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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
[ ] 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)
UNITED STATES OF AMERICA 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 EAST SUNRISE BOULEVARD
FT. LAUDERDALE, FLORIDA 33304
(Address of principal executive offices) (Zip Code)
(954) 760-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(NOT APPLICABLE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
- -------------------
Class A common stock, Par Value $0.01 Per Share
Class B common stock, Par Value $0.01 Per Share
Indicate, by check mark, if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such short period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 7, 1997 was approximately $73,260,734.
The number of shares of Registrant's Class A Common Stock outstanding
on March 7, 1997 was 7,807,258
The number of shares of Registrant's Class B Common Stock outstanding
on March 7, 1997 was 10,542,116
Portions of the 1996 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
BUSINESS
ITEM 1
Except for historical information contained herein, the matters
discussed in this report are forward-looking statements made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company's operations,
markets, products and services, expansion strategies and other factors discussed
elsewhere in this report filed by the Company with the Securities and Exchange
Commission. Many of these factors are beyond the Company's control. Actual
results could differ materially from these forward-looking statements. In light
of these risks and uncertainties, there is no assurance that the forward-looking
information contained in this report will, in fact, occur.
GENERAL
BankAtlantic Bancorp, Inc. (the "Company"), is the holding company
for BankAtlantic, a Federal Savings Bank ("BankAtlantic"). The Company
acquired all of the capital stock of BankAtlantic on July 13, 1994 pursuant to a
holding company reorganization. The Company's principal asset is its ownership
of all of the capital stock of BankAtlantic. As a unitary savings bank holding
company, the Company is registered with the Office of Thrift Supervision
("OTS") and is subject to OTS regulations, examinations, supervision and
reporting. See "Regulation and Supervision."
BankAtlantic is headquartered in Ft. Lauderdale, Florida and provides a
full range of commercial banking products and related financial services
directly and through subsidiary corporations. The principal business of
BankAtlantic is attracting checking and savings deposits from the public and
general business customers and using these deposits to originate or acquire
commercial, residential and consumer loans and to make other permitted
investments such as the purchase of mortgage-backed securities, tax certificates
and other investment securities. BankAtlantic has shifted its activities from
those of a traditional savings and loan to those generally associated with
commercial banking. In February 1995, BankAtlantic acquired MegaBank, a
Miami-based commercial bank with deposits of approximately $120 million. The
MegaBank acquisition added 5 branches to BankAtlantic's branch network. In
October 1996, BankAtlantic acquired Bank of North America ("BNA"), a
Florida chartered commercial bank with deposits of approximately $470 million
and 13 branches, 5 of which were closed upon acquisition. See Note 20 of the
Consolidated Financial Statements.
BankAtlantic operates through 56 branch offices located primarily in Dade,
Broward and Palm Beach Counties in South Florida. As reported by an independent
statistical reporting service, BankAtlantic is currently the largest independent
savings bank headquartered in the State of Florida and third in size among all
independent financial institutions headquartered in the State of Florida, based
on deposits at September 30, 1996, the most recent date utilized by such
reporting service. BankAtlantic is regulated and examined by the OTS and the
Federal Deposit Insurance Corporation ("FDIC") and its deposit accounts
are insured up to applicable limits by the FDIC.
BankAtlantic's revenues are derived principally from interest earned on
loans, mortgage-backed securities, tax certificates, investment securities, fees
and interest earned from its mortgage servicing operations and fees earned on
deposits and ATMs. BankAtlantic's major expense items are interest paid on
deposits and borrowings, provision for loan losses and general and
administrative expenses.
LENDING ACTIVITIES
GENERAL-BankAtlantic's lending activities are currently divided into three
primary segments: residential real estate lending (including purchases of
wholesale residential real estate loans), commercial lending (consisting of
commercial real estate and commercial business lending); and consumer lending
(primarily consisting of loans secured by second liens on residential real
property, loans secured by automobiles and boats and unsecured signature loans).
See "Regulation and Supervision" for a description of restrictions on
BankAtlantic's lending activities.
Interest rates and origination fees charged on loans originated by
BankAtlantic are generally competitive with other financial institutions and
other mortgage originators in BankAtlantic's general market area. BankAtlantic
has an affirmative obligation, under the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA"), to serve the credit
needs of the communities in which it operates, and management believes that
BankAtlantic fulfills its obligations under the CRA. See "Regulation and
Supervision-Community Reinvestment."
UNDERWRITING PROCEDURES-BankAtlantic's loan origination underwriting
procedures are designed to assess both the borrower's ability to make principal
and interest payments and the value of the
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collateral securing the loan. BankAtlantic's loan purchasing underwriting
procedures are designed to assess the seller's underwriting procedures, as well
as individual loan quality including credit review. BankAtlantic obtains a
current credit history for each loan. The Company has developed comprehensive
purchase guidelines for its loan eligibility requirements with respect to loan
amount, type of property, state of residence, loan-to-value ratios, borrower's
sources of funds, appraisal and loan documentation, among other things. An
underwriting and legal due diligence review is completed prior to purchase. A
legal review of every file is conducted to determine the adequacy of the legal
documentation. In its loan purchases, BankAtlantic generally reserves the right
to reject particular loans from a loan package being considered for purchase and
does so for loans in a package that do not meet its eligibility requirements.
Commitments to purchase residential loans are made to mortgage bankers,
investment bankers and unrelated financial institutions typically thirty to
sixty days in advance of delivery, subject to due diligence.
Loan officers or other loan production personnel in a position to directly
benefit monetarily through loan solicitation fees from individual loan
transactions do not have approval authority and commercial real estate and
business and residential loans of $500,000 or more and consumer loans of
$100,000 or more require the approval of BankAtlantic's Major Loan Committee.
The Major Loan Committee consists of the Chairman of the Board, the Vice
Chairman, the Senior Executive Vice President, certain Executive Vice Presidents
and certain other officers of BankAtlantic.
COMMERCIAL REAL ESTATE LOANS-Substantially all of BankAtlantic's
commercial real estate loans relate to property located in Dade, Broward and
Palm Beach Counties, Florida. BankAtlantic has, however, made commercial real
estate loans elsewhere in Florida and anticipates increasing lending outside the
South Florida area in the future. BankAtlantic's commercial real estate loans
include permanent mortgage loans on commercial and industrial properties
(generally having five to seven year maturities), construction loans secured by
income producing properties (or for residential development and land
acquisition) and development loans. These loans are originated on both a one
year line of credit basis and on a fixed-term basis generally ranging from one
to five years. BankAtlantic generally lends not more than 75% of the
collateral's appraised value and requires borrowers to maintain, appropriate
escrow accounts at BankAtlantic for real estate taxes and insurance. In making
lending decisions, BankAtlantic generally considers, among other things, the
overall quality of the loan, the credit of the borrower, the location of the
real estate, the projected income stream of the property and the reputation and
quality of management constructing or administering the property. No one factor
is determinative and such factors may be accorded different weight in any
particular lending decision. As a general rule, BankAtlantic also requires that
these loans be guaranteed by one or more of the individuals who have made a
significant equity investment in the property. Commercial real estate loans
generally have shorter terms, prime-based interest rates which adjust more
rapidly to interest rate fluctuations and bear higher rates of interest than
alternative investments. Accordingly, income from this type of loan should be
more responsive to changes in the general level of interest rates. However,
permanent commercial real estate and construction lending is generally
considered to have higher credit risk than single-family residential lending
because the concentration of principal is on a limited number of loans and
borrowers and repayment is significantly dependent on the successful operation
of the related real estate project and thus may be subject, to a greater extent,
to adverse conditions in the real estate market or the economy, generally.
BankAtlantic's risk of loss on a construction loan is dependent largely upon
the accuracy of the initial estimate of the property's sell-out value upon
completion of the project and the estimated cost of the project. If the
estimated cost of construction or development proves to be inaccurate,
BankAtlantic may be compelled to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value proves
to be inaccurate, BankAtlantic may be confronted, at or prior to the maturity of
the loan, with a project value which is insufficient to assure full repayment.
As loan payments become due, the cash flow from the project may not be adequate
to service total debt and the borrower may seek to modify the terms of the loan.
In addition, the nature of these loans is such that they are generally less
predictable and more difficult to evaluate and monitor and collateral may be
difficult to dispose of. BankAtlantic has sought to minimize these risks by
lending primarily to established developers.
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COMMERCIAL BUSINESS LOANS-BankAtlantic's corporate lending activities are
generally directed towards small to medium size companies located in Dade,
Broward and Palm Beach Counties, Florida. BankAtlantic's corporate lending
division makes both secured and unsecured loans, although the majority of such
lending is done on a secured basis. The average balance of new commercial
business loans is in excess of $1 million and such loans are generally secured
by the receivables, inventory, equipment, and/or general corporate assets of the
borrowers. These loans are originated on both a one year line of credit basis
and on a fixed-term basis ranging from one to five years. Commercial business
loans generally have annual maturities and prime-based interest rates. However,
commercial business loans generally have a higher degree of credit risk than
residential loans because they are more likely to be adversely affected by
unfavorable economic conditions. The development of ongoing customer
relationships with commercial borrowers is an important part of BankAtlantic's
efforts to attract more low-interest and non-interest bearing demand deposits
and to generate other fee-based, non-lending services.
RESIDENTIAL REAL ESTATE LOANS-BankAtlantic's residential real estate
lending includes home mortgage loans originated by BankAtlantic and secured by
residential real estate located in Dade, Broward and Palm Beach Counties,
Florida. and commencing in 1996, substantially increased the purchase of
wholesale residential real estate loans located throughout the United States.
BankAtlantic's residential loans have been originated through its branch
banking network, a staff of commissioned lending officers, and outside brokers.
These outside brokers had received a fee for services rendered upon the
successful underwriting and closing of a loan. Applicable regulations require
that all loans in excess of 90% of appraised value be insured by private
mortgage insurance. BankAtlantic's policy is in compliance with these
regulations and generally requires insurance on loan to value ratios greater
than 80%. In connection with residential loans insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans Administration
("VA"), BankAtlantic may lend up to the maximum percentage of the
appraised value acceptable to the insuring or guaranteeing agency. Appraised
values are determined by on-site inspections conducted by qualified independent
appraisers. BankAtlantic generally follows regulatory and agency guidelines when
it originates such loans for sale. BankAtlantic originates fixed rate loans with
amortization periods of up to 30 years; however, substantially all of these
loans are sold to correspondents. BankAtlantic also originates adjustable rate
mortgage loans ("ARMs") with amortization periods of up to 30 years, the
majority of which have been sold to correspondents with a lesser number retained
for portfolio investment based on specific needs and criteria.
