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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number
34-027228
BANKATLANTIC BANCORP, INC.
(Exact name of registrant as specified in its Charter)
FLORIDA 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(Address of principal executive (Zip Code)
offices)
(954) 760-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH REGISTERED
NEW YORK STOCK EXCHANGE
TITLE OF EACH CLASS
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate, by check mark, if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K. [X]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [ ]
The aggregate market value of the voting common equity held by
non-affiliates was $548.6 million computed by reference to the closing price of
the Registrant's Class A Common Stock on June 28, 2002.
The number of shares of Registrant's Class A Common Stock outstanding on
March 18, 2003 was 53,516,846. The number of shares of Registrant's Class B
Common Stock outstanding on March 18, 2003 was 4,876,124.
Portions of the 2002 Annual Report to Stockholders of Registrant are
incorporated in Parts I, II and IV of this report. Portions of the Proxy
Statement of Registrant relating to the Annual Meeting of shareholders are
incorporated in Part III of this report.
PART I
ITEM I. BUSINESS
Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties including in
the "Outlook" sections of Management's Discussion and Analysis of Results of
Operations and Financial Condition. When used in this report and in the
documents incorporated by reference herein, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results, performance or achievements
could differ materially from those contemplated, expressed or implied by these
forward-looking statements. 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 may change based on factors
which are, in many instances, beyond the Company's control. These include, but
are not limited to, the risks and uncertainties associated with: the impact of
economic, competitive and other factors affecting the Company and its
operations, markets, products and services; credit risks and loan losses, and
the related sufficiency of the allowance for loan losses; the effects of, and
changes in, trade, monetary and fiscal policies and laws, including but not
limited to interest rate policies of the Board of Governors of the Federal
Reserve System; adverse conditions in the stock market, the public debt market
and other capital markets (including changes in interest rate conditions) and
the impact of such conditions on our activities; the valuation of our debt and
equity securities and our ability to liquidate these securities; the impact of
changes in financial services' laws and regulations (including laws concerning
taxes, banking, securities and insurance); technological changes; BankAtlantic's
seven-day banking initiative and other growth initiatives which may not produce
results which justify their costs; the impact of changes in accounting policies
by the Securities and Exchange Commission; the impact of periodic testing of
goodwill and other intangible assets for impairment, the impact of war,
terrorist activities or an escalation of hostilities involving the United States
on all of our banking, real estate and broker-dealer businesses; and with
respect to the operations of Levitt Corporation ("Levitt") and its real estate
subsidiaries: the market for real estate generally and in the areas where Levitt
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.
THE COMPANY
BANKATLANTIC BANCORP, INC. is a Florida-based diversified financial
services holding company and the parent company of BankAtlantic, Levitt
Corporation, and Ryan Beck & Co., Inc. Through these subsidiaries, BankAtlantic
Bancorp provides a full line of products and services encompassing consumer and
commercial banking, real estate development, and brokerage and investment
banking. The Company's Internet website address is www.bankatlantic.com. The
Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports are available free of
charge through its website, as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the SEC. The Company's
Internet website and the information contained therein or connected thereto are
not incorporated into this Annual Report on Form 10-K.
BANKATLANTIC is one of the largest financial institutions headquartered
in Florida and provides a comprehensive offering of banking services and
products via its broad network of community branches throughout Florida and its
online banking division - BankAtlantic.com. In late 2001 and early 2002,
BankAtlantic commenced its seven-day banking campaign. This initiative includes
offering free checking, seven-day branch banking, extended lobby hours, a
24-hour customer service center and dozens of new product and customer service
initiatives.
BankAtlantic's primary activities include: (i) attracting checking and
savings deposits from the public and general business customers, (ii)
originating commercial real estate and business loans, and consumer and small
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business loans, (iii) purchasing wholesale residential loans from third parties,
and (iv) making other investments in mortgage-backed securities, tax
certificates and other securities.
On March 22, 2002, BankAtlantic acquired Community Savings Bankshares,
Inc., the parent company of Community Savings F.A., a savings and loan
association that operated 21 offices in Palm Beach, Martin, St. Lucie and Indian
River counties in Florida. Including the facilities acquired from Community
Savings, BankAtlantic now operates 73 branch offices and more than 180 ATMs
located primarily in Miami-Dade, Broward, Hillsborough, Palm Beach, Martin, St.
Lucie and Indian River Counties in the State of Florida and has approximately
$4.9 billion in assets.
BankAtlantic, a federally-chartered and federally-insured savings bank,
was organized in 1952. BankAtlantic is regulated and examined by the Office of
Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation
("FDIC").
LEVITT CORPORATION is the parent company of Levitt and Sons and Core
Communities. Levitt and Sons, America's oldest homebuilder and first to build
planned suburban communities, currently develops single and multi-family homes
for active adults and families throughout Florida. Core Communities develops
master-planned communities in Florida, including its original and best known,
St. Lucie West - a 4,600-acre community with 4,000 built and occupied homes, 150
businesses employing 5,000 people and a university campus. New master-planned
developments include Tradition, now under development on Florida's Treasure
Coast in St. Lucie County, which is intended to be developed into 5,600
residences, a commercial town center and a corporate park.
Additionally, the Company and Levitt Corporation together own
approximately 40% of the outstanding shares of Bluegreen Corporation
("Bluegreen"), a New York Stock Exchange-listed company engaged in the
acquisition, development, marketing and sale of drive-to vacation interval
resorts, golf communities and residential land. The Company acquired
approximately 5% of Bluegreen common stock during the first quarter of 2001, and
Levitt Corporation acquired approximately 35% of Bluegreen common stock in April
2002.
RYAN BECK & CO., INC. is a full-service broker dealer engaged in
underwriting, market making, distribution, and trading of equity and debt
securities. The firm also provides money management services, general securities
brokerage, including financial planning for the individual investor and
consulting and financial advisory services to financial institutions and middle
market companies. Ryan Beck & Co., Inc. ("Ryan Beck") also provides independent
research in the financial institutions, healthcare, technology, and consumer
product industries. Currently, Ryan Beck has over 500 financial consultants
located in 42 offices nationwide.
On April 26, 2002 Ryan Beck acquired certain of the assets and assumed
certain of the liabilities of Gruntal & Co., LLC ("Gruntal") and acquired all of
the membership interests in The GMS Group, LLC ("GMS"), a wholly-owned
subsidiary of Gruntal. Gruntal previously provided securities brokerage and
investment banking services to individual and institutional investors. GMS is
primarily engaged in the business of buying, selling and underwriting municipal
securities. Part of GMS's business is investing in unrated or distressed
municipal securities. These securities are not readily marketable. The assets
that were acquired from Gruntal include certain of Gruntal's customer accounts,
furniture, leasehold improvements and equipment owned by Gruntal that was
associated with the offices where Gruntal's financial consultants were located.
BUSINESS SEGMENTS
The Company reports its results of operations through six segments. In
addition to the Levitt Corporation and Ryan Beck, as mentioned above, the Parent
Company reports results from capital financing and equity investment activity.
The remaining three segments are reporting divisions of BankAtlantic and are
identified as Bank Investments, Commercial Banking and Community Banking.
BANK INVESTMENTS
The Bank Investments segment relates to the investments in
BankAtlantic's securities portfolios as well as wholesale and retail residential
lending activities. BankAtlantic's securities portfolios include securities
available for sale, investment securities held to maturity and tax certificates.
Additionally, this segment manages BankAtlantic's residential loan portfolio.
SECURITIES AVAILABLE FOR SALE - Securities available for sale consist
of investments in obligations of the U.S. government or its agencies. These
consist of mortgage-backed securities, real estate mortgage investment conduits
3
("REMIC's") and notes or bonds. Our securities portfolio serves as a source of
liquidity while providing a means to moderate the effects of interest rate
changes. The decision to purchase and sell securities is based upon assessments
of the economy, the interest rate environment and our liquidity needs.
INVESTMENT SECURITIES HELD TO MATURITY AND TAX CERTIFICATES -
Investment securities held to maturity consist of commercial mortgage-backed
securities. Tax certificates are evidences of tax obligations that are sold
through auctions or bulk sales by various state taxing authorities on an annual
basis. The tax obligation arises when the property owner fails to timely pay the
real estate taxes on the property. Tax certificates represent a priority lien
against the real property for the delinquent real estate taxes. Interest accrues
at the rate established at the auction or by statute. The minimum repayment, in
order to satisfy the lien, is the certificate amount plus the interest accrued
through the redemption date and applicable penalties, fees and costs. Tax
certificates have no payment schedule or stated maturity. If the certificate
holder does not file for the deed within established timeframes, the certificate
may become null and void. Our experience with this type of investment has been
favorable as rates earned are generally higher than many alternative investments
and substantial repayments generally occur over a two-year period. Other than in
Florida and Georgia, we have no significant concentration of tax certificate
holdings in any one taxing authority.
