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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
34-027228
BANKATLANTIC BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0507804
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(954) 760-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH REGISTERED
NEW YORK STOCK EXCHANGE
TITLE OF EACH CLASS
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
CLASS B COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate, by check mark, if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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 and non voting common equity held
by non-affiliates of the Registrant at February 27, 1998 was approximately
$270,000,000.
The number of shares of Registrant's Class A Common Stock outstanding on
February 27, 1998 was 21,534,545.
The number of shares of Registrant's Class B Common Stock outstanding on
February 27, 1998 was 10,828,077.
Portions of the Proxy Statement of Registrant relating to the Annual
Meeting of shareholders, are incorporated in Part III of this report.
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PART I
ITEM 1. BUSINESS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1993, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
herein. These forward-looking statements are based largely on the expectations
of BankAtlantic Bancorp, Inc. ("the Company") 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, as well as 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.
GENERAL
THE COMPANY
The Company is a unitary savings bank holding company whose primary asset
is the capital stock of BankAtlantic, a Federal Savings Bank ("BankAtlantic"),
its wholly owned subsidiary. Under applicable law, the Company generally has
broad authority with few restrictions to engage in various types of business
activities. At present the Company's primary activities relate to the
operations of BankAtlantic and BankAtlantic's subsidiaries however, as
discussed herein, the Company recently entered into an agreement to acquire
Ryan, Beck & Co., Inc., an investment banking firm and in September 1997, the
Company acquired 50% ownership of the voting stock of Florida Atlantic
Securities, Inc. ("FASI"), a full service investment banking and securities
brokerage firm. On February 26, 1998 the Company entered into an agreement to
acquire Leasing Technology Inc. ("LTI"). LTI is engaged in all facets of
leasing and financing. It is anticipated that LTI will operate as a wholly
owned subsidiary of BankAtlantic pending regulatory approval. 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
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, small business, residential and consumer loans and to make other
permitted investments such as the purchase of mortgage-backed securities, tax
certificates and other investment securities. In 1995, BankAtlantic acquired
MegaBank, a Miami-based commercial bank with deposits of approximately $120
million, which added 5 branches to BankAtlantic's network. In 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 consolidated with existing branches of BankAtlantic. On October
31, 1997, BankAtlantic acquired the St. Lucie West Holding Corp. ("SLWHC") for
approximately $20.0 million. SLWHC is the developer of the master planned
community of St. Lucie West, ("SLW") located in St. Lucie County, Florida. See
Note 21 of the Consolidated Financial Statements.
BankAtlantic currently operates through 65 branch offices, 14 in
Miami-Dade, 26 in Broward and 13 in Palm Beach Counties in South Florida as
well as 12 branches located throughout Florida in Walmart SuperStores. As
reported by an independent statistical reporting service, BankAtlantic is
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currently the second largest independent financial institution headquartered in
the State of Florida based on assets at September 30, 1997, 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, gains on sales
of loans, investments and mortgage servicing rights 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 include residential real
estate lending (including secondary market purchases of residential real estate
loans), commercial lending (consisting of commercial real estate, commercial
business lending and international lending), small business lending (primarily
commercial loans under $1.0 million) 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 Act."
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 collateral securing the loan.
Commercial real estate, corporate and portfolio 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
Chief Executive Officer, the Vice Chairman, the Senior Executive Vice
President, certain Executive Vice Presidents and certain other officers of
BankAtlantic. The Executive Vice President of Community Banking must approve
all small business loans of $500,000 to $1 million and loans above $1.0 million
are referred to the Commercial Lending Department.
International loan underwriting procedures are designed to assess the
country risk and the individual loan quality. All loans must be approved by the
International Loan Committee ("ILC"). The committee consists of the Chief
Executive Officer, certain Executive Vice Presidents, the Miami-Dade County
President and the manager of International Lending. In addition, a Country Risk
Committee ("CRC") has been established , which includes the above ILC members
and an economist. The CRC meets monthly and their purpose is to establish
guidelines by country, including amount of exposure, lines of business and
duration.
Underwriting procedures for residential loan purchases are designed to
assess the seller's underwriting procedures, as well as individual loan quality
including credit review. 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. 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. Generally, 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.
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COMMERCIAL REAL ESTATE LOANS -- Substantially all of BankAtlantic's
commercial real estate loans relate to property located in Miami-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. BankAtlantic generally lends not more than
75% of the collateral's appraised value and generally 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.
Permanent commercial real estate, development 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
development or 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 construction and
development loans 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.
COMMERCIAL BUSINESS LOANS -- BankAtlantic's commercial business lending
activities are generally directed towards small to medium size companies
located in Miami-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 generally have prime-based
interest rates and are originated on a line of credit basis or on a fixed term
basis ranging from one to five years. Line of credit loans are reviewed
annually. 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.
INTERNATIONAL LOANS -- BankAtlantic's international lending activities
began in 1997 and are currently with correspondent financial institutions in
Latin America. The Company's international lending activities are anticipated
to include (i) trade financing for correspondent financial institutions in
Latin America, including pre-export financing, advances on letters of credit
and banker's acceptances, (ii) trade financing for local commercial customers
who are primarily importing from or exporting to Latin America, (iii) term
financing of the export of United States goods and services guaranteed by the
EximBank and (iv) other correspondent banking services. Trade finance for
correspondent financial institutions is anticipated to be the largest segment
of BankAtlantic's international lending activities. The yield on such loans is
lower than the average yield for BankAtlantic's commercial business loan
portfolio, but such loans are floating rate, and have short term maturities. At
December 31, 1997,
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approximately $12 million of loans were outstanding to correspondent financial
institutions in Latin America. It is anticipated that 1998 lending levels will
increase from 1997 levels. BankAtlantic also believes that this activity will
provide an additional source of deposits and fee based income.
SMALL BUSINESS LENDING -- During the latter part of 1997, BankAtlantic
focused its attention on small business lending activities. These activities
are generally directed towards companies located in Miami-Dade, Broward and
Palm Beach Counties Florida and the West Coast of Florida. BankAtlantic's small
business lending division makes both secured and unsecured loans to businesses
whose credit needs generally do not exceed $1.0 million. It is believed that
this lending activity will increase in 1998 from 1997 levels. Lines of credit
are due upon demand while term loans and owner-occupied real estate loans are
originated with maturities ranging from one to twenty years. Small business
loans have fixed and prime-based interest rates. Small 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 on-going customer relationships with small business borrowers is
an important part of BankAtlantic's efforts to attract more non-interest
bearing demand deposits and to generate other fee-based, non-lending services.
BANKER'S ACCEPTANCES -- Banker's acceptances are collateralized by various
means, including inventory and receivables of borrowers of the issuing bank and
are unconditional obligations of the issuing bank.
FACTORING -- In January 1997, BankAtlantic Factors, Inc. ("Factors") was
established as a subsidiary of BankAtlantic. Factors purchases accounts
receivable from a client with recourse. Clients are generally manufacturers,
distributors, importers and service companies in various industries. Factors
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. Credit facilities of $500,000 or more
require the approval of the Division Head and Chief Executive Officer or the
Executive Vice President of Commercial Lending. Outside brokers may be utilized
to obtain relationships and in such case are paid commissions based on a
percentage of earnings from an account as collected.
RESIDENTIAL REAL ESTATE LOANS -- BankAtlantic's direct residential real
estate lending includes home mortgage loans originated by BankAtlantic and
secured by residential real estate located in Miami-Dade, Broward and Palm
Beach Counties, Florida. Additionally, the levels of residential real estate
loans increased substantially as BankAtlantic increased secondary market
purchases of wholesale residential real estate loans secured by property
located throughout the United States. BankAtlantic's residential loans have
been originated through its branch banking network, and a staff of commissioned
lending officers. 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 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.
BankAtlantic purchases in the secondary market one-to-four family fixed
and adjustable rate 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. While loans purchased in
the secondary market generally have lower yields than originated loans,
management believes that the lower yield is generally offset by lower
administrative costs and the ability to partially manage the interest rate risk
associated with these loans due to the size and generally homogenous nature of
the purchases.
4
CONSUMER LOANS -- BankAtlantic originates consumer loans bearing both
fixed and prime-based interest rates for terms primarily ranging for up to 5
years other than second mortgage loans, including home equity lines of credit,
which may have longer terms. During the past several years, BankAtlantic has
experienced significant growth in its consumer loan portfolio. Part of this
growth was the result of BankAtlantic's acquisition of financial institutions
which had originated consumer loans in prior years. A major portion of the
consumer loan portfolio is indirect automobile loans (loans funded by
BankAtlantic through automobile dealers rather than funded directly by
BankAtlantic to its retail customers). Consumer loans, especially indirect
automobile loans, present significantly more credit risk to BankAtlantic than
residential real estate loans.
The indirect origination of consumer loan products generally requires
funding of dealer reserves to dealers who originate 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 defaults 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 could successfully recover
amounts advanced in the event it pursues the dealer for amounts due. See Note
17 and Note 1 of the Consolidated Financial Statements regarding BankAtlantic's
experience relating to the Subject Portfolio and Dealer Reserves, respectively.
LOAN COMMITMENTS -- BankAtlantic issues commitments to originate
residential and commercial real estate loans, commercial business loans and
small 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, commercial
business loans and small 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.
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.
BankAtlantic has commitments to extend credit to financial institutions in
Latin America. The commitments can be terminated at any time. Each financial
institution is evaluated on a case by case basis.
MORTGAGE SERVICING RIGHTS -- As part of its strategic business plan,
BankAtlantic periodically purchases mortgage servicing rights ("MSRs") through
concurrent flow servicing arrangements supplemented with bulk purchases and
sells such rights in larger volumes where the premiums available are generally
greater.
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It is currently BankAtlantic's intention to maintain servicing rights
balances below 35% of core capital. 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 desired levels. The fees derived from servicing mortgage
loans include mortgage servicing fees as well as return check and late charge
fees. The amount of net revenue earned from loan servicing is significantly
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. 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. BankAtlantic may be required
under generally accepted accounting principles ("GAAP") to establish a
valuation allowance to reflect a decline in the market value of its MSRs, while
at the same time GAAP does not permit BankAtlantic to recognize increases in
the market value of MSRs which appreciate in a rising interest rate environment
except to recover an established valuation allowance. A decline in the value of
mortgage servicing rights may also reduce regulatory capital. (See "Savings
Institutions Regulation").
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.
ALLOWANCE FOR LOAN LOSSES, NON-PERFORMING ASSETS, CLASSIFIED ASSETS AND
IMPAIRED LOANS -- BankAtlantic follows a consistent procedural discipline and
accounts for loan loss contingencies in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" ("Statement 5"). The
following is a description of how each portion of the allowance for loan losses
is determined.
BankAtlantic segregates the loan portfolio for loan loss purposes into
broad segments, such as: commercial real estate; residential real estate;
commercial business; and various types of consumer loans. BankAtlantic provides
for a general allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss percentages are
calculated based upon historical analyses. A supplemental portion of the
allowance is calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified by the more
objective processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments
based on qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and nonaccruals; migration trends
in the portfolio; trends in volume, terms and portfolio mix; new credit
products and/or changes in the geographic distribution of these products;
changes in lending policies and procedures; loan review reports on the efficacy
of the risk identification process; changes in the outlook for local, regional
and national economic conditions; concentrations of credit; and peer group
comparisons.
Specific allowances are provided in the event that the specific collateral
analysis on each classified loan indicates that the probable loss upon
liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is increased or decreased in order to
adjust the allowance for loan losses to the required level as determined above.
A loan is impaired when collection of principal and interest based on the
contractual terms of the loan is not probable. BankAtlantic measures impairment
based on (a) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (b)
the
6
observable market price of the impaired loan, or (c) the fair value of the
collateral of a collateral-dependent loan. BankAtlantic selects the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for
which foreclosure is probable are measured at the fair value of the collateral.
Specific allowances are provided, as noted above, in the event the impairment
calculation is in excess of the general allowance allocation. In a troubled
debt restructuring, BankAtlantic measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
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 that are evaluated individually include
nonaccrual commercial loans, restructured loans, and performing commercial
loans less than 90 days delinquent where management does not expect the loans
to be repaid in accordance with their contractual terms but which are expected
to be collected in full. Generally, BankAtlantic recognizes interest income on
impaired loans on a cash basis.
Although BankAtlantic believes it has a sound basis for estimating the
adequacy of the allowance for loan losses, actual charge-offs incurred in the
future are highly dependent upon future events, including the economic
condition of the areas in which BankAtlantic lends, and may be greater than the
amount of the allowance. 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.
INVESTMENT ACTIVITIES
GENERAL -- The Company maintains a trading account which presently
includes certain marketable equity securities and has an investment portfolio
of debt and equity securities which are classified as available for sale.
BankAtlantic also maintains an investment portfolio consisting primarily of
mortgage-backed securities ("MBS"), tax certificates, Treasury Notes, Federal
agency obligations, and asset-backed securities. Additionally, BankAtlantic
has, in the past, purchased corporate bonds. Federal regulations limit the
types and quality of instruments in which BankAtlantic may invest including
marketable equity securities.
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 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. Asset-backed securities
purchased by BankAtlantic consist of investment grade pooled automobile
receivables. Corporate bonds consist generally of investment grade obligations
of corporate borrowers with an average maturity of 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.
Debt and equity securities and options related thereto, purchased or sold
for the purpose of a short-term profit are classified as "trading securities"
and are recorded at fair value. Unrealized gains and losses in trading
securities are reflected in results of operations.
Debt and equity securities not classified as held to maturity or trading
securities are classified as "available for sale". Debt and equity securities
available for sale are carried at fair value, with the
7
related unrealized appreciation or depreciation, net of deferred income taxes,
reported as a separate component of stockholders' equity. Generally,
BankAtlantic has classified its investment in debt securities as "available for
sale".
TAX CERTIFICATES -- BankAtlantic's portfolio includes tax certificates.
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 began
acquiring tax certificates from various municipalities outside of the State of
Florida. The nature of priority, statutory periods and deed procedures vary by
applicable taxing authorities. There is no significant concentration of tax
certificate purchases in any one taxing authority outside of the State of
Florida. Tax certificates are classified as "held to maturity".
Management of BankAtlantic establishes an allowance for tax certificate
losses in an amount 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 or a deed has aged
48 months from BankAtlantic's certificate acquisition date. At that time,
interest ceases to be accrued and previously accrued interest is reversed.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE ACTIVITIES -- On October 31,
1997, BankAtlantic, through a subsidiary, BankAtlantic Development Corp.
("BDC"), acquired for approximately $20.0 million, SLWHC. SLWHC is the
developer of the master planned community of SLW, located in St. Lucie County,
Florida. It is anticipated that this acquisition will provide BankAtlantic with
additional sources of non-interest income through the development and sale of
parcels of land. However, there is no assurance that this will occur. The
developer's annual operating expenses are estimated to be approximately $4.2
million and there are no assurances that periodic sales of properties will be
sufficient to ensure profitability in 1998 or in future years. To the extent
sales are not adequate to cover operating expenses, the Company may have to
provide additional funds to BDC. Real estate activities are highly speculative
and represent a high degree of risk primarily due to the cyclical nature of the
real estate industry and the uncertainty of future market conditions. In
particular, the real estate and home building industries are adversely affected
by decreases in employment levels, the availability and cost of financing and
decreases in demand.
INVESTMENT IN REAL ESTATE JOINT VENTURES -- In addition to SLW, BDC has
entered into joint venture agreements with two developers. No activity had
begun as of December 31, 1997. BDC provided $1.2 million of equity capital
during 1997 to one of the joint ventures and anticipates funding $1.5 million
during 1998 to the other joint venture with the expectation of profit sharing
once the projects are completed or near completion. It is anticipated that BDC
will enter into other joint venture agreements and these agreements may require
significant equity investment with potential profit sharing much later in the
project. It is anticipated that BankAtlantic might provide financing to this
and future joint ventures on an arms' length basis, in accordance with its
usual lending and underwriting policies,
8
however, such lending activities may result in deferral of the recognition of
interest income on the financing activity and/or the deferral of profit
recognition from the joint venture.
The initial investment by BDC for SLW and the joint venture was funded by
a capital contribution from the Company to BankAtlantic, which in turn provided
the funds to BDC. Real estate development activities and investments in real
estate joint ventures are non-permissable activities for National Banks, and
are excluded from BankAtlantic's regulatory capital calculations. See
"Regulation and Supervision" for a further discussion.
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 principal prepayments and deposit inflows and outflows are
significantly influenced by general interest rates. Borrowings may be used by
BankAtlantic on a short to intermediate term basis to compensate for reductions
in normal sources of funds such as savings inflows, and to provide additional
liquidity investments. On a long-term basis, borrowings may support expanded
lending activities and purchases of loans and investments. 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 Miami-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. Merrill Lynch granted
BankAtlantic a facility of up to $135 million for brokered certificates of
deposit. The facility is considered 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 10 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 FHLB to match fund or partially match fund
purchases of wholesale residential real estate loans, repay other borrowings,
meet deposit withdrawals and expand its lending and short-term investment
activities. See Note 9 to the Consolidated Financial Statements.
FEDERAL FUNDS BORROWINGS -- BankAtlantic has established unsecured
facilities with five federally insured banking institutions to purchase Federal
Funds aggregating $35 million. The facilities are used on an overnight
borrowing basis to assist in managing BankAtlantic's cash flow requirements.
These Federal Fund lines are subject to periodic review and may be terminated
at any time by the issuer institution.
9
COMPETITION
As reported by an independent statistical reporting service, BankAtlantic
is the second largest financial institution headquartered in the State of
Florida based on assets at September 30, 1997, 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 access to products and
services. 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, real estate investment trusts, 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, 1997, BankAtlantic employed 1,057 full-time and
82 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 401(k) plan,
qualified defined benefit pension plan, managed health care 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 following description summarizes some of the laws to which the Company
and BankAtlantic are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and are
qualified in their entirety by reference to such statutes and regulations.
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 45.6% 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 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
10
review BankAtlantic's compliance with various regulatory requirements. The
regulatory structure also gives regulatory authorities extensive discretion
with respect to the classification of non-performing and other assets and the
establishment of adequate loan loss reserves for regulatory purposes.
HOLDING COMPANY REGULATIONS
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding
company from directly or indirectly acquiring control, including through an
acquisition by merger, consolidation or purchase of assets, of any savings
association (as defined in Section 3 of the Federal Deposit Insurance Act) or
any other savings and loan or savings bank holding company, without prior OTS
approval. In considering whether to grant approval for any such transaction,
the OTS will take into consideration a number of factors, including 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. 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. A holding company
that acquires another institution and maintains it as a separate subsidiary or
whose sole subsidiary fails to meet the QTL test will become subject to the
activities limitations applicable to multiple savings bank holding companies.
In general, a multiple savings bank holding company (or subsidiary thereof that
is not an insured institution) may not commence, or continue for more than a
limited period of time after becoming a multiple savings bank holding company
(or a subsidiary thereof), any business activity other than (i) furnishing or
performing management services for a subsidiary insured institution; (ii)
conducting an insurance agency or an escrow business; (iii) holding, managing
or liquidating assets owned by or acquired from a subsidiary insured
institution; (iv) holding or managing properties used or occupied by a
subsidiary insured institution; (v) acting as trustee under deeds of trust;
(vi) those activities previously directly authorized by the OTS by regulation
as of March 5, 1987 to be engaged in by multiple savings bank holding
companies; or (vii) subject to prior approval of the OTS, those activities
authorized by the Federal Reserve Board ("FRB") as permissible investments for
bank holding companies. These restrictions do not apply to a multiple savings
bank holding company if (a) all, or all but one, of its insured institution
subsidiaries were acquired in emergency thrift acquisitions or assisted
acquisitions and (b) all of its insured institution subsidiaries are QTLs.
RESTRICTIONS ON TRANSACTIONS WITH BANKATLANTIC -- BankAtlantic is subject
to restrictions in its dealings with the Company and any other companies that
are "affiliates" of the Company under HOLA and certain provisions of the
Federal Reserve Act ("FRA") that are made applicable to savings institutions by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA")
11
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. 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. Florida has allowed holding companies from the Southeastern United
States to acquire institutions in Florida since 1984, and in 1994 it was
expanded to include savings bank and bank holding companies from other parts of
the United States as well. In 1996, Florida enacted legislation, effective as
of June 1, 1997, which allowed out-of-state institutions to enter Florida by
merger with an existing Florida-based institution, and thereafter to branch
throughout the state, by merger with out-of-state institutions. This may
further increase competition for the Company by allowing large institutions
from other parts of the United States to operate directly in Florida.
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 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 amount paid for deposit insurance according to
the FDIC's risk-related assessment rate schedules. The FICO assessment rate for
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. 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 deposits
acquired as a result of the acquisition of BNA are subject to SAIF premiums. At
December 31, 1997, BankAtlantic had approximately $139.5 million of deposits
subject to BIF premiums and $1.6 billion of deposits subject to SAIF premiums.
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
12
requirements to reflect interest rate risk or other risk. Capital calculated
pursuant to the OTS regulations varies substantially from capital calculated
pursuant to GAAP. At December 31, 1997, 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")) as well as the
amount equal to BankAtlantic's equity investment in subsidiaries engaged in
activities not permissible to national banks. However, a portion of 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. 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 in computing total capital for this purpose may not exceed core
capital. Supplementary capital includes cumulative perpetual preferred stock,
allowable subordinated debt and general loan loss allowances, within specified
limits. Such general loan loss allowances may not exceed 1.25% of risk-weighted
assets. Risk-weighted assets are determined by assigning to all assets
designated risk weights ranging from 0% to 100%, based on the credit risk
assumed to be associated with the particular asset. See "Liquidity and Capital
Resources" and Note 16 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.
The U.S. banking agencies (Federal Reserve Board, Office of the
Comptroller of the Currency, Federal Deposit Insurance Corporation -
collectively "the Agencies") have each approved an interagency final rule which
incorporates a measure for market risk into their risk-based capital standards.
The final rule is based on an amendment to the Basle Capital Accord which
requires banks to measure and hold capital in support of their exposure to
market risk. Due to the final asset size and trading activity criteria, the
rule is expected to apply to a limited number of very large institutions. The
most significant modification to the rule is the elimination of the
"standardized approach" and introduction of a requirement that all depository
institutions and bank holding companies meeting the applicable criteria use
their own internal model to measure market risk exposure. The standardized
approach, however, has been retained for determining capital charges associated
with specific risk in trading accounts to the extent that such risk is not
addressed by an institution's internal model. Mandatory compliance with the
rule is required beginning January 1, 1998. Backtesting must begin one-year
after implementation of market risk calculations. BankAtlantic, based on its
asset size and current trading activity, is not subject to the above rule.
Additionally, the OCC, which is the primary regulator for national banks,
has adopted a final rule increasing the leverage ratio requirements for all but
the most highly rated national banks. Pursuant to
13
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, 1997, BankAtlantic would have been in full
compliance with the requirement.
INSURANCE OF ACCOUNTS -- BankAtlantic's deposits are insured by the SAIF
and BIF for up to $100,000 for each insured account holder, the maximum amount
currently permitted by law. 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.
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, 1997
BankAtlantic met the capital requirements of a "well capitalized" institution
as defined above.
THE FEDERAL HOME LOAN BANK ("FHLB") SYSTEM -- BankAtlantic is a member of
the FHLB system, which consists of 12 regional FHLBs governed and regulated by
the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit
facility for member institutions. BankAtlantic, as a member of the FHLB of
Atlanta, is required to acquire and hold shares of capital stock in the FHLB of
Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on BankAtlantic's behalf). BankAtlantic is currently
in compliance with this requirement.
Each FHLB makes loans (advances) to members in accordance with policies
and procedures established by the board of directors of the FHLB. These
policies and procedures are subject to the
14
regulation and oversight of the FHLB. All advances from the FHLB must be fully
secured by sufficient collateral as determined by the FHLB of Atlanta. All
long-term advances are required to 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 to
capital; (ii) minimum earnings sufficient to absorb losses without impairing
capital; (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly traded shares of the institution; and (iv) such other
standards relating to asset quality, earnings and valuation as the OTS deems
appropriate.
LOANS TO ONE BORROWER -- Generally, a savings institution's total loans
and extensions of credit to one borrower or related group of borrowers,
outstanding at one time and not fully secured by readily marketable collateral,
may not exceed 15% of the institution's unimpaired capital and surplus. Except
as set forth below for certain highly rated securities, an institution's
investment in commercial paper and corporate debt securities of any one issuer
or related entity must be aggregated "loans" for purposes of the immediately
preceding sentence. Savings institutions may invest, in addition to the 15%
general limitation, up to 10% of unimpaired capital and surplus in commercial
paper of one issuer rated by two nationally recognized rating services in the
highest category, or in corporate debt securities rated in one of the two
highest categories by at least one such service. A savings institution may also
lend up to 10% of unimpaired capital and surplus, if the loan is fully secured
by readily marketable collateral. Readily marketable collateral is defined to
include certain securities and bullion, but generally does not include real
estate. At December 31, 1997, BankAtlantic was in compliance with the loans to
one borrower limitations.
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
15
a savings institution's qualified thrift investments equal or exceed 65% of the
savings institution's portfolio assets calculated on a monthly average basis in
nine out of every twelve months. For the purposes of the QTL test, portfolio
assets are total assets less intangibles, properties used to conduct business
and liquid assets (up to 20% of total assets).
Any savings institution that fails to meet the QTL test must convert to a
commercial bank charter or limit its future investments and activities to those
permitted for both savings institutions and national banks. Additionally, any
such savings institution that does not convert to a commercial bank charter
will be ineligible to receive future advances from the FHLB and, beginning
three years after the loss of QTL status, will be required to repay all
outstanding advances from the FHLB except for special liquidity advances and
dispose of or discontinue all preexisting investments and activities not
permitted for both savings institutions and national banks. If an institution
converts to a commercial bank charter, its deposits remain insured by SAIF
until the FDIC permits it to transfer to BIF. If any institution that fails the
QTL test and is controlled by a holding company, then, within one year after
the failure, the holding company must register as a bank holding company and
will be subject to all applicable restrictions on bank holding companies. At
December 31, 1997, BankAtlantic was in compliance with current QTL
requirements.
TRANSACTION WITH AFFILIATES -- As a federally chartered savings
institution, BankAtlantic is subject to the OTS' regulations relating to
transactions with affiliates, including officers and directors. BankAtlantic is
subject to substantially similar restrictions regarding affiliate transactions
as those imposed on member banks under Sections 22(g), 22(h), 23A, and 23B of
the FRA.
Sections 22(g) and 22(h) establish restrictions on loans to directors,
controlling shareholders and their related companies and certain officers.
Section 22(g) provides that no institution may extend credit to an executive
officer unless (i) the bank would be authorized to make such extension of
credit to borrowers other than its officers, (ii) the extension of credit is on
terms not more favorable than those afforded to other borrowers, (iii) the
officer has submitted a detailed current financial statement and (iv) the
extension of credit is on the condition that it shall become due and payable on
demand at any time that the officer is indebted to any other bank or banks on
account of extensions of credit in any one of the following three categories,
in an aggregate amount greater than the amount of credit of the same category
that could be extended to the officer by the institution: (a) an extension of
credit secured by a first lien on a dwelling which is expected to be owned by
the officer and used by the officer as his or her residence; (b) an extension
of credit to finance the education of the children of the officer; or (c) for
any other purpose prescribed by the OTS. Section 22(g) also imposes reporting
requirements on both the officers to whom it applies and on the institution.
Section 22(h) requires that loans to directors, controlling shareholders and
their related companies and certain officers be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and that those loans do not
involve more than the normal risk of repayment or present other unfavorable
features or give preference to insiders over other employees.
Section 23A limits transactions with any one affiliate to 10% of the
institution's capital and surplus and limits aggregate affiliate transactions
to 20% of such capital and surplus. Sections 23A and 23B provide that a loan
transaction with an affiliate generally must be collateralized (other than by a
low-quality asset or by securities issued by an affiliate) and that all covered
transactions as well as the sale of assets, the payment of money or the
providing of services by a savings institution to an affiliate must be on terms
and conditions that are substantially the same, or at least as favorable to the
savings institution, as those prevailing for comparable non-affiliated
transactions. A covered transaction is defined as a loan to an affiliate, the
purchase of securities issued by an affiliate, the purchase of assets from an
affiliate (with some exceptions), the acceptance of securities issued by an
affiliate as collateral for a loan or the issuance of a guarantee, acceptance
or letter of credit on behalf of an affiliate. The OTS regulations clarify that
transactions between either a thrift or a thrift subsidiary and an unaffiliated
person that benefit an affiliate are considered covered transactions. A savings
institution may make loans to or otherwise extend credit to an affiliate only
if the affiliate is engaged solely in activities permissible for bank holding
companies. In addition, no savings institution may purchase the securities
16
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, 1997, BankAtlantic was in compliance with the
restrictions regarding transactions with affiliates.
LIQUIDITY REQUIREMENTS OF THE OTS -- The OTS regulations currently require
all member savings institutions to maintain an average daily balance of liquid
assets (cash, certain time deposits, banker's acceptances, specified United
States government, state or Federal agency obligations and other corporate debt
obligations, certain mortgage related securities and commercial paper) equal to
between 4% and 10% of the sum of the average daily balance during the preceding
calendar month of net withdrawable accounts maturing in one year or less and
short-term borrowings payable in one year or less. Monetary penalties may be
imposed by the OTS for failure to meet liquidity requirements. During the year
ended December 31, 1997 the liquidity requirement was between 4% to 5% and
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
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The CRA, as amended by FIRREA, requires public disclosure
of an institution's CRA rating and requires that the OTS provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system. An institution's CRA rating is taken into account in
determining whether to grant charters, branches and other deposit facilities,
relocations, mergers, consolidations and acquisitions. Poor CRA performance may
be the basis for denying an application.
NEW ACCOUNTING STANDARDS AND POLICIES
In June 1997 the FASB issued Statements No. 130 ("FAS 130") "Reporting
Comprehensive Income" and No. 131 ("FAS 131") "Disclosures About Segments of an
Enterprise and Related Information". FAS 130 establishes standards for
reporting comprehensive income in financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Some of the
items included in comprehensive income are unrealized gains or losses on
securities available for sale, underfunded pension obligations and employee
stock options. FAS 131 establishes standards for the manner in which public
companies report information about operating segments in annual financial
statements and requires that those companies report selected information about
operating segments in interim financial statements issued to shareholders. FAS
130 and FAS 131 are effective for periods beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Implementation of FAS 130 and FAS 131 will
require additional disclosure in the 1998 financial statements but will not
have an impact on the Company's Statement of Financial Condition or Statement
of Operations.
17
ITEM 2. PROPERTIES
The Company's and BankAtlantic's principal and executive offices are
located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida 33304.
BankAtlantic leases branch offices in Wal-Mart SuperStores in Lee, Sarasota,
Osceola, Flagler, Manatee, Charlotte, Hernando and St. John Counties.
BankAtlantic also maintains three ground leases in Broward County expiring in
1999-2072 and one ground lease in Palm Beach County expiring in 2000.
BankAtlantic owns four buildings and the associated land which houses its
mortgage-servicing operations, consumer lending operations and administrative
services. At December 31, 1997, the aggregate net book value of premises and
equipment, including leasehold improvements and equipment, was $51.1 million.
The following table sets forth at December 31, 1997 owned and leased branch
offices in Miami-Dade, Broward and Palm Beach Counties, Florida and in Wal-Mart
SuperStores as well as possible future branch sites owned or leased by
BankAtlantic.
MIAMI- PALM WAL-MART
DADE BROWARD BEACHES SUPERSTORES
------------ ------------ ------------ ------------
Owned full-service branches ........... 2 14 8 0
Leased full-service branches .......... 12 12 5 12
--------- --------- --------- ---------
Total full-service branches ......... 14 26 13 12
========= ========= ========= =========
Lease expiration dates ................ 1998-2005 1998-2007 1999-2003 1999-2002
Owned future branch sites ............. 1 2 0 0
Leased future branch sites ............ 0 3 0 0
--------- --------- --------- ---------
Total future branch sites ........... 1 5 0 0
========= ========= ========= =========
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to BankAtlantic's business to which the Company
or BankAtlantic is a party:
JOSE DANIEL RUIZ CORONADO VS. BANKATLANTIC BANCORP, INC. IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA. CASE NO.
96-7115-CIV-GONZALEZ. This action was filed as a purported class action on
September 27, 1996 on behalf of certain account holders of BankAtlantic whose
bank accounts were seized by federal authorities. The complaint alleges that
the financial privacy rights of the account holders under various federal and
state laws were violated. On January 22, 1997, the Court entered an order
dismissing the complaint against BankAtlantic. The Court found that
BankAtlantic complied with applicable federal statutes. On appeal, the trial
court decision was reversed and the action remanded for additional proceedings
in the trial court. BankAtlantic is seeking a rehearing before the full
tribunal of the Appellate Court.
