As filed with the Securities and Exchange Commission on May 11, 1999.
Registration No. 333-72213
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BFC FINANCIAL CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
59-2022148
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(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1750 EAST SUNRISE BOULEVARD
FORT LAUDERDALE, FLORIDA 33304
TELEPHONE (954) 760-5200
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(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
ALAN B. LEVAN
BFC FINANCIAL CORPORATION
1750 EAST SUNRISE BOULEVARD
FORT LAUDERDALE, FLORIDA 33304
TELEPHONE (954) 760-5200
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(Name, address, including Zip Code, and telephone
number, including area code, of registrant's agent for service)
Copies to:
ALISON W. MILLER, ESQ.
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
150 WEST FLAGLER STREET, SUITE 2200
MIAMI, FLORIDA 33130
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box [_].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering [_].
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [_].
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [_].
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box [_].
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Title of each class Proposed maxi- Amount of
of securities to be Amount to be Proposed maximum mum aggregate registration
registered registered offering price offering price fee
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<S> <C> <C> <C> <C>
___% Subordinated Debentures 17,250,000 (1) $1,000 $17,250,000 $4,796(2)
Class A Common Stock, $0.01 Par Value Per Share 1,150,000 (3) $ 7.00 (4) $ 8,050,000 (4) $2,338(5)
==================================================================================================================================
<PAGE>
<FN>
(1) Includes up to $2,250,000 in aggregate principal amount of additional
__% Subordinated Debentures which may be acquired by the Underwriter to
cover over-allotments, if any.
(2) Previously paid in connection with the original filing of the
Registration Statement on February 11, 1999.
(3) Includes up to 150,000 additional shares of Class A Common Stock which
may be acquired by the Underwriter to cover over-allotments if any.
(4) Calculated in accordance with Rule 457(c), based upon the average of
the bid and ask price of the Class A Common Stock on February 9, 1999.
(5) Previously paid in connection with the original filing of the
Registration Statement on February 11, 1999.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 11, 1999
BFC FINANCIAL CORPORATION
$15,000,000 ___% SUBORDINATED DEBENTURES DUE 2010
AND
1,000,000 SHARES CLASS A COMMON STOCK (NON-VOTING)
THE SUBORDINATED DEBENTURES:
/bullet/ are being offered and sold by BFC Financial Corporation.
/bullet/ are unsecured general obligations of BFC Financial Corporation
subordinate in right of payment to our more senior debt.
/bullet/ will not be listed on any securities exchange and will not be included
for quotation on any quotation system.
THE CLASS A COMMON STOCK:
/bullet/ is being offered and sold by BFC Financial Corporation.
/bullet/ is listed on the OTC Bulletin Board under the symbol "BFCFA".
/bullet/ has no voting rights other than as may be required by Florida law.
_____________ is underwriting these offerings on a firm commitment
basis and has been granted an over-allotment option to purchase up to 150,000
shares of Class A Common Stock and $2,250,000 aggregate principal amount of
subordinated debentures.
The offering of the Class A Common Stock and the offering of the
subordinated debentures are independent and neither is contingent upon the
other.
<TABLE>
<CAPTION>
PER TOTAL
SUBORDINATED SUBORDINATED PER SHARE CLASS TOTAL CLASS A
DEBENTURE DEBENTURES A COMMON STOCK COMMON STOCK
--------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
PRICE TO PUBLIC $1,000 $15,000,000 $________ $________
UNDERWRITING
DISCOUNT $________ $________ $________ $________
PROCEEDS TO BFC
FINANCIAL CORPORATION $________ $________ $________ $________
</TABLE>
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
PLEASE REMEMBER THAT THESE SECURITIES:
/bullet/ ARE NOT BANK ACCOUNTS OR DEPOSIT ACCOUNTS;
/bullet/ ARE NOT FEDERALLY INSURED BY THE FDIC; AND
/bullet/ ARE NOT INSURED BY ANY OTHER STATE OR FEDERAL AGENCY
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1999
<PAGE>
SUMMARY
This summary highlights selected information to assist you in getting
an initial overview of the offerings, but it does not contain all the
information that you need to consider in making your investment decision. To
understand all the terms of these securities read the entire prospectus
carefully. In preparing the information and data in this prospectus we have
assumed that the underwriter's over-allotment options will not be exercised.
THE COMPANY
We are a unitary savings bank holding company whose principal
subsidiary is BankAtlantic Bancorp, Inc., the owner of BankAtlantic, a Federal
Savings Bank. Throughout this prospectus we refer to BankAtlantic Bancorp as
"BBC." At February 26, 1999 we owned approximately 25% of BBC's outstanding
Class A Common Stock and approximately 47% of BBC's outstanding Class B Common
Stock. Our principal business activity is our ownership of BBC's stock. We also
hold investments in real estate and mortgage notes. Our principal executive
offices are located at 1750 East Sunrise Boulevard, Fort Lauderdale, Florida
33304. Our telephone number is (954) 760-5200.
Under the equity method of accounting, our investment in BBC's common
stock represents approximately 82% of our consolidated assets as of December 31,
1998. Since 1993, our ownership of BBC has been less than 50% and BBC has not
been consolidated in our financial statements.
In addition to our investment in BBC, we own and manage real estate.
Since our inception in 1980, and prior to acquiring control of BBC, our primary
business was the organization, sale and management of real estate investment
programs. One of our subsidiaries continues to serve as the corporate general
partner of a public limited partnership which files periodic reports with the
SEC under the Securities Exchange Act of 1934. Some of our other subsidiaries
also serve as corporate general partners of a number of private limited
partnerships that we formed in prior years. We ceased the organization and sale
of real estate investment programs in 1987.
BBC's primary activities relate to its ownership of BankAtlantic.
BankAtlantic
/bullet/ is a federally-chartered, federally-insured savings bank
organized in 1952;
/bullet/ had $3.8 billion of assets at December 31, 1998;
/bullet/ provides traditional retail banking services and a full range
of commercial banking products and related financial services,
including
/bullet/ attracting checking and savings deposits from the
public
/bullet/ originating commercial real estate and business
loans, residential real estate loans and consumer
loans
/bullet/ purchasing wholesale residential loans from third
parties, and
/bullet/ making other permitted investments.
/bullet/ currently operates through 67 branch offices located primarily
in Miami-Dade, Broward and Palm Beach Counties in South
Florida
/bullet/ is regulated and examined by the OTS and the FDIC.
In 1998, BBC acquired Ryan, Beck & Co., Inc., an investment banking firm
that underwrites, distributes and trades tax-exempt securities and provides
capital raising and advisory services to the financial services industry. BBC
has also engaged in real estate development and investment activities through
/bullet/ its 100% owned subsidiary, St. Lucie West Holding Corp., the
developer of a master planned residential, commercial and
industrial community in St. Lucie County, Florida, and
/bullet/ several investments in real estate development projects in
South Florida.
BBC has announced that it is considering alternatives to its 100% ownership
of the real estate business, including a public or private offering for all or a
portion of such operations.
OPERATING STRATEGY
Our primary activities during the past ten years relate to our ownership of
BBC's common stock. However, we also actively hold and manage real estate
interests. We may seek to increase our ownership in BBC's real estate business
if BBC restructures any of
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<PAGE>
its real estate business or may use our available funds to invest in other
public or private entities.
THE OFFERINGS
Our offering of the Class A Common Stock and our offering of the subordinated
debentures are independent, and neither is contingent upon the other.
<TABLE>
<S> <C>
CLASS A COMMON STOCK
Class A Common Stock ................................... 1,000,000 shares of Class A Common Stock -
1,150,000 shares if the underwriter's over-allotment
option is exercised in full.
Common Stock outstanding after the offering:
Class A Common Stock.................................. 7,453,994 shares
Class B Common Stock.................................. 2,355,407 shares(1)(2)
Total.............................................. 9,809,401 shares
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Voting rights........................................... Holders of our Class A Common Stock have no
voting rights, except as may be required by Florida
law. Holders of our Class B Common Stock have
one vote per share.
Dividends............................................... Holders of our Class A Common Stock are entitled
to receive cash dividends equal to any cash
dividends which we declare and pay on our Class B
Common Stock. All non-cash distributions that we
make on our Class A Common Stock must be
identical to those which we make on our Class B
Common Stock, except that we may declare and
issue a distribution to holders of our Class A
Common Stock in shares of our Class A Common
Stock while we may declare and issue a distribution
to holders of our Class B Common Stock in shares
of either our Class A Common Stock or Class B
Common Stock.
OTC Bulletin Board ticker symbols:
Class A Common Stock.................................. BFCFA
Class B Common Stock.................................. BFCFB
SUBORDINATED DEBENTURES
Subordinated debentures ............................... $15,000,000 in aggregate principal amount of ___%
subordinated debentures due 2010.
<FN>
- -----------------------
(1) Does not include 2,653,157 shares of Class B Common Stock issuable upon
exercise of currently exercisable stock options.
(2) Each share of Class B Common Stock is convertible into one share of
Class A Common Stock at the option of its holder.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Maturity date........................................... ____________, 2010.
Interest and interest
payment dates........................................... The subordinated debentures accrue interest at an
annual rate of ___%. Interest is payable semi-
annually on __________ and _________ of each
year.
Redemption.............................................. We may redeem the subordinated debentures at our
option, in whole or in part, at any time after ____,
2004 at fixed redemption prices specified in this
prospectus. We may also repurchase the
subordinated debentures at any price in the open
market.
Subordination........................................... The subordinated debentures are junior in right of
repayment to all of our existing and future "Senior
Indebtedness." For these purposes, "Senior
Indebtedness" is defined as any indebtedness or
liability of ours, regardless of when it was incurred
or created, which is not expressly subordinate or
equal in right of payment to the subordinated
debentures. The indenture under which we will issue
the subordinated debentures does not limit our
ability or the ability of any of our subsidiaries to
incur indebtedness, including Senior Indebtedness.
At December 31, 1998, we had outstanding
approximately $16.0 million of Senior Indebtedness.
Our obligations under the subordinated debentures will
be structurally subordinated to all existing and future
liabilities and obligations of our subsidiaries
(including BBC and BankAtlantic).
Certain restrictions.................................... The indenture restricts us from paying dividends or
distributions on, or purchasing or redeeming our
capital stock if at the time of the dividend
declaration or the date of the redemption, purchase,
payment or distribution we are in default.
We may not consolidate or merge with another
entity unless:
/bullet/ if the other entity survives the consolidation
or merger, it assumes our obligations under the
indenture and, immediately after the transaction,
is not in default under the indenture, or
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<PAGE>
/bullet/ if we survive the consolidation or merger,
immediately after the transaction we are not in
default under the indenture.
Events of default....................................... An event of default under the indenture occurs if we:
/bullet/ fail to pay principal or any premium on the
subordinated debentures at maturity or upon
redemption,
/bullet/ fail to pay interest on any of the subordinated
debentures and the failure continues for a
30-day period,
/bullet/ breach any of the provisions of the indenture
and the breach continues after 60 days' notice,
or
/bullet/ reorganize or become bankrupt or insolvent in
certain events.
We may be required as a result of certain events of
default to accelerate our payment of principal and
interest on the subordinated debentures.
Trustee................................................. U.S. Bank Trust National Association.
Market maker............................................ The subordinated debentures are not listed on any
securities exchange or included for quotation on any
quotation system and no established trading market
exists. The underwriter intends to make a market in
the subordinated debentures but is under no
obligation to do so and such market making, if
commenced, may be terminated at any time.
USE OF PROCEEDS......................................... We will use the net proceeds from the offering of
- --------------- the Class A Common Stock and the offering of the
subordinated debentures to redeem our outstanding
unsecured subordinated debentures including the
payment of approximately $2.2 million of deferred
interest on those unsecured debentures for an
aggregate redemption of $____________. We
currently intend to use the balance of the net
proceeds for investments in the securities of
publicly-traded or privately held companies,
including the possible acquisition of shares in
affiliated companies and for general corporate
purposes.
</TABLE>
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<PAGE>
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Summary Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 12,658 16,354 21,661 11,711 27,289
Costs and expenses 12,707 3,366 12,679 7,481 24,376
Income (loss) before income taxes
and extraordinary items (49) 12,988 8,982 4,230 2,913
Provision for income taxes (benefit) (368) 4,222 2,924 -- (2,009)
Extraordinary items,
net of income taxes 61 (f) 1,052 (g) 853 (h) 3,702 (i) 22,744 (j)
-------- -------- -------- -------- --------
Net income 380 9,818 6,911 7,932 27,666
======== ======== ======== ======== ========
Common Stock (d):
Basic earnings per share (e) 0.05 1.23 0.89 1.03 3.59
======== ======== ======== ======== ========
Diluted earnings per share (e) 0.04 1.12 0.83 1.03 3.59
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (c) 2.33 1.69 1.33 0.26 0.47
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 74,565 72,185 59,039 52,662 43,768
Total assets 91,257 98,871 98,841 96,896 91,291
Subordinated debentures, net 6,736 7,263 19,135 19,774 25,011
Mortgages payable
and other borrowings 10,784 22,943 25,498 27,616 26,618
Deferred interest on the
subordinated debentures 2,217 2,106 2,806 2,722 3,494
Stockholders' equity 57,631 54,142 41,462 35,758 26,532
Book value per share (e) 7.24 6.81 5.26 4.64 3.44
Book value per share
assuming market value of BBC (e) 7.45 13.27 7.01 10.22 5.33
Return on assets (a) 0.4% 10.5% 7.0% 8.5% 30.8%
Return on equity (a) 0.7% 21.1% 17.7% 26.4% 327.9%
Equity to assets ratio (a) 58.7% 49.7% 39.4% 32.3% 9.4%
<FN>
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC. A
proforma ratio of earnings to fixed charges for the year ended December
31, 1998, assuming the retirement of the existing subordinated
debentures with the proceeds of this offering and the issuance of the
subordinated debentures offered hereby on January 1, 1998 would be
1.52. For each 1/2 of 1% change in the assumed interest rate on the
subordinated debentures, proforma interest expense would change by
$75,000 on an annualized basis.
(d) Prior to 1997 there were no Class A common shares outstanding. All
shares outstanding prior to 1997 were Class B common shares. While the
Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(e) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share and book value per share.
(f) Gain from extinguishment of debt of $61,000, net of income taxes of
$39,000.
(g) Gain on settlements of Exchange litigation of approximately $756,000,
net of income taxes of $475,000, net gain from extinguishment of debt
of $115,000, net of income taxes of $72,000 and net gain from debt
restructuring of approximately $181,000, net of income taxes of
$114,000.
(h) Gain on settlements of Exchange litigation of approximately $853,000,
net of income taxes of $611,000.
(i) Gain from extinguishment of debt of approximately $460,000, net of
income taxes of $218,000 and gain on settlements of Exchange litigation
of approximately $3.2 million, net of income taxes of $1.5 million.
(j) Gain on settlements of Exchange litigation, net of income taxes of
$214,000.
</FN>
</TABLE>
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RISK FACTORS
Your investment in the Class A Common Stock or the subordinated
debentures involves a high degree of risk. You should carefully consider,
together with the other information contained in this prospectus, the following
factors in evaluating us and our business before purchasing the Class A Common
Stock or the subordinated debentures.
RISKS ASSOCIATED WITH US
WE DEPEND ON DIVIDENDS FROM OUR SUBSIDIARIES FOR A SIGNIFICANT PORTION OF OUR
CASH FLOW. REGULATORY RESTRICTIONS LIMIT THE ABILITY OF OUR SUBSIDIARIES TO PAY
DIVIDENDS
We hold approximately 32% of BBC's outstanding common stock and this
investment represents approximately 82% of our total assets. BBC is the holding
company for BankAtlantic and owns 100% of BankAtlantic's outstanding capital
stock. We depend upon dividends from BBC for a significant portion of our cash
flow. In turn, BBC depends upon dividends from BankAtlantic for a significant
portion of its cash flow. BankAtlantic's ability to pay dividends or make other
capital distributions to BBC is governed by OTS regulations, which focus
primarily on BankAtlantic's regulatory capital levels and net income. OTS
regulations define "capital distributions" as
/bullet/ cash dividends,
/bullet/ payments by a savings association or savings bank holding
company to repurchase or otherwise acquire its shares,
/bullet/ payments to shareholders of another entity in a cash-out
merger, and
/bullet/ other distributions charged against capital.
If an institution has regulatory capital that is at least equal to its
capital requirements (both before and after giving effect to the distribution),
and has not been notified that it "is in need of more than normal supervision,"
the OTS deems it a "Tier 1 association." BankAtlantic currently qualifies as a
Tier 1 association. The OTS permits a Tier 1 association to make capital
distributions during a calendar year of up to the greater of
/bullet/ 100% of net income for the current calendar year, plus 50% of
its capital surplus ("surplus" being the amount of capital in
excess of its regulatory capital requirements) or
/bullet/ 75% of its net income over the most recent four quarters.
However, the association seeking to pay the capital distribution must
first notify the OTS of its intention and the OTS must not raise any objection
to the distribution. Any additional capital distributions would require prior
regulatory approval. Additionally, all of BankAtlantic's capital distributions
are subject to the OTS' right to object to a distribution on safety and
soundness grounds. We can give you no assurance that BankAtlantic will remain a
Tier 1 association or that it will be in a position to make capital
distributions to BBC in an amount sufficient for BBC to satisfy its obligations
or to pay dividends to its shareholders including us. If BBC fails to pay
dividends, we may be unable to meet our obligations including our obligations
under the subordinated debentures.
