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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2002
Commission File Number
333-72213
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
- ----------------------- ------------------------------------
(State of Organization) (IRS Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
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(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock $.01 par Value None
Class B Common Stock $.01 par Value None
- ----------------------------------- --------------------------------------
(Title of Class) (Name of Exchange on Which Registered)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendments to
this form 10-K.
[ ]
Aggregate market value of the voting common equity held by non-affiliates of the
Registrant was $ 24.5 million computed by reference to the closing price of the
Registrant's Class A Common Stock on June 28, 2002.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,474,994 shares outstanding.
Class B Common Stock of $.01 par value, 2,362,157 shares outstanding.
Documents Incorporated by Reference in Part IV of this Form 10-K:
Portions of Registrant's Definitive Proxy Statement relating to the 2003 Annual
Meeting of Shareholders is incorporated in Part III of this report.
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2
PART I
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve substantial risks and uncertainties including in the "Outlook"
sections of Management's Discussion and Analysis of Results of Operations and
Financial Condition. When used in this report and in the documents incorporated
by reference herein, the words "anticipate", "believe", "estimate", "may",
"intend", "expect" and similar expressions identify certain of such
forward-looking statements. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied by the
forward-looking statements contained herein. These forward-looking statements
are based largely on the expectations of BFC Financial Corporation ("the
Company", "BFC", or "Registrant" which may be referred to as "we", "us" or
"our") and are subject to a number of risks and uncertainties that are subject
to change based on factors which are, in many instances, beyond the Company's
control. These include, but are not limited to, the risks and uncertainties
associated with: the impact of economic, competitive and other factors affecting
the Company and its operations, markets, products and services; credit risks and
loan losses and the related sufficiency of the allowance for loan losses; the
effects of, and changes in, trade, monetary and fiscal policies and laws,
including but not limited to interest rate policies of the Board of Governors of
the Federal Reserve System; adverse conditions in the stock market, the public
debt market and other capital markets (including changes in interest rate
conditions) and the impact of such conditions on our activities; the valuation
of our debt and equity securities and our ability to liquidate these securities;
the impact of changes in financial services' laws and regulations (including
laws concerning taxes, banking, securities and insurance); technological
changes; BankAtlantic's seven-day banking initiative and other growth
initiatives which may not produce results which justify their costs; the impact
of changes in accounting policies by the Securities and Exchange Commission; the
impact of periodic testing of goodwill and other intangible assets for
impairment; the impact of war, terrorist activities or an escalation of
hostilities involving the United States on all of our banking, real estate and
broker-dealer businesses and with respect to the operations of Levitt
Corporation ("Levitt") and its real estate subsidiaries: the market for real
estate generally and in the areas where Levitt Corporation has developments, the
availability and price of land suitable for development, materials prices, labor
costs, interest rates, environmental factors and governmental regulations; and
the Company's success at managing the risks involved in the foregoing. Further,
this report contains forward-looking statements with respect to the acquisition
by BankAtlantic Bancorp, Inc. ("BankAtlantic Bancorp" or "Bancorp") of Community
Savings Bankshares, Inc. ("Community"), which is subject to risks and
uncertainties, including but not limited to, the risk that the transaction will
cost more, take longer, or be less advantageous than expected. In addition to
the risks and factors identified above, reference is also made to other risks
and factors detailed herein and in reports filed by the Company with the
Securities and Exchange Commission ("SEC"). The Company cautions that the
foregoing factors are not exclusive. All subsequent written and oral
forward-looking statements concerning the Company or other matters and
attributable to the Company or any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements above.
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
BFC Financial Corporation is a unitary savings bank holding company as a
consequence of its ownership interest in the common stock of BankAtlantic
Bancorp. BankAtlantic Bancorp is also a diversified financial unitary savings
bank holding company that owns 100% of the outstanding stock of BankAtlantic,
Levitt Corporation and Ryan, Beck & Co., Inc. ("Ryan Beck").
In August 2000, BankAtlantic Bancorp shareholders approved a corporate
transaction that resulted in the retirement of all publicly held BankAtlantic
Bancorp Class B Common Stock, other than the Class B Common Stock held by BFC.
As a consequence, BFC became the sole holder of the Class B Common Stock which
represented 100% of the voting rights of BankAtlantic Bancorp at that time.
Because BFC controlled greater than 50% of the vote of BankAtlantic Bancorp,
commencing in 2000 BankAtlantic Bancorp was consolidated in the Company's
financial statements instead of carried on the equity basis. In 2001,
BankAtlantic Bancorp amended its articles of incorporation to grant voting
rights to holders of BankAtlantic Bancorp Class A Common Stock, make
BankAtlantic Bancorp Class B Common Stock convertible into BankAtlantic Bancorp
Class A Common Stock on a share for share basis, and equalize the cash dividends
payable on BankAtlantic Bancorp's Class A Common Stock and BankAtlantic
Bancorp's Class B Common Stock. As a consequence of the amendment, BankAtlantic
Bancorp's Class A shareholders are entitled to one vote per share, which in the
aggregate represent 53% of the combined voting power of BankAtlantic Bancorp's
Class A Common Stock and BankAtlantic Bancorp's Class B Common Stock.
BankAtlantic Bancorp's Class B Common Stock represents the remaining 47% of the
combined vote.
3
At December 31, 2002, the Company's ownership in BankAtlantic Bancorp Class A
Common Stock and Class B Common Stock was approximately 16% and 100%,
respectively, representing in the aggregate 23% of all of the outstanding
BankAtlantic Bancorp Common Stock and 55.2% of the vote.
BankAtlantic Bancorp is a Florida-based diversified financial services holding
company and the parent company of BankAtlantic, Levitt Corporation, and Ryan
Beck & Co., Inc. Through these subsidiaries, BankAtlantic Bancorp provides a
full line of products and services encompassing consumer and commercial banking,
real estate development, and brokerage and investment banking.
BankAtlantic is one of the largest financial institutions headquartered in
Florida and provides a comprehensive offering of banking services and products
via its broad network of community branches throughout Florida and its online
banking division - BankAtlantic.com. In late 2001 and early 2002, BankAtlantic
commenced its seven day banking initiative. This initiative includes offering
free checking, seven-day branch banking, extended lobby hours, a 24-hour
customer service center and dozens of new product and customer service
initiatives.
BankAtlantic's primary activities include: (i) attracting checking and savings
deposits from the public and general business customers, (ii) originating
commercial real estate and business loans, and consumer and small business
loans, (iii) purchasing wholesale residential loans from third parties, and (iv)
making other investments in mortgage-backed securities, tax certificates and
other securities.
On March 22, 2002, BankAtlantic acquired Community Savings Bankshares, Inc., the
parent company of Community Savings F.A., a savings and loan association that
operated 21 offices in Palm Beach, Martin, St. Lucie and Indian River counties
in Florida. Including the facilities acquired from Community Savings,
BankAtlantic now operates 73 branch offices and more than 180 ATMs located
primarily in Miami-Dade, Broward, Hillsborough, Palm Beach, Martin, St. Lucie
and Indian River Counties in the State of Florida and has approximately $4.9
billion in assets.
BankAtlantic, a federally-chartered and federally-insured savings bank, was
organized in 1952. BankAtlantic is regulated and examined by the Office of
Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation
("FDIC").
Levitt Corporation is the parent company of Levitt and Sons and Core
Communities. Levitt and Sons, America's oldest homebuilder and first to build
planned suburban communities, currently develops single and multi-family homes
for active adults and families throughout Florida. Core Communities develops
master-planned communities in Florida, including its original and best known,
St. Lucie West - a 4,600-acre community with 4,000 built and occupied homes, 150
businesses employing 5,000 people and a university campus. Tradition, a new
master-planned community, now under development on Florida's Treasure Coast in
St. Lucie County, which is intended to be developed into 5,600 residences, a
commercial town center and a corporate park.
Additionally, BankAtlantic Bancorp and Levitt Corporation together own
approximately 40% of the outstanding shares of Bluegreen Corporation
("Bluegreen"), a New York Stock Exchange-listed company engaged in the
acquisition, development, marketing and sale of drive-to vacation interval
resorts, golf communities and residential land. BankAtlantic Bancorp acquired
approximately 5% of Bluegreen common stock during the first quarter of 2001, and
Levitt Corporation acquired approximately 35% of Bluegreen common stock in April
2002.
Ryan Beck & co., Inc. is a full-service broker dealer engaged in underwriting,
market making, distribution, and trading of equity and debt securities. The firm
also provides money management services, general securities brokerage, including
financial planning for the individual investor and consulting and financial
advisory services to financial institutions and middle market companies. Ryan
Beck & Co., Inc. also provides independent research in the financial
institutions, healthcare, technology, and consumer product industries.
Currently, Ryan Beck has over 500 financial consultants located in 42 offices
nationwide.
On April 26, 2002 Ryan Beck acquired certain of the assets and assumed certain
of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of the
membership interests in The GMS Group, LLC ("GMS"), a wholly owned subsidiary of
Gruntal. Gruntal previously provided securities brokerage and investment banking
services to individual and institutional investors. GMS is primarily engaged in
the business of buying, selling and underwriting municipal securities. Part of
GMS's business is investing in unrated or distressed municipal securities. These
securities are not readily marketable. The assets that were acquired from
Gruntal include certain of Gruntal's customer accounts, furniture, leasehold
improvements and equipment owned by Gruntal that was associated with the offices
where Gruntal's financial consultants were located.
4
During 1999 and 2000, the Company (without consideration of BankAtlantic
Bancorp) acquired interests in unaffiliated technology entities. During 2000 and
2001, the Company's interests in the technology entities were transferred at the
Company's cost to specified asset limited partnerships. Subsidiaries of the
Company are the controlling general partners of these venture partnerships, and
therefore, they are consolidated in these financial statements. Interests in
such partnerships were sold in 2000 and 2001 to accredited investors in private
offerings. During 2000, approximately $5.1 million of capital was raised by
these partnerships from unaffiliated third parties, as well as officers,
directors and affiliates of the Company who invested approximately $4.4 million
in the Partnerships. The Company and the general partners retained ownership
interests of approximately $1.8 million. Additionally, during 2001,
approximately $895,000 of capital was raised from unaffiliated third parties by
one of these partnerships and officers, directors and affiliates of the Company
invested approximately $1.3 million in the partnership. The Company and the
general partners retained ownership interests of approximately $3.8 million
increasing the Company's total investment in these partnerships to an aggregate
of $5.6 million. Of the $1.3 million invested by officers, directors and
affiliates, Alan Levan and Jack Abdo each borrowed $500,000 from the Company on
a recourse basis and Glen Gilbert, Executive Vice President, and Earl Pertnoy, a
director of the Company each borrowed $50,000 on a non-recourse basis to make
their investments. Such amounts were still outstanding at the end of the year
(except for John Abdo's $500,000 loan which is discussed in "Related Party
Transactions"), bear interest at the prime rate plus 1% and are payable interest
only annually with the entire balance due in February 2006. After the limited
partners receive a specified return from the partnerships, the general partners
are entitled to receive 20% of all cash distributions from the partnerships. The
general partners are limited liability companies of which the members are: BFC
Financial Corporation - 57.5%, John E. Abdo - 13.75%; Alan B. Levan - 9.25%;
Glen R. Gilbert - 2.0%; and John E. Abdo, Jr. - 17.5%. Losses net of minority
interests for the year ended December 31, 2002 were $766,000. At December 31,
2002, the Company's net investment in these partnerships was $2.4 million.
In addition to its other activities, the Company apart from BankAtlantic Bancorp
and BankAtlantic Bancorp's subsidiaries, owns and manages real estate. Since its
inception in 1980, and prior to acquiring control of BankAtlantic Bancorp, the
Company's primary business was the organization, sale and management of real
estate investment programs. Subsidiaries of the Company serve as corporate
general partners of a number of private limited partnerships formed in prior
years. The Company ceased the organization and sale of real estate investment
programs in 1987. The Company continues to hold mortgage notes receivable of
approximately $787,000 that were received in connection with the sale of
properties previously owned by the Company.
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo and certain of his affiliates (the "Abdo Group"). Under the
arrangement, the Company and the Abdo Group share equally in profits after
interest earned by the Company on advances made by the Company. The Company
bears any risk of loss under the arrangement. Pursuant to this arrangement with
the Abdo Group, in December 1994, an entity controlled by the Company acquired
from an unaffiliated seller approximately 70 acres of unimproved land known as
the "Center Port" property in Pompano Beach, Florida. Through December 31, 2001,
all of the project except for land under two pylon signs, a cell tower site and
the lake had been sold to unaffiliated third parties for approximately $21.4
million and the Company recognized net gains from the sales of real estate of
approximately $4.8 million. The Abdo Group received approximately $2.6 million
in 2000 in connection with its real estate sales profit participation.
BUSINESS SEGMENTS
Management reports results of operations through seven segments: Bank
Investments, Commercial Banking and Community Banking, which are conducted
through the Bank Operation segments and are operated solely by BankAtlantic
Bancorp and BankAtlantic, Levitt Corporation, Ryan Beck, BankAtlantic Bancorp
Parent Company and BFC Holding Company.
BANK INVESTMENTS
The Bank Investments segment relates to the investments in BankAtlantic's
securities portfolios as well as wholesale and retail residential lending
activities. BankAtlantic's securities portfolios include securities available
for sale, investment securities held to maturity and tax certificates.
Additionally, this segment manages BankAtlantic's residential loan portfolio.
Securities Available for Sale - Securities available for sale consist of
investments in obligations of the U.S. government or its agencies. These consist
of mortgage-backed securities, real estate mortgage investment conduits
("REMIC's") and notes or bonds. BankAtlantic securities portfolio serves as a
source of liquidity while providing a means to moderate the effects of interest
rate changes. The decision to purchase and sell securities is based upon
assessments of the economy, the interest rate environment and BankAtlantic
liquidity needs.
5
Investment Securities Held to Maturity and Tax Certificates - Investment
securities held to maturity consist of commercial mortgage-backed securities.
Tax certificates are evidences of tax obligations that are sold through auctions
or bulk sales by various state taxing authorities on an annual basis. The tax
obligation arises when the property owner fails to timely pay the real estate
taxes on the property. Tax certificates represent a priority lien against the
real property for the delinquent real estate taxes. Interest accrues at the rate
established at the auction or by statute. The minimum repayment, in order to
satisfy the lien, is the certificate amount plus the interest accrued through
the redemption date and applicable penalties, fees and costs. Tax certificates
have no payment schedule or stated maturity. If the certificate holder does not
file for the deed within established timeframes, the certificate may become null
and void. BankAtlantic's experience with this type of investment has been
favorable as rates earned are generally higher than many alternative investments
and substantial repayments generally occur over a two-year period. Other than in
Florida and Georgia, we have no significant concentration of tax certificate
holdings in any one taxing authority.
The composition, yields and maturities of securities available for sale and
investment securities and tax certificates were as follows (in thousands):
U.S. Corporate
Treasury Mortgage- Bond Weighted
and Tax Backed and Average
Agencies Certificates Securities Other (3) Total Yield
--------- ------------ ------------ --------- ----------- --------
December 31, 2002
Maturity: (1)
One year or less $ - $ 139,474 $ 533 $ 36 $ 140,043 9.96%
After one through five
years - 54,600 866 385 55,851 9.96
After five through ten
years - - 699 14,841 15,540 3.34
After ten years - - 703,952 - 703,952 5.29
--------- ----------- ----------- -------- ----------- --------
Fair values (2) $ - $ 194,074 $ 706,050 $ 15,262 $ 915,386 6.26%
========= =========== =========== ======== =========== ========
Amortized cost (2) $ - $ 194,074 $ 684,085 $ 14,794 $ 892,953 6.34%
========= =========== =========== ======== =========== ========
Weighted average yield
based on fair values - % 9.96% 5.28% 3.22% 6.26%
Weighted average maturity - 2.0 years 26.10 8.17 20.69
--------- ----------- ----------- -------- -----------
December 31, 2001
Fair values (2) $ 5,819 $ 144,077 $ 1,084,776 $ 262 $ 1,234,934 6.37%
========= =========== =========== ======== =========== ========
Amortized cost (2) $ 5,819 $ 144,077 $ 1,063,949 $ 250 $ 1,214,095 6.59%
========= =========== =========== ======== =========== ========
December 31, 2000
Fair values (2) $ 5,945 $ 122,352 $ 1,050,052 $ 250 $ 1,178,599 6.90%
========= =========== =========== ======== =========== ========
Amortized cost (2) $ 5,945 $ 122,352 $ 1,056,470 $ 250 $ 1,185,017 6.43%
========= =========== =========== ======== =========== ========
(1) Except for tax certificates, maturities are based upon contractual
maturities. Tax certificates do not have stated maturities, and estimates
in the above table are based upon historical repayment experience
(generally 1 to 2 years).
(2) Equity securities held by BankAtlantic Bancorp and Ryan Beck with a cost
of $4.8 million, $33.4 million and $35.0 million and a fair value of $5.2
million, $43.4 million and $48.4 million at December 31, 2002, 2001 and
2000 respectively, were excluded from the above table.
(3) Includes $14.8 million of collateralized mortgage obligations secured by
non-residential real estate associated with the commercial banking segment
at December 31, 2002.
6
A summary of the amortized cost and gross unrealized appreciation or
depreciation of estimated fair value of tax certificates and held to maturity
and available for sale securities follows (in thousands):
DECEMBER 31, 2002
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
--------- ------------ ------------ ----------
Tax certificates and investment securities:
Cost equals market $ 197,857 $ - $ - $ 197,857
Mortgage-backed securities held to maturity:
Market over cost 14,383 458 - 14,841
Investment securities available for sale:
Market over cost 1,447 361 - 1,808
Mortgage-backed securities available for sale:
Market over cost 682,217 21,995 - 704,212
Cost over market 1,868 - 30 1,838
--------- ------------ ------------ ----------
Total $ 897,772 $ 22,814 $ 30 $ 920,556
========= ============ ============ ==========
Residential Loans - BankAtlantic purchases residential loans in the secondary
markets. These loans are secured by property located throughout the United
States. For residential loan purchases, BankAtlantic reviews the seller's
underwriting policies and, for certain individual loans, perform additional
credit analysis. These loans are typically purchased in bulk and are generally
non-conforming loans due to the size and characteristics of the individual
loans. Guidelines for loan purchases relating to: loan amount, type of property,
state of residence, loan-to-value ratios, the borrower's sources of funds,
appraisal, and loan documentation. BankAtlantic also originates certain
residential loans, which are primarily made to "low to moderate income"
borrowers in order to comply with standards under the Community Reinvestment Act
(see Regulation of Federal Savings Bank). The underwriting of these loans
generally follows government agency guidelines with independent appraisers
generally performing on-site inspections and valuations of the collateral.
COMMERCIAL BANKING
The Commercial Banking segment includes a wide range of commercial lending
products. These products include commercial real estate construction,
residential development and land acquisition loans, commercial business loans
and trade finance lending. This segment also provides letters of credit and
standby letters of credit to corporate customers.
Commercial Real Estate - Commercial real estate loans are provided for the
acquisition, development and construction of various property types, as well as
the refinancing and acquisition of existing income-producing properties. These
loans are generally secured by property primarily located within Florida.
Commercial real estate loans typically are based on a maximum of 80% of the
collateral's appraised value and, in most cases, require the borrower to
maintain escrow accounts for real estate taxes and insurance. Prior to making a
loan, BankAtlantic considers the value of the collateral, the quality of the
loan, the credit worthiness of the borrowers and guarantors, the location of the
real estate, the projected income stream of the property, the reputation and
quality of management constructing or administering the property, and the
interest rate and fees. BankAtlantic generally requires that one or more of the
principals of the borrowing entity guarantee these loans. Loans to and
investments in affiliated joint ventures may result in consolidated exposure in
excess of the typical loan-to-value ratio, and guarantees of the principals may
not be required.
Commercial Business - Commercial business loans are generally made to medium
size companies located throughout Florida, primarily in Miami-Dade, Broward and
Palm Beach Counties and the Tampa Bay area. Both secured and unsecured loans are
made, although the majority of these loans are on a secured basis. The accounts
receivable, inventory, equipment, and/or general corporate assets of the
borrowers typically provide the security for commercial business loans. These
loans generally have variable interest rates that are prime or LIBOR-based and
are originated for terms ranging from one to five years.
Standby Letters of Credit and Commitments - Standby letters of credit are
conditional commitments issued by BankAtlantic to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is the same as extending loans to customers. Certificates of deposit and
residential and commercial liens may be held as collateral for letters of
credit.
7
BankAtlantic issues commitments for commercial real estate and commercial
business loans.
COMMUNITY BANKING
The Community Banking segment offers a diverse range of loan products for
individuals and small businesses. These products include home equity loans,
automobile loans, overdraft protection on deposit accounts and small business
lending. Business bankers and branch market managers originate the above loans.
This segment also administers BankAtlantic's ATM network operations located in
retail outlets, cruise ships, Native American reservation gaming facilities and
BankAtlantic branch locations.
Small Business - Small business loans are generally made to companies located
primarily in South Florida, along the Treasure Coast of East Florida and in the
Tampa Bay area. Small business loans are primarily originated on a secured basis
and do not exceed $1.0 million for non-real estate secured loans and $1.5
million for real estate secured loans. These loans are originated with
maturities primarily ranging from one to three years or on demand: however,
loans collateralized by real estate could have terms of up to fifteen years.
Lines of credit are due upon demand. These loans typically have either fixed or
variable prime-based interest rates.
Small business loans generally have a higher degree of risk than other loans in
our portfolio because they are more likely to be adversely impacted by
unfavorable economic conditions. In addition, these loans typically are highly
dependent on the success of the business and the credit worthiness of the
principals.
Consumer - Consumer loans are primarily loans to individuals originated through
the branch network and sales force. The majority of BankAtlantic's originations
are home equity lines of credit secured by a second mortgage on the primary
residence of the borrower. BankAtlantic currently does not use brokers to
originate loans. In the past, BankAtlantic originated automobile loans through
automobile dealers, but this activity was discontinued during the fourth quarter
of 1998. Home equity lines of credit have prime-based interest rates and
generally mature in 15 years. All other consumer loans generally have fixed
interest rates with terms ranging from one to five years.
Retail Brokerage Services - During 2002, through its wholly-owned subsidiary, BA
Financial Services, LLC, BankAtlantic began offering retail brokerage services
to our customers through our branch network. These products and services include
mutual funds, bonds, stocks and variable annuities.
Interest Expense and Overhead Allocations to Bank Operations Segments
Interest expense and overhead for Bank Operation segments represents interest
expense and certain revenue and expense items that are allocated to each Bank
Operation segment by its pro-rata average assets. Items included in interest
expense and overhead include: (1) interest expense on all interest-bearing
banking liabilities and (2) an allocation of back office and corporate
headquarter operating expenses, net of deposit account fee income.
Deposits - BankAtlantic's deposits include commercial demand deposit accounts,
retail demand deposit accounts, savings accounts, money market accounts,
certificates of deposit, various NOW accounts, IRA and Keogh retirement
accounts, brokered certificates of deposit and public funds. Deposits are
solicited in BankAtlantic's market areas through advertising and relationship
banking activities conducted through our sales force and branch network. During
2002, products such as Totally Free Checking and Totally Free Savings were the
lead programs of our marketing strategy to obtain new customers.
BankAtlantic has several relationships, including one with Ryan Beck, for the
placement of brokered certificates of deposit. These relationships are
considered an alternative source of funding.
Federal Home Loan Bank ("FHLB") Advances - We are a member of the FHLB and can
obtain secured advances from the FHLB of Atlanta. Advances are collateralized by
a security lien against BankAtlantic's residential loans, certain commercial
loans and securities. In addition, certain levels of FHLB stock must be
maintained for outstanding advances. FHLB advances are primarily used to fund
our purchased residential loan portfolio.
8
Securities Sold Under Agreements To Repurchase And Other Short-Term Borrowings -
Short-term borrowings consist of securities sold under agreements to repurchase,
and federal funds borrowings. Securities sold under agreements to repurchase
involve a sale of a portion of our current investment portfolio (usually MBS and
REMIC's) at a negotiated rate and an agreement to repurchase the same assets on
a specified future date. Repurchase agreements are issued to institutions and
BankAtlantic's customers. These transactions are collateralized by securities in
BankAtlantic's investment portfolio. The FDIC does not insure repurchase
agreements. Federal funds borrowings occur under established facilities with
various federally insured banking institutions to purchase federal funds. The
facilities are used on an overnight basis to assist in managing our cash flow
requirements. These federal fund lines are subject to periodic review, may be
terminated at any time by the issuer institution and are unsecured. BankAtlantic
also has a facility with the Federal Reserve Bank of Atlanta for secured
advances. These advances are collateralized by a security lien against
BankAtlantic's consumer loans.
Subordinated debentures and mortgage-backed bonds - Subordinated debentures
consist of $22 million of floating rate debentures due 2012. Interest on the
debentures are payable quarterly and are redeemable after October 2007. The
debentures qualify for inclusion in BankAtlantic's total risk-based capital. In
connection with the acquisition of Community, BankAtlantic assumed $15.0 million
of mortgage-backed bonds. The bonds have a floating interest rate and mature in
September 2013.
LEVITT CORPORATION
Levitt Corporation is a real estate company organized in December 1982 under the
laws of the State of Florida, and currently engages in real estate activities
through: (1) Levitt and Sons, (2) Core Communities, (3) an investment in
Bluegreen Corporation, and (4) other subsidiaries and joint ventures.
Levitt Corporation's operating strategy consists of:
- Building and selling single family homes in both the active adult
and primary residential markets,
- Acquiring land, obtaining entitlements and developing parcels
suitable to residential, industrial and commercial users,
- Re-selling developed parcels to established homebuilders and to
commercial and industrial users,
- Constructing and marketing quality rental apartments, condominium
apartments and single family residential units through its interests
in joint ventures,
- Acquiring land and real estate projects either through direct
ownership or through joint venture relationships, and
- Through its interest in Bluegreen Corporation, acquiring,
developing, marketing and sale of drive-to vacation resorts and golf
communities.
Levitt and Sons
Levitt and Sons and its predecessors have built more than 200,000 homes since
1929 and introduced planned suburban communities to the United States building
industry. It is recognized nationally for having built the Levittown communities
in New York, New Jersey, Pennsylvania and Puerto Rico. Since 1977, Levitt and
Sons has operated principally in Florida. Levitt Corporation acquired Levitt and
Sons in 1999.
Levitt and Sons develops planned communities, generally featuring homes priced
between $120,000 - $300,000. While in prior years Levitt and Sons focused on
active adult communities, Levitt and Sons recently expanded into developing
communities for the family market. At December 31, 2002, Levitt and Sons had ten
communities under development, for which sales activity had begun. Additionally,
through a joint venture, Levitt and Sons is constructing a 164-unit condominium
project. All of the communities are located within the State of Florida. At
December 31, 2002, information regarding closed units and backlog units was as
follows:
Closed Backlog
Units Units
------ -------
Year ended December 31, 2000 620 703
Year ended December 31, 2001 879 724
Year ended December 31, 2002 880 885
9
Backlog represents the number of units subject to pending sales contracts. Homes
are typically sold prior to construction using sales contracts that are usually
accompanied by cash deposits. Homes included in the backlog are homes that have
been completed, but on which title has not been transferred, homes not yet
completed and homes on which construction has not begun.
Additionally, at December 31, 2002, Levitt and Sons had three properties
representing an aggregate of approximately 374 acres and an aggregate purchase
price of $32.1 million under contract on which due diligence has been completed.
While financing is not yet finalized, the transactions are expected to close in
2003. Levitt and Sons estimates these three properties, located in Naples,
Estero and Windemere, Florida, will permit the additional development of 933
home sites. One additional property, located in Lake County, Florida, is also
under contract, but due diligence has not yet been completed. This property
would provide approximately an additional 1,000 homesites at a cost of $7.5
million.
Core Communities
Core Communities was founded in May 1996 to develop the master-planned community
now known as St. Lucie West. Levitt Corporation acquired Core Communities in
October 1997.
Core Communities' primary business is the development of master-planned
communities, including (1) land acquisition, (2) planning, entitlement and
infrastructure development, and (3) the sale of platted land and/or developed
lots to homebuilders, commercial, industrial and institutional users. Core
Communities is currently developing the communities of St. Lucie West, Tradition
and commercial land in Live Oak Preserve.
St. Lucie West is a 4,600 acre master-planned community located in St. Lucie
County, Florida. Interstate 95 borders it to the west and Florida's Turnpike to
the east. St. Lucie West contains residential, commercial and industrial
developments. Within the community, residents are close to recreational and
entertainment facilities, houses of worship, retail businesses, medical
facilities and schools. PGA of America owns and operates a golf course and a
country club. The community's baseball stadium serves as the spring training
headquarters for the New York Mets. There are approximately 4,000 homes in St.
Lucie West housing nearly 8,000 residents. Local businesses in the community
employ more than 5,000 workers. Only 365 acres remain available for sale in this
project.
In October 1998, Core Communities acquired 2,033 acres of land approximately two
miles south of St. Lucie West, also bordering Interstate 95. This project,
currently known as Tradition, is intended to be developed as a master-planned
community, including a corporate park, a K-12 charter/lab school, commercial
properties, residential homes and other uses in a series of mixed-use parcels.
It is anticipated that Community Development Districts will be formed to provide
financing for the various elements of the project.
In May 2002, Core Communities acquired approximately 1,800 acres of land
contiguous to the Tradition property for future expansion. Approximately 430
acres of this property is currently subject to a contract with a single
homebuilder for the sale of undeveloped lots commencing in 2003.
Core Communities has entered into a $12.8 million contract expected to close in
August 2003 for the acquisition of approximately 1,700 acres of contiguous land
to the west and south of its existing Tradition holdings for possible future
expansion. Core Communities also has approximately 1,600 acres of its Tradition
holdings under contracts for sale with closings expected to commence in August
2003 through 2005 for an aggregate sales price of $30.0 million. Core
Communities is under contract to acquire an additional 3,200 acres of contiguous
land to the west and south of its existing Tradition holdings.
First phase development is underway at the Tradition project and is expected to
continue through 2003. First phase development includes construction of primary
access to Interstate 95 and of connector roadways to Interstate 95 from the
interior of the Tradition project, construction of the stormwater
infrastructure, commercial pod development, and traditional and neo-traditional
residential lot development. Core Communities has entered into a contract with
two homebuilders for the sale of portions of the first phase residential lots.
This transaction is expected to close in 2003.
In September 2001, Core Communities acquired a 1,285-acre tract of land known as
Live Oak Preserve in Hillsborough County on the west coast of Florida. During
October 2002, Core Communities sold 1,267 acres of this property, representing
all of the residential land, in a single transaction. The remaining 18 acres of
land represents all of the land zoned for commercial property held for
development and sale.
10
Other Subsidiaries and Joint Ventures
Through subsidiaries, Levitt is engaged in the development and sale of flex
industrial properties in Boynton Beach, Florida and the construction of rental
properties. Levitt is also involved in joint ventures which defray portions of
risk associated with ventures by entering into joint venture agreements with
persons and entities who contribute equity capital.
Bluegreen Corporation
Bluegreen Corporation is a leading marketer of vacation and residential
lifestyle choices through its resorts and residential land and golf businesses.
Bluegreen Corporation's resorts business acquires, develops and markets
timeshare interests in resorts generally located in popular high-volume,
"drive-to" vacation destinations. "Timeshare Interests" are of two types: one
which entitles the fixed-week buyer to a fully-furnished vacation residence for
an annual one-week period in perpetuity and the second which entitles the buyer
of the Bluegreen Corporation's points-based Bluegreen Vacation Club(TM)
product to an annual allotment of "points" in perpetuity (supported by an
underlying deeded fixed timeshare week being held in trust for the buyer).
"Points" may be exchanged by the buyer in various increments for lodging for
varying lengths of time in fully-furnished vacation residences at any of the
Bluegreen Corporation's participating resorts. A timeshare interest also
entitles the buyer to access over 3,700 resorts worldwide through the Bluegreen
Corporation's participation in timeshare exchange networks. Bluegreen
Corporation currently develops, markets and sells timeshare interests in 11
resorts located in the United States and one resort located in the Caribbean.
Bluegreen Corporation's residential land and golf division acquires, develops
and subdivides property and markets the subdivided residential lots to retail
customers seeking to build a home in a high quality residential setting, in some
cases on properties featuring a golf course and related amenities. The
residential land and golf division's strategy is to locate its projects (i) near
major metropolitan centers but outside the perimeter of intense subdivision
development or (ii) in popular retirement areas. Bluegreen Corporation also
generates significant interest income through its financing of individual
purchasers of timeshare interests and, to a nominal extent, home sites sold by
its residential land and golf division.
Levitt acquired shares in Bluegreen Corporation as an investment with the intent
of acquiring a significant equity position. Further, Levitt may in the future
make a proposal to Bluegreen involving a corporate transaction, such as a merger
or reorganization, involving Bluegreen or its subsidiaries.
RYAN BECK & CO., INC.
Ryan Beck provides financial advice to individuals, institutions and corporate
clients through 42 offices in twelve states. For individual investors, the
firm's Private Client Group provides a full range of financial services,
including investment consulting, retirement planning, insurance and investment
advisory services. Institutional clients are served by the market-making,
underwriting and distribution activities of the firm's experienced Capital
Markets Group, which encompasses equity and fixed income trading, fixed income
products, institutional sales and research. Through its Investment Banking
Group, Ryan Beck provides consulting and financial advisory services to
corporate clients, primarily financial institutions and middle-market companies.
As a registered broker-dealer with the SEC, Ryan Beck operates on a fully
disclosed basis with its clearing firm, Pershing LLC. Clients consist primarily
of (1) high net worth individuals, (2) financial institutions, (3) institutional
clients (including mutual funds, pension funds, trust companies, insurance
companies, LBO funds, private equity sponsors, merchant banks and other
long-term investors) and to a lesser extent, (4) insurance companies and
specialty finance companies.
Ryan Beck's subsidiaries, Cumberland Advisors, Inc. ("Cumberland Advisors") and
GMS, provide money management and brokerage services to individuals,
institutions, government entities and non-profit organizations. Cumberland
Advisors was acquired in 1998 and supervises assets for individuals,
institutions, retirement plans, governmental entities and cash management
portfolios. GMS, which was acquired in the Gruntal transaction, is in the
municipal finance business including origination and acquisition of municipal
securities. GMS's private client group distribution emphasis is on tax-free
securities. Part of GMS's business consists of investing in unrated or
distressed municipal securities. These securities are not readily marketable and
are either not rated by any rating agency or are rated below investment grade
("below investment grade securities".) Included in the Company's consolidated
statement of financial condition was approximately $86 million of below
investment grade securities associated with the activities of GMS.
11
BANKATLANTIC BANCORP PARENT COMPANY
The BankAtlantic Bancorp Parent Company segment operations include the financing
of the capital needs of all subsidiaries through debt and equity offerings. The
BankAtlantic Bancorp Parent Company obtains its funds from issuances of equity
securities, subordinated debentures, convertible subordinated debentures,
subordinated investment notes and trust preferred securities, dividends from
BankAtlantic, as well as borrowings from unrelated financial institutions. The
BankAtlantic Bancorp Parent Company provides capital to its subsidiaries for the
financing of acquisitions and for other general corporate purposes. The
BankAtlantic Bancorp Parent Company also owns and manages a small portfolio of
public and private equity investments. Certain of the Company's affiliates,
including certain of its executive officers, have independently made investments
with their own funds in both public and private entities in which the
BankAtlantic Bancorp Parent Company holds investments. (See Management
Discussion and Analysis-"Related Party Transactions" for a further discussion on
equity investments.)
BFC HOLDING COMPANY
The BFC Holding Company segment includes all of the operations and all of the
assets that are owned by BFC other than BankAtlantic Bancorp and its
subsidiaries. BFC owns and manages real estate, which includes the ownership of
Burlington Manufacturers Outlet Center ("BMOC"), a shopping center in North
Carolina and the unsold land at Center Port, an industrial office park developed
in Florida. BFC also holds mortgage notes receivable that were received in
connection with the sale of properties previously owned. The BFC Holding Company
segment also includes overhead and interest expense. The interest expense
relates to debts and other borrowings, primarily utilized for the acquisition of
real estate and equity securities. Equity investments primarily include equity
securities in the retail and technology sectors and ownership interests in
private limited partnerships. Subsidiaries of BFC are the managing general
partners of the private limited partnerships and the partnerships' accounts are
included in the consolidated financial statements of the Company.
RISK FACTORS
Banking Industry Risks
Banking is a business that depends on interest rate differentials. In general,
the net income, which is the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loan and securities holdings, constitutes a major portion of its earnings.
Changes in interest rates can have differing effects on BankAtlantic's net
interest income and the cost of purchasing residential mortgage loans in the
secondary market. In particular, changes in market interest rates, changes in
the relationships between short-term and long-term market interest rates or
changes in the relationships between different interest rate indices can affect
the interest rates charged on interest-earning assets differently than the
interest rates paid on interest-bearing liabilities. This difference could
result in an increase in interest expense relative to interest income and
therefore reduce BankAtlantic's net interest income.
Loan prepayment decisions are also affected by interest rates. Loan prepayments
generally accelerate as interest rates fall. Prepayments in a declining interest
rate environment reduce BankAtlantic's net interest income and adversely affect
its earnings because:
- It amortizes premiums on acquired loans, and if loans are prepaid,
the unamortized premium will be charged off; and
- The yields it earns on the investment of funds that it receives from
prepaid loans are generally less than the yields that it earned on
the prepaid loans.
Thus, the earnings and growth of BankAtlantic are affected by interest rates,
which are subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve Board. The nature and
timing of any changes in such policies or general economic conditions and their
effect on BankAtlantic cannot be controlled and are extremely difficult to
predict.
Additionally, BankAtlantic is exposed to the risk that borrowers or
counter-parties may default on their obligations to it. Credit risk arises
through the extension of loans and leases, certain securities, letters of
credit, financial guarantees and through counter-party exposure on trading and
wholesale loan transactions. In an attempt to manage this risk, BankAtlantic
establishes policies and procedures to manage both on and off-balance sheet
(primarily loan commitments) credit risk.
12
BankAtlantic attempts to manage credit exposure to individual borrowers and
counter-parties on an aggregate basis including loans, securities, letters of
credit, derivatives and unfunded commitments. Credit personnel analyze the
creditworthiness of individual borrowers or counter-parties, and limits are
established for the total credit exposure to any one borrower or counter-party.
Credit limits are subject to varying levels of approval by senior line and
credit risk management.
The aftermath of the events of September 11, 2001 and the United States'
continued war on terrorism and other military conflicts may have an
unpredictable effect on economic conditions in general and in our primary market
areas. Depending upon the timing and strength of the economic recovery,
BankAtlantic could experience a decline in credit quality that could result in
loan losses and a material adverse effect on our earnings.
UNDERWRITING AND CREDIT MANAGEMENT
BankAtlantic evaluates a borrower's ability to make principal and interest
payments and the value of the collateral securing the underlying loans.
Independent appraisers generally perform on-site inspections and valuations of
the collateral for commercial real estate loans. All non-residential loans or
leases of $1.0 million to $5.0 million require Officers' Loan Committee approval
and ratification by Major Loan Committee. Residential loans for over $500,000
require approval by the Officers' Loan Committee and ratification by the Major
Loan Committee. Purchased residential loans in pools greater than $50 million
require Investment Committee approval. The Investment Committee includes the
Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and
Chief Credit Officer of BankAtlantic. All loans over $5.0 million require the
approval of the Major Loan Committee. In addition to senior loan officers of
BankAtlantic, the Major Loan Committee consists of BankAtlantic's Chief
Executive Officer and BankAtlantic's Vice-Chairman. The Officers' Loan Committee
includes members of BankAtlantic's executive management.
For consumer and small business lending, credit scoring systems are utilized to
assist in the assessment of the relative risks of new underwritings and to
provide standards for extensions of credit. Consumer and small business
portfolio credit risk is monitored by using statistical models and regular
reviews of actual payment experience in order to predict portfolio behavior.
An independent credit review group conducts ongoing reviews of credit activities
and portfolios, reexamining, on a regular basis, risk assessments for credit
exposure and overall compliance with policy. This group meets periodically with
the Credit Policy Committee to provide an update on the status of the various
loan portfolios.
A separate Senior Loan Committee meets monthly to discuss the progress of
individual credits, to monitor compliance with lending policies and to consider
upgrading or downgrading the risk grades of specific loans. The Senior Loan
Committee includes the Chief Executive Officer, Chief Financial Officer, Chief
Investment Officer and Chief Credit Officer. BankAtlantic's primary credit
exposure is focused in its loan and lease portfolio, which totaled $3.4 billion
and $2.8 billion at December 31, 2002 and 2001, respectively.
13
Loans and leases receivable composition at BankAtlantic on the dates indicated
was (in thousands):
As of December 31,
----------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------- -------------------- ------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
Loans receivable:
Real estate loans:
Residential real
estate $1,378,041 40.86% $1,111,775 40.07% $1,316,062 46.14% $1,188,092 44.39% $1,336,587 50.90%
Construction and
development 1,218,411 36.13 1,122,628 40.47 937,881 32.88 634,382 23.71 439,418 16.74
Commercial real
estate 755,492 22.40 522,006 18.82 369,282 12.95 312,014 11.66 341,738 13.02
Small business -
real estate 98,494 2.92 43,196 1.56 28,285 0.99 22,241 0.83 20,275 0.77
Other loans:
Second mortgage -
direct 261,579 7.76 166,531 6.00 124,859 4.38 85,936 3.21 60,403 2.30
Second mortgage -
indirect 1,713 0.05 2,159 0.08 4,020 0.14 5,325 0.20 8,032 0.31
Commercial business 82,174 2.44 76,146 2.74 86,194 3.02 188,040 7.03 91,591 3.49
Small business -
non-mortgage 62,599 1.86 59,041 2.13 69,325 2.43 93,442 3.49 98,543 3.75
Lease finance 31,279 0.93 54,969 1.98 75,918 2.66 43,436 1.62 25,055 0.95
Due from foreign
banks 0 0.00 1,420 0.05 64,207 2.25 51,894 1.94 27,293 1.04
Consumer - other
direct 24,881 0.74 25,811 0.93 33,036 1.16 35,508 1.33 40,930 1.56
Consumer - other
indirect 6,392 0.19 23,241 0.84 58,455 2.05 120,184 4.49 212,571 8.10
Loans held for sale:
Residential real
estate 0 0.00 4,757 0.17 0 0.00 220,236 8.23 168,881 6.43
Syndication loans 14,499 0.43 40,774 1.47 80,016 2.80 0 0.00 0 0.00
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total 3,935,554 116.69 3,254,454 117.31 3,247,540 113.85 3,000,730 112.13 2,871,317 109.36
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Adjustments:
Undisbursed portion of
loans in process 511,861 15.18 434,166 15.65 344,390 12.07 286,608 10.71 218,937 8.34
Unearned discounts 3,041 0.09 1,470 0.05 3,675 0.13 (6,420) (0.24) (11,277) (0.43)
(premiums)
Allowance for loan
losses 48,022 1.42 44,585 1.61 47,000 1.65 44,450 1.66 37,950 1.45
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total loans
receivable, net $3,372,630 100.00% $2,774,233 100.00% $2,852,475 100.00% $2,676,092 100.00% $2,625,707 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
Bankers acceptances $ 0 100.00% $ 5 100.00% $ 1,329 100.00% $ 13,616 100.00% $ 9,662 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
Real Estate Industry Risks
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Factors which adversely affect the real estate and
homebuilding industries, many of which are beyond Levitt's control include:
- The availability and cost of financing,
- Unfavorable interest rates and increases in inflation,
- Overbuilding or decreases in demand,
- Changes in the general availability of land and competition for
available land,
- Construction defects and warranty claims arising in the ordinary
course of business, including mold related property damage and
bodily injury claims,
- Changes in national, regional and local economic conditions,
- Cost overruns, inclemental weather, and labor and material
shortages,
- The impact of present or future environmental legislation, zoning
laws and other regulations,
- Availability, delays and costs associated with obtaining permits,
approvals or licenses necessary to develop property, and
- Increases in real estate taxes and other governmental fees.
In addition, Levitt currently develops and sells properties primarily in
Florida. The Florida markets in which Levitt operates are subject to the risks
of natural disasters such as hurricanes and tropical storms. These natural
disasters could have a
14
material adverse effect on Levitt's business by causing the incurrence of
uninsured losses, the incurrence of delays in construction, and shortages and
increased costs of labor and building materials.
Brokerage Industry Risks
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, customer fraud,
employee errors and misconduct, failures in connection with the processing of
securities transactions and litigation. Ryan Beck's business and its
profitability are affected by many factors including:
- The volatility and price levels of the securities markets,
- The volume, size and timing of securities transactions,
- The demand for investment banking services,
- The level and volatility of interest rates,
- The availability of credit,
- Legislation affecting the business and financial communities,
- The economy in general and
- The volatility of equity and debt securities held in inventory.
Markets characterized by low trading volumes and depressed prices generally
result in reduced commissions and investment banking revenues as well as losses
from declines in the market value of securities positions. Moreover, Ryan Beck
is likely to be adversely affected by negative economic developments in the
mid-Atlantic region or the financial services industry in general.
The majority of Ryan Beck's assets and liabilities are securities owned or
securities sold, but not yet purchased. Securities owned and securities sold,
but not yet purchased, are associated with trading activities conducted both as
principal and as agent on behalf of individual and institutional investor
clients of Ryan Beck and are accounted for at fair value in our financial
statements. The fair value of these trading positions is generally based on
listed market prices. If listed market prices are not available or if
liquidating the positions would reasonably be expected to impact market prices,
fair value is determined based on other relevant factors, including dealer price
quotations, price quotations for similar instruments traded in different markets
or management's estimates of amounts to be realized on settlement. As a
consequence, volatility in either the stock or fixed-income markets, could
result in an adverse change in our financial statements. Trading transactions as
principal involve making markets in securities, which are held in inventory to
facilitate sales to and purchases from customers. As a result of this activity,
Ryan Beck may be required to hold securities during declining markets.
The Gruntal transaction significantly increased the size of Ryan Beck, but its
success will be dependent upon Ryan Beck's ability to integrate the Gruntal
operations, successfully manage a much larger organization and retain its new
employees. Although Ryan Beck assumed a $21 million deferred compensation plan
obligation for participating financial consultants, and Ryan Beck put in place a
length of service award and a retention award in forgivable notes in the
aggregate amounts of $900,000 and $9.5 million, respectively, for certain
financial consultants and key employees, the financial consultants and other
employees may choose not to remain with Ryan Beck. Additionally part of GMS's
business consists of investing in below investment grade securities. In some
instances, GMS holds a majority of the securities of an issue. These below
investment grade securities generally consist of revenue bonds issued by
tax-exempt entities related to healthcare and long-term care facilities. The
payment of the principal and interest associated with these securities is
dependent on the cash flows of the issuer. As a consequence, GMS is exposed to
the risk that the issuer's cash flows from operations will not be sufficient to
cover the debt service resulting in GMS not recovering its entire investment.
The credit risk on below investment grade securities is significant and
therefore a change in the credit quality of an issue could result in a
significant impact on the fair value of the issue. Since, there is no trading
market for many of these securities, GMS may not be able to liquidate its
position at prices that would be available for securities that are readily
marketable. These securities are accounted for in our financial statements at
amounts that we believe represent the fair value of the securities but there is
no assurance that we will be able to realize such amounts upon sale.
BankAtlantic Bancorp Parent Company Risks
As of December 31, 2002, approximately $246.2 million of indebtedness was
outstanding at the BankAtlantic Bancorp holding company level. The degree to
which BankAtlantic Bancorp is leveraged poses risks to BankAtlantic Bancorp's
operations, including the risk that BankAtlantic Bancorp's cash flow will not be
sufficient to service its outstanding debt and that BankAtlantic Bancorp may not
be able to obtain additional financing or refinancing. If BankAtlantic Bancorp
is forced
15
to utilize all or most of its cash flow for the purpose of servicing debt, it
will not be able to use those funds for other purposes including payment of
dividends to us. BankAtlantic Bancorp's ability to meet these obligations is
largely dependent on BankAtlantic's ability to pay dividends to BankAtlantic
Bancorp. BankAtlantic's ability to pay dividends is limited and is primarily
determined based on BankAtlantic's net income.
As of December 31, 2002, BFC owned all of BankAtlantic Bancorp's issued and
outstanding Class B Common Stock and 8,296,891 shares, or approximately 16%, of
BankAtlantic Bancorp's issued and outstanding Class A Common Stock. These shares
represent approximately 55% of BankAtlantic Bancorp's total voting power. Since
the Class A Common Stock and Class B Common Stock vote as a single group on most
matters, BFC is in a position to control BankAtlantic Bancorp and elect a
majority of BankAtlantic Bancorp's Board of Directors. Additionally, Alan B.
Levan, BankAtlantic Bancorp's Chairman of the Board of Directors and Chief
Executive Officer of BankAtlantic, and John E. Abdo, Vice Chairman of
BankAtlantic Bancorp's Board of Directors and the Vice Chairman of the Board of
Directors and Chairman of the Executive Committee of BankAtlantic, beneficially
own approximately 45.4% and 15.7% of the shares of BFC, respectively. As a
consequence, Alan B. Levan and John E. Abdo effectively have the voting power to
control the outcome of any shareholder vote of BankAtlantic Bancorp, except in
those limited circumstances where Florida law mandates that the holders of our
Class A Common Stock vote as a separate class. BFC's control position may have
an adverse effect on the market price of BankAtlantic Bancorp's Class A Common
Stock.
BFC Holding Company Risks
As of December 31, 2002, approximately $6 million of indebtedness was
outstanding at the BFC holding company level. The degree to which BFC is
leveraged poses risks to BFC's operations, including the risk that BFC's cash
flow will not be sufficient to service its outstanding debt and that BFC may not
be able to obtain additional financing or refinancing. If BFC is forced to
utilize all or most of its cash flow for the purpose of servicing debt, it will
not be able to use those funds for other purposes. BFC's ability to meet its
obligations is largely dependent on BankAtlantic Bancorp's ability to pay
dividends to BFC. BankAtlantic Bancorp's ability to pay dividends is limited and
is primarily dependent on receiving dividends from BankAtlantic which in turn is
largely determined based on BankAtlantic's net income
Additionally, Alan B. Levan, our Chairman of the Board of Directors and Chief
Executive Officer and John E. Abdo, Vice Chairman of our Board of Directors
beneficially own approximately 45.4% and 15.7% of the Class A Common Stock and
45.4% and 15.7% of the Class B Common Stock of BFC, respectively. As a
consequence, Alan B. Levan and John E. Abdo effectively have the voting power to
control the outcome of any shareholder vote of BFC. Alan Levan and John Abdo's
control position may have an adverse effect on the market price of our common
stock.
EMPLOYEES
Management believes that its relations with its employees are satisfactory. The
Company currently maintains comprehensive employee benefit programs that are
considered by management to be generally competitive with employee benefits
provided by other major employers in its markets.
The Company's number of employees at the indicated dates was:
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- --------------------
FULL- PART- FULL- PART-
TIME TIME TIME TIME
----- ----- ----- -----
BFC 7 1 6 1
BankAtlantic 1,134 219 830 85
Levitt Corporation 221 28 202 27
Ryan Beck 1,215 40 300 13
----- ----- ----- -----
Total 2,577 288 1,338 126
===== ===== ===== =====
COMPETITION
BankAtlantic is one of the largest financial institutions headquartered in the
State of Florida. BankAtlantic has substantial competition in attracting and
retaining deposits and in lending funds. BankAtlantic competes not only with
financial institutions headquartered in the State of Florida but also with a
growing number of financial institutions headquartered outside of Florida which
are active in Florida. Many of BankAtlantic's competitors have substantially
greater financial resources than BankAtlantic has and, in some cases, operate
under fewer regulatory constraints.
16
Levitt Corporation is engaged in the real estate development and construction
industry. The business of developing and selling residential properties and
planned communities is highly competitive and fragmented. Levitt Corporation
competes with numerous large and small builders on the basis of a number of
interrelated factors, including location, reputation, amenities, design, quality
and price. Some competing builders have nationwide operations and substantially
greater financial resources. Levitt Corporation's products must also compete
with re-sales of existing homes and available rental housing. In general, the
housing industry is cyclical and is affected by consumer confidence levels,
prevailing economic conditions and interest rates. A variety of factors affect
the demand for new homes, including the availability and cost of labor and
materials, changes in costs associated with home ownership, overbuilding, a
surplus of available real estate offerings in the market or decreases in demand,
changes in consumer preferences, demographic trends and the availability of
mortgage financing.
Ryan Beck is engaged in investment banking, securities brokerage and asset
management activities all of which are extremely competitive businesses.
Competitors include:
- All of the member organizations of the New York Stock Exchange and
NASD,
- Banks,
- Insurance companies,
- Investment companies, and
- Financial consultants.
In addition to its ownership in BankAtlantic Bancorp, BFC owns and manages real
estate primarily through its ownership of BMOC. In connection with its leasing
activities, BMOC competes with other shopping centers and outlet centers for
tenants. There are also owners of other buildings within BMOC that compete for
the same tenants as BMOC.
REGULATION AND SUPERVISION
HOLDING COMPANIES
BFC and BankAtlantic Bancorp are both unitary savings bank holding companies
within the meaning of the Home Owner's Loan Act, as amended ("HOLA"). As such,
both are registered with the Office of Thrift Supervision ("OTS") and are
subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over BFC and
BankAtlantic Bancorp our non-savings bank subsidiaries including Levitt
Corporation and Ryan Beck. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
financial safety, soundness or stability of a subsidiary savings bank.
HOLA prohibits a savings bank holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring another savings institution or
holding company thereof, without prior written approval of the OTS; acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary savings
institution, a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating an application by a holding company to acquire a savings
institution, the OTS must consider the financial and managerial resources and
future prospects of the company and savings institution involved, the effect of
the acquisition on the risk to the insurance funds, the convenience and needs of
the community and competitive factors.
As a unitary savings and loan holding company, we generally are not restricted
under existing laws as to the types of business activities in which we may
engage, provided that the Bank continues to satisfy the QTL test. See
"Regulation of Federal Savings Banks - QTL Test" for a discussion of the QTL
requirements. If we were to make a non-supervisory acquisition of another
savings institution or of a savings institution that meets the QTL test and is
deemed to be a savings institution by the OTS and that will be held as a
separate subsidiary, we would become a multiple savings bank holding company and
would be subject to limitations on the types of business activities in which we
can engage. HOLA limits the activities of a multiple savings institution holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company ("BHC") Act, subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation.
Transactions between the Bank, including any of the Bank's subsidiaries, and us
or any of the Bank's affiliates, are subject to various conditions and
limitations. See "Regulation of Federal Savings Banks - Transactions with
Related Parties." The Bank must file a notice with the OTS prior to any
declaration of the payment of any dividends or other capital distributions to
us. See "Regulation of Federal Savings Banks - Limitation on Capital
Distributions."
17
FEDERAL SECURITIES LAWS
BFC's Class A Common Stock and BFC's Class B Common Stock is registered with the
SEC under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). We are subject to the information, proxy solicitation, insider
trading restrictions and other requirements under the Exchange Act.
BANKATLANTIC
General
The Bank is subject to extensive regulation, examination, and supervision by the
OTS, as its chartering agency, and the FDIC, as its deposit insurer. The Bank's
deposit accounts are insured up to applicable limits by the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF"), which are
administered by the FDIC. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approvals prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions or forming subsidiaries. The OTS
and the FDIC conduct periodic examinations to assess the Bank's safety and
soundness and compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which a
savings bank can engage and is intended primarily for the protection of the
insurance fund and depositors.
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on us, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material statutes
and regulations applicable to savings banks, and it does not purport to be a
comprehensive description of all such statutes and regulations.
REGULATION OF FEDERAL SAVINGS BANKS
Business Activities. The Bank derives its lending and investment powers from the
HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of debt
securities, and certain other assets. The Bank may also establish service
corporations that may engage in activities not otherwise permissible for the
Bank, including certain real estate equity investments and securities and
insurance brokerage. These investment powers are subject to various limitations,
including (a) a prohibition against the acquisition of any corporate debt
security that is not rated in one of the four highest rating categories; (b) a
limit of 400% of capital on the aggregate amount of loans secured by
non-residential real estate property; (c) a limit of 20% of assets on commercial
loans, with the amount of commercial loans in excess of 10% of assets being
limited to small business loans; (d) a limit of 35% of assets on the aggregate
amount of consumer loans and acquisitions of certain debt securities; (e) a
limit of 5% of assets on non-conforming loans (loans in excess of the specific
limitations of HOLA); and (f) a limit of the greater of 5% of assets or capital
on certain construction loans made for the purpose of financing what is or is
expected to become residential property.
Loans to One Borrower. Under HOLA, savings banks are generally subject to the
same limits on loans to one borrower as are imposed on national banks.
Generally, under these limits, a savings bank may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of the bank's
unimpaired capital and surplus. Additional loans or extensions of credit are
permitted of up to 10% of unimpaired capital and surplus if they are fully
secured by readily-marketable collateral. Such collateral includes certain debt
and equity securities and bullion, but generally does not include real estate.
At December 31, 2002, the Bank's limit on loans to one borrower was $59.6
million. At December 31, 2002, the Bank's largest aggregate amount of loans to
one borrower was $45.9 million and the second largest borrower had an aggregate
balance of $42.7 million.
QTL Test. HOLA requires a savings bank to meet a Qualified Thrift Lending
("QTL") test by maintaining at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
twelve-month period. A savings bank that fails the QTL test must either operate
under certain restrictions on its activities or convert to a bank charter. At
December 31, 2002, the Bank maintained 77.6% of its portfolio assets in
qualified thrift investments. The Bank had also satisfied the QTL test in each
of the prior 12 months and, therefore, was a qualified thrift lender.