IN RE STERLING RESOURCES
Two actions were filed in New Jersey. One of the actions was brought on
behalf of the State of New Jersey and was resolved in 1995. The other action,
entitled - FRANCES SCOTT, ON BEHALF OF HERSELF AND ALL OTHER SIMILARLY SITUATED
AGAINST MAYFLOWER HOME IMPROVEMENT CORP., EQUICREDIT CORPORATION OF AMERICA,
BERNARD PERRY, GINO CIUFFETELLI, HYMAN BEYER, JEFFREY BEYER, BRUCE BEYER, MNC
CREDIT CORP., SHAWMUT BANK, FIRST TENNESSEE BANK, CIT GROUP/CREDIT FINANCE,
INC., SECURITY PACIFIC FINANCIAL SERVICES, INC., JEROME GOLDMAN, BANKATLANTIC,
FSB., MICHAEL BISCEGLIA AND GERALD ANNABEL, was filed in the Superior Court of
New Jersey, Law Division-Passaic County-Docket No: PAS-L-2628-95, Honorable
Frank M. Donato, J.S.C. and was commenced immediately after the resolution of
the State of New Jersey action. This action purported to be a class action on
behalf of the named and unnamed plaintiffs that may have obtained loans from
dealers who subsequently sold the loans to financial institutions, including
BankAtlantic. This action sought, among other things, recision of the loan
agreements and damages. In November 1995, the court in this action entered an
order dismissing the complaint against
18
BankAtlantic; plaintiff's appealed this ruling. In January 1996, the Appellate
Court reversed the lower court's decision and remanded the case back to the
trial court to determine whether the action could be maintained as a class
action. The reversal was without prejudice to BankAtlantic's right to renew
their summary judgment motion after the trial court made a determination as to
plaintiff's ability to maintain this case as a class action. In December 1997,
the trial court denied the plaintiff's motion for class certification and in
January 1998 granted BankAtlantic's summary judgment motion. The Plaintiffs
have appealed the trial court's ruling.
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 and did join
certain third parties as defendants in the action. Subsequently, National Union
was realigned from a defendant in the action to a co-plaintiff with
BankAtlantic. 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 in November 1993, and approximately $2.9
million which was paid on November 1, 1994. Further, National Union agreed to
reimburse BankAtlantic for additional losses (as defined) incurred in
connection with the Subject Portfolio, not in excess of $18 million; the full
amount of which has been paid. 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 plus the costs incurred by BankAtlantic of obtaining such
recoveries. Thereafter National Union will be entitled to any such recoveries
to the extent of the $18 million it has paid to BankAtlantic. The trial was
held in February 1998 and judgment was entered in favor of BankAtlantic and
National Union against over fifty third party defendants, individuals and
corporations.
BankAtlantic is also currently a party to certain other lawsuits arising
in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Company was held on February 3,
1998. The holders of the Company's Class A common stock voted 12,347,167 for,
1,303,396 against, with 76,677 abstaining to amend the Company's Articles of
Incorporation increasing the authorized number of shares of Class A common stock
from 30,000,000 to 80,000,000. The holders of the Company's Class B common stock
voted 8,383,045 for, 1,309,017 against, with 20,689 abstaining to amend the
Company's Articles of Incorporation increasing the authorized number of shares
of Class A as described above and Class B common stock from 15,000,000 to
45,000,000.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In 1996, the Company issued 2.85 million shares of Class A common stock in
an underwritten public offering at $6.14 per share. In November 1997 the
Company issued 4.3 million shares of Class A common stock in an underwritten
public offering at $10.70 per share. On February 3, 1998 the shareholders
approved an amendment to the Company's Articles of Incorporation, increasing
the authorized shares to 80,000,000 of Class A common stock and 45,000,000 of
Class B common stock.
The Company's Class A common stock is quoted on the New York Stock
Exchange under the symbol "BBX" and the Company's Class B common stock is
quoted on the Nasdaq National Market under the symbol "BANC". On February 27,
1998 there were approximately 883 record holders of the Class A common stock
and 21,534,545 shares issued and outstanding and 604 record holders of the
Class B common stock and 10,828,077 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% Class A
common stock dividends issued in August 1997 and February 1998 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, 1997 ......... $13 1/16 $ 6 9/16 $13 3/8 $ 6 5/8
Fourth Quarter .............................. 13 1/16 10 1/2 13 3/8 10 11/16
Third Quarter ............................... 12 13/16 9 1/16 12 3/16 9 9/16
Second Quarter .............................. 9 7 5/16 9 1/4 7 3/4
First Quarter ............................... 8 7/16 6 9/16 8 3/4 6 5/8
For the Year ended December 31, 1996 ......... 7 5 3/8 7 5 3/16
Fourth Quarter .............................. 7 6 1/2 7 6 3/8
Third Quarter ............................... 6 13/16 5 3/8 7 5 1/4
Second Quarter .............................. 6 5/16 5 5/8 6 9/16 5 3/16
First Quarter ............................... 6 5/16 6 1/8 6 1/4 5 3/16
For the Year ended December 31, 1995 ......... -- -- 6 9/16 3 13/16
Fourth Quarter .............................. -- -- 6 9/16 5 13/16
Third Quarter ............................... -- -- 6 3/8 4 9/16
Second Quarter .............................. -- -- 4 13/16 3 13/16
First Quarter ............................... -- -- 4 5/16 4
On December 31, 1997, the last sale price of the Class A common stock as
reported by the New York Stock Exchange was $13.05 per share, and the last sale
price of the Class B common stock as reported by the Nasdaq National Market was
$13.40 per share.
On July 3, 1996, the Company consummated a public offering of $57.5
million aggregate principal amount of 6 3/4% Convertible Subordinated Debentures
due July 1, 2006 (the "6 3/4% Debentures"). The 6 3/4% Debentures are
convertible into shares of Class A common stock at an exercise price of $6.55
per share.
The Company's 6 3/4% Debentures are quoted on the Nasdaq SmallCap Market
under the symbol "BANCG". On February 27, 1998 $57.1 million aggregate
principal amount of the 6 3/4% Debentures
20
were outstanding. The following table sets forth, for the periods indicated,
the high and low closing sale prices as reported by the Nasdaq SmallCap Market
for the 6 3/4% Debentures.
HIGH LOW
---------- ----------
For the Year Ended December 31, 1997 .......... $ 199 $ 109 3/4
Fourth Quarter ............................... 196 164
Third Quarter ................................ 199 142
Second Quarter ............................... 143 1/4 121
First Quarter ................................ 131 109 3/4
For the Year Ended December 31, 1996 .......... $ 111 $ 100
Fourth Quarter ............................... 111 110
Third Quarter ................................ 107 3/4 100
Second Quarter ............................... N/A N/A
First Quarter ................................ N/A N/A
On November 26, 1997, the Company consummated a public offering of $100
million aggregate principal amount of 5 5/8% Convertible Subordinated Debentures
due December 1, 2007, ("the 5 5/8% Debentures"). The 5 5/8% Debentures are
convertible into shares of Class A common stock at an exercise price of $12.94
per share. The Company's 5 5/8% Debentures are quoted on the Nasdaq SmallCap
Market under the symbol "BANCH". On February 27, 1998 there was $100.0 million
aggregate principal amount of 5 5/8% Debentures issued and outstanding. The high
and low closing sales prices as reported by the Nasdaq SmallCap Market for the
5 5/8% Debentures during the fourth quarter of 1997 were $108 and $100 1/4 per
debenture, respectively.
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 has indicated that it will seek to declare regular
quarterly cash dividends on its common stock. The declaration and payment of
dividends will depend upon, among other things, the results of operations,
financial condition and cash requirements of the Company and on the ability of
BankAtlantic to pay dividends or otherwise advance funds to the Company, which
in turn is subject to OTS regulations and is based upon BankAtlantic's
regulatory capital levels and net income.
CASH DIVIDENDS PER CASH DIVIDENDS PER
SHARE OF CLASS B SHARE OF CLASS A
COMMON STOCK COMMON STOCK
-------------------- -------------------
Fiscal Year Ended December 31, 1997 ......... $ 0.0852 $ 0.0942
Fourth Quarter ............................. $ 0.0240 $ 0.0264
Third Quarter .............................. $ 0.0240 $ 0.0264
Second Quarter ............................. $ 0.0186 $ 0.0207
First Quarter .............................. $ 0.0186 $ 0.0207
Fiscal Year Ended December 31, 1996 ......... $ 0.0732 $ 0.0828
Fourth Quarter ............................. $ 0.0186 $ 0.0207
Third Quarter .............................. $ 0.0186 $ 0.0207
Second Quarter ............................. $ 0.0180 $ 0.0207
First Quarter .............................. $ 0.0180 $ 0.0207
Fiscal Year Ended December 31, 1995 ......... $ 0.0682 N/A
Fourth Quarter ............................. $ 0.0180 N/A
Third Quarter .............................. $ 0.0180 N/A
Second Quarter ............................. $ 0.0161 N/A
First Quarter .............................. $ 0.0161 N/A
21
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
January 1998, and July 1997 five-for-four common stock splits effected in the
form of 25% stock dividends, issued in February 1998 and August 1997,
respectively.
AT DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
STATEMENT OF FINANCIAL CONDITION:
Total assets ............................................. $3,064,480 $2,605,527 $1,750,689 $1,539,653 $1,359,195
Loans receivable-net (1) ................................. 2,072,825 1,824,856 828,630 546,396 485,956
Mortgage-backed securities held to maturity .............. 0 0 0 573,913 443,249
Securities available for sale ............................ 607,490 439,345 691,803 53,969 83,116
Investment and trading securities, net (2) ............... 60,280 54,511 49,856 211,776 97,701
Mortgage servicing rights ................................ 38,789 25,002 20,738 20,584 19,833
Cost over fair value of net assets acquired
and other intangibles .................................. 26,327 29,008 11,521 0 0
Deposits ................................................. 1,763,733 1,832,780 1,300,377 1,085,782 1,076,360
Subordinated debentures and note payable ................. 179,600 78,500 21,001 0 0
Guaranteed preferred beneficial interest in
Company's Junior Subordinated Debentures ............... 74,750 0 0 0 0
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 758,923 486,288 269,222 311,879 149,435
Total stockholders' equity .............................. 207,171 147,704 120,561 105,520 90,652
- ----------------
(1) Includes $160.1 million and $109.9 million of banker's acceptances in 1997
and 1993, respectively.
(2) Excludes FHLB stock. Includes interest-bearing deposits in other banks,
securities purchased under agreement to resell and trading securities of
$5.1 million and $9.1 million in 1997 and 1994, respectively.
22
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
AT OR FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996
-------------- --------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
OPERATING RESULTS
Total interest income ................................... $ 210,554 $ 152,631
Total interest expense .................................. 115,191 77,031
------------ ------------
Net interest income ..................................... 95,363 75,600
Provision for loan losses ............................... 11,268 5,844
------------ ------------
Net interest income after provision for loan losses ..... 84,095 69,756
------------ ------------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...................... 4,640 4,216
Gains on sales of loans available for sale .............. 6,802 534
Gains on sales of mortgage servicing rights ............. 7,905 4,182
Gains on sales of securities available for sale ......... 2,367 5,959
Unrealized and realized gains on trading securities...... 2,463 0
Gain (loss) on sales of property and equipment, net...... 852 3,061
Other ................................................... 18,330 15,785
------------ ------------
Total non-interest income .............................. 43,359 33,737
------------ ------------
NON-INTEREST EXPENSE:
Employee compensation and benefits ...................... 40,236 33,216
Occupancy and equipment ................................. 18,666 13,615
SAIF special assessment ................................. 0 7,160
Federal insurance premium ............................... 1,084 2,495
Advertising and promotion ............................... 2,196 2,079
Foreclosed asset activity, net .......................... 118 (725)
Other ................................................... 19,632 14,401
------------ ------------
Total non-interest expense ............................. 81,932 72,241
------------ ------------
Income before income taxes ............................... 45,522 31,252
Provision for income taxes ............................... 17,753 12,241
------------ ------------
NET INCOME ............................................... 27,769 19,011
Dividend on non-cumulative preferred stock paid
by BFC escrow .......................................... 0 0
Dividends on non-cumulative preferred stock ............. 0 0
Amount classified as dividends on non-cumulative
preferred stock redemption ............................. 0 0
------------ ------------
Total dividends on non-cumulative preferred
stock ................................................ 0 0
------------ ------------
Net income available for common shares ................ $ 27,769 $ 19,011
============ ============
CLASS A COMMON STOCK (7):
Basic earnings per share ................................ $ 0.98 $ 0.64
============ ============
Diluted earnings per share .............................. $ 0.78 $ 0.58
============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING....... 18,029,784 17,616,000
============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 27,893,534 21,968,058
============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 21,509,159 18,128,782
============ ============
CLASS B COMMON STOCK:
Basic earnings per share ................................ $ 0.94 $ 0.72
============ ============
Diluted earnings per share .............................. $ 0.77 $ 0.66
============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
10,649,135 10,589,000
============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 11,765,385 11,576,500
============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 10,690,231 10,542,116
============ ============
Book value per common share (all classes) ................ $ 6.43 $ 5.15
============ ============
Tangible book value per common share (all classes) ....... $ 5.62 $ 4.14
============ ============
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------------- -------------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING RESULTS
Total interest income ................................... $ 130,077 $ 98,549 $ 94,503
Total interest expense .................................. 65,686 41,431 35,987
------------- ------------ ------------
Net interest income ..................................... 64,391 57,118 58,516
Provision for loan losses ............................... 4,182 2,299 3,450
------------- ------------ ------------
Net interest income after provision for loan losses ..... 60,209 54,819 55,066
------------- ------------ ------------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...................... 3,524 3,365 2,229
Gains on sales of loans available for sale .............. 395 773 1,246
Gains on sales of mortgage servicing rights ............. 2,744 484 0
Gains on sales of securities available for sale ......... 0 0 0
Unrealized and realized gains on trading securities...... 589 (558) 0
Gain (loss) on sales of property and equipment, net...... 18 272 (73)
Other ................................................... 12,118 9,427 8,236
------------- ------------ ------------
Total non-interest income .............................. 19,388 13,763 11,638
------------- ------------ ------------
NON-INTEREST EXPENSE:
Employee compensation and benefits ...................... 25,403 22,382 19,617
Occupancy and equipment ................................. 10,831 8,061 8,417
SAIF special assessment ................................. 0 0 0
Federal insurance premium ............................... 2,750 2,673 2,750
Advertising and promotion ............................... 2,144 1,495 960
Foreclosed asset activity, net .......................... (3,178) (2,290) 1,243
Other ................................................... 13,210 9,764 10,546
------------- ------------ ------------
Total non-interest expense ............................. 51,160 42,085 43,533
------------- ------------ ------------
Income before income taxes ............................... 28,437 26,497 23,171
Provision for income taxes ............................... 10,018 9,662 7,093
------------- ------------ ------------
NET INCOME ............................................... 18,419 16,835 16,078
Dividend on non-cumulative preferred stock paid
by BFC escrow .......................................... 0 0 147
Dividends on non-cumulative preferred stock ............. 677 880 733
Amount classified as dividends on non-cumulative
preferred stock redemption ............................. 1,353(1) 0 0
------------- ------------ ------------
Total dividends on non-cumulative preferred
stock ................................................ 2,030 880 880
------------- ------------ ------------
Net income available for common shares ................ $ 16,389 $ 15,955 $ 15,198
============= ============ ============
CLASS A COMMON STOCK (7):
Basic earnings per share ................................ $ N/A $ N/A $ N/A
============= ============ ============
Diluted earnings per share .............................. $ N/A $ N/A $ N/A
============= ============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING....... N/A N/A N/A
============= ============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. N/A N/A N/A
============= ============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... N/A N/A N/A
============= ============ ============
CLASS B COMMON STOCK:
Basic earnings per share ................................ $ 0.64(1) $ 0.64 $ 0.85
============= ============ ============
Diluted earnings per share .............................. $ 0.62(1) $ 0.62 $ 0.66
============= ============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
25,411,604 24,747,116 17,861,118
============= ============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 26,441,902 25,610,718 23,095,707
============= ============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 25,861,814 24,798,811 24,713,916
============= ============ ============
Book value per common share (all classes) ................ $ 4.66 $ 3.92 $ 3.33
============= ============ ============
Tangible book value per common share (all classes) ....... $ 4.22 $ 3.92 $ 3.33
============= ============ ============
23
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1997 1996
------------- -------------
OTHER FINANCIAL AND STATISTICAL DATA
PERFORMANCE RATIOS:
Return on average assets (2) ............................... 1.01% 0.94%
Return on average equity (2) ............................... 17.43 14.08
Cash dividend payout ratio (3) ............................. 9.40 11.36
Average equity to average assets ........................... 5.77 6.70
Average yield on loans, mortgage-backed securities,
tax certificates and investment securities ............... 8.29 8.23
Average cost of deposits and borrowings .................... 4.88 4.47
Net interest spread -- during period (4) ................... 3.41 3.76
Interest rate margin -- during period (4) .................. 3.75 4.08
Efficiency ratio (5) ....................................... 59.03 66.07
OTHER FINANCIAL DATA:
Cash dividends per common share Class A (7) ................ $ 0.094 $ 0.083
Cash dividends per common share Class B .................... $ 0.085 $ 0.073
ASSET QUALITY RATIOS:
Non-performing assets as a percent of total loans,
tax certificates and real estate owned ................... 1.36% 1.26%
Net charge-offs as a percent of average loans .............. 0.44 0.47
Loan loss allowance as a percent of total loans
including banker's acceptances ........................... 1.35 1.39
Loan loss allowance as a percent of non-performing
loans .................................................... 156.18 167.37
Non-performing loans as a percent of total loans ........... 0.87 0.83
Non-performing assets as a percent of total assets ......... 0.96 0.93
RATIO OF EARNINGS TO FIXED CHARGES: (6)
Including interest on deposits ............................. 1.39 1.40
Excluding interest on deposits ............................. 1.95 2.34
NUMBER OF:
Offices (all full-service) ................................. 65 56
Branches with ATMs ......................................... 65 56
Non-Branch ATMs ............................................ 184 164
Deposit accounts ........................................... 229,272 218,061
Loans ...................................................... 39,427 37,707
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------- ------------- -------------
OTHER FINANCIAL AND STATISTICAL DATA
PERFORMANCE RATIOS:
Return on average assets (2) ............................... 1.07% 1.17% 1.25%
Return on average equity (2) ............................... 16.03 17.07 21.32
Cash dividend payout ratio (3) ............................. 10.62 9.87 4.86
Average equity to average assets ........................... 6.66 6.86 5.85
Average yield on loans, mortgage-backed securities,
tax certificates and investment securities ............... 8.16 7.45 7.95
Average cost of deposits and borrowings .................... 4.51 3.38 3.28
Net interest spread -- during period (4) ................... 3.65 4.07 4.67
Interest rate margin -- during period (4) .................. 4.04 4.32 4.90
Efficiency ratio (5) ....................................... 61.07 59.37 62.03
OTHER FINANCIAL DATA:
Cash dividends per common share Class A (7) ................ $ N/A $ N/A $ N/A
Cash dividends per common share Class B .................... $ 0.068 $ 0.064 $ 0.032
ASSET QUALITY RATIOS:
Non-performing assets as a percent of total loans,
tax certificates and real estate owned ................... 2.37% 3.66% 3.34%
Net charge-offs as a percent of average loans .............. 0.45 0.59 0.56
Loan loss allowance as a percent of total loans
including banker's acceptances ........................... 2.24 2.89 3.38
Loan loss allowance as a percent of non-performing
loans .................................................... 149.49 134.87 173.01
Non-performing loans as a percent of total loans ........... 1.50 2.14 1.95
Non-performing assets as a percent of total assets ......... 1.23 1.51 1.47
RATIO OF EARNINGS TO FIXED CHARGES: (6)
Including interest on deposits ............................. 1.43 1.63 1.63
Excluding interest on deposits ............................. 2.41 3.50 5.67
NUMBER OF:
Offices (all full-service) ................................. 43 32 31
Branches with ATMs ......................................... 43 29 29
Non-Branch ATMs ............................................ 154 153 0
Deposit accounts ........................................... 120,067 110,002 113,459
Loans ...................................................... 23,172 15,319 19,163
- ----------------
(1) The excess of the redemption price above the recorded amount of preferred
stock is considered a preferred stock dividend. The October 1995 preferred
stock redemption for the year ended December 31, 1995 resulted in a $0.05
reduction of basic and diluted earnings per share.
(2) ROA and ROE excluding the $7.2 million SAIF one-time special assessment
would have been 1.16% and 17.34%, respectively, for the year ended
December 31, 1996.
(3) Cash dividends declared on common shares divided by net income available
for common shares.The cash dividend payout ratio for the year ended
December 31, 1995 excluding the October 1995 preferred stock redemption
was 9.81%.
(4) Interest rate spread is equal to total interest earned on interest earning
assets divided by average interest earning assets, less the total of
interest expense divided by average interest-bearing liabilities. Interest
rate margin is equal to total interest earned on average interest earning
assets divided by average interest earning assets less the total of
interest expense divided by average interest earning assets. Interest rate
spread and margin during periods is based upon daily average balances of
interest-bearing assets and liabilities.
(5) The efficiency ratio is operating expenses (non-interest expenses) as a
percent of net interest income plus non-interest income. Excluding the
$7.2 million SAIF one-time special assessment, this ratio for the year
ended December 31, 1996 would have been 59.52%.
(6) 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).
(7) Prior to 1996 there were no Class A common shares outstanding. All shares
outstanding in 1995 were Class B common shares.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company is a unitary savings bank holding company. The Company's
primary asset is the capital stock of BankAtlantic, its wholly owned
subsidiary. Under applicable law, the Company generally has broad authority
with few restrictions to engage in various types of business activities. The
Company's primary activities relate to the operations of BankAtlantic and
BankAtlantic's subsidiaries. However, the Company recently entered into an
agreement to acquire Ryan, Beck & Co., Inc. an investment banking firm. The
Company's recent activities also include the ownership of 50% of the voting
common stock of FASI, a full-service investment banking and securities
brokerage firm. On February 26, 1998 the Company entered into an agreement to
acquire Leasing Technology Inc. ("LTI"). LTI is engaged in all facets of
leasing and financing. It is anticipated that LTI will operate as a wholly
owned subsidiary of BankAtlantic pending regulatory approval. During 1997, the
Company, issued in a public offering, 4.3 million shares of Class A common
stock and $100.0 million of 5 5/8% Debentures for net proceeds of $43.4 million
and $96.5 million, respectively. Also during 1997, BBC Capital Trust I, a
Delaware statutory business trust established by the Company, issued in a
public offering, $74.75 million of 9 1/2% Cumulative Trust Preferred Securities
("Trust Preferred Securities") for net proceeds of $71.8 million. The Company
contributed $161.2 million of the net proceeds from the above offerings to the
capital of BankAtlantic and used $12.2 million of the net proceeds to
repurchase its common stock. The remaining net proceeds remain available for
general corporate purposes, including acquisitions by the Company or
BankAtlantic. During 1996, the Company issued $57.5 million of 6 3/4%
convertible subordinated debentures ("6 3/4% Debentures") and issued 3.3 million
shares of Class A common stock receiving net proceeds of $55.2 million and
$18.1 million, respectively. The Company contributed $54.0 million of the net
proceeds to the capital of BankAtlantic and $3.3 million of the net proceeds
were used to repurchase the Company's common stock. During 1995, the Company
issued $21.0 million of 9% subordinated debentures (the "9% Debentures") of
which $6.0 million was contributed to the capital of BankAtlantic. Prior to
1997, BankAtlantic's subsidiaries were primarily utilized to dispose of real
estate acquired through foreclosure. During the latter part of 1997,
BankAtlantic, utilizing capital contributed by the Company, acquired SLWHC and
subsidiaries, a developer of the master planned community of SLW located in St.
Lucie County, Florida and invested in Jupiter Yacht Club Ltd., joint venture, a
real estate development project in Jupiter, Florida. Presently the Company has
no significant operations but does require funds to pay certain operating
expenses, payments required for the Trust Preferred Securities, interest on the
5 5/8%, 6 3/4% and 9% Debentures and regular quarterly cash dividend payments to
its common shareholders. It is anticipated that funds for payment of these
items, which currently aggregate approximately $22 million will continue to be
obtained from BankAtlantic.
RESULTS OF OPERATIONS
The Company's basic and diluted earnings per share for Class A common
stock were $0.98 and $0.78, respectively, for the year ended December 31, 1997,
compared to $0.64 and $0.58 for the comparable 1996 period, respectively. There
was no Class A common stock outstanding during 1995. The Company's basic and
diluted earnings per share on Class B common stock were $0.94 and $0.77 for the
year ended December 31, 1997 compared to $0.72 and $0.66 during the 1996
comparable period and $0.64 and $0.62 for the 1995 comparable period,
respectively.
In February 1997 the Financial Accounting Standards Board issued statement
number 128 ("FAS 128") Earnings Per Share. This statement was effective for
periods ending after December 15, 1997 and required the restatement of all
prior periods. FAS 128 replaced primary and fully diluted earnings per share
with basic and diluted earnings per share. The statement also required the
two-class method for companies like the Company with capital structures which
includes a class of common stock with different dividends rates from another
class of common stock. The two-class method is an earnings allocation formula
that determines earnings per share for each class of common stock according to
dividends declared and each class of common stock's rights to undistributed
earnings.
25
Net income available for common shares of $27.8 million, $19.0 million,
and $16.4 million, was recorded for the years ended December 31, 1997, 1996 and
1995, respectively. Net interest income for 1997 reflects higher average
wholesale residential loan balances, increased average balances of advances
from FHLB and subordinated debentures, and the October 1996 acquisition of BNA
which increased loans, debt securities available for sale and deposits. Net
interest income for 1996 includes the October 1996 BNA acquisition and higher
wholesale residential loan average balances. Net interest income for 1995
reflects the February 1995 acquisition of MegaBank which increased loans,
securities available for sale and deposits by $116.4 million, $18.1 million,
and $120.2 million, respectively. Non-interest income during 1997 included $7.9
million of gains on the sales of mortgage servicing rights, $2.4 million of
realized gains on sales of securities available for sale, $2.5 million of
realized and unrealized gains on trading securities, $852,000 of gains on sales
of properties and $6.8 million of gains on the sales of loans available for
sale. 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
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 available for
sale. 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.
Transaction fee income was $14.6 million during 1997 compared to $12.5 million
and $9.0 million during 1996 and 1995, respectively. Non-interest expenses
increased for each of the years in the three year period ended December 31,
1997 primarily as a result of the acquisition of MegaBank and BNA during 1995
and 1996, respectively, and the expansion of BankAtlantic's branch network,
including Wal-Mart in-store branches, during the three year period ended
December 31, 1997. Non-interest expenses during 1996 included a $7.2 million
SAIF one-time special assessment. Provision for loan losses increased during
1997 to $11.3 million compared to $5.8 million and $4.2 million for the years
ended December 31, 1996 and 1995, respectively. The increase during 1997
compared to the same period during 1996 reflects increased levels of loans
generally and higher consumer loan charge-offs. The increase during 1996
compared to 1995 reflects lower loan loss recoveries from the Subject Portfolio
and higher consumer loan charge-offs. The 1995 tax provision was reduced by
$972,000 due to a reduction in the deferred tax asset valuation allowance. See
Note 13 of the Consolidated Financial Statements.
The cumulative one year interest rate gap was a positive 6.55% at December
31, 1997 compared to a positive .42% and a negative 2.49% at December 31, 1996
and 1995, respectively. A positive interest rate sensitivity gap provides the
potential for widening interest margins and increased earnings during times of
increasing rates. However, a positive gap will correspondingly negatively
impact earnings when rates decline. BankAtlantic's net interest margin was
3.75% in 1997 compared to 4.08% and 4.04% for 1996 and 1995, respectively. (See
"Asset and Liability Management" and "Interest Rate Sensitivity".)
26
NET-INTEREST INCOME
A summary of net interest income follows:
FOR THE YEARS 1997 1996
ENDED DECEMBER 31, TO TO
---------------------------------------- 1996 1995
1997 1996 1995 CHANGE CHANGE
----------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
Interest and fees on loans ........................... $ 171,212 $ 107,922 $ 72,841 $ 63,290 $ 35,081
Interest on banker's acceptances ..................... 473 22 0 451 22
Interest on mortgage-backed securities
held to maturity .................................... 0 0 37,855 0 (37,855)
Interest on securities available for sale ............ 31,177 38,159 7,207 (6,982) 30,952
Interest and dividends on investment
and trading securities .............................. 7,692 6,528 12,174 1,164 (5,646)
Interest on deposits ................................. (68,281) (55,028) (46,646) (13,253) (8,382)
Interest on advances from FHLB ....................... (27,345) (9,221) (7,449) (18,124) (1,772)
Interest on securities sold under agreements to
repurchase and federal funds purchased .............. (8,023) (8,764) (10,815) 741 2,051
Interest on subordinated debentures, note payable and
guaranteed preferred beneficial interest in Company's
Junior Subordinated Debentures ...................... (11,542) (4,018) (776) (7,524) (3,242)
--------- --------- --------- --------- ---------
Total net interest income .......................... $ 95,363 $ 75,600 $ 64,391 $ 19,763 $ 11,209
========= ========= ========= ========= =========
Net interest income increased for each of the years in the three year
period ended December 31, 1997. The increase in interest on loans during 1997
compared to 1996 and 1995 was primarily due to higher average balances,
partially offset by lower average yields. The higher loan average balances
resulted from the October 1996 BNA acquisition, wholesale residential loan
purchases and increased loan 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,
at the acquisition date. During the year ended December 31, 1997, BankAtlantic
funded $800.5 million of loans compared to $749.6 million and $638.6 million
during 1996 and 1995, respectively. Also, during the year ended December 31,
1997, BankAtlantic purchased $524.5 million of wholesale residential loans
compared to $465.9 million and $9.9 million during 1996 and 1995, respectively.
As a result, BankAtlantic's average loan balances increased from $750.1 million
during the year ended December 31, 1995 to $1.2 billion and $1.9 billion during
the comparable periods during 1996 and 1997, respectively. The lower loan
portfolio average yields for each of the years in the three year period ended
December 31, 1997 resulted from a change in the mix of the loan portfolio from
higher yielding commercial and consumer loans to lower yielding residential
loans and a decline in consumer and residential loan yields based on current
market conditions. The decrease in consumer loan yields for each of the years
in the three year period ended December 31, 1997 resulted from the origination
of loans at lower rates than the existing portfolio and the acquisition of the
BNA loan portfolio. The decline in residential loan yields during 1997 compared
to 1996 resulted from originating loans at lower rates than the existing
portfolio due to a declining interest rate environment during 1997.
In December 1995, all mortgage-backed and investment securities, excluding
tax certificates classified as held to maturity, were reclassified as available
for sale. During 1996 and 1997 there were no mortgage-backed securities
classified as held to maturity. Total mortgage-backed and investment securities
interest income declined for each of the years in the three year period ended
December 31, 1997 due to lower average balances and yields. Total
mortgage-backed and investment securities average balances declined from $844.8
million during the year ended December 31, 1995 to $677.4 million and $591.9
million during the years ended December 31, 1996 and 1997, respectively, and
average yields on total mortgage-backed and investment securities declined from
6.78% during the year ended December 31, 1995 to 6.60% and 6.57% for the
comparable 1996 and 1997 periods, respectively. During the year ended December
31, 1997, BankAtlantic sold $355.5 million of mortgage-backed and investment
securities and additionally collected $189.0 million of principal repayments
compared to sales of $368.5 million and $852,000 during 1996 and 1995,
respectively, and principal repayments of $227.0 million and $262.9 million
during 1996 and 1995, respectively. The sales and principal repayments were
partially offset by total mortgage-backed and investment securities purchases
of $712.8 million,
27
$288.6 million and $146.1 million during the years ended December 31, 1997,
1996 and 1995, respectively. The lower yields earned on total mortgage-backed
and investment securities reflect the prepayment of higher yielding securities
and the declining interest rate environment throughout 1996 and 1997.
The increase in interest expense on deposits for each year in the three
year period ended December 31, 1997 resulted from higher deposit average
balances and higher rates paid on deposits. The increased deposit average
balances primarily resulted from $469.1 million of deposits acquired in
connection with the acquisition of BNA in 1996 and the $120.2 million of
deposits acquired in the 1995 MegaBank acquisition. Average interest bearing
deposits increased from $1.1 billion during the year ended December 31, 1995 to
$1.3 billion and $1.6 billion during 1996 and 1997, respectively. Deposit rates
increased from 4.10% during 1995 to 4.11% and 4.19% during 1996 and 1997,
respectively. The higher deposit average rates during 1997 were generally
caused by higher rates paid on transaction accounts compared to 1996 rates.
Interest rates on transaction accounts increased from 2.40% during 1996 to
2.73% during 1997. The increased interest rates reflect an increase in
competition for deposits in the South Florida market, resulting in new savings
products which pay higher rates based on account balances. 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 due to competition,
certificate account rates were higher. During 1997, certificate account rates
declined due to lower rates paid in 1997 and run-off of a portion of the higher
rate BNA certificate accounts.
