holders under various federal and state
laws were violated. On January 22, 1997, the Court entered an order dismissing
the complaint against BankAtlantic. The Court found that BankAtlantic complied
with applicable federal statutes.
IN RE STERLING RESOURCES
CAROLINE BERGER, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED
HAS BROUGHT AN ACTION AGAINST JOSEPH GIARIZZO, RON SCOTT, LEON MARTIN, PAUL
TEDALDY, SAL GIARIZZO, JAMES GANSKY, HARBOR CREST ASSOCS. LTD., QUEENS WINDOW
SYSTEMS LTD., DARTMOUTH PLAN INC., WENDOVER FUNDING, INC., MIDWEST FEDERAL
SAVINGS BANK, STERLING RESOURCES LTD., BENCHARGE CREDIT SERVICE OF NEW YORK,
INC., SKOPBANK, DAVID BEYER, JEFFREY BEYER, BANKATLANTIC, NATIONAL CITY BANK OF
AKRON, SUBURBAN EQUITY CORP., OXFORD HOME EQUITY LOAN CO., NATIONAL WESTMINSTER
BANK, EMBANQUE CAPITAL CORP., CHRYSLER FIRST, CAPITAL RESOURCES CORP. AND GREEN
POINT SAVINGS, IN THE UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF NEW
YORK, CV-90-2500, PLATT, C.J. This action was originally filed on July 13, 1990
by the plaintiff, Caroline Berger ("Berger"), in her individual capacity,
against Joseph Giarizzo, Harbor Crest Associates, Ltd., Queens Window Systems
Ltd., Dartmouth Plan, Inc., Wendover Funding Inc., Midwest Federal Savings Bank,
Sterling Resources Ltd., Bencharge Credit Service of New York Inc., SkopBank,
David Beyer and Jeffrey Beyer. The original complaint asserted a variety of
state and federal causes of action. The plaintiff, Berger asserted that she was
defrauded by Dartmouth Plan Inc., Midwest Federal Savings Bank and by Harbor
Crest, a home improvement contractor affiliated with Dartmouth. The plaintiff
maintained that Dartmouth and Harbor Crest operated a scheme pursuant to which
Harbor Crest would identify individuals with small incomes with little or no
education and sell them home improvements at substantially marked up prices. The
plaintiff alleged that the home improvements were provided in a shoddy and
unprofessional manner and that the requirements of the truth in lending laws
were not met. The New York action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions including BankAtlantic. The action
sought, among other things, rescission of the loan agreements and damages. In
October 1995, the Court in the New York action preliminary approved a settlement
rendered by the parties pursuant to which members of the class who timely filed
a proof of claim would be entitled to relief in the form of reduced interest
rates and reductions of principal. A settlement was reached in 1996 and the
litigation was resolved.
In related matters, two additional actions were filed in New Jersey.
One of the actions was brought on behalf of the State of New Jersey and was
resolved in 1995. The other action, entitled - FRANCES SCOTT, ON BEHALF OF
HERSELF AND ALL OTHER SIMILARLY SITUATED AGAINST MAYFLOWER HOME IMPROVEMENT
CORP., EQUICREDIT CORPORATION OF AMERICA, BERNARD PERRY, GINO CIUFFETELLI, HYMAN
BEYER, JEFFREY BEYER, BRUCE BEYER, MNC CREDIT CORP., SHAWMUT BANK, FIRST
TENNESSEE BANK, CIT GROUP/CREDIT FINANCE, INC., SECURITY PACIFIC FINANCIAL
SERVICES, INC., JEROME GOLDMAN, BANKATLANTIC, FSB., MICHAEL BISCEGLIA AND GERALD
ANNABEL, was filed in the Superior Court of New Jersey, Law Division-Passaic
County-Docket No: PAS-L-2628-95, Honorable Frank M. Donato, J.S.C. and was
commenced immediately after the resolution of the State of New Jersey action.
This action purports to be a class action on behalf of the named and unnamed
plaintiffs that may have obtained loans from dealers who subsequently sold the
loans to financial institutions, including BankAtlantic. This action seeks,
among other things, recision of the loan agreements and damages. In November
1995, the court in this action entered an order dismissing the complaint against
BankAtlantic; plaintiff's appealed this ruling. In January 1996, the Appellate
Court reversed the lower court's decision and remanded the case back to trial
court to determine whether the action may be maintained as a class action. The
reversal was without prejudice to BankAtlantic's right to renew their summary
judgment motion after the trial court has made a determination as to plaintiff's
ability to maintain this case as a class action.
In an action entitled BANKATLANTIC, A FEDERAL SAVINGS BANK, A FEDERALLY
CHARTERED SAVINGS BANK VS. NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH,
PENNSYLVANIA, A PENNSYLVANIA CORPORATION, UNITED STATES DISTRICT COURT, SOUTHERN
DISTRICT OF FLORIDA, 91-2940-CIV-MORENO, BankAtlantic and National Union entered
into a Covenant Not To Execute (the "Covenant"). Pursuant to the Covenant,
BankAtlantic will continue to pursue its litigation against National Union but
has agreed to limit execution on any judgment obtained against National Union to
$18 million. Further, BankAtlantic agreed to join certain third parties as
defendants in
20
the action. Pursuant to the Covenant, National Union paid BankAtlantic
approximately $6.1 million on execution of the Covenant, and agreed to pay an
additional $3 million, which was paid when due on November 1993, and
approximately $2.9 million which was paid when due on November 1, 1994. Further,
National Union agreed to reimburse BankAtlantic for additional losses (as
defined) incurred by it in connection with the Subject Portfolio, if any,
provided that in no event will National Union be obligated to pay BankAtlantic
in the aggregate more than $18 million. In the event of recovery by BankAtlantic
of damages against third party wrongdoers, BankAtlantic will be entitled to
retain such amounts until such amounts plus any payments received from National
Union equal $22 million. Thereafter National Union will be entitled to any such
recoveries to the extent of its payments to BankAtlantic.
BankAtlantic is also currently a party to certain other lawsuits
arising in the ordinary course of its business.
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On February 13, 1996, the stockholders of the Company approved at a
special meeting, an amendment to the Company's Articles of Incorporation (the
"Amendment") authorizing 30,000,000 shares of a new class of non-voting common
stock designated Class A common stock and redesignating the Company's existing
common stock, par value $0.01 per share, as Class B common stock. The Class A
common stock has no voting rights except as may be required by Florida law. The
two classes of stock generally have the same economic rights, except Class A
common stock is entitled to receive cash dividends equal to at least 110% of any
cash dividends declared and paid on Class B common stock. In March 1996, BBC
issued 1.80 million shares of Class A common stock in an underwritten public
offering at $9.60 per share. In April 1996 the underwriter exercised an
overallotment option to purchase an additional 252,817 shares of Class A common
stock at $9.60 per share.
The Company's Class B common stock is quoted on the Nasdaq National
Market under the symbol "BANC" and the Company's Class A common stock is quoted
on the Nasdaq National market under the symbol "BANCA". On March 7, 1997 there
were approximately 718 record holders of the Class A common stock and 7,807,258
shares issued and outstanding and 596 record holders of the Class B common stock
and 10,542,116 shares issued and outstanding.
The following table set forth, for the periods indicated, the high and
low closing sale prices of the Class A common stock and the Class B common stock
as reported by the Nasdaq National Market, as adjusted to reflect the 25% stock
dividends issued on July 1996 and February 1997 to holders of both classes of
common stock. Due to accounting and tax considerations, the stock dividend was
paid in Class B common stock with respect to options to purchase Class B common
stock previously granted under the Company's stock option plans.
CLASS A COMMON CLASS B COMMON
STOCK PRICE STOCK PRICE
--------------------- ---------------------
HIGH LOW HIGH LOW
---------- --------- --------- ---------
For the Year ended December 31, 1996............... $ 10 15/16 $ 8 7/16 $10 15/16 $ 8 1/8
First Quarter................................... 9 15/16 9 5/8 9 7/8 8 1/8
Second Quarter.................................. 9 15/16 8 13/16 10 1/4 8 1/8
Third Quarter................................... 10 5/8 8 7/16 10 15/16 8 3/16
Fourth Quarter.................................. 10 15/16 10 1/8 10 15/16 10
For the Year ended December 31, 1995............... - - 10 1/4 5 15/16
First Quarter................................... - - 6 3/4 6 3/16
Second Quarter.................................. - - 7 1/2 5 15/16
Third Quarter................................... - - 10 7 3/16
Fourth Quarter.................................. - - 10 1/4 9 1/8
For the Year ended December 31, 1994............... - - 6 15/16 4 15/16
First Quarter................................... - - 6 4 15/16
Second Quarter.................................. - - 6 7/8 5 1/4
Third Quarter................................... - - 6 7/8 5 9/16
Fourth Quarter.................................. - - 6 15/16 5 11/16
On December 31, 1996, the last sale price of the Class A common stock
and Class B common stock as reported by the Nasdaq National Market was $10.40
and $10.70 per share, respectively.
On July 3, 1996, the Company closed a public offering of $57.5 million
of 6 3/4% Convertible Subordinated Debentures due July 1, 2006 (the "6 3/4%
Debentures"). The 6 3/4% Debentures are convertible at an exercise price of
$10.24 per share into aggregate of 5,615,235 shares of Class A common stock.
The Company's 6 3/4% Convertible Debentures are quoted on the Nasdaq
National market under the symbol "BANCG". On March 7, 1997 there were
approximately 64 debenture holders and $57.5 million debentures were issued and
outstanding. The
23
following table set forth, for the periods indicated, the high
and low closing sales price as reported by the Nasdaq National Markets for the 6
3/4% Convertible Debentures, which were issued in July 1996
HIGH LOW
--------- --------
For the Year Ended December 31, 1996 $ 111 $ 107
First Quarter....................... - -
Second Quarter...................... - -
Third Quarter....................... 107 3/4 100
Fourth Quarter...................... 111 110
See Regulation and Supervision "Restrictions on Dividends and Other
Capital Distributions" and "Management's Discussion and Analysis - Dividends"
for a description of certain limitations on the payment of dividends by
BankAtlantic. Prior to 1993, BankAtlantic had not paid any regular dividend on
its common stock. Subject to the results of operations and regulatory capital
requirements, the Company will seek to declare regular quarterly cash dividends
on its common stock. The Company declared five for four common share stock
splits effected in the form of 25% stock dividends in July 1996 and February
1997. Where appropriate, amounts throughout this report have been adjusted to
reflect these stock dividends.
CASH DIVIDENDS PER CASH DIVIDENDS PER
SHARE OF CLASS B SHARE OF CLASS A
COMMON STOCK COMMON STOCK
------------------ ------------------
Fiscal Year Ended December 31, 1996
First Quarter........................ $ 0.0282 $ 0.0324
Second Quarter....................... $ 0.0282 $ 0.0324
Third Quarter........................ $ 0.0291 $ 0.0324
Fourth Quarter....................... $ 0.0291 $ 0.0324
Fiscal Year Ended December 31, 1995
First Quarter........................ $ 0.0251 N/A
Second Quarter....................... $ 0.0251 N/A
Third Quarter........................ $ 0.0282 N/A
Fourth Quarter....................... $ 0.0282 N/A
Fiscal Year Ended December 31, 1994
First Quarter........................ $ 0.0246 N/A
Second Quarter....................... $ 0.0246 N/A
Third Quarter........................ $ 0.0251 N/A
Fourth Quarter....................... $ 0.0251 N/A
The Company intends to continue to declare regular quarterly cash
dividends on the Class A common stock and the Class B common stock. The Class A
common stock is entitled to receive cash dividends equal to at least 100% of any
cash dividends declared and paid on the Class B common stock. The declaration
and payment of dividends will depend upon, among other things, the results of
operations, financial condition and cash requirements of the Company and on the
ability of BankAtlantic to pay dividends or otherwise advance funds to the
Company, which in turn is subject to OTS regulations and is based upon
BankAtlantic's regulatory capital levels and net income.
24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and are
qualified in their entirety by reference to the more detailed Consolidated
Financial Statements and Independent Auditors Reports, included elsewhere
within. Where appropriate, amounts and percentages have been adjusted for the
July 1996 and February 1997 five for four common stock splits effected in the
form of 25% stock dividends, issued August 1996 and March 1997.
AT DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
STATEMENT OF FINANCIAL CONDITION:
Total assets .......................................... $ 2,605,527 $ 1,750,689
Loans receivable-net .................................... 1,824,856 828,630
Mortgage-backed securities held to maturity ............ 0 0
Debt securities available for sale ..................... 439,345 691,803
Investment and trading account securities, net(1) ...... 54,511 49,856
Mortgage servicing rights .............................. 25,002 20,738
Cost over fair value of net assets acquired and
other intangibles .................................... 29,008 11,521
Deposits ................................................ 1,832,780 1,300,377
Subordinated debentures, capital notes
and note payable ....................................... 78,500 21,001
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 486,288 269,222
Total stockholders' equity ........................... 147,704 120,561
AT DECEMBER 31,
-------------------------------------------
1994 1993 1992
-------------- -------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF FINANCIAL CONDITION:
Total assets .......................................... $ 1,539,653 $ 1,359,195 $ 1,303,071
Loans receivable-net .................................... 546,396 485,956 556,662
Mortgage-backed securities held to maturity ............ 573,913 443,249 349,531
Debt securities available for sale ..................... 53,969 83,116 137,963
Investment and trading account securities, net(1) ...... 211,776 97,701 120,424
Mortgage servicing rights .............................. 20,584 19,833 7,655
Cost over fair value of net assets acquired and
other intangibles .................................... 0 0 0
Deposits ................................................ 1,085,782 1,076,360 1,108,115
Subordinated debentures, capital notes
and note payable ....................................... 0 0 9,524
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 311,879 149,435 87,632
Total stockholders' equity ........................... 105,520 90,652 66,165
- ----------------
(1) Excludes FHLB stock. Includes interest-bearing deposits in other banks and
securities purchased under agreement to resell. Excludes $109,931 of
banker's acceptances in 1993, and includes trading account securities of
$9.1 million in 1994.
AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS
Total interest income .................. $ 152,631 $ 130,077 $ 98,549 $ 94,503 $ 116,476
Total interest expense .................. 77,031 65,686 41,431 35,987 55,567
------------ ------------ ----------- ----------- -----------
Net interest income ..................... 75,600 64,391 57,118 58,516 60,909
Provision for loan losses ............... 5,844 4,182 2,299 3,450 6,650
------------ ------------ ----------- ----------- -----------
Net interest income after provision for
loan losses ........................... 69,756 60,209 54,819 55,066 54,259
------------ ------------ ----------- ----------- -----------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...... 4,216 3,524 3,365 2,229 2,869
Gains on sales of loans originated
for resale .............................. 534 395 773 1,246 976
Gains on sales of mortgage
servicing rights ........................ 4,182 2,744 484 0 0
Gains on sales of investment and
mortgaged-backed securities, net ...... 5,959 0 0 0 5,869
Unrealized and realized gains (losses) on
trading account securities ............ 0 589 (558) 0 0
Gain (loss) on sales of property and
equipment, net ........................ 3,061 18 272 (73) (71)
Other .................................... 15,785 12,118 9,427 8,236 7,408
------------ ------------ ----------- ----------- -----------
Total non-interest income ............... 33,737 19,388 13,763 11,638 17,051
------------ ------------ ----------- ----------- -----------
25
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ --------------- ------------ ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS (CONTINUED)
NON-INTEREST EXPENSE:
Employee compensation and benefits ......... 33,216 25,403 22,382 19,617 19,202
Occupancy and equipment .................. 13,615 10,831 8,061 8,417 8,864
SAIF one time special assessment ......... 7,160 0 0 0 0
Federal insurance premium .................. 2,495 2,750 2,673 2,750 2,772
Advertising and promotion .................. 2,079 2,144 1,495 960 480
Foreclosed asset activity-net ............ (725) (3,178) (2,290) 1,243 4,323
Other .................................... 14,401 13,210 9,764 10,546 11,176
---------- ----------- ---------- ----------- ----------
Total non-interest expense ............... 72,241 51,160 42,085 43,533 46,817
---------- ----------- ---------- ----------- ----------
Income before income taxes and
extraordinary item ........................ 31,252 28,437 26,497 23,171 24,493
Provision for income taxes ............... 12,241 10,018 9,662 7,093 9,201
---------- ----------- ---------- ----------- ----------
Income before extraordinary item ......... 19,011 18,419 16,835 16,078 15,292
Extraordinary item net of taxes ............ 0 0 0 0 756 (2)
---------- ----------- ---------- ----------- -----------
NET INCOME 19,011 18,419 16,835 16,078 16,048
Dividend on non-cumulative preferred
stock paid by BFC escrow .................. 0 0 0 147 880
Dividends on non-cumulative preferred
stock .................................... 0 677 880 733 0
Amounts classified as dividends on
non-cumulative preferred stock
redemption .............................. 0 1,353 (1) 0 0 0
---------- --------------- ---------- ----------- ----------
Total dividends on non-cumulative
preferred stock ........................... 0 2,030 880 880 880
---------- ----------- ---------- ----------- ----------
Net income available for common shares . $ 19,011 $ 16,389 $ 15,955 $ 15,198 $ 15,168
========== =========== ========== =========== ==========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Net income before extraordinary item ...... $ 1.01 $ 0.97 $(1) 0.97 $ 1.03 $ 1.26
Extraordinary item ........................ 0.00 0.00 0.00 0.00 0.06
---------- ----------- ---------- ----------- ----------
Net income ................................. $ 1.01 $ 0.97 $ 0.97 $ 1.03 $ 1.32
========== =========== ========== =========== ==========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
ASSUMING FULL DILUTION:
Net income before extraordinary item ...... $ 0.93 $ 0.96 $(1) 0.97 $ 1.02 $ 1.09
Extraordinary item ........................ 0.00 0.00 0.00 0.00 0.06
---------- ----------- ---------- ----------- ----------
Net income ................................. $ 0.93 $ 0.96 $ 0.97 $ 1.02 $ 1.15
========== =========== ========== =========== ==========
Book value per common share ............... $ 8.05 $ 7.28 $ 6.12 $ 5.20 $ 5.06
========== =========== ========== =========== ==========
Tangible book value per share ............ $ 6.47 $ 6.59 $ 6.12 $ 5.20 $ 5.02
========== =========== ========== =========== ==========
Weighted average number of common and
common equivalent shares outstanding ...... 18,896,691 16,922,816 16,390,677 14,781,256 11,460,204
========== =========== ========== =========== ==========
Weighted average number of common and
common equivalent shares assuming full
dilution ................................. 21,833,015 17,084,563 16,438,264 14,872,560 13,283,200
========== =========== ========== =========== ==========
Actual common shares outstanding at
period end .............................. 18,349,374 16,551,561 15,871,239 15,816,906 11,429,756
========== =========== ========== =========== ==========
26
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
OTHER FINANCIAL AND STATISTICAL DATA
PERFORMANCE RATIOS:
Return on average assets(3) ........................... 0.94 % 1.07 % 1.17 % 1.25 % 1.10 %
Return on average equity(3) ........................... 14.08 16.03 17.07 21.32 27.09
Cash dividend payout ratio(4) (8) ..................... 11.36 10.62 9.87 4.86 0.00
Average equity to average assets ..................... 6.70 6.66 6.86 5.85 4.07
Average yield on loans, mortgage-backed
securities, tax certificates and
investment securities .............................. 8.23 8.16 7.45 7.95 9.14
Average cost of deposits and borrowings ............... 4.47 4.51 3.38 3.28 4.54
Net interest spread-during period(5) .................. 3.76 3.65 4.07 4.67 4.60
Interest rate margin-during period(5) ............... 4.08 4.04 4.32 4.90 4.78
Efficiency ratio(6) ................................. 66.07 61.07 59.37 62.03 60.22
OTHER FINANCIAL DATA:
Cash dividends per common share(8) .................. $ 0.240 $ 0.133 $ 0.120 $ 0.062 $ 0.000
ASSET QUALITY RATIOS:
Non-performing assets as a percent of total loans,
tax certificates and real estate owned ............... 1.26 % 2.37 % 3.66 % 3.34 % 3.80 %
Net charge-offs as a percent of average loans ......... 0.47 0.45 0.59 0.56 0.60
Loan loss allowance as a percent of total loans ...... 1.39 2.24 2.89 3.38 2.88
Loan loss allowance as a percent of
non-performing loans ................................. 167.37 149.49 134.87 173.01 142.93
Non-performing loans as a percent of
total loans .......................................... 0.83 1.50 2.14 1.95 2.01
Non-performing assets as a percent of
total assets ....................................... 0.93 1.23 1.51 1.47 2.07
RATIO OF EARNINGS TO FIXED CHARGES:(7)
Including interest on deposits ........................ 1.40 1.43 1.63 1.63 1.43
Excluding interest on deposits ........................ 2.34 2.41 3.50 5.67 3.62
NUMBER OF:
Offices (all full-service) ........................... 56 43 32 31 31
Branches with ATMs .................................... 56 43 29 29 29
Non-Branch ATMs ....................................... 164 154 153 0 0
Deposit accounts .................................... 218,061 120,067 110,002 113,459 120,558
Loans ................................................ 37,707 23,172 15,319 19,163 27,761
- ----------------
(1) The excess of the redemption price above the recorded amount of preferred
stock is considered a preferred stock dividend. The impact of the October
1995 preferred stock redemption for the year ended December 31, 1995 was a
reduction of $0.08 for primary and fully diluted earnings per share.
(2) Utilization of state net operating loss carry-forwards.
(3) Based on income before extraordinary item. The return on average assets and
average equity ("ROA" and "ROE") based on net income was 1.16%
and 28.43%, respectively, for the year ended December 31, 1992. ROA and ROE
excluding the $7.2 million SAIF one-time special assessment would have been
1.16% and 17.34%, respectively, for the year ended December 31, 1996.
(4) Cash dividends declared on common shares divided by net income available for
common shares. The cash dividend payout ratio for the year ended December 31,
1995 excluding the October 1995 preferred stock redemption was 9.81%.
(5) Interest rate spread is equal to total interest earned on interest earning
assets divided by average interest earning assets, less the total of interest
expense divided by average interest-bearing liabilities. Interest rate margin
is equal to total interest earned on average interest earning assets divided
by average interest earning assets less the total of interest expense divided
by average interest earning assets. Interest rate spread and margin during
periods is based upon daily average balances of interest-bearing assets and
liabilities.
(6) The efficiency ratio is operating expenses (non-interest expenses) as a
percent of net interest income plus non-interest income. Excluding the $7.2
million SAIF one-time special assessment, this ratio for the year ended
December 31, 1996 would have been 59.52%.
(7) Represents earnings before fixed charges, income taxes, and extraordinary
items and non-cumulative preferred stock dividends and redemption. Fixed
charges includes interest expense (inclusive or exclusive of interest on
deposits as indicated).
(8) Includes dividends for both Class A and Class B common stock.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
BankAtlantic Bancorp, Inc.'s (the "Company") primary asset is the capital
stock of BankAtlantic, a Federal Savings Bank ("BankAtlantic"), and its
principal activities relate to the operations of BankAtlantic. During 1996
the Company issued $57.5 million of 6 3/4 % convertible debentures ("6 3/4 %
Debentures") due July 1, 2006. The 6 3/4 % Debentures are convertible into
Class A common stock at an exercise price of $10.24 per share. Net proceeds
to the Company were $55.1 million net of underwriting discount and offering
expenses. The Company contributed $40.0 million of the proceeds to
BankAtlantic, and invested $3.9 million in marketable securities to cover two
semi-annual interest payments in accordance with the terms of the underlying
indenture. The balance of the net proceeds are available for general
corporate purposes. Also during 1996, the Company issued approximately 2.1
million shares of Class A common stock in an underwritten public offering at
$9.60 per share. Net proceeds to the Company were $18.1 million. The Company
used the proceeds to contribute $14.0 million to the capital of BankAtlantic
and repurchase $3.3 million of common stock. During 1995, the Company issued
$21.0 million of 9% subordinated debentures (the "9% Debentures") due in
October 2005. The proceeds of the offering were utilized as follows: $6.0
million was contributed to the capital of BankAtlantic, $2.9 million was
utilized to repay a note payable, $8.4 million was used to redeem all of the
outstanding shares of the Company's non-cumulative preferred stock, and in
accordance with the terms of the underlying indenture, $1.9 million was
invested in marketable securities to cover two semi-annual interest payments.
Presently the Company has no significant operations and does not require
funds other than to pay certain operating expenses, interest on the 6 3/4 %
and 9% Debentures and dividend payments to its common shareholders. It is
anticipated that funds for payment of its operating and interest expenses
will continue to be obtained from BankAtlantic. Additionally, the Company
intends to continue to pay regular quarterly cash dividends on its common
stock. Payment of dividends by the Company will primarily be dependent upon
BankAtlantic's ability to pay dividends or otherwise distribute funds to the
Company.
RESULTS OF OPERATIONS
Net income available for common shares of $19.0 million, 16.4 million, and
$16.0 million was recorded for the three years ended December 31, 1996, 1995
and 1994, respectively. Net interest income for 1996 reflects the October
1996 acquisition of BNA which increased loans, debt securities available for
sale and deposits by $395.0 million, $66.4 million, and $469.1 million,
respectively. Net interest income for 1995 reflects the February 1995
acquisition of MegaBank which increased loans, debt securities available for
sale and deposits by $116.4 million, $18.1 million, and $120.2 million,
respectively. Furthermore, loan fundings and purchases for portfolio during
1996 were $1.2 billion compared to $648.5 million and $372.1 million during
1995 and 1994, respectively. Net interest income during 1994 reflects
$768,000 realized from the repayment of a loan purchased at a discount and a
$1.4 million reversal of accrued tax certificate interest income to
previously established allowance accounts. The $1.4 million interest reversal
was offset by a $1.4 million reduction in provision for tax certificate
losses included in non-interest expense. Non-interest income during 1996
included $4.2 million of gains on the sales of mortgage servicing rights,
$6.0 million of realized gains on sales of debt securities available for
sale, $3.1 million of gains on sales of properties leased to others and
$534,000 of gains on the sales of loans originated for resale. During 1995,
non-interest income included gains on sales of mortgage servicing rights,
unrealized and realized gains on trading account securities, gains on sales
of property and equipment and gains on sales of loans originated for resale
of $2.7 million, $589,000, $18,000 and $395,000, respectively. During 1994,
non-interest income included gains on sales of mortgage servicing rights,
unrealized losses on trading account securities, gains on sales of property
and equipment and gains on sales of loans originated for resale of $484,000,
($558,000), $272,000 and $773,000, respectively. ATM and transaction fee
income was $12.5 million during 1996 compared to $9.0 million and $6.4
million during 1995 and 1994, respectively. Non-interest expenses during 1996
included a $7.2 million SAIF one-time special assessment. Employee
compensation and occupancy and
28
equipment expense increased for each of the years in the three year period
ended December 31, 1996 primarily as a result of the acquisition of MegaBank
and BNA during 1995 and 1996, respectively, and the expansion of Wal-Mart
in-store branches during 1995 and 1996. Provision for loan losses increased
during 1996 to $5.8 million compared to $4.2 million and $2.3 million for the
years ended December 31, 1995 and 1994, respectively. The increase during
1996 compared to the same period during 1995 reflects generally, increased
levels of loans and specifically higher consumer and non-mortgage loan
charge-offs. The increase during 1995 compared to 1994 reflects lower loan
loss recoveries from the Subject Portfolio and higher non-mortgage loan
charge-offs. The 1995 and 1994 tax provisions were reduced by $972,000 and
$492,000 due to a reduction in the deferred tax asset valuation allowance.
See Note 11 of the Consolidated Financial Statements for a further
discussion.
Net income available for common shareholders increased in 1996 by $2.6
million compared to 1995 and 1995 net income available for common
shareholders increased by $434,000 compared to 1994. However, comparative net
income per share amounts decreased. The decrease in earnings per share in
1996 resulted from the issuance of Class A common stock in early 1996, and
the issuance of the 6 3/4 % Debentures in July 1996. Income per common
equivalent share assuming full dilution and excluding the $7.2 million SAIF
special assessment was $1.13 per common share for 1996 compared to 1995
income per common equivalent share assuming full dilution of $0.96. The
decrease in 1995 income per share amounts was due to the October 1995
redemption of the Company's preferred stock at the stated redemption price of
$25.00 per share. This amount resulted in a payment of $1.4 million above the
recorded amount of the preferred stock. In accordance with generally accepted
accounting principles ("GAAP"), the $1.4 million is not reflected in
operations and has no effect on net income but does impact income per share
since it is treated as a preferred stock dividend which reduced income per
common share by $0.08 for both primary and fully diluted earnings per share.
The primary reason for the redemption of the preferred stock was that the
redemption resulted in savings representing an estimated after tax equivalent
rate reduction of over 5%.
BankAtlantic experienced a declining interest rate environment in 1996.
During 1996, interest margins increased compared to 1995 as BankAtlantic
shifted the mix of its interest earning assets from lower earning debt
securities and investments to higher earning loans. During 1995 the interest
margin decreased compared to 1994 as interest rates increased. A negative
interest rate sensitivity gap provides the potential for widening interest
margins and increased earnings during times of declining rates. However, a
negative gap will correspondingly negatively impact earnings when rates
increase. The cumulative one year interest rate gap was a positive .42% at
December 31, 1996 compared to a negative 2.49% and 13.74% at December 31,
1995 and 1994, respectively. The 1996 improvement in the one year cumulative
interest rate gap resulted from higher commercial real estate and
construction loan balances, an increase in stockholders' equity, non-interest
bearing deposits and intermediate term FHLB advances, partially offset by
higher fixed rate residential loan balances (See "Asset and Liability
Management" and "Interest Rate Sensitivity" for further discussions). The
1995 decline in the one year cumulative negative interest rate gap resulted
from higher short term borrowings during the fourth quarter of 1994. In
addition, during 1994, and most of 1995, a period when interest rates were
increasing, liabilities repriced at a faster pace than BankAtlantic's assets,
causing the net interest margin to decline from 4.32% during the comparable
1994 period and to 4.04% during 1995. The net interest margin increased
during 1996 to 4.08% for the reasons discussed above.
29
NET-INTEREST INCOME
A summary of net interest income follows:
1996 1995
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1995 1994
------------------------------------- CHANGE CHANGE
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
Interest and fees on loans ..................... $107,922 $ 72,841 $ 49,426 $ 35,081 $ 23,415
Interest on banker's acceptances ............... 22 0 406 22 (406)
Interest on mortgage-backed securities held to
maturity ....................................... 0 37,855 30,550 (37,855) 7,305
Interest on debt securities available for sale 38,159 7,207 5,542 30,952 1,665
Interest and dividends on investment securities 6,528 12,174 12,625 (5,646) (451)
Interest on deposits ........................... (55,028) (46,646) (31,646) (8,382) (15,000)
Interest on advances from FHLB ................. (9,221) (7,449) (4,976) (1,772) (2,473)
Interest on securities sold under agreements to
repurchase and federal funds purchased ........ (8,764) (10,815) (4,809) 2,051 (6,006)
Interest on capital notes, subordinated
debentures and note payable .................... (4,018) (776) 0 (3,242) (776)
----------- ----------- ----------- ----------- -----------
Total net interest income ...................... $ 75,600 $ 64,391 $ 57,118 $ 11,209 $ 7,273
=========== =========== =========== =========== ===========
Net interest income increased for the year ended December 31, 1996. The
increase in interest on loans during 1996 compared to 1995 was primarily due
to higher average balances, partially offset by lower average yields. The
higher loan average balances resulted from the 1996 BNA acquisition,
residential loan purchases and loan originations. The BNA acquisition
increased residential, commercial real estate, commercial business, and
consumer loans by $221.0 million, $53.6 million, $31.8 million and $88.6
million, respectively. During the year ended December 31, 1996, BankAtlantic
funded and purchased $1.2 billion of loans compared to $648.5 million of
loans during 1995. As a result, BankAtlantic's average loan balances
increased from $750.1 million during the year ended December 31, 1995 to $1.2
billion during 1996. The lower yields earned on real estate loans resulted
from a change in the loan portfolio mix from higher yielding commercial real
estate and non-mortgage loans to residential loans. The decrease in consumer
loan yields resulted from the origination of loans at lower rates and the
acquisition of the BNA loan portfolio. The increase in commercial loan yields
was due to higher yields in the BNA loan portfolio. The composition of the
loan portfolio changed as follows: residential real estate loans as a percent
of loans receivable, net increased from 21.69% at December 31, 1995 to 48.63%
at December 31, 1996. The percent of consumer and commercial business loans
to loans receivable, net at December 31, 1996 was 18.89% and 4.28% compared
to 26.82% and 7.75% at December 31, 1995, respectively. The percent of
commercial real estate loans to loans receivable, net at December 31, 1996
was 39.95% compared to 57.04% at December 31, 1995.