During 1996, BankAtlantic purchased approximately $465.9 million of
one-to-four family of fixed and adjustable residential loans from various
mortgage bankers, investment bankers and unrelated financial institutions
throughout the United States. Purchases of residential loans throughout the
United States reduces BankAtlantic's loan concentration in South Florida.
BankAtlantic primarily purchases loans in the secondary market where yields are
generally lower than on originated loans, however, management believes that the
lower yield is significantly offset by lower administrative costs based on the
volume of activity and the ability to partially hedge the interest rate risk
associated with these loans due to the size and generally homogenous nature of
the purchases.
CONSUMER LOANS-BankAtlantic originates consumer loans bearing both fixed
and prime-based interest rates primarily ranging in terms up to 5 years other
than second mortgage loans which may have longer terms. Loans are originated
directly through the branch network. Consumer loans typically involve a higher
degree of credit risk than one-to-four family residential loans secured by first
mortgages, but they generally carry higher yields and have shorter terms to
maturity. The volume of direct consumer lending increased in 1996 from 1995
levels but is expected to decline during 1997. Prior to 1997, direct consumer
loans were solicited through mass and direct marketing and through the
distribution and display of advertising materials at branch offices and,
brokers. During 1997, direct consumer loans will primarily be solicited through
branch offices. BankAtlantic also obtains automobile loans indirectly through
automobile dealerships located in South Florida.
BankAtlantic's primary focus of its consumer lending in recent years has
been the origination of direct second mortgage loans (home equity loans secured
by a junior lien on residential real property).
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These loans are typically based on a maximum 80% loan-to-value ratio. Second
mortgage loans generally are originated on both a line of credit and a fixed
term basis ranging from 5 to 15 years.
BankAtlantic also extends personal loans which may be secured by various
forms of collateral, both real and personal, or to a minimal extent, may be made
on an unsecured basis. Such loans generally bear interest at floating rates.
For several years, BankAtlantic eliminated its indirect lending activities
and through its acquisition of MegaBank in February 1995, BankAtlantic reentered
the indirect automobile lending market, which consists of automobile loans made
by others and acquired by BankAtlantic. MegaBank historically obtained
fixed-rate automobile loans indirectly through various automobile dealerships
located in Dade County, Florida and BankAtlantic has continued this practice and
has increased its indirect lending activities with various dealerships
throughout South Florida.
The indirect origination of consumer loan products generally requires
funding of dealer reserves to dealers who originated such loans. The risk of
amounts previously advanced to the dealer is primarily dependent upon loan
performance but, secondarily, is dependent upon the financial condition of the
dealer. The dealer is generally responsible to BankAtlantic for the amount of
the reserve only if a loan giving rise to the reserve becomes delinquent or is
prepaid. However, the dealer's ability to refund any portion of the unearned
reserve to BankAtlantic is subject to economic conditions, generally, and the
financial condition of the dealer. A decline in economic conditions could
adversely affect both the performance of the loans and the financial condition
of the dealer. There is no assurance that BankAtlantic can successfully recover
amounts advanced in the event it pursues the dealer for amounts due. See Note 15
of the Consolidated Financial Statements regarding BankAtlantic's experience
relating to the Subject Portfolio.
LOAN COMMITMENTS-BankAtlantic issues commitments to originate residential
and commercial real estate loans and commercial business loans on specified
terms which are conditioned upon the occurrence of stated events. Loan
commitments are generally issued in connection with (i) the origination of loans
for the financing of residential properties by prospective purchasers, (ii)
construction or permanent loans secured by commercial and multi-unit residential
income-producing properties, (iii) loans to corporate borrowers in connection
with loans secured by corporate assets, and (iv) the origination of loans for
the refinancing of residential properties by existing owners.
The commitment procedure followed by BankAtlantic depends on the type of
loan underlying the commitment. Residential loan commitments are generally
limited to 60 days and are issued after the loan is approved. However, loan
commitments may be extended based on the circumstances. BankAtlantic offers
interest rate "locks" for a fee for periods of up to 270 days.
BankAtlantic also issues short-term commitments on commercial real estate loans
and commercial business loans. Short-
term commitments generally remain open for no more than 90 days. BankAtlantic
usually charges a commitment fee of 1% to 2% on short-term commitments relating
to commercial real estate loans and commercial business loans. In most cases,
half of the fee is payable upon the acceptance of the commitment and is
non-refundable. If the loan is ultimately made, the remainder of the commitment
fee is collected at closing.
FACTORING-In January 1997, BankAtlantic Factors, Inc. ("Factors
Inc.") was established as a subsidiary of BankAtlantic. Factors Inc.
purchases accounts receivable from a client with recourse. Clients are generally
manufacturers, distributors, importers and service companies in various
industries. Factors Inc. will advance funds to the client based on the eligible
collateral. However, it may suffer a loss if the client's customer fails to pay
and the client does not meet its recourse obligations to Factors, Inc. Credit
facilities of $500,000 or more require the approval of BankAtlantic's Major
Loan Committee. Discounts will generally vary between 11/4% to 2% per month
based on various criteria up to statutory limits. Outside brokers may be used to
obtain certain relationships and will be paid commissions based on a percentage
of earnings from an account as collected. During 1997, it is anticipated that
the average balances of factored receivables will not exceed $10.0 million.
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MORTGAGE SERVICING RIGHTS-As part of its strategic business plan,
BankAtlantic periodically purchases mortgage servicing rights in small volumes
through concurrent flow servicing arrangements supplemented with small bulk
purchases and sells such rights in larger volumes where the premiums available
are generally greater.
It is BankAtlantic's intent to maintain servicing right balances below 35%
of core capital. Further, BankAtlantic generally retains servicing rights on
loans that its sells, and purchases wholesale residential real estate loans on
both a servicing retained and servicing released basis. Sales of servicing
rights are made based on market conditions as well as maintaining servicing
rights below the determined level. The fees derived from servicing mortgage
loans include mortgage servicing fees as well as return check and late charge
fees. The amount of revenue earned from loan servicing is dependent on the
prepayments of the underlying loans. Generally, as interest rates fall, loan
prepayments accelerate, resulting in higher amortization of mortgage servicing
rights due to the write-
off of rights relating to loans that are prepaid. A decline in the value of
mortgage servicing rights may also reduce regulatory capital. (See "Savings
Institutions Regulation"). Conversely, as interest rates rise, loan
prepayments decline, resulting in a longer average life of the rights and higher
cumulative net revenues earned on mortgage servicing rights. . Premiums paid in
connection with the purchase of mortgage loan servicing rights are amortized by
BankAtlantic using prepayment assumptions that management believes are on the
conservative end of a probable range which results in higher expenses on a
monthly basis but may result in increased gains on a sale of the mortgage
servicing rights.
USURY LIMITATIONS-The maximum rate of interest that BankAtlantic may charge
for any particular loan transaction varies depending upon the purpose of the
loan, the nature of the borrower, the security and other various factors set
forth in Florida and federal interest rate laws. Under Florida law, BankAtlantic
is not subject to any usury ceiling on loans secured by a first lien on
residential real estate and certain other secured loans. Other types of loans
are subject to Florida's statutory usury ceiling which is currently 18% per
annum, although certain types of loans, such as automobile loans, factored
receivables and loans in excess of $500,000 may legally carry an interest rate
of up to 25% per annum.
NON-PERFORMING AND CLASSIFIED ASSETS, LOAN DELINQUENCIES AND DEFAULTS-When
a borrower fails to make a required payment on a loan, BankAtlantic attempts to
have the deficiency cured by communicating with the borrower. In most cases,
deficiencies are cured promptly. If the delinquency is not cured within 90 days
the loan is placed on non-accrual. It is BankAtlantic's general policy to
institute appropriate legal action to collect the loan, including foreclosing on
any collateral securing the loan and obtaining a deficiency judgment against the
borrower, if appropriate.
Current regulations provide for the classification of loans and other
assets considered by examiners to be of lesser quality as "special
mention," "substandard," "doubtful" or "loss" assets. The
special mention category applies to assets not warranting classification as
substandard but possessing credit deficiencies or potential weaknesses
necessitating management's close attention. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that such weaknesses make collection of the loan or
liquidation in full on the basis of currently existing facts, conditions and
values, highly questionable or improbable.
For components of the portfolio that are not classified, or classified as
special mention, estimated losses for the upcoming twelve months are provided
for. For loans classified as substandard or doubtful, whether analyzed and
provided for individually or as part of pools, all estimated credit losses over
the lives of these loans are provided for. Prompt charge-off is required for
loans or portions of loans that available information confirms to be
uncollectible. Assets classified as a loss are considered uncollectible and of
such little value that their continued treatment as assets is not warranted.
The asset classification regulations require insured institutions to
classify their own assets and to establish prudent general allowances for loan
losses. However, regulators have considerable discretion
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to review asset classifications and loss allowances of insured institutions,
and, if a regulator concludes that the valuation allowances established by an
institution are inadequate, the regulator may determine, subject to certain
reviews, the need for, and extent of, any increase necessary in the
institution's general allowance for loan losses.
Management of BankAtlantic has identified certain loans as non-performing
or restructured assets. These assets include: (i) loans accounted for on a
non-accrual basis; (ii) loans not included in category (i) which have matured or
are contractually 90 days or more past due as to interest or principal payments;
(iii) assets acquired in settlement of loans; (iv) restructured loans, and (v)
non-accrual tax certificates. Non-accrual loans are loans on which interest
recognition has been suspended until realized because of doubts as to the
borrower's ability to repay principal or interest. Restructured loans are loans
on which the terms have been altered to provide a reduction or deferral of
interest or principal because of a deterioration in the borrower's financial
position. Such restructured loans may be removed from the restructured category
based upon various factors, including a period of satisfactory loan performance
under the revised terms.