The increased interest expense on advances from FHLB during 1997 and 1996
was primarily due to higher average balances and secondarily to higher rates.
During 1997 and 1996, BankAtlantic used FHLB advances with expected terms of
one to six years to finance the purchase of wholesale residential loans. During
1995, FHLB advances had maturities of less than one year. As a result of
wholesale residential loan growth, advances from FHLB average balances
increased from $125.2 million during the year ended December 31, 1995 to $152.1
million and $441.6 million during the comparable periods during 1996 and 1997,
respectively. Average rates paid on FHLB advances increased from 5.95% during
the year ended December 31, 1995 to 6.04% and 6.19% during 1996 and 1997,
respectively as a result of the use of longer term borrowings.
The lower interest expense on securities sold under agreements to
repurchase during the year ended December 31, 1997 compared to 1996 resulted
from lower average balances, partially offset by higher borrowing rates during
1997. The lower average balances in 1997 of securities sold under agreements to
repurchase compared to 1996 resulted from the availability of funds provided by
the issuance of debt and equity securities. The majority of the net proceeds of
$71.8 million from the April 1997 Trust Preferred Securities offering, $43.4
million from the November 1997 Class A common stock offering, and $96.5 million
from the 5 5/8% Debentures offering were used to pay down short term borrowings
during 1997. The lower average balances in 1996 of securities sold under
agreements to repurchase compared to 1995 resulted from the availability of
funds provided by the July 1996 $57.5 million offering of the 6 3/4% Debentures
and $18.1 million of proceeds from the March 1996 Class A common stock
offering.
Interest on subordinated debentures during 1997 relates to interest on the
5 5/8% Debentures, 6 3/4% Debentures, $21.0 million of 9 % Debentures. Interest
on subordinated debentures during 1996 and 1995 relates to interest on the 9%
Debentures and the 6 3/4% Debentures. Guaranteed beneficial interest in the
Company's Junior Subordinated Debentures during 1997 relates to payments made
on the 9 1/2% Trust Preferred Securities which were issued in a public offering
in April 1997.
28
YIELDS EARNED AND RATES PAID
FOR THE YEARS ENDED
-----------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------- -----------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------- ---------- ---------- ------------- ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS
Loans: (A)
Residential real estate ................ $ 397,240 32,177 8.10% $ 279,520 23,142 8.28%
Purchased residential real estate ...... 589,888 45,440 7.70 147,452 10,435 7.08
Commercial real estate ................. 544,264 53,943 9.91 442,204 43,700 9.88
Consumer ............................... 338,568 32,751 9.84 242,876 24,285 10.00
Commercial business .................... 70,100 6,901 9.67 65,273 6,360 9.74
---------- ------- ---- ---------- ------- -----
Total loans ............................ 1,940,060 171,212 8.83 1,177,325 107,922 9.17
---------- ------- ---- ---------- ------- -----
Banker's acceptances ................... 7,966 473 5.94 329 22 6.69
---------- ------- ---- ---------- ------- -----
Mortgage-backed securities held to
maturity .............................. 0 0 0.00 0 0 0.00
Securities available for sale (B) ...... 506,568 31,177 6.15 605,766 38,159 6.30
Investment securities (C) .............. 83,898 7,604 9.06 68,996 6,419 9.30
Federal funds sold ..................... 1,401 88 6.28 2,670 109 4.08
---------- ------- ---- ---------- ------- -----
Total mortgage-backed and
investment securities ................ 591,867 38,869 6.57 677,432 44,687 6.60
---------- ------- ---- ---------- ------- -----
Total interest earning assets ........ 2,539,893 210,554 8.29% 1,855,086 152,631 8.23%
========== ======= ==== ========== ======= =====
NON-INTEREST EARNING ASSETS
Total non-interest earning
assets ............................... 219,359 160,588
---------- ----------
Total assets ......................... $2,759,252 $2,015,674
========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Savings ................................ $ 220,821 6,617 3.00% $ 118,306 2,150 1.81%
NOW, money funds and checking........... 534,428 14,020 2.62 478,127 12,154 2.54
Certificate accounts ................... 875,625 47,644 5.44 738,254 40,724 5.50
---------- ------- ---- ---------- ------- -----
Total interest bearing deposits ........ 1,630,874 68,281 4.19 1,334,687 55,028 4.11
---------- ------- ---- ---------- ------- -----
Securities sold under agreements
to repurchase and federal funds
purchased ............................. 152,564 8,023 5.26 180,661 8,764 4.84
Advances from FHLB ..................... 441,610 27,345 6.19 152,138 9,221 6.04
Subordinated debentures ................ 86,811 6,744 7.77 49,750 4,018 8.05
Guaranteed preferred beneficial
interest in Company's Junior
Subordinated Debentures ............... 50,041 4,798 9.59 0 0 0.00
---------- ------- ---- ---------- ------- -----
Total interest bearing liabilities..... 2,361,900 115,191 4.88 1,717,236 77,031 4.47
---------- ------- ---- ---------- ------- -----
NON-INTEREST BEARING LIABILITIES
Demand deposit and escrow
accounts .............................. 203,727 148,054
Other liabilities ...................... 34,345 15,396
---------- ----------
Total non-interest bearing
liabilities .......................... 238,072 163,450
---------- ----------
Stockholders' equity.................... 159,280 134,988
---------- ----------
Total liabilities and stockholders'
equity ................................ $2,759,252 $2,015,674
========== ==========
Net interest income/net interest
spread ................................ $ 95,363 3.41% $ 75,600 3.76%
======== ==== ======== =====
MARGIN
Interest income/interest earning
assets ................................ 8.29% 8.23%
Interest expense/interest earnings
assets ................................ 4.54 4.15
---- -----
Net interest margin .................... 3.75% 4.08%
==== =====
FOR THE YEARS ENDED
-----------------------------------
DECEMBER 31, 1995
-----------------------------------
AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE
------------- ---------- ----------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS
Loans: (A)
Residential real estate ................ $ 136,124 $ 11,561 8.49%
Purchased residential real estate ...... 0 0 0.00%
Commercial real estate ................. 363,151 36,030 9.92%
Consumer ............................... 192,409 19,636 10.21
Commercial business .................... 58,374 5,614 9.62
---------- -------- -----
Total loans ............................ 750,058 72,841 9.71
---------- -------- -----
Banker's acceptances ................... 0 0 0.00
---------- -------- -----
Mortgage-backed securities held to
maturity .............................. 573,995 37,855 6.59
Securities available for sale (B) ...... 89,757 7,207 8.03
Investment securities (C) .............. 178,449 12,019 6.74
Federal funds sold ..................... 2,571 155 6.03
---------- -------- -----
Total mortgage-backed and
investment securities ................ 844,772 57,236 6.78
---------- -------- -----
Total interest earning assets ........ 1,594,830 130,077 8.16%
========== ======== =====
NON-INTEREST EARNING ASSETS
Total non-interest earning
assets ............................... 130,008
----------
Total assets ......................... $1,724,838
==========
INTEREST BEARING LIABILITIES
Deposits:
Savings ................................ $ 109,068 $ 1,987 1.82%
NOW, money funds and checking........... 421,135 11,591 2.75
Certificate accounts ................... 607,300 33,068 5.45
---------- -------- -----
Total interest bearing deposits ........ 1,137,503 46,646 4.10
---------- -------- -----
Securities sold under agreements
to repurchase and federal funds
purchased ............................. 186,592 10,815 5.80
Advances from FHLB ..................... 125,246 7,449 5.95
Subordinated debentures ................ 7,303 776 10.63
Guaranteed preferred beneficial
interest in Company's Junior
Subordinated Debentures ............... 0 0 0.00
---------- -------- -----
Total interest bearing liabilities..... 1,456,644 65,686 4.51
---------- -------- -----
NON-INTEREST BEARING LIABILITIES
Demand deposit and escrow
accounts .............................. 135,027
Other liabilities ...................... 18,278
----------
Total non-interest bearing
liabilities .......................... 153,305
----------
Stockholders' equity.................... 114,889
----------
Total liabilities and stockholders'
equity ................................ $1,724,838
==========
Net interest income/net interest
spread ................................ $ 64,391 3.65%
======== =====
MARGIN
Interest income/interest earning
assets ................................ 8.16%
Interest expense/interest earnings
assets ................................ 4.12
-----
Net interest margin .................... 4.04%
=====
- ----------------
(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.
29
RATE/VOLUME ANALYSIS
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO YEAR ENDED COMPARED TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------ --------------------------------------
VOLUME (A) RATE TOTAL VOLUME (A) RATE TOTAL
------------ ------------ ---------- ------------ ------------ ------------
INCREASE (DECREASE) DUE TO:
Loans ....................................... $ 67,351 $ (4,061) $ 63,290 $ 39,131 $ (4,050) $ 35,081
Banker's acceptances ........................ 453 (2) 451 22 0 22
Mortgage-backed securities .................. 0 0 0 (37,855) 0 (37,855)
Securities available for sale ............... (6,101) (881) (6,982) 32,505 (1,553) 30,952
Investment securities ....................... 1,348 (163) 1,185 (6,778) 1,178 (5,600)
Federal funds sold .......................... (80) 59 (21) 4 (50) (46)
-------- -------- -------- --------- -------- ---------
Total earnings assets ...................... 62,971 (5,048) 57,923 27,029 (4,475) 22,554
======== ======== ======== ========= ======== =========
DEPOSITS:
Savings ..................................... 3,063 1,404 4,467 174 (11) 163
NOW, money funds, and checking .............. 1,467 399 1,866 1,405 (842) 563
Certificate accounts ........................ 7,355 (435) 6,920 7,352 304 7,656
-------- -------- -------- --------- -------- ---------
Total deposits ............................. 11,885 1,368 13,253 8,931 (549) 8,382
-------- -------- -------- --------- -------- ---------
Securities sold under agreements to
repurchase ................................ (1,498) 757 (741) (297) (1,754) (2,051)
Advances from FHLB .......................... 17,893 231 18,124 1,659 113 1,772
Subordinated debentures ..................... 2,866 (140) 2,726 3,323 (81) 3,242
Guaranteed preferred beneficial interest
in Company's Junior Subordinated
Debentures ................................ 4,798 0 4,798 0 0 0
-------- -------- -------- --------- -------- ---------
24,059 848 24,907 4,685 (1,722) 2,963
-------- -------- -------- --------- -------- ---------
Total interest bearing liabilities ......... 35,944 2,216 38,160 13,616 (2,271) 11,345
-------- -------- -------- --------- -------- ---------
Change in net interest income .............. $ 27,027 $ (7,264) $ 19,763 $ 13,413 $ (2,204) $ 11,209
======== ======== ======== ========= ======== =========
- ----------------
(A) Changes attributable to rate/volume have been allocated to volume.
PROVISION FOR LOAN LOSSES AND PROVISION FOR (REVERSAL OF) LOSSES ON REAL ESTATE
OWNED
During the years ended December 31, 1997, 1996 and 1995, the provision for
loan losses was $11.3 million, $5.8 million, and $4.2 million, respectively.
The provision in each of these years was substantially impacted by larger
consumer loan balances. Consumer loan net charge-offs amounted to $8.4 million,
$4.7 million, and $3.3 million in 1997, 1996 and 1995, respectively. The
increase in consumer loan net charge-offs resulted primarily from indirect
consumer loan originations and the performance of the indirect consumer loan
portfolios acquired in connection with the MegaBank and BNA acquisitions in
1995 and 1996, respectively. As a result of originations and acquisitions, the
indirect consumer loan portfolio increased from $96.0 million at December 31,
1995 to $172.1 million and $204.7 million at December 31, 1996 and 1997,
respectively. During 1997 specific reserves increased $792,000 primarily
related to real estate construction loans acquired in connection with the BNA
acquisition. The remaining increase in the 1997 allowance for loan losses
resulted from higher aggregate loan balances and delinquency trends. The 1996
provision reflects $530,000 of net commercial business loan charge-offs
compared to a recovery of $121,000 and $356,000 during 1997 and 1995,
respectively. The 1996 net commercial business loan 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
loan recoveries relating to loans charged-off in prior periods. The allowance
for loan losses increased by $2.7
30
million and $6.8 million during 1997 and 1996, respectively. The increase in
the 1996 allowance for loan losses primarily resulted from the $6.4 million
allowance for loan losses acquired in connection with the BNA acquisition. The
remaining increase in the 1996 loan loss allowance resulted from additional
provisions due to higher aggregate loan balances.
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, 1997 restructured loans were $4.0
million compared to $3.7 million and $2.5 million at December 31, 1996 and
1995, respectively. Non-performing assets, net of write downs and allowances,
were $29.5 million at December 31, 1997 compared to $24.1 million and $21.5
million at December 31, 1996 and 1995, respectively.
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 individually
reviewed based on specific criteria, such as delinquency and condition of
collateral property.
Risk elements, net of write-downs and dispositions, increased by $5.7
million in 1997 to $33.6 million at December 31, 1997 and increased in 1996 by
$3.8 million to $27.8 million at December 31, 1996. The increase in risk
elements from 1996 to 1997 primarily resulted from increases in nonaccrual
assets, repossessed assets, and restructured loans of $4.2 million, $3.5
million and $325,000, respectively. The above increases were partially offset
by a $2.3 million decrease in loans contractually past due 90 days or more and
still accruing. The increase in nonaccrual loans was primarily due to higher
residential and consumer loan nonaccrual balances, partially offset by lower
tax certificate nonaccrual balances. Nonaccrual residential loans were $8.0
million at December 31, 1997 compared to $6.5 million in 1996. The increase was
primarily due to higher residential loan balances in 1997 compared to 1996. The
higher residential loan nonaccrual balances resulted from the growth in the
residential loan portfolio from $179.7 million at December 31, 1995 to $973.3
million at December 31, 1997. Nonaccrual consumer loans were $5.2 million at
December 31, 1997 compared to $2.1 million in 1996. Non-accrual direct consumer
loans, indirect consumer loans, and indirect consumer loans acquired in
connection with the BNA and MegaBank acquisitions increased by $1.0 million,
$1.7 million and $367,000, respectively at December 31, 1997 compared to 1996.
The nonaccrual direct consumer loans were primarily home equity loans, and the
nonaccrual indirect loans were primarily automobile loans. The higher
nonaccrual consumer loan balances resulted from the growth of the consumer loan
portfolio from $123.9 million at December 31, 1994 to $334.5 million at
December 31, 1997. The increase in repossessed assets resulted from $3.1
million and $920,000 of higher residential real estate owned and consumer
repossessed asset, respectively, partially offset by $467,000 of lower
commercial real estate owned. The increase in repossessed assets resulted from
higher loan balances mentioned above. The $955,000 decline in nonaccrual tax
certificates reflects the current aging of the tax certificates in the
portfolio. Loans contractually past due 90 days or more have matured and are in
the process of renewing or extending their terms while the borrower continues
to make payments under the matured loan agreement. The increase in risk
elements during 1996 compared to 1995 resulted from a $2.6 million increase 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
31
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 1996 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.
The loan loss allowance as a percent of total loans was 2.24% at December
31, 1995, 1.39% at December 31, 1996 and 1.47% at December 31, 1997 excluding
banker's acceptances. At December 31, 1997 gross real estate loans amounted to
$1.7 billion of which $973.3 million were residential real estate loans. The
remaining real estate loans consisted of $396.4 million of commercial real
estate loans, and $326.0 million of construction and development loans at
December 31, 1997, respectively. Gross other loans, excluding banker's
acceptances, amounted to $402.4 million and included commercial business loans
(including international loans) and consumer loans (including second mortgages)
of $67.9 million ($12.3 million) and $334.5 million, respectively, at December
31, 1997. Commercial real estate, commercial business and consumer loans
generally involve greater risks of collectability 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." International loans of $12.3
million at December 31, 1997 were short term lines of credit to financial
institutions in Latin America.
During the year ended December 31, 1997, management reversed $56,000 of
the REO allowance and charged off $244,000 of residential REO. During the year
ended December 31, 1996, management reversed $197,000 from the allowance for
real estate owned. Real estate owned charge-offs during the year ended December
31, 1996 were $803,000 primarily relating to three REO properties. Two of the
properties were sold during 1996. During the year ended December 31, 1995,
BankAtlantic's provision for real estate owned included a recovery of $1.2
million and charge-offs totaling $213,000. The allowance for REO is established
by management based on its evaluation of foreclosed properties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
RISK ELEMENTS
----------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
CONTRACTUALLY PAST DUE 90 DAYS OR
MORE
Commercial real estate and
business (1) ........................ $ 647 $ 2,961 $ 1,536 $ 736 $ 2,580
NON-ACCRUAL
Residential ........................... 5,573 4,679 2,228 1,718 2,468
Purchased residential ................. 2,453 1,798 0 0 0
Commercial real estate and
business ............................ 4,377 3,868 8,361 9,325 3,802
Consumer .............................. 5,166 2,079 585 270 976
Tax certificates (2) .................. 880 1,835 2,044 3,578 0
---------- ---------- ---------- ---------- ----------
18,449 14,259 13,218 14,891 7,246
REPOSSESSED (3)
Residential real estate owned ......... 3,825 748 231 303 319
Commercial real estate owned .......... 3,703 4,170 6,048 6,935 9,332
Consumer .............................. 2,912 1,992 461 350 512
---------- ---------- ---------- ---------- ----------
10,440 6,910 6,740 7,588 10,163
---------- ---------- ---------- ---------- ----------
Total non-performing assets .......... 29,536 24,130 21,494 23,215 19,989
---------- ---------- ---------- ---------- ----------
RESTRUCTURED LOANS
Commercial real estate and
business ............................ 4,043 3,718 2,533 1,648 2,647
---------- ---------- ---------- ---------- ----------
Total risk elements .................. $ 33,579 $ 27,848 $ 24,027 $ 24,863 $ 22,636
========== ========== ========== ========== ==========
Total risk elements as a
percentage of:
Total assets .......................... 1.10% 1.07% 1.37% 1.61% 1.67%
========== ========== ========== ========== ==========
Loans, tax certificates and
net real estate owned ............... 1.55% 1.46% 2.65% 3.92% 3.78%
========== ========== ========== ========== ==========
Total Assets ......................... $3,064,480 $2,605,527 $1,750,689 $1,539,653 $1,359,195
========== ========== ========== ========== ==========
Total loans, tax certificates and
net real estate owned ............. $2,164,965 $1,911,501 $ 905,413 $ 634,001 $ 599,504
========== ========== ========== ========== ==========
Allowance for loan losses ............. $ 28,450 $ 25,750 $ 19,000 $ 16,250 $ 17,000
========== ========== ========== ========== ==========
Total tax certificates ............... $ 56,162 $ 55,977 $ 51,504 $ 64,117 $ 86,897
========== ========== ========== ========== ==========
Allowance for tax certificate
losses ............................ $ 949 $ 1,466 $ 1,648 $ 2,985 $ 2,970
========== ========== ========== ========== ==========
- ----------------
(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.
(3) Amounts are net of allowances for losses.
33
Interest income which would have been recorded under the contractual terms
of impaired loans and the interest income actually recognized was (in
thousands):
1997 1996 1995
----------- --------- ---------
Interest income which would have been recorded .......... $ 2,487 $1,795 $1,662
Interest income recognized .............................. (1,548) (988) (788)
-------- ------ ------
Interest income forgone ................................. $ 939 $ 807 $ 874
======== ====== ======
Changes in the allowance for loan losses were as follows (dollars in
thousands):
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------
Balance, beginning of period ......................... $ 25,750 $ 19,000 $ 16,250 $ 17,000 $ 16,500
Charge-offs:
Commercial business loans ........................... (180) (1,048) (382) (1,647) (835)
Commercial real estate loans ........................ (276) (266) (222) (220) 0
Consumer loans ...................................... (10,694) (6,337) (4,566) (3,829) (4,322)
Residential real estate loans ....................... (76) (67) (263) (272) (302)
Purchased residential real estate loans ............. (104) 0 0 0 0
--------- -------- -------- -------- --------
(11,330) (7,718) (5,433) (5,968) (5,459)
Recoveries:
Commercial business loans ........................... 301 518 738 565 262
Commercial real estate loans ........................ 208 47 102 18 6
Consumer loans ...................................... 2,253 1,659 1,219 2,336 2,231
Residential real estate loans ....................... 0 0 0 0 10
--------- -------- -------- -------- --------
2,762 2,224 2,059 2,919 2,509
--------- -------- -------- -------- --------
Net charge-offs ..................................... (8,568) (5,494) (3,374) (3,049) (2,950)
Additions charged to operations ..................... 11,268 5,844 4,182 2,299 3,450
Allowance for loan losses acquired .................. 0 6,400 1,942 0 0
--------- -------- -------- -------- --------
Balance, end of period .............................. $ 28,450 $ 25,750 $ 19,000 $ 16,250 $ 17,000
========= ======== ======== ======== ========
Allowance as a percentage of:
Total loans ........................................ 1.35% 1.39% 2.24% 2.89% 2.77%
Total loans excluding banker's acceptances ......... 1.47 1.39 2.24 2.89 3.38
========= ======== ======== ======== ========
Non-performing assets (1) ........................... 99.28% 115.50% 97.69% 82.75% 85.05%
========= ======== ======== ======== ========
Ratio of net charge-offs to average outstanding
loans .............................................. 0.44% 0.47% 0.45% 0.59% 0.56%
========= ======== ======== ======== ========
Ratio of net charge-offs to average outstanding
loans plus banker's acceptances .................... 0.44% 0.47% 0.45% 0.57% 0.55%
========= ======== ======== ======== ========
- ----------------
(1) Excluding tax certificates. The allowance for tax certificates as a
percentage of total tax certificates was 1.69%, 2.62%, 3.20%, 4.66%, and
3.47%, for each of the years in the five-year period ended December 31,
1997, and as a percentage of non-performing tax certificates was 107.84%,
79.89% 80.63% and 83.43% at December 31, 1997, 1996, 1995 and 1994,
respectively.
34
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 gross loans excluding banker's
acceptances. The allowance shown in the table should not be interpreted as an
indication that charge-offs in future periods will occur in these amounts or
proportions or that the allowance indicates future charge-off amounts or
trends.
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- -------------------------------- ----------------------------
PERCENT OF PERCENT OF PERCENT OF
ALLOCATION GROSS LOANS GROSS LOANS ALLOCATION OF GROSS LOANS
OF ALLOWANCE IN EACH ALLOCATION IN EACH ALLOWANCE IN EACH
FOR LOAN CATEGORY TO OF ALLOWANCE CATEGORY TO FOR LOAN CATEGORY TO
LOSS BY TOTAL GROSS FOR LOAN TOTAL GROSS LOSS BY TOTAL GROSS
CATEGORY LOANS LOSS BY CATEGORY LOANS CATEGORY LOANS
-------------- ------------- ------------------ ------------- --------------- ------------
Commercial business ............. $ 1,941 3.23% $ 4,439 3.83% $ 3,042 6.84%
Commercial real estate .......... 9,559 34.43 6,673 35.75 7,607 50.35
Residential real estate ......... 1,511 9.55 3,719 22.50 1,243 19.14
Purchased residential real
estate ........................ 926 36.84 146 21.02 0 0.00
Consumer (1) .................... 14,513 15.95 10,773 16.90 7,108 23.67
------- ------ ------- ------ ------- ------
$28,450 100.00% $25,750 100.00% $19,000 100.00%
======= ====== ======= ====== ======= ======
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------- ------------------------------
PERCENT OF PERCENT OF
ALLOCATION OF GROSS LOANS ALLOCATION OF GROSS LOANS
ALLOWANCE IN EACH ALLOWANCE IN EACH
FOR LOAN CATEGORY TO FOR LOAN CATEGORY TO
LOSS BY TOTAL GROSS LOSS BY TOTAL GROSS
CATEGORY LOANS CATEGORY LOANS
--------------- ------------- --------------- ------------
Commercial business ............. $ 1,535 4.00% $ 2,586 5.48%
Commercial real estate .......... 10,357 56.94 7,213 40.95
Residential real estate ......... 860 18.88 902 26.25
Purchased residential real
estate ......................... 0 0.00 0 0.00
Consumer (1) .................... 3,498 20.18 6,299 27.32
------- ------ ------- ------
$16,250 100.00% $17,000 100.00%
======= ====== ======= ======
- ----------------
(1) Includes second mortgage loans.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
35
NON-INTEREST INCOME
A summary of non-interest income follows:
FOR THE YEAR 1997 1996
ENDED DECEMBER 31, TO TO
--------------------------------- 1996 1995
1997 1996 1995 CHANGE CHANGE
--------- --------- --------- ----------- -----------
(IN THOUSANDS)
Loan servicing and other loan fees ...................... $ 4,640 $ 4,216 $ 3,524 $ 424 $ 692
Gains on sales of loans available for sale .............. 6,802 534 395 6,268 139
Gains on trading securities, unrealized and realized..... 2,463 0 589 2,463 (589)
Gains on sales of securities available for sale ......... 2,367 5,959 0 (3,592) 5,959
Gains on sales of property and equipment, net ........... 852 3,061 18 (2,209) 3,043
Gains on sales of mortgage servicing rights ............. 7,905 4,182 2,744 3,723 1,438
Transaction fees ........................................ 9,302 8,600 6,963 702 1,637
ATM fees ................................................ 5,329 3,944 2,033 1,385 1,911
Other ................................................... 3,699 3,241 3,122 458 119
------- ------- ------- -------- -------
Total non-interest income ............................. $43,359 $33,737 $19,388 $ 9,622 $14,349
======= ======= ======= ======== =======
For a discussion relating to gains on sales of securities available for
sale and unrealized and realized gains on trading securities, see
"Mortgage-Backed Securities and Investments."
Loan servicing and other loan fees increased during each of the years in
the three year period ended December 31, 1997. The increase for the year ended
December 31, 1997 compared to the same period during 1996 resulted from higher
loan and late fee income, partially offset by lower loan servicing income. Late
fee income increased from $1.4 million for the year ended December 31, 1996 to
$1.9 million during the comparable 1997 period. Loan fee income was $1.4
million during 1996 compared to $1.5 million during 1997. The increase in loan
and late fees reflects higher loan balances during 1997 compared to the 1996
period. The decline in mortgage servicing fees resulted from higher mortgage
servicing rights amortization due to greater prepayments of mortgage loans
caused by decreased interest rates during the period. The increase in loan
servicing and other loan fees for the year ended December 31, 1996 compared to
the same period during 1995 resulted from higher loan and late fee income.
During the year ended December 31, 1997, BankAtlantic transferred $321.4
million of residential loans to available for sale and sold $273.9 million of
loans for gains as reported in the above table. BankAtlantic periodically sells
loans in order to manage the interest rate risk of the overall loan portfolio.
During 1996 and 1995 BankAtlantic sold $59.4 million and $34.2 million of
primarily fixed rate loans originated for resale for gains shown on the above
table.
During the years ended December 31, 1997, 1996 and 1995, BankAtlantic sold
mortgage servicing rights with a book value of $25.5 million, $20.9 million,
and $5.6 million, respectively, for gains as reported in the above table. These
rights related to approximately $2.0 billion, $1.4 billion, and $492.1 million
of loans serviced for others during 1997, 1996 and 1995, respectively. At
December 31, 1997, 1996 and 1995, BankAtlantic serviced loans for the benefit
of others amounting to approximately $2.9 billion, $2.7 billion, and $1.8
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 1997 land adjacent to the above properties with a book
value of $197,000 was sold for a net gain of $882,000.
The higher transaction fee income during 1997 and 1996 reflects an
increase in transaction account balances primarily obtained in connection with
acquisitions and higher average non-interest bearing deposits. Average
non-interest bearing deposits and escrows were $203.7 million during the year
ended December 31, 1997 compared to $148.1 million and $135.0 million during
1996 and 1995, respectively. In
36
April 1996, BankAtlantic's ATM network initiated surcharge fees for
non-customers. The significant increase in ATM fee income during 1997 and 1996
was primarily the result of this surcharge. Also during 1997, BankAtlantic
increased its ATM network from 220 machines at December 31, 1996 to 249
machines on December 31, 1997. BankAtlantic established its ATM network to
enhance fee income and to expand banking services throughout Florida.
Currently, BankAtlantic has 137 ATM machines located in Wal-Mart SuperStores,
15 ATM machines located on cruise ships, and 97 machines located in branches,
shopping centers and businesses throughout South Florida.
Non-interest income, other increased during each of the years in the three
year period ended December 31, 1997. Safe deposit rental income was $424,000
during 1997 compared to $230,000 and $208,000 during 1996 and 1995,
respectively, and commissions from teller check outsourcing increased from
$592,000 during the year ended December 31, 1995 to $752,000 and $843,000
during 1996 and 1997, respectively. The higher safe deposit box rental income
and teller check fees reflects an increase in demand for these services.
Non-interest income also includes $98,000 for real estate held for development
and sales activities, net; representing the results of operations of SLW from
the date of acquisition (October 31, 1997) through December 31, 1997.
NON-INTEREST EXPENSE
A summary of non-interest expense follows:
FOR THE YEAR 1997 1996
ENDED DECEMBER 31, TO TO
------------------------------------ 1996 1995
1997 1996 1995 CHANGE CHANGE
---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
Employee compensation and benefits ......... $40,236 $33,216 $ 25,403 $ 7,020 $ 7,813
Occupancy and equipment .................... 18,666 13,615 10,831 5,051 2,784
SAIF special assessment .................... 0 7,160 0 (7,160) 7,160
Federal insurance premium .................. 1,084 2,495 2,750 (1,411) (255)
Advertising and promotion .................. 2,196 2,079 2,144 117 (65)
Foreclosed asset activity, net ............. 118 (725) (3,178) 843 2,453
Amortization of cost over fair value of net
assets acquired .......................... 2,508 1,545 1,122 963 423
Other ...................................... 17,124 12,856 12,088 4,268 768
------- ------- -------- -------- -------
Total non-interest expenses .............. $81,932 $72,241 $ 51,160 $ 9,691 $21,081
======= ======= ======== ======== =======
The increase in employee compensation and benefits for each of the years
in the three year period ended December 31, 1997 resulted from the number of
full-time equivalent employees increasing from 746 at December 31, 1995 to 989
at December 31, 1996 and to 1,098 at December 31, 1997 as well as annual salary
and benefit increases throughout the three year period. The increase in the
number of employees during 1997 resulted from the expansion of BankAtlantic's
branch network. During 1997, BankAtlantic opened four in-store Wal-Mart
branches, five full-service branches in South Florida and began two new
business units (international lending and small business lending). 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.
Occupancy and equipment expenses increased during each of the years in the
three year period ended December 31, 1997 due to the expanded branch network,
the acquisition of BNA, and data processing expenses. 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 and
further increased to $4.8 million and $3.2 million during the same 1997 period,
respectively. Also included in occupancy and equipment expenses during 1997 and
1996 were $4.1 million and $2.2 million, respectively, of processing fees from
outside service bureaus. In October 1996 BankAtlantic converted its principal
data processing functions to an outside service bureau. A portion of the 1996
processing fees represents conversion expenses. Management believes that the
service bureau conversion has enabled BankAtlantic to expand its branch network
and offer new products and services.
37
On September 30, 1996, all institutions with SAIF assessable deposits,
including BankAtlantic, were required to pay a one-time assessment of 0.657% of
covered deposits 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. SAIF assessments during the year ended December 31, 1997
were reduced from prior years' levels as a consequence of the one-time
assessment.
The components of "Foreclosed asset activity, net" were (in thousands):
FOR THE YEAR
ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- --------- -----------------
Real estate acquired in settlement of loans:
Operating expenses, net ......................... $ 528 $ 47 $ 41
Reversal of provision for losses on REO ......... (56) (197) (1,187)
Net gains on sales .............................. (354) (575) (2,032)(A)
------ ------ ------
(Income) loss ................................... $ 118 $ (725) $ (3,178)
====== ====== =========
- ----------------
(A) Including a $1.3 million gain related to a property originally acquired
through a tax deed during 1995.
The loss in foreclosed asset activity, net during 1997 compared to 1996
income resulted from higher residential foreclosure expenses associated with
the larger residential loan portfolio and an increase in commercial REO
operating expenses due to the sale of rental REO properties during 1997 and
1996. 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. For further discussion, see "Provision for
Loan Losses and Provision for (Reversal of) Losses on Real Estate Owned."
Other non-interest expense increased during the three years ended December
31, 1997. The additional other expenses in 1997 and 1996 were associated with
expanding the branch network, a larger loan portfolio and the acquisition of
BNA. During 1997 compared to 1996, stationery, printing and supplies, telephone
expenses, postage, check printing and armored car services increased by
approximately $1.6 million. Consulting services primarily relating to the
opening of Wal-Mart in-store branches increased by $315,000. Teller robbery and
check losses increased by $652,000 and consumer direct and repossession
expenses increased by $1.3 million during 1997. The expanded ATM network
increased ATM operating expenses by $322,000. The higher other non-interest
expenses during 1996 compared to 1995 were associated with expanding the branch
network and the BNA acquisition.