In December 1995, all mortgage-backed and investment securities, excluding
tax certificates then classified as held to maturity, were reclassified as
available for sale and all securities purchased during 1996 were also
classified as available for sale. During 1996 there were no mortgage-backed
securities held to maturity. Total mortgage-backed and investment securities
average balances declined from $844.8 million for the year ended December 31,
1995 to $677.4 million for the comparable 1996 period. During the year ended
December 31, 1996, BankAtlantic sold $368.5 million of mortgage-backed and
investment securities and collected $95.6 million of principal on
mortgage-backed and investment securities. The sales and principal repayments
were partially offset by $231.8 million of treasury notes purchased and $66.4
million of treasury notes acquired in connection with the BNA acquisition.
The lower yields earned on total mortgage-backed and investment securities
reflect the prepayment of higher yielding securities and the purchase of
treasury notes described above. BankAtlantic began issuing banker's
acceptances with the acquisition of BNA in October 1996.
30
Net interest income increased for the year ended December 31, 1995. The
increase in interest on loans during 1995 compared to the same period in 1994
was primarily due to higher average balances and yields earned on real estate
loans and commercial business loans, and higher average balances of consumer
loans. The above items were partially offset by lower average balances on
banker's acceptances and lower yields earned on consumer loans. The higher
loan average balances resulted from the 1995 MegaBank acquisition and
increased loan originations. The MegaBank acquisition increased loans
receivable by $116.4 million. During the year ended December 31, 1995
BankAtlantic funded and purchased $648.5 million of loans compared to $372.1
million of loans during 1994. The higher yields earned on real estate and
commercial business loans reflect the increase in the prime rate of interest
during 1995. The higher real estate and commercial business loan yields were
partially offset by lower consumer loan yields as a result of the MegaBank
acquisition and the repayment of higher yielding consumer loans.
The increased income on mortgage-backed securities during 1995 was caused
by higher average balances during the period and higher yields earned on
adjustable rate mortgage-backed securities. During the year ended December
31, 1994, $268.8 million of mortgage backed securities were purchased and in
January 1995, $75.3 million of adjustable rate mortgage-backed securities
were purchased resulting in average mortgage-backed securities balances
increasing from $514.5 million during the year ended December 31, 1994 to
$574.0 million during the comparable 1995 period. Adjustable rate
mortgage-backed securities purchased in prior periods repriced during the
fourth quarter of 1994 and during 1995 causing an increase in the average
yields earned on the portfolio. The increase in interest income on debt
securities available for sale reflects higher average balances partially
offset by lower yields. The higher average balances reflect the acquisition
of $18.1 million of debt securities in connection with the MegaBank
acquisition and the transfer from "held to maturity" of $638.8 million of
securities to "available for sale" on December 15, 1995. The securities
transferred increased the available for sale average balance by $24.9 million
for the year ended December 31, 1995. The lower yields resulted primarily
from the prepayments of higher yielding 15 and 30 year mortgage-backed
securities. The decrease in interest and dividends on investment securities
was primarily caused by lower average balances partially offset by a $1.4
million reversal of tax certificate interest during 1994. The reversal of tax
certificate interest resulted from a change in methodology for classifying
tax certificates and calculating the allowance for tax certificate losses.
The 1994 tax certificate interest reversal was to previously established
allowance accounts.
The increase in interest expense on deposits for the year ended December
31, 1996 resulted from higher deposit balances during 1996. The increased
deposit balances primarily resulted from $469.1 million of deposits acquired
in connection with the acquisition of BNA. Average deposits increased from
$1.14 billion during the year ended December 31, 1995 to $1.33 billion during
1996. Deposit rates during 1996 were lower on transaction accounts and higher
on certificate accounts compared to 1995. During 1996, the interest rate
environment enabled BankAtlantic to lower transaction account rates, whereas
higher certificate accounts rates were due to competition. The lower interest
cost on deposits during 1995 compared to 1994 was due to higher deposit
balances during 1995, a change in the deposit mix from transaction accounts
to time deposits and higher short term rates during 1995 compared to 1994.
The average deposit mix during 1996 was 55% and 45% certificate accounts and
transaction accounts, respectively. The increased deposit balances primarily
resulted from $120.2 million of deposits (including non-interest bearing
deposits) acquired in connection with the acquisition of MegaBank and
additional growth in certificate accounts. Average deposits increased from
$1.02 billion during the year ended December 31, 1994 to $1.14 billion during
the comparable 1995 period. The higher short term interest rate environment
during late 1994 and through most of 1995 contributed to a change in the
deposit mix from lower rate transaction accounts to generally higher rate
certificate accounts. The average deposit mix changed from 43% and 57%
certificate accounts and transaction accounts, respectively, for the year
ended December 31, 1994 to 53% and 47% certificate accounts and transaction
accounts, respectively, for the same period in 1995.
The increased interest expense on advances from FHLB during 1996 was
primarily due to higher average balances and secondarily to higher rates.
During 1996, BankAtlantic used one to six year
31
advances from the FHLB to finance the purchase of wholesale residential
loans. During 1995, advances from the FHLB had maturities of less than one
year. The lower interest expense on securities sold under agreements to
repurchase reflect a decline in the borrowing rates during 1996 and lower
average balances. The lower average balances in 1996 of securities sold under
agreements to repurchase were the result of the availability of funds
provided by the July 1996 $57.5 million issuance of the 6 3/4 % Debentures
and $18.1 million of proceeds from the Class A common stock offering. The
increased interest expense on advances from FHLB and securities sold under
agreements to repurchase were due to higher average balances and rates paid
during 1995 compared to 1994. The higher borrowings during 1995 were used to
fund the purchase of mortgage-backed securities, and investment securities
and the acquisition of MegaBank. Interest on subordinated debentures and note
payable relates to a $4.0 million note payable issued in March 1995, $21.0
million of 9% Debentures issued in 1995 and $57.5 million of 6 3/4 %
Debentures issued in 1996.
During the year ended December 31, 1996, BankAtlantic's average interest
earning assets and average interest bearing liabilities increased compared to
the 1995 period, whereas BankAtlantic's rates earned on assets and average
rates paid on liabilities declined. The higher balances on earning assets
increased interest income by $27.0 million. Likewise, the higher balances on
interest bearing liabilities increased interest expense by $13.6 million. The
above increases were partially offset by the lower rates earned on assets
which reduced interest income by $4.5 million and the lower rates paid on
interest bearing liabilities which reduced interest expense by $2.3 million.
The increase in balances on earning assets and interest paying liabilities
was caused by the acquisition of BNA, loan originations, and loan purchases
during 1996. The lower rates earned on loans reflects a shift in the
portfolio mix from higher yielding commercial real estate and non-mortgage
loans to lower yielding residential loans. The lower rates paid on
liabilities primarily reflects a decline in short term interest rates and
lower transaction account rates. During the year ended December 31, 1995,
BankAtlantic's average interest earning assets and interest bearing
liabilities increased. BankAtlantic's rates earned on assets and average
rates paid on liabilities also increased. The higher balances of earning
assets increased interest income by $25.9 million and the higher rates earned
on assets increased interest income by $5.7 million (which also reflects the
1994 reversal of $1.4 million of tax certificate interest income). The
increased interest income was partially offset by $14.7 million of additional
interest expense due to higher volume and $9.5 million of additional interest
expense due to a shift in the deposit mix and a rising interest rate
environment.
The net interest margin was 4.08%, 4.04%, and 4.32% for the three years
ended December 31, 1996, 1995 and 1994, respectively. The increased margin
during 1996 resulted from a shift in the composition of interest earning
assets from lower rate debt securities to higher rate loans and lower overall
rates paid on interest bearing liabilities. The reduced margin during 1995
compared to 1994 resulted from higher deposit and borrowings expense due to
rising short term interest rates, and the shift in the deposit mix and
increased borrowings. The 1994 margin was impacted by a $1.4 million reversal
of tax certificate interest income.
32
YIELDS EARNED AND RATES PAID
FOR THE YEARS ENDED
-----------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------- --------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/
BALANCE EXPENSE RATE BALANCE EXPENSE
------------- ----------- --------- ------------- -----------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS
Loans:(A)
Real estate ............................ $ 869,176 $ 77,277 8.89% $ 499,275 $ 47,591
Consumer ............................... 242,876 24,285 10.00 192,409 19,636
Commercial business .................... 65,273 6,360 9.74 58,374 5,614
------------- ----------- --------- ------------- -----------
Total loans ............................. 1,177,325 107,922 9.17 750,058 72,841
------------- ----------- --------- ------------- -----------
Banker's acceptances .................... 329 22 6.69 0 0
------------- ----------- --------- ------------- -----------
Mortgage-backed securities held
to maturity ........................... 0 0 0.00 573,995 37,855
Debt securities available for sale(B) .. 605,766 38,159 6.30 89,757 7,207
Investment securities(C) ................ 68,996 6,419 9.30 178,449 12,019
Federal funds sold ...................... 2,670 109 4.08 2,571 155
------------- ----------- --------- ------------- -----------
Total mortgage-backed and
investment securities ................. 677,432 44,687 6.60 844,772 57,236
------------- ----------- --------- ------------- -----------
Total interest earning assets ........... 1,855,086 152,631 8.23% 1,594,830 130,077
------------- ----------- --------- ------------- -----------
NON-INTEREST EARNING ASSETS
Total non-interest earning assets ...... 160,588 130,008
------------- -------------
Total assets ............................ $2,015,674 $1,724,838
============= =============
INTEREST BEARING LIABILITIES
Deposits:
Savings ................................ $ 118,306 $ 2,150 1.81% $ 109,068 $ 1,987
NOW, money funds and checking .......... 478,127 12,154 2.54 421,135 11,591
Certificate accounts ................... 738,254 40,724 5.50 607,300 33,068
------------- ----------- --------- ------------- -----------
Total interest bearing deposits ........ 1,334,687 55,028 4.11 1,137,503 46,646
------------- ----------- --------- ------------- -----------
Securities sold under agreements
to repurchase and federal funds
purchased ............................. 180,661 8,764 4.84 186,592 10,815
Advances from FHLB ...................... 152,138 9,221 6.04 125,246 7,449
Subordinated debentures and
note payable .......................... 49,750 4,018 8.05 5,759 546
Other borrowings ........................ 0 0 0.00 1,544 230
------------- ----------- --------- ------------- -----------
Total interest bearing liabilities ..... 1,717,236 77,031 4.47 1,456,644 65,686
------------- ----------- --------- ------------- -----------
NON-INTEREST BEARING LIABILITIES
Demand deposit and
escrows accounts ..................... 148,054 135,027
Other liabilities ...................... 15,396 18,278
------------- -------------
Total non-interest bearing liabilities 163,450 153,305
------------- -------------
Stockholders' equity .................... 134,988 114,889
------------- -------------
Total liabilities and
stockholders' equity ................. $2,015,674 $1,724,838
============= =============
Net interest income/net
interest spread ....................... $ 75,600 3.76% $ 64,391
=========== ========= ===========
MARGIN
Interest income/interest earning assets 8.23%
Interest expense/interest
earnings assets ....................... 4.15
---------
Net interest margin ..................... 4.08%
=========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DECEMBER 31, 1994
------------------------------------------------
YIELD/ AVERAGE REVENUE/ YIELD/
RATE BALANCE EXPENSE RATE
--------- ------------- ----------- ---------
INTEREST EARNING ASSETS
Loans:(A)
31
DECEMBER 31, 1994
------------------------------------------------
YIELD/ AVERAGE REVENUE/ YIELD/
RATE BALANCE EXPENSE RATE
--------- ------------- ----------- ---------
Real estate ............................ 9.53% $ 372,031 $33,022 8.89%
Consumer ............................... 10.21 122,235 14,118 11.55
Commercial business .................... 9.62 26,647 2,286 8.58
--------- ------------- ----------- ---------
Total loans ............................. 9.71 520,913 49,426 9.49
--------- ------------- ----------- ---------
Banker's acceptances .................... 0.00 12,366 406 3.28
--------- ------------- ----------- ---------
Mortgage-backed securities held
to maturity ........................... 6.59 514,460 30,550 5.94
Debt securities available for sale(B) .. 8.03 64,891 5,542 8.54
Investment securities(C) ................ 6.74 209,588 12,579 6.00
Federal funds sold ...................... 6.03 924 46 4.98
--------- ------------- ----------- ---------
Total mortgage-backed and
investment securities ................. 6.78 789,863 48,717 6.17
--------- ------------- ----------- ---------
Total interest earning assets ........... 8.16% 1,323,142 98,549 7.45%
--------- ------------- ----------- ---------
NON-INTEREST EARNING ASSETS
Total non-interest earning assets ...... 114,545
--------- -------------
Total assets ............................ $1,437,687
--------- =============
INTEREST BEARING LIABILITIES
Deposits:
Savings ................................ 1.82% $ 122,667 $ 2,116 1.72%
NOW, money funds and checking .......... 2.75 457,529 10,751 2.35
Certificate accounts ................... 5.45 442,107 18,779 4.25
--------- ------------- ----------- ---------
Total interest bearing deposits ........ 4.10 1,022,303 31,646 3.10
--------- ------------- ----------- ---------
Securities sold under agreements
to repurchase and federal funds
purchased ............................. 5.80 105,462 4,809 4.56
Advances from FHLB ...................... 5.95 99,540 4,976 5.00
Subordinated debentures and
note payable .......................... 9.45 0 0 0.00
Other borrowings ........................ 14.86 0 0 0.00
--------- ------------- ----------- ---------
Total interest bearing liabilities ..... 4.51 1,227,305 41,431 3.38%
--------- ------------- ----------- ---------
NON-INTEREST BEARING LIABILITIES
Demand deposit and
escrows accounts ..................... 97,477
Other liabilities ...................... 14,265
--------- -------------
Total non-interest bearing liabilities 111,742
--------- -------------
Stockholders' equity .................... 98,640
--------- -------------
Total liabilities and
stockholders' equity ................. $1,437,687
--------- =============
Net interest income/net
interest spread ....................... 3.65% $57,118 4.07%
========= =========== =========
MARGIN
Interest income/interest earning assets 8.16% 7.45%
Interest expense/interest
earnings assets ....................... 4.12 3.13
--------- ---------
Net interest margin ..................... 4.04% 4.32%
========= =========
- -----------------------------------------------------------------------------
(A) Includes non-accruing loans.
(B) Average balances were based on amortized cost.
(C) Includes securities purchased under agreements to resell, tax
certificates and interest-bearing deposits.
33
RATE/VOLUME ANALYSIS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
COMPARED TO YEAR ENDED COMPARED TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------- -----------------------------------
VOLUME(A) RATE TOTAL VOLUME(A) RATE TOTAL
----------- ----------- ----------- ---------- ----------- ----------
INCREASE (DECREASE) DUE TO:
Loans .............................. $ 39,131 $(4,050) $ 35,081 $22,322 $ 1,093 $23,415
Banker's acceptances ............... 22 0 22 (406) 0 (406)
Mortgage-backed securities ......... (37,855) 0 (37,855) 3,961 3,344 7,305
Debt securities available for sale 32,505 (1,553) 30,952 1,996 (331) 1,665
Investment securities .............. (6,778) 1,178 (5,600) (2,111) 1,551 (B) (560)
Federal funds sold ................. 4 (50) (46) 99 10 109
----------- ----------- ----------- ---------- ----------- ----------
Total earnings assets .............. 27,029 (4,475) 22,554 25,861 5,667 31,528
----------- ----------- ----------- ---------- ----------- ----------
Deposits:
Savings ........................... 174 (11) 163 (251) 122 (129)
NOW, money funds,
and checking .................... 1,405 (842) 563 (990) 1,830 840
Certificate accounts .............. 7,352 304 7,656 8,984 5,305 14,289
----------- ----------- ----------- ---------- ----------- ----------
Total deposits ..................... 8,931 (549) 8,382 7,743 7,257 15,000
----------- ----------- ----------- ---------- ----------- ----------
Securities sold under agreements
to repurchase .................... (297) (1,754) (2,051) 4,698 1,308 6,006
Advances from FHLB ................. 1,659 113 1,772 1,527 946 2,473
Subordinated debentures ............ 3,553 (81) 3,472 546 0 546
Other borrowings ................... (230) 0 (230) 230 0 230
----------- ----------- ----------- ---------- ----------- ----------
4,685 (1,722) 2,963 7,001 2,254 9,255
----------- ----------- ----------- ---------- ----------- ----------
Total interest bearing liabilities 13,616 (2,271) 11,345 14,744 9,511 24,255
----------- ----------- ----------- ---------- ----------- ----------
Change in net interest income ..... $ 13,413 $(2,204) $ 11,209 $11,117 $(3,844) $ 7,273
=========== =========== =========== ========== =========== ==========
- -----------------------------------------------------------------------------
(A) Changes attributable to rate/volume have been allocated to volume.
(B) Includes $1.4 million reversal of accrued interest on tax certificates.
PROVISION FOR LOAN LOSSES AND PROVISION FOR (REVERSAL OF) LOSSES ON REAL
ESTATE OWNED
During the years ended December 31, 1996, 1995 and 1994, the provision for
loan losses was $5.8 million, $4.2 million, and $2.3 million, respectively.
The provision in each of these years was substantially impacted by larger
consumer loan balances. Consumer loan net charge-offs amounted to $4.7
million, $3.3 million, and $1.5 million in 1996, 1995 and 1994, respectively.
The increase in consumer loan net charge-offs resulted primarily from the
acquisition of MegaBank and BNA indirect automobile loan portfolios in 1995
and 1996, respectively. Also, the 1994 consumer loan net charge-offs were
significantly impacted by $1.2 million of recoveries associated with the
Covenant Not to Execute (the "Covenant") described herein and in Note 15 of
the Consolidated Financial Statements. There were no consumer loan recoveries
relating to the Covenant during 1995 and 1996. In addition, the 1996
provision reflects $530,000 of commercial business loan net charge-offs
compared to a recovery of $356,000 during 1995 and net charge-offs of $1.1
million during 1994, respectively. The 1996 commercial business net
charge-offs primarily reflect charge-offs of $478,000 and $450,000 relating
to unsecured loans acquired in connection with the BNA and MegaBank
acquisitions, respectively. The 1996 charge-offs were partially offset by
$518,000 of commercial business recoveries relating to loans charged-off in
prior periods. Included in commercial business loan charge-offs during 1994
was a $1.4 million business loan. Specific allowances were established for
this loan during prior years. The allowance for loan losses increased by $6.8
million and $2.8 million during 1996 and 1995, respectively. The initial
allowance for loan losses acquired in connection with the BNA acquisition was
$6.4 million and in the 1995
34
MegaBank acquisition the acquired allowance for loan losses was $1.9 million;
such amounts account for a significant portion of the increased allowance for
loan losses in 1996 and 1995. The remaining increase in the 1996 loan loss
allowance resulted from additional provisions due to loan growth. The
remaining increase in the 1995 loan loss allowance resulted from a $200,000
specific allowance relating to an office building loan and a $600,000
increase in loan loss allowances based on then current trends.
BankAtlantic's "risk elements" consist of restructured loans and
"non-performing" assets. The classification of loans as "non-performing" is
generally based upon non-compliance with loan performance and collateral
coverage standards, as well as management's assessment of problems related to
the borrower's or guarantor's financial condition. BankAtlantic generally
designates any loan that is 90 days or more delinquent as non-performing.
BankAtlantic may also designate loans as non-performing prior to the loan
becoming 90 days delinquent if the borrower's ability to repay is
questionable. A "non-performing" classification alone does not indicate an
inherent principal loss; however, it generally indicates that management does
not expect the asset to earn a market rate of return in the current period.
Restructured loans are loans for which BankAtlantic has modified the loan
terms due to the financial difficulties of the borrower. At December 31, 1996
restructured loans were $3.7 million compared to $2.5 million and $1.6
million at December 31, 1996, 1995 and 1994, respectively. Non-performing
assets, net of write downs and allowances, were $24.1 million at December 31,
1996 compared to $21.5 million and $23.2 million during 1995 and 1994,
respectively. Included in non-performing assets was $7.0 million in assets
acquired in connection with the BNA acquisition.
Risk elements, net of write-downs and dispositions, increased by $3.8
million in 1996 to $27.8 million at December 31, 1996 and decreased in 1995
by $836,000 to $24.0 million at December 31, 1995. The increase in total risk
elements during 1996 primarily related to a $2.6 million rise in
non-performing assets and a $1.2 million increase in restructured loans. The
restructured loan increase primarily related to a $1.0 million
non-residential loan classified as non-accruing at December 31, 1995. The
increase in non-performing assets from 1995 to 1996 resulted from a $1.5
million increase in consumer repossessed assets, and a $517,000 increase in
residential real estate owned, partially offset by a $1.9 million reduction
in commercial real estate owned. The increase in consumer and residential
repossessed assets was primarily the result of the BNA acquisition. The
decline in commercial real estate owned reflects the sale of $4.4 million of
commercial real estate owned partially offset by a $197,000 net reversal of
allowance for losses on real estate owned, $1.0 million of REO acquired from
BNA, and transfers of $1.8 million of nonaccrual loans to real estate owned.
Non-accrual residential and consumer loans increased by $4.2 million and $1.5
million, whereas non-accrual commercial loans and tax certificates declined
by $4.5 million and $209,000, respectively. The increase in non-accrual
residential loans resulted from higher loan balances. Residential loan
balances increased from $179.7 million at December 31, 1995 to $887.3 million
at December 31, 1996. Included in nonaccrual consumer loans at December 31,
1996 are $1.0 million of indirect automobile loans acquired in connection
with the BNA acquisition. The remaining increase in nonaccrual consumer loans
was due to increased consumer loan balances during 1996 compared to 1995. The
reduction in nonaccrual commercial real estate loans resulted from the
reinstatement of a $2.5 million non-residential loan, the restructuring of a
$1.0 million non-residential loan, transferring a $400,000 loan to an
accruing status and foreclosing on a $700,000 loan. The decline in nonaccrual
tax certificates was due to reduced investments in tax certificates in 1996.
During 1996 loans contractually past due 90 days or more increased $1.4
million. These loans have matured and are in the process of renewing or
extending their terms while the borrower continues to make payments under the
matured loan agreement. The 1995 risk element net decrease primarily related
to lower levels of non-performing assets partially offset by a higher level
of restructured loans and loans contractually past due 90 days or more. The
lower 1995 real estate owned balances resulted from the sale of $3.3 million
of real estate owned offset by a $1.2 million net reversal of allowance for
losses on real estate owned, and transfers of $1.0 million of loans to real
estate owned. Non-accrual tax certificates declined due to lower balances
relating to reduced investment in tax certificates in 1995 and 1994,
repayments and charge-offs. The lower 1995 non-accrual commercial real estate
and business loan balances and the higher amounts in restructured loans
reflect the restructuring of a $3.0 million commercial real estate loan.
BankAtlantic received a $600,000 payment when the loan was restructured.
35
For financial statement purposes such payment was initially recorded as a
reduction in the basis of the loan. The $800,000 increase in loans
contractually past due 90 days or more and still accruing related to two
commercial real estate loans. The 1995 decrease in non-accrual loans was
partially offset by a $510,000 increase in residential real estate
non-accrual loans and a transfer of a $2.4 million commercial real estate
loan to a non-accruing status.
The loan loss allowance as a percent of total loans declined from 2.24% at
December 31, 1995 to 1.39% at December 31, 1996. At December 31, 1996 gross
real estate loans amounted to $1.6 billion of which $887.3 million were
residential real estate loans which management believes carry minimal credit
risk. The remaining real estate loans consisted of $427.2 million of
commercial real estate loans, and $301.8 million of construction and
development loans at December 31, 1996, respectively. Gross other loans
amounted to $422.9 million and included commercial business loans and
consumer loans (including second mortgages) of $78.2 million and $344.7
million, respectively, at December 31, 1996. Commercial real estate,
commercial business and consumer loans generally involve greater risks of
collectibility than residential loans; however, management does not believe
that such risks have been greater than normal industry experience for these
types of loans except for the Subject Portfolio discussed under "Financial
Condition."
During the year ended December 31, 1996, management reversed $197,000 from
the allowance for real estate owned. Real estate owned charge-offs during the
year ended December 31, 1996 were $803,000 primarily relating to three REO
properties. Two of the properties were sold during 1996. During the year
ended December 31, 1995 and 1994, BankAtlantic's provisions for real estate
owned was a recovery of $1.2 million and a provision of $140,000,
respectively. For the years ended December 31, 1995, and 1994 charge-offs
were $213,000, and $40,000, respectively. The allowance for real estate owned
is established by management based on its evaluation of foreclosed
properties.
36
RISK ELEMENTS
-------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
CONTRACTUALLY PAST DUE 90 DAYS OR MORE
Commercial real estate and business(1) $ 2,961 $ 1,536 $ 736 $ 2,580 $ 1,108
NON-ACCRUAL
Residential ............................ 6,477 2,228 1,718 2,468 3,642
Commercial real estate
and business ......................... 3,868 8,361 9,325 3,802 5,317
Consumer ............................... 2,079 585 270 976 1,477
Tax certificates(2) .................... 1,835 2,044 3,578 0 0
------------- ------------- ------------- ------------- -------------
14,259 13,218 14,891 7,246 10,436
REPOSSESSED(3)
Residential real estate owned .......... 748 231 303 319 756
Commercial real estate owned ........... 4,170 6,048 6,935 9,332 14,241
Consumer ............................... 1,992 461 350 512 461
------------- ------------- ------------- ------------- -------------
6,910 6,740 7,588 10,163 15,458
------------- ------------- ------------- ------------- -------------
TOTAL NON-PERFORMING ASSETS ............ 24,130 21,494 23,215 19,989 27,002
------------- ------------- ------------- ------------- -------------
RESTRUCTURED LOANS
Commercial real estate
and business ......................... 3,718 2,533 1,648 2,647 2,661
------------- ------------- ------------- ------------- -------------
TOTAL RISK ELEMENTS .................... $ 27,848 $ 24,027 $ 24,863 $ 22,636 $ 29,663
============= ============= ============= ============= =============
Total risk elements as a percentage of:
Total assets .......................... 1.07% 1.37% 1.61% 1.67% 2.28%
============= ============= ============= ============= =============
Loans, tax certificates and net real
estate owned ........................ 1.46% 2.65% 3.92% 3.78% 4.18%
============= ============= ============= ============= =============
TOTAL ASSETS ........................... $2,605,527 $1,750,689 $1,539,653 $1,359,195 $1,303,071
============= ============= ============= ============= =============
TOTAL LOANS, TAX CERTIFICATES AND NET
REAL ESTATE OWNED .................... $1,911,501 $ 905,413 $ 634,001 $ 599,504 $ 709,482
============= ============= ============= ============= =============
Allowance for loan losses .............. $ 25,750 $ 19,000 $ 16,250 $ 17,000 $ 16,500
============= ============= ============= ============= =============
Total tax certificates ................. $ 55,977 $ 51,504 $ 64,117 $ 86,897 $ 121,323
============= ============= ============= ============= =============
Allowance for tax certificate losses .. $ 1,466 $ 1,648 $ 2,985 $ 2,970 $ 1,558
============= ============= ============= ============= =============
- -----------------------------------------------------------------------------
(1) The majority of these loans have matured and the borrower continues to
make payments under the matured loan agreement. BankAtlantic is in the
process of renewing or extending these matured loans.
(2) Classification results from a change in methodology for classifying tax
certificates and calculating related allowance from the methodology used
in 1993 and prior years.
(3) Amounts are net of allowances for losses.
The above schedule reflects, at December 31, 1996, all loans, other than
as disclosed in Note 5 of the Consolidated Financial Statements as other
impaired commercial loans with specific allowances, where known information
about the possible credit problems of the borrower caused management to have
serious doubts as to the ability of the borrower to comply with present loan
repayment terms and which may result in disclosure of such loans in the
future.
37
Interest income which would have been recorded under the original terms of
nonaccrual and restructured loans and the interest income actually recognized
for the years indicated are summarized below (in thousands):
FOR THE YEARS
ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Interest income which would have been recorded $1,505 $1,393 $1,170
Interest income recognized ..................... (698) (519) (443)
--------- --------- ---------
Interest income foregone ....................... $ 807 $ 874 $ 727
========= ========= =========
Changes in the allowance for loan losses were as follows (dollars in
thousands):
FOR THE YEARS
ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
Balance, beginning of period ................... $19,000 $16,250 $17,000 $16,500 $ 13,750
Charge-offs:
Commercial business loans ..................... (1,048) (382) (1,647) (835) (776)
Commercial real estate loans .................. (266) (222) (220) 0 (1,028)
Consumer loans ................................ (6,337) (4,566) (3,829) (4,322) (10,430)
Residential real estate loans ................. (67) (263) (272) (302) (445)
---------- ---------- ---------- ---------- -----------
(7,718) (5,433) (5,968) (5,459) (12,679)
---------- ---------- ---------- ---------- -----------
Recoveries:
Commercial business loans ..................... 518 738 565 262 175
Commercial real estate loans .................. 47 102 18 6 20
Consumer loans ................................ 1,659 1,219 2,336 2,231 8,584
Residential real estate loans ................. 0 0 0 10 0
---------- ---------- ---------- ---------- -----------
2,224 2,059 2,919 2,509 8,779
---------- ---------- ---------- ---------- -----------
Net charge-offs ................................ (5,494) (3,374) (3,049) (2,950) (3,900)
Additions charged to operations ................ 5,844 4,182 2,299 3,450 6,650
Allowance for loan losses acquired ............. 6,400 1,942 0 0 0
---------- ---------- ---------- ---------- -----------
Balance, end of period ......................... $25,750 $19,000 $16,250 $17,000 $ 16,500
========== ========== ========== ========== ===========
Allowance as a percentage of:
Total loans ................................... 1.39% 2.24% 2.89% 3.38% 2.88%
Total loans including banker's acceptances ... 1.39 2.24 2.89 2.77 2.88
========== ========== ========== ========== ===========
Non-performing assets(1) ...................... 115.5% 97.69% 82.75% 85.05% 61.11%
========== ========== ========== ========== ===========
Ratio of net charge-offs to average
outstanding loans ............................ 0.47% 0.45% 0.59% 0.56% 0.60%
========== ========== ========== ========== ===========
Ratio of net charge-offs to average outstanding
loans plus banker's acceptances .............. 0.47% 0.45% 0.57% 0.55% 0.60%
========== ========== ========== ========== ===========
- -----------------------------------------------------------------------------
(1) Excluding tax certificates. The allowance for tax certificates as a
percentage of total tax certificates was 2.62%, 3.20%, 4.66%, 3.47%, and
1.28%, for each of the years in the five-year period ended December 31,
1996, and as a percentage of non-performing tax certificates was 79.89%
and 80.63% at December 31, 1996 and 1995.
38
The table below presents (dollars in thousands) an allocation of the
allowance for loan losses among various loan classifications and sets forth
the percentage of loans in each category to total loans. The allowance shown
in the table should not be interpreted as an indication that charge-offs in
future periods will occur in these amounts or proportions or that the
allowance indicates future charge-off amounts or trends.