ALLOWANCE FOR LOAN LOSSES-BankAtlantic prospectively adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" ("FAS 114"), effective January 1, 1995. There was no
impact to the consolidated statement of financial condition or the consolidated
statement of operations upon implementation. FAS 114 does not apply to large
groups of smaller balance homogeneous loans that are collectively evaluated for
impairment. Loans collectively reviewed by BankAtlantic for impairment include
all residential and consumer loans and performing commercial real estate and
business loans under $500,000, excluding loans which are individually reviewed
based on specific criteria, such as delinquency and condition of collateral
property. BankAtlantic's impaired loans within the scope of FAS 114 include
nonaccrual commercial loans, restructured loans, and performing commercial loans
less than 90 days delinquent, where management does not expect the loans to be
repaid in accordance with their contractual terms but which are expected to be
collected in full. Generally, BankAtlantic recognizes interest income on
impaired loans on a cash basis.
BankAtlantic bases the measurement of loan impairment on the fair value of
the loan's collateral in accordance with FAS 114. Non-collateral dependent loan
impairment is based on the present value of the estimated future cash flows. For
collateral dependent loans, impairment is based on the fair value of the
underlying collateral. Impairment losses are included in the allowance for loan
losses through a charge to the provision for loan losses. Adjustments to
impairment losses resulting from changes in the fair value of an impaired
loan's collateral or projected cash flows are included in the provision for
loan losses. Upon disposition of an impaired loan, any related valuation
allowance is relieved from the allowance for loan losses.
The allowance for loan losses is maintained by additions charged to
operations as a provision for loan losses and by loan recoveries, while
charge-offs reduce the allowance. BankAtlantic's process for evaluating the
adequacy of the allowance for loan losses has three basic elements: first, the
identification of impaired loans; second, the establishment of appropriate loan
loss allowances once individual specific impaired loans are identified; and
third, a methodology for estimating loan losses based on the inherent risk in
the remainder of the loan portfolio.
INVESTMENT ACTIVITIES
GENERAL-BankAtlantic maintains an investment portfolio consisting primarily
of MBS, tax certificates, Treasury Notes, Federal agency obligations, and
asset-backed securities. Additionally, BankAtlantic has, in the past, purchased
banker's acceptances and corporate bonds. Federal regulations limit the types
and quality of instruments in which BankAtlantic may invest.
MBS are pools of residential loans which are made to consumers and then
generally sold to governmental agencies, such as the Government National
Mortgage Corporation ("GNMA"), Federal
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National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"). MBS have fixed or variable rates ("ARMs") and
either 15-30 year maturities or 5-7 year balloon maturities. BankAtlantic
generally invests in ARMs or 5-7 year balloon MBS insured or guaranteed by these
government agencies. Banker's acceptances are unconditional obligations of the
issuing bank and are collateralized by various means, including the inventory
and receivables of borrowers of the issuing bank. Asset-backed securities
purchased by BankAtlantic consist of pooled automobile receivables and are
limited to only those that are investment grade. Corporate bonds consist of
investment grade obligations of corporate borrowers with an average duration not
to exceed three years.
Investments in debt securities which BankAtlantic has a positive intent and
ability to hold to maturity are classified as "securities held to
maturity" and are carried at cost, adjusted for discounts and premiums which
are accreted or amortized to estimated maturity under the interest method. A
security cannot be classified as held to maturity if it might be sold in
response to changes in market interest rates, related changes in the security's
prepayment risk, liquidity needs, changes in the availability of and the yield
on alternative investments, and changes in funding sources and terms. .
Currently, debt and equity securities and options related thereto,
purchased or sold for the purpose of a short-term profit are classified as
"trading account securities" and are recorded at fair value. Unrealized
gains and losses in trading account securities are reflected in operations.
Debt and equity securities not classified as held to maturity or trading
account securities are classified as "available for sale". Debt and equity
securities available for sale are carried at fair value, with the related
unrealized appreciation or depreciation, net of deferred income taxes, reported
as a separate component of stockholders' equity.
TAX CERTIFICATES-BankAtlantic's portfolio also includes tax certificates
issued by various counties in the State of Florida. Tax certificates are
evidences of tax obligations that are auctioned by county taxing authorities on
an annual basis when the property owner fails to pay the real estate taxes on
the property when due. Tax certificates represent a priority lien against the
real property for which the assessed real estate taxes are delinquent. Interest
accrues on the tax certificates at the rate established at the auction. The
minimum repayment on tax certificates in order to satisfy the lien is the
certificate amount plus the greater of five percent of the certificate amount or
the interest accrued through the redemption date. Although tax certificates have
no payment schedule or stated maturity, the certificate holder has the right to
collect the delinquent tax amount, plus interest and can file for a deed to the
underlying property if the delinquent tax amount is unpaid at the end of two
years. If the certificate holder does not file for the deed within seven years,
the certificate becomes null and void. BankAtlantic's experience with this type
of investment has been favorable as rates earned are generally higher than many
alternative investments, substantial repayment generally occurs over a two year
period and losses to date have been minimal. The primary risks BankAtlantic has
experienced with tax certificates have related to the risk that additional funds
may be required to purchase other certificates relating to the property, the
risk that the liened property may be unusable and the risk that potential
environmental concerns may make taking title to the property untenable. During
1997, BankAtlantic intends to acquire tax certificates from various
municipalities outside of the State of Florida. The nature of priority,
statutory periods and deed procedures does vary by applicable taxing
authorities. It is not anticipated that there will be any significant
concentration of tax certificate purchases in any one taxing authority outside
of the State of Florida.
The OTS has reviewed the amount invested in, and procedures utilized in the
acquisition and administration of, tax certificates by savings institutions.
After such review, the Southeast Regional Office of the OTS recommended that the
maximum amount of tax certificates purchased be based on a formula whereby the
rolling twelve month average of aggregate investments in tax certificates,
including interest thereon, not exceed 100% of risk-based capital. Based on
market conditions, BankAtlantic purchased approximately $49 million, $44 million
and $47 million in tax certificates at auctions in 1996, 1995 and 1994,
respectively, less than that permitted by the OTS recommendation. At December
31,
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1996, BankAtlantic had an outstanding balance of approximately $54.5 million in
tax certificates. For descriptions of BankAtlantic's investments in tax
certificates and other investment securities, see Note 2 to the Consolidated
Financial Statements. For a discussion of regulatory limitations on
BankAtlantic's investments, see "Regulation and Supervision."
Management of BankAtlantic establishes allowances for tax certificate
losses in amounts which it believes is sufficient to provide for potential
future losses. In establishing its allowances for tax certificates, management
considers past loss experience, present indicators such as the length of time
the certificate has been outstanding, economic conditions and collateral values.
Tax certificates and resulting deed applications are classified as nonaccrual
when a tax certificate is outstanding 48 months and a deed has aged 48 months
from BankAtlantic's acquisition date. At that time, interest ceases to be
accrued and previously accrued interest is reversed.
SOURCES OF FUNDS
GENERAL-Historically, deposits have been the principal source of
BankAtlantic's funds for use in lending and for other general business
purposes. Loan repayments, sales of securities, capital contributions from the
Company, advances from the Federal Home Loan Bank ("FHLB") of Atlanta and
other borrowings, and the use of repurchase agreements have been additional
sources of funds. Loan amortization payments and deposit inflows and outflows
are significantly influenced by general interest rates. Borrowings may be used
by BankAtlantic on a short to intermediate term basis to compensate for
reductions in normal sources of funds such as savings inflows, and to provide
additional liquidity investments. On a long-term basis, borrowings may support
expanded lending activities and purchases of investments. Historically,
BankAtlantic has borrowed primarily from the FHLB of Atlanta and through the use
of repurchase agreements.
DEPOSIT ACTIVITIES-BankAtlantic offers several types of deposit programs
designed to attract both short-term and long-term funds from the general public
by providing an assortment of accounts and rates. BankAtlantic believes that its
product line is comparable to that offered by its competitors. BankAtlantic
offers the following accounts: commercial and retail demand deposit accounts;
regular passbook and statement savings accounts; money market accounts;
fixed-rate, fixed-maturity certificates of deposit, ranging in maturity from 30
days to 8 years; variable-maturity jumbo certificates of deposit; and various
NOW accounts. BankAtlantic also offers IRA and Keogh retirement accounts.
BankAtlantic's deposit accounts are insured by the FDIC through the SAIF and
the Bank Insurance Fund ("BIF") up to a maximum of $100,000 for each
insured depositor.
BankAtlantic solicits deposits through advertisements in newspapers and
magazines of general circulation and on radio and television in Dade, Broward
and Palm Beach Counties, Florida. Most of its depositors are residents of these
three counties at least part of the year. BankAtlantic does not currently hold
any deposits obtained through brokers. In November 1996, Merrill Lynch granted
BankAtlantic a facility of up to $150 million for brokered deposits. The
facility is considered to be an alternative source of borrowings.
BORROWINGS-BankAtlantic has utilized wholesale repurchase agreements as a
means of obtaining funds and increasing yields on its investment portfolio. In a
wholesale repurchase transaction, BankAtlantic sells a portion of its current
investment portfolio (usually government and mortgage-
backed securities) at a negotiated rate and agrees to repurchase the same assets
on a specified date. Proceeds from such transactions are treated as secured
borrowings pursuant to applicable regulations. See Note 9 to the Consolidated
Financial Statements.
BankAtlantic is a member of the FHLB and is authorized to apply for secured
advances from the FHLB of Atlanta. See "Regulation and Supervision."
BankAtlantic uses advances from the FHLB to match fund or partially match fund
fixed rate wholesale residential real estate loans purchased, to repay other
borrowings, meet deposit withdrawals and expand its lending and short-term
investment activities. See Note 8 to the Consolidated Financial Statements.
8
FEDERAL FUNDS BORROWINGS-BankAtlantic has established three $5.0 million
unsecured facilities with three federally insured banking institutions to
purchase Federal Funds. The facilities are used on an overnight borrowing basis
to assist in managing BankAtlantic's cash flow requirements. These Federal Fund
lines are subject to periodic review and may be terminated at any time by the
issuer institution.
COMPETITION
As reported by an independent statistical reporting service, BankAtlantic
is currently the largest independent savings bank and third largest independent
financial institution headquartered in the State of Florida based on deposits at
September 30, 1996, the most recent date utilized by such reporting service.
BankAtlantic's operating goal is to provide a broad range of financial services
with a strong emphasis on customer service.