The amortization of cost over fair value of net assets acquired relates to
the BNA and MegaBank acquisitions.
38
MORTGAGE-BACKED SECURITIES AND INVESTMENT SECURITIES
During the year ended December 31, 1997 and 1996, the Company purchased
and sold the following securities out of the available for sale portfolio: (in
thousands)
PURCHASES (1) SALES (1)
------------------------ ------------------------
1997 1996 1997 1996
----------- ---------- ---------- -----------
7 year balloon mortgage-backed securities ............ $219,198 $ 0 $ 66,021 $ 5,900
5 year balloon mortgage-backed securities ............ 18,443 0 28,096 0
30 year mortgage backed securities ................... 0 0 6,412 0
15 year mortgage backed securities ................... 0 0 1,066 20,500
Real estate mortgage investment conduit .............. 0 0 5,900 0
U.S. treasury notes .................................. 148,835 231,765 231,038 205,454
Federal agency obligations ........................... 0 0 7,600 0
Corporate bonds ...................................... 2,367 0 0 0
-------- -------- -------- --------
Total fixed rate securities ........................ 388,843 231,765 346,133 231,854
5-1 Adjustable rate mortgages ........................ 271,028 0 9,363 136,600
Marketable equity securities ......................... 5,122 0 0 0
-------- -------- -------- --------
Total securities available for sale activity ......... $664,993 $231,765 $355,496 $368,454
======== ======== ======== ========
- ----------------
(1) Purchases and sales are stated at cost.
Other investment activity during 1997 included the purchase of $6.2
million of marketable equity trading securities and the sale of $2.9 million of
these securities. BankAtlantic purchased and sold the above securities
available for sale during 1997 in order to change the mix of its portfolio from
fixed rate securities to adjustable rate securities due to the declining long
term interest rates during 1997. 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.
A summary of the cost and gross unrealized appreciation or depreciation of
estimated fair value compared to cost of investment securities held to
maturity, mortgage-backed securities available for sale, and securities
available for sale, follows (in thousands):
DECEMBER 31,
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
----------- -------------- -------------- -----------
Tax certificates held to maturity:
Cost equals market .............................. $ 55,213 $ 0 $ 0 $ 55,213
Investment securities available for sale (1):
Cost equals market .............................. 1,320 0 0 1,320
Market over cost ................................ 22,991 551 0 23,542
Cost over market ................................ 7,234 0 723 6,511
Mortgage-backed securities available for sale (1):
Market over cost ................................ 452,381 1,636 0 454,017
Cost over market ................................ 122,386 0 286 122,100
-------- ------ ------ --------
Total ......................................... $661,525 $2,187 $1,009 $662,703
======== ====== ====== ========
- ----------------
(1) Amortized cost excludes net unrealized appreciation of $1.4 million on
mortgage-backed securities and unrealized depreciation of $172,000 on
investment securities available for sale.
39
At December 31, 1997 and 1996 all mortgage-backed and investment
securities, excluding tax certificates, were available for sale. The
composition, yields and maturities of securities were as follows (in
thousands):
U.S.
TREASURY MORTGAGE ASSET CORPORATE WEIGHTED
AND TAX BACKED BACKED BOND AND AVERAGE
AGENCIES CERTIFICATES SECURITIES SECURITIES OTHER TOTAL YIELD
------------ -------------- ------------ ------------ ----------- ------------- ---------
DECEMBER 31, 1997:
MATURITY: (1)
One year or less ................. $ 10,004 $ 38,448 $ 20,598 $ 11 $ 910 $ 69,971 6.05%
After one through five years ..... 10,050 16,765 294,943 3,165 0 324,923 6.32
After five through ten years ..... 0 0 637 0 2,070 2,707 13.21
After ten years .................. 0 0 259,939 0 0 259,939 6.31
-------- -------- --------- ------- -------- --------- -----
Fair values (2) (3) ............... $ 20,054 $ 55,213 $ 576,117 $ 3,176 $ 2,980 $ 657,540 6.31%
======== ======== ========= ======= ======== ========= =====
Amortized cost (2) (3) ............ $ 19,959 $ 55,213 $ 574,767 $ 3,194 $ 3,270 $ 656,403 6.35%
======== ======== ========= ======= ======== ========= =====
Weighted average yield based on
fair value ....................... 5.54% 8.26% 6.14% 5.53% 14.80% 6.31%
Weighted average maturity ......... 1.1 2.0 15.4 1.5 5.0 13.6
years years years years years years
-------- -------- --------- ------- -------- ---------
DECEMBER 31, 1996
Fair value ........................ $115,638 $ 54,511 $ 294,740 $28,967 $ 0 $ 493,856 6.06%
======== ======== ========= ======= ======== ========= =====
Amortized cost .................... $115,295 $ 54,511 $ 293,889 $28,943 $ 0 $ 492,638 6.08%
======== ======== ========= ======= ======== ========= =====
DECEMBER 31, 1995
Fair value ........................ $ 25,113 $ 49,856 $ 597,751 $68,939 $ 0 $ 741,659 6.72%
======== ======== ========= ======= ======== ========= =====
Amortized cost .................... $ 24,606 $ 49,856 $ 588,956 $68,907 $ 0 $ 732,325 6.81%
======== ======== ========= ======= ======== ========= =====
- ----------------
(1) Maturities are based on contractual maturities. Tax certificate maturities
are based on historical repayment experience and BankAtlantic's charge-off
policies since tax certificates do not have contractual maturities.
(2) Equity securities with an amortized cost of $5.1 million and a fair value
of $5.2 million were excluded from the above table.
(3) Trading securities of $5.1 million were excluded from the above table.
Activity in the allowance for tax certificate losses was (dollars in
thousands):
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ---------- -----------
Balance, beginning of period ................................ $ 1,466 $1,648 $ 2,985
Charge-offs ................................................. (1,444) (909) (1,854)
Recoveries .................................................. 1,025 911 662
-------- ------ --------
Net (charge-offs) recoveries ................................ (419) 2 (1,192)
Reversals charged to operations ............................. (98) (184) (145)
-------- ------ --------
Balance, end of period ...................................... $ 949 $1,466 $ 1,648
======== ====== ========
Average yield on tax certificates during the period ......... 9.95% 9.73% 9.27%
======== ====== ========
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, 1997 and 1996 were $3.1
billion, and $2.6 billion, respectively. The increase in total assets was
primarily the result of increases in loans receivable, securities available for
sale, mortgage servicing rights, investment in real estate held for sale,
Federal Home Loan Bank stock and other assets of $248.0 million, $168.1
million, $13.8 million, $18.6 million,
40
$20.1 million and $6.1 million, respectively. The above increases in total
assets were partially offset by a $20.2 million reduction in cash, and a $6.1
million decrease in Federal Funds sold. The loans receivable increase reflects
$1.3 billion of loan fundings and purchases and $159.7 million of banker's
acceptances during 1997. The loan fundings and purchases were partially offset
by $948.9 million of principal reductions on loans and $273.9 million of loan
sales. The increase in the securities available for sale balances resulted from
the purchase of $665.0 million of securities partially offset by the sale of
$355.5 million of securities and $141.8 million of principal reductions. The
increase in mortgage servicing rights balances reflects purchases and
originated servicing of $47.5 million partially offset by $25.5 million and
$8.2 million of mortgage servicing rights sold and amortization, respectively.
Investment in real estate held for development and sale represents the land
acquired in connection with the SLW acquisition. Increases in FHLB stock were
required based on higher FHLB advances. The additional other asset balances
resulted from $6.4 million of deferred offering costs associated with the
issuance of the 5 5/8% Debentures and the Trust Preferred Securities. Cash
including federal funds sold and other short term investments declined due to
lower liquidity requirements during 1997 compared to 1996.
At December 31, 1997, deposits decreased $69.0 million from December 31,
1996. Certificate accounts declined by $98.1 million while transaction accounts
increased by $29.1 million. The lower certificate account balances primarily
resulted from the maturities of high cost certificate accounts acquired in
connection with the BNA acquisition. The higher transaction account balances
reflects growth in savings accounts associated with new savings products which
pay higher rates based on account balances. FHLB advances increased by $402.0
million. The additional borrowings were used to fund wholesale residential loan
growth. Securities sold under agreement to repurchase and Federal Funds
purchased declined by $129.4 million. The lower balances were due to the
availability of funds provided by the April 1997 $74.5 million Trust Preferred
Securities offering, the November 1997 $100.0 million 5 5/8% Debenture offering
and the November 1997 issuance of 4,312,500 shares of Class A common stock.
Repayment of securities sold under agreements to repurchase, deposit outflows,
common stock repurchases, payments for advances by borrowers for taxes and
insurance, the acquisition of SLW, loan originations, investment in joint
ventures, and the purchases of loans, securities and tax certificates, trading
securities were primarily funded through the sales of securities available for
sale, trading securities, mortgage servicing rights and properties, proceeds
from FHLB advances, federal funds purchased, loan and securities repayments,
proceeds from the issuance of 5 5/8% Debentures, Trust Preferred Securities and
Class A common stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
41
LOAN ACTIVITY -- The following table shows loan activity by major
categories for the periods indicated (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ------------- ------------ ------------
LOAN FUNDINGS: (1)
Residential real estate loans .......... $ 68,513 $ 133,184 $ 111,361 $ 40,706 $ 52,674
Construction and development loans ..... 194,752 147,200 93,102 22,958 13,744
Commercial real estate and
business loans ....................... 376,033 314,319 319,530 259,285 186,584
Consumer loans (2) ..................... 161,154 154,940 114,607 45,159 10,222
---------- ---------- ---------- ---------- ----------
Total loan fundings ................... 800,452 749,643 638,600 368,108 263,224
========== ========== ========== ========== ==========
PURCHASES: (3)(4)
Residential real estate loans .......... 524,498 465,942 9,930 0 0
Commercial real estate and
business loans ....................... 0 0 0 3,989 5,142
---------- ---------- ---------- ---------- ----------
Total purchases ....................... 524,498 465,942 9,930 3,989 5,142
---------- ---------- ---------- ---------- ----------
Total loan production ................. 1,324,950 1,215,585 648,530 372,097 268,366
---------- ---------- ---------- ---------- ----------
Loan sales .............................. (273,901) (59,408) (34,153) (38,168) (44,983)
Principal reduction on loans (1) ........ (947,281) (548,536) (444,867) (270,986) (289,037)
Transfer to real estate owned (5) ....... (5,076) (1,788) (1,029) (1,282) (2,396)
---------- ---------- ---------- ---------- ----------
NET LOAN ACTIVITY ..................... $ 98,692 $ 605,853 $ 168,481 $ 61,661 $ (68,050)
========== ========== ========== ========== ==========
- ----------------
(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, 1997, 1996 and
1995 were $68.5 million, $133.2 million, and $111.0 million, respectively, for
residential real estate loans, and $285.1 million, $316.0 million, and $224.7
million, respectively, for commercial real estate and business loans (including
construction and development loans) and $23.5 million, $75.4 million, and $55.8
million, respectively, for direct consumer loans, and $114.2 million, $76.9
million, and $56.1 million, respectively, for indirect consumer loans (all of
which were indirect automobile loans). During 1997 $12.3 million of
international loan credit facilities to foreign banks were originated which
were included in business loans.
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.
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.
42
Financial instruments with off-balance sheet risk at December 31, 1997
were (in thousands):
WEIGHTED
AVERAGE
FIXED FLOATING INTEREST
RATE RATE RATE
---------- ---------- ---------
Commitments to extend credit to foreign banks ......... $49,894 $ 0 7.26%
Commitments to extend credit including the undisbursed
portion of loans in process ......................... $33,996 $295,776 9.74%
In addition, BankAtlantic extends letters of credit to its commercial
customers. At December 31, 1997, BankAtlantic had $56.4 million of letters of
credit outstanding. BankAtlantic receives an annual commitment fee on
outstanding letters of credit.
PRINCIPAL REPAYMENTS -- The following table sets forth the scheduled
contractual principal repayments at maturity dates of BankAtlantic's loan
portfolios and securities available for sale at December 31, 1997. As of
December 31, 1997, the total amount of principal repayments on loans and
securities available for sale contractually due after December 31, 1998 was
$1.6 billion having fixed interest rates and $812.8 million having floating or
adjustable interest rates.
OUTSTANDING
ON
DECEMBER 31, FOR THE PERIOD ENDING DECEMBER 31, (1)
-------------- -----------------------------------------------------------------------------
1997 1998 1999-2000 2001-2005 2006-2010 2011-2015 /greater than/2016
-------------- ---------- ----------- ----------- ----------- ----------- ------------------
(IN THOUSANDS)
Commercial real estate ....... $ 396,357 $ 87,400 $ 90,591 $189,460 $26,101 $ 1,771 $ 1,034
Residential real estate ...... 200,400 354 402 4,856 17,052 20,925 156,811
Purchased residential real
estate ..................... 772,932 0 15 5,900 11,899 2,224 752,894
Real estate construction ..... 325,951 143,512 113,783 66,870 1,786 0 0
Consumer (2) ................. 334,518 9,085 54,206 209,733 33,207 28,179 108
Commercial business .......... 67,871 49,393 11,826 6,477 175 0 0
---------- -------- -------- -------- ------- ------- --------
TOTAL LOANS (3) ............ $2,098,029 $289,744 $270,823 $483,296 $90,220 $53,099 $910,847
========== ======== ======== ======== ======= ======= ========
TOTAL SECURITIES AVAILABLE
FOR SALE (3)(4) ............ $ 607,490 $ 36,686 $225,836 $ 85,029 $ 0 $ 0 $259,939
========== ======== ======== ======== ======= ======= ========
- ----------------
(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.
(4) Includes equity securities available for sale of $5.1 million.
LOAN CONCENTRATION -- BankAtlantic's geographic loan concentration at
December 31, 1997 was:
Florida .................... 55%
California ................. 13%
Northeast .................. 10%
Other ...................... 22%
---
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, 1997. The concentration in California,
Northeast, and other locations primarily relates to purchased wholesale
residential real estate loans during 1997. The balance of the portfolio is
throughout the United States without any specific concentration.
43
Loan maturities and sensitivity of loans to changes in interest rates for
commercial business loans and real estate construction loans at December 31,
1997 were (in thousands):
COMMERCIAL REAL ESTATE
BUSINESS CONSTRUCTION TOTAL
------------ -------------- -----------
One year or less ................................ $64,835 $306,632 $371,467
Over one year, but less than five years ......... 2,985 19,319 22,304
Over five years ................................. 51 0 51
------- -------- --------
$67,871 $325,951 $393,822
======= ======== ========
DUE AFTER ONE YEAR:
Pre-determined interest rate .................... $ 3,036 $ 13,966 $ 17,002
Floating or adjustable interest rate ............ 0 5,353 5,353
------- -------- --------
$ 3,036 $ 19,319 $ 22,355
======= ======== ========
- ----------------
(1) Does not include banker's acceptances.
DEPOSITS -- Deposit accounts consisted of the following (in thousands):
DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
Non-interest bearing deposits ............ $ 162,788 $ 163,616 $ 98,964
Interest bearing deposits:
Insured money fund savings .............. 289,413 358,927 249,273
NOW account ............................. 223,679 216,587 171,726
Savings account ......................... 262,685 170,352 103,759
Time deposits less than $100,000......... 648,906 739,622 528,163
Time deposits $100,000 and over.......... 176,262 183,676 148,492
---------- ---------- ----------
Total .................................. $1,763,733 $1,832,780 $1,300,377
========== ========== ==========
Time deposits $100,000 and over have the following maturities (in
thousands):
DECEMBER 31,
1997
-------------
Less than 3 months .......... $ 64,235
3 to 6 months ............... 34,123
6 to 12 months .............. 53,566
More than 12 months ......... 24,338
--------
Total ..................... $176,262
========
BankAtlantic solicits deposits through advertisements in newspapers and
magazines of general circulation and on radio and television in Miami-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. Merrill Lynch granted
BankAtlantic a facility of up to $135 million for brokered certificates of
deposit. The facility is considered as an alternative source of borrowings.
44
The stated rates and balances at which BankAtlantic paid interest on
deposits were (dollars in thousands):
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Interest free checking ................................... $ 162,788 $ 163,616 $ 98,964
Insured money fund savings: 3.90% at December 31,
1997, 3.76% at December 31, 1996, and 3.22% at
December 31, 1995 ...................................... 289,413 358,927 249,273
NOW accounts: 2.20 % at December 1997, 1.60%
at December 31, 1996, and 1.66% at
December 31, 1995 ..................................... 223,679 216,587 171,726
Savings accounts: 2.04% at December 31, 1997, 1.30%
at December 31, 1996, and 1.71%
December 31, 1995 ...................................... 262,685 170,352 103,759
----------- ----------- -----------
Total non-certificate accounts ........................... 938,565 909,482 623,722
----------- ----------- -----------
Certificate accounts:
0.00% to 4.00% .......................................... 14,275 23,361 82,269
4.01% to 5.00% .......................................... 37,803 275,991 135,107
5.01% to 6.00% .......................................... 184,800 478,148 303,497
6.01% to 7.00% .......................................... 493,845 112,865 137,917
7.01% and greater ....................................... 90,882 30,749 17,543
----------- ----------- -----------
Total certificate accounts ............................... 821,605 921,114 676,333
----------- ----------- -----------
1,760,170 1,830,596 1,300,055
----------- ----------- -----------
Interest earned not credited to deposit accounts ......... 3,563 2,184 322
----------- ----------- -----------
Total deposit accounts ................................. $ 1,763,733 $ 1,832,780 $ 1,300,377
=========== =========== ===========
Weighted average stated interest rate on deposits at the
end of each period ..................................... 3.70% 3.78% 3.85%
=========== =========== ===========
The amounts of scheduled maturities of certificate accounts were (dollars
in thousands):
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------
DECEMBER 31, 1997 1998 1999 2000 2001 2002 THEREAFTER
- --------------------------- ---------- --------- ---------- ---------- ---------- -----------
0.00% to 4.00% ............ $ 12,336 $ 1,740 $ 76 $ 42 $ 72 $ 9
4.01% to 5.00% ............ 37,530 204 16 53 0 0
5.01% to 6.00% ............ 172,410 10,051 1,164 871 116 188
6.01% to 7.00% ............ 434,702 38,736 8,124 5,103 6,597 583
7.01% and greater ......... 21,238 30,071 18,809 8,727 11,365 672
-------- ------- ------- ------- ------- ------
Total ................... $678,216 $80,802 $28,189 $14,796 $18,150 $1,452
======== ======= ======= ======= ======= ======
The following table sets forth the deposit activities for the periods
indicated (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------
1997 1996 1995
-------------- ---------- ----------
Net increase (decrease) before interest credited ............. $ (122,938) $ 15,905 $ 51,093
Deposits acquired net of purchase accounting amortization..... 0 469,065 120,055
Interest credited ............................................ 53,754 47,433 43,447
---------- -------- --------
Total ...................................................... $ (69,184) $532,403 $214,595
========== ======== ========
45
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."
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 and did join certain third parties as defendants in the
action. Subsequently, National Union was realigned from a defendant in the
action to a co-plaintiff with BankAtlantic. 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 in
November 1993, and approximately $2.9 million which was paid 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,
not in excess of $18 million; the full amount of which has been paid. 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 plus the costs
incurred by BankAtlantic of obtaining such recoveries. Thereafter National
Union will be entitled to any such recoveries to the extent of the $18 million
it has paid to BankAtlantic. The trial was held in February 1998 and judgment
was entered in favor of BankAtlantic and National Union against over fifty
third party defendants, individuals and corporations.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions, including BankAtlantic. This action
sought, among other things, rescission of the loan agreements and damages. In
November 1995, the court in this action entered an order dismissing the
complaint against BankAtlantic; plaintiff's appealed this ruling. In January
1996, the Appellate Court reversed the lower court's decision and remanded the
case back to the trial court to determine whether the action could be
maintained as a class action. The reversal was without prejudice to
BankAtlantic's right to renew its summary judgment motion after the trial court
made a determination as to plaintiff's ability to maintain this case as a class
action. In December 1997, the trial court denied the plaintiff's motion for
class certification and in January 1998 granted BankAtlantic's summary judgment
motion. The Plaintiffs have appealed the trial court's ruling.
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 17 to the Consolidated Financial Statements for
further discussion on the Subject Portfolio.
46
Loans receivable composition, including mortgage-backed securities, at the
dates indicated was (dollars in thousands):
DECEMBER 31,
---------------------------------------------------
1997 1996
------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------------- ---------- ------------- -----------
LOANS RECEIVABLE
REAL ESTATE LOANS:
Residential real estate ..... $ 37,813 1.98% $ 438,359 24.02%
Purchased residential
real estate ................ 772,932 40.41 428,722 23.50
Residential real estate
available for sale ......... 161,562 8.45 16,207 0.89
Construction and
development ................ 325,951 17.04 301,813 16.54
FHA and VA insured .......... 1,025 0.05 4,013 0.22
Commercial real estate ...... 396,357 20.72 427,235 23.41
Other loans:
Second mortgage - direct .... 65,810 3.44 86,234 4.73
Second mortgage - indirect... 12,461 0.65 9,894 0.54
Commercial business ......... 67,871 3.55 78,177 4.28
Consumer -- other direct .... 51,558 2.69 76,506 4.19
Consumer -- other indirect... 204,689 10.70 172,056 9.43
---------- ----- ---------- -----
Total ...................... 2,098,029 109.68 2,039,216 111.75
---------- ------ ---------- ------
Adjustments:
Undisbursed portion of loans
in process .................. 163,237 8.53 190,874 10.45
Other ........................ 0 0.00
Unearned discounts on
commercial real estate
loans ....................... 669 0.03 705 0.04
Unerned discounts (premium)
on purchased real estate
and consumer loans .......... (7,047) (0.37) (2,762) (0.15)
Allowance for loan losses .... 28,450 1.49 25,750 1.41
---------- ------ ---------- ------
Total loans receivable,
net ...................... $1,912,720 100.00% $1,824,649 100.00%
========== ====== ========== ======
Mortgage-backed securities:
FNMA participation
certificates ................ $ 207,738 36.06% $ 101,381 34.40%
GNMA and FHLMC
mortgage-backed securities... 368,379 63.94 193,359 65.60
---------- ------ ---------- ------
Total mortgage-backed
securities (1) ........... $ 576,117 100.00% $ 294,740 100.00%
========== ====== ========== ======
Banker's acceptances ......... $ 160,105 100.00% $ 207 100.00%
========== ====== ========== ======
DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- -----------
LOANS RECEIVABLE
REAL ESTATE LOANS:
Residential real estate ..... $157,361 18.99% $102,677 18.79% $120,531 24.80%
Purchased residential
real estate ................ 0 0.00 0 0.00 0 0.00
Residential real estate
available for sale ......... 17,122 2.07 6,843 1.25 5,752 1.19
Construction and
development ................ 122,371 14.77 45,725 8.37 11,333 2.34
FHA and VA insured .......... 5,183 0.63 6,395 1.17 7,972 1.64
Commercial real estate ...... 350,256 42.27 303,877 55.61 198,095 40.76
Other loans:
Second mortgage - direct .... 63,052 7.61 40,564 7.42 15,971 3.29
Second mortgage - indirect... 25,621 3.09 34,585 6.33 47,307 9.73
Commercial business ......... 64,194 7.75 24,566 4.50 27,979 5.76
Consumer -- other direct .... 37,502 4.53 16,386 3.00 19,667 4.05
Consumer -- other indirect... 96,042 11.59 32,373 5.93 56,896 11.71
-------- ----- -------- ----- -------- ------
Total ...................... 938,704 113.30 613,991 112.37 511,503 105.27
-------- ------ -------- ------ -------- ------
Adjustments:
Undisbursed portion of loans
in process .................. 89,896 10.85 49,981 9.15 5,570 1.15
Other ........................ 0 0.00 63 0.01 33 0.01
Unearned discounts on
commercial real estate
loans ....................... 793 0.10 874 0.16 2,124 0.44
Unerned discounts (premium)
on purchased real estate
and consumer loans .......... 385 0.05 427 0.08 820 0.17
Allowance for loan losses .... 19,000 2.30 16,250 2.97 17,000 3.50
-------- ------ -------- ------ -------- ------
Total loans receivable,
net ...................... $828,630 100.00% $546,396 100.00% $485,956 100.00%
======== ====== ======== ====== ======== ======
Mortgage-backed securities:
FNMA participation
certificates ................ $132,554 22.18% $147,652 23.52% $178,928 33.99%
GNMA and FHLMC
mortgage-backed securities... 465,197 77.82 480,230 76.48 347,437 66.01
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities (1) ........... $597,751 100.00% $627,882 100.00% $526,365 100.00%
======== ====== ======== ====== ======== ======
Banker's acceptances ......... $ 0 0.00% $ 0 0.00% $109,931 100.00%
======== ====== ======== ====== ======== ======
- ----------------
(1) Includes net unrealized appreciation on mortgage-backed securities
available for sale of $1.4 million, $851,000, $8.8 million and $314,000 at
December 31, 1997, 1996, 1995 and 1994, respectively.
ASSET AND LIABILITY MANAGEMENT
BankAtlantic originates 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, however the majority of
residential loans originated are currently sold to correspondents. BankAtlantic
also purchases residential loans with both fixed and adjustable rates, which
are retained for portfolio. Since these bulk loan purchases are acquired
periodically, management is in a better position (unlike the case of individual
loan originations) to manage the interest rate risk in this portfolio due to
the size and generally homogeneous nature of these purchases. BankAtlantic also
acquires mortgage-backed
47
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.
MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes in
market valuation which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk, and equity price risk. The Company's primary
market risk is interest rate risk.
EQUITY PRICE RISK
The Company maintains a portfolio of trading and available for sale
securities which subjects the Company to equity pricing risks. The change in
fair values of equity securities represents instantaneous changes in all equity
prices segregated by trading and available for sale securities. The following
are changes in the fair value of the Company's trading and available for sale
securities at December 31, 1997 based on percentage changes in fair value.
Equity price risk is managed through industry diversification. Actual future
price appreciation or depreciation may be different from the changes identified
in the table below.
AVAILABLE
PERCENT TRADING FOR SALE
CHANGE IN SECURITIES SECURITIES
FAIR VALUE FAIR VALUE FAIR VALUE
- ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
20.00% $6,080 $6,196
10.00% $5,574 $5,679
0.00% $5,067 $5,163
(10.00)% $4,560 $4,647
(20.00)% $4,054 $4,130
INTEREST RATE RISK
The majority of the Company's assets and liabilities are monetary in
nature subjecting the Company to significant interest rate risk. The Company
has developed a model using vendor software to quantify its interest rate risk.
A sensitivity analysis was performed measuring the Company's potential gains
and losses in net portfolio fair values of interest rate sensitive instruments
at December 31, 1997 resulting from a change in interest rates. Interest rate
sensitive instruments included in the model were the Company's: loan portfolio,
debt securities available for sale, investment securities, FHLB stock, mortgage
servicing rights, Federal Funds sold, deposits, advances from FHLB, securities
sold under agreements to repurchase, Federal Funds purchased Subordinated
Debentures, Trust Preferred Securities and off-balance sheet loan commitments.
The Company has no off-balance sheet derivatives other than fixed rate loan
commitments aggregating $83.9 million at December 31, 1997. The model
calculates the net potential gains and losses in net portfolio fair value by:
(i) discounting cash flows from existing assets, liabilities and off-balance
sheet contracts to determine fair values at December 31, 1997, (ii)
discounting the above expected cash flows based on instantaneous and parallel
shifts in the yield curve to determine fair values, (iii) the difference
between the fair value calculated in (i) and (ii) is the potential gains and
losses in net portfolio fair values. Management has made estimates of fair
value discount rates that it believes to be reasonable. However, because there
is no quoted market for many of these financial instruments, management has no
basis to determine whether the fair value presented would be indicative of the
value negotiated in an actual sale. BankAtlantic's fair value estimates do not
consider the tax effect that would be associated with the disposition of the
assets or liabilities at their fair value estimates.
The prepayment assumptions used in the model are disclosed in
BankAtlantic's Cumulative Rate Sensitivity GAP at December 31, 1997.
Subordinated debentures and Trust Preferred Securities were
48
valued based on their contractual maturities or redemption date. The Company's
interest rate risk policy has been approved by the Board of Directors and
establishes guidelines for tolerance levels for net portfolio value changes
based on interest rate volatility. Management has maintained the portfolio
within these established tolerances.
Presented below is an analysis of the Company's interest rate risk at
December 31, 1997 as calculated utilizing the Company's model. The table
measures changes in net portfolio value for instantaneous and parallel shifts
in the yield curve in 100 basis point increments up or down.
NET PORTFOLIO
CHANGES VALUE DOLLAR
IN RATE AMOUNT CHANGE
- ------------ -------------- -------------
(DOLLARS IN THOUSANDS)
+200 bp $363,011 $ (583)
+100 bp $368,977 $ 5,383
0 bp $363,594 $ 0
(100) bp $336,412 $ (27,182)
(200) bp $316,326 $ (47,268)
Certain assumptions by the Company in assessing the interest rate risk
were utilized in preparing the preceding table. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and market values
of certain assets under various interest rate scenarios. It was also assumed
that delinquency rates will not change as a result of changes in interest rates
although there can be no assurance that this will be the case. Even if interest
rates change in the designated increments, there can be no assurance that the
Company's assets and liabilities would perform as indicated in the table above.
In addition, a change in U.S. Treasury rates in the designated amounts,
accompanied by a change in the shape of the yield curve could cause
significantly different changes to the fair values than indicated above.
Furthermore, the result of the calculations in the preceding table are subject
to significant deviations based upon actual future events, including
anticipatory and reactive measures which the Company may take in the future.
INTEREST RATE SENSITIVITY
BankAtlantic's net earnings are materially impacted by the difference
between the income it receives from its loan portfolio, tax certificates and
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 loan originations and
purchases. Fluctuations in income from 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.
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 6.55% and .42% at December 31, 1997 and
1996, respectively. The change in the 1997 gap ratio resulted from higher
prepayment rate on fixed rate residential loans, increased intermediate term
FHLB borrowings and the increase in BankAtlantic's stockholders' equity based
on capital contributions by the Company. During 1997, BankAtlantic borrowed
$247.0 million of one to five year estimated maturity advances from FHLB to
fund fixed rate residential loans. Fixed rate residential loans increased from
$468.9 million at December 31, 1996 to $732.6 million at December 31, 1997.
The higher fixed rate residential loan balances resulted from the purchase of
$524.5 million of wholesale residential loans. The absolute amount of
BankAtlantic's one year gap changed from a positive $10.9 million at December
31, 1996, to a positive $200.7 million at December 31, 1997.
At December 31, 1997 BankAtlantic had a positive cumulative gap of 3.35%,
1.75%, 6.55%, 20.37%, 20.72%, 17.54%, 17.80% and 17.81% for 0-90 days, 91 to
180 days, 181 days to 1 year, 1-3 years, 3-5
49
years, 5-10 years, 10-20 years and greater than 20 years, respectively.