The composition, yields and maturities of securities available for sale
and investment securities and tax certificates were as follows (in thousands):
U.S. CORPORATE
TREASURY MORTGAGE- BOND WEIGHTED
AND TAX BACKED AND AVERAGE
AGENCIES CERTIFICATES SECURITIES OTHER (3) TOTAL YIELD
----------- ------------ ---------- ------------ ---------- -----------
DECEMBER 31, 2002
Maturity: (1)
One year or less $ -- $139,474 $ 533 $ 36 $ 140,043 9.96%
After one through five
years -- 54,600 866 385 55,851 9.96
After five through ten
years -- -- 699 14,841 15,540 3.34
After ten years
-- -- 703,952 -- 703,952 5.29
----------- -------- ---------- -------- ---------- -----------
Fair values (2) $ -- $194,074 $ 706,050 $ 15,262 $ 915,386 6.26%
=========== ======== ========== ======== ========== ===========
Amortized cost (2) $ -- $194,074 $ 684,085 $ 14,794 $ 892,953 6.34%
=========== ======== ========== ======== ========== ===========
Weighted average yield based
on fair values --% 9.96% 5.28% 3.22% 6.26%
Weighted average maturity -- 2.0 years 26.10 8.17 20.69
----------- -------- ---------- -------- ----------
DECEMBER 31, 2001
Fair values (2) $ 5,819 $144,077 $1,084,776 $ 262 $1,234,934 6.37%
=========== ======== ========== ======== ========== ===========
Amortized cost (2) $ 5,819 $144,077 $1,063,949 $ 250 $1,214,095 6.59%
=========== ======== ========== ======== ========== ===========
DECEMBER 31, 2000
Fair values (2) $ 5,945 $122,352 $1,050,052 $ 250 $1,178,599 6.90%
=========== ======== ========== ======== ========== ===========
Amortized cost (2) $ 5,945 $122,352 $1,056,470 $ 250 $1,185,017 6.43%
=========== ======== ========== ======== ========== ===========
- -------------
(1) Except for tax certificates, maturities are based upon contractual
maturities. Tax certificates do not have stated maturities, and
estimates in the above table are based upon historical repayment
experience (generally 1 to 2 years).
(2) Equity securities held by the parent company and Ryan Beck with a cost
of $4.8 million, $33.4 million and $35.0 million and a fair value of
$5.2 million, $43.4 million and $48.4 million at December 31, 2002, 2001
and 2000 respectively, were excluded from the above table.
(3) Includes $14.8 million of collateralized mortgage obligations secured by
non-residential real estate associated with the commercial banking
segment at December 31, 2002.
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A summary of the amortized cost and gross unrealized appreciation or
depreciation of estimated fair value of tax certificates and held to maturity
and available for sale securities follows (in thousands):
DECEMBER 31, 2002
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST APPRECIATION DEPRECIATION FAIR VALUE
--------------- ---------------- ----------------- ---------------
Tax certificates and investment securities:
Cost equals market $197,857 $ -- $-- $197,857
Mortgage-backed securities held to maturity:
Market over cost 14,383 458 -- 14,841
Investment securities available for sale:
Market over cost 1,447 361 -- 1,808
Mortgage-backed securities available for sale:
Market over cost 682,217 21,995 -- 704,212
Cost over market 1,868 -- 30 1,838
-------- ------- --- --------
Total $897,772 $22,814 $30 $920,556
======== ======= === ========
RESIDENTIAL LOANS - We purchase residential loans in the secondary
markets. These loans are secured by property located throughout the United
States. For residential loan purchases, we review the seller's underwriting
policies and, for certain individual loans, perform additional credit analysis.
These loans are typically purchased in bulk and are generally non-conforming
loans due to the size and characteristics of the individual loans. We set
guidelines for loan purchases relating to: loan amount, type of property, state
of residence, loan-to-value ratios, the borrower's sources of funds, appraisal,
and loan documentation. We also originate certain residential loans, which are
primarily made to "low to moderate income" borrowers in order to comply with
standards under the Community Reinvestment Act (see Regulation of Federal
Savings Bank). The underwriting of these loans generally follows government
agency guidelines with independent appraisers generally performing on-site
inspections and valuations of the collateral.
COMMERCIAL BANKING
The Commercial Banking segment includes a wide range of commercial
lending products. These products include commercial real estate construction,
residential development and land acquisition loans, commercial business loans
and trade finance lending. This segment also provides letters of credit and
standby letters of credit to corporate customers.
COMMERCIAL REAL ESTATE - Commercial real estate loans are provided for
the acquisition, development and construction of various property types, as well
as the refinancing and acquisition of existing income-producing properties.
These loans are generally secured by property primarily located within Florida.
Commercial real estate loans typically are based on a maximum of 80% of the
collateral's appraised value and, in most cases, require the borrower to
maintain escrow accounts for real estate taxes and insurance. Prior to making a
loan, we consider the value of the collateral, the quality of the loan, the
credit worthiness of the borrowers and guarantors, the location of the real
estate, the projected income stream of the property, the reputation and quality
of management constructing or administering the property, and the interest rate
and fees. We generally require that one or more of the principals of the
borrowing entity guarantee these loans. Loans to and investments in affiliated
joint ventures may result in consolidated exposure in excess of the typical
loan-to-value ratio, and guarantees of the principals may not be required.
COMMERCIAL BUSINESS - Commercial business loans are generally made to
medium size companies located throughout Florida, primarily in Miami-Dade,
Broward and Palm Beach Counties and the Tampa Bay area. We make both secured and
unsecured loans, although the majority of these loans are on a secured basis.
The accounts receivable, inventory, equipment, and/or general corporate assets
of the borrowers typically provide the security for commercial business loans.
These loans generally have variable interest rates that are prime or LIBOR-based
and are originated for terms ranging from one to five years.
STANDBY LETTERS OF CREDIT AND COMMITMENTS - Standby letters of credit
are conditional commitments issued by us to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of credit
is the same as extending loans to customers. We may hold certificates of deposit
and residential and commercial liens as collateral for letters of credit.
5
We issue commitments for commercial real estate and commercial business
loans.
COMMUNITY BANKING
The Community Banking segment offers a diverse range of loan products
for individuals and small businesses. These products include home equity loans,
automobile loans, overdraft protection on deposit accounts and small business
lending. Business bankers and branch market managers originate the above loans.
This segment also administers our ATM network operations located in retail
outlets, cruise ships, Native American reservation gaming facilities and
BankAtlantic branch locations.
SMALL BUSINESS - Small business loans are generally made to companies
located primarily in South Florida, along the Treasure Coast of East Florida and
in the Tampa Bay area. Small business loans are primarily originated on a
secured basis and do not exceed $1.0 million for non-real estate secured loans
and $1.5 million for real estate secured loans. These loans are originated with
maturities primarily ranging from one to three years or on demand; however,
loans collateralized by real estate could have terms of up to fifteen years.
Lines of credit are due upon demand. These loans typically have either fixed or
variable prime-based interest rates.
Small business loans generally have a higher degree of risk than other
loans in our portfolio because they are more likely to be adversely impacted by
unfavorable economic conditions. In addition, these loans typically are highly
dependent on the success of the business and the credit worthiness of the
principals.
CONSUMER - Consumer loans are primarily loans to individuals originated
through the branch network and sales force. The majority of our originations are
home equity lines of credit secured by a second mortgage on the primary
residence of the borrower. We do not currently use brokers to originate loans.
In the past, we originated automobile loans through automobile dealers, but this
activity was discontinued during the fourth quarter of 1998. Home equity lines
of credit have prime-based interest rates and generally mature in 15 years. All
other consumer loans generally have fixed interest rates with terms ranging from
one to five years.
RETAIL BROKERAGE SERVICES - During 2002, through our wholly-owned
subsidiary, BA Financial Services, LLC, we began offering retail brokerage
services to our customers through our branch network. These products and
services include mutual funds, bonds, stocks and variable annuities.
INTEREST EXPENSE AND OVERHEAD ALLOCATIONS TO BANK OPERATIONS SEGMENTS
Interest expense and overhead for Bank Operation segments represents
interest expense and certain revenue and expense items that are allocated to
each Bank Operation segment by its pro-rata average assets. Items included in
interest expense and overhead include: (1) interest expense on all
interest-bearing banking liabilities and (2) an allocation of back office and
corporate headquarter operating expenses, net of deposit account fee income.
DEPOSITS - Our deposits include commercial demand deposit accounts,
retail demand deposit accounts, savings accounts, money market accounts,
certificates of deposit, various NOW accounts, IRA and Keogh retirement
accounts, brokered certificates of deposit and public funds We solicit deposits
in our market areas through advertising and relationship banking activities
conducted through our sales force and branch network. During 2002, products such
as Totally Free Checking and Totally Free Savings were the lead programs of our
marketing strategy to obtain new customers.
We have several relationships, including one with Ryan Beck, for the
placement of brokered certificates of deposit. These relationships are
considered an alternative source of funding.
FEDERAL HOME LOAN BANK ("FHLB") ADVANCES - We are a member of the FHLB
and can obtain secured advances from the FHLB of Atlanta. Our advances are
collateralized by a security lien against our residential loans, certain
commercial loans and securities. In addition, we must maintain certain levels of
FHLB stock for outstanding advances. We primarily use FHLB advances to fund our
purchased residential loan portfolio.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER SHORT-TERM
BORROWINGS - Short-term borrowings consist of securities sold under agreements
to repurchase and federal funds borrowings. Securities sold under agreements to
repurchase involve a sale of a portion of our current investment portfolio
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(usually MBS and REMIC's) at a negotiated rate and an agreement to repurchase
the same assets on a specified future date. We issue repurchase agreements to
institutions and to our customers. These transactions are collateralized by
securities in our investment portfolio. The FDIC does not insure repurchase
agreements. Federal funds borrowings occur under established facilities with
various federally-insured banking institutions to purchase federal funds. The
facilities are used on an overnight basis to assist in managing our cash flow
requirements. These federal fund lines are subject to periodic review, may be
terminated at any time by the issuer institution and are unsecured. We also have
a facility with the Federal Reserve Bank of Atlanta for secured advances. These
advances are collateralized by a security lien against our consumer loans.
SUBORDINATED DEBENTURES AND MORTGAGE-BACKED BONDS - Subordinated
debentures consist of $22 million of floating rate debentures due 2012. Interest
on the debentures are payable quarterly and are redeemable after October 2007.
The debentures qualify for inclusion in BankAtlantic's total risk-based capital.
In connection with the acquisition of Community, BankAtlantic assumed $15.9
million of mortgage-backed bonds. The bonds have a floating interest rate and
mature in September 2013.
LEVITT CORPORATION
Levitt Corporation is a real estate company organized in December 1982
under the laws of the State of Florida, and currently engages in real estate
activities through: (1) Levitt and Sons, (2) Core Communities, (3) an investment
in Bluegreen Corporation, and (4) other subsidiaries and joint ventures.
