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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission files number 001-13133

 

 

BankAtlantic Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   65-0507804

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2100 West Cypress Creek Road

Fort Lauderdale, Florida

  33309
(Address of principal executive offices)   (Zip Code)

(954) 940-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    x  YES    ¨  NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  YES    ¨  NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  YES    x  NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of Each Class

 

Outstanding at May 4, 2011

Class A Common Stock, par value $0.01 per share   61,980,071
Class B Common Stock, par value $0.01 per share   975,225

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I. FINANCIAL INFORMATION

  
         Page  

Reference

  
Item 1.  

Financial Statements

     3-34   
 

Consolidated Statements of Financial Condition – March 31, 2011 and December 31, 2010 - Unaudited

     3   
 

Consolidated Statements of Operations - For the Three Months ended March 31, 2011 and 2010 - Unaudited

     4   
 

Consolidated Statements of Equity and Comprehensive Income – For the Three Months Ended March 31, 2011 and 2010 - Unaudited

     5   
 

Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2011 and 2010 - Unaudited

     6-7   
 

Notes to Consolidated Financial Statements - Unaudited

     8-34   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     35-53   
Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

     54   
Item 4.  

Controls and Procedures

     54   

Part II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     55   
Item 1A.  

Risk Factors

     56   
Item 6.  

Exhibits

     56   
 

Signatures

     57   


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED

 

     March 31,     December 31,  
(In thousands, except share data)    2011     2010  

ASSETS

    

Cash and due from banks

   $ 103,507        97,930   

Interest bearing deposits in other banks

     656,424        455,538   

Securities available for sale, at fair value

     376,042        424,391   

Investment securities, at cost which approximates fair value

     1,500        1,500   

Tax certificates, net of allowance of $9,287 and $8,811

     77,837        89,789   

Federal Home Loan Bank (“FHLB”) stock, at cost which approximates fair value

     43,557        43,557   

Loans held for sale

     49,455        29,765   

Loans receivable, net of allowance for loan losses of $155,051 and $162,139

     2,821,429        3,018,179   

Accrued interest receivable

     20,601        22,010   

Real estate held for sale

     5,436        5,436   

Real estate owned and other repossessed assets

     75,146        74,488   

Investments in unconsolidated companies

     10,742        10,361   

Office properties and equipment, net

     148,120        151,414   

Assets held for sale

     36,909        37,334   

Goodwill

     13,081        13,081   

Prepaid FDIC deposit insurance assessment

     18,823        22,008   

Other assets

     12,020        12,652   
                

Total assets

   $ 4,470,629        4,509,433   
                

LIABILITIES AND EQUITY

    

Liabilities:

    

Deposits

    

Interest bearing deposits

   $ 2,736,079        2,759,608   

Non-interest bearing deposits

     879,820        792,260   

Deposits held for sale

     390,432        341,146   
                

Total deposits

     4,006,331        3,893,014   
                

Advances from FHLB

     45,000        170,000   

Securities sold under agreements to repurchase

     17,006        21,524   

Short-term borrowings

     1,367        1,240   

Subordinated debentures

     22,000        22,000   

Junior subordinated debentures

     325,974        322,385   

Other liabilities

     61,681        64,527   
                

Total liabilities

     4,479,359        4,494,690   
                

Commitments and contingencies

    

Equity:

    

BankAtlantic Bancorp’s stockholders’ equity

    

Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding

     —          —     

Class A common stock, $.01 par value, authorized 125,000,000 shares; issued and outstanding 61,979,071 and 61,595,341 shares

     620        616   

Class B common stock, $.01 par value, authorized 9,000,000 shares; issued and outstanding 975,225 and 975,225 shares

     10        10   

Additional paid-in capital

     317,736        317,362   

Accumulated deficit

     (320,797     (297,615
                

Total equity before accumulated other comprehensive loss

     (2,431     20,373   

Accumulated other comprehensive loss

     (6,807     (6,088
                

Total BankAtlantic Bancorp equity

     (9,238     14,285   

Noncontrolling interest

     508        458   
                

Total equity

     (8,730     14,743   
                

Total liabilities and equity

   $ 4,470,629        4,509,433   
                

 

3


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

 

(In thousands, except share and per share data)    For the Three Months  
     Ended March 31,  
      2011     2010  

Interest income:

    

Interest and fees on loans

   $ 34,910        41,634   

Interest and dividends on taxable securities

     2,831        3,798   

Interest on tax exempt securities

     354        —     

Interest on tax certificates

     1,410        2,356   
                

Total interest income

     39,505        47,788   
                

Interest expense:

    

Interest on deposits

     4,367        7,057   

Interest on advances from FHLB

     115        958   

Interest on securities sold under agreements to repurchase and short-term borrowings

     6        8   

Interest on subordinated debentures

     4,008        3,791   
                

Total interest expense

     8,496        11,814   
                

Net interest income

     31,009        35,974   

Provision for loan losses

     27,812        30,755   
                

Net interest income after provision for loan losses

     3,197        5,219   
                

Non-interest income:

    

Service charges on deposits

     12,032        15,048   

Other service charges and fees

     7,191        7,378   

Securities activities, net

     (24     3,138   

Income from unconsolidated subsidiaries

     381        189   

Other

     3,627        2,711   
                

Total non-interest income

     23,207        28,464   
                

Non-interest expense:

    

Employee compensation and benefits

     19,290        25,378   

Occupancy and equipment

     12,585        13,582   

Advertising and promotion

     1,695        1,944   

Check losses

     299        432   

Professional fees

     3,359        2,887   

Supplies and postage

     902        998   

Telecommunication

     575        534   

Cost associated with debt redemption

     10        7   

Provision for tax certificates

     779        733   

Impairment on loans held for sale

     628        —     

Employee termination costs

     (154     —     

Lease termination costs

     (849     —     

Impairment of real estate owned

     2,323        143   

FDIC deposit insurance assessment

     3,305        2,358   

Other

     4,543        5,118   
                

Total non-interest expense

     49,290        54,114   
                

Loss before income taxes

     (22,886     (20,431

Provision for income taxes

     1        90   
                

Net loss

     (22,887     (20,521

Less: net income attributable to noncontrolling interest

     (295     (208
                

Net loss attributable to BankAtlantic Bancorp

   $ (23,182     (20,729
                

Basic loss per share

     (0.37     (0.42
                

Diluted loss per share

   $ (0.37     (0.42
                

Basic weighted average number of common shares outstanding

     62,724,046        49,334,584   
                

Diluted weighted average number of common and common equivalent shares outstanding

     62,724,046        49,334,584   
                

 

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Table of Contents

BankAtlantic Bancorp, Inc.

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2011 and 2010-Unaudited

 

(In thousands)    Comprehensive
Loss
    Common
Stock
     Additional
Paid-in
Capital
    (Accumulated
Deficit)
Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    BankAtlantic
Bancorp
Equity
    Non-
Controlling
Interest
    Total
Equity
 

BALANCE, DECEMBER 31, 2009

   $          493         296,438        (153,434     (1,926     141,571        —          141,571   

Net loss

     (20,729     —           —          (20,729     —          (20,729     208        (20,521

Net unrealized losses on securities available for sale

     (2,215     —           —          —          (2,215     (2,215     —          (2,215
                       

Comprehensive loss

   $ (22,944               
                       

Cumulative effect of change in accounting principle

       —           —          —          —          —          307        307   

Non-controlling interest distributions

       —           —          —          —          —          (134     (134

Issuance of Class A common stock

       —           65        —          —          65        —          65   

Share based compensation expense

       16         522        —          —          538        —          538   
                                                           

BALANCE, MARCH 31, 2010

   $          509         297,025        (174,163     (4,141     119,230        381        119,611   
                                                           

BALANCE, DECEMBER 31, 2010

   $          626         317,362        (297,615     (6,088     14,285        458        14,743   

Net loss

     (23,182     —           —          (23,182     —          (23,182     295        (22,887

Net unrealized losses on securities available for sale

     (719     —           —          —          (719     (719     —          (719
                       

Comprehensive loss

   $ (23,901               
                       

Non-controlling interest distributions

       —           —          —          —          —          (245     (245

Issuance of Class A Common Stock pursuant to stock-based compensation awards

       4         (4     —          —          —          —          —     

Share based compensation expense

       —           378        —          —          378        —          378   
                                                           

BALANCE, MARCH 31, 2011

   $          630         317,736        (320,797     (6,807     (9,238     508        (8,730
                                                           

 

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Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

     For the Three Months
Ended March 31,
 
(In thousands)    2011     2010  

Net cash provided by operating activities

   $ 23,109        17,368   
                

Investing activities:

    

Proceeds from redemption and maturities of investment securities and tax certificates

     20,567        25,686   

Purchase of investment securities and tax certificates

     (9,415     (3,919

Purchase of securities available for sale

     —          (500

Proceeds from sales of securities available for sale

     —          46,907   

Proceeds from maturities of securities available for sale

     47,299        30,938   

Proceeds from maturities of interest bearing deposits

     2,480        —     

Net repayments of loans

     135,346        118,217   

Proceeds from the sales of loans transferred to held for sale

     3,100        26,421   

Improvements to real estate owned

     —          (779

Proceeds from sales of real estate owned

     3,245        3,269   

Purchases of office property and equipment

     (232     (1,484

Proceeds from the sale of office property and equipment

     106        539   
                

Net cash provided by investing activities

     202,496        245,295   
                

Financing activities:

    

Net increase in deposits

     113,317        77,760   

Net repayments from FHLB advances

     (125,010     (130,000

Net (decrease) increase in securities sold under agreements to repurchase

     (4,518     206   

Increase (decrease) in short-term borrowings

     127        (175

Repayment of bonds payable

     —          (45

Prepayments of bonds payable

     —          (661

Proceeds from issuance of Class A common stock

     —          65   

Noncontrolling interest distributions

     (245     (134
                

Net cash used in financing activities

     (16,329     (52,984
                

Increase in cash and cash equivalents

     209,276        209,679   

Cash and cash equivalents at the beginning of period

     507,908        234,797   

Change in cash and cash equivalents held for sale

     (333     —     
                

Cash and cash equivalents at end of period

   $ 716,851        444,476   
                
       (Continued

 

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Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

 

     For the Three Months
Ended March 31,
 
(In thousands)    2011      2010  

Cash paid for:

     

Interest on borrowings and deposits

   $ 4,655         9,167   

Income taxes paid

     —           —     

Supplementary disclosure of non-cash investing and financing activities:

     

Loans and tax certificates transferred to REO

     6,679         7,503   

Long-lived assets held-for-use transferred to assets held for sale

     —           1,919   

Long-lived assets held-for-sale transferred to assets held for use

     —           1,239   

The change in assets and liabilities as of January 1, 2010 upon the consolidation of a factoring joint venture:

     

Increase in loans receivable

     —           (3,214

Decrease in investment in unconsolidated subsidiaries

     —           3,256   

Increase in other assets

     —           (367

Increase in other liabilities

     —           18   

Increase in noncontrolling interest

     —           307   

 

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Table of Contents

BankAtlantic Bancorp, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1. Presentation of Interim Financial Statements

BankAtlantic Bancorp, Inc. (the “Company”) is a unitary savings bank holding company organized under the laws of the State of Florida. The Company’s principal asset is its investment in BankAtlantic and its subsidiaries. The Company has two reportable segments, BankAtlantic and the Parent Company.

BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida, provides traditional retail banking services and a wide range of commercial banking products and related financial services through a broad network of community branches located in Florida.

All significant inter-company balances and transactions have been eliminated in consolidation. Throughout this document, the term “fair value” in each case is an estimate of fair value as discussed herein.

In management’s opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) as are necessary for a fair statement of the Company’s consolidated financial condition at March 31, 2011, the consolidated results of operations for the three months ended March 31, 2011 and 2010, and the consolidated stockholders’ equity and comprehensive loss and cash flows for the three months ended March 31, 2011 and 2010. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of results of operations that may be expected for the year ended December 31, 2011. The consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2011. The Company adjusted the number of common shares outstanding used for the calculation of earnings per share for prior periods due to the issuance of Class A Common Stock in July 2010 at a subscription price lower than the market price of the Company’s Class A Common Stock (see note 12).

The principal amounts of loans in the Company’s residential loan portfolios set forth in the table in Note 6 to the Company’s financial statements in the Company’s Form 10-K for the year ended December 31, 2010 were incorrectly identified as reflecting loan-to-value ratios obtained as of the first quarter of 2010 when in fact the amounts instead reflected loan-to-value ratios as of the date of loan origination. The table below labeled “As Corrected” reflects loan-to-value ratios of the Company’s residential loans as of December 31, 2010 based on first quarter of 2010 valuations. The table below labeled “As Reported” reflects the table contained in the Form 10-K for the year ended December 31, 2010 which reflects loan-to-value ratios of the Company’s residential loans as of the date of loan origination.

 

     As Reported      As Corrected  
     As of December 31, 2010      As of December 31, 2010  
(in thousands)    Residential      Residential      Residential      Residential  

Loan-to-value ratios

   Interest Only      Amortizing      Interest Only      Amortizing  

Ratios not available

   $ —           78,031         59,520         185,610   

=<60%

     107,063         144,744         47,605         145,075   

60.1% - 70%

     118,679         103,891         33,005         49,732   

70.1% - 80%

     290,840         309,925         37,808         48,586   

80.1% - 90%

     17,055         23,982         47,574         47,039   

>90.1%

     16,609         13,212         324,734         197,743   
                                   

Total

   $ 550,246         673,785         550,246         673,785   
                                   

 

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Table of Contents

BankAtlantic Bancorp, Inc. and Subsidiaries

 

2. Regulatory and Liquidity Considerations

Regulatory Considerations

On February 23, 2011, the Parent Company and BankAtlantic each entered into a Stipulation and Consent to Issuance of Order to Cease and Desist with the Office of Thrift Supervision (“OTS”), the Parent Company’s and BankAtlantic’s primary regulator. The Order to Cease and Desist to which the Parent Company is subject is referred to as the “Company Order,” the Order to Cease and Desist to which BankAtlantic is subject is referred to as the “Bank Order” and the Company Order and Bank Order are referred to collectively as the “Orders.” The OTS issued the Orders due to the Company’s losses over the past three years, high levels of classified assets and inadequate levels of capital based on BankAtlantic’s risk profile as determined by the OTS’s recent examination. The Parent Company submitted updated written plans to the OTS that address, among other things, how the Parent Company intends to maintain and enhance its and BankAtlantic’s capital and set forth the Parent Company’s business plan for the year ending December 31, 2011. In addition, under the terms of the Company Order, the Parent Company is prohibited from taking certain actions without receiving the prior written non-objection of the OTS, including, without limitation, declaring or paying any dividends or other capital distributions and incurring certain indebtedness. The Parent Company is also required to ensure BankAtlantic’s compliance with the terms of the Bank Order as well as all applicable laws, rules, regulations and agency guidance.

Pursuant to the terms of the Bank Order, BankAtlantic is required to attain by June 30, 2011 and maintain a tier 1 (core) capital ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 14%. At March 31, 2011, BankAtlantic had a tier 1 (core) capital ratio of 5.97% and a total risk-based capital ratio of 11.77%. Under the terms of the Bank Order, BankAtlantic has revised certain of its plans, programs and policies and submitted to the OTS certain written plans, including a capital plan, a revised business plan and a plan to reduce BankAtlantic’s delinquent loans and non-performing assets. If BankAtlantic fails to comply with the capital plan and/or fails to attain and maintain the increased capital ratio requirements, or upon any written request from the OTS, BankAtlantic is required to submit a contingency plan, which must detail actions which BankAtlantic would, in its case, take to either merge with or be acquired by another banking institution. BankAtlantic will not be required to implement such contingency plan until such time as it receives written notification from the OTS to do so. In addition, the Bank Order requires BankAtlantic to limit its asset growth and restricts BankAtlantic from originating or purchasing new commercial real estate loans or entering into certain material agreements, in each case without receiving the prior written non-objection of the OTS. Separately, the OTS has confirmed that it has no objection to BankAtlantic originating loans to facilitate the sale of certain assets or the renewal, extension or modification of existing commercial real estate loans, subject in each case to compliance with applicable regulations and bank policies. The Bank Order prohibits the payment of dividends and other distributions without the prior written non-objection of the OTS. The Orders also include certain restrictions on compensation paid to the senior executive officers of the Parent Company and BankAtlantic, and restrictions on agreements with affiliates.

The Parent Company and BankAtlantic will seek to meet the higher capital requirements of the Bank Order through the estimated financial impact upon consummation of the proposed sale to PNC Financial Services Group Inc. of BankAtlantic’s Tampa branch network anticipated to close in June 2011, subject to customary closing conditions and regulatory requirements, and through other efforts that may include the issuance of the Company’s Class A Common Stock through a public or private offering, and specifically through the rights offering to the Company’s shareholders announced on May 2, 2011. BankAtlantic is also pursuing other initiatives to improve its regulatory capital position including operating strategies to increase revenues and to reduce non-interest expenses, asset balances and non-performing loans. There can be no assurance that the Parent Company or BankAtlantic will be able to execute these or other strategies in order to meet and maintain BankAtlantic’s new minimum regulatory capital levels by the required time frames.

Each Order became effective on February 23, 2011 and will remain in effect until terminated, modified or suspended by the OTS. No fines or penalties were imposed in connection with either Order. While the Orders formalize steps that the Company believes are already underway, if there is any material failure by the Parent Company or BankAtlantic to comply with the terms of the Orders, or if unanticipated market factors emerge, and/or if the Company is unable to raise required additional capital, successfully execute its plans, or comply with other regulatory requirements, then the OTS could take further action, which could include the imposition of fines and/or additional enforcement actions. Enforcement actions broadly available to regulators include the issuance of a capital directive, removal of officers and/or directors, institution of proceedings for receivership or conservatorship, and termination of deposit insurance. Any such action would have a material adverse effect on the Company’s business, results of operations and financial position.

 

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BankAtlantic Bancorp, Inc. and Subsidiaries

 

Liquidity Considerations

BankAtlantic Bancorp, Inc.’s consolidated financial statements have been prepared on a going concern basis, which reflects the realization of assets and the repayments of liabilities in the normal course of business. Both the Parent Company and BankAtlantic actively manage liquidity and cash flow needs. The Parent Company had cash of $13.1 million as of March 31, 2011. The Parent Company does not have debt maturing until March 2032 and has the ability to defer interest payments on its junior subordinated debentures until December 2013; however, based on current interest rates, accrued and unpaid interest of approximately $73.1 million would be due in December 2013 if interest is deferred until that date. The Parent Company’s operating expenses for the year ended December 31, 2010 were $6.4 million and $1.0 million during the three months ended March 31, 2011. BankAtlantic’s liquidity is dependent, in part, on its ability to maintain or increase deposit levels and the availability of its lines of credit borrowings with the Federal Home Loan Bank (“FHLB”), as well as the Treasury and Federal Reserve lending programs.

As of March 31, 2011, BankAtlantic had $760 million of cash and short-term investments and approximately $920 million of available unused borrowings, consisting of $589 million of unused FHLB line of credit capacity, $297 million of unpledged securities, and $34 million of available borrowing capacity at the Federal Reserve. However, such available borrowings are subject to regular reviews and may be terminated, suspended or reduced at any time at the discretion of the issuing institution or based on the availability of qualifying collateral. Additionally, interest rate changes, additional collateral requirements, disruptions in the capital markets, adverse litigation or regulatory actions, or deterioration in BankAtlantic’s financial condition may reduce the amounts it is able to borrow, make borrowings unavailable or make terms of the borrowings and deposits less favorable. As a result, BankAtlantic’s cost of funds could increase and the availability of funding sources could decrease. Based on current and expected liquidity needs and sources, the Company expects to be able to meet its obligations at least through March 31, 2012.

