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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 34-027228
BankAtlantic Bancorp, Inc.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(Address of principal executive offices) (Zip Code)
(954) 760-5000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
preferred and common stock as of the latest practicable date.
OUTSTANDING AT
TITLE OF EACH CLASS AUGUST 2, 2002
------------------- --------------
Class A Common Stock, par value $0.01 per share 53,409,559
Class B Common Stock, par value $0.01 per share 4,876,124
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
REFERENCE
Item 1. Financial Statements 1-22
Consolidated Statements of Financial Condition - June 30, 2002 and 2001
and December 31, 2001 - Unaudited 4
Consolidated Statements of Operations - For the Three and Six Months
Ended June 30, 2002 and 2001 - Unaudited 5-6
Consolidated Statements of Stockholders' Equity and Comprehensive Income -
For the Six Months Ended June 30, 2002 and 2001 - Unaudited 7
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 2002 and 2001 - Unaudited 8-9
Notes to Consolidated Financial Statements - Unaudited 10-22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 23-39
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40-41
Signatures 42
[THIS PAGE INTENTIONALLY LEFT BLANK]
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
JUNE 30, DECEMBER 31, JUNE 30,
(In thousands, except share data) 2002 2001 2001
----------- ----------- -----------
ASSETS
Cash and due from depository institutions $ 150,468 $ 120,049 $ 98,254
Securities purchased under resell agreements 149 156 1,018
Investment securities and tax certificates
(approximate fair value: $461,020 $434,470 and $362,616) 453,778 428,718 356,179
Loans receivable, net 3,564,143 2,774,238 2,972,548
Securities available for sale (at fair value) 801,516 843,867 866,097
Trading securities (at fair value) 210,132 68,296 31,113
Accrued interest receivable 36,687 33,706 37,087
Real estate held for development and sale and joint ventures 232,765 178,273 154,546
Equity method investment 58,205 -- --
Office properties and equipment, net 92,740 61,685 61,649
Federal Home Loan Bank stock, at cost which approximates fair value 60,732 56,428 56,428
Deferred tax asset, net 38,857 17,879 17,495
Goodwill 98,633 39,859 48,463
Core deposit intangible asset 14,664 -- --
Other assets 97,030 31,332 55,220
----------- ----------- -----------
Total assets $ 5,910,499 $ 4,654,486 $ 4,756,097
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 2,980,098 $ 2,276,567 $ 2,370,505
Advances from FHLB 1,218,926 1,106,030 1,128,555
Securities sold under agreements to repurchase 491,735 406,070 107,000
Federal funds purchased 80,000 61,000 438,714
Subordinated debentures, notes and bonds payable 195,243 131,428 220,508
Guaranteed preferred beneficial interests in Company's
Junior Subordinated Debentures 155,125 74,750 74,750
Securities sold not yet purchased 68,325 38,431 40,250
Due to clearing agent 94,312 9,962 --
Other liabilities 165,300 114,575 101,402
----------- ----------- -----------
Total liabilities 5,449,064 4,218,813 4,481,684
----------- ----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued and outstanding -- -- --
Class A common stock, $.01 par value, authorized 80,000,000 shares;
issued and outstanding 53,392,502, 53,203,159 and 31,794,761 shares 534 532 318
Class B common stock, $.01 par value, authorized 45,000,000 shares;
issued and outstanding 4,876,124, 4,876,124 and 4,876,124 shares 49 49 49
Additional paid-in capital 253,127 251,202 104,237
Unearned compensation - restricted stock grants (1,285) (1,359) (290)
Retained earnings 201,129 170,349 157,910
----------- ----------- -----------
Total stockholders' equity before accumulated other comprehensive income 453,554 420,773 262,224
Accumulated other comprehensive income 7,881 14,900 12,189
----------- ----------- -----------
Total stockholders' equity 461,435 435,673 274,413
----------- ----------- -----------
Total liabilities and stockholders' equity $ 5,910,499 $ 4,654,486 $ 4,756,097
=========== =========== ===========
See Notes to Consolidated Financial Statements - Unaudited
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS FOR THE SIX MONTHS
(In thousands, except share and per share data) ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
Interest income: 2002 2001 2002 2001
--------- --------- --------- ---------
Interest and fees on loans and leases $ 59,325 $ 61,580 $ 106,396 $ 125,431
Interest and dividends on securities available for sale 11,804 13,284 23,870 26,649
Interest and dividends on other investment and trading securities 11,578 8,792 20,279 17,828
--------- --------- --------- ---------
Total interest income 82,707 83,656 150,545 169,908
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 17,106 23,089 32,432 47,533
Interest on advances from FHLB 15,676 14,660 30,596 29,361
Interest on securities sold under agreements to repurchase
and federal funds purchased 2,113 7,142 3,497 16,774
Interest on subordinated debentures, notes and bonds payable
and guaranteed beneficial interests in Company's Junior
Subordinated Debentures 6,473 6,579 11,081 13,327
Capitalized interest on real estate developments and
joint ventures (1,613) (1,447) (2,831) (3,018)
--------- --------- --------- ---------
Total interest expense 39,755 50,023 74,775 103,977
--------- --------- --------- ---------
NET INTEREST INCOME 42,952 33,633 75,770 65,931
Provision for loan losses 6,139 4,040 8,704 6,801
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 36,813 29,593 67,066 59,130
--------- --------- --------- ---------
NON-INTEREST INCOME:
Investment banking income 37,862 10,202 50,910 19,055
Net revenues from sales of real estate 12,466 7,398 24,443 13,341
Income from equity method investment 1,741 -- 1,741 --
Service charges on deposits 5,688 3,890 10,550 7,770
Other service charges and fees 3,550 3,811 6,655 7,372
Gains on trading securities and securities available for sale 3,083 1,695 6,122 2,051
Impairment of securities (18,157) (474) (18,157) (695)
Other 4,990 1,947 6,859 4,262
--------- --------- --------- ---------
Total non-interest income 51,223 28,469 89,123 53,156
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation and benefits 54,215 23,152 81,228 46,751
Occupancy and equipment 11,348 6,953 18,492 13,836
Advertising and promotion 3,680 2,407 5,879 3,919
Amortization of intangible assets 454 1,049 454 2,074
Restructuring charges and impairment writedowns 1,007 (219) 1,007 (219)
Acquisition related charges and impairments 3,922 -- 4,996 --
Other 18,857 11,483 30,241 21,657
--------- --------- --------- ---------
Total non-interest expense 93,483 44,825 142,297 88,018
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (5,447) 13,237 13,892 24,268
Provision (benefit) for income taxes (3,214) 4,632 3,545 8,838
--------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (2,233) 8,605 10,347 15,430
Extraordinary item (less applicable income taxes of $2,711) 23,810 -- 23,810 --
Cumulative effect of a change in accounting principle
(less applicable income taxes of $683) -- -- -- 1,138
--------- --------- --------- ---------
NET INCOME 21,577 8,605 34,157 16,568
Amortization of goodwill, net of tax -- 978 -- 1,969
--------- --------- --------- ---------
NET INCOME ADJUSTED TO EXCLUDE GOODWILL AMORTIZATION $ 21,577 $ 9,583 $ 34,157 $ 18,537
========= ========= ========= =========
(CONTINUED)
See Notes to Consolidated Financial Statements - Unaudited
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
EARNINGS PER SHARE
Basic earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ (0.04) $ 0.24 $ 0.18 $ 0.42
Basic earnings per share from extraordinary item 0.41 -- 0.41 --
Basic earnings per share from cumulative effect of a change
in accounting principle -- -- -- 0.03
------------ ------------ ------------ ------------
Basic earnings per share 0.37 0.24 0.59 0.45
Basic earnings per share from amortization of goodwill -- 0.03 -- 0.05
------------ ------------ ------------ ------------
Basic earnings per share adjusted for goodwill amortization $ 0.37 $ 0.27 $ 0.59 $ 0.50
============ ============ ============ ============
Diluted earnings (loss) per share before extraordinary item and
cumulative effect of a change in accounting principle $ (0.04) $ 0.19 $ 0.17 $ 0.34
Diluted earnings per share from extraordinary item 0.41 -- 0.39 --
Diluted earnings per share from cumulative effect of a change
in accounting principle -- -- -- 0.03