BankAtlantic has substantial competition in attracting and retaining
deposits and in lending funds. The primary factors in competing for deposits are
the range and quality of financial services offered, the ability to offer
attractive rates and the availability of convenient locations. There is direct
competition for deposits from credit unions and commercial banks and other
savings institutions. Additional significant competition for savings deposits
comes from other investment alternatives, such as money market funds, credit
unions, and corporate and government securities. The primary factors in
competing for loans are the range and quality of lending services offered,
interest rates and loan origination fees. Competition for the origination of
real estate loans normally comes from other savings and financial institutions,
commercial banks, mortgage bankers, finance and insurance companies.
Legislative developments relating to interstate branching and the ownership
of financial institutions are expected to result in continued consolidation of
financial institutions, and also provide larger financial institutions increased
access in the marketplace. Accordingly, BankAtlantic expects increased
competition in the immediate future. See further discussion under "Regulation
and Supervision- Legislative Developments".
EMPLOYEES
The Company does not have any employees who are not also employees of
BankAtlantic. At December 31, 1996, BankAtlantic employed 961 full-time and 56
part-time employees. Management believes that its relations with its employees
are satisfactory. BankAtlantic currently maintains a comprehensive employee
benefits program providing, among other benefits, a qualified pension plan,
managed health care programs and life insurance. These employee benefits are
considered by management to be generally competitive with employee benefits
provided by other major employers in Florida. BankAtlantic's employees are not
represented by any collective bargaining group.
REGULATION AND SUPERVISION
GENERAL
The Company, by virtue of its ownership of all of the outstanding stock of
BankAtlantic, is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is subject to the reporting and the other requirements of the Securities
and Exchange Act. In addition, BFC Financial Corporation ("BFC") which
owns 46% of the Company's voting common stock, is subject to the same oversight
by the OTS as discussed herein with respect to the Company.
BankAtlantic is a member of the FHLB system and its deposit accounts are
insured up to applicable limits by the FDIC. BankAtlantic is subject to
supervision, examination and regulation by
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the OTS and to a lesser extent by the FDIC as the insurer of its deposits.
BankAtlantic must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions. The OTS and the FDIC
periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion in connection with their with respect to the classification
of non-performing and other assets and the establishment of adequate loan loss
reserves for regulatory purposes.
HOLDING COMPANY REGULATIONS
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding
company from directly or indirectly acquiring control, including through an
acquisition by merger, consolidation or purchase of assets, of any savings
association (as defined in Section 3 of the Federal Deposit Insurance Act) or
any other savings and loan or savings bank holding company, without prior OTS
approval. In considering whether to grant approval for any such transaction, the
OTS will take into consideration a number of factors, including the competitive
effects of the transaction, the financial and managerial resources and future
prospects of the holding company and its bank or thrift subsidiaries following
the transaction, and the compliance records of such subsidiaries with the CRA.
Generally, a savings bank holding company may not acquire more than 5% of the
voting shares of any savings association unless by merger, consolidation or
purchase of assets, in each case subject to prior OTS approval. A savings bank
holding company may not acquire as a separate subsidiary an insured institution
which has its principal offices outside of the state where the principal offices
of its subsidiary institution is located, except in the case of certain
emergency acquisitions approved by the FDIC, or when the laws of the state in
which the insured institution to be acquired is located specifically authorize
such an acquisition. However, a savings bank holding company may acquire up to
5% of the voting shares of any savings association or savings bank holding
company not a subsidiary thereof without prior regulatory approval. Another
provision of HOLA permits a savings bank holding company to acquire up to 15% of
the voting shares of certain undercapitalized savings associations.
Federal law empowers the Director of the OTS to take substantive action
when it determines that there is reasonable cause to believe that the
continuation by a savings bank holding company of any particular activity
constitutes a serious risk to the financial safety, soundness, or stability of a
savings bank holding company's subsidiary savings institution. The Director of
the OTS has oversight authority for all holding company affiliates, not just the
insured institution. Specifically, the Director of the OTS may, as necessary,
(i) limit the payment of dividends by the savings institution; (ii) limit
transactions between the savings institution, the holding company and the
subsidiaries or affiliates of either; or (iii) limit any activities of the
savings institution that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings institution.
Any such limits would be issued in the form of a directive having the legal
effect of a cease and desist order.
ACTIVITIES LIMITATIONS-The Company will remain a unitary savings bank
holding company under applicable law until it acquires as a separate subsidiary
another savings institution. A savings bank holding company whose sole
subsidiary qualifies as a qualified thrift lender ("QTL"), described
below, generally has the broadest authority to engage in various types of
business activities with little to no restrictions on its activities, except
that historically savings bank holding companies have not been permitted to
acquire or be acquired by an entity engaged in securities underwriting or market
making. A holding company that acquires another institution and maintains it as
a separate subsidiary or whose sole subsidiary fails to meet the QTL test will
become subject to the activities limitations applicable to multiple savings bank
holding companies. In general, a multiple savings bank holding company (or
subsidiary thereof that is not an insured institution) may not commence, or
continue for more than a limited period of time after becoming a multiple
savings bank holding company (or a subsidiary thereof), any business activity
other than (i) furnishing or performing management services for a subsidiary
insured institution; (ii) conducting an insurance agency or an escrow business;
(iii) holding, managing or liquidating assets owned by or acquired from a
subsidiary insured institution; (iv) holding or managing properties used or
occupied by a subsidiary insured institution; (v) acting as trustee under
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deeds of trust; (vi) those activities previously directly authorized by the OTS
by regulation as of March 5, 1987 to be engaged in by multiple savings bank
holding companies; or (vii) subject to prior approval of the OTS, those
activities authorized by the Federal Reserve Board ("FRB") as permissible
investments for bank holding companies. These restrictions do not apply to a
multiple savings bank holding company if (a) all, or all but one, of its insured
institution subsidiaries were acquired in emergency thrift acquisitions or
assisted acquisitions and (b) all of its insured institution subsidiaries are
QTLs.
RESTRICTIONS ON TRANSACTIONS WITH BANKATLANTIC-BankAtlantic is subject to
restrictions in its dealings with the Company and any other companies that are
"affiliates" of the Company under HOLA and certain provisions of the
Federal Reserve Act ("FRA") that are made applicable to savings
institutions by the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") and OTS regulations. See "Regulation and
Supervision-Savings Institution Regulations-Transactions with Affiliates"
below for a general discussion of the restrictions on dealing with affiliates.
LEGISLATIVE DEVELOPMENTS
INTERSTATE BANKING-The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("RNA") authorizes interstate acquisition of banks
and bank holding companies without geographic limitation beginning one year
after enactment. In addition, beginning June 1, 1997, a bank may merge with a
bank in another state as long as neither of the states has opted out of
interstate branching between the date of enactment of the RNA and May 31, 1997.
The RNA further provides that states may enact laws permitting interstate merger
transactions prior to June 1, 1997. A bank may establish and operate a de novo
branch in a state in which the bank does not maintain a branch if that state
expressly permits de novo branching. Once a bank has established branches in a
state through an interstate merger transaction, the bank may establish and
acquire additional branches at any location in the state where any bank involved
in the interstate merger transaction could have established or acquired branches
under applicable federal or state law. A bank that has established a branch in a
state through DE NOVO branching may establish and acquire additional branches in
such state in the same manner and to the same extent as a bank having a branch
in such state as a result of an interstate merger. If a state opts out of
interstate branching within the specified time period, no bank in any other
state may establish a branch in the opting out state, whether through an
acquisition or DE NOVO.
EXPANDED NON-BANKING ACTIVITIES-Various bills have been introduced into the
United States Congress that would repeal in some respects the provisions of the
Glass-Steagall Act prohibiting certain banking organizations from engaging in
certain securities activities and the provisions of the Bank Holding Company Act
prohibiting affiliations between banking organizations and non-banking
organizations. This legislation is still under discussion.
FDIC DEPOSIT INSURANCE-On September 30, 1996, President Clinton signed into
law H.R. 3610, which recapitalized the SAIF and substantially bridged the
assessment rate disparity existing between SAIF and BIF insured institutions.
The new law subjected institutions with SAIF assessable deposits, including
BankAtlantic, to a one-time assessment of 0.657% of covered deposits at March
31, 1995. BankAtlantic's one-time assessment, which was paid in November 1996,
resulted in a pre-tax charge of $7.2 million for the year ended December 31,
1996, and under provisions of the law, was treated as a fully deductible
"ordinary and necessary business expense" for tax purposes. The $7.2
million charge excludes the $2.3 million amount assessed on BNA deposits which
was included considered in recording the acquisition of BNA under the purchase
method of accounting. in As a result of the special assessment, discussed
herein, the SAIF was capitalized at the target Designated Reserve Ratio
("DRR") of 1.25 percent of estimated insured deposits on October 1, 1996.
On December 1, 1996 the FDIC finalized a rule lowering the rates on
insurance assessments paid to the SAIF, effective October 1, 1996. The rule also
separates, effective January 1, 1997, the Financing Corporation ("FICO")
assessment to service the interest on its bond obligations from the SAIF
assessment. The amount assessed on individual institutions by the FICO will be
in addition to the
11
amount paid for deposit insurance according to the FDIC's risk-related
assessment rate schedules. The FICO assessment rate for the first semi-annual
period in 1997 was set at 6.48 basis points annually for SAIF-assessable
deposits and 1.30 basis points for BIF assessable deposits. By law, the FICO
rate on BIF-assessable deposits must be one-fifth the rate on SAIF-assessable
deposits until pro-rata sharing begins, when the insurance funds merge or
January 1, 2000, whichever occurs first. The rule established a special interim
rate schedule of 18 to 27 basis points annually between October 1, 1996 and
January 1, 1997. Excess assessments were refunded during January 1997. Insurance
premiums range from zero to 27 basis points annually, with well capitalized
institutions in the highest supervisory subgroup paying zero basis points and
undercapitalized institutions in the lowest supervisory subgroup paying 27 basis
points. At December 31, 1996, BankAtlantic met the capital requirements for a
well capitalized institution and anticipates paying zero basis points for
insurance premiums and anticipates paying 6.48 basis points for its
SAIF-assessable deposits and 1.30 for its BIF-assessable deposits based on it
supervisory subgroup for FICO assessments. BankAtlantic pays deposit insurance
premiums primarily to the SAIF and secondarily to the BIF in connection with the
deposits it acquired as a result of the acquisition of MegaBank. All BNA
deposits acquired are subject to SAIF premiums. At December 31, 1996,
BankAtlantic had approximately $143.8 million of deposits subject to BIF
premiums and $1.7 billion subject to SAIF premiums.