Levitt Corporation's operating strategy consists of:
o Building and selling single-family homes in both the active adult
and primary residential markets,
o Acquiring land, obtaining entitlements and developing parcels
suitable to residential, industrial and commercial users,
o Re-selling developed parcels to established homebuilders and to
commercial and industrial users,
o Constructing and marketing quality rental apartments, condominium
apartments and single-family residential units through its interests
in joint ventures,
o Acquiring land and real estate projects either through direct
ownership or through joint venture relationships, and
o Through its interest in Bluegreen Corporation, acquiring,
developing, marketing and sale of drive-to vacation resorts and golf
communities.
LEVITT AND SONS
Levitt and Sons and its predecessors have built more than 200,000 homes
since 1929 and introduced planned suburban communities to the United States
building industry. It is recognized nationally for having built the Levittown
communities in New York, New Jersey, Pennsylvania and Puerto Rico. Since 1977,
Levitt and Sons has operated principally in Florida. Levitt Corporation acquired
Levitt and Sons in 1999.
Levitt and Sons develops planned communities, generally featuring homes
priced between $120,000 - $300,000. While in prior years Levitt and Sons focused
on active adult communities, Levitt and Sons recently expanded into developing
communities for the family market. At December 31, 2002, Levitt and Sons had ten
communities under development, for which sales activity had begun. Additionally,
through a joint venture, Levitt and Sons is constructing a 164-unit condominium
project. All of the communities are located within the State of Florida. At
December 31, 2002, information regarding closed units and backlog units was as
follows:
Closed Backlog
Units Units
-------- ------------
Year ended December 31, 2000 620 703
Year ended December 31, 2001 879 724
Year ended December 31, 2002 880 885
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Backlog represents the number of units subject to pending sales
contracts. Homes are typically sold prior to construction using sales contracts
that are usually accompanied by cash deposits. Homes included in the backlog are
homes that have been completed but on which title has not been transferred,
homes not yet completed and homes on which construction has not begun.
Additionally, at December 31, 2002, Levitt and Sons had three
properties representing an aggregate of approximately 374 acres and an aggregate
purchase price of $32.1 million under contract on which due diligence has been
completed. While financing is not yet finalized, the transactions are expected
to close in 2003. Levitt and Sons estimates these three properties, located in
Naples, Estero, and Windemere, Florida, will permit the additional development
of 933 home sites. One additional property, located in Lake County, Florida, is
also under contract, but due diligence has not yet been completed. This property
would provide approximately an additional 1,000 homesites at a cost of $7.5
million.
CORE COMMUNITIES
Core Communities was founded in May 1996 to develop the master-planned
community now known as St. Lucie West. Levitt Corporation acquired Core
Communities in October 1997.
Core Communities' primary business is the development of master-planned
communities, including (1) land acquisition, (2) planning, entitlement and
infrastructure development, and (3) the sale of platted land and/or developed
lots to homebuilders, commercial, industrial and institutional users. Core
Communities is currently developing the communities of St. Lucie West, Tradition
and commercial land in Live Oak Preserve.
St. Lucie West is a 4,600 acre master-planned community located in St.
Lucie County, Florida. Interstate 95 borders it to the west and Florida's
Turnpike to the east. St. Lucie West contains residential, commercial and
industrial developments. Within the community, residents are close to
recreational and entertainment facilities, houses of worship, retail businesses,
medical facilities and schools. PGA of America owns and operates a golf course
and a country club. The community's baseball stadium serves as the spring
training headquarters for the New York Mets. There are approximately 4,000 homes
in St. Lucie West housing nearly 8,000 residents. Local businesses in the
community employ more than 5,000 workers. Only 365 acres remain available for
sale in this project.
In October 1998, Core Communities acquired 2,033 acres of land
approximately two miles south of St. Lucie West, also bordering Interstate 95.
This project, currently known as Tradition, is intended to be developed as a
master-planned community, including a corporate park, a K-12 charter/lab school,
commercial properties, residential homes and other uses in a series of mixed-use
parcels. It is anticipated that Community Development Districts will be formed
to provide financing for the various elements of the project.
In May 2002, Core Communities acquired approximately 1,800 acres of
land contiguous to the Tradition property for future expansion. Approximately
430 acres of this property is currently subject to a contract with a single
homebuilder for the sale of undeveloped lots commencing in 2003.
Core Communities has entered into a $12.8 million contract expected to
close in August 2003 for the acquisition of approximately 1,700 acres of
contiguous land to the west and south of its existing Tradition holdings for
possible future expansion. Core Communities also has approximately 1,600 acres
of its Tradition holdings under contracts for sale with closings expected to
commence in August 2003 through 2005 for an aggregate sales price of $30.0
million. Core Communities is under contract to acquire an additional 3,200 acres
of contiguous land to the west and south of its existing Tradition holdings.
First phase development is underway at the Tradition project and is
expected to continue through 2003. First phase development includes construction
of primary access to Interstate 95 and of connector roadways to Interstate 95
from the interior of the Tradition project, construction of the stormwater
infrastructure, commercial pod development, and traditional and neo-traditional
residential lot development. Core Communities has entered into a contract with
two homebuilders for the sale of portions of the first phase residential lots.
Those transactions are expected to close in 2003.
In September 2001, Core Communities acquired a 1,285-acre tract of land
known as Live Oak Preserve in Hillsborough County on the west coast of Florida.
During October 2002, Core Communities sold 1,267 acres of this property,
representing all of the residential land, in a single transaction. The remaining
18 acres of land represents all of the land zoned for commercial property held
for development and sale.
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OTHER SUBSIDIARIES AND JOINT VENTURES
Through subsidiaries, Levitt is engaged in the development and sale of
flex industrial properties in Boynton Beach, Florida and the construction of
rental properties. Levitt is also involved in joint ventures which defray
portions of risk associated with ventures by entering into joint venture
agreements with persons and entities who contribute equity capital.
BLUEGREEN CORPORATION
Bluegreen Corporation is a leading marketer of vacation and residential
lifestyle choices through its resorts and residential land and golf businesses.
Bluegreen Corporation's resorts business acquires, develops and markets
timeshare interests in resorts generally located in popular high-volume,
"drive-to" vacation destinations. "Timeshare Interests" are of two types: one
which entitles the fixed-week buyer to a fully-furnished vacation residence for
an annual one-week period in perpetuity and the second which entitles the buyer
of the Bluegreen Corporation's points-based Bluegreen Vacation Club(TM) product
to an annual allotment of "points" in perpetuity (supported by an underlying
deeded fixed timeshare week being held in trust for the buyer). "Points" may be
exchanged by the buyer in various increments for lodging for varying lengths of
time in fully-furnished vacation residences at any of the Bluegreen
Corporation's participating resorts. A timeshare interest also entitles the
buyer to access over 3,700 resorts worldwide through the Bluegreen Corporation's
participation in timeshare exchange networks. Bluegreen Corporation currently
develops, markets and sells timeshare interests in 11 resorts located in the
United States and one resort located in the Caribbean.
Bluegreen Corporation's residential land and golf division acquires,
develops and subdivides property and markets the subdivided residential lots to
retail customers seeking to build a home in a high quality residential setting,
in some cases on properties featuring a golf course and related amenities. The
residential land and golf division's strategy is to locate its projects (i) near
major metropolitan centers but outside the perimeter of intense subdivision
development or (ii) in popular retirement areas. Bluegreen Corporation also
generates significant interest income through its financing of individual
purchasers of timeshare interests and, to a nominal extent, home sites sold by
its residential land and golf division.
Levitt acquired shares in Bluegreen Corporation as an investment with
the intent of acquiring a significant equity position. Further, Levitt may in
the future make a proposal to Bluegreen involving a corporate transaction, such
as a merger or reorganization, involving Bluegreen or its subsidiaries.
RYAN BECK & CO., INC.
Ryan Beck provides financial advice to individuals, institutions and
corporate clients through 42 offices in twelve states. For individual investors,
the firm's Private Client Group provides a full range of financial services,
including investment consulting, retirement planning, insurance and investment
advisory services. Institutional clients are served by the market-making,
underwriting and distribution activities of the firm's Capital Markets Group,
which encompasses equity and fixed income trading, fixed income products,
institutional sales and research. Through its Investment Banking Group, Ryan
Beck provides consulting and financial advisory services to corporate clients,
primarily financial institutions and middle-market companies.
As a registered broker-dealer with the Securities and Exchange
Commission ("SEC"), Ryan Beck operates on a fully- disclosed basis through its
clearing firm, Pershing LLC. Clients consist primarily of (1) high net worth
individuals, (2) financial institutions, (3) institutional clients (including
mutual funds, pension funds, trust companies, insurance companies, LBO funds,
private equity sponsors, merchant banks and other long-term investors) and, to a
lesser extent, (4) insurance companies and specialty finance companies.
Ryan Beck's subsidiaries, Cumberland Advisors, Inc. ("Cumberland
Advisors") and GMS, provide money management and brokerage services to
individuals, institutions, government entities and non-profit organizations.
Cumberland Advisors was acquired in 1998 and supervises assets for individuals,
institutions, retirement plans, governmental entities and cash management
portfolios. GMS, which was acquired in the Gruntal transaction, is in the
municipal finance business including origination and acquisition of municipal
securities. GMS's private client group distribution emphasis is on tax-free
securities. Part of GMS's business consists of investing in unrated or
distressed municipal securities. These securities are not readily marketable and
are either not rated by any rating agency or are rated below investment grade
("below investment grade securities"). Included in the Company's consolidated
statement of financial condition was approximately $86 million of below
investment grade securities associated with the activities of GMS.