 

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3. Fair Value Measurement

The following table presents major categories of the Company’s assets measured at fair value on a recurring basis at March 31, 2011 and December 31, 2010 (in thousands):

 

            Fair Value Measurements Using  
            Quoted prices in                
            Active Markets      Significant Other      Significant  
     As of      for Identical      Observable      Unobservable  
     March 31,      Assets      Inputs      Inputs  

Description

   2011      (Level 1)      (Level 2)      (Level 3)  

Mortgage-backed securities

   $ 103,790         —           103,790         —     

REMICS (1)

     59,254         —           59,254         —     

Agency bonds

     60,166         —           60,166         —     

Municipal bonds

     133,918         —           133,918         —     

Taxable securities

     17,620         —           17,620         —     

Equity securities

     1,294         1,294         —           —     
                                   

Total

   $ 376,042         1,294         374,748         —     
                                   
            Fair Value Measurements Using  
            Quoted prices in                
            Active Markets      Significant Other      Significant  
     As of      for Identical      Observable      Unobservable  
     December 31,      Assets      Inputs      Inputs  

Description

   2010      (Level 1)      (Level 2)      (Level 3)  

Mortgage-backed securities

   $ 112,042         —           112,042         —     

REMICS (1)

     68,841         —           68,841         —     

Agency bonds

     60,143         —           60,143         —     

Municipal bonds

     162,123         —           162,123         —     

Taxable securities

     19,922            19,922         —     

Foreign currency put options

     24         24         —           —     

Equity securities

     1,296         1,296         —           —     
                                   

Total

   $ 424,391         1,320         423,071         —     
                                   

 

(1) Real estate mortgage investment conduits (“REMICS”) are pass-through entities that hold residential loans. Investors in these entities are issued ownership interests in the entities in the form of a bond. The securities are guaranteed by government agencies.

There were no recurring liabilities measured at fair value in the Company’s financial statements as of March 31, 2011 and December 31, 2010.

The valuation techniques and the inputs used in our financial statements to measure the fair value of our recurring financial instruments are described below.

The fair values of agency bonds, municipal bonds, taxable bonds, mortgage-backed securities and real estate mortgage conduit securities (“REMICS”) are estimated using independent pricing sources and matrix pricing. Matrix pricing uses a market approach valuation technique and Level 2 valuation inputs as quoted market prices are not available for the specific securities that the Company owns. The independent pricing sources value these securities using observable market inputs including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads and other reference data in the secondary institutional market which is the principal market for these types of assets. To validate fair values obtained from the pricing sources, the Company reviews fair value estimates obtained from brokers, investment advisors and others to determine the reasonableness of the fair values obtained from independent pricing sources. The Company reviews any price that it determines may not be reasonable and requires the pricing sources to explain the differences in fair value or reevaluate its fair value.

 

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Equity securities are generally fair valued using the market approach and quoted market prices (Level 1) or matrix pricing (Level 2 or Level 3) with inputs obtained from independent pricing sources, if available. We also obtain non-binding broker quotes to validate fair values obtained from matrix pricing. However, for certain equity and debt securities in which observable market inputs cannot be obtained, we value these securities either using the income approach and pricing models that we have developed or based on observable market data that we adjust based on our judgment of the factors we believe a market participant would use to value the securities (Level 3).

The fair value of foreign currency put options was obtained using the market approach and quoted market prices using Level 1 inputs as of December 31, 2010.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2011 (in thousands):

 

     Fair Value Measurements Using         

Description

   As of
March 31,
2011
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments (1)
For the Three
Months Ended
 

Loans measured for impairment using the fair value of the underlying collateral

   $ 238,540         —           —           238,540         14,497   

Impairment of loans held for sale

     33,664         —           —           33,664         4,479   

Impairment of real estate owned

     19,728         —           —           19,728         2,323   
                                            

Total

   $ 291,932         —           —           291,932         21,299   
                                            

 

(1) Total impairments represent the amount of loss recognized during the three months ended March 31, 2011 on assets that were measured at fair value as of March 31, 2011.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2010 (in thousands):

 

     Fair Value Measurements Using         

Description

   As of
March 31,
2010
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments (1)
For the Three
Months Ended
 

Loans measured for impairment using the fair value of the collateral

   $ 189,832         —           —           189,832         21,581   

Impaired real estate owned

     665         —           —           665         143   
                                            

Total

   $ 190,497         —           —           190,497         21,724   
                                            

 

(1) Total impairments represent the amount of loss recognized during the three months ended March 31, 2010 on assets that were measured at fair value as of March 31, 2010.

There were no material liabilities measured at fair value on a non-recurring basis in the Company’s financial statements.

Loans Measured For Impairment

Impaired loans are generally valued based on the fair value of the underlying collateral. The Company primarily uses third party appraisals to assist in measuring non-homogenous impaired loans. These appraisals generally use the market or income approach valuation technique and use market observable data to formulate an opinion of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral or

 

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properties, and we may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, we use our judgment on market conditions to adjust the most current appraisal. The sales prices may reflect prices of sales contracts not closed, and the amount of time required to sell out the real estate project may be derived from current appraisals of similar projects. As a consequence, the calculation of the fair value of the collateral uses Level 3 inputs. The Company generally uses third party broker price opinions or an automated valuation service to measure the fair value of the collateral for impaired homogenous loans in the establishment of specific reserves or charge-downs when these loans become 120 days delinquent. These third party valuations from real estate professionals also use Level 3 inputs in the determination of the fair values.

Loans Held for Sale

Loans held for sale are valued using an income approach with Level 3 inputs as market quotes or sale transactions of similar loans are generally not available. The fair value is estimated by discounting forecasted cash flows using a discount rate that reflects the risks inherent in the loans held for sale portfolio. For non-performing loans held for sale the forecasted cash flows are based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure and sale.

Impaired Real Estate Owned

Real estate is generally valued using third party appraisals or broker price opinions. These appraisals generally use the market approach valuation technique and use market observable data to formulate an opinion of the fair value of the properties. However, the appraisers or brokers use professional judgments in determining the fair value of the properties and we may also adjust these values for changes in market conditions subsequent to the valuation date. As a consequence of using appraisals, broker price opinions and adjustments to appraisals, the fair values of the properties are considered Level 3 inputs.

Financial Disclosures about Fair Value of Financial Instruments

 

     March 31, 2011      December 31, 2010  
     Carrying      Fair      Carrying      Fair  
(in thousands)    Amount      Value      Amount      Value  

Financial assets:

           

Cash and due from banks

   $ 103,507         103,507         97,930         97,930   

Interest bearing deposits in other banks

     656,424         656,424         455,538         455,538   

Securities available for sale

     376,042         376,042         424,367         424,367   

Derivatives

     —           —           24         24   

Investment securities

     1,500         1,500         1,500         1,500   

Tax certificates

     77,837         78,523         89,789         90,738   

Federal home loan bank stock

     43,557         43,557         43,557         43,557   

Loans receivable including loans held for sale, net

     2,870,884         2,573,515         3,047,944         2,698,348   

Financial liabilities:

           

Deposits

     4,006,331         4,010,753         3,893,014         3,895,631   

Short term borrowings

     18,373         18,373         22,764         22,764   

Advances from FHLB

     45,000         44,994         170,000         170,038   

Subordinated debentures

     22,000         22,189         22,000         21,759   

Junior subordinated debentures

     325,974         119,185         322,385         107,274   

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments and management has derived the fair value of the majority of these financial instruments using the income approach technique with Level 3 unobservable inputs, the Company may not receive the estimated value upon sale or disposition of the asset or pay the estimated value upon disposition of the liability in advance of its scheduled maturity. Management estimates used in its net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. 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.

 

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Interest bearing deposits in other banks include $43.1 million of certificates of deposit guaranteed by the FDIC with maturities of less than one year. Due to the FDIC guarantee and the short maturity of these certificates of deposit, the fair value of these deposits approximates the carrying value.

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 is calculated by using an income approach with Level 3 inputs. These fair values are estimated by discounting forecasted cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan portfolio. 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. Management assigns a credit risk premium and an illiquidity adjustment to these loans based on risk grades and delinquency status.

The fair value of tax certificates was calculated using the income approach with Level 3 inputs. The fair value is based on discounted expected cash flows using discount rates that take into account the risk of the cash flows of tax certificates relative to alternative investments.

The fair value of FHLB stock is its carrying amount.

As permitted by applicable accounting guidance, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings and NOW accounts, and money market and checking accounts, is shown in the above table at book value. The fair value of certificates of deposit is based on an income approach with Level 3 inputs. The fair value is calculated by the discounted value of contractual cash flows with the discount rate estimated using current rates offered by BankAtlantic for similar remaining maturities.

The fair value of short-term borrowings is calculated using the income approach with Level 2 inputs. The Company discounts contractual cash flows based on current interest rates. The carrying value of these borrowings approximates fair value as maturities are generally less than thirty days.

The fair value of FHLB advances was calculated using the income approach with Level 2 inputs. The fair value was based on discounted cash flows using rates offered for debt with comparable terms to maturity and issuer credit standing.

The fair value of BankAtlantic’s subordinated debentures was based on discounted values of contractual cash flows at a market discount rate adjusted for non-performance risk.

In determining the fair value of all of the Company’s junior subordinated debentures, the Company used NASDAQ price quotes available with respect to its $69.0 million of publicly traded trust preferred securities related to its junior subordinated debentures (“public debentures”). However, $257.0 million of the outstanding trust preferred securities related to its junior subordinated debentures are not traded, but are privately held in pools (“private debentures”) and with no trading markets, sales history, liquidity or readily determinable source for valuation. We have deferred the payment of interest with respect to all of our junior subordinated debentures as permitted by the terms of these securities. Based on the deferral status and the lack of liquidity and ability of a holder to actively sell such private debentures, the fair value of these private debentures may be subject to a greater discount to par and have a lower fair value than indicated by the public debenture price quotes. However, due to their private nature and the lack of a trading market, fair value of the private debentures was not readily determinable at March 31, 2011 and December 31, 2010, and as a practical alternative, management used the NASDAQ price quotes of the public debentures to value all of the outstanding junior subordinated debentures whether privately held or public traded.