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. This
imbalance is referred to as a positive interest rate sensitivity gap, and
measures an institution's ability to adjust to changes in the general interest
rates. BankAtlantic's interest rate sensitive assets (assets which reprice
based on an index or which have short term maturities) have in the past
exceeded its interest sensitive liabilities (generally deposits with maturities
of one year or less). A positive interest rate sensitivity gap provides the
potential for widening interest margins and increased earnings during times of
increasing rates. However, a positive gap will correspondingly negatively
impact earnings when rates decline.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
50
BANKATLANTIC'S CUMULATIVE RATE SENSITIVITY GAP AT DECEMBER 31, 1997
181 DAYS
0-90 91-180 TO 1 1-3
DAYS DAYS YEAR YEARS
------------- ------------- -------------- -------------
(DOLLARS IN THOUSANDS)
Interest earning assets:
Investment securities
(5)(7) ........................ $ 43,020 $ 12,601 $ 17,714 $ 16,765
Conventional single
family (1) .................... 70,811 63,796 109,642 270,522
Adjustable single
family (2) .................... 49,810 56,982 95,351 38,563
Securities available for
sale-fixed rates (3) (6) ...... 25,757 22,444 49,839 242,306
Securities available for
sale floating rates (2) ....... 11,643 11,129 20,804 86,051
Commercial real estate
loans (1) ..................... 187,844 15,301 191,295 68,638
Adjustable commercial
real estate loans (2) ......... 120,802 10,904 7,387 0
Commercial business
including banker's
acceptances ................... 169,929 1,958 4,760 2,628
Commercial business
adjustable .................... 48,293 0 0 0
Consumer -- fixed rate ......... 42,935 35,948 59,453 127,811
Consumer prime rate ............ 37,948 0 0 0
--------- --------- ---------- ---------
Total interest earning
assets ...................... 808,792 231,063 556,245 853,284
--------- --------- ---------- ---------
Interest bearing liabilities:
Money fund savings (4) ......... 57,158 45,871 73,622 59,077
Savings and NOW (4) ............ 31,066 28,806 52,766 150,843
Certificate accounts (9) ....... 233,220 189,877 255,119 108,991
Borrowings:
Securities sold under
agreements to
repurchase .................... 107,230 0 0 0
Advances from FHLB and
Federal Funds
purchased (8) ................. 277,500 15,650 27,493 110,786
--------- --------- ---------- ---------
Total interest-bearing
liabilities ................. $ 706,174 $ 280,204 $ 409,000 $ 429,697
========= ========= ========== =========
Interest rate sensitivity GAP
(repricing difference) ......... $ 102,618 $ (49,141) $ 147,245 $ 423,587
Cumulative GAP .................. $ 102,618 $ 53,477 $ 200,722 $ 624,309
Cumulative ratio of GAP to
total assets ................... 3.35% 1.75% 6.55% 20.37%
========= ========= ========== =========
3-5 5-10 10-20 >20
YEARS YEARS YEARS YEARS TOTAL
------------- ------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
Interest earning assets:
Investment securities
(5)(7) ........................ $ 0 $ 0 $ 0 $ 0 $ 90,100
Conventional single
family (1) .................... 120,350 91,706 5,600 199 732,626
Adjustable single
family (2) .................... 0 0 0 0 240,706
Securities available for
sale-fixed rates (3) (6) ...... 2,175 17 0 0 342,538
Securities available for
sale floating rates (2) ....... 130,162 0 0 0 259,789
Commercial real estate
loans (1) ..................... 93,190 26,947 0 0 583,215
Adjustable commercial
real estate loans (2) ......... 0 0 0 0 139,093
Commercial business
including banker's
acceptances ................... 357 51 0 0 179,683
Commercial business
adjustable .................... 0 0 0 0 48,293
Consumer -- fixed rate ......... 26,550 1,327 2,546 0 296,570
Consumer prime rate ............ 0 0 0 0 37,948
--------- --------- --------- --------- ----------
Total interest earning
assets ...................... 372,784 120,048 8,146 199 2,950,561
--------- --------- --------- --------- ----------
Interest bearing liabilities:
Money fund savings (4) ......... 28,126 25,559 0 0 289,413
Savings and NOW (4) ............ 66,796 156,087 0 0 486,364
Certificate accounts (9) ....... 32,946 1,452 0 0 821,605
Borrowings:
Securities sold under
agreements to
repurchase .................... 0 0 0 0 107,230
Advances from FHLB and
Federal Funds
purchased (8) ................. 234,238 34,540 0 0 700,207
--------- --------- --------- --------- ----------
Total interest-bearing
liabilities ................. $ 362,106 $ 217,638 $ 0 $ 0 $2,404,819
========= ========= ========= ========= ==========
Interest rate sensitivity GAP
(repricing difference) ......... $ 10,678 $ (97,590) $ 8,146 $ 199 $ 545,742
Cumulative GAP .................. $ 634,987 $ 537,397 $ 545,543 $ 545,742
Cumulative ratio of GAP to
total assets ................... 20.72% 17.54% 17.80% 17.81%
========= ========= ========= =========
- ----------------
(1) Fixed rate mortgages are shown in periods which reflect normal amortization
plus prepayments of 14-21% per annum, depending on coupon.
(2) Adjustable rate mortgages and securities available for sale-floating rate
are shown in the periods in which the mortgages are scheduled for
repricing.
(3) Fixed rate securities available for sale are shown in periods which reflect
normal amortization plus prepayments equal to BankAtlantic's experience of
16-29% 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 62%
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.
(8) Included in advances from FHLB were $200.0 million of European callable
advances. The repricing date of the callable advance utilized in the above
table was the final maturity date due to lower advance rates at December
31, 1997.
(9) The amounts of scheduled maturities of certificate accounts and related
interest rates are disclosed under the heading "Financial Condition --
Deposits" elsewhere in this report.
51
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash flow is dividends from
BankAtlantic. See "Regulation - Restrictions on Dividends and Other Capital
Distributions" by BankAtlantic. The Company's annual debt service associated
with its $252.9 million of 9%, 63/4%, 55/8% Debentures and Trust Preferred
Securities is approximately $18.5 million and its estimated current annual
dividends to common shareholders is $3.3 million. The Company also obtains
funds through the exercise of stock options as previously noted, through the
sale of common shares and issuances of debt securities.
Liquidity relates to BankAtlantic's ability to generate sufficient cash to
meet funding needs to support loan demand, to meet deposit withdrawals and to
pay operating expenses. BankAtlantic's securities portfolio provides an
internal source of liquidity as a consequence of its short-term investments as
well as scheduled maturities and interest payments. Loan repayments and sales
also provide an internal source of liquidity.
On October 31, 1997, BankAtlantic, through a subsidiary, BDC, acquired for
approximately $20.0 million, SLWHC. SLWHC is the developer of the master
planned community of SLW, located in St. Lucie County, Florida. The developer's
annual operating expenses are estimated to be approximately $4.2 million and
there are no assurances that periodic sales of properties will be sufficient to
ensure profitability in 1998 or in future years. To the extent sales are not
adequate to cover operating expenses, the Company through a capital
contribution to BankAtlantic, may have to provide additional funds to BDC.
A summary of the Company's consolidated cash flows follows (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------- ------------
Net cash provided (used) by:
Operating activities .................................. $ 246,404 $ 29,159 $ 36,649
Investing activities .................................. (684,663) (336,615) (65,233)
Financing activities .................................. 411,903 346,732 42,471
---------- ---------- ---------
Increase (decrease) in cash and due from banks ......... $ (26,356) $ 39,276 $ 13,887
========== ========== =========
Cash flows from operations increased in 1997 from 1996 principally due to
proceeds from sales of loans available for sale of $280.7 million net of
fundings of such loans of $79.8 million. Cash flows from operations were
relatively consistent in 1996 and 1995.
Cash used by investing activities increased by $348.0 million from 1996 to
1997. Such increase was principally the result of increases of $433.2 million
and $159.7 million in purchases of available for sale securities and banker's
acceptances, respectively, net of an increase of $398.7 million in principal
reductions on loans. The $271.4 million increase in cash used by investing
activities from 1995 to 1996 was principally due to increases of $456.0 million
and $231.8 million in residential loan and available for sale security
purchases, respectively. Such increases were principally reduced by an increase
in proceeds from available for sale securities of $373.6 million.
Cash provided by financing activities increased $65.2 million in 1997.
Such increase was primarily the result of a net increase of $313.1 million in
FHLB advances and an increase of $113.2 million in proceeds from Debentures.
The above increases were partially offset by a $138.8 million decrease in net
deposits and a decrease of $254.2 million in net securities sold under
agreements to repurchase.
52
Cash provided by financing activities increased by $304.3 million in 1996
due to growth in net securities sold under agreements to repurchase activity of
$226.5 million and growth in proceeds from Debentures of $35.2 million, along
with other smaller changes.
In August 1996, the Company announced a plan to repurchase up to 1.95
million shares of the Company's common stock. As of December 31, 1997, the
Company had repurchased, in the secondary market, 1.4 million and 541,406
shares of Class A and Class B common stock, respectively, for $15.5 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 Indentures relating to the Company's 9% and 6 3/4% Debentures provide
that the Company cannot declare or pay dividends on, or purchase, redeem or
acquire for value its capital stock, return any capital to holders of capital
stock as such, or make any distributions of assets to holders of capital stock
as such, unless, from and after the date of any such dividend declaration (a
"Declaration Date") or the date of any such purchase, redemption, payment or
distribution (a "Redemption Date"), the Company retains cash, cash equivalents
(as determined in accordance with generally accepted accounting principles) or
marketable securities (with a market value as measured on the applicable
Declaration Date or Redemption Date) in an amount sufficient to cover the two
consecutive semi-annual interest payments that will be due and payable on the
Debentures following such Declaration Date or Redemption Date, as the case may
be. These Indentures further provide that the amount of any interest payment
made by the Company with respect to the Debentures after any applicable
Declaration Date or Redemption Date shall be deducted from the aggregate amount
of cash or cash equivalents which the Company shall be required to retain
pursuant to the foregoing provision. At December 31, 1997 and 1996 the Company
designated $5.8 million of securities available for sale to satisfy the above
provisions.
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital"). BBC
Capital is a statutory business trust which was formed for the purpose of
issuing 9 1/2% Cumulative Trust Preferred Securities ("Trust Preferred
Securities") and investing the proceeds thereof in Junior Subordinated
Debentures of the Company. In a public offering in April 1997, BBC Capital
issued 2.99 million shares of Trust Preferred Securities at a price of $25 per
share. The gross proceeds from the offering of $74.75 million were invested in
an identical principal amount of the Company's 9.50% Junior Subordinated
Debentures (the "Junior Subordinated Debentures") which bear interest at the
same rate as the Preferred Securities and have a stated maturity of 30 years.
In addition, the Company contributed $2.3 million to BBC Capital in exchange
for BBC Capital's Common Securities (the "Common Securities") and such proceeds
were also invested in an identical principal amount of Junior Subordinated
Debentures. Offering costs of $2.9 million were paid by the Company. The
Company contributed $21.2 million of the net proceeds as capital to
BankAtlantic, used $12.2 million of the net proceeds to repurchase common stock
and intends to use the remaining proceeds for general corporate purposes,
including acquisitions by the Company or BankAtlantic. BankAtlantic used the
$21.2 million of contributed capital to acquire SLW, a developer of the master
planned community of St. Lucie West located in St. Lucie County, Florida. BBC
Capital's sole asset is $77.1 million aggregate principal amount of the Junior
Subordinated Debentures.
Holders of the Trust Preferred Securities and the Common Securities will
be entitled to receive a cumulative cash distribution at a fixed 9.50% rate of
the $25 liquidation amount of each Security and the Trust Preferred Securities
will have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the Common Securities. The Trust Preferred Securities are considered debt for
financial accounting and tax purposes.
On November 25, 1997, in a dual public offering, the Company issued
4,312,500 shares of Class A common stock and $100.0 million of 5 5/8% Debentures
maturing on December 1, 2007. The net proceeds to the Company from the sale of
Class A common stock were $43.4 million net of $107,000 expenses
53
and $96.5 million from the issuance of the 5 5/8% Debentures net of $3.5 million
of deferred offering costs. The 5 5/8% Debentures are convertible at an exercise
price of $12.94 per share into an aggregate of 7,727,975 shares of Class A. The
5 5/8% Debentures are redeemable at any time on or after December 1, 2000 at the
option of the Company, in whole or in part, at fixed redemption prices. The
Company contributed the entire net proceeds of the dual offering to
BankAtlantic where it will be utilized to support BankAtlantic's growth, both
internal and via acquisitions, including those expected to result from the
continuing consolidation of the Florida banking market.
The Trust Preferred Securities and Indentures contain certain customary
covenants found in Indentures under the Trust Indenture Act, including
covenants with respect to the payment of principal and interest, maintenance of
an office or agency for administering the Debentures, holding of funds for
payments on the Debentures in trust, payment by the Company of taxes and other
claims, maintenance by the Company of its properties and its corporate
existence and delivery of annual certifications to the Trustee.
BankAtlantic's primary sources of funds have been deposits, principal
repayments of loans, securities available for sale and tax certificates,
proceeds from the sale of loans, mortgage servicing rights, investment
securities, proceeds from securities sold under agreements to repurchase,
advances from FHLB, operations, other borrowings, and capital transactions.
These funds were primarily utilized to fund loan disbursements and purchases,
repayments of securities sold under agreements to repurchase, maturities of
advances from FHLB, purchases of tax certificates and payments of maturing
certificates of deposit. In August 1994, the FHLB 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 $135.0 million for
broker deposits. The facility will be exercised as an alternative source of
borrowings, when and if needed. BankAtlantic has established $35.0 million
lines of credit with five federally insured banking institutions to purchase
Federal Funds. At December 31, 1997, there were $2.5 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 4% to 5% of net
withdrawable accounts and borrowings payable in one year or less. BankAtlantic
had a liquidity ratio of 22.57% under these regulations at December 31, 1997.
See "Regulation and Supervision -- Savings Institution Regulations -- Liquidity
Requirements of the OTS."
Total commitments to originate and purchase loans, and mortgage-backed
securities, excluding the undisbursed portion of loans in process, were
approximately $336.4 million, $83.7 million and $69.7 million at December 31,
1997, 1996 and 1995, respectively. BankAtlantic funded its commitments out of
loan repayments and, for a limited period of time, short-term borrowings. At
December 31, 1997, loan commitments were approximately 8.80% 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%, 6 3/4%,
5 5/8% Debentures and 9 1/2% Trust Preferred Securities are or will be dependent
upon BankAtlantic's ability to pay dividends to the Company. Current regulations
applicable to the payment of cash dividends by savings institutions impose
limits on capital distributions based on an institution's regulatory capital
levels and net income. See "Regulation and Supervision -- Restriction on
Dividends and Other Capital Distributions."
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
54
operations and regulatory capital requirements for BankAtlantic, the Company
will seek to declare regular quarterly cash dividends on its common stock. The
Company issued five for four common share stock splits effected in the form of
25% stock dividends in February 1998 and August 1997 payable in Class A common
stock to all shareholders of both classes of common stock. Due to accounting
and tax considerations, adjustments required as a result of stock dividends and
relating to the purchase of Class B common stock previously granted under the
Company's stock option plans were made in additional shares of Class B common
stock.
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."
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The consequences of incomplete or untimely resolution of year 2000 issues
represent an uncertainty that could affect future financial results. The year
2000 issue affects virtually all companies and organizations.
The Company's year 2000 Action Plan (the "Action Plan") was presented to
the Board of Directors on December 2, 1997. The Action Plan was developed using
the guidelines outlined in the Federal Financial Institutions Examination
Council's "The Effect of 2000 on Computer Systems" and is scheduled for
completion by December 31, 1998. The Year 2000 Coordinator is responsible for
the Action Plan and the Board of Directors receives the year 2000 Executive
Progress Report on a quarterly basis.
Based on the upgrades to equipment and software that are required to
fulfill the Company's business needs, rapidly developing technology, and a 3
year capital equipment and software replacement plan, the Company does not
anticipate replacement of equipment or software specifically related to year
2000 issues. All major data processing functions, such as loans, deposits,
general ledger and other system applications have been outsourced in recent
years. Management has been informed by these providers that all applications
will be year 2000 compliant and available for user testing no later than
December 31, 1998. Accordingly, the Company does not expect to expend material
amounts to third parties to remediate year 2000 problems. In addition, the
Company is in the process of establishing a contingency plan for all major
applications, which is anticipated to be completed by June 30, 1998. There is
no assurance that the service providers will meet their obligations to the
Company.
Management is currently evaluating the impact year 2000 will have on its
borrowers and suppliers and competitive nature of their business. There are no
assurances that they will be able to survive or meet their obligations to the
Company based on potential problems relating to year 2000.
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, 1997 and 1996 F-4
Consolidated Statements of Operations for each of the years in the
three year period ended December 31, 1997 ..................................... F-5
Consolidated Statements of Stockholders' Equity for each of the years in the
three year period ended December 31, 1997 ..................................... F-6
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1997 ..................................... F-7
Notes to Consolidated Financial Statements ..................................... F-10
F-1
{THIS PAGE INTENTIONALLY LEFT BLANK}
F-2
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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
January 21, 1998, except Note 23,
which is dated February 26, 1998
F-3
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
----------------------------
1997 1996
------------ -------------
ASSETS
Cash and due from depository institutions ................... $ 82,787 $ 102,995
Federal Funds sold .......................................... 0 6,148
Investment securities, net - held to maturity, at cost which
approximates market value ................................. 55,213 54,511
Loans receivable, net ....................................... 2,072,825 1,824,856
Securities available for sale (at market value) ............. 607,490 439,345
Trading securities (at market value) ........................ 5,067 0
Accrued interest receivable ................................. 22,624 20,755
Real estate held for development and sale, net .............. 18,638 0
Real estate owned, net ...................................... 7,528 4,918
Office properties and equipment, net ........................ 51,130 48,274
Federal Home Loan Bank stock, at cost which approximates
market value .............................................. 34,887 14,787
Mortgage servicing rights ................................... 38,789 25,002
Deferred tax asset, net ..................................... 3,197 3,355
Cost over fair value of net assets acquired ................. 26,188 28,591
Other assets ................................................ 38,117 31,990
---------- ----------
Total assets .............................................. $3,064,480 $2,605,527
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .................................................... $1,763,733 $1,832,780
Advances from FHLB .......................................... 697,707 295,700
Federal Funds purchased ..................................... 2,500 0
Securities sold under agreements to repurchase .............. 58,716 190,588
Subordinated debentures and note payable .................... 179,600 78,500
Guaranteed preferred beneficial interests in Company's Junior
Subordinated Debentures ................................... 74,750 0
Advances by borrowers for taxes and insurance ............... 39,397 29,659
Other liabilities ........................................... 40,906 30,596
---------- ----------
Total liabilities ......................................... 2,857,309 2,457,823
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding ................... 0 0
Class A common stock, $.01 par value, authorized
80,000,000 shares; issued and outstanding
21,509,159 and 18,128,782 shares .......................... 215 78
Class B common stock, $.01 par value, authorized
45,000,000 shares; issued and outstanding
10,690,231 and 10,542,116 shares .......................... 107 105
Additional paid-in capital ................................... 98,475 64,171
Retained earnings ............................................ 107,650 82,602
---------- ----------
Total stockholders' equity before net unrealized appreciation
on debt securities available for sale - net of deferred
income taxes .............................................. 206,447 146,956
Net unrealized appreciation on debt securities available
for sale - net of deferred income taxes ................... 724 748
---------- ----------
Total stockholders' equity ................................ 207,171 147,704
---------- ----------
Total liabilities and stockholders' equity ................ $3,064,480 $2,605,527
========== ==========
See Notes to Consolidated Financial Statements
F-4
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ----------- ----------
INTEREST INCOME:
Interest and fees on loans ........................................................ $171,212 $107,922 $ 72,841
Interest on banker's acceptances .................................................. 473 22 0
Interest on mortgage-backed securities held to maturity ........................... 0 0 37,855
Interest on securities available for sale ......................................... 31,177 38,159 7,207
Interest and dividends on investment and trading securities ....................... 7,692 6,528 12,174
-------- -------- --------
Total interest income ........................................................... 210,554 152,631 130,077
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits .............................................................. 68,281 55,028 46,646
Interest on advances from FHLB .................................................... 27,345 9,221 7,449
Interest on securities sold under agreements to repurchase and
federal funds purchased ......................................................... 8,023 8,764 10,815
Interest on subordinated debentures, note payable and guaranteed beneficial
interests in Company's Junior Subordinated Debentures ........................... 11,542 4,018 776
-------- -------- --------
Total interest expense .......................................................... 115,191 77,031 65,686
-------- -------- --------
Net interest income ............................................................... 95,363 75,600 64,391
Provision for loan losses ......................................................... 11,268 5,844 4,182
-------- -------- --------
Net interest income after provision for loan losses ............................... 84,095 69,756 60,209
-------- -------- --------
NON-INTEREST INCOME:
Loan servicing and other loan fees ................................................ 4,640 4,216 3,524
Gains on sales of loans available for sale ........................................ 6,802 534 395
Unrealized and realized gains on trading securities ............................... 2,463 0 589
Gains on sales of mortgage servicing rights ....................................... 7,905 4,182 2,744
Gains on sales of securities available for sale ................................... 2,367 5,959 0
Gains on sales of property and equipment, net ..................................... 852 3,061 18
Transaction fees .................................................................. 9,302 8,600 6,963
ATM fees .......................................................................... 5,329 3,944 2,033
Other ............................................................................. 3,699 3,241 3,122
-------- -------- --------
Total non-interest income ....................................................... 43,359 33,737 19,388
-------- -------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits ................................................ 40,236 33,216 25,403
Occupancy and equipment ........................................................... 18,666 13,615 10,831
SAIF special assessment ........................................................... 0 7,160 0
Federal insurance premium ......................................................... 1,084 2,495 2,750
Advertising and promotion ......................................................... 2,196 2,079 2,144
Foreclosed asset activity, net .................................................... 118 (725) (3,178)
Amortization of cost over fair value of net assets acquired ....................... 2,508 1,545 1,122
Other ............................................................................. 17,124 12,856 12,088
-------- -------- --------
Total non-interest expense ...................................................... 81,932 72,241 51,160
-------- -------- --------
Income before income taxes ......................................................... 45,522 31,252 28,437
Provision for income taxes ......................................................... 17,753 12,241 10,018
-------- -------- --------
Net income ......................................................................... 27,769 19,011 18,419
-------- -------- --------
Dividends on non-cumulative preferred stock ........................................ 0 0 677
Amount classified as dividends on non-cumulative preferred stock redemption (A)..... 0 0 1,353
-------- -------- --------
Total dividends on non-cumulative preferred stock ............................... 0 0 2,030
-------- -------- --------
Net income available for common shares ............................................. $ 27,769 $ 19,011 $ 16,389
======== ======== ========
BASIC EARNINGS PER SHARE CLASS A COMMON STOCK ...................................... $ 0.98 $ 0.64 $ N/A
======== ======== ========
BASIC EARNINGS PER SHARE CLASS B COMMON STOCK ...................................... $ 0.94 $ 0.72 $ 0.64
======== ======== ========
DILUTED EARNINGS PER SHARE CLASS A COMMON STOCK .................................... $ 0.78 $ 0.58 N/A
======== ======== ========
DILUTED EARNINGS PER SHARE CLASS B COMMON STOCK .................................... $ 0.77 $ 0.66 $ 0.62
======== ======== ========
- ----------------
(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 $0.05 for basic and diluted earnings per share.
See Notes to Consolidated Financial Statements
F-5
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
ADDITIONAL
PAID-IN
CAPITAL
PREFERRED PREFERRED COMMON
STOCK STOCK STOCK
----------- ------------ --------
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 Class B common
stock options ............................. 0 0 2
Tax effect relating to the exercise of
stock options ............................. 0 0 0
Exercise of stock warrants .................. 0 0 2
Net change in unrealized appreciation on
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 Class A common stock ........... 0 0 0
Dividends on Class B common stock ........... 0 0 0
Exercise of 1984 Class B common
stock options ............................. 0 0 0
Tax effect relating to the exercise of
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
securities available for sale - net of
deferred income taxes ..................... 0 0 0
----- --------- ----
BALANCE, DECEMBER 31, 1996 ................... 0 0 183
Net income .................................. 0 0 0
Proceeds from issuance of Class A
common stock, net ......................... 0 0 35
Issuance of Class A common stock upon
conversion of subordinated debentures ..... 0 0 0
Dividends on Class A common stock ........... 0 0 0
Dividends on Class B common stock ........... 0 0 0
Exercise of Class A common stock options..... 0 0 0
Exercise of Class B common stock options..... 0 0 3
Tax effect relating to the exercise of
stock options ............................. 0 0 0
Purchase and retirement of Class A
common stock .............................. 0 0 (3)
Purchase and retirement of Class B
common stock .............................. 0 0 (8)
5 for 4 stock split July 1997 ............... 0 0 48
5 for 4 stock split February 1998 ........... 0 0 64
Net change in unrealized appreciation on
securities available for sale - net of
deferred income taxes ..................... 0 0 0
----- --------- ----
BALANCE, DECEMBER 31, 1997 ................... $ 0 $ 0 $322
===== ========= ====
NET
UNREALIZED
APPRECIATION
ADDITIONAL ON SECURITIES
PAID-IN RETAINED AVAILABLE
CAPITAL EARNINGS FOR SALE TOTAL
------------ ------------ -------------- -----------
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 Class B common
stock options ............................. 706 0 0 708
Tax effect relating to the exercise of
stock options ............................. 173 0 0 173
Exercise of stock warrants .................. 999 0 0 1,001
Net change in unrealized appreciation on
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 Class A common stock ........... 0 (460) 0 (460)
Dividends on Class B common stock ........... 0 (1,699) 0 (1,699)
Exercise of 1984 Class B common
stock options ............................. 413 0 0 413
Tax effect relating to the exercise of
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
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
Net income .................................. 0 27,769 0 27,769
Proceeds from issuance of Class A
common stock, net ......................... 43,339 0 0 43,374
Issuance of Class A common stock upon
conversion of subordinated debentures ..... 375 0 0 375
Dividends on Class A common stock ........... 0 (1,365) 0 (1,365)
Dividends on Class B common stock ........... 0 (1,244) 0 (1,244)
Exercise of Class A common stock options..... 97 0 0 97
Exercise of Class B common stock options..... 1,757 0 0 1,760
Tax effect relating to the exercise of
stock options ............................. 913 0 0 913
Purchase and retirement of Class A
common stock .............................. (3,340) 0 0 (3,343)
Purchase and retirement of Class B
common stock .............................. (8,837) 0 0 (8,845)
5 for 4 stock split July 1997 ............... 0 (48) 0 0
5 for 4 stock split February 1998 ........... 0 (64) 0 0
Net change in unrealized appreciation on
securities available for sale - net of
deferred income taxes ..................... 0 0 (24) (24)
-------- -------- --------- --------
BALANCE, DECEMBER 31, 1997 ................... $ 98,475 $107,650 $ 724 $207,171
======== ======== ========= ========
See Notes to Consolidated Financial Statements
F-6
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
OPERATING ACTIVITIES:
Net Income ....................................................... $ 27,769 $ 19,011 $ 18,419
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Provision for loan losses ...................................... 11,268 5,844 4,182
Reversal of losses on real estate owned ........................ (56) (197) (1,187)
Gain on sales of real estate held for development
and sale ..................................................... (727) 0 0
Depreciation ................................................... 4,786 3,835 3,203
Amortization of mortgage servicing rights ...................... 8,210 6,849 4,362
Provision for deferred income taxes ............................ 173 1,495 1,551
Net amortization (accretion) of securities ..................... (826) (257) 780
Gains on sales of real estate owned ............................ (354) (575) (2,032)
Net accretion of deferred loan origination fees
and costs .................................................... (1,170) (1,154) (1,095)
Proceeds from sales of loans available for sale ................ 280,703 59,942 34,548
Fundings of loans available for sale ........................... (79,832) (57,097) (41,326)
Gains on sales of loans available for sale ..................... (6,802) (534) (395)
Gains on sales of office properties and equipment .............. (852) (3,061) (18)
Purchase of trading securities, net ............................ (6,243) 0 0
Proceeds from sales of trading securities ...................... 3,640 0 9,524
Unrealized and realized gains on trading securities ............ (2,463) 0 (589)
Gains on sales of securities available for sale ................ (2,367) (5,959) 0
Gains on sales of mortgage servicing rights .................... (7,905) (4,182) (2,744)
Income (loss) from joint venture operations .................... 12 0 (6)
Decrease (increase) in accrued interest receivable ............. (1,869) (2,021) 1,593
Amortization of dealer reserve ................................. 8,035 4,159 2,071
Amortization of cost over fair value of net
assets acquired .............................................. 2,508 1,545 1,122
Net accretion of other purchase accounting adjustments ......... (417) (329) (612)
Amortization of subordinated debentures and note payable
deferred costs ............................................... 445 222 98
Decrease in other assets ....................................... 1,977 804 4,574
Increase in other liabilities .................................. 8,859 740 651
Write down of office properties and equipment .................. 0 263 120
Reversal of allowance for tax certificate losses ............... (98) (184) (145)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 246,404 29,159 36,649
--------- --------- ---------
(CONTINUED)
See Notes to Consolidated Financial Statements
F-7
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of investment securities ....................................... (47,822) (56,884) (70,872)
Proceeds from redemption and maturity of investment securities 47,218 52,413 140,837
Purchase of securities available for sale ............................... (664,993) (231,765) 0
Principal collected on securities available for sale .................... 141,775 43,236 11,989
Proceeds from sales of securities available for sale .................... 357,863 374,413 852
Residential loans purchased ............................................. (524,498) (465,942) (9,930)
Principal reduction on loans ............................................ 947,281 548,536 444,867
Loan fundings for portfolio ............................................. (720,620) (692,546) (597,274)
Banker's acceptances funded ............................................. (159,709) (86) 0
Proceeds from maturity of banker's acceptances .......................... 287 108 0
Mortgage-backed securities purchased held to maturity ................... 0 0 (75,262)
Principal collected on mortgage-backed securities held to
maturity .............................................................. 0 131,361 110,084
Proceeds from sales of real estate owned ................................ 2,876 4,938 5,373
Additions to dealer reserve ............................................. (9,409) (4,203) (3,684)
Additions to office properties and equipment ............................ (7,934) (10,326) (5,535)
Proceeds from sales of properties and equipment ......................... 1,144 2,666 18
Proceeds received from joint ventures ................................... 0 0 1,239
Investment in joint ventures ............................................ (1,325) 0 0
Purchases of FHLB stock net of redemptions .............................. (20,100) (1,923) (1,249)
Proceeds from maturities of interest bearing deposits with banks 0 19,795 0
Proceeds from sales of mortgage servicing rights ........................ 35,550 15,586 8,340
Mortgage servicing rights purchased ..................................... (45,840) (27,681) (10,112)
Proceeds for sales of real estate held for development and sale ......... 2,133 0 0
Additional investment in real estate held for development
and sale .............................................................. (623) 0 0
Acquisitions, net of cash acquired ...................................... (17,917) (38,311) (14,914)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES ................................ (684,663) (336,615) (65,233)
-------- -------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ..................................... (122,938) 15,905 51,093
Interest credited to deposits ........................................... 53,754 47,433 43,447
Proceeds from FHLB advances ............................................. 763,006 577,643 641,785
Repayments of FHLB advances ............................................. (360,999) (488,755) (602,050)
Net increase (decrease) in federal funds purchased ...................... 2,500 (1,200) 1,200
Proceeds from notes payable ............................................. 563 0 4,000
Repayment of notes payable .............................................. (903) (1) (3,999)
Net increase (decrease) in securities sold under agreements
to repurchase ......................................................... (131,872) 122,329 (104,207)
Proceeds from the issuance of subordinated debentures ................... 100,000 57,500 21,000
Deferred costs on the issuance of subordinated debentures ............... (3,488) (2,356) (1,052)
Preferred stock redemption .............................................. 0 0 (8,383)
Proceeds from issuance of guaranteed preferred interests in the
Company's Junior Subordinated Debentures .............................. 74,750 0 0
Deferred offering costs from issuance of guaranteed preferred
interests in the Company's Junior Subordinated Debentures ............. (2,908) 0 0
Payment to acquire and retire common stock .............................. (12,188) (3,259) 0
Issuance of common stock, net ........................................... 43,374 18,004 0
Issuance of common stock upon exercise of stock options ................. 1,857 413 1,709
Receipts (payments) of advances by borrowers for taxes and
insurance, net ........................................................ 9,738 5,235 277
Preferred stock dividends paid .......................................... 0 0 (677)
Common stock dividends paid ............................................. (2,343) (2,159) (1,672)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 411,903 346,732 42,471
-------- -------- --------
Increase (decrease ) in cash and cash equivalents ........................ (26,356) 39,276 13,887
Cash and cash equivalents at the beginning of period ..................... 109,143 69,867 55,980
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 82,787 $ 109,143 $ 69,867
========== ========== ==========
(CONTINUED)
See Notes to Consolidated Financial Statements
F-8
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Interest paid ............................................................ $112,161 $ 71,656 $ 65,708
Income taxes paid ........................................................ 15,060 8,600 9,320
Income taxes refunded .................................................... 0 0 88
Loans transferred to real estate owned ................................... 5,076 1,788 1,029
Residential loans held to maturity transferred to available for sale ..... 321,360 0 0
Loans charged-off ........................................................ 11,330 7,718 5,433
Real estate owned charged-off ............................................ 244 803 213
Tax certificates charged-off (recoveries), net ........................... 419 (2) 1,192
Book value of securities transferred to available for sale ............... 0 0 638,818
Issuance of Class A common stock upon conversion of
subordinated debentures ................................................ 375 0 0
Increase in equity for the tax effect related to the exercise of
stock options .......................................................... 913 118 173
Class A common stock cash dividends declared and paid in
subsequent period ...................................................... 496 168 0
Class B common stock cash dividends declared and paid in
subsequent period ...................................................... 321 384 467
Net change in unrealized appreciation (depreciation) on securities
available for sale ..................................................... (39) (8,115) 9,019
Change in deferred taxes on net unrealized (depreciation)
appreciation on securities available for sale .......................... (15) (3,130) 3,479
Change in stockholders' equity from net unrealized (depreciation)
appreciation on securities available for sale, less related deferred
income taxes ........................................................... (24) (4,985) 5,540
Proceeds receivable from sales of mortgage servicing rights .............. 7,388 9,522 0
Originated mortgage servicing rights ..................................... 1,668 311 0
Proceeds receivable from sales of properties leased to others ............ 0 5,401 0
Transfer from securities available for sale to trading securities ........ 6,230 0 0
See Notes to Consolidated Financial Statements
F-9
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION -- BankAtlantic Bancorp, Inc.