OUR ACTIVITIES AND OUR SUBSIDIARIES' ACTIVITIES ARE REGULATED BY THE OTS AND THE
FDIC AND OTHER REGULATORS WHO POSSESS DISCRETION IN THEIR SUPERVISORY AND
ENFORCEMENT ACTIVITIES
The banking industry is one of this country's most heavily regulated
industries. The OTS:
/bullet/ is BankAtlantic's chartering authority and its primary federal
regulator,
/bullet/ regulates, supervises and examines BankAtlantic, and
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/bullet/ regulates and oversees BBC and us, as the holding companies
for BankAtlantic.
In addition to the OTS, the FDIC also regulates, supervises and
examines BankAtlantic by virtue of insuring its deposits. Furthermore,
BankAtlantic is a member of the Federal Home Loan Bank of Atlanta and,
consequently, is subject to certain limited regulation by the Federal Reserve
Board. The regulation and supervision of financial institutions is intended
primarily for the protection of the FDIC insurance funds and depositors.
Regulatory authorities possess extensive discretion in connection with their
supervisory and enforcement activities. As an example, banking regulators have
in the past implemented regulations which have increased capital requirements,
insurance premiums and administrative, professional and compensation expenses
for the institutions which they regulate. Any change in the existing regulatory
structure or the laws or regulations applicable to us could significantly affect
our powers, authority and operations and those of BankAtlantic and BBC and
our business and the businesses of BankAtlantic and BBC could be adversely
affected.
WE HAVE MANY COMPETITORS WHO MAY HAVE GREATER FINANCIAL RESOURCES OR OPERATE
UNDER FEWER REGULATORY CONSTRAINTS
Our competitors and those of BBC and BankAtlantic include:
/bullet/ other savings institutions,
/bullet/ investment firms,
/bullet/ commercial banks,
/bullet/ finance companies,
/bullet/ mortgage banking companies,
/bullet/ money market funds,
/bullet/ financial consultants,
/bullet/ credit unions, and
/bullet/ real estate developers and operators.
Many of these competitors have substantially greater financial
resources than we have and, in some cases, operate under fewer regulatory
constraints. BBC and BankAtlantic compete not only with financial institutions
headquartered in Florida but also with a growing number of financial
institutions headquartered outside of Florida who are active in the state.
THE YEAR 2000 ISSUE COULD DISRUPT OUR BUSINESS
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000. The consequences of incomplete or untimely resolution of year 2000
issues represent an uncertainty that could affect future financial results.
The year 2000 issue raises the following principal risks to our
business and the businesses of BBC and BankAtlantic:
/bullet/ disruption of our business or that of BBC or BankAtlantic due
to our failure to achieve year 2000 readiness,
/bullet/ disruption of our business or that of BBC or BankAtlantic due
to failure of third parties to achieve year 2000 readiness,
/bullet/ disruption in BankAtlantic's loan operations due to failure of
its borrowers to achieve year 2000 readiness, and
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<PAGE>
/bullet/ litigation due to year 2000 noncompliance from customers,
borrowers and suppliers as a result of both internal and third
party system failures.
We have undertaken various initiatives intended to ensure that our
computer applications will function properly with respect to dates in the year
2000 and thereafter and we have been advised that BBC and BankAtlantic have done
so as well. However, we cannot assure you that those initiatives and action
plans have identified all costs, risks or possible losses which we may
experience associated with year 2000 issues. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third party suppliers, borrowers and customers, we are
unable to determine whether the consequences of year 2000 failures will have a
material impact on our results of operations, liquidity or financial condition.
OUR INVESTMENT STRATEGY WILL CARRY A LEVEL OF INHERENT RISK AND WE HAVE A
LIMITED INVESTMENT TRACK RECORD
We may invest a significant portion of the proceeds from these
offerings in the securities of publicly-traded and privately held companies. Our
investment in a business will be subject to the risks associated with the
industry or industries in which that business operates as well as general
economic conditions. Additionally, an investment in a public company will be
subject to fluctuations in the stock market generally. Investments in
privately-held companies are generally illiquid and we may not be able to
liquidate our investment at prices reflective of its inherent value. To date, we
have not identified any prospective companies or industries in which to invest,
and accordingly, there is no basis to evaluate the merits or risks of the
businesses in which we may ultimately invest.
Although our management will evaluate the risks inherent in a
particular industry or business prior to making an investment decision, you
should know that our management's experience has generally consisted of making
investments for their individual and joint accounts. Our management has no
established track record of investing corporate funds in the debt or equity
securities of third parties from which you can evaluate the success of prior
investments. We can give you no assurance that we will make profitable
investments.
OUR INVESTMENT STRATEGY MAY SUBJECT US TO THE INVESTMENT COMPANY ACT
CONSIDERATIONS
We may invest proceeds of these offerings in the securities of
publicly-traded and privately held businesses. These investments could subject
us to the registration requirements of the Investment Company Act of 1940.
Registration under the Investment Company Act would subject us to substantive
regulations which could have a material adverse effect on our business. We
intend to conduct our business in a manner which would not result in us becoming
subject to the Investment Company Act's registration requirements. While our
management believes that we can avoid becoming subject to those registration
requirements, there is no assurance that we will not become subject to those
requirements in the future.
RISKS ASSOCIATED WITH BBC AND BANKATLANTIC
Our investment in BBC's common stock represented approximately 82% of
our consolidated assets as of December 31, 1998 and our principal business
activity is our ownership of BBC's stock. Further, BBC's primary activities
relate to its ownership of BankAtlantic's stock. We derive a significant portion
of our earnings and cash flow from BBC which, in turn, derives a significant
portion of its earnings and cash flow from BankAtlantic. Accordingly, risk
factors affecting BBC and BankAtlantic also affect us.
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<PAGE>
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The majority of BBC's assets and liabilities are monetary in nature. As
a result, BBC is subject to significant risk from changes in interest rates.
Changes in interest rates can impact BBC's net interest income as well as the
valuation of its assets and liabilities.
IMPACT OF CHANGING RATES GENERALLY ON BBC'S NET INTEREST INCOME
BBC's profitability is dependent to a large extent on its net interest
income. Net interest income is the difference between:
/bullet/ interest income on interest-earning assets, such as loans, and
/bullet/ interest expense on interest-bearing liabilities, such as
deposits.
Changes in market interest rates, or changes in the relationships between
short-term and long-term market interest rates, or changes in the relationships
between different interest rate indices, can affect the interest rates BBC
charges on interest-earning assets differently than the interest rates BBC pays
on interest-bearing liabilities. This difference could result in an increase in
BBC's interest expense relative to BBC's interest income. While BBC has
attempted to structure its asset and liability management strategies to mitigate
the impact on net interest income of changes in market interest rates, we cannot
assure you that BBC will be successful in doing so.
IMPACT OF PREPAYMENTS ON BBC'S NET INTEREST INCOME AND PROFITABILITY
Loan prepayments accelerate as interest rates fall. BBC experienced a
high volume of loan prepayments in its mortgage portfolio and its servicing
portfolio during 1998 due to historically low interest rates. Those prepayments
adversely affected BBC's earnings during 1998. BBC completely amortizes the
related mortgage servicing right upon prepayment of the associated loan. The
yields earned on the portion of BBC's mortgage portfolio which were prepaid were
greater than alternative short term investments in which BBC reinvested the
funds, also adversely impacting BBC's 1998 earnings. Significant loan
prepayments in BBC's mortgage portfolio and mortgage servicing rights portfolio
in the future could have a similar adverse effect on BBC's earnings. Prepayments
of the underlying loans also would have an adverse effect on BBC's ability to
sell mortgage servicing rights at the value estimated at December 31, 1998.
Additionally, increased prepayments associated with purchased residential loans
may result in increased amortization of premiums on acquired loans, which would
reduce BBC's interest income. At December 31, 1998, BBC serviced approximately
36,000 loans with outstanding principal balances serviced of $3.5 billion and
net mortgage servicing rights of $44.3 million.
IMPACT OF PREPAYMENTS ON THE MARKET VALUE OF BBC'S ASSETS AND
LIABILITIES
Changes in general interest rate levels also affect the valuation of
BBC's assets and liabilities that are interest rate sensitive. BBC may be
required under generally accepted accounting principles to establish a valuation
allowance to reflect a decline in the market value of its assets as a result of
changes in interest rates. For the year ended December 31, 1998, BBC established
a valuation allowance of $10.7 million to reflect the decline in the market
value of its mortgage servicing rights primarily as a result of:
/bullet/ historically low interest rate levels, and
/bullet/ the anticipated acceleration of prepayments of the loans
associated with the mortgage servicing rights.
While BBC intends to exit the mortgage servicing business, its results of
operations would be adversely affected in future periods if changes in interest
rates adversely impact the market value of its assets and liabilities.
-9-
<PAGE>
BBC EXPERIENCED A LOSS FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 1998
BBC reported a loss for the year ended December 31, 1998 of $(8.0)
million. These results reflect:
/bullet/ income from continuing operations of $10.2 million, and
/bullet/ a loss from discontinued operations of $(18.2) million.
For the quarter ended December 31, 1998, BBC reported a net loss of
$(10.1) million. These results reflect:
/bullet/ a loss from continuing operations of $(4.3) million, and
/bullet/ a loss from discontinued operations of $(5.8) million.
BBC's discontinued operations consist of its mortgage servicing
business which it decided to exit in the fourth quarter. We anticipate that BBC
will complete the disposition of this business by the second or third quarter of
1999.
Contributing to the loss from continuing operations for the quarter
ended December 31, 1998 were:
/bullet/ restructuring charges and write-downs of approximately $2.6
million,
/bullet/ an increase in the provision for loan losses of $9.6 million
over the provision for the 1997 quarter due to
/bullet/ additional risks associated with BBC's indirect
consumer lending portfolio,
/bullet/ BBC's recent growth in small business lending, and
/bullet/ overall growth in BBC's loan portfolio, and
/bullet/ an increase in non-interest expense relating to growth in
asset size and expanded operations.
BBC's restructuring charges were the result of restructuring
initiatives BBC implemented in the 1998 fourth quarter, including:
/bullet/ paying severance and benefits of approximately $1.0 million to
115 full-time BBC employees whose employment was terminated,
/bullet/ discontinuing its origination of indirect consumer loans,
/bullet/ closing of branches, and
/bullet/ closing its mortgage banking operations on Florida's west
coast.
We cannot assure you that:
/bullet/ BBC's restructuring will result in improved efficiencies or
increased income, or that
/bullet/ BBC will not experience a loss from operations in the future.
Additionally, while BBC's management does not anticipate that its results will
be further impacted by the discontinued operations, BBC's actual results will
depend on future market conditions.
RECENT GROWTH IN BBC'S TOTAL ASSETS AND LOAN PORTFOLIO AND A RECENT EXPANSION OF
BBC'S OPERATIONS HAS RESULTED IN INCREASED EXPENSES
During the last three years, BBC has grown rapidly and significantly.
/bullet/ BBC's total assets have increased from $1.75 billion at
December 31, 1995 to $3.8 billion at December 31, 1998.
-10-
<PAGE>
/bullet/ BBC's loan portfolio increased from $828.6 million at December
31, 1995, to $2.6 billion at December 31, 1998.
BBC recently initiated several new business units, hired additional
personnel and took steps to enhance and expand its operational and management
information systems. These steps are intended to support and manage BBC's
expanded operations and to provide BBC with management resources to support
further expansion and growth.
While BBC has attempted to monitor its rapid growth and to maintain
adequate resources available to support its continued growth, we cannot assure
you that BBC will be successful in managing all aspects of its growth. The
growth and expansion of BBC's operations through both mergers and acquisitions
and internal growth has resulted in a significant increase in the following
non-interest expenses of BBC:
/bullet/ BBC's employee compensation and benefits increased from $30.9
million in 1996 to $37.8 million in 1997 and to $57.5 million
in 1998.
/bullet/ BBC's employee compensation and benefits costs, excluding Ryan
Beck and real estate operations, increased from $37.7 million
in 1997 to $45.1 million in 1998.
/bullet/ BBC's occupancy and equipment costs increased from $12.8
million in 1996 to $17.7 million in 1997 and to $21.4 million
in 1998.
These increased expenses were primarily the result of:
/bullet/ BBC's acquisitions of Bank of North America, a south Florida
commercial bank, and Ryan Beck,
/bullet/ BBC's opening of 10 new branches since January 1998, and the
growth in its ATM network during 1998,
/bullet/ BBC's start-up of new activities, including small business
lending, trade finance, direct consumer lending, sales
management, electronic banking, cash management, capital
markets and international lending, and
/bullet/ BBC's conversion in 1996 of a substantial portion of
BankAtlantic's data processing functions to an outside service
bureau.
Expenses associated with BBC's past growth have had, and expenses associated
with BBC's additional future growth will likely have, an adverse impact on BBC's
earnings. BBC implemented various restructuring initiatives in the fourth
quarter of 1998 with a view to streamlining its operations and improving
efficiencies. However, we cannot assure you that BBC will be successful in these
efforts.
GROWTH IN BBC'S CONSUMER AND SMALL BUSINESS LOAN PORTFOLIO SUBJECTS BBC TO
GREATER CREDIT RISK AND HIGHER LEVELS OF CHARGE-OFFS
During the past several years, BBC has experienced significant growth
in its consumer loan portfolio, partially as a result of its acquisition of
financial institutions which had originated consumer loans in prior years. BBC's
consumer loans, excluding second mortgages, increased to $253.5 million in 1998
from $48.8 million in 1994. A significant amount of these loans were indirect
automobile loans. Indirect automobile loans are loans which are funded through
automobile dealers rather than funded directly to our retail customers. At
December 31, 1998, $213 million of BBC's consumer loan portfolio consisted of
indirect loans, primarily automobile loans.
Consumer loans, especially indirect automobile loans, present more
credit risk than other types of loans such as home equity or residential real
estate loans. They generally result in a higher level of charge-offs than other
loans. Charge-offs are amounts written off as uncollected. BBC's consumer loan
net charge-offs were $8.4 million in 1997 and $8.9 million in 1998. BBC's net
charge-offs attributable to its indirect automobile loans were $6.4 million in
1997 and $8.0 million in 1998. During the fourth quarter of 1998, BBC
discontinued the
-11-
<PAGE>
origination of indirect automobile loans. However, it may re-enter this market
in the future. BBC may also experience additional losses in its current consumer
loan portfolio.
BBC began originating small business loans during the fourth quarter of
1997. It had $118.8 million of small business loans at December 31, 1998. BBC
experienced an increase during 1998 in delinquencies and charge-offs in its
small business loan portfolio, particularly in the fourth quarter of 1998. Its
small business loan net charge-offs were $2.0 million in 1998, including $1.5
million during the 1998 fourth quarter. While BBC has implemented personnel and
operating changes in its small business lending operations which we believe will
address these issues, BBC may experience additional significant charge-offs in
this portfolio in the future.
A DECLINE IN THE REAL ESTATE MARKET OR IN THE ECONOMY IN GENERAL MAY RESULT IN
ADDITIONAL LOSSES IN BBC'S BANKING ACTIVITIES
BBC's loans receivable increased by approximately $1.8 billion or 218%
from December 31, 1995 to December 31, 1998. Balances for all loan categories
increased due to:
/bullet/ $395.0 million of loans acquired in the Bank of North America
acquisition, and
/bullet/ wholesale residential loan purchases of $465.9 million in
1996, $524.5 million in 1997 and $1.3 billion in 1998.
BBC's commercial real estate and construction and development loans
increased by approximately $308.5 million or 65.3% from December 31, 1995 to
December 31, 1998. The real estate underlying many of those commercial real
estate and construction and development loans is concentrated in Broward,
Miami-Dade and Palm Beach Counties, Florida and may be in the early stages of
development. BBC's competitors over the last several years have also increased
their funding availability for commercial real estate projects. These increases
could result in over-building and a decline in real estate values.
The real estate securing the wholesale residential loans that BBC
purchased is generally located outside south Florida. These loans are subject to
risks associated with the economy where the collateral is located as well as
collection risks.
Declines in real estate values or in the economy generally could have a
material adverse impact on BBC's results of operations based not only on the
nature of its assets and the composition of its loan portfolio, but also on its
real estate development activities.
WE AND BBC HAVE BROAD AUTHORITY TO ENGAGE IN VARIOUS BUSINESS
ACTIVITIES
Like BBC, we have broad authority to engage in various types of
business activities, including investments in real estate, real estate
development and real estate related businesses. Since our inception in 1980, and
prior to acquiring control of BBC, our primary business was the organization,
sale and management of real estate investment programs. One of our subsidiaries
continues to serve as the corporate general partner of a public limited
partnership which files periodic reports with the SEC. Some of our other
subsidiaries also serve as corporate general partners of a number of private
limited partnerships that we formed in prior years. During the last five years,
we have made significant investments in two projects, the "Cypress Creek" and
"Center Port" properties. Although we sold our interest in the Cypress Creek
property in 1996, we continue to hold an interest in the Center Port property.
Although we ceased the organization and sale of new real estate investment
programs in 1987, we could resume the organization of real estate investment
programs or pursue additional real estate investments in the future.
BBC has historically made acquisitions and investments as a means of
diversifying its sources of non-interest income and to increase non-interest
revenues. BBC's acquisitions and investments include:
-12-
<PAGE>
/bullet/ REAL ESTATE - BBC acquired St. Lucie West Holding Corp. in
October 1997 for approximately $20 million. St. Lucie West
Holding Corp. is the developer of St. Lucie West, a master
planned residential, commercial and industrial community
located in St. Lucie County, Florida. In addition, BBC has
made minority investments in real estate development projects
located in south Florida.
/bullet/ EQUIPMENT LEASING - in March 1998 BBC acquired Leasing
Technology, Inc., an equipment leasing and finance company
located in south Florida, in a stock for stock exchange valued
at approximately $6.2 million. Leasing Technology is now
operated as a subsidiary of BankAtlantic.