Derivatives

The carrying amount and fair values of BankAtlantic’s commitments to extend credit, standby letters of credit, financial guarantees and forward commitments are not considered significant. (See Note 11 for the contractual amounts of BankAtlantic’s financial instrument commitments.)

 

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During the second quarter of 2010, BankAtlantic expanded its cruise ship automated teller machine (“ATM”) operations and began dispensing foreign currency from certain ATMs on cruise ships. At March 31, 2011, BankAtlantic had $7.1 million of foreign currency in cruise ship ATMs and recognized $0.4 million of foreign currency unrealized exchange gains which were included in other income in the Company’s statement of operations for the three months ended March 31, 2011. BankAtlantic purchased foreign currency put options as an economic hedge for the foreign currency in its cruise ship ATMs. The terms of the put options and the fair value as of March 31, 2011 were as follows (in thousands, except strike price):

 

Contract Amount

   Expiration Date      Strike Price      Premium      Fair Value  
€ 400      11-Apr       $ 1.34       $ 31         —     
                         
€ 400          $ 31         —     
                         

Included in securities activities, net in the Company’s statement of operations were $24,000 of unrealized losses associated with the above put options for the three months ended March 31, 2011.

4. Securities Available for Sale

The following tables summarize securities available for sale (in thousands):

 

     As of March 31, 2011  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Estimated  
     Cost      Gains      Losses      Fair Value  

Government agency securities:

           

Mortgage-backed securities

   $ 97,370         6,420         —           103,790   

Agency Bonds

     60,000         166         —           60,166   

REMICs (1)

     56,957         2,297         —           59,254   
                                   

Total

     214,327         8,883         —           223,210   
                                   

Investment Securities:

           

Municipal Bonds

     133,747         171         —           133,918   

Taxable securities

     17,624         8         12         17,620   

Equity securities

     1,260         36         2         1,294   
                                   

Total investment securities

     152,631         215         14         152,832   
                                   

Total

   $ 366,958         9,098         14         376,042   
                                   
     As of December 31, 2010  
            Gross      Gross         
     Amortized      Unrealized      Unrealized      Estimated  
     Cost      Gains      Losses      Fair Value  

Government agency securities:

           

Mortgage-backed securities

   $ 105,219         6,823         —           112,042   

Agency bonds

     60,000         143         —           60,143   

REMICs (1)

     66,034         2,807         —           68,841   
                                   

Total

     231,253         9,773         —           241,026   
                                   

Investment Securities:

           

Municipal bonds

     162,113         33         23         162,123   

Taxable securities

     19,936         8         22         19,922   

Equity securities

     1,260         39         3         1,296   
                                   

Total investment securities

     183,309         80         48         183,341   
                                   

Derivatives

     24         —           —           24   
                                   

Total

   $ 414,586         9,853         48         424,391   
                                   

 

(1) Real estate mortgage investment conduits (“REMICS”) are pass-through entities that hold residential loans. Investors in these entities are issued ownership interests in the entities in the form of a bond. The securities are guaranteed by government agencies.

 

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The following table shows the gross unrealized losses and fair value of the Company’s securities available for sale with unrealized losses that are deemed temporary, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2011 and December 31, 2010 (in thousands):

 

     As of March 31, 2011  
     Less Than 12 Months     12 Months or Greater     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  

Taxable Securities

   $ 12,767         12        —           —          12,767         12   

Equity securities

     —           —          8         2        8         2   
                                                   

Total available for sale securities:

   $ 12,767         12        8         2        12,775         14   
                                                   
     As of December 31, 2010  
     Less Than 12 Months     12 Months or Greater     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  

Municipal Bonds

   $ 90,413         (23     —           —          90,413         (23

Taxable Securities

     15,155         (22     —           —          15,155         (22

Equity securities

     —           —          7         (3     7         (3
                                                   

Total available for sale securities:

   $ 105,568         (45     7         (3     105,575         (48
                                                   

The unrealized losses on municipal bonds and taxable securities outstanding less than 12 months are primarily the result of interest rate changes. The Company expects to receive cash proceeds for its entire investment upon maturity.

The unrealized losses on the equity securities at March 31, 2011 and December 31, 2010 are insignificant. Accordingly, the Company does not consider these investments other-than-temporarily impaired at March 31, 2011 and December 31, 2010.

The scheduled maturities of debt securities available for sale were (in thousands):

 

     Debt Securities  
     Available for Sale  
            Estimated  
     Amortized      Fair  
March 31, 2011 (1)    Cost      Value  

Due within one year

   $ 150,113         150,272   

Due after one year, but within five years

     61,347         61,524   

Due after five years, but within ten years

     19,775         20,500   

Due after ten years

     134,463         142,452   
                 

Total

   $ 365,698         374,748   
                 

 

(1) Scheduled maturities in the above table are based on contractual maturities which may vary significantly from actual maturities due to prepayments.

 

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Included in securities activities, net were (in thousands):

 

     For the Three Months
Ended March 31,
 
     2011      2010  

Gross gains on securities sales

   $ —           3,138   
                 

Gross losses on securities sales

     24         —     
                 

Proceed from sales of securities

     —           46,907   
                 

5. Restructuring Charges and Exit Activities

Restructuring charges and exit activities includes employee termination costs, lease contracts executed for branch expansion and impairment of real estate acquired for branch expansion. The following table provides information regarding liabilities associated with restructuring charges and exit activities (in thousands):

 

     Employee
Termination
Benefits
Liability
    Contract
Liability
    Total
Liability
 

Balance at January 1, 2010

   $ 10        3,681        3,691   

Expenses incurred

     —          —          —     

Amounts paid or amortized

     (10     (165     (175
                        

Balance at March 31, 2010

   $ —          3,516        3,516   
                        

Balance at January 1, 2011

   $ 2,438        5,876        8,314   

Reversals

     (154     (849     (1,003

Amounts paid or amortized

     (1,177     (2,299     (3,476
                        

Balance at March 31, 2011

   $ 1, 107        2,728        3,835   
                        

Beginning in December 2007, BankAtlantic terminated leases or sought to sublease properties that it had previously leased for future branch expansion. These operating leases were fair valued and the resulting valuation allowance impairments are accreted to rent expense until the leases are terminated or subleased. BankAtlantic is actively seeking tenants for potential sub-leases or unrelated third parties to assume the lease obligations. During the three months ended March 31, 2011, BankAtlantic terminated three operating leases and recovered $0.8 million of prior period lease termination costs.

 

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6. Loans Receivable

The loan portfolio consisted of the following (in thousands):

 

     March 31,
2011
    December 31,
2010
 

Commercial non-real estate

   $ 132,456        135,588   

Commercial real estate:

    

Residential

     115,775        133,155   

Land

     35,701        58,040   

Owner occupied

     104,704        111,097   

Other

     582,724        592,538   

Small Business:

    

Real estate

     200,394        203,479   

Non-real estate

     95,822        99,190   

Consumer:

    

Consumer - home equity

     590,771        604,228   

Consumer other

     15,633        16,068   

Deposit overdrafts

     3,717        3,091   

Residential:

    

Residential-interest only

     483,582        550,246   

Residential-amortizing

     613,167        671,948   
                

Total gross loans

     2,974,446        3,178,668   
                

Adjustments:

    

Premiums, discounts and net deferred fees

     2,034        1,650   

Allowance for loan losses

     (155,051     (162,139
                

Loans receivable — net

   $ 2,821,429        3,018,179   
                

Loans held for sale

   $ 49,455        29,765   
                

Loans held for sale as of March 31, 2011 consisted of $25.1 million of residential loans transferred from held-for-investment y to held-for-sale classification during the three months ended March 31, 2011, $22.9 million of commercial loans and $1.5 million of residential loans originated for sale. Loans held for sale as of December 31, 2010 consisted of $27.9 million of commercial real estate loans transferred from held-for-investment to held-for-sale classification during the fourth quarter of 2010 and $1.8 million of residential loans originated for sale. The Company transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future. The Company recognized a $64,000 loss on the sale of loans held for sale for the three months ended March 31, 2011 and a $54,000 gain on the sale of loans held for sale during the three months ended March 31, 2010.

 

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The recorded investment (recorded investment represents unpaid principal balance less charge downs and deferred fees) of non-accrual loans receivable and loans held for sale was (in thousands):

 

Loan Class

   March 31,
2011
     December 31,
2010
 

Commercial non-real estate

   $ 17,384         17,659   

Commercial real estate:

     

Residential

     87,343         95,482   

Land

     20,157         27,260   

Owner occupied

     7,334         4,870   

Other

     134,788         128,658   

Small business:

     

Real estate

     9,841         8,928   

Non-real estate

     2,331         1,951   

Consumer

     13,231         14,120   

Residential:

     

Residential-interest only

     37,463         38,900   

Residential-amortizing

     44,092         47,639   
                 

Total

   $ 373,964         385,467   
                 

An analysis of the age of the recorded investment in loans receivable and loans held for sale as of March 31, 2011 and December 31, 2010 that were past due were as follows (in thousands):

 

March 31, 2011

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More
     Total
Past Due
     Current      Loans
Receivable
 

Commercial non-real estate

   $ 21,779         —           13,373         35,152         97,304         132,456   

Commercial real estate:

                 

Residential

     1,961         —           51,423         53,384         67,304         120,688   

Land

     —           303         16,413         16,716         28,072         44,788   

Owner occupied

     866         —           3,861         4,727         101,458         106,185   

Other

     9,417         2,451         53,197         65,065         527,112         592,177   

Small business:

                 

Real estate

     1,932         1,632         6,618         10,182         190,212         200,394   

Non-real estate

     17         425         —           442         95,380         95,822   

Consumer

     6,645         5,332         13,234         25,211         584,910         610,121   

Residential:

                 

Residential-interest only

     3,633         5,649         37,249         46,531         447,533         494,064   

Residential-amortizing

     6,899         4,669         43,702         55,270         573,970         629,240   
                                                     

Total

   $ 53,149         20,461         239,070         312,680         2,713,256         3,025,935   
                                                     

 

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December 31, 2010

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More (1)
     Total
Past Due
     Current      Total
Loans
Receivable
 

Commercial non-real estate

   $ —           —           13,498         13,498         122,090         135,588   

Commercial real estate:

                 

Residential

     4,700         —           53,791         58,491         84,325         142,816   

Land

     —           —           23,803         23,803         34,237         58,040   

Owner occupied

     —           —           3,862         3,862         107,235         111,097   

Other

     —           6,043         54,940         60,983         551,472         612,455   

Small business:

                 

Real estate

     1,530         2,059         6,670         10,259         193,220         203,479   

Non-real estate

     —           67         25         92         99,098         99,190   

Consumer

     6,396         6,009         14,120         26,525         596,862         623,387   

Residential:

                 

Interest only

     4,907         6,164         38,900         49,971         500,275         550,246   

Amortizing

     6,091         5,926         47,487         59,504         614,281         673,785   
                                                     

Total

   $ 23,624         26,268         257,096         306,988         2,903,095         3,210,083   
                                                     

 

(1) The Company had no loans greater than 90 days and accruing.