------------ ------------ ------------ ------------
Diluted earnings per share 0.37 0.19 0.56 0.37
Diluted earnings per share from amortization of goodwill -- 0.02 -- 0.04
------------ ------------ ------------ ------------
Diluted earnings per share adjusted for goodwill amortization $ 0.37 $ 0.21 $ 0.56 $ 0.41
============ ============ ============ ============
Basic weighted average number of common shares outstanding 57,973,880 36,535,810 57,918,382 36,519,091
============ ============ ============ ============
Diluted weighted average number of common and common
equivalent shares outstanding 57,973,880 51,275,621 60,887,362 50,909,002
============ ============ ============ ============
See Notes to Consolidated Financial Statements - Unaudited
6
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2002 - UNAUDITED
Unearned Accumul-
Compen- ated
Addi- sation Other
Compre- tional Restricted Compre-
hensive Common Paid-in Retained Stock hensive
(In thousands) Income Stock Capital Earnings Grants Income Total
--------- ------- ----------- ------------ ---------- --------- ----------
BALANCE, DECEMBER 31, 2000 $ 366 $ 103,745 $ 143,471 $ (391) $ 1,630 $ 248,821
Net income $ 16,568 -- -- 16,568 -- -- 16,568
---------
Other comprehensive income, net of tax:
Unrealized gain on securities available
for sale 10,515
Accumulated gains associated with cash flow hedge 301
Reclassification adjustment for net gain
included in net income (257)
---------
Other comprehensive income 10,559
---------
Comprehensive income $ 27,127
=========
Dividends on Class A Common Stock -- -- (1,876) -- -- (1,876)
Dividends on Class B Common Stock -- -- (253) -- -- (253)
Exercise of Class A common stock options 1 404 -- -- -- 405
Tax effect relating to the exercise of
stock options -- 63 -- -- -- 63
Issuance of Class A common stock upon
conversion of subordinated debentures -- 25 -- -- -- 25
Amortization of unearned compensation -
restricted stock grants -- -- -- 101 -- 101
Net change in accumulated other comprehensive
income, net of income taxes -- -- -- 10,559 10,559
------- ----------- ------------ ---------- --------- ----------
BALANCE, JUNE 30, 2001 $ 367 $ 104,237 $ 157,910 $ (290) $ 12,189 $ 274,413
======= =========== ============ ========== ========= ==========
BALANCE, DECEMBER 31, 2001 $ 581 $ 251,202 $ 170,349 $ (1,359) $ 14,900 $ 435,673
Net income $ 34,157 -- -- 34,157 -- -- 34,157
---------
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale (2,142)
Accumulated loss associated with cash flow hedges (836)
Reclassification adjustment for cash flow hedges 264
Reclassification adjustment for net gain
included in net income (4,305)
---------
Other comprehensive loss (7,019)
---------
Comprehensive income $ 27,138
=========
Dividends on Class A Common Stock -- -- (3,095) -- -- (3,095)
Dividends on Class B Common Stock -- -- (282) -- -- (282)
Issuance of Class A common stock 2 870 -- -- -- 872
Tax effect relating to the exercise of
stock options -- 365 -- -- -- 365
Issuance of Class A common stock upon
conversion of subordinated debentures -- 25 -- -- -- 25
Issuance of equity method investment common stock -- (105) -- -- -- (105)
Issuance of subsidiary stock options -- 770 -- -- -- 770
Amortization of unearned compensation -
restricted stock grants -- -- -- 74 -- 74
Net change in accumulated other comprehensive
income, net of income taxes -- -- -- -- (7,019) (7,019)
------- ----------- ------------ ---------- --------- ----------
BALANCE, JUNE 30, 2002 $ 583 $ 253,127 $ 201,129 $ (1,285) $ 7,881 $ 461,435
======= =========== ============ ========== ========= ==========
See Notes to Consolidated Financial Statements - Unaudited
7
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS
(In thousands) ENDED JUNE 30,
---------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Income before cumulative effect of a change in
accounting principle $ 10,347 $ 15,430
Cumulative effect of a change in accounting principle, net of tax -- 1,138
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH (USED) PROVIDED IN OPERATING
ACTIVITIES:
Provision for credit losses * 9,698 7,573
Change in real estate inventory (39,572) (1,131)
Equity in joint venture earnings (1,939) (1,196)
Equity in earnings from equity method investment (1,741) --
Net collections (originations) of loans held for sale activity 14,714 (17,813)
Proceeds from sales of loans classified as held for sale 2,070 13,002
Gains on securities activities (6,122) (2,051)
Impairment of securities 18,157 695
Losses (gains) on sales of property and equipment 336 (367)
Gains on sales of in-store branches (384) --
Property and equipment impairment 205 --
Acquisition related impairment 515 --
Depreciation, amortization and accretion, net 2,221 3,298
Amortization of intangible assets 454 2,074
(Increase) decrease in deferred tax asset, net (15,451) 2,667
Issuance of subsidiary stock options 770 --
Trading activities, net (23,073) 12,444
(Increase) decrease in accrued interest receivable (161) 6,959
Increase in other assets (28,250) (25,335)
Decrease in due to clearing agent (17,355) --
Increase in securities sold not yet purchased 28,616 1,819
Increase in other liabilities 21,951 13,013
--------- ---------
Net cash (used) provided in operating activities (23,994) 32,219
--------- ---------
INVESTING ACTIVITIES:
Proceeds from redemption and maturities of investment
securities and tax certificates 100,071 129,813
Purchase of investment securities and tax certificates (142,246) (102,085)
Purchases of securities available for sale (212,650) (237,894)
Proceeds from sales and maturities of securities available for sale 361,415 229,391
Proceeds from sales of FHLB stock 6,509 512
FHLB stock acquired (2,750) (5,000)
Purchases and net (originations) collections of loans and leases (204,512) (123,899)
Proceeds from sales of real estate owned 3,002 3,490
Net additions to office property and equipment (16,265) (5,586)
Increase in equity method investment (53,736) --
Repayments of and (investments in) joint ventures 3,143 (4,464)
Acquisitions, net of cash acquired (52,783) (655)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (210,802) (116,377)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits 87,045 136,020
Reduction in deposits from sale of in-store branches (22,241) --
Repayments of FHLB advances (99,450) (275,246)
Proceeds from FHLB advances 75,000 365,000
Net increase (decrease) in securities sold under agreements
to repurchase 85,665 (220,788)
Net increase in federal funds purchased 19,000 97,300
Repayment of notes and bonds payable (33,891) (27,333)
Proceeds from notes and bonds payable 76,315 23,508
Issuance of common stock 872 405
Issuance of equity method investment common stock (105) --
Issuance of trust preferred securities 80,375 --
Common stock dividends paid (3,377) (2,129)
--------- ---------
NET CASH PROVIDED IN FINANCING ACTIVITIES 265,208 96,737
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 30,412 12,579
Cash and cash equivalents at beginning of period 120,205 86,693
--------- ---------
Cash and cash equivalents at end of period $ 150,617 $ 99,272
========= =========
See Notes to Consolidated Financial Statements - Unaudited (Continued)
8
BANKATLANTIC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS
(In thousands) ENDED JUNE 30,
-------------------------
2002 2001
-------- --------
Interest paid $ 76,827 $108,908
Income taxes paid 14,013 10,875
Loans transferred to real estate owned 10,822 2,375
Loan net charge-offs 15,349 10,113
Tax certificate net charge-offs (recoveries) 1,178 1,327
Increase in equity for the tax effect related to the exercise of
employee stock options 365 63
Transfer of securities available for sale to equity
method investment 2,728 --
Issuance of notes payable under the Ryan Beck deferred
compensation plan 3,675 --
Change in other comprehensive income (7,019) 10,559
Change in deferred taxes on other comprehensive income (3,136) 5,811
Issuance of Class A Common Stock upon conversion of
subordinated debentures 25 --
* Provision for credit losses represents provision for loan losses, REO and tax
certificates.
See Notes to Consolidated Financial Statements - Unaudited
9
BANKATLANTIC BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
BankAtlantic Bancorp, Inc. (the "Company") is a Florida-based
diversified financial services holding company. The Company's principal assets
include the capital stock of BankAtlantic and its subsidiaries, Levitt
Companies, LLC ("Levitt Companies") and its subsidiaries and Ryan, Beck & Co.