18
Capital Requirements. The OTS regulations require savings banks to meet three
minimum capital standards: a tangible capital ratio requirement of 1.5% of total
assets as adjusted under the OTS regulations, a risk-based capital ratio
requirement of 8% of core and supplementary capital to total risk-based assets
and a core capital ratio (as defined under OTS regulations). For a depository
institution that has been assigned the highest composite rating of 1 under the
Uniform Financial Institutions Rating, the minimum core capital ratio is 3%, and
the minimum core capital ratio for any other depository institution is 4%,
unless a higher capital ratio is warranted by the particular circumstances or
risk profile of the depository institution. In determining the amount of
risk-weighted assets for purposes of the risk-based capital requirement, a
savings bank must compute its risk-based assets by multiplying its assets and
certain off-balance sheet items by risk-weights, which range from 0% for cash
and obligations issued by the United States Government or its agencies, to 100%
for consumer and commercial loans, as assigned by the OTS capital regulations
based on the risks OTS believes are inherent in the type of asset. On May 10,
2002, the OTS adopted amendments to its capital regulations which, among other
matters, eliminated the interest rate risk component of the risk-based capital
requirement. Pursuant to the amendment, the OTS will continue to monitor the
interest rate risk management of individual institutions through the OTS
requirements for interest rate risk management, the ability of the OTS to impose
an individual minimum capital requirement on institutions that exhibit a high
degree of interest rate risk, and the requirements of Thrift Bulletin 13a, which
provides guidance regarding the management of interest rate risk and the
responsibility of boards of directors in that area.
The table below presents the Bank's regulatory capital as compared to the OTS
regulatory capital requirements at December 31, 2002 (dollars in thousands):
December 31, 2002
-------------------------------------------------------------------------
Minimum Capital
------------------------------------------------- Well
Actual Requirement Capitalized
-------------------- ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- -------- ----- ---------- -----
Tangible capital $ 347,927 7.26% 71,873 1.50% $ 71,873 1.50%
Core capital 347,927 7.26 191,661 4.00 239,576 5.00
Total tier 1 risk-based
capital 347,927 10.01 139,088 4.00 208,632 6.00
Total risk-based capital 413,469 11.89 278,176 8.00 347,720 10.00
Limitation on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger, and other
distributions charged against capital.
As the subsidiary of a savings and loan holding company, the Bank is required to
file a notice with the OTS at least 30 days prior to each capital distribution.
However, if the total amount of all capital distributions (including each
proposed capital distribution) for the applicable calendar year exceeds net
income for that year plus the retained net income for the preceding two years,
then the Bank must file an application for OTS approval of a proposed capital
distribution. In addition, the OTS can prohibit a proposed capital distribution
otherwise permissible under the regulation, if it has determined that the
institution is in need of more than customary supervision or that a proposed
distribution by an institution would constitute an unsafe or unsound practice.
Furthermore, under the OTS Prompt Corrective Action Regulations, the Bank would
be prohibited from making any capital distribution if, after the distribution,
the Bank failed to satisfy its minimum capital requirements, as described above
See "Regulation - Regulation of Federal Savings Institutions - Prompt Corrective
Regulatory Action".
Liquidity. The Bank is required to maintain sufficient liquidity to ensure its
safe and sound operation. The Bank's average liquidity ratio at December 31,
2002 was 19.23%.
Assessments. Savings institutions are required by OTS regulation to pay
semi-annual assessments to the OTS to fund OTS operations. The regulations base
the assessment for individual savings institutions on three components: the size
of the institution on which the basic assessment is based; the institution's
supervisory condition; and the complexity of the institution's operations. The
Bank's assessment expense during the year ended December 31, 2002 was
approximately $745,000.
Branching. Subject to certain limitations, HOLA and the OTS regulations permit
federally chartered savings banks to establish branches in any state of the
United States.
19
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings bank has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods.
The CRA requires the OTS, in connection with its examination of a savings bank,
to assess the bank's record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications by such
bank. The CRA also requires all institutions to make public disclosure of their
CRA ratings. The Bank received a "satisfactory" CRA performance evaluation in
its most recent evaluation. Insured depository institutions also must publicly
disclose certain agreements that are in fulfillment of CRA. We have no such
agreements in place at this time.
Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by OTS regulations and by Sections
23A and 23B of the Federal Reserve Act ("FRA"). In general, an affiliate of the
Bank is any company that controls the Bank or any other company that is
controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the Federal Reserve Bank has proposed treating any subsidiary of a bank that
is engaged in activities not permissible for bank holding companies under the
BHCA as an affiliate for purposes of Sections 23A and 23B. The OTS regulations
prohibit a savings bank (a) from lending to any of its affiliates that is
engaged in activities that are not permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act ("BHC Act") and (b) from purchasing
the securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings bank and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings bank's capital and
surplus. Extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
provides that certain transactions with affiliates, including loans and asset
purchases, must be on terms and under circumstances, including credit standards,
that are substantially the same or at least as favorable to the Bank as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transactions, such transactions may only occur
under terms and circumstances, including credit standards that in good faith
would be offered to or would apply to nonaffiliated companies. On October 1,
2001, the Bank made a special dividend to BankAtlantic Bancorp of all the
outstanding stock of Levitt Corporation, and Levitt Corporation thereupon became
a subsidiary of BankAtlantic Bancorp instead of the Bank. As a consequence,
transactions between the Bank and Levitt Corporation became subject to the
regulations and statutes described above and in connection with the transaction
the OTS issued a "no action" letter which effectively grandfathered all
then-outstanding loans, commitments and letters of credit ("Levitt Loans") from
the Bank to Levitt. In addition, the Bank agreed that it would not engage in
covered transactions with affiliates until the aggregate amount of all covered
transactions, including the Levitt Loans, falls below twenty percent of the
Bank's capital stock and surplus.
Section 402 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") prohibits the
extension of personal loans to directors and executive officers of issuers (as
defined in Sarbanes-Oxley). The prohibition, however, does not apply to
mortgages advanced by an insured depository institution, such as the Bank, that
are subject to the insider lending restrictions of Section 22(h) of the FRA.
The Bank's authority to extend credit to its directors, executive officers, and
10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Federal Reserve Board ("FRB") thereunder. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the bank's capital. In addition, extensions of credit in excess of
certain limits must be approved by the Bank's board of directors.
Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS has
primary enforcement responsibility over savings banks and has the authority to
bring enforcement action against all "institution-affiliated parties," including
any controlling stockholder or any shareholder, attorney, appraiser and
accountant who knowingly or recklessly participates in any violation of
applicable law or regulation or breach of fiduciary duty or certain other
wrongful actions that cause or are likely to cause a more than a minimal loss or
other significant adverse effect on an insured savings bank.
Standards for Safety and Soundness. Pursuant to the requirements of the FDI Act,
as amended by FDICIA and the Riegle Community Development and Regulatory
Improvement Act of 1994 ("Community Development Act"), the OTS, together with
the other federal bank regulatory agencies, have adopted a set of guidelines
prescribing safety and soundness standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings and
compensation, fees and benefits. In general, the guidelines require,
20
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines.
Real Estate Lending Standards. The OTS and the other federal banking agencies
adopted regulations to prescribe standards for extensions of credit that (a) are
secured by real estate or (b) are made for the purpose of financing the
construction of improvements on real estate. The OTS regulations require each
savings bank to establish and maintain written internal real estate lending
standards that are consistent with OTS guidelines and with safe and sound
banking practices and which are appropriate to the size of the bank and the
nature and scope of its real estate lending activities.
Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action
Regulations, the OTS is required to take certain, and is authorized to take
other, supervisory actions against undercapitalized savings institutions. For
this purpose, a savings institution would be placed in one of five categories
based on its capital. Generally, a savings institution is treated as "well
capitalized" if its ratio of total capital to risk-weighted assets is at least
10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%, its
ratio of core capital to total assets is at least 5.0%, and it is not subject to
any order or directive by the OTS to meet a specific capital level. The most
recent notification from the Office of Thrift Supervision categorized the Bank
as "well capitalized" under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes have changed the institution's category. See "- Capital
Requirements."
The severity of the action authorized or required to be taken under the Prompt
Corrective Action Regulations increases as a bank's capital deteriorates within
the three undercapitalized categories. All institutions are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the institution would be
undercapitalized. An undercapitalized institution is required to file a capital
restoration plan within 45 days of the date the institution receives notice that
it is within any of the three undercapitalized categories. The OTS is required
to monitor closely the condition of an undercapitalized institution and to
restrict the asset growth, acquisitions, branching, and new lines of business of
such an institution. If one or more grounds exist for appointing a conservator
or receiver for an institution, the OTS may require the institution to issue
additional debt or stock, sell assets, be acquired by a depository bank holding
company or combine with another depository bank. The OTS and the FDIC have a
broad range of grounds under which they may appoint a receiver or conservator
for an insured depository bank. When appropriate, the OTS can require corrective
action by a savings bank holding company under the "Prompt Corrective Action"
provisions of FDICIA.
Insurance of Deposit Accounts. Savings banks are subject to a risk-based
assessment system for determining the deposit insurance assessments to be paid
by each bank. Under the risk-based assessment system, which began in 1993, the
FDIC assigns an institution to one of three capital categories based on the
institution's financial information as of the reporting period. The supervisory
subgroup to which an institution is assigned is based upon a supervisory
evaluation provided to the FDIC by the institution's primary federal regulator
and information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Assessment rates currently range from 0.0% of
deposits for an institution in the highest category (i.e., well-capitalized and
financially sound, with no more than a few minor weaknesses) to 0.27% of
deposits for an institution in the lowest category (i.e., undercapitalized and
substantial supervisory concern). The FDIC is authorized to raise the assessment
rates as necessary to maintain the required reserve ratio of 1.25%. Both the BIF
and SAIF currently satisfy the reserve ratio requirement. If the FDIC determines
that assessment rates should be increased, institutions in all risk categories
could be affected. The FDIC has exercised this authority several times in the
past and could raise insurance assessment rates in the future. The FDIC has
recently alerted institutions to the possibility of higher deposit insurance
premiums in early 2003. The FDIC stated that, if necessary, the increased
premiums would likely affect only institutions with BIF-insured deposits and
would not exceed 5 basis points. While increases in deposit insurance premiums
could have an adverse effect on the Company's earnings, the recent advisory
statement from the FDIC, if enacted, is not expected to have a material adverse
effect on the Company's earnings.
The Deposit Insurance Funds Act of 1996 amended the FDIA to recapitalize the
SAIF and expand the assessment base for the payments of Financing Corporation
("FICO") bonds. FICO bonds were sold by the federal government in order to
finance the recapitalization of SAIF and BIF insurance funds. The
recapitalization of the SAIF and BIF insurance funds was necessitated following
payments made from these insurance funds to compensate depositors of
federally-insured depository institutions that experienced bankruptcy and
dissolution during the 1980's and 1990's. The quarterly adjusted rate of
assessment for FICO bonds is 0.0172% for both BIF-and SAIF-insured institutions.
Privacy and Security Protection. The OTS has adopted regulations implementing
the privacy protection provisions of the Gramm-Leach-Bliley Act ("Gramm-Leach").
The regulations, which require each financial institution to adopt procedures to
protect customers' and customers' "non-public personal information" became
effective November 13, 2000. The Bank has a
21
privacy protection policy which we believe complies with applicable regulations.
In February 2001, the OTS and other federal banking agencies finalized
guidelines establishing standards for safeguarding customer information to
implement certain provisions of Gramm-Leach. The guidelines describe the
agencies' expectations for the creation, implementation and maintenance of an
information security program. The new regulation became effective on July 1,
2001. We do not believe that these regulations will have a material impact upon
our operations.
Internet Banking. Technological developments are dramatically altering the
methods by which most companies, including financial institutions, conduct their
business. The growth of the Internet is prompting banks to reconsider business
strategies and adopt alternative distribution and marketing systems. The federal
bank regulatory agencies have conducted seminars and published materials
targeted at various aspects of Internet Banking and have indicated their
intention to re-evaluate their regulations to ensure they encourage bank
efficiency and competitiveness consistent with safe and sound banking practices.
The Company cannot assure that federal bank regulatory agencies will not adopt
new regulations that will not materially affect or restrict the Bank's Internet
operations.
Insurance Activities. As a federal savings bank, we are generally permitted to
engage in certain insurance activities through subsidiaries. OTS regulations
promulgated pursuant to Gramm-Leach prohibit depository institutions from
conditioning the extension of credit to individuals upon either the purchase of
an insurance product or annuity or an agreement by the consumer not to purchase
an insurance product or annuity from an entity that is not affiliated with the
depository institution. The regulation also requires prior disclosure of this
prohibition to potential insurance product or annuity customers.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Atlanta,
which is one of the regional FHLBs composing the FHLB System. Each FHLB provides
a central credit facility primarily for its member institutions. The Bank, as a
member of the FHLB of Atlanta, is required to acquire and hold shares of capital
stock in the FHLB. The Bank was in compliance with this requirement with an
investment in FHLB stock at December 31, 2002 of $64.9 million. Any advances
from a FHLB must be secured by specified types of collateral, and all long-term
advances may be obtained only for the purpose of providing funds for residential
housing finance. The FHLB of Atlanta paid dividends on the capital stock of $3.2
million during the year ended December 31, 2002. If dividends were reduced, or
interest on future FHLB advances increased, the Bank's net interest income would
likely also be reduced.
Federal Reserve System. The Bank is subject to provisions of the FRA and the
FRB's regulations, pursuant to which depository institutions may be required to
maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3% of
the aggregate of transaction accounts up to $36.1 million. The amount of
aggregate transaction accounts in excess of $41.3 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 14%.
The FRB regulations currently exempt $6.0 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but FRB
regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
Anti-Terrorism Regulation. The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA
Patriot Act") was signed into law on October 26, 2001, providing the federal
government with new powers. By way of amendments to the Bank Secrecy Act, Title
III of the USA Patriot Act enacts measures intended to encourage information
sharing among bank regulatory and law enforcement agencies. In addition, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including (i) financial institutions must establish
anti-money laundering programs that include, at a minimum, internal policies,
procedures and controls as well as an independent audit function to test the
programs; and (ii) regulations are to be promulgated setting minimum standards
with respect to customer identification upon the opening of new accounts. The
federal banking agencies have begun to propose and implement regulations
requiring financial institutions to adopt the policies and procedures
contemplated by the USA Patriot Act. Implementation of the USA Patriot Act did
not have a material impact upon the financial condition or results of operations
of the Company.
22
LEVITT CORPORATION
Levitt Corporation, through its subsidiaries, engages in real estate development
activities and residential and commercial construction in the State of Florida.
Levitt's business activities are subject to various local and state statutes,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters that impose restrictive zoning and density
requirements the purposes of which are to limit building within the boundaries
of a particular area. Local laws frequently require builders to provide roads
and other off-site infrastructure in connection with a homebuilding project.
Further, schools, parks, water treatment and other public improvements are
required in connection with real estate development activities, and these
requirements drive up the cost of development while extending the time within
which a project can be brought to completion. The State of Florida and various
counties have declared (and may declare in the future) moratoriums on the
issuance of building permits and/or impose restrictions in areas where roads,
schools, parks, water and sewage treatment facilities and other infrastructure
do not reach minimum standards. Further, in response to severe windstorm damage
suffered in the past, the State of Florida has adopted stringent building codes
that require, among other things, builders to use specific construction
materials and to follow specific construction practices and techniques.
Levitt Corporation's subsidiaries are also subject to local and state statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The specific environmental regulations that may apply vary
according to site location, its environmental conditions and its present and
former uses as well as the present and former uses of adjoining properties.
These laws and regulations are subject to frequent change; in some cases,
activities may be delayed or halted by changes in statutes or rules. In
addition, environmental laws and conditions can prohibit or severely restrict
building activity in environmentally sensitive regions.
RYAN BECK & CO., INC.
The securities industry in the United States is subject to extensive regulation
under both federal and state laws. The SEC is the federal agency charged with
administration of the federal securities laws. Much of the regulation of
broker-dealers has been delegated to self-regulatory authorities, principally
the NASD and, in the case of broker-dealers that are members of a securities
exchange, the particular securities exchange. These self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with rules they have adopted and amended from time to time, subject
to approval by the SEC.
Securities firms are also subject to regulation by state securities commissions
in those states in which they do business. As of December 31, 2002, Ryan Beck
was registered as a broker-dealer in 50 states and the District of Columbia. The
principal purpose of regulation and discipline of broker-dealers is the
protection of clients and the securities markets, rather than protection of
creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business,
including sales methods, trading practices among broker-dealers, uses and
safekeeping of clients' funds and securities, capital structure of securities
firms, record-keeping and reporting, fee arrangements, disclosure to clients and
the conduct of directors, officers and employees.
Additionally, legislation, changes in rules promulgated by the SEC and
self-regulatory authorities, or changes in the interpretation or enforcement of
existing laws and rules, may directly affect the operations and profitability of
broker-dealers. The SEC, self-regulatory authorities and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, suspension or expulsion of a broker-dealer, its officers or employees.
Such administrative proceedings, whether or not resulting in adverse findings,
can require substantial expenditures. The profitability of broker-dealers could
also be affected by rules and regulations that impact the business and financial
communities in general, including changes to the laws governing taxation,
antitrust regulation and electronic commerce.
Securities held in custody by Pershing for Ryan Beck's customer accounts are
protected to an unlimited amount. The Securities Investors Protection
Corporation ("SIPC"), provides $500,000 of coverage, including $100,000 for
claims for cash. Pershing provides the remaining coverage through a commercial
insurer. The account protection applies when a SIPC member firm fails
financially and is unable to meet obligations to securities customers, but it
does not protect against losses from the rise and fall in the market value of
investments.
Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934. The Net Capital Rule specifies minimum net
capital requirements that are intended to ensure the general financial soundness
and liquidity of broker-dealers. Failure to maintain the required net capital
may subject a firm to suspension or expulsion by the NASD, certain punitive
actions by the SEC and other regulatory bodies, and ultimately may require a
firm's liquidation. At December 31, 2002, Ryan Beck was in compliance with all
applicable capital requirements.
23
Ryan Beck operates under the provisions of paragraph (k)(2)(ii) of Rule 15c3-3
of the SEC as a fully disclosed broker and, accordingly, customer accounts are
carried on the books of the clearing broker. However, Ryan Beck safe keeps and
redeems municipal bond coupons for the benefit of its customers. Accordingly,
Ryan Beck is subject to the provisions of SEC Rule 15c3-3 relating to possession
or control and customer reserve requirements and was in compliance with such
provisions at December 31, 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145 ("Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections"). This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Any gain or loss on the extinguishment of debt that was classified
as an extraordinary item in prior periods will be reclassified into continuing
operations. As a consequence, the Company reclassified from income (loss) from
extraordinary items to income from continuing operations a $389,000 loss and a
$12.2 million gain on the redemption by BankAtlantic Bancorp of subordinated
investments notes and convertible debentures reflected in the Company's
statement of operations for the year ended December 31, 2001 and 2000,
respectively. The reclassification reduced basic earnings per share from
continuing operations by $.03 and reduced diluted earnings per share from
continuing operations by $0.03 for the year ended December 31, 2001. The
reclassification increased basic earnings per share from continuing operations
by $1.00 and increased diluted earnings per share from continuing operations by
$0.93 for the year ended December 31, 2000.
In June 2002, the FASB issued Statement No. 146 ("Accounting for Costs
Associated with Exit or Disposal Activities"). This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Prior to this Statement, a liability was
recognized when the entity committed to an exit plan. Management believes that
this Statement will not have a material impact on the Company's financial
statements; however, the Statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
In October 2002, the FASB issued Statement No. 147 ("Acquisitions of Certain
Financial Institutions"). This Statement provides guidance on the accounting for
the acquisition of a financial institution and applies to all acquisitions
except those between two or more mutual enterprises. This Statement provides
that the excess of the fair value of liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired in a business combination
represents goodwill that should be accounted for under FASB Statement No. 142,
"Goodwill and Other Intangible Assets". Thus, the specialized accounting
guidance in paragraph 5 of FASB Statement No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, will not apply after September
30, 2002. If certain criteria in Statement No. 147 are met, the amount of the
unidentifiable intangible asset recorded in previous acquisitions will be
reclassified to goodwill upon adoption of this Statement. The Statement will not
affect the Company's prior acquisitions, and management believes that this
Statement will not have an impact on the Company's historical financial
statements.
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others". This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation does not
prescribe a specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee. This Interpretation
also incorporates, without change, the guidance in FASB Interpretation No. 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others", which is being
superseded. The Company implemented the disclosure requirements of this
interpretation as of December 31, 2002 and the liability recognition provisions
of the interpretation as of January 1, 2003.
In December 2002, the FASB issued Statement No. 148 ("Accounting for Stock-Based
Compensation - Transition and Disclosure"). This Statement amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has implemented the disclosure
requirements of this Statement as of December 31, 2002.
24
In January 2003, the FASB issued Interpretation No. 46 ("Consolidation of
Variable Interest Entities"). The Interpretation defines a variable interest
entity as a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in research and development or other activities on behalf of another
company. This interpretation requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The Interpretation also
requires disclosures about variable interest entities that the company is not
required to consolidate but in which it has a significant variable interest.
Management is in the process of evaluating if its interests in unconsolidated
entities qualify as variable interest entities and, if so, whether the assets,
liabilities, noncontrolling interest and results of activities are required to
be included in the Company's consolidated financial statements. Our investments
and advances to unconsolidated entities were $51.9 million at December 31, 2002.
These entities were primarily real estate joint ventures. We believe that the
majority of these entities will not be consolidated, however, we can not give
any assurance that this will be the case until we complete our evaluation. We
expect to complete our evaluation by July 1, 2003, the deadline imposed by this
interpretation.
AVAILABLE INFORMATION
The Company does not currently maintain a web site but will provide its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports electronically or by paper free of charge upon
request.
25
ITEM 2. PROPERTIES
The Company's, BankAtlantic Bancorp's and BankAtlantic's principal and executive
offices are located in BankAtlantic's building at 1750 East Sunrise Boulevard,
Fort Lauderdale, Florida 33304. In addition to BankAtlantic's branches,
BankAtlantic owns three buildings and leases four locations that house its back
office operations. The following table sets forth owned and leased BankAtlantic
branch offices at December 31, 2002:
Miami-Dade Broward Palm Beach Tampa Bay
---------- ------- ---------- ---------
Owned full-service branches 4 10 26 3
Leased full-service branches 8 12 5 4
--------- --------- --------- ---------
Total full-service branches 12 22 31 7
========= ========= ========= =========
Lease expiration dates 2004-2012 2003-2009 2003-2006 2003-2004
========= ========= ========= =========
BankAtlantic also maintains two ground leases in Broward County expiring between
2006 and 2072.
Levitt Corporation leases administrative space. The leases expire in 2004 and
2006.
Ryan Beck's office space includes leased facilities in the following states with
year of lease expiration:
LEASE NUMBER OF
LOCATIONS EXPIRATION OFFICES
--------- ---------- -------
California 2009 1
Connecticut 2004 - 2005 3
Florida 2003 - 2005 5
Georgia 2004 1
Illinois 2008 1
Maryland 2009 1
Massachusetts 2004 - 2006 4
New Jersey 2003 - 2012 7
New York 2003 - 2010 9
Pennsylvania 2003 - 2011 7
Texas 2003 - 2005 2
Virginia 2003 1
-----
42
=====
During the year ended December 31, 2002, BankAtlantic purchased a $14.3 million
office facility to consolidate BankAtlantic's headquarters and back office
operations into a centralized facility. The estimated costs to renovate the
facility for use as BankAtlantic's operational center is approximately $20
million and is expected to be completed in June 2004.
The Company owns a shopping center known as the Burlington Manufacturers Outlet
Center located in Burlington, North Carolina containing approximately 265,265
leaseable square feet. It is not utilized by the Company but is held by the
Company as an investment.
26
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary routine
litigation incidental to the Company's business to which the Company or a
subsidiary thereof is a party:
COMMERCE BANCORP, INC. V. BANKATLANTIC, CIVIL ACTION NO. 02CV 4774
(JBS)(D.N.J.)(CAMDEN) On October 3, 2002, Commerce Bancorp, Inc. ("Commerce")
filed a complaint against BankAtlantic in the United States District Court for
the District of New Jersey. The complaint, which seeks unspecified money damages
and injunctive relief, asserts that BankAtlantic is infringing certain trademark
rights allegedly owned by Commerce in the slogan "AMERICA'S MOST CONVENIENT
BANK" by virtue of BankAtlantic's use of the slogan "FLORIDA'S MOST CONVENIENT
BANK." Commerce recently filed a motion for leave to file an amended complaint,
which seeks to assert additional claims for trademark infringement based on
Commerce's allegation that BankAtlantic's use of the word "WOW" infringes
trademark rights purportedly owned by Commerce in the phrases "WOW ANSWER
GUIDE," "COMMERCE WOW! ZONE," "COMMERCEWOW!ZONE," and "WOW! THE CUSTOMER."
Management intends to contest the case vigorously.
SMITH & COMPANY, INC., PLAINTIFF VS. LEVITT-ANSCA TOWNE PARTNERSHIP, BELLAGGIO
BY LEVITT HOMES, INC., ET AL., DEFENDANTS/COUNTER-PLAINTIFFS VS. SMITH &
COMPANY, INC. AND THE AMERICAN HOME ASSURANCE COMPANY, filed in the Circuit
Court of Florida, Palm Beach County, Fifteenth Circuit, Case No. CL00-12783 AF.
On December 29, 2000, Smith & Company, Inc. ("Smith") filed an action against
Levitt-Ansca Towne Partnership (the "Partnership"), Bellaggio By Levitt Homes,
Inc. ("BLHI"), Bellaggio By Ansca, Inc. a/k/a Bellaggio By Ansca Homes, Inc.,
and Liberty Mutual Insurance Company (collectively "Defendants") seeking damages
and other relief in connection with an August 21, 2000 contract entered into
with the Partnership. BLHI is a 50% partner of the Partnership and is wholly
owned by Levitt and Sons. The Complaint alleged that the Partnership wrongfully
terminated the contract, failed to pay for extra work performed outside the
scope of the contract and breached the contract. The Partnership denied the
claims, asserted defenses and asserted a number of counterclaims. This case was
tried before a jury, and on March 7, 2002, the jury returned a verdict against
the Partnership. On March 11, 2002, the Court entered a final judgment against
the Defendants in the amount of $3.68 million. In addition, under the final
judgment it is likely that Smith and its surety company will be entitled to
recover legal fees and other costs. Since BLHI is a 50% partner of the
Partnership, its share of potential liability under the judgment and for
attorneys' fees, which is estimated to be approximately $2.6 million. The
Partnership filed an appeal on December 6, 2002, which it intends to vigorously
pursue.
SCOTT TEICH V. RYAN BECK & CO., INC., Case No. 03-80138-CIV-MIDDLEBROOKS/
JOHNSON, United States District Court for the Southern District of Florida, West
Palm Beach, Division. On January 30, 2002, a one-count purported class action
complaint was filed in the Circuit Court of the Fifteenth Judicial Circuit in
and for Palm Beach County, Florida (Case No. CA-1114AF) by a former Gruntal
employee seeking a declaratory judgment that Ryan Beck is liable for all
pre-April 26, 2002 claims against Gruntal by former Gruntal retail customers and
retail brokers, whether pending or to be filed in the future, not expressly
assumed by Ryan Beck in its acquisition of certain of the assets of Gruntal. The
complaint does not specify the amount of such claims. The complaint seeks to
impose liability under the theory that either (1) Ryan Beck engaged in a de
facto merger with Gruntal, or (2) Ryan Beck's brokerage business is a mere
continuation of Gruntal's brokerage business, or (3) Ryan Beck is the
beneficiary of a fraudulent transfer. Ryan Beck removed the case to federal
court and subsequently filed a motion to dismiss the complaint on various
grounds.
In April 2002, Ryan Beck acquired certain of the assets and assumed certain of
the liabilities of Gruntal. Ryan Beck has been named as a defendant in a number
of arbitration claims filed by former Gruntal clients whose claims arose prior
to the transaction date. In these actions Ryan Beck is alleged to be "successor"
in interest to Gruntal, which allegations Ryan Beck denies. In some instances
the former Gruntal brokers against whom the claims relate are now employed by
Ryan Beck and in other instances the brokers are not employed by Ryan Beck. Ryan
Beck did not assume any of the liabilities associated with these actions in the
Gruntal transaction. While Ryan Beck does not consider any individual action to
be material, an adverse result in a number of these actions in the aggregate
could adversely affect the Company's financial statements. In October 2002,
Gruntal filed for bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Laws.
The Company and its subsidiaries may be parties to other lawsuits as plaintiff
or defendant involving its securities sales, brokerage and underwriting,
acquisitions, bank operations lending, tax certificates and real estate
development activities. Although the Company believes it has meritorious
defenses in all current legal actions, the outcome of the various legal actions
is uncertain.
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
28
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Class A Common Stock and the Class B Common Stock have substantially
identical terms except that:
- Each share of Class A Common Stock is entitled to one vote for each
share held, with all holders of Class A Common Stock possessing in
the aggregate 22% of the total voting power. Holders of Class B
Common Stock have the remaining 78% of the total voting power. When
the number of shares of Class B Common Stock outstanding decreases
to 1,800,000 shares, the Class A Common Stock aggregate voting power
will increase to 40% and the Class B Common Stock will have the
remaining 60%. When the number of shares of Class B Common Stock
outstanding decreases to 1,400,000 shares, the Class A Common Stock
aggregate voting power will increase to 53% and the Class B Common
Stock will have the remaining 47%; and
- Each share of Class B Common Stock is convertible at the option of
the holder thereof into one share of Class A Common Stock.
The following table sets forth, for the periods indicated, the high and low sale
prices of the Class A Common Stock and the Class B Common Stock, as reported by
the National Quotation Bureau, L.L.C. The Company's Class A and Class B common
stock trade on the OTC Bulletin Board under the symbols BFCFA and BFCFB,
respectively.
Year:
- ----
Class A Common Stock Class B Common Stock
-------------------- --------------------
Quarter High Low High Low
------- ---- --- ---- ---
2000:
1st Quarter $ 3.81 $ 2.94 $ 4.38 $ 3.13
2nd Quarter $ 3.75 $ 2.88 $ 3.50 $ 3.00
3rd Quarter $ 3.38 $ 2.63 $ 3.38 $ 2.56
4th Quarter $ 3.13 $ 2.00 $ 4.50 $ 2.31
2001:
1st Quarter $ 4.50 $ 2.06 $ 4.44 $ 2.31
2nd Quarter $ 6.50 $ 4.15 $ 6.35 $ 4.06
3rd Quarter $ 8.00 $ 4.60 $ 8.70 $ 5.00
4th Quarter $ 6.09 $ 5.25 $ 6.50 $ 5.75
2002:
1st Quarter $ 8.50 $ 5.05 $ 8.70 $ 5.05
2nd Quarter $ 8.90 $ 7.15 $ 8.70 $ 7.25
3rd Quarter $ 7.25 $ 5.05 $ 7.50 $ 5.00
4th Quarter $ 6.00 $ 4.75 $ 6.00 $ 5.05
On March 18, 2003, there were approximately 1,100 record holders of the Class A
Common Stock and 980 record holders of Class B common stock.
The last sale price during 2002 of the Company's Class A and Class B common
stock as reported to the Registrant by the National Quotation Bureau was $5.80
and $5.75 per share, respectively.
There are no restrictions on the payment of cash dividends by BFC.
As noted in Part I, Item I under "Business - Regulation and Supervision -
Restrictions on BankAtlantic Bancorp's Ability to Pay Dividends to BFC" there
are restrictions on the payment of dividends by BankAtlantic to BankAtlantic
Bancorp and in certain circumstances on the payment of dividends by BankAtlantic
Bancorp to its common shareholders, including BFC. The primary source of funds
for payment by BankAtlantic Bancorp of dividends to BFC is currently dividend
payments received by BankAtlantic Bancorp from BankAtlantic.
29
The following table lists all securities authorized for issuance under the
Company's equity compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION PLANS
BE ISSUED UPON EXERCISE EXERCISE PRICE OF EXCLUDING OUTSTANDING
PLAN CATEGORY OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS OPTIONS
- ------------- ---------------------- ------------------- -------------------------
Equity compensation plans
approved by security holders 3,029,157 $4.06 490,000
Equity compensation plans
not approved by security
holders -- --
--------- ----- -------
Total 3,029,157 $4.06 490,000
========= ===== =======
30
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percentages)
For the Years Ended December 31,
-------------------------------------------------------------------
INCOME STATEMENT 2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Total interest income $ 310,124 $ 326,001 $ 328,896 $ 1,529 $ 1,336
Total interest expense 153,115 188,838 211,406 1,613 1,912
--------- --------- --------- --------- ---------
Net interest income (expense) 157,009 137,163 117,490 (84) (576)
Provision for loan losses 14,077 16,905 29,132 300 --
Gains on securities activities 8,578 7,124 2,856 -- --
Other non-interest income 239,318 113,855 123,629 14,395 2,828
Impairment of goodwill -- 6,624 -- -- --
Non-interest expense 337,688 186,638 179,580 2,292 2,202
--------- --------- --------- --------- ---------
Income before income taxes,
minority interest, discontinued operations,
extraordinary items and cumulative
effect of a change in accounting principle 53,140 47,975 35,263 11,719 50
Provision (benefit) for income taxes 18,296 25,260 17,642 4,293 (330)
Minority interest in income of
consolidated subsidiaries 38,294 18,379 14,655 -- --
--------- --------- --------- --------- ---------
Income (loss) before discontinued operations,
extraordinary items and cumulative
effect of a change in accounting principle (3,450) 4,336 2,966 7,426 380
Discontinued operations, net of taxes -- -- 669 -- --
Extraordinary items, net of taxes 23,749 -- -- -- --
Cumulative effect of a change in accounting
principle, net of taxes (15,107) 1,138 -- -- --
--------- --------- --------- --------- ---------
Net income 5,192 5,474 3,635 7,426 380
Amortization of goodwill, net of tax -- 735 791 748 629
--------- --------- --------- --------- ---------
Net income adjusted to exclude goodwill
amortization $ 5,192 $ 6,209 $ 4,426 $ 8,174 $ 1,009
========= ========= ========= ========= =========
(Continued)
31
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percentages)
For the Years Ended December 31,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
COMMON SHARE DATA (D & E)
Basic earnings (loss) per share before
discontinued operations, extraordinary items
and cumulative effect of a change in
accounting principle $ (0.43) $ 0.55 $ 0.37 $ 0.93 $ 0.05
Discontinued operations -- -- 0.09 -- --
Extraordinary items 2.97 -- -- -- --
Cumulative effect of a change in
accounting principle (1.89) 0.14 -- -- --
--------- --------- --------- --------- ---------
Basic earnings per share $ 0.65 $ 0.69 $ 0.46 $ 0.93 $ 0.05
--------- --------- --------- --------- ---------
Basic earnings per share from
amortization of goodwill -- 0.09 0.10 0.09 0.08
--------- --------- --------- --------- ---------
Basic earnings per share adjusted to exclude
goodwill amortization $ 0.65 $ 0.78 $ 0.56 $ 1.02 $ 0.13
========= ========= ========= ========= =========
Diluted earnings (loss) per share before
discontinued operations, extraordinary
items and cumulative effect of a change in
accounting principle (As Restated)(f) $ (0.46) $ 0.38 $ 0.28 $ 0.68 $ 0.04
Discontinued operations -- -- 0.07 -- --
Extraordinary items 2.91 -- -- -- --
Cumulative effect of a change in
accounting principle (1.85) 0.12 -- -- --
--------- --------- --------- --------- ---------
Diluted earnings per share (As Restated) (f) 0.60 $ 0.50 $ 0.35 $ 0.68 $ 0.04
Diluted earnings per share from
amortization of goodwill -- 0.07 0.07 0.08 0.07
--------- --------- --------- --------- ---------
Diluted earnings per share adjusted to exclude
goodwill amortization $ 0.60 0.57 0.42 0.76 0.11
========= ========= ========= ========= =========
Basic weighted average of common
shares outstanding (e) 7,997 7,957 7,957 7,957 7,954
Diluted weighted average of common
shares outstanding (e) 7,997 8,773 8,521 8,818 9,101
Ratio of earnings to fixed charges (c) (0.23) 0.95 (0.14) 2.34 2.33
Dollar deficiency of earnings to fixed charges (c) 1,421 68 1,586 -- --
(Continued)
32
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percentages)
December 31,
----------------------------------------------------------------------------
BALANCE SHEET (AT YEAR END) 2002 2001 2000 1999 1998
------------- ------------- ------------- -------- --------
Loans and leases, net (g) $ 3,377,870 $ 2,776,624 $ 2,855,015 $ 1,325 $ 1,740
Securities 1,111,825 1,356,497 1,315,122 8,663 450
Total assets 5,415,933 4,665,359 4,654,954 96,745 91,257
Deposits 2,920,555 2,276,567 2,234,485 -- --
Securities sold under agreements to repurchase
and other short term borrowings 116,279 467,070 669,202 -- --
Other borrowings (h) 1,686,613 1,326,264 1,351,881 18,253 12,236
Stockholders' equity 77,411 74,172 72,615 58,965 57,631
Book value per share (e) 9.69 9.30 9.13 7.41 7.24
Return on average equity 6.85% 7.44% 5.77% 12.61% 0.67%
ASSET QUALITY RATIOS
Non-performing assets, net of reserves
as a percent of total loans,
tax certificates and real estate owned 0.79% 1.11% 0.89% -- --
Loan loss allowance as a percent of
non-performing loans 259.52% 122.60% 254.00% -- --
Loan loss allowance as a percent of total loans 1.43% 1.62% 1.66% -- --
CAPITAL RATIOS FOR BANKATLANTIC:
Total risk based capital 11.89% 12.90% 11.00% 13.30% 13.92%
Tier I risk based capital 10.01% 11.65% 9.74% 12.04% 12.67%
Leverage 7.26% 8.02% 6.66% 7.71% 8.48%
(a) Ratios were computed using quarterly averages.
(b) Since its inception, BFC has not paid any dividends.
(c) The operations of Bancorp have been eliminated since there is a dividend
restriction between BankAtlantic and Bancorp.
(d) While the Company has two classes of common stock outstanding the two-class
method is not presented because the company's capital structure does not
provide for different dividend rates or other preferences, other than
voting rights, between the two classes.
(e) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 shares of BFC's
Class A Common Stock and 500,000 shares of BFC Class B Common Stock.
Because the Company owns 45.5% of the outstanding common stock of RAG,
624,938 shares of Class A Common Stock and 227,500 shares of Class B Common
Stock are eliminated from the number of shares outstanding for purposes of
computing earnings per share and book value per share.
(f) FAS 128 requires that the diluted earnings per share computation take into
consideration the potential dilution from securities issued by a subsidiary
that enable their holders to obtain the subsidiary's common stock. The
Company's diluted earnings per share computations have not been taking this
dilution into effect. Therefore, it is necessary to restate previously
reported diluted earnings per share for prior years. There was no impact on
previously reported diluted earnings per share for the current year or
1998. (See note 20 to the Consolidated Financial Statements)
For the years ended December 31,
----------------------------------
AS PREVIOUSLY REPORTED: 2001 2000 1999
-------- -------- --------
Diluted earnings per share before discontinued operations
and cumulative effect of a change in accounting principle $ 0.49 $ 0.35 $ 0.84
Diluted earnings per share from discontinued operations -- 0.08 --
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.13 -- --
-------- -------- --------
Diluted earnings per share $ 0.62 $ 0.43 $ 0.84
======== ======== ========
AS RESTATED:
Diluted earnings per share before discontinued operations
and cumulative effect of a change in accounting principle $ 0.38 $ 0.28 $ 0.68
Diluted earnings per share from discontinued operations -- 0.07 --
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.12 -- --
-------- -------- --------
Diluted earnings per share $ 0.50 $ 0.35 $ 0.68
======== ======== ========
(g) Includes $0, $5 thousand and $1.3 million, of bankers acceptances in 2002,
2001 and 2000, respectively.
(h) Other borrowings consist of FHLB advances, subordinated debentures, notes
and bonds payable and guaranteed preferred beneficial interests in
Bancorp's junior subordinated debentures.
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
BFC Financial Corporation ("BFC" or "the Company") is a unitary savings bank
holding company that owns approximately 16% and 100%, respectively, of the
outstanding BankAtlantic Bancorp, Inc. ("BankAtlantic Bancorp" or "Bancorp")
Class A and Class B Common Stock, representing in the aggregate 23% of all the
outstanding BankAtlantic Bancorp Common Stock. Because BFC controls greater than
50% of the vote of BankAtlantic Bancorp, BankAtlantic Bancorp is consolidated in
the Company's financial statements. The percentage of votes controlled by the
Company will determine the Company's consolidation policy, whereas, the
percentage of ownership of total outstanding common stock will determine the
amount of BankAtlantic Bancorp's net income recognized by the Company.
The Company's primary asset is the capital stock of BankAtlantic Bancorp and its
primary activities currently relate to the operations of BankAtlantic Bancorp.
BankAtlantic Bancorp's principal assets include BankAtlantic and its
subsidiaries, Ryan Beck & Co., Inc. ("Ryan Beck") and its subsidiaries and
Levitt Corporation ("Levitt") and its subsidiaries.
In August 2000, BankAtlantic Bancorp shareholders approved a corporate
transaction that resulted in the retirement of all publicly held BankAtlantic
Bancorp Class B Common Stock, other than the Class B Common Stock held by BFC.
As a consequence, BFC became the sole holder of the Class B Common Stock which
represented 100% of the voting rights of BankAtlantic Bancorp at that time.
Based on BFC's control of more than 50% of the vote of BankAtlantic Bancorp,
commencing in 2000, BankAtlantic Bancorp was consolidated in the Company's
financial statements instead of carried on the equity basis. In 2001,
BankAtlantic Bancorp amended its articles of incorporation to grant voting
rights to holders of BankAtlantic Bancorp Class A Common Stock, make
BankAtlantic Bancorp Class B Common Stock convertible into BankAtlantic Bancorp
Class A Common Stock on a share for share basis, and equalize the cash dividends
payable on BankAtlantic Bancorp's Class A Common Stock and BankAtlantic
Bancorp's Class B Common Stock. As a consequence of the amendment, BankAtlantic
Bancorp's Class A shareholders are entitled to one vote per share, which in the
aggregate will represent 53% of the combined voting power of BankAtlantic
Bancorp's Class A Common Stock and BankAtlantic Bancorp's Class B Common Stock.
BankAtlantic Bancorp's Class B Common Stock represents the remaining 47% of the
combined vote.
CRITICAL ACCOUNTING POLICIES
Management views critical accounting policies as accounting policies that are
important to the understanding of our financial statements and also involve
estimates and judgments about inherently uncertain matters. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the consolidated statements
of financial condition and assumptions that effect the recognition of income and
expenses on the statement of 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, evaluation of goodwill for
impairment, the valuation of real estate acquired in connection with foreclosure
or in satisfaction of loans, the valuation of the fair market value of assets
and liabilities in the application of the purchase method of accounting, the
amount of the deferred tax asset valuation allowance, the valuation of
derivatives, the valuation of securities available for sale and the valuation of
real estate held for development and equity method investments. The six
accounting policies that we have identified as critical accounting policies are:
(i) allowance for loan and lease losses, (ii) valuation of securities and
derivative instruments, (iii) impairment of goodwill, (iv) impairment of
long-lived assets; (v) real estate held for development and sale and equity
method investments and (vi) accounting for business combinations. We have
discussed the critical accounting estimates outlined below with our audit
committee of our board of directors, and the audit committee has reviewed our
disclosure.
34
ALLOWANCE FOR LOAN AND LEASE LOSSES
BankAtlantic Bancorp performs monthly detailed reviews of the loan and lease
portfolios in an effort to identify inherent risks, assess the overall
collectibility of those portfolios and establish our allowance for loan and
lease losses. These ongoing reviews are performed by a credit review group that
is independent of loan origination activities. The first component of the
allowance is for non-homogenous loans that are individually evaluated for
impairment. A non-homogenous loan is deemed impaired when collection of
principal and interest based on the contractual terms of the loan is not likely
to occur. These are high balance loans that management considers to be high
risk. The process for identifying loans to be evaluated individually for
impairment is based on management identification of classified loans. Classified
loans are identified by us based upon established criteria and represent loans
of lesser quality than the general portfolio. These classifications are "special
mention," "substandard," "doubtful" or "loss." The special mention category
applies to loans not warranting classification as substandard but possessing
credit deficiencies or potential weaknesses necessitating management's close
attention. Substandard loans have one or more defined weaknesses and are
characterized by the distinct possibility that we will sustain some loss if the
deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard loans with the additional characteristic that such weaknesses make
collection of the loan or liquidation in full on the basis of currently existing
facts, conditions and values highly questionable or improbable. Loss loans are
charged-off. All non-homogenous classified loans are evaluated for impairment.
Once an individual loan is found to be impaired, a specific valuation allowance
is assigned to the loan based on one of the following three methods: (1) present
value of expected future cash flows, (2) fair value of collateral less costs to
sell, or (3) observable market price. An observable market price of an impaired
loan is the best indication of its fair value. The majority of our impaired
loans do not have an observable market price and are valued based on the other
two methods. Loans that are collateral dependent are valued at the fair value of
the collateral less the cost to dispose of the collateral. Unsecured loans are
fair valued based on the present value of expected future cash flows. These
valuations are based on available information and require estimates and
subjective judgments about fair values of the collateral or expected future cash
flows. It is likely that we would obtain materially different results if
different assumptions or conditions were to prevail. This would include updated
information that came to management's attention about the loans or a change in
the current economic environment.
The second component of the allowance is for homogenous loans in which groups of
loans with common characteristics are evaluated for impairment. Homogenous loans
and leases have certain characteristics that are common to the entire portfolio
so as to form a basis for predicting losses on historical data and delinquency
trends as it relates to the group. Management segregates homogenous loans into
groups such as residential real estate, small business mortgage, small business
non-mortgage, lease financing, and various types of consumer loans. The
methodology utilized in establishing the allowance for homogenous loans includes
consideration of the current economic environment, trends in industries,
analysis of historical losses, static pool analysis, delinquency trends,
classified loan grades and credit scores. Based on statistical data, management
assigns loss percentages to groups of loans by product type and classified loan
grades. Loans that are not classified are also assigned a loss percentage based
on historical loss experiences for the specific loan category.
The above two components are the assigned portion of the allowance for loan and
lease losses. The remaining component of the allowance is the unassigned
component determined separately from the procedures outlined above. This
component addresses certain industry and geographic concentrations, including
economic conditions, in an attempt to address the imprecision inherent in the
estimation of the assigned allowance for loan and lease losses. Due to the
subjectivity involved in the determination of the unassigned portion of the
allowance, the relationship of the unassigned component to the total allowance
may fluctuate from period to period.
BankAtlantic Bancorp's Management evaluates the adequacy of the allowance for
loan and lease losses based on the combined total of the assigned and unassigned
components and believes that the allowance for loan and lease losses reflects
management's best estimate of incurred credit losses as of the balance sheet
date. As of December 31, 2002, the allowance for loan losses was $48.0 million.
See "Provision for Loan Losses" for a discussion on the amounts of our allowance
assigned to each loan product and the amount of our unassigned allowance. The
estimated allowance derived from the above methodology may be significantly
different from actual realized losses. Actual losses incurred in the future are
highly dependent upon future events, including the economies of geographic areas
in which we hold loans. These uncertainties are beyond management's control. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review our allowance for loan and lease losses. Such
agencies may require us to recognize additions to the allowance based on their
judgments and information available to them at the time of their examination.
35
Based on the current information associated with BankAtlantic Bancorp's loans
and leases in the aviation and hospitality industry, BankAtlantic Bancorp's
Management determined that it is probable that they have losses in these
portfolios. In order to quantify the estimated loan losses in the hospitality
industry BankAtlantic Bancorp Management evaluated the economic conditions of
the industry, the historical hotel occupancy rates of its borrowers compared to
the industry and the financial condition of its borrowers. This evaluation
resulted in an increase in the allowance for loan losses. Management of
BankAtlantic Bancorp evaluated the leases in the aviation industry and
determined that these relationships had a higher loss experience than the
existing lease portfolio. The evaluation of the financial condition of the
lessees and the economic conditions of the industry resulted in an increase in
the allowance for loan losses.
During the past three years, on an on-going basis, Management of BankAtlantic
Bancorp analyzed the loan portfolio by monitoring the loan mix, credit quality,
historical trends and economic conditions. As a consequence, the allowance for
loan losses estimates will change from period to period. A measure of this
change is the ratio of the allowance for loan losses to total loans. This ratio
has declined from 1.66 at December 31, 2000 to 1.43 at December 31, 2002. If our
historical loss percentages in the assigned portion of our allowance for loan
losses was increased or decreased by 25 basis points at December 31, 2002, it is
estimated that our pre-tax earnings would increase or decrease by approximately
$9 million. The allowance for loan losses to total loan ratio would rise to 1.67
if our historical loss experience increases by 25 basis points. In contrast if
our historical loss experience declines by 25 basis points our allowance for
loan losses to total loan ratio would be reduced to 1.14.
VALUATION OF SECURITIES, TRADING ACTIVITIES AND DERIVATIVE INSTRUMENTS
Securities available for sale, securities owned and derivative instruments are
recorded in our statement of financial condition at fair value. The following
three methods are used for valuation: obtaining market price quotes, using a
price matrix and applying a management valuation model.
The following table provides the sources of fair value for our securities
available for sale, securities owned and derivative instruments at December 31,
2002 (in thousands):
MARKET PRICE PRICE VALUATION
QUOTES MATRIX MODEL TOTAL
SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities $ -- $ 706,050 $ -- $ 706,050
U.S. treasury notes -- 421 -- 421
Equity securities 6,660 -- -- 6,660
--------- --------- --------- ---------
Total securities available for sale 6,660 706,471 -- 713,131
--------- --------- --------- ---------
TRADING SECURITIES
Securities owned 100,241 -- 86,213 186,454
Securities sold not yet purchased (38,003) -- -- (38,003)
--------- --------- --------- ---------
Total trading securities 62,238 -- 86,213 148,451
--------- --------- --------- ---------
Interest rate swap contracts -- -- (3,731) (3,731)
--------- --------- --------- ---------
Total $ 68,898 $ 706,471 $ 82,482 $ 857,851
========= ========= ========= =========
Equity securities available for sale trade daily on various stock exchanges. The
fair value of these securities in our statement of financial condition was based
on the closing price quotations at period end. The closing quotation represents
inter-dealer quotations without retail markups, markdowns or commissions and do
not necessarily represent actual transactions. The number of shares that we own
in some of these equity securities is in excess of the securities average daily
trading volume. As a consequence, we may not be able to realize the quoted
market price upon sale. We adjust our equity securities available for sale to
fair value monthly with a corresponding increase or decrease to other
comprehensive income. Declines in the fair value of individual securities
available for sale below their cost that are other than temporary result in
write-downs of the individual securities to their fair value.
A third party service provides a price matrix fair value of debt securities
available for sale. The pricing matrix computes a fair value of debt securities
based on inputting the securities' coupon rate, maturity date and estimates of
future prepayment rates. The valuations obtained from the pricing matrix are not
actual transactions and will not be the actual amount realized upon sale. It is
likely that results would vary materially if different interest rate and
prepayment assumptions were used in
36
the valuation. Debt securities available for sale are adjusted to fair value
monthly with a corresponding increase or decrease to other comprehensive income.
At December 31, 2002, the fair value and unrealized gain associated with
securities available for sale was $713.1 million and $22.9 million,
respectively. If interest rates were to decline by 200 basis points, it is
estimated that the fair value of our securities available for sale portfolio
would increase by approximately $3 million. In contrast, if interest rates were
to increase by 200 basis points it is estimated that the fair value of the
securities would decline by approximately $15 million. The above changes in
value are based on various assumptions concerning prepayment rates and shifts in
the interest rate yield curve. We are likely to obtain significantly different
results if these assumptions were changed. During the years ended December 31,
2001 and 2000, securities available for sale unrealized gains were $30.4 million
and $37.1 million, respectively.
Interest rate swap contracts are valued against the swap curve obtained from a
financial information provider. Future value estimated cash flows are presented
against intervals of time on the swap curve in order to calculate the estimated
fair value at period end. Changes in the fair value of derivatives designated as
part of a hedge transaction are recorded each period in current earnings for
fair value hedges or other comprehensive income for cash flow hedges. The fair
value of interest rate swap contracts may significantly increase or decrease
based on changes in interest rates. Interest rate swap contracts are originated
in conjunction with hedge strategy in order to attempt to reduce interest rate
risk.
The fair value of interest rate swaps was a loss of $3.7 million at December 31,
2002. If interest rates were to decline by 200 basis points, the estimated fair
value of interest rate swaps would decrease by approximately $1.7 million. In
contrast, if interest rates were to increase by 200 basis points the estimated
fair value of interest rate swaps would increase by approximately $1.9 million.
The fair value of interest rate swaps was a loss of $1.8 million at December 31,
2001 and a gain of $4.0 million at December 31, 2000.
Securities owned and securities sold but not yet purchased are accounted for at
fair value with changes in fair value included in earnings. The fair value of
these securities is determined by obtaining security values from various
sources, including dealer price quotations, price quotations for similar
instruments traded and management estimates. For securities that do not have
listed market prices, the estimated fair value of the securities is determined
by obtaining values for similar securities traded from various pricing services.
These values are reviewed by security traders and adjusted up or down based on
the attributes of the securities owned. The fair values of securities owned and
securities sold but not yet purchased are highly volatile and are largely driven
by general market conditions and changes in the market environment. The most
significant factors affecting the valuation of securities owned and securities
sold but not yet purchased is the lack of liquidity and credit quality of the
issuer. Lack of liquidity results when trading in a position or a market sector
has slowed significantly or ceased and quotes may not be available. Certain
securities owned in GMS's portfolio are not readily marketable, and, in some
instances, GMS holds the majority of the securities of an issue. These
securities are not rated by any rating agency or are rated below investment
grade ("below investment grade securities"). Approximately $27.7 million par
value of these securities with an estimated fair value of $9.7 million were in
default at December 31, 2002. Valuations of below investment grade securities
are derived from limited market information available and other factors,
principally from reviewing the issuer's financial statements. The information
obtained is entered into a management valuation model that considers recent
securities trades, if any, trades of similar securities, the business plan of
the issuer, debt service coverage and the size of the position held. This
evaluation requires a significant amount of judgment in assessing the estimated
fair value. These estimates would be significantly different if the assumptions
concerning credit quality and projected cash flows were changed. The fair values
of below investment grade securities are highly dependent on the cash flows of
the issuer which, in most cases, is a tax exempt entity. The cash flows of the
issuer can significantly change due to future events, including changes in the
economies of geographic areas, changes in policy by governmental agencies and
the general results of operations of the issuer. These factors are beyond
management's control. Furthermore, the credit risk of below investment grade
securities is significant, and therefore, any changes in the credit quality of
the issuer could result in a significant impact on the fair value of the issue.
As a consequence, due to the characteristics of below investment grade
securities and the nature of the underlying collateral, the fair values of these
financial instruments are difficult to determine.
GOODWILL
Goodwill is tested for impairment annually. The impairment test consists of two
steps. In the first step, the carrying value is determined of each reporting
unit by assigning the assets and liabilities, including the existing goodwill
and intangible assets, to those reporting units. If the fair value of the
reporting unit is greater than its carrying value, the test is completed and
37
goodwill assigned to the reporting unit is not impaired. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired, and we must perform the
second step of the impairment test. In the second step, we must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
used in a business combination, to its carrying amount. Goodwill impairment
charge is recognized if the carrying amount of the goodwill assigned to the
reporting unit is greater than the implied fair value of goodwill. The fair
values of the reporting units may be obtained from independent appraisers,
discounted cash flow present value techniques and management valuation models.
While management believes the sources utilized to arrive at the fair value
estimates are reliable, different sources or methods could have yielded
different fair value estimates. Additionally, fair values are not available for
our reporting units, and as such, the valuations require a significant amount of
judgment and estimates. Changes in management's reporting units may affect
future earnings through the recognition of a goodwill impairment charge. At
December 31, 2002, total goodwill was $78.6 million.
If the fair value estimates of our reporting units were to decline by 20%, we
would be required to perform the second step analysis on $19.3 million of
goodwill. The potential impairment charge associated with this evaluation would
be reflected in income from continuing operations. There would be no impact to
our earnings if fair value estimates of our reporting units increased by 20%.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount is not deemed to be recoverable if it is
greater than the sum of the undiscounted cash flows expected from the asset. An
impairment loss is the amount by which the carrying value exceeds the asset's
fair value. When testing a long-lived asset for recoverability, it may be
necessary to review estimated lives and adjust the depreciation period. In
performing a review for recoverability, the future cash flows expected to result
from the use of the asset and its eventual disposition is estimated. If the sum
of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
The estimates of future cash flows and evaluating estimated lives of long-lived
assets are subjective and involve a significant amount of judgment. A change in
the estimated life of a long-lived asset may substantially increase depreciation
expense in subsequent periods. Fair values are not available for many of
long-lived assets and estimates must be based on available information,
including prices of similar assets and present value valuation techniques.
At December 31, 2002, total property and equipment was $92.8 million. During the
year ended December 31, 2002, 2001 and 2000, impairment losses were recognized
on long-lived assets of $206,000, $550,000 and $509,000, respectively. These
impairment charges were associated with exiting BankAtlantic's in-store branches
and restructuring its ATM network.