(the "Company") is a unitary savings bank holding company. The Company's
primary asset is the capital stock of BankAtlantic, its wholly owned subsidiary
and its primary activities currently relate to the operations of BankAtlantic
and BankAtlantic's subsidiaries. Under applicable law, the Company generally
has broad authority with few restrictions to engage in various types of
business activities, including investments in financial service companies.
BankAtlantic's subsidiaries historically have primarily been utilized to
dispose of real estate acquired through foreclosure. The Company's recent
activities during 1997 include the formation of BBC Capital Trust I, a wholly
owned subsidiary , acquisition of St. Lucie West Holding Corp. ("SLWHC") (See
Note 21) and the ownership of 50% of the voting common stock of Florida
Atlantic Securities Inc., ("FASI") a full-service investment banking and
securities brokerage firm. All significant intercompany balances and
transactions have been eliminated in consolidation. At December 31, 1997 BFC
Financial Corporation ("BFC") owned 46% of the Company's voting common stock
and 36% of the Company's total common stock.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition and
operations for the periods presented. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the next year relate to the determination of the
allowance for loan losses, the valuation of real estate acquired in connection
with foreclosure or in satisfaction of loans, real estate held for development
and sale, and the 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 1997.
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 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.
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.
F-10
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Losses relating to permanent impairment of securities are reflected in the
statement of operations.
On November 15, 1995, the Financial Accounting Standards Board ("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 that are
probable and subject to reasonable estimation. . In establishing its allowance
for tax certificates, management considers past loss experience, present
indicators, such as the length of time the certificate has been outstanding,
economic conditions and collateral values.
CONSTRUCTION AND DEVELOPMENT LENDING -- BankAtlantic's construction and
development lending generally requires an equity investment in the form of
contributed assets or direct cash investment from the borrower. Other than
advances to joint ventures, BankAtlantic has no loans which provide for a
participation in profits at December 31, 1997, 1996 and 1995. 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. 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 individually reviewed based on specific
criteria, such as delinquency and condition of collateral property. Generally,
BankAtlantic recognizes interest income on impaired loans on a cash basis.
ALLOWANCE FOR LOAN LOSSES -- BankAtlantic follows a consistent procedural
discipline and accounts for loan loss contingencies in accordance with
Statement of Financial Accounting Standards No. 5, "ACCOUNTING FOR
CONTINGENCIES" ("Statement 5"). The following is a description of how each
portion of the allowance for loan losses is determined.
F-11
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
BankAtlantic segregates the loan portfolio for loan loss purposes into
broad segments, such as: commercial real estate; residential real estate;
commercial business; and various types of consumer loans. BankAtlantic provides
for a general allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss percentages are
calculated based upon historical analyses. A supplemental portion of the
allowance is calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified by the more
objective processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments
based on qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and nonaccruals; migration trends
in the portfolio; trends in volume, terms and portfolio mix; new credit
products and/or changes in the geographic distribution of these products;
changes in lending policies and procedures; loan review reports on the efficacy
of the risk identification process; changes in the outlook for local, regional
and national economic conditions; concentrations of credit; and peer group
comparisons.
Specific allowances are provided in the event that the specific collateral
analysis on each classified loan indicates that the probable loss upon
liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is increased or decreased in order to
adjust the allowance for loan losses to the required level as determined above.
A loan is impaired when collection of principal and interest based on the
contractual terms of the loan is not probable. BankAtlantic measures impairment
based on (a) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (b)
the observable market price of the impaired loans, or (c) the fair value of the
collateral of a collateral-dependent loan. BankAtlantic selects the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for
which foreclosure is probable are measured at the fair value of the collateral.
Specific allowances are provided, as noted above, in the event the impairment
calculation is in excess of the general allowance allocation. In a troubled
debt restructuring, BankAtlantic measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
Although BankAtlantic believes it has a sound basis for estimating the
adequacy of the allowance for loan losses, actual charge-offs incurred in the
future are highly dependent upon future events, including the economic 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.
LOANS AVAILABLE FOR SALE -- Residential first mortgage loans available for
sale are reported at the lower of cost or estimated aggregate fair value. Loan
origination fees and related direct loan origination costs for these loans are
deferred until the related loan is sold.
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.
F-12
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 level yield method over the estimated life of the loans.
LOAN SERVICING FEES --BankAtlantic services mortgage loans for its own
account and for investors. Mortgage loans serviced for investors are not
included in the accompanying consolidated statements of financial condition.
Loan servicing fees are based on a stipulated percentage of the outstanding
loan principal balances being serviced and are recognized as income when
related loan payments from mortgagors are collected. Loan servicing costs are
charged to expense as incurred. BankAtlantic recognizes as an asset the right
to service mortgage loans whether such servicing rights are purchased or
originated. Originated servicing rights are measured at the date of sale based
on the relative fair value of the servicing rights and related loans. Mortgage
servicing rights ("MSR") are stated at the lower of amortized cost or fair
value. The amortization of MSR are on an individual loan basis. Both purchased
and originated MSR are amortized to expense using the level yield method over
the estimated life of the loan and continually adjusted for prepayments. For
the purpose of evaluating and measuring impairment of MSR, and determining the
amount of any valuation allowance, BankAtlantic stratifies those rights based
on the predominant risk characteristics of the underlying loans. Those
characteristics include loan type, note rate and term. Adjustments to the
valuation allowance are reflected in operations.
DEALER RESERVES, NET -- The dealer reserve receivable represents the
portion of interest rates passed through to dealers on indirect consumer loans.
BankAtlantic funds 100% of the dealer reserves at the inception of the loan.
Dealer reserves are amortized over the contractual life of the related loans,
adjusted for actual prepayments and losses, using the interest method and
classified as an adjustment to interest income except for the Subject Portfolio
discussed further in Note 17 herein. Dealer reserves are stated net of
accumulated amortization, allowances, and any unfunded amounts due to the
dealer.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE -- Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Land and indirect land development costs
are allocated to the various parcels based upon the relative sales value
method. Real estate held for sale is stated at the lower of carrying amount or
fair value less cost to sell. Real estate held for development is evaluated for
impairment based upon the undiscounted future cash flows of the property
compared to the carrying value of the property. If the undiscounted future cash
flows are lower than the carrying value of the property, a valuation allowance
is established for the difference between the carrying amount of the parcel and
the fair value of the parcel, less cost to sell. The fair value of real estate
is evaluated based on existing and anticipated market conditions. The
evaluation takes into consideration the current status of the property, various
restrictions, carrying costs, costs of disposition and any other circumstances
which may affect estimated fair value.
REAL ESTATE OWNED ("REO") -- REO is recorded at the lower of the loan
balance, plus acquisition costs, or fair value, less estimated disposition
costs. Expenditures for capital improvements made thereafter are generally
capitalized. Real estate acquired in settlement of loans are anticipated to be
sold and valuation allowance adjustments are made to reflect any subsequent
changes in fair values from the initially recorded amount. Costs of holding REO
are charged to operations as incurred. Provisions and reversals in the REO
valuation allowance are reflected in operations.
F-13
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Profit or loss on real estate sold includes both REO and real estate held
for development and sale and 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.
IMPAIRMENT -- Long-lived assets, assets to be disposed of, and certain
identifiable intangibles to be held and used by an entity are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets, assets to be disposed
of, and identifiable intangibles that an entity expects to hold and use is
based on the fair value of the asset.
OFFICE PROPERTIES AND EQUIPMENT -- Land is carried at cost. Office
properties and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets which generally range up to 50 years for buildings and 3-10
years for equipment. The cost of leasehold improvements is being amortized
using the straight-line method over the terms of the related leases.
Expenditures for new properties and equipment and major renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred and gains or losses on disposal of assets are
reflected in current operations.
COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS --
Cost over fair value of assets acquired 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 annual
basis based upon undiscounted cash flows of the related net assets acquired.
INCOME TAXES -- The Company and its subsidiaries file consolidated federal
and state income tax returns. The Company utilizes the asset and liability
method to account for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the statutory enactment date. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be utilized.
PREFERRED STOCK -- All three Series of preferred stock originally issued
by BankAtlantic had a preference value of $25.00 per share and the shares
issued were redeemable by BankAtlantic at $25.00 per share. 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 was
considered a preferred stock dividend.
STOCK SPLIT -- On January 15, 1998, the Company's Board of Directors
approved a five for four common stock split effected in the form of a 25%
common stock dividend, payable in Class A common
F-14
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
stock to both Class A and Class B common shareholders of record at the close of
business on February 4, 1998. The common stock dividend was issued on February
18, 1998. When appropriate, amounts throughout the report have been adjusted to
reflect the stock dividend.
DERIVATIVE INSTRUMENTS -- The Company does not purchase, sell or enter
into derivative financial instruments or derivative commodity instruments as
defined by Statement of Financial Accounting Standards No. 119, "DISCLOSURES
ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS"
other than fixed rate loan commitments which were $83.9 million at December 31,
1997, which the Company believes are at market value.
EARNINGS PER COMMON SHARE -- In February 1997 the FASB issued Statement of
Financial Accounting Standards No. 128 ("FAS 128") EARNINGS PER SHARE ("EPS").
This statement is effective for periods ending after December 15, 1997 and
requires the restatement of all prior periods. FAS 128 replaced primary and
fully diluted earnings per share with basic and diluted earnings per share. The
statement also requires the two-class method for companies with capital
structures which includes a class of common stock with different dividends
rates from another class of common stock. The two-class method is an earnings
allocation formula that determines earnings per share for each class of common
stock according to dividends declared and each class of common stock's rights
to undistributed earnings. Basic earnings per share excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if options, convertible securities or warrants to
issue common shares were exercised. In calculating diluted income per share
interest expense net of taxes on convertible securities is added back to net
income, with the resulting amount divided by the weighted average number of
dilutive common shares outstanding, when dilutive. Common stock options,
warrants and convertible securities, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options and
warrants are included in the weighted average number of dilutive common shares
outstanding based on the treasury stock method.
STOCK BASED COMPENSATION PLANS -- The Company maintains both qualifying
and non-qualifying stock-based compensation plans for its employees and
directors. The Company has elected to account for its employee stock-based
compensation plans under APB No. 25.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997 the FASB issued Statements
No. 130 ("FAS 130") "REPORTING COMPREHENSIVE INCOME" and No. 131 ("FAS 131")
"DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". FAS 130
establishes standards for reporting comprehensive income in financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Some of the items included in comprehensive income
are unrealized gains or losses on securities available for sale, underfunded
pension obligations and employee stock options. FAS 131 establishes standards
for the manner in which public companies report information about operating
segments in annual financial statements and requires that those companies
report selected information about operating segments in interim financial
statements issued to shareholders. FAS 130 and FAS 131 are effective for
periods beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Implementation of FAS 130 and FAS 131 will require additional disclosures in
the 1998 financial statements but will not have an impact on the Company's
Statement of Financial Condition or Statement of Operations.
F-15
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations.
DECEMBER 31,
1997
-----------------------------------------
CLASS A CLASS B TOTAL
--------------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
BASIC NUMERATOR
Actual dividends declared ................ $ 1,365 $ 1,244 $ 2,609
Basic allocated undistributed
earnings (2) ............................ 16,371 8,789 25,160
------------- ------------- -------
Allocated net income available for
common shareholders ..................... $ 17,736 $ 10,033 $27,769
============= ============= =======
BASIC DENOMINATOR
Weighted average shares outstanding....... 18,029,784 10,649,135
============= =============
Allocation percentage (2) ................ 65.06% 34.94%
============= =============
Basic earnings per share ................. $ 0.98 $ 0.94
============= =============
DILUTED NUMERATOR
Actual dividends declared ................ $ 1,365 $ 1,244 $ 2,609
------------- ------------- -------
Basic allocated undistributed
earnings (2) ............................ 16,371 8,789 25,160
Reallocation of basic undistributed
earnings due to change in allocation
percentage .............................. 1,815 (1,815) 0
------------- ------------- -------
Diluted allocated undistributed
earnings ................................ 18,186 6,974 25,160
Interest expense on convertible debt ..... 2,091 802 2,893
------------- ------------- -------
Allocated dilutive net income
available to common shareholders ........ $ 21,642 $ 9,020 $30,662
============= ============= =======
DILUTED DENOMINATOR
Basic weighted average shares
outstanding ............................. 18,029,784 10,649,135
Convertible debentures (3) ............... 9,513,000 0
Options (4) .............................. 350,750 1,105,287
Warrants (4) ............................. 0 10,963
------------- -------------
Diluted weighted average
shares outstanding ...................... 27,893,534 11,765,385
============= =============
Allocation percentage (2) ................ 72.28% 27.72%
============= =============
Diluted earnings per share ............... $ 0.78 $ 0.77
============= =============
DECEMBER 31, DECEMBER 31,
1996 1995
----------------------------------------- --------------
CLASS A CLASS B TOTAL TOTAL (1)
--------------- --------------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
BASIC NUMERATOR
Actual dividends declared ................ $ 460 $ 1,699 $ 2,159 $ 1,740
Basic allocated undistributed
earnings (2) ............................ 10,897 5,955 16,852 14,649
------------- ------------- ------- ------------
Allocated net income available for
common shareholders ..................... $ 11,357 $ 7,654 $19,011 $ 16,389
============= ============= ======= ============
BASIC DENOMINATOR
Weighted average shares outstanding....... 17,616,000 10,589,000 25,411,604
============= ============= ============
Allocation percentage (2) ................ 64.66% 35.34% N/A
============= ============= ============
Basic earnings per share ................. $ 0.64 $ 0.72 $ 0.64
============= ============= ============
DILUTED NUMERATOR
Actual dividends declared ................ $ 460 $ 1,699 $ 2,159 $ 1,740
------------- ------------- ------- ------------
Basic allocated undistributed
earnings (2) ............................ 10,897 5,955 16,852 14,649
Reallocation of basic undistributed
earnings due to change in allocation
percentage .............................. 467 (467) 0 0
------------- ------------- ------- ------------
Diluted allocated undistributed
earnings ................................ 11,364 5,488 16,852 14,649
Interest expense on convertible debt ..... 984 471 1,455 0
------------- ------------- ------- ------------
Allocated dilutive net income
available to common shareholders ........ $ 12,808 $ 7,658 $20,466 $ 16,389
============= ============= ======= ============
DILUTED DENOMINATOR
Basic weighted average shares
outstanding ............................. 17,616,000 10,589,000 25,411,604
Convertible debentures (3) ............... 4,352,058 0 0
Options (4) .............................. 0 976,537 886,126
Warrants (4) ............................. 0 10,963 144,172
------------- ------------- ------------
Diluted weighted average
shares outstanding ...................... 21,968,058 11,576,500 26,441,902
============= ============= ============
Allocation percentage (2) ................ 67.61% 32.39% N/A
============= ============= ============
Diluted earnings per share ............... $ 0.58 $ 0.66 $ 0.62
============= ============= ============
- ----------------
(1) Prior to 1996 there were no Class A common shares outstanding. All shares
outstanding in 1995 were what are now identified as Class B common shares.
(2) The Company calculates earnings per share on Class A and Class B common
shares under the "two class method". Under the "two class method", net
income available to common shareholders is allocated to Class A and Class
B common shares first by actual cash dividends paid for actual shares
outstanding during the period and secondly, through the allocation of
undistributed earnings. Since Class A common shareholders are entitled to
receive cash dividends equal to at least 110% of any cash dividend
declared and paid on Class B common shares, undistributed earnings are
allocated to Class A and Class B shares on a 110 to 100 basis,
respectively, based upon the ratio of the weighted average number of
shares for each class outstanding during the period to total shares
(allocation percentage). Because the allocation percentage for each class
differs for basic and diluted EPS purposes, allocated undistributed
earnings differs for such calculations. Outstanding shares during the
period are retroactively restated for stock splits declared in subsequent
periods. The impact of retroactively restating Class A common stock
outstanding during each period for Class A common stock issued to Class B
common shareholders in stock splits is to change the allocation percentage
for undistributed earnings that was originally utilized in the calculation
of EPS in prior periods such that the ratio of Class A EPS declines in
relation to Class B EPS for such restated periods.
(3) For purposes of computing diluted earnings per share, convertible
debentures are assumed to be converted into common shares at the beginning
of the period or from the point at which such debentures were outstanding.
(4) The number of options and warrants considered outstanding shares for
diluted earnings per share is based upon application of the treasury stock
method to such instruments outstanding as of December 31.
F-16
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. 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.
The following summarizes securities available-for-sale and
held-to-maturity (in thousands):
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST APPRECIATION DEPRECIATION FAIR VALUE
- ----------------- ----------- -------------- -------------- -----------
MORTGAGE-BACKED SECURITIES (1):
FNMA mortgage backed securities ....... $206,980 $ 839 $ 81 $207,738
FHLMC mortgage backed securities ...... 367,787 797 205 368,379
-------- ------ ------ --------
Total mortgage-backed securities ..... 574,767 1,636 286 576,117
-------- ------ ------ --------
INVESTMENT SECURITIES:
FHLB Bonds ............................ 10,000 4 0 10,004
Asset-backed securities ............... 3,194 0 18 3,176
U.S. Treasury Notes ................... 9,959 91 0 10,050
Corporate Bonds ....................... 2,360 0 290 2,070
Equity securities ..................... 5,122 456 415 5,163
Other ................................. 910 0 0 910
-------- ------ ------ --------
Total investment securities .......... 31,545 551 723 31,373
-------- ------ ------ --------
Total ............................... $606,312 $2,187 $1,009 $607,490
======== ====== ====== ========
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST APPRECIATION DEPRECIATION FAIR VALUE
- ----------------- ----------- -------------- -------------- -----------
MORTGAGE-BACKED SECURITIES (2):
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
======== ====== ====== ========
- ----------------
(1) The estimated fair value of pledged collateral was $4.9 million, $5.9
million, $65.4 million and $23.9 million for commercial letters of credit,
treasury tax and loan, repurchase agreements and public funds,
respectively.
(2) The estimated fair value of pledged collateral was $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.
F-17
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY--(CONTINUED)
Included in the December 31, 1996 tables are approximately $14.7 million
(at market) of government agency bonds and real estate mortgage conduits which
were acquired during the MegaBank acquisition, and are adjustable rate
securities tied to various short term and long term indices. The above
securities were sold during 1997.
The maturities of mortgage-backed and investment securities available for
sale were (in thousands):
AVAILABLE FOR SALE
------------------------
FAIR
AMORTIZED ESTIMATED
DECEMBER 31, 1997 COST VALUE
- ----------------- ----------- ----------
Due within one year ................................ $ 36,668 $ 36,686
Due after one year, but within five years .......... 307,259 308,158
Due after five years, but within ten years ......... 2,971 2,707
Due after ten years ................................ 259,414 259,939
-------- --------
Total ............................................ $606,312 $607,490
======== ========
HELD TO MATURITY
----------------------------------------------------------
GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- -------------- -------------- ----------
Tax certificates -- net of allowance
of $949 (1)....................... $55,213 $0 $0 $55,213
======= == == =======
DECEMBER 31, 1996
- -----------------
Tax certificates -- net of allowance
of $1,466(1)...................... $54,511 $0 $0 $54,511
======= == == =======
- ----------------
(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):
BOOK ESTIMATED
DECEMBER 31, 1997 VALUE FAIR VALUE
- ----------------- ---------- -----------
Due in one year or less ........................ $38,448 $38,448
Due after one year through five years .......... 16,765 16,765
Due after five years through ten years ......... 0 0
------- -------
Total ........................................ $55,213 $55,213
======= =======
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 the property, the risk that the liened property
may be unusable and the risk that potential environmental concerns may make
taking title to the property untenable. See Note 6 for activity in the
allowance for tax certificate losses.
F-18
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY--(CONTINUED)
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 year ended December 31, 1997, BankAtlantic sold $231.0
million of U.S. Treasury notes, $66.0 million of seven year balloon
mortgage-backed securities, $28.1 million of five year balloon mortgage-backed
securities, $9.4 million of adjustable rate mortgage-backed securities, $7.6
million of federal agency obligations, $6.4 million of 30 year mortgage-backed
securities, $5.9 million of real estate mortgage investment conduits and $1.1
million of 15 year mortgage-backed securities for gains of $2.4 million. There
were no gains during 1995 and no losses during 1996 and 1997.
During the year ended December 31, 1995, BankAtlantic sold two treasury
notes acquired through the exercise of European put options during 1994 for a
$589,000 realized gain. During the year ended December 31, 1997, the Company
purchased $6.2 million of marketable equity trading securities and sold $2.9
million of these trading securities for a $699,000 realized gain. The
unrealized gain on trading securities at December 31, 1997 was $1.8 million.
During the year ended December 31, 1997, the ending balance, maximum
amount of repurchase agreements outstanding at any month end and the average
amount invested for the year was zero, zero and $2.9 million, respectively. The
average yield on repurchase agreements during 1997 was 5.45%. During the year
ended December 31, 1996, the ending balance, maximum amount of repurchase
agreements outstanding at any month end and the average amount invested for the
year was zero, zero and $1.9 million, respectively. The average yield on
repurchase agreements during 1996 was 5.47%. BankAtlantic did not invest in
repurchase agreements during 1995. The underlying securities were in the
possession of BankAtlantic. During the years ended December 31, 1997 and 1996
BankAtlantic sold Federal Funds. The outstanding balances at December 31, 1997
and 1996, of Federal Funds sold was zero and $6.1 million, respectively. The
maximum amount of Federal Funds sold which were outstanding at any month end
and the average amount invested for the years ended December 31, 1997 and 1996
were $12.4 million and $1.4 million and $16.0 million and $11.0 million,
respectively.
F-19
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS RECEIVABLE
Loans receivable net were:
DECEMBER 31,
------------------------------
1997 1996
-------------- -------------
(IN THOUSANDS)
Real estate loans:
Residential ................................................ $ 37,813 $ 438,359
Purchased residential ...................................... 772,932 428,722
Residential available for sale (market value of
$164,153 and $16,535)..................................... 161,562 16,207
Construction and development ............................... 325,951 301,813
FHA and VA insured ......................................... 1,025 4,013
Commercial ................................................. 396,357 427,235
Other loans:
Second mortgages -- direct ................................. 65,810 86,234
Second mortgages -- indirect ............................... 12,461 9,894
Commercial business ........................................ 55,615 78,177
Due from foreign banks ..................................... 12,256 0
Banker's acceptances ....................................... 160,105 207
Deposit overdrafts ......................................... 1,211 2,434
Consumer loans -- other direct ............................. 50,347 74,072
Consumer loans -- other indirect ........................... 204,689 172,056
---------- ----------
Total gross loans ......................................... 2,258,134 2,039,423
---------- ----------
Adjustments:
Undisbursed portion of loans in process .................... 163,237 190,874
Unearned premiums .......................................... (7,047) (2,762)
Unearned discounts on commercial real estate loans ......... 669 705
Allowance for loan losses .................................. 28,450 25,750
---------- ----------
Loans receivable -- net ................................... $2,072,825 $1,824,856
========== ==========
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, 1997, 55% of total aggregate outstanding loans were to
borrowers in Florida, 10% of total loans were to borrowers in the Northeastern
United States 13% of the total loans were to borrowers in California, and 22%
were to borrowers located elsewhere. Additionally, deferred loan fees netted
against loan balances were $3.6 million and $1.5 million at December 31, 1997
and 1996, respectively. Commitments to sell residential mortgage loans were
$11.9 million and $7.3 million at December 31, 1997 and 1996, respectively.
Variable rate commitments to sell residential mortgage loans were $832,000 and
$153,000, whereas, fixed rate commitments to sell residential mortgage loans
were $11.1 million and $7.1 million at December 31, 1997 and 1996,
respectively. Such residential mortgage loan sales related to loans originated
for sale. Included in other assets was $10.4 million and $9.1 million of
prepaid dealer reserves at December 31, 1997 and 1996, respectively. The
market value of loans available for sale was determined on an aggregate basis.
Management transferred certain residential loans to the available for sale
category in order to control the overall interest rate risk of the loan
portfolio.
F-20
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS RECEIVABLE--(CONTINUED)
Activity in the allowance for loan losses was (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- ------------
Balance, beginning of period ........................ $ 25,750 $ 19,000 $ 16,250
Charge-offs:
Commercial business loans .......................... (180) (1,048) (382)
Commercial real estate loans ....................... (276) (266) (222)
Consumer loans ..................................... (10,694) (6,337) (4,566)
Residential real estate loans ...................... (76) (67) (263)
Purchased residential real estate loans ............ (104) 0 0
---------- ---------- --------
(11,330) (7,718) (5,433)
---------- ---------- --------
Recoveries:
Commercial business loans .......................... 301 518 738
Commercial real estate loans ....................... 208 47 102
Consumer loans ..................................... 2,253 1,659 1,219
---------- ---------- --------
Net charge-offs ..................................... (8,568) (5,494) (3,374)
Additions charged to operations ..................... 11,268 5,844 4,182
Allowance for loan losses acquired .................. 0 6,400 1,942
---------- ---------- --------
Balance, end of period .............................. $ 28,450 $ 25,750 $ 19,000
========== ========== ========
Average outstanding loans during the period ......... $1,940,060 $1,177,334 $750,058
========== ========== ========
Average outstanding banker's acceptances
during the period ................................. $ 7,966 $ 329 $ 0
========== ========== ========
Ratio of net charge-offs to average
outstanding loans ................................. 0.44% 0.47% 0.45%
========== ========== ========
Ratio of net charge-offs to average
outstanding loans including banker's
acceptances ....................................... 0.44% 0.47% 0.45%
========== ========== ========
Aggregate loans to and repayments of loans by directors, executive
officers, principal stockholders and other related interests for the years
ended December 31, 1997 and 1996 were (in thousands):
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 ADDITIONS DELETIONS 1996 ADDITIONS DELETIONS 1997
- -------------- ----------- ----------- -------------- ----------- ----------- -------------
$937 24 594 367 86 68 $385
==== == === === == == ====
F-21
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS RECEIVABLE--(CONTINUED)
Accrued interest receivable consisted of (in thousands):
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
Loans receivable ............................... $14,432 $13,713
Investment securities held to maturity ......... 3,828 3,705
Securities available for sale .................. 4,364 3,337
------- -------
$22,624 $20,755
======= =======
5. MORTGAGE SERVICING RIGHTS
At December 31, 1997, 1996 and 1995 BankAtlantic serviced loans for the
benefit of others amounting to approximately $2.9 billion, $2.7 billion, and
$1.8 billion, respectively. At December 31, 1997 and 1996 other liabilities
includes approximately $10.3 million and $7.7 million, respectively, of loan
payments due to others. Activity in mortgage servicing rights was (in
thousands):
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ----------
Balance, beginning of period ............. $ 25,002 $ 20,738 $ 20,584
Mortgage servicing rights acquired in BNA
acquisition .............................. 0 4,047 0
Servicing rights originated .............. 1,668 311 0
Servicing rights purchased ............... 45,840 27,681 10,112
Servicing rights sold .................... (25,511) (20,926) (5,596)
Amortization of servicing rights ......... (8,210) (6,849) (4,362)
--------- --------- --------
Balance, end of period ................... $ 38,789 $ 25,002 $ 20,738
========= ========= ========
The fair value of the MSR at December 31, 1997 was estimated at $42.7
million. Upon implementation of FAS 122 on January 1, 1996, no additional
valuation allowance was required. The fair value was calculated using market
prepayment assumptions and discount rates.
6. RISK ELEMENTS
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 include loans for which the terms
have been altered to provide a reduction or deferral of interest or principal
because of a deterioration in the borrower's financial position. BankAtlantic
did not have any commitments outstanding to lend additional funds on
restructured loans at December 31, 1997 and 1996.
F-22
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RISK ELEMENTS--(CONTINUED)
Risk elements were (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
Non-accrual -- tax certificates .......................... $ 880 $ 1,835 $ 2,044
Non-accrual -- loans, net of specific allowances ......... 17,569 12,424 11,174
Loans contractually past due 90 days or more (1) ......... 647 2,961 1,536
Real estate owned, net of allowance ...................... 7,528 4,918 6,279
Other repossessed assets ................................. 2,912 1,992 461
------- ------- -------
Total non-performing ................................... 29,536 24,130 21,494
Restructured ............................................. 4,043 3,718 2,533
------- ------- -------
Total risk elements .................................... $33,579 $27,848 $24,027
======= ======= =======
Allowance for tax certificate losses ..................... $ 949 $ 1,466 $ 1,648
======= ======= =======
Allowance for loan losses ................................ $28,450 $25,750 $19,000
======= ======= =======
- ----------------
(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 (in thousands):
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
GROSS GROSS
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
------------ ------------ ------------ -----------
Nonaccrual loans:
With specific allowances ............... $ 2,491 $1,117 $ 1,047 $350
Without specific allowances ............ 16,195 0 11,727 0
------- ------ ------- ----
18,686 1,117 12,774 350
------- ------ ------- ----
Restructured loans:
Without specific allowances ............ 4,043 0 3,718 0
------- ------ ------- ----
Other impaired loans:
Other impaired commercial loans
with specific allowances (1) ......... 1,038 539 977 514
Other impaired commercial loans
without specific allowances .......... 647 0 2,961 0
------- ------ ------- ----
Total ................................. $24,414 $1,656 $20,430 $864
======= ====== ======= ====
- ----------------
(1) These loans are not included in risk elements, since subsequent to the date
of impairment these loans have performed based on their contractual terms.
Recorded investment of impaired loans reflects direct deferrals of
interest of zero, $240,000, and $480,000 at December 31, 1997, 1996 and 1995,
respectively.
There was no net interest forgone related to restructured loans at
December 31, 1997, 1996 and 1995. Interest income of $799,000 and $336,000 was
recognized on restructured loans during 1997 and 1996, respectively.
F-23
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RISK ELEMENTS--(CONTINUED)
The average net recorded investment in impaired loans for the years ended
December 31, 1997, 1996 and 1995 was $20.2 million, $15.4 million and $16.4
million, respectively. Interest income which would have been recorded under the
contractual terms of impaired loans and the interest income actually recognized
was (in thousands):
1997 1996 1995
----------- --------- ---------
Interest income which would have been recorded .......... $ 2,487 $1,795 $1,662
Interest income recognized .............................. (1,548) (988) (788)
-------- ------ ------
Interest income forgone ................................. $ 939 $ 807 $ 874
======== ====== ======
The components of "Foreclosed asset activity, net" were (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------
1997 1996 1995
-------- --------- -----------------
Real estate acquired in settlement of loans:
Operating expenses, net ................... $ 528 $ 47 $ 41
Reversals of losses on REO ................ (56) (197) (1,187)
Net gains on sales ........................ (354) (575) (2,032)(A)
------ ------ ---------
Total (income) loss ...................... $ 118 $ (725) $ (3,178)
====== ====== =========
- ----------------
(A) Includes a $1.3 million gain related to a property originally acquired
through tax deed.
Activity in the allowance for real estate owned consisted of (in
thousands):
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- -----------
Balance, beginning of period ......... $1,800 $2,800 $ 4,200
Charge-offs:
Commercial real estate .............. 0 (781) (213)
Residential real estate ............. (244) (22) 0
------ ------ --------
(244) (803) (213)
Reversals of losses on REO .......... (56) (197) (1,187)
------ ------ --------
Balance, end of period ............... $1,500 $1,800 $ 2,800
====== ====== ========
F-24
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RISK ELEMENTS--(CONTINUED)
Activity in the allowance for tax certificate losses was: (in thousands)
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- --------- -----------
Balance, beginning of period ............ $ 1,466 $1,648 $ 2,985
Charge-offs ............................. (1,444) (909) (1,854)
Recoveries .............................. 1,025 911 662
-------- ------ --------
Net recoveries (charge-offs) ............ (419) 2 (1,192)
Reversals charged to operations ......... (98) (184) (145)
-------- ------ --------
Balance, end of period .................. $ 949 $1,466 $ 1,648
======== ====== ========
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment was comprised of (in thousands):
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
Land ........................................... $12,112 $12,115
Building and improvements ...................... 46,384 42,593
Furniture and equipment ........................ 25,921 26,257
------- -------
Total ........................................ 84,417 80,965
Less accumulated depreciation .................. 33,287 32,691
------- -------
Office properties and equipment -- net ......... $51,130 $48,274
======= =======
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) during 1996 for a
net gain of $3.1 million. During 1997 land adjacent to the above properties
with a net book value of $197,000 was sold for a net gain on $882,000.
Net rental income for each of the three years ended December 31, 1997 was
zero, $368,000, and $343,000, respectively.