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011 was as follows (in thousands):

 

     Commercial
Non-Real Estate
    Commercial
Real

Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 10,786        83,859        11,514        32,043        23,937        162,139   

Charge-offs:

     (464     (11,277     (2,611     (7,814     (8,011     (30,177

Recoveries :

     791        718        310        408        131        2,358   

Provision :

     (405     7,232        912        2,874        17,199        27,812   

Transfer to held for sale:

     —          (1,390     —          —          (5,691     (7,081
                                                

Ending balance

   $ 10,708        79,142        10,125        27,511        27,565        155,051   
                                                

Ending balance individually evaluated for impairment

   $ 9,024        59,274        1,565        1,453        7,369        78,685   

Ending balance collectively evaluated for impairment

     1,684        19,868        8,560        26,058        20,196        76,366   
                                                

Total

   $ 10,708        79,142        10,125        27,511        27,565        155,051   
                                                

Loans receivable:

            

Ending balance individually evaluated for impairment

   $ 16,495        343,809        10,562        24,033        84,667        479,566   

Ending balance collectively evaluated for impairment

   $ 115,961        520,029        285,654        586,088        1,038,637        2,546,369   
                                                

Total

   $ 132,456        863,838        296,216        610,121        1,123,304        3,025,935   
                                                

Purchases of loans

   $ —          —          —          —          3,864        3,864   
                                                

Proceeds from loan sales

   $ —          3,100        —          —          7,618        10,718   
                                                

Transfer to held for sale

   $ —          2,450        —          —          25,072        27,522   
                                                

 

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Activity in the allowance for loan losses for the three months ended March 31, 2010 was as follows (in thousands):

 

     For the Three
Months Ended
March 31, 2010
 

Balance, beginning of period

   $ 187,218   

Loans charged-off

     (41,423

Recoveries of loans previously charged-off

     1,047   
        

Net charge-offs

     (40,376

Provision for loan losses

     30,755   
        

Balance, end of period

   $ 177,597   
        

Impaired Loans — Loans are considered impaired when, based on current information and events, the Company believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructured agreement. Impairment is evaluated based on past due status for consumer and residential loans. Impairment is evaluated based on the Company’s on-going credit monitoring process for commercial and small business loans which results in the evaluation for impairment of all criticized loans. Factors considered in determining if a loan is impaired are past payment history, strength of the borrower or guarantors, and cash flow associated with the collateral or business. If a loan is impaired, a specific valuation allowance is allocated, if necessary, based on the present value of estimated future cash flows using the loan’s existing interest rate or at the fair value of collateral if the loan is collateral dependent. BankAtlantic generally measures loans for impairment using the fair value of collateral less cost to sell method. Interest payments on impaired loans for all loan classes are recognized on a cash basis, unless collectability of the principal and interest amount is probable, in which case interest is recognized on an accrual basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans held for sale are measured for impairment based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure and sale.

 

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Impaired loans as of March 31, 2011 were as follows (in thousands):

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With an allowance recorded:

              

Commercial non-real estate

   $ 15,106         15,106         9,024         15,958         16   

Commercial real estate:

              

Residential

     93,919         126,982         21,299         87,825         435   

Land

     5,428         5,428         1,652         10,319         42   

Owner occupied

     4,165         4,165         667         2,930         —     

Other

     114,736         118,006         35,657         105,215         404   

Small business:

              

Real estate

     7,982         7,982         269         5,292         14   

Non-real estate

     1,948         1,948         1,296         1,864         17   

Consumer

     17,248         18,286         1,453         10,489         —     

Residential:

              

Residential-interest only

     17,458         22,376         4,097         24,632         —     

Residential-amortizing

     15,802         19,177         3,272         20,211         —     
                                            

Total with allowance recorded

   $ 293,792         339,456         78,686         284,735         928   
                                            

With no related allowance recorded:

              

Commercial non-real estate

   $ 2,925         2,925         —           2,211         7   

Commercial real estate:

              

Residential

     24,416         58,741         —           34,626         91   

Land

     16,716         51,431         —           15,378         —     

Owner occupied

     3,916         3,916         —           3,919         36   

Other

     79,167         93,372         —           80,269         614   

Small business:

              

Real estate

     9,461         11,026         —           12,594         148   

Non-real estate

     805         971         —           489         14   

Consumer

     9,326         12,791         —           16,178         111   

Residential:

              

Residential-interest only

     20,339         32,282         —           13,883         4   

Residential-amortizing

     31,425         42,450         —           28,544         34   
                                            

Total with no allowance recorded

   $ 198,496         309,905         —           208,091         1,059   
                                            

Commercial non-real estate

   $ 18,031         18,031         9,024         18,169         23   

Commercial real estate

     342,463         462,041         59,275         340,481         1,622   

Small business

     20,196         21,927         1,565         20,239         193   

Consumer

     26,574         31,077         1,453         26,667         111   

Residential

     85,024         116,285         7,369         87,270         38   
                                            

Total

   $ 492,288         649,361         78,686         492,826         1,987   
                                            

 

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Impaired loans as of December 31, 2010 were as follows (in thousands):

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

With a related allowance recorded :

              

Commercial non-real estate

   $ 16,809         16,809         9,850         14,850         —     

Commercial real estate:

              

Residential

     81,731         87,739         21,298         86,868         778   

Land

     15,209         15,209         8,156         21,010         18   

Owner occupied

     1,695         1,695         335         5,366         —     

Other

     95,693         96,873         33,197         96,800         —     

Small business:

              

Real estate

     2,602         2,602         1,733         2,838         21   

Non-real estate

     1,779         1,779         1,203         2,015         —     

Consumer

     3,729         5,029         1,791         4,665         —     

Residential:

              

Residential-interest only

     31,805         39,451         6,741         24,327         17   

Residential-amortizing

     24,619         28,712         5,293         16,525         34   
                                            

Total with a related allowance recorded

   $ 275,671         295,898         89,597         275,264         868   
                                            

With no related allowance recorded:

              

Commercial non-real estate

   $ 1,497         1,497         —           4,799         15   

Commercial real estate:

              

Residential

     44,835         116,092         —           42,295         267   

Land

     14,039         43,846         —           25,847         19   

Owner occupied

     3,922         3,922         —           3,878         56   

Other

     81,370         97,203         —           55,311         1,446   

Small business:

              

Real estate

     15,727         16,499         —           14,722         673   

Non-real estate

     172         197         —           358      

Consumer

     23,029         27,146         —           22,487         624   

Residential:

              

Residential-interest only

     7,427         10,078         —           16,694         —     

Residential-amortizing

     25,664         31,797         —           26,950         116   
                                            

Total with no related allowance recorded

   $ 217,682         348,277         —           213,341         3,216   
                                            

Commercial non-real estate

   $ 18,306         18,306         9,850         19,649         15   

Commercial real estate

     338,494         462,579         62,986         337,375         2,584   

Small business

     20,280         21,077         2,936         19,933         694   

Consumer

     26,758         32,175         1,791         27,152         624   

Residential

     89,515         110,038         12,034         84,496         167   
                                            

Total

   $ 493,353         644,175         89,597         488,605         4,084   
                                            

Impaired loans without specific valuation allowances represent loans that were written-down to the fair value of the collateral less cost to sell, loans in which the collateral value less cost to sell was greater than the carrying value of the loan, loans in which the present value of the cash flows discounted at the loan’s effective interest rate was equal to or greater than the carrying value of the loan, or large groups of smaller-balance homogeneous loans that are collectively measured for impairment.

The Company monitors collateral dependent loans and performs an impairment analysis on these loans quarterly. Generally, a full appraisal is obtained when a real estate loan is evaluated for impairment and an updated full appraisal is obtained within one year from the prior appraisal date, or earlier if management deems it appropriate based on significant changes in market conditions. In instances where a property is in the process of foreclosure, an updated appraisal may be

 

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postponed beyond one year, as an appraisal is required on the date of foreclosure; however, such loans are subject to quarterly impairment analyses. Included in total impaired loans as of March 31, 2011 was $299.6 million of collateral dependent loans, of which $162.0 million were measured for impairment using current appraisals and $137.6 million were measured by adjusting appraisals greater than six months old, as appropriate, to reflect changes in market conditions subsequent to the last appraisal date. Appraised values were adjusted down by an aggregate amount of $18.3 million to reflect current market conditions with respect to 36 loans which did not have current appraisals due to estimated property value declines since the last appraisal dates.

As of March 31, 2011, impaired loans with specific valuation allowances had been previously written down by $47.8 million and impaired loans without specific valuation allowances had been previously written down by $92.7 million. BankAtlantic had commitments to lend $13.4 million of additional funds on impaired loans as of March 31, 2011.