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- -------------------------- --------------------------
PERCENT PERCENT PERCENT
OF GROSS OF GROSS OF GROSS
ALLOCATION LOANS ALLOCATION LOANS ALLOCATION LOANS
OF IN EACH OF IN EACH OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
FOR LOAN TO TOTAL FOR LOAN TO TOTAL FOR LOAN TO TOTAL
LOSS BY GROSS LOSS BY GROSS LOSS BY GROSS
CATEGORY(1) LOANS CATEGORY LOANS CATEGORY LOANS
------------- ----------- ------------- ----------- ------------- -----------
Commercial
business .... $ 3,676 3.83% $ 2,288 6.84% $ 1,109 4.00%
Real estate .. 8,727 79.27 6,657 69.49 8,102 75.82
Consumer(2) .. 8,921 16.90 5,346 23.67 2,527 20.18
Unallocated .. 4,426 N/A 4,709 N/A 4,512 N/A
------------- ----------- ------------- ----------- ------------- -----------
$25,750 100.00% $19,000 100.00% $16,250 100.00%
============= =========== ============= =========== ============= ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------------- --------------------------
PERCENT PERCENT
OFGROSS OF GROSS
ALLOCATION LOANS ALLOCATION LOANS
OF IN EACH OF IN EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
FOR LOAN TO TOTAL FOR LOAN TO TOTAL
LOSS BY GROSS LOSS BY GROSS
CATEGORY(1) LOANS CATEGORY LOANS
------------- ----------- ------------- -----------
Commercial
business .... $ 1,924 5.48% $ 2,676 5.69%
Real estate .. 6,038 67.29 5,261 57.61
Consumer(2) .. 4,687 27.23 5,613 36.70
Unallocated .. 4,351 N/A 2,950 N/A
------------- ----------- ------------- -----------
$17,000 100.00% $16,500 100.00%
============= =========== ============= ===========
- -----------------------------------------------------------------------------
(1) Excludes banker's acceptances.
(2) Includes second mortgage loans.
NON-INTEREST INCOME
A summary of non-interest income follows:
1996 1995
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1995 1994
---------------------------------- CHANGE CHANGE
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Loan servicing and other loan fees ................... $ 4,216 $ 3,524 $ 3,365 $ 692 $ 159
Gains on sales of loans originated for resale ....... 534 395 773 139 (378)
Unrealized and realized gain (losses) on trading
account securities ................................... 0 589 (558) (589) 1,147
Gains on sales of debt securities available for sale 5,959 0 0 5,959 0
Gains on sales of property and equipment ............. 3,061 18 272 3,043 (254)
Gains on sales of mortgage servicing rights ......... 4,182 2,744 484 1,438 2,260
Other ................................................ 15,785 12,118 9,427 3,667 2,691
---------- ---------- ---------- ---------- ---------
Total non-interest income .......................... $33,737 $19,388 $13,763 $14,349 $5,625
========== ========== ========== ========== =========
For a discussion relating to gains on sales of debt securities available
for sale, see "Mortgage-Backed Securities and Investments."
Loan servicing and other loan fees increased during each of the three
years ended December 31, 1996. The increase for the year ended December 31,
1996 compared to the same period during 1995 resulted from higher loan and
late fee income. Late fee income increased from $955,000 for the year ended
December 31, 1995 to $1.4 million during the comparable 1996 period. Loan fee
income was $1.1 million during 1995 compared to $1.4 million during 1996. The
increase in loan and late fees reflects higher loan production and balances
during 1996 compared to the comparable 1995 period. The increase for the year
ended December 31, 1995 compared to the same period during 1994 resulted from
higher loan prepayment penalties and increased commercial loan commitment fee
income.
39
During the years ended December 31, 1996, 1995 and 1994, BankAtlantic sold
mortgage servicing rights with a book value of $20.9 million, $5.6 million
and $2.4 million, respectively, for gains as reported in the above table.
These rights related to approximately $1.4 billion, $492.1 million and $233.0
million of loans serviced for others during 1996, 1995 and 1994,
respectively. At December 31, 1996, 1995 and 1994, BankAtlantic serviced
loans for the benefit of others amounting to approximately $2.7 billion, $1.8
billion, and $1.9 billion, respectively. BankAtlantic periodically sells
mortgage servicing rights based on the composition of the servicing portfolio
and market conditions.
During the year ended December 31, 1996, BankAtlantic sold properties
leased to others with a book value of $5.0 million for gains as reported in
the above table. During the years ended December 31, 1995 and 1994
BankAtlantic sold properties with a book value of $0 and $371,000,
respectively.
Non-interest income -other increased during the three years ended December
31, 1996. The higher income during the three year period primarily related to
transaction account and ATM fee income. Transaction account and ATM fee
income increased by $3.5 million during 1996 and $2.6 million during 1995.
Transaction account fee income was $8.6 million during 1996 compared to $7.0
million during 1995 and $5.4 million in 1994. The higher transaction fee
income during 1996 and 1995 reflects an increase in transaction account
balances primarily obtained in connection with acquisitions and an increase
in the fees charged during the latter part of 1994 and 1995. ATM fee income
was $3.9 million during 1996 compared to $2.0 million during 1995 and
$958,000 during 1994, respectively. In April 1996, BankAtlantic's ATM network
initiated surcharge fees for non-customers. The significant increase in ATM
fee income during 1996 was primarily the result of this surcharge.
BankAtlantic established its ATM network to enhance fee income and to expand
banking services throughout Florida. Currently, BankAtlantic has 144 ATM
machines located in Wal-Mart Superstores, 10 ATM machines located on cruise
ships, and 66 machines located in branches, shopping centers and businesses
throughout South Florida. Furthermore, 1996 lease income increased by
$320,000 compared to 1995 due to additional rents received on leased
property. As indicated previously, the leased property was sold in December
1996. Non-interest income-other for 1994 was also favorably impacted by a
$332,000 dormant account settlement with the State of Florida. The settlement
related to a review by the Florida Comptroller's Office of BankAtlantic's
procedures for the assessment of fees on dormant accounts.
NON-INTEREST EXPENSE
A summary of non-interest expense follows:
1996 1995
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1995 1994
---------------------------------- CHANGE CHANGE
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Employee compensation and benefits ................ $33,216 $25,403 $22,382 $ 7,813 $3,021
Occupancy and equipment ........................... 13,615 10,831 8,061 2,784 2,770
SAIF one-time special assessment .................. 7,160 0 0 7,160 0
Federal insurance premium ......................... 2,495 2,750 2,673 (255) 77
Advertising and promotion ......................... 2,079 2,144 1,495 (65) 649
Foreclosed asset activity, net .................... (725) (3,178) (2,290) 2,453 (888)
Amortization of cost over fair value of net assets
required .......................................... 1,545 1,122 0 423 1,122
Other ............................................. 12,856 12,088 9,764 768 2,324
---------- ---------- ---------- ---------- ---------
Total non-interest expenses ..................... $72,241 $51,160 $42,085 $21,081 $9,075
========== ========== ========== ========== =========
The increase in employee compensation and benefits for the three years
ended December 31, 1996 resulted from the number of full-time equivalent
employees increasing from 624 at December 31, 1994
40
to 746 at December 31, 1995 and to 989 at December 31, 1996 as well as annual
salary and benefit increases throughout the three year period. During 1996,
approximately 160 of the new employees were related to the BNA acquisition
and the remaining new employees primarily related to five new Wal-Mart
branches. During 1995 approximately 70 of the new employees were related to
the acquisition of MegaBank and the remaining new employees primarily related
to six new branches. Occupancy and equipment expenses increased during the
year ended December 31, 1996 compared to the 1995 period due to the opening
of five additional Wal-Mart in-store branches and the acquisition of BNA. The
new branches and the BNA acquisition resulted in increased depreciation and
rent expense. Depreciation and rent expense increased from $3.2 million and
$1.9 million during 1995 to $3.8 million and $2.1 million during the same
1996 period, respectively. Also included in occupancy and equipment expenses
during 1996 was $1.7 million of conversion costs and processing fees
associated with the conversion of all data processing functions to an outside
service bureau. BankAtlantic converted to the service bureau on October 11,
1996 and the estimated annual expense for the service bureau is approximately
$2.4 million. The service bureau conversion is intended to enable
BankAtlantic to offer innovative new products and services. Occupancy and
equipment expenses increased during the year ended December 31, 1995 compared
to 1994 due to the acquisition of MegaBank and the opening of three
additional Wal-Mart in-store branches and three branches in South Florida.
Furthermore, in December 1994 BankAtlantic converted to a service bureau for
its serviced residential loans resulting in $350,000 of expenses during the
year ended December 31, 1995 compared to $93,000 during 1994. The residential
loan service bureau expense was $558,000 during the year ended December 31,
1996.
On September 30, 1996, President Clinton signed into law H.R. 3610, which
was intended to recapitalize the SAIF and substantially bridge the assessment
rate disparity existing between SAIF and BIF insured institutions. The law
required institutions with SAIF assessable deposits, including BankAtlantic,
to pay a one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment resulted in a pre-tax charge of $7.2
million for the year ended December 31, 1996. The $7.2 million charge
excludes the $2.3 million amount assessed on BNA deposits which was
considered in recording the acquisition of BNA under the purchase method of
accounting. Future assessments paid by BankAtlantic to the SAIF will be
reduced as a consequence of the recapitalization.
The increase in advertising and promotion for the year ended December 31,
1995 resulted from increased promotion of lending activities, branch openings
and acquisition-related advertising.
The components of "Foreclosed asset activity, net" were (in thousands):
FOR THE YEARS
ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- ------------- ----------
Real estate acquired in settlement of loans:
Operating expenses (income), net ............ $ 47 $ 41 $ (325)
Provision for (reversal of) losses on REO .. (197) (1,187) 140
Net (gains) on sales ........................ (575) (2,032)(A) (2,105)
--------- ------------- ----------
Net (income) ................................ $(725) $ (3,178) $(2,290)
========= ============= ==========
- -----------------------------------------------------------------------------
(A) Including a $1.3 million gain related to a property originally acquired
through a tax deed during 1995.
The decline in foreclosed asset activity, net during 1996 compared to 1995
was primarily due to sales of commercial real estate owned and a $1.2 million
reduction in the allowance for real estate owned during 1995 compared to a
$197,000 reduction during 1996. The improvement in foreclosed asset activity,
net during 1995 compared to 1994 was primarily due to the $1.2 million
reduction in the allowance for real estate owned compared to a $140,000
provision during 1994, partially offset by lower operating expenses during
1994 compared to 1995. For further discussion, see "Provision for Loan Losses
and Provision for (Reversal of) Losses on Real Estate Owned."
41
Other non-interest expense increased during the three years ended December
31, 1996. The additional other expenses in 1996 were associated with
expanding the branch network and the acquisition of eight BNA branches.
Stationery, printing and supplies, and telephone expenses increased by a
total of $798,000 during 1996 compared to 1995. The additional 1995
non-interest expenses compared to 1994 related to the acquisition of five
MegaBank branches and the opening of three South Florida branches and three
Florida West Coast branches. During 1995, stationery, printing and supplies,
and telephone expenses increased by a total of $538,000. In addition, legal
costs, ATM expenses and tax certificate provision increased by $660,000,
$283,000 and $260,000, respectively. The higher legal expenses incurred
during 1995 related to $1.2 million of Subject Portfolio legal costs. During
1994, legal costs were reimbursed pursuant to the terms of the Covenant,
while only $120,000 was reimbursed during 1995. The ATM expense increase
resulted from the addition of approximately 151 ATMs in Wal-Mart and Sam's
Club Florida locations during 1994. Also included in 1995 other expenses was
a write-off of $400,000 associated with a Senior Note offering withdrawn in
March 1995.
The amortization of cost over fair value of net assets acquired relates to
the BNA and MegaBank acquisitions.
MORTGAGE-BACKED SECURITIES AND INVESTMENT SECURITIES
In 1994, Statement of Financial Accounting Standards No. 115, ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("FAS 115") was
implemented. Upon implementation, BankAtlantic transferred all of its fixed
rate mortgage-backed securities having original terms of 15 and 30 years to
maturity which were classified as held for sale during prior periods to
available for sale at December 31, 1994. During the year ended December 31,
1995 BankAtlantic acquired $10.0 million and $8.1 million of government
obligations and collateralized mortgage obligations in connection with the
MegaBank acquisition and designated these securities as available for sale.
Based upon the guidance provided in a Special Report issued by the Financial
Accounting Standards Board ("FASB"), BankAtlantic reassessed its security
classifications, considering, among other issues, flexibility in management
of the portfolio for liquidity and interest rate risk management as well as
the potential Savings Association Insurance Fund ("SAIF") one-time special
assessment discussed under "Liquidity and Capital Resources." As a result of
this reassessment, effective December 15, 1995, BankAtlantic transferred all
of its mortgage-backed securities and investment securities, excluding tax
certificates, classified as held-to-maturity to available for sale. The
securities transferred had a carrying value of $638.8 million and an
estimated fair value of $644.1 million resulting in a net increase to
stockholders' equity for the net unrealized appreciation of $3.3 million
after deduction of applicable income taxes of $1.2 million. During the year
ended December 31, 1996 BankAtlantic purchased $231.8 million of treasury
notes and acquired $66.4 million of treasury notes in connection with the BNA
acquisition. All treasury notes purchased or acquired were classified as
available for sale. During 1996 BankAtlantic sold from its available for sale
portfolio, $205.5 million of treasury notes, $136.6 million of adjustable
rate mortgage-backed securities, $20.5 million of 15 year mortgage-backed
securities, and $5.9 million of seven year balloon mortgage backed securities
for gains of $6.0 million. The proceeds from the sales of securities were
utilized to support loan growth. BankAtlantic currently sells substantially
all fixed rate residential real estate loans it originates. During the year
ended December 31, 1995 two $5.0 million treasury notes classified as trading
securities were sold for a $589,000 net realized gain. At December 31, 1994,
the market value of trading account securities was less than BankAtlantic's
original cost. The unrealized loss on trading account securities of $558,000
is reflected in the consolidated statement of operations for the year ended
December 31, 1994.
42
A summary of the cost and gross unrealized appreciation or depreciation of
estimated fair value compared to cost of investment securities held to
maturity, investment securities held for trading, mortgage-backed securities
held to maturity, and debt securities available for sale, follows (in
thousands):
DECEMBER 31, 1996
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
------------ --------------- --------------- -------------
Tax certificates held to maturity:
Cost equals market .............................. $ 54,511 $ 0 $ 0 $ 54,511
Investment securities available for sale(1):
Cost equals market .............................. 6,038 0 0 6,038
Market over cost ................................ 92,483 481 0 92,962
Cost over market ................................ 45,717 0 114 45,605
Mortgage-backed securities available for sale(1):
Market over cost ................................ 157,178 1,756 0 158,934
Cost over market ................................ 136,711 0 905 135,806
------------ --------------- --------------- -------------
Total ............................................ $492,638 $2,237 $1,019 $493,856
============ =============== =============== =============
- -----------------------------------------------------------------------------
(1) Amortized cost excludes net unrealized appreciation of $851,000 on
mortgage-backed securities and unrealized appreciation of $367,000 on
investment securities.
At December 31, 1996 and 1995 all mortgage-backed and investment
securities, excluding tax certificates, were available for sale, whereas
during 1994 only certain mortgage-backed securities with a fair value and
amortized cost of $54.0 million and $53.7 million at December 31, 1994 were
classified as available for sale. The composition, yields and maturities of
debt securities were as follows (in thousands):
MORTGAGE ASSET WEIGHTED
U.S. TREASURY TAX BACKED BACKED AVERAGE
AND AGENCIES CERTIFICATES SECURITIES SECURITIES TOTAL TOTAL
---------------- --------------- ------------- ------------- ------------ -----------
DECEMBER 31, 1996:
Maturity:(1)
One year or less .............. $ 44,485 $41,656 $ 25,198 $ 0 $111,339 6.26%
After one through five years . 70,169 12,855 252,704 28,967 364,695 6.00
After five through ten years . 984 0 4,887 0 5,871 6.04
After ten years ............... 0 0 11,951 0 11,951 6.10
---------------- --------------- ------------- ------------- ------------ -----------
Fair values .................... $115,638 $54,511 $294,740 $ 28,967 $493,856 6.06%
================ =============== ============= ============= ============ ===========
Amortized cost ................. $115,295 $54,511 $293,889 $ 28,943 $492,638 6.08%
================ =============== ============= ============= ============ ===========
Weighted average yield based on
fair value ................... 5.73% 6.92% 6.10% 5.43% 6.06%
Weighted average maturity ..... 1.2 years 2.0 years 2.9 years 2.5 years 2.3 years
---------------- --------------- ------------- ------------- ------------
DECEMBER 31, 1995
Fair value ..................... $ 25,113 $49,856 $597,751 $ 68,939 $741,659 6.72%
================ =============== ============= ============= ============ ===========
Amortized Cost ................. $ 24,606 $49,856 $588,956 $ 68,907 $732,325 6.81%
================ =============== ============= ============= ============ ===========
DECEMBER 31, 1994
Fair value ..................... $ 12,279 $61,132 $604,103 $124,259 $801,773 6.49%
================ =============== ============= ============= ============ ===========
Amortized cost ................. $ 13,563 $61,132 $627,568 $127,981 $830,244 6.27%
================ =============== ============= ============= ============ ===========
- -----------------------------------------------------------------------------
(1) Maturities are based on contractual maturities. Tax certificate
maturities are based on historical repayment experience and
BankAtlantic's charge-off policies since tax certificates do not have
contractual maturities.
43
Activity in the allowance for tax certificate losses was (dollars in
thousands):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
Balance, beginning of period ........................... $1,648 $ 2,985 $ 2,970
Charge-offs ............................................ (909) (1,854) (1,892)
Recoveries ............................................. 911 662 1,792
--------- ---------- ----------
Net charge-offs ........................................ 2 (1,192) (100)
Additions (reversals) charged to operations ........... (184) (145) 115
--------- ---------- ----------
Balance, end of period ................................. $1,466 $ 1,648 $ 2,985
========= ========== ==========
Average yield on tax certificates during the period(1) 9.73% 9.27% 7.43%
========= ========== ==========
- -----------------------------------------------------------------------------
(1) During the year ended December 31, 1994 BankAtlantic reversed $1.4
million of accrued interest on tax certificates. The average yield on tax
certificates during the period, excluding the reversal of $1.4 million,
was 9.31%.
Included in gains on sales of real estate owned for the year ended
December 31, 1995 was approximately $1.3 million related to a property
originally acquired through a tax deed.
FINANCIAL CONDITION
BankAtlantic's total assets at December 31, 1996 and 1995 were $2.6
billion and $1.75 billion, respectively. The increase in total assets was
primarily the result of a $996.2 million increase in loans receivable,
partially offset by a $252.5 million decrease in debt securities available
for sale. The loans receivable increase reflects $395.0 million of loans
acquired in the BNA acquisition and $1.2 billion of loan fundings and
purchases during 1996. The loan fundings and purchases were partially offset
by $548.8 million of principal reductions on loans and $59.4 million of loan
sales. The decline in debt securities available for sale balances resulted
from the sale of $374.4 million of securities and $43.2 million of principal
reductions, partially offset by the purchase of approximately $231.8 million
of treasury notes and $66.4 million of treasury notes acquired in connection
with the BNA acquisition. Furthermore, cash including federal funds sold and
other short term investments, cost over fair value of net assets acquired,
other assets and tax certificates increased by $39.3 million, $17.8 million,
$24.9 million, and $4.7 million, respectively. Cash including federal funds
sold and other short term investments increased due to the eight branches
acquired from BNA and the five branches opened during 1996. The increase in
cost over fair value of net assets relates to the BNA acquisition. The
increase in other assets resulted from receivables of $9.5 million and $5.4
million from the sale of servicing and the sale of properties leased to
others, respectively. During 1996 BankAtlantic purchased $56.9 million of tax
certificates and $52.4 million of tax certificates paid off.
At December 31, 1996, deposits increased by $532.4 million including
deposits acquired in connection with the BNA acquisition ($690.1 million at
acquisition including non-interest bearing deposits). The remaining net
deposit increase primarily resulted from money market account deposit growth.
Advances from the Federal Home Loan Bank and securities sold under agreements
to repurchase increased by $93.9 million and $124.4 million, respectively.
The additional borrowings were used to fund loan growth. In July 1996, the
Company issued $57.5 million of 6 3/4 % Debentures. Repayment of securities
sold under agreements to repurchase, common stock redemptions, payments for
advances by borrowers for taxes and insurance, the acquisition of BNA, loan
originations, and the purchases of loans, debt securities and tax
certificates were primarily funded through the sales of debt securities
available for sale, mortgage servicing rights and properties leased to
others, proceeds from FHLB advances, federal funds purchased, loan and debt
securities repayments, proceeds from the issuance of 6 3/4 % Debentures and
Class A common stock.
44
LOAN ACTIVITY--The following table shows loan activity by major categories
for the periods indicated (in thousands):
FOR THE YEARS
ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
LOAN FUNDINGS:(1)
Residential real estate loans ..... $ 133,184 $ 111,361 $ 40,706 $ 52,674 $ 41,336
Construction and development loans 147,200 93,102 22,958 13,744 18,912
Commercial real estate and
business loans ................... 314,319 319,530 259,285 186,584 108,744
Consumer loans(2) .................. 154,940 114,607 45,159 10,222 7,075
------------ ------------ ------------ ------------ ------------
Total loan fundings ............... 749,643 638,600 368,108 263,224 176,067
------------ ------------ ------------ ------------ ------------
PURCHASES:(3)(4)
Residential real estate loans ..... 465,942 9,930 0 0 0
Commercial real estate and
business loans ................... 0 0 3,989 5,142 0
------------ ------------ ------------ ------------ ------------
Total purchases ................... 465,942 9,930 3,989 5,142 0
------------ ------------ ------------ ------------ ------------
Total loan production ............. 1,215,585 648,530 372,097 268,366 176,067
------------ ------------ ------------ ------------ ------------
Loan sales .......................... (59,408) (34,153) (38,168) (44,983) (36,054)
Principal reduction on loans(1) .... (548,847) (444,867) (270,986) (289,037) (297,263)
Transfer to real estate owned(5) ... (1,788) (1,029) (1,282) (2,396) (7,994)
------------ ------------ ------------ ------------ ------------
Net loan activity ................. $ 605,542 $ 168,481 $ 61,661 $ (68,050) $(165,244)
============ ============ ============ ============ ============
- -----------------------------------------------------------------------------
(1) Does not include banker's acceptances.
(2) Includes second mortgage loans.
(3) Does not include indirect consumer loans purchased through dealers; such
loans are included as originations.
(4) Excludes $395.0 million in 1996 and $116.4 million in 1995 of loans
acquired in the BNA and MegaBank acquisitions, respectively.
(5) Includes foreclosures.
Total loan originations for the years ended December 31, 1996, 1995 and
1994 were $133.2 million, $111.0 million, and $36.1 million, respectively,
for residential real estate loans, and $316.0 million, $224.7 million, and
$203.3 million, respectively, for commercial real estate and business loans
(including construction and development loans) and $75.4 million, $55.8
million, and $47.7 million, respectively, for direct consumer loans, and
$76.9 million, $56.1 million, and $0, respectively, for indirect consumer
loans (all of which were indirect automobile loans). In addition there were
$465.9 million in residential real estate loan purchases during the year
ended December 31, 1996.
45
PRINCIPAL REPAYMENTS--The following table sets forth the scheduled
contractual principal repayments at maturity dates of BankAtlantic's loan
portfolios and debt securities available for sale at December 31, 1996. As of
December 31, 1996, the total amount of principal repayments on loans and debt
securities available for sale contractually due after December 31, 1997 was
$2.2 billion, $1.4 billion having fixed interest rates and $749.0 million
having floating or adjustable interest rates.
OUTSTANDING
ON DECEMBER 31, FOR THE PERIOD ENDING DECEMBER 31,(1)
1996 -------------------------------------------------------------------
1997 1998-1999 2000-2004 2005-2009 2010-2014 2015
---------------- ----------- ------------ ------------ ------------ ------------
Commercial and residential
real estate ............... $1,314,536 $ 67,592 $ 68,874 $117,209 $155,621 $57,692 $847,548
Real estate construction . 301,813 112,840 79,387 88,538 20,520 528 0
Consumer (2) .............. 344,690 17,110 22,476 114,497 129,733 38,959 21,915
Commercial business ....... 78,177 55,714 5,900 10,673 5,890 0 0
---------------- ----------- ------------ ------------ ------------ ------------ -----------
Total loans(3) ........... $2,039,216 $253,256 $176,637 $330,917 $311,764 $97,179 $869,463
================ =========== ============ ============ ============ ============ ===========
Total debt securities
available for sale(3) .... $ 439,345 $ 69,683 $320,839 $ 36,673 $ 7,041 $ 791 $ 4,318
================ =========== ============ ============ ============ ============ ===========
- -----------------------------------------------------------------------------
(1) Does not include banker's acceptances, deductions for undisbursed portion
of loans in process, deferred loan fees, unearned discounts and
allowances for loan losses.
(2) Includes second mortgage loans.
(3) Actual principal repayments may differ from information shown above.
LOAN CONCENTRATION--BankAtlantic's geographic loan concentration at
December 31, 1996 was:
FLORIDA ........ 67%
California ..... 7%
Northeast ...... 9%
Other .......... 17%
--------
Total ........ 100%
========
The loan concentration for BankAtlantic's portfolio is primarily in South
Florida where economic conditions have generally remained stable during the
three years ended December 31, 1996. The concentration in California and the
Northeast primarily relates to purchased wholesale residential loans during
1996. The balance of the portfolio is throughout the United States without
any specific concentration.
Loan maturities and sensitivity of loans to changes in interest rates for
commercial business loans and real estate construction loans at December 31,
1996 were (in thousands):
COMMERCIAL REAL ESTATE
BUSINESS CONSTRUCTION TOTAL
------------- --------------- -----------
One year or less ........................ $73,513 $292,846 $366,359
Over one year, but less than five years 4,871 8,967 13,838
Over five years ......................... 0 0 0
------------- --------------- -----------
$78,384 $301,813 $380,197
============= =============== ===========
Pre-determined interest rate ............ $ 4,871 $ 8,967 $ 13,838
Floating or adjustable interest rate ... 0 0 0
------------- --------------- -----------
$ 4,871 $ 8,967 $ 13,838
============= =============== ===========
46
DEPOSITS--Deposit accounts consisted of the following (in thousands):
DECEMBER 31,
------------------------------------------
1996 1995 1994
------------- ------------- ------------
Non-interest bearing deposits .... $ 163,616 $ 98,964 $ 69,658
Interest bearing deposits:
Insured money fund savings ...... 358,927 249,273 267,770
NOW account ...................... 216,587 171,726 151,890
Savings account .................. 170,352 103,759 113,578
Time deposits less than $100,000 739,622 528,163 413,415
Time deposits $100,000 and over . 183,676 148,492 69,471
------------- ------------- ------------
Total ........................... $1,832,780 $1,300,377 $1,085,782
============= ============= ============
Time deposits $100,000 and over, have the following maturities:
DECEMBER 31,
1996
---------------
Less than 3 months . $ 55,743
3 to 6 months ....... 45,946
6 to 12 months ...... 50,412
More than 12 months 31,575
---------------
Total ............. $183,676
===============
BankAtlantic currently has no brokered deposits however, has established a
facility with Merrill Lynch enabling it to issue up to $150 million of
deposits at BankAtlantic's discretion. BankAtlantic's deposit accounts are
insured by the Federal Deposit Insurance Corporation ("FDIC") through SAIF
and the Bank Insurance Fund ("BIF") up to a maximum of $100,000 for each
insured depositor.
47
The stated rates and balances at which BankAtlantic paid interest on
deposits were (dollars in thousands):
DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
Interest free checking ............................... $ 163,616 $ 98,964 $ 69,658
Insured money fund savings: 3.76% at December 31,
1996, 3.22% at December 31, 1995, and 3.71% at
December 31, 1994 .................................... 358,927 249,273 267,770
NOW accounts: 1.60% at December 1996, 1.66% at
December 31, 1995, and 1.57% at December 31, 1994 ... 216,587 171,726 151,890
Savings accounts: 1.30% at December 31, 1996, 1.71%
at December 31, 1995, and 1.87% December 31, 1994 ... 170,352 103,759 113,578
------------- ------------- -------------
Total non-certificate accounts ....................... 909,482 623,722 602,896
------------- ------------- -------------
Certificate accounts:
0.00% to 3.00% ...................................... 12,104 56,667 54,738
3.01% to 4.00% ...................................... 11,257 25,602 82,934
4.01% to 5.00% ...................................... 275,991 135,107 182,518
5.01% to 6.00% ...................................... 478,148 303,497 123,016
6.01% to 7.00% ...................................... 112,865 137,917 27,857
7.01% and greater ................................... 30,749 17,543 11,674
------------- ------------- -------------
Total certificate accounts ........................... 921,114 676,333 482,737
------------- ------------- -------------
1,830,596 1,300,055 1,085,633
------------- ------------- -------------
Interest earned not credited to deposit accounts .... 2,184 322 149
------------- ------------- -------------
Total deposit accounts ............................. $1,832,780 $1,300,377 $1,085,782
============= ============= =============
Weighted average stated interest rate on deposits
at the end of each period ............................ 3.78% 3.85% 3.45%
============= ============= =============
The amounts of scheduled maturities of certificate accounts were (dollars
in thousands):
YEAR ENDING DECEMBER 31,
DECEMBER 31, 1996 -------------------------------------------------------------
1997 1998 1999 2000 2001 THEREAFTER
- ------------------- ----------- ---------- ---------- ---------- ----------
0.00% to 3.00% ... $ 10,533 $ 1,379 $ 50 $ 32 $ 50 $ 60
3.01% to 4.00% ... 10,536 479 191 0 51 0
4.01% to 5.00% ... 252,171 20,041 2,051 215 1,085 428
5.01% to 6.00% ... 395,414 63,178 10,420 3,634 4,869 633
6.01% to 7.00% ... 76,563 8,742 13,574 5,009 8,170 807
7.01% and greater 18,995 773 1,074 9,719 66 122
----------- ---------- ---------- ---------- ---------- -------------
Total ........... $764,212 $94,592 $27,360 $18,609 $14,291 $2,050
=========== ========== ========== ========== ========== =============
The following table sets forth the deposit activities for the periods
indicated (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- ------------
Net increase (decrease) before interest credited ........ $ 15,905 $ 51,093 $(20,814)
Deposits acquired net of purchase accounting amortization 469,065 120,055 0
Interest credited ........................................ 47,433 43,447 30,236
----------- ----------- ------------
Total .................................................. $532,403 $214,595 $ 9,422
=========== =========== ============
48
SUBJECT PORTFOLIO--From 1987 through 1990, BankAtlantic purchased in
excess of $50 million of indirect home improvement loans from certain
dealers, primarily in the northeastern United States. BankAtlantic ceased
purchasing loans from such dealers in the latter part of 1990. These dealers
were affiliated with each other but were not affiliated with BankAtlantic. In
connection with loans originated through these dealers, BankAtlantic funded
amounts to the dealers as a dealer reserve. Such loans and related dealer
reserves are referred to herein as the "Subject Portfolio."
In late 1990, questions arose relating to the practices and procedures
used in the origination and underwriting of the Subject Portfolio, which
suggested that the dealers, certain home improvement contractors and
borrowers, together with certain former employees of BankAtlantic, engaged in
practices intended to defraud BankAtlantic. After BankAtlantic made a claim
against its fidelity bond carrier, the carrier and BankAtlantic entered into
a Covenant. Pursuant to the Covenant, BankAtlantic will continue to pursue
its litigation against the carrier, but has agreed to limit execution on any
judgment obtained against the carrier to $18 million. Further, BankAtlantic
agreed to join certain third parties as defendants in that action. In
accordance with the terms of the Covenant the carrier paid BankAtlantic a
total of $18 million through December 31, 1996 to reimburse it for losses
incurred by BankAtlantic in connection with the Subject Portfolio.