BankAtlantic has purchased property to consolidate BankAtlantic's headquarters
and back office operations into a centralized facility. Currently,
BankAtlantic's back office operations are in four locations, each of which is
owned by BankAtlantic. The book value of the property and equipment in these
locations was $8.4 million at December 31, 2002. In estimating the sum of future
cash flows, BankAtlantic Bancorp used assessed value of the property, if
available, and internal budgets. BankAtlantic Bancorp developed budgets based on
future estimated cash flows of the asset groups and projected estimated use of
the property. At December 31, 2002, BankAtlantic Bancorp estimated that future
cash flows, on an undiscounted basis, was greater than the $8.4 million
investment in the property and equipment. Depreciation estimates were also
reviewed and the remaining use of the property was evaluated, as well as the
estimated residual value. Based on the analysis and the residual values of the
property, depreciation estimates were not changed and it was determined that the
fair value of the property and equipment in the four locations was in excess of
the book value at December 31, 2002.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND EQUITY METHOD INVESTMENTS
Real estate held for development includes land acquisition costs, land
development costs and other construction costs, all of which are accounted for
at the lower of accumulated cost or estimated fair value in our financial
statements. Start-up costs and selling expenses are expensed as incurred. Land,
land development, amenities and other costs are accumulated by specific area and
allocated to homes and land within the respective areas. The allocation of
common costs to our real estate inventory is based on actual costs incurred plus
estimated costs to complete. These estimated costs are subjective and may change
based on future market conditions. The estimated fair value of real estate is
evaluated annually based on disposition of real estate in the normal course of
business under existing and anticipated market conditions. The evaluation
attempts to
38
take into consideration the current status of the property, various
restrictions, carrying costs, debt service requirements, costs of disposition
and any other circumstances which may affect fair value, including management's
plans for the property. Due to the large acreage of land holdings, disposition
in the normal course of business is expected to extend over a number of years.
Uncertainties associated with the economy, interest rates and the real estate
market in general may significantly change the valuation of real estate
investments.
The valuation of real estate inventory is highly susceptible to change because
of the assumptions about future sales and cost of sales. The impact that
recognizing impairment would have on the assets reported in our consolidated
statement of financial position as well as our net earnings could be
significant. Assumptions about future home sales prices and volumes require
significant judgment because the real estate industry is cyclical and is highly
sensitive to changes in economic conditions. Although the real estate business
historically has been cyclical, it has not undergone a down cycle in a number of
years. While no impairment existed as of December 31, 2002, there can be no
assurances that future economic or financial developments, including general
interest rate increases or a continued slowdown in the economy, might not lead
to impairment of inventory.
We account for equity method investments and joint venture partnership interests
in which we have a 50% or less ownership interest using the equity method of
accounting. Under the equity method, the initial investment is recorded at cost
and is subsequently adjusted to recognize the Company's share of earnings or
losses. Investments are evaluated annually for other than temporary losses in
value. Evidence of other than temporary losses includes the inability to sustain
an earnings capacity which would justify the carrying amount of the investment.
The evaluation is based on available information including condition of the
property and current and anticipated real estate market conditions.
At December 31, 2002, the aggregate balances of real estate held for development
and equity method investments were $317.1 million.
ACCOUNTING FOR BUSINESS COMBINATIONS
The Company accounts for its business combinations such as the Community
acquisition, the Bluegreen equity investment and the Gruntal transaction, based
on the purchase method of accounting. The purchase method of accounting requires
us to fair value the tangible net assets and identifiable intangible assets
acquired. The fair values are based on available information and current
economic conditions at the date of acquisition. The fair values may be obtained
from independent appraisers, discounted cash flow present value techniques,
management valuation models, quoted prices on national markets or quoted market
prices from brokers. These fair values estimates will affect future earnings
through the disposition or amortization of the underlying assets and
liabilities. While management believes the sources utilized to arrive at the
fair value estimates are reliable, different sources or methods could have
yielded different fair value estimates. Use of different fair value estimates
could affect future earnings through different values being utilized for the
disposition or amortization of the underlying assets and liabilities acquired.
In connection with the acquisition of Community and Bluegreen Corporation, net
fair value adjustments excluding goodwill and other intangible assets were
recorded of $21.9 million and $2.1 million, respectively. This amount will
affect future earnings through the disposition and amortization of the
underlying assets and liabilities. If the estimates were adjusted by 20% up or
down, future earnings would be affected by approximately $5 million.
FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE SAME 2001 PERIOD:
CONSOLIDATED RESULTS OF OPERATIONS
Income before income taxes, minority interest, extraordinary item and cumulative
effect of a change in accounting principle increased by 11% from 2001. The
increased earnings primarily resulted from significant improvements in net
interest income, a substantial increase in service charges on deposits, as well
as higher earnings associated with our real estate subsidiary, Levitt
Corporation ("Levitt"). The above improvements in earnings were partially offset
by impairment charges related to equity investments and expenses associated with
our acquisition of Community Savings and the Gruntal transaction. Furthermore,
the 2001 earnings were adversely affected by a goodwill impairment charge
associated with our leasing subsidiary, Leasing Technology, Inc. ("LTI") and the
amortization of goodwill. The Company discontinued the amortization of goodwill
upon the adoption of a new accounting standard as of January 1, 2002. Excluding
goodwill
39
amortization during 2001, income before income taxes, minority interest,
extraordinary item and cumulative effect of a change in accounting principle
increased by 2% from 2001.
Net interest income increased by 14% from 2001. The improvement in net interest
income primarily resulted from earning asset growth associated with
BankAtlantic's Community acquisition and the origination and purchase of real
estate loans. The higher interest income associated with asset growth was
partially offset by a decline in the net interest margin. The net interest
margin was negatively impacted by a substantial increase in non-earning assets
due to the Community acquisition and the Gruntal transaction.
The provision for loan losses declined by 17% from 2001. The decrease reflects a
change in BankAtlantic's loan mix. Currently, the loan portfolio is
predominately collateralized by real estate loans. Real estate loans have lower
historical loss experiences than the loan products emphasized in prior periods.
Additionally, in prior periods, BankAtlantic discontinued the origination of
loan products which had experienced adverse delinquency trends. Discontinued
loan products included indirect consumer loans, syndication commercial business
loans and lease financings. Additionally, BankAtlantic completely overhauled its
small business loan underwriting process. These four categories had given rise
to over 84% of net charge-offs from December 31, 1998 to December 31, 2002.
Gains on securities transactions increased by 20% from 2001. Securities
transaction gains during 2002 primarily resulted from BankAtlantic Bancorp's
sales of mortgage-backed securities and the sale of equity securities. The
mortgage-backed securities were sold in response to the significant decline in
interest rates. The equity securities were sold in response to deteriorating
conditions in the equity markets. Securities transaction gains during 2001 also
resulted from the sales of equity securities and mortgage-backed securities.
During 2002, the Company recognized an other-than-temporary impairment of $15.6
million, net of minority interest, associated with an equity investment in a
private company held directly by BankAtlantic Bancorp and BFC. The remaining
2002 impairment of securities was associated with declines in value of the
marketable equity securities. The impairment of securities during 2001 was also
associated with declines in the value of equity securities. These marketable
equity securities were held at BankAtlantic Bancorp and BFC parent company
levels.
Other non-interest income increased by 113% from 2001. The increase primarily
resulted from substantial increases in income from Ryan Beck's investment
banking and Levitt's increase in revenues from real estate operations, as well
as a significant increase in service charges on deposits. The substantial
increase in investment banking income resulted from the Gruntal transaction
which added approximately 500 financial consultants to Ryan Beck's approximately
100 consultants. The increases in revenues from real estate operations were
primarily attributable to an increase in commercial land sales and residential
lot sales associated with growth in the residential home sales market during
2002. The significant increase in service charges on deposits primarily resulted
from an increase in checking accounts attributed to BankAtlantic's new checking
products and seven-day branch banking initiative.
Non-interest expense increased by 75% from 2001. The increase primarily resulted
from higher non-interest expenses associated with the Gruntal transaction, the
Community acquisition, implementation of seven-day banking and growth in our
real estate operations. Ryan Beck's non-interest expense increased from $48.2
million during 2001 to $168.0 million during 2002 primarily as a result of the
Gruntal transaction. Bank operations non-interest expense increased from $103.4
million to $134.4 million primarily relating to the Community acquisition and
the seven-day banking initiative. Real estate non-interest expense increased
from $26.8 million to $30.5 million due to the development of various new
projects. Non-interest expense in 2001 included a $2.6 million litigation
accrual associated with an adverse jury verdict entered against a partnership in
which a subsidiary of Levitt is a 50% partner. Additionally, a $6.6 million
goodwill impairment charge associated with discontinuation of BankAtlantic
Bancorp's leasing operations and the amortization of $4.1 million of goodwill
during 2001 did not recur in 2002. Due to a change in accounting principle, we
ceased the amortization of goodwill on January 1, 2002.
The provision for income taxes decreased by 28% from 2001. The decrease
primarily resulted from a reduction in the deferred tax valuation allowance due
to the utilization of tax benefits from real estate sales at Levitt and a
substantial increase in tax exempt income associated with the acquisition of
GMS. Additionally, we acquired, as part of the Community transaction, low-income
housing tax credit investments, which further reduced our tax liability during
2002.
Minority interest in income of consolidated subsidiaries increased by 108% from
2001. The increase is primarily due to an increase in earnings at BankAtlantic
Bancorp from $32.2 million in 2001 to $50.3 million in 2002.
40
We recognized an extraordinary gain associated with the Gruntal transaction.
During 2002, the extraordinary gain was recognized because the fair value of the
assets acquired, after reducing the carrying value of non-financial assets to
zero, exceeded the cost of the transaction by $23.7 million, net of income taxes
of $2.8 million. A deferred tax liability for the extraordinary gain associated
with the GMS membership interest acquisition was not established because Ryan
Beck acquired the membership interest in GMS instead of the net assets.
Upon the implementation of FASB Statement 142, the required goodwill impairment
test was performed as of January 1, 2002 and it was concluded that the goodwill
assigned to the Ryan Beck reportable segment was impaired. As a consequence, a
$15.1 million impairment loss (net of tax) was recorded effective as of January
1, 2002 as a cumulative effect of a change in accounting principle.
During the year ended December 31, 2001 we recorded $1.1 million (net of tax) of
income related to the cumulative effect of a change in accounting principle
associated with the implementation of Financial Accounting Standards Board
Statement Number 133, "Accounting for Derivative Instruments and Hedging
Activities".
For the Year Ended December 31, 2001 Compared to the Same 2000 Period
Income before income taxes, minority interest, discontinued operations,
extraordinary item and cumulative effect of a change in accounting principle
increased by 36% from 2000. The increased earnings primarily resulted from
significant improvements in net interest income and the provision for loan
losses as well as higher earnings associated with Levitt. The above improvements
in earnings were partially offset by a goodwill impairment charge related to
BankAtlantic Bancorp's leasing subsidiary, LTI, decreased investment banking
income, higher compensation expense and data processing and consulting expenses
associated with our banking operations.
Net interest income increased by 17% from 2000. The improvement in net interest
income primarily resulted from the rapid decline in interest rates during the
year ended December 31, 2001, as interest-bearing liabilities re-priced more
rapidly than interest earning assets. Net interest income also improved due to
interest earning asset growth.
The provision for loan losses declined by 42% from 2000. The decrease reflects
decisions made in prior periods to strengthen our underwriting process and to
discontinue loan products which had experienced adverse delinquency trends.
Gains on securities transactions increased by 149% from 2000. Securities
transaction gains during 2001 primarily resulted from the sales of equity
securities and mortgage-backed securities. Securities transaction gains during
2000 were primarily related to sales of equity securities and unrealized gains
on forward contracts.
The impairment of securities during 2001 and 2000 was associated with equity
securities at the BankAtlantic Bancorp parent level and BFC.
During 2001, BankAtlantic Bancorp redeemed its subordinated investment notes and
recognized a $389,000 loss. During 2000, BankAtlantic Bancorp repurchased $53.8
million aggregate principal amount of its 5-5/8 debentures and recognized a
$12.2 million gain.
Other non-interest income increased by 5% from 2000. The increase largely
related to gains on real estate sales associated with the construction and
development activities of Levitt, sales of assets and higher deposit service
charges. These gains were partially offset by lower investment banking revenues.
The improved sales at Levitt resulted from higher revenues from land sales to
developers and a 42% growth in home sales to individuals during the year ended
December 31, 2001. Investment banking revenues declined by 22% due to a
substantial reduction in underwriting and consulting fees as well as lower
commissions from equity and mutual fund sales.
Non-interest expense increased by 8% from 2000. The increase primarily resulted
from a $6.6 million goodwill impairment charge, a $2.6 million litigation
accrual and higher compensation expense. The higher compensation expense was due
to increased real estate development activities at Levitt and higher salaries,
employee benefits and compensation expenses associated with banking operations.
The litigation accrual related to an unfavorable jury verdict against a
partnership in which a subsidiary of Levitt is a 50% partner. The increases in
non-interest expense were partially offset by lower restructuring charges and
impairment write-downs. The restructuring charges and impairment write-downs
were associated
41
with a decision to exit in-store branches during the year ended December 31,
2001 and the restructuring charges and impairment write-downs during the same
2000 period were associated with a strategic decision to terminate
BankAtlantic's ATM relationships with certain retailers.
RESULTS OF OPERATIONS BY SEGMENT
Management evaluates our results of operations through seven reportable
segments. Bank Investments, Commercial Banking, and Community Banking are our
Bank Operation segments, which are conducted through BankAtlantic. The remaining
reportable segments consist of the activities of Levitt Corporation and its
subsidiaries, Ryan Beck & Co., Inc. and its subsidiaries, BankAtlantic Bancorp
parent company and BFC holding company. BankAtlantic Bancorp parent company
includes the operations of BankAtlantic Bancorp as well as acquisition related
expenses such as goodwill amortization and retention pool compensation expense
related to the acquisition of Ryan Beck in 1998. BFC holding company includes
BFC's real estate owned which includes BMOC, Center Port and a 50% interest in
the Delray property (sold in 2001), loans receivables that relate to previously
owned properties, other securities and investments and BFC's overhead and
interest expense.
For a reconciliation of the results of operations of our reportable segments to
our consolidated statement of operations, see Item 8 Note 23 to our consolidated
financial statements included herein.
OUTLOOK FOR BANKING OPERATIONS
We are encouraged by the progress in our banking operations as we implemented
our seven-day banking initiative and are pleased by our growth in real estate
lending. Certain current and possible future trends in our business may impact
our profitability during 2003 as follows:
We expect our net interest income to remain at 2002 levels during 2003. We
anticipate real estate loan growth to continue; however, the improved net
interest income from loan growth may be offset to the extent that our net
interest margin narrows during 2003. Our net interest margin was negatively
impacted by lower interest rates and prepayments during 2002, and we expect that
this will continue during the next several quarters and subside later in 2003.
We do not expect the margins to improve until early 2004.
Despite our loan growth over the past three years, based on current market
fluctuations, we anticipate that our provision for loan losses will generally
remain at 2002 levels as a result of our underwriting and credit management
policies and procedures that we implemented beginning in 2000.
Our non-interest income improved substantially during 2002 resulting from the
fees associated with deposit accounts acquired in connection with the Community
acquisition as well as fees associated with opening over 62,000 deposit accounts
since the commencement of our seven-day banking initiative during the fourth
quarter of 2001. We believe that we will continue to experience an increase in
non-interest income during 2003 with the planned expansion and renovation of our
branch network.
Our non-interest expenses significantly increased during 2002 due to the costs
linked to seven-day branch banking and a larger branch network associated with
the Community acquisition. We believe that our expenses will continue to
increase during 2003 related to compensation, occupancy and advertising costs
necessary for our branch expansion and renovation plan and our continued
promotion of the seven-day banking initiative. We believe that the potential
future contribution to our profitability from our branch network expansion and
deposit strategies will justify the near-term costs.
42
BANK OPERATIONS RESULT OF OPERATIONS
NET INTEREST INCOME
The following table summarizes bank operations net interest income:
FOR THE YEARS ENDED
----------------------------------------------------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------------------- ----------------------------- ------------------------------
(DOLLARS IN THOUSANDS) AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
INTEREST EARNING ASSETS
Loans: (a)
Residential real estate $1,429,022 $ 88,808 6.21% $1,327,455 $ 94,199 7.10% $1,372,398 $ 100,178 7.30%
Commercial real estate 1,500,744 96,836 6.45 1,112,026 95,114 8.55 875,353 85,872 9.81
Consumer 253,044 14,165 5.60 211,939 17,296 8.16 226,922 21,809 9.61
International 664 44 6.63 33,639 2,569 7.64 62,406 4,944 7.92
Lease financing 43,496 5,307 12.20 70,113 8,835 12.60 58,312 8,260 14.17
Commercial business 99,188 5,891 5.94 153,492 11,913 7.76 180,713 17,120 9.47
Small business 146,468 11,565 7.90 98,405 9,811 9.97 102,521 11,461 11.1
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Total loans 3,472,626 222,616 6.41 3,007,069 239,737 7.97 2,878,625 249,644 8.67
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Securities available for sale (b) 727,347 42,406 5.83 858,145 52,813 6.15 805,314 50,698 6.30
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Investment securities (c) 452,753 32,013 7.07 389,197 32,161 8.26 306,370 26,511 8.65
Federal funds sold 3,929 57 1.45 564 21 3.72 629 40 6.36
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Total investment securities 456,682 32,070 7.02 389,761 32,182 8.26 306,999 26,551 8.65
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Total interest earning assets 4,656,655 297,092 6.38% 4,254,975 324,732 7.63% 3,990,938 326,893 8.19%
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
NON-INTEREST EARNING ASSETS
Total non-interest earning assets 316,085 164,255 178,487
---------- ---------- ----------
Total assets $4,972,740 $4,419,230 $4,169,425
========== ========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Savings $ 140,961 1,362 0.97% $ 102,996 $ 1,451 1.41% $ 99,545 $ 1,268 1.27%
NOW, money funds and checking 1,078,298 15,338 1.42 757,922 20,241 2.67 692,680 26,156 3.78
Certificate accounts 1,230,013 46,077 3.75 1,182,094 63,976 5.41 1,119,319 64,299 5.74
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Total interest-bearing deposits 2,449,272 62,777 2.56 2,043,012 85,668 4.19 1,911,544 91,723 4.80
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Securities sold under agreements
to repurchase and federal funds
Purchased 400,376 6,845 1.71 604,311 24,870 4.12 572,007 35,564 6.22
Advances from FHLB 1,198,463 62,412 5.21 1,077,876 60,472 5.61 1,031,255 61,331 5.95
Subordinated debentures and
notes payable 14,805 936 6.32 -- -- -- -- -- --
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
Total interest bearing
liabilities 4,062,916 132,970 3.27 3,725,199 171,010 4.59 3,514,806 188,618 5.37
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
NON-INTEREST BEARING LIABILITIES
Demand deposit and escrow 405,599 285,760 268,164
accounts
Other liabilities 70,187 55,383 43,724
---------- ---------- ----------
Total non-interest-bearing 475,786 341,143 311,888
---------- ---------- ----------
liabilities
Stockholders' equity 434,038 352,888 342,731
---------- ---------- ----------
Total liabilities and
stockholders'
equity $4,972,740 $4,419,230 $4,169,425
========== ========== ==========
Net interest income/net
interest spread $ 164,122 3.11% $ 153,722 3.04% $ 138,275 2.82%
========== ===== ========== ===== ========== =====
MARGIN
Interest income/interest earning 6.38% 7.63% 8.19%
assets
Interest expense/interest 2.86 4.02 4.73
----- ----- -----
earning assets
Net interest margin 3.52% 3.61% 3.46%
==== ===== =====
(a) Includes non-accruing loans.
(b) Average balances were based on amortized cost.
(c) Includes securities purchased under agreements to resell, tax certificates,
mortgage-backed securities held to maturity and interest-bearing deposits
and trading securities.
43
The following table summarizes the changes in net interest income: (in
thousands)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
COMPARED TO YEAR ENDED COMPARED TO YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
VOLUME (a) RATE TOTAL VOLUME (a) RATE TOTAL
---------- ---- ----- ---------- ---- -----
INCREASE (DECREASE) DUE TO:
Loans $ 29,845 $(46,966) $(17,121) $ 10,240 $(20,147) $ (9,907)
Securities available for sale (7,626) (2,781) (10,407) 3,251 (1,136) 2,115
Investment securities (b) 4,494 (4,642) (148) 6,844 (1,194) 5,650
Federal funds sold 49 (13) 36 (2) (17) (19)
-------- -------- -------- -------- -------- --------
Total earning assets 26,762 (54,402) (27,640) 20,333 (22,494) (2,161)
-------- -------- -------- -------- -------- --------
Deposits:
Savings 367 (456) (89) 49 134 183
NOW, money funds, and checking 4,557 (9,460) (4,903) 1,742 (7,657) (5,915)
Certificate accounts 1,795 (19,694) (17,899) 3,397 (3,720) (323)
-------- -------- -------- -------- -------- --------
Total deposits 6,719 (29,610) (22,891) 5,188 (11,243) (6,055)
-------- -------- -------- -------- -------- --------
Securities sold under agreements to
repurchase (3,487) (14,538) (18,025) 1,329 (12,023) (10,694)
Advances from FHLB 6,280 (4,340) 1,940 2,616 (3,475) (859)
Subordinated debentures 936 -- 936 -- -- --
-------- -------- -------- -------- -------- --------
3,729 (18,878) (15,149) 3,945 (15,498) (11,553)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 10,448 (48,488) (38,040) 9,133 (26,741) (17,608)
-------- -------- -------- -------- -------- --------
Change in net interest income $ 16,314 $ (5,914) $ 10,400 $ 11,200 $ 4,247 $ 15,447
======== ======== ======== ======== ======== ========
(a) Changes attributable to rate/volume have been allocated to volume.
(b) Average balances were based on amortized costs.
FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE SAME 2001 PERIOD
Net interest income increased by $10.4 million, or 7%, from 2001. The
improvement reflects earning asset growth associated with the Community
acquisition and the origination and purchase of real estate loans partially
offset by a decline in the net interest margin. The net interest margin was
negatively impacted by a substantial increase in non-earning assets primarily
due to an increase in goodwill and branch-related assets as a result of the
Community acquisition. The unfavorable impact on net interest income of an
increase in non-earning assets was partially offset by a slight improvement in
BankAtlantic's net interest spread as interest-bearing liabilities re-priced
downward more rapidly than interest-earning assets.
The growth in earning assets resulted from the addition of $709 million of
earning assets from the Community acquisition, and a significant increase in
funding of commercial real estate, small business mortgage and home equity
consumer loans. The above increases in earning assets were partially offset by
lower average balances related to several discontinued or curtailed lines of
business, including BankAtlantic's lease finance business, indirect consumer
loans, syndication commercial business loans, international loans to
correspondent banks and certain small business loans.
The decline in securities available for sale average balances primarily resulted
from the accelerated repayments and the sale of mortgage-backed securities. The
increase in investment securities average balances reflects increased tax
certificate acquisitions during the period.
The increase in interest-bearing deposits was primarily attributed to the
Community acquisition. The substantial growth in non-interest bearing demand
deposits primarily resulted from our free checking and seven-day branch banking
initiative. Average short-term borrowings was substantially lower during 2002.
The decline was linked to an increase in deposits,
44
FHLB advances, and subordinated debenture average balances. During October 2002,
BankAtlantic issued $22 million of subordinated debentures. The proceeds of the
debentures were used for BankAtlantic Bancorp's general corporate purposes.
The net interest spread improved by 7 basis points from 2001. The improvement
primarily resulted from the rates on our interest-bearing liabilities declining
faster than the yields on our earning assets. The significant decline in the
yields on BankAtlantic's interest-earning assets and the rate associated with
BankAtlantic's interest bearing liabilities was a direct result of the
historically low interest rate environment during 2002. Interest bearing
liabilities rates declined by 132 basis points while interest earning asset
yields declined by 125 basis points. Contributing to the decline in our deposit
rates was a change in BankAtlantic's deposit mix from time deposits to low cost
savings, NOW, money funds and checking accounts ("transaction accounts").
BankAtlantic's average interest-bearing deposit mix changed from 58% time
deposits and 42% transaction accounts to 50% time deposits and 50% transaction
accounts. Contributing to the decline in average yields on interest-bearing
assets was the refinancing of residential loans and mortgage-backed securities
and the subsequent purchases of replacement assets at lower yields than the
existing portfolio. Additionally, the rapid decline in interest rates caused a
downward adjustment of yields on BankAtlantic's floating rate loans and
securities.
As a consequence of the growth in average earning assets and interest-bearing
liabilities, interest income increased by $26.8 million and interest expense
increased by $10.4 million. The lower rates paid on average interest-bearing
liabilities decreased interest expense by $48.5 million while the lower yields
on interest-earning assets decreased interest income by $54.4 million.
FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE SAME 2000 PERIOD
Net interest income increased by $15.4 million during 2001. The substantial
improvement reflects an increased net interest margin, growth in average earning
assets and an increase in deposit transaction account average balances.
The net interest spread improved by 22 basis points from 2000. The improvement
primarily resulted from a rapid decline in interest rates during 2001 as
interest bearing liabilities re-priced downward faster than interest earning
assets. Interest bearing liabilities rates declined by 78 basis points while
interest earning asset yields declined by 56 basis points. The decline in
deposit average rates primarily resulted from BankAtlantic's time deposits
re-pricing at lower interest rates and secondarily from growth in BankAtlantic's
low cost transaction accounts. The average balance on transaction accounts
increased from $1,060 million to $1,147 million, an increase of 8%. Market rates
on short-term borrowings were significantly lower during 2001 compared to 2000.
The decline in interest-earning asset yields was due to the refinancing of
residential loans and lower yields earned on floating rate loans and securities.
BankAtlantic achieved growth in all categories of interest-earning assets. Loan
growth was primarily attributable to an increase in commercial real estate and
home equity loans partially offset by declines in our syndication, small
business, international and indirect consumer loan portfolios. The declines in
these portfolios reflected decisions by management in prior periods to cease
BankAtlantic's indirect automobile and syndication lending, terminate
BankAtlantic's lease financing originations, withdraw from lending to
international banks and substantially reduce BankAtlantic's small business loan
originations. Growth in BankAtlantic's securities available for sale and
investment securities portfolios resulted primarily from the purchase of
adjustable rate mortgage-backed securities. The purchases were made as part of a
portfolio repositioning strategy in reaction to the rapidly declining interest
rates during the year ended December 31, 2001.
During 2001, BankAtlantic's average earning assets and average rate paying
liabilities increased compared to 2000. The declining interest rate environment
resulted in decreased yields on earning assets with a corresponding decline in
rates on interest paying liabilities. The lower rates paid on average
interest-bearing liabilities decreased interest expense by $26.7 million while
the lower yields on interest earning assets decreased interest income by $22.5
million. The growth in interest earning assets increased interest income by
$20.3 million and higher average interest-bearing liabilities increased interest
expense by $9.1 million.
45
PROVISION FOR LOAN LOSSES
Changes in BankAtlantic's allowance for loan losses were as follows (dollars in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
BALANCE, BEGINNING OF PERIOD $ 44,585 $ 47,000 $ 44,450 $ 37,950 $ 28,450
CHARGE-OFFS:
Syndication loans (8,013) (7,235) (3,659) -- --
Commercial business loans -- -- (24) (87) (896)
Commercial real estate loans (6,998) -- -- (211) (562)
Small business (3,655) (4,487) (14,114) (12,531) (2,043)
Lease financing (7,069) (10,340) (3,930) (1,217) (1,233)
Consumer loans - direct (1,006) (2,629) (2,233) (2,443) (1,746)
Consumer loans - indirect (1,095) (2,981) (7,546) (11,052) (9,446)
Residential real estate loans (827) (244) (715) (150) (169)
-------- -------- -------- -------- --------
TOTAL CHARGE-OFFS (28,663) (27,916) (32,221) (27,691) (16,095)
-------- -------- -------- -------- --------
RECOVERIES:
Syndication loans 1,274 -- -- -- --
Commercial business loans 76 331 94 185 489
Commercial real estate loans 20 10 8 205 9
Small business 2,268 2,623 1,240 188 30
Lease financing 3,014 2,388 335 285 229
Consumer loans - direct 477 769 645 739 844
Consumer loans - indirect 1,419 2,252 3,211 1,931 1,449
Residential real estate loans 331 223 106 -- --
-------- -------- -------- -------- --------
TOTAL RECOVERIES 8,879 8,596 5,639 3,533 3,050
-------- -------- -------- -------- --------
NET CHARGE-OFFS (19,784) (19,320) (26,582) (24,158) (13,045)
Provision for loan losses 14,077 16,905 29,132 30,658 21,788
Allowance for loan losses acquired 9,144 -- -- -- 757
-------- -------- -------- -------- --------
BALANCE, END OF PERIOD $ 48,022 $ 44,585 $ 47,000 $ 44,450 $ 37,950
======== ======== ======== ======== ========
The provision for loan losses declined in each of the years in the three years
ended December 31, 2002. During 1999 and 2000, BankAtlantic significantly
increased its provision for loan losses to reflect losses experienced in
BankAtlantic's indirect consumer and small business lending activities. During
2001, BankAtlantic significantly increased the provision associated with losses
experienced in BankAtlantic's lease financing and syndication lending
activities.
BankAtlantic discontinued the origination of indirect consumer loans in 1998,
discontinued the origination of leases and syndication loans in 2001 and made
major modifications to the underwriting process for small business loans in
2000. As a consequence, the allowance for loan losses and the related provision
for loan losses declined significantly in these lines of business during 2001
and 2002. The net charge-offs from consumer indirect, syndication, lease
financing and small business loans originated before the implementation of new
underwriting standards (collectively "discontinued lines of business") had given
rise to over 84% of net charge-offs since December 31, 1998. Management believes
that the allowance for loan losses associated with discontinued lines of
business is adequate, and BankAtlantic has a sound basis for estimating losses
in the portfolios at December 31, 2002.
46
The outstanding loan balances related to BankAtlantic's discontinued lines of
business and the amount of allowance for loan losses ("ALL") assigned to each
line of business was as follows (in thousands):
AS OF DECEMBER 31,
------------------
2002 2001 2000
---- ---- ----
ALLOCATION ALLOCATION ALLOCATION
AMOUNT OF ALL AMOUNT OF ALL AMOUNT OF ALL
------ ------ ------ ------ ------ ------
Lease finance $ 31,279 $ 7,396 $ 54,969 $ 8,639 $ 75,918 $ 2,879
Syndication loans 14,499 294 40,774 8,602 80,016 8,480
Small business (1) 17,297 2,143 32,123 4,105 66,989 9,965
Consumer - indirect 8,105 457 25,400 1,247 62,475 5,388
-------- -------- -------- -------- -------- --------
$ 71,180 $ 10,290 $153,266 $ 22,593 $285,398 $ 26,712
======== ======== ======== ======== ======== ========
(1) Small business loans originated before January 1, 2001.
In 2001 and 2000, the provision for loan losses reflected an increase in
BankAtlantic's reserves for loans to borrowers in the aviation and hospitality
industries. These industries were adversely affected by the September 11
terrorist attacks and a subsequent decline in tourism. As a consequence,
BankAtlantic evaluated its loans to the hospitality industry and increased its
allowance for loan losses by $2.1 million in 2001 and $1.1 million in 2002.
Additionally, a significant portion of BankAtlantic's allowance associated with
lease financing at December 31, 2002 and 2001 was assigned to leases in the
aviation industry, and during 2002, $8.0 million of syndication loan charge-offs
were associated with a loan in the aviation industry.
Included in commercial real estate charge-offs for the year ended December 31,
2002 was a $3.5 million partial charge-off of a commercial real estate
residential construction loan and a $3.4 million partial charge-off of a
commercial loan collateralized by a hotel. The commercial real estate
residential construction loan was transferred to real estate owned during 2002.
The commercial loan collateralized by a hotel was sold at book value to an
unrelated third party.
BankAtlantic acquired $9.1 million of allowance for loan losses during 2002 in
connection with the Community acquisition.
As a consequence of BankAtlantic's loss experience with certain types of loans
and with loans to borrowers in certain industries, BankAtlantic has changed the
composition of its loan portfolio to be predominately collateralized by real
estate loans. These loan types have historically had much lower loss ratios than
BankAtlantic's discontinued lines of business. BankAtlantic anticipates that
focusing its lending activities on real estate collateral-based loans will
reduce BankAtlantic's provision for loan losses with a corresponding reduction
in BankAtlantic's allowance for loan losses as a percentage of total loans.
The table below presents the allocation of BankAtlantic's allowance for loan and
lease losses by various loan classifications ("ALL by category"), the percent of
allowance to each loan category ("ALL to gross loans in each category") and sets
forth the percentage of loans in each category to gross loans excluding banker's
acceptances ("Loans by category to gross loans"). The allowance shown in the
table should not be interpreted as an indication that charge-offs in future
periods will occur in these amounts or proportions or that the allowance
indicates future charge-off amounts or trends. There is no assurance that the
allowance will be sufficient.
47
DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- ----------------- -----------------
ALL LOANS ALL LOANS ALL LOANS
TO GROSS BY TO GROSS BY TO GROSS BY
ALL LOANS CATEGORY ALL LOANS CATEGORY ALL LOANS CATEGORY
BY IN EACH TO GROSS BY IN EACH TO GROSS BY IN EACH TO GROSS
(Dollars in thousands) CATEGORY CATEGORY LOANS CATEGORY CATEGORY LOANS CATEGORY CATEGORY LOANS
-------- -------- ----- -------- -------- ----- -------- -------- -----
Commercial business $ 1,437 1.75% 2.09% $ 1,563 2.02% 2.38% $ 1,502 1.00% 4.64%
Syndications 294 2.03 0.37 8,602 21.10 1.25 8,480 10.60 2.46
Commercial real estate 21,124 1.07 50.16 13,682 0.83 50.54 10,072 0.77 40.25
Small business 5,006 3.11 4.09 5,178 5.06 3.14 10,750 11.01 3.01
Lease financing 7,396 23.65 0.79 8,639 15.72 1.69 2,879 3.79 2.34
Residential real estate 2,512 0.18 35.01 1,304 0.12 34.31 1,540 0.12 40.52
Consumer - direct 3,239 1.13 7.28 2,064 1.07 5.91 2,989 1.89 4.86
Consumer - indirect 457 5.64 0.21 1,247 4.91 0.78 5,388 8.62 1.92
Unassigned 6,557 N/A N/A 2,306 N/A N/A 3,400 N/A N/A
------- ------ ------- ------ ------- ------
$48,022 1.22% 100.00% $44,585 1.37% 100.00% $47,000 1.45% 100.00%
======= ====== ======= ====== ======= ======
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
ALL LOANS ALL LOANS
TO GROSS BY TO GROSS BY
ALL LOANS CATEGORY ALL LOANS CATEGORY
BY IN EACH TO GROSS BY IN EACH TO GROSS
CATEGORY CATEGORY LOANS CATEGORY CATEGORY LOANS
-------- -------- ----- -------- -------- -----
Commercial business $ 2,004 1.85% 3.60% $ 2,749 2.31% 4.14%
Syndications 2,651 2.01 4.41 -- -- 0.00
Commercial real estate 8,118 0.86 31.44 9,411 1.20 27.21
Small business 13,278 11.48 3.84 4,831 4.07 4.14
Lease financing 2,131 4.91 1.45 1,320 5.27 0.87
Residential real estate 1,912 0.14 47.00 1,804 0.12 52.43
Consumer - direct 2,294 1.89 4.05 1,652 1.63 3.53
Consumer - indirect 7,758 6.18 4.21 10,409 4.72 7.68
Unassigned 4,304 N/A N/A 5,774 N/A N/A
------- ------ ------- ------
$44,450 1.48% 100.00% $37,950 1.32% 100.00%
======= ====== ======= ======
The assigned portion of the allowance for loan and lease losses primarily
relates to BankAtlantic's commercial real estate and lease financing lines of
business. The allowance assigned to BankAtlantic's discontinued lines of
business significantly declined as shown on the above table. The decrease was
primarily due to declining portfolio balances partially offset by additional
allowances allocated to aviation leases. The $8.6 million allowance assigned to
syndication loans in 2001 primarily related to one loan mentioned above that was
settled for book value. The increase in the allowance for commercial real estate
loans from $8.1 million at December 31, 1999 to $21.1 million at December 31,
2002 primarily resulted from portfolio growth associated with high balance loans
and additional reserves associated with loans to the hospitality industry. At
December 31, 2002, our commercial real estate portfolio included large lending
relationships, including 18 relationships with unaffiliated borrowers involving
individual lending commitments in excess of $30 million with an aggregate
outstanding balance of $472.1 million.
The unassigned portion of the allowance for loan losses addresses certain
industry and geographic concentrations, including economic conditions, in an
attempt to address the imprecision inherent in the estimation of the assigned
allowance for loan losses. The unassigned portion of the allowance for loan
losses increased by $4.3 million from 2001. In prior periods, BankAtlantic has
established an unassigned allowance based on its view of near term economic
conditions and their potential effect upon loan losses within select segments of
the loan portfolio. At December 31, 2002, management included the entire loan
portfolio in its analysis due to current uncertainty surrounding economic
conditions and a higher concentration of
48
lending in new geographical areas in Florida. The uncertain economic conditions
related to a decline in the tourism industry, a slump in the luxury residential
housing market and a significant decline in consumer confidence at period end.
The tourism industry is the largest industry in Florida. Additionally,
BankAtlantic expanded the geographical area in which it originates commercial
real estate loans by hiring lending personnel and expanding into central and
northern Florida beginning in 2000.
NON-PERFORMING ASSETS AND POTENTIAL PROBLEM LOANS
DECEMBER 31,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
NONPERFORMING ASSETS
NON-ACCRUAL
Tax certificates $ 1,419 $ 1,727 $ 2,491 $ 2,258 $ 765
Residential 12,773 9,203 11,229 15,214 6,956
Syndication -- 10,700 -- -- --
Commercial real estate and business 1,474 13,066 1,705 6,097 11,463
Small business - real estate 239 905 2,532 4,427 1,703
Lease financing 3,900 2,585 1,515 1,201 893
Consumer 532 796 1,944 5,705 3,008
----------- ----------- ----------- ----------- -----------
20,337 38,982 21,416 34,902 24,788
REPOSSESSED (1)
Residential real estate owned 1,304 2,033 2,562 1,929 2,169
Commercial real estate owned 8,303 1,871 1,937 2,022 3,334
Consumer 4 17 95 867 1,572
Lease financing -- -- 1,647 386 324
----------- ----------- ----------- ----------- -----------
9,611 3,921 6,241 5,204 7,399
----------- ----------- ----------- ----------- -----------
TOTAL NON-PERFORMING ASSETS 29,948 42,903 27,657 40,106 32,187
Specific valuation allowances (1,386) (9,936) (819) (350) (659)
----------- ----------- ----------- ----------- -----------
TOTAL NON-PERFORMING ASSETS, NET $ 28,562 $ 32,967 $ 26,838 $ 39,756 $ 31,528
=========== =========== =========== =========== ===========
Total non-performing assets as a
percentage of:
Total assets 0.55 0.92 0.60 0.96 0.85
=========== =========== =========== =========== ===========
Loans, tax certificates and net real 0.83 1.45 0.91 1.42 1.18
=========== =========== =========== =========== ===========
estate owned
TOTAL BANCORP ASSETS $ 5,421,011 $ 4,654,486 $ 4,617,300 $ 4,159,901 $ 3,788,975
=========== =========== =========== =========== ===========
TOTAL BANCORP LOANS, TAX CERTIFICATES AND
NET REAL ESTATE OWNED $ 3,626,210 $ 2,968,341 $ 3,029,592 $ 2,831,189 $ 2,729,738
=========== =========== =========== =========== ===========
Allowance for loan losses $ 48,022 $ 44,585 $ 47,000 $ 44,450 $ 37,950
=========== =========== =========== =========== ===========
Total tax certificates $ 195,947 $ 145,598 $ 124,289 $ 93,080 $ 50,916
=========== =========== =========== =========== ===========
Allowance for tax certificate losses $ 1,873 $ 1,521 $ 1,937 $ 1,504 $ 1,020
=========== =========== =========== =========== ===========
OTHER POTENTIAL PROBLEM LOANS
CONTRACTUALLY PAST DUE 90
DAYS OR MORE
Small business $ -- $ -- $ -- $ -- $ 349
Commercial real estate and business (2) 100 -- 7,086 410 2,833
----------- ----------- ----------- ----------- -----------
100 -- 7,086 410 3,182
PERFORMING IMPAIRED LOANS, NET OF
SPECIFIC ALLOWANCES
Corporate syndication loans -- -- 15,001 -- --
RESTRUCTURED LOANS
Commercial loans and leases 1,882 743 -- -- 7
DELINQUENT RESIDENTIAL LOANS PURCHASED 1,464 1,705 5,389 10,447 --
----------- ----------- ----------- ----------- -----------
TOTAL POTENTIAL PROBLEM LOANS $ 3,446 $ 2,448 $ 27,476 $ 10,857 $ 3,189
=========== =========== =========== =========== ===========
(1) Amounts are net of specific allowances for real estate owned.
(2) The majority of these loans have matured and the borrower continues to make
payments under the matured loan agreement. The 2000 amount represents one
loan that was repaid during February 2001.
Non-performing assets, net of reserves decreased by $4.4 million to $28.6
million at December 31, 2002 compared to $33.0 million at December 31, 2001.
Non-accrual assets decreased by $18.6 million and repossessed assets increased
by $5.7 million. The decrease in non-accrual assets primarily resulted from a
$13.7 million commercial construction loan that was
49
partially charged-off and transferred to real estate owned. This loan was on
non-accrual at December 31, 2001 with a balance of $12.3 million. Additionally,
the non-accrual syndication loan of $10.7 million at December 31, 2001 was
charged down by $8.0 million and ultimately settled at book value. In 2001,
BankAtlantic has established specific valuation allowances totaling $9.8 million
on these loans. Offsetting the decrease in non-accrual assets was higher
non-performing lease financing associated with one lessee in the aviation
industry and an increase in non-performing residential loans.
Included in repossessed assets was the foreclosed construction loan referred to
above. The property was subsequently written down by $1.5 million and had a book
value of $7.3 million at December 31, 2002.
Potential problem assets were $3.4 million at December 31, 2002 compared to $2.4
million at December 31, 2001. The increase in restructured business loans was
the result of renegotiation of an aircraft lease with an outstanding balance of
$1.4 million.
NON-INTEREST INCOME
FOR THE YEARS ENDED CHANGE CHANGE
BANKING OPERATIONS ENDED DECEMBER 31, 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
-------- -------- -------- -------- --------
Other service charges and fees $ 14,087 $ 14,731 $ 15,025 $ (644) $ (294)
Service charges on deposits 26,479 16,372 13,666 10,107 2,706
Income from real estate joint venture 1,310 -- -- 1,310 --
Gains (losses) on sales of loans 1,840 60 (528) 1,780 588
Gains on securities available for sale 4,741 468 720 4,273 (252)
Other 4,860 5,826 5,016 (966) 810
-------- -------- -------- -------- --------
Non-interest income $ 53,317 $ 37,457 $ 33,899 $ 15,860 $ 3,558
======== ======== ======== ======== ========
The decline in other service charges and fees during 2002 resulted from an 18%
decrease in ATM fee income and a decline in late fee income. The decline in ATM
fee income resulted from the removal of our ATM machines from retail outlets,
gas stations and convenience stores. The decline in late fee income was
attributed to lower collections of late fees assessed in our consumer and
leasing portfolios in proportion to declines in outstanding balances resulting
from discontinued products. The above declines in fee income were partially
offset by higher fees earned on check card, and other loan income associated
with commercial loan prepayment penalties. Check card fees increased by 119%,
and the increase in these fees was linked to a significant increase in
transaction accounts associated with our new checking account products and our
seven-day banking initiative. Other loan income increased by 32% and is due to
higher commercial loan prepayment penalties assessed to borrowers refinancing
commercial loans in response to historically low interest rates during 2002.
The decline in other service charges and fees during 2001 primarily resulted
from termination of our ATM relationship with retail outlets. Other service
charges and fees for loans remained at 2000 amounts.
Service charges on deposits increased by 62% during 2002. The increase in
service charges primarily resulted from overdraft fees from transaction accounts
and from higher fees associated with analysis charges linked to commercial
business accounts. The above increases were partially offset by lower monthly
checking account fee income. Overdraft fee income increased by 116% as a result
of a substantial increase in checking accounts attributed to free checking
products and our seven-day branch banking initiative. Since the inception of the
new checking products, BankAtlantic has opened approximately 62,000 accounts
with total deposit balances of $184.4 million Additionally, the significant
growth in our commercial loan portfolio, as well as the rapid decline in
interest rates, resulted in an increase of our income from analysis charges by
33%. Monthly checking account fee income declined by 17% as we discontinued the
promotion of fee-based products, and new and existing customers are migrating to
new "free" checking products.
The significant increase in service charges on deposits during 2001 compared to
2000 was primarily associated with higher revenues earned on commercial accounts
and the introduction of a new checking deposit product.
During 2002, income from joint ventures represented the undistributed earnings
from a 50% owned real estate joint venture acquired in connection with the
Community acquisition. This development of single family homes, condominium
units and duplexes is located on 117 acres of land in Florida.
50
During 2002, BankAtlantic sold a commercial real estate loan for a $2.1 million
gain. BankAtlantic realized losses on the sale of CRA loans of $220,000 during
2002, compared to a gain of $60,000 during 2001. The loss on the sale of loans
during 2000 resulted from the sale of a problem syndication loan for a $695,000
loss. BankAtlantic originated CRA loans for resale through September 2002.
During September 2002, BankAtlantic discontinued its practice of selling the CRA
loans originated, and transferred $7.3 million of CRA loans from "held for sale"
to "portfolio" loans. BankAtlantic now originates CRA loans designated as
portfolio loans and also originates CRA loans that are pre-sold to
correspondents.
Gains on securities activities resulted from the sale of $152 million of
mortgage-backed securities and $9.4 million of corporate bonds for gains as
shown on the above table. The securities were sold to reposition the portfolio
in response to the significant decline in interest rates. During 2001,
BankAtlantic sold $6.7 million of mortgage-backed securities and settled
interest rate swap contracts for gains. During 2000, BankAtlantic sold
mortgage-backed securities for a $400,000 gain and recorded a $300,000
unrealized gain from a forward contract.
The decline in other income during 2002 was primarily due to a $1.6 million gain
realized on the sale of in-store branches during 2001, compared to a $384,000
gain during 2002. The exiting of in-store branches was part of a bank-wide
program to review all lines of business with a view towards improving overall
earnings. BankAtlantic also sold or disposed of branch facilities and equipment
for a $328,000 loss during 2002 compared to a $386,000 gain during 2001.
Additionally, BankAtlantic recognized a $264,000 loss from the sale of
residential loan servicing acquired in connection with the Community
acquisition. The above declines in other income were partially offset by the
creation of a branch brokerage business unit which earned $342,000 in
commissions during 2002 and an increase in customer related fees such as safe
deposit box, wire transfer and account research fees associated with the
Community acquisition. The increase in other income during 2001 compared to 2000
primarily resulted from the in-store branch sales and the gain on the disposal
of branch facilities discussed above.
NON-INTEREST EXPENSE
FOR THE YEARS ENDED CHANGE CHANGE
BANKING OPERATIONS ENDED DECEMBER 31, 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
-------- -------- -------- -------- --------
Employee compensation and benefits $ 65,130 $ 49,231 $ 44,956 $ 15,899 $ 4,275
Occupancy and equipment 29,852 25,852 24,236 4,000 1,616
Advertising and promotion 7,470 3,771 4,154 3,699 (383)
Restructuring charges and impairment write-downs 1,007 331 2,656 676 (2,325)
Amortization of intangible assets 1,360 -- -- 1,360 --
Acquisition-related charges and impairments 864 -- -- 864 --
Other 28,725 24,168 23,745 4,557 423
-------- -------- -------- -------- --------
Non-interest expense $134,408 $103,353 $ 99,747 $ 31,055 $ 3,606
======== ======== ======== ======== ========
The increase in compensation expenses during 2002 compared to 2001 was the
result of the implementation of seven-day banking on April 1, 2002 and the
addition of 172 employees following the Community acquisition. Total full-time
equivalent employees increased from 873 at December 31, 2001 to 1,244 at
December 31, 2002, an increase of 42%. Additionally, employee benefits
significantly increased from 2001 due to higher health insurance costs and a
reduction in pension income associated with BankAtlantic's defined benefit
pension plan. Bonus and incentive compensation rose significantly due to the
achievement of corporate goals.
The increase in compensation expense during 2001 compared to 2000 reflects
increased bonuses, health insurance expenses, 401(k) retirement benefits and a
reduction in income associated with our defined benefit pension plan. The
additional 401(k) benefits reflected an increased employer match and the
additional health insurance costs resulted from higher medical costs generally
in our markets.
The increase in occupancy and equipment expenses during 2002 compared to 2001
reflects $1.9 million of additional depreciation expense of which $1.2 million
was associated with a reduction in the estimated life of BankAtlantic's on-line
banking platform as BankAtlantic upgraded the technology during 2002. The
remaining increase in depreciation expense reflects upgrades in the data
processing infrastructure. Also contributing to the increase in occupancy costs
was higher expenditures for building maintenance, repairs, real estate taxes and
security guard service associated with an expanded branch network as a result of
the Community acquisition and longer branch business hours due to our seven-day
banking
51
initiative. The above increases in occupancy expense were partially offset by
lower rental expenses from our exit of ATM relationships and BankAtlantic's exit
from in-store branch banking.
The increase in occupancy and equipment expenses during 2001 compared to 2000
primarily resulted from higher depreciation expense associated with the
upgrading of BankAtlantic's data processing infrastructure as well as
BankAtlantic's entry into online banking. The higher depreciation expense was
partially offset by lower rental expenses from BankAtlantic's exit of ATM
relationships with certain retail outlets and the sale of twelve in-store
branches.
The increase in advertising expense during 2002 compared to 2001 reflected
marketing initiatives to promote BankAtlantic's new checking products and to
implement BankAtlantic's seven-day banking initiative. These promotions included
an expanded direct mailing campaign, a check card rewards program and periodic
customer gifts and events associated with seven-day banking.
During 2001 BankAtlantic incurred advertising expenses primarily related to the
introduction of our no-charge checking accounts and the promotion of our home
equity lines of credit. During 2000, BankAtlantic incurred advertising costs
associated with promotions for new deposit and loan products as well as
promotional costs associated with internet banking.
The restructuring charges and impairment write-downs during 2002 were the result
of a plan to discontinue certain ATM relationships. As a consequence, an
$801,000 restructuring charge and a $206,000 impairment write-down were
realized. These relationships were primarily with convenience stores and gas
stations and did not meet BankAtlantic's performance expectations and were
unlikely to meet future profitability goals. The remaining ATM machines are
primarily located in BankAtlantic's branch network, on cruise ships and in other
remote locations.
During the fourth quarter of 2000, BankAtlantic made a strategic decision to
terminate its ATM relationships with certain retail outlets, resulting in the
restructuring charge and impairment write-down of $2.6 million. The
restructuring charge was reduced by $219,000 during 2001 to reflect lower ATM
lease termination costs than had been projected. During 2001, upon review of the
performance and anticipated prospects of BankAtlantic's in-store branches,
management decided to exit this line of business. This resulted in a $550,000
impairment write-down of fixed assets of certain in-store branches.
In connection with the acquisition of Community BankAtlantic acquired a $15.1
million core deposit intangible asset. The core deposits intangible asset is
being amortized over its estimated life of seven years.
Acquisition related charges and impairments during 2002 include various data
conversion and system integration expenses as well as facilities impairment
write-downs associated with the Community acquisition. As a consequence of the
acquisition, BankAtlantic closed two of its Palm Beach county branches during
the second quarter of 2002.
The increase in other expenses during 2002 compared to 2001 primary related to
REO activities. During 2002, BankAtlantic wrote down REO properties by $1.5
million compared to write downs of $120,000 during 2001. The majority of the
2002 REO write down was related to a residential construction loan that was
transferred to real estate owned during the second quarter of 2002.
Additionally, REO expenses increased by $700,000 during 2002 due to the
operating costs associated with this REO property. During 2002, BankAtlantic
recognized $120,000 of gains on the sales of REO property compared to net gains
of $1.2 million during the 2001 period. The remaining increase in other expenses
resulted from increased check losses and higher operating expenses in connection
with the increased size of BankAtlantic. The additional check losses resulted
from strategies related to BankAtlantic's new checking campaign. The above
expense increases were partially offset by lower legal expense, ATM rental and
telecommunication expenses. The increase in other expenses during 2001 compared
to 2000 was primarily due to higher telephone, consulting, professional fees and
operating expenses. The higher operating expenses were associated with upgrading
our call center and technology infrastructure. The above expense increases were
partially offset by a $1.2 million gain on the sale of an REO property.
OUTLOOK FOR LEVITT
At the end of 2002, Levitt and Sons had a delivery backlog of 885 homes
representing $184 million of future sales. The number of backlogged deliveries
is at a five-year high and is equivalent to the number of units sold in the
first 10 months of 2002. The backlog is 22% higher than at year-end 2001, and
the sales price are 19% higher than the year-end 2001 backlog. While the strong
backlog is encouraging for our 2003 results, potential economic trends and
developments could impact our home sales operations. For example, the most
recent U.S. Census Bureau data on new housing starts for both the United
52
States and the South showed a decline for December 2002 and January 2003.
Although Levitt and Sons' operations were not affected in either of those
periods, a continued negative trend could impact its operations in 2003.
Operations at Core Communities remained strong in 2002. Home sales in St. Lucie
West, the master planned community developed by Core Communities, were
encouraging in 2002; builders within that community sold more than 1,100 homes
during the year. By year-end, St. Lucie West had only 365 acres of remaining
acreage inventory of which 71 acres is for residential development, 45 acres is
for multifamily development, 175 acres is for commercial development and 75
acres is for industrial development. Levitt anticipates sales of the remaining
residential lots in St. Lucie West during the first half of 2003. As
homebuilders develop the residential lots, we expect that demand for commercial
and industrial acreage will increase. This was evidenced during 2002, as the
construction of Home Depot and the opening of several restaurants coincided with
the rapid pace of home building. At year-end, Core Communities had commenced
land development in Tradition, Core Communities' newest master planned community
project in St. Lucie County, Florida. The development has been conceived as a
master-planned community that will accommodate a variety of residential, retail,
commercial, office, hotel, industrial, institutional and recreational uses
similar in nature to St. Lucie West. Currently, Tradition contains 4,000 acres
and Core Communities anticipates acquiring an additional 1,800 acres in 2003.
Core Communities has obtained final PUD and PMUD plan approvals relating to the
Tradition project from the St. Lucie County authorities. Several builders have
expressed interest in acquiring land in Tradition, and a grocery store chain has
expressed an interest in a long-term lease. Core Communities is in discussion
with Florida Atlantic University in connection with Levitt's commitment to
donate a school site and to provide financial assistance in planning and
establishing a FAU-chartered developmental research school in Tradition serving
kindergarten through 12th grades. Notwithstanding the sustained interest and
activity at both St. Lucie West and Tradition, slowing demand in the residential
real estate market could negatively impact the results of Core Communities'
operations. In addition, no party who has expressed an interest in acquiring or
developing land in Tradition is currently obligated to do so.
LEVITT CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS
FOR THE YEAR CHANGE CHANGE
ENDED DECEMBER 31, 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
-------- -------- -------- -------- --------
NET INTEREST INCOME:
Interest on loans and investments $ 1,260 $ 1,989 $ 2,264 $ (729) $ (275)
Interest on notes and bonds payable (8,057) (6,226) (7,967) (1,831) 1,741
Capitalized interest 7,668 6,046 6,652 1,622 (606)
-------- -------- -------- -------- --------
NET INTEREST INCOME 871 1,809 949 (938) 860
-------- -------- -------- -------- --------
NON-INTEREST INCOME:
Net revenues from sales of real estate 48,982 34,187 22,046 14,795 12,141
Income from unconsolidated
real estate subsidiary 4,570 -- -- 4,570 --
Other 1,892 2,416 5,914 (524) (3,498)
-------- -------- -------- -------- --------
Non-interest income 55,444 36,603 27,960 18,841 8,643
-------- -------- -------- -------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits 13,983 9,730 6,846 4,253 2,884
Advertising and promotion 3,156 2,611 2,684 545 (73)
Selling, general and administrative 13,409 14,431 9,216 (1,022) 5,215
-------- -------- -------- -------- --------
Non-interest expense 30,548 26,772 18,746 3,776 8,026
-------- -------- -------- -------- --------
Income before income taxes $ 25,767 $ 11,640 $ 10,163 $ 14,127 $ 1,477
======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE SAME 2001 PERIOD:
Income before income taxes increased 122%, to $25.8 million for the year ended
December 31, 2002, from $11.6 million for the same 2001 period. This increase
primarily resulted from higher revenues from the sales of real estate and joint
venture activities of $14.8 million and the equity in earnings from Bluegreen of
$4.6 million. These increases in income were partially offset by a decrease in
net interest income of $938,000 and an increase in non-interest expense of $3.8
million.
The decline in net interest income of $938,000 was primarily associated with a
decrease in interest income on loans and investments resulting from lower
average balances and yields. Interest on notes and bonds payable totaled $8.1
million and $6.2 million for the years ended December 31, 2002 and 2001,
respectively. The increase in interest expense was primarily
53
due to increases in borrowings resulting from several new development projects.
This increase in interest expense was partially offset with a decline in average
interest rates from 7.5% for 2001 to 6.0% for 2002. Capitalized interest totaled
$7.7 million and $6.0 million for 2002 and 2001, respectively. Interest is
capitalized at the effective interest rates paid on borrowings for interest
costs incurred on real estate inventory during the pre-construction and planning
stage and the periods that projects are under development. Capitalization of
interest is discontinued if development ceases at a project. Throughout 2002 and
2001, a larger portion of total interest incurred was capitalized to real estate
inventory. At the time of home closings and land sales, the capitalized interest
is charged to cost of sales. Net revenues from sales of real estate, for the
years ended December 31, 2002 and 2001 includes previously capitalized interest
of approximately $6.2 million and $4.8 million, respectively.