Credit Quality Information

Management monitors net charge-offs, levels of classified loans, impaired loans and general economic conditions nationwide and in Florida in an effort to assess loan credit quality. The Company uses a risk grading matrix to monitor credit quality for commercial and small business loans. Risk grades are assigned to each commercial and small business loan upon origination. The loan officers monitor the risk grades and these risk grades are reviewed periodically by a third party consultant. The Company assigns risk grades on a scale of 1 to 13. A general description of the risk grades is as follows:

Grades 1 to 7 – The loans in these risk grades are generally well protected by the current net worth and paying capacity of the borrower or guarantors or by the fair value, less cost to sell, of the underlying collateral.

Grades 8 to 9 – Not used

Grade 10 – These loans are considered to have potential weaknesses that deserve management’s close attention. While these loans do not expose the Company to immediate risk of loss, if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.

Grade 11 – These loans are considered to be inadequately protected by the current sound net worth and paying capacity of the borrower or guarantors or by the collateral pledged, if any. Loans in this grade have well-defined weaknesses that jeopardize the liquidation of the loan and there is a distinct possibility that the Company may sustain some credit loss if the weaknesses are not corrected.

Grade 12 – These loans are considered to have all the weaknesses of a Grade 11 with the added characteristic that the weaknesses make collection of the Company’s investment in the loan highly questionable and improbable on the basis of currently known facts, conditions and fair values of the collateral.

Grade 13 – These loans, or portions thereof, are considered uncollectible and of such little value that continuance on the Company’s books as an asset is not warranted without the establishment of a specific valuation allowance or a charge-off. Such loans are generally charged down or completely charged off.

The following table presents risk grades for commercial and small business loans as of March 31, 2011 and December 31, 2010 (in thousands):

 

March 31, 2011

   Commercial
Non-Real Estate
     Commercial
Residential
     Commercial
Land
     Owner Occupied
Commercial
Real Estate
     Other
Commercial
Real Estate
     Small
Business
Real Estate
     Small
Business
Non-Real  Estate
 

Grade:

                    

Grades 1 to 7

   $ 80,374         2,353         22,190         94,569         278,162         169,250         80,864   

Grade 10

     11,743         7,441         —           701         124,154         3,085         3,548   

Grade 11

     40,339         110,894         22,598         10,915         189,861         28,059         11,410   
                                                              

Total

   $ 132,456         120,688         44,788         106,185         592,177         200,394         95,822   
                                                              

 

(1) There were no loans risk graded 12 or 13 as of March 31, 2011.

 

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December 31, 2010

   Commercial
Non

Real Estate
     Commercial
Residential
     Commercial
Land
     Owner Occupied
Commercial
Real Estate
     Other
Commercial
Real Estate
     Small
Business
Real Estate
     Small Business
Non-Real Estate
 

Risk Grade:

                    

Grades 1 to 7

   $ 81,789         16,250         27,387         101,855         314,402         169,979         84,584   

Grade 10

     12,827         7,572         956         704         119,508         3,098         3,665   

Grade 11

     40,972         118,994         29,697         8,538         178,545         30,402         10,941   
                                                              

Total

   $ 135,588         142,816         58,040         111,097         612,455         203,479         99,190   
                                                              

The Company monitors the credit quality of residential loans through loan-to-value ratios of the underlying collateral. Elevated loan-to-value ratios indicate the likelihood of increased credit losses upon default which results in higher loan portfolio credit risk.

The loan-to-value ratios of the Company’s residential loans were as follows (in thousands):

 

     As of March 31, 2011      As Corrected (3)
As of December 31, 2010
 

Loan-to-value ratios (1)

   Residential
Interest Only
     Residential
Amortizing
     Residential
Interest Only
     Residential
Amortizing
 

Ratios not available (2)

   $ 50,085         178,820         59,520         185,610   

=<60%

     41,122         127,192         47,605         145,075   

60.1% - 70%

     29,140         45,496         33,005         49,732   

70.1% - 80%

     33,881         42,833         37,808         48,586   

80.1% - 90%

     42,520         43,390         47,574         47,039   

>90.1%

     297,316         190,028         324,734         197,743   
                                   

Total

   $ 494,064         627,759         550,246         673,785   
                                   

 

(1) Current loan-to-value ratios (“LTV”) for the majority of the portfolio were obtained as of the first quarter of 2010 based on automated valuation models.
(2) Ratios not available consisted of property addresses not in the automated valuation database, and $77.3 million and $78.0 million as of March 31, 2011 and December 31, 2010, respectively, of loans originated under the community reinvestment act program that are not monitored based on loan-to-value.
(3) The principal amounts of the Company’s residential loans set forth in the table in Note 6 to the Company’s financial statements in the Company’s Form 10-K for the year ended December 31, 2010 were incorrectly identified as reflecting loan-to-value ratios obtained as of the first quarter of 2010 when in fact the amounts instead reflected loan-to-value ratios as of the date of loan origination. The above table labeled “As Corrected” reflects loan-to-value ratios as of December 31, 2010 based on first quarter of 2010 valuations.

The Company monitors the credit quality of its portfolio of consumer loans secured by real estate utilizing loan–to- value ratios at origination. The Company’s experience indicates that default rates are significantly lower with loans that have lower loan to value ratios at origination.

 

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The loan-to-value ratios at loan origination of the Company’s consumer loans secured by real estate were as follows (in thousands):

 

     March 31,
2011
     December 31,
2010
 

Loan-to-value ratios

   Consumer
Home
Equity
     Consumer
Home

Equity
 

<70%

   $ 359,593         363,653   

70.1% - 80%

     103,181         106,180   

80.1% - 90%

     69,233         72,529   

90.1% -100%

     45,957         48,537   

>100%

     12,807         13,329   
                 

Total

   $ 590,771         604,228   
                 

The Company monitors the credit quality of its consumer non-real estate loans based on loan delinquencies.

7. Assets Held for Sale

In August 2010, BankAtlantic announced that, due to the rapidly changing environment in Florida and the banking industry, it decided to focus on its core markets in South Florida and BankAtlantic began seeking a buyer for its 19 branches located in the Tampa, Florida area. In January 2011, BankAtlantic agreed to sell its 19 branches and 2 related facilities in the Tampa area and the associated deposits to an unrelated financial institution. The purchasing financial institution has agreed to pay i) a 10% premium for the deposits plus ii) the net book value of the acquired real estate and substantially all of the fixed assets associated with the branches and facilities. The purchasing financial institution and BankAtlantic have each received regulatory approval for the transaction. The transaction is anticipated to close during June 2011, subject to customary closing conditions and regulatory requirements.

The assets and liabilities associated with the Tampa branches were as follows (in thousands):

 

     March 31, 2011      December 31, 2010  

ASSETS

     

Cash and cash equivalents

   $ 6,184         5,850   

Office properties and equipment

     30,725         31,484   
                 

Total assets held for sale

   $ 36,909         37,334   
                 

LIABILITIES

     

Interest bearing deposits

   $ 294,746         255,630   

Non-interest bearing deposits

     95,686         85,516   
                 

Total deposits

     390,432         341,146   

Accrued interest payable

     79         87   
                 

Total liabilities held for sale

   $ 390,511         341,233   
                 

 

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8. Share-based Compensation

In February 2010, the Board of Directors granted to employees 1,600,000 restricted Class A Common Stock awards (“RSA”) under the BankAtlantic Bancorp, Inc. 2005 Restricted Stock and Option Plan. The Board of Directors also granted 75,000 RSAs to employees of BFC Financial Corporation (“BFC”) that perform services for the Company. The RSAs vest pro-rata over four years and had a fair value of $1.24 per share at the grant date.

The following is a summary of the Company’s non-vested restricted Class A common share activity:

 

     Class A
Non-vested
Restricted
Stock
    Weighted
Average
Grant date
Fair Value
 

Outstanding at December 31, 2009

     19,800      $ 42.11   

Vested

     —          —     

Forfeited

     —          —     

Granted

     1,675,000        1.24   
                

Outstanding at March 31, 2010

     1,694,800        1.72   
                

Outstanding at December 31, 2010

     1,568,900      $ 1.48   

Vested

     (383,750     1.24   

Forfeited

     (32,500     1.24   

Granted

     —          —     
                

Outstanding at March 31, 2011

     1,152,650      $ 1.56   
                

9. Related Parties

The Company, BFC and Bluegreen Corp. (“Bluegreen”) may be deemed to be under common control. The controlling shareholder of the Company and Bluegreen is BFC. Shares of BFC’s capital stock representing a majority of the voting power are owned or controlled by the Company’s Chairman and Vice Chairman, both of whom are also directors of the Company, executive officers and directors of BFC and directors of Bluegreen. The Company, BFC and Bluegreen share certain office premises and employee services, pursuant to the agreements described below.

In March 2008, BankAtlantic entered into an agreement with BFC to provide information technology support in exchange for monthly payments by BFC to BankAtlantic. In May 2008, BankAtlantic also entered into a lease agreement with BFC under which BFC pays BankAtlantic monthly rent for office space in BankAtlantic’s corporate headquarters.

The Company maintains service agreements with BFC pursuant to which BFC provides human resources, risk management and investor relations services to the Company. BFC is compensated for these services based on its cost.

In June 2010, BankAtlantic and the Parent Company entered into a real estate advisory service agreement with BFC for assistance relating to the work-out of loans and the sale of real estate owned. BFC is compensated $12,500 per month by each of BankAtlantic and the Parent Company and, if BFC’s efforts result in net recoveries of any non-performing loan or the sale of real estate owned, it will receive a fee equal to 1% of the net value recovered. During the quarter ended March 31, 2011, the Company incurred $0.1 million of real estate advisory service fees under this agreement.

 

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The table below shows the effect of service arrangements on the Company’s consolidated statements of operations for the three months ended March 31, 2011 and 2010 (in thousands):

 

     For the Three Months Ended
March 31,
 
     2011     2010  

Non-interest income:

    

Other - office facilities

   $ 117        141   

Non-interest expense:

    

Employee compensation and benefits

     (16     (21

Other - back-office support

     (397     (492
                

Net effect of affiliate transactions before income taxes

   $ (296     (372
                

The Company in prior periods issued options to acquire shares of the Company’s Class A Common Stock to employees of BFC. Additionally, employees of the Company have transferred to affiliate companies and the Company has elected, in accordance with the terms of the Company’s stock option plans, not to cancel the stock options held by those former employees. The Company also issues options and restricted stock awards to BFC employees that perform services for the Company. During the year ended December 31, 2010, the Company granted 75,000 non-vested restricted Class A Common Stock awards to BFC employees that perform services for the Company. These stock awards vest pro-rata over a four year period. The Company recorded $16,000, and $12,000 of expenses relating to all options and restricted stock awards held by employees of affiliated companies for the three months ended March 31, 2011 and 2010, respectively.