Three actions have been filed, two in New Jersey and one in New York,
relating to the Subject Portfolio. One of the New Jersey actions was brought
on behalf of the State of the New Jersey. The New York action and the action
brought by the State of New Jersey were resolved in 1996 and 1995,
respectively. The remaining New Jersey action purports to be a class action
on behalf of named and unnamed plaintiffs that may have obtained loans from
dealers who subsequently sold the loans to financial institutions including
BankAtlantic. The New Jersey action seeks civil remedies against certain
contractors and a named dealer and also seeks to cancel or modify certain
mortgage loans and was commenced immediately after resolution of the State of
New Jersey action. The pending New Jersey action which was brought against
over 15 parties, including BankAtlantic, purports to be a class action on
behalf of named and unnamed plaintiffs that may have obtained loans from
dealers who subsequently sold the loans to financial institutions including
BankAtlantic. The New Jersey action seeks, among other things, rescission of
the loan agreements and damages. In November 1995, the court in the remaining
New Jersey action entered an order dismissing the complaint against
BankAtlantic; plaintiffs appealed this ruling. In January 1996, the Appellate
Court reversed the lower court's decision and remanded the case back to trial
court to determine whether the action may be maintained as a class action.
The reversal was without prejudice to BankAtlantic's right to renew their
summary judgment motion after the trial court has made a determination as to
plaintiff's ability to maintain this case as a class action.
While management believes that established reserves will be adequate to
cover any additional losses that BankAtlantic may incur from the Subject
Portfolio or the above described litigation, there is no assurance that this
will be the case. See Note 15 to the Consolidated Financial Statements for
further discussion on the Subject Portfolio.
49
Loans receivable composition, including mortgage-backed securities, at the
dates indicated was (dollars in thousands):
DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994
------------------------- ----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------- ---------- ----------- ---------- ----------- ----------
LOANS RECEIVABLE:
Real estate loans:
Residential real estate $ 867,081 47.52% $157,361 18.99% $102,677 18.79%
Residential real estate
available for sale .... 16,207 0.89 17,122 2.07 6,843 1.25
Construction and
development ........... 301,813 16.54 122,371 14.77 45,725 8.37
FHA and VA insured ..... 4,013 0.22 5,183 0.63 6,395 1.17
Commercial real
estate ................ 427,235 23.41 350,256 42.27 303,877 55.61
Other loans:
Second mortgage -direct 86,234 4.73 63,052 7.61 40,564 7.42
Second mortgage
-indirect ............. 9,894 0.54 25,621 3.09 34,585 6.33
Commercial business .... 78,177 4.28 64,194 7.75 24,566 4.50
Consumer -other
direct ................ 74,072 4.06 37,502 4.53 16,386 3.00
Consumer -other
indirect .............. 174,490 9.56 96,042 11.59 32,373 5.93
------------- ---------- ----------- ---------- ----------- ----------
Total .................. 2,039,216 111.75 938,704 113.30 613,991 112.37
------------- ---------- ----------- ---------- ----------- ----------
Adjustments:
Undisbursed portion of
loans in process ....... 190,874 10.45 89,896 10.85 49,981 9.15
Other .................... 0 0.00 0 0.00 63 0.01
Unearned discounts on
commercial real
estate loans ........... 705 0.04 793 0.10 874 0.16
Unearned discounts
(premium) on purchased
and consumer loans ..... (2,762) (0.15) 385 0.05 427 0.08
Allowance for
loan losses ............ 25,750 1.41 19,000 2.30 16,250 2.97
------------- ---------- ----------- ---------- ----------- ----------
Total loans
receivable, net ...... $1,824,649 100.00% $828,630 100.00% $546,396 100.00%
============= ========== =========== ========== =========== ==========
Mortgage-backed
securities:
FNMA participation
certificates ......... $ 101,381 34.40% $132,554 22.18% $147,652 23.52%
GNMA and FHLMC
mortgage-backed
securities ............. 193,359 65.60 465,197 77.82 480,230 76.48
------------- ---------- ----------- ---------- ----------- ----------
Total mortgage-backed
securities(1) ........ $ 294,740 100.00% $597,751 100.00% $627,882 100.00%
============= ========== =========== ========== =========== ==========
Banker's acceptances .... $ 207 100.00% $ 0 0.00% $ 0 0.00%
============= ========== =========== ========== =========== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
1993 1992
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ---------- ----------- ----------
LOANS RECEIVABLE:
Real estate loans:
Residential real estate $120,531 24.80% $147,654 26.52%
Residential real estate
available for sale .... 5,752 1.19 7,641 1.37
Construction and
development ........... 11,333 2.34 12,961 2.33
FHA and VA insured ..... 7,972 1.64 9,854 1.77
Commercial real
estate ................ 198,095 40.76 156,844 28.18
Other loans:
Second mortgage -direct 15,971 3.29 7,434 1.34
Second mortgage
-indirect ............. 47,307 9.73 65,074 11.69
Commercial business .... 27,979 5.76 33,071 5.94
Consumer -other
direct ................ 19,667 4.05 31,722 5.70
Consumer -other
indirect .............. 56,896 11.71 109,187 19.61
----------- ---------- ----------- ----------
Total .................. 511,503 105.27 581,442 104.45
----------- ---------- ----------- ----------
48
1993 1992
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ---------- ----------- ----------
Adjustments:
Undisbursed portion of
loans in process ....... 5,570 1.15 6,492 1.17
Other .................... 33 0.01 55 0.01
Unearned discounts on
commercial real
estate loans ........... 2,124 0.44 0 0.00
Unearned discounts
(premium) on purchased
and consumer loans ..... 820 0.17 1,733 0.31
Allowance for
loan losses ............ 17,000 3.50 16,500 2.96
----------- ---------- ----------- ----------
Total loans
receivable, net ...... $485,956 100.00% $556,662 100.00%
=========== ========== =========== ==========
Mortgage-backed
securities:
FNMA participation
certificates ......... $178,928 33.99% $174,666 35.83%
GNMA and FHLMC
mortgage-backed
securities ............. 347,437 66.01 312,828 64.17
----------- ---------- ----------- ----------
Total mortgage-backed
securities(1) ........ $526,365 100.00% $487,494 100.00%
=========== ========== =========== ==========
Banker's acceptances .... $109,931 100.00% $ 0 0.00%
=========== ========== =========== ==========
- -----------------------------------------------------------------------------
(1) Includes net unrealized appreciation on mortgage-backed securities
available for sale of $851,000, $8.8 million and $314,000 at December 31,
1996, 1995 and 1994, respectively.
50
ASSET AND LIABILITY MANAGEMENT
BankAtlantic's business emphasis is the origination of commercial real
estate loans, commercial business loans and consumer loans which generally
have higher yields and shorter durations than residential real estate loans.
BankAtlantic originates residential loans with both fixed and adjustable
rates. The majority of fixed rate and some adjustable rate loans are
currently sold to correspondents. BankAtlantic also purchases residential
loans with both fixed and adjustable rates, which are retained for portfolio.
Since these bulk loan purchases are acquired periodically, management is in a
position (unlike the case of individual loan originations) to partially hedge
the underlying interest rate risk in this portfolio due to the size and
generally homogeneous nature of these purchases. BankAtlantic also acquires
mortgage-backed securities and Treasury securities with intermediate terms.
During recent years in order to lower its cost of funds, BankAtlantic has not
emphasized certificates of deposit and seeks to emphasize generating low cost
transaction and escrow accounts as market opportunities allow. See
"Mortgage-Backed Securities and Investment Securities." Management
continually assesses general economic conditions, the interest rate
environment and the yields and credit risk associated with alternative
investments.
INTEREST RATE SENSITIVITY
BankAtlantic's net earnings are materially impacted by the difference
between the income it receives from its loan portfolio, tax certificates and
debt securities available for sale and its cost of funds. The interest paid
by BankAtlantic on deposits and borrowings determines its cost of funds. The
yield on BankAtlantic's loan portfolio changes principally as a result of
loan repayments, the interest rate and the volume of new loans. Fluctuations
in income from debt securities will occur based on the amount invested during
the period and interest rate levels yielded by such securities.
BankAtlantic's net interest spread will fluctuate in response to interest
rate changes.
Like many savings institutions, BankAtlantic's interest rate sensitive
liabilities (generally, deposits with maturities of one year or less) have in
the past exceeded its interest rate sensitive assets (assets which reprice
based on an index or which have short term maturities). This imbalance is
referred to as a negative interest rate sensitivity gap, and measures an
institution's ability to adjust to changes in the general level of interest
rates. The effect of the "mismatch" is that a rise in interest rates will
have a negative impact on earnings as the cost of funds increases to a
greater extent than the yield earned on interest-earning assets, while a
decline in interest rates will have a positive impact on earnings. The larger
the gap, whether positive or negative, the greater the impact of changing
interest rates.
BankAtlantic's one year interest rate sensitivity gap ratio, which is the
difference between the amount of interest bearing liabilities which are
projected to mature or reprice within one year and the amount of interest
earning assets which are similarly projected to mature or reprice, all
divided by total assets, amounted to a positive .42% at December 31, 1996.
The gap ratio was a negative 2.49% at December 31, 1995. The improvement in
the 1996 gap ratio resulted from higher commercial and construction loan
balances, and an increase in stockholder's equity, non-interest bearing
deposits, and intermediate term FHLB borrowings. The above items were
partially offset by increased fixed rate residential loan balances.
Commercial and construction loan balances increased from $472.6 million at
December 31, 1995 to $729.0 at December 31, 1996. Commercial and construction
loans generally have floating rates and terms of less than one year.
BankAtlantic's non-interest bearing deposits increased from $99.0 million at
December 31, 1995 to $163.6 million at December 31, 1996. The increase in
non-interest bearing deposits primarily resulted from the BNA acquisition.
BankAtlantic's stockholder's equity increased by $63.9 million due to
contributions by the Company and earnings. During 1996, BankAtlantic borrowed
$175.7 million of one to six year FHLB advances to fund fixed rate
residential loans. Fixed rate residential loans increased from $48.5 million
at December 31, 1995 to $468.9 million at December 31, 1996. The higher fixed
rate residential loan balances resulted from the BNA acquisition and
purchased loans. The absolute amount of BankAtlantic's one year gap changed
from a negative $43.6 million at December 31, 1995, to a positive $10.9
million at December 31, 1996.
51
At December 31, 1996 BankAtlantic had a negative 91-180 day cumulative gap
of 5.06% and a positive cumulative gap of .15%, .42%, 6.45%, 8.74% 13.33%,
14.31% and 14.33% for 0-90 days, 181 days to 1 year, 1-3 years, 3-5 years,
5-10 years, 10-20 years and greater than 20 years, respectively. Interest
rates declined during 1996. Interest rate rises would be minimized by the
fact that a significant amount of BankAtlantic's interest bearing liabilities
are deposits for which interest rates paid do not generally increase at the
same proportionate rate as an increase in the prime rate. However, the
interest rates charged on BankAtlantic's adjustable rate loans and securities
are priced on the basis of the prime rate and other indices and increase at
the same rate as the prime or applicable index rate, subject only to caps
that may exist in the loan or security instrument. At the present time, caps
on interest earning assets generally do not have the effect of limiting
increases in the interest rate charged on such assets. As noted above, the
cumulative positive gap in future periods provides the opportunity to
increase earnings in a rising interest rate environment due to the ability to
reprice more assets than liabilities
Management considers BankAtlantic's current gap position to be within
acceptable parameters. To the extent the gap position deviates from this
status, actions which could be taken, if deemed appropriate, include the
lengthening or shortening of maturities for borrowings and investment
security purchases, disposing of debt securities which are available for sale
as well as purchasing more variable rate than fixed rate investment
securities.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. At
December 31, 1996, no interest rate risk deduction to capital would have been
required under the rule, although BankAtlantic's net portfolio value ("NPV")
would decrease in a rising interest rate environment. NPV is the difference
between incoming and outgoing discounted cash flows from assets, liabilities
and off-balance sheet contracts. For further discussion see "Savings
Institution Regulation".
Presented below is an analysis of BankAtlantic's interest rate risk at
September 30, 1996 (the latest date for which information was available), as
calculated by the OTS, based on information provided to the OTS by
BankAtlantic. The table measures changes in BankAtlantic's net portfolio
value for instantaneous and parallel shifts in the yield curve in 100 basis
point increments up or down (dollars in thousands):
CHANGE NET PORFOLIO VALUE
IN RATES -----------
$ AMOUNT $ CHANGE
- --------------- -----------
/plus/200bp 223,252 (32,495)
/plus/100bp 242,106 (13,641)
0bp 255,747 0
/minus/100bp 260,825 5,078
/minus/200bp 258,669 2,922
52
BANKATLANTIC'S CUMULATIVE RATE SENSITIVITY GAP AT DECEMBER 31, 1996
181
0-90 91-180 DAYS TO 1-3 3-5
DAYS DAYS 1 YEAR YEARS YEARS
----------- ------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest earning assets:
Investment securities(5)(7) . $ 35,921 $ 11,450 $ 15,220 $ 12,855 $ 0
Residential loans(1)(2)
Conventional single
family .................... 19,226 11,276 21,862 78,910 66,839
Adjustable single family ... 138,911 101,446 141,866 36,199 0
Debt securities available for
sale -fixed rates(3)(6) ..... 27,280 22,438 80,264 172,734 95,849
Debt securities available for
sale floating rates .......... 8,168 0 0 0 0
Commercial real estate
loans ........................ 68,392 19,086 227,704 124,960 29,752
Adjustable commercial real
estate loans ................. 259,154 0 0 0 0
Other loans:
Commercial business .......... 1,732 1,290 2,373 4,871 0
Commercial business
adjustable ................... 68,118 0 0 0 0
Consumer ..................... 23,655 22,743 42,216 131,607 59,253
Consumer prime rate .......... 51,194 0 0 0 0
----------- ------------- ----------- ----------- -----------
Total interest earning
assets ....................... 701,751 189,729 531,505 562,136 251,693
----------- ------------- ----------- ----------- -----------
Interest bearing liabilities:
Money fund savings(4) ........ 70,888 56,888 91,305 73,265 34,882
Savings and NOW(4) ........... 26,561 24,520 44,678 124,066 50,340
Certificate accounts ......... 269,659 243,758 252,979 121,952 32,900
Borrowings:
Securities sold under
agreements to
repurchase ................... 210,854 0 0 0 0
Advances from FHLB ........... 119,963 0 0 86,036 74,011
----------- ------------- ----------- ----------- -----------
Total interest-bearing
liabilities .................. $697,925 $ 325,166 $388,962 $405,319 $192,133
=========== ============= =========== =========== ===========
Interest rate sensitivity GAP
(repricing difference) ....... $ 3,826 $(135,437) $142,543 $156,817 $ 59,560
Cumulative GAP ............... $ 3,826 $(131,611) $ 10,932 $167,749 $227,309
Cumulative ratio of GAP to
total assets ................. 0.15% (5.06)% 0.42% 6.45% 8.74%
=========== ============= =========== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
5-10 10-20 20
YEARS YEARS YEARS TOTAL
----------- ----------- ----------- -------------
Interest earning assets:
Investment securities(5)(7) . $ 0 $ 0 $ 0 $ 75,446
Residential loans(1)(2)
Conventional single
family .................... 254,664 15,550 552 468,879
Adjustable single family ... 0 0 0 418,422
Debt securities available for
sale -fixed rates(3)(6) ..... 25,886 854 29 425,334
Debt securities available for
sale floating rates .......... 0 0 0 8,168
Commercial real estate
loans ........................ 0 0 0 469,894
Adjustable commercial real
estate loans ................. 0 0 0 259,154
Other loans:
Commercial business .......... 0 0 0 10,266
Commercial business
adjustable ................... 0 0 0 68,118
Consumer ..................... 4,804 9,218 0 293,496
Consumer prime rate .......... 0 0 0 51,194
----------- ----------- ----------- -------------
Total interest earning
assets ....................... 285,354 25,622 581 2,548,371
----------- ----------- ----------- -------------
Interest bearing liabilities:
Money fund savings(4) ........ 31,699 0 0 358,927
Savings and NOW(4) ........... 116,774 0 0 386,939
Certificate accounts ......... 2,050 0 0 923,298
Borrowings:
Securities sold under
agreements to
repurchase ................... 0 0 0 210,854
Advances from FHLB ........... 15,690 0 0 295,700
51
5-10 10-20 20
YEARS YEARS YEARS TOTAL
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Total interest-bearing
liabilities .................. $166,213 $ 0 $ 0 $2,175,718
=========== =========== =========== =============
Interest rate sensitivity GAP
(repricing difference) ....... $119,141 $ 25,622 $ 581 $ 372,653
Cumulative GAP ............... $346,450 $372,072 $372,653
Cumulative ratio of GAP to
total assets ................. 13.33% 14.31% 14.33%
=========== =========== ===========
- -----------------------------------------------------------------------------
(1) Fixed rate mortgages are shown in periods which reflect normal
amortization plus prepayments of 7-8% per annum, depending on coupon.
(2) Adjustable rate mortgages and debt securities available for sale-floating
rate are shown in the periods in which the mortgages are scheduled for
repricing.
(3) Fixed rate debt securities available for sale are shown in periods which
reflect normal amortization plus prepayments equal to BankAtlantic's
experience of 9-15% per annum.
(4) BankAtlantic determines deposit run-off on money fund checking, savings
and NOW accounts based on statistics obtained from external sources.
BankAtlantic does not believe its experience differs significantly from
these sources. Interest-free transaction accounts are non-interest
bearing liabilities and are accordingly, excluded from the cumulative
rate sensitivity gap analysis.
WITHIN 1-3 3-5 OVER 5
1 YEAR YEARS YEARS YEARS
--------- --------- --------- ---------
Savings accounts decay rates ................................... 17.00% 17.00% 16.00% 14.00%
Insured money fund savings (excluding tiered savings) decay
rates ............................................................. 79.00% 31.00% 31.00% 31.00%
NOW and tiered savings accounts decay rates .................... 37.00% 32.00% 17.00% 17.00%
========= ========= ========= =========
(5) Includes FHLB stock and federal funds sold.
(6) Asset-backed securities are shown in periods which reflect normal
amortization plus prepayments equal to BankAtlantic's experience of 45%
per annum.
(7) Tax certificates are shown in periods which reflects normal repayment
equal to BankAtlantic's experience of 10% of the outstanding monthly
balance.
53
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to BankAtlantic's ability to generate sufficient cash to
meet funding needs to support loan demand, to meet deposit withdrawals and to
pay operating expenses. BankAtlantic's securities portfolio provides an
internal source of liquidity as a consequence of its short-term investments
as well as scheduled maturities and interest payments. Loan repayments and
sales also provide an internal source of liquidity.
The Company's principal source of cash flow is dividends from BankAtlantic
and it is anticipated that such funds will be utilized by the Company to pay
dividends on its outstanding common stock and interest on outstanding
debentures. The Company also obtains funds through the exercise of stock
options.
A summary of the Company's consolidated cash flows follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------ ----------- ------------
Net cash provided (used) by:
Operating activities ............... $ 29,159 $ 36,649 $ 12,199
Investing activities ............... (336,615) (65,233) (162,055)
Financing activities ............... 346,732 42,471 169,485
------------ ----------- ------------
Increase in cash and due from banks $ 39,276 $ 13,887 $ 19,629
========= =========== ============
The changes in cash used or provided in operating activities are affected
by the changes in operations, which are discussed elsewhere herein, and by
certain other adjustments. These other adjustments include additions to
operating cash flows for nonoperating charges such as depreciation and the
provision for loan losses and write downs of assets. Cash flow of operating
activities is also adjusted to reflect the use or the providing of cash for
increases and decreases in operating assets and decreases or increases, in
operating liabilities. Accordingly, the changes in cash flow of operating
activities in the periods indicated above has been impacted not only by the
changes in operations during the periods but also by these other adjustments.
In August 1996, the Company announced a plan to purchase up to 1.25
million shares of the Company's common stock. As of December 31, 1996, the
Company had repurchased, in the secondary market, 228,125 and 112,500 of
Class A and Class B common shares, respectively, for $3.3 million. These
shares were retired at the time of repurchase.
Management believes that the company and BankAtlantic have adequate
liquidity to meet their business needs and regulatory requirements.
The Company's primary use of funds is to pay cash dividends and interest
expense on $57.5 million and $21.0 million of currently outstanding 6 3/4 %
and 9% Debentures, respectively. It is anticipated that funds for payment of
such expenses will continue to be obtained from BankAtlantic. Additionally,
the ultimate repayment by the Company of its outstanding Debentures may be
dependent upon dividends from BankAtlantic, refinancing of the debt or
raising additional equity capital by the Company.
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital"). BBC
Capital is a statutory business trust which exists for the purpose of issuing
Preferred Securities ("Preferred Securities") and investing the proceeds thereof
in Junior Subordinated Debentures of the Company. In March 1997, BBC Capital
filed a registration statement with the Securities and Exchange Commission to
issue up to 2.3 million shares of Preferred Securities. Holders of Preferred
Securities will be entitled to receive a preferential cumulative cash
distribution at a fixed annual percentage of the liquidation amount. BBC
Capital's sole asset will be the Company's Junior Subordinated Debentures which
will bear interest at the same rate as the Preferred Securities and has a stated
maturity of 30 years from date of issuance.
BankAtlantic's primary sources of funds have been deposits, principal
repayments of loans, debt securities available for sale and tax certificates,
proceeds from the sale of loans originated for sale, mortgage-backed
securities, mortgage servicing rights, investment securities, proceeds from
securities sold under agreements to repurchase, advances from the FHLB,
operations, other borrowings, and capital transactions. These funds were
primarily utilized to fund loan disbursements and purchases, repayments of
securities sold under agreements to repurchase, maturities of advances from
the FHLB, purchases of tax certificates and payments of maturing certificates
of deposit. In August 1994 the FHLB
54
granted BankAtlantic a $300 million line of credit with a maximum term of ten
years. In January 1997, the FHLB increased BankAtlantic's line of credit to
$500 million. In November 1996, Merrill Lynch granted BankAtlantic a facility
of up to $150.0 million for broker deposits. The facility will be exercised
as an alternative source of borrowings, when and if needed. BankAtlantic also
has three $5.0 million lines of credit with three federally insured banking
institutions to purchase Federal Funds. At December 31, 1996, there were $6.1
million of Federal funds balances outstanding.
Regulations currently require that savings institutions maintain an
average daily balance of liquid assets (cash and short-term United States
Government and other specified securities) equal to 5% of net withdrawable
accounts and borrowings payable in one year or less. BankAtlantic had a
liquidity ratio of 12.98% under these regulations at December 31, 1996. See
"Regulation and Supervision--Savings Institution Regulations--Liquidity
Requirements of the OTS."
Total commitments to originate and purchase loans, asset-backed securities
and mortgage-backed securities, excluding the undisbursed portion of loans in
process, were approximately $83.7 million, $69.7 million and $83.9 million at
December 31, 1996, 1995 and 1994, respectively. BankAtlantic funded its
commitments out of loan repayments and, for a limited period of time,
short-term borrowings. At December 31, 1996, loan commitments were
approximately 4.6% of loans receivable, net.
As more fully described under "Regulation and Supervision--Savings
Institution Regulations--Capital Requirements," BankAtlantic is required to
meet all capital standards promulgated pursuant to FIRREA and FDICIA.
DIVIDENDS
The Company intends to pay regular quarterly cash dividends on its common
stock. Funds for dividend payments and interest expense on the 9% and 6 3/4 %
Debentures are or will be dependent upon BankAtlantic's ability to pay
dividends to the Company. Current regulations applicable to the payment of
cash dividends by savings institutions impose limits on capital distributions
based on an institution's regulatory capital levels and net income. See
discussion on Regulation and Supervision "Restriction on Dividends and Other
Capital Distributions."
In August 1993, BankAtlantic declared and paid a quarterly cash dividend
to its common stockholders and has paid a regular quarterly dividend since
that time. Subject to the results of operations and regulatory capital
requirements for BankAtlantic, the Company will seek to declare regular
quarterly cash dividends on its common stock. The Company declared five for
four common share stock splits effected in the form of 25% stock dividends
payable in Class A shares to all shareholders of both classes of common stock
in February 1997 paid in March 1997, and July 1996 paid in August 1996. Due
to accounting and tax considerations, the Company issued the stock dividend
in shares of Class B common stock with respect to options to purchase Class B
common stock previously granted under the Company's stock option plans. See
discussion on "Restrictions on Dividends and Other Capital Distributions."
IMPACT OF INFLATION
The financial statements and related financial data and notes presented
herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing
power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of BankAtlantic are monetary in nature. As a result, interest
rates have a more significant impact on BankAtlantic's performance than the
effects of general price levels. Although interest rates generally move in
the same direction as inflation, the magnitude of such changes varies. The
possible effect of fluctuating interest rates is discussed more fully under
the previous section entitled "Interest Rate Sensitivity."
55
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
------
Independent Auditors' Report ......................................................... F-3
Consolidated Statements of Financial Condition as of December 31, 1996 and 1995 ......... F-4
Consolidated Statements of Operations for each of the years in the three year period ended
December 31, 1996 ..................................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the years in the three year
period ended December 31, 1996 ......................................................... F-6
Consolidated Statements of Cash Flows for each of the years in the three year period ended
December 31, 1996 ..................................................................... F-7
Notes to Consolidated Financial Statements ............................................. F-10
56
[THIS PAGE INTENTIONALLY LEFT BLANK]
57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BankAtlantic Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of BankAtlantic Bancorp, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BankAtlantic
Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Fort Lauderdale, Florida
January 28, 1997
58
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
---------------------------------
1996 1995
-------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Cash and due from depository institutions ........................... $ 102,995 $ 69,867
Federal Funds sold ................................................... 6,148 0
Investment securities, net-held to maturity, at cost which
approximates market value .......................................... 54,511 49,856
Loans receivable, net ................................................ 1,824,856 828,630
Debt securities available for sale (at market value) ............... 439,345 691,803
Accrued interest receivable .......................................... 20,755 14,553
Real estate owned, net ............................................. 4,918 6,279
Office properties and equipment, net ................................. 48,274 40,954
Federal Home Loan Bank stock, at cost which approximates
market value ...................................................... 14,787 10,089
Mortgage servicing rights .......................................... 25,002 20,738
Deferred tax asset, net ............................................. 3,355 0
Cost over fair value of net assets acquired ........................ 28,591 10,823
Other assets ......................................................... 31,990 7,097
----------- -----------
Total assets ...................................................... $ 2,605,527 $ 1,750,689
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ............................................................ $ 1,832,780 $ 1,300,377
Advances from FHLB ................................................... 295,700 201,785
Federal Funds purchased ............................................. 0 1,200
Securities sold under agreements to repurchase ..................... 190,588 66,237
Subordinated debentures and note payable ........................... 78,500 21,001
Drafts payable ...................................................... 386 796
Deferred tax liabilities, net ....................................... 0 744
Advances by borrowers for taxes and insurance ........................ 29,659 15,684
Other liabilities ................................................... 30,210 22,304
----------- -----------
Total liabilities ................................................ 2,457,823 1,630,128
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, $25 per share preference value,
10,000,000 shares authorized; none issued and outstanding ......... 0 0
Class A common stock, $.01 par value, authorized 30,000,000 shares;
issued and outstanding 7,807,258 and 0 shares ..................... 78 0
Class B common stock, $.01 par value, authorized 15,000,000 shares;
issued and outstanding 10,542,116 and 10,592,999 shares ............ 105 106
Additional paid-in capital .......................................... 64,171 48,905
Retained earnings ................................................... 82,602 65,817
----------- -----------
Total stockholders' equity before net unrealized appreciation on debt
securities available for sale-net of deferred income taxes ......... 146,956 114,828
Net unrealized appreciation on debt securities available for sale-
net of deferred income taxes ....................................... 748 5,733
----------- -----------
Total stockholders' equity ....................................... 147,704 120,561
----------- -----------
Total liabilities and stockholders' equity ........................ $ 2,605,527 $ 1,750,689
=========== ===========
See Notes to Consolidated Financial Statements
59
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATE)
INTEREST INCOME:
Interest and fees on loans .......................................... $ 107,922 $ 72,841 $49,426
Interest on banker's acceptances .................................... 22 0 406
Interest on mortgage-backed securities held to maturity ............ 0 37,855 30,550
Interest on debt securities available for sale ..................... 38,159 7,207 5,542
Interest and dividends on investment securities ..................... 6,528 12,174 12,625
--------- --------- -------
Total interest income ............................................. 152,631 130,077 98,549
--------- --------- -------
INTEREST EXPENSE:
Interest on deposits ................................................ 55,028 46,646 31,646
Interest on advances from FHLB ....................................... 9,221 7,449 4,976
Interest on securities sold under agreements to repurchase
and federal funds purchased ....................................... 8,764 10,815 4,809
Interest on subordinated debentures and note payable ............... 4,018 776 0
--------- --------- -------
Total interest expense ............................................. 77,031 65,686 41,431
--------- --------- -------
Net interest income ................................................ 75,600 64,391 57,118
Provision for loan losses .......................................... 5,844 4,182 2,299
--------- --------- -------
Net interest income after provision for loan losses .................. 69,756 60,209 54,819
--------- --------- -------
NON-INTEREST INCOME:
Loan servicing and other loan fees ................................. 4,216 3,524 3,365
Gains on sales of loans originated for resale ........................ 534 395 773
Unrealized and realized gains (losses) on trading account securities 0 589 (558)
Gains on sales of mortgage servicing rights ........................ 4,182 2,744 484
Gains on sales of debt securities available for sale ............... 5,959 0 0
Gains on sales of property and equipment, net ........................ 3,061 18 272
Other ............................................................... 15,785 12,118 9,427
--------- --------- -------
Total non-interest income .......................................... 33,737 19,388 13,763
--------- --------- -------
NON-INTEREST EXPENSE:
Employee compensation and benefits ................................. 33,216 25,403 22,382
Occupancy and equipment ............................................. 13,615 10,831 8,061
SAIF special assessment ............................................. 7,160 0 0
Federal insurance premium .......................................... 2,495 2,750 2,673
Advertising and promotion .......................................... 2,079 2,144 1,495
Foreclosed asset activity, net ....................................... (725) (3,178) (2,290)
Amortization of cost over fair value of net assets acquired ......... 1,545 1,122 0
Other ............................................................... 12,856 12,088 9,764
--------- --------- -------
Total non-interest expense ....................................... 72,241 51,160 42,085
--------- --------- -------
Income before income taxes .......................................... 31,252 28,437 26,497
Provision for income taxes .......................................... 12,241 10,018 9,662
--------- --------- -------
Net income ......................................................... 19,011 18,419 16,835
--------- --------- -------
Dividends on non-cumulative preferred stock ........................ 0 677 880
Amount classified as dividends on non-cumulative
preferred stock redemption (A) .................................... 0 1,353 0
--------- --------- -------
Total dividends on non-cumulative preferred stock .................. 0 2,030 880
--------- --------- -------
Net income available for common shares .............................. $ 19,011 $ 16,389 $ 15,955
========= ========= =======
Income per common and common equivalent share ........................ $ 1.01 $ 0.97(A) $ 0.97
========= ========= =======
Income per common equivalent share assuming full dilution ............ $ 0.93 $ 0.96(A) $ 0.97
========= ========= =======
(A) The excess of the redemption price above the recorded amount of preferred
stock is considered a preferred stock dividend. The impact of the October
1995 preferred stock redemption for the year ended December 31, 1995 was a
reduction of $0.08 for primary and fully diluted earnings per share.