/bullet/ INVESTMENT BANKING AND BROKERAGE SERVICES - in June 1998 BBC
acquired Ryan Beck, in a stock for stock exchange valued at
approximately $38 million. Ryan Beck is operated as an
independent, autonomous subsidiary under the direction of its
prior management.
These acquisitions and investments in businesses not engaged in
traditional banking activities subject us and BBC to the risks inherent in each
of these business activities.
WE AND BBC ENGAGE IN REAL ESTATE DEVELOPMENT ACTIVITIES WHICH ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK
In addition to our direct real estate activities in connection with the
Center Port property and our other real estate assets, BBC currently engages in
real estate development and investment activities, both through St. Lucie West
Holding Corp. and through BankAtlantic's minority interests in real estate
development projects.
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Accordingly, investments in real estate activities are
highly speculative and represent a high degree of risk. Factors which adversely
affect the real estate and home building industries include:
/bullet/ decreases in employment levels,
/bullet/ the availability and cost of financing,
/bullet/ decreases in demand,
/bullet/ unfavorable interest rates,
/bullet/ over-building,
/bullet/ a slow down in home sales and construction,
/bullet/ a surplus of available real estate and related projects, and
/bullet/ the significant volatility and fluctuations in underlying real
estate values.
In addition, St. Lucie West Holding Corp., incurred operating expenses
of approximately $5.2 million for the year ended December 31, 1998. Periodic
sales of properties in St. Lucie West may be insufficient to ensure
profitability of St. Lucie West Holding Corp. Further, if sales are not adequate
to cover operating expenses, St. Lucie West Holding Corp. will be required to
seek a source of additional operating funds.
Declines in real estate values or in the economy generally could have a
material adverse impact on BBC's and our results of operations based not only on
our and BBC's real estate development activities but also on the nature of BBC's
assets and the composition of its loan portfolio.
RISK ASSOCIATED WITH THE CLASS A COMMON STOCK AND THE SUBORDINATED
DEBENTURES
THE SOURCE OF PAYMENTS TO HOLDERS OF OUR SECURITIES IS LIMITED
As previously discussed, there is a risk that our subsidiaries will be
unable to pay sufficient dividends to us. Our ability to pay interest on the
subordinated debentures and dividends on the Class A Common Stock will
-13-
<PAGE>
be significantly dependent on BankAtlantic's ability to pay dividends to BBC in
amounts sufficient to service BBC's obligations and on BBC's ability to pay
dividends to us in amounts sufficient for us to satisfy our obligations. BBC's
obligations include making payments on its outstanding:
/bullet/ 9% Subordinated Debentures due 2005-$21.0 million outstanding
principal amount at December 31, 1998,
/bullet/ 6 3/4% Convertible Subordinated Debentures due 2006-$51.0
million outstanding principal amount at December 31, 1998,
/bullet/ 5 5/8% Convertible Subordinated Debentures due 2007-$100.0
million outstanding principal amount at December 31, 1998,
and
/bullet/ 9 1/2% Junior Subordinated Debentures due 2027-$75.0 million
outstanding principal amount at December 31, 1998.
BBC may also become obligated to make other payments on securities which it
issues in the future which are pari passu or have a preference over the BBC
common stock with respect to the payment of principal, interest or dividends.
Our obligations, not including BBC or BankAtlantic's obligations, include making
payments on our outstanding:
/bullet/ unsecured subordinated debentures with an outstanding
principal amount of $1.5 million and approximately $2.2
million of accrued deferred interest at December 31, 1998, all
of which we intend to repay with the proceeds of these
offerings;
/bullet/ unsecured subordinated debentures with an outstanding
prinicpal amount of $5.2 million that we have called for
redemption but which have not been presented;
/bullet/ mortgage notes payable-aggregating $10.4 million in
outstanding principal amount at December 31, 1998; and
/bullet/ other borrowings-aggregating approximately $0.4 million in
principal amount at December 31, 1998.
We may also become obligated to make other payments on securities which
we issue in the future which are pari passu or have a preference over either the
Class A Common Stock or the subordinated debentures with respect to the payment
of principal, interest or dividends. We intend to use the proceeds of these
offerings to redeem our outstanding unsecured subordinated debentures and to pay
the deferred interest on them. We discuss the risk that our subsidiaries will be
unable to pay sufficient dividends to us above under the caption "We and BBC
Depend on Dividends from our Subsidiaries for a Significant Portion of our Cash
Flow. Regulatory Restrictions Limit the Ability of our Subsidiaries to Pay
Dividends."
OUR CLASS A COMMON STOCK LACKS VOTING RIGHTS AND VOTING CONTROL OF US IS HELD BY
OUR MANAGEMENT
Holders of our Class B Common Stock currently possess all voting power.
Holders of our Class A Common Stock will have no right to vote in connection
with the election of our directors or any other matter, except in limited
circumstances provided by Florida law. As a group, our directors and executive
officers beneficially owned 3,970,085 shares, or approximately 82.7%, of the
outstanding Class B Common Stock at April 20, 1999. Our existing management can
control our policies and management and elect a majority of our Board of
Directors. Additionally, as of April 20, 1999, Alan B. Levan, our Chairman of
the Board and Chief Executive Officer, and the Chairman of the Board and Chief
Executive Officer of BBC and BankAtlantic, may be deemed to beneficially own
44.6% of the shares of our Class B Common Stock, and John E. Abdo, Vice Chairman
of our Board and of the Boards of BBC and BankAtlantic and Chairman of the
Executive Committee of BankAtlantic, may be deemed to beneficially own 25.7% of
the shares of our Class B Common Stock. Additionally, the ownership and
acquisition of additional shares by Mr. Levan, Mr. Abdo and their affiliates
such persons are excepted from the terms of our shareholder rights plan.
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<PAGE>
OUR SECURITIES ARE NOT INSURED
Neither our Class A Common Stock nor the subordinated debentures are
insured by the Bank Insurance Fund or the Savings Association Insurance Fund of
the FDIC or by any other governmental agency.
WE MAY ISSUE ADDITIONAL SECURITIES IN THE FUTURE
There is generally no restriction on our ability to issue securities
which are PARI PASSU or have a preference over our Class A Common Stock or the
subordinated debentures. Likewise, there is also no restriction on the ability
of BBC or BankAtlantic to issue additional capital stock or incur additional
indebtedness. At December 31, 1998 we had
/bullet/ 13,546,006 shares of our Class A Common Stock,
/bullet/ 17,644,593 shares of our Class B Common Stock, and
/bullet/ 10,000,000 shares of preferred stock
authorized and available for issuance from time to time in the discretion of our
Board of Directors, including issuances in connection with acquisitions.
In addition, at December 31, 1998, BBC had
/bullet/ 53,200,632 shares of its Class A Common Stock
/bullet/ 34,643,569 shares of its Class B Common Stock, and
/bullet/ 10,000,000 shares of its preferred stock
authorized and available for issuance from time to time in the discretion of its
Board of Directors including issuances in connection with acquisitions.
We do not anticipate that we will seek shareholder approval in
connection with any future issuances of our stock unless we are required by law
or the rules of any stock exchange on which our securities are listed. In
addition, our Articles of Incorporation also provide our Board of Directors with
the authority without first obtaining shareholder approval to issue up to
10,000,000 shares of preferred stock, and to fix the relative rights and
preferences of the preferred stock. There are no limitations on our ability to
incur additional debt or issue additional notes or debentures.
THERE IS NOT AN ACTIVE TRADING MARKET FOR OUR CLASS A COMMON STOCK AND THERE IS
NO PRIOR MARKET SUBORDINATED DEBENTURES
Although our Class A Common Stock is listed on the OTC Bulletin Board
there is not currently an active trading market for it, and the subordinated
debentures have no prior market. We expect that our Class A Common Stock will
remain on the OTC Bulletin Board and that the subordinated debentures will be
traded in the over-the-counter market and listed on the "yellow sheets"
published by the National Quotation Bureau, LLC. It is unlikely that an active
trading market will develop for the subordinated debentures.
Although it has no obligation to do so, the underwriter intends to make
a market in the Class A Common Stock and subordinated debentures as long as the
volume of trading and other market-making considerations justify such an
undertaking. However, a public market having depth, liquidity and orderliness
depends on the presence in the marketplace of a sufficient number of buyers and
sellers at any given time; neither we nor market makers have control over such a
marketplace. In the event that the underwriter or any other entity does not make
a market in the Class A Common Stock or the subordinated debentures, holders of
those securities would be limited to selling them in privately negotiated
transactions. If an active trading market does develop for either of those
securities, there can be no assurance that such a trading market will continue.
If a trading market does not
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<PAGE>
develop, or is not maintained, holders of the Class A Common Stock or the
subordinated debentures may experience difficulty in reselling them or may be
unable to sell them at all. Additionally, since the prices of securities
generally fluctuate, there can be no assurance that purchasers of those
securities will be able to sell those securities at or above the purchase price
paid for them.
RISKS ASSOCIATED WITH THE SUBORDINATED DEBENTURES
HOLDERS OF OUR SENIOR INDEBTEDNESS AND CREDITORS OF OUR SUBSIDIARIES HAVE
PRIORITY OVER THE PAYMENT TO HOLDERS OF THE SUBORDINATED DEBENTURES
The subordinated debentures are subordinated to all of our current or
future senior indebtedness or liabilities which are not expressly by their terms
made subordinate or equal in right of payment to the subordinated debentures.
The subordinated debentures are also effectively subordinated to all obligations
of our subsidiaries. As of December 31, 1998, we had:
/bullet/ $16.0 million of senior indebtedness, and
/bullet/ $3.67 million of indebtedness ranking equally with the
subordinated debentures.
Further, BBC on a consolidated basis with its subsidiaries had
approximately $3.55 billion of indebtedness and liabilities as of December 31,
1998, which includes deposits of approximately $1.925 billion. The indenture
relating to the subordinated debentures does not limit our ability to incur
additional indebtedness, including senior indebtedness, or additional
indebtedness by BBC, BankAtlantic or our other subsidiaries.
THE INDENTURE PROVIDES FOR LIMITED COVENANTS WHICH DO NOT PROTECT THE HOLDERS OF
SUBORDINATED DEBENTURES OR IMPACT OUR OBLIGATIONS UNDER THESE SECURITIES
The covenants in the indenture are limited and do not protect holders
of subordinated debentures in the event of a material adverse change in our
financial condition or results of operations. In addition, payment of principal
of and interest on the subordinated debentures can only be accelerated if we:
/bullet/ fail to pay principal of or any premium on the subordinated
debentures at maturity or upon redemption,
/bullet/ fail to pay interest on any of the subordinated debentures and
such failure continues for a 30-day period,
/bullet/ breach any of the provisions of the indenture and such breach
continues for a 60-day period after receipt of notice, or
/bullet/ reorganize or become bankrupt or insolvent in certain events.
The indenture does not require us to:
/bullet/ adhere to any financial ratios or specified levels of
liquidity, or
/bullet/ repurchase, redeem or modify the terms of the subordinated
debentures upon a change in control or other events involving
us which may adversely affect the creditworthiness of the
subordinated debentures.
Therefore, neither the covenants nor the other provisions of the
indenture should be a significant factor in evaluating our obligations under the
subordinated debentures.
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<PAGE>
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Some of the statements contained in this prospectus are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. The words "anticipate",
"believe", "estimate", "may"
, "intend", "expect" and similar expressions
identify some of these forward-looking statements. Our actual results could
differ materially from the results which we suggest by these forward-looking
statements. These forward-looking statements are based largely on our
expectations and are subject to a number of risks and uncertainties, including:
/bullet/ our limited sources of funds,
/bullet/ regulatory limitations on BBC's and BankAtlantic's ability to
pay dividends,
/bullet/ economic factors (both generally and particularly in areas
where we operate or our subsidiaries (including BBC,
BankAtlantic and their subsidiaries) operate or hold assets),
/bullet/ the potential adverse impact on BankAtlantic's operations and
profitability from interest rate risk and credit risk
associated with BankAtlantic's loan portfolio,
/bullet/ increased operating expenses and the successful integration of
recently acquired businesses and new lines of business,
/bullet/ the speculative nature of our real estate development
activities, and
/bullet/ the highly competitive nature of BBC's and BankAtlantic's
businesses.
Many of these factors are beyond our control and beyond the control of BBC and
BankAtlantic.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $______
million from our sale of the subordinated debentures ($______ million if the
underwriter exercises its over-allotment option in full) after deducting the
underwriting discount and estimated expenses. We estimate that we will receive
net proceeds of approximately $______ million from our sale of the Class A
Common Stock ($______ million if the underwriter exercises its over-allotment
option in full) after deducting the underwriting discount and estimated
expenses. We will use the net proceeds from the sale of the subordinated
debentures and the Class A Common Stock to redeem our unsecured debentures that
we have not previously called for redemption and to pay deferred interest
accrued on the redeemed unsecured debentures. We intend to use any remaining net
proceeds to acquire additional shares of our affiliated companies, to invest in
the securities of publicly traded or privately held companies and for general
corporate purposes. At December 31, 1998, we had an aggregate of $6.7 million of
unsecured debentures outstanding, $5.3 million of which we have called for
redemption. Those unsecured debentures also carry deferred interest of
approximately $2.2 million. Approximately $1.4 million of our unsecured
debentures bear interest at a rate of 12% per annum and mature in July 2009,
approximately $276,000 of our unsecured debentures bear interest at a rate of
13% per annum and mature in July 2011, and approximately $5.3 million of our
unsecured debentures are called but unpresented and bear no interest.
PRICE RANGE FOR COMMON STOCK AND DIVIDENDS
Although our Class A Common Stock and our Class B Common Stock are each
traded on the OTC Bulletin Board under the symbols "BFCFA" and "BFCFB,"
respectively, there is not presently an active trading market for either the
Class A Common Stock or the Class B Common Stock. While the underwriter has
advised us that it intends to make a market in the Class A Common Stock
following the offering, it is under no obligation to do so and may discontinue
doing so at any time. We can give you no assurance that an active trading market
for the Class A Common Stock will ever develop or, if it does develop, that it
will be maintained. Accordingly, you may experience difficulty in selling your
shares of Class A Common Stock. On April 26, 1999 there were approximately 1,030
record holders of the Class A Common Stock and 6,453,994 shares issued and
outstanding and approximately 990 record holders of the Class B Common Stock and
2,355,407 shares of Class B Common Stock issued and outstanding.
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<PAGE>
On October 6, 1997, our Board of Directors declared a five-for-four
stock split, which we accomplished by means of a 25% stock dividend issued in
shares of our Class A Common Stock. At the time of the dividend, the Class A
Common Stock was a newly authorized series of our capital stock, and no shares
were outstanding prior to the dividend. Pursuant to our Articles of
Incorporation, our then existing common stock was automatically redesignated as
Class B Common Stock without changing any of its rights and preferences upon the
authorization of the dividend. On January 15, 1998, our Board of Directors
declared a three-for-one stock split, which we accomplished by means of a stock
dividend of two shares of Class A Common Stock for each outstanding share of
Class A Common Stock and Class B Common Stock. We have adjusted all amounts in
this prospectus to reflect those stock splits.
The following table sets forth, for the periods indicated, the high bid
and low asking prices of the Class A Common Stock and the Class B Common Stock
as reported by the National Quotation Bureau, L.L.C.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1999
First Quarter............................................ $ 8.00 $ 5.00 $ 8.00 $ 6.00
Second Quarter (through April 16, 1999).................. $ 6.50 $ 3.94 $ 7.25 $ 6.00
FISCAL YEAR ENDING DECEMBER 31, 1998
First Quarter............................................ $15.50 $ 9.34 $15.17 $ 9.34
Second Quarter........................................... $12.63 $ 9.25 $12.75 $ 9.00
Third Quarter............................................ $11.63 $ 6.25 $10.88 $ 6.00
Fourth Quarter........................................... $ 7.13 $ 4.00 $ 7.75 $ 5.00
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter............................................ N/A N/A $ 3.73 $ 3.00
Second Quarter........................................... N/A N/A $ 4.00 $ 3.13
Third Quarter............................................ N/A N/A $10.13 $ 3.93
Fourth Quarter .......................................... $10.17 $ 9.33 $10.40 $ 7.33
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter............................................ N/A N/A $ 2.07 $ 1.67
Second Quarter........................................... N/A N/A $ 2.47 $ 2.07
Third Quarter............................................ N/A N/A $ 3.73 $ 2.13
Fourth Quarter........................................... N/A N/A $ 3.93 $ 3.07
</TABLE>
-18-
<PAGE>
On April 16, 1999, the last sale price of the Class A Common Stock was
$6.50 per share and the last sale price of the Class B Common Stock was $6.50
per share, in each case as reported by the National Quotation Bureau, L.L.C.
We have never paid a cash dividend. We are not restricted from paying
cash dividends except that we may not pay a cash dividend to the holders of any
of our equity securities (such as the Class A Common Stock and the Class B
Common Stock) if any deferred interest on our unsecured debentures remains
unpaid. We had deferred interest payments on our unsecured debentures in an
aggregate amount of approximately $2.2 million at December 31, 1998. Our ability
to pay cash dividends will be significantly dependent on BBC's ability to pay
dividends on its common stock.
BBC has paid a regular quarterly dividend to its common stockholders
since August 1993. Each share of BBC's Class A Common Stock is entitled to
receive cash dividends equal to at least 110% of any cash dividends which BBC
declares and pays on its Class B Common Stock. BBC's management has indicated
that it will seek to declare regular quarterly cash dividends on its common
stock, but we can not assure you that BBC will pay dividends in the future.