LLC ("Ryan Beck") and its subsidiaries. BankAtlantic is a federal savings bank
headquartered in Fort Lauderdale, Florida which provides traditional retail
banking services and a wide range of commercial banking products and related
financial services. Levitt Companies' principal activities include residential
construction, real estate development and real estate joint venture investments
in Florida. Levitt Companies' principal assets include Core Communities, LLC,
Levitt and Sons, LLC and its investment in Bluegreen Corporation ("Bluegreen").
Core Communities develops land for master planned communities located in
Florida. Levitt and Sons is a developer of single-family home communities and
condominium and rental apartment complexes primarily in Florida. Bluegreen, a
New York Stock Exchange listed company in which we own 40% of the outstanding
common stock, is a developer of drive-to vacation interval resorts, golf
communities and residential land. Ryan Beck is an investment banking firm which
provides a wide range of investment banking, brokerage and investment management
services. All significant inter-company balances and transactions have been
eliminated in consolidation, including $27.8 million of loans from BankAtlantic
to Levitt Companies, $30 million of loans from the Company to Levitt Companies
and $5.0 million of loans from the Company to Ryan Beck.
In management's opinion, the accompanying consolidated financial
statements contain such adjustments necessary to present fairly the Company's
consolidated financial condition at June 30, 2002, December 31, 2001 and June
30, 2001, the consolidated results of operations for the three and six months
ended June 30, 2002 and 2001, the consolidated stockholders' equity and
comprehensive income for the six months ended June 30, 2002 and 2001 and the
consolidated cash flows for the six months ended June 30, 2002 and 2001. Such
adjustments consisted only of normal recurring items except for the
extraordinary item and cumulative effect of a change in accounting principle
discussed in Note 4 and Note 10, respectively. The consolidated financial
statements and related notes are presented as permitted by Form 10-Q and should
be read in conjunction with the notes to the consolidated financial statements
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 and our Form 10-Q for the three months ended March 31, 2002.
2. COMMON UNIT OPTIONS AND RETENTION POOL
Ryan Beck's Board of Directors adopted the Ryan, Beck & Co., LLC Common
Unit Option Plan (the "Plan") effective March 29, 2002. The Plan provides for
the grant of not more than an aggregate 500,000 Common Units representing
limited liability interests of Ryan Beck. As of June 30, 2002, 8,125,000 units
of Ryan Beck were outstanding, all of which are owned by the Company.
During the second quarter, 2002, Ryan Beck's Board of Directors granted,
pursuant to the Plan, common unit options to acquire an aggregate of 470,000
common units of Ryan Beck. The fair value of the common unit options was
determined based on an independent appraisal. A second quarter compensation
charge of $770,000 associated with these options was based on a fair value
estimate from the independent appraiser.
Upon exercise of the common unit options, the Company or Ryan Beck have
the right under certain defined circumstances, starting six months plus one day
after the exercise date, to repurchase the common units at fair value as
determined by an independent appraiser. The Company and Ryan Beck also have the
right of first refusal on any sale of common units, and the Company has the
right to require any common unit holder to sell its units along with the Company
in the event that the Company sells its interest in Ryan Beck.
In connection with the acquisition of Ryan Beck in June 1998, the
Company established a retention pool covering certain key employees of Ryan
Beck, under which 785,866 shares of restricted Class A common stock were issued
to these employees. The retention pool was valued at $8.1 million at the
acquisition date, and the shares, which vested four years from the date of
acquisition, were treated as compensation expense. In January 2000, each
participant in the retention pool was provided the opportunity to exchange the
restricted shares that were allocated to such participant for a cash-based
deferred compensation award in an amount equal to the aggregate value of the
restricted shares at the date of the Ryan Beck acquisition. The deferred
compensation awards were granted under the BankAtlantic Bancorp, Inc. Deferred
Compensation Plan. All participant accounts under the plan vested on June 28,
2002 and the remaining
10
BANKATLANTIC BANCORP, INC.
participants received in the aggregate 5,941 shares of Class A Common Stock,
$3.8 million in cash and notes payable for an aggregate principal amount of $3.7
million. The notes payable mature on June 28, 2003 and bear interest at 5.75%.
3. TRUST PREFERRED SECURITIES
In June 2002, the Company formed BBC Capital Statutory Trust III ("BBC
Capital III"), a statutory business trust, for the purpose of issuing Trust
Preferred Securities. In June 2002, the Company participated in a pooled trust
preferred securities offering in which BBC Capital III issued 25,000 Trust
Preferred Securities at a price of $1,000 per security. The Trust Preferred
Securities pay interest quarterly at a floating rate equal to 3-month LIBOR plus
345 basis points, with an initial coupon rate of 5.34%. The gross proceeds from
the offering of $25.0 million were invested in an identical principal amount of
the Company's Junior Subordinated Debentures which bear interest at the same
floating rate as the Trust Preferred Securities and have a stated maturity of 30
years. In addition, the Company contributed $774,000 to BBC Capital III in
exchange for BBC Capital III's Common Securities and such proceeds were also
invested in an identical principal amount of floating rate Junior Subordinated
Debentures. BBC Capital III's Common Securities are owned entirely by the
Company. BBC Capital III's sole asset is $25.8 million in aggregate principal
amount of floating rate Junior Subordinated Debentures. Holders of BBC Capital
III's Trust Preferred Securities and the Trust Common Securities are entitled to
receive a cumulative cash distribution at a floating rate equal to 3-month LIBOR
plus 345 basis points of the $1,000 liquidation amount of each security. The
Trust Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Trust Common Securities held by the Company.
The Trust Preferred Securities are considered debt for financial accounting and
tax purposes. The net proceeds to the Company from the Trust Preferred
Securities offering after underwriting discounts and expenses were approximately
$24.2 million.
The Company used the proceeds from the above sale of trust preferred
securities for general corporate purposes, including to augment the capital of
Ryan Beck in conjunction with its acquisition of certain assets and the
assumption of certain liabilities of Gruntal & Co., LLC, and to repay a portion
of outstanding borrowings under the Company's revolving bank line of credit.
4. ACQUISITIONS
On April 26, 2002 Ryan Beck acquired certain of the assets and assumed
certain of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of
the membership interests in The GMS Group, LLC. ("GMS"), a wholly-owned
subsidiary of Gruntal. Gruntal provides securities brokerage and investment
banking services to individual and institutional investors. GMS is primarily
engaged in the business of buying, selling and underwriting municipal
securities. The assets that were acquired from Gruntal include all of Gruntal's
customer accounts, furniture, leasehold improvements and equipment owned by
Gruntal at the offices where Gruntal's investment consultants are located,
assets related to Gruntal's deferred compensation plan and forgivable loans. The
consideration provided by Ryan Beck for this transaction was the assumption of a
note payable related to furniture and equipment in the Gruntal offices,
assumption of non-cancelable leases associated with the Gruntal offices
acquired, obligations owed to investment consultants participating in Gruntal's
deferred compensation plan that accepted employment with Ryan Beck, and the
payment of $6.0 million in cash. Ryan Beck performed an evaluation of each
retail branch office and institutional sales office of Gruntal and put back to
Gruntal the lease obligations and related assets of certain individual offices
with contractual terms it deemed unfavorable.
The deferred compensation plan assumed by Ryan Beck was a nonqualified
plan covering select employees that provided participants the opportunity to
defer up to 20 percent of cash compensation. Gruntal provided an annual matching
contribution and in some cases special allocations both of which would vest if
the employee remains employed for ten years from the plan year for which
contributions were made. The obligations were not required to be funded and were
unsecured general obligations to pay in the future the value of the deferred
compensation, adjusted to reflect the performance of selected investment
measurement options chosen by each participant during the deferral period. On
April 26, 2002 Ryan Beck froze the plan, whereby, the participants could no
longer make future contributions and related matches ceased. The obligation at
April 26, 2002 was $21 million, of which $18.3 million was vested. Ryan Beck is
subject to future expense based on future actuarial values of the plan
obligations. Subsequently, Ryan Beck put in place a retention plan for certain
Gruntal investment consultants, key employees and others during July 2002.