F-25
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEPOSITS
The weighted average nominal interest rate payable on deposit accounts at
December 31, 1997 and 1996 was 3.70% and 3.78%, respectively. The stated rates
and balances at which BankAtlantic paid interest on deposits were:
DECEMBER 31,
--------------------------------------------------------
1997 1996
--------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
Interest free checking ................. $ 162,788 9.23% $ 163,616 8.93%
Insured money fund savings
3.90% at December 31, 1997,
3.76% at December 31, 1996 ............ 289,413 16.41 358,927 19.58
NOW accounts
2.20% at December 31, 1997,
1.60% at December 31, 1996 ............ 223,679 12.68 216,587 11.82
Savings accounts
2.04% at December 31, 1997,
1.30% at December 31, 1996 ............ 262,685 14.90 170,352 9.29
---------- ----- ---------- -----
Total non-certificate accounts ......... 938,565 53.22 909,482 49.62
---------- ----- ---------- -----
Certificate accounts:
0.00% to 4.00% ........................ 14,275 0.81 23,361 1.27
4.01% to 5.00% ........................ 37,803 2.14 275,991 15.06
5.01% to 6.00% ........................ 184,800 10.48 478,148 26.09
6.01% to 7.00% ........................ 493,845 28.00 112,865 6.16
7.01% and greater ..................... 90,882 5.15 30,749 1.68
---------- ----- ---------- -----
Total certificate accounts ............. 821,605 46.58 921,114 50.26
---------- ----- ---------- -----
Total deposit accounts ................. 1,760,170 99.80 1,830,596 99.88
---------- ----- ---------- -----
Interest earned not credited to
deposit accounts ..................... 3,563 0.20 2,184 0.12
---------- ----- ---------- -----
Total .................................. $1,763,733 100.00% $1,832,780 100.00%
========== ====== ========== ======
Interest expense by deposit category was (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
Money fund savings and NOW accounts ............. $14,020 $12,154 $11,591
Savings accounts ................................ 6,617 2,150 1,987
Certificate accounts -- below $100,000........... 37,973 32,416 27,059
Certificate accounts, $100,000 and above......... 9,882 8,513 6,269
Less early withdrawal penalty ................... (211) (205) (260)
------- ------- -------
Total ......................................... $68,281 $55,028 $46,646
======= ======= =======
Included in other non-interest income is approximately $9.3 million, $8.6
million, and $7.0 million of checking account fees for years ended December 31,
1997, 1996 and 1995, respectively.
F-26
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEPOSITS--(CONTINUED)
At December 31, 1997, the amounts of scheduled maturities of certificate
accounts were (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------------
1998 1999 2000 2001 2002 THEREAFTER
---------- --------- ---------- ---------- ---------- -----------
0.00% to 4.00% ............ $ 12,336 $ 1,740 $ 76 $ 42 $ 72 $ 9
4.01% to 5.00% ............ 37,530 204 16 53 0 0
5.01% to 6.00% ............ 172,410 10,051 1,164 871 116 188
6.01% to 7.00% ............ 434,702 38,736 8,124 5,103 6,597 583
7.01% and greater ......... 21,238 30,071 18,809 8,727 11,365 672
-------- ------- ------- ------- ------- ------
Total ................... $678,216 $80,802 $28,189 $14,796 $18,150 $1,452
======== ======= ======= ======= ======= ======
Time deposits of $100,000 and over had the following maturities at (in
thousands):
DECEMBER 31,
1997
-------------
Less than 3 months .......... $ 64,235
3 to 6 months ............... 34,123
6 to 12 months .............. 53,566
More than 12 months ......... 24,338
--------
Total ..................... $176,262
========
Currently, BankAtlantic does not obtain deposits from brokers. In November
1996, Merrill Lynch granted BankAtlantic a facility for broker deposits of up
to $135.0 million. The facility will be considered as an alternative source of
borrowings, when and if needed.
F-27
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Advances from Federal Home Loan Bank ("FHLB") incur interest and were
repayable as follows (in thousands):
DECEMBER 31,
------------------------
REPAYABLE DURING YEAR ENDING DECEMBER 31, INTEREST RATE 1997 1996
- --------------------------------------------- ---------------- ---------- -----------
1997 ..................................... 5.50% to 7.73% $ 0 $119,965
1998 ..................................... 6.60% to 6.64% 153,143 43,143
1999 ..................................... 6.00% to 6.83% 56,393 42,892
2000 ..................................... 6.13% to 7.00% 54,393 40,892
2001 ..................................... 6.29% to 7.09% 37,778 33,118
2002 ..................................... 6.35% to 7.18% 21,460 6,150
2003 ..................................... 7.24% to 7.25% 9,540 9,540
-------- --------
Total fixed rate advances .............. 332,707 295,700
-------- --------
2002 ..................................... 5.68% to 6.20% 175,000 0
2007 ..................................... 5.68% 25,000 0
-------- --------
Total callable advances ................ 200,000 0
-------- --------
1998 ..................................... 5.78% to 5.91% 165,000 0
-------- --------
Total adjustable rate advances ......... 165,000 0
-------- --------
Total FHLB advances .................... $697,707 $295,700
======== ========
Included in fixed rate advances at December 31, 1997 was $110.0 million of
overnight advances. The December 1997 adjustable rate advances were indexed to
the one and three month LIBOR rate. Callable advances give the FHLB the option
to convert, at a specific date, in whole, into a three month Libor-based
floating rate advance. BankAtlantic has established a blanket floating lien
with the FHLB. Under the lien, BankAtlantic assigns a security lien against its
residential loans. At December 31, 1997 and 1996, $891.9 million and $611.4
million of 1-4 family residential loans were pledged against FHLB advances. In
addition, FHLB stock is pledged as collateral for outstanding FHLB advances.
BankAtlantic has a $500 million line of credit with the FHLB with a maximum
term of 10 years.
BankAtlantic established $35.0 million of lines of credit with five
federally insured banking institutions for the purchase of Federal Funds. At
December 31, 1997 and 1996, the outstanding balance of these lines of credit
was $2.5 million and zero, respectively. The average balance outstanding during
the years ended 1997 and 1996, of the Federal Funds purchased lines of credit
was $1.9 million and $2.7 million, respectively. The maximum outstanding
balance at any month end during 1997 and 1996 of the Federal Funds purchased
lines of credit was $7.0 million and $16.0 million, respectively.
F-28
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized below (in
thousands):
DECEMBER 31,
----------------------
1997 1997
--------- ----------
Agreements to repurchase the same security ......... $ 0 $143,377
Customer repurchase agreements ..................... 58,716 47,211
------- --------
Total ............................................ $58,716 $190,588
======= ========
The following table provides information on the agreements to repurchase
(dollars in thousands):
FOR THE YEAR
ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
Maximum borrowing at any month-end within the
period ........................................... $ 255,967 $ 362,147 $ 328,666
Average borrowing during the period ................ $ 150,656 $ 178,883 $ 186,592
Average interest cost during the period ............ 5.26% 4.83% 5.80%
Average interest cost at end of the period ......... 4.80% 5.13% 4.59%
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, 1997 and 1996 included a
$4.7 million and $9.7 million customer repurchase agreement, respectively,
relating to a BFC escrow account. Total interest expense related to this
reverse repurchase agreement was approximately $210,000, $312,000, and $374,000
during the year ended December 31, 1997, 1996 and 1995, respectively.
F-29
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE--(CONTINUED)
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, 1997 (1) COST VALUE BALANCE RATE
- ----------------------- ----------- ----------- ------------ ---------
FHLB Bonds ......... $ 2,650 $ 2,651 $ 2,380 4.80%
FNMA ............... 8,440 8,462 7,597 4.80
FHLMC .............. 54,302 54,289 48,739 4.80
------- ------- ------- ----
Total ............ $65,392 $65,402 $58,716 4.80%
======= ======= ======= ====
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%
======== ======== ======== ====
- ----------------
(1) At December 31, 1997 and 1996 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, 1997 were customer repurchase
agreement which are due on demand. All repurchase agreements at December 31,
1996 matured and were repaid in January 1997. respectively. These securities
were held by unrelated broker dealers.
11. SUBORDINATED DEBENTURES AND OTHER DEBT
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 transaction which
resulted in the establishment of the Company as the holding company for
BankAtlantic. In October 1995, all series of preferred stock were redeemed at
$25.00 per share. 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 basic and diluted
earnings per share by $.05 per share for the year ended December 31, 1995.
On March 31, 1991, BankAtlantic issued to certain of its existing
shareholders, 18,611 shares of common stock and $8,000 of 14% subordinated
debentures, having a March 1998 maturity date, with related detachable warrants
to purchase 17,548 shares of common stock. The $8,000 of subordinated
debentures were redeemed 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 31, 1997 relating
to the redeemed debentures are 10,963 with a $0.45 exercise price.
F-30
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBORDINATED DEBENTURES AND OTHER DEBT--(CONTINUED)
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.
The Company has the following subordinated debentures and notes payable
outstanding at December 31, (in thousands):
ISSUE INTEREST MATURITY CONVERSION CLASS OF REDEMPTION
DATE 1997 1996 RATE DATE PRICE STOCK DATE
---------- ---------- ---------- ---------- ------------ ------------ ---------- -------------
9% Debentures ........ 9/22/95 $ 21,000 $21,000 9.00% 10/01/2005 N/A N/A 10/01/1998
6 3/4% Debentures .... 7/03/96 57,125 57,500 6.75% 7/01/2006 $ 6.55 A 7/01/1999
5 5/8% Debentures .... 11/25/97 100,000 0 5.625% 12/01/2007 $12.94 A 12/01/2000
Notes payable ........ 2/01/95 1,475 0 7.50% 2/01/2000 N/A N/A N/A
-------- -------
$179,600 $78,500
======== =======
Included in other assets was $6.3 million and $3.2 million of unamortized
underwriting discounts and costs associated with the issuance of subordinated
debentures, at December 31, 1997 and 1996, respectively.
The Indenture relating to the Trust Preferred Securities and all of the
Debenture indentures contain certain customary covenants found in Indentures
under the Trust Indenture Act, including covenants with respect to the payment
of principal and interest, maintenance of an office or agency for administering
the Debentures, holding of funds for payments on the Debentures in Trust,
payment by the Company of taxes and other claims, maintenance by the Company of
its properties and its corporate existence and delivery of annual
certifications to the Trustee.
The Debenture indentures for the 9% and 63/4% Debentures provide that the
Company cannot declare or pay dividends on, or purchase, redeem or acquire for
value its capital stock, return any capital to holders of capital stock as
such, or make any distributions of assets to holders of capital stock as such,
unless, from and after the date of any such dividend declaration (a
"Declaration Date") or the date of any such purchase, redemption, payment or
distribution (a "Redemption Date"), the Company retains cash, cash equivalents
(as determined in accordance with generally accepted accounting principles) or
marketable securities (with a market value as measured on the applicable
Declaration Date or Redemption Date) in an amount sufficient to cover the two
consecutive semi-annual interest payments that will be due and payable on the
Debentures following such Declaration Date or Redemption Date, as the case may
be. These indentures further provide that the amount of any interest payment
made by the Company with respect to the Debentures after any applicable
Declaration Date or Redemption Date shall be deducted from the aggregate amount
of cash or cash equivalents which the Company shall be required to retain
pursuant to the foregoing provision. At December 31, 1997 and 1996 the Company
designated $5.8 million of securities available for sale to satisfy the above
provision.
Upon the acquisition of SLWHC, the Company became obligated for a $9.1
million Capital Improvement Revenue Bond Series 1995, payable to a municipality
with a $1.4 million outstanding at December 31, 1997. Interest on the note
payable is due semi-annually in arrears. The note is collateralized by
"priority assessment liens on residential land".
F-31
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBORDINATED DEBENTURES AND OTHER DEBT--(CONTINUED)
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital"). BBC
Capital is a statutory business trust which was formed for the purpose of
issuing 9 1/2% Cumulative Trust Preferred Securities ("Trust Preferred
Securities") and investing the proceeds thereof in Junior Subordinated
Debentures of the Company. In a public offering in April 1997, BBC Capital
issued for $74.75 million, 2.99 million shares of Trust Preferred Securities at
a price of $25 per share. BBC Capital used the gross proceeds received from the
sale of the Trust Preferred Securities and $2.3 million of contributed capital
from the Company to purchase $77.1 million of 9 1/2% Junior Subordinated
Debentures from the Company which mature on June 30, 2027. The net proceeds to
the Company from the sale of the Junior Subordinated Debentures were $71.8
million after deduction of the underwriting discount and expenses. At December
31, 1997, the balance of Trust Preferred Securities was $74.75 million. The net
proceeds from the sale of the Junior Subordinated Debentures were utilized as
follows: $21.2 million of the proceeds were contributed to BankAtlantic, $12.2
million of the proceeds were used to repurchase the Company's common stock and
the remaining proceeds are being used by the Company for general corporate
purposes. BankAtlantic used $21.2 million of the contributed capital to acquire
St. Lucie West Holding Corp, and subsidiaries and to invest in a real estate
joint venture. During the year ended December 31, 1997, the Company repurchased
1,040,625 and 365,625 shares of the Company's Class A and Class B common
stock, respectively. Interest on the Junior Subordinated Debentures and
Distributions on the Trust Preferred Securities are fixed at 9 1/2% per annum
and are payable quarterly in arrears, with the first payment paid June 30,
1997. Distributions on the Trust Preferred Securities are cumulative and based
upon the liquidation value of $25 per Trust Preferred Security. The Company has
the right, at any time, so long as no event of default, as defined, has
occurred and is continuing, to defer payments of interest on the Junior
Subordinated Debentures for a period not exceeding 20 consecutive quarters;
provided, that such deferral may not extend beyond the stated maturity of the
Junior Subordinated Debentures. The Trust Preferred Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. The Company
has the right to redeem the Junior Subordinated Debentures after June 30, 2002
and also has the right to redeem the Junior Subordinated Debentures in whole
(but not in part) within 180 days following certain events, as defined, whether
occurring before or after June 30, 2002, and therefore cause a mandatory
redemption of the Preferred Securities. The exercise of such right is subject
to the Company having received regulatory approval to do so if then required
under applicable capital guidelines or regulatory policies. In addition to the
above right, the Company has the right, at any time, to shorten the maturity of
the Junior Subordinated Debentures to a date not earlier than June 30, 2002.
Exercise of this right is also subject to the Company having received
regulatory approval to do so if then required under applicable capital
guidelines or regulatory policies.
On November 25, 1997, in a dual public offering, the Company issued 4.3
million of Class A common stock and $100.0 million of 5 5/8% convertible
subordinated debentures ("5 5/8% Debentures"). The net proceeds to the Company
from the sale of Class A common stock was $43.4 million net of $107,000
offering costs and $96.5 million from the sale of the 55/8% Debentures net of
$3.5 million of offering costs.
12. STOCK OPTION PLANS
On April 6, 1984, BankAtlantic's stockholders approved a Stock Option Plan
("1984 Plan") under which options to purchase up to 1,182,556 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 stock
option was not to be less than the fair market value of the common stock on the
date of
F-32
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION PLANS--(CONTINUED)
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. The Class B stock
options issued in May 1993 expire on May 25, 1998 and were 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 May 31, 1994, the stockholders of BankAtlantic approved the
BankAtlantic 1994 Stock Option Plan ("1994 Plan"), authorizing the issuance of
Class B common stock options to acquire up to 2,288,819 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. All employee stock options under
the 1994 Plan vest and are exercisable five years from the date of grant while
directors' stock options vested immediately.
On May 21, 1996 the shareholders approved the BankAtlantic Bancorp 1996
Stock Option Plan (the "1996 Plan") which authorized the issuance of Class A
common stock options to acquire up to 1.95 million shares of Class A common
stock. The 1996 Plan expires on April 2, 2006. During the second quarter of
1996, 48,828 non-qualifying stock options were issued outside of the Plan to
non-employee directors. 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. All employee stock options
vest and are exercisable five years for the date of grant while directors'
stock options vested immediately.
The following table sets forth all outstanding options, adjusted for the
July 1997 and January 1998 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's
anti-dilution provisions related to Class B common stock options required that
additional Class B options be granted rather than Class A options.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-33
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION PLANS--(CONTINUED)
A summary of stock option activity segregated by class of stock was:
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
------------- --------------------------
Outstanding December 31, 1994 .................... 2,512,556 $2.28 to $3.90
Exercised ....................................... (234,315) 2.96 to 3.05
Forfeited ....................................... (102,325) 3.01 to 4.00
Issued ........................................... 887,214 4.00 to 4.00
--------- ----- -----
Outstanding December 31, 1995 .................... 3,063,130 2.28 to 4.00
Exercised ....................................... (138,392) 2.96 to 3.01
Forfeited ....................................... (189,677) 3.90 to 4.00
--------- ----- -----
Outstanding December 31, 1996 .................... 2,735,061 2.28 to 4.00
Exercised ....................................... (547,740) 2.28 to 3.90
Forfeited ....................................... (71,774) 3.90 to 3.90
--------- ----- -----
Outstanding December 31, 1997 .................... 2,115,547 $3.01 to $4.00
========= ===== =====
Exercisable at December 31, 1997 ................. 497,615 $3.01 to $4.00
========= ===== =====
Available for grant at December 31, 1997 ......... 386,129
=========
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 ....................................... (101,023) 5.74 to 5.74
Issued .......................................... 1,029,440 5.74 to 6.25
--------- ----- ------
Outstanding December 31, 1996 .................... 928,417 5.74 to 6.25
Exercised ....................................... (16,775) 5.74 to 7.17
Forfeited ....................................... (104,994) 5.74 to 8.64
Issued .......................................... 809,984 5.74 to 12.35
--------- ----- ------
Outstanding December 31, 1997 .................... 1,616,632 $5.74 to $12.35
========= ===== ======
Exercisable at December 31, 1997 ................. 108,661 $5.74 to $ 7.64
========= ===== ======
Available for grant at December 31, 1997 ......... 319,718
=========
The weighted average exercise price of options outstanding at December 31,
1997, 1996 and 1995 was $5.14, $4.21, and $3.67, respectively. The weighted
average exercise price of stock options exercised was $3.28 and $3.01 for the
years ended December 31, 1997 and 1996, respectively. The weighted average
exercise price of options forfeited during the years ended December 31, 1997
and 1996 was $5.27 and $4.56, respectively.
During the years ended December 31, 1997 and 1996, 373,328 and 12,736 of
non-qualifying and 399,048 and 125,656 of incentive stock options issued under
the 1984, 1994 and 1996 Plans were exercised resulting in increases of $2.8
million and $531,000 in stockholders' equity, respectively. The tax effect of
the exercised stock options for December 31, 1997 and 1996 was $913,000 and
$118,000, respectively, and has been reflected in additional paid in capital.
During the years ended December 31,
F-34
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION PLANS--(CONTINUED)
1997 and 1996, 104,994 and 101,023 of options under the 1996 Plan and 71,774
and 189,677 of options under the 1994 Plan, respectively, were forfeited.
During the latter part of 1996 and early 1997, certain executives and
officers received prorata vesting as part of their severance arrangements
relating to previously granted 1994 and 1996 Plan options. Forfeited and vested
options were 148,778 shares and 194,559 shares for the 1994 plan and 84,231
shares and 25,634 shares for the 1996 plan, respectively.
The adoption of FAS 123 under the fair value based method would have
increased compensation expense by $479,245 and $474,000 for the years ended
December 31, 1997 and 1996, respectively. The effect of FAS 123 under the fair
value based method would have effected net income and earnings per share as
follows:
FOR THE YEAR ENDED
DECEMBER 31
-----------------------
1997 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income available for common shares As reported .......... $27,769 $19,011
======= =======
Pro forma ............ 27,272 18,537
======= =======
Basic earnings per share Class A As reported .......... $ 0.98 $ 0.64
======= =======
Pro forma ............ 0.97 0.63
======= =======
Basic earnings per share Class B As reported .......... $ 0.94 $ 0.72
======= =======
Pro forma ............ 0.93 0.71
======= =======
Diluted earnings per share Class A As reported .......... $ 0.78 $ 0.58
======= =======
Pro forma ............ 0.77 0.57
======= =======
Diluted earnings per share Class B As reported .......... $ 0.77 $ 0.66
======= =======
Pro forma ............ 0.76 0.64
======= =======
The option method used to calculate the FAS 123 compensation adjustment
was the Black-Scholes model with the following grant date fair values and
assumptions:
WEIGHTED AVERAGE
------------------------------------------------------------------
NUMBER OF RISK FREE EXPECTED
YEAR OF OPTIONS GRANT DATE EXERCISE INTEREST EXPECTED DIVIDEND
GRANT GRANTED FAIR VALUE PRICE RATE VOLATILITY YIELD
- --------- ----------- ------------ ---------- ----------- ------------ ---------
1995 887,214 $2.14 $4.00 6.32% 25.80% 0.47%
1996 1,029,440 $2.95 $5.77 6.86% 18.60% 0.36%
1997 809,984 $3.36 $8.08 6.60% 27.40% 0.99%
The employee turnover factor was 5.97% and 13.40% for incentive stock
options and 3.55% and 5.20% for non-qualifying stock options, for the years
ended December 31, 1997 and 1996, respectively. The expected life for all
options issued was 7.5 years.
F-35
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK OPTION PLANS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
CLASS OF RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
COMMON EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
STOCK PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ---------- ---------------- ------------- ------------- ----------- ------------- ----------
B $3.01 to 3.31 348,813 .4 years $3.15 348,813 $3.15
B $3.90 to 4.00 1,766,734 6.8 years 3.94 148,802 3.92
A $5.73 to 12.35 1,616,632 8.9 years 6.88 108,661 6.82
--------- ------------- ----- ------- -----
3,732,179 7.1 years $5.14 606,276 $4.00
========= ============= ===== ======= =====
13. INCOME TAXES
For federal income tax purposes, BankAtlantic reports its income and
expenses on the accrual method of accounting. Prior to 1996, savings
institutions that met certain definitional tests and other conditions
prescribed by the Internal Revenue Code of 1986 (the "Code") relating primarily
to the composition of their assets and the nature of their business activities
were, within certain limitations, permitted to establish, and deduct additions
to, reserves for bad debts in amounts in excess of those which would otherwise
be allowable on the basis of actual loss experience. A qualifying savings
institution could elect annually, and was not bound by such election in any
subsequent year, one of the following two methods for computing additions to
its bad debt reserves for losses on "qualifying real property loans"
(generally, loans secured by interests in improved real property): (i) the
experience method or (ii) the percentage of taxable income method. BankAtlantic
has utilized both the percentage of taxable income method and the experience
method in computing the tax-deductible addition to its bad debt reserves.
Additions to the reserve for losses on non-qualifying loans, however, must be
computed under the experience method and reduce the current year's addition to
the reserve for losses on qualifying real property loans, unless the qualifying
addition also is determined under the experience method. The sum of the
addition to each reserve for each year was BankAtlantic's annual bad debt
deduction.
The Small Business Job Protection Act of 1996 repealed the reserve method
of accounting for bad debts for tax years beginning after 1995. As a "large"
thrift (more than $500 million in assets), BankAtlantic had to change to the
specific charge-off method to compute its bad debt deduction starting in 1996.
BankAtlantic is required to recapture into taxable income the portion of its
bad debt reserves that exceeds its base year reserves. For financial reporting
purposes, deferred taxes have previously been provided for amounts in excess of
the base year tax bad debt reserve and accordingly, recapture of such amounts
for tax purposes will not trigger expense for financial reporting purposes.
BankAtlantic will have to recapture $1.7 million (after tax) of bad debt
reserve due to the law change. BankAtlantic's recapture amount will be taken
into taxable income ratably (on a straight-line basis) over a six-year period.
BankAtlantic met the residential loan requirement for the tax years beginning
in 1996 and 1997, and recapture of the reserves has been suspended for such tax
years. At December 31, 1997, BankAtlantic had a $3.9 million (after tax) base
year reserve for which deferred taxes have not been provided which is subject
to recapture if BankAtlantic, redeems its common stock or certain other events
occur. 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.
F-36
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES--(CONTINUED)
The provision for income taxes consisted of (in thousands):
1997 1996 1995
---------- --------- ---------
Current:
Federal ........................... $15,248 $ 9,305 $ 7,257
State ............................. 2,332 1,441 1,210
------- ------- -------
17,580 10,746 8,467
------- ------- -------
Deferred:
Federal ........................... 150 1,287 1,191
State ............................. 23 208 360
------- ------- -------
173 1,495 1,551
------- ------- -------
Provision for income taxes ......... $17,753 $12,241 $10,018
======= ======= =======
The December 31, 1997, 1996 and 1995 amounts above do not include deferred
taxes of $455,000, $470,000 and $3.6 million, respectively, related to
unrealized appreciation on 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 YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- -----------
Income tax provision at expected federal income
tax rate (1) ............................................. $15,933 $10,938 $ 9,953
Increase (decrease) resulting from:
Base year bad debt reserve increase ...................... (582) (362) 0
Tax-exempt interest income ............................... (22) (26) (104)
Provision for state taxes net of federal benefit ......... 1,540 1,117 897
Change in the beginning of the period balance of
the valuation allowance for deferred tax assets
allocated to income tax credit ........................ 0 0 (972)
Amortization of costs over fair value of net
assets acquired ....................................... 878 541 393
Charitable deduction of appreciated property ............. 0 0 (70)
Other -- net ............................................. 6 33 (79)
------- ------- -------
Provision for income taxes .............................. $17,753 $12,241 $10,018
======= ======= =======
- ----------------
(1) The expected federal income tax rate is 35% for the years ended December 31,
1997, 1996 and 1995.
F-37
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. 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,
--------------------------------------
1997 1996 1995
---------- ----------- -----------
(IN THOUSANDS)
DEFERRED TAX ASSETS:
Allowance for loans, REO and tax certificate losses, for financial
statement purposes ......................................................... $ 10,700 $ 8,692 $ 6,798
Other allowances and expense accruals recorded for financial
statement purposes not currently recognized for tax purposes ............... 412 1,495 3,330
Deferred compensation accrued for financial statement purposes not
currently recognized for tax purposes ...................................... 353 266 199
Unearned commitment fees ..................................................... 125 114 101
Amortization of mortgage servicing rights for financial reporting
purposes in excess of amount amortized for tax purposes .................... 146 251 255
Amortization of intangible assets for financial statement purposes in
excess of amounts amortized for tax purposes ............................... 169 225 0
Net operating loss carryforward acquired ..................................... 1,222 0 0
Real estate held for development and sale capitalized costs
for tax purposes in excess of amounts capitalized for financial
statement purposes ......................................................... 1,414 0 0
Purchase accounting adjustments for SLWHC acquisition ........................ 1,548 0 0
Purchase accounting adjustments for bank acquisitions ........................ (501) 170 1,073
Other ........................................................................ 10 10 171
-------- -------- --------
Total gross deferred tax assets ............................................ 15,598 11,223 11,927
Less valuation allowance relating to SLWHC acquisition ........................ 4,184 0 0
-------- -------- --------
Total deferred tax assets .................................................. 11,414 11,223 11,927
-------- -------- --------
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base year reserve .......................... 1,684 1,684 2,725
Office properties and equipment and real estate owned due to
depreciation differences ................................................... 447 1,172 1,613
FHLB stock, due to differences in the recognition of stock dividends ......... 1,610 1,740 1,646
Deferred loan income, due to differences in the recognition of loan
origination fees and discounts ............................................. 1,962 2,039 1,479
Discount on securities, due to the accretion of discounts .................... 0 286 673
Capital leases for financial statement purposes and operating leases for
tax purposes ............................................................... 0 0 21
Prepaid pension expenses ..................................................... 995 313 473
Deferred tax liability on unrealized appreciation on securities available
for sale ................................................................... 455 470 3,600
Prepaid insurance ............................................................ 219 142 355
Mortgage servicing rights recognized for financial statement purposes
in excess of amounts recognized for tax purposes ........................... 826 0 0
Other ........................................................................ 19 22 86
-------- -------- --------
Total gross deferred tax liabilities ....................................... 8,217 7,868 12,671
-------- -------- --------
Net deferred tax asset (liability) ............................................ 3,197 3,355 (744)
Less deferred income tax (assets) liabilities at beginning of period .......... (3,355) 744 (1,568)
Deferred tax asset, net of valuation allowance related to acquisitions ........ 0 (2,464) (2,718)
Increase (decrease) in deferred tax liability on unrealized appreciation on
debt securities available for sale included as a separate component of
stockholders' equity ......................................................... (15) (3,130) 3,479
-------- -------- --------
Provision for deferred income taxes ........................................... $ (173) $ (1,495) $ (1,551)
======== ======== ========
F-38
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES--(CONTINUED)
The tax attributes acquired on October 31, 1997 in connection with the
SLWHC acquisition were (in thousands):
Net operating loss carryforward ................................................... $1,222
Real estate held for development and sale capitalized costs for tax purposes in
excess of amounts capitalized for financial statement purposes .................. 1,414
Fair value of real estate held for development and sale lower than tax basis ...... 1,548
------
Total deferred tax assets ......................................................... 4,184
Valuation allowance ............................................................... 4,184
------
Deferred tax assets, net .......................................................... $ 0
======
On December 31, 1997, the Company had a valuation allowance relating to
the deferred tax assets acquired in connection with the SLWHC acquisition.
These acquired deferred tax assets can only be realized if SLWHC has taxable
income. Due to the recent acquisition of SLWHC, it is difficult for management
to predict whether SLWHC will have sufficient taxable income to realize the
deferred tax assets; therefore, a valuation allowance was established.
The net operating loss carryforward was acquired in connection with the
SLWHC acquisition. Due to IRS limitations, the net operating loss can only be
utilized if SLW has taxable income. The NOL carryforward will expire in varying
amounts through the year 2011.
At December 31, 1996, the Company had a tax refund receivables of $723,000
and $132,000 for Federal and State income taxes, respectively. The tax refunds
were acquired with the BNA acquisition and applied against 1997 current income
tax liabilities.
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 MegaBank and resulted in an adjustment of cost over fair
value of assets acquired and does not affect the provision for income taxes.
14. PENSION PLAN
BankAtlantic sponsors a non-contributory defined benefit pension plan (the
"Plan") covering substantially all of its employees. The benefits are based on
years of service and the employee's average earnings received during the
highest five consecutive years out of the last ten years of employment. The
funding policy is to contribute an amount not less than the ERISA minimum
funding requirement nor more than the maximum tax-deductible amount under
Internal Revenue Service rules and regulations.
Plan assets consist of cash equivalents, common stocks and mutual funds.
F-39
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. PENSION PLAN--(CONTINUED)
The following table sets forth the Plan's funded status and the prepaid
pension cost included in the Consolidated Statements of Financial Condition at:
ENDED DECEMBER 31,
-----------------------------
1997 1996
------------- -------------
(IN THOUSANDS)
Actuarial present value of accumulated benefit obligation,
including vested benefits of $15,225 and $13,301.................. $ (16,298) $ (14,370)
--------- ---------
Actuarial present value of projected benefit obligation for
service rendered to date ......................................... (20,478) (17,301)
Plan assets at fair value as of the actuarial date ................. 20,169 15,728
--------- ---------
Plan assets in excess (below) projected benefit obligation ......... (309) (1,573)
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions .................... 2,248 3,868
Prior service (cost) benefit not yet recognized in net periodic
pension cost ..................................................... 611 61
Unrecognized net asset at October 1, 1987, being recognized
over 15 years .................................................... (1,272) (1,540)
--------- ---------
Prepaid pension cost ............................................... $ 1,278 $ 816
========= =========
Net pension cost includes the following components:
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
Service cost benefits earned during the period ......... $ 1,260 $ 1,065 $ 785
Interest cost on projected benefit obligation .......... 1,270 1,151 1,010
Actual return on plan assets ........................... (2,855) (1,297) (1,009)
Net amortization and deferral .......................... 1,206 (3) 44
-------- --------- --------
Net periodic pension expense ........................... $ 881 $ 916 $ 830
======== ======== ========
The actuarial assumptions used in accounting for the Plan were:
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------- ------- ------
Weighted average discount rate ......................... 7.00% 7.50% 8.50%
Rate of increase in future compensation levels ......... 4.75% 5.00% 6.50%
Expected long-term rate of return ...................... 9.00% 9.00% 9.00%
Actuarial assumptions for the years ended December 31, 1997, 1996 and 1995
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, 1997 that would significantly
F-40
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. PENSION PLAN--(CONTINUED)
effect the actuarial assumptions. During the years ended December 31, 1997 and
1996 and 1995, BankAtlantic funded $954,000, $500,000, and $1.1 million,
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 1997 and 1996 and $9,240 for
1995. 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 $194,000,
$147,000, and $75,000 of expenses and employer contributions related to the
401k Plan for the years ended December 31, 1997, 1996 and 1995, respectively.
For the years ended December 31, 1997 and 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.
15. 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, 1997, for the periods shown was (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------------- ---------
1998 .......................... $ 4,432
1999 .......................... 3,550
2000 .......................... 2,379
2001 .......................... 1,593
2002 .......................... 1,250
Thereafter .................... 4,031
-------
Total ....................... $17,235
=======
Rental expense for premises and equipment was $5.1 million, $3.8 million,
and $3.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Included in other liabilities at December 31, 1997 and 1996, is
an allowance of $67,000 and $266,000, respectively, for future rental payments
on closed branches. Management has committed to two additional in-store full
service branches, which are anticipated to open during the year ended December
31, 1998. The estimated annual lease payments are $48,600, other annual
expenses are $20,000, and estimated leasehold improvements and other
capitalizable costs associated with the two branches to be opened during 1998,
will be approximately $420,000.