BBC's ability to pay dividends will depend upon, among other things, the results
of operations, financial condition and cash requirements of BBC and on the
ability of BankAtlantic to pay dividends or otherwise advance funds to BBC.
BankAtlantic's ability to pay dividends and advance funds to BBC is subject to
OTS regulations and is based upon BankAtlantic's regulatory capital levels and
net income. See "Risk Factors-We Depend on Dividends from our Subsidiaries for a
Significant Portion of our Cash Flow. Regulatory Restrictions Limit the Ability
of our Subsidiaries to Pay Dividends." See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
recent losses we, BBC and BankAtlantic incurred for the year ended December 31,
1998.
In addition, BBC has effected stock splits on its common stock. Where
appropriate throughout this prospectus, BBC share and per share amounts have
been adjusted to reflect the five-for-four common stock splits BBC effected in
February 1998, August 1997 and March 1997 in the form of 25% stock dividends
issued in shares of BBC's Class A Common Stock.
On January 10, 1997, our Board of Directors adopted a shareholder
rights plan. As part of the rights plan, we declared a dividend of one preferred
stock purchase right for each outstanding share of our Class B Common Stock.
This dividend was paid to shareholders of record on January 21, 1997. Each right
will become exercisable only upon the occurrence of certain events, including
the acquisition of 20% or more of our Class B Common Stock by persons other than
the then existing control shareholders, and will entitle the holder to purchase
either shares of our stock or shares in the acquiring entity at half the market
price of such shares. We may redeem the rights at $.01 per right until the tenth
day following the acquisition of 20% or more of the Class B Common Stock by
persons other than the existing control shareholders. We may also, in our
discretion, extend the period for redemption. The rights will expire on January
10, 2007.
MARKET FOR THE SUBORDINATED DEBENTURES
Because this is the initial offering of the subordinated debentures,
there is no prior market for those securities. We expect that the subordinated
debentures will be traded in the over-the-counter market and listed on the
"yellow sheets" published by the National Quotation Bureau, L.L.C. Although we
expect that the underwriter will make a market in the subordinated debentures,
it will not be obligated to do so, and it may discontinue any such market making
at any time. Accordingly, we can not assure you that an active and liquid
trading market for the subordinated debentures will develop or, if developed,
that such a market will be sustained. The offering price and interest rate for
the subordinated debentures will be determined by negotiations among the
underwriter and us, however, the offering price of the subordinated debentures
may not be indicative of the market price following the offering. See
"Underwriting."
-19-
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated historical
capitalization at December 31, 1998 and as adjusted to reflect
/bullet/ the sale of our Class A Common Stock that we are offering by
this prospectus and the estimated net proceeds from that
offering,
/bullet/ the sale of the subordinated debentures that we are offering
by this prospectus and the estimated net proceeds from that
offering and
/bullet/ the sale of both our Class A Common Stock and the subordinated
debentures that we are offering by this prospectus and the
aggregate estimated net proceeds from those offerings.
You should read the information below in conjunction with our
Consolidated Financial Statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
AS AS AS
ACTUAL ADJUSTED(1) ADJUSTED(2) ADJUSTED(3)
------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES:
Subordinated debentures, net $ 6,736 $_________ $_________ $_________
Deferred interest on subordinated debentures 2,217 0 0 0
Mortgage and other borrowings 10,783 10,783 10,783 10,783
____% Subordinated Debentures due _________, 2010 -- -- $ 15,000 $ 15,000
SHAREHOLDERS' EQUITY
Class A common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding 6,453,994,
7,453,994, 6,453,994 and 7,453,994, respectively 58 _________ 58 _________
Class B common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding 2,355,407 21 21 21 21
Additional paid-in capital 26,095 _________ 26,095 _________
Retained earnings 30,660 30,660 30,660 30,660
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY
========== ========== ========== ==========
<FN>
- ----------
(1) As adjusted for the estimated net proceeds from our sale of the Class A
Common Stock that we are offering by this prospectus and assumes that
the Underwriter's over allotment option is not exercised.
(2) As adjusted for the estimated net proceeds from our sale of the
subordinated debentures that we are offering by this prospectus and
assumes that the Underwriter's over allotment option is not exercised.
(3) As adjusted for the estimated aggregate net proceeds from our sale of
both the Class A Common Stock and the subordinated debentures that we
are offering by this prospectus.
</FN>
</TABLE>
SELECTED HISTORICAL FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been
derived from our audited consolidated financial statements and the audited
consolidated financial statements of BBC. They are qualified in their entirety
by reference to more detailed consolidated financial statements and independent
auditors' reports included elsewhere in this prospectus. Where appropriate, we
have adjusted amounts and percentages to reflect
-20-
<PAGE>
our five-for-four common stock split effected in October 1997 and our
three-for-one common stock split effected in January 1998. In addition, where
appropriate we have adjusted amounts and percentages relating to BBC to reflect
BBC's five-for-four common stock splits effected in February 1998 and August
1997.
-21-
<PAGE>
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 12,658 16,354 21,661 11,711 27,289
Costs and expenses 12,707 3,366 12,679 7,481 24,376
Income (loss) before income
taxes and extraordinary items (49) 12,988 8,982 4,230 2,913
Provision for income taxes
(benefit) (368) 4,222 2,924 -- (2,009)
Extraordinary items,
net of income taxes 61 (f) 1,052 (g) 853 (h) 3,702 (i) 22,744 (j)
Net income 380 9,818 6,911 7,932 27,666
Common Stock (d):
Basic earnings per share (e)
Before Extraordinary items 0.04 1.10 0.78 0.55 0.64
Extraordinary items 0.01 0.13 0.11 0.48 2.95
Net income 0.05 1.23 0.89 1.03 3.59
Diluted earnings per share (e)
Before Extraordinary items 0.04 1.00 0.73 0.55 0.64
Extraordinary items -- 0.12 0.10 0.48 2.95
Net income 0.04 1.12 0.83 1.03 3.59
Basic weighted average of common
shares outstanding (e) 7,954 7,938 7,811 7,709 7,709
Diluted weighted average of common
shares outstanding (e) 9,101 8,731 8,347 7,709 7,709
Ratio of earnings to fixed charges (c) 2.33 1.69 1.33 0.26 0.47
Dollar deficiency of earnings to
fixed charges (c) -- -- -- 3,370 4,374
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 74,565 72,185 59,039 52,662 43,768
Loans receivable, net 1,740 1,859 2,180 5,168 4,904
Securities available for sale 2,218 1,478 6,819 5,105 5,869
Investment
real estate, net (k) 6,172 9,700 10,383 11,072 11,169
Real estate held for development
and sale 1,811 6,474 6,497 10,211 9,912
Total assets 91,257 98,871 98,841 96,896 91,291
Subordinated debentures, net 6,736 7,263 19,135 19,774 25,011
Mortgages payable
and other borrowings 10,784 22,943 25,498 27,616 26,618
Deferred interest on the
subordinated debentures 2,217 2,106 2,806 2,722 3,494
Stockholders' equity 57,631 54,142 41,462 35,758 26,532
Book value per share (e) 7.24 6.81 5.26 4.64 3.44
Book value per share
assuming market value of BBC (e) 7.45 13.27 7.01 10.22 5.33
Return on assets (a) 0.39 % 10.5 % 7.0 % 8.5 % 30.8 %
Return on equity (a) 0.67 % 21.1 % 17.7 % 26.4 % 327.9 %
Equity to assets ratio (a) 58.7 % 49.7 % 39.4 % 32.3 % 9.4 %
</TABLE>
-22-
<PAGE>
- ----------
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
(d) Prior to 1997 there were no Class A common shares outstanding. All
shares outstanding prior to 1997 were Class B common shares. While the
Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(e) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share and book value per share.
(f) Gain from extinguishment of debt of $61,000, net of income taxes of
$39,000.
(g) Gain on settlements of Exchange litigation of approximately $756,000,
net of income taxes of $475,000, net gain from extinguishment of debt
of $115,000, net of income taxes of $72,000 and net gain from debt
restructuring of approximately $181,000, net of income taxes of
$114,000.
(h) Gain on settlements of Exchange litigation of approximately $853,000,
net of income taxes of $611,000.
(i) Gain from extinguishment of debt of approximately $460,000, net of
income taxes of $218,000 and gain on settlements of Exchange litigation
of approximately $3.2 million, net of income taxes of $1.5 million.
(j) Gain on settlements of Exchange litigation, net of income taxes of
$214,000.
(k) Investment real estate, net represents the properties acquired in the
1989 and 1991 Exchange.
-23-
<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General - We are a unitary savings bank holding company which owns in
the aggregate approximately 31.3% of the outstanding common stock of BBC. BBC is
the holding company for BankAtlantic and owns 100% of its outstanding common
stock. Our ownership interest in BBC has been recorded by the purchase method of
accounting. Based on the equity method of accounting, our investment in BBC
represents approximately 82% of our consolidated assets as of December 31, 1998.
At December 31, 1998, we owned
/bullet/ 6,578,671 shares of BBC's Class A Common Stock, or
approximately 25% of BBC's outstanding Class A Common Stock,
and
/bullet/ 4,876,124 shares of BBC's Class B Common Stock, or
approximately 47% of BBC's outstanding Class B Common Stock.
The aggregate market value of our investment in BBC at December 31,
1998 was approximately $77.1 million or approximately $2.5 million in excess of
the carrying value in our financial statements.
On October 6, 1997, our Board of Directors declared a five for four
stock split effected in the form of 25% stock dividend, payable in shares of our
then newly authorized Class A Common Stock. Prior to the dividend we had no
shares of our Class A Common Stock outstanding. Pursuant to our Articles of
Incorporation, our then existing common stock was automatically redesignated as
our Class B Common Stock without changing any of its rights and preferences upon
the authorization by our Board of the stock dividend. On January 15, 1998, our
Board of Directors declared a three-for-one stock split effected in the form of
a stock dividend of two shares of Class A Common Stock for each share of
outstanding Class A and Class B Common Stock. Due to accounting and tax
considerations, outstanding options to purchase Class B Common Stock previously
granted under our stock option plans were adjusted to reflect additional Class B
stock options instead of options on Class A Common Stock.
In addition to our investment in BBC, we own and manage real estate.
Since our inception in 1980 and prior to our acquisition of control of
BankAtlantic in 1987, our primary business was organizing, selling and managing
real estate investment programs. Effective as of December 31, 1987, we ceased
organizing and selling new real estate investment programs, but we continue to
own and manage real estate assets. One of our subsidiaries continues to serve as
the corporate general partner of one public limited partnership which files
periodic reports with the SEC under the Securities Exchange Act of 1934. Some of
our other subsidiaries also serve as corporate general partners of a number of
private limited partnerships we formed in prior years.
RESULTS OF OPERATIONS
Our basic and diluted earnings per share for common stock were $.05 and
$.04 for the year ended December 31, 1998, $1.23 and $1.12 for the year ended
December 31, 1997 and $.89 and $.83 for the year ended December 31, 1996.
Our net income for the year ended December 31, 1998 was approximately
$380,000. For the year ended December 31, 1997 it was approximately $9.8
million. It was approximately $6.9 million for the year ended December 31, 1996.
Operations for 1998 and 1997 included extraordinary gains, net of income taxes,
from extinguishment of debt of $61,000 in 1998 and $115,000 in 1997. Operations
for 1997 and 1996 included extraordinary gains, net of income taxes, due to
changes in the estimate of the amount of the settlement liability associated
with the exchange litigation. For 1997 this amount was $756,000. It was $853,000
for 1996. Operations for 1997 also included an extraordinary gain, net of income
taxes, of approximately $181,000 from debt restructuring.
-24-
<PAGE>
Our equity in BBC's net loss for the year ended December 31, 1998 was
approximately $1.4 million. For the year ended December 31, 1997 our equity in
BBC's net income was approximately $12.1 million and, for the year ended
December 31, 1996 it was $8.7 million. Our operations included a net gain on the
sale of real estate of approximately $3.2 million for 1998, $335,000 for 1997
and $3.3 million for 1996. Our 1997 operations also included a net gain on our
sale of BBC Class A Common Stock of approximately $1.3 million and the reversal
of a provision for litigation of approximately $2.3 million. Our 1996 revenues
included a net gain of approximately $211,000 associated with the settlement of
litigation related to the cleanup of contamination on a property we formerly
owned and an adjustment to the provision for litigation of approximately
$292,000. Interest on our subordinated debentures was approximately $492,000 in
1998, $723,000 in 1997 and $1.2 million in 1996. Our 1998 operations included a
write-down of an investment in a real estate limited partnership of
approximately $184,000. Our 1996 operations included a loss on disposition of
mortgage notes and investment, net of approximately $474,000 due from affiliated
limited partnerships.
The following table shows the components of revenues and the changes
between the periods indicated (in thousands):
<TABLE>
<CAPTION>
1998 1997
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1997 1996
------------------ ---- ----
1998 1997 1996 CHANGE CHANGE
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Interest on mortgage
notes and related
receivables $ 1,108 221 613 887 (392)
Interest and dividends
on securities
available for sale
and escrow accounts 228 445 694 (217) (249)
Earnings on real
estate rental
operations, net 979 1,034 1,303 (55) (269)
Sale of real estate 11,706 967 9,700 10,739 (8,733)
Net gain from sale
of stock --- 1,349 --- (1,349) 1,349
Equity in earnings
(loss) of BBC (1,397) 12,129 8,650 (13,526) 3,479
Other income, net 34 209 701 (175) (492)
--------- ------ ------ ------- ------
$ 12,658 16,354 21,661 (3,696) (5,307)
========= ====== ====== ======= ======
</TABLE>
Our interest on mortgage notes and related receivables increased for
the year ended December 31, 1998 as compared to the same period in 1997
primarily due to our recognition of approximately $910,000 of interest earned on
advances associated with the development and construction of the Center Port
property. Our interest on mortgage notes and related receivables decreased for
the year ended December 31, 1997 as compared to the same period in 1996
primarily due to the satisfaction of a loan receivable in 1996, the reduction of
the amount of mortgage note receivables from affiliated limited partnerships we
held and proceeds received during 1996 of approximately $297,000 for interest
due from affiliated limited partnerships that we had not accrued in prior years.
-25-
<PAGE>
Our interest and dividends on securities available for sale and escrow
accounts decreased for the year ended December 31, 1998 as compared to the 1997
and 1996 periods primarily due to decreases in our investable funds.
Our earnings on real estate rental operations include our earnings from
investment real estate and deferred profit recognition on our real estate sales
(other than BBC's sales). Our earnings on real estate rental operations, net
decreased for the year ended December 31, 1998, as compared to the same period
in 1997 primarily due to an increase in landscaping maintenance and repairs and
maintenance at Burlington Manufacturers Outlet Center ("BMOC"). Our earnings on
real estate rental operations, net decreased for the year 1997 as compared to
the same period in 1996 primarily due to the sale of a 50% interest in a
property and the accounting for the remaining ownership under the equity method
and a decrease in deferred profit recognition primarily due to the satisfaction
of mortgage notes in 1996 due from affiliated limited partnership. This decrease
was offset in part by an increase in net operating income at BMOC.
During 1998, we sold approximately 38 acres of the Center Port property
to unaffiliated third parties for approximately $10.9 million and recognized a
net gain from the sale of real estate of approximately $2.6 million. In October
1998, we sold approximately 15,000 square feet of the BMOC property to an
unaffiliated third party for $500,000 and we recognized a net gain from the sale
of real estate of approximately $301,000. In 1996, we sold a 50% interest in a
property located in Delray Beach, Florida, included in investment real estate,
net. Since we were the maker on the non-recourse mortgage note on the Delray
Beach property and since we maintained a 50% interest in the property, our gain
on the sale of approximately $0.6 million was deferred. During the quarter ended
June 30, 1998, we recognized 50% of the deferred profit of approximately $0.3
million upon refinancing the property's mortgage note. We will recognize the
remaining deferred profit upon the sale of the remaining interest in the
property.
In February 1997, we sold 12.7 acres of land located in Birmingham,
Alabama to an unaffiliated third party for approximately $149,000 and we
recognized a net gain on the sale of approximately $131,000 in 1997. In August
1997, we sold approximately four acres of the Center Port property to
unaffiliated third parties for approximately $818,000 and recognized a net gain
from the sale of real estate of approximately $204,000. In June 1994, an entity
that we control acquired from an independent third party 23.7 acres of
unimproved land know as "Cypress Creek" located in Fort Lauderdale, Florida. In
March 1996, we sold Cypress Creek to an unaffiliated third party for
approximately $9.7 million and recognized a net gain of approximately $3.3
million.
In June 1997 and January 1997, the Company sold an aggregate of 449,805
shares of BBC's Class A Common Stock. We received $3.7 million of net proceeds
from these sales and recognized a net gain of approximately $1.3 million in
1997.
BBC's net income (loss) available for common shareholders for each of
the years in the three year period ended December 31, 1998 is summarized below
(in thousands):
<TABLE>
<CAPTION>
1998 1997
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1997 1996
------------------ ---- ----
1998 1997 1996 CHANGE CHANGE
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Income from
continuing operations $ 10,186 23,658 17,639 (13,472) 6,019
Income (loss) from
discontinued operations,
net of taxes (18,220) 4,111 1,372 (22,331) 2,739
---------- ------ ------ ------- -----
Net income (loss) $ (8,034) 27,769 19,011 (35,803) 8,758
========== ====== ====== ======= =====
</TABLE>
-26-
<PAGE>
Our equity in BBC's net loss for the year ended December 31, 1998 was
approximately $1.4 million. Our equity in BBC's net income for the year ended
December 31, 1997 was approximately $12.1 million and $8.7 million for the year
ended December 31, 1996. The decrease in our equity in BBC's earnings for the
year 1998 as compared to 1997 was due to a decrease in BBC's earnings. BBC's
income from continuing operations decreased by 57% during the year ended
December 31, 1998 compared to the same period during 1997. The primary reasons
for the decline in BBC's income from continuing operations during 1998 compared
to 1997 was:
1) a significant increase in BBC's provision for loan losses resulting
from recent delinquency trends in the consumer indirect and small business loan
portfolios and growth in small business loans,
2) an increase in employee compensation and benefits (excluding Ryan
Beck and BBC's real estate operations) reflecting the hiring of more than 100
new officers and employees to expand BankAtlantic's product lines and improve
customer service on existing product lines,
3) higher occupancy expenses due to the opening of 10 branches and the
expansion of BankAtlantic's ATM network,
4) increased advertising and promotion expenses to introduce
BankAtlantic's new corporate logo and to promote new product lines,
5) increased expenses associated with the higher administrative costs
of managing a larger branch and ATM network, and
6) restructuring charges and write-downs.