Net revenues from sales of real estate represented the net profits on sales of
real estate, as well as equity in earnings from real estate joint ventures
activities. During the year ended December 31, 2002, Core Communities' net gains
on land sales were $18.7 million as compared to $11.0 million in 2001. The
increases in sales revenue and gross profit are primarily attributable to an
increase in commercial land sales and residential lot sales in 2002. This is
primarily a result of growth in the residential home sales market. During the
year ended December 31, 2002, net gains from home sales at Levitt and Sons were
$31.1 million as compared to $22.1 million during the same 2001 period. Net
gains from home sales increased due to increased deliveries of homes, as well as
an increase in the average selling price of homes. The increase in deliveries
and average selling price was the result of communities nearing completion and
the introduction of new projects and product lines. During 2002, 740 homes
closed as compared to 597 homes in 2001. The average selling price of homes
during 2002 was approximately $219,000, increasing 12% from $195,000 in 2001.
During the years 2002 and 2001, net revenues from sales of real estate include
equity in earnings from real estate joint ventures of $849,000 and $2.9 million,
respectively. The decrease in equity in earnings from joint ventures primarily
resulted from declines in home deliveries from 282 in 2001 to 140 in 2002
because the joint venture project was nearing sell-out. Also included in net
revenues from sales of real estate during 2002 and 2001 is Levitt Corporation's
holding company amortization for interest previously capitalized of $1.6 million
and $2.3 million, respectively. In 2001, Levitt Corporation sold a marine rental
property for a $680,000 gain.
In April 2002, Levitt Corporation acquired 35% of Bluegreen Corporation's common
stock. BankAtlantic Bancorp separately owns approximately 5% of Bluegreen
Corporation's common stock. Bluegreen Corporation is a developer and marketer of
drive-to vacation interval resorts and planned golf and residential real estate.
The investment in Bluegreen Corporation is accounted for under the equity
method. Levitt Corporation's income from Bluegreen Corporation for the year
ended December 31, 2002 was $4.6 million. Bluegreen's net income from continuing
operations for the nine months ended December 31, 2002 and 2001 was $15.4
million and $10.7 million, respectively. Bluegreen's net income for the years
ended March 31, 2002, 2001 and 2000 was $11.7 million, $2.7 million and $6.8
million, respectively.
The increase in non-interest expense during 2002 as compared to 2001 resulted
from an increase in employee compensation and benefits and advertising. This
increase in non-interest expense was partially offset by a decrease in selling,
general and administrative expense. The increase in employee compensation and
benefits was primarily associated with increases in incentive accruals and
personnel resulting from the addition of several new development projects in
central and southeast Florida. These new projects and an increase in home
deliveries resulted in an increase in selling and general and administrative
expenses, excluding the $2.6 million adverse jury verdict discussed below.
FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE SAME 2000 PERIOD:
Income before income taxes increased 15% to $11.6 million for the year ended
December 31, 2001 from $10.2 million for the same 2000 period. This increase
primarily resulted from higher net revenues from sales of real estate of $12.1
million and an increase in net interest income of $860,000. These increases in
income were partially offset with a decrease in other income of $3.5 million and
an increase in non-interest expense of $8.0 million.
The increase in net interest income of $860,000 resulted from a decrease in
interest on loans and investments of $275,000 and a decrease in net interest
expense of $1.1 million. Interest expense totaled $6.2 million and $8.0 million
for the 2001 period and 2000 period, respectively. The decrease in interest
expense primarily resulted from declines in average interest rates from 9.6% for
the 2000 period as compared to 7.5% for the 2001 period. This decrease was
partially offset by an increase in interest associated with higher average
borrowings from $76.5 million for 2000 to $81.2 million for 2001. Interest
capitalized totaled $6.0 million and $6.7 million for the 2001 period and 2000
period, respectively. Throughout 2001 and 2000, a large portion of total
interest incurred was capitalized to real estate inventory. At the time of home
closings the
54
capitalized interest is charged to cost of sales. Net revenues from sales of
real estate for the years ended December 31, 2001 and 2000 includes previously
capitalized interest of approximately $4.8 million and $1.3 million,
respectively.
Net gains from sales of real estate were $34.2 million for the year ended
December 31, 2001 compared to $22.0 million for the same period in 2000. The
increase in gains on sales of real estate primarily resulted from increased
gains on land and home sales. Gains on land sales increased from $9.0 million
during the year ended December 31, 2000 to $11.0 million during the same 2001
period. Likewise, gains on home sales increased from $12.3 million during the
year ended December 31, 2000 to $22.1 million during 2001, primarily due to
higher deliveries of homes having a higher average sale price. The gross profit
percentage in house sales increased from 15.1% during the year ended December
31, 2000 to 18.9% during 2001. The increase is attributed to several factors
including new product offered for sale, product mix and lot premiums sold.
During the years 2001 and 2000, net revenues from sales of real estate include
equity in earnings from real estate joint ventures of $2.9 million and $1.1
million, respectively. The increase in equity in earnings from real estate joint
ventures primarily resulted from an increase in gains from home sales. Included
in net revenues from sales of real estate during the 2001 and 2000 periods is
Levitt Corporation's holding company amortization for interest previously
capitalized of $2.3 million and $476,000, respectively.
During the 2000 period, Core Communities received a cash payment of $8.5 million
relating to a receivable from a public municipality providing water and
wastewater services to St. Lucie West, resulting in a $4.3 million gain. The
payment was in full settlement of the receivable pursuant to an agreement dated
December 1991 between Core Communities and the municipality. The 1991 agreement
required the municipality to reimburse Core Communities for its cost of
increasing the service capacity of the utility plant via payment to Core
Communities of the future connection fees generated from such capacity.
The increase in non-interest expense during the 2001 period as compared to the
same 2000 period resulted from an increase in employee compensation and benefits
and selling, general and administrative expenses. The increase in compensation
and benefits was associated with the expansion of Levitt Corporation's
activities. The number of full-time employees increased to 202 at December 31,
2001 from 170 at December 31, 2000. The expansion also resulted in higher
selling, general and administrative expenses for the 2001 period as compared to
the same 2000 period. Also included in selling, general and administrative
expenses for the 2001 period was a $2.6 million legal accrual reflecting an
adverse verdict in a jury trial against a partnership in which a subsidiary of
Levitt Corporation is a 50% partner. The complaint alleged that the partnership
wrongfully terminated a contract, failed to pay for extra work performed outside
the scope of the contract and breached the contract. The jury rendered its
verdict on March 7, 2002. The Partnership filed an appeal on December 6, 2002,
which it intends to vigorously pursue.
OUTLOOK FOR RYAN BECK
The Gruntal transaction enabled Ryan Beck to significantly increase its
distribution capabilities and permitted it to function as a full service
regional broker-dealer while still maintaining the expertise of a boutique
investment banking firm.
Based on Ryan Beck's revenue during the latter half of 2002, we expect that
revenue for 2003 will be higher than revenue in 2002. Most of this improvement
should arise as a result of the full year impact of the Gruntal transaction,
which occurred April 26, 2002.
The net increase of approximately 450 financial consultants as a result of the
Gruntal transaction enables the investment banking and trading lines of business
to distribute their product to an increased client base of over 150,000 active
clients. As we continue to assimilate the Gruntal assets and liabilities into
our operations during 2003 we expect to achieve greater operating efficiency.
However, the addition of branch offices, bringing the firm total to 42, carries
with it increased management demands and operating expenses. Also, along with
the expansion of its revenue producing areas, its general and administrative
areas have also grown. There is no assurance that Ryan Beck will be successful
in managing the expanded operations resulting from the Gruntal transaction and
Ryan Beck's growth.
55
RYAN BECK RESULTS OF OPERATIONS
FOR THE YEARS CHANGE CHANGE
ENDED DECEMBER 31, 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
--------- --------- --------- --------- ---------
NET INTEREST INCOME:
Interest on trading securities $ 12,935 $ 1,978 $ 2,151 $ 10,957 $ (173)
Interest expense (2,682) (517) (551) (2,165) 34
--------- --------- --------- --------- ---------
NET INTEREST INCOME 10,253 1,461 1,600 8,792 (139)
--------- --------- --------- --------- ---------
NON-INTEREST INCOME:
Principal transactions, net 66,302 18,930 14,778 47,372 4,152
Investment banking 21,015 12,014 15,387 9,001 (3,373)
Commissions 64,250 12,761 20,936 51,489 (8,175)
Other 4,404 978 1,032 3,426 (54)
--------- --------- --------- --------- ---------
Non-interest income 155,971 44,683 52,133 111,288 (7,450)
--------- --------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 118,895 33,440 35,289 85,455 (1,849)
Occupancy and equipment 10,056 3,287 3,632 6,769 (345)
Advertising and promotion 3,207 1,515 1,381 1,692 134
Amortization of goodwill -- 440 368 (440) 72
Acquisition related charges and impairments
4,061 -- -- 4,061 --
Communication
11,314 3,291 3,233 8,023 58
Floor broker and clearing fees 8,519 2,796 3,742 5,723 (946)
Other 11,914 3,401 4,239 8,513 (838)
--------- --------- --------- --------- ---------
Non-interest expense 167,966 48,170 51,884 119,796 (3,714)
--------- --------- --------- --------- ---------
Income (loss) before income taxes $ (1,742) $ (2,026) $ 1,849 $ 284 $ (3,875)
========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE SAME 2001 PERIOD:
The decreased losses primarily resulted from the Gruntal transaction which
occurred on April 26, 2002. Included in the 2002 loss was $4.1 million of
acquisition-related charges and impairments associated with the Gruntal
transaction. This transaction resulted in significant differences between 2002
and 2001 revenue and expense line items. In addition, this transaction resulted
in the addition of 32 branch offices, 125,000 customer accounts and $14.4
billion in customer assets.
Net interest income increased by 602% from 2001. The improvement in net interest
income primarily resulted from the expansion of municipal bond trading and the
associated spread between the interest on the municipal bonds and the financing
costs incurred. Also included in interest income was Ryan Beck's participation
in interest income associated with approximately $255 million of customer margin
debit balances and fees earned in connection with approximately $1.5 billion in
customer money market account balances. This improvement in net interest income
was partially offset by the interest expense associated with a $5.0 million
subordinated borrowing from BankAtlantic Bancorp, as well as an increased level
of borrowings from Ryan Beck's clearing agent as a result of a higher volume of
trading activity.
Principal transactions revenue increased by 250% from 2001. The improvement in
principal transaction revenue was primarily the result of from the additional
financial consultants and trading personnel. This increase was offset by losses
on the sales of mutual funds as well as mark to market losses on those funds,
which were associated with a deferred compensation plan acquired in connection
with the Gruntal transaction.
Investment banking revenue increased by 75% from 2001. The improvement was
largely attributable to the increased distribution capabilities discussed above
which allows for an increased participation in underwritings, and initial public
offerings.
Commission revenue increased by 403% from 2001. The improvement is largely due
to the additional financial consultants.
56
The increase in employee compensation and benefits of 256% from 2001 is
primarily due to the additional personnel. During the final six months of 2002,
management has pursued the reduction of staff in certain areas leading to a
reduction in total firm headcount of 7% since June 30, 2002.
Occupancy and rent expenses have increased 206% from 2001. This increase is
primarily due to the additional offices.
Advertising and market development expenses have increased 112% from 2001. This
increase relates to marketing to a larger geographic region as a result of
additional offices discussed above.
Acquisition-related charges during 2002 included branch closures, professional
fees, and regulatory costs incurred in connection with the Gruntal transaction.
The increase in communications, floor broker and clearing fees and other
expenses from 2001 relates primarily to increased commission revenue and
principal transactions revenue associated with the additional financial
consultants.
FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE SAME 2000 PERIOD:
Income before income taxes declined significantly from 2000. The significant
decline reflects the deteriorating market conditions during 2001, which
substantially reduced trading volume commissions and fees associated with equity
underwritings and advisory services.
Ryan Beck investment banking and commission revenues decreased 22% and 39%,
respectively, from 2000. The reduced commission revenues were attributable to
lower investor transaction volume due to a decline in overall financial market
transactions along with decreases in equity and mutual fund fees. Investment
banking revenues were adversely affected by a significant decline in initial
public offering closings during 2001 and a substantial reduction in equity
underwriting and advisory and placement fees. The increase in principal
transaction revenues reflected the addition of a new taxable fixed income group
and the addition of two retail offices. Excluding the additions of the above
line of business and the new retail offices, principal transactions remained at
2000 levels.
The decline in employee compensation and benefits during 2001 compared to 2000
was primarily due to lower commission expenses associated with a significant
decline in transactional business from levels attained during 2000. Occupancy
and equipment expense decreases primarily resulted from a decline in
depreciation expense. The declines in other expense resulted from lower floor
brokerage and clearing fees attributed to a significant reduction in commission
revenues and a new fee schedule negotiated with the clearing agent during the
third quarter of 2000.
57
BANKATLANTIC BANCORP PARENT COMPANY RESULTS OF OPERATIONS
FOR THE YEARS
ENDED DECEMBER 31, CHANGE CHANGE
-------------------------------------- 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
-------- -------- -------- -------- --------
NET INTEREST EXPENSE:
Interest and fees on loans and leases $ 1,416 $ 21 $ 412 $ 1,395 $ (391)
Interest on short-term investments 329 208 793 121 (585)
Interest on subordinated debentures, notes payable
and guaranteed preferred interests in the Company's
Junior Subordinated Debentures (17,439) (18,297) (20,588) 858 2,291
-------- -------- -------- -------- --------
NET INTEREST EXPENSE (15,694) (18,068) (19,383) 2,374 1,315
-------- -------- -------- -------- --------
NON-INTEREST INCOME:
(Loss) gains on joint venture activities (14) 1,486 (2,391) (1,500) 3,877
Income from unconsolidated real estate subsidiary 779 -- -- 779 --
Loss (gain) on debt redemption (3,125) (389) 12,228 (2,736) (12,617)
Gains on securities activities 3,837 6,656 2,136 (2,819) 4,520
Impairment of securities (18,801) (3,527) (630) (15,274) (2,897)
-------- -------- -------- -------- --------
Non-interest income (loss) (17,324) 4,226 11,343 (21,550) (7,117)
-------- -------- -------- -------- --------
NON-INTEREST EXPENSE:
Employee compensation and benefits 940 2,049 3,222 (1,109) (1,173)
Impairment of goodwill -- 6,624 -- (6,624) 6,624
Amortization of goodwill -- 3,633 3,713 (3,633) (80)
Other 1,452 765 400 687 365
-------- -------- -------- -------- --------
Non-interest expense 2,392 13,071 7,335 (10,679) 5,736
-------- -------- -------- -------- --------
Loss before income taxes $(35,410) $(26,913) $(15,375) $ (8,497) $(11,538)
======== ======== ======== ======== ========
Interest and fees on loans during 2002 represented interest income associated
with a $5 million loan to Ryan Beck and a $30 million loan to Levitt. Interest
and fees on loans during 2001 and 2000 represented interest income on a loan to
a non-real estate joint venture. The joint venture loan was repaid during the
first quarter of 2001. Interest on investments primarily represented interest
income earned on a repurchase agreement investment with BankAtlantic during 2002
and 2001. Interest on short-term investments during 2000 also included interest
income associated with an investment in a corporate bond.
The decrease in interest expense on debentures and notes payable for 2002
compared to 2001 resulted from a substantial decrease in average rates. In part
to take advantage of the historically low interest rate environment,
BankAtlantic Bancorp issued $180.4 million of trust preferred securities at
lower rates than its existing debt. BankAtlantic Bancorp used the proceeds from
the issuance of the trust preferred securities to redeem its higher cost trust
preferred securities and subordinated debentures. As a result of the above debt
restructuring and the significant decline in interest rates, BankAtlantic
Bancorp's average rate on borrowings declined from 8.55% during 2001 to 7.83%
during 2002. The decline in interest expense was partially offset by an increase
in average balances. BankAtlantic Bancorp parent company average borrowings
increased from $214.1 million during 2001 to $222.7 million during 2002.
The decrease in interest expense on debentures and notes payable for 2001
compared to 2000 resulted from BankAtlantic Bancorp's redemption of subordinated
investment notes and convertible debentures during 2001. BankAtlantic Bancorp
parent company average borrowings decreased from $247.2 million during 2000 to
$214.1 million during 2001, while average rates on borrowings increased from
8.34% to 8.55% during 2001. In July 2001, BankAtlantic Bancorp received $53.5
million of net proceeds from an equity offering. BankAtlantic Bancorp used a
portion of the net proceeds to repay borrowings.
Gains or losses associated with joint venture activities resulted from the
elimination of intercompany interest expense that was capitalized into real
estate inventory on Levitt's books. The deferred credit is subsequently
recognized as a reduction of cost of sales when the real estate is sold.
58
Income from unconsolidated real estate subsidiary represents BankAtlantic
Bancorp's 5% ownership interest in the earnings of Bluegreen Corporation. In
April 2002, Levitt acquired an additional 35% of Bluegreen Corporation's common
stock. See the discussion above concerning the investment in Bluegreen
Corporation by Levitt.
During December 2002, BankAtlantic Bancorp used the proceeds from its issuance
of trust preferred securities, as discussed above, to retire $21 million of 9%
subordinated debentures and $74.8 million of 9.5% trust preferred securities.
BankAtlantic Bancorp recognized a $3.1 million loss associated with the
redemption. During 2001, BankAtlantic Bancorp redeemed its subordinated
investment notes and recognized a $389,000 loss. During 2000, BankAtlantic
Bancorp repurchased $53.8 million aggregate principal amount of its 5-5/8%
debentures and recognized a $12.2 million gain.
BankAtlantic Bancorp sold equity securities with a book value of $7.0 million,
$3.6 million and $6.2 million during 2002, 2001 and 2000, respectively, for
gains shown on the above table.
BankAtlantic Bancorp recognized an impairment charge of $18.8 million during
2002 on equity securities. This resulted from significant declines in their
value that were considered other than temporary due to the financial condition
and near term prospects of the issuers of the equity securities. The majority of
the impairment charge ($15 million) was associated with an investment in a
private technology company. The remaining impairment charge during 2002 relates
to marketable equity securities which experienced adverse market conditions
during the period. BankAtlantic Bancorp also recognized a $3.5 million and
$630,000 impairment charge associated with equity securities during 2001 and
2000, respectively. As a result of these losses, BankAtlantic Bancorp revised
its policy for holding company equity investments. Any future equity investments
will be limited to liquid securities and will be subject to significant
concentration restrictions. At December 31, 2002, BankAtlantic Bancorp parent
company equity investments totaled $4.8 million.
During 2002, 2001 and 2000, BankAtlantic Bancorp accrued $1.0 million, $2.0
million and $1.9 million of compensation expense related to the Ryan Beck
retention pool established in connection with the acquisition of Ryan Beck in
1998. The participants' accounts in the Ryan Beck retention pool vested on June
28, 2002.
During the year ended December 31, 2000, BankAtlantic Bancorp incurred a
one-time charge to compensation expense of $1.3 million in connection with the
redemption and retirement of all publicly held outstanding shares of
BankAtlantic Bancorp Class B Common Stock. The compensation charge resulted from
the exercise of options to acquire BankAtlantic Bancorp Class B Common Stock
prior to the retirement of the publicly held portion of this class of stock.
The impairment of goodwill in 2001 related to BankAtlantic Bancorp's 1998
acquisition of LTI. BankAtlantic Bancorp concluded, during the third quarter of
2001, that LTI would not meet its performance expectations. As a consequence
BankAtlantic Bancorp closed the offices of LTI and ceased the origination of
leases.
Goodwill amortization during 2001 and 2000 represented the amortization of
goodwill associated with all acquisitions. Upon the implementation of FASB
Statement Number 142 on January 1, 2002, BankAtlantic Bancorp discontinued the
amortization of goodwill. BankAtlantic Bancorp will evaluate goodwill for
impairment in subsequent periods in accordance with FASB Statement Number 142.
Other expenses for 2002, 2001 and 2000 primarily consisted of professional fees.
Included in other expenses for 2002 was $410,000 of fees paid to Ryan Beck in
connection with the underwriting of the Company's securities. Additionally,
legal fees increased by $500,000 during 2002 compared to 2001 as a consequence
of a lawsuit initiated against the founder of a private technology company in
which BankAtlantic Bancorp has an investment. (See "Related Party Transactions
for a further discussion.)
59
BFC HOLDING COMPANY OPERATIONS
FOR THE YEARS
ENDED DECEMBER 31, CHANGE CHANGE
------------------------------------------- 2002 VS. 2001 VS.
(IN THOUSANDS) 2002 2001 2000 2001 2000
------- ------- ------- ------- -------
NET INTEREST EXPENSE:
Interest on loans $ 303 $ 239 $ 751 $ 64 $ (512)
Interest on short term investments 51 144 254 (93) (110)
Interest on notes payable (1,153) (1,239) (1,394) 86 155
------- ------- ------- ------- -------
NET INTEREST EXPENSE (799) (856) (389) 57 (467)
------- ------- ------- ------- -------
NON-INTEREST INCOME:
Net revenues from sales of real estate -- 1,345 1,508 (1,345) (163)
Impairment of securities (1,583) (4,379) (4,556) 2,796 177
Other 1,161 1,129 1,141 32 (12)
------- ------- ------- ------- -------
Non-interest loss (422) (1,905) (1,907) 1,483 2
------- ------- ------- ------- -------
NON-INTEREST EXPENSE:
Employee compensation and benefits 2,332 1,902 1,389 430 513
Occupancy and equipment 77 85 48 (8) 37
Other 799 899 936 (100) (37)
------- ------- ------- ------- -------
Non-interest expense 3,208 2,886 2,373 322 513
------- ------- ------- ------- -------
Loss before income taxes $(4,429) $(5,647) $(4,669) $ 1,218 $ (978)
======= ======= ======= ======= =======
Since 2000, BFC has controlled greater than 50% of the vote of BankAtlantic
Bancorp and accordingly BankAtlantic Bancorp is consolidated in the financial
statements of the Company. Therefore, BFC's equity from earnings in BankAtlantic
Bancorp is not included in the BFC Holding Company segment results.
The decrease in interest on loans for 2001 as compared to 2000 primarily
resulted from decreased interest earned on advances associated with the
development and construction of the Center Port property, as lower amounts were
outstanding during 2001.
The 2001 net revenues from sales of real estate represents the gain on the sale
of BFC's 50% interest in Delray Industrial Park. The 2000 net revenues from
sales of real estate represents BFC's net gains from the sale of land at Center
Port. BFC recognized impairment charges of $1.6 million, $4.4 million and $4.6
million during the 2002, 2001 and 2000 periods, respectively. These impairment
charges were the result of significant declines in the values of equity
investments that were considered other than temporary due to the financial
condition and near term prospects of the issuers of the equity securities.
The increases in employee compensation and benefits were primarily due to
increases in levels of compensation and bonuses paid to employees.
FINANCIAL CONDITION
We consider the interest rate sensitivity, credit risk, liquidity risk and
equity pricing risk of our assets and liabilities, general economic conditions
and our capital position in managing our financial condition.
Our total assets at December 31, 2002 and 2001 were $5.4 billion and $4.7
billion, respectively. The increase in total assets primarily resulted from:
- The acquisition of Community Savings, which added approximately $969
million in assets;
- The Gruntal transaction, which added $165 million in assets which
were primarily securities owned;
- A $60.7 million investment in Bluegreen Corporation, a New York
Stock Exchange listed company which engages in the acquisition,
development, marketing and sale of primarily drive-to vacation
interval resorts, golf communities and residential land;
60
- The purchase of a $14.3 million office facility to consolidate
BankAtlantic's headquarters and back office operations into a
centralized facility;
- The increase in goodwill and core deposit intangible assets
associated with the Community acquisition, partially offset by the
impairment of goodwill assigned to the Ryan Beck reportable segment;
- Higher cash balances at the Federal Home Loan Bank and increased
short term investments due to accelerated prepayments of residential
loans and mortgage-backed securities;
- The origination of commercial real estate and home equity loans;
- The larger securities owned balances primarily associated with
municipal bond inventory of Ryan Beck's subsidiary, GMS;
- Increases in deferred tax assets related to the impairment of
securities and the recording of a minimum pension liability; and
- Higher other assets balance associated with the activities of Ryan
Beck.
The above increases in total assets were partially offset by:
- Decreased balances in securities available for sale resulting from
the sales of mortgage-backed securities as well as accelerated
repayments associated with the historically low interest rate
environment during 2002;
- Continued run-off in the syndications, leasing, international and
indirect lending areas, which were discontinued activities; and
- Reduction in investment securities due to the transfer of $198.7
million of mortgage-backed securities from held to maturity to
available for sale;
The Company's total liabilities at December 31, 2002 were $5.0 billion compared
to $4.2 billion at December 31, 2001. The increase in total liabilities
primarily resulted from:
- The acquisition of Community Savings, which added approximately $798
million in liabilities;
- The Gruntal transaction, which added approximately $134 million in
liabilities;
- The issuance in the aggregate of $180.4 million of trust preferred
securities;
- Higher due to clearing agent liability associated with Ryan Beck
trading activities;
- Additional borrowings from our bank line of credit and at Levitt to
fund real estate purchases and Levitt's investment in Bluegreen; and
- Increased other liabilities resulting from a substantial increase in
Ryan Beck's accrued employee compensation and other accrued expenses
linked to an increase in personnel hired in connection with the
Gruntal transaction.
The above increases in total liabilities were partially offset by
- Lower short-term borrowings associated with an increase in FHLB
advance obligations and higher deposit balances'; and
- Redemption of $74.8 million of trust preferred securities and $21
million of subordinated debentures.
At December 31, 2002 and 2001, minority interest was approximately $365.5
million and $348.4 million, respectively. The increase in minority interest was
primarily due to a net increase of $26.5 million which resulted from
BankAtlantic Bancorp's earnings and reduced by BankAtlantic Bancorp's
stockholders' activities associated with other comprehensive income and the
payment of dividends in 2002. This increase in minority interest was partially
offset by a decrease of approximately $9.4 million in the private limited
partnerships minority interest primarily attributed to decreases in other
comprehensive income and distributions of the partnerships' equity investments.
Stockholders' equity at December 31, 2002 was $77.4 million compared to $74.2
million at December 31, 2001. The increase was primarily attributed to earnings
of $5.2 million and the issuance of common stock upon the exercise of stock
options of $205,000. Offsetting the above increases were reductions in
stockholders' equity of $1.8 million associated with activities in other
comprehensive income, the payment of $319,000 upon the retirement by the Company
of Class B Common Stock and a reduction of $15,000 to additional paid-in capital
relating to the net effect of BankAtlantic Bancorp capital transactions, net of
income taxes.
61
The components of other comprehensive income relate to the Company's net
unrealized gains or loss on securities available for sale, net of income taxes
and the Company's proportionate share of non-wholly owned subsidiaries'
activities in other comprehensive income. Included in the change in other
comprehensive income was a $1.0 million loss associated with the establishment
by BankAtlantic Bancorp of a minimum pension liability, a $526,000 decline in
unrealized gains on securities available for sale, a $201,000 unrealized loss on
BankAtlantic Bancorp's interest rate swap activity and a $62,000 unrealized loss
associated with the activities of Bluegreen Corporation. BankAtlantic Bancorp
established a minimum pension liability during 2002 as a result of the decline
in the fair value of pension assets below the accumulated benefit obligation of
the plan during 2002.
The regulatory capital ratios of BankAtlantic as well as a description of the
components of risk-based capital and capital adequacy requirements are included
in Note 15 to the consolidated financial statements.
BANK OPERATIONS ASSET AND LIABILITY MANAGEMENT
BankAtlantic's asset liability management is governed by policies that are
reviewed and approved by BankAtlantic's Board of Directors. The asset and
liability committee, which is comprised of members of BankAtlantic's executive
management, meets quarterly and monitors its market risks to develop risk
management strategies that are in accordance with BankAtlantic's policies.
BankAtlantic originates commercial real estate loans, commercial business loans,
small business loans and consumer loans which generally have higher yields and
shorter durations than residential real estate loans. BankAtlantic purchases
both fixed and variable rate residential loans which are retained for portfolio.
BankAtlantic also originates CRA loans for its portfolio and originates CRA
loans that are pre-sold to correspondents. BankAtlantic acquires mortgage-backed
securities (including REMIC, both residential and commercial). BankAtlantic
emphasizes the origination of low cost transaction accounts that are generally
less interest rate sensitive than time deposits. BankAtlantic has introduced a
free checking deposit product and has implemented seven-day branch banking which
includes extended lobby hours, 24 hour customer service center and sponsored
numerous community events to promote growth of transaction deposit accounts.
BankAtlantic also borrows funds from the Federal Home Loan Bank and executes
reverse repurchase agreements with various brokers and customers. BankAtlantic
also obtains brokered deposits in conjunction with interest rate swap contracts
in order to fund LIBOR based commercial loans. The interest rate swap contracts
have the effect of converting fixed rate deposits to LIBOR based borrowings.
BankAtlantic has also entered into variable rate FHLB advances along with
interest rate swap contracts in order to fix the variability of cash outflows on
floating rate advances. BankAtlantic participates in the State of Florida's
public funds program when rates are lower than current certificate rates.
CONSOLIDATED MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes in
market valuations which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is interest rate risk and our secondary market risk is equity price
risk. BFC's primary market risk, without consideration of BankAtlantic Bancorp,
is equity price risk relating to its equity investments. At December 31, 2002,
BFC held $1.6 million in publicly traded securities and $3.7 million in private
companies for which no trading market exists.
CONSOLIDATED INTEREST RATE RISK
The majority of BankAtlantic Bancorp's assets and liabilities are monetary in
nature subjecting BankAtlantic Bancorp to significant interest rate risk which
would arise if the relative values of each of its assets and liabilities change
in conjunction with a general rise or decline in interest rates. BankAtlantic
Bancorp has developed a model using standard industry software to quantify its
interest rate risk. A sensitivity analysis was performed measuring its potential
gains and losses in net portfolio fair values of interest rate sensitive
instruments at December 31, 2002 resulting from a change in interest rates.
Interest rate sensitive instruments included in the model were:
- Loan portfolio,
- Debt securities available for sale,
- Investment securities,
- FHLB stock,
- Federal funds sold,
62
- Deposits,
- Advances from FHLB,
- Securities sold under agreements to repurchase,
- Federal funds purchased,
- Subordinated debentures,
- Notes and bonds payable,
- Interest rate swaps,
- Forward contracts,
- Trust preferred securities, and
- Off-balance sheet loan commitments.
The model calculates the net potential gains and losses in net portfolio fair
value by:
(i) discounting anticipated cash flows from existing assets,
liabilities and off-balance sheet contracts and derivatives at
market rates to determine fair values at December 31, 2002,
(ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to
determine fair values; and
(iii) the difference between the fair value calculated in (i) and
(ii) is the potential gains and losses in net portfolio fair
values.
Management of BankAtlantic Bancorp has made estimates of fair value discount
rates that it believes to be reasonable. However, because there is no quoted
market for many of these financial instruments, management has no basis to
determine whether the fair value presented would be indicative of the value
negotiated in an actual sale. BankAtlantic Bancorp'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.
Subordinated debentures, notes and bonds payable and trust preferred securities
were valued for this purpose based on their contractual maturities or redemption
date. BankAtlantic Bancorp's interest rate risk policy was approved by
BankAtlantic Bancorp's Board of Directors and establishes guidelines for
tolerance levels for net portfolio value changes based on interest rate
volatility. Management of BankAtlantic Bancorp has maintained the portfolio
within these established tolerances.
Certain assumptions by BankAtlantic Bancorp in assessing the interest rate risk
were utilized in preparing the following table. These assumptions related to:
- Interest rates,
- Loan prepayment rates,
- Deposit decay rates,
- Market values of certain assets under various interest rate
scenarios, and
- Repricing of certain borrowings.
The prepayment assumptions used in the model are:
Fixed rate mortgages 46%
Fixed rate securities 42%
Tax certificates 10%
Deposit runoff assumptions used in the model are as follows:
WITHIN 1-3 3-5 OVER 5
1 YEAR YEARS YEARS YEARS
------ ----- ----- -----
Money fund savings accounts decay rates 17% 17% 16% 14%
NOW and savings accounts decay rates 37% 32% 17% 17%
63
Presented below is an analysis of BankAtlantic Bancorp's interest rate risk at
December 31, 2002. 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 $531,932 $ 66,530
+100 bp $512,530 $ 47,128
0 $465,402 $ -
-100 bp $404,404 $ (60,998)
-200 bp $341,066 $(124,336)
It was also assumed that delinquency rates would not change as a result of
changes in interest rates, although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that BankAtlantic Bancorp'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 results of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory and reactive measures which we may take in the future.
EQUITY PRICE RISK
The Company also maintains a portfolio of equity securities owned and available
for sale securities which subjects us to equity pricing risks which would arise
as the relative values of our equity securities change in conjunction with
market or economic conditions. The change in fair values of equity securities
represents instantaneous changes in all equity prices segregated by equity
securities owned, securities sold but not yet purchased, and available for sale
securities. The following are hypothetical changes in the fair value of our
securities owned, securities sold but not yet purchased, and available for sale
securities at December 31, 2002 based on percentage changes in fair value.
Actual future price appreciation or depreciation may be different from the
changes identified in the table below.
AVAILABLE SECURITIES
PERCENT SECURITIES FOR SALE SOLD
CHANGE IN OWNED SECURITIES NOT YET DOLLAR
FAIR VALUE FAIR VALUE FAIR VALUE PURCHASED CHANGE
- ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
20% $ 42,827 $ 3,552 $ (4,429) $ 6,992
10% $ 39,258 $ 3,256 $ (4,060) $ 3,496
0% $ 35,689 $ 2,960 $ (3,691) $ --
-10% $ 32,120 $ 2,664 $ (3,322) $ (3,496)
-20% $ 28,551 $ 2,368 $ (2,953) $ (6,992)
Excluded from the above table was $3.8 million and $3.7 million of investments
in private companies held by BankAtlantic Bancorp and BFC, respectively, for
which no current market exists. The ability to realize on or liquidate these
investments will depend on future market conditions and is subject to
significant risk.
Ryan Beck, in its capacity as a market-maker and dealer in corporate and
municipal fixed-income and equity securities, may enter into transactions in a
variety of cash and derivative financial instruments in order to facilitate
customer order flow and to hedge market risk exposures. These financial
instruments include securities sold, but not yet purchased and futures
contracts. Securities sold, but not yet purchased represent obligations of Ryan
Beck to deliver specified financial instruments at contracted prices, thereby
creating a liability to purchase the financial instrument in the market at
prevailing prices. Accordingly, these transactions result in off-balance-sheet
risk as Ryan Beck's ultimate obligation may exceed the amount recognized in the
64
Consolidated Statement of Financial Condition. As a securities broker and
dealer, Ryan Beck is engaged in various securities trading and brokerage
activities servicing a diverse group of domestic corporations, governments,
institutional, and individual investors. Ryan Beck has exposure to risk
associated with the nonperformance of these counter parties in fulfilling their
contractual obligations. Ryan Beck is also exposed to risk associated with its
securities owned and GMS's investments in below investment grade securities.
INTEREST RATE SENSITIVITY
Changes in interest rates can impact net interest income as well as the
valuation of assets and liabilities, as the relative spreads between assets and
liabilities can widen or narrow due to changes in the overall levels of and
changes in market interest rates.
Profitability is dependent to a large extent on net interest income. Net
interest income is the difference between interest income on interest-earning
assets, such as loans, and interest expense on interest-bearing liabilities,
such as deposits. Changes in market interest rates, changes in the relationships
between short-term and long-term market interest rates, or changes in the
relationships between different interest rate indices, can affect the interest
rates charged on interest-earning assets differently than the interest rates
paid on interest-bearing liabilities. This difference could result in an
increase in interest expense relative to interest income. While an attempt has
been made to structure asset and liability management strategies to mitigate the
impact on net interest income of changes in market interest rates, such strategy
may not be successful.
Generally, as interest rates fall, loan prepayments accelerate. Prepayments in a
declining interest rate environment reduce net interest income and adversely
impact earnings due to accelerated amortization of loan premiums and the
reinvestment of loan payoffs at lower rates than the loans that have been
repaid. Significant loan prepayments in the purchased residential loan portfolio
in the future could have an adverse effect on future earnings.
BFC'S LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funds to BFC (without consideration of BankAtlantic
Bancorp's liquidity and capital resources which except as noted, are not
available to BFC) were dividends from BankAtlantic Bancorp, revenues from
property operations, principal and interest payments on loan receivables and
borrowings. Funds were primarily utilized by BFC to reduce mortgage payables and
other borrowings, to buy back and retire 40,000 shares of Class B Common Stock,
and to fund operating expenses and general and administrative expenses. BFC has
an $8.0 million revolving line of credit that can be utilized for working
capital as needed. At December 31, 2002, approximately $1.98 million was
available under this facility that matured in December 2002 and bears interest
at the prime rate plus 1%. In March 2003, the maturity date under this facility
was extended until May 2003. Approximately 21% of the shares of BankAtlantic
Bancorp's Class A Common Stock owned by BFC are pledged as collateral. In July
2002, BFC borrowed $1.5 million under the revolving line of credit.
On July 16, 2002, John Abdo borrowed $3.5 million from the Company on a recourse
basis and paid off his existing $500,000 loan due to BFC. The $3.5 million loan
bears interest at the prime rate plus 1%, requires monthly interest payments, is
due on demand and is secured by 1,019,563 shares of BFC Class A Common Stock and
370,750 shares of BFC Class B Common Stock.
At December 31, 2002 and 2001, approximately $8.5 million and $8.7 million,
respectively, of the mortgage payables relate to mortgages on real estate with
an interest rate of 9.2% and maturity date in May 2007. At December 31, 2002 and
2001, approximately $702,000 and $872,000, respectively, of the mortgage
payables relate to mortgage receivables in connection with the sale of
properties previously owned by the Company, with interest rates at 6% and
maturity dates ranging from 2009 through 2010.
As previously indicated the Company holds approximately 22.6% of the outstanding
BankAtlantic Bancorp Common Stock. The payment of dividends by BankAtlantic
Bancorp is subject to declaration by BankAtlantic Bancorp's Board of Directors
and applicable indenture restrictions and loan covenants and will also depend
upon, among other things, the results of operations, financial condition and
cash requirements of BankAtlantic Bancorp and, as discussed below, the ability
of BankAtlantic to pay dividends or otherwise advance funds to BankAtlantic
Bancorp, which in turn is subject to OTS regulation and is based upon
BankAtlantic's regulatory capital levels and net income. While there is no
assurance that BankAtlantic Bancorp will pay dividends in the future,
BankAtlantic Bancorp has paid a regular quarterly dividend to its
65
common stockholders since August 1993 and management of BankAtlantic Bancorp has
indicated that it will seek to declare regular quarterly cash dividends on the
BankAtlantic Bancorp Common Stock. BankAtlantic Bancorp currently pays a
quarterly dividend of $.031 per share on its Class A and Class B Common Stock.
Based on its current level of ownership and BankAtlantic Bancorp's current
dividend rate, BFC currently receives approximately $408,000 per quarter in
dividends from BankAtlantic Bancorp.
BANKATLANTIC BANCORP, INC. LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic Bancorp's principal source of liquidity is dividends from
BankAtlantic. BankAtlantic Bancorp also obtains funds through the issuance of
equity securities, sales of securities available for sale, borrowings from
financial institutions and issuance of debt securities. BankAtlantic Bancorp's
annual debt service at December 31, 2002 associated with its subordinated
debentures, trust preferred securities, and financial institution borrowings was
$14.1 million. BankAtlantic Bancorp's estimated current annual dividends to
common shareholders are approximately $7.2 million. The declaration and payment
of dividends and the ability of BankAtlantic Bancorp to meet its debt service
obligations will depend upon, among other things, the results of operations,
financial condition and cash requirements of BankAtlantic Bancorp as well as
indenture restrictions and loan covenants and on the ability of BankAtlantic to
pay dividends to BankAtlantic Bancorp, which payments are subject to OTS
approval and regulations and based upon BankAtlantic's regulatory capital levels
and net income. During 2002, BankAtlantic Bancorp received $22.0 million of
dividends from BankAtlantic.
During the year ended December 31, 2002, BankAtlantic Bancorp participated in
seven pooled trust preferred securities offerings in which an aggregate of $125
million of trust preferred securities were issued. The trust preferred
securities pay distributions quarterly at a floating rate equal to 3-month LIBOR
plus a spread and are redeemable five years from their issue date. The net
proceeds to Bancorp from the trust preferred securities offerings after
placement fees and expenses were approximately $121.1 million. Additionally, in
March 2002, BankAtlantic Bancorp completed an underwritten public offering in
which BankAtlantic Bancorp's wholly-owned statutory trust ("BBC Capital Trust
II") issued $55.4 million of trust preferred securities. These trust preferred
securities pay distributions quarterly at an 8.50% fixed rate. The net proceeds
to BankAtlantic Bancorp from the publicly offered trust preferred securities
after underwriting discounts and expenses were approximately $53.3 million. The
trust preferred securities are considered debt for financial accounting and tax
purposes.
BankAtlantic Bancorp used the proceeds from the above trust preferred securities
offerings to retire $21 million of 9% subordinated notes and $74.8 million of
9.5% trust preferred securities to fund a portion of BankAtlantic's purchase of
Community Savings, Levitt's investment in Bluegreen Corporation, and Ryan Beck's
acquisition of certain assets and the assumption of certain liabilities of
Gruntal, and for general corporate purposes. While the use of these proceeds to
retire higher cost fixed rate debt significantly reduced BankAtlantic Bancorp's
funding costs for the subsequent fiscal year, the floating rate trust preferred
securities increase BankAtlantic Bancorp's interest rate risk.
BankAtlantic Bancorp maintains a revolving credit facility of $30 million with
an independent financial institution. The credit facility contains customary
covenants, including financial covenants relating to regulatory capital and
maintenance of certain loan loss reserves and is secured by the common stock of
BankAtlantic. BankAtlantic Bancorp has used this credit facility to temporarily
fund acquisitions and asset purchases as well as for general corporate purposes.
The credit facility had an outstanding balance of $16.1 million at December 31,
2002, and BankAtlantic Bancorp was in compliance with all loan covenants.
Amounts outstanding accrue interest at the prime rate minus 50 basis points and
the facility matures on September 1, 2004.
On November 25, 1997, BankAtlantic Bancorp issued $100.0 million of 5 5/8%
Debentures maturing on December 1, 2007. The 5 5/8% Debentures are convertible
at an exercise price of $11.25 per share into BankAtlantic Bancorp Class A
Common Stock. The 5 5/8% Debentures are redeemable at BankAtlantic Bancorp's
option, in whole or in part, at fixed redemption prices. The outstanding balance
of the 5 5/8% Debentures at December 31, 2002 was $46.0 million.
On October 1, 2001, BankAtlantic transferred its direct ownership in Levitt
Corporation to BankAtlantic Bancorp. There is no assurance that periodic sales
of properties from real estate investments will be sufficient to fund Levitt's
operating expenses as incurred in future years. To the extent real estate sales
are not adequate to cover Levitt's operating expenses as incurred, it may be
necessary to fund an operating deficit from other sources. While BankAtlantic
Bancorp is not obligated to repay any third party debt of Levitt under any
circumstances, BankAtlantic Bancorp has a significant investment in Levitt and
Levitt owes BankAtlantic Bancorp $30.0 million in connection with its
acquisition of Bluegreen common stock. Additionally BankAtlantic has loans to
Levitt subsidiaries joint ventures. Levitt borrowed $15 million from an
unaffiliated
66
financial institution to finance the purchase of Levitt and Sons. The obligation
is secured by the stock of Levitt and Sons and contains covenants in the loan
agreement that restrict the payment of dividends or other advances by Levitt to
BankAtlantic Bancorp. At December 31, 2002, $10.5 million was outstanding on
this loan. The loan bears interest at the prime rate plus 50 basis points and
matures on September 1, 2005.
Ryan Beck has not paid dividends to BankAtlantic Bancorp and it is not
anticipated that Ryan Beck will pay dividends to BankAtlantic Bancorp in the
foreseeable future.
BankAtlantic Bancorp is not currently subject to regulatory capital
requirements, and it is not anticipated that BankAtlantic Bancorp will be
required to meet holding company capital requirements in the foreseeable future.
However, BankAtlantic Bancorp's regulatory capital amounts and ratios calculated
based on methodology used in the Federal Reserve Board's calculation of capital
requirements for bank holding companies are presented in the table below:
ACTUAL
-------------------
AMOUNT RATIO
------ -----
(DOLLARS IN THOUSANDS)
As of December 31, 2002:
Total risk-based capital $618,076 15.38%
Tier I risk-based capital $487,964 12.14%
Core capital $487,964 9.16%
BANKATLANTIC LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic's liquidity will depend on its ability to generate sufficient cash
to meet funding needs to support loan demand, to meet deposit withdrawals, and
to pay operating expenses. BankAtlantic's securities portfolio provides an
internal source of liquidity as a consequence of its short-term investments as
well as scheduled maturities and interest payments. Loan repayments and sales
also provide an internal source of liquidity.
BankAtlantic's primary sources of funds have been deposits, principal repayments
of loans and tax certificates; securities available for sale; maturities of
securities held to maturity; proceeds from the sale of loans and investment
securities; sales of branch facilities, proceeds from securities sold under
agreements to repurchase; advances from FHLB; operations; subordinated
debentures; other borrowings; and capital contributions from the Company. These
funds were primarily utilized to fund loan disbursements and purchases, fund
deposit outflows, repayments of securities sold under agreements to repurchase,
maturities of advances from FHLB, purchases of tax certificates and payments of
maturing certificates of deposit, pay operating expenses, and payment of
dividends to the Company. The FHLB has granted BankAtlantic a $1.4 billion line
of credit subject to available collateral, with a maximum term of ten years
secured by a blanket lien on all of BankAtlantic's residential mortgage loans
and certain commercial real estate loans. BankAtlantic has established lines of
credit for up to $160 million with other banks to purchase federal funds and has
established a $17.1 million potential advance with the Federal Reserve Bank of
Atlanta. BankAtlantic has various relationships to acquire brokered deposits.
These relationships may be utilized as an alternative source of borrowings, if
needed. See Note 8 to the Consolidated Financial Statements for further details
on lines of credit.
In October 2002, BankAtlantic issued $22 million of its floating rate
subordinated debentures due 2012. The subordinated debentures pay interest
quarterly at a floating rate equal to 3-month LIBOR plus 345 basis points and
are redeemable after October 2007 at a redemption price based upon then
prevailing market interest rates. The net proceeds were used by BankAtlantic for
general corporate purposes to support asset growth. The subordinated debentures
were issued by BankAtlantic in a private transaction as part of a larger pooled
securities offering. The debentures currently qualify for inclusion in
BankAtlantic's total risk based capital.
In connection with the acquisition of Community, BankAtlantic assumed $15.9
million of mortgage-backed bonds. The bonds have a floating interest rate and
mature in September 2013.
Total commitments to originate and purchase loans and mortgage-backed
securities, excluding the undisbursed portion of loans in process, were
approximately $698.0 million, $268.5 million and $143.8 million at December 31,
2002, 2001 and 2000, respectively. BankAtlantic also entered into a five-year
forward commitment to purchase the remaining balance of an
67
identified portfolio of government agency securities in March 2005. The original
principal balance of the portfolio was $225 million, and the outstanding
principal balance at December 31, 2002 was $39.1 million. The portfolio is
estimated to decrease to $4.1 million during the five-year commitment period.
BankAtlantic has historically funded its commitments out of loan repayments,
deposit growth, and short and intermediate term borrowings. At December 31,
2002, loan commitments were approximately 20.7% of loans receivable, net.
A significant source of BankAtlantic's liquidity is repayments and maturities of
loans and securities. The table below presents the contractual principal
repayments and maturity dates of BankAtlantic's loan portfolio and securities
available for sale at December 31, 2002. The total amount of principal
repayments on loans and securities contractually due after December 31, 2003 was
$3.8 billion, of which $640.6 million have fixed interest rates and $3.2 billion
have floating or adjustable interest rates. Actual principal repayments may
differ from information shown below.
OUTSTANDING AT
DECEMBER 31, FOR THE PERIOD ENDING DECEMBER 31, (1)
------------------------- ----------------------------------------------------------------------
2004- 2006- 2011- 2016-
(IN THOUSANDS) 2002 2003 2005 2010 2015 2020 >2021
---------- ---------- ---------- ---------- ---------- ---------- ----------
Commercial real estate $2,072,397 $ 682,043 $1,004,873 $ 221,272 $ 92,334 $ 55,882 $ 15,993
Residential real estate 1,378,041 717 1,794 13,363 59,545 253,647 1,048,975
Consumer (2) 294,565 6,352 9,968 13,297 74,220 190,576 152
Commercial business (4) 190,551 127,310 36,918 22,300 4,023 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total loans (4) $3,935,554 $ 816,422 $1,053,553 $ 270,232 $ 230,122 $ 500,105 $1,065,120
========== ========== ========== ========== ========== ========== ==========
Total securities available
for sale (3) $ 707,858 $ 1,956 $ 575 $ 1,290 $ 12,851 $ 83,854 $ 607,332
========== ========== ========== ========== ========== ========== ==========
(1) Does not include deductions for undisbursed portion of loans in
process, deferred loan fees, unearned discounts and allowances for
loan losses.
(2) Includes second mortgage loans.
(3) Includes in 2002 marketable equity securities available for sale of
$1.4 million and excludes $14.4 million of a held to maturity
commercial mortgage backed bond which matures in 2011.
(4) Includes lease financing.
Loan maturities and sensitivity of loans to changes in interest rates for
commercial business and real estate construction loans at December 31, 2002 were
(in thousands):
COMMERCIAL REAL ESTATE
BUSINESS CONSTRUCTION TOTAL
---------- ---------- ----------
One year or less $ 166,493 $ 703,221 $ 869,714
Over one year, but less than five years 22,767 512,673 535,440
Over five years 1,291 2,517 3,808
---------- ---------- ----------
$ 190,551 $1,218,411 $1,408,962
========== ========== ==========
Due After One Year:
Pre-determined interest rate $ 24,058 $ 81,739 $ 105,797
Floating or adjustable interest rate -- 433,451 433,451
---------- ---------- ----------
$ 24,058 $ 515,190 $ 539,248
========== ========== ==========
Loan Concentration - BankAtlantic's geographic loan concentration at December
31, 2002 was:
Florida 69%
California 5%
Northeast 7%
Other 19%
---
Total 100%
===
The loan concentration for BankAtlantic's originated portfolio is primarily in
Florida. The concentration in California, the Northeast, and other locations
primarily relates to purchased wholesale residential real estate loans.
68
LEVITT CORPORATION LIQUIDITY AND CAPITAL RESOURCES
Levitt's primary source of funds during the year ended December 31, 2002 were
proceeds from the sale of real estate inventory, capital contributions, proceeds
from development bonds payable, distributions from real estate joint ventures
and borrowings. These funds were primarily utilized to purchase real estate
inventory, repay borrowings, repay development bonds payable, invest in real
estate joint ventures, invest in Bluegreen Corporation and pay general and
administrative expenses.
Levitt Corporation and certain subsidiaries are parties to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these matters will not have a material
adverse effect on Levitt's financial condition. Levitt is subject to the usual
obligations associated with entering into contracts for the purchase,
development and sale of real estate in the ordinary course of its business.
Levitt provides home purchasers with warranties against certain defects for a
period of up to two years from the date of purchase. Levitt provides for
estimated warranty costs when the home is sold and continuously monitors
warranty exposure.
Levitt borrowed $15 million from an unaffiliated financial institution to
finance the purchase of Levitt and Sons. The obligation is secured by the stock
of Levitt and Sons, and covenants in the loan agreement prohibit the payment of
dividends or other advances by Levitt to the Company. There is currently $10.5
million outstanding on this loan.
Levitt has entered into various loan agreements to provide financing for the
acquisition and site improvements ("A&D Loans") and construction of residential
units ("Construction Loans"). As of December 31, 2002, these loan agreements
provide for advances on a revolving loan basis up to a maximum of $122.5
million, of which $70.8 million, were outstanding. The loans are secured by
mortgages on respective properties including improvements. Principal payments
are required as home sales are consummated. Certain indebtedness provides that
it is an event of default if there is a change of control.
At December 31, 2002, Levitt and Sons and Core Communities had credit agreements
with non-affiliated financial institutions to provide working capital lines of
credit of $7.5 million and $1.8 million, respectively. At December 31, 2002, the
available credit from these agreements were $4.0 million and $1.7 million,
respectively, and the outstanding balance was $3.5 million and $112,000. The
credit facilities mature on September 2004 and September 2003, respectively.
In April 2002, Levitt received an $18.6 million capital contribution and
borrowed $30 million from BankAtlantic Bancorp. Levitt utilized these funds plus
$5.2 million of working capital to purchase a 35% interest in Bluegreen
Corporation's common stock. The $30 million loan was eliminated in
consolidation.
At December 31, 2002, Levitt's total borrowings from BankAtlantic were
approximately $27.5 million. Levitt's joint venture total borrowings from
BankAtlantic were $25.5 million at December 31, 2002.
Some of Levitt's borrowings contain covenants that, among other things, require
Levitt to maintain certain financial ratios and a minimum net worth. These
covenants may have the effect of limiting the amount of debt that Levitt can
incur in the future and restricting the payment of dividends from Levitt to
BankAtlantic Bancorp. At December 31, 2002, Levitt was in compliance with all
loan agreement financial covenants.
The St. Lucie West Services District (the "District") is an independent unit of
local government created in 1989 in accordance with the Uniform Community
Development District Act of 1980, Chapter 190, Florida Statutes (the "Act"). The
Act was enacted in order to provide a uniform method for the establishment of
individual assessment districts to own, operate, build and finance basic
community development services, including water and wastewater utility
facilities, roadways and surface water management infrastructure. Levitt would
otherwise be obligated to finance and construct such infrastructure as a
condition to obtain certain approvals necessary in the normal course of
business.
The Act provides the District with the power to issue tax-exempt bond financing
in order to pay all or part of the cost of infrastructure improvements
authorized under the Act. The use of this type of bond financing is a common
practice for major land developers in Florida. The Act further provides the
District with the power to levy special assessments on virtually all of the
lands within the boundaries of St. Lucie West to pay the principal and interest
on tax-exempt bonds issued to finance common-use service facilities and
infrastructure.
69
The governing body of the District is the Board of Supervisors, comprised of
five Supervisors, which are elected based exclusively upon the vote of the
qualified electors in the District. As a landowner in the District, Levitt is
responsible for its pro-rata share of assessments from the District. When Levitt
sells a parcel of land, the liability for the assessments related to parcels
sold transfers to the end users of land through an assessment lien on their
property.
Levitt entered into a connection fee guarantee agreement with the St. Lucie West
Services District. The agreement provides that Levitt will prepay sufficient
water and sewer connection fees to service outstanding bonds of the District.
Levitt has no underlying guarantee obligation in connection with the District
Bonds. No amounts have been funded pursuant to the agreement, and the connection
fees, as of December 31, 2002, were in excess of that required by the agreement
through at least the next three years. At December 31, 2002, the outstanding
balance of the development bonds were $4.6 million.
During 2002, additional tax-exempt financing entities were formed to serve as a
conduit for the expected financing of basic infrastructure for Tradition
Development Company LLC, Live Oak Development 1, LLC and Live Oak Commercial 1,
LLC. These entities are wholly-owned subsidiaries of Core Communities. The
additional tax-exempt financing entities formed during 2002 were formed in
accordance with the Act. There have been no bond financing nor any assessments
levied in connection with the tax-exempt financing entities formed during 2002.
RYAN BECK LIQUIDITY AND CAPITAL RESOURCES
Ryan Beck's primary source of funds during the year ended December 31, 2002 were
clearing broker borrowings, capital contributions and a subordinated borrowing
from BankAtlantic Bancorp, proceeds from the sale of securities owned, proceeds
from securities sold but not yet purchased, and fees from customers. These funds
were primarily utilized to pay operating expenses, fund the Gruntal transaction
and fund capital expenditures.
In the ordinary course of business, Ryan Beck borrows, under an agreement with
its Clearing Broker, by pledging securities owned as collateral primarily to
finance its trading inventories. The amount and terms of the borrowings are
subject to the lending policies of the Clearing Broker and can be changed at the
Clearing Broker's discretion. Additionally, the amount financed is also impacted
by the market value of the securities owned.
In the year ended December 31, 2002, Ryan Beck received a $15.0 million capital
contribution and borrowed $5.0 million from BankAtlantic Bancorp for general
corporate purposes. The $5 million intercompany borrowing and the $15.0 million
capital contribution were eliminated in consolidation.
As part of the Gruntal transaction, Ryan Beck assumed responsibility for
repayment of a $3.4 million note payable secured by leasehold improvements and
equipment. At December 31, 2002, the total outstanding amount was $2.3 million
and the note matures on May 1, 2004. Additionally, Ryan Beck acquired the
operations of GMS. Approximately $86 million of GMS's securities owned are below
investment grade securities. Approximately $27.7 million par value of these
securities with an estimated fair value and carrying value of approximately $9.7
million were in default. These securities are not readily marketable and Ryan
Beck's ability to liquidate these investments will depend on market conditions
and is subject to significant risk. While Ryan Beck's believes that the carrying
amount of these securities is at fair value, it may not be possible to realize
that value upon sale.
At December 31, 2002, Ryan Beck had a line of credit facility with an unrelated
financial institution in the amount of $10 million with an interest rate of
LIBOR plus 1.50%. The line expires on April 1, 2003, and it is secured by
certificates of deposit ("CDs") from Ryan Beck's certificate of deposit
wholesale business. There were no amounts outstanding under this facility at
December 31, 2002.