The Company has been considering converting BankAtlantic's charter to that
of a commercial bank, however, the Company is not presently pursuing a
conversion of BankAtlantic's charter since it is awaiting the outcome of the
legislative proposals relating to the possible consolidation of bank and thrift
charters.
SAVINGS INSTITUTION REGULATIONS
REGULATORY CAPITAL-Both the OTS and the FDIC have promulgated regulations
establishing capital requirements applicable to savings institutions. The effect
and interrelationship of these regulations is discussed below.
Savings institutions must meet the OTS' specific capital standards which
by law must be no less stringent than capital standards applicable to national
banks, with exceptions for risk-based capital requirements to reflect interest
rate risk or other risk. Capital calculated pursuant to the OTS' regulations
varies substantially from capital calculated pursuant to generally accepted
accounting principles ("GAAP"). At December 31, 1996, BankAtlantic
exceeded all applicable regulatory capital requirements. The capital
requirements are as follows:
(a) The leverage limit requires savings institutions to maintain core
capital of at least 3% of adjusted total assets. Adjusted total assets are
calculated as GAAP total assets, minus intangible assets (except those included
in core capital as described below). Core capital consists of common
shareholders' equity, including retained earnings, noncumulative perpetual
preferred stock and related surplus, less specified intangible assets (including
goodwill and mortgage servicing rights ("MSR")). However, a portion of MSR
may be included in adjusted assets and core capital. Generally, an amount may be
included equal to the lower of (i) 90% of the fair market value of readily
marketable MSR (ii) the current amortized book value as determined under GAAP or
(iii) 50% of core capital.
(b) Under the tangible capital requirement, savings institutions must
maintain tangible capital in an amount not less than 1.5% of adjusted total
assets. Tangible capital is defined in the same manner as core capital, except
that all intangible assets, except MSR, must be deducted. The percentage of MSR
which may be included in tangible capital is equal to the lesser of (a) 100% of
the amount of tangible capital that exists before the deduction of any
disallowed MSR or (b) the amount of MSR allowed to be included in core capital.
(c) The risk-based standards of the OTS currently require maintenance of
core capital equal to at least 4% of risk-weighted assets, and total capital
equal to at least 8% of risk-weighted assets. Total capital includes core
capital plus supplementary capital, but supplementary capital that may be
included
12
in computing total capital for this purpose may not exceed core capital.
Supplementary capital includes cumulative perpetual preferred stock, allowable
subordinated debt and general loan loss allowances, within specified limits.
Such general loss allowances may not exceed 1.25% of risk-weighted assets.
Risk-weighted assets are determined by assigning to all assets designated
risk weights ranging from 0% to 100%, based on the credit risk assumed to be
associated with the particular asset. Generally, zero weight is assigned to
risk-free assets, such as cash and unconditionally guaranteed United States
government securities, including mortgage-backed securities issued or guaranteed
by GNMA. A weight of 20% is assigned to, among other things, certain obligations
of United States government-sponsored agencies (such as the FNMA and the FHLMC),
stock of a FHLB and high quality mortgage-related securities. A weight of 50% is
assigned to qualifying mortgage loans and certain other residential
mortgage-related securities. A weight of 100% is assigned to consumer,
commercial and other loans, repossessed assets and assets that are 90 days or
more past due and all other assets not identified in the categories above. See
"Liquidity and Capital Resources" and Note 14 of the Consolidated
Financial Statements for a discussion on BankAtlantic's capital position.
In addition to the capital requirements set forth in the OTS' regulations,
the OTS has delegated to its Regional Directors the authority to establish
higher individual minimum capital requirements for savings institutions based
upon a determination that the institution's capital is or may become inadequate
in view of its circumstances.
In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest-rate risk will
be subject to a deduction of its interest-rate risk component from total capital
for purposes of calculating the risk-based capital requirement. As a result,
such an institution will be required to maintain additional capital in order to
comply with the risk-based capital requirement. An institution with a greater
than normal interest-rate risk is defined as an institution that would suffer a
loss of net portfolio value exceeding 2.0% of the estimated market value of its
assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest-rate risk component is
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest-rate risk, and 2.0% multiplied by the market
value of its assets. The rule also authorizes the director of the OTS, or his
designee, to waive or defer an institution's interest-rate risk component on a
case-by-case basis. The OTS implemented the interest-rate risk capital deduction
on June 30, 1995. However, in a letter dated March 20, 1995, the OTS stated that
no institution would be required to deduct capital for interest rate risk or to
report such a deduction until guidance is issued describing the appeals process
for the deduction. The December 31, 1996 deduction would have been based on the
lesser of the March 1996, June 1996 or September 1996 interest rate risk
components. At December 31, 1996, based on the above, no interest rate risk
deduction to capital would have been required by BankAtlantic.
Additionally, the OCC, which is the primary regulator for national banks,
has adopted a final rule increasing the leverage ratio requirements for all but
the most highly rated national banks. Pursuant to FIRREA, the OTS is required to
issue capital standards for savings institutions that are no less stringent than
those applicable to national banks. Based on the OCC rule, savings institutions
would be required to maintain a leverage ratio (defined as the ratio of core
capital to adjusted total assets) of between 4% and 5%. If the OCC rule was in
effect for OTS regulated financial institutions at December 31, 1996,
BankAtlantic would have been in full compliance with the requirement.
Effective March 1, 1994, core deposit intangibles ("CDIs") have been
excluded in the determination of regulatory capital. BankAtlantic did not have
CDIs since the effective date of the final rule and accordingly, BankAtlantic
was not affected by this exclusion from capital. However, as a result of the
MegaBank and BNA acquisitions, BankAtlantic recorded as intangible assets
amounts representing the excess of the cost of the net assets acquired over the
fair value of such assets and the cost of the non-competition agreement with a
principal of MegaBank. Such amounts are deducted in full from tangible, core and
risk-based capital. At December 31, 1996, $29.0 million has been deducted
13
in connection with the MegaBank and BNA acquisitions based upon the intangible
exclusion. For a further discussion of the acquisitions, see Note 20 of the
Consolidated Financial Statements.
INSURANCE OF ACCOUNTS-BankAtlantic's deposits are insured by the SAIF and
BIF for up to $100,000 for each insured account holder, the maximum amount
currently permitted by law. Pursuant to the FDICIA, the FDIC adopted
transitional regulations implementing risk-based insurance premiums that became
effective on January 1, 1993. Under these regulations, institutions are divided
into groups based on criteria consistent with those established pursuant to the
prompt regulatory action provisions of the FDICIA (see "Savings Institution
Regulations-Prompt Regulatory Action", below). Each of these groups is
further divided into three subgroups, based on a subjective evaluation of
supervisory risk to the insurance fund posed by the institution. See also
"Legislative Developments-FDIC Deposit Insurance."
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. Insurance of deposits by the FDIC may be terminated by the
FDIC, after notice and hearing, upon a finding that an institution has engaged
in unsafe and unsound practices, is in an unsafe and unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or the FDIC. When conditions warrant, the FDIC
may impose less severe sanctions as an alternative to termination of insurance.
BankAtlantic's management does not know of any present condition pursuant to
which the FDIC would seek to impose sanctions on BankAtlantic or terminate
insurance of its deposits. See "Competition" for potential changes in
insurance assessments.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS-Current
regulations applicable to the payment of cash dividends by savings institutions
impose limits on capital distributions based on an institution's regulatory
capital levels and net income. An institution that meets or exceeds all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association." Upon prior notice to, and non-objection by, the OTS,
a Tier 1 association may make capital distributions during a calendar year up to
the greater of (i) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval.
An institution that meets the minimum regulatory capital requirements but
does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of
its net income over the most recent four-quarter period, depending on the
institution's risk-based capital level. A "Tier 3 association" is defined
as an institution that does not meet all of the minimum regulatory capital
requirements and therefore may not make any capital distributions without the
prior approval of the OTS.
A "well capitalized" institution must have risk-based capital of 10%
or more, core capital of 5% or more and Tier 1 risk-based capital (based on the
ratio of core capital to risk-weighted assets) of 6% or more and may not be
subject to any written agreement, order, capital directive or prompt corrective
action directive issued by the OTS to meet and maintain a specific capital level
or a specific capital measure. An institution will be categorized as:
"adequately capitalized" if it has total risk-based capital of 8% or more,
Tier 1 risk-based capital of 4% or more and core capital of 4% or more;
"undercapitalized" if it has total risk-based capital of less than 8%,
Tier 1 risk-based capital of less than 4% or core capital of less than 4%;
"significantly undercapitalized" if it has total risk-based capital of
less than 6%, Tier 1 risk-based capital of less than 3% or core capital of less
than 3%; and "critically undercapitalized" if it has tangible capital of
less than 2%. Any savings institution that fails its regulatory capital
requirement is subject to enforcement action by the OTS or the FDIC. At December
31, 1996 BankAtlantic met the capital requirements of a "well capitalized"
institution as defined above.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All capital distributions are
subject to the OTS' right to object to a distribution on
14
safety and soundness grounds. While proposed regulations would eliminate the
notice requirement for certain institutions, the proposal would not apply to
BankAtlantic because it is owned by a holding company.
THE FEDERAL HOME LOAN BANK ("FHLB") SYSTEM-BankAtlantic is a member
of the FHLB system, which consists of 12 regional FHLBs governed and regulated
by the Federal Housing Finance Board ("FHFB"). The FHLBs provide a central
credit facility for member institutions. BankAtlantic, as a member of the FHLB
of Atlanta, is required to acquire and hold shares of capital stock in the FHLB
of Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on BankAtlantic's behalf). BankAtlantic is currently
in compliance with this requirement.
Each FHLB makes loans (advances) to members in accordance with policies and
procedures established by the board of directors of the FHLB. These policies and
procedures are subject to the regulation and oversight of the FHLB. The FHLB Act
establishes collateral requirements for advances from the FHLB. All advances
from the FHLB must be fully secured by sufficient collateral as determined by
the FHLB of Atlanta. The FHLB Act prescribes eligible collateral as first
mortgage loans less than 90 days delinquent or securities evidencing interests
therein, securities (including mortgage-backed securities) issued, insured or
guaranteed by the Federal government or any agency thereof, deposits with the
FHLB and, to a limited extent, real estate with readily ascertainable value in
which a perfected security interest may be obtained. All long-term advances are
required to provide funds for residential home financing. The FHLB of Atlanta
has established standards of community service that members must meet to
maintain access to long-term advances.