9
PARENT COMPANY
The Parent Company segment operations include the financing of the
capital needs of all subsidiaries through debt and equity offerings. The Parent
Company obtains its funds from issuances of equity securities, subordinated
debentures, convertible subordinated debentures, subordinated investment notes
and trust preferred securities, dividends from BankAtlantic, as well as
borrowings from unrelated financial institutions. The Parent Company provides
capital to its subsidiaries for the financing of acquisitions and for other
general corporate purposes. The Parent Company also owns and manages a small
portfolio of public and private equity investments. Certain of the Company's
affiliates, including certain of its executive officers, have independently made
investments with their own funds in both public and private entities in which
the Parent Company holds investments. (See Management Discussion and Analysis
- -"Related Party Transactions" for a further discussion on equity investments.)
RISK FACTORS
BANKING INDUSTRY RISK
Banking is a business that depends on interest rate differentials. In
general, the net interest income, which is the difference between the interest
paid by a bank on its deposits and its other borrowings and the interest
received by a bank on its loan and securities holdings, constitutes a major
portion of its earnings.
Changes in interest rates can have differing effects on BankAtlantic's
net interest income and the cost of purchasing residential mortgage loans in the
secondary market. In particular, changes in market interest rates, changes in
the relationships between short-term and long-term market interest rates or
changes in the relationships between different interest rate indices can affect
the interest rates charged on interest-earning assets differently than the
interest rates paid on interest-bearing liabilities. This difference could
result in an increase in interest expense relative to interest income and
therefore reduce BankAtlantic's net interest income.
Loan prepayment decisions are also affected by interest rates. Loan
prepayments generally accelerate as interest rates fall. Prepayments in a
declining interest rate environment reduce BankAtlantic's net interest income
and adversely affect its earnings because:
o It amortizes premiums on acquired loans, and if loans are prepaid,
the unamortized premium will be charged off; and
o The yields it earns on the investment of funds that it receives from
prepaid loans are generally less than the yields that it earned on
the prepaid loans.
Thus, the earnings and growth of BankAtlantic are affected by interest
rates, which are subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve Board. The nature and
timing of any changes in such policies or general economic conditions and their
effect on BankAtlantic cannot be controlled and are extremely difficult to
predict.
Additionally, we are exposed to the risk that borrowers or
counter-parties may default on their obligations to us. Credit risk arises
through the extension of loans and leases, certain securities, letters of
credit, financial guarantees and through counter-party exposure on trading and
wholesale loan transactions. In an attempt to manage this risk, we establish
policies and procedures to manage both on and off-balance sheet (primarily loan
commitments) credit risk and we monitor the application of these policies and
procedures throughout the Company.
We attempt to manage credit exposure to individual borrowers and
counter-parties on an aggregate basis including loans, securities, letters of
credit, derivatives and unfunded commitments. Credit personnel analyze the
creditworthiness of individual borrowers or counter-parties, and limits are
established for the total credit exposure to any one borrower or counter-party.
Credit limits are subject to varying levels of approval by senior line and
credit risk management.
The aftermath of the events of September 11, 2001 and the United
States' continued war on terrorism may have an unpredictable effect on economic
conditions in general and in our primary market areas. Depending upon the timing
and strength of the economic recovery, we could experience a decline in credit
quality that could result in loan losses and a material adverse effect on our
earnings.
10
UNDERWRITING AND CREDIT MANAGEMENT
We evaluate a borrower's ability to make principal and interest
payments and the value of the collateral securing the underlying loans.
Independent appraisers generally perform on-site inspections and valuations of
the collateral for commercial real estate loans. All non-residential loans or
leases of $1.0 million to $5.0 million require Officers' Loan Committee approval
and ratification by Major Loan Committee. Residential loans for over $500,000
require approval by the Officers' Loan Committee and ratification by the Major
Loan Committee. Purchased residential loans in pools greater than $50 million
require Investment Committee approval. The Investment Committee includes the
Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and
Chief Credit Officer. All loans over $5.0 million require the approval of our
Major Loan Committee. In addition to senior loan officers of BankAtlantic, the
Major Loan Committee consists of the Chief Executive Officer and the
Vice-Chairman. The Officers' Loan Committee includes members of our executive
management.
For consumer and small business lending, credit-scoring systems are
utilized to assist in the assessment of the relative risks of new underwritings
and to provide standards for extensions of credit. Consumer and small business
portfolio credit risk is monitored by using statistical models and regular
reviews of actual payment experience in order to predict portfolio behavior.
An independent credit review group conducts ongoing reviews of credit
activities and portfolios, reexamining, on a regular basis, risk assessments for
credit exposure and overall compliance with policy. This group meets
periodically with the Credit Policy Committee to provide an update on the status
of the various loan portfolios.
A separate Senior Loan Committee meets monthly to discuss the progress
of individual credits, to monitor compliance with lending policies and to
consider upgrading or downgrading the risk grades of specific loans. The Senior
Loan Committee includes the Chief Executive Officer, Chief Financial Officer,
Chief Investment Officer and Chief Credit Officer.
Our primary credit exposure is focused in our loan and lease portfolio,
which totaled $3.4 billion and $2.8 billion at December 31, 2002 and 2001,
respectively.
11
Loans and leases receivable composition at the dates indicated was (in
thousands):
AS OF DECEMBER 31,
--------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- ----------------- ---------------- ------------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
LOANS RECEIVABLE:
Real estate loans:
Residential
real estate $1,378,041 40.85% $1,111,775 40.07% $1,316,062 46.14% $ 1,188,092 44.39% $ 1,336,587 50.90%
Construction and
development 1,218,411 36.13 1,122,628 40.47 937,881 32.88 634,382 23.71 439,418 16.74
Commercial real
estate 755,492 22.40 522,006 18.82 369,282 12.95 312,014 11.66 341,738 13.02
Small business -
real estate 98,494 2.92 43,196 1.56 28,285 0.99 22,241 0.83 20,275 0.77
Other loans:
Second mortgage -
direct 261,579 7.75 166,531 6.00 124,859 4.38 85,936 3.21 60,403 2.30
Second mortgage - 1,713 0.05 2,159 0.08 4,020 0.14 5,325 0.20 8,032 0.31
indirect
Commercial business 82,174 2.44 76,146 2.74 86,194 3.02 188,040 7.03 91,591 3.49
Small business - 62,599 1.86 59,041 2.13 69,325 2.43 93,442 3.49 98,543 3.75
non-mortgage
Lease finance 31,279 0.93 54,969 1.98 75,918 2.66 43,436 1.62 25,055 0.95
Due from foreign
banks 0 0.00 1,420 0.05 64,207 2.25 51,894 1.94 27,293 1.04
Consumer - other
direct 24,881 0.74 25,811 0.93 33,036 1.16 35,508 1.33 40,930 1.56
Consumer - other
indirect 6,392 0.19 23,241 0.84 58,455 2.05 120,184 4.49 212,571 8.10
Loans held for sale:
Residential real
estate 0 0.00 4,757 0.17 0 0.00 220,236 8.23 168,881 6.43
Syndication loans 14,499 0.43 40,774 1.47 80,016 2.80 0 0.00 0 0.00
---------- ------ ---------- ------ ---------- ------ ----------- ------ ----------- ------
Total 3,935,554 116.69 3,254,454 117.31 3,247,540 113.85 3,000,730 112.13 2,871,317 109.36
---------- ------ ---------- ------ ---------- ------ ----------- ------ ----------- ------
Adjustments:
Undisbursed portion
of loans
in process 511,861 15.18 434,166 15.65 344,390 12.07 286,608 10.71 218,937 8.34
Unearned discounts 3,041 0.09 1,470 0.05 3,675 0.13 (6,420) (0.24) (11,277) (0.43)
(premiums)
Allowance for
loan losses 48,022 1.42 44,585 1.61 47,000 1.65 44,450 1.66 37,950 1.45
---------- ------ ---------- ------ ---------- ------ ----------- ------ ----------- ------
Total loans
receivable,
net $3,372,630 100.00% $2,774,233 100.00% $2,852,475 100.00% $ 2,676,092 100.00% $ 2,625,707 100.00%
========== ====== ========== ====== ========== ====== =========== ====== =========== ======
Bankers acceptances $ 0 100.00% $ 5 100.00% $ 1,329 100.00% $ 13,616 100.00% $ 9,662 100.00%
========== ====== ========== ====== ========== ====== =========== ====== =========== ======
REAL ESTATE INDUSTRY RISK
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Factors which adversely affect the real estate and
homebuilding industries, many of which are beyond Levitt's control, include:
o The availability and cost of financing,
o Unfavorable interest rates and increases in inflation,
o Overbuilding or decreases in demand,
o Changes in the general availability of land and competition for
available land,
o Construction defects and warranty claims arising in the ordinary
course of business, including mold-related property damage and
bodily injury claims,
o Changes in national, regional and local economic conditions,
o Cost overruns, inclement weather and labor and material shortages,
o The impact of present or future environmental legislation, zoning
laws and other regulations, o Availability, delays and costs
associated with obtaining permits, approvals or licenses necessary
to develop property, and
o Increases in real estate taxes and other governmental fees.
In addition, Levitt currently develops and sells properties primarily
in Florida. The Florida markets in which Levitt operates are subject to the
risks of natural disasters, such as hurricanes and tropical storms. These
natural disasters could have a material adverse effect on Levitt's business by
causing the incurrence of uninsured losses, the incurrence of delays in
construction and shortages and increased costs of labor and building materials.
12
BROKERAGE INDUSTRY RISK
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, customer fraud,
employee errors and misconduct, failures in connection with the processing of
securities transactions and litigation. Ryan Beck's business and its
profitability are affected by many factors including:
o The volatility and price levels of the securities markets,
o The volume, size and timing of securities transactions,
o The demand for investment banking services,
o The level and volatility of interest rates,
o The availability of credit,
o Legislation affecting the business and financial communities,
o The economy in general and
o The volatility of equity and debt securities held in inventory.
Markets characterized by low trading volumes and depressed prices
generally result in reduced commissions and investment banking revenues as well
as losses from declines in the market value of securities positions. Moreover,
Ryan Beck is likely to be adversely affected by negative economic developments
in the mid-Atlantic region or the financial services industry in general.
