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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
34-027228
BANKATLANTIC BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0507804
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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:
NAME OF EACH EXCHANGE ON WHICH REGISTERED
NEW YORK STOCK EXCHANGE
TITLE OF EACH CLASS
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF CLASS
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 and non voting common equity held
by non-affiliates of the Registrant at February 27, 1998 was approximately
$270,000,000.
The number of shares of Registrant's Class A Common Stock outstanding on
February 27, 1998 was 21,534,545.
The number of shares of Registrant's Class B Common Stock outstanding on
February 27, 1998 was 10,828,077.
Portions of the Proxy Statement of Registrant relating to the Annual
Meeting of shareholders, are incorporated in Part III of this report.
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PART I
ITEM 1. BUSINESS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1993, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual
results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
herein. These forward-looking statements are based largely on the expectations
of BankAtlantic Bancorp, Inc. ("the Company") and are subject to a number of
risks and uncertainties, including but not limited to, economic, competitive
and other factors affecting the Company's operations, markets, products and
services, as well as 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.
GENERAL
THE COMPANY
The Company is a unitary savings bank holding company whose primary asset
is the capital stock of BankAtlantic, a Federal Savings Bank ("BankAtlantic"),
its wholly owned subsidiary. Under applicable law, the Company generally has
broad authority with few restrictions to engage in various types of business
activities. At present the Company's primary activities relate to the
operations of BankAtlantic and BankAtlantic's subsidiaries however, as
discussed herein, the Company recently entered into an agreement to acquire
Ryan, Beck & Co., Inc., an investment banking firm and in September 1997, the
Company acquired 50% ownership of the voting stock of Florida Atlantic
Securities, Inc. ("FASI"), a full service investment banking and securities
brokerage firm. On February 26, 1998 the Company entered into an agreement to
acquire Leasing Technology Inc. ("LTI"). LTI is engaged in all facets of
leasing and financing. It is anticipated that LTI will operate as a wholly
owned subsidiary of BankAtlantic pending regulatory approval. 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
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, small business, residential and consumer loans and to make other
permitted investments such as the purchase of mortgage-backed securities, tax
certificates and other investment securities. In 1995, BankAtlantic acquired
MegaBank, a Miami-based commercial bank with deposits of approximately $120
million, which added 5 branches to BankAtlantic's network. In 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 consolidated with existing branches of BankAtlantic. On October
31, 1997, BankAtlantic acquired the St. Lucie West Holding Corp. ("SLWHC") for
approximately $20.0 million. SLWHC is the developer of the master planned
community of St. Lucie West, ("SLW") located in St. Lucie County, Florida. See
Note 21 of the Consolidated Financial Statements.
BankAtlantic currently operates through 65 branch offices, 14 in
Miami-Dade, 26 in Broward and 13 in Palm Beach Counties in South Florida as
well as 12 branches located throughout Florida in Walmart SuperStores. As
reported by an independent statistical reporting service, BankAtlantic is
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currently the second largest independent financial institution headquartered in
the State of Florida based on assets at September 30, 1997, 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, gains on sales
of loans, investments and mortgage servicing rights 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 include residential real
estate lending (including secondary market purchases of residential real estate
loans), commercial lending (consisting of commercial real estate, commercial
business lending and international lending), small business lending (primarily
commercial loans under $1.0 million) 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 Act."
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 collateral securing the loan.
Commercial real estate, corporate and portfolio 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
Chief Executive Officer, the Vice Chairman, the Senior Executive Vice
President, certain Executive Vice Presidents and certain other officers of
BankAtlantic. The Executive Vice President of Community Banking must approve
all small business loans of $500,000 to $1 million and loans above $1.0 million
are referred to the Commercial Lending Department.
International loan underwriting procedures are designed to assess the
country risk and the individual loan quality. All loans must be approved by the
International Loan Committee ("ILC"). The committee consists of the Chief
Executive Officer, certain Executive Vice Presidents, the Miami-Dade County
President and the manager of International Lending. In addition, a Country Risk
Committee ("CRC") has been established , which includes the above ILC members
and an economist. The CRC meets monthly and their purpose is to establish
guidelines by country, including amount of exposure, lines of business and
duration.
Underwriting procedures for residential loan purchases are designed to
assess the seller's underwriting procedures, as well as individual loan quality
including credit review. 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. 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. Generally, 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.
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COMMERCIAL REAL ESTATE LOANS -- Substantially all of BankAtlantic's
commercial real estate loans relate to property located in Miami-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. BankAtlantic generally lends not more than
75% of the collateral's appraised value and generally 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.
Permanent commercial real estate, development 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
development or 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 construction and
development loans 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.
COMMERCIAL BUSINESS LOANS -- BankAtlantic's commercial business lending
activities are generally directed towards small to medium size companies
located in Miami-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 generally have prime-based
interest rates and are originated on a line of credit basis or on a fixed term
basis ranging from one to five years. Line of credit loans are reviewed
annually. 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.