FEES AND ASSESSMENTS OF THE OTS-The OTS has adopted regulations to assess
fees on savings institutions to fund the operations of the OTS. The regulations
provide for the OTS' assessments to be made based on the total consolidated
assets of a savings institution as shown on its most recent report to the
agency. Troubled savings institutions (generally, those operating in
conservatorship or with the lowest two (of five) supervisory subgroup ratings)
are to be assessed at a rate 50% higher than similarly sized thrifts that are
not experiencing problems.
INVESTMENT ACTIVITIES-As a federally-chartered savings bank, BankAtlantic
is subject to various restrictions and prohibitions with respect to its
investment activities. These restrictions and prohibitions are set forth in HOLA
and in the rules of the OTS and include dollar amount and procedural
limitations. BankAtlantic is in compliance with these restrictions.
Under the Federal Deposit Insurance Act ("FDIA"), a savings
institution is required to provide 30 days prior notice to the FDIC and the OTS
of its desire to establish or acquire a new subsidiary or conduct any new
activity through a subsidiary. The institution is also required to conduct the
activities of the subsidiary in accordance with the OTS' orders and
regulations. The Director of the OTS has the power to force divestiture of any
subsidiary or the termination of any activity it determines is a serious threat
to the safety, soundness or stability of the savings institution or is otherwise
inconsistent with sound banking principles. Additionally, the FDIC is authorized
to determine whether any specific activity poses a threat to SAIF and to
prohibit any member of SAIF from engaging directly in the activity, even if it
is an activity that is permissible for a federally-chartered savings institution
or for a subsidiary of a state-chartered savings institution.
SAFETY AND SOUNDNESS-Operational and managerial standards for internal
controls, information systems, loan documentation, credit underwriting, interest
rate exposure, asset growth and compensation and benefits for bank officers,
employees, directors and principal shareholders are all the subject of extensive
guidelines. Additionally, the OTS is empowered to set standards for any other
facet of an institution's operations, not specifically covered by regulations.
The OTS is required to prescribe asset quality, earnings and stock valuation
standards specifying: (i) a maximum ratio of classified assets
15
to capital; (ii) minimum earnings sufficient to absorb losses without impairing
capital; (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly traded shares of the institution; and (iv) such other
standards relating to asset quality, earnings and valuation as the OTS deems
appropriate.
LOANS TO ONE BORROWER-Generally, a savings institution's total loans and
extensions of credit to one borrower or related group of borrowers, outstanding
at one time and not fully secured by readily marketable collateral, may not
exceed 15% of the institution's unimpaired capital and surplus. Except as set
forth below for certain highly rated securities, an institution's investment in
commercial paper and corporate debt securities of any one issuer or related
entity must be aggregated "loans" for purposes of the immediately
preceding sentence.
Savings institutions may invest, in addition to the 15% general limitation,
up to 10% of unimpaired capital and surplus in commercial paper of one issuer
rated by two nationally recognized rating services in the highest category, or
in corporate debt securities rated in one of the two highest categories by at
least one such service. A savings institution may also lend up to 10% of
unimpaired capital and surplus, if the loan is fully secured by readily
marketable collateral. Readily marketable collateral is defined to include
certain securities and bullion, but generally does not include real estate.
A savings institution which meets its capital requirements may make loans
to one borrower to develop domestic residential housing units, up to the lesser
of $30,000,000 or 30% of the savings institution's unimpaired capital and
surplus if certain other conditions are satisfied. BankAtlantic has requested
and received approval for one construction lending relationship under the above
exception. This exception is an alternative to the 15% limitation and not in
addition to that limitation. At December 31, 1996, BankAtlantic was in
compliance with the loans to one borrower limitations. During 1997, BankAtlantic
originated a $35.0 million commercial real estate loan in which the Company
participated $6.5 million of the loan.
QUALIFIED THRIFT LENDER-BankAtlantic, like all savings institutions, is
required to meet the QTL test for, among other things, future eligibility for
advances from the FHLB. The QTL test requires that a savings institution's
qualified thrift investments equal or exceed 65% of the savings institution's
portfolio assets calculated on a monthly average basis in nine out of every
twelve months. For the purposes of the QTL test, portfolio assets are total
assets less intangibles, properties used to conduct business and liquid assets
(up to 20% of total assets). The following assets are included as qualified
thrift investments without limit: (i) domestic residential housing or
manufactured housing loans; (ii) home equity loans and mortgage-backed
securities secured by residential housing or manufactured housing loans; and
(iii) certain obligations of the FDIC and other related entities. Other
qualifying assets which may be included up to an aggregate of 20% of portfolio
assets are: (i) 50% of originated residential mortgage loans sold within 90 days
of origination; (ii) investments in debt or equity securities of service
corporations that derive at least 80% of their gross revenues from
housing-related activities; (iii) 200% of certain loans to and investments in
low-cost, one-to-four family housing; (iv) 200% of loans for residential real
property, churches, nursing homes, schools and small businesses in areas where
credit needs of low-to-moderate income families are not met; (v) other loans for
churches, schools, nursing homes and hospitals; and (vi) consumer and education
loans up to 10% of total portfolio assets.
Any savings institution that fails to meet the QTL test must convert to a
commercial bank charter or limit its future investments and activities to those
permitted for both savings institutions and national banks. Additionally, any
such savings institution that does not convert to a commercial bank charter will
be ineligible to receive future advances from the FHLB and, beginning three
years after the loss of QTL status, will be required to repay all outstanding
advances from the FHLB except for special liquidity advances and dispose of or
discontinue all preexisting investments and activities not permitted for both
savings institutions and national banks. If an institution converts to a
commercial bank charter, its deposits remain insured by SAIF until the FDIC
permits it to transfer to BIF. If any institution that fails the QTL test and is
controlled by a holding company, then, within one year after the failure, the
16
holding company must register as a bank holding company and will be subject to
all applicable restrictions on bank holding companies. At December 31, 1996,
BankAtlantic was in compliance with current QTL requirements.
TRANSACTION WITH AFFILIATES-As a federally chartered savings institution,
BankAtlantic is subject to the OTS' regulations relating to transactions with
affiliates, including officers and directors. BankAtlantic is subject to
substantially similar restrictions regarding affiliate transactions as those
imposed on member banks under Sections 22(g), 22(h), 23A, and 23B of the FRA.
Sections 22(g) and 22(h) establish restrictions on loans to directors,
controlling shareholders and their related companies and certain officers.
Section 22(g) provides that no institution may extend credit to an executive
officer unless (i) the bank would be authorized to make such extension of credit
to borrowers other than its officers, (ii) the extension of credit is on terms
not more favorable than those afforded to other borrowers, (iii) the officer has
submitted a detailed current financial statement and (iv) the extension of
credit is on the condition that it shall become due and payable on demand at any
time that the officer is indebted to any other bank or banks on account of
extensions of credit in any one of the following three categories, in an
aggregate amount greater than the amount of credit of the same category that
could be extended to the officer by the institution: (a) an extension of credit
secured by a first lien on a dwelling which is expected to be owned by the
officer and used by the officer as his or her residence; (b) an extension of
credit to finance the education of the children of the officer; or (c) for any
other purpose prescribed by the OTS. Section 22(g) also imposes reporting
requirements on both the officers to whom it applies and on the institution.
Section 22(h) requires that loans to directors, controlling shareholders and
their related companies and certain officers be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and that those loans do not
involve more than the normal risk of repayment or present other unfavorable
features. On September 30, 1996, Congress amended Section 22(h) by adding an
exception for extensions of credit made pursuant to a program that is widely
available to all employees of the lending institution and does not give
preference to insiders over other employees. Effective November 4, 1996, the FRB
amended Regulation O to implement this amendment to 22(h).
Section 23A limits transactions with any one affiliate to 10% of the
institution's capital and surplus and limits aggregate affiliate transactions
to 20% of such capital and surplus. Sections 23A and 23B provide that a loan
transaction with an affiliate generally must be collateralized (other than by a
low-quality asset or by securities issued by an affiliate) and that all covered
transactions as well as the sale of assets, the payment of money or the
providing of services by a savings institution to an affiliate must be on terms
and conditions that are substantially the same, or at least as favorable to the
savings institution, as those prevailing for comparable non-affiliated
transactions. A covered transaction is defined as a loan to an affiliate, the
purchase of securities issued by an affiliate, the purchase of assets from an
affiliate (with some exceptions), the acceptance of securities issued by an
affiliate as collateral for a loan or the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate. The OTS regulations clarify that
transactions between either a thrift or a thrift subsidiary and an unaffiliated
person that benefit an affiliate are considered covered transactions. A savings
institution may make loans to or otherwise extend credit to an affiliate only if
the affiliate is engaged solely in activities permissible for bank holding
companies. In addition, no savings institution may purchase the securities of
any affiliate other than the shares of a subsidiary. The Director of the OTS may
further restrict these transactions in the interest of safety and soundness. At
December 31, 1996, BankAtlantic was in compliance with the restrictions
regarding transactions with affiliates.
LIQUIDITY REQUIREMENTS OF THE OTS-The OTS' regulations currently require
all member savings institutions to maintain an average daily balance of liquid
assets (cash, certain time deposits, banker's acceptances, specified United
States government, state or Federal agency obligations and other corporate debt
obligations and commercial paper) equal to 5% of the sum of the average daily
balance during the preceding calendar month of net withdrawable accounts and
short-term borrowings payable in one year or less. The liquidity requirement may
vary from time to time (between 4% and 10%)
17
depending upon economic conditions and savings flows of all savings
institutions. All savings institutions are also required to maintain an average
daily balance of short-term liquid assets (generally having maturities of 12
months or less) equal to at least 1% of the average daily balance of net
withdrawable accounts and current borrowings. Monetary penalties may be imposed
by the OTS for failure to meet liquidity requirements. At December 31, 1996,
BankAtlantic was in compliance with all applicable liquidity requirements.