An increase in BBC's net interest income due to a larger loan
portfolio, income from real estate operations and a net pension curtailment gain
partially offset the items described above.
BBC determined in December 1998 to discontinue its mortgage servicing
business ("MSB"). Included in BBC's loss from discontinued operations during the
year ended December 31, 1998 was a $6.1 million provision for the disposal of
the MSB (net of income taxes). BBC's remaining loss from discontinued operations
during 1998 primarily resulted from rapidly declining interest rates during 1998
causing prepayments and declines in the value of the mortgage servicing rights
("MSR") asset.
The increase in our equity in BBC's earnings in 1997 as compared to
1996 was due to an increase in BBC's earnings, offset in part by our decreased
ownership percentage in BBC. BBC's income from continuing operations increased
by 34% during the year ended December 31, 1997 compared to the same period
during 1996. The primarily reasons for the increase in BBC's income from
continuing operations during 1997 compared to 1996 was:
1) an increase in BBC's net interest income resulting from its purchase
of wholesale residential loans and its October 1996 acquisition of Bank of North
America ("BNA"),
2) increased noninterest income from trading securities gains, gains on
sales of loans held for sale, and gains on sales of securities available for
sale, and
3) higher fee income from loans, deposits, and ATM customers due to an
expanded branch and ATM network and a larger loan portfolio.
The increase in income from discontinued operations during the year
ended December 31, 1997 compared to the 1996 period resulted from higher gains
on the sale of MSRs.
-27-
<PAGE>
Our ownership of all of BBC's outstanding common stock at December 31,
1998 was 31.3%. It was 35.6% at December 31, 1997 and 41.5% at December 31,
1996. The decrease in ownership at December 31, 1998 as compared to 1997 was
attributable to BBC's issuance of Class A Common Stock to acquire Ryan Beck and
Leasing Technologies, Inc. This decrease was offset in part by reductions in the
number of outstanding shares of BBC's common stock primarily due to BBC's
repurchases of its shares. The decrease in ownership at December 31, 1997 as
compared to 1996 was primarily due to BBC's issuance of 4,312,500 shares of its
Class A Common Stock in a public offering during November 1997 and our sale of
449,805 shares of BBC's Class A Common Stock during 1997. This decrease was
offset in part by reductions in the outstanding shares of BBC common stock
primarily due to the repurchase by BBC of its shares. The following table gives
information regarding our ownership interest in BBC at the dates indicated:
BBC BBC
CLASS A CLASS B
COMMON COMMON TOTAL
STOCK STOCK OUTSTANDING
----- ----- -----------
December 31, 1996 35.1% 46.2% 41.5%
December 31, 1997 30.6% 45.6% 35.6%
December 31, 1998 25.1% 47.1% 31.3%
Other income decreased for the year ended December 31, 1998 as compared
to the same period in 1997 primarily due to proceeds received during the 1997
period relating to a loan from an affiliate which was written-off in prior
years. Other income, net was less for the year ended December 31, 1997 as
compared to the 1996 period primarily due to a net gain in 1996 of approximately
$211,000 associated with the settlement of litigation attributable to the
cleanup of contamination on a property we formerly owned and $142,000 which was
recognized when the first mortgage holder on a property we formerly owned
allowed the release of funds from an escrow account that was established during
the time we owned the property.
The following table shows the components of costs and expenses and the
changes between the periods indicated (in thousands):
-28-
<PAGE>
<TABLE>
<CAPTION>
1998 1997
FOR THE YEARS TO TO
ENDED DECEMBER 31, 1997 1996
------------------ ---- ----
1998 1997 1996 CHANGE CHANGE
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Interest on subordinated
debentures $ 492 723 1,238 (231) (515)
Interest on mortgage
payables and other
borrowings 1,420 1,996 2,396 (576) (400)
Cost of sale of real
estate 8,525 632 6,420 7,893 (5,788)
Loss on disposition of
mortgage notes
and investment, net -- -- 474 -- (474)
Write-down of
investment 184 -- -- 184 --
Expenses related to
real estate held for
development and
sale, net 68 130 154 (62) (24)
Employee compensation
and benefits 1,190 1,153 1,153 37 --
Occupancy
and equipment 50 40 44 10 (4)
Reversal of provision
for litigation -- (2,272) (292) 2,272 (1,980)
General and
administrative, net 778 964 1,092 (186) (128)
-------- ------ ------ ----- ------
$ 12,707 3,366 12,679 9,341 (9,313)
======== ====== ====== ===== ======
</TABLE>
Interest on subordinated debentures decreased for the year ended
December 31, 1998 as compared to the same periods in 1997 and 1996 primarily due
to reduction in the outstanding amount of subordinated debentures and the
accrual of interest on certain subordinated debentures during 1996 related to
the delayed funding of our 1989 exchange settlement liability.
Our interest on mortgage payables and other borrowings decreased for
year ended December 31, 1998 as compared to the same period in 1997 primarily
due to a reduction in our borrowings. Interest on our mortgage payables and
other borrowings decreased for the year ended December 31, 1997 as compared to
the same period in 1996 primarily due to the sale during 1996 of a 50% interest
in a property acquired in our 1989 exchange and a reduction in our borrowings.
During 1996, we recorded a loss of approximately $474,000 in connection
with our disposition of mortgage notes and investments from five affiliated
limited partnerships. During 1996, we dissolved and liquidated the limited
partnerships.
In June 1998, we reduced our carrying value on an investment in an
affiliated partnership by $184,000.
The expenses relating to real estate held for development and sale, net
represent our expenses and revenues relating to the Center Port property located
in Pompano Beach, Florida and a 50% interest in a property
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located in Delray Beach, Florida. Our expenses relating to real estate held for
development and sale, net decreased for the year ended December 31, 1998 as
compared to the same period in 1997 primarily due to decreased property taxes
and administrative expenses at the Center Port property. Our expenses relating
to real estate held for development and sale, net decreased for the year ended
December 31, 1997 as compared to the same period in 1996, primarily due to a
decrease in real estate taxes, land clearing, association fees and professional
services at the Center Port property. This decrease was offset in part by
increases in administrative expenses at the Center Port property and a net loss
of approximately $27,000 associated with the Delray property.
Employee compensation and benefits increased for the year ended
December 31, 1998 as compared to the same period in 1997 primarily due to an
increased contribution to the employee's profit sharing plan and an increase in
the number of personnel.
In connection with the litigation entitled SHORT VS. EDEN, ET AL., at
December 31, 1996 we had an accrual of approximately $3.0 million included in
our other liabilities. In April 1997 we disbursed approximately $783,000 and
received a release and satisfaction of judgment. Accordingly, we reversed the
remaining accrual of approximately $2.3 million during the quarter ended June
30, 1997. In connection with the litigation entitled KUGLER, ET AL. V. I.R.E.
REAL ESTATE INCOME FUND, LTD., in October 1996 we placed approximately $3.7
million in escrow to fund the rescission of sales and in March 1997,
approximately $1.0 million was placed in escrow for plaintiffs attorneys' fees.
In 1996 we recorded an adjustment to the accrual associated with the KUGLER
litigation in the amount of $292,000. On April 30, 1997, the court approved the
KUGLER settlement.
Our net general and administrative expenses decreased for the year
ended December 31, 1998 as compared to the same period in 1997 primarily due to
decreased legal fees, trustee fees and amortization expense. This decrease was
offset in part by an increase in intangible taxes. General and administrative,
net decreased for the year ended December 31, 1997 as compared to the same
period in 1996 primarily due to decreased legal fees. This decrease was offset
in part by increases in trustee fees, intangible taxes, professional and
consulting fees associated with the ABC litigation and the elimination of
reimbursements of administrative costs from an affiliated partnership which was
liquidated in 1996.
We do not include BBC and its subsidiaries in our consolidated income
tax return with our wholly-owned subsidiaries since we own less than 80% of
BBC's outstanding stock. We utilize the asset and liability method to account
for income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. As of December 31, 1998 our
deferred income taxes were approximately $13.2 million. They were $11.7 million
as of December 31, 1997 and $5.3 million as of December 31, 1996. The increase
in deferred income taxes at December 31, 1998 as compared to December 31, 1997
was primarily due to the tax effect of the increase in our investment in BBC of
approximately $2.4 million. The increase in deferred income taxes at December
31, 1997 as compared to December 31, 1996 was primarily due to the tax effect of
the increase in our investment in BBC of approximately $13.1 million.
FINANCIAL CONDITION
Our total assets at December 31, 1998 were $91.3 million. They were
$98.9 million at December 31, 1997. The majority of the difference at December
31, 1998 as compared to December 31, 1997 was due to decreases in
/bullet/ real estate held for development and sale,
/bullet/ investment real estate, net and
/bullet/ other assets.
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These decreases were offset in part by the increase in our investment
in BBC and securities available for sale.
Securities available for sale increased primarily due to the investment
of funds received from the sale of real estate at Center Port and BMOC
properties and the availability of funds provided from the release of the 1989
exchange settlement. This increase in securities available for sale was offset
in part by sales of securities to fund the advances for development and
construction costs at the Center Port property.
Real estate held for development and sale decreased primarily due to
the sale of 38 acres of the Center Port property. This decrease in real estate
held for development and sale, net was offset in part by an increase in
development and construction costs at the property.
In 1996 we sold a 50% interest in a property included in investment
real estate. Since we were the sole maker on the non-recourse mortgage note on
the property and since we maintained a 50% interest in the subject property, we
deferred the gain on the sale of approximately $632,000, reducing our carrying
value in real estate, and the mortgage remained on our books. We refinanced the
property with the other 50% owner also becoming liable for the amount owed under
the note. At that time, we recognized 50% of the deferred profit on the
transaction, and removed the mortgage note and investment real estate entries
relating to the property from our Consolidated Statements of Financial
Condition. We include the remaining investment in the property in investment
real estate using the equity method of accounting. In October 1998, we sold one
building, approximately 15,000 square feet, at the BMOC property for $500,000.
We recognized a net gain on the sale of real estate of approximately $301,000.
Our investment in BBC increased by $2.4 million due to the net effect
of other BBC capital transactions of approximately $4.1 million primarily
attributable to BBC's issuance of its Class A Common Stock to acquire Ryan Beck
and Leasing Technologies and the increase in BBC's net unrealized appreciation
on securities available for sale, net of deferred income taxes of approximately
$878,000. This increase was offset in part by the equity in the loss of BBC of
approximately $1.4 million and dividends of approximately $1.2 million in 1998.
Other assets decreased due to the 1997 release from escrow of
approximately $2.1 million that we had placed in an escrow account related
to the settlement of litigation and payments made from the escrow accounts in
accordance with the terms of the settlements of litigation. The settlement
agreement provided for a release from escrow of any balances remaining at the
end of a specified period and accordingly, we released approximately $2.1
million in January 1998. Any balances remaining in the escrow accounts under
litigation settlements will be released in January 2000.
Unsecured debentures and deferred interest on the subordinated
debentures decreased primarily due to the redemption of unsecured debentures.
Mortgages payable and other borrowings decreased primarily due to the
/bullet/ repayment of approximately $1.5 million on a revolving line of
credit,
/bullet/ repayment of approximately $7.2 million upon the sale of
approximately 38 acres at the Center Port property, and
/bullet/ principal payments made on loans according to their terms.
PURCHASE ACCOUNTING
Our acquisition of BBC was accounted for as a purchase and accordingly,
the assets and liabilities acquired were revalued to reflect market values at
the dates of acquisition. The discounts and premiums arising as a result of the
revaluation are generally being accreted or amortized (i.e. added into income or
deducted from
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income), net of tax, using the level yield or interest method over the remaining
life of the assets and liabilities. The net impact of such accretion,
amortization and other purchase accounting adjustments was to increase
consolidated net earnings by approximately $741,000 for 1997 and by $545,000
for 1996. Assuming no sales or dispositions of the related assets or liabilities
by BBC, we believe the net increase (decrease) in earnings resulting from the
net amortization and accretion of the adjustments to net assets acquired
resulting from the use of the purchase method of accounting will remain at a
similar level for 1999 and we anticipate an increase in earnings from 2000 to
2003 of approximately $52,000 per year.
Excess cost over fair value of net assets acquired at December 31, 1998
was approximately $454,000, and it was $577,000 at December 31, 1997. We include
the excess cost over fair value of net assets acquired in our investment in BBC
in the accompanying statements of financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the terms of the applicable escrow agreements, we released
approximately $2.1 million during January 1998 from escrow accounts established
to fund payment on our unsecured debentures that we had called for redemption.
At December 31, 1998, approximately $2.7 million remained to fund future
payments. Any amounts remaining in escrow in January 2000 will be released to us
and any future payments on the called unsecured debentures will be paid from our
working capital. At December 31, 1998, there was approximately $5.3 million of
called but unpresented unsecured debentures. We are not obligated to pay
interest on unsecured debentures once they are called for redemption.
Pursuant to the terms of approximately $1.5 million of our unsecured
debentures which are outstanding and not called for redemption, we may elect to
defer interest payments if our management determines in its discretion that the
payment of interest would impair our operations. Items considered in the
decision to defer the interest payment include, among other items, the ability
to identify which unsecured debentures are held by Holders in Due Course and our
current operating expenses. Since December 31, 1991, we have deferred interest
payments on our unsecured debentures.
In 1994, we agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Abdo Group and us will share
equally in profits after any profit participation due to any other partners in
the ventures and after interest earned on advances we made. We bear the risk of
loss, if any, under the arrangement. On such basis, we acquired interests in two
properties. In June 1994, an entity we controlled acquired from an independent
third party 23.7 acres of unimproved land known as the "Cypress Creek" property
located in Fort Lauderdale, Florida. In March 1996, we sold the Cypress Creek
property to an unaffiliated third party for approximately $9.7 million and we
recognized a gain of approximately $3.3 million. In connection therewith, the
Abdo Group received approximately $2.9 million as their share of the profit from
the transaction, which is included in cost of sale of real estate. As part of
the sale of the Cypress Creek property, we received a limited partnership
interest in an unaffiliated limited partnership that will entitle us to receive
approximately 4.5% of any profits from development and operation of the
property. In January 1999, we received approximately $259,000 when the limited
partnership was liquidated. In December 1994, an entity we control acquired from
an unaffiliated seller approximately 70 acres of unimproved land known as the
"Center Port" property in Pompano Beach, Florida. Through December 31, 1998, 42
acres had been sold from the Center Port property to unaffiliated third parties
for approximately $11.7 million and we recognized net gains from the sale of
real estate of approximately $2.8 million. Included in cost of sales is
approximately $2.0 million, representing the Abdo Group's profit participation
from the transactions. We utilized all proceeds from the sale to reduce the
borrowing for which the Center Port property serves as partial collateral. At
December 31, 1998, the balance on this borrowing was approximately $1,000 and
was due to an unaffiliated lender. Payment of profit participation to the Abdo
Group will be deferred until the
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lender and us are repaid on loans, advances and interest. The remainder of the
Center Port property is currently being marketed for sale.
As previously indicated we hold approximately 31.3% of all of BBC's
outstanding common stock. BBC has paid a regular quarterly dividend since its
formation and its management has indicated that it currently anticipates that it
will pay regular quarterly cash dividends on common stock. The availability of
funds for the payment of dividends by BBC is dependent upon BankAtlantic's
ability to pay dividends to BBC. Our cash position and our ability to meet our
obligations will in large part be dependent on the financial condition of BBC
and BBC's payment of dividends to its shareholders, including us. Currently, BBC
pays a quarterly dividend of $.0275 and $.025 per share for its Class A Common
Stock and Class B Common Stock, respectively. BBC's principal source of cash
flow is dividends from BankAtlantic. BBC's annual debt service associated with
its $246.9 million of 9%, 6-3/4% and 5-5/8% Debentures and Trust Preferred
Securities is approximately $18.0 million. BBC also obtains funds from the
exercise of its outstanding stock options, through the sale of common shares and
from the issuance of debt securities.
At December 31, 1998, BankAtlantic's core capital ratio was 8.48%, its
Tier 1 risk-based capital ratio was 12.67% and its total risk-based capital
ratio was 13.92%. Based on these capital ratios, BankAtlantic meets the
definition of a "well-capitalized" institution.
CASH FLOWS
A summary of our consolidated cash flows follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---- ---- ----
Net cash provided (used) by:
Operating activities $ (1,252) (8,925) (5,485)
Investing activities 10,770 10,812 8,142
Financing activities (9,467) (3,079) (2,013)
-------- ------- ------
Increase (decrease) in cash
and cash equivalents $ 51 (1,192) 644
======== ======= ======
The primary sources of funds to us for the year ended December 31, 1998
were release of funds from escrow accounts, proceeds received from the sale of
real estate, principal reductions on loan receivables, proceeds from redemption
and maturities of securities available for sale, revenues from property
operations, and dividends from BBC. We utilized these funds primarily to
/bullet/ reduce our mortgage payables and other borrowings,
/bullet/ fund development and construction costs at the Center Port
property,
/bullet/ purchase securities available for sale, and
/bullet/ fund operating expenses and general and administrative
expenses.