INTERNATIONAL LOANS -- BankAtlantic's international lending activities
began in 1997 and are currently with correspondent financial institutions in
Latin America. The Company's international lending activities are anticipated
to include (i) trade financing for correspondent financial institutions in
Latin America, including pre-export financing, advances on letters of credit
and banker's acceptances, (ii) trade financing for local commercial customers
who are primarily importing from or exporting to Latin America, (iii) term
financing of the export of United States goods and services guaranteed by the
EximBank and (iv) other correspondent banking services. Trade finance for
correspondent financial institutions is anticipated to be the largest segment
of BankAtlantic's international lending activities. The yield on such loans is
lower than the average yield for BankAtlantic's commercial business loan
portfolio, but such loans are floating rate, and have short term maturities. At
December 31, 1997,
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approximately $12 million of loans were outstanding to correspondent financial
institutions in Latin America. It is anticipated that 1998 lending levels will
increase from 1997 levels. BankAtlantic also believes that this activity will
provide an additional source of deposits and fee based income.
SMALL BUSINESS LENDING -- During the latter part of 1997, BankAtlantic
focused its attention on small business lending activities. These activities
are generally directed towards companies located in Miami-Dade, Broward and
Palm Beach Counties Florida and the West Coast of Florida. BankAtlantic's small
business lending division makes both secured and unsecured loans to businesses
whose credit needs generally do not exceed $1.0 million. It is believed that
this lending activity will increase in 1998 from 1997 levels. Lines of credit
are due upon demand while term loans and owner-occupied real estate loans are
originated with maturities ranging from one to twenty years. Small business
loans have fixed and prime-based interest rates. Small 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 on-going customer relationships with small business borrowers is
an important part of BankAtlantic's efforts to attract more non-interest
bearing demand deposits and to generate other fee-based, non-lending services.
BANKER'S ACCEPTANCES -- Banker's acceptances are collateralized by various
means, including inventory and receivables of borrowers of the issuing bank and
are unconditional obligations of the issuing bank.
FACTORING -- In January 1997, BankAtlantic Factors, Inc. ("Factors") was
established as a subsidiary of BankAtlantic. Factors purchases accounts
receivable from a client with recourse. Clients are generally manufacturers,
distributors, importers and service companies in various industries. Factors
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. Credit facilities of $500,000 or more
require the approval of the Division Head and Chief Executive Officer or the
Executive Vice President of Commercial Lending. Outside brokers may be utilized
to obtain relationships and in such case are paid commissions based on a
percentage of earnings from an account as collected.
RESIDENTIAL REAL ESTATE LOANS -- BankAtlantic's direct residential real
estate lending includes home mortgage loans originated by BankAtlantic and
secured by residential real estate located in Miami-Dade, Broward and Palm
Beach Counties, Florida. Additionally, the levels of residential real estate
loans increased substantially as BankAtlantic increased secondary market
purchases of wholesale residential real estate loans secured by property
located throughout the United States. BankAtlantic's residential loans have
been originated through its branch banking network, and a staff of commissioned
lending officers. 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 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.
BankAtlantic purchases in the secondary market one-to-four family fixed
and adjustable rate 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. While loans purchased in
the secondary market generally have lower yields than originated loans,
management believes that the lower yield is generally offset by lower
administrative costs and the ability to partially manage the interest rate risk
associated with these loans due to the size and generally homogenous nature of
the purchases.
4
CONSUMER LOANS -- BankAtlantic originates consumer loans bearing both
fixed and prime-based interest rates for terms primarily ranging for up to 5
years other than second mortgage loans, including home equity lines of credit,
which may have longer terms. During the past several years, BankAtlantic has
experienced significant growth in its consumer loan portfolio. Part of this
growth was the result of BankAtlantic's acquisition of financial institutions
which had originated consumer loans in prior years. A major portion of the
consumer loan portfolio is indirect automobile loans (loans funded by
BankAtlantic through automobile dealers rather than funded directly by
BankAtlantic to its retail customers). Consumer loans, especially indirect
automobile loans, present significantly more credit risk to BankAtlantic than
residential real estate loans.
The indirect origination of consumer loan products generally requires
funding of dealer reserves to dealers who originate 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 defaults 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 could successfully recover
amounts advanced in the event it pursues the dealer for amounts due. See Note
17 and Note 1 of the Consolidated Financial Statements regarding BankAtlantic's
experience relating to the Subject Portfolio and Dealer Reserves, respectively.
LOAN COMMITMENTS -- BankAtlantic issues commitments to originate
residential and commercial real estate loans, commercial business loans and
small 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, commercial
business loans and small 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.
Standby letters of credit written are conditional commitments issued by or
for the benefit of BankAtlantic to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. BankAtlantic may hold certificates of deposit and residential and
commercial liens as collateral for such commitments.
BankAtlantic has commitments to extend credit to financial institutions in
Latin America. The commitments can be terminated at any time. Each financial
institution is evaluated on a case by case basis.
MORTGAGE SERVICING RIGHTS -- As part of its strategic business plan,
BankAtlantic periodically purchases mortgage servicing rights ("MSRs") through
concurrent flow servicing arrangements supplemented with bulk purchases and
sells such rights in larger volumes where the premiums available are generally
greater.