THE FEDERAL RESERVE SYSTEM-BankAtlantic is subject to certain regulations
promulgated by the FRB. Pursuant to such regulations, savings institutions are
required to maintain non-interest bearing reserves against their transaction
accounts (which include deposit accounts that may be accessed by writing checks)
and non-personal time deposits. The FRB has authority to adjust reserve
percentages and to impose in specified circumstances emergency and supplemental
reserves in excess of the percentage limitations otherwise prescribed. The
balances maintained to meet the reserve requirements imposed by the FRB may be
used to satisfy liquidity requirements which may be imposed by the OTS. In
addition, FRB regulations limit the periods within which depository institutions
must provide availability for and pay interest on deposits to transaction
accounts. Depository institutions are required to disclose their check holding
policies and any changes to those policies in writing to customers. BankAtlantic
believes that it is in compliance with all such FRB regulations.
COMMUNITY REINVESTMENT ACT-Under the CRA, as implemented by OTS
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
its examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. The CRA, as
amended by FIRREA, requires public disclosure of an institution's CRA rating
and requires that the OTS provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The four ratings
are "outstanding record of meeting community credit needs",
"satisfactory record of meeting community credit needs", "needs to
improve record of meeting community credit needs" and "substantial
non-compliance in meeting community credit needs." An institution's CRA
rating is taken into account in determining whether to grant charters, branches
and other deposit facilities, relocations, mergers, consolidations and
acquisitions. Poor CRA performance maybe the basis for denying an application.
BankAtlantic received an "outstanding record of meeting community credit
needs" during its most recent OTS examination.
NEW ACCOUNTING STANDARDS AND POLICIES
Financial Accounting Standards Board Statement No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
("FAS 125") was issued in June 1996. FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a
financial-components approach that focuses on control. If a transfer does not
meet the criteria for a sale, the transfer is accounted for as a secured
borrowing with pledge of collateral. FAS 125 must be implemented, prospectively
on January 1, 1997. Implementation of FAS 125 is not expected to have a material
impact on BankAtlantic's Statement of Operations or Statement of Financial
Condition upon adoption.
18
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 principal office, BankAtlantic currently conducts business at 55
branch offices primarily located in Dade, Broward, and Palm Beach Counties,
Florida. BankAtlantic owns the land and building on which its executive offices
are located and also owns 23 of its branch office locations. BankAtlantic leases
either the land, the building or both in connection with the operation of its 34
other branch offices. BankAtlantic has twelve leased branch office sites in
Broward County, with lease expiration dates ranging from 1997 to 2001; nine
leased branch office sites in Dade County, with lease expiration dates ranging
from 1997 to 2005; two leased branch office in Palm Beach County with leases
expiring in 1999 and 2001; and nine leased branch offices located in Wal-Mart
stores in Lee, Sarasota, Osceola, Flagler, Manatee and Charlotte Counties, with
leases expiring in 1999 and 2001. BankAtlantic also maintains two ground leases
in Broward County expiring in 1999 and 2072 and one ground lease in Palm Beach
County expiring in 2000. BankAtlantic owns the land and buildings relating to
four future branch sites. BankAtlantic also leases two properties for future
branch sites in Broward and Palm Beach Counties. BankAtlantic owns a building
and the associated land which houses its mortgage-servicing operations. At
December 31, 1996, the aggregate net book value of premises and equipment,
including leasehold improvements and equipment, was $48.3 million.
19
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to BankAtlantic's business to which BankAtlantic
is a party:
JOSE DANIEL RUIZ CORONADO VS. BANKATLANTIC BANCORP, INC. IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA. CASE NO.
96-7115-CIV-GONZALEZ. This action was filed as a purported class action on
September 27, 1996 on behalf of certain account holders of BankAtlantic whose
bank accounts were seized by federal authorities. The complaint alleges that the
financial privacy rights of the account holders under various federal and state
laws were violated. On January 22, 1997, the Court entered an order dismissing
the complaint against BankAtlantic. The Court found that BankAtlantic complied
with applicable federal statutes.
IN RE STERLING RESOURCES
CAROLINE BERGER, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED
HAS BROUGHT AN ACTION AGAINST JOSEPH GIARIZZO, RON SCOTT, LEON MARTIN, PAUL
TEDALDY, SAL GIARIZZO, JAMES GANSKY, HARBOR CREST ASSOCS. LTD., QUEENS WINDOW
SYSTEMS LTD., DARTMOUTH PLAN INC., WENDOVER FUNDING, INC., MIDWEST FEDERAL
SAVINGS BANK, STERLING RESOURCES LTD., BENCHARGE CREDIT SERVICE OF NEW YORK,
INC., SKOPBANK, DAVID BEYER, JEFFREY BEYER, BANKATLANTIC, NATIONAL CITY BANK OF
AKRON, SUBURBAN EQUITY CORP., OXFORD HOME EQUITY LOAN CO., NATIONAL WESTMINSTER
BANK, EMBANQUE CAPITAL CORP., CHRYSLER FIRST, CAPITAL RESOURCES CORP. AND GREEN
POINT SAVINGS, IN THE UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF NEW
YORK, CV-90-2500, PLATT, C.J. This action was originally filed on July 13, 1990
by the plaintiff, Caroline Berger ("Berger"), in her individual capacity,
against Joseph Giarizzo, Harbor Crest Associates, Ltd., Queens Window Systems
Ltd., Dartmouth Plan, Inc., Wendover Funding Inc., Midwest Federal Savings Bank,
Sterling Resources Ltd., Bencharge Credit Service of New York Inc., SkopBank,
David Beyer and Jeffrey Beyer. The original complaint asserted a variety of
state and federal causes of action. The plaintiff, Berger asserted that she was
defrauded by Dartmouth Plan Inc., Midwest Federal Savings Bank and by Harbor
Crest, a home improvement contractor affiliated with Dartmouth. The plaintiff
maintained that Dartmouth and Harbor Crest operated a scheme pursuant to which
Harbor Crest would identify individuals with small incomes with little or no
education and sell them home improvements at substantially marked up prices. The
plaintiff alleged that the home improvements were provided in a shoddy and
unprofessional manner and that the requirements of the truth in lending laws
were not met. The New York action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions including BankAtlantic. The action
sought, among other things, rescission of the loan agreements and damages. In
October 1995, the Court in the New York action preliminary approved a settlement
rendered by the parties pursuant to which members of the class who timely filed
a proof of claim would be entitled to relief in the form of reduced interest
rates and reductions of principal. A settlement was reached in 1996 and the
litigation was resolved.
In related matters, two additional actions were filed in New Jersey.
One of the actions was brought on behalf of the State of New Jersey and was
resolved in 1995. The other action, entitled - FRANCES SCOTT, ON BEHALF OF
HERSELF AND ALL OTHER SIMILARLY SITUATED AGAINST MAYFLOWER HOME IMPROVEMENT
CORP., EQUICREDIT CORPORATION OF AMERICA, BERNARD PERRY, GINO CIUFFETELLI, HYMAN
BEYER, JEFFREY BEYER, BRUCE BEYER, MNC CREDIT CORP., SHAWMUT BANK, FIRST
TENNESSEE BANK, CIT GROUP/CREDIT FINANCE, INC., SECURITY PACIFIC FINANCIAL
SERVICES, INC., JEROME GOLDMAN, BANKATLANTIC, FSB., MICHAEL BISCEGLIA AND GERALD
ANNABEL, was filed in the Superior Court of New Jersey, Law Division-Passaic
County-Docket No: PAS-L-2628-95, Honorable Frank M. Donato, J.S.C. and was
commenced immediately after the resolution of the State of New Jersey action.
This action purports to be a class action on behalf of the named and unnamed
plaintiffs that may have obtained loans from dealers who subsequently sold the
loans to financial institutions, including BankAtlantic. This action seeks,
among other things, recision of the loan agreements and damages. In November
1995, the court in this action entered an order dismissing the complaint against
BankAtlantic; plaintiff's appealed this ruling. In January 1996, the Appellate
Court reversed the lower court's decision and remanded the case back to trial
court to determine whether the action may be maintained as a class action. The
reversal was without prejudice to BankAtlantic's right to renew their summary
judgment motion after the trial court has made a determination as to plaintiff's
ability to maintain this case as a class action.
In an action entitled BANKATLANTIC, A FEDERAL SAVINGS BANK, A FEDERALLY
CHARTERED SAVINGS BANK VS. NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH,
PENNSYLVANIA, A PENNSYLVANIA CORPORATION, UNITED STATES DISTRICT COURT, SOUTHERN
DISTRICT OF FLORIDA, 91-2940-CIV-MORENO, BankAtlantic and National Union entered
into a Covenant Not To Execute (the "Covenant"). Pursuant to the Covenant,
BankAtlantic will continue to pursue its litigation against National Union but
has agreed to limit execution on any judgment obtained against National Union to
$18 million. Further, BankAtlantic agreed to join certain third parties as
defendants in
20
the action. Pursuant to the Covenant, National Union paid BankAtlantic
approximately $6.1 million on execution of the Covenant, and agreed to pay an
additional $3 million, which was paid when due on November 1993, and
approximately $2.9 million which was paid when due on November 1, 1994. Further,
National Union agreed to reimburse BankAtlantic for additional losses (as
defined) incurred by it in connection with the Subject Portfolio, if any,
provided that in no event will National Union be obligated to pay BankAtlantic
in the aggregate more than $18 million. In the event of recovery by BankAtlantic
of damages against third party wrongdoers, BankAtlantic will be entitled to
retain such amounts until such amounts plus any payments received from National
Union equal $22 million. Thereafter National Union will be entitled to any such
recoveries to the extent of its payments to BankAtlantic.
BankAtlantic is also currently a party to certain other lawsuits
arising in the ordinary course of its business.
21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
On February 13, 1996, the stockholders of the Company approved at a
special meeting, an amendment to the Company's Articles of Incorporation (the
"Amendment") authorizing 30,000,000 shares of a new class of non-voting common
stock designated Class A common stock and redesignating the Company's existing
common stock, par value $0.01 per share, as Class B common stock. The Class A
common stock has no voting rights except as may be required by Florida law. The
two classes of stock generally have the same economic rights, except Class A
common stock is entitled to receive cash dividends equal to at least 110% of any
cash dividends declared and paid on Class B common stock. In March 1996, BBC
issued 1.80 million shares of Class A common stock in an underwritten public
offering at $9.60 per share. In April 1996 the underwriter exercised an
overallotment option to purchase an additional 252,817 shares of Class A common
stock at $9.60 per share.