See Notes to Consolidated Financial Statements
60
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1996
ADDITIONAL
PAID-IN
CAPITAL
PREFERRED PREFERRED COMMON
STOCK STOCK STOCK
------------ ------------- ---------
BALANCE, DECEMBER 31, 1993 ............ $ 3 $ 7,033 $ 65
Net income .............................. 0 0 0
Dividends on preferred stock ............ 0 0 0
Dividends on common stock ............... 0 0 0
Exercise of 1984 common
stock options ........................ 0 0 0
Tax effect relating to the exercise of
employee stock options ............... 0 0 0
Net unrealized appreciation on debt
securities available for sale-net of
deferred income taxes .................. 0 0 0
Preferred stock redemption ............ 0 (6) 0
----- ------- ----
BALANCE, DECEMBER 31, 1994 ............ 3 7,027 65
Net income .............................. 0 0 0
5 for 4 stock split June 1995 ......... 0 0 16
5 for 4 stock split January 1996 ...... 0 0 21
Dividends on preferred stock ............ 0 0 0
Redemption of preferred stock ......... 3 (7,027) 0
Dividends on common stock ............... 0 0 0
Exercise of 1984 common
stock options ........................ 0 0 2
Tax effect relating to the exercise of
employee stock options ............... 0 0 0
Exercise of stock warrants ............ 0 0 2
Net change in unrealized appreciation
on debt securities available for
sale-net of deferred income taxes . 0 0 0
----- ------- ----
BALANCE, DECEMBER 31, 1995 ............ 0 0 106
Net income .............................. 0 0 0
Proceeds from issuance of Class A ......
common stock, net ..................... 0 0 12
Dividends on common stock ............... 0 0 0
Exercise of 1984 Class B
common stock options .................. 0 0 0
Tax effect relating to the exercise of
employee stock options ............... 0 0 0
Purchase and retirement of Class A
common stock ........................... 0 0 (1)
Purchase and retirement of Class B
common stock ........................... 0 0 (1)
5 for 4 stock split July 1996 ......... 0 0 30
5 for 4 stock split February 1997 ...... 0 0 37
Net change in unrealized appreciation
on debt securities available for
sale-net of deferred income taxes . 0 0 0
----- ------- ----
BALANCE, DECEMBER 31, 1996 ............ $ 0 $ 0 $ 183
===== ======= ====
NET
UNREALIZED
APPRECIATION
ON SECURITIES
ADDITIONAL RETAINED AVAILABLE
PAID-IN EARNINGS FOR SALE TOTAL
------------- ----------- --------------- -----------
BALANCE, DECEMBER 31, 1993 ............ $ 46,726 $ 36,825 $ 0 $ 90,652
Net income .............................. 0 16,835 0 16,835
Dividends on preferred stock ............ 0 (880) 0 (880)
Dividends on common stock ............... 0 (1,575) 0 (1,575)
Exercise of 1984 common
stock options ........................ 266 0 0 266
Tax effect relating to the exercise of
employee stock options ............... 35 0 0 35
Net unrealized appreciation on debt
securities available for sale-net of
deferred income taxes .................. 0 0 193 193
Preferred stock redemption ............ 0 0 0 (6)
-------- -------- ------- --------
BALANCE, DECEMBER 31, 1994 ............ 47,027 51,205 193 105,520
Net income .............................. 0 18,419 0 18,419
5 for 4 stock split June 1995 ......... 0 (16) 0 0
5 for 4 stock split January 1996 ...... 0 (21) 0 0
Dividends on preferred stock ............ 0 (677) 0 (677)
Redemption of preferred stock ......... 0 (1,353) 0 (8,383)
Dividends on common stock ............... 0 (1,740) 0 (1,740)
Exercise of 1984 common
stock options ........................ 706 0 0 708
Tax effect relating to the exercise of
employee stock options ............... 173 0 0 173
Exercise of stock warrants ............ 999 0 0 1,001
Net change in unrealized appreciation
on debt securities available for
sale-net of deferred income taxes . 0 0 5,540 5,540
-------- -------- ------- --------
BALANCE, DECEMBER 31, 1995 ............ 48,905 65,817 5,733 120,561
Net income .............................. 0 19,011 0 19,011
Proceeds from issuance of Class A ......
common stock, net ..................... 17,992 0 0 18,004
Dividends on common stock ............... 0 (2,159) 0 (2,159)
Exercise of 1984 Class B
common stock options .................. 413 0 0 413
Tax effect relating to the exercise of
employee stock options ............... 118 0 0 118
Purchase and retirement of Class A
common stock ........................... (1,856) 0 0 (1,857)
Purchase and retirement of Class B
common stock ........................... (1,401) 0 0 (1,402)
5 for 4 stock split July 1996 ......... 0 (30) 0 0
5 for 4 stock split February 1997 ...... 0 (37) 0 0
Net change in unrealized appreciation
on debt securities available for
sale-net of deferred income taxes . 0 0 (4,985) (4,985)
-------- -------- ------- --------
BALANCE, DECEMBER 31, 1996 ............ $ 64,171 $ 82,602 $ 748 $ 147,704
======== ======== ======= ========
See Notes to Consolidated Financial Statements.
61
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net Income ...................................................... $ 19,011 $ 18,419 $ 16,835
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Provision for loan losses ....................................... 5,844 4,182 2,299
Provision for (reversal of) losses on real estate owned ......... (197) (1,187) 140
FHLB stock dividends ............................................. 0 0 (110)
Depreciation ...................................................... 3,835 3,203 2,731
Amortization of mortgage servicing rights ........................ 6,849 4,362 4,960
Increase (decrease) in deferred income taxes ..................... 1,495 1,551 (1,266)
Net amortization (accretion) of securities ........................ (257) 780 1,068
Gains on sales of real estate owned .............................. (575) (2,032) (2,105)
Net accretion of deferred loan origination fees .................. (1,154) (1,095) (1,078)
Proceeds from sales of loans originated for resale ............... 59,942 34,548 38,941
Fundings of loans originated for resale ........................... (57,097) (41,326) (39,259)
Gains on sales of loans originated for resale ..................... (534) (395) (773)
Gains on sales of office properties and equipment ............... (3,061) (18) (272)
Purchase of trading account securities, net ..................... 0 0 (9,658)
Proceeds from sales of trading account securities ............... 0 9,524 0
Unrealized and realized (gains) losses on trading
account securities ............................................. 0 (589) 558
Gains on sales of debt securities available for sale ............ (5,959) 0 0
Gains on sales of mortgage servicing rights ..................... (4,182) (2,744) (484)
Income (loss) from joint venture operations ..................... 0 (6) 30
Decrease (increase) in accrued interest receivable ............... (2,021) 1,593 2,636
Amortization of dealer reserve .................................... 4,159 2,071 453
Amortization of cost over fair value of net assets acquired ...... 1,545 1,122 0
Net accretion of other purchase accounting adjustments ............ (329) (612) 0
Amortization of subordinated debentures and note
payable deferred costs .......................................... 222 98 0
Decrease in other assets .......................................... 804 4,574 2,505
Increase (decrease) in drafts payable ........................... (410) 111 112
Increase (decrease) in other liabilities ........................ 1,150 540 (6,179)
Write down of office properties and equipment ..................... 263 120 0
Provision for (recovery from) tax certificate losses ............ (184) (145) 115
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 29,159 36,649 12,199
-------- -------- --------
(Continued)
See Notes to Consolidated Financial Statements.
62
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1996
---------------------
(IN THOUSANDS)
INVESTING ACTIVITIES:
Purchase of investment securities .................................... (56,884)
Purchase of debt securities available for sale ........................ (231,765)
Proceeds from redemption and maturity of investment securities ...... 52,413
Principal collected on debt securities available for sale ............ 43,236
Proceeds from sales of debt securities available for sale ............ 374,413
Residential loans purchased .......................................... (465,942)
Principal reduction on loans .......................................... 548,847
Loan fundings for portfolio .......................................... (692,546)
Banker's acceptances funded .......................................... (86)
Proceeds from maturity of banker's acceptances ..................... 108
Mortgage-backed securities purchased ................................. 0
Proceeds from sales of real estate owned .............................. 4,938
Principal collected on mortgage-backed securities ..................... 131,361
Additions to dealer reserve .......................................... (4,203)
Additions to office properties and equipment ........................ (10,326)
Proceeds from sales of properties and equipment ..................... 2,666
Proceeds received from joint ventures ................................. 0
Purchases of FHLB stock net of redemptions ........................... (1,923)
Proceeds from maturities of interest bearing deposits with banks ...... 19,795
Proceeds from sales of mortgage servicing rights ..................... 15,586
Mortgage servicing rights purchased and originated .................. (27,992)
Bank acquisitions, net of cash acquired .............................. (38,311)
----
NET CASH USED BY INVESTING ACTIVITIES ................................. (336,615)
----
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ................................. 15,905
Interest credited to deposits ....................................... 47,433
Proceeds from FHLB advances .......................................... 577,643
Repayments of FHLB advances .......................................... (488,755)
Net increase (decrease) in federal funds purchased .................. (1,200)
Proceeds from note payable .......................................... 0
Repayment of note payable ............................................. (1)
Net increase (decrease) in securities sold under
agreements to repurchase ............................................. 122,329
Proceeds from the issuance of subordinated debentures ............... 57,500
Deferred costs on subordinated debentures ........................... (2,356)
Preferred stock redemption .......................................... 0
Payment to acquire and retire common stock ........................... (3,259)
Issuance of common stock , net ....................................... 18,417
Receipts (payments) of advances by borrowers for
taxes and insurance, net ............................................. 5,235
Preferred stock dividends paid ....................................... 0
Common stock dividends paid .......................................... (2,159)
----
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 346,732
Increase in cash and cash equivalents ................................. 39,276
----
Cash and cash equivalents at the beginning of period .................. 69,867
----
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 109,143
====
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- -----------------------
(IN THOUSANDS)
INVESTING ACTIVITIES:
Purchase of investment securities .................................... (70,872) (240,726)
Purchase of debt securities available for sale ........................ 0 0
Proceeds from redemption and maturity of investment securities ...... 140,837 135,978
Principal collected on debt securities available for sale ............ 11,989 29,312
Proceeds from sales of debt securities available for sale ............ 852 0
Residential loans purchased .......................................... (9,930) (3,989)
Principal reduction on loans .......................................... 444,867 270,986
Loan fundings for portfolio .......................................... (597,274) (328,849)
Banker's acceptances funded .......................................... 0 0
Proceeds from maturity of banker's acceptances ..................... 0 109,931
Mortgage-backed securities purchased ................................. (75,262) (268,776)
Proceeds from sales of real estate owned .............................. 5,373 5,660
Principal collected on mortgage-backed securities ..................... 110,084 136,863
Additions to dealer reserve .......................................... (3,684) 0
Additions to office properties and equipment ........................ (5,535) (3,861)
Proceeds from sales of properties and equipment ..................... 18 643
Proceeds received from joint ventures ................................. 1,239 0
Purchases of FHLB stock net of redemptions ........................... (1,249) 0
Proceeds from maturities of interest bearing deposits with banks ...... 0 0
Proceeds from sales of mortgage servicing rights ..................... 8,340 2,920
Mortgage servicing rights purchased and originated .................. (10,112) (8,147)
Bank acquisitions, net of cash acquired .............................. (14,914) 0
---- ----
NET CASH USED BY INVESTING ACTIVITIES ................................. (65,233) (162,055)
---- ----
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ................................. 51,093 (20,814)
Interest credited to deposits ....................................... 43,447 30,236
Proceeds from FHLB advances .......................................... 641,785 516,400
Repayments of FHLB advances .......................................... (602,050) (482,650)
Net increase (decrease) in federal funds purchased .................. 1,200 0
Proceeds from note payable .......................................... 4,000 0
Repayment of note payable ............................................. (3,999) 0
Net increase (decrease) in securities sold under
agreements to repurchase ............................................. (104,207) 128,694
Proceeds from the issuance of subordinated debentures ............... 21,000 0
Deferred costs on subordinated debentures ........................... (1,052) 0
Preferred stock redemption .......................................... (8,383) (6)
Payment to acquire and retire common stock ........................... 0 0
Issuance of common stock , net ....................................... 1,709 266
Receipts (payments) of advances by borrowers for
taxes and insurance, net ............................................. 277 (584)
Preferred stock dividends paid ....................................... (677) (880)
Common stock dividends paid .......................................... (1,672) (1,177)
---- ----
NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 42,471 169,485
Increase in cash and cash equivalents ................................. 13,887 19,629
---- ----
Cash and cash equivalents at the beginning of period .................. 55,980 36,351
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 69,867 $ 55,980
==== ====
(Continued)
See Notes to Consolidated Financial Statements
63
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Interest paid ............................................................ $ 71,656 $ 65,708 $ 40,334
Income taxes paid ......................................................... 8,600 9,320 10,435
Income taxes refunded ................................................... 0 88 0
Loans transferred to real estate owned .................................... 1,788 1,029 1,282
Loans charged-off ......................................................... 7,718 5,433 5,968
Real estate owned charged-off ............................................. 803 213 40
Tax certificates charged-off (recoveries), net ........................... (2) 1,192 100
Book value of debt securities transferred to available for sale ......... 0 638,818 0
Increase in equity for the tax effect related to the
exercise of employee stock options ....................................... 118 173 35
Common stock cash dividends declared and paid in
subsequent period ...................................................... 551 467 398
Net change in unrealized appreciation on debt securities
available for sale ...................................................... (8,115) 9,019 314
Change in deferred taxes on net unrealized appreciation on debt securities
available for sale ...................................................... (3,130) 3,479 121
Change in stockholders' equity from net unrealized
appreciation on debt securities available for sale, less related
deferred income taxes ................................................... (4,985) 5,540 193
Proceeds receivable from sales of mortgage servicing rights ............... 9,522 0 0
Proceeds receivable from sales of properties leased to others ............ 5,401 0 0
See Notes to Consolidated Financial Statements
64
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - On July 13, 1994, BankAtlantic,
A Federal Savings Bank ("BankAtlantic") consummated its reorganization
(the "Reorganization") into a holding company structure and BankAtlantic
Bancorp., Inc. (the "Company") acquired all the capital stock of
BankAtlantic thereby becoming a unitary savings bank holding company. The
Reorganization resulted in the shareholders of BankAtlantic becoming
shareholders of the Company on the same proportionate basis as their ownership
in BankAtlantic and BankAtlantic becoming a wholly-owned subsidiary of the
Company. This Reorganization has been accounted for in a manner similar to a
pooling of interests, and has been given retroactive effect in the accompanying
consolidated financial statements. At the time of, and as a result of the
Reorganization, BFC Financial Corporation ("BFC") owned approximately
48.17% of the common stock of the Company. The accounts of BFC are not included
in the consolidated financial statements of the Company. The Company's primary
asset is the capital stock of BankAtlantic and its principal activities relate
to the operations of BankAtlantic and BankAtlantic's subsidiaries. These
subsidiaries are primarily utilized to dispose of real estate acquired through
foreclosure. All significant intercompany balances and transactions have been
eliminated in consolidation. At December 31, 1996 BFC owned 46% of the
Company's voting common stock.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition and
operations for the periods presented. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the next year relate to the determination of the allowance
for loan losses, the valuation of real estate acquired in connection with
foreclosure or in satisfaction of loans and the evaluation of the value of
mortgage servicing rights. In connection with the determination of the
allowances for loan losses and real estate owned, management obtains independent
appraisals for significant properties when it is deemed prudent.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1996.
CASH EQUIVALENTS - Cash and due from depository institutions include demand
deposits at other financial institutions and federal funds sold. Generally,
federal funds are sold for one-day periods.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES - Investments in debt securities
which BankAtlantic has a positive intent and ability to hold to maturity are
classified as securities held to maturity and are carried at cost, adjusted for
discounts and premiums which are accreted or amortized to estimated maturity
under the interest method. A security cannot be classified as held to maturity
if it might be sold in response to changes in market interest rates, related
changes in the security's prepayment risk, liquidity needs, changes in the
availability of and the yield on alternative investments, and changes in funding
sources and terms. Losses relating to permanent impairment of securities are
reflected in the statement of operations.
Debt and equity securities and options related thereto, purchased or sold
for the purpose of a short-term profit are classified as "trading account
securities" and are recorded at fair value. Unrealized gains and losses in
trading account securities are reflected in operations.
Debt and equity securities not classified as held to maturity or trading
account securities are classified as "available for sale". Debt and equity
securities available for sale are carried at fair value,
65
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
with the related unrealized appreciation or depreciation, net of deferred income
taxes, reported as a separate component of stockholders' equity.
On November 15, 1995, the FASB issued Special Report No. 155-B, A GUIDE TO
IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES (the "Special Report"). Pursuant to the Special
Report, BankAtlantic was permitted to conduct a one-time reassessment of the
classifications of all securities held at that time. Any reclassifications from
the held-to-maturity category made in conjunction with that reassessment would
not call into question an enterprise's intent to hold other debt securities to
maturity in the future. BankAtlantic undertook such a reassessment and,
effective December 15, 1995, all mortgage-backed and investment securities,
excluding tax certificates then classified as held-to-maturity were reclassified
as available for sale.
TAX CERTIFICATES - Tax certificates are carried at cost. All tax
certificates are classified as held to maturity because management has the
positive intent and ability to hold such certificates to maturity. Tax
certificates and resulting deeds are classified as non-accrual when a tax
certificate is 48 months delinquent and a deed has aged 48 months from
BankAtlantic's acquisition date. At that time interest ceases to be accrued.
Allowance for tax certificate losses represents the amount which management
believes is sufficient to provide for future losses. In establishing its
allowance for tax certificates, management considers past loss experience,
present indicators, such as the length of time the certificate has been
outstanding, economic conditions and collateral values.
CONSTRUCTION AND DEVELOPMENT LENDING - BankAtlantic's construction and
development lending generally requires an equity investment in the form of
contributed assets or direct cash investment from the borrower. Other than
advances to joint ventures, BankAtlantic has no loans which provide for a
participation in profits at December 31, 1996, 1995 and 1994. Accordingly,
construction and development lending arrangements have been classified and
accounted for as loans.
NON-ACCRUAL LOANS, IMPAIRED LOANS AND REAL ESTATE OWNED - Interest income
on loans, including the recognition of discounts and loan fees, is accrued based
on the outstanding principal amount of loans using the interest method. A loan
is generally placed on nonaccrual status at the earlier of, management becoming
aware that the borrower has entered bankruptcy proceedings and the loan is
delinquent, or when the loan is past due 90 days as to either principal or
interest. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. A nonaccrual loan may be restored
to accrual status when delinquent loan payments are collected and the loan is
expected to perform according to its contractual terms. BankAtlantic adopted
prospectively Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures" ("FAS
114"), effective January 1, 1995. There was no impact to the consolidated
statement of financial condition or the consolidated statement of operations
upon implementation. FAS 114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment. Management
considers a loan to be impaired when, based upon current information and events,
it believes it is probable that BankAtlantic will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Loans
collectively reviewed by BankAtlantic for impairment include residential and
consumer loans and performing commercial real estate and business loans under
$500,000, excluding loans which are
66
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
individually reviewed based on specific criteria, such as delinquency and
condition of collateral property. BankAtlantic's impaired loans within the
scope of FAS 114 include nonaccrual commercial loans, restructured loans, and
performing commercial loans less than 90 days delinquent, where management does
not expect the loans to be repaid in accordance with their contractual terms but
which are expected to be collected in full. Generally, BankAtlantic recognizes
interest income on impaired loans on a cash basis.
ALLOWANCE FOR LOAN LOSSES - BankAtlantic, beginning on January 1, 1995,
based the measurement of loan impairment on the fair value of the loan's
collateral in accordance with FAS 114. Non-collateral dependent loan impairment
is based on the present value of the estimated future cash flows. Impairment
losses are included in the allowance for loan losses through a charge to the
provision for loan losses. Adjustments to impairment losses resulting from
changes in the fair value of an impaired loan's collateral or projected cash
flows are included in the provision for loan losses. Upon disposition of an
impaired loan, any related valuation allowance is relieved from the allowance
for loan losses.
The allowance for loan losses is maintained by additions charged to
operations as a provision for loan losses and by loan recoveries, with
charge-offs reducing the allowance. BankAtlantic's process for evaluating the
adequacy of the allowance for loan losses has three basic elements: first, the
identification of impaired loans; second, the establishment of appropriate loan
loss allowances once individual specific impaired loans are identified; and
third, a methodology for estimating loan losses based on the inherent risk in
the remainder of the loan portfolio.
The identification of impaired loans is achieved mainly through individual
review of all commercial real estate and business loans over $500,000. Loss
allowances are established for specifically identified impaired loans based on
the fair value of the underlying collateral, and for non collateral dependent
loans, the present value of the estimated future cash flows.
The methodology for estimating losses inherent for non impaired loans also
includes estimates based upon consideration of actual loss experience for loans
during the past several years by loan type, condition of collateral and
projected economic conditions and other trends. Based upon this process,
consideration of the current economic environment and other factors, management
determines what it considers to be an appropriate allowance for loan losses.
Although BankAtlantic believes it has a sound basis for this estimation, actual
charge-offs incurred in the future are highly dependent upon future events,
including the economics of the areas in which BankAtlantic lends. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review BankAtlantic's allowance for loan losses. Such agencies may
require BankAtlantic to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
REAL ESTATE OWNED ("REO") - is recorded at the lower of the loan
balance, plus acquisition costs, or fair value, less estimated disposition
costs. Expenditures for capital improvements made thereafter are generally
capitalized. Real estate acquired in settlement of loans are anticipated to be
sold and valuation allowance adjustments are made to reflect any subsequent
changes in fair values from the initially recorded amount. Costs of holding REO
are charged to operations as incurred. Provisions and reversals in the REO
valuation allowance are reflected in operations.
Profit or loss on real estate sold is recognized in accordance with
Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real
Estate. Any estimated loss is recognized in the period in which it becomes
apparent.
67
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
IMPAIRMENT - In 1995, the FASB issued Statement of Financial Accounting
Standard SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("FAS 121"). FAS 121
requires that long-lived assets, assets to be disposed of, and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets, assets to be disposed
of, and identifiable intangibles that an entity expects to hold and use should
be based on the fair value of the asset. FAS 121 was effective for the year
beginning January 1, 1996. There was no significant impact upon adoption.
OFFICE PROPERTIES AND EQUIPMENT - Land is carried at cost. Office
properties and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets which generally range up to 50 years for buildings and 10
years for equipment. The cost of leasehold improvements is being amortized using
the straight-line method over the terms of the related leases.
Expenditures for new properties and equipment and major renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred and gains or losses on disposal of assets are
reflected in current operations.
LOANS ORIGINATED FOR RESALE - Residential first mortgage loans originated
for resale are reported at the lower of cost or estimated fair value. Loan
origination fees and related direct loan origination costs for these loans are
deferred until the related loan is sold. Generally these loans are committed for
sale prior to origination; however, in 1994, 1995 and 1996, a portion of these
loans had not been committed for sale, and were or will be held for no longer
than 12 months.
LOAN ORIGINATION AND COMMITMENT FEES, PREMIUMS AND DISCOUNTS ON LOANS AND
MORTGAGE BANKING ACTIVITIES - Origination and commitment fees collected are
deferred net of direct costs and are being amortized to interest income over the
loan life using the level yield method. Amortization of deferred fees is
discontinued when the related loan is placed on non-accrual status. Commitment
fees related to expired commitments are recognized as income when the commitment
expires.
Unearned discounts on installment, second mortgage and home improvement
loans are amortized to income using the level yield method over the terms of the
related loans. Unearned discounts on purchased loans are amortized to income
using the effective interest method over the estimated life of the loans.
LOAN SERVICING FEES - BankAtlantic services mortgage loans for investors.
These mortgage loans serviced are not included in the accompanying consolidated
statements of financial condition. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and are
recognized as income when related loan payments from mortgagors are collected.
Loan servicing costs are charged to expense as incurred. In May 1995 the FASB
issued Statement of Financial Accounting Standard No. 122 ("FAS 122")
which eliminated the accounting distinction between rights to service mortgage
loans for others that are acquired through loan origination activities and those
68
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
acquired through purchase transactions. FAS 122 requires an entity to recognize
as separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. FAS 122 requires the periodic evaluation of
capitalized mortgage servicing rights for impairment based on fair value. On
January 1, 1996, this statement was implemented prospectively. The amortization
of mortgage servicing rights ("MSR") are on an individual loan basis. Both
purchased and originated MSR are amortized to expense using the level yield
method over the estimated life of the loan and continually adjusted for
prepayments. For the purpose of evaluating and measuring impairment of MSR,
BankAtlantic stratifies those rights based on the predominant risk
characteristics of the underlying loans. Those characteristics include loan
type, note rate and term. Upon implementation of FAS 122, no additional
valuation allowance was required and the impact of adoption related to MSR on
originated loans was not material. Adjustments to the valuation allowance are
reflected in operations.
DEALER RESERVES, NET - The dealer reserve receivable represents the portion
of interest rates passed through to dealers on indirect consumer loans.
BankAtlantic funds 100% of the dealer reserves at the inception of the loan.
Dealer reserves are amortized over the contractual life of the related loans,
adjusted for actual prepayments and losses, using the interest method and
classified as an adjustment to interest income except for the Subject Portfolio
discussed further in Note 15 herein. Dealer reserves are stated net of
accumulated amortization, allowances, and any unfunded amounts due to the
dealer.
COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS -
Cost over fair value of assets acquired is being amortized on a straight-line
basis over its estimated useful life of 10-15 years. A non-competition agreement
is being amortized on a straight-line basis over its useful life of
approximately three years. Cost over fair value of net assets acquired and other
intangible assets is evaluated by management for impairment on an on-going basis
based on the facts and circumstances related to the net assets acquired and in
accordance with FAS 121.
INCOME TAXES - BankAtlantic and its subsidiaries file consolidated federal
and state income tax returns. The Company utilizes the asset and liability
method to account for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the statutory enactment date. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be utilized.
PREFERRED STOCK - All three Series of preferred stock had a preference
value of $25.00 per share and the shares issued were redeemable by BankAtlantic
at $25.00 per share. On July 13, 1994, pursuant to the Reorganization, 260
shares of BankAtlantic's Series C preferred stock held by dissenting
shareholders were canceled in connection with the holders' exercise of
statutory appraisal rights. In October 1995, all preferred stock was redeemed.
For purposes of calculating income per common share, the excess of the
redemption price above the recorded amount is considered a preferred stock
dividend.
INCOME PER COMMON SHARE - In calculating income per common and common
equivalent share ("primary income per share") preferred stock dividends
are deducted from net income and the resulting amount is divided by the weighted
average number of common and common equivalents shares
69
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
outstanding, when dilutive. Common stock equivalents consist of common stock
warrants and options. On July 3, 1996, the Company closed a public offering of
$57.5 million of 63/4% convertible subordinated debentures ("63/4%
Debentures"). The 63/4% Debentures are not common stock equivalents and
therefore, will not affect net income per common and common equivalent share.
However, convertible securities, if dilutive, are considered in net income per
common and common equivalent share assuming full dilution. Fully diluted income
per common share will assume the hypothetical conversion of the 63/4% Debentures
by excluding the interest charges of the 63/4% Debentures from fully diluted net
income and by increasing the weighted average number of common and common
equivalent shares outstanding assuming full dilution. In July 1995, January
1996, July 1996 and February 1997, the Board of Directors declared five for four
stock splits effected in the form of 25% stock dividends issued in August 1995
and February 1996, July 1996 and March 1997, respectively. Where appropriate,
amounts throughout this report have been adjusted to reflect the stock splits.
Common stock equivalents are not reflected in income per share until the
market price of the common stock obtainable has been in excess of the exercise
price for substantially all of three consecutive months, ending with the last
month of the period.
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------- ------------- ------------
Weighted average number of common and common
equivalent shares outstanding ........................ 18,896,691 16,922,816 16,390,677
Weighted average number of common and common
equivalent shares outstanding assuming full dilution . 21,833,015 17,084,563 16,438,264
On October 23, 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). This Statement applies to all
transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price. The Statement covers transactions with
employees and non-employees and is applicable to both public and non-public
entities. Entities are allowed (1) to continue to use the Accounting Principles
Board Opinion No. 25 method ("APB 25") relating to stock-based
compensation for employees, or (2) to adopt the FAS 123 fair value based method.
Once the method is adopted, an entity cannot change and the method selected
applies to all of an entity's compensation plans and transactions. The Company
has elected to continue to account for stock-based compensation for employees
under APB 25. See Note 10.
2. Debt Securities Available-for-Sale and Held-to-Maturity
EFFECTIVE DECEMBER 15, 1995, ALL MORTGAGE-BACKED AND INVESTMENT SECURITIES,
EXCLUDING TAX certificates then classified as held-to-maturity were reclassified
as available for sale. On the effective date of the reclassification, the
securities transferred had a carrying value of $638.8 million and an estimated
fair value of $644.1 million resulting in a net increase to stockholders'
equity for the net unrealized appreciation of $3.3 million after deducting
applicable income taxes of $1.2 million.
70
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. DEBT SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY-(CONTINUED)
The following is a summary of debt securities available-for-sale and
held-to-maturity (in thousands):
AVAILABLE FOR SALE
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST APPRECIATION DEPRECIATION FAIR VALUE
- ------------------------------------------------------- ------------ --------------- --------------- ------------
MORTGAGE-BACKED SECURITIES (1) :
FNMA mortgage backed securities ..................... $ 95,180 $ 822 $ 172 $ 95,830
FHLMC mortgage backed securities ..................... 191,462 443 708 191,197
FNMA real estate mortgage investment conduits ...... 5,201 352 2 5,551
FHLMC real estate mortgage investment conduits ...... 2,046 139 23 2,162
--------- ------- ------- ---------
Total mortgage-backed securities .................. 293,889 1,756 905 294,740
--------- ------- ------- ---------
INVESTMENT SECURITIES:
FHLB Bonds .......................................... 15,406 150 34 15,522
FHLMC Bond .......................................... 1,843 102 0 1,945
FNMA Bond .......................................... 6,762 57 0 6,819
Asset-backed securities .............................. 28,943 89 65 28,967
U.S. Treasury Notes ................................. 91,284 83 15 91,352
--------- ------- ------- ---------
Total investment securities ........................ 144,238 481 114 144,605
--------- ------- ------- ---------
Total ............................................. $ 438,127 $ 2,237 $ 1,019 $ 439,345
========= ======= ======= =========
AVAILABLE FOR SALE
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1995 COST APPRECIATION DEPRECIATION FAIR VALUE
- ------------------------------------------------------- ------------ --------------- --------------- ------------
MORTGAGE-BACKED SECURITIES (2):
FNMA mortgage backed securities ..................... $ 120,584 $ 1,959 $ 123 $122,420
FHLMC mortgage backed securities ..................... 455,962 7,118 874 462,206
FNMA real estate mortgage investment conduits ...... 9,643 521 30 10,134
FHLMC real estate mortgage investment conduits ...... 2,767 224 0 2,991
---------- -------- ------- ---------
Total mortgage-backed securities .................. 588,956 9,822 1,027 597,751
---------- -------- ------- ---------
INVESTMENT SECURITIES:
FHLB Bonds .......................................... 16,114 316 87 16,343
FHLMC Bond .......................................... 1,803 171 0 1,974
FNMA Bond .......................................... 2,790 94 0 2,884
Asset-backed securities .............................. 68,907 224 192 68,939
Corporate bonds .................................... 3,457 0 9 3,448
Other ................................................ 442 22 0 464
---------- -------- ------- ---------
Total investment securities ........................ 93,513 827 288 94,052
---------- -------- ------- ---------
Total ............................................. $ 682,469 $ 10,649 $ 1,315 $ 691,803
========== ======== ======= =========
- ----------------
(1) Pledged as collateral were $4.1 million, $5.9 million, $214.2 million and
$18.7 million for commercial letters of credit, treasury tax and loan,
repurchase agreements and public funds, respectively.
(2) Pledged as collateral was $8.4 million, $9.9 million, $105.6 million, $71.6
million and $11.6 million for commercial letters of credit, treasury tax and
loan, FHLB advances, repurchase agreements, and public funds, respectively.
71
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. DEBT SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY-(CONTINUED)
Included in the December 31, 1996 and 1995 tables are approximately $14.7
million and $17.0 million of government agency bonds and real estate mortgage
conduits (at market) which were acquired during the MegaBank acquisition, and
are adjustable rate securities tied to various short term and long term indices.