Pursuant to the retention plan, the participants received a length of service
award and a retention award in forgivable notes in the aggregate amounts of
$900,000 and $9.5 million, respectively. The participants received the length of
service award and 50% of the retention award in forgivable notes in the
aggregate amount of $5.7 million in July 2002. The participants can elect to
receive their remaining 50% of the retention award in forgivable notes in
February 2003, or the participants can elect to receive an enhanced award based
on
11
BANKATLANTIC BANCORP, INC.
production goals which will be paid out in the form of forgivable notes in
January 2004. The award based on production goals can be no less than the amount
they would have received on February 2003 assuming all participants remained
employed through the retention award date. Each forgivable note will have a term
of five years. A pro-rata portion of the principal amount of the note is
forgiven each month over the five year term. If a participant terminates
employment with Ryan Beck prior to the end of the term of the Note, the
outstanding balance becomes immediately due to Ryan Beck.
The Gruntal transaction was accounted for by the purchase method of
accounting. Under this method of accounting, the acquired assets and assumed
liabilities of Gruntal are recorded at their estimated fair value, and the
amount of estimated fair value of net assets in excess of the purchase price is
used to write down non-financial assets and the remaining balance is recorded as
an extraordinary income item. The operations of the Gruntal transaction were
included in the Company's statement of operations and the assets acquired and
liabilities assumed from Gruntal were included in the Company's statement of
financial condition since April 26, 2002.
On March 22, 2002 BankAtlantic acquired Community Savings Bankshares
Inc., the parent company of Community Savings, F.A. ("Community"), for $170.3
million in cash and immediately merged Community into BankAtlantic. The fair
value of Community's assets acquired and liabilities assumed was included in the
Company's statement of financial condition and Community's results of operations
have been included in the Company's consolidated financial statements since
March 22, 2002.
The following table summarizes the fair value of assets acquired and
liabilities assumed in connection with the acquisition of Community and the
Gruntal transaction effective March 22, 2002 and April 26, 2002, respectively.
The Company is in the process of obtaining third party valuations; therefore,
the allocation of the purchase price is subject to change.
(in thousands) COMMUNITY GRUNTAL TOTAL
----------- ----------- -----------
Cash and interest earning deposits $ 124,977 $ 886 $ 125,863
Securities available for sale 79,768 33,146 112,914
Trading securities -- 118,763 118,763
Loans receivable, net 621,964 -- 621,964
FHLB Stock 8,063 -- 8,063
Investments and advances to joint
ventures 16,122 -- 16,122
Goodwill 58,775 -- 58,775
Core deposit intangible asset 15,117 -- 15,117
Other assets 45,070 12,597 57,667
----------- ----------- -----------
Fair value of assets acquired 969,856 165,392 1,135,248
----------- ----------- -----------
Deposits 639,111 -- 639,111
FHLB advances 138,981 -- 138,981
Other borrowings 14,291 3,427 17,718
Securities sold not yet purchased -- 1,201 1,201
Payable to clearing broker -- 101,705 101,705
Other liabilities 6,674 27,402(1) 34,076
----------- ----------- -----------
Fair value of liabilities assumed 799,057 133,735 932,792
Fair value of net assets acquired over cost -- (23,810)(2) (23,810)
----------- ----------- -----------
Purchase price 170,799 7,847 178,646
Cash acquired (124,977) (886) (125,863)
----------- ----------- -----------
Purchase price net of cash acquired $ 45,822 $ 6,961 $ 52,783
=========== =========== ===========
The purchase price of Community consisted of $170.3 million in cash and
$500,000 of acquisition professional fees. The cost of the Gruntal transaction
consisted of a $6.0 million cash payment to Gruntal, $750,000 of acquisition
professional fees and an estimated $1.05 million of contingent consideration
payable to Gruntal. The $1.05 million contingent consideration to Gruntal
relates to possible deferred compensation plan participant forfeitures and
represents the maximum amount of additional consideration. Pursuant to the terms
of the Acquisition Agreement, during each of the three years beginning October
27, 2002 Ryan Beck is obligated to
12
BANKATLANTIC BANCORP, INC.
pay Gruntal & Co. LLC up to $350,000 of forfeitures each year under the Amended
and Restated Gruntal & Co. LLC Deferred Compensation Plan for each of the years
in the three year period ended October 26, 2005.
1. Included in Gruntal's other liabilities were $675,000 of
termination costs for contract obligations related to leased
equipment and $654,000 of contract termination obligations
associated with closing certain Gruntal branches.
2. The Company recognized an extraordinary gain of $23.8 million,
net of income taxes of $2.7 million, and reduced the carrying
amount of non-financial assets by $11.2 million as a result of
the fair value of the assets acquired exceeding the cost of the
transaction. The Company did not establish a deferred tax
liability for the extraordinary gain associated with the GMS
membership interest acquisition based on the fact that the
Company acquired the membership interest in GMS instead of the
net assets. Any change in the purchase accounting adjustments as
a result of third party valuations will be reflected as an
adjustment to the extraordinary gain.
The following is pro forma information for the three and six months
ended June 30, 2002 and 2001 and is presented as if the Gruntal and Community
transactions had been consummated on January 1, 2002 and 2001, respectively. The
pro forma information is not necessarily indicative of the combined financial
position or results of operations which would have been realized had the
transaction been consummated during the period or as of the dates for which the
pro forma financial information is presented. (in thousands, except for share
data).
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
-------------------------- -------------------------
(in thousands) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
Interest income $ 82,707 $ 84,156 $ 83,656 $105,141
Interest expense 39,755 44,172 50,023 61,736
Provision for loan losses 6,139 6,139 4,040 4,130
-------- -------- -------- --------
Net interest income after provision for
loan losses 36,813 33,845 29,593 39,275
-------- -------- -------- --------
Income (loss) before extraordinary item $ (2,233) $ (2,361) $ 8,605 $ 7,449
======== ======== ======== ========
Basic earnings (loss) per share before
extraordinary item $ (0.04) $ (0.04) $ 0.24 $ 0.20
======== ======== ======== ========
Diluted earnings (loss) per share before
extraordinary item $ (0.04) $ (0.04) $ 0.19 $ 0.17
======== ======== ======== ========
FOR THE SIX MONTHS ENDED
---------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
------------------------- -------------------------
(in thousands) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
Interest income $150,545 $169,007 $169,908 $213,851
Interest expense 74,775 82,085 103,977 128,231
Provision for loan losses 8,704 10,748 6,801 6,981
-------- -------- -------- --------
Net interest income after provision for
loan losses 67,066 76,174 59,130 78,639
-------- -------- -------- --------
Income before extraordinary item and cumulative
effect of a change in accounting principles $ 10,347 $ 7,131 $ 15,430 $ 10,572
======== ======== ======== ========
Basic earnings per share before extraordinary
item and cumulative effect of a change in
accounting principle $ 0.18 $ 0.12 $ 0.42 $ 0.29
======== ======== ======== ========
Diluted earnings per share before extraordinary
item and cumulative effect of a change in
accounting principle $ 0.17 $ 0.12 $ 0.34 $ 0.25
======== ======== ======== ========
During April 2002, the Company and Levitt Companies ownership in
Bluegreen Corporation ("Bluegreen"), a New York Stock Exchange-listed company
engaged in the acquisition, development, marketing and sale of drive-to vacation
interval resorts, golf communities and residential land increased from
approximately 5% to 40%. This interest in
13
BANKATLANTIC BANCORP, INC.
Bluegreen was acquired for an aggregate purchase price of approximately $56
million. The Company acquired approximately 5% of Bluegreen common stock during
the first quarter of 2001 and Levitt Companies acquired approximately 35% of
Bluegreen common stock in April 2002. As a consequence of the acquisition of
this interest in Bluegreen at various acquisition dates, it is accounted for as
a step acquisition under the equity method of accounting. In a step acquisition
the purchase price allocation is performed at each acquisition date and goodwill
is recognized with each step purchase. Additionally, prior period financial
statements should be restated to reflect the results of applying the equity
method of accounting to the initial acquisition; however, the Company did not
restate its prior year financial statements due to lack of significance. Under
the equity method of accounting the investment in Bluegreen was recorded at cost
and the carrying amount of the investment is adjusted to recognize our 40%
interest in the earnings or loss of Bluegreen after the acquisition date. The
Company is in the process of determining the Bluegreen purchase price
allocation. The funds for the investment in Bluegreen were obtained from $29.9
million of borrowings from the Company's existing bank line of credit, proceeds
of its trust preferred securities offering, proceeds from the sale of equity
securities from the Company's portfolio and Levitt Companies' working capital.