Options and non-vested restricted stock outstanding to BFC employees consisted of the following as of March 31, 2011:

 

     Class A
Common
Stock
     Weighted
Average
Price
 

Options outstanding

     47,761       $ 55.26   

Non-vested restricted stock

     56,250         —     

BFC had deposits at BankAtlantic totaling $1.3 million and $1.8 million as of March 31, 2011 and December 31, 2010, respectively. The Company recognized nominal interest expense in connection with the above deposits. These deposits were on the same general terms as offered to unaffiliated third parties.

 

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10. 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, types of customers, distribution systems and regulatory environments. The information provided for Segment Reporting is based on internal reports utilized by management. Results of operations are reported through two reportable segments: BankAtlantic and the Parent Company. BankAtlantic activities consist of the banking operations of BankAtlantic and the Parent Company activities consist of equity and debt financings, capital management and acquisition related expenses. Additionally, effective March 31, 2008, a wholly-owned subsidiary of the Parent Company purchased non-performing loans from BankAtlantic. As a consequence, the Parent Company’s activities also include the operating results of the asset work-out subsidiary.

The following summarizes the aggregation of the Company’s operating segments into reportable segments:

 

Reportable Segment

  

Operating Segments Aggregated

BankAtlantic    Banking operations
Parent Company    BankAtlantic Bancorp’s operations, costs of acquisitions, asset and capital management and financing activities

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Intersegment transactions are eliminated in consolidation.

 

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The Company evaluates segment performance based on segment net income from continuing operations after tax. The table below is segment information for segment net income from continuing operations for the three months ended March 31, 2011 and 2010 (in thousands):

 

     BankAtlantic     Parent
Company
    Adjusting and
Elimination
Entries
    Segment
Total
 

2011

        

Interest income

   $ 39,420        89        (4     39,505   

Interest expense

     (4,716     (3,784     4        (8,496

(Provision) for loan losses

     (27,832     20        —          (27,812

Non-interest income

     22,913        590        (296     23,207   

Non-interest expense

     (46,154     (3,432     296        (49,290
                                

Segments loss before income taxes

     (16,369     (6,517     —          (22,886

Provision for income tax

     (1     —          —          (1
                                

Segment net loss

   $ (16,370     (6,517     —          (22,887
                                

Total assets

   $ 4,424,566        317,860        (271,797     4,470,629   
                                
     BankAtlantic     Parent
Company
    Adjusting and
Elimination
Entries
    Segment
Total
 

2010

        

Interest income

   $ 47,715        78        (5     47,788   

Interest expense

     (8,256     (3,563     5        (11,814

(Provision) for loan losses

     (32,034     1,279        —          (30,755

Non-interest income

     28,257        458        (251     28,464   

Non-interest expense

     (52,721     (1,644     251        (54,114
                                

Segments loss before income taxes

     (17,039     (3,392     —          (20,431

Provision for income tax

     (90     —          —          (90
                                

Segment net loss

   $ (17,129     (3,392     —          (20,521
                                

Total assets

   $ 4,688,001        432,225        (372,025     4,748,201   
                                

 

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11. Commitments and Contingencies

Financial instruments with off-balance sheet risk were (in thousands):

 

     March 31,
2011
     December 31,
2010
 

Commitments to sell fixed rate residential loans

   $ 5,580         14,408   

Commitments to originate loans held for sale

     4,098         12,571   

Commitments to originate loans held to maturity

     23,446         10,693   

Commitments to purchase residential loans

     12,987         2,590   

Commitments to extend credit, including the undisbursed portion of loans in process

     363,682         357,730   

Standby letters of credit

     8,592         9,804   

Commercial lines of credit

     87,479         77,144   

Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. BankAtlantic’s 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 $7.1 million at March 31, 2011. 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 $1.5 million at March 31, 2011. These 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 loans to customers. BankAtlantic may hold certificates of deposit and residential and commercial liens as collateral for such commitments. Included in other liabilities at March 31, 2011 and December 31, 2010 were $35,000 and $34,000, respectively, of unearned guarantee fees. There were no obligations associated with these guarantees recorded in the financial statements.

The Company and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its bank operations, lending and tax certificates. Although the Company believes it has meritorious defenses in all current legal actions, the outcome of litigation and regulatory matters and timing of ultimate resolution are inherently difficult to predict and uncertain.

Reserves are accrued for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. These accrual amounts as of March 31, 2011 are not material to the Company’s financial statements. The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims.

A range of reasonably possible losses is estimated for matters in which it is reasonably possible that a loss has been incurred or that a loss is probable but not reasonably estimable. Management currently estimates the aggregate range of reasonably possible losses as $5.9 million to $16.6 million in excess of the accrued liability relating to these legal matters. This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information currently available. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which a reasonable estimate is not possible are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure.

In certain matters we are unable to estimate the loss or reasonable range of loss until additional developments in the case provide information sufficient to support an assessment of the loss or range of loss. Frequently in these matters the claims are broad and the plaintiffs have not quantified or factually supported the claim.

We believe that liabilities arising from litigation and regulatory matters, discussed below, in excess of the amounts currently accrued, if any, will not have a material impact to the Company’s financial statements. However, due to the significant uncertainties involved in these legal matters, we may incur losses in excess of accrued amounts and an adverse outcome in these matters could be material to the Company’s financial statements.

 

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The following is a description of ongoing litigation and regulatory matters:

Class action securities litigation

In October 2007, the Company and current or former officers of the Company were named in a lawsuit which alleges that during the period of November 9, 2005 through October 25, 2007, the Company and the named officers knowingly and/or recklessly made misrepresentations of material fact regarding BankAtlantic and specifically BankAtlantic’s loan portfolio and allowance for loan losses. The Complaint seeks to assert claims for violations of the Securities Exchange Act of 1934 and Rule 10b-5 and seeks unspecified damages. On November 18, 2010, a jury returned a verdict awarding $2.41 per share to shareholders who purchased shares of the Company’s Class A Common Stock during the period of April 26, 2007 to October 26, 2007 who retained those shares until the end of the period. The jury rejected the plaintiffs’ claim for the six month period from October 19, 2006 to April 25, 2007. Prior to the beginning of the trial, the plaintiffs abandoned any claim for any prior period. On April 25, 2011, the Court granted defendants’ post-trial motion for judgment as a matter of law and vacated the jury verdict, resulting in a judgment in favor of all defendants on all claims. On May 5, 2011, defendants filed a motion for sanctions against plaintiffs and their counsel seeking reimbursement of their attorneys’ fees and costs incurred in connection with this lawsuit. The plaintiffs have indicated that they intend to appeal the Court’s order setting aside the jury verdict.

In July 2008, the Company, certain officers and Directors were named in a lawsuit which alleges that the individual defendants breached their fiduciary duties by engaging in certain lending practices with respect to the Company’s Commercial Real Estate Loan Portfolio. The Complaint further alleges that the Company’s public filings and statements did not fully disclose the risks associated with the Commercial Real Estate Loan Portfolio and seeks damages on behalf of the Company. The case has been stayed pending final resolution of the class action securities litigation.

On May 6, 2011, the Court instructed plaintiff’s counsel to narrow the claims and defendants in accord with the Court’s rulings in the class action securities litigation. The Court then invited defendants to move for summary judgment as to any remaining of such claims and defendants, and expressed considerable doubt as to the viability of any claims in light of the judgments entered in favor of defendants in the securities class action. Based on the Court’s instructions, we believe this case will be resolved favorably to the Company and the individual defendants.

Class Action Overdraft Processing Litigation

In November 2010, the two pending class action complaints against BankAtlantic associated with overdraft fees were consolidated. The Complaint, which asserts claims for breach of contract and breach of the duty of good faith and fair dealing, alleges that BankAtlantic improperly re-sequenced debit card transactions from largest to smallest, improperly assessed overdraft fees on positive balances, and improperly imposed sustained overdraft fees on customers. BankAtlantic has filed a motion to dismiss which is pending with the Court.

Office of Thrift Supervision Overdraft Processing Investigation

On January 6, 2011, the Office of Thrift Supervision advised BankAtlantic that it had determined, subject to receipt of additional information from BankAtlantic, that BankAtlantic had engaged in deceptive and unfair practices in violation of Section 5 of the Federal Trade Commission Act relating to certain of BankAtlantic’s deposit-related products. The OTS provided BankAtlantic the opportunity to respond with any additional or clarifying information, and BankAtlantic submitted a written response to the OTS on February 7, 2011 addressing the OTS’s position.

Securities and Exchange Commission Investigation

The Company has received a notice of investigation from the Securities and Exchange Commission, (“SEC”) Miami Regional Office and subpoenas for information. The subpoenas request a broad range of documents relating to, among other matters, recent and pending litigation to which the Company is or was a party, certain of the Company’s non-performing, non-accrual and charged-off loans, the Company’s cost saving measures, loan classifications, BankAtlantic Bancorp’s asset workout subsidiary, and the recent Orders with the OTS entered into by the Parent Company and BankAtlantic. Various current and former employees have also received subpoenas for documents and testimony. The Company is fully cooperating with the SEC.

The Company has received a letter from the Miami regional office staff of the SEC indicating that the staff intends to recommend that the SEC bring a civil action against the Company alleging that the Company violated certain provisions of federal securities laws, including Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder.