We used the funds that we received from the sale of real estate
primarily to reduce related mortgage debt at the Center Port property.
Impact of Inflation - The financial statements and related financial
data and notes presented herein have been prepared in accordance with GAAP,
which require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
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We do not believe that inflation has had any material impact on us.
Inflation could also have an effect on the market value of our ownership in our
BBC common stock. Virtually all of BBC's assets and liabilities are monetary in
nature. As a result, interest rates have a more significant impact on BBC's
performance than the effects of general price levels. Although interest rates
generally move in the same direction as inflation, the magnitude of such changes
varies.
MARKET RISK
Market risk is defined as the risk of loss arising from adverse changes
in market valuation which arise from interest rate risk, foreign currency
exchange rate risk, commodity price risk and equity price risk. Our primary
market risk is equity risk through our investment in BBC.
EQUITY PRICING RISK
Our primary equity investment is our investment in BBC. We entered into
this investment for purposes other than trading purposes. Since this investment
is carried using the equity method of accounting, changes in market price of BBC
stock would not have a direct impact on our financial statements, however, a
change in market price could likely have an impact on the investment community's
view of us. The following table shows changes in the market value of our
investment in BBC at December 31, 1998 based on percentage changes in market
price. Actual future price changes may be different from the changes identified
in the table below (in thousands):
PERCENT
CHANGE IN MARKET
MARKET PRICE VALUE
------------ ------
20.00% $92,515
10.00% 84,806
0.00% 77,096
(10.00)% 69,386
(20.00)% 61,677
Our management does not believe that market risk on other equity
instruments would have a significant impact on our financial condition.
Below is an analysis of BBC's equity pricing risk at December 31, 1998.
The following are hypothetical changes in the fair value of BBC's trading,
available for sale securities at December 31, 1998 based on percentage changes
in fair value. Actual future price appreciation or depreciation may be different
from the changes identified in the table below.
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<TABLE>
<CAPTION>
AVAILABLE SECURITIES TOTAL
PERCENT TRADING FOR SALE SOLD NOT DOLLAR
CHANGE IN SECURITIES SECURITIES FAIR YET CHANGE FROM
FAIR VALUE FAIR VALUE VALUE PURCHASED 0%
---------- ---------- ----- --------- --
(dollars in thousands)
<S> <C> <C> <C> <C>
20% $36,006 $20,516 $3,446 $9,994
10% 33,006 18,807 3,159 4,998
0% 30,005 17,097 2,872 0
(10)% 27,005 15,387 2,585 (4,998)
(20)% 24,004 13,678 2,298 (9,994)
</TABLE>
During 1998, BBC began trading government securities which are
generally bought and sold on the same day. In addition, Ryan Beck is a market
maker in equity securities which could, from time to time require them to hold
securities during declining markets. BBC attempts to manage its equity price
risk by maintaining a relatively small portfolio of securities and evaluating
equity securities as part of BBC's overall asset and liability management
process.
INTEREST RATE RISK
The majority of BBC's assets and liabilities are monetary in nature
subjecting BBC to significant interest rate risk. BBC has developed a model
using vendor software to quantify its interest rate risk. BBC performed
sensitivity analysis measuring BBC's potential gains and losses in net portfolio
fair values of interest rate sensitive instruments at December 31, 1998
resulting from a change in interest rates. Interest rate sensitive instruments
included in the model were BBC's:
/bullet/ loan portfolio,
/bullet/ debt securities available for sale,
/bullet/ investment securities,
/bullet/ FHLB stock,
/bullet/ mortgage servicing rights,
/bullet/ Federal Funds sold,
/bullet/ deposits,
/bullet/ advances from FHLB,
/bullet/ securities sold under agreements to repurchase,
/bullet/ Federal Funds purchased,
/bullet/ Subordinated Debentures,
/bullet/ Trust Preferred Securities, and
/bullet/ off-balance sheet loan commitments.
BBC has no off-balance sheet derivatives other than fixed rate loan
commitments aggregating $71.8 million at December 31, 1998.
The model calculates the net potential gains and losses in net
portfolio fair value by:
1) discounting anticipated cash flows from existing assets, liabilities
and off-balance sheet contracts at market rates to determine fair values at
December 31, 1998,
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2) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values,
3) the difference between the fair value calculated in (1) and (2) is
the potential gains and losses in net portfolio fair values.
BBC's management has estimated fair value discount rates that it
believes to be reasonable. However, because there is no quoted market for many
of these financial instruments, BBC's management has no basis to determine
whether the fair value presented would be indicative of the value negotiated in
an actual sale. BankAtlantic's fair value estimates do not consider the tax
effect that would be associated with the disposition of the assets or
liabilities at their fair value estimates.
The prepayment assumptions used in the model are disclosed in
BankAtlantic's Cumulative Rate Sensitivity Gap at December 31, 1998. BBC valued
its subordinated debentures and trust preferred securities for this purpose
based on their contractual maturities or redemption date. BBC's interest rate
risk policy has been approved by its Board of Directors and establishes
guidelines for tolerance levels for net portfolio value changes based on
interest rate volatility. BBC's management has maintained the portfolio within
these established tolerances.
Presented below is an analysis of BBC's interest rate risk at December
31, 1998 as calculated utilizing BBC's model. The table measures changes in net
portfolio value for instantaneous and parallel shifts in the yield curve in 100
basis point increments up or down.
NET PORTFOLIO
CHANGES VALUE DOLLAR
IN RATE AMOUNT CHANGE
------- ------ ------
(dollars in thousands)
+200 bp $ 297,510 $ (70,272)
+100 bp $ 351,652 $ (16,130)
0 bp $ 367,782 $ 0
(100)bp $ 310,908 $ (56,874)
(200)bp $ 259,775 $(108,007)
Certain assumptions by BBC in assessing the interest rate risk were
utilized in preparing the preceding table. These assumptions relate to interest
rates, loan prepayment rates, deposit decay rates, and market values of certain
assets under various interest rate scenarios and repricing of certain
borrowings.
It was also assumed that delinquency rates would not change as a result
of changes in interest rates although there can be no assurance that this would
be the case. Even if interest rates change in the designated increments, there
can be no assurance that BBC's assets and liabilities would perform as indicated
in the table above. In addition, a change in U.S. Treasury rates in the
designated amounts, accompanied by a change in the shape of the yield curve
could cause significantly different changes to the fair values than indicated
above. Furthermore, the result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory and reactive measures which BBC may take in the future.
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YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000. The consequences of incomplete or untimely resolution of year 2000
issues represent an uncertainty that could affect future financial results. The
year 2000 issue affects virtually all companies and organizations.
Our computer system is composed of seven personal computers running on
a Windows NT network. Our primary in-house computer applications consist of
general ledger, accounts payable, property management, spreadsheet and database
applications. The personal computers have been tested and found to be year 2000
compliant. The vendor of the general ledger, accounts payable and property
management packages has indicated that their software is also year 2000
compliant. The spreadsheet and database applications utilized are the most
recent versions available from Microsoft. Accordingly, we do not expect to
expend material amounts to third parties to remediate any year 2000 problems.
Should any of the above systems fail, we believe we would be able to process our
data and monitor our accounts through manual systems or other alternative means.
Additionally, we do not anticipate that we will have any material year 2000
expenditures with respect to real estate that we own.
BBC has undertaken various initiatives intended to ensure that its
computer applications will function properly with respect to dates in the year
2000 and thereafter. BBC has established a year 2000 action plan which was
presented to its Board of Directors on December 2, 1997. The action plan was
developed using the guidelines outlined in the Federal Financial Institutions
Examination Council's "The Effect of 2000 on Computer Systems".
The six phases of BBC's action plan are:
/bullet/ Awareness - Define the year 2000 issues, gain executive level
support, establish a project team and develop a strategy which
encompasses technology and business issues,
/bullet/ Assessment - Assess the size and complexity of the issues and
detail the magnitude of the effort necessary to address them,
/bullet/ Renovation - Code enhancements, hardware and software
upgrades, and system replacements,
/bullet/ Validation - Testing of software, system components and
connections between systems,
/bullet/ Implementation - Systems should be certified as year 2000
ready by the business users, and
/bullet/ Contingency planning - determination of strategy to handle the
most likely worst case scenarios on year 2000 issues.
BBC believes that it has completed the awareness and assessment phases
of its action plan. Renovation, validation and implementation phases were
approximately 80% completed at December 31, 1998 with anticipated 95% completion
as of March 31, 1999 and 100% completion as of June 30, 1999. The contingency
planning phase was 50% completed as of December 31, 1998, and is scheduled to be
90% complete as of March 31, 1999 and 100% completed as of June 30, 1999.
Although BBC expects to meet its action plan schedule, there is no
assurance that this timetable will be completed according to schedule.
The majority of BBC's mission critical information technology system
structure ("IT") has been outsourced to third party vendors. BBC's internal IT
primarily consists of a minicomputer for item processing and a personal computer
based wide area network. The wide area network's primary function is to
communicate with third party service bureaus and secondarily to run non-critical
personal computer applications such as E-mail, word processing and spreadsheet
programs. BBC has various non-IT systems with embedded microcontrollers,
including but not limited to, vault security equipment, branch security
equipment, telephone systems, circuit boards on building equipment, building
elevators, and appliances. The above IT and non-IT systems could fail or create
erroneous results by or at the year 2000.
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BBC relies on third party vendors to perform loan, deposit, general
ledger and other application processing. BBC is monitoring the progress of these
third party vendors in meeting their year 2000 obligations and is actively
involved in the implementation and testing of the modified application programs.
The third party vendors completed the update of the application programs during
the fourth quarter of 1998 with BBC testing the programs during the first
quarter of 1999. Although BBC currently has no indication that its third party
vendors will not be able to operate as a result of year 2000 related problems,
there is no assurance that these third party vendors will meet their obligations
to BBC. Included in BBC's Statement of Operations during the year ended December
31, 1998 were $210,000 of third party expenses related to the year 2000 action
plan. BBC estimates that it will spend approximately $100,000 on year 2000
consulting services, $300,000 on software and hardware maintenance specifically
related to year 2000, $100,000 on Ryan Beck system upgrades and consulting
services and $100,000 for contingency planning during the year ended December
31, 1999. The above items will be expensed as incurred and do not include
employee compensation allocated for time spent on the year 2000 project.
Risk factors associated with the year 2000 event include the risk that
BBC's business could be disrupted due to vendors, suppliers, and customer system
failures, or even the possible loss of electrical power or phone service. BBC is
currently assessing the probability of these events occurring and is formulating
contingency plans. BBC could be also subjected to litigation due to year 2000
noncompliance from customers, borrowers and suppliers as a result of both
internal and third party system failures. BBC as part of its action plan has
sent brochures to customers, and questionnaires to borrowers and suppliers, and
as mentioned above is addressing both IT and non-IT year 2000 issues. Further,
the credit quality of BBC's loans may be affected by the failure of a borrower's
operating or other systems as a consequence of a year 2000 issue or the related
failure of a borrower's key suppliers, customers, or service providers resulting
in higher provisions for loan losses. BBC's underwriting and credit policies
include consideration of a borrower's potential year 2000 issues. There is no
assurance that BBC's borrowers will be able to meet their obligations to BBC if
these borrowers experience year 2000 problems.
BBC may have to replace certain of its assets, based on upgrades to
equipment and software that are part of BBC's normal business needs, rapidly
developing technology, and a three year capital equipment and software
replacement plan. BBC does not anticipate impairment or significant replacement
of assets related to the year 2000 issue.
There is no assurance that the foregoing has identified all costs,
risks or possible losses which BBC may experience associated with year 2000
issues. The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect BBC's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third-party suppliers, borrowers and customers, BBC is
unable to determine at this time whether the consequences of year 2000 failures
will have a material impact on BBC's results of operations, liquidity or
financial condition. The goal of the year 2000 Project is to significantly
reduce BBC's level of uncertainty about the year 2000 problem and, BBC believes
that, with the implementation of new business systems and completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
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<PAGE>
BUSINESS
GENERAL
We are a unitary savings bank holding company because of our ownership
of the BBC common stock. BBC is also a unitary savings bank holding company
which owns 100% of the outstanding stock of BankAtlantic. At February 26, 1999,
we owned approximately 25% of BBC's Class A Common Stock and 47% of the BBC's
Class B Common Stock. Our principal business is owning BankAtlantic through BBC
and our investment in real estate and mortgage notes.
We acquired control of BBC in 1987 for a total investment of
approximately $43 million. From 1987 through June 1993, we increased our
ownership in BBC, and BBC was consolidated in our financial statements from
October 1987 through November 1993. In November 1993, both we and BBC sold
shares of BBC's common stock and our ownership of BBC decreased from 77.83% to
48.17%. Since 1993, BBC has not been consolidated in our financial statements
because our ownership of BBC has been less than 50%. BBC represented
approximately 97% of our consolidated assets when it was consolidated with us.
At December 31, 1998, based on the equity method of accounting for our
investment in BBC, our investment represented approximately 82% of our
consolidated assets.
In addition to our investment in BBC, we own and manage real estate.
Since our inception in 1980, and prior to our acquisition of control of
BankAtlantic, our primary business was the organization, sale and management of
real estate investment programs. One of our subsidiaries continues to serve as
the corporate general partner of a public limited partnership which files
periodic reports with the SEC under the Securities Exchange Act of 1934. Some of
our other subsidiaries also serve as corporate general partners of a number of
private limited partnerships that we formed in prior years. Effective as of
December 31, 1987, we ceased the organization and sale of new real estate
investment programs.
BBC's primary activities relate to its ownership of 100% of
BankAtlantic's capital stock. BankAtlantic is a federally-chartered,
federally-insured savings bank organized in 1952, which provides traditional
retail banking services and a full range of commercial banking products and
related financial services. BankAtlantic's principal business is
/bullet/ attracting checking and savings deposits from the public and
general business customers and
/bullet/ using these deposits
/bullet/ to originate commercial real estate and business
loans, residential real estate loans and consumer
loans
/bullet/ to purchase wholesale residential loans from third
parties and
/bullet/ to make other permitted investments including
investments in mortgage-backed securities, tax
certificates and other investment securities.
BankAtlantic currently operates through 67 branch offices located
primarily in Miami-Dade, Broward and Palm Beach Counties in south Florida. As
reported by an independent reporting service, BankAtlantic is currently the
largest financial institution headquartered in Florida based on deposits at
September 30, 1998. BankAtlantic is regulated and examined by the OTS and the
FDIC and its deposit accounts are insured up to applicable limits by the FDIC.
In 1998, BBC acquired Ryan Beck, an investment banking firm that
underwrites, distributes and trades tax-exempt securities and provides capital
raising and advisory services to the financial services industry. In addition,
BBC also engages in real estate development and investment activities through
its acquisition of St. Lucie West Holding Corp., the developer of a master
planned residential, commercial and industrial community in St. Lucie County,
Florida, and through several minority interest investments in real estate
development projects in south Florida.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance with its provisions, file reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information can be inspected and copied at the SEC's public reference
facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the SEC's public reference room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers who file electronically with the SEC. The address of that site is
http://www.sec.gov.
This prospectus is part of a registration statement on Form S-1, that
we have filed with the SEC under the Securities Act of 1933 with respect to the
Class A Common Stock and the subordinated debentures. This prospectus does not
contain all of the information set forth in the registration statement, certain
portions of which we have omitted as permitted by the rules and regulations of
the SEC. For further information with respect to us, the Class A Common Stock,
and the subordinated debentures, we refer you to the registration statement,
including its exhibits. Any statements contained in this prospectus concerning
the provisions of any document filed as an exhibit to the registration statement
or otherwise filed with the SEC are not necessarily complete and, in each
instance, we refer you to the copy of such document so filed for a more complete
description of the matter involved. Each such statement is qualified in its
entirety by our reference. The registration statement may be inspected without
charge at the principal office of the SEC in Washington, D.C., and copies of all
or part of it may be obtained from the SEC upon payment of the prescribed fees.
REAL ESTATE AND OTHER ACTIVITIES
In addition to our investment in BBC and unrelated to the public
limited partnership programs and our property management activities, we hold
approximately $1.7 million of mortgage notes which we received in connection
with the sale of properties which we previously owned. We have also recently
made additional real estate investments. In 1994, we agreed to participate in
certain real estate opportunities with John E. Abdo, Vice Chairman of the Board,
and certain of his affiliates. Under the arrangement, we will share equally with
Mr. Abdo and his affiliates in profits after we are paid for interest which we
earn on our advances. We bear any risk of loss under the arrangement.
Pursuant to our arrangement with Mr. Abdo and his associates we have
acquired interests in two properties.
/bullet/ In June 1994, an entity we control acquired from an
independent third party 23.7 acres of unimproved land known as
the "Cypress Creek" property located in Fort Lauderdale,
Florida. In March 1996, we sold the Cypress Creek property to
an unaffiliated third party for approximately $9.7 million
and, as a result, recognized a gain of approximately $3.3
million. In connection with the sale, Mr. Abdo and his
associates received approximately $2.9 million as its share of
the profit from the transaction, which was included in the
cost of sale of real estate. As part of the sale of the
Cypress Creek property, we received a limited partnership
interest in an unaffiliated limited partnership that will
entitle us to receive approximately 4.5% of any profits from
the development and operation of the property. In January
1999, we received approximately $259,000 when we liquidated
the limited partnership.