The maturities of mortgage-backed and investment securities available for
sale were (in thousands):
DECEMBER 31, 1996
-----------------------------
FAIR
AMORTIZED ESTIMATED
COST VALUE
------------ -----------
Due within one year .............................. $ 69,568 $ 69,683
Due after one year, but within five years ...... 351,888 351,840
Due after five years, but within ten years ...... 5,613 5,871
Due after ten years .............................. 11,058 11,951
--------- ---------
Total .......................................... $ 438,127 $ 439,345
========= =========
HELD TO MATURITY
-----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1996 COST APPRECIATION DEPRECIATION VALUE
- ------------------------------------ ------------ --------------- --------------- -----------
(IN THOUSANDS)
Tax certificates-net of allowance
of $1,466 (1) ..................... $ 54,511 $ 0 $ 0 $54,511
========= ==== ==== ========
DECEMBER 31, 1995
- -----------------------------------
Tax certificates-net of allowance
of $1,648 (1) ..................... $49,856 $ 0 $ 0 $49,856
======== ==== ==== ========
----------------
(1) Management considers estimated fair value equivalent to book value for
tax certificates since these securities have no readily traded market. The
maturities of tax certificates held to maturity were (in thousands):
DECEMBER 31, 1996
-----------------------------
BOOK ESTIMATED
VALUE FAIR VALUE
----------- ------------
Due in one year or less ..................... $ 41,656 $ 41,656
Due after one year through five years ...... 12,855 12,855
Due after five years through ten years ...... 0 0
--------- ---------
Total .................................... $ 54,511 $ 54,511
========= =========
In Florida, tax certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent. BankAtlantic's
experience with this type of investment has been favorable as rates earned are
generally higher than many alternative investments and substantial repayment
occurs over a two year period. The primary risks BankAtlantic has experienced
with tax certificates have related to the risk that additional funds may be
required to purchase other certificates related to
72
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. DEBT SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY-(CONTINUED)
the property, the risk that the liened property may be unusable and the risk
that potential environmental concerns may make taking title to the property
untenable. See Note 5 for activity in the allowance for tax certificate losses.
During the year ended December 31, 1994, there were no sales of debt
securities. During the year ended December 31, 1995, $253,000 of Federal Reserve
stock and $599,000 of GNMA mortgage-backed securities classified as available
for sale were sold. During the year ended December 31, 1996, BankAtlantic sold
$136.6 million of adjustable rate mortgage-backed securities, $20.5 million of
15 year mortgage-backed securities, $5.9 million of seven year balloon
mortgage-backed securities and $205.5 million of treasury notes for gains of
$6.0 million
During the third quarter of 1993, BankAtlantic established an investment
policy to increase fee income by selling uncovered European put options on
five-year treasury notes with notional principal not to exceed $10.0 million.
During the three months ended March 31, 1994, BankAtlantic sold two $5.0 million
U.S. Treasury European put options with expiration dates of April 27,1994 and
May 31, 1994, respectively. BankAtlantic acquired the two five-year treasury
notes on the respective option expiration dates for $9.7 million and recorded
the notes in the trading category. At December 31, 1994, the mark-to-market
allowance for these treasury notes was $558,000. On May 11, 1995, in order to
lock-in the market values on the above treasury notes, BankAtlantic purchased
two 90 day U.S. Treasury European put options with the proceeds from the sale of
two 90 day U.S. Treasury European call options. The put options and call options
had $5.0 million notional principal each and expired on August 7, 1995. The
unrealized gain/loss is included in the consolidated statement of operations
under net "trading account securities" and amounted to an unrealized loss
of $558,000 for the year ended December 31, 1994, with the 1994 option proceeds
reducing the call on the treasury notes. A net realized gain of $589,000 was
recognized inclusive of the 1995 options for the year ended December 31, 1995 on
the sale of the trading account securities upon exercise of the call option.
During the years ended December 31, 1996 and 1995, BankAtlantic invested in
repurchase agreements. The ending balances at December 31, 1996 and 1995 were
zero. The maximum amount of repurchase agreements outstanding at any month end
was zero and $20.0 million for 1996 and 1995, respectively, and the average
amount invested was $1.9 million and $771,000 for 1996 and 1995, respectively.
The average yield on repurchase agreements for the years ended December 31, 1996
and 1995 was 5.47% and 5.82%, respectively. The underlying securities were in
the possession of BankAtlantic. During the years ended December 31, 1996 and
1995 BankAtlantic sold Federal Funds. The outstanding balances at December 31,
1996 and 1995, of Federal Funds sold was zero. The maximum amount of Federal
Funds sold outstanding at any month end and the average amount invested for the
period were $16.0 million and $11.0 million and $2.7 million and $2.6 million,
respectively.
73
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. Loans Receivable-Net
LOANS RECEIVABLE NET ARE SUMMARIZED BELOW:
DECEMBER 31,
----------------------------
1996 1995
------------ ----------
(IN THOUSANDS)
Real estate loans:
Residential ............................................. $ 867,081 $157,361
Residential held for sale (market value of $16,535 and
$17,254) ................................................... 16,207 17,122
Construction and development ........................... 301,813 122,371
FHA and VA insured ....................................... 4,013 5,183
Commercial ............................................. 427,235 350,256
Other loans:
Second mortgages-direct ................................. 86,234 63,052
Second mortgages-indirect .............................. 9,894 25,621
Commercial business .................................... 78,177 64,194
Banker's acceptances .................................... 207 0
Deposit overdrafts ....................................... 2,434 832
Consumer loans-other direct .............................. 74,072 36,670
Consumer loans-other indirect ........................... 172,056 96,042
--------- ---------
Total gross loans ....................................... 2,039,423 938,704
--------- ---------
Adjustments:
Undisbursed portion of loans in process .................. 190,874 89,896
Unearned premiums ....................................... (2,762) 0
Unearned discounts on commercial real estate loans ...... 705 793
Unearned discounts on consumer loans ..................... 0 385
Allowance for loan losses .............................. 25,750 19,000
--------- ---------
Loan receivable-net .................................... $1,824,856 $828,630
========= =========
BankAtlantic is subject to economic conditions which could adversely affect
both the performance of the borrower or the collateral securing the loan. At
December 31, 1996, 67% of total aggregate outstanding loans were to borrowers in
Florida, 9% of total loans were to borrowers in the Northeastern United States
7% of the total loans were to borrowers in California, and 17% were to borrowers
located elsewhere. Additionally, deferred loan fees netted against loan balances
were $1.5 million and $1.8 million at December 31, 1996 and 1995, respectively.
Commitments to sell residential mortgage loans were $7.3 million and $5.7
million at December 31, 1996 and 1995, respectively. Variable rate commitments
to sell residential mortgage loans were $153,000 and $122,000, whereas, fixed
rate commitments to sell residential mortgage loans were $7.1 million and $5.6
million at December 31, 1996 and 1995, respectively. Such residential mortgage
loan sales related to loans originated for sale. Included in other assets was
$9.1 million and $4.4 million of prepaid dealer reserves at December 31, 1996
and 1995, respectively.
74
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. LOANS RECEIVABLE-NET-(CONTINUED)
Activity in the allowance for loan losses was (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 (1)
---------------- -------------- -------------
Balance, beginning of period .............................. $ 19,000 $ 16,250 $ 17,000
Charge-offs:
Commercial business loans ................................. (1,048) (382) (1,647)
Commercial real estate loans .............................. (266) (222) (220)
Consumer loans ............................................. (6,337) (4,566) (3,829)
Residential real estate loans .............................. (67) (263) (272)
---------- -------- --------
(7,718) (5,433) (5,968)
---------- -------- --------
Recoveries:
Commercial business loans ................................. 518 738 565
Commercial real estate loans .............................. 47 102 18
Consumer loans ............................................. 1,659 1,219 2,336
---------- -------- --------
Net charge-offs ............................................. (5,494) (3,374) (3,049)
Additions charged to operations ........................... 5,844 4,182 2,299
Allowance for loan losses acquired ........................ 6,400 1,942 0
---------- -------- --------
Balance, end of period .................................... $ 25,750 $ 19,000 $ 16,250
========== ======== ========
Average outstanding loans during the period ............... $ 1,177,325 $ 750,058 $ 520,913
========== ======== ========
Average outstanding banker's acceptances
during the period .......................................... $ 329 $ 0 $ 12,366
========== ======== ========
Ratio of net charge-offs to average outstanding loans ...... 0.47 % 0.45 % 0.59 %
============== ============ ===========
Ratio of net charge-offs to average outstanding
loans including banker's acceptances ..................... 0.47 % 0.45 % 0.57 %
============== ============ ===========
----------------
(1) Included in installment loan recoveries for the year ended December 31,
1994 is approximately $1.2 million received from BankAtlantic's fidelity
bond carrier (see Note 15). The ratio of net charge-offs to average
outstanding loans, excluding this recovery, would have been 0.81% for the
year ended December 31, 1994.
Aggregate loans to and repayments of loans by directors, executive
officers, principal stockholders and other related interests for the years ended
December 31, 1996 and 1995, were (in thousands):
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 ADDITIONS DELETIONS 1995 ADDITIONS DELETIONS 1996
- --------------- ------------ ------------ --------------- ------------ ------------ --------------
$992 15 70 937 24 594 $ 367
===== === === ==== === ==== ======
75
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. LOANS RECEIVABLE-NET-(CONTINUED)
Accrued interest receivable consisted of (in thousands):
DECEMBER 31,
---------------------------
1996 1995
----------- ----------
Loans receivable ........................... $ 13,713 $ 5,970
Investment securities held to maturity ...... 3,705 3,407
Debt securities available for sale ......... 3,337 5,176
--------- --------
$ 20,755 $ 14,553
========= ========
4. Mortgage Servicing Rights
AT DECEMBER 31, 1996, 1995 AND 1994, BANKATLANTIC SERVICED LOANS FOR THE
BENEFIT OF OTHERS amounting to approximately $2.7 billion, $1.8 billion and $1.9
billion, respectively. At December 31, 1996 and 1995, other liabilities includes
approximately $7.7 million and $7.9 million, respectively, of loan payments due
to others. Activity in mortgage servicing rights was (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ----------- ----------
Balance, beginning of period ......... $ 20,738 $ 20,584 $ 19,833
Mortgage servicing rights acquired
in BNA acquisition ..................... 4,047 0 0
Servicing rights originated ............ 311 0 0
Servicing rights purchased ............ 27,681 10,112 8,147
Servicing rights sold .................. (20,926) (5,596) (2,436)
Amortization of servicing rights ...... (6,849) (4,362) (4,960)
-------- -------- --------
Balance, end of period ............... $ 25,002 $ 20,738 $ 20,584
======== ======== ========
The fair value of the MSR at December 31, 1996 was estimated at $31.6
million. Upon implementation of FAS 122 on January 1, 1996, no additional
valuation allowance was required and during the year ended December 31, 1996,
and there was no activity in the valuation allowance. The fair value was
calculated using market prepayment assumptions and discount rates.
5. Non-Performing Assets and Restructured Loans
RISK ELEMENTS CONSIST OF NON-ACCRUAL LOANS, NON-ACCRUAL TAX CERTIFICATES,
RESTRUCTURED LOANS, PAST-DUE loans, REO, repossessed assets, and other loans
which management has doubts about the borrower's ability to comply with the
contractual repayment terms. Non-accrual loans are loans on which interest
recognition has been suspended because of doubts as to the borrower's ability
to repay principal or interest. Non-accrual tax certificates are tax deeds or
securities in which interest recognition has been suspended due to the aging of
the certificate or deed. Restructured loans are where the terms have been
altered to provide a reduction or deferral of interest or principal because of a
deterioration in the borrower's financial position. BankAtlantic did not have
any commitments outstanding to lend additional funds on restructured loans at
December 31, 1996 and 1995. Past-due loans are accruing loans that are
contractually past due 90 days or more as to interest or principal payments.
76
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. NON-PERFORMING ASSETS AND RESTRUCTURED LOANS-(CONTINUED)
Risk elements were (in thousands):
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ----------
Non-accrual-tax certificates ........................... $ 1,835 $ 2,044 $ 3,578
Non-accrual-loans .................................... 12,424 11,174 11,313
Loans contractually past due 90 days or more (1) ...... 2,961 1,536 736
Real estate owned, net of allowance .................. 4,918 6,279 7,238
Other repossessed assets .............................. 1,992 461 350
-------- -------- --------
Total non-performing ................................. 24,130 21,494 23,215
Restructured .......................................... 3,718 2,533 1,648
-------- -------- --------
Total risk elements ................................. $ 27,848 $ 24,027 $ 24,863
======== ======== ========
Allowance for tax certificate losses .................. $ 1,466 $ 1,648 $ 2,985
======== ======== ========
Allowance for loan losses .............................. $ 25,750 $ 19,000 $ 16,250
======== ======== ========
----------------
(1) The majority of these loans have matured and the borrower continues to
make the payments under the matured loan agreement. BankAtlantic is in the
process of renewing or extending these matured loans.
The following summarizes impaired loans at:
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- -------------------------------
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
------------- ------------- ------------- ------------
IMPAIRED LOANS:
Nonaccrual loans:
With specific allowances ......... $ 1,047 $ 350 $ 1,962 $ 800
Without specific allowances ...... 11,727 0 10,012 0
-------- ------ -------- -------
12,774 350 11,974 800
-------- ------ -------- -------
Restructured loans:
Without specific allowances ...... $ 3,718 $ 0 $ 2,533 $ 0
-------- ------ -------- -------
Other impaired loans:
Other impaired commercial loans
with specific allowances (1) ...... $ 977 $ 514 $ 1,340 $ 577
Other impaired commercial loans
without specific allowances ...... 2,961 0 1,536 0
-------- ------ -------- -------
Total ........................... $ 20,430 $ 864 $ 17,383 $ 1,377
======== ====== ======== =======
----------------
(1) Theses loans are not included in risk elements, since subsequent to the
date of impairment these loans have performed based on their contractual
terms.
The above schedules reflect at December 31, 1996, all loans where known
information about the possible credit problems of the borrower caused management
to have serious doubts as to the ability of the borrower to comply with present
loan repayment terms and which may result in disclosure of such loans in the
future.
77
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. NON-PERFORMING ASSETS AND RESTRUCTURED LOANS-(CONTINUED)
The average net recorded investment in impaired loans for the years ended
December 31, 1996 and 1995 were $15.4 million and $16.9 million, respectively.
Interest income of $988,000 and $788,000 for the year ended December 31, 1996
and 1995, was recognized on impaired loans during the periods of impairment.
Recorded investment of impaired loans reflects direct deferrals of interest
of $240,000 and $480,000 at December 31, 1996 and 1995, respectively.
There was no net interest forgone related to restructured loans at December
31, 1996 and 1995. Interest income of $336,000 and $243,000 were recognized on
restructured loans during 1996 and 1995, respectively.
Interest income which would have been recorded under the original terms of
non-accrual and restructured loans and the interest income actually recognized
are summarized below (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Interest income which would have been recorded ...... $ 1,505 $ 1,393 $ 1,170
Interest income recognized ........................... (698) (519) (443)
----- ----- -----
Interest income foregone ........................... $ 807 $ 874 $ 727
===== ===== =====
The components of "Foreclosed asset activity, net" were (in
thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
--------- ----------- -----------
Real estate acquired in settlement of loans:
Operating expenses (income), net ............... $ 47 $ 41 $ (325)
Provision for (reversals of) losses on REO ...... (197) (1,187) 140
Net gains on sales .............................. (575) (2,032) (2,105)
------ -------- --------
Total (income) ................................. $ (725) $ (3,178) $ (2,290)
====== ======== ========
Activity in the allowance for real estate owned consisted of (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------------- ----------- ---------
Balance, beginning of period ..................... $ 2,800 $ 4,200 $ 4,100
Charge-offs:
Commercial real estate ........................ (781) (213) 0
Residential real estate ........................ (22) 0 (40)
----- ------- -------
(803) (213) (40)
Provision for (reversals of) losses on REO ...... (197) (1,187) 140
----- ------- -------
Balance, end of period ........................... $ 1,800 $ 2,800 $ 4,200
===== ======= =======
78
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. NON-PERFORMING ASSETS AND RESTRUCTURED LOANS-(CONTINUED)
Activity in the allowance for tax certificate losses was: (in thousands)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
---------------- ----------- ----------
Balance, beginning of period ..................... $ 1,648 $ 2,985 $ 2,970
Charge-offs ....................................... (909) (1,854) (1,892)
Recoveries ....................................... 911 662 1,792
----- ------- -------
Net recoveries (charge-offs) ..................... 2 (1,192) (100)
Additions (reversals) charged to operations ...... (184) (145) 115
----- ------- -------
Balance, end of period ........................... $ 1,466 $ 1,648 $ 2,985
===== ======= =======
6. Office Properties and Equipment
DECEMBER 31,
---------------------------
1996 1995
----------- ----------
(IN THOUSANDS)
Land ............................................................... $ 12,115 $ 8,721
Building and improvements .......................................... 42,593 35,620
Furniture and equipment .......................................... 26,257 20,743
Properties under operating lease and property held for lease ...... 0 5,906
--------- --------
Total ............................................................ 80,965 70,990
Less accumulated depreciation .................................... 32,691 30,036
--------- --------
Office properties and equipment-net .............................. $ 48,274 $ 40,954
========= ========
Properties with a net book value of $4.0 million at December 1995, were
leased to unrelated third parties. Capitalized improvements to the properties of
$1.0 million were performed during the year ended December 31, 1996. These
properties were sold for $8.1 million (net of selling costs) as of December 31,
1996 for a net gain of $3.1 million.
Net rental income for the three years ended December 31, 1996 was $368,000,
$343,000 and $248,000, respectively.
79
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. Deposits
THE WEIGHTED AVERAGE NOMINAL INTEREST RATE PAYABLE ON DEPOSIT ACCOUNTS AT
DECEMBER 31, 1996 AND 1995 was 3.78% and 3.85%, respectively. The stated rates
and balances at which BankAtlantic paid interest on deposits were:
DECEMBER 31,
---------------------------------------------------------------
1996 1995
------------------------------ --------------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------------- ----------- -------------- ------------
(DOLLARS IN THOUSANDS)
Interest free checking ................................. $ 163,616 8.93% $ 98,964 7.61 %
Insured money fund savings
3.76% at December 31, 1996,
3.22% at December 31, 1995 ........................... 358,927 19.58 249,273 19.17
NOW accounts ..........................................
1.60% at December 31, 1996,
1.66% at December 31, 1995 ........................... 216,587 11.82 171,726 13.21
Savings accounts .......................................
1.30% at December 31, 1996,
1.71% at December 31, 1995 ........................... 170,352 9.29 103,759 7.98
----------- -------- ----------- --------
Total non-certificate accounts ........................ 909,482 49.62 623,722 47.97
----------- -------- ----------- --------
Certificate accounts:
0.00% to 3.00% ....................................... 12,104 0.66 56,667 4.36
3.01% to 4.00% ....................................... 11,257 0.61 25,602 1.97
4.01% to 5.00% ....................................... 275,991 15.06 135,107 10.39
5.01% to 6.00% ....................................... 478,148 26.09 303,497 23.34
6.01% to 7.00% ....................................... 112,865 6.16 137,917 10.61
7.01% and greater .................................... 30,749 1.68 17,543 1.34
----------- -------- ----------- --------
Total certificate accounts ........................... 921,114 50.26 676,333 52.01
----------- -------- ----------- --------
Total deposit accounts ................................. 1,830,596 99.88 1,300,055 99.98
----------- -------- ----------- --------
Interest earned not credited to deposit accounts ...... 2,184 0.12 322 0.02
----------- -------- ----------- --------
Total ................................................ $ 1,832,780 100.00 % $ 1,300,377 100.00 %
=========== ========== =========== ==========
Interest expense by deposit category was (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ----------
Money fund savings and NOW accounts ......... $ 12,154 $ 11,591 $ 10,751
Savings accounts .............................. 2,150 1,987 2,116
Certificate accounts-below $100,000 ............ 32,416 27,059 16,480
Certificate accounts, $100,000 and above ...... 8,513 6,269 2,471
Less early withdrawal penalty ............... (205) (260) (172)
-------- -------- --------
Total ....................................... $ 55,028 $ 46,646 $ 31,646
======== ======== ========
Included in other non-interest income is approximately $8.6 million, $7.0
million and $5.4 million of checking account fees for years ended December 31,
1996, 1995 and 1994, respectively.
80
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. DEPOSITS-(CONTINUED)
At December 31, 1996, the amounts of scheduled maturities of certificate
accounts were (in thousands):
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 THEREAFTER
------------ ----------- ----------- ----------- ----------- ------------
0.00% to 3.00% ......... $ 10,533 $ 1,379 $ 50 $ 32 $ 50 $ 60
3.01% to 4.00% ......... 10,536 479 191 0 51 0
4.01% to 5.00% ......... 252,171 20,041 2,051 215 1,085 428
5.01% to 6.00% ......... 395,414 63,178 10,420 3,634 4,869 633
6.01% to 7.00% ......... 76,563 8,742 13,574 5,009 8,170 807
7.01% and greater ...... 18,995 773 1,074 9,719 66 122
--------- -------- -------- -------- -------- -------
Total ............... $ 764,212 $ 94,592 $ 27,360 $ 18,609 $ 14,291 $ 2,050
========= ======== ======== ======== ======== =======
Time deposits of $100,000 and over had the following maturities at (in
thousands):
DECEMBER 31,
--------------
1996
--------------
Less than 3 months ...... $ 55,743
3 to 6 months ............ 45,946
6 to 12 months ............ 50,412
More than 12 months ...... 31,575
---------
Total .................. $ 183,676
=========
Currently, BankAtlantic does not obtain deposits from brokers. In November
1996, Merrill Lynch granted BankAtlantic a facility for broker deposits of up to
$150.0 million. The facility will be evaluated as an alternative source of
borrowings, when and if needed.
Beginning in 1990, the Office of the Comptroller for the State of Florida
("Comptroller") commenced a review of BankAtlantic's procedures for the
assessment of fees on dormant accounts. The Comptroller subsequently indicated
that BankAtlantic was not in compliance with applicable Florida law as
interpreted by the Comptroller. BankAtlantic amended its procedures to satisfy
the Comptroller's interpretation. On June 30, 1994 all issues were resolved
with the Comptroller and in connection therewith, BankAtlantic recognized
$332,000 of previously deferred dormant account fee income.
81
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
8. Advances from Federal Home Loan Bank and Federal Funds Purchased
ADVANCES FROM FEDERAL HOME LOAN BANK ("FHLB") INCUR INTEREST AND WERE
REPAYABLE AS FOLLOWS (in thousands):
DECEMBER 31,
----------------------------
REPAYABLE DURING YEAR
ENDING DECEMBER 31, INTEREST RATE 1996 1995
- ------------------------ ----------------- ----------- -----------
1996 ............... 5.62% to 5.94% $ 0 $201,785
1997 ............... 5.50% to 7.73% 119,965 0
1998 ............... 6.00% to 6.58% 43,143 0
1,999 ............... 6.13% to 6.83% 42,892 0
2000 ............... 6.29% to 7.00% 40,892 0
2001 ............... 6.35% to 7.18% 33,118 0
2002 ............... 6.61% to 7.16% 6,150 0
2003 ............... 7.24% to 7.25% 9,540 0
------- ----
Total ............ $295,700 $ 201,785
========= ==========
In June 1994, the FHLB accepted BankAtlantic's request to establish a
blanket floating lien for additional advance borrowings. Under the lien,
BankAtlantic assigns a security lien against its residential loans. At December
31, 1996, $611.4 million of 1-4 family residential loans were pledged against
FHLB advances and at December 31, 1995 approximately $160.0 million and $105.6
million of residential loans and mortgage-backed securities were pledged against
FHLB advances. In addition, FHLB stock is pledged as collateral for outstanding
FHLB advances. In August 1994, a $300 million credit availability was
established with the FHLB with a maximum term of 10 years. In January 1997,
BankAtlantic increased its $300 million credit availability to $500 million. The
two FHLB advance forward commitments were funded in January 1997. Both FHLB
advances forward commitments were for $6.0 million each, bear interest at 6.29%
and 6.35% and mature in the year 2001 and 2002, respectively.
During the fourth quarter of 1994, BankAtlantic established three $5.0
million unsecured lines of credit with three federally insured banking
institutions for the purchase of Federal Funds. BankAtlantic had not used these
lines of credit as of December 31, 1994. At December 31, 1996 and 1995, the
outstanding balance of these lines of credit was $0 and $1.2 million,
respectively. The average balance outstanding at any month end during 1996 and
1995, of the three Federal Funds purchased lines of credit was $2.7 million and
$1.0 million. respectively. The maximum outstanding balance at any month end
during 1996 and 1995 of the three Federal Funds purchased lines of credit was
$16.0 million and $4.5 million, respectively.
9. Securities Sold Under Agreements to Repurchase
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ARE SUMMARIZED BELOW (IN
THOUSANDS):
DECEMBER 31,
----------------------------
1996 1995
------------ ----------
Agreements to repurchase the same security ...... $ 143,377 $ 23,860
Customer repurchase agreements .................. 47,211 42,377
---------- ---------
Total .......................................... $ 190,588 $ 66,237
========== =========
82
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE-(CONTINUED)
The following table provides information on the agreements to repurchase
(dollars in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ -----------
Maximum borrowing at any month-end
within the period .............................. $ 362,147 $ 328,666 $ 182,736
Average borrowing during the period ............ $ 178,883 $ 186,592 $ 105,462
Average interest cost during the period ......... 4.83 % 5.80 % 4.56 %
Average interest cost at end of the period ...... 5.13 % 4.59 % 5.94 %
=========== =========== ===========
Average borrowing was computed based on average daily balances during the
period. Average interest rates during the period were computed by dividing
interest expense for the period by the average borrowing during the period.
Customer repurchase agreements at December 31, 1996 and 1995 included a
$9.7 million and $7.5 million customer repurchase agreement, respectively
related to a BFC escrow account. Total interest expense related to this reverse
repurchase agreement, which was initiated on March 2, 1994, was approximately
$312,000, $374,000 and $284,000 during the year ended December 31, 1996, 1995
and 1994, respectively.
The following table lists the amortized cost and estimated fair value of
securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
WEIGHTED
ESTIMATED AVERAGE
AMORTIZED FAIR REPURCHASE INTEREST
DECEMBER 31, 1996 (1) COST VALUE BALANCE RATE
- ------------------------ ------------ ------------ ------------- ----------
US Treasuries ...... $ 70,637 $ 70,686 $ 66,622 5.54 %
FHLB Bonds ......... 2,015 2,006 1,481 4.02
FNMA ............... 73,707 73,897 67,848 5.18
FHLMC ............... 67,735 67,650 54,637 4.59
--------- --------- --------- -------
Total ............ $ 214,094 $ 214,239 $ 190,588 5.13 %
========= ========= ========= =========
DECEMBER 31, 1995 (1)
- -----------------------
FNMA ............... $ 8,780 $ 8,750 $ 7,981 3.91 %
FHLMC ............... 62,773 63,341 58,256 4.69
--------- --------- --------- -------
Total ............ $ 71,553 $ 72,091 $ 66,237 4.59 %
========= ========= ========= =========
----------------
(1) At December 31, 1996 and 1995 these securities are classified as
available for sale and recorded at market value in the consolidated
statements of financial condition.
All repurchase agreements at December 31, 1996 and 1995, matured and were
repaid in January 1997 and 1996, respectively. These securities were held by
unrelated broker dealers.
83
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. Capital Notes, Subordinated Debentures, Note Payable, Preferred Stock,
Common Stock WARRANTS, AND COMMON STOCK OPTIONS
IN MARCH 1991, $10.2 MILLION OF 1986 CAPITAL NOTES WERE EXCHANGED FOR
NONCUMULATIVE PREFERRED stock. All three series of preferred stock had a
preference value of $25.00 per share and were redeemable at $25.00 per share.
During July 1994, 260 shares of Series C preferred stock were canceled in
connection with the exercise of dissenters' rights by certain BankAtlantic
preferred shareholders in connection with the Reorganization. In October 1995,
all series of preferred stock were redeemed at $25.00 per share.
In June 1990, a third party acquired $1.0 million of BankAtlantic's
subordinated debentures at a rate of 14% per annum with a maturity of June 1997.
The subordinated debentures were issued with detachable warrants entitling the
holder to purchase 528,742 shares of BankAtlantic's common stock at an exercise
price of $1.89 per share at any time prior to maturity. On March 31, 1991,
BankAtlantic issued to certain of its existing shareholders, 11,911 shares of
common stock and $8,000 of 14% subordinated debentures, having a March 1998
maturity date, with related detachable warrants to purchase 11,231 shares of
common stock. The $1.0 million and $8,000 of subordinated debentures were
redeemed along with the Capital Notes on August 31, 1993. However, the warrants
relating to such debentures are detachable and remain outstanding until the
earlier of exercise or original maturity of the subordinated debentures. The
warrants outstanding at December 1994 relating to the redeemed debentures were
528,742 and 8,419 with exercise prices of $1.89 and $0.71, respectively. On May
12, 1995, 528,742 of these stock warrants were exercised for $1.89 per share.
The proceeds of $1.0 million were utilized to partially repay the note payable
discussed below. The warrants outstanding at December 31, 1996 relating to the
redeemed debentures are 7,016 with a $0.71 exercise price.
On March 30, 1995, the Company borrowed $4.0 million from an unrelated
financial institution and incurred financing costs of $69,000. The debt matured
on March 30, 1996, bore interest at prime plus 1% and was collateralized by 12%
non-cumulative preferred stock of BankAtlantic having a preference value of $4.0
million. The $4.0 million was utilized by the Company to purchase the
BankAtlantic preferred stock used as collateral.
In a public offering dated September 22, 1995, the Company issued $21.0
million principal amount of 9% subordinated debentures due October 1, 2005 (the
"Debentures"). The underwriting discount and other expenses of $1.0
million are included in other assets in the December 31, 1996 and 1995 statement
of financial condition. The proceeds from the offering were utilized as follows:
$6.0 million was contributed to the capital of BankAtlantic; $2.9 million was
utilized to repay a note payable; $8.4 million was used to redeem all of the
outstanding shares of the Company non-cumulative preferred stock, and, in
accordance with the requirements of the Indenture under which the Debentures
were issued, $1.9 million was invested in marketable securities to cover two
semi-annual interest payments. The net proceeds retained by the Company are
available for general corporate purposes. The October 7, 1995 preferred stock
redemption resulted in a $1.4 million payment above the recorded amount of the
preferred stock. Such excess was treated as a preferred stock dividend and
impacted earnings per common and common equivalent share by $.08 per share, for
the year ended December 31, 1995.
On February 13, 1996, the stockholders of the Company approved at a special
meeting, an amendment to the Company's Articles of Incorporation (the
"Amendment") authorizing 30,000,000 shares of a new class of non-voting
common stock designated Class A Common Stock, and redesignating the Company's
existing Common Stock, par value $0.01 per share, as Class B Common
84
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. CAPITAL NOTES, SUBORDINATED DEBENTURES, NOTE PAYABLE, PREFERRED STOCK,
COMMON STOCK WARRANTS, AND COMMON STOCK OPTIONS-(CONTINUED)
Stock. The Class A Common Stock has no voting rights except as may be required
by Florida law. The two classes of stock generally have the same economic
rights, except Class A Common Stock is entitled to receive cash dividends equal
to at least 110% of any cash dividends declared and paid on Class B Common
Stock. In March 1996, BBC issued 1.80 million shares of Class A Common Stock in
an underwritten public offering at $9.60 per share. Net proceeds to the Company
after underwriting costs and other expenses of $1.2 million and $247,000,
respectively, were $15.8 million. In April 1996 the underwriter exercised an
overallotment option to purchase an additional 252,817 shares of Class A Common
Stock resulting in net proceeds to BBC of $2.3 million. In March 1996, BBC
contributed $14.0 million of the net proceeds to the capital of BankAtlantic
where it was used for general corporate purposes. The Company utilized $3.3
million relating to the repurchase of 228,125 and 112,500 shares of the
Company's Class A and Class B common stock, respectively. As of result of the
above Class A Common Stock issuance, BFC Financial Corporation's ("BFC")
ownership in BBC's total outstanding (A and B) Common Stock was approximately
42% at December 31, 1996, comprised of 35% of Class A Common Stock and 46% of
BBC's outstanding Class B Common Stock.
On July 3, 1996, The Company closed a public offering of $57.5 million of
63/4% Convertible Subordinated Debentures due July 1, 2006 (the "63/4%
Debentures"). The 63/4% Debentures are convertible at an exercise price of
$10.24 per share into and aggregate of 5,615,235 shares of Class A Common Stock.