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It is currently BankAtlantic's intention to maintain servicing rights
balances below 35% of core capital. 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 desired levels. The fees derived from servicing mortgage
loans include mortgage servicing fees as well as return check and late charge
fees. The amount of net revenue earned from loan servicing is significantly
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. 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. BankAtlantic may be required
under generally accepted accounting principles ("GAAP") to establish a
valuation allowance to reflect a decline in the market value of its MSRs, while
at the same time GAAP does not permit BankAtlantic to recognize increases in
the market value of MSRs which appreciate in a rising interest rate environment
except to recover an established valuation allowance. A decline in the value of
mortgage servicing rights may also reduce regulatory capital. (See "Savings
Institutions Regulation").
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.
ALLOWANCE FOR LOAN LOSSES, NON-PERFORMING ASSETS, CLASSIFIED ASSETS AND
IMPAIRED LOANS -- BankAtlantic follows a consistent procedural discipline and
accounts for loan loss contingencies in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" ("Statement 5"). The
following is a description of how each portion of the allowance for loan losses
is determined.
BankAtlantic segregates the loan portfolio for loan loss purposes into
broad segments, such as: commercial real estate; residential real estate;
commercial business; and various types of consumer loans. BankAtlantic provides
for a general allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss percentages are
calculated based upon historical analyses. A supplemental portion of the
allowance is calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified by the more
objective processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments
based on qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and nonaccruals; migration trends
in the portfolio; trends in volume, terms and portfolio mix; new credit
products and/or changes in the geographic distribution of these products;
changes in lending policies and procedures; loan review reports on the efficacy
of the risk identification process; changes in the outlook for local, regional
and national economic conditions; concentrations of credit; and peer group
comparisons.
Specific allowances are provided in the event that the specific collateral
analysis on each classified loan indicates that the probable loss upon
liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is increased or decreased in order to
adjust the allowance for loan losses to the required level as determined above.
A loan is impaired when collection of principal and interest based on the
contractual terms of the loan is not probable. BankAtlantic measures impairment
based on (a) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (b)
the
6
observable market price of the impaired loan, or (c) the fair value of the
collateral of a collateral-dependent loan. BankAtlantic selects the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for
which foreclosure is probable are measured at the fair value of the collateral.
Specific allowances are provided, as noted above, in the event the impairment
calculation is in excess of the general allowance allocation. In a troubled
debt restructuring, BankAtlantic measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
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 that are evaluated individually 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.
Although BankAtlantic believes it has a sound basis for estimating the
adequacy of the allowance for loan losses, actual charge-offs incurred in the
future are highly dependent upon future events, including the economic
condition of the areas in which BankAtlantic lends, and may be greater than the
amount of the allowance. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review BankAtlantic's
allowance for loan losses. Such agencies may require BankAtlantic to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examination.
INVESTMENT ACTIVITIES
GENERAL -- The Company maintains a trading account which presently
includes certain marketable equity securities and has an investment portfolio
of debt and equity securities which are classified as available for sale.
BankAtlantic also maintains an investment portfolio consisting primarily of
mortgage-backed securities ("MBS"), tax certificates, Treasury Notes, Federal
agency obligations, and asset-backed securities. Additionally, BankAtlantic
has, in the past, purchased corporate bonds. Federal regulations limit the
types and quality of instruments in which BankAtlantic may invest including
marketable equity securities.
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 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. Asset-backed securities
purchased by BankAtlantic consist of investment grade pooled automobile
receivables. Corporate bonds consist generally of investment grade obligations
of corporate borrowers with an average maturity of 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.
Debt and equity securities and options related thereto, purchased or sold
for the purpose of a short-term profit are classified as "trading securities"
and are recorded at fair value. Unrealized gains and losses in trading
securities are reflected in results of operations.
Debt and equity securities not classified as held to maturity or trading
securities are classified as "available for sale". Debt and equity securities
available for sale are carried at fair value, with the
7
related unrealized appreciation or depreciation, net of deferred income taxes,
reported as a separate component of stockholders' equity. Generally,
BankAtlantic has classified its investment in debt securities as "available for
sale".
TAX CERTIFICATES -- BankAtlantic's portfolio includes tax certificates.
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 began
acquiring tax certificates from various municipalities outside of the State of
Florida. The nature of priority, statutory periods and deed procedures vary by
applicable taxing authorities. There is no significant concentration of tax
certificate purchases in any one taxing authority outside of the State of
Florida. Tax certificates are classified as "held to maturity".
Management of BankAtlantic establishes an allowance for tax certificate
losses in an amount 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 or a deed has aged
48 months from BankAtlantic's certificate acquisition date. At that time,
interest ceases to be accrued and previously accrued interest is reversed.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE ACTIVITIES -- On October 31,
1997, BankAtlantic, through a subsidiary, BankAtlantic Development Corp.
("BDC"), acquired for approximately $20.0 million, SLWHC. SLWHC is the
developer of the master planned community of SLW, located in St. Lucie County,
Florida. It is anticipated that this acquisition will provide BankAtlantic with
additional sources of non-interest income through the development and sale of
parcels of land. However, there is no assurance that this will occur. The
developer's annual operating expenses are estimated to be approximately $4.2
million and there are no assurances that periodic sales of properties will be
sufficient to ensure profitability in 1998 or in future years. To the extent
sales are not adequate to cover operating expenses, the Company may have to
provide additional funds to BDC. Real estate activities are highly speculative
and represent a high degree of risk primarily due to the cyclical nature of the
real estate industry and the uncertainty of future market conditions. In
particular, the real estate and home building industries are adversely affected
by decreases in employment levels, the availability and cost of financing and
decreases in demand.