The Company's Class B common stock is quoted on the Nasdaq National
Market under the symbol "BANC" and the Company's Class A common stock is quoted
on the Nasdaq National market under the symbol "BANCA". On March 7, 1997 there
were approximately 718 record holders of the Class A common stock and 7,807,258
shares issued and outstanding and 596 record holders of the Class B common stock
and 10,542,116 shares issued and outstanding.
The following table set forth, for the periods indicated, the high and
low closing sale prices of the Class A common stock and the Class B common stock
as reported by the Nasdaq National Market, as adjusted to reflect the 25% stock
dividends issued on July 1996 and February 1997 to holders of both classes of
common stock. Due to accounting and tax considerations, the stock dividend was
paid in Class B common stock with respect to options to purchase Class B common
stock previously granted under the Company's stock option plans.
CLASS A COMMON CLASS B COMMON
STOCK PRICE STOCK PRICE
--------------------- ---------------------
HIGH LOW HIGH LOW
---------- --------- --------- ---------
For the Year ended December 31, 1996............... $ 10 15/16 $ 8 7/16 $10 15/16 $ 8 1/8
First Quarter................................... 9 15/16 9 5/8 9 7/8 8 1/8
Second Quarter.................................. 9 15/16 8 13/16 10 1/4 8 1/8
Third Quarter................................... 10 5/8 8 7/16 10 15/16 8 3/16
Fourth Quarter.................................. 10 15/16 10 1/8 10 15/16 10
For the Year ended December 31, 1995............... - - 10 1/4 5 15/16
First Quarter................................... - - 6 3/4 6 3/16
Second Quarter.................................. - - 7 1/2 5 15/16
Third Quarter................................... - - 10 7 3/16
Fourth Quarter.................................. - - 10 1/4 9 1/8
For the Year ended December 31, 1994............... - - 6 15/16 4 15/16
First Quarter................................... - - 6 4 15/16
Second Quarter.................................. - - 6 7/8 5 1/4
Third Quarter................................... - - 6 7/8 5 9/16
Fourth Quarter.................................. - - 6 15/16 5 11/16
On December 31, 1996, the last sale price of the Class A common stock
and Class B common stock as reported by the Nasdaq National Market was $10.40
and $10.70 per share, respectively.
On July 3, 1996, the Company closed a public offering of $57.5 million
of 6 3/4% Convertible Subordinated Debentures due July 1, 2006 (the "6 3/4%
Debentures"). The 6 3/4% Debentures are convertible at an exercise price of
$10.24 per share into aggregate of 5,615,235 shares of Class A common stock.
The Company's 6 3/4% Convertible Debentures are quoted on the Nasdaq
National market under the symbol "BANCG". On March 7, 1997 there were
approximately 64 debenture holders and $57.5 million debentures were issued and
outstanding. The
23
following table set forth, for the periods indicated, the high
and low closing sales price as reported by the Nasdaq National Markets for the 6
3/4% Convertible Debentures, which were issued in July 1996
HIGH LOW
--------- --------
For the Year Ended December 31, 1996 $ 111 $ 107
First Quarter....................... - -
Second Quarter...................... - -
Third Quarter....................... 107 3/4 100
Fourth Quarter...................... 111 110
See Regulation and Supervision "Restrictions on Dividends and Other
Capital Distributions" and "Management's Discussion and Analysis - Dividends"
for a description of certain limitations on the payment of dividends by
BankAtlantic. Prior to 1993, BankAtlantic had not paid any regular dividend on
its common stock. Subject to the results of operations and regulatory capital
requirements, the Company will seek to declare regular quarterly cash dividends
on its common stock. The Company declared five for four common share stock
splits effected in the form of 25% stock dividends in July 1996 and February
1997. Where appropriate, amounts throughout this report have been adjusted to
reflect these stock dividends.
CASH DIVIDENDS PER CASH DIVIDENDS PER
SHARE OF CLASS B SHARE OF CLASS A
COMMON STOCK COMMON STOCK
------------------ ------------------
Fiscal Year Ended December 31, 1996
First Quarter........................ $ 0.0282 $ 0.0324
Second Quarter....................... $ 0.0282 $ 0.0324
Third Quarter........................ $ 0.0291 $ 0.0324
Fourth Quarter....................... $ 0.0291 $ 0.0324
Fiscal Year Ended December 31, 1995
First Quarter........................ $ 0.0251 N/A
Second Quarter....................... $ 0.0251 N/A
Third Quarter........................ $ 0.0282 N/A
Fourth Quarter....................... $ 0.0282 N/A
Fiscal Year Ended December 31, 1994
First Quarter........................ $ 0.0246 N/A
Second Quarter....................... $ 0.0246 N/A
Third Quarter........................ $ 0.0251 N/A
Fourth Quarter....................... $ 0.0251 N/A
The Company intends to continue to declare regular quarterly cash
dividends on the Class A common stock and the Class B common stock. The Class A
common stock is entitled to receive cash dividends equal to at least 100% of any
cash dividends declared and paid on the Class B common stock. The declaration
and payment of dividends will depend upon, among other things, the results of
operations, financial condition and cash requirements of the Company and on the
ability of BankAtlantic to pay dividends or otherwise advance funds to the
Company, which in turn is subject to OTS regulations and is based upon
BankAtlantic's regulatory capital levels and net income.
24
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited Consolidated Financial Statements of the Company and are
qualified in their entirety by reference to the more detailed Consolidated
Financial Statements and Independent Auditors Reports, included elsewhere
within. Where appropriate, amounts and percentages have been adjusted for the
July 1996 and February 1997 five for four common stock splits effected in the
form of 25% stock dividends, issued August 1996 and March 1997.
AT DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
STATEMENT OF FINANCIAL CONDITION:
Total assets .......................................... $ 2,605,527 $ 1,750,689
Loans receivable-net .................................... 1,824,856 828,630
Mortgage-backed securities held to maturity ............ 0 0
Debt securities available for sale ..................... 439,345 691,803
Investment and trading account securities, net(1) ...... 54,511 49,856
Mortgage servicing rights .............................. 25,002 20,738
Cost over fair value of net assets acquired and
other intangibles .................................... 29,008 11,521
Deposits ................................................ 1,832,780 1,300,377
Subordinated debentures, capital notes
and note payable ....................................... 78,500 21,001
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 486,288 269,222
Total stockholders' equity ........................... 147,704 120,561
AT DECEMBER 31,
-------------------------------------------
1994 1993 1992
-------------- -------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF FINANCIAL CONDITION:
Total assets .......................................... $ 1,539,653 $ 1,359,195 $ 1,303,071
Loans receivable-net .................................... 546,396 485,956 556,662
Mortgage-backed securities held to maturity ............ 573,913 443,249 349,531
Debt securities available for sale ..................... 53,969 83,116 137,963
Investment and trading account securities, net(1) ...... 211,776 97,701 120,424
Mortgage servicing rights .............................. 20,584 19,833 7,655
Cost over fair value of net assets acquired and
other intangibles .................................... 0 0 0
Deposits ................................................ 1,085,782 1,076,360 1,108,115
Subordinated debentures, capital notes
and note payable ....................................... 0 0 9,524
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 311,879 149,435 87,632
Total stockholders' equity ........................... 105,520 90,652 66,165
- ----------------
(1) Excludes FHLB stock. Includes interest-bearing deposits in other banks and
securities purchased under agreement to resell. Excludes $109,931 of
banker's acceptances in 1993, and includes trading account securities of
$9.1 million in 1994.
AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS
Total interest income .................. $ 152,631 $ 130,077 $ 98,549 $ 94,503 $ 116,476
Total interest expense .................. 77,031 65,686 41,431 35,987 55,567
------------ ------------ ----------- ----------- -----------
Net interest income ..................... 75,600 64,391 57,118 58,516 60,909
Provision for loan losses ............... 5,844 4,182 2,299 3,450 6,650
------------ ------------ ----------- ----------- -----------
Net interest income after provision for
loan losses ........................... 69,756 60,209 54,819 55,066 54,259
------------ ------------ ----------- ----------- -----------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...... 4,216 3,524 3,365 2,229 2,869
Gains on sales of loans originated
for resale .............................. 534 395 773 1,246 976
Gains on sales of mortgage
servicing rights ........................ 4,182 2,744 484 0 0
Gains on sales of investment and
mortgaged-backed securities, net ...... 5,959 0 0 0 5,869
Unrealized and realized gains (losses) on
trading account securities ............ 0 589 (558) 0 0
Gain (loss) on sales of property and
equipment, net ........................ 3,061 18 272 (73) (71)
Other .................................... 15,785 12,118 9,427 8,236 7,408
------------ ------------ ----------- ----------- -----------
Total non-interest income ............... 33,737 19,388 13,763 11,638 17,051
------------ ------------ ----------- ----------- -----------
25
AT OR FOR THE YEARS ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
------------ --------------- ------------ ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS (CONTINUED)
NON-INTEREST EXPENSE:
Employee compensation and benefits ......... 33,216 25,403 22,382 19,617 19,202
Occupancy and equipment .................. 13,615 10,831 8,061 8,417 8,864
SAIF one time special assessment ......... 7,160 0 0 0 0
Federal insurance premium .................. 2,495 2,750 2,673 2,750 2,772
Advertising and promotion .................. 2,079 2,144 1,495 960 480
Foreclosed asset activity-net ............ (725) (3,178) (2,290) 1,243 4,323
Other .................................... 14,401 13,210 9,764 10,546 11,176
---------- ----------- ---------- ----------- ----------
Total non-interest expense ............... 72,241 51,160 42,085 43,533 46,817
---------- ----------- ---------- ----------- ----------
Income before income taxes and
extraordinary item ........................ 31,252 28,437 26,497 23,171 24,493
Provision for income taxes ............... 12,241 10,018 9,662 7,093 9,201
---------- ----------- ---------- ----------- ----------
Income before extraordinary item ......... 19,011 18,419 16,835 16,078 15,292
Extraordinary item net of taxes ............ 0 0 0 0 756 (2)
---------- ----------- ---------- ----------- -----------
NET INCOME 19,011 18,419 16,835 16,078 16,048
Dividend on non-cumulative preferred
stock paid by BFC escrow .................. 0 0 0 147 880
Dividends on non-cumulative preferred
stock .................................... 0 677 880 733 0
Amounts classified as dividends on