The majority of Ryan Beck's assets and liabilities are securities owned
or securities sold but not yet purchased. Securities owned and securities sold
but not yet purchased are associated with trading activities conducted both as
principal and as agent on behalf of individual and institutional investor
clients of Ryan Beck and are accounted for at fair value in our financial
statements. The fair value of these trading positions is generally based on
listed market prices. If listed market prices are not available or if
liquidating the positions would reasonably be expected to impact market prices,
fair value is determined based on other relevant factors, including dealer price
quotations, price quotations for similar instruments traded in different markets
or management's estimates of amounts to be realized on settlement. As a
consequence, volatility in either the stock or fixed-income markets could result
in an adverse change in our financial statements. Trading transactions as
principal involve making markets in securities, which are held in inventory to
facilitate sales to and purchases from customers. As a result of this activity,
Ryan Beck may be required to hold securities during declining markets.
The Gruntal transaction significantly increased the size of Ryan Beck,
but its success will be dependent upon Ryan Beck's ability to integrate the
Gruntal operations, successfully manage a much larger organization and retain
its new employees. Although Ryan Beck assumed a $21 million deferred
compensation plan obligation for participating financial consultants, and Ryan
Beck put in place a length of service award and a retention award in forgivable
notes in the aggregate amounts of $900,000 and $9.5 million, respectively, for
certain financial consultants and key employees, the financial consultants and
other employees may choose not to remain with Ryan Beck. Additionally, part of
GMS's business consists of investing in below investment grade securities. In
some instances, GMS holds a majority of the securities of an issue. These below
investment grade securities generally consist of revenue bonds issued by
tax-exempt entities related to healthcare and long-term care facilities. The
payment of the principal and interest associated with these securities is
dependent on the cash flows of the issuer. As a consequence, GMS is exposed to
the risk that the issuer's cash flows from operations will not be sufficient to
cover the debt service, resulting in GMS not recovering its entire investment.
The credit risk on below investment grade securities is significant, and
therefore a change in the credit quality of an issue could result in a
significant impact on the fair value of the issue. Since there is no trading
market for many of these securities, GMS may not be able to liquidate its
position at prices that would be available for securities that are readily
marketable. These securities are accounted for in our financial statements at
amounts that we believe represent the fair value of the securities but there is
no assurance that we will be able to realize such amounts upon sale.
PARENT COMPANY RISK FACTORS
As of December 31, 2002, we had approximately $246.2 million of
indebtedness outstanding at the holding company level. The degree to which we
are leveraged poses risks to our operations, including the risk that our cash
flow will not be sufficient to service our outstanding debt and that we may not
be able to obtain additional financing or refinancing. If we are forced to
utilize all or most of our cash flow for the purpose of servicing debt, we will
13
not be able to use those funds for other purposes. Our ability to meet these
obligations is largely dependent on BankAtlantic's ability to pay dividends to
us. BankAtlantic's ability to pay dividends is limited and is primarily
determined based on BankAtlantic's net income.
As of December 31, 2002, BFC Financial Corporation ("BFC") owned all of
our issued and outstanding Class B common stock and 8,296,891 shares, or
approximately 16%, of our issued and outstanding Class A common stock. These
shares represent approximately 55% of our total voting power. Since the Class A
common stock and Class B common stock vote as a single group on most matters,
BFC is in a position to control our company and elect a majority of our Board of
Directors. Additionally, Alan B. Levan, our Chairman of the Board of Directors
and Chief Executive Officer of BankAtlantic, and John E. Abdo, Vice Chairman of
our Board of Directors and the Vice Chairman of the Board of Directors and
Chairman of the Executive Committee of BankAtlantic, beneficially own
approximately 45.4% and 15.7% of the shares of BFC, respectively. As a
consequence, Alan B. Levan and John E. Abdo effectively have the voting power to
control the outcome of any shareholder vote of BankAtlantic Bancorp, except in
those limited circumstances where Florida law mandates that the holders of our
Class A common stock vote as a separate class. BFC's control position may have
an adverse effect on the market price of our Class A common stock.
EMPLOYEES
Management believes that its relations with its employees are
satisfactory. The Company currently maintains comprehensive employee benefit
programs that are considered by management to be generally competitive with
programs provided by other major employers in its markets.
The Company's number of employees at the indicated dates was:
DECEMBER 31, 2002 DECEMBER 31, 2001
--------------------- -----------------------
FULL- PART- FULL- PART-
TIME TIME TIME TIME
--------- ------- -------- ---------
BankAtlantic 1,134 219 830 85
Levitt Corporation 221 28 202 27
Ryan Beck 1,215 40 300 13
----- --- ----- ---
Total 2,570 287 1,332 125
===== === ===== ===
COMPETITION
BankAtlantic is one of the largest financial institutions headquartered
in the State of Florida. BankAtlantic has substantial competition in attracting
and retaining deposits and in lending funds. BankAtlantic competes not only with
financial institutions headquartered in the State of Florida, but also with a
growing number of financial institutions headquartered in other states that are
active in Florida. Many competitors have substantially greater financial
resources than BankAtlantic and, in some cases, operate under fewer regulatory
constraints.
Levitt Corporation is engaged in the real estate development and
construction industry, which is highly competitive and fragmented. Overbuilding
in certain local markets, among other competitive factors, may materially
adversely affect homebuilders in that market. Homebuilders compete for
financing, raw materials and skilled labor, as well as for the sale of homes.
Additionally, competition for prime properties is intense and the acquisition of
such properties may become more expensive in the future to the extent demand and
competition increase. Levitt competes with other local, regional and national
real estate companies and homebuilders, often within larger subdivisions
designed, planned and developed by such competitors. Some of Levitt's
competitors have greater financial, marketing, sales and other resources than
Levitt.
Ryan Beck is engaged in investment banking, securities brokerage and
asset management activities all of which are extremely competitive businesses.
Competitors include:
o All of the member organizations of the New York Stock Exchange and
NASD,
o Banks,
o Insurance companies,
o Investment companies, and
o Financial consultants.
14
REGULATION AND SUPERVISION
HOLDING COMPANY
We are a unitary savings and loan holding company within the meaning of
the Home Owner's Loan Act, as amended ("HOLA"). As such, we are registered with
the Office of Thrift Supervision ("OTS") and are subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over us, and our non-bank subsidiaries, Levitt Corporation
and Ryan Beck & Co., Inc. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
financial safety, soundness or stability of a subsidiary savings bank.
HOLA prohibits a savings bank holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring another savings institution
or holding company thereof without prior written approval of the OTS; acquiring
or retaining, with certain exceptions, more than 5% of a non-subsidiary savings
institution, a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating an application by a holding company to acquire a savings
institution, the OTS must consider the financial and managerial resources and
future prospects of the company and savings institution involved, the effect of
the acquisition on the risk to the insurance funds, the convenience and needs of
the community and competitive factors.
As a unitary savings and loan holding company, we generally are not
restricted under existing laws as to the types of business activities in which
we may engage, provided that the Bank continues to satisfy the QTL test. See
"Regulation of Federal Savings Banks - QTL Test" for a discussion of the QTL
requirements. If we were to make a non-supervisory acquisition of another
savings institution or of a savings institution that meets the QTL test and is
deemed to be a savings institution by the OTS and that will be held as a
separate subsidiary, we would become a multiple savings bank holding company and
would be subject to limitations on the types of business activities in which we
can engage. HOLA limits the activities of a multiple savings institution holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company ("BHC") Act, subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation.
Transactions between the Bank, including any of the Bank's
subsidiaries, and us or any of the Bank's affiliates, are subject to various
conditions and limitations. See "Regulation of Federal Savings Banks -
Transactions with Related Parties." The Bank must file a notice with the OTS
prior to any declaration of the payment of any dividends or other capital
distributions to us. See "Regulation of Federal Savings Banks - Limitation on
Capital Distributions."
FEDERAL SECURITIES LAWS
Our Class A common stock is registered with the SEC under Section 12(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We are
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
BANKATLANTIC
GENERAL
The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF"),
which are administered by the FDIC. The Bank must file reports with the OTS and
the FDIC concerning its activities and financial condition, and it must obtain
regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions or forming
subsidiaries. The OTS and the FDIC conduct periodic examinations to assess the
Bank's safety and soundness and compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which a savings bank can engage and is intended primarily for the
protection of the insurance fund and depositors.
The OTS and the FDIC have significant discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
15
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on us, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings banks, and it does not purport to
be a comprehensive description of all such statutes and regulations.
REGULATION OF FEDERAL SAVINGS BANKS
BUSINESS ACTIVITIES. The Bank derives its lending and investment powers
from the HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of debt
securities, and certain other assets. The Bank may also establish service
corporations that may engage in activities not otherwise permissible for the
Bank, including certain real estate equity investments and securities and
insurance brokerage. These investment powers are subject to various limitations,
including (a) a prohibition against the acquisition of any corporate debt
security that is not rated in one of the four highest rating categories; (b) a
limit of 400% of capital on the aggregate amount of loans secured by
non-residential real estate property; (c) a limit of 20% of assets on commercial
loans, with the amount of commercial loans in excess of 10% of assets being
limited to small business loans; (d) a limit of 35% of assets on the aggregate
amount of consumer loans and acquisitions of certain debt securities; (e) a
limit of 5% of assets on non-conforming loans (loans in excess of the specific
limitations of HOLA); and (f) a limit of the greater of 5% of assets or capital
on certain construction loans made for the purpose of financing what is or is
expected to become residential property.
LOANS TO ONE BORROWER. Under HOLA, savings banks are generally subject
to the same limits on loans to one borrower as are imposed on national banks.
Generally, under these limits, a savings bank may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of the bank's
unimpaired capital and surplus. Additional loans or extensions of credit are
permitted of up to 10% of unimpaired capital and surplus if they are fully
secured by readily-marketable collateral. Such collateral includes certain debt
and equity securities and bullion, but generally does not include real estate.