5. IMPAIRMENT OF SECURITIES
During 1999, the Company entered into a strategic relationship and
invested $10 million in cash and issued 848,364 shares of Class A common stock
to acquire an investment in Seisint, Inc., a privately held technology company.
The Company anticipated benefits from this strategic relationship through the
exchange of ideas and cooperation in the development by Seisint of technology
and support systems for use by financial institutions. Additionally, both Alan
B. Levan and John E. Abdo were directors of Seisint and each acquired direct and
indirect interests in Seisint common stock.
However, because Seisint has not been able to meet the objectives of its
business plan or its financial performance goals, the Company performed an
evaluation of its investment in Seisint to determine if there was an other than
temporary decline in value associated with this investment. As a consequence of
this evaluation, the Company wrote off its entire $15 million investment in
Seisint during the three months ended June 30, 2002.
The Company also recognized an impairment charge of $3.2 million during
the three months ended June 30, 2002 on other equity securities resulting from
significant declines in their value that were considered other than temporary
due to the financial condition and near term prospects of the issuers of the
equity securities. The Company recognized a $474,000 and $695,000 impairment
charge associated with equity securities during the three and six-month periods
ended June 30, 2001. As a result of these losses, the Company has revised its
policy for holding company equity investments. Any future equity investments
will be limited to liquid securities and will be subject to significant
concentration restrictions. At June 30, 2002 equity investments totaled $8.7
million.
6. TRADING SECURITIES AND SECURITIES SOLD NOT YET PURCHASED
The Ryan Beck gains on trading securities were associated with sales and
trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of Ryan Beck. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. Included in investment banking
income during the three and six months ended June 30, 2002, respectively, was
realized net revenues from Ryan Beck's principal transactions of $17.3 million
and $24.8 million compared to net revenues of $3.9 million and $8.4 million
during the same 2001 periods.
Ryan Beck's trading securities consisted of the following (in
thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
States and municipalities $133,448 $ 7,593 $ 9,791
Corporate debt securities 19,535 20,989 290
U.S. Government and agencies 46,306 32,308 16,640
Corporate equities 10,843 7,406 4,094
Certificates of deposit -- -- 298
-------- -------- --------
$210,132 $ 68,296 $ 31,113
======== ======== ========
14
BANKATLANTIC BANCORP, INC.
Ryan Beck's securities sold not yet purchased consisted of the following
(in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
States and municipalities $16,367 $ -- $18,734
Corporate debt securities 11,728 21,305 --
U.S. Government and agencies 33,487 15,244 16,880
Corporate equities 6,743 1,882 4,636
------- ------- -------
$68,325 $38,431 $40,250
======= ======= =======
7. LOANS HELD FOR SALE
The Company currently originates CRA residential loans for resale and
refers its residential loan customers to an unaffiliated lender. During June
2000, the Company discontinued its commercial non-mortgage syndication lending
activities and transferred the entire portfolio to loans held for sale.
Loans held for sale consisted of the following (in thousands):
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
Residential $ 9,241 $ 4,757 $ 4,904
Commercial real estate -- -- 22,713
Commercial syndication 19,506 40,774 79,901
-------- -------- --------
Total loans held for sale $ 28,747 $ 45,531 $107,518
======== ======== ========
8. REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND JOINT VENTURE ACTIVITIES
Real estate held for development and sale and joint venture activities
consisted of the combined activities of Core Communities and Levitt and Sons as
well as Levitt Companies' joint venture activities and a joint venture acquired
in connection with the Community Savings acquisition. Core Communities is a
developer of master planned residential commercial and industrial communities in
Florida. Levitt and Sons is a developer of single-family home communities and
condominium and rental apartment complexes primarily in Florida. The Company's
investment and advances to the joint venture development acquired in connection
with the Community Savings acquisition was $17.8 million at June 30, 2002. This
development of single family homes, condominium units and duplexes is located on
117 acres of land in Indian River County, Florida.
Real estate held for development and sale and joint ventures consisted
of the following:
(in thousands) JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
-------- ------------ --------
Land and land development costs $148,802 $114,499 $ 86,907
Construction costs 23,399 17,949 19,657
Other costs 9,804 9,985 8,022
Equity investments in joint venture 1,598 7,127 6,151
Loans to joint ventures 49,162 28,713 33,809
-------- -------- --------
$232,765 $178,273 $154,546
======== ======== ========
15
BANKATLANTIC BANCORP, INC.
The components of net revenues from sales of real estate were as
follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
(IN THOUSANDS) 2002 2001 2002 2001
------- ------- ------- -------
Sales of real estate $46,864 $33,176 $84,717 $57,954
Cost of sales 35,438 26,234 62,213 45,809
------- ------- ------- -------
Gains on sales of real estate 11,426 6,942 22,504 12,145
Gains on joint venture activities 1,040 456 1,939 1,196
------- ------- ------- -------
Gains on sales of real estate
held for sale and joint venture
activities $12,466 $ 7,398 $24,443 $13,341
======= ======= ======= =======
9. COMPREHENSIVE INCOME
The income tax provision relating to the comprehensive income
reclassification adjustment in the Consolidated Statements of Stockholders'
Equity and Comprehensive Income for the six months ended June 30, 2002 and 2001
was $2.4 million and $145,000, respectively. Comprehensive income for the three
months ended June 30, 2002 and 2001 was $18.6 million and $11.0 million,
respectively.
10. DERIVATIVES
The Company adopted Financial Accounting Standards Board Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133")
on January 1, 2001. At the adoption date we recognized all derivative
instruments as defined by FAS 133 in the statement of financial position as
either assets or liabilities and measured them at fair value resulting in a $1.1
million gain associated with the cumulative effect of a change in accounting
principle, net of tax.
The derivatives utilized by the Company during the six months ended June
30, 2002 were interest rate swaps. During the six months ended June 30, 2002,
the Company created fair value hedges by entering into various interest rate
swap contracts with a notional amount of $33 million to convert $33 million of
designated fixed rate time deposits to a three-month LIBOR interest rate. The
Company funds LIBOR based assets such as commercial real estate loans with fixed
rate time deposits.
During the year ended December 31, 2000, the Company entered into
forward contracts to purchase the underlying collateral from a government agency
pool of securities in May 2005. Included in securities gains in the Statement of
Operations for the three and six months ended June 30, 2002 were $48,000 and
$27,000 of unrealized losses associated with the forward contracts compared to
unrealized gains of $21,000 and $34,000 during the same 2001 periods.
16
BANKATLANTIC BANCORP, INC.
The following table outlines the notional amount and fair value of the
Company's derivatives outstanding at June 30, 2002:
PAYING RECEIVING
NOTIONAL INDEX/FIXED INDEX/FIXED TERMINATION
AMOUNT FAIR VALUE AMOUNT AMOUNT DATE
--------- ------------ ------------- -------------- --------------
Fifteen year callable receive
fixed swaps $ 10,000 $ (136) 3mo. LIBOR 6.15% 11/13/2016
Ten year callable receive fixed
swaps 30,000 33 3mo. LIBOR 6.03% 12/20/2011
Ten year callable receive fixed
swaps 20,000 441 3mo. LIBOR 6.08% 2/14/2012
Seven year callable receive fixed
swaps 13,000 224 3mo. LIBOR 5.60% 9/19/2009
Five year pay fixed swaps 25,000 (1,393) 5.73% 3 mo. LIBOR 1/5/2006
Three year pay fixed swaps $ 50,000 $ (2,242) 5.81% 3 mo. LIBOR 12/28/2003
========= ============ ============ ============ ============
Forward contract to purchase
adjustable rate mortgages $ 95,324 $ 103
========= ============
The net amount of existing losses on the swaps included in other
liabilities that are projected to be reclassified into earnings within the next
12 months is $526,862. The hedging relationships are expected to last over the
term of the swaps.