Net proceeds to BBC were $55.2 million net of underwriting discount and offering
expenses. The Company contributed $40.0 million of the proceeds to BankAtlantic
which were utilized for the acquisition of BNA and general corporate purposes.
The remaining net proceeds are available for general corporate purposes.
The Debenture Indentures provide that the Company cannot declare or pay
dividends on, or purchase, redeem or acquire for value its capital stock, return
any capital to holders of capital stock as such, or make any distributions of
assets to holders of capital stock as such, unless, from and after the date of
any such dividend declaration (a "Declaration Date") or the date of any
such purchase, redemption, payment or distribution (a "Redemption Date"),
the Company retains cash, cash equivalents (as determined in accordance with
GAAP) or marketable securities (with a market value as measured on the
applicable Declaration Date or Redemption Date) in an amount sufficient to cover
the two consecutive semi-annual interest payments that will be due and payable
on the Debentures following such Declaration Date or Redemption Date, as the
case may be. The Indentures further provide that the amount of any interest
payment made by the Company with respect to the Debentures after any applicable
Declaration Date or Redemption Date shall be deducted from the aggregate amount
of cash or cash equivalents which the Company shall be required to retain
pursuant to the foregoing provision. At December 31, 1996 and 1995 the Company
designated $5.8 million and $1.9 million of Federal Agency investments to
satisfy the above provision.
The Company intends to pay a regular cash quarterly common stock dividend.
The availability of funds for the payment of dividends is dependent upon
BankAtlantic's ability to pay dividends to the Company. Currently, the Company
pays a quarterly dividend of $.0324, and $.0291 per share for Class A and Class
B Common Stock, respectively.
On April 6, 1984, BankAtlantic's stockholders approved a Stock Option Plan
("1984 Plan") under which options to purchase up to 756,836 shares of
common stock may be granted. The plan provided for the grant of both incentive
stock options and non-qualifying options. The exercise price of an incentive
85
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. CAPITAL NOTES, SUBORDINATED DEBENTURES, NOTE PAYABLE, PREFERRED STOCK,
COMMON STOCK WARRANTS, AND COMMON STOCK OPTIONS-(CONTINUED)
stock option was not to be less than the fair market value of the common stock
on the date of the grant. The exercise price of non-qualifying options was
determined by a committee of the Board of Directors. The "1984 Plan" has
expired; however, options granted under this plan are still outstanding.
On May 25, 1993, the Board of Directors authorized the issuance of 465,380
incentive stock options and 264,602 non-qualifyingstock options under the 1984
plan. Of the incentive and non-qualifying stock options, 106,348 were issued at
110% of the fair market value at the date of grant. The remaining incentive and
non-qualifyingstock options were issued at the fair market value at the date of
grant. Non-qualifying stock options for 56,153 shares were issued outside of the
Plan to non-employee directors. These options have similar terms and conditions
as non-qualifying options under the 1984 Plan.
On May 31, 1994, the stockholders of BankAtlantic approved the BankAtlantic
1994 Stock Option Plan ("1994 Plan"), authorizing the issuance of options
to acquire up to 1,464,844 shares of BankAtlantic's common stock. In accordance
with the Reorganization, all outstanding options under the 1984 Plan and 1994
Stock Option Plan became the obligation of the Company as of July 13, 1994.
The stock options issued in May 1993 expire on May 25, 1998 and are fully
vested as of December 31, 1996. At May 31, 1993, all issuable options under the
1984 Plan were outstanding and no further options will be granted under the
Plan.
On June 1, 1994, 444,484 of incentive stock options and 455,236 of
non-qualifying stock options were granted pursuant to the 1994 Stock Option Plan
to officers and directors of BankAtlantic. All the incentive and non-qualifying
stock options were issued at fair market value at the date of grant ($6.09) and
expire ten years from date of grant. All employee stock options vest and are
exercisable five years from the date of grant and directors stock options vested
immediately. On April 4, 1995, 128,063 of incentive stock options and 439,755 of
non-qualifying stock options were granted pursuant to the 1994 Stock Option Plan
to executives and directors of the Company. All the incentive and non-qualifying
stock options were issued at fair market value at the grant date ($6.25), expire
ten years from date of grant, vest and are exercisable five years from grant
date, and directors stock options vest immediately.
On May 21, 1996 the shareholders approved the BankAtlantic Bancorp 1996
Stock Option Plan (the "1996 Plan") which authorized the issuance of
options to acquire up to 1.25 million shares of Class A common stock. The 1996
Plan expires on April 2, 2006. On May 22, 1996, 31,250 non-qualifying stock
options were issued outside of the Plan to non-employee directors. On July 9,
1996, 344,216 of incentive stock options and 274,001 of non-qualifying stock
options were granted pursuant to the BankAtlantic Bancorp 1996 Stock Option Plan
to all officers of BankAtlantic. On September 3, 1996, 9,375 incentive stock
options were granted to an officer of BankAtlantic. All of the incentive and
non-qualifying stock options are exercisable for The Company's Class A common
stock, with an exercise price equal to the fair market value at the date of
grant ($9.76, $8.96 and $9.50) from the May, July and September grants,
respectively. All employee stock options vest and are exercisable five years for
the date of grant and directors stock options vested immediately.
During the latter part of 1996 and early 1997, certain executives and
officers received prorata vesting as part of their severance arrangements
relating to previously granted 1994 and 1996 plan options. Forfeited and vested
options were 95,218 shares and 124,518 shares for the 1994 plan and 53,908
shares and 16,406 shares for the 1996 plan, respectively.
86
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. CAPITAL NOTES, SUBORDINATED DEBENTURES, NOTE PAYABLE, PREFERRED STOCK,
COMMON STOCK WARRANTS, AND COMMON STOCK OPTIONS-(CONTINUED)
The following table sets forth all outstanding options, adjusted for the
July 1996 and February 1997 five for four common share stock splits effected in
the form of 25% stock dividends in Class A common stock, however, due to
accounting and tax considerations, with respect to options to purchase Class B
common stock previously granted under the Company's stock option plan
anti-dilution provisions related to Class B common stock options required that
additional Class B options be granted in lieu of Class A options.
A summary of 1984, 1994 and 1996 Plan activity was:
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
------------ -------------------------------
Outstanding December 31, 1993 .................. 794,569 $ 3.56 to $ 5.17
Exercised .................................... (52,928) 4.63 to 4.63
Forfeited .................................... (33,325) 4.70 to 6.09
Issued ....................................... 899,720 6.09 to 6.09
--------- ------- -------
Outstanding December 31, 1994 .................. 1,608,036 3.56 to 6.09
Exercised .................................... (149,962) 4.63 to 4.76
Forfeited .................................... (65,488) 4.70 to 6.25
Issued ....................................... 567,817 6.25 to 6.25
--------- ------- -------
Outstanding December 31, 1995 .................. 1,960,403 3.56 to 6.25
Exercised .................................... (88,571) 4.63 to 4.70
Forfeited .................................... (121,393) 6.09 to 6.25
--------- ------- -------
Outstanding December 31, 1996 .................. 1,750,439 $ 3.56 to $ 6.25
========= ======= =======
Exercisable at December 31, 1996 ............... 535,605 $ 3.56 to $ 6.25
========= ======= =======
Available for grant at December 31, 1996 ...... 201,174
=========
CLASS A
OUTSTANDING
OPTIONS PRICE PER SHARE
------------ -------------------------------
Outstanding December 31, 1995 .................. 0 $0.00 to $0.00
Exercised .................................... 0 0.00 to 0.00
Forfeited .................................... (64,065) 8.96 to 8.96
Issued ....................................... 658,252 8.96 to 9.76
-------- ------ ------
Outstanding December 31, 1996 .................. 594,187 $ 8.96 to $ 9.76
======== ====== ======
Exercisable at December 31, 1996 ............... 31,250 $ 9.76 to $ 9.76
======== ====== ======
Available for grant at December 31, 1996 ...... 655,814
========
The weighted average exercise price of options outstanding at December 31,
1996, 1995 and 1994 was $6.59, $5.74, and $5.49, respectively. The weighted
average exercise price of stock options exercised was $4.70 and $4.71 for the
years ended December 31, 1996 and 1995, respectively. The weighted average
exercise price of options forfeited during the years ended December 31, 1996 and
1995 was $7.13 and $6.13, respectively.
87
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. CAPITAL NOTES, SUBORDINATED DEBENTURES, NOTE PAYABLE, PREFERRED STOCK,
COMMON STOCK WARRANTS, AND COMMON STOCK OPTIONS-(CONTINUED)
During the years ended December 31, 1996 and 1995, 8,151 and 39,041 of
non-qualifying and 80,420 and 100,922 of incentive stock options issued under
the 1984 Plan were exercised resulting in increases of $531,000 and $881,000 in
stockholders' equity, respectively. The tax effect of the exercise of 1984
stock options for December 31, 1996 and 1995 was $117,530 and $173,000,
respectively, and has been reflected in additional paid in capital. During the
years ended December 31, 1996 and 1995, 64,065 of options under the 1996 Plan
and 121,983 and 40,410 of options under the 1994 Plan and 0 and 1,499 of options
under the 1984 Plan were forfeited. At December 31, 1996, 486,769, 48,836 and
31,250 of options from the 1984, 1994 and 1996 Plan were exercisable.
The adoption of FAS 123 under the fair value based method would have
increased compensation expense by $474,000 and $272,000 for the years ended
December 31, 1996 and 1995, respectively. The effect of FAS 123 under the fair
value based method would have effected net income and earnings per share as
follows:
FOR THE YEARS ENDED DECEMBE
---------------------------
1996 1995
----------- ----------
Net income available for common shares
As reported .............................. $ 19,011 $ 16,389
========= =========
Pro forma ................................. $ 18,537 $ 16,117
========= =========
Income per common and common equivalent share
As reported .............................. $ 1.01 $ 0.97
========= =========
Pro forma ................................. $ 0.99 $ 0.96
========= =========
Income per common and common equivalent
share assuming full dilution
As reported .............................. $ 0.93 $ 0.96
========= =========
Pro forma ................................. $ 0.91 $ 0.95
========= =========
The option method used to calculate the FAS 123 compensation adjustment was
the Black-Scholes model with the following grant date fair values and
assumptions:
NUMBER OF CLASS OF RISK FREE EXPECTED EXPECTED
DATE OF OPTIONS GRANT DATE COMMON EXERCISE INTEREST LIFE EXPECTED DIVIDEND
GRANT GRANTED FAIR VALUE STOCK PRICE RATE (YEARS) VOLATILITY YIELD
- ---------- ------------ ------------- ----------- ----------- ------------ ----------- ------------- ----------
4/04/95 567,817 $ 3.35 B $ 6.25 6.32 % 7.5 25.8 % 0.47 %
5/22/96 31,250 $ 4.90 A $ 9.76 6.55 % 7.5 18.6 % 0.33 %
7/09/96 618,217 $ 4.60 A $ 8.96 6.88 % 7.5 18.6 % 0.36 %
9/03/96 9,375 $ 4.86 A $ 9.50 6.81 % 7.5 18.6 % 0.34 %
The employee turnover factor was 13.4% for incentive stock options and 5.2%
for non-qualifying stock options. The weighted average fair value of options
granted during the years ended December 31, 1996 and 1995 was $4.62 and $3.35,
respectively.
88
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. CAPITAL NOTES, SUBORDINATED DEBENTURES, NOTE PAYABLE, PREFERRED STOCK,
COMMON STOCK WARRANTS, AND COMMON STOCK OPTIONS-(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- ------------------------------------
WEIGHTED-
CLASS OF NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
COMMON RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
STOCK EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ----------- ------------------ -------------- ------------------- ----------------- -------------- ----------------
B $3.56 to 5.17 486,769 1.4 years $ 4.77 486,769 $ 4.77
B $6.09 to 6.25 1,263,670 8.3 years 6.15 48,836 6.09
A $8.96 to 9.76 594,187 9.5 years 9.01 31,250 9.76
---------- --------------- ------- --------- -------
2,344,626 7.15 years $ 6.59 566,855 $ 6.59
========== ================ ======= ========= =======
11. Income Taxes
FOR FEDERAL INCOME TAX PURPOSES, BANKATLANTIC REPORTS ITS INCOME AND
EXPENSES ON THE ACCRUAL method of accounting. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code of 1986 (the "Code") relating primarily to
the composition of their assets and the nature of their business activities
were, within certain limitations, permitted to establish, and deduct additions
to, reserves for bad debts in amounts in excess of those which would otherwise
be allowable on the basis of actual loss experience. A qualifying savings
institution could elect annually, and was not bound by such election in any
subsequent year, one of the following two methods for computing additions to its
bad debt reserves for losses on "qualifying real property loans"
(generally, loans secured by interests in improved real property): (i) the
experience method or (ii) the percentage of taxable income method. BankAtlantic
has utilized both the percentage of taxable income method and the experience
method in computing the tax-deductible addition to its bad debt reserves.
Additions to the reserve for losses on non-qualifying loans, however, must be
computed under the experience method and reduce the current year's addition to
the reserve for losses on qualifying real property loans, unless the qualifying
addition also is determined under the experience method. The sum of the addition
to each reserve for each year was BankAtlantic's annual bad debt deduction.
The Small Business Job Protection Act of 1996 repealed the reserve method
of accounting for bad debts for tax years beginning after 1995. As a
"large" thrift (more than $500 million in assets), BankAtlantic must
switch to the specific charge-off method to compute its bad debt deduction
starting in 1996. BankAtlantic is required to recapture into taxable income the
portion of its bad debt reserves that exceeds its base year reserves. For
financial reporting purposes, deferred taxes have previously been provided for
amounts in excess of the base year tax bad debt reserve and accordingly,
recapture of such amounts for tax purposes will not trigger expense for
financial reporting purposes. BankAtlantic will have to recapture $1.7 million
(after tax) of bad debt reserve due to the law change. BankAtlantic's recapture
amount will be taken into taxable income ratably (on a straight-line basis) over
a six-year period. If BankAtlantic meets a residential loan requirement for a
tax year beginning in 1996 or 1997, the recapture of the reserves will be
suspended for such tax years. BankAtlantic met this residential loan requirement
for 1996 and therefore does not have to recapture its reserve in 1996. At
December 31, 1996 , BankAtlantic had a $3.9 million (after tax) base year
reserve for which deferred taxes have not been provided which is subject to
recapture if BankAtlantic, redeems its common stock
89
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
11. INCOME TAXES-(CONTINUED)
or certain other events occur. The base year reserve is not amortized and
remains fixed. Such amount would not be subject to recapture upon conversion to
a commercial bank charter.
The provision for income taxes consisted of (in thousands):
1996 1995 1994
----------- ----------- ----------
Current:
Federal ........................ $ 9,305 $ 7,257 $ 9,379
State ........................... 1,441 1,210 1,549
-------- -------- -------
10,746 8,467 10,928
-------- -------- -------
Deferred:
Federal ........................ 1,287 1,191 (1,159)
State ........................... 208 360 (107)
-------- -------- -------
1,495 1,551 (1,266)
-------- -------- -------
Provision for income taxes ...... $ 12,241 $ 10,018 $ 9,662
======== ======== =======
The December 31, 1996, 1995 and 1994 amounts above do not include deferred
taxes of $470,000, $3.6 million and $121,000, respectively, related to
unrealized appreciation on debt securities available for sale which is a
separate component of stockholders' equity.
BankAtlantic's actual provision differs from the Federal expected income
tax provision as follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
----------------- ----------- ---------
Income tax provision at expected
federal income tax rate (1) ....................................... $ 10,938 $ 9,953 $ 9,274
Increase (decrease) resulting from:
Base year bad debt reserve increase .............................. (362) 0 0
Tax-exempt interest income ....................................... (26) (104) (110)
Provision for state taxes net of federal benefit .................. 1,117 897 941
Change in the beginning of the period balance of the
valuation allowance for deferred tax assets allocated
to income tax expense (credit) .................................... 0 (972) (492)
Expenses related to holding company reorganization ............... 0 0 30
Amortization of costs over fair value of net assets acquired ...... 541 393 0
Charitable deduction of appreciated property ..................... 0 (70) 0
Other-net ......................................................... 33 (79) 19
------ ------- -------
Provision for income taxes ....................................... $ 12,241 $ 10,018 $ 9,662
====== ======= =======
----------------
(1) The expected federal income tax rate is 35% for the years ended December
31, 1996, 1995 and 1994.
90
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
11. INCOME TAXES-(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities were:
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loans, REO and tax certificate losses,
for financial statement purposes .................................... $ 8,692 $ 6,798 $ 5,713
Other allowances and expense accruals recorded for financial
statement purposes not currently recognized for tax purposes ...... 1,495 3,330 4,244
Deferred compensation accrued for financial statement purpose
not currently recognized for tax purposes ........................... 266 199 186
Unearned commitment fees .......................................... 114 101 75
Amortization of mortgage servicing rights for financial reporting
purposes in excess of amount amortized for tax purposes ............ 251 255 188
Amortization of intangible assets for financial reporting purposes
in excess of amounts amortized for tax purposes ..................... 225 0 0
Purchase accounting adjustments for Bank acquisitions ............... 170 1,073 0
Other ............................................................... 10 171 123
-------- -------- -------
Total gross deferred tax assets .................................... 11,223 11,927 10,529
Less valuation allowance ............................................. 0 0 972
-------- -------- -------
Total deferred tax assets .......................................... 11,223 11,927 9,557
-------- -------- -------
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base year reserve ............... 1,684 2,725 1,095
Office properties and equipment and real estate owned due
to depreciation differences ....................................... 1,172 1,613 1,202
FHLB stock, due to differences in the recognition of
stock dividends ................................................... 1,740 1,646 1,689
Deferred loan income, due to differences in the recognition
of loan origination fees and discounts .............................. 2,039 1,479 1,461
Discount on securities, due to the accretion of discounts ......... 286 673 1,010
Capital leases for financial reporting purposes and operating
leases for tax purposes ............................................. 0 21 309
Prepaid pension expenses .......................................... 313 473 370
Deferred tax liability on unrealized appreciation on debt
securities available for sale ....................................... 470 3,600 121
Prepaid insurance, primarily FDIC assessments ..................... 142 355 679
Other ............................................................... 22 86 53
-------- -------- -------
Total gross deferred tax liabilities ................................. 7,868 12,671 7,989
-------- -------- -------
Net deferred tax asset (liability) ................................. 3355 (744) 1,568
Less deferred income tax (assets) liabilities at beginning of period 744 (1,568) (423)
Deferred tax asset, net related to acquisitions ..................... (2,464) (2,718) 0
Increase (decrease) in deferred tax liability on unrealized
appreciation on debt securities available for sale included as
a separate component of stockholders' equity ..................... (3,130) 3,479 121
-------- -------- -------
Benefit (provision) for deferred income taxes ........................ $ (1,495) $ (1,551) $ 1,266
======== ======== =======
91
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
11. INCOME TAXES-(CONTINUED)
On December 31, 1994, BankAtlantic had a $972,000 valuation allowance. The
valuation allowance was reduced to zero due to management's determination that,
more likely than not, the valuation allowance was not required. The valuation
allowance at December 31, 1996 and 1995 was zero.
At December 31, 1996, the Company had a tax refund receivable of $723,000
and $132,000 for Federal and State income taxes, respectively. The tax refunds
were acquired with the BNA acquisition.
The net operating loss ("NOL") and investment tax credits
("ITC") carryovers acquired in connection with the acquisition of MegaBank
were $878,000 and $48,000, respectively, upon acquisition. Due to IRS
limitations, only $784,000 of the NOL and none of the ITC was utilized in 1995.
The remaining NOL and ITC was fully utilized in 1996. The utilization of
MegaBank's NOL and ITC are limited by regulations. Such utilization was assumed
at the date of acquisition of Mega Bank and resulted in an adjustment of cost
over fair value of assets acquired and does not affect the provision for income
taxes. The NOL will expire in 2010 and the ITC will expire in 1998 and 1999.
12. Pension Plan
BANKATLANTIC SPONSORS A NON-CONTRIBUTORY DEFINED BENEFIT PENSION PLAN (THE
"PLAN") COVERING substantially all of its employees. The benefits are
based on years of service and the employee's average earnings received during
the highest five consecutive years out of the last ten years of employment. The
funding policy is to contribute an amount not less than the ERISA minimum
funding requirement nor more than the maximum tax-deductible amount under
Internal Revenue Service rules and regulations.
Plan assets consist of mutual funds, corporate equities and cash
equivalents at December 31, 1996 and 1995.
The following table sets forth the Plan's funded status and the prepaid
pension cost included in the Consolidated Statements of Financial Condition at:
DECEMBER 31,
--------------------------------------------------
1996 1995
---------------------- ----------------------
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligation,
including vested benefits of $13,301 and $9,911 .................. $ (14,370) $ (10,533)
Actuarial present value of projected benefit obligation for
service rendered to date ....................................... (17,301) (13,435)
Plan assets at fair value as of the actuarial date ............... 15,728 12,768
----- -----
Plan assets in excess (below) projected benefit obligation ...... (1,573) (667)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions ............... 3,868 3,638
Prior service (cost) benefit not yet recognized in net
periodic pension cost .......................................... 61 69
Unrecognized net asset at October 1, 1987, being recognized
over 15 years ................................................... (1,540) (1,808)
----- -----
Prepaid pension cost ............................................. $ 816 $ 1,232
===== =====
92
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
12. PENSION PLAN-(CONTINUED)
Net pension cost includes the following components:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
Service cost benefits earned during the period ...... $ 1,065 $ 785 $ 811
Interest cost on projected benefit obligation ...... 1,151 1,010 833
Estimated return on plan assets ..................... (1,297) (1,009) (1,044)
Net amortization and deferral ........................ (3) 44 45
------- ------- -------
Net periodic pension expense ........................ $ 916 $ 830 $ 645
======= ======= =======
The actuarial assumptions used in accounting for the Plan were:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- --------
Weighted average discount rate ..................... 7.50% 8.50% 8.50 %
Rate of increase in future compensation levels ...... 5.00% 6.50% 6.50 %
Expected long-term rate of return .................. 9.00% 9.00% 9.00 %
======= ======= ========
Actuarial assumptions for the years ended December 31, 1996, 1995 and 1994
are projected based upon participant data at October 1 of the same year.
Actuarial estimates and assumptions are based on various market factors and are
evaluated on an annual basis, and changes in such assumptions may impact future
pension costs. Management believes that the impact, if any, of the difference
between actuarial assumptions utilized on October 1 and those appropriate at
December 31 is immaterial. There have been no changes in the plan during the
year ended December 31, 1996 that would significantly effect the actuarial
assumptions. During the years ended December 31, 1996 and 1995 and 1994,
BankAtlantic funded $500,000, $1.1 million and $490,000, respectively to the
plan.
BankAtlantic sponsors a defined contribution plan ("401k Plan") for
all employees who have completed six months of service. Employees can contribute
up to 14% of their salary, not to exceed $9,500 for 1996 and $9,240 for 1995 and
1994. For employees that fall within the highly compensated criteria, maximum
contributions are currently 10% of salary. Effective October 1991,
BankAtlantic's 401k Plan was amended to include only a discretionary match as
deemed appropriate by the Board of Directors. Included in employee compensation
and benefits on the consolidated statement of operations was $147,000, $75,000
and $98,000 of expenses and employer contributions related to the 401k Plan for
the years ended December 31, 1996, 1995 and 1994, respectively. For the year
ended December 31, 1996, the Board of Directors declared a discretionary match
of 25% of the first 4% of an employee's contribution. Ten percent of the 25%
discretionary match related to meeting specific profit goals. For the year ended
December 31, 1996 and 1995, participating employees were matched 25% and 15% of
their first 4% of contributions.
93
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
13. Commitments and Contingencies
BANKATLANTIC IS LESSEE UNDER VARIOUS OPERATING LEASES FOR REAL ESTATE AND
EQUIPMENT EXTENDING TO the year 2072. The approximate minimum rental under such
leases, at December 31, 1996, for the periods shown was (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------- ----------
1997 .................. $ 3,477
1998 .................. 3,103
1999 .................. 2,382
2000 .................. 1,232
2001 .................. 741
Thereafter ............ 3,339
--------
Total ............... $ 14,274
========
Rental expense for premises and equipment was $3.8 million, $3.4 million,
and $2.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Included in other liabilities at December 31, 1996 and 1995, is an
allowance of $266,000 and $110,000, respectively, for future rental payments on
closed branches. Included in the December 31, 1996 allowance for branches closed
was a $195,000 reserve for future lease payments on five BNA branches that were
closed at acquisition. BankAtlantic opened 5 Wal-Mart in-store branches and
added eight branches associated with the BNA acquisition during the year ended
December 31, 1996. BankAtlantic purchased two branch locations from unrelated
financial institutions, opened three Wal-Mart in-store branches and acquired
five branches associated with the MegaBank acquisition during the year ended
December 31, 1995. Management has committed to two additional in-store full
service branches, which are anticipated to open during the year ended December
31, 1997. The estimated annual lease payments are $48,600, other annual expenses
are $50,000, and estimated leasehold improvements and other capitalizable costs
associated with the two branches to be opened during 1997, will be approximately
$420,000.
BankAtlantic signed an agreement dated April 29, 1994 with Wal-Mart Stores,
Inc., pursuant to which BankAtlantic leased and placed ATMs in 151 Wal-Mart and
Sam's Club locations throughout Florida. These ATMs accept BankAtlantic ATM
cards, as well as bank cards, Visa, MasterCard and American Express cards that
are compatible with national and international Cirrus, Plus and Honor ATM
systems.
During the ordinary course of business, BankAtlantic and its subsidiaries
are involved as plaintiff or defendant in various lawsuits. Management, based on
discussions with legal counsel believes results of operations or financial
position will not be significantly impacted by the resolution of these matters.
In the normal course of its business, BankAtlantic is a party to financial
instruments with off-
balance-sheet risk, when it is deemed appropriate in order to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby and documentary letters of credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the statement of financial position. BankAtlantic's exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit
written is represented by the contractual amount of those instruments.
BankAtlantic uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
94
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES-(CONTINUED)
Financial instruments with off-balance sheet risk were:
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
(IN THOUSANDS)
Commitments to extend credit, including the undisbursed
portion of loans in process ........................... $ 345,524 $ 201,717
Standby and documentary letters of credit ............ 520 5,671
FHLB advance forward commitments ..................... 12,000 0
Commitments to purchase residential loans ............ 28,000 0
========== ==========
Commitments to extend credit are agreements to lend funds to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. BankAtlantic evaluates each customer's
creditworthiness on a case-
by-case basis. The amount of collateral required by BankAtlantic in connection
with an extension of credit is based on management's credit evaluation of the
counter-party. Collateral held varies but may include first mortgages on
commercial and residential real estate. As part of the commitment for standby
letters of credit, BankAtlantic is required to collateralize 120% of the
commitment balance with mortgage-backed securities. At December 31, 1996, $4.1
million of mortgage-backed securities were pledged against the commitment
balance.
Standby letters of credit written are conditional commitments issued by or
for the benefit of BankAtlantic to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
BankAtlantic may hold certificates of deposit and residential and commercial
liens as collateral for such commitments which are collateralized similar to
other types of borrowings.
BankAtlantic is required to maintain average reserve balances with the
Federal Reserve Bank. Such reserves consisted of cash and amounts due from banks
of $28.3 million and $21.5 million December 31, 1996 and 1995, respectively.
BankAtlantic is a member of the FHLB system. As a member, BankAtlantic is
required to purchase and hold stock in the FHLB of Atlanta, in amounts at least
equal to the greater of (i) 1% of its aggregate unpaid residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year or (ii) 5% of its outstanding advances from the FHLB of Atlanta. As of
December 31, 1996, BankAtlantic was in compliance with this requirement with an
investment of approximately $14.8 million in stock of the FHLB of Atlanta.
14. Regulatory Matters
THE COMPANY, BY VIRTUE OF ITS OWNERSHIP OF ALL OF THE COMMON STOCK OF
BANKATLANTIC, IS A UNITARY savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is
95
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
14. REGULATORY MATTERS-(CONTINUED)
subject to the reporting and the other requirements of the Exchange Act. In
addition, BFC owns 2,654,945 and 4,876,124 of Class A and Class B common stock,
respectively, which amounts to 41.52% of the Company's common stock. BFC is
subject to the same oversight by the OTS as discussed herein with respect to the
Company.
On September 30, 1996, President Clinton signed into law H.R. 3610, which
recapitalized the SAIF and substantially bridged the assessment rate disparity
existing between SAIF and BIF insured institutions. The new law subjected
institutions with SAIF assessable deposits, including BankAtlantic, to a
one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment, which was paid in November 1996, resulted
in a pre-tax charge of $7.2 million for the year ended December 31, 1996, and
under provisions of the law, was treated as a fully deductible "ordinary and
necessary business expense" for tax purposes. The $7.2 million charge
excludes the $2.3 million amount assessed on BNA deposits which was considered
in recording the acquisition of BNA under the purchase method of accounting. As
a result of the special assessment, discussed herein, the SAIF was capitalized
at the target Designated Reserve Ratio ("DRR") of 1.25 percent of
estimated insured deposits on October 1, 1996.
BankAtlantic's deposits are insured by the SAIF and BIF for up to $100,000
for each insured account holder, the maximum amount currently permitted by law.
Pursuant to the FDICIA, the FDIC adopted transitional regulations implementing
risk-based insurance premiums that became effective on January 1, 1993. Under
these regulations, institutions are divided into groups based on criteria
consistent with those established pursuant to the prompt regulatory action
provisions of the FDICIA (see "Savings Institution Regulations-Prompt
Regulatory Action", below). Each of these groups is further divided into
three subgroups, based on a subjective evaluation of supervisory risk to the
insurance fund posed by the institution.
On December 1, 1996 the FDIC finalized a rule lowering the rates on
assessments paid to the SAIF, effective October 1, 1996. The rule also
separates, effective January 1, 1997, the Financing Corporation ("FICO")
assessment to service the interest on its bond obligations from the SAIF
assessment. The amount assessed on individual institutions by the FICO will be
in addition to the amount paid for deposit insurance according to the FDIC's
risk-related assessment rate schedules. The FICO assessment rate for the first
semi-annual period in 1997 was set at 6.48 basis points annually for
SAIF-assessable deposits and 1.30 basis points for BIF assessable deposits. By
law, the FICO rate on BIF-assessable deposits must be one-fifth the rate on
SAIF-assessable deposits until the insurance funds merge or until January 1,
2000, whichever occurs first. The rule established a special interim rate
schedule of 18 to 27 basis points annually between October 1, 1996 and January
1, 1997. Excess assessments were refunded during January 1997. Insurance
premiums range from zero to 27 basis points, with well capitalized institutions
in the highest supervisory subgroup paying zero basis points and
undercapitalized institutions in the lowest supervisory subgroup paying 27 basis
points. BankAtlantic anticipates paying 6.48 basis points for its
SAIF-assessable deposits and 1.30 for its BIF-assessable deposits based on it
supervisory subgroup. BankAtlantic pays deposit insurance premiums primarily to
the SAIF and secondarily to the BIF in connection with the deposits it acquired
as a result of the acquisition of MegaBank. All Bank of North America
("BNA") deposits acquired are subject to SAIF premiums. At December 31,
1996, BankAtlantic had approximately $143.8 million of deposits subject to BIF
premiums and $1.7 billion subject to SAIF premiums.
BankAtlantic is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory-and
96
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
14. REGULATORY MATTERS-(CONTINUED)
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on BankAtlantic's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, BankAtlantic must meet specific capital guidelines that
involve quantitative measures of BankAtlantic's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. BankAtlantic's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require BankAtlantic to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that
BankAtlantic meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, BankAtlantic is considered a well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized BankAtlantic must maintain minimum total risk-based, Tier I
risk-based, tangible and core capital ratios as set forth in the table. There
are no conditions or events since December 31, 1996 that management believes
have changed the institution's category.