At December 31, 2002, the Bank's limit on loans to one borrower was $59.6
million. At December 31, 2002, the Bank's largest aggregate amount of loans to
one borrower was $45.9 million and the second largest borrower had an aggregate
balance of $42.7 million.
QTL TEST. HOLA requires a savings bank to meet a Qualified Thrift
Lending ("QTL") test by maintaining at least 65% of its "portfolio assets" in
certain "qualified thrift investments" in at least nine months of the most
recent twelve-month period. A savings bank that fails the QTL test must either
operate under certain restrictions on its activities or convert to a bank
charter. At December 31, 2002, the Bank maintained 77.6% of its portfolio assets
in qualified thrift investments. The Bank had also satisfied the QTL test in
each of the prior 12 months and, therefore, was a qualified thrift lender.
CAPITAL REQUIREMENTS. The OTS regulations require savings banks to meet
three minimum capital standards: a tangible capital ratio requirement of 1.5% of
total assets as adjusted under the OTS regulations, a risk-based capital ratio
requirement of 8% of core and supplementary capital to total risk-based assets
and a core capital ratio (as defined under OTS regulations). For a depository
institution that has been assigned the highest composite rating of 1 under the
Uniform Financial Institutions Rating, the minimum core capital ratio is 3%, and
the minimum core capital ratio for any other depository institution is 4%,
unless a higher capital ratio is warranted by the particular circumstances or
risk profile of the depository institution. In determining the amount of
risk-weighted assets for purposes of the risk-based capital requirement, a
savings bank must compute its risk-based assets by multiplying its assets and
certain off-balance sheet items by risk-weights, which range from 0% for cash
and obligations issued by the United States Government or its agencies, to 100%
for consumer and commercial loans, as assigned by the OTS capital regulations
based on the risks OTS believes are inherent in the type of asset. On May 10,
2002, the OTS adopted amendments to its capital regulations which, among other
matters, eliminated the interest rate risk component of the risk-based capital
requirement. Pursuant to the amendment, the OTS will continue to monitor the
interest rate risk management of individual institutions through the OTS
requirements for interest rate risk management, the ability of the OTS to impose
an individual minimum capital requirement on institutions that exhibit a high
degree of interest rate risk, and the requirements of Thrift Bulletin 13a, which
provides guidance regarding the management of interest rate risk and the
responsibility of boards of directors in that area.
16
The table below presents the Bank's regulatory capital as compared to
the OTS regulatory capital requirements at December 31, 2002:
DECEMBER 31, 2002
--------------------------------------------------------------
MINIMUM CAPITAL
-------------------------------------------------------------- WELL
ACTUAL REQUIREMENT CAPITALIZED
-------------------------------------------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------- ----------------------------- ------------ ------------
(IN THOUSANDS)
Tangible capital $ 347,927 7.26% 71,873 1.50% $ 71,873 1.50%
Core capital 347,927 7.26 191,661 4.00 239,576 5.00
Total tier 1 risk-based
capital 347,927 10.01 139,088 4.00 208,632 6.00
Total risk-based capital 413,469 11.89 278,176 8.00 347,720 10.00
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations currently impose
limitations upon capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger, and other
distributions charged against capital.
As the subsidiary of a savings and loan holding company, the Bank is
required to file a notice with the OTS at least 30 days prior to each capital
distribution. However, if the total amount of all capital distributions
(including each proposed capital distribution) for the applicable calendar year
exceeds net income for that year plus the retained net income for the preceding
two years, then the Bank must file an application for OTS approval of a proposed
capital distribution. In addition, the OTS can prohibit a proposed capital
distribution otherwise permissible under the regulation, if it has determined
that the institution is in need of more than customary supervision or that a
proposed distribution by an institution would constitute an unsafe or unsound
practice. Furthermore, under the OTS Prompt Corrective Action Regulations, the
Bank would be prohibited from making any capital distribution if, after the
distribution, the Bank failed to satisfy its minimum capital requirements, as
described above. See "Regulation - Regulation of Federal Savings Institutions -
Prompt Corrective Regulatory Action".
LIQUIDITY. The Bank is required to maintain sufficient liquidity to
ensure its safe and sound operation. The Bank's average liquidity ratio at
December 31, 2002 was 19.23%.
ASSESSMENTS. Savings institutions are required by OTS regulation to pay
semi-annual assessments to the OTS to fund OTS operations. The regulations base
the assessment for individual savings institutions on three components: the size
of the institution on which the basic assessment is based; the institution's
supervisory condition; and the complexity of the institution's operations. The
Bank's assessment expense during the year ended December 31, 2002 was
approximately $745,000.
BRANCHING. Subject to certain limitations, HOLA and the OTS regulations
permit federally chartered savings banks to establish branches in any state of
the United States.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA requires the OTS, in connection with its examination of a
savings bank, to assess the bank's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such bank. The CRA also requires all institutions to make public
disclosure of their CRA ratings. The Bank received a "satisfactory" CRA
performance evaluation in its most recent evaluation. Insured depository
institutions also must publicly disclose certain agreements that are in
fulfillment of CRA. We have no such agreements in place at this time.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with its "affiliates" is limited by OTS regulations and by Sections
23A and 23B of the Federal Reserve Act ("FRA"). In general, an affiliate of the
Bank is any company that controls the Bank or any other company that is
controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the Federal Reserve Bank has proposed treating any subsidiary of a bank that
is engaged in activities not permissible for bank holding companies under the
17
BHCA as an affiliate for purposes of Sections 23A and 23B. The OTS regulations
prohibit a savings bank (a) from lending to any of its affiliates that is
engaged in activities that are not permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act ("BHC Act") and (b) from purchasing
the securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings bank and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings bank's capital and
surplus. Extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
provides that certain transactions with affiliates, including loans and asset
purchases, must be on terms and under circumstances, including credit standards,
that are substantially the same or at least as favorable to the Bank as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transactions, such transactions may only occur
under terms and circumstances, including credit standards, that in good faith
would be offered to or would apply to nonaffiliated companies. On October 1,
2001, the Bank made a special dividend to the Company of all the outstanding
stock of Levitt Corporation, and Levitt Corporation thereupon became a
subsidiary of the Company instead of the Bank. As a consequence, transactions
between the Bank and Levitt Corporation became subject to the regulations and
statutes described above and in connection with the transaction the OTS issued a
"no action" letter which effectively grandfathered all then-outstanding loans,
commitments and letters of credit ("Levitt Loans") from the Bank to Levitt. In
addition, the Bank agreed that it would not engage in any covered transactions
with any affiliates until the aggregate amount of all covered transactions,
including the Levitt Loans, falls below twenty percent of the Bank's capital
stock and surplus.
Section 402 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley")
prohibits the extension of personal loans to directors and executive officers of
issuers (as defined in Sarbanes-Oxley). The prohibition, however, does not apply
to mortgages advanced by an insured depository institution, such as the Bank,
that are subject to the insider lending restrictions of Section 22(h) of the
FRA.
The Bank's authority to extend credit to its directors, executive
officers, and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the Federal Reserve Board ("FRB") thereunder.
Among other things, these provisions require that extensions of credit to
insiders (a) be made on terms that are substantially the same as and follow
credit underwriting procedures that are not less stringent than those prevailing
for comparable transactions with unaffiliated persons and that do not involve
more than the normal risk of repayment or present other unfavorable features and
(b) not exceed certain limitations on the amount of credit extended to such
persons, individually and in the aggregate, which limits are based, in part, on
the amount of the bank's capital. In addition, extensions of credit in excess of
certain limits must be approved by the Bank's board of directors.
ENFORCEMENT. Under the Federal Deposit Insurance Act ("FDI Act"), the
OTS has primary enforcement responsibility over savings banks and has the
authority to bring enforcement action against all "institution-affiliated
parties," including any controlling stockholder or any shareholder, attorney,
appraiser and accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or certain
other wrongful actions that cause or are likely to cause a more than a minimal
loss or other significant adverse effect on an insured savings bank.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the requirements of the
FDI Act, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994 ("Community Development Act"), the OTS,
together with the other federal bank regulatory agencies, have adopted a set of
guidelines prescribing safety and soundness standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines.
REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of financing
the construction of improvements on real estate. The OTS regulations require
each savings bank to establish and maintain written internal real estate lending
standards that are consistent with OTS guidelines and with safe and sound
banking practices and which are appropriate to the size of the bank and the
nature and scope of its real estate lending activities.
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS Prompt Corrective
Action Regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings institutions.
For this purpose, a savings institution would be placed in one of five
categories based on its capital. Generally, a savings institution is treated as
"well capitalized" if its ratio of total capital to risk-weighted assets is at
18
least 10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%,
its ratio of core capital to total assets is at least 5.0%, and it is not
subject to any order or directive by the OTS to meet a specific capital level.
The most recent notification from the Office of Thrift Supervision categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the institution's category. See "- Capital
Requirements."
The severity of the action authorized or required to be taken under the
Prompt Corrective Action Regulations increases as a bank's capital deteriorates
within the three undercapitalized categories. All institutions are prohibited
from paying dividends or other capital distributions or paying management fees
to any controlling person if, following such distribution, the institution would
be undercapitalized. An undercapitalized institution is required to file a
capital restoration plan within 45 days of the date the institution receives
notice that it is within any of the three undercapitalized categories. The OTS
is required to monitor closely the condition of an undercapitalized institution
and to restrict the asset growth, acquisitions, branching, and new lines of
business of such an institution. If one or more grounds exist for appointing a
conservator or receiver for an institution, the OTS may require the institution
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. The OTS and the FDIC
have a broad range of grounds under which they may appoint a receiver or
conservator for an insured depository bank. When appropriate, the OTS can
require corrective action by a savings bank holding company under the "Prompt
Corrective Action" provisions of FDICIA.