 

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The Company has also been informed that its chief executive officer received a similar letter. Although the letters do not state the grounds for such recommendations, in communications between the Company’s counsel and the Miami regional office staff, the Company has learned that the basis for the recommended actions were many of the same arguments brought in the private class action securities litigation recently concluded at the district court level in favor of the Company and the individual defendants. In addition, the Miami regional office staff raised issues relating to the classification and valuation of certain loans included in the Company’s financial information for the last quarter of 2007 and in its annual report on Form 10-K for the 2007 fiscal year. If litigation is brought, the SEC may seek remedies including an injunction against future violations of federal securities laws, civil money penalties and an officer and director bar. The Company believes that it has fulfilled all of its obligations under securities laws and, if such actions are brought by the SEC against the Company and/or any of its officers, such actions would be vigorously defended.

Concentration of Credit Risk

BankAtlantic has a high concentration of its consumer home equity and commercial loans in the State of Florida. Real estate values and general economic conditions have significantly deteriorated since the origination dates of these loans. If market conditions in Florida do not improve or deteriorate further, BankAtlantic may be exposed to significant credit losses in these loan portfolios.

BankAtlantic purchases residential loans located throughout the country. The majority of these residential loans are jumbo residential loans. A jumbo loan has a principal amount above the industry-standard definition of conventional conforming loan limits. These loans could potentially have outstanding loan balances significantly higher than related collateral values in distressed areas of the country as a result of the decline in real estate values in residential housing markets. Also included in this purchased residential loan portfolio are interest-only loans. The structure of these loans results in possible increases in a borrower’s loan payments when the contractually required repayments change due to interest rate movement and the required amortization of the principal amount. These payment increases could affect a borrower’s ability to meet the debt service on or repay the loan and lead to increased defaults and losses. At March 31, 2011, BankAtlantic’s residential loan portfolio included $494.1 million of interest-only loans, which represents 47.3% of the residential loan portfolio. Interest-only residential loans scheduled to become fully amortizing during the nine months ended December 31, 2011 and during the year ended December 31, 2012 are $32.6 million and $53.2 million, respectively. If market conditions in the areas where the collateral for our residential loans is located do not improve or deteriorate further, BankAtlantic may be exposed to additional losses in this portfolio.

 

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12. Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation for the three months ended March 31, 2011 and 2010 (in thousands, except share data):

 

     For the Three Months Ended
March 31,
 
     2011     2010  

Basic loss per share:

    

Numerator:

    

Net loss

   $ (22,887     (20,521

Less: net loss attributable to non-controlling interest

     (295     (208
                

Net loss attributable to BankAtlantic Bancorp, Inc.

   $ (23,182     (20,729
                

Denominator:

    

Basic weighted average number of common shares outstanding

     62,724,046        49,334,584   
                

Basic loss per share

   $ (0.37     (0.42
                

Diluted loss per share

    

Numerator:

    

Net loss

   $ (22,887     (20,521

Less: net loss attributable to non-controlling interest

     (295     (208
                

Net loss attributable to BankAtlantic Bancorp, Inc.

   $ (23,182     (20,729
                

Denominator:

    

Basic weighted average number of common shares outstanding

     62,724,046        49,334,584   
                

Diluted loss per share

   $ (0.37     (0.42
                

During the three months ended March 31, 2011 and 2010, 486,577 and 768,632, respectively, of options to acquire shares of Class A Common Stock were anti-dilutive. Restricted non-vested Class A common stock outstanding of 1,152,650 and 1,694,800 were anti-dilutive for the three months ended March 31, 2011, and 2010, respectively.

On July 20, 2010, the Company completed a rights offering of Class A Common Stock to its shareholders at a subscription price that was lower than the market price of the Company’s Class A Common Stock. As a consequence, the rights offering was deemed to contain a bonus element that is similar to a stock dividend requiring the Company to adjust the weighted average number of common shares used to calculate basic and diluted earnings per share in prior periods retrospectively by a factor of 1.0051.

13. New Accounting Pronouncements

Update Number 2011-02 – Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”). This update to Receivables (Topic 310) provides guidance for a creditor’s evaluation of whether a loan modification constitutes a TDR. A modification of debt constitutes a TDR when the creditor, for economic reasons related to the debtor’s financial difficulties, grants a concession to the borrower. This update provides guidance on determining whether a debtor is having financial difficulties and whether a creditor has granted a concession. The effective date of this update is for the first interim period beginning after June 15, 2011, and must be applied retrospectively to the beginning of the current year. The Company believes that the new guidance will not have a material effect on the Company’s financial statements.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The objective of the following discussion is to provide an understanding of the financial condition and results of operations of BankAtlantic Bancorp, Inc. and its subsidiaries (the “Company”, which may also be referred to as “we,” “us,” or “our”) for the three months ended March 31, 2011. The principal assets of BankAtlantic Bancorp consist of its ownership in BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida, and its subsidiaries (“BankAtlantic”).

Except for historical information contained herein, the matters discussed in this document 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. 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 the Company and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond the Company’s control. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, products and services, including the impact of the changing regulatory environment, a continued or deepening recession, continued decreases in real estate values, and increased unemployment or sustained high unemployment rates on our business generally, BankAtlantic’s regulatory capital ratios, the ability of our borrowers to service their obligations and of our customers to maintain account balances and the value of collateral securing our loans; credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact on the credit quality of our loans (including those held in the asset workout subsidiary of the Company) of a sustained downturn in the economy and in the real estate market and other changes in the real estate markets in our trade area, and where our collateral is located; the risks of additional charge-offs, impairments and required increases in our allowance for loan losses especially if the economy and real estate markets in Florida do not improve; the impact of regulatory proceedings and litigation regarding overdraft fees; risks associated with maintaining compliance with the Cease and Desist Orders entered into by the Parent Company and BankAtlantic with the Office of Thrift Supervision, including risks that compliance will adversely impact operations, risks associated with failing to comply with regulatory mandates or the imposition of additional regulatory requirements and/or fines; the uncertain impact of legal proceedings on our financial condition or operations; changes in interest rates and the effects of, and changes in, trade, monetary and fiscal policies and laws including their impact on the bank’s net interest margin; adverse conditions in the stock market, the public debt market and other financial and credit markets and the impact of such conditions on our activities and our ability to raise capital; that the sale of our Tampa branch operations may not be consummated pursuant to its terms, at the time anticipated or at all, and that the transaction may not have the positive financial impact currently anticipated; we may raise additional capital and such capital may be highly dilutive to BankAtlantic Bancorp’s shareholders or may not be available; and the risks associated with the impact of periodic valuation testing of goodwill, deferred tax assets and other assets. Past performance and perceived trends may not be indicative of future results. In addition to the risks and factors identified above, reference is also made to other risks and factors detailed in reports filed by the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company cautions that the foregoing factors are not exclusive.

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 affect the recognition of income and expenses on the consolidated statements of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in subsequent periods relate to the determination of the allowance for loan losses, evaluation of goodwill and other intangible assets for impairment, the valuation of securities as well as the determination of other-than-temporary declines in value, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the amount of the deferred tax asset valuation allowance, accounting for uncertain tax positions, accounting for contingencies, and assumptions used in the valuation of stock based compensation. The four accounting policies that we have identified as critical accounting policies are: (i) allowance for loan losses; (ii) valuation of securities as well as the determination of other-than-temporary declines in value; (iii) impairment of long-lived assets including goodwill; and (iv) the accounting for deferred tax asset valuation allowance. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies” appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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Consolidated Results of Operations

Loss from continuing operations from each of the Company’s reportable segments was as follows (in thousands):

 

     For the Three Months Ended March 31,  
     2011     2010     Change  

BankAtlantic

   $ (16,370     (17,129     759   

Parent Company

     (6,517     (3,392     (3,125
                        

Loss from continuing operations

   $ (22,887     (20,521     (2,366
                        

For the Three Months Ended March 31, 2011 Compared to the Same 2010 Period:

The decrease in BankAtlantic’s loss during the 2011 first quarter compared to the same 2010 quarter primarily resulted from a $6.6 million decrease in non-interest expenses and a $4.2 million decrease in the provision for loan losses, partially offset by a $5.3 million decrease in non-interest income and a $4.8 million decrease in net interest income.

The decrease in non-interest expenses reflects lower compensation and occupancy expenses associated with the consolidation of back-office facilities, workforce reductions, normal attrition, as well as declines in personnel related to reduced store lobby and call center hours. Additionally, BankAtlantic recognized $0.8 million in reversals of lease termination impairments upon the termination of three operating leases. These lower non-interest expenses were partially offset by higher professional fees and FDIC deposit insurance assessments. Professional fees increased $0.4 million associated primarily with legal costs associated with tax certificate activities as well as loan modifications and work-outs. FDIC deposit insurance assessment was $0.9 million higher primarily due to BankAtlantic’s regulatory risk profile.

The decrease in the provision for loan losses primarily related to an $8.3 million reduction in net charge-offs mainly in commercial and consumer loan products reflecting a slowing in the amount of loans migrating to a delinquency or non-accrual status compared to prior periods as well as significantly lower loan balances in our commercial real estate residential portfolio. Over the last four years, the majority of our loan losses were associated with our commercial residential real estate portfolio.

The lower non-interest income reflects declining revenues from service charges on deposits and lower gains on securities sales. The lower service charges on deposits reflect a substantial decrease in overdraft fees. We believe that the decline in overdraft fee income primarily resulted from a decline in the number of accounts incurring overdraft fees resulting from our efforts to seek customers who maintain deposit accounts with higher balances, as well as regulatory changes and changes in customer behavior. During the three months ended March 31, 2010, BankAtlantic sold $47.1 million of agency securities for a $3.1 million gain. There were no agency securities sold during the three months ended March 31, 2011.

The lower net interest income resulted primarily from a significant reduction in earning assets, investments in low yielding short-term time deposits and securities and increases in non-performing assets. BankAtlantic has continued to seek to reduce its asset balances to improve its regulatory capital ratios.

The increase in the Parent Company’s loss from continuing operations for the 2011 quarter compared to the same 2010 quarter primarily resulted from $1.9 million of real estate owned impairments and $0.4 million of additional valuation allowances on loans held for sale. The above impairments primarily resulted from updated property and collateral values associated with loans and real estate owned held by the Parent Company’s asset workout subsidiary.

 

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