11. RESTRUCTURING CHARGE AND IMPAIRMENT WRITE-DOWN
During June 2002, we adopted a plan to discontinue certain ATM
relationships, resulting in a $801,000 restructuring charge and a $206,000
impairment write-down. These relationships were primarily with convenience
stores and gas stations and did not currently meet our performance expectations
and were unlikely to meet our future profitability goals. The remaining ATM
machines (approximately 150 machines) are primarily located in our branch
network and on cruise ships. The restructuring plan is scheduled to be completed
during the fourth quarter of 2002.
Restructuring charges at June 30, 2002 included in other liabilities
consisted of (in thousands)
INITIAL AMOUNT PAID ENDING
TYPE OF RESTRUCTURING CHARGE AMOUNT DURING PERIOD BALANCE
- ---------------------------- --------------- -------------- ---------------
Lease contract termination
costs $ 664 $ (31) $ 633
De-installation costs 87 - 87
Other 50 - 50
--------------- -------------- ---------------
Total restructuring charge $ 801 $ (31) $ 770
=============== ============== ===============
12. TRANSITIONAL GOODWILL IMPAIRMENT EVALUATION
In connection with the transitional goodwill impairment evaluation under
FASB Statement 142, the Company performed an assessment of whether there is an
indication that goodwill is impaired as of January 1, 2002, the date of
adoption. During the six months ended June 30, 2002, the Company identified its
reporting units and determined the carrying value of each of its reporting units
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company then determined the fair value of each reporting unit and compared it to
the reporting unit's carrying amount. If the fair value of the reportable unit
exceeded the carrying amount, no further evaluation needed to be performed, and
the goodwill in the reporting unit is not impaired. The fair values of all
reporting units, except for the Ryan Beck reportable segment, exceeded its
carrying amount at the adoption date. As a consequence, the Company may have to
recognize an impairment loss relating to the Ryan Beck reportable segment. The
Company has contracted with an independent appraiser to measure the loss and
anticipates recognizing the goodwill impairment charge during the 2002 third
quarter. Any transitional impairment loss associated with the Ryan Beck
reportable segment will be recognized as the cumulative effect of a change in
accounting principle in the statement of operations and this non-cash charge
will be recorded effective as of January 1, 2002. The charge will have no impact
on operating earnings or tangible capital.
17
BANKATLANTIC BANCORP, INC.
13. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about
which separate financial information is available that is regularly reviewed by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
income calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation were utilized, the relative
contributions of the segments might differ but the relative trends in the
segments would, in management's view, likely not be impacted.
18
BANKATLANTIC BANCORP, INC.
The following summarizes the aggregation of the Company's operating segments
into reportable segments:
REPORTABLE SEGMENT OPERATING SEGMENTS AGGREGATED
------------------ -----------------------------
Bank Investments Investments, tax certificates,
residential loans purchased, CRA
lending and real estate capital
services
Commercial Banking Commercial lending, syndications,
international, lease finance, trade
finance and a real estate joint
venture development
Community Banking Indirect and direct consumer
lending, small business lending and
ATM operations
Levitt Companies Real estate and joint venture
operations
Ryan Beck Investment banking and brokerage
operations
Parent Company Costs of acquisitions, financing of
acquisitions, and equity investments
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead allocations.
19
BANKATLANTIC BANCORP, INC.
The Company evaluates segment performance based on net income after tax.
The table below is segment information for income before extraordinary
item and cumulative effect of a change in accounting principle for the
three months ended June 30, 2002 and 2001:
BANK OPERATIONS
---------------------------------------
BANK COMMERCIAL COMMUNITY LEVITT PARENT SEGMENT
(IN THOUSANDS) INVESTMENTS BANKING BANKING COMPANIES RYAN, BECK COMPANY TOTALS
----------- ----------- --------- --------- ---------- --------- ----------
2002
Interest income $ 46,354 $ 26,906 $ 6,514 $ 477 $ 3,125 $ 454 $ 83,830
Interest expense and overhead (31,477) (15,767) (3,963) (312) (313) (4,522) (56,354)
Provision for loan losses 59 (5,933) (265) 0 0 0 (6,139)
Non-interest income 3,101 752 2,538 11,490 41,528 (17,845) 41,564
Segment profits and losses
before taxes 14,107 2,571 (1,092) 5,805 (2,487) (24,351) (5,447)
Provision for income taxes 3,753 684 (290) 2,032 (870) (8,523) (3,214)
---------- ----------- --------- --------- --------- --------- ----------
Segment net income (loss) $ 10,354 $ 1,887 $ (802) $ 3,773 $ (1,617) $ (15,828) $ (2,233)
========== =========== ========= ========= ========= ========= ==========
Segment average assets $2,891,958 $ 1,616,326 $ 406,204 $ 273,357 $ 218,784 $ 98,436 $5,505,065
========== =========== ========= ========= ========= ========= ==========
2001
Interest income $ 46,487 $ 30,178 $ 7,016 $ 344 $ 580 $ (34) $ 84,571
Interest expense and overhead (35,687) (17,761) (4,225) (60) (206) (5,118) (63,057)
Provision for loan losses 43 (5,404) 1,321 0 0 0 (4,040)
Non-interest income 589 868 2,868 8,106 10,338 758 23,527
Segment profits and losses
before taxes 9,856 6,234 1,837 2,078 (915) (5,853) 13,237
Provision for income taxes 3,621 2,291 675 421 (327) (2,049) 4,632
---------- ----------- --------- --------- --------- --------- ----------
Segment net income (loss) $ 6,235 $ 3,943 $ 1,162 $ 1,657 $ (588) $ (3,804) $ 8,605
========== =========== ========= ========= ========= ========= ==========
Segment average assets $2,654,965 $ 1,360,428 $ 323,421 $ 166,661 $ 76,306 $ 108,570 $4,690,351
========== =========== ========= ========= ========= ========= ==========
20
BANKATLANTIC BANCORP, INC.
The table below is segment information for income before extraordinary
item and cumulative effect of a change in accounting principle for the six
months ended June 30, 2002 and 2001:
BANK OPERATIONS
----------------------------------------
BANK COMMERCIAL COMMUNITY LEVITT PARENT SEGMENT
(IN THOUSANDS) INVESTMENTS BANKING BANKING COMPANIES RYAN, BECK COMPANY TOTAL
----------- ----------- ---------- ---------- ----------- ----------- -----------
2002
Interest income $ 84,073 $ 50,837 $ 12,010 $ 891 $ 3,823 $ 764 $ 152,398
Interest expense and overhead (58,362) (29,745) (7,179) (313) (641) (7,845) (104,085)
Provision for loan losses (141) (8,148) (415) 0 0 0 (8,704)
Non-interest income 3,289 1,380 4,727 23,831 55,126 (14,827) 73,526
Segment profits and losses
before taxes 22,343 8,354 (1,363) 12,093 (2,254) (25,281) 13,892
Provision for income taxes 6,631 2,704 (385) 4,233 (788) (8,850) 3,545
----------- ----------- ---------- ---------- ----------- ----------- -----------
Segment net income (loss) $ 15,712 $ 5,650 $ (978) $ 7,860 $ (1,466) $ (16,431) $ 10,347
=========== =========== ========== ========== =========== =========== ===========
Segment average assets $ 2,615,383 $ 1,565,515 $ 371,653 $ 168,502 $ 66,836 $ 102,944 $ 4,890,833
=========== =========== ========== ========== =========== =========== ===========
2001
Interest income $ 93,106 $ 62,153 $ 14,613 $ 795 $ 1,156 $ 9 $ 171,832
Interest expense and
overhead (71,332) (36,954) (8,927) (150) (309) (10,734) (128,406)
Provision for loan losses (120) (9,650) 2,969 0 0 0 (6,801)
Non-interest income 711 1,595 5,625 14,775 19,471 1,080 43,257
Segment profits and losses
before taxes 18,636 14,201 3,277 3,629 (2,753) (12,722) 24,268
Provision for income taxes 6,923 5,287 1,217 844 (980) (4,453) 8,838
----------- ----------- ---------- ---------- ----------- ----------- -----------
Segment net income (loss) $ 11,713 $ 8,914 $ 2,060 $ 2,785 $ (1,773) $ (8,269) $ 15,430
=========== =========== ========== ========== =========== =========== ===========
Segment average assets $ 2,624,098 $ 1,308,896 $ 364,290 $ 166,210 $ 68,064 $ 97,882 $ 4,629,440
=========== =========== ========== ========== =========== =========== ===========
21
BANKATLANTIC BANCORP, INC.