INSURANCE OF DEPOSIT ACCOUNTS. Savings banks are subject to a
risk-based assessment system for determining the deposit insurance assessments
to be paid by each bank. Under the risk-based assessment system, which began in
1993, the FDIC assigns an institution to one of three capital categories based
on the institution's financial information as of the reporting period. The
supervisory subgroup to which an institution is assigned is based upon a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Assessment rates currently range
from 0.0% of deposits for an institution in the highest category (i.e.,
well-capitalized and financially sound, with no more than a few minor
weaknesses) to 0.27% of deposits for an institution in the lowest category
(i.e., undercapitalized and substantial supervisory concern). The FDIC is
authorized to raise the assessment rates as necessary to maintain the required
reserve ratio of 1.25%. Both the BIF and SAIF currently satisfy the reserve
ratio requirement. If the FDIC determines that assessment rates should be
increased, institutions in all risk categories could be affected. The FDIC has
exercised this authority several times in the past and could raise insurance
assessment rates in the future. The FDIC has recently alerted institutions to
the possibility of higher deposit insurance premiums in early 2003. The FDIC
stated that, if necessary, the increased premiums would likely affect only
institutions with BIF-insured deposits and would not exceed 5 basis points.
While increases in deposit insurance premiums could have an adverse effect on
the Company's earnings, the recent advisory statement from the FDIC, if enacted,
is not expected to have a material adverse effect on the Company's earnings.
The Deposit Insurance Funds Act of 1996 amended the FDIA to
recapitalize the SAIF and expand the assessment base for the payments of
Financing Corporation ("FICO") bonds. FICO bonds were sold by the federal
government in order to finance the recapitalization of SAIF and BIF insurance
funds. The recapitalization of the SAIF and BIF insurance funds was necessitated
following payments made from these insurance funds to compensate depositors of
federally-insured depository institutions that experienced bankruptcy and
dissolution during the 1980's and 1990's. The quarterly adjusted rate of
assessment for FICO bonds is 0.0172% for both BIF-and SAIF-insured institutions.
PRIVACY AND SECURITY PROTECTION. The OTS has adopted regulations
implementing the privacy protection provisions of the Gramm-Leach-Bliley Act
("Gramm-Leach"). The regulations, which require each financial institution to
adopt procedures to protect customers and customers' "non-public personal
information", became effective November 13, 2000. The Bank has a privacy
protection policy which we believe complies with applicable regulations. In
February 2001, the OTS and other federal banking agencies finalized guidelines
establishing standards for safeguarding customer information to implement
certain provisions of Gramm-Leach. The guidelines describe the agencies'
expectations for the creation, implementation and maintenance of an information
security program. The new regulation became effective on July 1, 2001. We do not
believe that these regulations will have a material impact upon our operations.
INTERNET BANKING. Technological developments are dramatically altering
the methods by which most companies, including financial institutions, conduct
their business. The growth of the Internet is prompting banks to reconsider
business strategies and adopt alternative distribution and marketing systems.
The federal bank regulatory agencies have conducted seminars and published
19
materials targeted at various aspects of Internet Banking and have indicated
their intention to re-evaluate their regulations to ensure they encourage bank
efficiency and competitiveness consistent with safe and sound banking practices.
The Company cannot assure that federal bank regulatory agencies will not adopt
new regulations that will not materially affect or restrict the Bank's Internet
operations.
INSURANCE ACTIVITIES. As a federal savings bank, we are generally
permitted to engage in certain insurance activities through subsidiaries. OTS
regulations promulgated pursuant to Gramm-Leach prohibit depository institutions
from conditioning the extension of credit to individuals upon either the
purchase of an insurance product or annuity or an agreement by the consumer not
to purchase an insurance product or annuity from an entity that is not
affiliated with the depository institution. The regulation also requires prior
disclosure of this prohibition to potential insurance product or annuity
customers.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Atlanta, which is one of the regional FHLBs composing the FHLB System. Each FHLB
provides a central credit facility primarily for its member institutions. The
Bank, as a member of the FHLB of Atlanta, is required to acquire and hold shares
of capital stock in the FHLB. The Bank was in compliance with this requirement
with an investment in FHLB stock at December 31, 2002 of $64.9 million. Any
advances from a FHLB must be secured by specified types of collateral, and all
long-term advances may be obtained only for the purpose of providing funds for
residential housing finance. The FHLB of Atlanta paid dividends on the capital
stock of $3.2 million during the year ended December 31, 2002. If dividends were
reduced or interest on future FHLB advances increased, the Bank's net interest
income would likely also be reduced.
FEDERAL RESERVE SYSTEM. The Bank is subject to provisions of the FRA
and the FRB's regulations, pursuant to which depository institutions may be
required to maintain non-interest-earning reserves against their deposit
accounts and certain other liabilities. Currently, reserves must be maintained
against transaction accounts (primarily NOW and regular checking accounts). The
FRB regulations generally require that reserves be maintained in the amount of
3% of the aggregate of transaction accounts up to $36.1 million. The amount of
aggregate transaction accounts in excess of $41.3 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 14%.
The FRB regulations currently exempt $6.0 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but FRB
regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
ANTI-TERRORISM REGULATION. The Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 ("USA Patriot Act") was signed into law on October 26, 2001, providing the
federal government with new powers to address terrorist threats. By way of
amendments to the Bank Secrecy Act, Title III of the USA Patriot Act enacts
measures intended to encourage information-sharing among bank regulatory and law
enforcement agencies. In addition, certain provisions of Title III impose
affirmative obligations on a broad range of financial institutions, including
(i) financial institutions must establish anti-money laundering programs that
include, at a minimum, internal policies, procedures and controls, as well as an
independent audit function to test the programs; and (ii) regulations are to be
promulgated setting minimum standards with respect to customer identification
upon the opening of new accounts. The federal banking agencies have begun to
propose and implement regulations requiring financial institutions to adopt the
policies and procedures contemplated by the USA Patriot Act. Implementation of
the USA Patriot Act did not have a material impact upon the financial condition
or results of operations of the Company.
LEVITT CORPORATION
Levitt Corporation, through its subsidiaries, engages in real estate
development activities and residential and commercial construction in the State
of Florida. Levitt's business activities are subject to various local and state
statutes, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters that impose restrictive zoning and density
requirements the purposes of which are to limit building within the boundaries
of a particular area. Local laws frequently require builders to provide roads
and other off-site infrastructure in connection with a homebuilding project.
Further, schools, parks, water treatment and other public improvements are
required in connection with real estate development activities, and these
requirements drive up the cost of development while extending the time within
which a project can be brought to completion. The State of Florida and various
20
counties have declared (and may declare in the future) moratoriums on the
issuance of building permits and/or impose restrictions in areas where roads,
schools, parks, water and sewage treatment facilities and other infrastructure
do not reach minimum standards. Further, in response to severe windstorm damage
suffered in the past, the State of Florida has adopted stringent building codes
that require, among other things, builders to use specific construction
materials and to follow specific construction practices and techniques.
Levitt Corporation's subsidiaries are also subject to local and state
statutes, ordinances, rules and regulations concerning the protection of health
and the environment. The specific environmental regulations that may apply vary
according to site location, its environmental conditions and its present and
former uses as well as the present and former uses of adjoining properties.
These laws and regulations are subject to frequent change; in some cases,
activities may be delayed or halted by changes in statutes or rules. In
addition, environmental laws and conditions can prohibit or severely restrict
building activity in environmentally sensitive regions.
RYAN BECK & CO., INC.
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The SEC is the federal agency
charged with administration of the federal securities laws. Much of the
regulation of broker-dealers has been delegated to self-regulatory authorities,
principally the NASD and, in the case of broker-dealers that are members of a
securities exchange, the particular securities exchange. These self-regulatory
organizations conduct periodic examinations of member broker-dealers in
accordance with rules they have adopted and amended from time to time, subject
to approval by the SEC.
Securities firms are also subject to regulation by state securities
commissions in those states in which they do business. As of December 31, 2002,
Ryan Beck was registered as a broker-dealer in 50 states and the District of
Columbia. The principal purpose of regulation and discipline of broker-dealers
is the protection of clients and the securities markets, rather than protection
of creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business,
including sales methods, trading practices among broker-dealers, uses and
safekeeping of clients' funds and securities, capital structure of securities
firms, record-keeping and reporting, fee arrangements, disclosure to clients and
the conduct of directors, officers and employees.
Additionally, legislation, changes in rules promulgated by the SEC
and self-regulatory authorities or changes in the interpretation or enforcement
of existing laws and rules may directly affect the operations and profitability
of broker-dealers. The SEC, self-regulatory authorities and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, suspension or expulsion of a broker-dealer, its officers or employees.
Such administrative proceedings, whether or not resulting in adverse findings,
can require substantial expenditures. The profitability of broker-dealers could
also be affected by rules and regulations that impact the business and financial
communities in general, including changes to the laws governing taxation,
antitrust regulation and electronic commerce.
Securities held in custody by Pershing for Ryan Beck's customer
accounts are protected to an unlimited amount. The Securities Investors
Protection Corporation (SIPC) provides $500,000 of coverage, including $100,000
for claims for cash. Pershing provides the remaining coverage through a
commercial insurer. The account protection applies when a SIPC member firm fails
financially and is unable to meet obligations to securities customers, but it
does not protect against losses from the rise and fall in the market value of
investments.
Ryan Beck is subject to the net capital provision of Rule 15c3-1 under
the Securities Exchange Act of 1934. The Net Capital Rule specifies minimum net
capital requirements that are intended to ensure the general financial soundness
and liquidity of broker-dealers. Failure to maintain the required net capital
may subject a firm to suspension or expulsion by the NASD, certain punitive
actions by the SEC and other regulatory bodies, and ultimately may require a
firm's liquidation. At December 31, 2002, Ryan Beck was in compliance with all
applicable capital requirements.