INVESTMENT IN REAL ESTATE JOINT VENTURES -- In addition to SLW, BDC has
entered into joint venture agreements with two developers. No activity had
begun as of December 31, 1997. BDC provided $1.2 million of equity capital
during 1997 to one of the joint ventures and anticipates funding $1.5 million
during 1998 to the other joint venture with the expectation of profit sharing
once the projects are completed or near completion. It is anticipated that BDC
will enter into other joint venture agreements and these agreements may require
significant equity investment with potential profit sharing much later in the
project. It is anticipated that BankAtlantic might provide financing to this
and future joint ventures on an arms' length basis, in accordance with its
usual lending and underwriting policies,
8
however, such lending activities may result in deferral of the recognition of
interest income on the financing activity and/or the deferral of profit
recognition from the joint venture.
The initial investment by BDC for SLW and the joint venture was funded by
a capital contribution from the Company to BankAtlantic, which in turn provided
the funds to BDC. Real estate development activities and investments in real
estate joint ventures are non-permissable activities for National Banks, and
are excluded from BankAtlantic's regulatory capital calculations. See
"Regulation and Supervision" for a further discussion.
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 principal prepayments 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 loans and 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 Miami-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. Merrill Lynch granted
BankAtlantic a facility of up to $135 million for brokered certificates of
deposit. The facility is considered 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 10 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 FHLB to match fund or partially match fund
purchases of wholesale residential real estate loans, repay other borrowings,
meet deposit withdrawals and expand its lending and short-term investment
activities. See Note 9 to the Consolidated Financial Statements.
FEDERAL FUNDS BORROWINGS -- BankAtlantic has established unsecured
facilities with five federally insured banking institutions to purchase Federal
Funds aggregating $35 million. 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.
9
COMPETITION
As reported by an independent statistical reporting service, BankAtlantic
is the second largest financial institution headquartered in the State of
Florida based on assets at September 30, 1997, 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 access to products and
services. 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, real estate investment trusts, 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, 1997, BankAtlantic employed 1,057 full-time and
82 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 401(k) plan,
qualified defined benefit pension plan, managed health care 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 following description summarizes some of the laws to which the Company
and BankAtlantic are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and are
qualified in their entirety by reference to such statutes and regulations.
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 45.6% 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 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
10
review BankAtlantic's compliance with various regulatory requirements. The
regulatory structure also gives regulatory authorities extensive discretion
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. 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. 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 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")
11
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. 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. Florida has allowed holding companies from the Southeastern United
States to acquire institutions in Florida since 1984, and in 1994 it was
expanded to include savings bank and bank holding companies from other parts of
the United States as well. In 1996, Florida enacted legislation, effective as
of June 1, 1997, which allowed out-of-state institutions to enter Florida by
merger with an existing Florida-based institution, and thereafter to branch
throughout the state, by merger with out-of-state institutions. This may
further increase competition for the Company by allowing large institutions
from other parts of the United States to operate directly in Florida.
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 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 amount paid for deposit insurance according to
the FDIC's risk-related assessment rate schedules. The FICO assessment rate for
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. 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 deposits
acquired as a result of the acquisition of BNA are subject to SAIF premiums. At
December 31, 1997, BankAtlantic had approximately $139.5 million of deposits
subject to BIF premiums and $1.6 billion of deposits subject to SAIF premiums.
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
12
requirements to reflect interest rate risk or other risk. Capital calculated
pursuant to the OTS regulations varies substantially from capital calculated
pursuant to GAAP. At December 31, 1997, 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")) as well as the
amount equal to BankAtlantic's equity investment in subsidiaries engaged in
activities not permissible to national banks. 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. 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 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 loan 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. See "Liquidity and Capital
Resources" and Note 16 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.
The U.S. banking agencies (Federal Reserve Board, Office of the
Comptroller of the Currency, Federal Deposit Insurance Corporation -
collectively "the Agencies") have each approved an interagency final rule which
incorporates a measure for market risk into their risk-based capital standards.
The final rule is based on an amendment to the Basle Capital Accord which
requires banks to measure and hold capital in support of their exposure to
market risk. Due to the final asset size and trading activity criteria, the
rule is expected to apply to a limited number of very large institutions. The
most significant modification to the rule is the elimination of the
"standardized approach" and introduction of a requirement that all depository
institutions and bank holding companies meeting the applicable criteria use
their own internal model to measure market risk exposure. The standardized
approach, however, has been retained for determining capital charges associated
with specific risk in trading accounts to the extent that such risk is not
addressed by an institution's internal model. Mandatory compliance with the
rule is required beginning January 1, 1998. Backtesting must begin one-year
after implementation of market risk calculations. BankAtlantic, based on its
asset size and current trading activity, is not subject to the above rule.