Ryan Beck is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934, which requires the maintenance of minimum net
capital and requires the ratio of aggregate indebtedness, to net capital, both
as defined, not to exceed 15 to 1. Additionally, Ryan Beck, as a market maker,
is subject to supplemental requirements of Rule 15c3-1(a)4, which provides for
the computation of net capital to be based on the number of and price of issues
in which markets are made by Ryan Beck, not to exceed $1.0 million. At December
31, 2002, Ryan Beck's ratio of aggregate indebtedness to net capital was 4.48 to
1. Ryan Beck's regulatory net capital was approximately $9.3 million, which was
$6.5 million in excess of its required net capital of $2.8 million.
70
Ryan Beck operates under the provisions of paragraph (K)(2)(ii) of Rule 15c3-3
of the Securities and Exchange Commission as a fully-disclosed introducing
broker and, accordingly, customer accounts are carried on the books of the
clearing broker. However, Ryan Beck safe keeps and redeems municipal bond
coupons for the benefit of its customers. Accordingly, Ryan Beck is subject to
the provisions of SEC Rule 15c3-3 relating to possession or control and customer
reserve requirements and was in compliance with such provisions at December 31,
2002.
CONSOLIDATED CASH FLOWS
A summary of our consolidated cash flows follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
2002 2001 2000
--------- --------- ---------
Net cash provided by (used in):
Operating activities $ (4,105) $ 79,731 $ 93,927
Investing activities 280,324 (6,113) (461,344)
Financing activities (148,181) (37,688) 364,098
--------- --------- ---------
Increase (decrease) in cash and cash equivalents $ 128,038 $ 35,930 $ (3,319)
========= ========= =========
Cash flows from operating activities decreased during 2002 compared to 2001 due
to increases in real estate inventory and loans held for sale along with
decreases in other liabilities and amounts due to clearing agent. These declines
in operating cash flows were partially offset by a decline in securities owned
and in other liabilities as well as a significant increase in impairments and
write-downs.
Cash flows from operating activities decreased during 2001 compared to 2000 due
primarily to declines in loan sales, provision for credit losses and additional
investments in real estate. The above declines in cash flows were partially
offset by a substantial increase in earnings and other liabilities as well as a
decrease in accrued interest receivable.
Cash flows from investing activities increased during 2002 compared to 2001
primarily due to increased proceeds from sales and maturities of securities
available for sale and investment securities.
Cash flows from investing activities increased during 2001 compared to 2000
resulting primarily from lower purchases and originations of loans and leases
and a significant increase in sales and maturities of securities available for
sale and investment securities. These increases in cash flows from investing
activities were partially offset by higher purchases of securities.
Cash flows from financing activities declined during 2002 compared to 2001
resulting primarily from a decline in FHLB advances and short term borrowings,
the retirement of certain trust preferred securities and debentures and a
decline in the increase in deposits. The above cash outflows were partially
offset by the issuance of trust preferred securities and additional borrowings.
Cash flows from financing activities declined during 2001 compared to 2000
resulting primarily from decreases in short term borrowings, deposits and notes
payable. The decreases were partially offset by proceeds from the issuance of
common stock.
71
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The tables below summarize Bancorp's contractual obligations, commercial and
other commitments at December 31, 2002 (in thousands).
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------
LESS
Contractual THAN 1 1-3 4-5 AFTER 5
Obligations TOTAL YEAR YEARS YEARS YEARS
- ---------------------------------- -------- -------- -------- -------- --------
Long-Term Debt $374,191 $ 17,277 $ 57,824 $ 67,749 $231,341
Operating Lease Obligations 60,403 13,534 20,525 13,453 12,891
-------- -------- -------- -------- --------
Total Contractual Cash Obligations $434,594 $ 30,811 $ 78,349 $ 81,202 $244,232
-------- -------- -------- -------- --------
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
------------------------------------------------------------------------------------------
TOTAL LESS
Commercial and Other AMOUNTS THAN 1 1-3 4-5 AFTER 5
Commitments COMMITTED YEAR YEARS YEARS YEARS
- ---------------------------- ---------- ---------- ---------- ---------- ----------
Lines of Credit $ 426,884 $ 165,860 $ 43,848 $ -- $ 217,176
Standby Letters of Credit 35,927 35,927 -- -- --
Other Commercial Commitments 697,989 697,989 -- -- --
Other Commitments 39,328 200 39,128 -- --
---------- ---------- ---------- ---------- ----------
Total Commitments $1,200,128 $ 899,976 $ 82,976 $ -- $ 217,176
---------- ---------- ---------- ---------- ----------
RELATED PARTY TRANSACTIONS
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp and
BankAtlantic. Alan B. Levan is also Chairman of the Board of Bluegreen
Corporation and Levitt.
John E. Abdo, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of BankAtlantic Bancorp and BankAtlantic and
is a director and President of Levitt Corporation, a wholly owned subsidiary of
BankAtlantic Bancorp. John E. Abdo is also Vice Chairman of the Board of
Bluegreen Corporation.
Glen R. Gilbert, Executive Vice President of the Company also serves as
Executive Vice President of Levitt Corporation.
During 1998, Levitt Corporation entered into an agreement with the Abdo
Companies, Inc., a company in which Mr. Abdo is the principal shareholder and
CEO, whereby Abdo Companies receives monthly management fees from Levitt. Levitt
also pays the Company for management and accounting services provided to them.
The amounts paid may not be representative of the amount that would be paid in
an arms-length transaction. Management fees to/from related parties for the
years ended December 31, 2002, 2001 and 2000 consisted of (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001 2000
---- ---- ----
Abdo Companies $291 291 475
==== ==== ====
Levitt Corporation $170 80 80
==== ==== ====
Other affiliates $ 41 44 42
==== ==== ====
The Company paid BankAtlantic approximately $67,000 during 2002 for office space
used by the Company in BankAtlantic's headquarters and for miscellaneous
administrative and other related expenses. BankAtlantic provided certain
administrative services to Bluegreen in 2002 without receipt of payment for such
services.
72
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo and certain of his affiliates (the "Abdo Group"). Under the
arrangement, the Company and the Abdo Group share equally in profits after
interest earned by the Company on advances made by the Company. The Company
bears any risk of loss under the arrangement with the Abdo Group. Pursuant to
this arrangement with the Abdo Group, in December 1994, an entity controlled by
the Company acquired from an unaffiliated seller approximately 70 acres of
unimproved land known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 2001, all of the project except for land under two pylon
signs, a cell tower site and the lake had been sold to unaffiliated third
parties for approximately $21.4 million and the Company recognized net gains
from the sales of real estate of approximately $4.8 million. The Abdo Group
received approximately $2.6 million in 2000 from the Company for their real
estate sales profit participation.
During 1999 and 2000, the Company (without consideration of BankAtlantic
Bancorp) acquired interests in unaffiliated technology entities. During 2000 and
2001, the Company's interests in the technology entities were transferred at the
Company's cost to specified asset limited partnerships. Subsidiaries of the
Company are the controlling general partners of these venture partnerships, and
therefore, they are consolidated in these financial statements. Interests in
such partnerships were sold in 2000 and 2001 to accredited investors in private
offerings. During 2000, approximately $5.1 million of capital was raised by
these partnerships from unaffiliated third parties, as well as officers,
directors and affiliates of the Company who invested approximately $4.4 million
in the partnerships. The Company and the general partners retained ownership
interests of approximately $1.8 million. Additionally, during 2001,
approximately $895,000 of capital was raised from unaffiliated third parties by
one of these partnerships and officers, directors and affiliates of the Company
invested approximately $1.3 million in the partnership. The Company and the
general partners retained ownership interests of approximately $3.8 million
increasing the Company's total investment in these partnerships to an aggregate
of $5.6 million. Of the $1.3 million, invested by officers, directors and
affiliates, Alan Levan and Jack Abdo each borrowed $500,000 from the Company on
a recourse basis and Glen Gilbert, Executive Vice President, and Earl Pertnoy, a
director of the Company each borrowed $50,000 on a non-recourse basis to make
their investments. Such amounts were still outstanding at the end of the year
(except for John Abdo's $500,000 loan which is discussed below), bear interest
at the prime rate plus 1% and are payable interest only annually with the entire
balance due in February 2006. After the limited partners receive a specified
return from the partnerships, the general partners are entitled to receive 20%
of all cash distributions from the partnerships. The general partners are
limited liability companies of which the members are: BFC Financial Corporation
- - 57.5%, John E. Abdo - 13.75%; Alan B. Levan - 9.25%; Glen R. Gilbert - 2.0%
and John E. Abdo, Jr. - 17.5%. Losses net of minority interests for the year
ended December 31, 2002 were $766,000. At December 31, 2002, the Company's net
investment in these partnerships was $2.4 million.
On July 16, 2002, John Abdo borrowed $3.5 million from the Company on a recourse
basis and paid off his existing $500,000 loan due to BFC. The $3.5 million loan
bears interest at the prime rate plus 1%, requires monthly interest payments, is
due on demand and is secured by 1,019,564 shares of BFC Class A Common Stock and
370,750 shares of BFC Class B Common Stock.
During 1999, BFC Financial Corporation entered into an agreement with John E.
Abdo, Jr., son of John E. Abdo, a Director and Vice Chairman of the Board.
Pursuant to the agreement, the Company will pay to John E. Abdo, Jr. an amount
equal to 1% of the amount of the Company's investment in venture capital
investments identified by him for the Company and will grant him a profit
participation of 3-1/2% of the net profit realized by the Company through his
interest in the general partner of the technology venture partnership that
receives the identified investment. Additionally, the Company pays him an
expense allowance of $300 per month. During 2002, the Company paid John E. Abdo,
Jr. expense allowances of $3,600 pursuant to the agreement.
An affiliated limited partnership, BankAtlantic Bancorp and affiliates of the
Company are investors in a privately held technology company located in Boca
Raton, Florida. The affiliated limited partnership invested $2 million in
219,300 shares in the technology company's common stock, which shares were
acquired in October 2000 at a price per share of $9.12. At December 31, 2001,
the carrying value of this investment by the limited partnership had been
written down to $4.95 per share. BankAtlantic Bancorp invested $15 million in
3,033,386 shares of the technology company's common stock in cash and by
issuance to the technology company of 748,000 shares of BankAtlantic Bancorp
Class A Common Stock. BankAtlantic Bancorp's shares in the technology company
were acquired in October 1999 at an average price per share of $4.95. Both Alan
B. Levan and John E. Abdo joined the Board of the technology company. Alan B.
Levan owns or controls direct and indirect interests in an aggregate of 286,709
shares of the technology company common stock, purchased at an average price per
share of $8.14 and Mr. John E. Abdo owns or controls direct and indirect
interests in an aggregate of
73
368,408 shares of the technology company common stock purchased at an average
price per share of $7.69. Jarett Levan, a director of BankAtlantic Bancorp and
Senior Vice President of BankAtlantic, has an indirect ownership interest in an
aggregate of 350 shares of such common stock, and Bruno DiGiulian, a director of
BankAtlantic Bancorp, has an indirect ownership interest in 1,754 shares of such
common stock. BFC and its affiliates collectively own approximately 7% in the
technology company's outstanding common stock. The technology company also
served as an Application Service Provider ("ASP") for BankAtlantic Bancorp for
one customer service information technology application. This ASP relationship
was in the ordinary course of business, and fees aggregating approximately
$155,000, $169,000 and $368,000 were paid by BankAtlantic Bancorp to the
technology company for its services during the years ended December 31, 2002,
2001 and 2000, respectively. The ASP relationship was terminated effective
September 2002. During 2001, Mr. Levan and Mr. Abdo resigned from the Board of
Directors of the technology company and initiated a lawsuit on behalf of the
Company and others against the founder of the technology company, personally,
regarding his role. The Company, BankAtlantic Bancorp and other owners in the
technology company who are parties to the lawsuit will share in legal fees
incurred in connection with the litigation and in any recovery in proportion to
their respective interests. In early 2003, the technology company initiated a
lawsuit against BankAtlantic Bancorp seeking to have a restrictive legend on its
BankAtlantic Bancorp Class A Common Stock removed.
During the year ended December 31, 2002, the Company performed an additional
evaluation of its investment in the technology company to determine if there was
an other than temporary decline in value associated with this investment. As a
consequence, of this evaluation, included in the Company's statement of
operations during the year ended December 31, 2002 was a $15.6 million
impairment charge, net of minority interest, for the write off of BankAtlantic
Bancorp's and the limited partnership's investment in the technology company.
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment, approximately $441,000, was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. During 1999, the Company
received distributions of approximately $588,000 from the partnership due to the
sale of 31 of 34 convenience stores that it owned. During each of the years 2002
and 2001, the Company received distributions of approximately $25,000 from the
partnership.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan
may be deemed to beneficially be the principal shareholder and is a member of
the Board of Florida Partners Corporation. Glen R. Gilbert, Executive Vice
President and Secretary of the Company holds similar positions at Florida
Partners Corporation.
The Company and its subsidiaries utilized certain services of Ruden, McClosky,
Smith, Schuster & Russell, P.A. ("Ruden, McClosky"), a law firm to which Bruno
DiGiulian, a director of BankAtlantic Bancorp, is of counsel. Fees aggregating
$1.0 million, $793,000 and $166,000 were paid to Ruden, McClosky by the Company
and its subsidiaries for 2002, 2001 and 2000 respectively. Ruden, McClosky also
represents Alan B. Levan and John E. Abdo with respect to certain other business
interests.
Alan B. Levan and John E. Abdo have investments or are partners in real estate
joint ventures with developers, in connection with other ventures, have loans
from BankAtlantic or are partners in joint ventures with Levitt Corporation.
Certain officers of Levitt Corporation or its subsidiaries have minority
ownership interests in joint venture partnerships in which Levitt is also a
limited or general partner.
The BankAtlantic Foundation is a non-profit foundation established by
BankAtlantic. During 2002, the Foundation made donations aggregating $350,000,
including $50,000 to the Broward Community College Foundation, $15,000 to the
Florida Grand Opera, $8,320 to the Leadership Broward Foundation, $4,250 to
ArtServe, $3,000 to the Broward Performing Arts Foundation and $2,500 to the
Boys & Girls Club of Broward. Alan Levan sits on the Boards of the Broward
Community College Foundation and the Florida Grand Opera, Jarett Levan sits on
the Boards of the Leadership Broward Foundation and ArtServe, John E. Abdo is
Chairman of the Board of the Broward Performing Arts Foundation and Charlie C.
Winningham, II is on the Board of the Boys & Girls Club of Broward.
For each of the years in the three year period ended December 31, 2002, Jarett
Levan, a director and son of director, president and CEO Alan Levan, was
employed by BankAtlantic as a Senior Vice President/Alternative Delivery and was
paid annual
74
compensation of $181,313, $141,674 and $95,752, respectively, for his services.
Alan Levan's daughter, Shelley Levan Margolis, for each of the years in the
three year period ended December 31, 2002, served as executive director of the
BankAtlantic Foundation, receiving annual compensation of $104,823, $88,025 and
$71,924, respectively.
Included in BFC's other assets at December 31, 2002, and 2001 was approximately
$391,000, and $396,000 respectively due from affiliates.
DIVIDENDS
BFC has not paid any dividends since its inception. As stated above, a source of
BFC's liquidity is dividends from BankAtlantic Bancorp. While there is no
assurance that BankAtlantic Bancorp will pay dividends in the future,
BankAtlantic Bancorp management has stated that it intends to pay regular
quarterly cash dividends on its common stock. BankAtlantic Bancorp's payment of
dividends may be limited by the terms of applicable indentures and the
availability of funds for dividend payments. The availability of funds depends
upon BankAtlantic's ability to pay dividends to BankAtlantic Bancorp. Current
regulations applicable to the payment of cash dividends by savings institutions
impose limits on capital distributions based on an institution's regulatory
capital levels, retained net income and net income. See "Regulation and
Supervision - Limitation on Capital Distributions."
IMPACT OF INFLATION
The financial statements and related financial data and notes presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation.
Virtually all of our assets and liabilities are monetary in nature and as a
result, interest rates have a more significant impact on our performance than
the effects of general price levels. Although interest rates generally move in
the same direction as inflation, the magnitude of such changes varies. The
possible effect of fluctuating interest rates is discussed more fully under the
previous section entitled "Interest Rate Sensitivity."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition - Consolidated Market Risk"
75
[THIS PAGE INTENTIONALLY LEFT BLANK]
76
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Consolidated Statements of Financial Condition as of December 31,
2002 and 2001
Consolidated Statements of Operations for each of the years in the
three year period ended December 31, 2002 (as restated)
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for each of the years in the three year period ended December
31, 2002
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 2002
Notes to Consolidated Financial Statements
77
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BFC Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of BFC Financial Corporation and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFC Financial
Corporation and subsidiaries at December 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 20 to the consolidated financial statements, diluted
earnings per share in the accompanying consolidated statements of operations for
the years ended December 31, 2001 and 2000 have been restated to include the
proportionate share of a subsidiary's diluted income attributable to potential
common shares.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and intangible assets and for
gains and losses on the extinguishment of debt in 2002 and for derivative
instruments and hedging activities in 2001.
KPMG LLP
Fort Lauderdale, Florida
February 3, 2003
78
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 2002 and 2001
(In thousands, except share data)
2002 2001
------------ ------------
ASSETS
Cash and due from depository institutions $ 202,432 $ 124,383
Federal Funds sold and securities purchased under resell agreements 50,145 156
Investment securities and tax certificates (approximate fair value:
$212,698 and $434,470) 212,240 428,718
Loans receivable, net 3,377,870 2,776,624
Securities available for sale, at fair value 713,131 859,483
Securities owned, at fair value 186,454 68,296
Accrued interest receivable 34,050 33,787
Real estate held for development and sale and joint ventures 256,401 183,163
Investment in unconsolidated real estate subsidiary 60,695 --
Office properties and equipment, net 92,784 61,786
Federal Home Loan Bank stock, at cost which approximates fair value 64,943 56,428
Deferred tax asset, net 12,119 --
Goodwill, net 78,575 39,859
Core deposit intangible asset 13,757 --
Other assets 60,337 32,676
------------ ------------
Total assets $ 5,415,933 $ 4,665,359
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,920,555 $ 2,276,567
Advances from FHLB 1,297,170 1,106,030
Securities sold under agreements to repurchase 116,279 406,070
Federal Funds purchased -- 61,000
Subordinated debentures, notes and bonds payable 209,068 145,484
Guaranteed preferred beneficial interests in Bancorp's Junior
Subordinated Debentures 180,375 74,750
Securities sold, but not yet purchased 38,003 38,431
Due to clearing agent 78,791 9,962
Deferred tax liability, net -- 3,916
Other liabilities 132,780 120,557
------------ ------------
Total liabilities 4,973,021 4,242,767
------------ ------------
Minority interest 365,501 348,420
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 6,474,994 in 2002 and 6,461,994 in 2001 58 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,362,157 in 2002 and 2,366,157 in 2001 21 21
Additional paid-in capital 24,077 24,206
Retained earnings 52,387 47,195
------------ ------------
Total stockholders' equity before
accumulated other comprehensive income 76,543 71,480
Accumulated other comprehensive income 868 2,692
------------ ------------
Total stockholders' equity 77,411 74,172
------------ ------------
Total liabilities and stockholders' equity $ 5,415,933 $ 4,665,359
============ ============
See accompanying notes to consolidated financial statements.
79
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in three year period ended December 31, 2002
(In thousands, except per share data)
INTEREST INCOME: 2002 2001 2000
--------- --------- ---------
Interest and fees on loans and leases $ 222,170 $ 237,304 $ 247,132
Interest and dividends on securities available for sale 42,457 52,956 51,053
Interest and dividends on other investments and securities owned 45,497 35,741 30,711
--------- --------- ---------
Total interest income 310,124 326,001 328,896
--------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 62,777 85,668 91,723
Interest on advances from FHLB 62,412 60,472 61,331
Interest on securities sold under agreements to repurchase and federal
funds purchased 6,546 24,270 34,617
Interest on subordinated debentures, notes and bonds payable
and guaranteed beneficial interests in Bancorp's Junior
Subordinated Debentures 27,377 24,177 30,222
Capitalized interest on real estate developments and joint ventures (5,997) (5,749) (6,487)
--------- --------- ---------
Total interest expense 153,115 188,838 211,406
--------- --------- ---------
NET INTEREST INCOME 157,009 137,163 117,490
Provision for loan losses 14,077 16,905 29,132
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 142,932 120,258 88,358
--------- --------- ---------
NON-INTEREST INCOME:
Investment banking income 151,156 43,436 51,101
Gains on sales of real estate developed for sale
and joint venture activities 51,650 37,928 24,725
Gains (losses) on sales of loans, net 1,840 60 (528)
Income from unconsolidated real estate subsidiary 5,349 -- --
Service charges on deposits 26,479 16,372 13,666
Other service charges and fees 14,087 14,731 15,025
Gains on securities activities 8,578 7,124 2,856
Impairment of securities (20,384) (7,905) (5,185)
(Loss) gain on debt redemption (3,125) (389) 12,228
Other 12,266 9,622 12,597
--------- --------- ---------
Total non-interest income 247,896 120,979 126,485
--------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 201,280 96,352 91,702
Occupancy and equipment 40,035 29,224 27,916
Advertising and promotion 13,833 7,897 8,219
Amortization of goodwill and other intangible assets 1,360 4,073 4,081
Impairment of goodwill -- 6,624 --
Restructuring charge and impairment write-downs 1,007 331 2,656
Acquisition related charges and impairments 4,925 -- --
Communications 11,314 3,291 3,233
Floor broker and clearing fees 8,519 2,796 3,742
Other 55,415 42,674 38,031
--------- --------- ---------
Total non-interest expense 337,688 193,262 179,580
--------- --------- ---------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST,
DISCONTINUED OPERATIONS, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 53,140 47,975 35,263
Provision for income taxes 18,296 25,260 17,642
Minority interest in income of consolidated subsidiaries 38,294 18,379 14,655
--------- --------- ---------
(LOSS) INCOME BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (3,450) 4,336 2,966
Income from discontinued mortgage servicing business (less income taxes
of $361) -- -- 669
Extraordinary items (less income taxes of $2,771) 23,749 -- --
Cumulative effect of a change in accounting principle (less
income taxes of $1,246 in 2002 and $683 in 2001) (15,107) 1,138 --
--------- --------- ---------
NET INCOME 5,192 5,474 3,635
Amortization of goodwill, net of tax and minority interest -- 735 791
--------- --------- ---------
NET INCOME ADJUSTED TO EXCLUDE GOODWILL AMORTIZATION
$ 5,192 $ 6,209 $ 4,426
========= ========= =========
(Continued)
See accompanying notes to consolidated financial statements.
80
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in the three year period ended December 31, 2002
(In thousands, except per share data)
2002 2001 2000
----- ----- -----
EARNINGS PER SHARE:
Basic (loss) earnings per share before discontinued operations,
extraordinary items and cumulative effect of
a change in accounting principle $(0.43) $0.55 $0.37
Basic earnings per share from discontinued operations -- -- 0.09
Basic earnings per share from extraordinary items 2.97 -- --
Basic (loss) earnings per share from cumulative effect
of a change in accounting principle (1.89) 0.14 --
----- ----- -----
Basic earnings per share 0.65 0.69 0.46
Basic earnings per share from amortization of goodwill -- 0.09 0.10
----- ----- -----
Basic earnings per share adjusted to exclude goodwill amortization $0.65 $0.78 $0.56
===== ===== =====
(AS RESTATED) (AS RESTATED)
------------ -------------
Diluted (loss) earnings per share before discontinued operations,
extraordinary items and cumulative effect of
a change in accounting principle $ (0.46) $ 0.38 $ 0.28
Diluted earnings per share from discontinued operations -- -- 0.07
Diluted earnings per share from extraordinary items 2.91 -- --
Diluted (loss) earnings per share from cumulative effect
of a change in accounting principle (1.85) 0.12 --
--------- --------- ---------
Diluted earnings per share 0.60 0.50 0.35
Diluted earnings per share from amortization of goodwill -- 0.07 0.07
--------- --------- ---------
Diluted earnings per share adjusted to exclude goodwill amortization $ 0.60 $ 0.57 $ 0.42
========= ========= =========
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
Diluted weighted average number of common and common
equivalent shares outstanding 7,997 8,773 8,521
81
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For each of the years in the three year period ended December 31, 2002
(In thousands)
Accumulated
Other
Compre-
Compre- Class A Class B Additional hensive
hensive Common Common Paid-in Retained Income
income Stock Stock Capital Earnings (loss) Total
------ ----- ----- ------- -------- ------------ -----
BALANCE, DECEMBER 31, 1999 $ 58 21 25,890 38,086 (5,090) 58,965
Net income $ 3,635 -- -- -- 3,635 -- 3,635
---------
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale (less
income tax provision of $6,535) 10,527
Reclassification adjustment
for gains included
in net income (less
income tax provision of $180) (410)
---------
Other comprehensive income 10,117
---------
Comprehensive income $ 13,752
=========
Net effect of Bancorp capital
transactions, net of income taxes -- -- (102) -- -- (102)
Net change in other comprehensive
income, net of income taxes -- -- -- -- 10,117 10,117
------- -- ------ ------ ------ ------
BALANCE, DECEMBER 31, 2000 $ 58 21 25,788 41,721 5,027 72,615
Net income $ 5,474 -- -- -- 5,474 -- 5,474
---------
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (less
income tax benefit of $987) (1,570)
Accumulated losses associated
with cash flow hedges (less
income tax benefit of $200) (319)
Reclassification adjustment
for cash flow hedges 129
Reclassification adjustment
for net gain included in
net income (less income
tax provision of $360) (575)
---------
Other comprehensive loss (2,335)
---------
Comprehensive income $ 3,139
=========
Net effect of Bancorp capital
transactions, net of income taxes -- -- (1,636) -- -- (1,636)
Net change in other comprehensive
income, net of income taxes -- -- -- -- (2,335) (2,335)
Exercise of stock options -- -- 54 -- -- 54
------- -- ------ ------ ------ ------
BALANCE, DECEMBER 31, 2001 $ 58 21 24,206 47,195 2,692 74,172
======= == ====== ====== ===== ======
(Continued)
See accompanying notes to consolidated financial statements.
82
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For each of the years in the three year period ended December 31, 2002
(In thousands)
Accumulated
Other
Compre-
Compre- Class A Class B Additional hensive
hensive Common Common Paid-in Retained Income
income Stock Stock Capital Earnings (loss) Total
------ ------- ------- ---------- -------- ----------- -----
BALANCE, DECEMBER 31, 2001 $ 58 21 24,206 47,195 2,692 74,172
Net income $ 5,192 -- -- -- 5,192 -- 5,192
-------
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale, (less income
tax provision of $153) 244
Minimum pension liability (less
income tax benefit of $650) (1,035)
Unrealized losses associated
with investment in
unconsolidated real estate
subsidiary (less income tax
(benefit of $39) (62)
Accumulated loss associated with
cash flow hedges
(less income tax benefit of $80) (127)
Reclassification adjustment
for cash flow hedges (74)
Reclassification adjustment
for net gain included
in net income
(less income tax provision of
$478) (770)
-------
Other comprehensive loss (1,824)
-------
Comprehensive income $ 3,368
=======
Net effect of Bancorp capital
transactions, net
of income taxes -- (15) -- -- (15)
Retirement of Class B Common Stock -- (1) (318) -- -- (319)
Exercise of stock options -- 1 204 -- -- 205
Net change in accumulated other
comprehensive income,
net of income taxes -- -- -- -- (1,824) (1,824)
---- -- ------ ------ ------- ------
BALANCE, DECEMBER 31, 2002 $ 58 21 24,077 52,387 868 77,411
==== == ====== ====== ======= ======
The components of other comprehensive income relate to the net unrealized
appreciation on securities available for sale, net of income taxes and the
Company's proportionate share of non wholly-owned subsidiaries' net unrealized
gains or loss on securities available for sale, net of income taxes, minimum
pension liability, net of income taxes, unrealized loss associated with
investment in unconsolidated real estate subsidiary, net of income taxes,
accumulated loss associated with cash flow hedges, net of income taxes and
reclassification adjustments, net of income taxes.
See accompanying notes to consolidated financial statements.
83
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2002
(In thousands)
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES:
(Loss) income before discontinued operations, extraordinary items and
cumulative effect of a change in accounting principle $ (3,450) $ 4,336 $ 2,966
Income from discontinued operations, net of tax -- -- 669
Income from extraordinary item, net of tax 23,749 -- --
Cumulative effect of a change in accounting principle, net of tax (15,107) 1,138 --
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES:
Minority interest in income of consolidated subsidiaries 38,294 18,379 14,655
Provision for credit losses (1) 17,019 18,222 30,166
Change in real estate inventory (57,592) (28,789) 353
Loans held for sale activity, net (24,091) 14,068 (34,596)
Gains from securities activities, net (8,578) (7,124) (2,856)
Losses (gains) on sales of property and equipment, net 328 (386) (874)
Gains on sales of in-store branches (384) (1,577) --
Gains on sales of real estate held for sale (941) -- --
Loss (gain) on debt redemption 3,125 389 (12,228)
Depreciation, amortization and accretion, net 11,128 1,111 5,575
Restructuring charges and impairment write-downs, net 4,852 331 2,656
Gain on Gruntal transaction (26,520) -- --
Impairment of goodwill 16,353 6,624 --
Impairment of securities 20,384 7,905 5,185
(Benefit) provision for deferred income taxes (1,954) 3,257 (990)
Proceeds from sales of loans 41,602 24,017 50,109
Securities owned activities, net 33,751 (24,739) (20,246)
Decrease (increase) in accrued interest receivable 2,557 10,259 (13,452)
Amortization of intangible assets 1,360 4,073 4,081
Compensation in connection with corporate transaction -- -- 1,320
Issuance of forgivable notes receivable to Ryan Beck employees (17,140) -- --
Decrease (increase) in other assets 5,828 (3,665) 6,225
(Decrease) increase in other liabilities (25,399) 9,123 32,177
(Decrease) increase in due to clearing agent (32,876) (739) 14,777
(Decrease) increase in securities sold not yet purchased (1,629) 26,406 9,396
Issuance of subsidiary stock options 92 -- --
Equity in earnings from unconsolidated real estate subsidiary (5,349) -- --
Equity in joint venture earnings (3,517) (2,888) (1,141)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (4,105) 79,731 93,927
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase of investment securities and tax certificates $(238,700) $(267,025) $(426,177)
Proceeds from redemption and maturity of investment securities
and tax certificates 239,176 221,434 155,256
Purchase of securities available for sale (356,795) (485,862) (162,753)
Proceeds from sales and maturities of securities available for sale 772,339 509,833 259,867
Purchases and net repayments (originations) of loans and leases (23,776) 24,039 (291,500)
Proceeds from sales of real estate owned 5,898 5,860 5,053
Net additions to office properties and equipment (23,620) (11,441) (11,374)
Proceeds from sales of properties and equipment 1,986 529 1,577
Proceeds from sales of real estate held for sale 6,953 -- --
Investments and repayments from joint ventures, net 3,478 1,348 4,700
Purchases of FHLB stock net of redemptions (452) (4,488) 4,470
Increase in investment in unconsolidated real estate subsidiary (53,380) -- --
Improvements to real estate owned -- -- (241)
Acquisitions, net of cash acquired (52,783) (340) (222)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 280,324 (6,113) (461,344)
========= ========= =========
(Continued)
84
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in the three year period ended December 31, 2002
(In thousands)
2002 2001 2000
----------- ----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits $ 47,858 $ 125,252 $ 206,593
Reduction in deposits from sale of in-store branches, net (42,597) (81,593) --
Proceeds from FHLB advances 227,499 365,000 1,359,004
Repayments of FHLB advances (172,736) (297,771) (1,418,389)
Net (decrease) increase in federal funds purchased (61,000) 51,300 3,800
Proceeds from notes and bonds payable 158,831 66,651 113,586
Issuance of trust preferred securities 180,375 -- --
Repayment of notes and bonds payable (95,772) (72,285) (68,352)
Retirement of subordinated investment notes and subordinated debentures (21,716) (35,042) (40,278)
Retirement of trust preferred securities (74,750) -- --
Change in minority interest (61) 2,397 10,028
Issuance of BFC common stock upon exercise of stock options 205 54 --
Retirement of BFC common stock (319) -- --
Payments to acquire and retire publicly held Bancorp's Class B Common Stock -- -- (33,243)
Net (decrease) increase in securities sold under agreements to repurchase (289,791) (253,432) 236,279
Payment to acquire and retire Bancorp's common stock -- -- (4,363)
Issuance of Bancorp common stock 1,204 95,595 2,169
Bancorp common stock dividends paid to non-BFC shareholders (5,411) (3,814) (2,736)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (148,181) (37,688) 364,098
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 128,038 35,930 (3,319)
Cash and cash equivalents at beginning of period 124,539 88,609 1,545
Cash resulting from consolidation of Bancorp -- -- 90,383
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 252,577 $ 124,539 $ 88,609
=========== =========== ===========
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Interest paid on borrowings and deposits $ 160,069 $ 201,681 $ 216,186
Income taxes paid by Bancorp 36,790 17,884 2,466
Income taxes paid by BFC -- -- 69
Change in minority interest resulting from issuance of Bancorp Class A Common
Stock upon conversion of subordinated debentures 25 49,935 34
Issuance of notes payable under the Ryan Beck deferred compensation plan 3,675 -- --
Change in minority interest resulting from issuance of
Bancorp Class A Common Stock upon acquisitions -- 335 178
Change in minority interest resulting from issuance of Bancorp Class A
restricted Common Stock, net -- 1,209 --
Decrease in minority interest resulting from the distribution of
its securities investment (8,655) -- --
Change in minority interest resulting from
the retirement of Bancorp restricted stock -- -- (3,187)
Increase in other liabilities from the retirement of restricted stock -- -- 3,187
Increase in loans receivable from real estate closings -- 1,247 --
Increase in development bonds payable from real estate closings -- 1,247 --
Change in stockholders' equity resulting from net change
in other comprehensive income, net of taxes (1,824) (2,335) 10,117
Transfer from escrow accounts to reflect payments on
subordinated debentures -- -- 163
Net loss effect of Bancorp capital transactions,
net of income taxes (15) (1,636) (102)
(1) Provision for credit losses represents provision for loan losses, REO and
tax certificates.
See accompanying notes to consolidated financial statements.
85
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - BFC Financial Corporation ("BFC" or
the "Company") is a unitary savings bank holding company as a consequence of its
ownership of the Common Stock of BankAtlantic Bancorp, Inc. ("BankAtlantic
Bancorp" or "Bancorp"). BankAtlantic is a wholly-owned subsidiary of Bancorp.
The Company's primary asset is the capital stock of BankAtlantic Bancorp and its
primary activities currently relate to the operations of BankAtlantic Bancorp.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. ("GAAP").
BFC owns shares of BankAtlantic Bancorp Class A and Class B Common Stock which
represent 55.2% of the combined voting power and 22.6% of BankAtlantic Bancorp's
outstanding Common Stock. Because BFC controls greater than 50% of the vote of
BankAtlantic Bancorp, BankAtlantic Bancorp is consolidated in the Company's
financial statements. The percentage of votes controlled by the Company will
determine the Company's consolidation policy, whereas, the percentage of
ownership of total outstanding common stock will determine the amount of
BankAtlantic Bancorp's net income recognized by the Company.
BankAtlantic Bancorp's principal assets include BankAtlantic and its
subsidiaries, Ryan Beck & Co., Inc. ("Ryan Beck") and its subsidiaries and
Levitt Corporation ("Levitt") and its subsidiaries.
BankAtlantic is a federal savings bank headquartered in Fort Lauderdale, Florida
which provides traditional retail banking services and a wide range of
commercial banking products and related financial services. In March 2002,
BankAtlantic acquired Community Savings Bankshares, Inc. ("Community").
Community was a federally chartered savings and loan association founded in 1955
and headquartered in North Palm Beach, Florida. At March 22, 2002, Community
Savings had assets of $909 million and deposits of $637 million and 21 branch
locations.
Levitt Corporation engages in real estate activities through Levitt and Sons,
LLC ("Levitt and Sons"), Core Communities, LLC ("Core Communities"), and several
investments in real estate projects in Florida. Levitt and BankAtlantic Bancorp
acquired an aggregate equity investment of approximately 40% in Bluegreen
Corporation ("Bluegreen"), a New York Stock Exchange-listed company engaged in
the acquisition, development, marketing and sale of primarily drive-to vacation
interval resorts, golf communities and residential land. Levitt and Sons is a
developer of single-family home communities and condominium and rental apartment
complexes primarily in Florida. Core Communities owns the unsold land and other
entitlements of the master planned community commonly known as St. Lucie West
and Tradition in St. Lucie County, Florida and Live Oak Preserve in Hillsborough
County, Florida. Core Communities also owns a community in the initial
development stage in St. Lucie County, Florida known as Tradition and commercial
land in Hillsborough County, Florida.
Ryan Beck is an investment-banking firm engaged in the underwriting,
distribution and trading of tax-exempt, equity and debt securities. Ryan Beck
offers a full service, general securities brokerage business with investment and
insurance products for retail and institutional clients and provides investment
and wealth management advisory services for its customers. On September 30,
2002, Ryan Beck & Co., LLC converted to a corporation by merging into Ryan, Beck
& Co., Inc.
On April 26, 2002, Ryan Beck acquired certain of the assets and assumed certain
of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of the
membership interests in The GMS Group, LLC ("GMS"), a wholly-owned subsidiary of
Gruntal (the "Gruntal Transaction").
In August 2000, BankAtlantic Bancorp shareholders approved a corporate
transaction structured as a merger in which each share of BankAtlantic Bancorp's
Class B Common Stock was converted into .0000002051 of a share of BankAtlantic
Bancorp's Class B Common Stock as the surviving corporation in the transaction.
No fractional shares were issued. The corporate transaction resulted in the
retirement of all publicly held BankAtlantic Bancorp Class B Common Stock,
leaving BFC the sole holder of BankAtlantic Bancorp's Class B Common Stock at
that time. The Class B Common Stock represented 100% of the voting rights of
BankAtlantic Bancorp. On May 24, 2001 BankAtlantic Bancorp amended its articles
of incorporation to grant voting rights to holders of BankAtlantic Bancorp Class
A Common Stock, make BankAtlantic Bancorp Class B Common Stock convertible into
BankAtlantic Bancorp Class A Common Stock on a share-for-share basis, and
equalize the cash dividends payable on BankAtlantic Bancorp's Class A Common
Stock and BankAtlantic Bancorp's Class B Common Stock. As a consequence of the
amendment, BankAtlantic Bancorp's Class A shareholders are entitled to one vote
per share, which in the aggregate represent 53% of the combined voting power of
BankAtlantic Bancorp's Class A Common
86
Stock and BankAtlantic Bancorp's Class B Common Stock. BankAtlantic Bancorp's
Class B Common Stock represents the remaining 47% of the combined vote. The
fixed voting percentages will be eliminated, and shares of BankAtlantic
Bancorp's Class B Common Stock will be entitled to only one vote per share, from
and after the date that BFC or its affiliates no longer own in the aggregate at
least 2,438,062 shares of Class B Common Stock.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the statements of financial condition and operations for the periods
presented. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the next year relate to the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with foreclosure or in
satisfaction of loans, the valuation of equity securities that are not publicly
traded, the valuation of derivatives, the valuation of securities available for
sale, and the valuation of real estate held for development, real estate joint
venture investments and the cost to complete development work on real estate
projects. In connection with the determination of the allowances for loan
losses, real estate owned, real estate held for development and real estate
joint venture investments, management obtains independent appraisals for
significant properties when it is deemed prudent.
Certain amounts for prior years have been reclassified to conform with revised
statement presentation for 2002.
CONSOLIDATION POLICY - The consolidated financial statements include the
accounts of BFC, its wholly owned subsidiaries and majority controlled
subsidiaries including BankAtlantic Bancorp and venture partnerships. All
significant inter-company accounts and transactions have been eliminated in
consolidation. Because BFC controls greater than 50% of the vote of BankAtlantic
Bancorp, BankAtlantic Bancorp is consolidated in the Company's financial
statements instead of carried on the equity basis. At December 31, 2002, BFC
owned 22.6% of BankAtlantic Bancorp's total common stock, which represents 55.2%
of the combined vote of BankAtlantic Bancorp. Prior to 2000, BankAtlantic
Bancorp was carried using the equity method and prior year amounts have not been
restated.
CASH EQUIVALENTS - Cash and due from depository institutions include demand
deposits at other financial institutions. Federal funds sold are generally sold
for one-day periods and securities purchased under resell agreements are settled
in less than 30 days.
DEBT AND EQUITY SECURITIES - Debt securities are classified based on
management's intention on the date of purchase. Debt securities that management
has both the positive intent and ability to hold to maturity are classified as
securities held-to-maturity and are carried at amortized cost. Trading account
securities consist of securities that are bought and held principally for the
purpose of selling them in the near term and are carried at fair value with
changes in the fair value included in earnings. All other debt securities are
classified as available for sale and carried at fair value with the net
unrealized gains and losses included in shareholders' equity on an after tax
basis. The fair value of securities available for sale was estimated by
obtaining prices actively quoted on national markets, using a price matrix or
applying management valuation models. Declines in the fair value of individual
held to maturity and available for sale securities below their cost that are
other than temporary result in write-downs of the individual securities to their
fair value.
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported in interest and dividends on securities
using the interest method over the lives of the securities, adjusted for actual
prepayments. Gains and losses on the sale of securities are recorded on the
trade date and are calculated using the specific-identification method.
Marketable equity securities, which are included in securities available for
sale, are carried at fair value with the net unrealized gains and losses
included in shareholders' equity on an after- tax basis. Declines in the fair
value of individual equity securities below their cost that are other than
temporary, result in write-downs of the individual securities to their fair
value. Equity securities that do not have readily determinable fair value are
classified as investment securities and carried at historical cost. These
securities are evaluated for other than temporary declines in value, and, if
impaired, the historical cost of the securities is written down to estimated
fair value.
TAX CERTIFICATES - Tax certificates represent a priority lien against real
property for which assessed real estate taxes are delinquent. Tax certificates
are classified as investment securities and are carried at cost, net of an
allowance for probable losses, which approximates fair value.
ALLOWANCE FOR TAX CERTIFICATE LOSSES - This allowance represents management's
estimate of future losses that is probable and subject to reasonable estimation.
In establishing its allowance for tax certificate losses, management considers
past loss experience, present indicators, such as the length of time the
certificate has been outstanding, economic conditions and
87
collateral values. Tax certificates and resulting deeds are classified as
non-accrual when a tax certificate is 24 to 60 months delinquent, depending on
the municipality, from BankAtlantic's acquisition date. At that time, interest
ceases to be accrued.
LOANS AND LEASES - Loans are reported at their outstanding principal balances
net of any unearned income, unamortized deferred fees or costs and premiums or
discounts. Loan origination fees and certain direct origination costs are
deferred and recognized as adjustments to income over the lives of the related
loans. Unearned income, discounts and premiums are amortized to income using
methods that approximate the interest method. Equipment leases are carried at
the aggregate of lease payments receivable plus estimated residual value of the
leased property, less unearned income. Unearned income on equipment leases is
amortized over the lease terms by the interest method.
ALLOWANCE FOR LOAN AND LEASE LOSSES - The allowance for loan and lease losses
reflects management's estimate of incurred credit losses in the loan and lease
portfolios. A loan is impaired when collection of principal and interest based
on the contractual terms of the loan is not probable. The first component of the
allowance is for "non-homogenous" loans that are individually evaluated for
impairment. These are high balance loans that management considers to be high
risk. The process for identifying loans to be evaluated individually for
impairment is based on management's identification of classified loans. Once an
individual loan is found to be impaired, a specific valuation allowance is
assigned to the loan based on one of the following three methods: (1) present
value of expected future cash flows, (2) fair value of collateral less costs to
sell, or (3) observable market price. Non-homogenous loans that are not impaired
are assigned an allowance based on historical data by product. The second
component of the allowance is for "homogenous loans" in which groups of loans
with common characteristics are evaluated to estimate the inherent losses in the
portfolio. Homogenous loans and leases have certain characteristics that are
common to the entire portfolio so as to form a basis for predicting losses on
historical data and delinquency trends as it relates to the group. Management
segregates homogenous loans into groups such as: residential real estate; small
business mortgage; small business non-mortgage; lease financing; and various
types of consumer loans. The methodology utilized in establishing the allowance
for homogenous loans includes consideration of the current economic environment,
trends in industries, analysis of historical losses, static pool analysis,
delinquency trends, classified loan grades and credit scores. The allowance also
contains an unassigned component that is determined separately from the
procedures outlined above. This component addresses certain industry and
geographic concentrations, including economic conditions, in an attempt to
address the imprecision inherent in the estimation of the assigned allowance for
loan and lease losses. Due to the subjectivity involved in the determination of
the unassigned portion of the allowance, the relationship of the unassigned
component to the total allowance may fluctuate from period to period.
Management believes the allowance for loan and lease losses is adequate and that
it has a sound basis for estimating the adequacy of the allowance for loan and
lease losses. Actual losses incurred in the future are highly dependent upon
future events, including the economies of the geographic areas in which
BankAtlantic holds loans.
NON-PERFORMING LOANS AND LEASES - Interest income on loans, including the
recognition of discounts and loan fees, is accrued based on the outstanding
principal amount of loans using the interest method. A loan or lease is
generally placed on non-accrual status at the earlier of (i) the loan becoming
past due 90 days as to either principal or interest or (ii) when the borrower
has entered bankruptcy proceedings and the loan is delinquent. Exceptions to
placing 90 day past due loans on non-accrual may be made if there exists an
abundance of collateral, and the loan is in the process of collection. When a
loan is placed on non-accrual status, interest accrued but not received is
reversed against interest income. A non-accrual loan may be restored to accrual
status when delinquent loan payments are collected and the loan is expected to
perform in the future according to its contractual terms.
Consumer non-mortgage loans and lease financing contracts that are 120 days past
due are charged off. Real estate secured consumer and residential loans that are
120 days past due are charged down to fair value less cost to sell.
LOANS HELD FOR SALE - Such loans are reported at the lower of aggregate cost or
estimated fair value, based on current market prices for similar loans. Loan
origination fees and related direct loan origination costs and premiums and
discounts on purchased loans held for sale are deferred until the related loan
is sold.
REAL ESTATE OWNED ("REO") - BankAtlantic's REO is recorded at the lower of cost
or estimated fair value, less estimated selling costs. Write-downs required at
the time of acquisition are charged to the allowance for loan losses.
Expenditures for capital improvements made thereafter are generally capitalized.
Real estate acquired in settlement of loans is anticipated to be sold and
valuation allowance adjustments are made to reflect any subsequent changes in
fair values from the initially recorded amount. The costs of holding REO are
charged to operations as incurred. Provisions and reversals in the REO valuation
allowance are reflected in operations. The construction and development
activities of Levitt Corporation are not accounted for as REO.
88
INVESTMENT BANKING ACTIVITIES - Investment banking revenues include gains,
losses, and fees, net of syndicate expenses, arising from securities offerings
in which Ryan Beck acts as an underwriter or agent. Investment banking revenues
also include fees earned from providing merger and acquisition and financial
restructuring advisory services. Investment banking management fees are recorded
on the offering date, sales concessions on settlement date, and underwriting
fees at the time the underwriting is completed and the income is reasonably
determined.
SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED - Securities owned
and securities sold, but not yet purchased, are associated with proprietary
transactions entered into by Ryan Beck and are accounted for at fair value, with
changes in the fair value included in earnings. The fair value of these trading
positions is generally based on listed market prices. If listed market prices
are not available or if liquidating the positions would reasonably be expected
to impact market prices, fair value is determined based on other relevant
factors, including dealer price quotations, price quotations for similar
instruments traded in different markets or management's estimates of amounts to
be realized on settlement or management valuation model associated with
securities that are not readily marketable. Profit and loss arising from
transactions is recorded on a trade date basis.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE - This includes land, land development
costs, and other construction costs and is stated at the lower of accumulated
cost or estimated fair value. The estimated fair value of real estate is
evaluated based on disposition of real estate in the normal course of business
under existing and anticipated market conditions. The evaluation takes into
consideration the current status of property, various restrictions, carrying
costs, debt service requirements, costs of disposition and any other
circumstances which may affect fair value including management's plans for the
property. Due to the large acreage of certain land holdings, disposition in the
normal course of business is expected to extend over a number of years.
Inventory costs include direct acquisition, development and construction costs,
interest and other indirect construction costs. Land and indirect land
development costs are accumulated by specific area and allocated proportionately
to various parcels or housing units within the respective area based upon the
most practicable methods, including specific identification and allocation based
upon the relative sales value method or acreage methods. Direct construction
costs are assigned to housing units based on specific identification. All other
capitalized costs are accumulated by community and are allocated to those
housing units based upon the most practicable methods. Other capitalized costs
consist of capitalized interest, real estate taxes, tangible selling costs,
local government fees and field overhead incurred during the development and
construction period. Start-up costs and selling expenses are expensed as
incurred.
Interest is capitalized at the effective rates paid on borrowings incurred for
real estate inventory during the pre-construction and planning stage and the
periods that projects are under development. Capitalization of interest is
discontinued if development ceases at a project.
Revenue and all related costs and expenses from house and land sales are
recognized at the time that closing has occurred. This is when title to and
possession of the property and risks and rewards of ownership transfer to the
buyer, and other sale and profit recognition criteria are satisfied as required
under generally accepted accounting principles in the United States of America
for real estate transactions.
Title and mortgage operations include agency and other fees received for the
processing of title insurance policies and mortgage loans. Revenues from title
and mortgage operations are recognized when the transfer of the corresponding
property or mortgages to third parties has been consummated.
INVESTMENTS IN JOINT VENTURES AND UNCONSOLIDATED REAL ESTATE SUBSIDIARY - The
Company accounts for its partnership interests in its joint ventures and
subsidiaries in which the Company does not own the majority of the voting stock
or interests using the equity method of accounting. Under the equity method, the
Company's initial investment is recorded at cost and is subsequently adjusted to
recognize its share of earnings or losses. Distributions received reduce the
carrying amount of the investment. All inter-company profits and losses are
eliminated until realized through third party transactions. Interest is
capitalized on real estate joint ventures while the venture has activities in
progress necessary to commence its planned principal operations based on the
average balance outstanding of investments and advances to joint ventures.
Interest income on loans from BankAtlantic to joint ventures is eliminated based
on the Company's ownership percentage in consolidation until realized by the
sale of real estate by the joint venture.
Profit or loss on real estate sold including REO, joint ventures and real estate
held for development and sale, is recognized in accordance with SFAS No. 66,
"Accounting for Sales of Real Estate." Any estimated loss is recognized in the
period in which it becomes apparent.
89
GOODWILL AND OTHER INTANGIBLE ASSETS - The Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets" on January 1, 2002. As of the adoption
date, the Company no longer amortizes goodwill over its useful life. Instead,
goodwill is tested for impairment annually. The impairment test consists of two
steps. In the first step the Company determines the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units. If the fair value of
the reporting unit is greater than its carrying value the test is completed and
goodwill assigned to the reporting unit is not impaired. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired, and the Company must perform
the second step of the impairment test. In the second step, the Company must
compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS No.141, to its carrying amount. The Company will
recognize a goodwill impairment charge if the carrying amount of the goodwill
assigned to the reporting unit is greater than the implied fair value of the
goodwill.
In connection with the transitional goodwill impairment evaluation required
under SFAS No. 142, the Company performed an assessment of whether there was an
indication that goodwill was impaired as of January 1, 2002, the date of
adoption. During the six months ended June 30, 2002, the Company identified its
reporting units and determined the carrying value of each of its reporting units
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The fair
values of all reporting units, except for the Ryan Beck reportable segment,
exceeded their respective carrying amounts at the adoption date. For the Ryan
Beck reportable segment, an independent appraiser was engaged to determine the
fair value of Ryan Beck's reporting units in order for the Company to measure
the impairment amount. Based on the appraiser's evaluation, a $15.1 million
impairment loss (net of a $1.2 million tax benefit) was recorded effective as of
January 1, 2002 as the cumulative effect of a change in accounting principle.
Prior to the adoption of SFAS No. 142, goodwill was being amortized on a
straight-line basis over estimated useful lives, ranging from 7 to 25 years. The
Company periodically reviewed its goodwill for events or changes in
circumstances that indicated that the carrying amount was not recoverable, in
which an impairment charge was recorded.
IMPAIRMENT - The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" on January 1, 2002. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset many not be recoverable. In performing the
review for impairment, 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 is based on the fair
value of the asset.
Long-lived assets to be abandoned, exchanged for a similar productive asset, or
distributed to owners in a spin off are considered held and used until disposed
of. This statement requires that the depreciable life of a long-lived asset to
be abandoned be revised, and that an impairment loss be recognized at the date a
long-lived asset is exchanged for a similar productive asset or distributed to
owners in a spin off if the carrying amount of the asset exceeds its fair value.
The accounting model for long-lived assets to be disposed of by sale is used for
all long-lived assets, whether previously held and used or newly acquired. That
accounting model measures a long-lived asset classified as held for sale at the
lower of its carrying amount or fair value less cost to sell and requires
depreciation (amortization) to cease.
OFFICE PROPERTIES AND EQUIPMENT -- Land is carried at cost. Office properties,
equipment and computer software are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets, which generally range up to 40 years for
buildings and 3-10 years for equipment and software. The cost of leasehold
improvements is being amortized using the straight-line method over the terms of
the related leases.
Expenditures for new properties and equipment and major renewals and betterments
are capitalized. Expenditures for maintenance and repairs are charged to expense
as incurred and gains or losses on disposal of assets are reflected in current
operations.
ADVERTISING -- Advertising expenditures are expensed as incurred.
INCOME TAXES -- The Company does not include BankAtlantic Bancorp and its
subsidiaries in its consolidated income tax return with its wholly owned
subsidiaries since the Company owns less than 80% of the outstanding stock of
BankAtlantic Bancorp. Deferred income taxes are provided on elements of income
or expense that are recognized for financial accounting purposes in periods
different than such items are recognized for income tax purposes.
The provision for income taxes is based on income before taxes reported for
financial statement purposes after adjustment for
90
permanent differences. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using the 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 realized.
DERIVATIVE INSTRUMENTS - The Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138 (collectively, "SFAS No. 133"), on January 1, 2001. All derivatives
are recognized on the statement of financial condition at their fair value. On
the date the derivative contract is entered into, the Company designates the
derivative as either a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment ("fair value" hedge), or a hedge
of a forecasted transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability ("cash flow" hedge). The Company
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair-value or cash-flow hedges to specific assets and
liabilities on the statement of financial condition or to specific firm
commitments or forecasted transactions. The Company also formally assesses, both
at the hedge's inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, the Company discontinues hedge accounting prospectively.
Changes in the fair value of a derivative that is highly effective and that is
designated and qualifies as a fair-value hedge, along with the loss or gain on
the hedged asset or liability or unrecognized firm commitment of the hedged item
that is attributable to the hedged risk are recorded in earnings. Changes in the
fair value of a derivative that is highly effective and that is designated and
qualifies as a cash-flow hedge are recorded in other comprehensive income, until
earnings are affected by the variability in cash flows of the designated hedged
item. Changes in the fair value of undesignated derivative instruments are
reported in current-period earnings.
The Company discontinues hedge accounting prospectively when it is determined
that the derivative is no longer effective in offsetting changes in the fair
value or cash flows of the hedged item, the derivative expires or is sold,
terminated, or exercised, the derivative is re-designated as a hedging
instrument, because it is unlikely that a forecasted transaction will occur, a
hedged firm commitment no longer meets the definition of a firm commitment, or
management determines that designation of the derivative as a hedging instrument
is no longer appropriate.
When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair-value hedge, the Company
continues to carry the derivative on the statement of financial condition at its
fair value, and no longer adjusts the hedged asset or liability for changes in
fair value. The adjustment of the carrying amount of the hedged asset or
liability is accounted for in the same manner as other components of the
carrying amount of that asset or liability. When hedge accounting is
discontinued because the hedged item no longer meets the definition of a firm
commitment, the Company continues to carry the derivative on the statement of
financial condition at its fair value, removes any asset or liability that was
recorded pursuant to recognition of the firm commitment from the balance sheet
and recognizes any gain or loss in earnings. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not
occur, the Company continues to carry the derivative on the statement of
financial condition at its fair value, and gains and losses that were
accumulated in other comprehensive income are recognized immediately in
earnings. In all other situations in which hedge accounting is discontinued, the
Company continues to carry the derivative at its fair value on the statement of
financial condition, and recognizes any changes in its fair value in earnings.
At January 1, 2001, BankAtlantic Bancorp had outstanding interest rate swap
contracts utilized in BankAtlantic Bancorp's interest rate risk management
strategy. In conjunction with the adoption of SFAS No. 133 on January 1, 2001,
BankAtlantic Bancorp accounted for the interest rate swap contracts in
accordance with the transition provisions of SFAS No. 133 and recorded a
cumulative effect adjustment gain of approximately $1.1 million, net of tax.
EARNINGS PER SHARE - While the Company has two classes of common stock
outstanding, the two-class method is not presented because the Company's capital
structure does not provide for different dividend rates or other preferences,
other than voting rights, between the two classes. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
shares were exercised. Common stock options, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options are
included in the weighted average number of dilutive common shares outstanding
based on the treasury stock method. The diluted earnings per share
91
computations take into consideration the potential dilution from securities
issued by a subsidiary that enable their holders to obtain the subsidiary's
common stock. The resulting net income amount is divided by the weighted average
number of dilutive common shares outstanding, when dilutive. For all periods,
the shares of the Company issued in connection with a 1984 acquisition are
considered outstanding after elimination of the Company's percentage ownership
of the entity that received the shares issued in that acquisition.
STOCK BASED COMPENSATION PLANS - The Company maintains both qualifying and
non-qualifying stock-based compensation plans for its employees and directors.