The difference between total segment average assets and consolidated
average assets, segment non-interest income and total consolidated non-interest
income, and segment interest income and total consolidated interest income is as
follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(IN THOUSANDS) JUNE 30, JUNE 30,
----------------------------- -----------------------------
TOTAL AVERAGE ASSETS 2002 2001 2002 2001
----------- ----------- ----------- -----------
Total average assets for reportable segments $ 5,505,065 $ 4,690,351 $ 4,890,833 $ 4,629,440
Average assets in overhead 130,176 110,451 265,329 120,707
----------- ----------- ----------- -----------
Total average consolidated assets $ 5,635,241 $ 4,800,802 $ 5,156,162 $ 4,750,147
=========== =========== =========== ===========
NON-INTEREST INCOME
Total non-interest income for reportable segments $ 41,564 $ 23,527 $ 73,526 $ 43,257
Items included in interest expense and overhead:
Transaction fee income 5,688 3,890 10,550 7,770
Gains on sales of assets (319) 20 49 367
Other fees 4,290 1,032 4,998 1,762
----------- ----------- ----------- -----------
Total consolidated non-interest income $ 51,223 $ 28,469 $ 89,123 $ 53,156
=========== =========== =========== ===========
INTEREST INCOME
Total interest income for reportable segments $ 83,830 $ 84,571 $ 152,398 $ 171,832
Deferred interest income on real estate activities (505) (107) (875) (282)
Elimination entries (618) (808) (978) (1,642)
----------- ----------- ----------- -----------
Total consolidated interest income $ 82,707 $ 83,656 $ 150,545 $ 169,908
=========== =========== =========== ===========
14. NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145 ("Rescission of FASB Statement No. 4,44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections.") This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Any gain or loss on the extinguishment of debt that was classified
as an extraordinary item in prior periods will be reclassified into continuing
operations.
In June 2002, the FASB issued Statement No. 146 ("Accounting for Costs
Associated with Exit or Disposal Activities.") This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred compared to current literature, which recognized
a liability when the entity committed to an exit plan. Management believes that
this Statement will not have a material impact on the Company's financial
statements; however, the Statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
15. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with
the statement presentation for 2002.
22
BANKATLANTIC BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The objective of the following discussion is to provide an understanding
of the financial condition and results of operations of BankAtlantic Bancorp,
Inc. ("the Company", which may also be referred to as "we", "us", or "our") and
its wholly owned subsidiaries for the three and six months ended June 30, 2002
and 2001, respectively. The principal assets of the Company consist of its
ownership of these subsidiaries which include BankAtlantic, Levitt Companies,
LLC ("Levitt Companies"), a real estate development company, and Ryan, Beck &
Co., LLC ("Ryan Beck"), an investment banking firm.
Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties. When used in
this report and in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the expectations of BankAtlantic
Bancorp, Inc. ("the Company") and are subject to a number of risks and
uncertainties that are subject to change based on factors which are, in many
instances, beyond the Company's control. These include, but are not limited to,
the risks and uncertainties associated with: the impact of economic, competitive
and other factors affecting the Company and its operations, markets, products
and services; credit risks and loan losses, and the related sufficiency of the
allowance for loan losses; the effects of, and changes in, trade, monetary and
fiscal policies and laws, including but not limited to interest rate policies of
the Board of Governors of the Federal Reserve System; adverse conditions in the
stock market, the public debt market and other capital markets (including
changes in interest rate conditions) and the impact of such conditions on our
activities; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; the impact of changes in accounting policies by the
Securities and Exchange Commission; the impact of periodic testing of goodwill
and other intangible assets for impairment; and with respect to the operations
of Levitt Companies and its real estate subsidiaries: the market for real estate
generally and in the areas where Levitt Companies has developments, the
availability and price of land suitable for development, materials prices, labor
costs, interest rates, environmental factors and governmental regulations; and
the Company's success at managing the risks involved in the foregoing. Further,
this report contains forward-looking statements with respect to recent
acquisitions, each of which are subject to risks and uncertainties, including
the risk that the acquisitions could involve additional costs or that the future
financial and operating performance of these acquisitions will not be
advantageous. In addition to the risks and factors identified above, reference
is also made to other risks and factors detailed in reports filed by the Company
with the Securities and Exchange Commission ("SEC"). The Company cautions that
the foregoing factors are not exclusive.
23
RESULTS OF OPERATIONS
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
(IN THOUSANDS) 2002 2001 2002 2001
--------- --------- --------- ---------
INCOME STATEMENT
Total interest income $ 82,707 $ 83,656 $ 150,545 $ 169,908
Total interest expense 39,755 50,023 74,775 103,977
--------- --------- --------- ---------
Net interest income 42,952 33,633 75,770 65,931
Provision for loan losses 6,139 4,040 8,704 6,801
Gains on sales of securities 3,083 1,695 6,122 2,051
Impairment of securities (18,157) (474) (18,157) (695)
Other non-interest income 66,297 27,248 101,158 51,800
Non-interest expense 93,483 44,825 142,297 88,018
--------- --------- --------- ---------
Income (loss) before income taxes, extraordinary item and
cumulative effect of a change in accounting principle (5,447) 13,237 13,892 24,268
Provision (benefit) for income taxes (3,214) 4,632 3,545 8,838
--------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle (2,233) 8,605 10,347 15,430
Extraordinary item, net of tax 23,810 -- 23,810 --
Cumulative effect of a change in accounting principle, net of tax -- -- -- 1,138
--------- --------- --------- ---------
Net income $ 21,577 $ 8,605 $ 34,157 $ 16,568
========= ========= ========= =========
RECONCILIATION OF NET INCOME TO OPERATING NET INCOME
Net income $ 21,577 $ 8,605 $ 34,157 $ 16,568
Amortization of goodwill -- 1,049 -- 2,074
Restructuring charges and impairment write-downs 655 (140) 655 (140)
Acquisition and conversion related charges 4,350 -- 5,037 --
Impairment of securities 11,801 308 11,802 452
Extraordinary item and cumulative accounting
change (23,810) -- (23,810) (1,138)
--------- --------- --------- ---------
Operating net income
$ 14,573 $ 9,822 $ 27,841 $ 17,816
========= ========= ========= =========
FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net income was significantly affected by non-recurring items during the
current quarter. The Company recognized an extraordinary gain associated with
the acquisition of certain assets and the assumption of certain liabilities of
Gruntal and the acquisition of all of the membership interest in The GMS Group,
LLC. ("GMS"). The extraordinary gain was recognized because the fair value of
the assets acquired, after reducing the carrying value of non-financial assets
to zero, exceeded the cost of the transaction by $23.8 million, net of income
taxes of $2.7 million. The Company did not establish a deferred tax liability
for the extraordinary gain associated with the GMS membership interest
acquisition because the Company acquired the membership interest in GMS instead
of the net assets.
The extraordinary gain was partially offset by a restructuring charge
and an impairment write-down associated with our ATM network,
acquisition-related charges and impairments associated with the Community and
Gruntal transactions and an other than temporary decline in the fair value of
equity securities. The equity securities impairment reflected the write-off of
three equity investments which had experienced poor financial performance. As a
consequence, we have revised our policy for equity investments, and any future
equity investments will be limited to liquid securities subject to certain
stringent concentration restrictions. The acquisition-related expenses were
integration expenses, long-lived asset impairments and professional fees
associated with the Gruntal and Community transactions. The ATM network
24
BANKATLANTIC BANCORP, INC.
restructuring charge and impairment write down resulted from the termination of
convenience store and gas station relationships which did not meet our
performance expectations.
The non-recurring items during the 2001 second quarter were the
amortization of goodwill, an adjustment to the estimated restructuring charge
recorded in a prior period and an other than temporary decline in the fair value
of equity securities.
During the current quarter, the Company also experienced a significant
increase in non-interest expenses associated with the Gruntal and Community
transactions and higher provision for loan losses and operating expenses related
to banking operations.