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
13
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, 1997, BankAtlantic would have been in full
compliance with the requirement.
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. 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.
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, 1997
BankAtlantic met the capital requirements of a "well capitalized" institution
as defined above.
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
14
regulation and oversight of the FHLB. All advances from the FHLB must be fully
secured by sufficient collateral as determined by the FHLB of Atlanta. 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 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. At December 31, 1997, BankAtlantic was in compliance with the loans to
one borrower limitations.
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
15
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).
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 holding company must register as a bank holding company and
will be subject to all applicable restrictions on bank holding companies. At
December 31, 1997, 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 or give preference to insiders over other employees.
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
16
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, 1997, 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, certain mortgage related securities and commercial paper) equal to
between 4% and 10% of the sum of the average daily balance during the preceding
calendar month of net withdrawable accounts maturing in one year or less and
short-term borrowings payable in one year or less. Monetary penalties may be
imposed by the OTS for failure to meet liquidity requirements. During the year
ended December 31, 1997 the liquidity requirement was between 4% to 5% and
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
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. 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 may
be the basis for denying an application.
NEW ACCOUNTING STANDARDS AND POLICIES
In June 1997 the FASB issued Statements No. 130 ("FAS 130") "Reporting
Comprehensive Income" and No. 131 ("FAS 131") "Disclosures About Segments of an
Enterprise and Related Information". FAS 130 establishes standards for
reporting comprehensive income in financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Some of the
items included in comprehensive income are unrealized gains or losses on
securities available for sale, underfunded pension obligations and employee
stock options. FAS 131 establishes standards for the manner in which public
companies report information about operating segments in annual financial
statements and requires that those companies report selected information about
operating segments in interim financial statements issued to shareholders. FAS
130 and FAS 131 are effective for periods beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Implementation of FAS 130 and FAS 131 will
require additional disclosure in the 1998 financial statements but will not
have an impact on the Company's Statement of Financial Condition or Statement
of Operations.
17
ITEM 2. PROPERTIES
The Company's and BankAtlantic's principal and executive offices are
located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida 33304.
BankAtlantic leases branch offices in Wal-Mart SuperStores in Lee, Sarasota,
Osceola, Flagler, Manatee, Charlotte, Hernando and St. John Counties.
BankAtlantic also maintains three ground leases in Broward County expiring in
1999-2072 and one ground lease in Palm Beach County expiring in 2000.
BankAtlantic owns four buildings and the associated land which houses its
mortgage-servicing operations, consumer lending operations and administrative
services. At December 31, 1997, the aggregate net book value of premises and
equipment, including leasehold improvements and equipment, was $51.1 million.
The following table sets forth at December 31, 1997 owned and leased branch
offices in Miami-Dade, Broward and Palm Beach Counties, Florida and in Wal-Mart
SuperStores as well as possible future branch sites owned or leased by
BankAtlantic.
MIAMI- PALM WAL-MART
DADE BROWARD BEACHES SUPERSTORES
------------ ------------ ------------ ------------
Owned full-service branches ........... 2 14 8 0
Leased full-service branches .......... 12 12 5 12
--------- --------- --------- ---------
Total full-service branches ......... 14 26 13 12
========= ========= ========= =========
Lease expiration dates ................ 1998-2005 1998-2007 1999-2003 1999-2002
Owned future branch sites ............. 1 2 0 0
Leased future branch sites ............ 0 3 0 0
--------- --------- --------- ---------
Total future branch sites ........... 1 5 0 0
========= ========= ========= =========
ITEM 3. LEGAL PROCEEDINGS
The following is a description of certain lawsuits other than ordinary
routine litigation incidental to BankAtlantic's business to which the Company
or 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. On appeal, the trial
court decision was reversed and the action remanded for additional proceedings
in the trial court. BankAtlantic is seeking a rehearing before the full
tribunal of the Appellate Court.
IN RE STERLING RESOURCES
Two 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 purported 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 sought, 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
18
BankAtlantic; plaintiff's appealed this ruling. In January 1996, the Appellate
Court reversed the lower court's decision and remanded the case back to the
trial court to determine whether the action could 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 made a determination as to
plaintiff's ability to maintain this case as a class action. In December 1997,
the trial court denied the plaintiff's motion for class certification and in
January 1998 granted BankAtlantic's summary judgment motion. The Plaintiffs
have appealed the trial court's ruling.
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 and did join
certain third parties as defendants in the action. Subsequently, National Union
was realigned from a defendant in the action to a co-plaintiff with
BankAtlantic. 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 in November 1993, and approximately $2.9
million which was paid on November 1, 1994. Further, National Union agreed to
reimburse BankAtlantic for additional losses (as defined) incurred in
connection with the Subject Portfolio, not in excess of $18 million; the full
amount of which has been paid. 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 plus the costs incurred by BankAtlantic of obtaining such
recoveries. Thereafter National Union will be entitled to any such recoveries
to the extent of the $18 million it has paid to BankAtlantic. The trial was
held in February 1998 and judgment was entered in favor of BankAtlantic and
National Union against over fifty third party defendants, individuals and
corporations.