These are described more fully in Note 13. The Company has elected to account
for its employee stock-based compensation plans under Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations. No compensation is
recognized in connection with option grants that had an exercise price equal to
the market value of the underlying common stock on the date of grant.
During the year ended December 31, 2002, BankAtlantic Bancorp maintained both
qualifying and non-qualifying stock-based compensation plans for its employees
and directors. These are described more fully in Note 11. BankAtlantic Bancorp
accounts for these plans under the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations.
BankAtlantic Bancorp has recognized $242,000, $241,000 and $540,000 of
compensation expense associated with restricted stock and option awards during
the years ended December 31, 2002, 2001 and 2000, respectively. No compensation
is recognized in connection with option grants that had an exercise price equal
to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2000
------ ----- -----
PRO FORMA NET INCOME
Net income, as reported $5,192 5,474 3,635
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related income tax effects (422) (288) (466)
------ ----- -----
Pro forma net income 4,770 5,186 3,169
====== ===== =====
EARNINGS PER SHARE:
Basic earnings per share $ 0.65 0.69 0.46
====== ===== =====
Basic pro forma 0.60 0.65 0.40
====== ===== =====
Diluted earnings per share (as restated) $ 0.60 0.50 0.35
====== ===== =====
Diluted pro forma (as restated) 0.54 0.47 0.30
====== ===== =====
NEW ACCOUNTING PRONOUNCEMENTS - In April 2002, the Financial Accounting
Standards Board ("FASB") issued Statement No. 145 ("Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections.") This statement rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and FASB Statement No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods will be reclassified into continuing operations. As a consequence, the
Company reclassified from income (loss) from extraordinary items to income from
continuing operations a $389,000 loss and a $12.2 million gain on the redemption
by BankAtlantic Bancorp of subordinated investments notes and convertible
debentures reflected in the Company's statements of operations for the years
ended December 31, 2001 and 2000, respectively. The reclassification reduced
basic earnings per share from continuing operations by $.03 and reduced diluted
earnings per share from continuing operations by $0.03 for the year ended
December 31, 2001. The reclassification increased basic earnings per share from
continuing operations by $1.00 and increased diluted earnings per share from
continuing operations by $0.93 for the year ended December 31, 2000.
92
In June 2002, the FASB issued Statement No. 146 ("Accounting for Costs
Associated with Exit or Disposal Activities"). This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Prior to this statement, a liability was
recognized when the entity committed to an exit plan. Management believes that
this statement will not have a material impact on the Company's financial
statements, however, the statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
In October 2002, the FASB issued Statement No. 147 ("Acquisitions of Certain
Financial Institutions"). This statement provides guidance on the accounting for
the acquisition of a financial institution and applies to all acquisitions
except those between two or more mutual enterprises. This statement provides
that the excess of the fair value of liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired in a business combination
represents goodwill that should be accounted for under FASB Statement No. 142,
Goodwill and Other Intangible Assets. Thus, the specialized accounting guidance
in paragraph 5 of FASB Statement No. 72, Accounting for Certain Acquisitions of
Banking or Thrift Institutions, will not apply after September 30, 2002. If
certain criteria in FASB Statement No. 147 are met, the amount of the
unidentifiable intangible asset recorded in previous acquisitions will be
reclassified to goodwill upon adoption of this statement. The statement will not
affect the Company's prior acquisitions and management believes that this
statement will not have an impact on the Company's historical financial
statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This interpretation does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee. This interpretation also incorporates, without change, the
guidance in FASB Interpretation No. 34, "Disclosure of Indirect Guarantees of
Indebtedness of Others," which is being superseded. The Company implemented the
disclosure requirements of this interpretation as of December 31, 2002 and the
liability recognition provisions of the interpretation as of January 1, 2003.
In December 2002, the FASB issued Statement No. 148 ("Accounting for Stock-Based
Compensation - Transition and Disclosure"). This statement amends FASB Statement
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of FASB Statement No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has implemented the disclosure
requirements of this statement as of December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46 ("Consolidation of
Variable Interest Entities"). The interpretation defines a variable interest
entity as a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the equity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in research and development or other activities on behalf of another
company This interpretation requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The Company would have to
consolidate any of its variable interest entities that meet the above criteria
as of July 1, 2003. The interpretation also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. Management is in the process of
determining if its interests in unconsolidated entities qualify as variable
interest entities and, if so, whether the assets, liabilities, non-controlling
interest, and results of activities are required to be included in the Company's
consolidated financial statements. Our investments and advances to
unconsolidated entities was $51.9 million at December 31, 2002. These entities
were primarily real estate joint ventures. We believe that the majority of these
entities will not be consolidated; however, we cannot give assurances that this
will be the case until we complete our evaluation. We expect to complete our
evaluation by July 1, 2003, the deadline imposed by this interpretation.
2. ACQUISITIONS
On April 26, 2002, Ryan Beck acquired certain of the assets and assumed certain
of the liabilities of Gruntal and acquired all of the membership interests in
GMS, a wholly-owned subsidiary of Gruntal ("the Gruntal transaction"). Gruntal
provided securities brokerage and investment banking services to individual and
institutional investors. GMS is primarily engaged in the business of buying,
selling and underwriting municipal securities. Part of GMS's business includes
investing in unrated or distressed municipal securities. These securities are
not readily marketable and are either not rated by any rating agency or
93
are rated below investment grade. The assets that were acquired from Gruntal
include all of Gruntal's customer accounts, furniture, leasehold improvements
and equipment owned by Gruntal at the offices where Gruntal's investment
consultants are located, assets related to Gruntal's deferred compensation plan
and forgivable loans. The consideration provided by Ryan Beck for this
transaction was the assumption of a note payable related to furniture and
equipment in the Gruntal offices, assumption of certain non-cancelable leases
associated with the Gruntal offices acquired, obligations owed to investment
consultants participating in Gruntal's deferred compensation plan that accepted
employment with Ryan Beck, and the payment of $6.0 million in cash. The Gruntal
transaction was accounted for by the purchase method of accounting. Under this
method the acquired assets and assumed liabilities of Gruntal were recorded at
their estimated fair value, and the amount of estimated fair value of net assets
in excess of the purchase price was used to write down non-financial assets. The
remaining balance was recorded as an extraordinary income item. The Company's
financial statements reflect the Gruntal transaction as of April 26, 2002.
On March 22, 2002, BankAtlantic acquired Community Savings Bankshares Inc., the
parent company of Community Savings, F.A. ("Community"), for $170.3 million in
cash and immediately merged Community into BankAtlantic. At the acquisition
date, BankAtlantic Bancorp made a $78.5 million capital contribution to
BankAtlantic. BankAtlantic funded the acquisition of Community using such
capital contribution received from BankAtlantic Bancorp and funds obtained from
the liquidation of investments. Community's results of operations have been
included in the Company's consolidated financial statements since March 22,
2002. Community was a federally chartered savings and loan association founded
in 1955 and headquartered in North Palm Beach, Florida. At March 22, 2002,
Community had assets of $909 million and deposits of $637 million and 21
branches.
The following table summarizes the fair value of assets acquired and liabilities
assumed in connection with the acquisition of Community and the Gruntal
transaction effective March 22, 2002 and April 26, 2002, respectively (in
thousands).
COMMUNITY GRUNTAL TOTAL
----------- ----------- -----------
Cash and interest earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 -- 79,768
Securities owned -- 151,909 151,909
Loans receivable, net 623,469 -- 623,469
FHLB Stock 8,063 -- 8,063
Investments and advances to joint ventures 16,122 -- 16,122
Goodwill 55,068 -- 55,068
Core deposit intangible asset 15,117 -- 15,117
Other assets 46,620 12,597 59,217
----------- ----------- -----------
Fair value of assets acquired 969,204 165,392 1,134,596
----------- ----------- -----------
Deposits 639,111 -- 639,111
FHLB advances 138,981 -- 138,981
Other borrowings 14,291 3,427 17,718
Securities sold, but not yet purchased -- 1,201 1,201
Due to clearing agent -- 101,705 101,705
Other liabilities 6,022 27,463(1) 33,485
----------- ----------- -----------
Fair value of liabilities assumed 798,405 133,796 932,201
Fair value of net assets acquired over cost -- (23,749)(2) (23,749)
Purchase price 170,799 7,847 178,646
Cash acquired (124,977) (886) (125,863)
----------- ----------- -----------
Purchase price net of cash acquired $ 45,822 $ 6,961 $ 52,783
=========== =========== ===========
1. Included in Gruntal's other liabilities was a $21.0 million
deferred compensation plan obligation, of which $18.3 million
was vested. Also included in other liabilities was $675,000 of
termination costs for contract obligations related to leased
equipment and $654,000 of contract termination obligations
associated with closing certain Gruntal branches.
2. BankAtlantic Bancorp recognized an extraordinary gain of $23.7
million, net of income taxes of $2.8 million, and reduced the
carrying amount of non-financial assets by $11.2 million as a
result of the fair value of the assets acquired exceeding the
cost of the Gruntal transaction. BankAtlantic Bancorp did not
establish a deferred tax liability for the extraordinary gain
associated with the GMS membership interest acquired, because
BankAtlantic Bancorp acquired the GMS membership interest
rather than the net assets.
The purchase price of Community consisted of $170.3 million in cash and $500,000
of acquisition professional fees. The cost of the Gruntal transaction consisted
of a $6.0 million cash payment, $750,000 of acquisition professional fees and an
94
estimated $1.05 million of contingent consideration payable to Gruntal. The
$1.05 million contingent consideration to Gruntal relates to possible deferred
compensation plan participant forfeitures and represents the maximum amount of
additional consideration. Pursuant to the terms of the Acquisition Agreement,
during each of the three years beginning October 27, 2002, Ryan Beck is
obligated to pay Gruntal & Co. LLC up to $350,000 of forfeitures each year under
the Amended and Restated Gruntal & Co. LLC Deferred Compensation Plan for each
of the years in the three year period ended October 26, 2005.
The following is pro forma information for the year ended December 31, 2002 and
2001 and is presented as if the Gruntal and Community transactions had been
consummated on January 1, 2002 and 2001, respectively. The pro forma information
is not necessarily indicative of the combined financial position or results of
operations which would have been realized had the transactions been consummated
during the period or as of the dates for which the pro forma financial
information is presented.
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2002 2001
------------------------- -------------------------
(In thousands, except per share data) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
Interest income $ 310,124 $ 328,586 $ 326,001 $ 403,926
Interest expense 153,115 160,425 188,838 233,656
Provision for loan losses 14,077 16,121 16,905 22,043
---------- --------- ---------- ---------
Net interest income after provision for
loan losses $ 142,932 $ 152,040 $ 120,258 $ 148,227
---------- --------- ---------- ---------
(Loss) income before extraordinary item
and cumulative effect of a
change in accounting principle $ (3,450) $ (3,896) $ 4,336 $ 297
---------- --------- ---------- ---------
Basic (loss) earnings per share
from operations $ (0.43) $ (0.49) $ 0.55 $ 0.04
---------- --------- ---------- ---------
Diluted (loss) earnings per share
from operations (as restated) $ (0.46) $ (0.52) $ 0.38 $ 0.04
========== ========= ========== =========
Basic weighted average shares 7,997 7,997 7,957 7,957
Diluted weighted average shares 7,997 7,997 8,773 8,773
During April 2002, BankAtlantic Bancorp's and Levitt's ownership in Bluegreen
Corporation ("Bluegreen"), a New York Stock Exchange-listed company engaged in
the acquisition, development, marketing and sale of primarily drive-to vacation
interval resorts, golf communities and residential land, increased from
approximately 5% to 40%. This interest in Bluegreen was acquired for an
aggregate purchase price of approximately $56 million. BankAtlantic Bancorp
acquired approximately 5% of Bluegreen common stock during the first quarter of
2001, and Levitt acquired approximately 35% of Bluegreen common stock in April
2002. The acquisition of Bluegreen at various acquisition dates was accounted
for as a step acquisition under the purchase method of accounting. In a step
acquisition, the purchase price allocation is performed at each acquisition date
and goodwill is recognized with each step purchase. As a consequence, the net
assets of Bluegreen were recognized at estimated fair value to the extent of
BankAtlantic Bancorp's ownership percentage at each acquisition date.
BankAtlantic Bancorp's carrying amount of the investment was in the aggregate
$2.1 million lower than the ownership percentage in the underlying equity in the
net assets of Bluegreen. The $2.1 million was allocated to property and
equipment. Additionally, prior period financial statements should be restated to
reflect the results of applying the equity method of accounting to the initial
acquisition; however, BankAtlantic Bancorp did not restate its prior year's
financial statements due to lack of significance. Under the equity method of
accounting the investment in Bluegreen was recorded at cost and the carrying
amount of the investment is adjusted to recognize BankAtlantic Bancorp's and
Levitt's interest in the earnings or loss of Bluegreen after the acquisition
date. The funds for the investment in Bluegreen were obtained from $29.9 million
of borrowings from BankAtlantic Bancorp's existing bank line of credit, proceeds
from trust preferred securities offerings, proceeds from the sale of equity
securities from Bancorp's portfolio and $5.2 million of Levitt's working
capital.
95
The following table summarizes the estimated fair value of assets acquired and
liabilities assumed in connection with the Bluegreen investment to the extent of
BankAtlantic Bancorp's ownership interest of 40% (in thousands).
FAIR
VALUE
---------
Cash and cash equivalents $ 19,077
Contracts receivable, net 8,544
Notes receivable, net 22,449
Prepaid expenses 4,556
Inventory, net 75,260
Retained interests in notes receivable sold 15,101
Property and equipment, net 16,156
Other assets 2,247
---------
Fair value of assets acquired 163,390
---------
Accounts payable, accrued liabilities and other liabilities 20,196
Deferred income taxes 9,505
Line-of-credit notes payable and receivable
backed notes payable 21,496
10.50% senior secured notes payable 43,508
8.00% convertible subordinated debentures to related parties 2,350
8.25% convertible subordinated debentures 9,826
---------
Fair value of liabilities assumed 106,881
---------
Purchase price of Bluegreen Corporation $ 56,509
=========
In June 2001 and 2000, pursuant to the February 1998 acquisition agreement under
which Ryan Beck acquired Cumberland Advisors, BankAtlantic Bancorp issued 43,991
and 55,239 shares of BankAtlantic Bancorp Class A Common Stock and made a cash
payment of $340,000 and $210,000, respectively, to the former Cumberland
Advisors partners. Such additional consideration was paid under earn-out
provisions in accordance with the acquisition agreement and was recorded as an
adjustment to the purchase price of Cumberland Advisors. BankAtlantic Bancorp's
Class A Common Stock is subject to restrictions prohibiting transfers for two
years.
Effective March 1, 1998, BankAtlantic Bancorp acquired Leasing Technology Inc.
("LTI"), a company engaged in the equipment leasing and finance business, in
exchange for 826,175 shares of BankAtlantic Bancorp Class A common stock and
$300,000 in cash. This merger was accounted for under the purchase method of
accounting. BankAtlantic Bancorp was amortizing $7.9 million of goodwill from
the transaction over 25 years on a straight-line basis. During the third quarter
of 2001, after an extensive review by BankAtlantic Bancorp of LTI's operations,
management concluded that LTI would not be able to meet performance expectations
and its products did not complement BankAtlantic Bancorp's product mix. As a
consequence, BankAtlantic Bancorp closed the offices of LTI and ceased new lease
originations. BankAtlantic Bancorp determined that the goodwill associated with
the LTI acquisition was impaired, resulting in the write-off of the remaining
unamortized LTI goodwill of $6.6 million.
96
3. SECURITIES AND SHORT-TERM INVESTMENTS
The following tables summarize available-for-sale securities, investment
securities and tax certificates (in thousands):
DECEMBER 31, 2002
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
--------- ------------ ------------ ----------
MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities $581,893 20,696 -- 602,589
Real estate mortgage investment conduits 102,192 1,299 30 103,461
--------- ------------ ------------ ----------
Total mortgage-backed securities $684,085 21,995 30 706,050
--------- ------------ ------------ ----------
INVESTMENT SECURITIES:
Other Bonds $ 411 10 -- 421
Equity securities 5,703 957 -- 6,660
--------- ------------ ------------ ----------
Total investment securities 6,114 967 -- 7,081
--------- ------------ ------------ ----------
Total $690,199 22,962 30 713,131
========= ============ ============ ==========
DECEMBER 31, 2001
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
--------- ------------ ------------ ----------
MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities $410,796 9,976 1 420,771
Real estate mortgage investment conduits 388,720 5,585 485 393,820
--------- ------------ ------------ ----------
Total mortgage-backed securities $799,516 15,561 486 814,591
--------- ------------ ------------ ----------
INVESTMENT SECURITIES:
U.S. Treasury Notes $ 5,819 -- -- 5,819
Other Bonds 250 12 -- 262
Equity securities 23,530 15,665 384 38,811
--------- ------------ ------------ ----------
Total investment securities 29,599 15,677 384 44,892
--------- ------------ ------------ ----------
Total $829,115 31,238 870 859,483
========= ============ ============ ==========
The scheduled maturities of debt securities and tax certificates were (in
thousands):
TAX CERTIFICATES/DEBT
DEBT SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
----------------------------- -----------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
DECEMBER 31, 2002(1)(2) COST VALUE COST VALUE
-------- -------- -------- --------
Due within one year $ 559 $ 569 $139,474 $139,474
Due after one year, but within five years 1,220 1,251 54,600 54,600
Due after five years, but within ten years 656 699 14,383 14,841
Due after ten years 682,061 703,952 -- --
-------- -------- -------- --------
Total $684,496 $706,471 $208,457 $208,915
======== ======== ======== ========
(1) Scheduled maturities in the above table may vary significantly
from actual maturities due to prepayments.
(2) Except for tax certificates, maturities are based upon
contractual maturities. Tax certificates do not have stated
maturities, and estimates in the above table are based upon
historical repayment experience (generally 1 to 2 years).
97
INVESTMENT SECURITIES AND TAX CERTIFICATES
-------------------------------------------------------------
DECEMBER 31, 2002 (1)
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST APPRECIATION DEPRECIATION VALUE
--------- ------------ ------------ ---------
Tax certificates --
Net of allowance of $1,873 $194,074 -- -- 194,074
Mortgage-backed securities (3) 14,383 458 -- 14,841
Investment securities (2) 3,783 -- -- 3,783
-------- --- ---- -------
$212,240 458 -- 212,698
======== === ==== =======
INVESTMENT SECURITIES AND TAX CERTIFICATES
-------------------------------------------------------------
DECEMBER 31, 2001 (1)
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST APPRECIATION DEPRECIATION VALUE
--------- ------------ ------------ ---------
Tax certificates --
Net of allowance of $1,521 $144,077 -- -- 144,077
Mortgage-backed securities (3) 264,433 5,878 126 270,185
Investment securities (2) 20,208 -- -- 20,208
-------- ----- --- -------
$428,718 5,878 126 434,470
======== ===== === =======
(1) Management considers estimated fair value equivalent to book
value for tax certificates and investment securities since
these securities have no readily traded market and are deemed
to approximate fair value.
(2) Investment securities consist of equity instruments purchased
through private placements.
(3) Mortgage-backed securities at December 31, 2002 represented
beneficial interest in a real estate mortgage investment trust
secured by commercial real estate. Mortgage-backed securities
at December 31, 2001 were residential mortgage-backed
securities designated as held to maturity. During the year
ended December 31, 2002. Bancorp transferred all of its
residential mortgage-backed securities held to maturity
($198.7 million) to securities available for sale. The
securities were transferred in order to respond to the
significant decline in interest rates during the period. The
securities transferred were not sold during the year ended
December 31, 2002. The remaining mortgage backed securities
held to maturity ($14.8 million) are collateralized by
commercial real estate.
Activity in the allowance for tax certificate losses was (in thousands):
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
2002 2001 2000
------- ------- -------
Balance, beginning of period $ 1,521 $ 1,937 $ 1,504
------- ------- -------
Charge-offs (1,783) (2,162) (796)
Recoveries 660 546 329
------- ------- -------
Net charge-offs (1,123) (1,616) (467)
------- ------- -------
Provision charged to operations 1,475 1,200 900
------- ------- -------
Balance, end of period $ 1,873 $ 1,521 $ 1,937
======= ======= =======
The components of gains and losses on sales of securities were (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Gross gains on securities activities $ 8,711 $ 7,130 $ 3,775
Gross losses on securities activities (67) -- (1,235)
Unrealized (loss) gain on future contract (66) (6) 316
------- ------- -------
Net gains on the sales of securities available for
sale $ 8,578 $ 7,124 $ 2,856
======= ======= =======
98
The specific identification method was used in determining cost in computing
realized gains and losses. Proceeds for sales of securities available for sale
were $197.6 million, $194.2 million, and $92.3 million during the years ended
December 31, 2002, 2001,and 2000, respectively. Included in gains on securities
activities during the year ended December 31, 2001 was $1.4 million of realized
gains related to the settlement of interest rate swap contracts and unrealized
losses of $1.5 million related to interest rate swap contracts that were
subsequently designated as cash flow hedges.
BankAtlantic Bancorp's securities owned consisted of the following (in
thousands):
DECEMBER 31, DECEMBER 31,
2002 2001
----------- ------------
Debt obligations:
States and municipalities (1) $ 119,417 $ 7,593
Corporations 5,344 20,989
U.S. Government and agencies 26,004 32,308
Corporate equity 19,280 7,406
Mutual funds 16,409 --
----------- ------------
Total $186,454 $ 68,296
=========== ============
(1) Includes $108.3 million of securities owned by GMS, of which
approximately $86 million are non-rated securities and $9.7
million of those securities are not accruing interest. The
ability to realize our investment in these securities will
depend on future market conditions.
All the securities owned at December 31, 2002 and 2001 were associated with
trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of Ryan Beck. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. Ryan Beck realized income from
principal transactions of $66.3 million, $18.9 million and $14.8 million for the
years ended December 31, 2002, 2001 and 2000, respectively.
In the ordinary course of business, Ryan Beck borrows under an agreement with
its clearing broker by pledging securities owned as collateral primarily to
finance trading inventories. As of December 31, 2002, the balance due to the
clearing broker was $78.8 million.
Securities sold, but not yet purchased consists of the following (in thousands):
DECEMBER 31,
--------------------
2002 2001
------- -------
Corporate equity $ 3,691 $ 1,882
Corporate bonds 1,159 21,305
States and municipalities 9,566 0
U.S. Government agencies 23,587 15,244
------- -------
$38,003 $38,431
======= =======
Securities sold, but not yet purchased are a part of Ryan Beck's normal
activities as a broker and dealer in securities and are subject to
off-balance-sheet risk should Ryan Beck be unable to acquire the securities for
delivery to the purchaser at prices equal to or less than the current recorded
amounts.
The following table provides information on securities purchased under resell
agreements (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Ending Balance $30,145 $ 156 $ 1,584
Maximum outstanding at any month end within period $30,145 $ 3,651 $ 9,421
Average amount invested during period $ 4,558 $ 1,152 $ 3,034
Average yield during period 0.73% 2.80% 5.79%
99
The underlying securities associated with the securities purchased under resell
agreements during the years ended December 31, 2002, 2001 and 2000 were held by
BankAtlantic Bancorp.
The following table provides information on Federal Funds sold (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Ending Balance $20,000 $ -- $ --
Maximum outstanding at any month end within period $20,000 $16,500 $10,500
Average amount invested during period $ 3,928 $ 564 $ 629
Average yield during period 1.45% 3.73% 6.31%
The estimated fair value of securities and short term investments pledged for
the following obligations were (in thousands):
DECEMBER 31,
----------------------
2002 2001
-------- --------
FHLB advances $542,228 $167,255
Treasury tax and loan 935 3,200
Repurchase agreements 124,364 419,820
Public funds 139,358 155,502
Subordinated debentures -- 1,890
Interest rate swap and forward contracts 7,192 5,966
-------- --------
$814,077 $753,633
======== ========
The change in net unrealized holding gains or losses on available for sale
securities, included as a separate component of stockholders' equity, was as
follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Net change in other comprehensive income
on securities available for sale $ (851) $(3,492) $16,472
Change in deferred (benefits) taxes on net unrealized
(depreciation) appreciation on securities available for
sale (325) (1,347) 6,355
-------- -------- -------
Change in stockholders' equity from net unrealized
(depreciation) appreciation on securities available for
sale $ (526) $(2,145) $10,117
======== ======== =======
100
4. LOANS RECEIVABLE
The loan and lease portfolio consisted of the following components (in
thousands):
DECEMBER 31,
-----------------------------
2002 2001
----------- -----------
Real estate loans:
Residential $ 1,378,041 $ 1,111,775
Construction and development 1,218,411 1,122,628
Commercial 758,261 524,954
Small business 98,494 43,196
Other loans:
Second mortgages - direct 261,579 166,531
Second mortgages - indirect 1,713 2,159
Commercial business 82,174 77,571
Lease financing 31,279 54,969
Small business - non-mortgage 62,599 59,041
Deposit overdrafts 2,487 2,040
Consumer loans - other direct 22,394 23,771
Consumer loans - other indirect 6,392 23,241
Other 4,175 1,184
Loans held for sale:
Residential -- 4,757
Commercial syndication 14,499 40,774
----------- -----------
Total gross loans 3,942,498 3,258,591
----------- -----------
Adjustments:
Undisbursed portion of loans in process (511,861) (434,166)
Premiums related to purchased loans 2,159 3,065
Unearned discounts on commercial real estate loans (56) (119)
Deferred profit on commercial real estate loans (632) (674)
Deferred fees (5,144) (4,416)
Allowance for loan and lease losses (49,094) (45,657)
----------- -----------
Loans receivable - net $ 3,377,870 $ 2,776,624
=========== ===========
In February 2001, BFC originated several loans to officers and directors
totaling approximately $1.1 million, $100,000 of which are non-recourse loans
secured by investments in BankAtlantic Financial Ventures II, Ltd. These loans
bear interest payable annually at the prime rate plus 1% and are due in February
2006. On July 16, 2002, John Abdo borrowed from the Company $3.5 million on a
recourse basis and paid off his existing loan due to the Company of $500,000.
The $3.5 million loan bears interest at the prime rate plus 1%, requires monthly
interest payments, is due on demand and is secured by 1,019,564 shares of BFC
Class A Common Stock and 370,750 shares of BFC Class B Common Stock.
BankAtlantic's loan portfolio had the following geographic concentration at
December 31, 2002:
Florida 69%
California 5%
Northeast 7%
Other 19%
----
Total 100%
===
Securitization Activity:
During the year ended December 31, 2000, BankAtlantic securitized $77.9 million
of purchased residential loans into government agency mortgage-backed
securities. The resulting securities were classified as securities available for
sale. BankAtlantic did not securitize loans during the years ended December 31,
2002 and 2001.
101
Discontinued and Restructured Lending Activity:
BankAtlantic continuously evaluates its business units for profitability, growth
and overall efficiency. As a consequence of these evaluations BankAtlantic
closed the offices of its leasing subsidiary, Leasing Technology, Inc., and
ceased new lease originations during the third quarter of 2001. Included in the
allowance for loan losses was $7.4 million and $8.6 million, respectively, of
valuation allowances relating to lease financing contracts as of December 31,
2002 and 2001.
In September 2000, BankAtlantic made a determination to discontinue its
purchasing and reselling of residential mortgage loans and its participation in
syndication commercial lending. BankAtlantic periodically purchased residential
loans with the intent to package, sell or securitize these loans based on
individual characteristics. As a consequence of BankAtlantic discontinuing these
activities, $222 million of residential loans held for sale were transferred to
the held for investment portfolio, resulting in BankAtlantic realizing a loss of
$654,000 during September 2000. BankAtlantic discontinued the origination of
residential loans, except for loans that qualified under the Community
Reinvestment Act ("CRA"). BankAtlantic originated CRA loans for resale through
September 2002. During September 2002, BankAtlantic discontinued its practice of
selling the CRA loans it originates, transferred $7.3 million of CRA loans from
loans held for sale to loans held for investment and realized a $151,000 loss at
the transfer date. BankAtlantic now originates CRA loans designated as held for
investment and also originates CRA loans that are pre-sold to correspondents.
BankAtlantic continues to purchase residential loans for its portfolio.
During the year ended December 31, 2001, BankAtlantic transferred $4.8 million
of residential loans from "held for investment" to "held for sale" and sold the
loans for book value. The majority of the loans were delinquent when purchased
as part of residential loan bulk purchases during 1999 and 2000. Management
decided to sell the loans for book value instead of foreclosing on the
properties.
As a result of BankAtlantic's decision to discontinue its syndication lending
activities, the entire portfolio of $123.9 million of syndication loans was
transferred from loans "held for investment" to loans "held for sale" during the
year ended December 31, 2000. Included in the allowance for loan losses were
$300,000 and $9.1 million, respectively, of valuation allowances relating to
syndication loans as of December 31, 2002 and 2001.
The following table sets forth activity in the allowance for loan and lease
losses (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Balance, beginning of period $ 45,657 $ 48,072 $ 1,072
Balance, beginning of period resulting from
consolidation of BankAtlantic Bancorp -- -- 44,450
Loans and leases charged-off (28,663) (27,916) (32,221)
Recoveries of loans and leases previously charged-off 8,879 8,596 5,639
-------- -------- --------
Net charge-offs (19,784) (19,320) (26,582)
Allowance for loan losses, acquired 9,144 -- --
Additions charged to operations 14,077 16,905 29,132
-------- -------- --------
Balance, end of period $ 49,094 $ 45,657 $ 48,072
======== ======== ========
The following summarizes impaired loans (in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------ -----------------------
GROSS GROSS
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
---------- ---------- ---------- ----------
Impaired loans with specific valuation allowances $ 4,886 $ 1,386 $23,171 $ 9,936
Impaired loans without specific valuation allowances 17,478 -- 16,533 --
------- ------- ------- -------
Total $22,364 $ 1,386 $39,704 $ 9,936
======= ======= ======= =======
102
The average gross recorded investment in impaired loans was $39.3 million, $54.2
million and $35.9 million during the years ended December 31, 2002, 2001 and
2000, respectively.
Foregone Interest Income:
Interest income which would have been recorded under the contractual terms of
impaired loans and the interest income actually recognized was (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Contracted interest income $ 1,575 $ 2,815 $ 5,254
Interest income recognized (1) (768) (941) (4,129)
------- ------- -------
Foregone interest income $ 807 $ 1,874 $ 1,125
======= ======= =======
(1) Interest income on impaired loans was recognized on a cash basis.
Non-performing assets consist of non-accrual loans, non-accrual tax
certificates, REO and repossessed assets. Non-accrual loans are loans on which
interest recognition has been suspended because of doubts as to the borrower's
ability to repay principal or interest. Non-accrual tax certificates are tax
deeds or certificates in which interest recognition has been suspended due to
the aging of the certificate or deed.
Non-performing assets (in thousands):
DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Non-accrual -- tax certificates $ 1,419 $ 1,727 $ 2,491
Non-accrual -- loans
Residential 12,773 9,203 11,229
Syndication -- 10,700 --
Commercial real estate and business 1,474 13,066 1,705
Small business 239 905 2,532
Lease financing 3,900 2,585 1,515
Consumer 532 796 1,944
Real estate owned, net of allowance 9,607 3,904 4,499
Other repossessed assets 4 17 1,742
-------- -------- --------
Total non-performing assets 29,948 42,903 27,657
Specific valuation allowance (1,386) (9,936) (819)
-------- -------- --------
Total non-performing assets, net $ 28,562 $ 32,967 $ 26,838
======== ======== ========
Other potential problem loans (in thousands):
DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Loans contractually past due 90 days or more
and still accruing $ 100 $ -- $ 7,086
Performing impaired loans, net of specific allowances -- -- 15,001
Restructured loans 1,882 743 --
Delinquent residential loans purchased 1,464 1,705 5,389
-------- -------- --------
Total potential problem loans $ 3,446 $ 2,448 $ 27,476
======== ======== ========
Other potential problem loans consist of: (1) loans contractually past due 90
days or more and still accruing, (2) restructured loans, (3) performing impaired
loans and (4) delinquent residential loans purchased. Loans contractually past
due 90 days or more represent loans that have matured and the borrower continues
to make the payments under the matured loan agreement. BankAtlantic is in the
process of renewing or extending these matured loans. Restructured loans are
loans in which the
103
original terms were modified granting the borrower loan concessions due to
financial difficulties. Performing impaired loans are still accruing impaired
loans, and delinquent purchased loans were non-performing residential loans
purchased at a discount. During the year ended December 31, 2001 $3.7 million of
delinquent residential loans purchased were sold at book value. There were no
commitments to lend additional funds on non-performing loans or potential
problem loans at December 31, 2002. Excluded from the table was $9.7 million of
securities owned that were not accruing interest at December 31, 2002.
Foreclosed Asset Activity in non-interest expense (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2002 2001 2000
------- ------- ----
Real estate acquired in settlement of loans
and tax certificates:
Operating expenses, net $ 872 $ 160 $186
Provisions for losses on REO 1,467 117 134
Net (gains) losses on sales (117) (1,053) 107
------- ------- ----
Total (income) loss $ 2,222 $ (776) $427
======= ======= ====
Activity in the allowance for real estate owned consisted of (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------- ------- -------
Balance, beginning of period $ -- $ 310 $ 310
Net charge-offs:
Commercial real estate (1,500) (220) --
Residential real estate 33 (207) (134)
------- ------- -------
Total net charge-offs (1,467) (427) (134)
Provision for losses on REO 1,467 117 134
------- ------- -------
Balance, end of period $ -- $ -- $ 310
======= ======= =======
Accrued interest receivable consisted of (in thousands):
DECEMBER 31,
--------------------
2002 2001
------- -------
Loans receivable $17,621 $16,494
Investment securities and tax certificates 11,390 12,003
Interest rate swaps 789 317
Securities available for sale 4,250 4,973
------- -------
$34,050 $33,787
======= =======
5. RESTRUCTURING CHARGES, IMPAIRMENT WRITE-DOWNS AND DISCONTINUED OPERATIONS
Restructuring Charges and Write-downs:
During June 2002, BankAtlantic adopted a plan to discontinue certain ATM
relationships, resulting in an $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet BankAtlantic's performance
expectations and were unlikely to meet BankAtlantic's future profitability
goals. BankAtlantic's remaining ATM machines (approximately 186 machines) are
primarily located in BankAtlantic's branch network, cruise ships and other
remote locations. The restructuring plan was completed during the fourth quarter
of 2002 with no adjustments to the original restructuring charge.
During 2001, BankAtlantic evaluated the performance of its in-store branches in
relation to its core business strategy and decided to exit the line of business.
The in-store branches were evaluated for asset impairment which resulted in a
$550,000 write-down. The fair value of impaired assets was estimated through
sales contracts on specific in-store branches and
104
discounted cash flows on in-store branches anticipated to be closed in
subsequent periods. BankAtlantic sold fourteen in-store branches to unrelated
financial institutions for gains of $384,000 and $1.6 million during the years
ended December 31, 2002 and 2001, respectively. BankAtlantic closed two in-store
branches and relocated the deposits.
During December 2000, BankAtlantic adopted a plan to terminate its ATM
relationships with certain retail outlets, resulting in a $2.1 million
restructuring charge and a $509,000 impairment write-down. The above
relationships did not meet BankAtlantic's strategic goals or required investment
returns. During the second quarter of 2001, the restructuring charge liability
associated with exiting retail outlet relationships was adjusted downward by
$219,000 to reflect lower ATM lease termination costs than projected when the
restructuring charge was first determined. The restructuring plan was completed
during the fourth quarter of 2001.
Discontinued Operations:
At December 31, 1998, BankAtlantic Bancorp's Board of Directors adopted a formal
plan to dispose of its mortgage servicing business ("MSB") operations.
BankAtlantic Bancorp concluded that this business line no longer met
BankAtlantic Bancorp's standards for profitability. The exit plan was
substantially completed during the year ended December 31, 1999 following the
sale of the servicing portfolio in July 1999.
During the year ended December 31, 2000, BankAtlantic Bancorp recognized a
$669,000 gain, net of taxes from discontinued operations. The gain primarily
resulted from a higher than projected gain on the sale of a building formerly
used by the mortgage servicing unit.
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment was comprised of (in thousands):
DECEMBER 31,
----------------------
2002 2001
-------- --------
Land $ 22,668 $ 14,977
Buildings and improvements 53,317 45,365
Furniture and equipment 60,089 40,548
-------- --------
Total 136,074 100,890
Less accumulated depreciation 43,290 39,104
-------- --------
Office properties and equipment - net $ 92,784 $ 61,786
======== ========
7. DEPOSITS
The weighted average nominal interest rate payable on deposit accounts at
December 31, 2002 and 2001 was 1.79% and 2.74%, respectively. The stated rates
and balances at which BankAtlantic paid interest on deposits were:
105
DECEMBER 31,
----------------------------------------------------
2002 2001
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
Interest free checking $ 462,718 15.84% $ 285,918 12.56%
Insured money fund savings
1.20% at December 31, 2002
1.81% at December 31, 2001 775,175 26.54 589,045 25.87
NOW accounts
0.50% at December 31, 2002
0.70% at December 31, 2001 399,985 13.70 218,261 9.59
Savings accounts
0.56% at December 31, 2002
0.90% at December 31, 2001 163,641 5.60 98,202 4.31
---------- ------ ---------- ------
Total non-certificate accounts 1,801,519 61.68 1,191,426 52.33
---------- ------ ---------- ------
Certificate accounts:
0.00% to 2.00% 259,328 8.88 45,509 2.00
2.01% to 3.00% 222,475 7.62 87,114 3.83
3.01% to 4.00% 65,972 2.26 126,312 5.55
4.01% to 5.00% 284,611 9.75 430,741 18.92
5.01% and greater 280,193 9.59 388,732 17.07
---------- ------ ---------- ------
Total certificate accounts 1,112,579 38.10 1,078,408 47.37
---------- ------ ---------- ------
Total deposit accounts 2,914,098 99.78 2,269,834 99.70
Fair value adjustment related to hedged deposits 843 0.03 1,326 0.06
Fair value adjustment related to acquisitions 929 0.03 0 0.00
Interest earned not credited to deposit accounts 4,685 0.16 5,407 0.24
---------- ------ ---------- ------
Total $2,920,555 100.00% $2,276,567 100.00%
========== ====== ========== ======
Interest expense by deposit category was (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Money fund savings and NOW accounts $ 15,338 $ 20,241 $ 26,156
Savings accounts 1,362 1,451 1,267
Certificate accounts -- below $100,000 24,177 30,324 40,394
Certificate accounts, $100,000 and above 22,140 33,960 24,246
Less early withdrawal penalty (240) (308) (340)
-------- -------- --------
Total $ 62,777 $ 85,668 $ 91,723
======== ======== ========
At December 31, 2002, the amounts of scheduled maturities of certificate
accounts were (in thousands):
YEAR ENDING DECEMBER 31
-------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER
-------- -------- -------- -------- -------- ----------
0.00% to 2.00% $241,815 $ 16,841 $ 529 $ 46 $ 97 $ --
2.01% to 3.00% 196,941 18,495 6,228 167 645 --
3.01% to 4.00% 17,643 10,806 28,943 2,525 5,666 389
4.01% to 5.00% 135,603 42,089 56,715 31,614 18,589 1
5.01% and greater 66,998 68,486 28,890 3,495 79,205 33,118
-------- -------- -------- -------- -------- --------
Total $659,000 $156,717 $121,305 $ 37,847 $104,202 $ 33,508
======== ======== ======== ======== ======== ========
106
Time deposits of $100,000 and over had the following maturities (in
thousands):
DECEMBER 31,
2002
------------
3 months or less $125,444
4 to 6 months 122,891
7 to 12 months 55,929
More than 12 months 228,405
--------
Total $532,669
========
Certificate accounts included the following at December 31, 2002 and
2001 (in thousands):
2002 2001
-------- --------
Brokered deposits $ 37,857 $ 48,000
Public deposits 286,908 307,026
-------- --------
Total institutional deposits $324,765 $355,026
======== ========
Ryan Beck acted as principal dealer in obtaining $22.9 million and $28.0 million
of the brokered deposits outstanding as of December 31, 2002 and 2001,
respectively. BankAtlantic has various relationships for obtaining brokered
deposits. These relationships are considered as an alternative source of
borrowings, when and if needed. At December 31, 2002, $33 million of ten and
fifteen year callable fixed rate time deposits with an average interest rate of
5.89% were included with brokered deposits. Callable interest rate swap
contracts were written to swap the 5.89% average fixed interest rate to a three
month LIBOR interest rate (see Note 19).
107
8. ADVANCES FROM FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Advances from Federal Home Loan Bank ("FHLB") (Dollars in thousands):
DECEMBER 31,
PAYABLE DURING YEAR YEAR ---------------------------
ENDING DECEMBER 31, CALLABLE INTEREST RATE 2002 2001
- ------------------------------------- -------- -------------- ---------- ----------
2002 5.16% to 7.18% $ -- $ 126,490
2003 5.39% to 7.25% 45,611 144,540
2004 2.80% to 5.68% 128,750 85,000
2005 6.09% to 6.15% 75,000 75,000
2007 5.68% 25,000 --
2010 5.84% to 6.34% 32,000 --
---------- ----------
TOTAL FIXED RATE ADVANCES - NONCALLABLE 406,361 431,030
---------- ----------
2007 2002 5.68% -- 25,000
2007 2003 1.69% to 1.93% 122,500 --
2008 2003 4.87% to 5.67% 492,000 465,000
2010 2002 5.84% -- 30,000
2011 2004 4.50% to 4.90% 50,000 50,000
2011 2005 5.05% 30,000 30,000
---------- ----------
TOTAL CALLABLE FIXED RATE ADVANCES - EUROPEAN 694,500 600,000
---------- ----------
2004 2003 5.47% 10,000 --
2009 2003 5.06% 10,000 --
2010 2003 5.52% 30,000 --
---------- ----------
TOTAL CALLABLE FIXED RATE ADVANCES - BERMUDA 50,000 --
ADJUSTABLE RATE ADVANCES
2003 4.90% 50,000 50,000
2003 4.15% 18,000 --
2004 1.40% 50,000 --
2006 5.46% 25,000 25,000
---------- ----------
TOTAL ADJUSTABLE RATE ADVANCES 143,000 75,000
---------- ----------
FAIR VALUE ADJUSTMENTS RELATED TO ACQUISITIONS 3,309 --
---------- ----------
TOTAL FHLB ADVANCES $1,297,170 $1,106,030
========== ==========
AVERAGE COST DURING PERIOD 5.21% 5.61%
========== ==========
AVERAGE COST END OF PERIOD 4.83% 5.53%
========== ==========
European callable advances give the FHLB the option to reprice the advance at a
specific future date. Bermuda callable advances give the FHLB the option to
reprice the advance anytime from the call date until the payable date. Upon the
FHLB's exercising its call option, BankAtlantic has the option to convert to a
three month LIBOR-based floating rate advance, pay off the advance or convert to
another fixed rate advance. At December 31, 2002, $1.4 billion of 1-4 family
residential loans, $286.4 million of commercial real estate loans and $255.8
million of consumer loans were pledged against FHLB advances. In addition, FHLB
stock is pledged as collateral for outstanding FHLB advances. BankAtlantic's
line of credit with the FHLB is limited to 30% of assets, subject to available
collateral, with a maximum term of 10 years. On December 31, 2002, BankAtlantic
pledged $21.4 million of consumer loans to the Federal Reserve Bank of Atlanta
("FRB") as collateral for potential advances of $17.1 million. The FRB line of
credit has not yet been utilized by BankAtlantic.
Federal Funds Purchased:
BankAtlantic established $160.0 million of lines of credit with other banking
institutions for the purchase of federal funds. The following table provides
information on federal funds purchased at December 31, 2002, 2001 and 2000
(dollars in thousands):
108
2002 2001 2000
--------- --------- ---------
Ending balance $ -- $ 61,000 $ 9,700
Maximum outstanding at any month end
within period $ 85,000 $107,000 $ 21,500
Average amount outstanding during period $ 47,704 $ 54,167 $ 12,300
Average cost during period 1.85% 3.86% 6.57%
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized below (in
thousands):
DECEMBER 31,
----------------------
2002 2001
-------- --------
Agreements to repurchase the same security $ -- $255,408
Customer repurchase agreements 116,279 150,662
-------- --------
Total $116,279 $406,070
======== ========
Securities sold under agreements to repurchase represent transactions whereby
BankAtlantic Bancorp sells a portion of its current investment portfolio
(usually MBS's and REMIC's) at a negotiated rate and agrees to repurchase the
same assets on a specified future date. BankAtlantic Bancorp issues repurchase
agreements to institutions and to its customers. These transactions are
collateralized by investment securities. Customer repurchase agreements are not
insured by the FDIC.
The following table provides information on the agreements to repurchase
(dollars in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Maximum borrowing at any month-end within the period $540,880 $714,121 $686,586
Average borrowing during the period $327,001 $542,296 $550,878
Average interest cost during the period 1.73% 4.09% 6.14%
Average interest cost at end of the period 1.08% 1.52% 6.40%
The following table lists the amortized cost and estimated fair value of
securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
WEIGHTED
ESTIMATED AVERAGE
AMORTIZED FAIR REPURCHASE INTEREST
COST VALUE BALANCE RATE
-------- -------- -------- --------
December 31, 2002 (1)
Mortgage-backed securities $113,494 $117,317 $109,690 1.08%
REMIC $ 7,024 $ 7,047 $ 6,589 1.08%
-------- -------- -------- ----
Total $120,518 $124,364 $116,279 1.08%
======== ======== ======== ====
December 31, 2001 (1)
Mortgage-backed securities $220,259 $225,494 $217,630 1.73%
REMIC 191,204 194,326 188,440 1.30%
-------- -------- -------- ----
Total $411,463 $419,820 $406,070 1.52%
======== ======== ======== ====
(1) At December 31, 2002, all securities were classified as available for
sale. At December 31, 2001 $249.4 million of these securities were
classified as available for sale and $170.4 million of these securities
were classified as held to maturity. The available for sale securities
were recorded at fair value and the held to maturity securities were
recorded at amortized cost in the consolidated statements of financial
condition.
109
All repurchase agreements existing at December 31, 2002 matured and were repaid
in January 2003. These securities were held by unrelated broker dealers.
10. SUBORDINATED DEBENTURES, OTHER DEBT, AND TRUST PREFERRED SECURITIES
The Company had the following subordinated debentures, trust preferred
securities and notes and bonds payable outstanding at December 31, 2002 and 2001
(in thousands):
BEGINNING
DECEMBER 31, OPTIONAL
ISSUE --------------------- INTEREST MATURITY REDEMPTION
DATE 2002 2001 RATE DATE DATE
---------- -------- --------- ------------- ---------- ----------
BANCORP BORROWINGS
9% debentures 9/22/1995 $ -- $ 21,000 9.00% 10/1/2005 10/1/1998
5 5/8% convertible debentures (1) 11/25/1997 46,042 46,067 5.63% 12/1/2007 12/1/2000
Bank line of credit 8/24/2000 16,100 100 Prime - 0.50% 9/1/2004 N/A
Notes payable - retention plan 6/28/2002 3,675 -- 5.75% 6/28/2003 N/A
-------- ---------
TOTAL BANCORP BORROWINGS 65,817 67,167
-------- ---------
BANKATLANTIC BORROWINGS
Subordinated debentures (2) 10/29/2002 22,000 -- LIBOR + 3.45% 11/7/2012 10/29/2007
Mortgage-Backed Bond 3/22/2002 13,755 -- (3.00) 9/30/2013 N/A
-------- ---------
TOTAL BANKATLANTIC BORROWINGS 35,755 --
-------- ---------
LEVITT BORROWINGS
Acquisition Note 9/15/2000 10,500 12,400 Prime+1/2% 9/15/2005 N/A
Working Capital Line 9/15/00 3,500 3,500 Prime+1% 9/15/2004 N/A
Development Bonds Various 4,581 8,635 Various Various N/A
Working Capital Line of Credit 9/20/2001 112 -- LIBOR + 2.75% 9/30/2003 N/A
Land Acquisition and Development Various 70,802 39,206 Various Various N/A
Other loans Various 445 520 Various Various N/A
-------- ---------
TOTAL LEVITT BORROWINGS 89,940 64,261
-------- ---------
RYAN BECK BORROWINGS
Notes Payable 4/26/2002 2,304 -- LIBOR + 2.65% 5/1/2004 N/A
-------- ---------
BFC BORROWINGS
Working Capital Various 6,015 4,515 Prime + 1% 2003 N/A
Mortgage payables Various 9,237 9,541 Various 2003-2010 N/A
-------- ---------
Total BFC borrowings 15,252 14,056
-------- ---------
TOTAL DEBENTURES, NOTES, MORTGAGE
NOTES AND BONDS PAYABLE $209,068 145,484
======== =========
BBC Capital Trust I 4/24/1997 $ -- $ 74,750 9.50% 6/30/2027 6/30/2002
BBC Capital Trust II 3/5/2002 55,375 -- 8.50% 3/31/2032 3/31/2007
BBC Capital Trust III 6/26/2002 25,000 -- LIBOR + 3.45% 6/26/2032 6/26/2007
BBC Capital Trust IV 9/26/2002 25,000 -- LIBOR + 3.40% 9/26/2032 9/26/2007
BBC Capital Trust V 9/27/2002 10,000 -- LIBOR + 3.40% 9/27/2032 9/27/2007
BBC Capital Trust VI 12/10/2002 15,000 -- LIBOR + 3.35% 12/10/2032 12/10/2007
BBC Capital Trust VII 12/19/2002 25,000 -- LIBOR + 3.25% 12/19/2032 12/19/2007
BBC Capital Trust VIII 12/19/2002 15,000 -- LIBOR + 3.35% 12/19/2032 12/19/2007
BBC Capital Trust IX 12/19/2002 10,000 -- LIBOR + 3.35% 12/19/2032 12/19/2007
-------- ---------
TOTAL TRUST PREFERRED SECURITIES (2) $180,375 $ 74,750
======== =========
Total $389,443 $220,234
======== =========
(1) Convertible at the option of the holder into shares of Class A
common stock at a conversion price of $11.25 per share.
(2) LIBOR interest rates are indexed to 3-month LIBOR and adjust
quarterly.
(3) The bonds adjust semi-annually to the ten year treasury constant
maturity rate minus 23 basis points.
At December 31, 2002 and 2001, $7.3 million and $3.6 million, respectively, of
unamortized underwriting discounts and costs associated with the issuance of
subordinated debentures, trust preferred securities and other debt were included
in other assets.
110
Annual Maturities of Subordinated Debentures and Other Debt (in thousands):
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
2003 $ 23,514
2004 22,860
2005 35,465
2006 2,994
2007 72,991
Thereafter 231,619
--------
$389,443
========
Retirement of Debt:
During December 2002, BankAtlantic Bancorp used the proceeds from the issuance
of trust preferred securities to retire $21 million of 9% subordinated
debentures and $74.8 million of 9.5% trust preferred securities. BankAtlantic
Bancorp wrote off $2.4 million of deferred offering costs associated with the
retirement of the debentures and trust preferred securities and incurred a
$716,000 call premium.
During the year ended December 31, 2000, BankAtlantic Bancorp issued $34.8
million of subordinated investment notes. During the year ended December 31,
2001, BankAtlantic Bancorp redeemed the subordinated investment notes and wrote
off $389,000 of deferred offering costs.
In August 2001, BankAtlantic Bancorp called for redemption approximately $51
million in principal amount of its outstanding 6-3/4% convertible subordinated
debentures due 2006. At the redemption date of September 19, 2001, all but
approximately $251,000 of the 6-3/4% convertible debentures were converted by
holders into an aggregate of 8,919,649 shares of BankAtlantic Bancorp Class A
Common Stock. The debentures were convertible into BankAtlantic Bancorp Class A
Common Stock at a conversion price of $5.70. During the year ended December 31,
2000 BankAtlantic Bancorp issued 5,965 shares of its Class A Common Stock upon
conversion of $34,000 of BankAtlantic Bancorp's 6-3/4% debentures.
During the year ended December 31, 2000, BankAtlantic Bancorp repurchased $53.8
million aggregate principal amount of its 5-5/8% Debentures and recognized a
$12.2 million gain in conjunction with these purchases. Included in the gain was
a $1.4 million write-off of deferred offering costs.
BANKATLANTIC BANCORP:
Revolving Credit Facility:
On August 24, 2000, BankAtlantic Bancorp entered into a revolving credit
facility of $20 million from an independent financial institution. The credit
facility contains customary financial covenants relating to regulatory capital
and maintenance of certain loan loss reserves and is secured by the common stock
of BankAtlantic. On September 17, 2001 the maturity date of the credit facility
was extended to September 2004, and the maximum outstanding balance of the
credit facility was increased from $20 million to $30 million. BankAtlantic
Bancorp was in compliance with all loan covenants at December 31, 2002.
Notes Payable Retention Plan:
On June 28, 2002, the participants in the BankAtlantic Bancorp, Inc. Deferred
Compensation Plan vested in their compensation awards and BankAtlantic Bancorp
elected to issue notes for 50% of the award. All of the notes to the
participants mature on June 28, 2003 and bear interest at 5.75%.
BANKATLANTIC:
In connection with the acquisition of Community, BankAtlantic acquired a $15.9
million mortgage-backed bond at a $14.3 million fair value at the acquisition
date. The bond had a $15.2 million outstanding principal balance at December 31,
2002. BankAtlantic pledged $25.8 million of residential loans as collateral for
this bond at December 31, 2002.
111
In October 2002, BankAtlantic issued $22 million of floating rate subordinated
debentures due 2012. The Subordinated Debentures pay interest quarterly at a
floating rate equal to 3-month LIBOR plus 345 basis points and are redeemable
after October 2007 at a price based upon then prevailing market interest rates.
The net proceeds have been used by BankAtlantic for general corporate purposes
to support asset growth. The subordinated debentures were issued by BankAtlantic
in a private transaction as part of a larger pooled securities offering. The
subordinated debentures currently qualify for inclusion in BankAtlantic's total
risk based capital.
LEVITT CORPORATION:
Levitt acquisition and development loan obligations are secured by land
acquisitions, construction and development of various communities located in
Florida. The fixed rate loan totaled $13.0 million and has an interest rate of
7.50% and a maturity date of May 2012. The variable rate loans totaled $57.8
million and are indexed to the prime rate of interest with maturity dates
ranging from February 2003 to August 2007. The unused commitments on these
various mortgage obligations were $51.7 million at December 31, 2002.
Levitt borrowed $15 million from an unaffiliated financial institution to
finance the purchase of Levitt and Sons. The obligation is secured by the stock
of Levitt and Sons, and covenants in the loan agreement prohibit the payment of
dividends or other advances by Levitt to the Company. There is currently $10.5
million outstanding on this loan.
Levitt and Sons has a credit agreement with a non-affiliated financial
institution to provide a working capital line of credit of $7.5 million. At
December 31, 2002, Levitt and Sons had available credit of approximately $4.0
million and had a balance outstanding of $3.5 million. The credit facility
matures September 2004. On or before June 30th of each calendar year (other than
the year of the maturity date, as may be extended) the financial institution may
at its sole discretion offer the option to extend the term of the loan for a
one-year period.
Core Communities has a credit agreement with a non-affiliated financial
institution to provide a line of credit, with availability based on the value of
underlying collateral. At December 31, 2002, Core Communities had available
credit under this agreement of $1.7 million. At December 31, 2002, the balance
outstanding was approximately $112,000.
The St. Lucie West Services District (the "District") is an independent unit of
local government created in 1989 in accordance with the Uniform Community
Development District Act of 1980, Chapter 190, Florida Statutes (the "Act"). The
Act was enacted in order to provide a uniform method for the establishment of
individual assessment districts to own, operate, build and finance basic
community development services, including water and wastewater utility
facilities, roadways and surface water management infrastructure. Levitt would
otherwise be obligated to finance and construct such infrastructure as a
condition to obtain certain approvals necessary in the normal course of
business. At December 31, 2002, the outstanding balance of these development
bonds were $4.6 million. The bonds are fixed rate loans with interest rates
ranging from 5.88% to 6.50% with maturity dates ranging from October 2004 to May
2009.
The Act provides the District with the power to issue tax-exempt bond financing
in order to pay all or part of the cost of infrastructure improvements
authorized under the Act. The use of this type of bond financing is a common
practice for major land developers in Florida. The Act further provides the
District with the power to levy special assessments on virtually all of the
lands within the boundaries of St. Lucie West to pay the principal and interest
on tax-exempt bonds issued to finance common-use service facilities and
infrastructure.
The governing body of the District is the Board of Supervisors, comprised of
five Supervisors, which are elected based exclusively upon the vote of the
qualified electors in the District. As a landowner in the District, Levitt is
responsible for its pro-rata share of assessments from the District. When Levitt
sells a parcel of land, the liability for the assessments related to parcels
sold transfers to the end users of land through an assessment lien on their
property.
Levitt entered into a connection fee guarantee agreement with the St. Lucie West
Services District. The agreement provides that Levitt will prepay sufficient
water and sewer connection fees to service outstanding bonds of the District.
Levitt has no underlying guarantee obligation in connection with the District
Bonds. No amounts have been funded pursuant to the agreement and the connection
fees as of December 31, 2002 are in excess of that required by the agreement
through at least the next three years.
During 2002, additional tax-exempt financing entities were formed to serve as a
conduit for the expected financing of basic infrastructure for Tradition
Development Company LLC, Live Oak Development 1, LLC and Live Oak Commercial 1,
LLC. These entities are wholly-owned subsidiaries of Core Communities. The
additional tax-exempt financing entities formed
112
during 2002 were formed in accordance with the Act. There has been no bond
financing nor any assessments levied in connection with the tax-exempt financing
entities formed during 2002.
BankAtlantic Bancorp is not a guarantor on Levitt's obligations. Inter-company
loans to Levitt from BankAtlantic were $27.5 million and $27.9 million at
December 31, 2002 and 2001, respectively. During the year ended December 31,
2002, Levitt borrowed $30 million from BankAtlantic Bancorp, Inc. to fund its
purchase of Bluegreen Corporation common stock. The above inter-company loans
were eliminated in consolidation.