At December 31, 1997, BankAtlantic leased 249 ATMs 137 of which are in
Wal-Mart and Sam's Club locations throughout Florida and 15 are on cruise
ships. The remaining ATMs are at BankAtlantic branch locations and various
sites throughout South Florida. During the fourth quarter of 1997, BankAtlantic
signed an agreement to install 57 ATM machines in Exxon gas stations during
1998. These ATMs accept BankAtlantic ATM cards, as well as other bank's cards,
Visa, MasterCard and American Express cards that are compatible with national
and international Cirrus, Plus and Honor ATM systems.
F-41
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
(See also Note 17.)
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.
BankAtlantic's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. BankAtlantic uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Financial instruments with off-balance sheet risk were:
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Commitments to extend credit to foreign institutions ......... $ 49,894 $ 0
Commitment to sell residential loans ......................... 11,886 7,275
Commitments to sell investment securities .................... 4,979 0
Commitment to purchase mortgage-backed securities ............ 153,946 0
Commitments to extend credit, including the undisbursed
portion of loans in process ................................ 295,776 284,418
Letters of credit ............................................ 56,435 61,626
FHLB advance forward commitments ............................. 0 12,000
Commitments to purchase residential loans .................... 0 28,000
======== ========
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, 1997, $4.9 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.
F-42
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
BankAtlantic has commitments to extend credit to foreign financial
institutions in Latin America. The commitments can be terminated at any time.
Each financial institution is evaluated on a case by case basis.
BankAtlantic is required to maintain average reserve balances with the
Federal Reserve Bank. Such reserves consisted of cash and amounts due from
banks of $33.4 million and $28.3 million at December 31, 1997 and 1996,
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, 1997, BankAtlantic was in compliance with this requirement with an
investment of approximately $34.9 million in stock of the FHLB of Atlanta.
16. REGULATORY MATTERS
The Company, by virtue of its ownership of all of the common stock of
BankAtlantic, is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is subject to the reporting and the other requirements of the Exchange
Act. In addition, BFC owns 6,578,671 and 4,876,124 of Class A and Class B
common stock, respectively, which amounts to 35.57% of the Company's total
outstanding 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 previously expensed
by BNA prior to the acquisition date and was considered a liability of BNA 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.
F-43
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. REGULATORY MATTERS--(CONTINUED)
BankAtlantic is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on BankAtlantic's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
BankAtlantic must meet specific capital guidelines that involve quantitative
measures of BankAtlantic's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. BankAtlantic's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Certain of
BankAtlantic's activities, such as its investment in real estate held for
development and sale, result in a deduction from capital for regulatory capital
measurement.
Quantitative measures established by regulation to ensure capital adequacy
require BankAtlantic to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997, that
BankAtlantic meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, BankAtlantic is considered a well capitalized
institution under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BankAtlantic must maintain minimum total
risk-based, Tier I risk-based, tangible and core capital ratios as set forth in
the table. There are no conditions or events since December 31, 1997 that
management believes have changed the institution's category.
BankAtlantic's actual capital amounts and ratios are presented in the
table:
FOR CAPITAL
ADEQUACY
ACTUAL PURPOSES
------------------- ---------------------------------------------
AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------
(IN THOUSANDS)
As of December 31, 1997:
Total risk-based capital ... $355,930 18.64% /greater than or equal to/ $152,785 /greater than or equal to/ 8.00%
Tier I risk-based capital .. $332,010 17.38% /greater than or equal to/ $ 76,392 /greater than or equal to/ 4.00%
Tangible capital ........... $332,010 11.12% /greater than or equal to/ $ 44,798 /greater than or equal to/ 1.50%
Core capital ............... $332,010 11.12% /greater than or equal to/ $ 89,595 /greater than or equal to/ 3.00%
As of December 31, 1996:
Total risk-based capital ... $193,196 10.83% /greater than or equal to/ $142,691 /greater than or equal to/ 8.00%
Tier I risk-based capital .. $170,865 9.58% /greater than or equal to/ $ 71,363 /greater than or equal to/ 4.00%
Tangible capital ........... $170,865 6.65% /greater than or equal to/ $ 38,547 /greater than or equal to/ 1.50%
Core capital ............... $170,865 6.65% /greater than or equal to/ $ 77,094 /greater than or equal to/ 3.00%
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
----------------------------------------------
AMOUNT RATIO
-------- ------
As of December 31, 1997:
Total risk-based capital ... $190,981 /greater than or equal to/ 10.00%
Tier I risk-based capital .. $114,588 /greater than or equal to/ 6.00%
Tangible capital ........... $ 44,798 /greater than or equal to/ 1.50%
Core capital ............... $149,325 /greater than or equal to/ 5.00%
As of December 31, 1996:
Total risk-based capital ... $178,407 /greater than or equal to/ 10.00%
Tier I risk-based capital .. $107,004 /greater than or equal to/ 6.00%
Tangible capital ........... $ 38,547 /greater than or equal to/ 1.50%
Core capital ............... $128,491 /greater than or equal to/ 5.00%
17. SUBJECT PORTFOLIO
From 1987 through 1990, BankAtlantic purchased in excess of $50 million of
indirect home improvement loans from certain dealers, primarily in the
northeastern United States. BankAtlantic ceased purchasing loans from such
dealers in the latter part of 1990. These dealers were affiliated with each
other but 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
F-44
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBJECT PORTFOLIO--(CONTINUED)
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 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, 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 National Union but has agreed to limit execution on any
judgment obtained against National Union to $18 million. Further, BankAtlantic
agreed to and did join certain third parties as defendants in the action.
Subsequently, National Union was realigned from a defendant in the action to a
co-plaintiff with BankAtlantic. 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 in November 1993, and
approximately $2.9 million which was paid on November 1, 1994. Further,
National Union agreed to reimburse BankAtlantic for additional losses (as
defined) incurred in connection with the Subject Portfolio, not in excess of
$18 million; the full amount of which has been paid. 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 plus the costs incurred by BankAtlantic
of obtaining such recoveries. Thereafter National Union will be entitled to any
such recoveries to the extent of the $18 million it has paid to BankAtlantic.
The trial was held in February 1998 and judgment was entered in favor of
BankAtlantic and National Union against over fifty third party defendants,
individuals and corporations.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to
F-45
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBJECT PORTFOLIO--(CONTINUED)
financial institutions, including BankAtlantic. This action sought, among other
things, rescission of the loan agreements and damages. In November 1995, the
court in this action entered an order dismissing the complaint against
BankAtlantic; and plaintiff's appealed this ruling. In January 1996, the
Appellate Court reversed the lower court's decision and remanded the case back
to the trial court to determine whether the action could be maintained as a
class action. The reversal was without prejudice to BankAtlantic's right to
renew its summary judgment motion after the trial court made a determination as
to plaintiff's ability to maintain this case as a class action. In December
1997, the trial court denied the plaintiff's motion for class certification and
in January 1998 granted BankAtlantic's summary judgment motion. The Plaintiffs
have appealed the trial court's ruling.
The balance of the loans associated with the Subject Portfolio amounted to
approximately $6.8 million and $9.9 million at December 31, 1997 and 1996,
respectively. The related dealer reserve had been completely charged-off by
December 31, 1993. Net charge-offs relating to the Subject Portfolio amounted
to $370,000, $666,000, and $1.0 million, for the years ended December 31, 1997,
1996 and 1995, respectively. At December 31, 1997, 11% of the loans were
secured by collateral in South Florida and 89% of such loans were secured by
collateral in the northeastern United States, respectively. Collateral for
these loans is generally a second mortgage on the borrower's property. However,
it appears that in most cases, the property is encumbered with loans having
high loan to value ratios. Loans in the Subject Portfolio are charged-off if
payments are more than 90 days delinquent. 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.
F-46
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statements of Financial Condition at December 31, 1997 and 1996
and Condensed Statements of Operations for each of the years in the three year
period ended December 31, 1997 are shown below. (in thousands):
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
ASSETS
Cash deposited at BankAtlantic ..................................... $ 48,514 $ 20,226
Securities available for sale (at market value) .................... 7,233 5,843
Loan receivable, net ............................................... 7,775 0
Trading securities (at market value) ............................... 5,067 0
Investment in subsidiaries and joint ventures ...................... 383,126 200,760
Deferred offering costs on junior subordinated and
subordinated debentures .......................................... 9,107 3,156
Income tax receivable from BankAtlantic ............................ 5,312 1,819
Other assets ....................................................... 239 175
-------- --------
Total assets ..................................................... $466,373 $231,979
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior subordinated debentures and subordinated debentures ......... $255,187 $ 78,500
Due to BankAtlantic ................................................ 39 2,742
Other liabilities .................................................. 3,976 3,033
-------- --------
Total liabilities .................................................. 259,202 84,275
-------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value 10,000,000 shares
authorized; none outstanding .................................... 0 0
Class A common stock, $0.01 par value, authorized
80,000,000 shares; issued and outstanding, 21,509,159 and
18,128,782 shares ............................................... 215 78
Class B common stock, $0.01 par value, authorized
45,000,000 shares; issued and outstanding, 10,690,231 and
10,542,116 shares ............................................... 107 105
Additional paid-in capital ........................................ 98,475 64,171
Retained earnings ................................................. 107,650 82,602
-------- --------
Total stockholders' equity before net unrealized appreciation
on debt securities available for sale - net of deferred
income taxes .................................................... 206,447 146,956
Net unrealized appreciation (depreciation) on securities
available for sale owned by the Company and
BankAtlantic - net of deferred income taxes
were ($153) and $877 for 1997 and $0 and $748
for 1996, respectively .......................................... 724 748
-------- --------
Total stockholders' equity ......................................... 207,171 147,704
-------- --------
Total liabilities and stockholders' equity ....................... $466,373 $231,979
======== ========
F-47
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Interest income on repurchase agreements and deposits
at BankAtlantic .................................................... $ 2,337 $ 597 $ 51
Interest income on loans and investments ............................. 837 209 29
-------- -------- -------
Total interest income .............................................. 3,174 806 80
-------- -------- -------
Interest expense on subordinated debentures and junior
subordinated debentures ............................................ 11,689 4,018 776
-------- -------- -------
Net interest (expense) ............................................. (8,515) (3,212) (696)
Gains of trading account securities, unrealized and realized ......... 2,463 0 0
Other expenses ....................................................... (544) (39) (5)
-------- -------- --------
Loss before income tax benefit and earnings of subsidiaries .......... (6,596) (3,251) (701)
Income tax benefit .................................................. 2,481 1,253 274
-------- -------- -------
(Loss) before earnings of subsidiaries .............................. (4,115) (1,998) (427)
Equity in undistributed net earnings of subsidiaries
excluding BankAtlantic ............................................. 152 27 1
Equity in net earnings of BankAtlantic ............................... 31,732 20,982 18,845
-------- -------- -------
Net income ......................................................... $ 27,769 $ 19,011 $18,419
======== ======== =======
F-48
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income ......................................................... $ 27,769 $ 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 ..... (31,884) (21,009) (18,846)
Accretion on securities available for sale ........................ (57) (209) (29)
Purchase of trading securities, net ............................... (6,243) 0 69
Sales of trading account securities ............................... 3,640 0 0
Realized and unrealized gains on sales of
trading securities .............................................. (2,463) 0 0
Amortization of subordinated and junior subordinated
debentures' deferred costs ...................................... 445 222 29
Increase in accrued interest payable .............................. 599 1,859 522
Increase (decrease) in other liabilities .......................... 78 (42) 416
(Decrease) increase in receivable (payable) from (to)
BankAtlantic .................................................... (2,703) 3,381 (241)
Increase in other assets .......................................... (35) 0 0
Increase in income tax receivable ................................. (2,474) (1,371) (448)
---------- --------- ---------
Net cash provided (used) by operating activities ................. (13,328) 1,842 (109)
---------- --------- ---------
INVESTING ACTIVITIES:
Purchase of BankAtlantic preferred stock ............................ 0 0 (4,000)
Loan participations with BankAtlantic ............................... (6,500) 0 0
Loans originated to joint ventures .................................. (1,633) 0 0
Principal reduction on loans ........................................ 358 0 0
Investment in BBC Capital Trust I ................................... (2,312) 0 0
Investment in Florida Atlantic Securities, Inc. ..................... (237) 0 0
Additional investment in BankAtlantic ............................... (161,200) (54,000) (6,000)
Dividends from subsidiaries ......................................... 13,386 6,080 3,034
Purchase of securities available for sale ........................... (7,482) (13,617) (3,663)
Proceeds from maturity of securities available for sale ............. 5,900 9,700 1,800
---------- --------- ---------
Net cash used by investing activities ............................ (159,720) (51,837) (8,829)
---------- --------- ---------
FINANCING ACTIVITIES:
Issuance of common stock upon exercise of options, net .............. 1,857 413 1,709
Issuance of common stock, net ....................................... 43,374 18,004 0
Common stock dividends paid ......................................... (2,343) (2,159) (1,672)
Preferred stock dividends paid ...................................... 0 0 (677)
Proceeds from issuance of junior subordinated debentures ............ 77,062 0
Deferred costs on junior subordinated debentures .................... (2,908) 0
Proceeds from notes payable ......................................... 0 0 4,000
Repayment of notes payable .......................................... 0 (1) (3,999)
Proceeds from issuance of subordinated debentures ................... 100,000 57,500 21,000
Deferred costs on subordinated debentures ........................... (3,518) (2,356) (1,052)
Preferred stock redemptions ......................................... 0 0 (8,383)
Payment to acquire and retire common stock .......................... (12,188) (3,259) 0
---------- --------- ---------
Net cash provided by financing activities ........................ 201,336 68,142 10,926
---------- --------- ---------
Increase in cash and cash equivalents ............................... 28,288 18,147 1,988
Cash and cash equivalents at beginning of period .................... 20,226 2,079 91
---------- --------- ---------
Cash and cash equivalents at end of period .......................... $ 48,514 $ 20,226 $ 2,079
========== ========= =========
F-49
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
---------- ----------- --------
(IN THOUSANDS)
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid ............................................................... $11,090 $ 1,937 $ 161
Common stock dividends declared and not paid until subsequent
period .................................................................... 817 552 467
Increase (decrease) in stockholders' equity from net unrealized
appreciation on debt securities available for sale by BankAtlantic,
less related deferred income taxes ........................................ (24) (4,985) 5,540
Increase in equity for the tax effect related to the exercise of employee
stock options ............................................................. 913 118 173
Issuance of Class A common stock upon conversion of subordinated
debentures ................................................................ 375 0 0
19. SELECTED QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the quarterly results of operations for the
years ended December 31, 1997 and 1996 (in thousands except per share data):
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
- ---- ------------- ------------- ------------- ------------- -------------
Interest income ....................... $ 50,444 $ 52,046 $ 53,520 $ 54,544 $ 210,554
Interest expense ...................... 26,164 28,392 29,694 30,941 115,191
----------- ----------- ----------- ----------- -----------
Net interest income ................... $ 24,280 $ 23,654 $ 23,826 $ 23,603 $ 95,363
Provision for loan losses ............. $ 2,476 $ 2,686 $ 3,671 $ 2,435 $ 11,268
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ..................... $ 21,804 $ 20,968 $ 20,155 $ 21,168 $ 84,095
----------- ----------- ----------- ----------- -----------
Income before income taxes ............ $ 10,428 $ 11,159 $ 10,527 $ 13,408 $ 45,522
----------- ----------- ----------- ----------- -----------
Net income ............................ $ 6,341 $ 6,821 $ 6,429 $ 8,178 $ 27,769
=========== =========== =========== =========== ===========
Basic earnings per share Class A ...... $ 0.22 $ 0.24 $ 0.24 $ 0.28 0.98
=========== =========== =========== =========== ===========
Basic earnings per share Class B ...... $ 0.22 $ 0.23 $ 0.22 $ 0.26 0.94
=========== =========== =========== =========== ===========
Diluted earnings per share Class A..... $ 0.18 $ 0.19 $ 0.18 $ 0.22 0.78
=========== =========== =========== =========== ===========
Diluted earnings per share Class B..... $ 0.18 $ 0.19 $ 0.18 $ 0.21 0.77
=========== =========== =========== =========== ===========
Basic weighted average number of
common Class A shares
outstanding ......................... 18,146,296 17,940,645 17,170,265 18,863,989 18,029,784
=========== =========== =========== =========== ===========
Basic weighted average number of
common Class B shares
outstanding ......................... 10,569,392 10,742,040 10,603,426 10,680,958 10,649,135
=========== =========== =========== =========== ===========
Diluted weighted average number
of common Class A shares
outstanding ......................... 27,107,912 26,933,436 26,474,831 31,175,239 27,893,534
=========== =========== =========== =========== ===========
Diluted weighted average number
of common Class B shares
outstanding ......................... 11,673,630 11,767,040 12,072,176 11,812,208 11,765,385
=========== =========== =========== =========== ===========
During the fourth quarter of 1997, BankAtlantic sold residential loans for
a pre-tax gain of $4.1 million.
F-50
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. SELECTED QUARTERLY RESULTS (UNAUDITED)--(CONTINUED)
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 $ 18,911 $ 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
=========== =========== =========== =========== ===========
Basic earnings per share Class A ...... $ 0.17 $ 0.18 $ 0.03 $ 0.27 $ 0.64
=========== =========== =========== =========== ===========
Basic earnings per share Class B ...... $ 0.19 $ 0.22 $ 0.05 $ 0.27 $ 0.72
=========== =========== =========== =========== ===========
Diluted earnings per share Class A..... $ 0.16 $ 0.18 $ 0.03 $ 0.21 $ 0.58
=========== =========== =========== =========== ===========
Diluted earnings per share Class B..... $ 0.19 $ 0.20 $ 0.05 $ 0.22 $ 0.66
=========== =========== =========== =========== ===========
Basic weighted average number of
common Class A shares
outstanding ......................... 15,793,315 18,452,054 18,339,399 18,117,275 17,616,000
=========== =========== =========== =========== ===========
Basic weighted average number of
common Class B shares
outstanding ......................... 10,592,999 10,612,612 10,591,030 10,530,246 10,589,000
=========== =========== =========== =========== ===========
Diluted weighted average number
of common Class A shares
outstanding ......................... 15,793,315 18,452,054 18,369,399 27,009,599 21,968,058
=========== =========== =========== =========== ===========
Diluted weighted average number
of common Class B shares
outstanding ......................... 11,540,930 11,626,362 11,517,280 11,598,996 11,576,500
=========== =========== =========== =========== ===========
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.
20. 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. of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107") issued by
the FASB.
Management has made estimates of fair value 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.
F-51
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
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
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.
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, 1997 and 1996. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using current rates offered by BankAtlantic for such remaining
maturities.
The book value of securities sold under agreements to repurchase
approximates fair value.
The fair values of advances from FHLB, were based upon comparable terms to
maturity, interest rates and issuer credit standing.
The fair value of convertible subordinated debentures and guaranteed
preferred beneficial interests in the Company's junior subordinated debentures
was based on quoted market prices on NASDAQ. The fair value of other
subordinated debentures and notes payable was based on discounted value of
contractual cash flows based on a market discount rate.
F-52
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The following table presents information for the Company's financial
instruments at December 31, 1997 and 1996 (in thousands):
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ -------------
Financial assets:
Cash and due from depository
institutions ........................ $ 82,787 $ 82,787 $ 102,995 $ 102,995
Federal funds sold and other
short term investments .............. 0 0 6,148 6,148
Securities available for sale ......... 607,490 607,490 439,345 439,345
Trading securities .................... 5,067 5,067 0 0
Investment securities ................. 55,213 55,213 54,511 54,511
Loans receivable ...................... 2,072,825 2,093,956 1,824,856 1,832,814
Financial liabilities:
Deposits .............................. $1,763,733 $1,769,849 $1,832,780 $1,828,656
Securities sold under agreements
to repurchase and federal
funds purchased ..................... 61,216 61,216 190,588 190,593
Advances from FHLB .................... 697,707 704,042 295,700 293,587
Subordinated debentures and
note payable ........................ 179,600 242,440 78,500 73,036
Guaranteed preferred beneficial
interests in Company's junior
subordinated debentures ............. 74,750 78,488 0 0
The contract amount and related fees of BankAtlantic's commitments to
extend credit, standby letters of credit, financial guarantees and forward FHLB
commitments approximates fair value (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments).
21. ACQUISITIONS
In September 1997, the Company entered into a joint ownership agreement
with a newly formed company, FASI. FASI is a full-service investment banking
and securities brokerage firm. Included in other assets is the Company's
investment of $237,500 to acquire 50% ownership of FASI's voting stock and a
$1.5 million five year loan to FASI. The investment is accounted for under the
equity method. Included in the Company's statement of operations in other
non-interest income during the year ended December 31, 1997 is $13,000 of
income from FASI's operations.
Based on an agreement, the individual owning the remaining 50% of
outstanding voting stock can require the Company to purchase such stock after
the year 2000 through the year 2002. The sales price of the stock is based on a
prescribed formula. After the year 2002 the company can require the shareholder
to sell the stock to the Company based on a prescribed formula.
In October 1997, BankAtlantic acquired a 39.5% limited partnership
interest and an .5% general partnership interest in Jupiter Yacht Club, Ltd., a
real estate development project in Jupiter, Florida.
F-53
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ACQUISITIONS--(CONTINUED)
Included in other assets is a $1.2 million investment in the limited
partnership. The partnership is currently in the development stages resulting
in no income or loss recorded in the statement of operations for 1997.
On October 31, 1997, BankAtlantic acquired SLWHC for approximately $20.0
million. SLWHC is the developer of the master planned community of SLW, located
in St. Lucie County, Florida.
A preliminary analysis of the fair value of assets acquired and
liabilities assumed in connection with the purchase of all the capital stock of
SLWHC on October 31, 1997 follows:
(IN THOUSANDS)
- --------------
Cash ............................................................ $ 1,958
Loans receivable, net ........................................... 425
Real estate held for development and sale ....................... 19,421
Other assets .................................................... 1,984
-------
Fair value of assets acquired ................................... 23,788
Notes payable ................................................... 1,816
Other liabilities ............................................... 2,022
-------
Fair value of liabilities assumed ............................... 3,838
Acquisition costs ............................................... 75
-------
Purchase of real estate developer ............................... 19,875
Cash acquired ................................................... 1,958
-------
Purchase of real estate developer, net of cash acquired ......... $17,917
=======
Due to timing of the acquisition of SLWHC, the above allocation is subject
to change based upon receipt of appraisals and further evaluation. The SLWHC
acquisition, which was consummated on October 31, 1997, was accounted for by
the purchase method of accounting. Included in other non-interest income is
$98,000 of net income related to the above acquisition from October 31, 1997
through December 31, 1997 which included a gain on sale of real estate of
$727,000 and costs and expenses of $629,000. It is not currently anticipated
that the amortization of purchase accounting adjustments will have a material
effect on future results of operations.
F-54
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ACQUISITIONS--(CONTINUED)
The following is proforma information for the year ended December 31, 1997
and 1996 as if the SLW acquisition was consummated on January 1, 1997 and 1996,
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):
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
------------ ---------- ------------ ---------
Net interest income after provision for loan loss ......... $84,095 $83,310 $69,756 $68,889
------- ------- ------- -------
Noninterest income ........................................ 43,359 42,543 33,737 28,510
Noninterest expenses ...................................... 81,932 81,932 72,241 72,241
------- ------- ------- -------
Net income before provision for income taxes .............. 45,522 43,921 31,252 25,158
Provision for income taxes ................................ 17,753 17,135 12,241 9,890
------- ------- ------- -------
Net income .............................................. $27,769 $26,786 $19,011 $15,268
======= ======= ======= =======
Basic earnings per share Class A .......................... $ 0.98 $ 0.95 $ 0.64 $ 0.51
======= ======= ======= =======
Basic earnings per share Class B .......................... $ 0.94 $ 0.91 $ 0.72 $ 0.60
======= ======= ======= =======
Diluted earnings per share Class A ........................ $ 0.78 $ 0.75 $ 0.58 $ 0.47
======= ======= ======= =======
Diluted earnings per share Class B ........................ $ 0.77 $ 0.74 $ 0.66 $ 0.55
======= ======= ======= =======
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. 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 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 consolidated with existing branches.
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).
F-55
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ACQUISITIONS--(CONTINUED)
The fair value of assets acquired and liabilities assumed in conjunction
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 2,718
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
Investment in real estate held for sale ................ 0 0
Property and equipment ................................. 6,098 613
Mortgage loan servicing rights ......................... 4,047 0
Non-competition agreement .............................. 0 900
Other assets ........................................... 8,220 3,116
-------- --------
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
Notes payable .......................................... 0 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
======== ========
F-56
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. 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 1998 through 2002
for the Bank acquisitions. The amounts (in thousands) assume no sales or
dispositions of the related assets or liabilities.
NET DECREASE
OF NET
YEARS ENDING DECEMBER 31, EARNINGS
- --------------------------- -------------
1998 ................... $ (2,620)
1999 ................... $ (2,497)
2000 ................... $ (2,508)
2001 ................... $ (2,508)
2002 ................... $ (2,508)
Thereafter ............. $ (13,646)
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, 1997 and 1996 is $26.2 million and $28.6
million. The $900,000 non-competition agreement is considered an intangible
asset for tax purposes and amortized ratably over 15 years. At December 31,
1997 and 1996, the non-competition agreement balance was $139,000 and $417,000,
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.
F-57
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. ACQUISITIONS--(CONTINUED)
The following is proforma information for the year ended December 31, 1996
and 1995 as if the Bank 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
======== ======== ======== ========
Basic earnings per share Class A ............................ $ 0.64 $ 0.45 $ N/A $ N/A
======== ======== ======== ========
Basic earnings per share Class B ............................ $ 0.72 $ 0.55 $ 0.64 $ 0.59
======== ======== ======== ========
Diluted earnings per share Class A .......................... $ 0.58 $ 0.42 $ N/A $ N/A
======== ======== ======== ========
Diluted earnings per share Class B .......................... $ 0.66 $ 0.51 $ 0.62 $ 0.57
======== ======== ======== ========
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.
22. 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 also President and Chief
Executive Officer of St. Lucie West Holding Corp., a wholly owned subsidiary of
BankAtlantic Development Corporation and President of BankAtlantic Development
Corporation, a wholly owned subsidiary of BankAtlantic.
23. SUBSEQUENT EVENTS (UNAUDITED)
On February 9, 1998 the Company entered into a definitive agreement with
Ryan, Beck & Co. ("RBCO") whereby all of RBCO outstanding shares would be
acquired by the Company in exchange for shares of the Company's Class A common
stock. RBCO will be a wholly-owned subsidiary of the Company, however it is
anticipated that it will be an autonomous independent subsidiary, operated by
RBCO's current management. RBCO, based in New Jersey, engages in underwriting,
market making distribution, trading of bank and thrift equity and debt
securities, tax exempt bonds, consulting, research and financial advisory
services. The total assets and equity of RBCO at December 31, 1997 were $56.6
million and $14.7 million, respectively, and net income for the year ended
December 31, 1997 was $ 3.9 million. The agreement establishes an exchange
ratio of .761 shares of Class A common stock for each share of RBCO, which
,based on the closing price of the Class A common stock on February 9, 1998,
results in an aggregate purchase price of approximately $39.4 million. As part
of the
F-58
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
agreement, the Company has agreed to grant RBCO a long-term subordinated loan
to enable RBCO to expand into new products and markets.
The agreement establishes an incentive and retention pool, under which
additional Class A shares representing approximately 20% of the transaction
value from the acquisition will be allocated to key employees of RBCO. The
allocated shares will be distributed in four years to employees who remain for
the period. It is anticipated that the retention pool will be considered
compensation under generally accepted accounting principals.
The agreement is subject to the receipt of all regulatory approvals and
the approval of the shareholders of RBCO. It is anticipated that the
transaction will be closed, contingent upon the above approvals, in the second
quarter of 1998 and will be accounted for under the purchase method of
accounting.
On February 26, 1998, the Company entered into an agreement to acquire
Leasing Technology Inc. ("LTI"). LTI is engaged in all facets of equipment
leasing and financing. LTI principally leases or finances trucks, manufacturing
and construction equipment to businesses primarily located in South Florida.
Total assets and equity at December 31, 1997 were $10.9 million and $2.3
million, respectively, and LTI's adjusted income before taxes for the year
ended December 31, 1997 was $1.5 million. The aggregate purchase price is $9.3
million. All of LTI's outstanding shares will be acquired by the Company for
Class A common stock. LTI is anticipated to operate as a wholly-owned
subsidiary of BankAtlantic and the acquisition will be accounted for under the
purchase method of accounting.
The agreement is subject to the receipt of all regulatory approvals. It is
anticipated that the transaction will be closed, contingent upon the above
approvals in the first quarter of 1998.
On February 3, 1998, a special meeting of shareholders of the Company was
held. The Company's Class A and Class B common shareholders approved an
amendment to the Company's Articles of Incorporation increasing the authorized
number of Class A and Class B common shares to 80,000,000 and 45,000,000,
respectively.
In February 1998 a judgment related to the Subject Portfolio was entered
in favor of BankAtlantic. See Note 17 for further discussion.
F-59
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
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 21, 1998, except as to Note 23
which is dated February 27, 1998.
Consolidated Statements of Financial Condition as of December 31, 1997 and
1996.
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 1997.
Consolidated Statements of Stockholders' Equity for each of the years in
the three year period ended December 31, 1997.
Consolidated Statements of Cash Flows for each of the years in the three
year period ended December 31, 1997.
Notes to Consolidated Financial Statements for the three years ended
December 31, 1997.
(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.
(3) EXHIBITS
The following exhibits are either filed as a part of this Report or are
incorporated herein by reference to documents previously filed as indicated
below:
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
3.1 Amended and Restated Exhibit 3.1 to the Registrant's Registration Statement on
Articles of Incorporation. Form S-3, filed on June 5, 1996 (Registration No. 333-
05287).
3.2 Amendment to the Articles Filed with this report.
of Incorporation.
3.3 Bylaws. Exhibit 3.2 to the Registrant's Registration Statement on
Form S-4, filed on May 5, 1994 (Registration No. 33-
77708).
10.1 Indenture for the Registrant's Exhibit 4.1 to the Registrant's Registration Statement on
9% Subordinated Debentures Form S-2, filed on August 25, 1995 (Registration No.
due 2005. 33-96184).
10.2 Indenture for the Registrant's Exhibit 4.1 to the Registrant's Registration Statement on
6-3/4% Convertible Subordinated Form S-3, filed on June 5, 1996 (Registration No. 333-
Debentures due 2006. 05287).
10.3 Indenture for the Registrant's Exhibit 4.1 to the Registrant's Registration Statement on
9-1/2% Junior Subordinated Form S-3, filed on March 21, 1997 (Registration No.
Debentures due 2027. 333-23771 and 333-23771-01).
10.4 Indenture for the Registrant's Exhibit 4.1 to the Registrant's Registration Statement on
5-5/8% Convertible Subordinated Form S-3, filed on October 27, 1997 (Registration No.
Debentures due 2007. 333-38799).
10.5 Key Employees' Stock Exhibit 10.1 to the Registrant's Registration Statement on
Option Plan. Form S-4, filed on May 5, 1994 (Registration No. 33-
77708).
10.6 BankAtlantic Bancorp 194 Exhibit 10.2 to the Registrant's Registration Statement on
Stock Option Plan. Form S-4, filed on May 5, 1994 (Registration No. 33-
77708).
10.7 BankAtlantic Bancorp 1996 Appendix A to the Registrant's Definitive Proxy Statement
Stock Option Plan. filed on April 25, 1996
12.1 Ratio of Earnings to Fixed Filed with this Report.
Charges.
21.1 Subsidiaries of the Filed with this Report.
Registrant.
23.1 Consent of KPMG Peat Filed with this Report.
Marwick, LLP.
27 Financial Data Schedule. Filed with this Report.
(B) REPORTS ON FORM 8-K
Ryan, Beck & Co. and Form 8K filed on February 13, 1998.
BankAtlantic Bancorp, Inc.
acquisition agreement dated
as of February 9, 1998
Acquisition of St. Lucie West Form 8K filed on November 6, 1998.
Holding Corp., dated as of
October 31, 1997
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 13, 1998 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.
SIGNATURES 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
/s/ STEVEN M. COLDREN Director
- --------------------------------
Steven M. Coldren
/s/ MARY E. GINESTRA Director
- --------------------------------
Mary E. Ginestra
/s/ BRUNO DI GIULIAN Director
- --------------------------------
Bruno Di Giulian
/s/ CHARLIE C. WINNINGHAM, II Director
- --------------------------------
Charlie C. Winningham, II
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
3.2 Amendment to the Articles of Incorporation.
12.1 Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick, LLP.
27 Financial Data Schedule.