BankAtlantic is also currently a party to certain other lawsuits arising
in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Company was held on February 3,
1998. The holders of the Company's Class A common stock voted 12,347,167 for,
1,303,396 against, with 76,677 abstaining to amend the Company's Articles of
Incorporation increasing the authorized number of shares of Class A common stock
from 30,000,000 to 80,000,000. The holders of the Company's Class B common stock
voted 8,383,045 for, 1,309,017 against, with 20,689 abstaining to amend the
Company's Articles of Incorporation increasing the authorized number of shares
of Class A as described above and Class B common stock from 15,000,000 to
45,000,000.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In 1996, the Company issued 2.85 million shares of Class A common stock in
an underwritten public offering at $6.14 per share. In November 1997 the
Company issued 4.3 million shares of Class A common stock in an underwritten
public offering at $10.70 per share. On February 3, 1998 the shareholders
approved an amendment to the Company's Articles of Incorporation, increasing
the authorized shares to 80,000,000 of Class A common stock and 45,000,000 of
Class B common stock.
The Company's Class A common stock is quoted on the New York Stock
Exchange under the symbol "BBX" and the Company's Class B common stock is
quoted on the Nasdaq National Market under the symbol "BANC". On February 27,
1998 there were approximately 883 record holders of the Class A common stock
and 21,534,545 shares issued and outstanding and 604 record holders of the
Class B common stock and 10,828,077 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% Class A
common stock dividends issued in August 1997 and February 1998 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, 1997 ......... $13 1/16 $ 6 9/16 $13 3/8 $ 6 5/8
Fourth Quarter .............................. 13 1/16 10 1/2 13 3/8 10 11/16
Third Quarter ............................... 12 13/16 9 1/16 12 3/16 9 9/16
Second Quarter .............................. 9 7 5/16 9 1/4 7 3/4
First Quarter ............................... 8 7/16 6 9/16 8 3/4 6 5/8
For the Year ended December 31, 1996 ......... 7 5 3/8 7 5 3/16
Fourth Quarter .............................. 7 6 1/2 7 6 3/8
Third Quarter ............................... 6 13/16 5 3/8 7 5 1/4
Second Quarter .............................. 6 5/16 5 5/8 6 9/16 5 3/16
First Quarter ............................... 6 5/16 6 1/8 6 1/4 5 3/16
For the Year ended December 31, 1995 ......... -- -- 6 9/16 3 13/16
Fourth Quarter .............................. -- -- 6 9/16 5 13/16
Third Quarter ............................... -- -- 6 3/8 4 9/16
Second Quarter .............................. -- -- 4 13/16 3 13/16
First Quarter ............................... -- -- 4 5/16 4
On December 31, 1997, the last sale price of the Class A common stock as
reported by the New York Stock Exchange was $13.05 per share, and the last sale
price of the Class B common stock as reported by the Nasdaq National Market was
$13.40 per share.
On July 3, 1996, the Company consummated a public offering of $57.5
million aggregate principal amount of 6 3/4% Convertible Subordinated Debentures
due July 1, 2006 (the "6 3/4% Debentures"). The 6 3/4% Debentures are
convertible into shares of Class A common stock at an exercise price of $6.55
per share.
The Company's 6 3/4% Debentures are quoted on the Nasdaq SmallCap Market
under the symbol "BANCG". On February 27, 1998 $57.1 million aggregate
principal amount of the 6 3/4% Debentures
20
were outstanding. The following table sets forth, for the periods indicated,
the high and low closing sale prices as reported by the Nasdaq SmallCap Market
for the 6 3/4% Debentures.
HIGH LOW
---------- ----------
For the Year Ended December 31, 1997 .......... $ 199 $ 109 3/4
Fourth Quarter ............................... 196 164
Third Quarter ................................ 199 142
Second Quarter ............................... 143 1/4 121
First Quarter ................................ 131 109 3/4
For the Year Ended December 31, 1996 .......... $ 111 $ 100
Fourth Quarter ............................... 111 110
Third Quarter ................................ 107 3/4 100
Second Quarter ............................... N/A N/A
First Quarter ................................ N/A N/A
On November 26, 1997, the Company consummated a public offering of $100
million aggregate principal amount of 5 5/8% Convertible Subordinated Debentures
due December 1, 2007, ("the 5 5/8% Debentures"). The 5 5/8% Debentures are
convertible into shares of Class A common stock at an exercise price of $12.94
per share. The Company's 5 5/8% Debentures are quoted on the Nasdaq SmallCap
Market under the symbol "BANCH". On February 27, 1998 there was $100.0 million
aggregate principal amount of 5 5/8% Debentures issued and outstanding. The high
and low closing sales prices as reported by the Nasdaq SmallCap Market for the
5 5/8% Debentures during the fourth quarter of 1997 were $108 and $100 1/4 per
debenture, respectively.
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 has indicated that it will seek to declare regular
quarterly cash dividends on its 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.