/bullet/ In December 1994, an entity which we control acquired from an
unaffiliated seller approximately 70 acres of unimproved land
known as the "Center Port" property in Pompano Beach, Florida.
Through December 31, 1998, we have sold approximately 42 acres
from the Center Port property to unaffiliated third parties
for approximately $11.7 million and we recognized net gains
from the sale of real estate of approximately $2.8 million.
Included in cost of sales is approximately $2.0 million
representing the profit participation for Mr. Abdo and his
affiliates from the transaction.
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<PAGE>
Approximately $8.0 million of the proceeds from the sale were
utilized to reduce the borrowing for which the Center Port
property serves as partial collateral. At December 31, 1998,
the balance on this borrowing was approximately $1,000 and was
due to an unaffiliated lender. Payment of any profit
participation to Mr. Abdo and his affiliates will be deferred
until the lender is repaid and all interest and advances are
repaid to us. The remainder of the Center Port property is
currently being marketed for sale.
In October 1996, we sold a 50% interest in the Delray Industrial Park,
located in Delray Beach, Florida. Since we were the sole maker on the
non-recourse mortgage note on the property and since we maintained a 50%
interest in the subject property, the gain on the sale of approximately $600,000
was deferred, reducing our carrying value in the real estate and the mortgage
remained on our books. During May 1998, the property was refinanced with the
other 50% owner also liable under the note. At that time, we recognized 50% of
the deferred profit on the transaction, and removed the mortgage from our books.
The remaining investment in the property is reflected using the equity method of
accounting.
STATE TAXATION
The State of Florida imposes a corporate income tax at the rate of 5.5%
on taxable income as determined for Florida income tax purposes. Taxable income
for this purpose is based on federal taxable income in excess of $5,000 as
adjusted by certain items.
EMPLOYEES
At December 31, 1998, we employed 8 full-time employees and 1 part-time
employee. We believe that our relations with our employees are satisfactory. We
believe that the employee benefits we offer are generally competitive with
employee benefits provided by other major employers in Florida. Our employees
are not represented by any collective bargaining group.
PROPERTIES
We maintain our offices in approximately 1,500 square feet located in a
building owned by BankAtlantic. The space is leased on terms no less favorable
than that which we believe we could obtain from an independent third party.
We also hold as investments the properties listed below. We do not
presently utilize these properties. All are zoned for their current uses. Lease
terms do not include options.
/bullet/ A parcel of land located in Springfield, Massachusetts
containing approximately 4.4 acres subject to an estate for
years expiring in July 2006.
/bullet/ A parcel of land located in Aurora, Illinois containing
approximately 4.4 acres subject to an estate for years
expiring in July 2006.
/bullet/ A parcel of land located in Fort Lauderdale, Florida, referred
to herein as the Center Port property, containing
approximately 70 acres of which we have sold approximately 42
acres through December 31, 1998.
/bullet/ A shopping center known as the Burlington Manufacturers Outlet
Center located in Burlington, North Carolina containing
approximately 280,265 leaseable square feet.
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<PAGE>
/bullet/ A 50% interest in an industrial park known as Delray
Industrial Park located in Delray Beach, Florida containing
approximately 134,237 leaseable square feet.
REGULATION AND SUPERVISION
By virtue of our ownership of BBC's common stock, we are considered a
unitary savings bank holding company subject to regulatory oversight by the OTS.
As such, we are required to register with and be subject to OTS examination,
supervision and certain reporting requirements. In addition, BBC is subject to
the same oversight by the OTS as discussed herein with respect to us.
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. As a member of the FHLB System,
BankAtlantic is also subject to limited regulation by the Federal Reserve Board.
BankAtlantic must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions. The OTS and the FDIC
periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion with respect to the classification of non-performing and
other assets and the establishment of adequate loan loss reserves for regulatory
purposes.
The Home Owner's Loan Act prohibits a savings bank holding company from
acquiring control 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 approve
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 Community Reinvestment Act. Generally, a savings bank
holding company may not acquire more than five percent 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 the Home
Owner's Loan Act 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 a savings bank
holding company's continuation of any activity constitutes a serious risk to the
financial safety, soundness, or stability of the 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:
/bullet/ limit the payment of dividends by the savings institution,
/bullet/ limit transactions between the savings institution, the
holding company and the subsidiaries or affiliates of either,
or
/bullet/ limit any activity 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.
We will remain a unitary savings bank holding company under applicable
law until we or BBC acquire as a separate subsidiary another savings institution
or savings institution holding company. A savings bank holding company whose
sole subsidiary qualifies as a qualified thrift lender 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
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acquires another institution and maintains it as a separate subsidiary or whose
sole subsidiary fails to meet the qualified thrift lender test is 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
/bullet/ furnishing or performing management services for a subsidiary
insured institution,
/bullet/ conducting an insurance agency or an escrow business,
/bullet/ holding, managing or liquidating assets owned by or acquired
from a subsidiary insured institution,
/bullet/ holding or managing properties used or occupied by a
subsidiary insured institution,
/bullet/ acting as trustee under deeds of trust,
/bullet/ 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
/bullet/ subject to prior approval of the OTS, those activities
authorized by the Federal Reserve Board as permissible
investments for bank holding companies.
These restrictions do not apply to a multiple savings bank holding company if
/bullet/ all, or all but one, of its insured institution subsidiaries
were acquired in emergency thrift acquisitions or assisted
acquisitions and
/bullet/ all of its insured institution subsidiaries are qualified
thrift lenders.
BankAtlantic and BBC are subject to restrictions in their dealings with
us and any other companies that are affiliates of us under the Home Owner's Loan
Act and certain provisions of the Federal Reserve Act that are made applicable
to savings institutions by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and OTS regulations.
LEGAL PROCEEDINGS
The following is a description of a lawsuit in which we are a party.
ALAN B. LEVAN AND BFC FINANCIAL CORPORATION V. CAPITAL CITIES/ABC, INC.
AND WILLIAM H. WILSON, in the United States District Court for the Southern
District of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, the ABC
television program 20/20 broadcast a story about Alan B. Levan and us which
purportedly depicted a number of securities transactions in which we and Mr.
Levan were involved. The story contained numerous false and defamatory
statements about us and Mr. Levan and, on February 7, 1992, a defamation lawsuit
was filed on behalf of us and Mr. Levan against Capital Cities/ABC, Inc. and
William H. Wilson, the producer of the broadcast. In December 1996, a jury found
in our favor and in favor of Mr. Levan and awarded a compensatory judgment of
$1.25 million to us and $8.75 million to Mr. Levan. Capital Cities/ABC, Inc. and
William H. Wilson have filed an appeal in this matter. That appeal is currently
pending.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names and ages of our directors and
executive officers as well as the positions and offices which they hold. A
summary of the background and experience of each of these individuals is set
forth after the table. Our officers serve at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Alan B. Levan............... 54 Chairman of the Board, President, Chief Executive Officer, Director
John E. Abdo................ 55 Vice Chairman of the Board, Director
Glen R. Gilbert............. 54 Executive Vice President, Chief Financial Officer and Secretary
Carl E. B. McKenry, Jr...... 69 Director
Earl Pertnoy................ 72 Director
</TABLE>
ALAN B. LEVAN formed the I.R.E. Group (our predecessor companies) in
1972. Since 1978, he has been our Chairman of the Board, President, and Chief
Executive Officer. He is Chairman of the Board and President of I.R.E. Realty
Advisors, Inc., I.R.E. Properties, Inc., I.R.E. Realty Advisory Group, Inc.,
U.S. Capital Securities, Inc., and Florida Partners Corporation. He is
President, Chairman of the Board and Chief Executive Officer of BBC and
BankAtlantic. He is an individual general partner and an officer and a director
of the corporate general partner of a public limited partnership that is
affiliated with us.
JOHN E. ABDO has been principally employed as President and Chief
Executive Officer of The Abdo Companies, Inc., a real estate development,
construction and brokerage firm, for more than five years. He has been one of
our directors since 1989 and Vice Chairman of our Board since 1993. He has been
a director of BankAtlantic since 1984, Chairman of the Executive Committee of
BankAtlantic since October 1985 and President of BankAtlantic Development
Corporation, a wholly-owned subsidiary of BankAtlantic, since 1985. He has been
Vice Chairman of the Board of BankAtlantic since April 1987. In 1994, he became
a director of BBC and Vice Chairman of its Board of Directors. He is also a
director of Benihana National Corporation, a national restaurant chain.
GLEN R. GILBERT has been our Executive Vice President since July 1997.
Prior to that date he served as our Senior Vice President. In May 1987 he was
appointed our Chief Financial Officer and in October 1988 was appointed
Secretary. He joined us in November 1980 as Vice President and Chief Accountant.
He has been a certified public accountant since 1970. He serves as an officer of
Florida Partners Corporation and of the corporate general partner of a public
limited partnership that is affiliated with us. He has been Vice President and a
director of BankAtlantic Development Corporation since 1997.
CARL E. B. MCKENRY, JR. is the Director of the Small Business Institute
at the University of Miami in Coral Gables, Florida. He has been associated in
various capacities with the University since 1955. He has been one of our
directors since 1981 and is also a director of the corporate general partner of
a public limited partnership that is affiliated with us.
EARL PERTNOY has been a real estate investor and developer for more
than the past five years. He has been one of our directors since 1978 and is
also a director of the corporate general partner of a public limited partnership
that is affiliated with us.
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EXECUTIVE COMPENSATION
The following table and notes set forth information with respect to the
annual compensation which we paid to each of our executive officers for services
rendered in all capacities during the year ended December 31, 1998 as well as
the total annual compensation paid to each of those individuals for the prior
two years. The information below does not include compensation paid which BBC
and its subsidiaries paid to those persons.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
---------------------- ------ -------
RESTRICTED STOCK
NAME AND OTHER ANNUAL STOCK OPTION ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS AWARDS LTIP COMPENSATION
YEAR ($) ($) ($) (#) (#) ($) ($)(2)
- ------------------ ---- ------- ----- ------------ ---------- ------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan B. Levan 1998 515,753 -- -- -- 225,000 2,926 74,653
Chairman of the
Board, President 1997 509,910 -- -- -- 375,000 1,628 80,495
and Chief
Executive Officer 1996 508,176 -- -- -- -- 1,622 80,774
Glen R. Gilbert 1998 210,625 8,070 -- -- 30,000 2,926 --
Executive Vice
President, Chief 1997 210,625 8,070 -- -- 93,750 1,628 --
Financial Officer
and Secretary 1996 209,817 7,760 -- -- -- 1,662 --
John E. Abdo 1998 -- -- -- -- 225,000 -- --
Vice Chairman of
the Board 1997 -- -- -- -- 375,000 -- --
1996 -- 39,000 -- -- -- -- --
<FN>
- ----------
(1) The amounts exclude amounts which BankAtlantic paid those individuals.
In 1998 BankAtlantic paid Mr. Levan salary of $370,639 and $151,847 of
other compensation. In 1997 BankAtlantic paid Mr. Levan salary of
$350,574 and $156,432 of other compensation. In 1996 BankAtlantic paid
Mr. Levan salary of $321,168, a bonus of $193,740 and $158,045 of other
compensation. In 1998 BankAtlantic paid Mr. Abdo salary of $190,997 and
other compensation of $2,100. In 1997 BankAtlantic paid Mr. Abdo salary
of $175,000 and $14,700 of other compensation. In 1996 BankAtlantic
paid Mr. Abdo salary of $175,000 and $13,899 in other compensation. BBC
paid no amounts to Mr. Levan or Mr. Abdo in this period.
(2) Represents reimbursements or payments for life and disability
insurance.
</FN>
</TABLE>
The foregoing table includes only our executive officers and does not
include executive officers of BBC or BankAtlantic. It also does not include
compensation which BBC and its subsidiaries paid such persons. With
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the exception of Mr. Levan and Mr. Abdo, executive officers of BBC and
BankAtlantic do not have significant executive responsibilities with respect to
our key policy decisions.
STOCK OPTIONS
The following table sets forth information concerning the individual
grants of stock options which we made to the named executives in the Summary
Compensation Table. We made these grants pursuant to our Stock Option Plan
during the year ended December 31, 1998. We have not granted and do not
currently grant stock appreciation rights.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS TABLE
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO ----------------- TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED (#)(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- -------------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Alan B. Levan 225,000 42.25% $10.33 1/13/2008 $1,462,166 $3,705,433
John E. Abdo 225,000 42.25% $10.33 1/13/2008 $1,462,166 $3,705,433
Glen R. Gilbert 30,000 5.6% $10.33 1/13/2008 $ 194,955 $ 494,057
<FN>
- ----------
(1) Options vested 100% on July 13, 1998. All option grants are in Class B
Common Stock.
(2) We calculated amounts for the named executives by multiplying the
exercise price by the annual appreciation rate shown (compounded for
the remaining term of the options), subtracting the exercise price per
share and multiplying the gain per share by the number of shares
covered by the options. The dollar amounts under these columns are the
results of calculations based upon assumed rates of annual compounded
stock price appreciation and are not intended to forecast actual future
appreciation rates of our stock price.
</FN>
</TABLE>
The following table sets forth as to each of the named executive
officers information with respect to the number of shares of Class B Common
Stock which that person acquired upon exercise of options during 1998 and
underlying unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE
NUMBER OF SECURITIES UNDERLYING
NUMBER OF UNEXERCISED OPTIONS ON VALUE OF UNEXERCISED IN-THE-MONEY
SHARES VALUE REALIZED DECEMBER 31, 1998 OPTIONS ON DECEMBER 31, 1998(1)
ACQUIRED OR UPON ---------------------------------- -----------------------------------
NAME EXERCISED(#) EXERCISE($) EXERCISABLE(#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
---- --------- ------------ -------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Alan B. Levan --- -- 1,082,907 187,500 4,524,868 521,868
John E. Abdo --- -- 1,162,500 187,500 4,996,855 521,868
Glen R. Gilbert --- -- 95,625 46,875 263,902 149,216
<FN>
- ----------
(1) Based upon a price of $7.25, which was the last sale price as reported
by the National Quotation Bureau, L.L.C. for 1998.
</FN>
</TABLE>
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<PAGE>
COMPENSATION OF DIRECTORS
Members of our Board of Directors who are not our employees receive
$1,750 per month for serving on the Board. Additionally, members of the Audit
Committee receive a fee of $1,000 per Audit Committee meeting attended. Other
than such compensation, there are no other arrangements pursuant to which any of
our directors is compensated for his services.
LONG-TERM INCENTIVE COMPENSATION
We have made available a profit-sharing plan to all of our employees
(which does not include BBC employees) who meet certain minimum requirements. We
are not required to make any contribution and the amount of our contribution is
determined each year by our Board of Directors. The profit-sharing plan requires
a uniform allocation to each employee of 0% to 15% of compensation (with the
maximum compensation considered being $50,000). Vesting is in increments over a
7-year period to 100%. Alan B. Levan and Glen R. Gilbert are 100% vested.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
NAME AMOUNT OF AWARD MATURATION OF PAYMENT THRESHOLD, TARGET AND MAXIMUM
---- --------------- --------------------- -----------------------------
<S> <C> <C> <C>
Alan B. Levan $2,926 100% vested $111,770
Glen R. Gilbert $2,926 100% vested $88,974
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1994, we agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of our Board, and certain of his affiliates.
Under the arrangement, we will share equally with Mr. Abdo and his affiliates in
profits after interest which we earn on advances we have made. We bear any risk
of loss under the arrangement. Under the arrangement, in December 1994, we
acquired from an unaffiliated seller approximately 70 acres of unimproved land
known as the "Center Port" property in Pompano Beach, Florida. Through December
31, 1998, we had sold approximately 42 acres from the Center Port property to
unaffiliated third parties for approximately $11.7 million, and we recognized
net gains from the sales of approximately $2.8 million. Included in the cost of
sales is approximately $2.0 million representing the profit participation of Mr.
Abdo and his affiliates from the transactions. Approximately $8.0 million of the
proceeds from the sale were utilized to reduce the borrowing for which the
Center Port property serves as partial collateral. At December 31, 1998, the
balance on this borrowing was approximately $1,000 and was due to an
unaffiliated lender. Payment of any profit participation to Mr. Abdo and his
affiliates will be deferred until the lender is repaid and all interest and
advances are repaid to us. The remaining property is currently being marketed
for sale.
Our management believes that all transactions between our affiliates
and us were on terms at least as favorable as could have been obtained from
unaffiliated third parties.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Listed in the table below are the individuals or entities which we know
to hold as of April 20, 1999 beneficial ownership of more than 5% of our
outstanding Class A Common Stock or Class B Common Stock. In addition, this
table includes the outstanding securities which our executive officers and
directors beneficially own and the number of shares beneficially owned by
directors and executive officers as a group. We know of no other persons who
beneficially own 5% or more of our Class A Common Stock or Class B Common Stock.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
CLASS A COMMON CLASS B COMMON CLASS A CLASS B
BENEFICIAL OWNER STOCK OWNERSHIP STOCK OWNERSHIP COMMON STOCK COMMON STOCK
---------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
I.R.E. Realty Advisory Group, Inc.
(2)(5) 1,375,000 500,000 21.3% 9.5%
I.R.E. Properties, Inc. (5) 375,832 136,666 5.8% 2.6%
I.R.E. Realty Advisors, Inc. (5) 666,108 242,221 10.3% 4.6%
Florida Partners Corporation (5) 366,614 133,314 5.7% 2.5%
Alan B. Levan (1)(3)(5) 2,940,483 2,339,673 45.6% 44.6%
Levan Enterprises, Ltd.(3)(5) 153,629 55,865 2.4% 1.1%
John E. Abdo (1)(5) 1,019,563 1,720,750 15.8% 32.8%
Dr. Herbert A. Wertheim (4) 1,145,232 416,448 17.7% 7.9%
Glen R. Gilbert (1)(5) 2,690 143,778 * 2.7%
Earl Pertnoy (1)(5) 18,975 78,150 * 1.5%
Carl E.B. McKenry, Jr. (1)(5) 688 63,728 * 1.2%
All directors and executive officers
of the Company as a group (5
persons)(1)(2) 3,982,399 4,345,051 61.7% 82.7%
<FN>
- ----------
* Represents less than 1% of the total.