Some of Levitt's borrowings contain covenants that, among other things, require
it to maintain certain financial ratios and a minimum net worth. These covenants
may have the effect of limiting the amount of debt that Levitt can incur in the
future and restricting the payment of dividends from Levitt's subsidiaries to
Levitt Corporation. At December 31, 2002, Levitt was in compliance with all loan
agreement financial covenants.
RYAN BECK:
At December 31, 2002, Ryan Beck had a line of credit facility with an unrelated
financial institution in the amount of $10 million with an interest rate of
LIBOR plus 1.50%. The line expires on April 1, 2003, and it is secured by
certificates of deposit ("CDs") from Ryan Beck's certificate of deposit
wholesale business. There were no amounts outstanding under this facility at
December 31, 2002. During the year ended December 31, 2002, Ryan Beck borrowed
$5.0 million from BankAtlantic Bancorp, Inc. for general corporate purposes.
This inter-company loan was eliminated in consolidation.
As part of the Gruntal transaction, Ryan Beck assumed a $3.4 million note
payable secured by leasehold improvements and equipment in nine branch
locations. The note bears interest at 3 month LIBOR plus 265 basis points and
matures on May 1, 2004. The outstanding balance of this note at December 31,
2002 was $2.3 million.
BFC
All mortgage payables and other borrowings are from unaffiliated parties. At
December 31, 2002, the Company had a line of credit in the amount of $8.0
million requiring only interest payments at prime plus 1% and maturing in
December 2002. In March 2003, the maturity date was extended until May 2003. The
outstanding balance at December 31, 2002 and 2001 was $6.0 million and $4.5
million, respectively. Approximately 21% of the shares of BankAtlantic Bancorp's
Class A Common Stock owned by BFC are pledged as collateral.
At December 31, 2002 and 2001, approximately $8.5 million and $8.7 million,
respectively, of the mortgage payables relate to real estate with an interest
rate of 9.2% and maturity date in May 2007. At December 31, 2002 and 2001,
approximately $702,000 and $872,000, respectively, of the mortgage payables
relate to mortgage receivables in connection with the sale of properties
previously owned by the Company, with interest rates at 6% and maturity dates
ranging from 2009 through 2010.
Included in other liabilities at December 31, 2002 and 2001 is approximately
$4.9 million and $5.0 million, respectively, representing amounts due in
connection with the settlement of class action litigation that arose in
connection with exchange transactions that the Company entered into in 1989 and
1991.
TRUST PREFERRED SECURITIES:
BankAtlantic Bancorp has formed nine statutory business trusts ("Trusts") for
the purpose of issuing Trust Preferred Securities ("trust preferred securities")
and investing the proceeds thereof in Junior Subordinated Debentures of
BankAtlantic Bancorp. The Trusts used the proceeds from issuing trust preferred
securities and the issuance of its common securities to BankAtlantic Bancorp to
purchase junior subordinated debentures from BankAtlantic Bancorp. Interest on
the junior subordinated debentures and distributions on the trust preferred
securities are payable quarterly in arrears. Distributions on the trust
preferred securities are cumulative and are based upon the liquidation value of
the trust preferred security. BankAtlantic Bancorp has the right, at any time,
as long as there are no continuing events of default, to defer payments of
interest on the junior subordinated debentures for a period not exceeding 20
consecutive quarters; but not beyond the stated maturity of the junior
subordinated debentures. To date no interest has been deferred. The trust
preferred securities are subject to mandatory redemption, in whole or in part,
upon repayment of the junior subordinated debentures at maturity or their
earlier redemption. BankAtlantic Bancorp has the right to redeem the junior
subordinated debentures five years from the issue date 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 the
redemption date and therefore cause a mandatory redemption of the trust
preferred securities. The exercise of such right is subject to BankAtlantic
Bancorp having received
113
regulatory approval, if required under applicable capital guidelines or
regulatory policies. In addition, BankAtlantic Bancorp has the right, at any
time, to shorten the maturity of the junior subordinated debentures to a date
not earlier than the redemption date. Exercise of this right is also subject to
BankAtlantic Bancorp's having received regulatory approval, if required under
applicable capital guidelines or regulatory policies.
The names of the statutory trusts, shares issued and liquidation value of the
trust preferred securities is as follows:
NAME OF
STATUTORY SHARES LIQUIDATION
TRUST ISSUED VALUE
- ------------------------------------------------------
BBC Capital Trust I 2,999,000 $ 25
BBC Capital Trust II 2,215,000 25
BBC Capital Trust III 25,000 1,000
BBC Capital Trust IV 25,000 1,000
BBC Capital Trust V 10,000 1,000
BBC Capital Trust VI 15,000 1,000
BBC Capital Trust VII 25,000 1,000
BBC Capital Trust VIII 15,000 1,000
BBC Capital Trust IX 10,000 1,000
During the year ended December 31, 2002, BankAtlantic Bancorp participated in
seven pooled trust preferred securities offerings in which an aggregate of $125
million of trust preferred securities were issued. The trust preferred
securities pay interest quarterly at a floating rate equal to 3-month LIBOR plus
a spread and are redeemable five years from the issue date. The net proceeds to
BankAtlantic Bancorp from the trust preferred securities offerings after
placement fees and expenses were approximately $121.1 million. Additionally, in
March 2002, BankAtlantic Bancorp completed an underwritten public offering in
which BankAtlantic Bancorp's wholly owned statutory trust ("BBC Capital II")
issued $55.4 million of trust preferred securities. These trust preferred
securities pay distributions quarterly at an 8.50% fixed rate. The net proceeds
to BankAtlantic Bancorp from the publicly offered trust preferred securities
after underwriting discounts and expenses was approximately $53.3 million.
BankAtlantic Bancorp used the proceeds from the above trust preferred securities
offerings to retire the subordinated investment notes, the 9.5% trust preferred
securities and the 9% debentures mentioned above, to fund a portion of
BankAtlantic's purchase of Community, Levitt's investment in Bluegreen
Corporation and Ryan Beck's acquisition of certain assets and the assumption of
certain liabilities of Gruntal & Co., and for general corporate purposes.
Indentures
The Indentures relating to all of the Debentures (including those related to the
junior subordinated debentures) contain certain customary covenants found in
Indentures under the Trust Indenture Act, including covenants with respect to
the payment of principal and interest, maintenance of an office or agency for
administering the Debentures, holding of funds for payments on the Debentures in
trust, payment by BankAtlantic Bancorp of taxes and other claims, maintenance by
BankAtlantic Bancorp of its properties and its corporate existence and delivery
of annual certifications to the Trustee.
11. INVESTMENT IN BANKATLANTIC BANCORP, AND BANKATLANTIC BANCORP'S EQUITY
TRANSACTIONS
The following table reflects BFC's percentage ownership in BankAtlantic Bancorp:
CLASS A CLASS B
COMMON COMMON TOTAL COMBINED
STOCK STOCK OUTSTANDING VOTE
------ ------ ----------- --------
December 31, 2002 15.5% 100% 22.6% 55.2%
December 31, 2001 15.6% 100% 22.7% 55.3%
December 31, 2000 26.2% 100% 36.0% 100.0%
114
At December 31, 2002, the Company owned 8,296,891 shares of BankAtlantic Bancorp
Class A Common Stock and 4,876,124 shares of BankAtlantic Bancorp Class B Common
Stock representing 22.6% of all outstanding BankAtlantic Bancorp Common Stock.
On May 24, 2001 BankAtlantic Bancorp amended its articles of incorporation to
grant voting rights to holders of BankAtlantic Bancorp Class A Common Stock,
make BankAtlantic Bancorp Class B Common Stock convertible into BankAtlantic
Bancorp Class A Common Stock on a share for share basis, and equalize the cash
dividends payable on BankAtlantic Bancorp's Class A Common Stock and
BankAtlantic Bancorp's Class B Common Stock. As a consequence of the amendment,
BankAtlantic Bancorp's Class A shareholders are entitled to one vote per share,
which in the aggregate represent 53% of the combined voting power of
BankAtlantic Bancorp's Class A Common Stock and BankAtlantic Bancorp's Class B
Common Stock. BankAtlantic Bancorp's Class B Common Stock represents the
remaining 47% of the combined vote. The fixed voting percentages will be
eliminated, and shares of BankAtlantic Bancorp's Class B Common Stock will be
entitled to only one vote per share, from and after the date that BFC or its
affiliates no longer own in the aggregate at least 2,438,062 shares of Class B
Common Stock.
The percentage of votes controlled by the Company determines the Company's
consolidation policy, whereas, the percentage of ownership of total outstanding
common stock determines the amount of BankAtlantic Bancorp net income,
recognized by the Company. Since BFC controls greater than 50% of the vote of
BankAtlantic Bancorp, BankAtlantic Bancorp is consolidated in the Company's
financial statements.
The payment of dividends by BankAtlantic Bancorp is subject to declaration by
BankAtlantic Bancorp's Board of Directors and compliance with applicable
indenture covenants and will depend upon, among other things, the results of
operations, financial condition and cash requirements of BankAtlantic Bancorp
and the ability of BankAtlantic to pay dividends or otherwise advance funds to
BankAtlantic Bancorp, which in turn is subject to OTS regulation and is based
upon BankAtlantic's regulatory capital levels and net income. Currently,
BankAtlantic Bancorp pays a quarterly dividend of $0.031 per share for Class A
and Class B Common Stock.
The following are additional equity transactions of BankAtlantic Bancorp that
impact or could impact the Company's ownership percentage of BankAtlantic
Bancorp and minority interest:
Issuance of BankAtlantic Bancorp Class A Common Stock
During December 2001, BankAtlantic Bancorp sold 6.9 million shares of its Class
A Common Stock in an underwritten public offering at a price of $8.25 per share.
The net proceeds after underwriting discounts and expenses were approximately
$53.5 million. BankAtlantic Bancorp used the proceeds to fund a portion of the
purchase price to acquire Community.
On August 15, 2001, BankAtlantic Bancorp called for redemption approximately $51
million in principal amount of its outstanding 6--3/4% Convertible Subordinated
Debentures due 2006. The 6-3/4% Convertible Debentures were convertible into
BankAtlantic Bancorp Class A Common Stock at $5.70 per share. At the redemption
date on September 19, 2001, all but approximately $251,000 of the 6-3/4%
Convertible Debentures were converted by holders into an aggregate of 8,919,649
shares of BankAtlantic Bancorp Class A Common Stock.
During July 2001, BankAtlantic Bancorp sold 5.1 million shares of its Class A
Common Stock in an underwritten public offering at a price of $8.50 per share.
The net proceeds after underwriting discounts and expenses were approximately
$40.3 million and were used to redeem approximately $34.8 million of
BankAtlantic Bancorp's subordinated investment notes and for general corporate
purposes.
During the years ended December 31, 2002, 2001 and 2000, BankAtlantic Bancorp
received net proceeds of $1.2 million, $1.6 million and $2.2 million,
respectively, from the exercise of stock options.
Retirement of BankAtlantic Bancorp Public Class B Common Stock:
On August 17, 2000, BankAtlantic Bancorp's Class A and Class B shareholders
approved a transaction which resulted in the redemption and retirement of all
publicly held shares of BankAtlantic Bancorp Class B Common Stock at a price of
$6.00 per share. Pursuant to the transaction, BankAtlantic Bancorp paid $33.2
million (including $1.5 million of transaction expenses) to retire 5,275,752
shares of BankAtlantic Bancorp Class B Common Stock. As a result of the
transaction, BFC Financial Corporation became the sole holder of BankAtlantic
Bancorp Class B Common Stock. BankAtlantic Bancorp Class A Common Stock remained
outstanding and unchanged by the transaction.
Outstanding options to purchase Class A Common Stock remained exercisable for
the same number of shares of Class A Common Stock of BankAtlantic Bancorp as the
surviving corporation for the same exercise price and upon the same terms as
115
in effect before the corporate transaction. Likewise, BankAtlantic Bancorp's
6-3/4% Convertible Subordinated Debentures due 2006 and 5-5/8% Convertible
Subordinated Debentures due 2007 remained convertible into the same number of
shares of Class A Common Stock of BankAtlantic Bancorp at the same conversion
price and upon the same terms as in effect before the corporate transaction.
The redemption and retirement of all publicly held outstanding shares of Class B
Common Stock resulted in compensation expense of $1.3 million for the year ended
December 31, 2001. The compensation charge resulted from retirement of shares of
Class B Common Stock in the corporate transaction from holders who received
these shares upon exercise of options to acquire Class B Common Stock within six
months of the date of retirement.
BankAtlantic Bancorp Restricted Stock:
During the years ended December 31, 2002 and 2001, BankAtlantic Bancorp issued
1,500 and 196,500 shares, respectively, of restricted Class A Common Stock to
certain key employees of BankAtlantic. The restricted stock vests over
designated periods and had a fair market value of $17,000 and $1.4 million on
the issue dates, respectively. During the year ended December 31, 2002, 21,000
shares of restricted stock vested and 175,500 shares of restricted stock remain
outstanding.
BankAtlantic Bancorp in December 1998, adopted a Restricted Stock Incentive Plan
("BankAtlantic Bancorp-Ryan Beck Restricted Stock Incentive Plan") to provide
additional incentives to officers and key employees of its subsidiary, Ryan
Beck. The Plan provided up to 862,500 shares of restricted BankAtlantic Bancorp
Class A Common Stock, of which not more than 287,500 shares may be granted to
any one person. The Plan allows the Board of Directors of BankAtlantic Bancorp
to impose an annual cap on awards.
BankAtlantic Bancorp's Board granted 16,287 shares of BankAtlantic Bancorp
restricted Class A Common Stock under its plan to key employees of Ryan Beck in
2001. The fair value of the awards is recorded as compensation expense over the
vesting period. The restricted stock vests over designated periods and the
shares granted in 2001 had a fair market value of $100,000 at the grant date.
BankAtlantic Bancorp Retention Pool:
In connection with the acquisition of Ryan Beck in June 1998, BankAtlantic
Bancorp established a retention pool covering certain key officers of Ryan Beck,
under which 785,866 shares of BankAtlantic Bancorp restricted Class A common
stock were issued to key employees. The retention pool was valued at $8.1
million at the acquisition date, and the shares vested four years from the date
of acquisition and are treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value at the
date of the Ryan Beck acquisition. The deferred compensation awards were granted
under the BankAtlantic Bancorp, Inc. Deferred Compensation Plan ("Plan"). The
purpose of the plan was to provide employees of Ryan Beck with a cash-based
deferred compensation plan in exchange for their interest in the restricted
Class A Common Stock issued upon the establishment of the retention pool. On
March 1, 2000, 749,533 shares of restricted BankAtlantic Bancorp Class A Common
Stock out of the 755,474 shares of restricted common stock outstanding were
retired in exchange for the establishment of interests in the new plan in the
aggregate amount of $7.8 million. All participant accounts under the plan vested
on June 28, 2002, and the remaining participants received, in the aggregate,
5,941 shares of BankAtlantic Bancorp Class A Common Stock, and $3.8 million in
cash and notes payable for an aggregate principal amount of $3.7 million. The
notes payable mature on June 28, 2003 and bear interest at 5.75%. Included in
the Company's Statement of Operations during 2002, 2001 and 2000 was $1.0
million, $2.0 million and $1.9 million, respectively, of compensation expense
associated with BankAtlantic Bancorp's Plan.
BankAtlantic Bancorp's Stock Repurchases:
In July 1999, BankAtlantic Bancorp's Board approved a plan to purchase up to 3.5
million shares of common stock. During the year ended December 31, 2000,
BankAtlantic Bancorp paid $4.4 million to repurchase 736,000 shares of Class B
Common Stock.
116
BankAtlantic Bancorp's Stock Option Plans:
STOCK OPTION PLANS
------------------------------------------------------------------
MAXIMUM TERM SHARES CLASS OF VESTING TYPE OF
(3) AUTHORIZED (6) STOCK REQUIREMENTS OPTIONS (5)
------------ --------------- -------- ------------ -----------
1996 Stock Option Plan 10 years 2,246,094 A 5 Years (1) ISO, NQ
1998 Ryan Beck Option Plan 10 years 362,417 A (4) ISO, NQ
1998 Stock Option Plan 10 years 920,000 A 5 Years (1) ISO, NQ
1999 Non-qualifying Stock Option Plan 10 years 862,500 A (2) NQ
1999 Stock Option Plan 10 years 862,500 A (2) ISO, NQ
2000 Non-qualifying Stock Option Plan 10 years 1,704,148 A immediately NQ
2001 Stock Option Plan 10 years 3,000,000 A 5 Years (1) ISO, NQ
- -----------
(1) Vesting is established by BankAtlantic Bancorp's Compensation Committee
in connection with each grant of options. All of BankAtlantic Bancorp's
director's stock options vest immediately.
(2) Options vest at the discretion of the compensation committee.
(3) All outstanding options must be exercised no later than 10 years after
their grant date.
(4) Upon acquisition of Ryan Beck BankAtlantic Bancorp assumed all options
outstanding under Ryan Beck's existing stock option plans at various
exercise prices based upon the exercise prices of the assumed option. No
new options will be issued under the 1998 Ryan Beck option plan and the
plan will terminate when the outstanding options are exercised or
expire. The value of such options at the acquisition date was included
in the cost of the Ryan Beck acquisition and credited to additional
paid-in-capital.
(5) ISO - Incentive Stock Option NQ - Non-qualifying Stock Option
(6) During 2001 shares underlying option grants but not then granted from
all stock options plans except the 2001 stock option plan were canceled.
BankAtlantic Bancorp's shareholders increased the number of shares
authorized under the 2001 stock option plan to 3,000,000 at the 2002
Annual Meeting,
In August 2000, BankAtlantic Bancorp's Class B Common Stock shareholders
approved the BankAtlantic Bancorp 2000 non-qualifying stock option plan which
authorized the issuance of options to acquire up to 1,704,148 shares of
BankAtlantic Bancorp Class A Common Stock. The plan was established pursuant to
the corporate transaction in order to exchange options to acquire BankAtlantic
Bancorp Class B Common Stock that were converted in the transaction into options
to acquire BankAtlantic Bancorp Class A Common Stock. All outstanding options to
acquire BankAtlantic Bancorp Class B Common Stock were exchanged for 1,704,148
non-qualifying options to acquire BankAtlantic Bancorp Class A Common Stock at
an exercise price ranging from $2.26 to $2.32, based upon the exercise price of
the relevant BankAtlantic Bancorp Class B option. The options issued had the
same intrinsic value as BankAtlantic Bancorp Class B options canceled and had
substantially the same terms and conditions as the former options to purchase
shares of BankAtlantic Bancorp Class B Common Stock, including vesting and term.
The 1994 option plan for the issuance of options to acquire BankAtlantic Bancorp
Class B Common Stock was terminated.
Ryan Beck Stock Option Plan:
Ryan Beck's Board of Directors adopted the Ryan Beck & Co., Inc. Option Plan
(the "Plan") effective March 29, 2002. The Plan provides for the grant of not
more than an aggregate 500,000 options to acquire Ryan Beck Common Stock. As of
December 31, 2002, 8,125,000 shares of Ryan Beck Common Stock was outstanding,
all of which is owned by BankAtlantic Bancorp.
During the year ended December 31, 2002, Ryan Beck's Board of Directors granted,
pursuant to the Plan, options to acquire an aggregate of 385,000 shares of Ryan
Beck common stock at a below fair value exercise price at the date of grant
($4.80) all of which options vested immediately. Included in the Company's
Statement of Operations for the year ended December 31, 2002 was $92,000 of
compensation expense associated with the issuance of these common stock options.
Additionally, in June 2002, 115,000 Ryan Beck options were granted with an
exercise price equal to the fair market value at the date of grant ($5.04) all
of which options vest four years from the grant date. The fair value of the
options was determined based on an independent appraisal.
Upon exercise of the options, BankAtlantic Bancorp or Ryan Beck have the right
under certain defined circumstances, starting six months plus one day after the
exercise date, to repurchase the common stock at fair value as determined by an
independent appraiser. BankAtlantic Bancorp and Ryan Beck also have the right of
first refusal on any sale of common stock, and BankAtlantic Bancorp has the
right to require any common stockholder to sell its shares in the event that
BankAtlantic Bancorp sells its interest in Ryan Beck.
117
A summary of BankAtlantic Bancorp's stock option activity segregated by class of
stock was:
BANCORP CLASS A BANCORP CLASS B
OUTSTANDING OUTSTANDING
OPTIONS OPTIONS
--------------- ---------------
Outstanding December 31, 1999 3,588,336 1,759,468
Issued in connection with corporate transaction 1,704,148 --
Canceled in connection with corporate transaction -- (1,136,108)
Exercised (16,456) (623,360)
Forfeited (145,642) --
Issued 360,000 --
--------- ---------
Outstanding at December 31, 2000 5,490,386 --
=========
Exercised (361,085)
Forfeited (227,097)
Issued 553,875
---------
Outstanding at December 31, 2001 5,456,079
Exercised (269,428)
Forfeited (243,606)
Issued 759,600
---------
Outstanding at December 31, 2002 5,702,645
---------
Available for grant at December 31, 2002 1,732,025
=========
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
2002 2001 2000
----- ----- -----
Weighted average exercise price of options outstanding $5.44 $4.70 $4.80
Weighted average exercise price of options exercised 4.98 4.32 3.40
Weighted average exercise price of options forfeited $8.83 $6.06 $6.05
The option method used to calculate the fair value of the options granted 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
- --------- --------- ---------- --------- ---------------- ---------- --------
2000 270,000 $ 1.78 $ 3.84 6.47% 50.00% 2.61%
2000 90,000 $ 1.70 $ 4.05 6.47% 50.00% 2.61%
2001 553,875 $ 1.69 $ 3.94 5.04% 50.00% 3.00%
2002 759,600 $ 5.55 $ 11.18 4.65% 47.00% 1.04%
The employee turnover factor was 1.00% for incentive and non-qualifying stock
options during the year ended December 31, 2002. The employee turnover factor
was 13.00% for incentive stock options and 1.50% for non-qualifying stock
options during the year ended December 31, 2001. The employee turnover factor
was 6.00% for officer incentive and non-qualifying stock options during the year
ended December 31, 2000. During 2001, BankAtlantic Bancorp only issued options
to a select group of employees which significantly reduced the turnover factor
for options issued subsequent to 2000. The expected life for options issued
during 2002 was 7.0 years, and the expected life for options issued during 2001
and 2000 was 7.5 years.
118
The following table summarizes BankAtlantic Bancorp's information about fixed
stock options outstanding at December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
CLASS OF RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
COMMON EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
STOCK PRICES AT 12/31/02 CONTRACTUAL LIFE PRICE AT 12/31/02 PRICE
- -------------- -------------- ----------- ------------------- ---------- ----------- ----------
A $2.26 to 2.50 1,519,647 1.8 years $ 2.29 1,519,647 $ 2.29
A $2.51 to 5.00 1,339,540 6.1 years $ 4.21 473,164 $ 4.84
A $5.01 to 8.75 2,035,836 5.5 years $ 6.37 754,075 $ 6.36
A $8.76 to 12.23 807,622 8.5 years $ 11.07 92,017 $10.44
--------- --------- ------- --------- ------
5,702,645 5.1 years $ 5.44 2,838,903 $ 4.06
========= ========= ======= ========= ======
12. INCOME TAXES
The provision for income taxes consisted of (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
-------- -------- --------
Continuing operations $ 18,296 $ 25,260 $ 17,642
Discontinued operations -- -- 361
Extraordinary items 2,771 -- --
Cumulative effect of a change in
accounting principle (1,246) 683 --
-------- -------- --------
Total provision for income taxes $ 19,821 $ 25,943 $ 18,003
======== ======== ========
CONTINUING OPERATIONS:
CURRENT:
Federal $ 19,325 $ 21,525 $ 17,763
State 925 478 869
-------- -------- --------
20,250 22,003 18,632
-------- -------- --------
DEFERRED:
Federal (1,187) 1,410 (2,098)
State (767) 1,847 1,108
-------- -------- --------
(1,954) 3,257 (990)
-------- -------- --------
PROVISION FOR INCOME TAXES $ 18,296 $ 25,260 $ 17,642
======== ======== ========
119
A reconciliation from the statutory federal income tax rate of 35% for the years
ended December 31, 2002, 2001 and 2000 to the effective tax rate is as follows
(in thousands):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
2002 (1) 2001 (1) 2000 (1)
------------------- ------------------ -------------------
Income tax provision at expected
federal income tax rate of 35% $ 18,599 35.00% $ 16,791 35.00% $ 12,342 35.00%
Increase (decrease) resulting from:
Taxes related to subsidiaries not
consolidated for income tax purposes 4,214 7.93% 4,823 10.05% 3,577 10.14%
Tax-exempt interest income (1,152) (2.17)% (165) (0.34)% (129) (0.37)%
Provision (benefit) for state taxes,
net of federal effect (226) (0.43)% 486 1.01% 565 1.60%
Change in valuation allowance for
deferred tax assets (2,638) (4.96)% (1,286) (2.68)% (800) (2.27)%
Change in state tax valuation allowance 230 0.43% 1,637 3.41% 926 2.63%
Low income housing tax credits (416) (0.78)% -- 0.00% -- 0.00%
Impairment and amortization of goodwill -- 0.00% 3,590 7.48% 1,300 3.69%
Other - net (315) (0.59)% (616) (1.28)% (139) (0.39)%
-------- ----- -------- ----- -------- -----
Provision for income taxes $ 18,296 34.43% $ 25,260 52.65% $ 17,642 50.03%
======== ===== ======== ===== ======== =====
(1) Expected tax is computed based upon income (loss) before minority
interest, discontinued operations, extraordinary items and cumulative
effect of a change in accounting principle.
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities were (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
-------- -------- --------
DEFERRED TAX ASSETS:
Provision for discontinued operations, restructuring charges and
write-downs $ 191 $ 404 $ 1,106
Allowance for loans, REO, tax certificate losses and other reserves, for
financial statement purposes 29,884 20,536 20,780
Federal and State net operating loss carryforward 10,498 8,252 6,905
Compensation expensed for books and deferred for tax purposes 3,915 3,147 1,966
Goodwill impairment for books in excess of tax amortization 1,086 -- --
Real estate held for development and sale capitalized costs for tax
purposes in excess of amounts capitalized for financial statement
purposes 7,554 10,669 13,192
Other 4,642 2,314 2,425
-------- -------- --------
Total gross deferred tax assets 57,770 45,322 46,374
Less valuation allowance 4,369 7,682 7,331
-------- -------- --------
Total deferred tax assets 53,401 37,640 39,043
-------- -------- --------
DEFERRED TAX LIABILITIES:
Subsidiary not consolidated for income tax purposes 30,541 26,853 24,375
Tax bad debt reserve in excess of base year reserve 293 546 819
Deferred loan income, due to differences in the recognition of loan
origination fees and discounts 918 688 1,984
Change in investment of unconsolidated real estate subsidiary 1,762 -- --
Purchase accounting adjustments for bank acquisitions 1,356 -- --
Accumulated other comprehensive income 2,596 10,018 3,955
Other 3,816 3,451 3,565
-------- -------- --------
Total gross deferred tax liabilities 41,282 41,556 34,698
-------- -------- --------
Net deferred tax asset (liability) 12,119 (3,916) 4,345
Plus (less) net deferred tax liability (asset) at beginning of period 3,916 (4,345) 13,594
Less net deferred income tax assets at beginning of period
120
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
-------- -------- --------
resulting from Bancorp consolidation -- -- (41,487)
Acquired net deferred tax asset, net of valuation allowance (8,175) -- --
Decrease in deferred tax liability from Bancorp's other capital transaction (9) (1,026) (66)
(Decrease) increase in BFC's accumulated other comprehensive income (1,145) (1,467) 6,355
(Decrease) increase in Bancorp's accumulated other comprehensive income (6,277) 7,497 18,002
-------- -------- --------
(Provision) benefit for deferred income taxes 429 (3,257) 743
Provision for deferred income taxes - extraordinary item 2,771 -- --
Benefit for deferred income taxes - cumulative effect of an accounting
change (1,246) -- --
Provision for deferred income taxes - discontinued operations -- -- 247
-------- -------- --------
(Provision) benefit for deferred income taxes - continuing operations $ 1,954 $ (3,257) $ 990
======== ======== ========
Activity in the deferred tax valuation allowance was (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2002 2001 2000
------- ------- -------
Balance, beginning of period $ 7,682 $ 7,331 $ 5,140
Utilization of acquired tax benefits (2,638) (1,163) (470)
Increase in state deferred tax valuation allowance 230 1,637 2,991
Other decreases and reclassifications (905) (123) (330)
------- ------- -------
Balance, end of period $ 4,369 $ 7,682 $ 7,331
======= ======= =======
Except as discussed below, BankAtlantic Bancorp's management believes that
BankAtlantic Bancorp will have sufficient taxable income of the appropriate
character in future years to realize its net deferred income tax asset. In
evaluating the expectation of sufficient future taxable income, management
considered the future reversal of temporary differences and available tax
planning strategies that could be implemented, if required. A valuation
allowance was required for the years ended December 31, 2002, 2001 and 2000 as
it was management's assessment that, based on available information, it is more
likely than not that a portion of the deferred tax asset will not be realized. A
change in the valuation allowance occurs if there is a change in management's
assessment of the amount of the net deferred income tax asset that is expected
to be realized.
Approximately $915,000 and $6.1 million of federal net operating loss
carryforwards ("NOL's") acquired in connection with the Core Communities and
Community acquisitions, respectively, remain as of December 31, 2002. These
expire through the year 2016. Utilization of these NOL carryforwards may be
limited based on the rules applicable to ownership changes.
Prior to December 31, 1996, BankAtlantic was permitted to deduct from taxable
income an allowance for bad debts which was in excess of the provision for such
losses charged to income. Accordingly, at December 31, 2002 BankAtlantic
Bancorp's retained earnings includes $21.5 million, of which $11.4 million was
acquired in connection with the Community acquisition, for which no provision
for income tax has been provided. If, in the future, this portion of retained
earnings is distributed, or BankAtlantic no longer qualifies as a bank for tax
purposes, federal income tax of approximately $7.5 million would be imposed.
121
BankAtlantic Bancorp is not included in the Company's consolidated tax return.
At December 31, 2002, the Company (excluding BankAtlantic Bancorp) had estimated
state and federal net operating loss carry forwards as follows (in thousands):
Expiration
Year State Federal
- ---------- ------- -------
2006 $ 429 --
2007 4,235 4,558
2008 2,332 3,322
2011 1,662 1,831
2012 669 984
2021 806 1,422
2022 1,207 2,128
------- ------
$11,340 14,245
======= ======
13. EMPLOYEE BENEFITS PLAN
BFC's Stock Option Plan provides for the grant of stock options to purchase
shares of the Company's Common Stock. The plan provides for the grant of both
incentive stock options and non-qualifying options. The exercise price of a
stock option will not be less than the fair market value of the Common Stock on
the date of the grant and the maximum term of the option is ten years. The
following table sets forth information on all outstanding options:
Class B
Outstanding
Options Price per Share
----------- ---------------
Outstanding at December 31, 1999 3,101,907 $1.13 to $10.34
Issued --
Exercised --
---------
Outstanding at December 31, 2000 3,101,907 $1.13 to $10.34
Issued -
Exercised (18,750) $1.20 to $1.20
---------
Outstanding at December 31, 2001 3,083,157 $1.13 to $10.34
Issued --
Exercised (49,000) $1.13 to $4.07
Forfeited (5,000) $6.00
---------
Outstanding at December 31, 2002 3,029,157 $1.20 to $10.34
=========
Exercisable at December 31, 2002 2,851,657 $1.20 to $10.34
=========
Available for grant at December 31, 2002 490,000
=========
The weighted average exercise price of options outstanding at December 31, 2002,
2001 and 2000 was $4.06, $3.92 and $4.03, respectively. The weighted average
price of options exercised was $2.95 during 2002, $1.20 during 2001 and none in
2000.
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $177,000, $182,000 and $183,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. The option model
used to calculate the FAS 123 compensation adjustment was the Black-Scholes
model with the following grant date fair values and assumptions:
Number of Risk Free Expected Expected
Date of Options Grant Date Type of Exercise Interest Life Expected Dividend
Grant Granted Fair Value Grant Price Rate (Years) Volatility Yield
------- --------- ---------- ------- -------- --------- -------- ---------- --------
7/1/97 49,176 $1.623 ISO $ 4.067 5.800% 6.0 27.40% 0%
7/1/97 119,574 $1.849 NQ $ 4.067 5.820% 7.5 27.40% 0%
7/1/97 750,000 $1.703 NQ $ 4.467 5.820% 7.5 27.40% 0%
1/13/98 532,500 $5.873 * $10.334 5.530% 7.5 44.46% 0%
4/6/99 182,500 $4.990 * $ 6.000 5.280% 7.5 92.21% 0%
* Both non-qualified and incentive stock options were granted.
122
The employee turnover was considered to be none. There were no options issued
during 2002, 2001 or 2000.
The following table summarizes information about stock options outstanding at
December 31, 2002:
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/02 Contractual Life Exercise Price at 12/31/02 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
$1.00 to $5.00 2,319,157 2.7 Years $ 2.47 2,319,157 $ 2.47
$5.01 to $10.00 177,500 6.3 Years $ 6.00 -- --
$10.01 to $10.34 532,500 4.9 Years $ 10.34 532,500 $ 10.34
BFC Profit Sharing Plan
The Company has an employee's profit-sharing plan which provides for
contributions to a fund of a defined amount, but not to exceed the amount
permitted under the Internal Revenue Code as deductible expense. The provision
charged to operations was approximately $50,000 $35,000 and $35,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. Contributions are
funded on a current basis.
BankAtlantic Bancorp's Pension Plan
In December 1998, BankAtlantic Bancorp froze its defined benefit pension plan
("Plan"). All then-current participants in the Plan ceased accruing service
benefits beyond that date and became vested. BankAtlantic Bancorp will be
subject to future pension expense or income based on future actual plan returns
and actuarial values of the plan obligations to employees.
The following table sets forth the Plan's funded status and the minimum pension
liability or prepaid pension cost included in the Consolidated Statements of
Financial Condition at:
DECEMBER 31,
--------------------
2002 2001
-------- --------
(IN THOUSANDS)
Projected benefit obligation at the beginning of the year $ 21,088 $ 18,938
Interest cost 1,424 1,429
Actuarial loss 563 1,503
Benefits paid (799) (782)
-------- --------
Projected benefit obligation at end of year $ 22,276 $ 21,088
======== ========
DECEMBER 31,
--------------------
2002 2001
-------- --------
(IN THOUSANDS)
Fair value of Plan assets at the beginning of year $ 24,566 $ 26,822
Actual return on Plan assets (5,907) (1,474)
Employer contribution -- --
Benefits paid (799) (782)
-------- --------
Fair value of Plan assets at end of year $ 17,860 $ 24,566
======== ========
123
DECEMBER 31,
--------------------
2002 2001
-------- --------
(IN THOUSANDS)
Actuarial present value of projected benefit obligation
for service rendered to date $(22,276) $(21,088)
Plan assets at fair value as of the actuarial date 17,860 24,566
-------- --------
(Unfunded)/funded accumulated benefit obligation (1) (4,416) 3,478
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 11,650 3,505
-------- --------
Prepaid pension cost (2) $ 7,234 $ 6,983
======== ========
(1) The December 31, 2002, unfunded accumulated benefit obligation was
recorded in other liabilities in the Company's Statement of Financial
Condition.
(2) The December 31, 2001 prepaid pension cost was recorded in other assets in
the Company's Statement of Financial Condition.
For the year ended December 31, 2002, the Company recorded a minimum pension
liability in other comprehensive income associated with the unfunded accumulated
benefit obligation as follows (in thousands):
2002
-------
Reduction in prepaid pension cost $(7,234)
Minimum Pension Liability recorded in other liabilities (4,416)
Change in deferred tax assets 4,194
-------
Decrease in other comprehensive income $(7,456)
=======
Net pension benefit includes the following components:
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------------
2002 2001 2000
------- ------- -------
(IN THOUSANDS)
Interest cost on projected benefit obligation $ 1,424 $ 1,429 $ 1,353
Expected return on plan assets (1,989) (2,381) (2,511)
Amortization of unrecognized net gains and losses 314 -- (309)
------- ------- -------
Net periodic pension benefit (1) $ (251) $ (952) $(1,467)
======= ======= =======
(1) Periodic pension benefit is included as a reduction in compensation
expense.
The actuarial assumptions used in accounting for the Plan were:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2002 2001 2000
----- ----- -----
Weighted average discount rate 6.75% 7.25% 7.50%
Rate of increase in future compensation levels N/A N/A N/A
Expected long-term rate of return 9.00% 9.00% 9.00%
Actuarial estimates and assumptions are based on various market factors
and are evaluated on an annual basis, and changes in such assumptions may
impact future pension costs. Current participant data was used for the
actuarial assumption for the years ended December 31, 2002, 2001, and
2000. BankAtlantic Bancorp did not make any contributions to the Plan
during these respective years.
124
BankAtlantic 401(k) Plan:
The table below outlines the terms of BankAtlantic's Security Plus 401(k)
Plan and the associated employer costs:
FOR YEARS ENDED DECEMBER 31,
------------------------------------------------------
(dollars in thousands) 2002 2001 2000
--------- ---------- ----------
Employee Salary Contribution Limit (1) $ 11.0 $ 10.5 $ 10.5
Percentage of Salary Limitation (2) 75% 20% 20%
Employer Match Contribution (3) $1,800 $1,500 $1,100
Vesting of Employer Match Immediate 5 years (4) 5 years (4)
(1) For the 2002 plan year, employees over the age of 50 were entitled
to contribute $12,000.
(2) Highly compensated employees were limited to a maximum contribution
of 7% of salary during the 2001 and 2000 plan year.
(3) During the 2002 plan year, the employer matched 100% of the first 3%
of employee contributions and 50% of the next 2% of employee
contributions. During the 2001 and 2000 plan year, the employer
matched 100% of the first 4% of employee contributions.
(4) The vesting period is pro-rata over 5 years from the date of hire.
BFC 401(k) Plan
BFC sponsors a defined contribution plan ("401(k) Plan") for all employees who
are at least 21 years of age. Employees can contribute up to 50% of their salary
not to exceed the maximum dollar limitations contained in the Internal Revenue
Code in effect for such calendar year. Under the 401(k) Plan, BFC may make a
discretionary match as deemed appropriate by the BFC Board of Directors. BFC did
not make any matching contributions during 2002, 2001 or 2000.
Ryan Beck Plans:
Ryan Beck maintains two retirement plans for eligible employees, the 401(k)
Savings Plan and the Money Purchase Pension Plan.
Ryan Beck maintains a non-voluntary Money Purchase Pension Plan in which Ryan
Beck contributed 5% of an employee's eligible earnings, subject to certain
limitations in 2002. Contributions to the Ryan Beck Money Purchase Pension Plan
totaled $729,000, $1.4 million and $1.6 million during the years ended December
31, 2002, 2001 and 2000, respectively. Ryan Beck contributed 8% of an employee's
eligible earnings, subject to certain limitations during the years ended
December 31, 2001 and 2000.
Ryan Beck's employees may contribute up to 12% of their eligible earnings,
subject to certain limitations, to the 401(k) Savings Plan. For the period
January 1, 2001 to March 31, 2001, Ryan Beck matched dollar-for-dollar on the
first 4% of contributions for salaried employees and the first 2.5% for
investment consultants. Effective April 1, 2001, Ryan Beck suspended the
matching contributions to its 401(k) Savings Plan. Included in employee
compensation and benefits on the consolidated statement of operations was
$224,000 and $560,000 of expenses and employer contributions related to the
401(k) Savings Plan during the years ended December 31, 2001 and 2000,
respectively.
During the year ended December 31, 2002, Ryan Beck instituted the Ryan Beck &
Co., Inc. Voluntary Deferred Compensation Plan for certain employees whereby the
employee can elect to defer a portion of his or her compensation for a minimum
of 3 years or until retirement. These contributions are fully vested. The
obligations under the terms of this plan are not required to be funded. The
obligations are unsecured general obligations to pay, in the future, the value
of the deferred compensation, adjusted to reflect the performance of selected
measurement options chosen by each participant. At December 31, 2002, the
deferred compensation obligation payable under this plan totaled $9.7 million,
which included the rollover of the Gruntal deferred compensation plan.
During 2002, Ryan Beck amended the Ryan Beck & Co., Inc. Supplemental Bonus Plan
in which a bonus account was established for $1.5 million. The bonus account
will amortize into compensation expense pro-rata over a four-year period. The
bonus account vests and is payable 25% per year on the first business day in
January 2004 through 2007.
125
In connection with the Gruntal transaction, a nonqualified deferred compensation
plan was assumed by Ryan Beck covering select employees of Gruntal. Gruntal
provided an annual matching contribution and, in some cases, special
allocations, both of which would vest if the employee remained employed for ten
years from the plan year for which contributions were made. The obligations were
not required to be funded and were unsecured general obligations to pay, in the
future, the value of the deferred compensation, adjusted to reflect the
performance of selected investment measurement options chosen by each
participant during the deferral period. On April 26, 2002, Ryan Beck froze the
plan, and participants could no longer continue to make contributions and
related matches ceased. In August 2002, Ryan Beck allowed the participants in
the plan to elect to withdraw their vested benefits upon forfeiting their
unvested benefits. During September 2002, $15.9 million of Ryan Beck's mutual
fund investments assigned to the plan were withdrawn resulting in a $2.5 million
realized loss included in income from investment banking activity in the
statement of operations. Included in other liabilities at December 31, 2002, was
an $8.2 million obligation associated with the nonqualified deferred
compensation plan of which $5.9 million was vested. All unvested amounts will
vest no later than 2011. During the year ended December 31, 2002, Ryan Beck
realized a $1.5 million reduction in compensation expense associated with the
decrease in the nonqualified deferred compensation plan obligation.
In July 2002, Ryan Beck established a retention plan for certain Gruntal
investment consultants, key employees and others. Pursuant to the retention
plan, the participants were granted a length of service award and a retention
award in forgivable notes in the aggregate amounts of $900,000 and $9.5 million,
respectively. The participants were granted the length of service award and 50%
of the retention award in forgivable notes in the aggregate amount of $5.7
million in July 2002. The participants can elect to receive their remaining 50%
of the retention award in forgivable notes in February 2003, or the participants
can elect to receive an enhanced award based on production goals which will be
paid out in the form of forgivable notes in January 2004. The award based on
production goals can be no less than the amount they would have received in
February 2003, assuming all participants remained employed through the retention
award date. Each forgivable note will have a term of five years. A pro-rata
portion of the principal amount of the note is forgiven each month over the five
year term. If a participant terminates employment with Ryan Beck prior to the
end of the term of the Note, the outstanding balance becomes immediately due to
Ryan Beck.
Included in others at December 31, 2002 were $14.8 million of forgivable notes
receivable to certain employees of Ryan Beck. These notes receivable are
forgivable loans and are amortized over a five-year period from the date of the
notes. Included in compensation expense for the year ended December 31, 2002 was
$3.7 million of forgivable note receivable amortization.
14. COMMITMENTS AND CONTINGENCIES
BankAtlantic Bancorp is lessee under various operating leases for real estate
and equipment extending to the year 2072. The approximate minimum future rentals
under such leases, at December 31, 2002, for the periods shown was (in
thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ -------
2003 $13,534
2004 11,332
2005 9,193
2006 7,663
2007 5,790
Thereafter 12,891
-------
Total $60,403
=======
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
(In thousands) 2002 2001 2000
------- ------- -------
BFC' rental expense 31 31 27
======= ======= =======
Bancorp rental expense for premises and equipment $16,762 $10,545 $ 9,683
======= ======= =======
At December 31, 2002, BankAtlantic leased 138 ATM's located in BankAtlantic
branch locations, cruise ships and various retail outlets.
126
In the normal course of its business, BankAtlantic Bancorp is a party to
financial instruments with off-balance-sheet risk. These financial instruments
include commitments to extend credit and to issue standby and documentary
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk. BankAtlantic's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented by the
contractual amount of those instruments. BankAtlantic uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments with off-balance sheet risk were:
DECEMBER 31,
---------- ----------
2002 2001
---------- ----------
(IN THOUSANDS)
Commitments to sell fixed rate residential loans $ 88 $ 462
Commitments to purchase mortgage backed securities -- 60,394
Forward contract to purchase mortgage-backed securities 39,128 110,752
Commitments to purchase other investment securities 200 --
Commitments to purchase variable rate residential loans 300,643 --
Commitments to extend credit, including the undisbursed
portion of loans in process 1,126,384 779,788
Standby letters of credit 35,927 30,509
Commercial lines of credit 209,708 166,374
Commitments to extend credit are agreements to lend funds to a customer as long
as there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. BankAtlantic has $15.8 million of
commitments to extend credit at a fixed interest rate and $1.1 billion of
commitments to extend credit at a variable rate. BankAtlantic evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
required by BankAtlantic in connection with an extension of credit is based on
management's credit evaluation of the counter-party.
Standby letters of credit are conditional commitments issued by BankAtlantic to
guarantee the performance of a customer to a third party. BankAtlantic standby
letters of credit are generally issued to customers in the construction industry
guaranteeing project performance. These types of standby letters of credit had a
maximum exposure of $25.6 million at December 31, 2002. BankAtlantic also issues
standby letters of credit to commercial lending customers guaranteeing the
payment of goods and services. These types of standby letters of credit had a
maximum exposure of $8.9 million at December 31, 2002. Those guarantees are
primarily issued to support public and private borrowing arrangements and have
maturities of one year or less. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. BankAtlantic may hold certificates of deposit and residential and
commercial liens as collateral for such commitments which are collateralized
similar to other types of borrowings.
BankAtlantic is required to maintain reserve balances with the Federal Reserve
Bank. Such reserves consisted of cash and amounts due from banks of $60.2
million and $43.7 million at December 31, 2002 and 2001, respectively.
As a member of the FHLB system, BankAtlantic is required to purchase and hold
stock in the FHLB of Atlanta. As of December 31, 2002 BankAtlantic was in
compliance with this requirement, with an investment of approximately $64.9
million in stock of the FHLB of Atlanta.
Levitt is subject to obligations associated with entering into contracts for the
purchase, development and sale of real estate in the routine conduct of its
business. Levitt provides home purchasers with warranties against certain
defects for a period of up to two years from the date of purchase. Levitt
provides for estimated warranty costs when the home is sold and continuously
monitors its warranty exposure and service program.
Core Communities, a wholly owned subsidiary of Levitt, entered into a connection
fee Guarantee Agreement with the St. Lucie West Services District ("District").
The agreement provides the District with assurance that sufficient water and
sewer connection fees will be prepaid by Core Communities to service outstanding
bonds of the District. Core Communities has no underlying guarantee obligation
in connection with the District Bonds.
127
At December 31, 2002, Levitt had commitments to purchase properties for
development of $52.4 million as well as commitments to sell development property
of $30.0 million. These commitments are subject to due diligence and the
obtaining of financing.
Upon the acquisition of Ryan Beck, BankAtlantic Bancorp became subject to the
risks of investment banking. Ryan Beck's customers' securities transactions are
introduced on a fully-disclosed basis to its clearing broker. The clearing
broker carries all of the accounts of the customers of Ryan Beck and is
responsible for execution, collection and payment of funds, and receipt and
delivery of securities relative to customer transactions. Customers' securities
activities are transacted on a cash and margin basis. These transactions may
expose Ryan Beck to off-balance-sheet risk, wherein the clearing broker may
charge Ryan Beck for any losses it incurs in the event that customers may be
unable to fulfill their contractual commitments and margin requirements are not
sufficient to fully cover losses. Ryan Beck seeks to minimize this risk through
procedures designed to monitor the creditworthiness of its customers and ensure
that customer transactions are executed properly by the clearing broker.
Ryan Beck, in its capacity as a market-maker and dealer in corporate and
municipal fixed-income and equity securities, may enter into transactions in a
variety of cash and derivative financial instruments in order to facilitate
customer order flow and hedge market risk exposures. These financial instruments
include securities sold, but not yet purchased and futures contracts. Securities
sold, but not yet purchased represent obligations of BankAtlantic Bancorp to
deliver specified financial instruments at contracted prices, thereby creating a
liability to purchase the financial instrument in the market at prevailing
prices. Accordingly, these transactions result in off-balance-sheet risk as
BankAtlantic Bancorp's ultimate obligation may exceed the amount recognized in
the Consolidated Statement of Financial Condition.
15. REGULATORY MATTERS
BFC Financial Corporation is a unitary savings bank holding company that owns
approximately 16% and 100%, respectively of the outstanding BankAtlantic Bancorp
Class A and Class B Common Stock, in the aggregate representing 23% of all the
outstanding BankAtlantic Bancorp Common Stock. BankAtlantic Bancorp is the
holding company for BankAtlantic Bank by virtue of its ownership of 100% of the
outstanding BankAtlantic common stock. BFC is subject to regulatory oversight
and examination by the OTS as discussed herein with respect to BankAtlantic
Bancorp. BankAtlantic Bancorp is a unitary savings bank holding company subject
to regulatory oversight and examination by the OTS, including normal supervision
and reporting requirements. The Company is subject to the reporting and other
requirements of the Securities Exchange Act of 1934. Bancorp is also subject to
the reporting and other requirements of the Securities Exchange Act of 1934.
BankAtlantic's deposits are insured by the FDIC for up to $100,000 for each
insured account holder, the maximum amount currently permitted by law.
BankAtlantic is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can cause regulators to initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on BankAtlantic's financial statements. At December 31, 2002,
BankAtlantic met all capital adequacy requirements to which it is subject and
was considered a well capitalized institution.
The OTS imposes limits applicable to the payment of cash dividends by
BankAtlantic to BankAtlantic Bancorp which are based on an institution's
regulatory capital levels. BankAtlantic is permitted to pay capital
distributions during a calendar year that do not exceed its net income for the
year plus its retained net income for the prior two years, without notice to, or
the approval of, the OTS. At December 31, 2002, this capital distribution
limitation was $52.9 million.
Certain covenants contained in Levitt's loan agreements prohibit it from paying
dividends to Bancorp. Ryan Beck has not paid dividends to Bancorp, and it is not
anticipated that Ryan Beck will pay dividends to Bancorp in the foreseeable
future.
128
BankAtlantic's actual capital amounts and ratios are presented in the table:
REQUIRED REQUIRED
FOR CAPITAL TO BE CONSIDERED
ACTUAL ADEQUACY PURPOSES WELL CAPITALIZED
------------------ ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ---- --------- -----
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 2002:
Total risk-based capital $413,469 11.89% $278,176 8.00% $ 347,720 10.00%
Tier I risk-based capital $347,927 10.01% $139,088 4.00% $ 208,632 6.00%
Tangible capital $347,927 7.26% $ 71,873 1.50% $ 71,873 1.50%
Core capital $347,927 7.26% $191,661 4.00% $ 239,576 5.00%
AS OF DECEMBER 31, 2001:
Total risk-based capital $383,295 12.90% $237,648 8.00% $ 297,060 10.00%
Tier I risk-based capital $346,057 11.65% $118,824 4.00% $ 178,236 6.00%
Tangible capital $346,057 8.02% $ 64,707 1.50% $ 64,707 1.50%
Core capital $346,057 8.02% $172,551 4.00% $ 215,689 5.00%
Bancorp's wholly owned subsidiary, Ryan Beck is subject to the net capital
provision of Rule 15c3-1 under the Securities Exchange Act of 1934, which
requires the maintenance of minimum net capital and requires the ratio of
aggregate indebtedness, both as defined, not to exceed 15 to 1. Additionally,
Ryan Beck, as a market maker, is subject to supplemental requirements of Rule
15c3-1(a)4, which provides for the computation of net capital to be based on the
number of and price of issues in which markets are made by Ryan Beck, not to
exceed $1.0 million. At December 31, 2002, Ryan Beck's ratio of aggregate
indebtedness to net capital was 4.48 to 1. Ryan Beck's regulatory net capital
was approximately $9.3 million, which was $6.5 million in excess of its required
net capital of $2.8 million.
Ryan Beck operates under the provisions of paragraph (k)(2)(ii) of Rule 15c3-3
of the Securities and Exchange Commission as a fully disclosed introducing
broker and, accordingly, customer accounts are carried on the books of the
clearing broker. However, Ryan Beck safekeeps and redeems municipal bond coupons
for the benefit of its customers. Accordingly, Ryan Beck is subject to the
provisions of SEC Rule 15c3-3 relating to possession or control and customer
reserve requirements and was in compliance with such provisions at December 31,
2002.
16. LEGAL PROCEEDINGS
On October 3, 2002, Commerce Bancorp, Inc. ("Commerce") filed a complaint
against BankAtlantic in the United States District Court for the District of New
Jersey. The complaint, which seeks unspecified money damages and injunctive
relief, asserts that BankAtlantic is infringing certain trademark rights
allegedly owned by Commerce in the slogan "AMERICA'S MOST CONVENIENT BANK" by
virtue of BankAtlantic's use of the slogan "FLORIDA'S MOST CONVENIENT BANK."
Commerce recently filed a motion for leave to file an amended complaint, which
seeks to assert additional claims for trademark infringement based on Commerce's
allegation that BankAtlantic's use of the word "WOW!" infringes trademark rights
purportedly owned by Commerce in the phrases "WOW ANSWER GUIDE," "COMMERCE WOW!
ZONE," "COMMERCEWOW!ZONE," and "WOW!THE CUSTOMER." Management intends to contest
the case vigorously.
On December 29, 2000, Smith & Company, Inc. ("Smith") filed an action against
Levitt-Ansca Towne Partnership (the "Partnership"), Bellaggio By Levitt Homes,
Inc. ("BLHI"), Bellaggio By Ansca, Inc. a/k/a Bellaggio By Ansca Homes, Inc.,
and Liberty Mutual Insurance Company (collectively "Defendants") seeking damages
and other relief in connection with an August 21, 2000 contract entered into
with the Partnership. BLHI is a 50% partner of the Partnership and is wholly
owned by Levitt and Sons. The Complaint alleged that the Partnership wrongfully
terminated the contract, failed to pay for extra work performed outside the
scope of the contract and breached the contract. The Partnership denied the
claims, asserted defenses and asserted a number of counterclaims. This case was
tried before a jury, and on March 7, 2002, the jury returned a verdict against
the Partnership. On March 11, 2002, the Court entered a final judgment against
the Defendants in the amount of $3.68 million. In addition, under the final
judgment it is likely that Smith and its surety company will be entitled to
recover legal fees and other costs. Since BLHI is a 50% partner of the
Partnership, it has recorded its share of potential liability under the judgment
and for attorneys' fees which is estimated to be approximately $2.6 million. The
Partnership filed an appeal on December 6, 2002, which it intends to vigorously
pursue.
129
On January 30, 2003, a one-count purported class action complaint was filed in
the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida by a former employee of Gruntal seeking a declaratory judgment
that Ryan Beck is liable for all pre-April 26, 2002 claims against Gruntal by
former Gruntal retail customers and retail brokers, whether pending or to be
filed in the future, not expressly assumed by Ryan Beck in its acquisition of
certain of the assets of Gruntal. The complaint does not specify the amount of
such claims. The complaint seeks to impose liability under the theory that
either (1) Ryan Beck engaged in a de facto merger with Gruntal, or (2) Ryan
Beck's brokerage business is a mere continuation of Gruntal's brokerage
business, or (3) Ryan Beck is the beneficiary of a fraudulent transfer. Ryan
Beck removed the case to federal court and subsequently filed a motion to
dismiss the complaint on various grounds.
In April 2002, Ryan Beck acquired certain of the assets and assumed certain of
the liabilities of Gruntal. Ryan Beck has been named as a defendant in a number
of arbitration claims filed by former Gruntal clients whose claims arose prior
to the transaction date. In these actions Ryan Beck is alleged to be "successor"
in interest to Gruntal which allegations Ryan Beck denies. In some instances the
former Gruntal brokers against whom the claims relate are now employed by Ryan
Beck and in other instances the brokers are not employed by Ryan Beck. Ryan Beck
did not assume any of the liabilities associated with these actions in the
Gruntal transaction. While Ryan Beck does not consider any individual action to
be material, an adverse result in a number of these actions in the aggregate
could adversely affect the Company's financial statements. In October 2002,
Gruntal filed for bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Laws.
The Company and its subsidiaries may be parties to other lawsuits as plaintiff
or defendant involving its securities sales brokerage and underwriting,
acquisitions, bank operations lending, tax certificates and real estate
development activities. Although the Company believes it has meritorious
defenses in all current legal actions, the outcome of the various legal actions
is uncertain. Management, based on discussions with legal counsel, believes
results of operations or financial position will not be significantly impacted
by the resolution of these matters.