CASH DIVIDENDS PER CASH DIVIDENDS PER
SHARE OF CLASS B SHARE OF CLASS A
COMMON STOCK COMMON STOCK
-------------------- -------------------
Fiscal Year Ended December 31, 1997 ......... $ 0.0852 $ 0.0942
Fourth Quarter ............................. $ 0.0240 $ 0.0264
Third Quarter .............................. $ 0.0240 $ 0.0264
Second Quarter ............................. $ 0.0186 $ 0.0207
First Quarter .............................. $ 0.0186 $ 0.0207
Fiscal Year Ended December 31, 1996 ......... $ 0.0732 $ 0.0828
Fourth Quarter ............................. $ 0.0186 $ 0.0207
Third Quarter .............................. $ 0.0186 $ 0.0207
Second Quarter ............................. $ 0.0180 $ 0.0207
First Quarter .............................. $ 0.0180 $ 0.0207
Fiscal Year Ended December 31, 1995 ......... $ 0.0682 N/A
Fourth Quarter ............................. $ 0.0180 N/A
Third Quarter .............................. $ 0.0180 N/A
Second Quarter ............................. $ 0.0161 N/A
First Quarter .............................. $ 0.0161 N/A
21
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
January 1998, and July 1997 five-for-four common stock splits effected in the
form of 25% stock dividends, issued in February 1998 and August 1997,
respectively.
AT DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
STATEMENT OF FINANCIAL CONDITION:
Total assets ............................................. $3,064,480 $2,605,527 $1,750,689 $1,539,653 $1,359,195
Loans receivable-net (1) ................................. 2,072,825 1,824,856 828,630 546,396 485,956
Mortgage-backed securities held to maturity .............. 0 0 0 573,913 443,249
Securities available for sale ............................ 607,490 439,345 691,803 53,969 83,116
Investment and trading securities, net (2) ............... 60,280 54,511 49,856 211,776 97,701
Mortgage servicing rights ................................ 38,789 25,002 20,738 20,584 19,833
Cost over fair value of net assets acquired
and other intangibles .................................. 26,327 29,008 11,521 0 0
Deposits ................................................. 1,763,733 1,832,780 1,300,377 1,085,782 1,076,360
Subordinated debentures and note payable ................. 179,600 78,500 21,001 0 0
Guaranteed preferred beneficial interest in
Company's Junior Subordinated Debentures ............... 74,750 0 0 0 0
Advances from FHLB, federal funds purchased and
securities sold under agreements to repurchase ......... 758,923 486,288 269,222 311,879 149,435
Total stockholders' equity .............................. 207,171 147,704 120,561 105,520 90,652
- ----------------
(1) Includes $160.1 million and $109.9 million of banker's acceptances in 1997
and 1993, respectively.
(2) Excludes FHLB stock. Includes interest-bearing deposits in other banks,
securities purchased under agreement to resell and trading securities of
$5.1 million and $9.1 million in 1997 and 1994, respectively.
22
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
AT OR FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996
-------------- --------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
OPERATING RESULTS
Total interest income ................................... $ 210,554 $ 152,631
Total interest expense .................................. 115,191 77,031
------------ ------------
Net interest income ..................................... 95,363 75,600
Provision for loan losses ............................... 11,268 5,844
------------ ------------
Net interest income after provision for loan losses ..... 84,095 69,756
------------ ------------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...................... 4,640 4,216
Gains on sales of loans available for sale .............. 6,802 534
Gains on sales of mortgage servicing rights ............. 7,905 4,182
Gains on sales of securities available for sale ......... 2,367 5,959
Unrealized and realized gains on trading securities...... 2,463 0
Gain (loss) on sales of property and equipment, net...... 852 3,061
Other ................................................... 18,330 15,785
------------ ------------
Total non-interest income .............................. 43,359 33,737
------------ ------------
NON-INTEREST EXPENSE:
Employee compensation and benefits ...................... 40,236 33,216
Occupancy and equipment ................................. 18,666 13,615
SAIF special assessment ................................. 0 7,160
Federal insurance premium ............................... 1,084 2,495
Advertising and promotion ............................... 2,196 2,079
Foreclosed asset activity, net .......................... 118 (725)
Other ................................................... 19,632 14,401
------------ ------------
Total non-interest expense ............................. 81,932 72,241
------------ ------------
Income before income taxes ............................... 45,522 31,252
Provision for income taxes ............................... 17,753 12,241
------------ ------------
NET INCOME ............................................... 27,769 19,011
Dividend on non-cumulative preferred stock paid
by BFC escrow .......................................... 0 0
Dividends on non-cumulative preferred stock ............. 0 0
Amount classified as dividends on non-cumulative
preferred stock redemption ............................. 0 0
------------ ------------
Total dividends on non-cumulative preferred
stock ................................................ 0 0
------------ ------------
Net income available for common shares ................ $ 27,769 $ 19,011
============ ============
CLASS A COMMON STOCK (7):
Basic earnings per share ................................ $ 0.98 $ 0.64
============ ============
Diluted earnings per share .............................. $ 0.78 $ 0.58
============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING....... 18,029,784 17,616,000
============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 27,893,534 21,968,058
============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 21,509,159 18,128,782
============ ============
CLASS B COMMON STOCK:
Basic earnings per share ................................ $ 0.94 $ 0.72
============ ============
Diluted earnings per share .............................. $ 0.77 $ 0.66
============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
10,649,135 10,589,000
============ ============
DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 11,765,385 11,576,500
============ ============
ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 10,690,231 10,542,116
============ ============
Book value per common share (all classes) ................ $ 6.43 $ 5.15
============ ============
Tangible book value per common share (all classes) ....... $ 5.62 $ 4.14
============ ============
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------------- -------------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING RESULTS
Total interest income ................................... $ 130,077 $ 98,549 $ 94,503
Total interest expense .................................. 65,686 41,431 35,987
------------- ------------ ------------
Net interest income ..................................... 64,391 57,118 58,516
Provision for loan losses ............................... 4,182 2,299 3,450
------------- ------------ ------------
Net interest income after provision for loan losses ..... 60,209 54,819 55,066
------------- ------------ ------------
NON-INTEREST INCOME:
Loan servicing and other loan fees ...................... 3,524 3,365 2,229
Gains on sales of loans available for sale .............. 395 773 1,246
Gains on sales of mortgage servicing rights ............. 2,744 484 0
Gains on sales of securities available for sale ......... 0 0 0
Unrealized and realized gains on trading securities...... 589 (558) 0
Gain (loss) on sales of property and equipment, net...... 18 272 (73)
Other ................................................... 12,118 9,427 8,236
------------- ------------ ------------
Total non-interest income .............................. 19,388 13,763 11,638
------------- ------------ ------------
NON-INTEREST EXPENSE:
Employee compensation and benefits ...................... 25,403 22,382 19,617
Occupancy and equipment ................................. 10,831 8,061 8,417
SAIF special assessment ................................. 0 0 0
Federal insurance premium ............................... 2,750 2,673 2,750
Advertising and promotion ............................... 2,144 1,495 960
Foreclosed asset activity, net .......................... (3,178) (2,290) 1,243
Other ................................................... 13,210 9,764 10,546
------------- ------------ ------------
Total non-interest expense ............................. 51,160 42,085 43,533
------------- ------------ ------------
Income before income taxes ............................... 28,437 26,497 23,171
Provision for income taxes ............................... 10,018 9,662 7,093
------------- ------------ ------------
NET INCOME ............................................... 18,419 16,835 16,078
Dividend on non-cumulative preferred stock paid
by BFC escrow .......................................... 0 0 147
Dividends on non-cumulative preferred stock ............. 677 880 733
Amount classified as dividends on non-cumulative
preferred stock redemption ............................. 1,353(1) 0 0
------------- ------------ ------------
Total dividends on non-cumulative preferred
stock ................................................ 2,030 880 880
------------- ------------ ------------
Net income available for common shares ................ $ 16,389 $ 15,955 $ 15,198
============= ============ ============
CLASS A COMMON STOCK (7):
Basic earnings per share ................................ $ N/A $ N/A $ N/A
============= ============ ============
Diluted earnings per share .............................. $ N/A $ N/A $ N/A
============= ============ ============
BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING....... N/A N/A N/A
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DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. N/A N/A N/A
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ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... N/A N/A N/A
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CLASS B COMMON STOCK:
Basic earnings per share ................................ $ 0.64(1) $ 0.64 $ 0.85
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Diluted earnings per share .............................. $ 0.62(1) $ 0.62 $ 0.66
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BASIC WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
25,411,604 24,747,116 17,861,118
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DILUTED WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING ............................................. 26,441,902 25,610,718 23,095,707
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ACTUAL COMMON SHARES OUTSTANDING AT PERIOD END ........... 25,861,814 24,798,811 24,713,916
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Book value per common share (all classes) ................ $ 4.66 $ 3.92 $ 3.33
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Tangible book value per common share (all classes) ....... $ 4.22 $ 3.92 $ 3.33
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23
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1997 1996
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OTHER FINANCIAL AND STATISTICAL DATA
PERFORMANCE RATIOS:
Return on average assets (2) ............................... 1.01% 0.94%
Return on average equity (2) ............................... 17.43 14.08
Cash dividend payout ratio (3) ............................. 9.40 11.36
Average equity to average assets ........................... 5.77 6.70
Average yield on loans, mortgage-backed securities,
tax certificates and investment securities ............... 8.29 8.23
Average cost of deposits and borrowings .................... 4.88 4.47
Net interest spread -- during period (4) ................... 3.41 3.76
Interest rate margin -- during period (4) .................. 3.75 4.08
Efficiency ratio (5) ....................................... 59.03 66.07
OTHER FINANCIAL DATA:
Cash dividends per common share Class A (7) ................ $ 0.094 $ 0.083
Cash dividends per common share Class B .................... $ 0.085 $ 0.073
ASSET QUALITY RATIOS:
Non-performing assets as a percent of total loans,
tax certificates and real estate owned ................... 1.36% 1.26%
Net charge-offs as a percent of average loans .............. 0.44 0.47
Loan loss allowance as a percent of total loans
including banker's acceptances ........................... 1.35 1.39
Loan loss allowance as a percent of non-performing
loans .................................................... 156.18 167.37
Non-performing loans as a percent of total loans ........... 0.87 0.83
Non-performing assets as a percent of total assets ......... 0.96 0.93
RATIO OF EARNINGS TO FIXED CHARGES: (6)
Including interest on deposi