BankAtlantic's actual capital amounts and ratios are presented in the
table:
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------------- -------------------------- ------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ --------- ------------ --------- ------------ ------------
(IN THOUSANDS)
As of December 31, 1996:
Total risk-based capital ...... $ 193,196 10.83% $>142,691 >8.00% $ 178,407 >10.00%
Tier I risk-based capital ...... $ 170,865 9.58% $> 71,363 >4.00% $ 107,004 > 6.00%
Tangible capital ............... $ 170,865 6.65% $> 38,547 >1.50% $ 38,547 > 1.50%
Core capital .................. $ 170,865 6.65% $> 77,094 >3.00% $ 128,491 > 5.00%
As of December 31, 1995:
Total risk-based capital ...... $133,846 11.67% $> 91,770 >8.00% $ 114,713 >10.00%
Tier I risk-based capital ...... $119,451 10.41% $> 45,885 >4.00% $ 68,828 > 6.00%
Tangible capital ............... $119,451 6.90% $> 25,949 >1.50% $ 25,949 > 1.50%
Core capital .................. $119,451 6.90% $> 51,899 >3.00% $ 86,498 > 5.00%
15. Subject Portfolio
FROM 1987 THROUGH 1990, BANKATLANTIC PURCHASED IN EXCESS OF $50 MILLION OF
INDIRECT HOME improvement loans from certain dealers, primarily in the
northeastern United States. BankAtlantic ceased purchasing loans from such
dealers in the latter part of 1990. These dealers are affiliated with each other
but are not affiliated with BankAtlantic. In connection with loans originated
through these dealers, BankAtlantic funded amounts to the dealers as a dealer
reserve. Such loans and related dealer reserves are hereafter referred to as the
"Subject Portfolio." The risk of amounts advanced to the dealers is
primarily associated with loan performance but secondarily is dependent on the
financial
97
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
15. SUBJECT PORTFOLIO-(CONTINUED)
condition of the dealers. The dealers were to be responsible to BankAtlantic for
the amount of the reserve only if the loan giving rise to the reserve became
delinquent or was prepaid. One of the dealers filed for protection under the
bankruptcy laws of the United States, while the other dealers have not indicated
any financial ability to fund the dealer reserve.
In late 1990, questions arose relating to the practices and procedures used
in the origination and underwriting of the Subject Portfolio, which suggested
that the dealers, certain home improvement contractors and borrowers, together
with certain former employees of BankAtlantic, engaged in practices intended to
defraud BankAtlantic. Due to these questions and potential exposure,
BankAtlantic performed, and continues to perform, certain investigations,
notified appropriate regulatory and law enforcement agencies, and notified its
fidelity bond carrier (the "carrier"). After an initial review and
discussions with the carrier, BankAtlantic concluded that any losses sustained
from the Subject Portfolio would adequately be covered by its fidelity bond
coverage and, in fact, on August 13, 1991, the carrier advanced $1.5 million
against BankAtlantic's losses. This payment and future payments by the carrier
are subject to identification and confirmation of the losses which are
appropriately covered under the fidelity bond.
Subsequently, commencing in September, 1991, as a consequence of issues
raised by the carrier, BankAtlantic reviewed the Subject Portfolio without
regard to the availability of any fidelity bond coverage. As a result of the
review, the provision for loan losses for the year ended December 31, 1991 was
increased by approximately $5.7 million, approximately $5.5 million of loans
were charged off, and $2.7 million of dealer reserves were charged to current
operations. On December 20, 1991, the carrier denied coverage and BankAtlantic
thereafter filed an appropriate action against the carrier.
On October 30, 1992, BankAtlantic and the carrier entered into the
Covenant. Pursuant to the Covenant, BankAtlantic will continue to pursue its
litigation against the carrier, but has agreed to limit execution on any
judgment obtained against the carrier to $18 million. Further, BankAtlantic
agreed to join certain third parties as defendants in that action. The carrier
paid BankAtlantic $6.1 million during the fourth quarter of 1992, $3 million in
November 1993, and an additional $2.9 million in November 1994. Such amounts
related to losses and expenses previously charged to operations by BankAtlantic.
Additional reimbursements have been made on a quarterly reporting basis
commencing with the period ended December 31, 1992. Reimbursable amounts are as
defined in the Covenant. Based upon such definitions BankAtlantic recorded
estimated charges to operations in advance of when such charges became
reimbursable. Amounts to be reimbursed were reflected in the period for which
the reimbursement is related. Through December 31, 1995 and 1994, the carrier
has paid or committed to pay approximately $18.0 million and $17.9 million,
respectively. The financial statement effect of the Covenant for the fourth
quarter and year ended December 31, 1992 was to reduce expenses by $3.3 million,
increase interest income by $1.9 million and to record $7.3 million of loan loss
recoveries. In no event will the carrier be obligated to pay BankAtlantic in the
aggregate more than $18 million, which amount has been fully paid. However, in
the event of recovery by BankAtlantic of damages from third party wrongdoers,
BankAtlantic will be entitled to retain such amounts until such amounts, plus
any payments received from the carrier, equal $22 million. Thereafter, the
carrier will be entitled to any such recoveries to the extent of its payments to
BankAtlantic. To the extent that BankAtlantic incurs losses in excess of $18
million plus available recoveries from third parties, BankAtlantic will be
required to absorb any such losses. BankAtlantic also agreed to exercise
reasonable collection activities with regard to the Subject Portfolio and to
provide the carrier with a credit for any recoveries with respect to such loans
against future losses that the carrier would otherwise be obligated to
reimburse. The carrier has
98
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
15. SUBJECT PORTFOLIO-(CONTINUED)
no further obligations for reimbursement. In August 1994, BankAtlantic filed an
action against the dealers, certain home improvement contractors, and various
individuals seeking compensatory and other damages. On February 17, 1995, the
United States Attorney for the Eastern District of New York and the Assistant
Attorney General, Tax Division, United States Department of Justice, announced
that the President of the dealers noted above has pleaded guilty to bank fraud,
bribery and tax fraud conspiracy charges. The guilty plea states that
BankAtlantic was one of the financial institutions which was defrauded by the
dealers and various home improvement contractors.
Three actions have been filed, two in New Jersey and one in New York,
relating to the Subject Portfolio. One of the New Jersey actions was brought on
behalf of the State of the New Jersey. The New York action and the action
brought by the State of New Jersey were resolved in 1996 and 1995, respectively.
The remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purports to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions including BankAtlantic. This action
seeks, among other things, rescission of the loan agreements and damages. In
November 1995, the court in the remaining New Jersey action entered an order
dismissing the complaint against BankAtlantic and plaintiffs appealed this
ruling. In January 1996, the Appellate Court reversed the lower court's
decision and remanded the case back to the trial court to determine whether the
action may be maintained as a class action. The reversal was without prejudice
to BankAtlantic's right to renew its summary judgment motion after the trial
court has made a determination as to plaintiff's ability to maintain this case
as a class action.
The balance of the loans associated with the Subject Portfolio amounted to
approximately $9.9 million and $14.2 million at December 31, 1996 and 1995,
respectively. The related dealer reserve had been completely charged-off by
December 31, 1993. Net charge-offs relating to the Subject Portfolio amounted to
$666,000, $1.0 million, and $1.2 million for the years ended December 31, 1996,
1995 and 1994, respectively. All 1994 charge-offs were recovered from the
carrier compared to none in 1995. At December 31, 1996, 10% of the loans were
secured by collateral in South Florida and 90% of such loans were secured by
collateral in the northeastern United States, respectively. Collateral for these
loans is generally a second mortgage on the borrower's property. However, it
appears that in most cases, the property is encumbered with loans having high
loan to value ratios. Loans in the Subject Portfolio are charged-off if payments
are more than 90 days delinquent. While management believes that established
reserves will be adequate to cover any additional losses that BankAtlantic may
incur from the Subject Portfolio or the above described litigation, there is no
assurance that this will be the case.
16. Parent Company Financial Information
THE COMPANY WAS NOT IN EXISTENCE PRIOR TO JULY 13, 1994. CONDENSED
STATEMENTS OF FINANCIAL Condition and Condensed Statements of Operations of the
Company, at December 31, 1996 and 1995 and for each of the periods shown below.
(in thousands):
99
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
16. PARENT COMPANY FINANCIAL INFORMATION-(CONTINUED)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
ASSETS
Cash deposited at BankAtlantic ................................................... $ 20,226 $ 2,079
Debt securities available for sale ............................................. 5,843 1,892
Investment in subsidiaries ...................................................... 200,760 136,816
Due from BankAtlantic ............................................................ 0 639
Deferred offering costs on subordinated debentures .............................. 3,156 1,023
Income tax receivable ............................................................ 1,819 448
Other assets ..................................................................... 175 0
--------- ---------
Total assets ..................................................................... $ 231,979 $ 142,897
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Subordinated debentures and note payable ....................................... $ 78,500 $ 21,001
Due to BankAtlantic ............................................................ 2,742 0
Other liabilities ............................................................... 3,033 1,335
--------- ---------
Total liabilities ............................................................... 84,275 22,336
--------- ---------
Stockholders' equity:
Preferred Stock, $25.00 per share preference value, $0.01 par value
10,000,000 shares authorized; none outstanding ................................. 0 0
Class A Common Stock, $0.01 par value, authorized 30,000,000 shares; issued
and outstanding, 7,807,258 and zero ............................................. 78 0
Class B Common Stock, $0.01 par value, authorized 15,000,000 shares; issued
and outstanding, 10,542,116 and 10,592,999 shares .............................. 105 106
Additional paid-in capital ...................................................... 64,171 48,905
Retained earnings ............................................................... 82,602 65,817
--------- ---------
Total stockholder's equity before net unrealized appreciation on debt securities
available for sale-net of deferred income taxes ................................. 146,956 114,828
Net unrealized appreciation on debt securities available for sale
and owned by BankAtlantic-net of deferred income taxes ........................ 748 5,733
Total stockholders' equity ...................................................... 147,704 120,561
--------- ---------
Total liabilities and stockholders' equity .................................... $ 231,979 $ 142,897
========= =========
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1996 1995 1994
----------- ---------- ----------
Interest income on repurchase agreements and deposits at BankAtlantic ...... $ 597 $ 51 $ 0
Interest income on Federal agency securities .............................. 209 29 0
------- ------- --------
Total interest income ...................................................... 806 80 0
------- ------- --------
Interest expense on subordinated debentures and note payable ............... 4,018 776 0
Net interest (expense) ...................................................... (3,212) (696) 0
Other expenses ............................................................ (39) (5) 0
------- ------- --------
Loss before income tax benefit and earnings of subsidiaries ............... (3,251) (701) 0
Income tax benefit ......................................................... 1,253 274 0
------- ------- --------
(Loss) before earnings of subsidiaries .................................... (1,998) (427) 0
Equity in undistributed net earnings of subsidiaries excluding BankAtlantic 27 1 0
Equity in net earnings of BankAtlantic .................................... 20,982 18,845 16,835
------- ------- --------
Net income .................................................................. $ 19,011 $ 18,419 $ 16,835
======= ======= ========
100
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
16. PARENT COMPANY FINANCIAL INFORMATION-(CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------ -----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income ............................................................ $ 19,011 $ 18,419
Adjustment to reconcile net income to net cash provided (used)
by operating activities:
Equity in net earnings of BankAtlantic and other subsidiaries ......... (21,009) (18,846)
Accretion on debt securities available for sale ........................ (209) (29)
Amortization of note payable deferred costs ........................... 0 69
Amortization of subordinated debentures deferred costs ............... 222 29
Increase in dividends payable .......................................... 85 69
Increase in accrued interest payable ................................. 1,859 522
Increase (decrease) in other liabilities .............................. (127) 347
(Decrease) increase in receivable (payable) from (to) BankAtlantic ... 3,381 (241)
Increase in income tax receivable .................................... (1,371) (448)
-------- --------
Net cash provided (used) by operating activities ..................... 1,842 (109)
-------- --------
INVESTING ACTIVITIES:
Purchase of BankAtlantic preferred stock .............................. 0 (4,000)
Additional investment in BankAtlantic ................................. (54,000) (6,000)
Dividends from BankAtlantic preferred and common stock ............... 6,080 3,034
Purchase of investment securities .................................... (13,617) (3,663)
Proceeds from maturity of investment securities ........................ 9,700 1,800
-------- --------
Net cash used by investing activities ................................. (51,837) (8,829)
-------- --------
FINANCING ACTIVITIES:
Issuance of common stock upon exercise of options, net ............... 18,417 1,709
Common stock dividends paid .......................................... (2,159) (1,672)
Preferred stock dividends paid ....................................... 0 (677)
Proceeds from note payable ............................................. 0 4,000
Repayment of note payable ............................................. (1) (3,999)
Proceeds from issuance of subordinated debentures ..................... 57,500 21,000
Deferred costs on subordinated debentures .............................. (2,356) (1,052)
Preferred stock redemption ............................................. 0 (8,383)
Payment to acquire and retire common stock ........................... (3,259) 0
-------- --------
Net cash provided by financing activities .............................. 68,142 10,926
-------- --------
Increase in cash and cash equivalents ................................. 18,147 1,988
Cash and cash equivalents at beginning of period ..................... 2,079 91
-------- --------
Cash and cash equivalents at end of period ........................... $ 20,226 $ 2,079
======== ========
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid ......................................................... $ 1,937 $ 161
Common stock dividends declared and not paid until subsequent period ... 551 467
Increase (decrease) in stockholders' equity from net unrealized
appreciation on debt securities available for sale by BankAtlantic,
less related deferred income taxes .................................... (4,985) 5,540
Increase in equity for the tax effect related to the exercise
of employee stock options ............................................. 118 173
101
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
17. Selected Quarterly Results (Unaudited)
The following tables summarize the quarterly results of operations for the
years ended December 31, 1996 and 1995 (in thousands except per share data):
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL
- ------------------------------------- ------------ ------------ ------------ ------------ -----------
Interest income .................. $ 32,092 $ 32,758 $ 38,521 $ 49,260 $ 152,631
Interest expense .................. 15,620 15,096 19,610 26,705 77,031
----------- ----------- ----------- ----------- -----------
Net interest income ............... $ 16,472 $ 17,662 $ 18,991 $ 22,555 $ 75,600
Provision for loan losses ......... $ 940 $ 1,455 $ 1,869 $ 1,580 $ 5,844
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses .................. $ 15,532 $ 16,207 $ 17,042 $ 20,975 $ 69,756
----------- ----------- ----------- ----------- -----------
Income before income taxes ......... $ 7,851 $ 9,236 $ 1,977 $ 12,188 $ 31,252
----------- ----------- ----------- ----------- -----------
Net income ........................ $ 4,710 $ 5,549 $ 1,091 $ 7,661 $ 19,011
=========== =========== =========== =========== ===========
Income per common and common
equivalent share .................. $ 0.27 $ 0.29 $ 0.06 $ 0.40 $ 1.01
=========== =========== =========== =========== ===========
Income per common and common
equivalent share assuming full
dilution ........................ $ 0.27 $ 0.29 $ 0.06 $ 0.33 $ 0.93
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding ............... 17,644,250 19,377,105 19,262,360 19,295,514 18,896,691
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding assuming full
dilution ........................ 17,699,328 19,377,105 19,402,964 24,911,634 21,833,015
=========== =========== =========== =========== ===========
During the third quarter of 1996, a SAIF one-time special assessment
resulted in a pre-tax charge of $7.2 million. During the fourth quarter of 1996,
the Company sold office properties with a book value of $8.1 million for a
pre-tax gain of $3.1 million. Furthermore, during the fourth quarter of 1996
mortgage servicing rights were sold for a pre-tax gain of $1.6 million.
102
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
17. SELECTED QUARTERLY RESULTS (UNAUDITED)-(CONTINUED)
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER TOTAL
- ---------------------------------- ------------ ------------ ------------ -------------- ---------------
Interest income ............... $ 30,452 $ 32,588 $ 33,683 $ 33,354 $ 130,077
Interest expense ............... 15,655 16,743 16,704 16,584 65,686
----------- ----------- ----------- ----------- -----------
Net interest income ............ $ 14,797 $ 15,845 $ 16,979 $ 16,770 $ 64,391
Provision for loan losses ...... $ 176 $ 1,205 $ 1,436 $ 1,365 $ 4,182
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses $ 14,621 $ 14,640 $ 15,543 $ 15,405 $ 60,209
----------- ----------- ----------- ----------- -----------
Income before income
taxes ........................... $ 6,727 $ 7,706 $ 7,721 $ 6,283 $ 28,437
----------- ----------- ----------- ----------- -----------
Net income ..................... $ 4,381 $ 4,935 $ 5,038 $ 4,065 $ 18,419
=========== =========== =========== =========== ===========
Income per common and
common equivalent
share ........................ $ 0.25 $ 0.28 $ 0.28 $ 0.16(A) $ 0.97(A)
=========== =========== =========== =========== ===========
Income per common and
common equivalent
share assuming full
dilution ..................... $ 0.25 $ 0.28 $ 0.28 $ 0.16(A) $ 0.96(A)
=========== =========== =========== =========== ===========
Weighted average number
of common and
common equivalent
shares outstanding ............ 16,518,078 16,577,091 17,224,430 17,361,981 16,922,816
=========== =========== =========== =========== ===========
Weighted average number
of common and
common equivalent
shares outstanding
assuming
full dilution .................. 16,518,078 16,739,850 17,360,134 17,361,981 17,084,563
=========== =========== =========== =========== ===========
(A) During the fourth quarter of 1995, the Company redeemed $8.4 million of
preferred stock. The October 7, 1995 preferred stock redemption resulted in a
$1.4 million payment above the recorded amount of the preferred stock. Such
excess is treated as preferred stock dividend which impacted earnings per
share by $.08 primary and fully diluted earnings per share, for the year 1995
and $.08 for both primary and fully diluted earnings per share for the fourth
quarter of 1995.
18. Other Information
Alan B. Levan, serves as the Chairman, Chief Executive Officer and
President of BankAtlantic, the Company and BFC. John E. Abdo is the Vice
Chairman of BankAtlantic, the Company, and BFC and President of BankAtlantic
Development Corporation, a wholly owned subsidiary of BankAtlantic. On January
6, 1997, John O'Neill, the former President and Director of BankAtlantic and
the Company resigned.
103
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
18. OTHER INFORMATION-(CONTINUED)
In August 1996, BBC announced a plan to purchase up to 1.25 million shares
of the Company's common stock. As of December 31, 1996, the Company repurchased
in the secondary market 228,125 and 112,500 of Class A and Class B common
shares, respectively, for $3.3 million. These shares were retired at the time of
repurchase.
19. Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair
value of BankAtlantic's financial instruments presented in accordance with the
requirements of Statement. No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS 107") issued by the FASB.
Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
BankAtlantic's fair value estimates do not consider the tax effect that would
be associated with the disposition of the assets or liabilities at their fair
value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category such as commercial, commercial
real estate, residential mortgage, second mortgages, and other installment. Each
loan category is further segmented into fixed and adjustable rate interest terms
and by performing and non-performing categories.
The fair value of performing loans, except residential mortgage and
adjustable rate loans, is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of average
maturity is based on BankAtlantic's historical experience with prepayments for
each loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for national historical prepayment estimates using discount rates based on
secondary market sources adjusted to reflect differences in servicing and credit
costs.
For adjustable rate loans, the fair value is estimated at book value after
adjusting for credit risk inherent in the loan. BankAtlantic's interest rate
risk is considered insignificant since the majority of BankAtlantic's
adjustable rate loans are based on prime rates or one year Constant Maturity
Treasuries ("CMT") rates and adjust monthly or generally not greater than
one year.
Fair values of non-performing loans are based on the assumption that
non-performing loans are on a non-accrual status discounted at market rates
during a 24 month work-out period. Assumptions regarding credit risk are
judgmentally determined using available market information and specific borrower
information.
The book value of tax certificates approximates market value. Fair value of
mortgage-backed and investment securities is estimated based on bid prices
available from security dealers. Estimated cash flows of securities were based
on BankAtlantic's historical experience, modified by current economic
conditions.
Fair value of mortgage-backed securities is estimated based on bid prices
available from security dealers.
104
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS-(CONTINUED)
Under FAS 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand at December 31,
1996 and 1995. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
current rates offered by the Bank for such remaining maturities.
The book value of securities sold under agreements to repurchase and note
payable approximates fair value.
The fair values of advances from FHLB, were based upon comparable terms to
maturity, interest rates and issuer credit standing.
The following table presents information for BankAtlantic's financial
instruments at December 31, 1996 and 1995 (in thousands):
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- -------------
Financial assets:
Cash and due from depository
institutions ........................ $ 102,995 $ 102,995 $ 69,867 $ 69,867
Federal funds sold and other
short term investments ............ 6,148 6,148 0 0
Debt securities available for sale 439,345 439,345 691,803 691,803
Investment securities ............ 54,511 54,511 49,856 49,856
Loans receivable .................. 1,824,856 1,832,814 828,630 839,763
Financial liabilities:
Deposits ........................... $ 1,832,780 $ 1,828,656 $ 1,300,377 $ 1,306,732
Securities sold under agreements
to repurchase ..................... 190,588 190,593 66,237 66,240
Advances from FHLB ............... 295,700 293,587 201,785 201,795
Subordinated debentures and
note payable ........................ 78,500 73,036 21,001 21,537
Federal funds purchased ............ 0 0 1,200 1,200
The contract amount and related fees of BankAtlantic's commitments to
extend credit, standby letters of credit, financial guarantees and forward FHLB
commitments approximates fair value (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments).
20. Acquisitions
On October 11, 1996, BankAtlantic consummated its acquisition of Bank of
North America Bancorp ("BNAB") for $53.8 million in cash. The acquisition
was accounted for as a purchase for financial reporting purposes as of October
1, 1996. The results of operations include BNAB since October 1, 1996. Funds
were obtained through a $57.5 million debt offering and traditional sources.
Interest expense of $87,000 was imputed on the purchase price for the period of
October 1, 1996 (effective date) through October 11, 1996 (acquisition date).
BNAB's primary asset was its wholly owned subsidiary, Bank of North
America ("BNA"), a Florida chartered commercial bank. BNA had assets of
$525.5 million and a net loss of $2.5 million for the nine
105
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
20. ACQUISITIONS-(CONTINUED)
months ended September 30, 1996 and net income of $2.2 million for the year
ended December 31, 1995. BNA had 13 branches, 5 of which were closed upon
acquisition.
On February 17, 1995, BankAtlantic completed an acquisition of MegaBank, a
Miami-based commercial bank, for $21.4 million in cash, of which $900,000 was
paid to the Chief Executive Officer of MegaBank in connection with a
non-competition agreement. MegaBank had assets of approximately $152 million.
The MegaBank acquisition added 5 branches to BankAtlantic's branch network.
The MegaBank acquisition, accounted for by the purchase method of
accounting, was effective for financial statement purposes as of February 1,
1995. The results of operations include MegaBank since February 1, 1995. Funds
for this acquisition were obtained from traditional sources. Interest expense of
$34,000 was imputed on the purchase price for the period of February 1, 1995
(effective date) through February 17, 1995 (acquisition date).
106
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
20. ACQUISITIONS-(CONTINUED)
The net cash utilized in the purchase is summarized below.
The fair value of assets acquired and liabilities assumed inconjunction
with the purchase of all the capital stock of Bank of North America in 1996 and
MegaBank in 1995 is as follows:
DECEMBER 31
---------------------------
1996 1995
----------- ----------
(IN THOUSANDS)
Cash ................................................ $ 16,814 $ 6,512
Interest bearing deposits with banks ............... 19,795 0
Investments .......................................... 0 1,700
FHLB stock .......................................... 2,788 0
Deferred tax asset ................................. 2,464 2,697
Loans receivable, net .............................. 395,030 116,389
Debt securities available for sale .................. 66,371 18,119
Cost over fair value of net assets acquired ......... 19,313 12,072
Accrued interest receivable ........................ 4,181 1,208
Real estate owned .................................... 1,017 348
Property and equipment .............................. 6,098 613
Mortgage loan servicing rights ..................... 4,047 0
Non-competition agreement ........................... 0 900
Other assets ....................................... 8,220 3,137
--------- --------
Fair value of assets acquired ..................... 546,138 163,695
Deposits ............................................. 469,092 120,165
Securities sold under agreements to repurchase ...... 1,935 20,615
FHLB advances ....................................... 5,027 0
Advances by borrowers for taxes and insurance ...... 8,740 0
Other liabilities .................................... 6,874 1,954
--------- --------
Fair value of liabilities assumed .................. 491,668 142,734
Acquisition costs .................................... 655 465
--------- --------
Purchase of Bank .................................... $ 55,125 $ 21,426
--------- --------
Cash acquired ....................................... 16,814 6,512
--------- --------
Purchase of Bank, net of cash acquired ............... $ 38,311 $ 14,914
========= ========
107
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
20. ACQUISITIONS-(CONTINUED)
The following table indicates the estimated net decrease in earnings
resulting from the net amortization/accretion of the adjustments, including the
excess of costs over fair value of net assets acquired, resulting from the use
of the purchase method of accounting during each of the years 1997 through 2001.
The amounts (in thousands) assume no sales or dispositions of the related assets
or liabilities.
NET DECREASE OF
YEARS ENDING DECEMBER 31, NET EARNINGS
- ---------------------------- -----------------
1997 ..................... $ (2,957)
1998 ..................... $ (3,142)
1999 ..................... $ (2,737)
2000 ..................... $ (2,635)
2001 ..................... $ (2,610)
Thereafter ............... $ (15,547)
Adjustments to fair value are being amortized on a straight-line basis,
which approximates the level yield method, over the estimated average term of
three years for loans and investments, and one year for deposits. Cost over fair
value of net assets acquired does not qualify for amortization for tax purposes.
Costs over fair value of net assets acquired is being amortized on a
straight-line basis over its estimated useful life of 15 years and 10 years for
the BNA and MegaBank acquisitions, respectively. The cost over fair value of net
assets acquired as of December 31, 1996 and 1995 is $28.6 million and $10.8
million. The $900,000 non-competition agreement is considered an intangible
asset for tax purposes and amortized ratably over 15 years. At December 31, 1996
and 1995, the non-competition agreement balance was $417,000 and $696,000,
respectively. The agreement is being amortized on a straight-line basis for
financial statement purposes over its useful life which was revised from six
years to approximately three years upon the resignation of the former MegaBank
CEO from BankAtlantic's senior management group.
108
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
20. ACQUISITIONS-(CONTINUED)
The following is proforma information for the year ended December 31, 1996
and 1995 as if the acquisitions were consummated on January 1, 1996 and 1995,
respectively. The proforma information is not necessarily indicative of the
combined financial position or results of operations which would have been
realized had the acquisition been consummated during the period or as of the
dates for which the proforma financial information is presented. (in thousands,
except for per share data):
FOR THE YEAR ENDED
-------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
------------- ------------ ------------- -----------
Interest income ..................... $ 152,631 $ 182,921 $ 130,077 $ 170,071
Interest expense ..................... 77,031 95,975 65,686 91,756
Provision for loan losses ............ 5,844 9,087 4,182 5,332
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses ..................... 69,756 77,859 60,209 72,983
---------- ---------- ---------- ----------
Net Income ........................... $ 19,011 $ 13,807 $ 18,419 $ 17,143
========== ========== ========== ==========
Income per common and common
equivalent share ..................... $ 1.01 $ 0.73 $ 0.97 $ 0.89
========== ========== ========== ==========
Income per common and common equivalent
share assuming full dilution ......... $ 0.93 $ 0.69 $ 0.96 $ 0.88
========== ========== ========== ==========
The proforma includes losses incurred by BNA of $3.0 million on the sale of
treasury notes and a $2.3 million SAIF one time special assessment.
The following is proforma information for the year ended December 31, 1994
as if the 1995 MegaBank purchase was consummated on January 1, 1994 (in
thousands, except for per share data):
FOR THE YEAR ENDED DECEMBER 31
------------------------------
HISTORICAL PROFORMA
------------- -----------
Interest income .......................................... $ 98,549 $ 110,900
Interest expense .......................................... 41,431 46,096
Provision for loan losses ................................. 2,299 2,869
--------- ----------
Net interest income after provision for loan losses ...... 54,819 61,935
--------- ----------
Net Income ................................................ $ 16,835 $ 16,680
========= ==========
Income per common and common equivalent share ............ $ 0.97 $ 0.96
========= ==========
Income per common and common equivalent share
assuming full dilution .................................... $ 0.97 $ 0.96
========= ==========
The proforma has been adjusted for MegaBank to exclude transaction costs of
$635,000 from historical results. Such transaction costs consisted primarily of
contract and employee severance costs. These proforma results may not be
representative of the actual results that would have occurred or may occur in
the future if the transaction had been in effect on the date indicated.
109
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 will be provided by incorporating the information
required under such items by reference to the registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission, no later than
120 days after the end of the year covered by this Form 10K, or, alternatively,
by amendment to this Form 10K under cover of 10K-A no later than the end of such
120 day period
110
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of
BankAtlantic Bancorp, Inc. and its subsidiaries are included
herein under Part II, Item 8 of this Report.
Independent Auditor's Report dated January 28, 1997
Consolidated Statements of Financial Condition as
of December 31, 1996 and 1995.
Consolidated Statements of Operations for each of
the years in the three year period ended December
31, 1996.
Consolidated Statements of Stockholders' Equity for
each of the years in the three year period ended
December 31, 1996.
Consolidated Statements of Cash Flows for each of
the years in the three year period ended December
31, 1996.
Notes to Consolidated Financial Statements for the
three years ended December 31, 1996.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is
either not applicable or presented in the financial statements
or related notes.
111
(3) EXHIBITS
The following exhibits are either filed as a part of this Report or are
incorporated herein by reference to documents previously filed as
indicated below:
Exhibit
Number Description Reference
- ------------------------------------------------------------------------------------------------------------------------------------
3.1 Charter S. as amended. Exhibit 3.2 to the Form 10K for the year ended
December 31, 1990.
3.2 By-Laws, as amended Exhibit 3.2 to the Form 10K for the three
months ended December 31, 1988.
4.4 Subordinated debenture indenture Filed with 9% subordinated debenture prospectus
dated September 22, 1995.
Filed with 6 3/4 % subordinated debenture
prospectus dated June 5, 1996.
10.10 Omnibus Agreement between BankAtlantic Exhibit 10.11 to the 1985 Form 10K.
Development and Kalik, Elwood, Richardson & Amendments filed as Exhibit 10.10 to the 1987
Associates, Inc., dated as of June 24, 1985, and Form 10K.
amendments thereto.
10.11 AFS Savings Plan and AFS Trust Agreement. Exhibit 10.11 to the 1987 Form 10K.
12.1 Ratio of Earnings to Fixed Charges. Filed with this Report.
22.1 Subsidiaries of the Registrant. Filed with this Report.
23.1 Consent of KPMG Peat Marwick, LLP Filed with this Report.
27 Financial Data Schedule Filed with this Report.
112
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BANKATLANTIC BANCORP, INC.
March 21, 1997 By: /S/ALAN B. LEVAN
-------------------------------------
Alan B. Levan, Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/Alan B. Levan Chairman of the Board, Chief Executive Officer and
- --------------------------------------------------------- President
Alan B. Levan
/s/John E Abdo Vice Chairman of the Board; President of BankAtlantic
- --------------------------------------------------------- Development Corporation
John E. Abdo
/s/Frank V. Grieco Senior Executive Vice President and Director
- ---------------------------------------------------------
Frank V. Grieco
/s/Jasper R. Eanes Executive Vice President and Chief Financial Officer
- ---------------------------------------------------------
Jasper R. Eanes
- --------------------------------------------------------- Director
Steven M. Coldren
/s/Mary E. Ginestra Director
- ---------------------------------------------------------
Mary E. Ginestra
/s/Bruno Di Giulian Director
- ---------------------------------------------------------
Bruno Di Giulian
/s/Charlie C. Winningham, II Director
- ---------------------------------------------------------
Charlie C. Winninghamn, II
113
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
12.1 Ratio of Earnings to Fixed Charges.
22.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick, LLP
27 Financial Data Schedule
114