Ryan Beck operates under the provisions of paragraph (k)(2)(ii) of Rule
15c3-3 of the SEC as a fully disclosed broker and, accordingly, customer
accounts are carried on the books of the clearing broker. However, Ryan Beck
safe keeps and redeems municipal bond coupons for the benefit of its customers.
Accordingly, Ryan Beck is subject to the provisions of SEC Rule 15c3-3 relating
to possession or control and customer reserve requirements and was in compliance
with such provisions at December 31, 2002.
21
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145 ("Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections"). This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. Any gain or loss on the extinguishment of debt that was classified
as an extraordinary item in prior periods will be reclassified into continuing
operations. As a consequence, the Company reclassified from income (loss) from
extraordinary items to income from continuing operations a $389,000 loss and a
$12.2 million gain on the redemption of subordinated investments notes and
convertible debentures in the Company's statement of operations for the year
ended December 31, 2001 and 2000, respectively. The reclassification reduced
basic earnings per share from continuing operations by $.01 and had no effect on
diluted earnings per share from continuing operations for the year ended
December 31, 2001. The reclassification increased Class A and Class B basic
earnings per share from continuing operations by $0.20 and $0.18, respectively,
for the year ended December 31, 2000. The reclassification increased Class A and
Class B diluted earnings per share from continuing operations by $0.15 and
$0.13, respectively, for the year ended December 31, 2000.
In June 2002, the FASB issued Statement No. 146 ("Accounting for Costs
Associated with Exit or Disposal Activities"). This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Prior to this Statement, a liability was
recognized when the entity committed to an exit plan. Management believes that
this Statement will not have a material impact on the Company's financial
statements; however, the Statement will result in a change in accounting policy
associated with the recognition of liabilities in connection with future
restructuring charges.
In October 2002, the FASB issued Statement No. 147 ("Acquisitions of
Certain Financial Institutions"). This Statement provides guidance on the
accounting for the acquisition of a financial institution and applies to all
acquisitions except those between two or more mutual enterprises. This Statement
provides that the excess of the fair value of liabilities assumed over the fair
value of tangible and identifiable intangible assets acquired in a business
combination represents goodwill that should be accounted for under FASB
Statement No. 142, "Goodwill and Other Intangible Assets". Thus, the specialized
accounting guidance in paragraph 5 of FASB Statement No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, will not apply after
September 30, 2002. If certain criteria in Statement No. 147 are met, the amount
of the unidentifiable intangible asset recorded in previous acquisitions will be
reclassified to goodwill upon adoption of this Statement. The Statement will not
affect the Company's prior acquisitions, and management believes that this
Statement will not have an impact on the Company's historical financial
statements.
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. This
Interpretation does not prescribe a specific approach for subsequently measuring
the guarantor's recognized liability over the term of the related guarantee.
This Interpretation also incorporates, without change, the guidance in FASB
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others," which is being superseded. The Company implemented the disclosure
requirements of this interpretation as of December 31, 2002 and the liability
recognition provisions of the interpretation as of January 1, 2003.
In December 2002, the FASB issued Statement No. 148 ("Accounting for
Stock-Based Compensation - Transition and Disclosure"). This Statement amends
FASB Statement No. 123 Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has implemented the disclosure
requirements of this Statement as of December 31, 2002.
22
In January 2003, the FASB issued Interpretation No. 46 ("Consolidation
of Variable Interest Entities"). The interpretation defines a variable interest
entity as a corporation, partnership, trust or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the equity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. A variable interest entity may be essentially passive or it may
engage in research and development or other activities on behalf of another
company. This interpretation requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The Interpretation also
requires disclosures about variable interest entities that the company is not
required to consolidate but in which it has a significant variable interest.
Management is in the process of evaluating if its interests in unconsolidated
entities qualify as variable interest entities and, if so, whether the assets,
liabilities, noncontrolling interest and results of activities are required to
be included in the Company's consolidated financial statements. Our investments
and advances to unconsolidated entities were $51.9 million at December 31, 2002.
These entities were primarily real estate joint ventures. We believe that the
majority of these entities will not be consolidated, however, we cannot give any
assurance that this will be the case until we complete our evaluation. We expect
to complete our evaluation by July 1, 2003, the deadline imposed by this
interpretation.
23
ITEM 2. PROPERTIES
The Company's and BankAtlantic's principal and executive offices are
located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida, 33304. In
addition to its branches, BankAtlantic owns three buildings and leases four
locations, which house its back office operations. The following table sets
forth owned and leased branch offices at December 31, 2002:
MIAMI-DADE BROWARD PALM BEACH TAMPA BAY
----------------- ----------------- ---------------- ----------------
Owned full-service branches 4 10 26 3
Leased full-service branches 8 12 5 4
----------------- ----------------- ---------------- ----------------
Total full-service branches 12 22 31 7
================= ================= ================ ================
Lease expiration dates 2004-2012 2003-2009 2003-2006 2003-2004
================= ================= ================ ================
BankAtlantic also maintains two ground leases in Broward County
expiring between 2006 - 2072.
Levitt Corporation leases administrative space. The leases expire in
2004 - 2006.
Ryan Beck's office space includes leased facilities in the following
states with year of lease expiration:
LEASE NUMBER OF
LOCATIONS EXPIRATION OFFICES
- -------------------------------------------------------
California 2009 1
Connecticut 2004 - 2005 3
Florida 2003 - 2005 5
Georgia 2004 1
Illinois 2008 1
Maryland 2009 1
Massachusetts 2004 - 2006 4
New Jersey 2003 - 2012 7
New York 2003 - 2010 9
Pennsylvania 2003 - 2011 7
Texas 2003 - 2005 2
Virginia 2003 1
----------------
42
================
During the year ended December 31, 2002, BankAtlantic purchased a $14.3
million office facility to consolidate BankAtlantic's headquarters and back
office operations into a centralized facility. The estimated costs to renovate
the facility for use as BankAtlantic's operational center is approximately $20
million and is expected to be completed in June 2004.
24
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to our business to which the Company or a
subsidiary is a party:
COMMERCE BANCORP, INC. V. BANKATLANTIC, CIVIL ACTION NO. 02CV 4774
(JBS)(D.N.J.)(CAMDEN) On October 3, 2002, Commerce Bancorp., Inc. ("Commerce")
filed a complaint against BankAtlantic in the United States District Court for
the District of New Jersey. The complaint, which seeks unspecified money damages
and injunctive relief, asserts that BankAtlantic is infringing certain trademark
rights allegedly owned by Commerce in the slogan "AMERICA'S MOST CONVENIENT
BANK" by virtue of BankAtlantic's use of the slogan "FLORIDA'S MOST CONVENIENT
BANK." Commerce recently filed a motion for leave to file an amended complaint,
which seeks to assert additional claims for trademark infringement based on
Commerce's allegation that BankAtlantic's use of the word "WOW" infringes
trademark rights purportedly owned by Commerce in the phrases "WOW ANSWER
GUIDE," "COMMERCE WOW! ZONE," "COMMERCEWOW!ZONE," and "WOW! THE CUSTOMER."
Management intends to contest the case vigorously.
SMITH & COMPANY, INC., PLAINTIFF VS. LEVITT-ANSCA TOWNE PARTNERSHIP,
BELLAGGIO BY LEVITT HOMES, INC., ET AL., DEFENDANTS/COUNTER-PLAINTIFFS VS. SMITH
& COMPANY, INC. AND THE AMERICAN HOME ASSURANCE COMPANY, FILED IN THE CIRCUIT
COURT OF FLORIDA, PALM BEACH COUNTY, FIFTEENTH CIRCUIT, CASE NO. CL00-12783 AF.
On December 29, 2000, Smith & Company, Inc. ("Smith") filed an action against
Levitt-Ansca Towne Partnership (the "Partnership"), Bellaggio By Levitt Homes,
Inc. ("BLHI"), Bellaggio By Ansca, Inc. a/k/a Bellaggio By Ansca Homes, Inc.,
and Liberty Mutual Insurance Company (collectively "Defendants") seeking damages
and other relief in connection with an August 21, 2000 contract entered into
with the Partnership. BLHI is a 50% partner of the Partnership and is wholly
owned by Levitt and Sons. The Complaint alleged that the Partnership wrongfully
terminated the contract, failed to pay for extra work performed outside the
scope of the contract and breached the contract. The Partnership denied the
claims, asserted defenses and asserted a number of counterclaims. This case was
tried before a jury, and on March 7, 2002, the jury returned a verdict against
the Partnership. On March 11, 2002, the Court entered a final judgment against
the Defendants in the amount of $3.68 million. In addition, under the final
judgment it is likely that Smith and its surety company will be entitled to
recover legal fees and other costs. Since BLHI is a 50% partner of the
Partnership, its share of potential liability under the judgment and for
attorneys' fees which is estimated to be approximately $2.6 million. The
Partnership filed an appeal on December 6, 2002, which it intends to vigorously
pursue.
SCOTT TEICH V. RYAN BECK & CO., INC., CASE NO.
03-80138-CIV-MIDDLEBROOKS/ JOHNSON, UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA, WEST PALM BEACH, DIVISION. On January 30, 2003, a
one-count purported class action complaint was filed in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida (Case No.
CA-1114AF) by a former Gruntal employee seeking a declaratory judgment that Ryan
Beck is liable for all pre-April 26, 2002 claims against Gruntal by former
Gruntal retail customers and retail brokers, whether pending or to be filed in
the future, not expressly assumed by Ryan Beck in its acquisition of certain of
the assets of Gruntal. The complaint does not specify the amount of such claims.
The complaint seeks to impose liability under the theory that either (1) Ryan
Beck engaged in a DE FACTO merger with Gruntal, or (2) Ryan Beck's brokerage
business is a mere continuation of Gruntal's brokerage business, or (3) Ryan
Beck is the beneficiary of a fraudulent transfer. Ryan Beck removed the case to