The increased provision for loan losses primarily related to two
commercial real estate loans. The higher banking operations expenses were
associated with the Community acquisition and BankAtlantic's "Seven Day Banking"
initiative as well as advertising for related new deposit products.
The above non-recurring charges and higher non-interest expenses were
partially offset by a significant improvement in our net interest income,
increased earnings at Levitt Companies, higher banking operations transaction
fee income, a large increase in investment banking income as a result of the
Gruntal transaction and gains on the sale of securities.
The improvement in net interest income reflects earning asset growth
from loan originations and the Community acquisition as well as an improvement
in the net interest margin caused by declining interest rates and a change in
the deposit mix from higher yielding time deposits to lower yielding transaction
accounts. Income from Levitt Companies increased significantly, reflecting
increased sales of real estate by Core Communities and Levitt and Sons, as well
as equity in earnings associated with Levitt Companies' investment in Bluegreen.
The improvement on gains on securities sales reflected the sale of
mortgage-backed securities during the 2002 quarter in response to declining
interest rates. The gains on securities sales during the 2001 quarter were
primarily gains associated with the sale of equity securities. The substantial
increase in investment banking income related to the increase in investment
consultants as a result of the Gruntal transaction and the higher banking
operation transaction fees were linked to our new deposit products and the
Community acquisition.
Included in the benefit for income taxes during the 2002 quarter was a
$930,000 reduction in the deferred tax asset valuation allowance primarily
associated with Levitt Companies' election to be taxed as a corporation and the
utilization of tax benefits from real estate sales. Additionally, the Company
acquired, as part of the Community transaction, low income housing tax credit
investments which reduced the Company's tax liability by $140,000 during the
three months ended June 30, 2002.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net Income increased by 106% from the prior 2001 period. The increase in
earnings primarily resulted from the items discussed above as well as a
non-recurring gain in the 2001 period recognized as a cumulative effect of a
change in accounting principle. The Company adopted Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133") on January 1, 2001. At the adoption date, we
recognized all derivative instruments as defined by FAS 133 in the statement of
financial position as either assets or liabilities and measured them at fair
value, resulting in a $1.1 million gain recognized during the first quarter of
2001. This was accounted for as a cumulative effect of a change in accounting
principle, net of tax.
25
BANKATLANTIC BANCORP, INC.
NET INTEREST INCOME
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- -----------------------------------
(IN THOUSANDS) 2002 2001 CHANGE 2002 2001 CHANGE
--------- --------- --------- --------- --------- ---------
Interest and fees on loans and leases $ 59,325 $ 61,580 $ (2,255) $ 106,396 $ 125,431 $ (19,035)
Interest on securities available for sale 11,804 13,284 (1,480) 23,870 26,649 (2,779)
Interest and dividends on other investment and
trading securities 11,578 8,792 2,786 20,279 17,828 2,451
Interest on deposits (17,106) (23,089) 5,983 (32,432) (47,533) 15,101
Interest on advances from FHLB (15,676) (14,660) (1,016) (30,596) (29,361) (1,235)
Interest on securities sold under agreements
to repurchase (2,113) (7,142) 5,029 (3,497) (16,774) 13,277
Interest on subordinated debentures, notes and
bonds payable and guaranteed preferred interests
in the Company's Junior Subordinated Debentures (6,473) (6,579) 106 (11,081) (13,327) 2,246
Capitalized interest on real estate developments and
joint ventures 1,613 1,447 166 2,831 3,018 (187)
--------- --------- --------- --------- --------- ---------
Net interest income $ 42,952 $ 33,633 $ 9,319 $ 75,770 $ 65,931 $ 9,839
========= ========= ========= ========= ========= =========
Net interest margin 3.32 3.03 0.29 3.14 2.97 0.17
========= ========= ========= ========= ========= =========
FOR THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
The substantial improvement in net interest income primarily resulted
from significant asset growth, increased income from trading securities and an
improvement in the net interest margin.
The growth in earning assets primarily resulted from the Community
acquisition, which added $709 million of earning assets, and continued growth in
our commercial real estate and home equity loan portfolios. The above increases
in earning assets were partially offset by accelerated repayments of residential
loans due to declining mortgage rates during the period and lower average
balances related to several discontinued or curtailed lines of business,
including our lease finance business, indirect consumer loans, syndication
loans, international loans to correspondence banks and small business loans
originated under previous policies prior to January 1, 2000. Interest income on
loans and securities available for sale declined during 2002 compared to the
same 2001 period. The decline in interest income reflects the rapid decline in
interest rates during the latter half of 2001 which resulted in the refinancing
of residential loans and the downward repricing of floating rate loans. These
significant declines in yields on earning assets were substantially offset by
the growth in earning assets mentioned above.
The increased interest income from trading securities resulted from the
Gruntal transaction. Trading securities interest income increased from $580,000
during the 2001 period to $3.1 million during the same 2002 period. Trading
securities balances increased from $31.1 million at June 30, 2001 to $210.1
million at June 30, 2002.
The net interest margin was impacted by a rapid decline in interest
rates during 2001, a change in the composition of our loan portfolio and a
change in the mix of our deposit portfolio. The prime interest rate declined
from 9.00% at January 1, 2001 to 4.75% at December 31, 2001, which resulted in
the yield on our interest earning assets declining from 7.66% during 2001 to
6.67% during 2002 and the rates on our interest paying liabilities declining
from 4.99% to 3.63% during the same period. During the 2002 quarter, we
continued to increase our transaction accounts, which contributed to the
reduction in our cost of funds. Our deposit mix changed from 53% time deposits
and 47% transaction accounts at June 30, 2001 to 44% time deposits and 56%
transaction accounts during the same 2002 period. The composition of our loan
portfolio changed from higher yielding loans associated with discontinued lines
of business to lower yielding residential loans acquired in connection with the
acquisition of Community and lower yielding floating rate commercial and home
equity loans. The decline in interest expense on deposits was partially offset
by average interest bearing deposits increasing by $474 million from the same
2001 period. The increase was primarily due to the Community acquisition.
Interest expense on short term borrowings was substantially lower during 2002.
The significant decline in short term borrowings
26
BANKATLANTIC BANCORP, INC.
interest expense reflected lower short term interest rates and a decline in
short term borrowings linked to an increase in deposit balances. The rates on
short term borrowings declined from 4.40% during the 2001 period to 1.79% during
the same 2002 period.
Interest on subordinated debentures, notes and bonds payable remained at
2001 levels. During 2001, we retired our subordinated investment notes and our
6-3/4% convertible subordinated debentures. The interest rates on these
borrowings were higher than the average rates on other borrowings. The above
reduction in borrowings was substantially offset by additional borrowings by
Levitt Companies to fund real estate purchases and the Company's issuance of
$80.4 million of trust preferred securities during the 2002 period.
FOR THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SAME 2001 PERIOD:
Net interest income increased by 15% from 2001. Total interest income
decreased by $19.4 million and total interest expense decreased by $29.2
million. The decrease in interest income primarily resulted from rapidly
declining interest rates which impacted the repricing of floating rate loans and
securities and contributed to refinancings of residential loans. The yield on
interest earning assets declined from 7.86% during 2001 to 6.55% during 2002.
The decline in yields on earnings assets was partially offset by $277 million of
average earning asset growth associated with the Community acquisition. The
decline in interest expense primarily resulted from the items discussed above.
The rates on our interest paying liabilities declined from 5.25% during 2001 to
3.77% during the same 2002 period, and the rates on our short term borrowings
declined from 5.10% during 2001 to 1.80% during the same 2002 period.
PROVISION FOR LOAN LOSSES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- --------------------------
(in thousands) 2002 2001 2002 2001
-------- -------- -------- --------
Balance, beginning of period $ 48,927 $ 47,128 $ 44,585 $ 47,000
Charge-offs:
Syndication loans -- -- (8,000) --
Commercial real estate loans (4,309) -- (4,309) --
Small business - real estate -- -- -- (12)
Small business - non-mortgage (1,261) (840) (2,192) (2,184)
Lease financing (1,972) (3,397) (4,184) (5,382)
Consumer loans - indirect (299) (669) (737) (1,692)
Consumer loans - direct (237) (314) (649) (691)
Residential real estate loans (3) -- (142) (152)
-------- -------- -------- --------
(8,081) (5,220) (20,213)