17. PARENT COMPANY FINANCIAL INFORMATION
BFC's Condensed Statements of Financial Condition at December 31, 2002 and 2001,
Condensed Statements of Operations and Condensed Statements of Cash Flows for
each of the years in the three-year period ended December 31, 2002 are shown
below:
130
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2002 AND 2001
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31,
-------------------
ASSETS 2002 2001
-------- --------
Cash and cash equivalents $ 797 $ 2,706
Securities available for sale, at market value 1,269 859
Investment in venture partnerships 2,782 4,691
Investment in BankAtlantic Bancorp, Inc. ("Bancorp") 106,017 98,815
Investment in other subsidiaries 13,620 13,887
Loans receivable 4,175 1,184
Other assets 768 831
-------- --------
Total assets $129,428 $122,973
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable and other borrowings $ 6,015 $ 4,515
Other liabilities 22,805 22,491
Deferred income taxes 23,197 21,795
-------- --------
Total liabilities 52,017 48,801
-------- --------
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 6,474,994 in 2002 and 6,461,994 in 2001 58 58
Class B common stock, of $.01 par value, authorized 20,000,000 shares;
issued and outstanding 2,362,157 in 2002 and 2,366,157 in 2001 21 21
Additional paid-in capital 24,077 24,206
Retained earnings 52,387 47,195
-------- --------
Total stockholders' equity before
accumulated other comprehensive income 76,543 71,480
Accumulated other comprehensive income 868 2,692
-------- --------
Total stockholders' equity 77,411 74,172
-------- --------
Total liabilities and stockholders' equity $129,428 $122,973
======== ========
CONDENSED STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(IN THOUSANDS)
2002 2001 2000
-------- -------- --------
Revenue - interest and other $ 763 $ 1,010 $ 479
Expenses - interest and other 3,898 4,022 4,541
-------- -------- --------
Loss before undistributed earnings from subsidiaries (3,135) (3,012) (4,062)
Equity from earnings in Bancorp 11,380 10,551 8,264
Equity from (loss) earnings in other subsidiaries (633) 595 1,188
-------- -------- --------
Income before income taxes 7,612 8,134 5,390
Provision for income taxes 2,420 2,660 1,755
-------- -------- --------
Net income $ 5,192 $ 5,474 $ 3,635
======== ======== ========
131
CONDENSED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002
(IN THOUSANDS)
2002 2001 2000
-------- -------- --------
OPERATING ACTIVITIES:
Income from continuing operations $ 5,192 $ 5,474 $ 3,635
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Equity from earnings in Bancorp (11,380) (10,551) (8,264)
Equity from loss (earnings) in other subsidiaries 633 (595) (1,188)
Depreciation 24 25 5
Provision for deferred income taxes 2,556 2,660 1,745
Loss on investment securities 499 920 1,776
Proceeds from escrow for called debenture liability -- -- 2,455
Advances from other subsidiaries 503 1,538 4,837
Increase in loans receivable (2,991) (1,184) --
Decrease (increase) in other assets 49 1,671 (529)
Increase (decrease) in other liabilities 212 719 (144)
-------- -------- --------
Net cash (used in) provided by operating activities (4,703) 677 4,328
-------- -------- --------
INVESTING ACTIVITIES:
Common stock dividends received from Bancorp 1,581 1,468 1,288
Increase in securities available for sale (173) (100) (2,637)
-------- -------- --------
Net cash provided by (used in) investing activities 1,408 1,368 (1,349)
-------- -------- --------
FINANCING ACTIVITIES:
Borrowings 1,500 4,515 --
Repayment of borrowings -- (4,080) (4,000)
Retirement of common stock (319) -- --
Issuance of common stock upon exercise of stock options 205 54 --
-------- -------- --------
Net cash provided by (used in) financing activities 1,386 489 (4,000)
-------- -------- --------
(Decrease) increase in cash and cash equivalents (1,909) 2,534 (1,021)
Cash at beginning of period 2,706 172 1,193
-------- -------- --------
Cash at end of period $ 797 $ 2,706 $ 172
======== ======== ========
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Interest paid on borrowings 302 349 535
Income taxes paid -- -- 69
Decrease in investment in venture partnerships
resulting from the distribution of its
securities investment (506) -- --
Increase in securities available for sale
resulting from venture partnerships
distribution of its securities investment 506 -- --
Change in stockholders' equity resulting from net
change in other comprehensive income, net of taxes (1,824) (2,335) 10,117
Transfer from escrow accounts to reflect
payments on subordinated debentures -- -- 163
Net (loss) effect of Bancorp capital transactions,
net of income taxes (15) (1,636) (102)
132
18. SELECTED QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the quarterly results of operations for the years
ended December 31, 2002 and 2001 (in thousands except for per share data):
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER TOTAL
--------- --------- --------- --------- ---------
Interest income $ 67,914 $ 82,778 $ 83,607 $ 75,825 $ 310,124
Interest expense 35,301 40,033 40,163 37,618 153,115
--------- --------- --------- --------- ---------
Net interest income 32,613 42,745 43,444 38,207 157,009
Provision for loan losses 2,565 6,139 2,082 3,291 14,077
--------- --------- --------- --------- ---------
Net interest income after provision for loan
losses 30,048 36,606 41,362 34,916 142,932
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and minority interest 18,551 (9,719) 20,021 24,287 53,140
Provision (benefit) for income taxes 6,138 (2,986) 7,019 8,125 18,296
Minority interest in income
of consolidated subsidiaries (2,042) 15,218 11,181 13,937 38,294
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 14,455 (21,951) 1,821 2,225 (3,450)
Extraordinary item, net of taxes -- 23,810 (61) -- 23,749
Cumulative effect of a change in accounting
principle, net of tax (15,107) -- -- -- (15,107)
--------- --------- --------- --------- ---------
Net income (loss) $ (652) $ 1,859 $ 1,760 $ 2,225 $ 5,192
========= ========= ========= ========= =========
Basic earnings (loss) per share from
continuing operations $ 1.81 $ (2.74) $ 0.23 $ 0.28 $ (0.43)
Basic earnings (loss) from extraordinary
items -- 2.97 (0.01) -- 2.97
Basic loss per share from cumulative effect
of a change in accounting principle (1.89) -- -- -- (1.89)
--------- --------- --------- --------- ---------
Basic earnings (loss) per share $ (0.08) $ 0.23 $ 0.22 $ 0.28 $ 0.65
========= ========= ========= ========= =========
Diluted earnings (loss) per share from
continuing operations $ 1.59 (2.74) 0.19 0.23 (0.46)
Diluted earnings (loss) from extraordinary
items -- 2.97 (0.01) -- 2.91
Diluted loss per share from cumulative
effect of a change in accounting principle (1.65) -- -- -- (1.85)
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share $ (0.06) $ 0.23 $ 0.18 $ 0.23 $ 0.60
========= ========= ========= ========= =========
Basic weighted average number of common
shares outstanding 8,004 8,011 7,988 7,985 7,997
========= ========= ========= ========= =========
Diluted weighted average number of common
shares outstanding 8,939 8,011 8,837 8,761 7,997
========= ========= ========= ========= =========
During the first quarter, the cumulative effect of a change in accounting
principle resulted from the implementation of FASB Statement No. 142. Based on
the accounting principles of the new statement, the goodwill associated with the
Ryan Beck reportable segment was deemed impaired, resulting in the $15.1 million
charge, net of tax. The second quarter loss from continuing operations resulted
from a $19.7 million impairment of equity investments, a $1.0 million
restructuring charge associated with the discontinuation of ATM relationships
and $3.9 million of acquisition related expenses, partially offset by a $930,000
reduction in Levitt's deferred tax valuation allowance. The extraordinary gain
during the second quarter resulted from the Gruntal transaction as the fair
value of net assets acquired exceeded the cost. During the fourth quarter,
Levitt reduced its deferred tax valuation allowance by $1.8 million,
BankAtlantic increased its unassigned component of its allowance for loan losses
by $4.9 million and an amendment to a supplemental bonus plan resulted in a $1.4
million reduction in compensation expense.
133
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
Interest income $ 86,349 $ 83,761 $ 83,186 $ 72,705 $326,001
Interest expense 54,274 50,341 45,829 38,394 188,838
-------- -------- -------- -------- --------
Net interest income 32,075 33,420 37,357 34,311 137,163
Provision for loan losses 2,761 4,040 7,258 2,846 16,905
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses 29,314 29,380 30,099 31,465 120,258
-------- -------- -------- -------- --------
Income before income taxes and minority
interest 11,695 11,641 9,583 15,056 47,975
Provision for income taxes
5,509 5,273 7,332 7,146 25,260
Minority interest in income
of consolidated subsidiaries 4,969 4,983 1,618 6,809 18,379
-------- -------- -------- -------- --------
Income from continuing operations
1,217 1,385 633 1,101 4,336
Cumulative effect of a change in
accounting
Principle, net of tax 1,138 -- -- -- 1,138
-------- -------- -------- -------- --------
Net income $ 2,355 $ 1,385 $ 633 $ 1,101 $ 5,474
Amortization of goodwill, net of tax 218 215 158 144 735
-------- -------- -------- -------- --------
Net income adjusted to exclude goodwill
amortization $ 2,573 1,600 791 1,245 6,209
-------- -------- -------- -------- --------
Basic earnings per share from
continuing operations $ 0.15 $ 0.17 $ 0.08 $ 0.14 $ 0.55
Basic earnings per share from cumulative
effect of a change in accounting principle 0.14 -- -- -- 0.14
-------- -------- -------- -------- --------
Basic earnings per share $ 0.29 $ 0.17 $ 0.08 $ 0.14 $ 0.69
Basic earnings per share from
amortization of goodwill
0.03 0.03 0.02 0.02 0.09
-------- -------- -------- -------- --------
Basic earnings per share adjusted to
exclude goodwill amortization $ 0.32 0.20 0.10 0.16 0.78
======== ======== ======== ======== ========
Diluted earnings per share from
continuing operations (as restated) $ 0.12 0.12 0.04 0.11 0.38
Diluted earnings per share from
cumulative effect of a change in
accounting principle 0.12 -- -- -- 0.12
-------- -------- -------- -------- --------
Diluted earnings per share (as restated) $ 0.24 $ 0.12 $ 0.04 $ 0.11 $ 0.50
Diluted earnings per share from
amortization of goodwill 0.02 0.02 0.02 0.01 0.07
-------- -------- -------- -------- --------
Diluted earnings per share adjusted to
exclude goodwill amortization $ 0.26 0.14 0.06 0.12 0.57
======== ======== ======== ======== ========
Basic weighted average number of common
shares outstanding 7,957 7,957 7,957 7,957 7,957
======== ======== ======== ======== ========
Diluted weighted average number of common
shares outstanding 8,552 8,722 8,938 8,857 8,773
======== ======== ======== ======== ========
134
SFAS No.128 requires that the diluted earnings per share computation take into
consideration the potential dilution from securities issued by a subsidiary that
enable their holders to obtain the subsidiary's common stock. The Company's
diluted earnings per share from continuing operations computations have not been
taking this dilution into effect. Therefore, it is necessary to restate
previously reported diluted earnings per share for prior years.
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
AS PREVIOUSLY REPORTED:
Diluted earnings per share before cumulative effect
of a change in accounting principle $0.14 0.16 0.07 0.12 0.49
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.13 -- -- -- 0.13
----- ----- ----- ----- -----
Diluted earnings per share $0.27 0.16 0.07 0.12 0.62
----- ----- ----- ----- -----
AS RESTATED:
Diluted earnings per share before cumulative effect
of a change in accounting principle $0.12 0.12 0.04 0.11 0.38
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.12 -- -- -- 0.12
----- ----- ----- ----- -----
Diluted earnings per share $0.24 0.12 0.04 0.11 0.50
----- ----- ----- ----- -----
Included in net income during the third quarter of 2001 was a $6.6 million
impairment of goodwill relating to Bancorp's leasing subsidiary. Included in
interest income during the third quarter was $2.8 million of discount accretion
from the repayment of a commercial real estate loan. Net income during the
fourth quarter was impacted by a $2.6 million litigation accrual associated with
Levitt.
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107").
Management has made estimates of fair value that it believes to be reasonable.
However, because there is no market for many of these financial instruments,
management has no basis to determine whether the fair value presented would be
indicative of the value negotiated in an actual sale. The Company's fair value
estimates do not consider the tax effect that would be associated with the
disposition of the assets or liabilities at their fair value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, and each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and non-performing categories.
The fair value of performing loans, except residential mortgage and adjustable
rate loans, is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the credit
and interest rate risk inherent in the loan. The estimate of average maturity is
based on BankAtlantic's historical experience with prepayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows, which are adjusted for
national historical prepayment estimates. The discount rate is based on
secondary market sources and is adjusted to reflect differences in servicing and
credit costs.
Fair values of non-performing loans are based on the assumption that the loans
are on a non-interest received status, discounted at market rates during a 24
month work-out period. Assumptions regarding credit risk are determined using
available market information and specific borrower information.
The book value of tax certificates approximates market value. The fair value of
mortgage-backed and investment securities is estimated based upon a price matrix
obtained from a third party.
Under FAS 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, should be considered the same as book value. The fair
value of
135
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using current rates offered by
BankAtlantic for similar remaining maturities.
The book value of securities sold under agreements to repurchase approximates
fair value.
The fair value of advances from FHLB is based on discounted cash flows using
rates offered for debt with comparable terms to maturity and issuer credit
standing.
The fair value of convertible subordinated debentures was based on quoted market
prices on NASDAQ. The fair values of other subordinated debentures, trust
preferred securities, notes payable and brokerage margin account were based on
discounted value of contractual cash flows at a market discount rate.
The following table presents information for the Company's financial instruments
at December 31, 2002 and 2001 (in thousands):
DECEMBER 31, 2002 DECEMBER 31, 2001
---------- ---------- ---------- ----------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Financial assets:
Cash and other short term investments $ 252,577 $ 252,577 $ 124,539 $ 124,539
Securities available for sale 713,131 713,131 859,483 859,483
Securities owned 186,454 186,454 68,296 68,296
Investment securities 212,240 212,698 428,718 434,470
Loans receivable including loans held for sale,
net 3,377,870 3,429,711 2,776,624 2,823,933
Financial liabilities:
Deposits $2,920,555 $2,940,848 $2,276,567 $2,287,898
Securities sold under agreements to repurchase
and federal funds purchased 116,279 116,279 467,070 467,070
Advances from FHLB 1,297,170 1,386,648 1,106,030 1,126,479
Subordinated debentures, notes and bonds payable 209,068 210,665 145,484 142,935
Guaranteed preferred beneficial interests in
Bancorp's junior subordinated debentures 180,375 180,479 74,750 73,405
The carrying amount and fair values of BankAtlantic's commitments to extend
credit, standby letters of credit, financial guarantees and forward FHLB
commitments are not significant. (See Note 14 for the contractual amounts of
BankAtlantic's financial instrument commitments)
DERIVATIVES
During the year ended December 31, 2002, the derivatives utilized by Bancorp
included interest rate swaps and forward contracts. Interest rate swap
agreements are contracts between two entities that typically involve the
exchange of cash flows based on agreed-upon prices, rates and indices. Financial
forward contracts are agreements to buy financial instruments at a predetermined
future date and price. Bancorp uses interest rate swap contracts to manage its
interest rate risk. In connection with Bancorp's lending activities Bancorp
funds LIBOR based assets such as commercial real estate loans with fixed rate
time deposits. In issuing time deposits Bancorp is exposed to changes in
interest rates, which could adversely affect the fair value of the time deposits
if rates were to decline. To reduce this exposure Bancorp created fair value
hedges by entering into interest rate swap contracts to convert fixed rate time
deposits to a LIBOR floating rate. The time deposits are callable by Bancorp and
the interest rate swap contracts are callable by the counter-party. The hedged
deposits and swap contracts were recorded at fair value as an adjustment to
deposit interest expense, and receivables and payables from the swap contracts
were also recorded as an adjustment to deposit interest expense in the Company's
Statement of Operations for the years ended December 31, 2002 and 2001. During
the year ended December 31, 2002, interest rate swap contracts with a notional
amount of $40 million were called by the counter-party, resulting in Bancorp
redeeming $40 million of fixed rate time deposits.
Additionally, Bancorp also created cash flow hedges by entering into interest
rate swap contracts to hedge the variable cash flows relating to forecasted
interest payments on certain variable rate FHLB advances. Bancorp's risk
management strategy was to fix the variability of cash outflows on floating rate
advances at a rate of 5.09%. The changes in fair value of the interest rate swap
contracts designated as cash flow hedges were recorded in other comprehensive
income and the receivables and payables from the swap contracts were recorded as
an adjustment to interest expense on FHLB advances in the Company's Statement of
Operations for the year ended December 31, 2002 and 2001.
136
The following table outlines the notional amount and fair value of Bancorp's
interest rate swaps outstanding at December 31, 2002: (in thousands):
PAYING RECEIVING
NOTIONAL INDEX/FIXED INDEX/FIXED TERMINATION
AMOUNT FAIR VALUE AMOUNT AMOUNT DATE
------ ---------- ------ ------ ----
3 mo. LIBOR
Ten year callable receive fixed swaps $20,000 $ 544 less 11b 6.08% 2/14/2012
Seven and a half year 3 mo. LIBOR
Callable receive fixed swaps 13,000 316 less 11b 5.60% 9/19/2009
Five year pay fixed swaps 25,000 (2,445) 5.73% 3 mo. LI 1/5/2006
Three year pay fixed swaps $50,000 $ (2,146) 5.81% 3 mo. LI 12/28/2003
======= ========= ==== ======== ==========
Forward contract to purchase
Adjustable rate mortgages $39,128 $ 62
======= ========
The method used to estimate the fair value of the interest rate swaps was
discounted cash flows of the net change between the paying index and the
receiving index.
During the year ended December 31, 2000, Bancorp entered into a forward contract
to purchase the underlying collateral from a government agency pool of
securities in May 2005. The underlying collateral is five year hybrid adjustable
rate mortgage loans that will adjust annually after May 2005. The forward
contract was held for trading purposes and recorded at fair value.
20. EARNINGS (LOSS) PER SHARE
Restatement - SFAS No. 128 requires that the diluted earnings per share
computation take into consideration the potential dilution from securities
issued by a subsidiary that enable their holders to obtain the subsidiary's
common stock. The Company's diluted earnings per share computations have not
been taking this dilution into effect. Therefore, it is necessary to restate
previously reported diluted earnings per share for prior years.
FOR THE YEARS ENDED
DECEMBER 31,
2001 2000
---- ----
AS PREVIOUSLY REPORTED:
Diluted earnings per share before discontinued
operations and cumulative effect
of a change in accounting principle $0.49 $0.35
Diluted earnings per share from discontinued operations -- 0.08
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.13 --
----- -----
Diluted earnings per share $0.62 $0.43
===== =====
AS RESTATED:
Diluted earnings per share before discontinued
operations and cumulative effect
of a change in accounting principle $0.38 $0.28
Diluted earnings per share from discontinued operations -- 0.07
Diluted earnings per share from cumulative effect
of a change in accounting principle 0.12 --
----- -----
Diluted earnings per share $0.50 $0.35
===== =====
The Company has two classes of common stock outstanding. The two-class method is
not presented because the Company's capital structure does not provide for
different dividend rates or other preferences, other than voting rights, between
the two classes. The number of options considered outstanding shares for diluted
earnings per share is based upon application of the treasury stock method to the
options outstanding as of the end of the period. I.R.E. Realty Advisory Group,
Inc. ("RAG")
137
owns 1,375,000 of BFC Financial Corporation's Class A Common Stock and 500,000
shares of BFC Financial Corporation Class B Common Stock. Because the Company
owns 45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated from the
number of shares outstanding for purposes of computing earnings per share.
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computation for the years ended December 31, 2002,
2001 and 2000.
138
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
(In thousands, except per share data) 2002 2001 2000
------------------------------------- ---- ---- ----
BASIC EARNINGS PER SHARE
(Loss) income before discontinued operations, extraordinary items
and cumulative effect of a change in accounting principle $ (3,450) 4,336 2,966
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
Basic (loss) earnings per share before discontinued operations,
extraordinary items and cumulative effect of a change in accounting principle (0.43) 0.55 0.37
===== ===== =====
Income from discontinued operations, net of taxes -- -- 669
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
Basic earnings per share from discontinued operations -- -- 0.09
===== ===== =====
Extraordinary items, net of taxes 23,749 -- --
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
Basic earnings per share from extraordinary items 2.97 -- --
===== ===== =====
Cumulative effect of a change in accounting principle, net of taxes (15,107) 1,138 --
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
Basic (loss) earnings per share from cumulative effect of a change
in accounting principle (1.89) 0.14 --
===== ===== =====
Net income 5,192 5,474 3,635
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
BASIC EARNINGS PER SHARE 0.65 0.69 0.46
===== ===== =====
Amortization of goodwill, net of tax -- 735 791
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
Basic earnings per share from amortization of goodwill -- 0.09 0.10
===== ===== =====
Net income adjusted to exclude goodwill amortization 5,192 6,209 4,426
Basic weighted average number of common shares outstanding 7,997 7,957 7,957
----- ----- -----
BASIC EARNINGS PER SHARE ADJUSTED TO EXCLUDE GOODWILL AMORTIZATION $ 0.65 0.79 0.56
===== ===== =====
DILUTED EARNINGS PER SHARE
(Loss) income before discontinued operations, extraordinary items
and cumulative effect of a change in accounting principle $ (3,450) 4,336 2,966
Dilution from securities issuable by a subsidiary (262) (1,033) (600)
----- ----- -----
Income available after assumed dilution (3,712) 3,303 2,366
----- ----- -----
Basic weighted average shares outstanding 7,997 7,957 7,957
Common stock equivalents resulting from stock-based compensation -- 816 564
----- ----- -----
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
Diluted (loss) earnings per share before discontinued operations,
extraordinary items and cumulative effect of a change in accounting principle (0.46) 0.38 0.28
===== ===== =====
Income from discontinued operations, net of taxes -- -- 669
Dilution from securities issuable by a subsidiary -- -- (65)
----- ----- -----
Income from discontinued operations, net of taxes after assumed
dilution -- -- 604
----- ----- -----
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
Diluted earnings per share from discontinued operations -- -- 0.07
===== ===== =====
Extraordinary items, net of taxes 23,749 -- --
Dilution from securities issuable by a subsidiary (511) -- --
----- ----- -----
Extraordinary items, net of tax after assumed dilution 23,238 -- --
----- ----- -----
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
Diluted earnings per share from extraordinary items 2.91 -- --
===== ===== =====
Cumulative effect of a change in accounting principle, net of taxes (15,107) 1,138 --
Dilution from securities issuable by a subsidiary 325 (97) --
----- ----- -----
Cumulative effect of a change in accounting principle, net of taxes
after assumed dilution (14,782) 1,041 --
----- ----- -----
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
Diluted (loss) earnings per share from cumulative effect of a
change in accounting principle (1.85) 0.12 --
===== ===== =====
Net Income available after assumed dilution 4,744 4,344 2,970
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
DILUTED EARNINGS PER SHARE 0.60 0.50 0.35
===== ===== =====
Amortization of goodwill, net of tax -- 735 791
Dilution from securities issuable by a subsidiary -- (94) (137)
----- ----- -----
Dilution income from amortization of goodwill, net of tax -- 641 654
----- ----- -----
Diluted weighted average shares outstanding 7,997 8,773 8,521
----- ----- -----
Diluted earnings per share from amortization of goodwill -- 0.07 0.07
===== ===== =====
Income available after assumed dilution adjusted to exclude goodwill
amortization 4,744 4,985 3,624
----- ----- -----
Diluted weighted average number of common shares outstanding 7,997 8,773 8,521
----- ----- -----
DILUTED EARNINGS PER SHARE ADJUSTED TO EXCLUDE GOODWILL AMORTIZATION $ 0.60 0.57 0.42
===== ===== =====
139
21. REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND JOINT VENTURES
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
DECEMBER 31
===========
2002 2001
==== ====
Land and land development costs $161,826 $114,499
Construction costs 23,412 17,949
Other costs 12,888 9,985
Investments and loans to joint ventures 51,904 35,840
Other 6,371 4,890
-------- --------
Total $256,401 $183,163
======== ========
BankAtlantic had commitments to loan an additional $4.9 million to joint
ventures at December 31, 2002. Additionally, BankAtlantic has issued standby
letters of credit to unrelated third parties in the aggregate amount of $6.0
million guaranteeing the performance of various joint ventures.
Real estate held for development and sale and joint venture activities consisted
of the combined activities of Core Communities and Levitt and Sons as well as
Levitt Corporation's joint venture activities and a joint venture acquired in
connection with the Community acquisition. These joint ventures are in various
stages of development. The required equity investments associated with the joint
ventures at the inception of the project ranged from 44.5% - 90% of the total
venture equity with profit sharing of 40% - 50% in future years. BankAtlantic's
investment and advances to the joint venture development acquired in connection
with the Community acquisition was $30.6 million at December 31, 2002.
BankAtlantic's loans to joint ventures have resulted in deferral of the
recognition of interest income on the financing activity and/or the deferral of
profit recognition from the joint venture. The less than 50% owned joint
ventures are accounted for under the equity method of accounting and primarily
develop residential and multifamily properties. Other real estate held for sale
consisted of commercial property acquired in connection with the Community
acquisition.
The components of gains on sales of real estate developed for resale were as
follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2002 2001 2000
---- ---- ----
Sales of real estate $207,808 $144,677 $107,393
Cost of sales on real estate 159,675 109,637 83,809
-------- -------- --------
Gains on sales of real estate 48,133 35,040 23,584
Equity in joint venture earnings 3,517 2,888 1,141
-------- -------- --------
Gains on sales of real estate held for
sale and joint venture activities $ 51,650 $ 37,928 $ 24,725
======== ======== ========
140
The Condensed Combined Statements of Financial Condition and Condensed Combined
Statements of Operations for joint ventures is as follows for 2002 and 2001:
(Unaudited)
CONDENSED COMBINED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------
(IN THOUSANDS) 2002 2001
- -------------- ---- ----
Real estate assets $70,367 $48,234
Other assets 6,846 10,158
------- -------
Total Assets $77,213 $58,392
======= =======
Notes payable - BankAtlantic $58,341 $28,832
Other notes payable 11,041 3,445
Other liabilities 6,923 11,665
------- -------
Total Liabilities 76,305 43,942
Partners' capital 908 14,450
------- -------
Total Liabilities and Partners' Capital $77,213 $58,392
======= =======
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2002 2001 2000
---- ---- ----
(IN THOUSANDS)
Revenues $47,179 $79,655 $74,487
Selling, general and administrative expenses 44,051 74,617 68,055
------- ------- -------
Net income (1) $ 3,128 $ 5,038 $ 6,432
======= ======= =======
(1) Included in the Company's share of net income from joint ventures was the
deferral of interest income associated with loans to joint ventures and
the subsequent recognition of the deferred income as a reduction in cost
of sales when the real estate is sold.
141
The Condensed Statements of Financial Condition and Condensed Statements of
Operations for Bluegreen Corporation is as follows for December 31, 2002 and
from acquisition date through December 31, 2002:
BLUEGREEN CORPORATION
DECEMBER 31, 2002
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Contracts and notes receivable $122,253
Inventory, net 173,131
Other assets 138,608
--------
Total assets $433,992
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line-of-credit, notes, and debentures $184,140
Deferred income taxes 31,122
Other liabilities 57,205
--------
Total liabilities 272,467
Minority interest 3,242
Total stockholders' equity 158,283
--------
Total liabilities and stockholders' equity $433,992
========
BLUEGREEN CORPORATION
FROM ACQUISITION DATE THROUGH DECEMBER 31, 2002
(UNAUDITED)
(IN THOUSANDS)
Gross profit on sales of real estate and other $144,885
Operating and corporate expenses 128,308
--------
Operating profit 16,577
Other income, net 5,181
Net interest income 2,411
--------
INCOME BEFORE TAXES 24,169
Provision for income taxes 8,793
--------
NET INCOME $ 15,376
========
22. RELATED PARTY TRANSACTIONS
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp and
BankAtlantic. Alan B. Levan is also Chairman of the Board of Bluegreen
Corporation and Levitt.
John E. Abdo, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of BankAtlantic Bancorp and BankAtlantic and
is a director and President of Levitt Corporation, a wholly owned subsidiary of
BankAtlantic Bancorp. John E. Abdo is also Vice Chairman of the Board of
Bluegreen Corporation.
Glen R. Gilbert, Executive Vice President of the Company also serves as
Executive Vice President of Levitt Corporation.
142
During 1998, Levitt Corporation entered into an agreement with the Abdo
Companies, Inc., a company in which Mr. Abdo is the principal shareholder and
CEO, whereby Abdo Companies receives monthly management fees from Levitt. Levitt
also pays the Company for management and accounting services provided to them.
The amounts paid may not be representative of the amount that would be paid in
an arms=length transaction. Management fees to/from related parties for the
years ended December 31, 2002, 2001 and 2000 consisted of (in thousands):
YEAR ENDED DECEMBER 31,
2002 2001 2000
---- ---- ----
Abdo Companies $ 291 291 475
====== === ===
Levitt Corporation $ 170 80 80
====== == ==
Other affiliates $ 41 44 42
====== == ==
The Company paid BankAtlantic approximately $67,000 during 2002 for office space
used by the Company in BankAtlantic's headquarters and for miscellaneous
administrative and other related expenses. BankAtlantic provided certain
administrative services to Bluegreen in 2002 without receipt of payment for such
services.
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo and certain of his affiliates (the "Abdo Group"). Under the
arrangement, the Company and the Abdo Group share equally in profits after
interest earned by the Company on advances made by the Company. The Company
bears any risk of loss under the arrangement with the Abdo Group. Pursuant to
this arrangement with the Abdo Group, in December 1994, an entity controlled by
the Company acquired from an unaffiliated seller approximately 70 acres of
unimproved land known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 2001, all of the project except for land under two pylon
signs, a cell tower site and the lake had been sold to unaffiliated third
parties for approximately $21.4 million and the Company recognized net gains
from the sales of real estate of approximately $4.8 million. The Abdo Group
received approximately $2.6 million in 2000 from the Company for their real
estate sales profit participation.
During 1999 and 2000, the Company (without consideration of BankAtlantic
Bancorp) acquired interests in unaffiliated technology entities. During 2000 and
2001, the Company's interests in the technology entities were transferred at the
Company's cost to specified asset limited partnerships. Subsidiaries of the
Company are the controlling general partners of these venture partnerships, and
therefore, they are consolidated in these financial statements. Interests in
such partnerships were sold in 2000 and 2001 to accredited investors in private
offerings. During 2000, approximately $5.1 million of capital was raised by
these partnerships from unaffiliated third parties, as well as officers,
directors and affiliates of the Company who invested approximately $4.4 million
in the partnerships. The Company and the general partners retained ownership
interests of approximately $1.8 million. Additionally, during 2001,
approximately $895,000 of capital was raised from unaffiliated third parties by
one of these partnerships and officers, directors and affiliates of the Company
invested approximately $1.3 million in the partnership. The Company and the
general partners retained ownership interests of approximately $3.8 million
increasing the Company's total investment in these partnerships to an aggregate
of $5.6 million. Of the $1.3 million, invested by officers, directors and
affiliates, Alan Levan and Jack Abdo each borrowed $500,000 from the Company on
a recourse basis and Glen Gilbert, Executive Vice President, and Earl Pertnoy, a
director of the Company each borrowed $50,000 on a non=recourse basis to make
their investments. Such amounts were still outstanding at the end of the year
(except for John Abdo's $500,000 loan which is discussed below), bear interest
at the prime rate plus 1% and are payable interest only annually with the entire
balance due in February 2006. After the limited partners receive a specified
return from the partnerships, the general partners are entitled to receive 20%
of all cash distributions from the partnerships. The general partners are
limited liability companies of which the members are: BFC Financial Corporation
- - 57.5%, John E. Abdo - 13.75%; Alan B. Levan - 9.25%; Glen R. Gilbert - 2.0%
and John E. Abdo, Jr. - 17.5%. Losses net of minority interests for the year
ended December 31, 2002 were $766,000. At December 31, 2002, the Company's net
investment in these partnerships was $2.4 million.
On July 16, 2002, John Abdo borrowed $3.5 million from the Company on a recourse
basis and paid off his existing $500,000 loan due to BFC. The $3.5 million loan
bears interest at the prime rate plus 1%, requires monthly interest payments, is
due on demand and is secured by 1,019,564 shares of BFC Class A Common Stock and
370,750 shares of BFC Class B Common Stock.
During 1999, BFC Financial Corporation entered into an agreement with John E.
Abdo, Jr., son of John E. Abdo, a Director and Vice Chairman of the Board.
Pursuant to the agreement, the Company will pay to John E. Abdo, Jr. an amount
equal to 1% of the amount of the Company's investment in venture capital
investments identified by him for the Company and will
143
grant him a profit participation of 3=1/2% of the net profit realized by the
Company through his interest in the general partner of the technology venture
partnership that receives the identified investment. Additionally, the Company
pays him an expense allowance of $300 per month. During 2002, the Company paid
John E. Abdo, Jr. expense allowances of $3,600 pursuant to the agreement.
An affiliated limited partnership, BankAtlantic Bancorp and affiliates of the
Company are investors in a privately held technology company located in Boca
Raton, Florida. The affiliated limited partnership invested $2 million in
219,300 shares in the technology company's common stock, which shares were
acquired in October 2000 at a price per share of $9.12. At December 31, 2001,
the carrying value of this investment by the limited partnership had been
written down to $4.95 per share. BankAtlantic Bancorp invested $15 million in
3,033,386 shares of the technology company's common stock in cash and by
issuance to the technology company of 748,000 shares of BankAtlantic Bancorp
Class A Common Stock. BankAtlantic Bancorp's shares in the technology company
were acquired in October 1999 at an average price per share of $4.95. Both Alan
B. Levan and John E. Abdo joined the Board of the technology company. Alan B.
Levan owns or controls direct and indirect interests in an aggregate of 286,709
shares of the technology company common stock, purchased at an average price per
share of $8.14 and Mr. John E. Abdo owns or controls direct and indirect
interests in an aggregate of 368,408 shares of the technology company common
stock purchased at an average price per share of $7.69. Jarett Levan, a director
of BankAtlantic Bancorp and Senior Vice President of BankAtlantic, has an
indirect ownership interest in an aggregate of 350 shares of such common stock,
and Bruno DiGiulian, a director of BankAtlantic Bancorp, has an indirect
ownership interest in 1,754 shares of such common stock. BFC and its affiliates
collectively own approximately 7% in the technology company's outstanding common
stock. The technology company also served as an Application Service Provider
("ASP") for BankAtlantic Bancorp for one customer service information technology
application. This ASP relationship was in the ordinary course of business, and
fees aggregating approximately $155,000, $169,000 and $368,000 were paid by
BankAtlantic Bancorp to the technology company for its services during the years
ended December 31, 2002, 2001 and 2000, respectively. The ASP relationship was
terminated effective September 2002. During 2001, Mr. Levan and Mr. Abdo
resigned from the Board of Directors of the technology company and initiated a
lawsuit on behalf of the Company and others against the founder of the
technology company, personally, regarding his role. The Company, BankAtlantic
Bancorp and other owners in the technology company who are parties to the
lawsuit will share in legal fees incurred in connection with the litigation and
in any recovery in proportion to their respective interests. In early 2003, the
technology company initiated a lawsuit against BankAtlantic Bancorp seeking to
have a restrictive legend on its BankAtlantic Bancorp's Class A Common Stock
removed.
During the year ended December 31, 2002, the Company performed an additional
evaluation of its investment in the technology company to determine if there was
an other than temporary decline in value associated with this investment. As a
consequence, of this evaluation, included in the Company's statement of
operations during the year ended December 31, 2002 was a $15.6 million
impairment charge, net of minority interest, for the write off of BankAtlantic
Bancorp's and the limited partnership's investment in the technology company.
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment, approximately $441,000, was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. During 1999, the Company
received distributions of approximately $588,000 from the partnership due to the
sale of 31 of 34 convenience stores that it owned. During each of the years 2002
and 2001, the Company received distributions of approximately $25,000 from the
partnership.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan
may be deemed to beneficially be the principal shareholder and is a member of
the Board of Florida Partners Corporation. Glen R. Gilbert, Executive Vice
President and Secretary of the Company holds similar positions at Florida
Partners Corporation.
The Company and its subsidiaries utilized certain services of Ruden, McClosky,
Smith, Schuster & Russell, P.A. ("Ruden, McClosky"), a law firm to which Bruno
DiGiulian, a director of BankAtlantic Bancorp, is of counsel. Fees aggregating
$1.0 million, $793,000 and $166,000 were paid to Ruden, McClosky by the Company
and its subsidiaries for each of the years in the three year period ended
December 31, 2002. Ruden, McClosky also represents Alan B. Levan and John E.
Abdo with respect to certain other business interests.
Alan B. Levan and John E. Abdo have investments or are partners in real estate
joint ventures with developers, which developers, in connection with other
ventures, have loans from BankAtlantic or are partners in joint ventures with
Levitt Corporation.
144
Certain officers of Levitt Corporation or its subsidiaries have minority
ownership interests in joint venture partnerships in which Levitt is also a
limited or general partner.
The BankAtlantic Foundation is a non=profit foundation established by
BankAtlantic. During 2002, the Foundation made donations aggregating $350,000,
including $50,000 to the Broward Community College Foundation, $15,000 to the
Florida Grand Opera, $8,320 to the Leadership Broward Foundation, $4,250 to
ArtServe, $3,000 to the Broward Performing Arts Foundation and $2,500 to the
Boys & Girls Club of Broward. Alan Levan sits on the Boards of the Broward
Community College Foundation and the Florida Grand Opera, Jarett Levan sits on
the Boards of the Leadership Broward Foundation and ArtServe, John E. Abdo is
Chairman of the Board of the Broward Performing Arts Foundation and Charlie C.
Winningham, II is on the Board of the Boys & Girls Club of Broward.
Included in BFC's other assets at December 31, 2002 and 2001 was approximately
$391,000 and $396,000, respectively due from affiliates.
23. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is regularly reviewed by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Results of operations are reported through seven
operating segments. Interest expense and certain revenue and expense items are
allocated to the various segments as interest expense and overhead. The
presentation and allocation of interest expense and overhead and the net
contribution for the operating segments may not reflect the actual economic
costs, contribution or results of operations of the unit as a stand alone
business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating segments
into reportable segments:
REPORTABLE SEGMENT OPERATING SEGMENTS AGGREGATED
- ------------------ -----------------------------
Bank Investments Investments, tax certificates, residential loan purchases, CRA lending and real
estate capital services
Commercial Banking Commercial lending, syndications, international, lease finance and trade finance
and a real estate joint venture development
Community Banking Indirect and direct consumer lending, small business lending and ATM operations
Levitt Corporation Levitt Corporation, which includes Levitt and Sons, Core Communities, and real
estate joint ventures.
Ryan Beck & Co., Inc. Investment banking and brokerage operations
BankAtlantic Bancorp Parent Company Bancorp parent company's operations, costs of acquisitions, financing of
acquisitions, and equity investments
BFC Holding Company BFC's real estate owned which includes BMOC, Center Port and 50% interest in the
Delray property (sold in 2001). Loans receivable that relate to previously owned
properties, other securities and investments and BFC's overhead and interest
expense.
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated. The elimination entries consist
of the intercompany loan interest income and interest expense, management fees,
consulting fees, facilities rent and brokerage commission.
145
Segment performance is evaluated based on net contribution after tax. The
following tables presents segment information for income (loss) from continuing
operations for the three years ended December 31, 2002.
BANCORP
BANK LEVITT RYAN PARENT
(IN THOUSANDS) OPERATIONS CORPORATION BECK COMPANY
- -------------- ---------- ----------- ---- -------
2002
Interest income $ 297,092 $ 1,260 $ 12,935 $ 1,745
Interest expense (132,970) (389) (2,682) (17,439)
Provision for loan losses (14,077) -- -- --
Non-interest income 53,317 55,444 155,971 (17,324)
Non-interest expense (134,408) (30,548) (167,966) (2,392)
Segment profits and losses
before taxes 68,954 25,767 (1,742) (35,410)
Provision (benefit) for income taxes 23,845 6,254 (1,808) (12,415)
----------- --------- --------- ---------
Segment net income (loss) $ 45,109 $ 19,513 $ 66 $ (22,995)
=========== ========= ========= =========
Segment average assets $ 4,699,579 $ 264,559 $ 189,523 $ 100,296
=========== ========= ========= =========
Equity method investments
included in total assets $ 23,602 $ 61,583 $ -- $ 1,934
=========== ========= ========= =========
Expenditures for segment assets $ 299 $ -- $ 2,285 $ --
=========== ========= ========= =========
Depreciation and amortization $ (5,113) $ (131) $ (1,225) $ (690)
=========== ========= ========= =========
BFC
HOLDING ELIMINATION SEGMENT
(IN THOUSANDS) COMPANY ENTRIES TOTAL
- -------------- ------- ------- -----
2002
Interest income $ 354 $ (3,262) $ 310,124
Interest expense (1,153) 1,518 (153,115)
Provision for loan losses -- -- (14,077)
Non-interest income (422) 910 247,896
Non-interest expense (3,208) 834 (337,688)
Segment profits and (losses)
before taxes (4,429) -- 53,140
Provision (benefit) for income taxes 2,420 -- 18,296
-------- --------- -----------
Segment net income (loss) $ (6,849) $ -- $ 34,844
======== ========= ===========
Segment average assets $ 20,569 $ 156,073 $ 5,430,599
======== ========= ===========
Equity method investments
included in total assets $ -- $ -- $ 87,119
======== ========= ===========
Expenditures for segment assets $ -- $ -- $ 2,584
======== ========= ===========
Depreciation and amortization $ (490) $ -- $ (7,649)
======== ========= ===========
146
BANCORP
BANK LEVITT RYAN PARENT
(IN THOUSANDS) OPERATIONS CORPORATION BECK COMPANY
- -------------- ---------- ----------- ---- -------
2001
Interest income $ 324,732 $ 1,989 $ 1,978 $ 229
Interest expense (171,010) (180) (517) (18,297)
Provision for loan losses (16,905) -- -- --
Non-interest income 37,457 36,603 44,683 4,226
Non-interest expense (103,353) (26,772) (48,170) (13,071)
Segment profits and losses
before taxes 70,921 11,640 (2,026) (26,913)
Provision (benefit) for income taxes 26,292 4,118 (709) (7,101)
----------- ---------- -------- --------
Segment net income (loss) $ 44,629 $ 7,522 $ (1,317) $(19,812)
=========== ========== ======== ========
Segment average assets $ 4,263,526 $ 173,437 $ 74,108 $ 99,220
=========== ========== ======== ========
Equity method investments
included in total assets $ -- $ 7,127 $ -- $ 1,107
=========== ========== ======== ========
Expenditures for segment assets $ 297 $ -- $ 1,003 $ --
=========== ========== ======== ========
Depreciation and amortization $ (3,612) $ (96) $ (1,580) $ (7,749)
=========== ========== ======== ========
BFC
HOLDING ELIMINATION SEGMENT
(IN THOUSANDS) COMPANY ENTRIES TOTAL
- -------------- ------- ------- -----
2001
Interest income $ 383 $ (3,310) $ 326,001
Interest expense (1,239) 2,405 (188,838)
Provision for loan losses -- -- (16,905)
Non-interest income (1,905) (85) 120,979
Non-interest expense (2,886) 990 (193,262)
Segment profits and losses
before taxes (5,647) -- 47,975
Provision (benefit) for income taxes 2,660 -- 25,260
-------- -------- -----------
Segment net income (loss) $ (8,307) $ -- $ 22,715
======== ======== ===========
Segment average assets $ 28,751 $ 85,036 $ 4,724,078
======== ======== ===========
Equity method investments
included in total assets $ -- $ -- $ 8,234
======== ======== ===========
Expenditures for segment assets $ -- $ -- $ 1,300
======== ======== ===========
Depreciation and amortization $ (570) $ -- $ (13,607)
======== ======== ===========
147
BANCORP
BANK LEVITT PARENT
(IN THOUSANDS) OPERATIONS CORPORATION RYAN BECK COMPANY
- -------------- ---------- ----------- --------- -------
2000
Interest income $ 326,893 $ 2,264 $ 2,151 $ 1,205
Interest expense (188,618) (1,315) (551) (20,588)
Provision for loan losses (29,132) -- -- --
Non-interest income 33,899 27,960 52,133 11,343
Non-interest expense (99,747) (18,746) (51,884) (7,335)
Segment profits and losses
before taxes 43,295 10,163 1,849 (15,375)
Provision for income taxes 14,794 3,208 982 (3,097)
----------- --------- -------- --------
Segment net income (loss) $ 28,501 $ 6,955 $ 867 $(12,278)
=========== ========= ======== ========
Segment average assets $ 4,009,179 $ 157,090 $ 43,890 $ 88,844
=========== ========= ======== ========
Equity method investments
included in total assets $ -- $ 7,559 $ -- $ 1,500
=========== ========= ======== ========
Expenditures for segment assets $ 250 $ -- $ 800 $ --
=========== ========= ======== ========
Depreciation and amortization $ (1,455) $ (78) $ (1,677) $ (2,946)
=========== ========= ======== ========
BFC
HOLDING ELIMINATION SEGMENT
(IN THOUSANDS) COMPANY ENTRIES TOTAL
- -------------- ------- ------- -----
2000
Interest income $ 1,005 $ (4,622) $ 328,896
Interest expense (1,394) 1,060 (211,406)
Provision for loan losses -- -- (29,132)
Non-interest income (1,907) 3,057 126,485
Non-interest expense (2,373) 505 (179,580)
Segment profits and losses
before taxes (4,669) -- 35,263
Provision for income taxes 1,755 -- 17,642
-------- ----------- -----------
Segment net income (loss) $ (6,424) $ -- $ 17,621
======== =========== ===========
Segment average assets $ 37,654 $ 94,375 $ 4,431,032
======== =========== ===========
Equity method investments
included in total assets $ -- $ -- $ 9,059
======== =========== ===========
Expenditures for segment assets $ -- $ -- $ 1,050
======== =========== ===========
Depreciation and amortization $ (556) $ -- $ (6,712)
======== =========== ===========
The changes in the carrying amount of goodwill for the year ended December 31,
2002 were as follows:
BANCORP
BANK PARENT
(In thousands) OPERATIONS RYAN BECK COMPANY TOTAL
- -------------- ---------- --------- ------- -----
Balance as of December 31, 2001 $16,155 $ 4,635 $ 19,069 $ 39,859
Community goodwill acquired 55,069 -- -- 55,069
Cumulative effect of changes in
accounting principles $(3,014) $(13,339) $(16,353)
------ ----- ----- ------
Balance as of December 31, 2002 $71,224 $ 1,621 $ 5,730 $ 78,575
====== ===== ===== ======
148
Bank Operations consists of three reportable segments. The table below is
segment information for income before extraordinary item and cumulative effect
of a change in accounting principle for the three years ended December 31, 2002:
BANK OPERATIONS
--------------------------------------------
BANK COMMERCIAL COMMUNITY BANK OPS
(In thousands) INVESTMENTS BANKING BANKING TOTAL
- -------------- ----------- ------- ------- -----
2002
Interest income $ 164,625 $ 106,746 $ 25,721 $ 297,092
Interest expense and overhead (113,908) (61,032) (15,142) (190,082)
Provision for loan losses (305) (12,533) (1,239) (14,077)
Direct non-interest income 5,136 5,748 9,616 20,500
Segment profits and losses
before taxes 44,337 25,694 (1,077) 68,954
Provision for income taxes (15,332) (8,885) 372 (23,845)
----------- ----------- --------- -----------
Segment net income (loss) $ 29,005 $ 16,809 $ (705) $ 45,109
=========== =========== ========= ===========
Segment average assets $ 2,639,070 $ 1,653,148 $ 407,361 $ 4,699,579
=========== =========== ========= ===========
Equity method investments
included in total assets $ -- $ 23,602 $ -- $ 23,602
=========== =========== ========= ===========
Expenditures for segment
assets $ -- $ 10 $ 289 $ 299
=========== =========== ========= ===========
Depreciation and amortization $ (4,715) $ (15) $ (383) $ (5,113)
=========== =========== ========= ===========
2001
Interest income $ 179,151 $ 118,430 $ 27,151 $ 324,732
Interest expense and overhead (135,160) (68,864) (16,325) (220,349)
Provision for loan losses 215 (21,096) 3,976 (16,905)
Direct non-interest income 919 3,074 11,073 15,066
Segment profits and losses
before taxes 39,383 25,413 6,125 70,921
Provision for income taxes (14,598) (9,420) (2,274) (26,292)
----------- ----------- --------- -----------
Segment net income $ 24,785 $ 15,993 $ 3,851 $ 44,629
=========== =========== ========= ===========
Segment average assets $ 2,571,246 $ 1,368,850 $ 323,430 $ 4,263,526
=========== =========== ========= ===========
Expenditures for segment
assets $ 137 $ 3 $ 157 $ 297
=========== =========== ========= ===========
Depreciation and amortization $ (2,534) $ (319) $ (759) $ (3,612)
=========== =========== ========= ===========
149
BANK OPERATIONS
BANK COMMERCIAL COMMUNITY BANK OPS
(In thousands) INVESTMENTS BANKING BANKING TOTAL
- -------------- ----------- ------- ------- -----
2000
Interest income $ 178,229 $ 115,426 $ 33,238 $ 326,893
Interest expense and overhead (145,565) (68,030) (20,229) (233,824)
Provision for loan losses (449) (15,866) (12,817) (29,132)
Direct non-interest income 731 2,359 11,693 14,783
Segment profits and losses
before taxes 27,474 28,072 (12,251) 43,295
Provision for income taxes (9,576) (9,825) 4,607 (14,794)
----------- ----------- --------- -----------
Segment net income (loss) $ 17,898 $ 18,247 $ (7,644) $ 28,501
=========== =========== ========= ===========
Segment average assets $ 2,484,625 $ 1,173,581 $ 350,973 $ 4,009,179
=========== =========== ========= ===========
Expenditures for segment
assets $ 35 $ 14 $ 201 $ 250
=========== =========== ========= ===========
Depreciation and amortization $ (1,870) $ 654 $ (239) $ (1,455)
=========== =========== ========= ===========
The changes in the carrying amount of goodwill for the year ended December 31,
2002 was as follows:
BANK OPERATIONS
---------------------------------------
BANK COMMERCIAL COMMUNITY BANK OPS
(In thousands) INVESTMENTS BANKING BANKING TOTAL
----------- ------- ------- -----
Balance as of December 31, 2001 $ 7,738 $ 8,208 $209 $16,155
Community goodwill acquired 26,584 27,769 716 55,069
------ ------ --- ------
Balance as of December 31, 2002 $34,322 $35,977 $925 $71,224
====== ====== === ======
Depreciation and amortization consist of: depreciation on property and
equipment, amortization of premiums and discounts on loans and investments,
amortization 'of cost over fair value of net assets acquired, and amortization
of the retention pool.
The reconciliation of consolidated segment income (loss) to consolidated income
(loss) before discontinued operations, extraordinary item and cumulative effect
of a change in accounting principle is as follows:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
---- ---- ----
(IN THOUSANDS)
Total segment profits (loss) $ 34,844 $22,715 $17,621
Minority interest in income of consolidated subsidiaries 38,294 18,379 14,655
-------- ------ ------
Income(loss) before extraordinary item and
cumulative effect of a change in accounting principle $ (3,450) $ 4,336 $ 2,966
======== ====== ======
24. SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $.01 par value preferred stock. The Board of Directors has
the authority to divide the authorized preferred stock into series or classes
having the relative rights, preferences and limitations as may be determined by
the Board of Directors without the prior approval of shareholders. The Board of
Directors has the power to issue this preferred stock on terms that would create
a preference over the Company's Common Stock with respect to dividends,
liquidation and voting rights. No further vote of security holders would be
required prior to the issuance of the shares.
150
The Company's Articles of Incorporation authorize the Company to issue both a
Class A Common Stock, par value $.01 per share and a Class B Common Stock, par
value $.01 per share. On May 22, 2002, the Company's Articles of Incorporation
were amended to, among other things, grant holders of the Company's Class A
Common Stock to one vote for each share held, which previously had no voting
rights except under limited circumstances provided by Florida law, with all
holders of Class A Common Stock possessing in the aggregate 22% of the total
voting power. Holders of Class B Common Stock have the remaining 78% of the
total voting power. When the number of shares of Class B Common Stock
outstanding decreases to 1,800,000 shares, the Class A Common Stock aggregate
voting power will increase to 40% and the Class B Common Stock will have the
remaining 60%. When the number of shares of Class B Common Stock outstanding
decreases to 1,400,000 shares, the Class A Common Stock aggregate voting power
will increase to 53% and the Class B Common Stock will have the remaining 47%.
Also, each share of Class B Common Stock is convertible at the option of the
holder thereof into one share of Class A Common Stock.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's Class B Common Stock to shareholders of record
on January 21, 1997. Each Right will become exercisable only upon the occurrence
of certain events, including the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing control shareholders (as
specified in the Rights Plan), and will entitle the holder to purchase either
BFC stock or shares in the acquiring entity at half the market price of such
shares. The Rights may be redeemed by the Board of Directors at $.01 per Right
until the tenth day following the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing controlling shareholders. The
Board may also, in its discretion, extend the period for redemption. The Rights
will expire on January 10, 2007.
25. SUBSEQUENT EVENT (UNAUDITED)
On February 14, 2003, Levitt filed a registration statement on Form S-1 for an
initial public offering by Levitt Corporation of up to $100 million of fixed
rate subordinated investment notes. No minimum amount of investment notes must
be sold and Levitt can terminate the offer at any time. Levitt does not intend
to use registered broker-dealers to assist with the sale of these securities.
The investment notes are subordinated to all existing and future senior
indebtedness of Levitt.
The registration statement relating to these investment notes has been filed
with the SEC but has not yet become effective. The investment notes may not be
sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This disclosure shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State. No prospectus meeting the requirements of Section 10 of the
Securities Act of 1933 is available at this time and it is not expected that one
will be available until the registration statement has been declared effective.
151
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Items 10 through 13 are incorporated by reference to the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission, no
later than 120 days after the end of the year covered by this Form 10-K, or,
alternatively, by amendment to this Form 10-K under cover of Form 10K/A not
later than the end of such 120 day period.
ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC reports.
CHANGES IN INTERNAL CONTROLS
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Our management, including our principal executive officer and principal
financial officer, does not expect that our disclosure controls and procedures
and internal controls will prevent all error and all improper conduct. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of improper conduct, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control.
Further, the design of any system of controls also is based in part upon
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
CEO AND CFO CERTIFICATIONS
Appearing immediately following the Signatures section of this report there are
Certifications of the principal executive officer and the principal financial
officer. The Certifications are required in accord with Section 302 of the
Sarbanes-Oxley Act of 2002. This Item of this report, which you are currently
reading, is the information concerning the evaluation referred to in the Section
302 Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.
153
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)-1 Financial Statements - See Item 8
(a)-2 Financial Statement Schedules - All schedules are omitted as the
required information is either not applicable or presented in the
financial statements or related notes.
(a)-3 Exhibits
The following exhibits are either filed as part of this Report or are
incorporated herein by reference to documents previously filed as indicated
below:
EXHIBIT
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
3.1 Articles of Incorporation, as amended and restated Exhibit 3.1 of Registrant's Registration
Statement on Form 8-A filed October 16, 1997
3.2 Amendment to Articles of Incorporation, as amended Exhibit 4 of Registrant's Registration Statement
and restated on Form 8-K filed June 18, 2002
3.3 By-laws Exhibit 3.2 of Registrant's Registration
Statement on Form 8-A filed October 16, 1997.
10.1 BFC Financial Corporation Stock Option Plan Exhibit A to Registrant's Definitive Proxy
Statement filed September 24, 1997.
12.1 Statement re computation of ratios - Ratio of Filed with this Report.
earnings to fixed charges
21.1 Subsidiaries of the registrant: Filed with this Report
23.1 Consent of KPMG LLP Filed with this Report
99.1 Certification of Alan B. Levan Filed with this Report
99.2 Certification of Glen R. Gilbert Filed with this Report
(b) Reports on Form 8-K
Filed on June 18, 2002, reporting an Amendment to the Company's Amended
and Restated Articles of Incorporation.
(c) Exhibits - See Item 15(a) - 3 above.
154
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BFC FINANCIAL CORPORATION
March 31, 2003 By: /s/ Alan B. Levan
-------------------------------------
Alan B. Levan, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ Alan B. Levan
- ---------------------
Alan B. Levan Chairman of the Board, President and Chief Executive
Officer
/s/ Glen R. Gilbert
- ---------------------
Glen R. Gilbert Executive Vice President And Chief Financial Officer
/s/ John E. Abdo
- ---------------------
John E. Abdo Vice Chairman of the Board
/s/ Earl Pertnoy
- ---------------------
Earl Pertnoy Director
/s/ Oscar J. Holzmann
- ---------------------
Oscar J. Holzmann Director
/s/ Neil A. Sterling
- ---------------------
Neil A. Sterling Director
155
I, Glen R. Gilbert, certify that:
1. I have reviewed this annual report on Form 10-K of
BFC Financial Corporation;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a. designed such disclosure controls
and procedures to ensure that
material information relating to
the registrant, including its
consolidated subsidiaries, is made
known to us by others within those
entities, particularly during the
period in which this annual report
is being prepared;
b. evaluated the effectiveness of the
registrant's disclosure controls
and procedures as of a date within
90 days prior to the filing date of
this annual report (the "Evaluation
Date"); and
c. presented in this annual report our
conclusions about the effectiveness
of the disclosure controls and
procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the
design or operation of internal
controls which could adversely
affect the registrant's ability to
record, process, summarize and
report financial data and have
identified for the registrant's
auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material,
that involves management or other
employees who have a significant
role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
By: /s/ Glen R. Gilbert
-----------------------
Glen R. Gilbert,
Chief Financial Officer
156
I, Alan B. Levan, certify that:
1. I have reviewed this annual report on Form 10-K of
BFC Financial Corporation;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a. designed such disclosure controls
and procedures to ensure that
material information relating to
the registrant, including its
consolidated subsidiaries, is made
known to us by others within those
entities, particularly during the
period in which this annual report
is being prepared;
b. evaluated the effectiveness of the
registrant's disclosure controls
and procedures as of a date within
90 days prior to the filing date of
this annual report (the "Evaluation
Date"); and
c. presented in this annual report our
conclusions about the effectiveness
of the disclosure controls and
procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the
design or operation of internal
controls which could adversely
affect the registrant's ability to
record, process, summarize and
report financial data and have
identified for the registrant's
auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material,
that involves management or other
employees who have a significant
role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect
internal controls subsequent to the date of our most
recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
By: /s/Alan B. Levan
-----------------------
Alan B. Levan,
Chief Executive Officer
157