(1) The above ownership amounts and nature of beneficial ownership and
percent of class include shares that may be acquired within 60 days
pursuant outstanding stock options to purchase Class B Common Stock as
follows: Alan B. Levan - 1,270,407, John E. Abdo - 1,350,000, Glen R.
Gilbert - 142,500, Earl Pertnoy - 71,250, and Carl E.B. McKenry -
62,750.
(2) We own 45.5% of I.R.E. Realty Advisory Group, Inc.
(3) Levan Enterprises, Ltd. is a controlling and majority shareholder of
I.R.E. Realty Advisors, Inc. I.R.E. Properties, Inc. and may be deemed
to be the controlling shareholder of I.R.E. Realty Advisory Group, Inc.
and Florida Partners Corporation. Levan Enterprises, Ltd. is a "family"
limited partnership whose sole general partner is Levan General Corp.,
a corporation 100% owned by Alan B. Levan. Therefore, Mr. Levan may be
deemed to be the beneficial owner of the shares of Common Stock owned
by such entities. Additionally, Mr. Levan may be deemed to be the
beneficial owner of 3,300 shares of Class A Common Stock and 1,200
shares of Class B Common Stock held of record by Mr. Levan's wife in
addition to his personal holdings of Common Stock, for an aggregate
beneficial ownership of 2,940,483 shares of Class A Common Stock
(45.6%) and 2,339,673 shares of Class B Common Stock (44.6%).
(4) Dr. Wertheim's ownership was reported in a Rebuttal of Control
Agreement filed on December 20, 1996 with the OTS (as adjusted for
stock splits since the date of filing). The Rebuttal of Control
Agreement indicates that Dr. Wertheim has no intention to manage
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<PAGE>
or control the Company, directly or indirectly. Dr. Wertheim's mailing
address is 191 Leucadendra Drive, Coral Gables, Florida 33156.
(5) The mailing address is 1750 East Sunrise Boulevard, Fort Lauderdale,
Florida 33304.
</FN>
</TABLE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital stock is not complete
and is subject to the more detailed provisions of our Articles of Incorporation
and Bylaws and is qualified in its entirety by reference to those documents.
Our authorized capital stock consists of
/bullet/ 20,000,000 shares of Class A Common Stock,
/bullet/ 20,000,000 shares of Class B Common Stock and
/bullet/ 10,000,000 shares of preferred stock.
As of April 26, 1999, we had
/bullet/ 6,453,994 shares of Class A Common Stock issued and
outstanding,
/bullet/ 2,355,407 shares of Class B Common Stock issued and
outstanding, and
/bullet/ no shares of preferred stock issued and outstanding.
The terms of our Class A Common Stock and our Class B Common Stock are
almost identical. However, our Class B Common Stock is entitled to one vote per
share while our Class A Common Stock has no voting rights other than in certain
limited circumstances required by Florida law. In addition each share of our
Class B Common Stock is convertible at any time into one share of our Class A
Common Stock.
VOTING
Holders of our Class B Common Stock currently possess exclusive voting
rights. We may grant voting rights to any shares of preferred stock which we may
issue in the future at our discretion. On matters submitted to our shareholders,
holders of Class B Common Stock will be entitled to one vote for each share,
while holders of Class A Common Stock will not be entitled to vote except as may
be required by Florida law.
Under the Florida Business Corporation Act, holders of our Class A
Common Stock would currently be entitled to vote as a separate voting group if
we propose to amend our Articles of Incorporation to
/bullet/ increase or decrease the authorized number of shares of our
Class A Common Stock,
/bullet/ change the designation, rights, preferences or limitations of
the our Class A Common Stock,
/bullet/ create a new class of shares, or increase the rights,
preferences or number of authorized shares, which would have
rights or preferences with respect to distributions or
dissolution that are prior, superior or substantially equal to
the our Class A Common Stock, or
/bullet/ effect an exchange or reclassification of shares of another
class of our stock into shares of our Class A Common Stock or
of our Class A Common Stock into shares of another class.
In addition, under the Florida Business Corporation Act holders of our
Class A Common Stock would currently be entitled to vote as a separate voting
group on any plan of merger or plan of share exchange which
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contains a provision which, if included in a proposed amendment to the Articles
of Incorporation, would require their vote as a separate voting group. None of
our shares have cumulative voting rights.
DIVIDENDS
Holders of shares of our Class A Common Stock and our Class B Common
Stock are entitled to receive pro rata any cash dividends that our Board of
Directors may declare. With respect to any dividend paid other than in cash
(such as a stock dividend), the distribution per share with respect to Class A
Common Stock must be identical to the distribution per share with respect to
Class B Common Stock, except that we may declare and issue to holders of Class A
Common Stock a stock dividend payable in Class A Common Stock but we may declare
and issue to holders of Class B Common Stock a stock dividend payable in either
Class A Common Stock or Class B Common Stock (at our discretion) so long as the
number of shares issued is, on a per share basis, the same. Our ability to pay
cash dividends is subject to the ability of BBC to pay dividends or make other
distributions to us, which is in turn dependent on the ability of BankAtlantic
to pay dividends or make other distributions to BBC, which is itself in turn
subject to limitations imposed by law and regulation.
CONVERSION
Each share of our Class B Common Stock is convertible at any time into
one share of our Class A Common Stock at the option of its holder. Shares of our
Class A Common Stock are not convertible into shares of our Class B Common Stock
or any other security.
LIQUIDATION RIGHTS
If we liquidate or dissolve all of our assets available for
distribution will be distributed ratably among the holders of our Class A Common
Stock and our Class B Common Stock but only after payment or provision for
payment of:
/bullet/ all debts and liabilities;
/bullet/ any accrued dividend claims;
/bullet/ liquidation preferences of any preferred stock which may be
outstanding; and
/bullet/ any interests in our liquidation account.
TRANSFER AGENT AND REGISTRAR - American Stock Transfer Company.
OTHER CHARACTERISTICS - Neither our Class A Common Stock nor our Class
B Common Stock is entitled to any preemptive right to subscribe for or receive
any shares of any class of our stock (or any securities convertible into shares
of our stock) issued in the future.
PREFERRED STOCK
By amending our Articles of Incorporation and without a shareholder
vote, we may establish one or more classes of preferred stock. We may divide the
shares of class of preferred stock may be into series and issue them in series,
with each series separately designated to distinguish the shares of each series
from the others. We will set forth the terms of each series in a supplement to
our Articles of Incorporation. The terms of a class or series of preferred stock
may provide for, among other things, board representation, voting rights and
dividend and liquidation preferences. All shares of the same class must be
identical except as to certain relative rights and preferences specified in our
Articles of Incorporation, as to which there may be variations between different
series.
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In connection with the adoption of our shareholder rights plan, we
established a series of preferred stock designated our Series A Junior
Participating Preferred Stock, consisting of 100,000 shares. We presently have
no shares of that class outstanding.
SHAREHOLDER RIGHTS PLAN
On January 10, 1997, our Board of Directors adopted our shareholder
rights plan. As part of the plan, we declared a dividend distribution of one
preferred stock purchase right for each outstanding share of our Class B Common
Stock to shareholders of record on January 21, 1997. Each right
/bullet/ will become exercisable only upon the occurrence of certain
events, including the acquisition of 20% or more of the Class
B Common Stock by persons other than the then existing control
shareholders (as specified in the plan),
/bullet/ will entitle the holder to purchase either shares of Series A
Preferred Stock or shares in the acquiring entity at half the
market price of such shares, and
/bullet/ may be redeemed by our Board of Directors at $.01 per right
until the tenth day following the acquisition of 20% or more
of the Class B Common Stock by persons other than the existing
shareholders.
Our Board may also, in its discretion, extend the period for
redemption. The rights will expire on January 10, 2007.
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
The subordinated debentures are a series of debt securities issued
under an indenture between us and U.S. Bank Trust National Association, as
trustee. The subordinated debentures are not savings accounts or deposits and
are not insured by the FDIC or any other governmental agency. The terms and
provisions of the subordinated debentures include those stated in the indenture
and those made part of the indenture by reference to the Trust Indenture Act of
1939 as in effect on the date of the indenture.
THE FOLLOWING IS A DESCRIPTION OF THE MATERIAL TERMS OF THE
SUBORDINATED DEBENTURES. THIS SUMMARY OF THE INDENTURE IS NOT COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INDENTURE, INCLUDING THE
DEFINITIONS IN THE INDENTURE OF CERTAIN TERMS USED BELOW. YOU SHOULD READ THE
ENTIRE INDENTURE AND THE TRUST INDENTURE ACT OF 1939 FOR A COMPLETE
UNDERSTANDING OF THE TERMS OF THE SUBORDINATED DEBENTURES.
For purposes of this section, when we refer to ourself we refer only to
BFC Financial Corporation and not our subsidiaries.
GENERAL
The subordinated debentures:
/bullet/ are general obligations of ours limited to $17.25 million in
aggregate principal amount,
/bullet/ are not secured by our assets or otherwise,
/bullet/ do not have the benefit of a sinking fund for the retirement
of principal,
/bullet/ rank equal to all of our subordinated indebtedness,
/bullet/ are subordinated in right of payment to all of our current or
future Senior Indebtedness (as we define this term in "-
Subordination") or liabilities which are not expressly by
their terms subordinate or equal in right of payment to the
subordinated debentures, and which may include our obligations
to BBC or BankAtlantic.
We, or any of our subsidiaries, including BBC or BankAtlantic, may incur
additional indebtedness constituting Senior Indebtedness or indebtedness that
ranks equal to the subordinated debentures. The indenture does not limit the
total indebtedness that either we or any of our subsidiaries may incur. As of
December 31, 1998, we had outstanding $16.0 million of Senior Indebtedness
consisting of
/bullet/ $10.8 million of mortgage debt and other borrowings and
/bullet/ $5.2 million of obligations in respect of called but
unpresented unsecured debentures (which do not bear interest).
We also have $3.67 million of indebtedness that ranks equally with the
subordinated debentures.
Because we are a holding company, our right to participate in any
distribution of assets of our subsidiaries, including BBC or BankAtlantic, upon
any liquidation or reorganization or otherwise of those subsidiaries is subject
to the prior claims of creditors of the subsidiary, including depositors in
BankAtlantic, except to the extent that we may be recognized as a creditor of
the subsidiary. Thus, the ability of holders of the subordinated debentures to
benefit indirectly from such distribution is affected by those creditor claims.
The subordinated debentures mature on _______________, 2010, unless
redeemed earlier which we may do at our option. See "--Redemption or Repurchase
of Subordinated Debentures." The subordinated debentures bear interest at the
rate of ____% per year. We will pay interest semi-annually on _________ and
_________ of each year commencing on ____________, 1999 to the person in whose
name the subordinated debenture (or any predecessor subordinated debenture) is
registered at the close of business on the preceding ___________ or ___________,
as the case may be. We will compute interest on the subordinated debentures on
the basis of a 360-
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day year of twelve 30-day months. The trustee will pay the principal and
interest on the subordinated debentures when due by check mailed to the person
entitled to payment.
Our primary source of funds for the payment of principal and interest
on the subordinated debentures is dividends from BBC, and BBC's primary source
of funds for dividends is dividends from BankAtlantic. From time to time while
the subordinated debentures are outstanding, BBC or BankAtlantic may be subject
to regulatory or contractual constraints that restrict their ability to pay
dividends to us.
REDEMPTION OR REPURCHASE OF SUBORDINATED DEBENTURES
We may redeem the subordinated debentures at our option, in whole or in
part, at any time, on not less than 30 days notice, but not more than 60 days
prior to the redemption date and at the redemption prices shown below.
The following are the redemption prices expressed as percentages of the
principal amount, plus accrued interest to the redemption date, if the
subordinated debentures are redeemed during the twelve month period beginning
___________ of the years indicated below:
2004
2005
2006
2007
2008
2009.......................100%
We may repurchase the subordinated debentures at any time at any price
in the open market or otherwise. We may hold or resell subordinated debentures
which we purchase at our discretion or we may surrender them to the trustee for
cancellation.
SUBORDINATION
The principal, and interest and any premium on the subordinated
debentures are subordinate and junior in right of payment to the prior payment
in full of all of our Senior Indebtedness. The indenture does not limit the
amount of Senior Indebtedness or other indebtedness, secured or unsecured, that
we or any of our subsidiaries may incur. If our payments on Senior Indebtedness
are accelerated, we will be prohibited from making any payment of principal,
premium or interest on the subordinated debentures until payments of the Senior
Indebtedness are made or provided for. If we dissolve, wind up, liquidate or
reorganize and our assets are distributed, payment of principal, premium or
interest on the subordinated debentures will be subordinated, to the extent and
in the manner set forth in the indenture, to the prior payment in full of Senior
Indebtedness. If our assets are distributed in any such proceeding, certain of
our general creditors may recover more, ratably, than holders of the
subordinated debentures by reason of such subordination.
"Indebtedness" means:
/bullet/ all of our obligations for borrowed money, whether or not the
recourse of the lender is to the whole of our assets or only
to a portion of such assets,
/bullet/ all of our indebtedness which is evidenced by a note,
debenture, bond or other similar instrument, including lease
obligations that we incur with respect to any property
acquired or leased and used in our business that is required
to be recorded as a capitalized lease,
/bullet/ all of our indebtedness representing the unpaid balance of the
purchase price of any goods or other property or balance owed
for any services rendered,
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/bullet/ all of our indebtedness, including capitalized lease
obligations, incurred, assumed or given in an acquisition,
whether by way of purchase, merger or otherwise, of any
business, real property or other assets,
/bullet/ any indebtedness of others described in the preceding four
bullet points that we have guaranteed or for which we are
otherwise liable, and
/bullet/ any amendment, renewal, extension, deferral, modification,
restructuring or refunding of any such indebtedness,
obligation or guarantee.
"Senior Indebtedness" means any and all of our Indebtedness except for
any particular Indebtedness, for which the instrument creating or evidencing it
or pursuant to which is outstanding expressly provides that it is subordinate or
shall rank equal in right of payment to the subordinated debentures.
CERTAIN COVENANTS
The indenture contains certain customary covenants found in indentures
under the Trust Indenture Act, including covenants with respect to:
/bullet/ paying principal and interest,
/bullet/ maintaining an office or agency for administering the
subordinated debentures,
/bullet/ holding funds for payments on the subordinated debentures in
trust,
/bullet/ paying taxes and other claims,
/bullet/ maintaining our properties and our corporate existence, and
/bullet/ delivering annual certifications to the trustee.
RESTRICTIONS ON DIVIDENDS
The indenture provides that we cannot:
/bullet/ declare or pay dividends on, or purchase, redeem or acquire
for value any of our capital stock,
/bullet/ return any capital to holders of our capital stock, or
/bullet/ make any distribution of assets to holders of our capital
stock
unless at the time we declare the dividend or the date on which we make the
purchase, redemption, payment or distribution described above, we are not in
default in the payment of interest on the subordinated debentures or an event of
default has not occurred.
The indenture does not prohibit or restrict us from selling additional
shares of our capital stock or other debt securities nor from pledging our
shares of BBC's capital stock. Further, neither BBC nor BankAtlantic is
restricted from issuing any shares of their respective capital stock or debt
securities.
DEFAULTS AND REMEDIES
As provided in the indenture, an event of default results if we:
/bullet/ fail to pay principal of or premium, if any, on the
subordinated debentures at maturity or upon redemption,
whether or not such payment is prohibited by the subordination
provisions,
/bullet/ fail to pay interest on any of the subordinated debentures
when due and such failure continues for a period of 30 days,
whether or not such payment is prohibited by the subordination
provisions,
/bullet/ fail to comply with any of our other agreements or covenants
in, or provisions of, the indenture and such default continues
for the period of 60 days after the trustee notifies us or the
holders of at least 25% in principal amount of the outstanding
subordinated debentures notify us in writing of the default,
or
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/bullet/ reorganize or become bankrupt or insolvent in certain events.
The notice referred to in the third bullet point must specify the default,
demand that it be remedied and state that the notice is a "Notice of Default."
The trustee must give the notice if so requested in writing by the holders of at
least 25% in principal amount of the subordinated debentures then outstanding.
The trustee must deliver any notice which it is required to deliver to us
promptly after it becomes aware of the default or is requested by the holders to
deliver the notice.
The indenture provides that the trustee will, within 90 days after the
occurrence of any default known to it, mail to the holders of the subordinated
debentures notice of the default. If we default in paying principal of or
interest on any of the subordinated debentures, the trustee will be protected
from withholding such notice if it in good faith determines that withholding the
notice is in the interest of the holders of the subordinated debentures.
The indenture permits the acceleration of payment of principal of the
subordinated debentures only upon an event of default resulting from our failing
to pay principal or interest on the subordinated debentures or if we reorganize
or become bankrupt or insolvent in certain events. If such an event of default
is continuing, the indenture provides that the trustee or holders of not less
than 30% in aggregate principal amount of the subordinated debentures then
outstanding, by notice in writing to us (and to the trustee if given by the
holders), may declare all unpaid principal of all the subordinated debentures to
be immediately due and payable. Holders of a majority in principal amount of the
subordinated debentures then outstanding may rescind an acceleration and its
consequences and may waive past defaults upon conditions provided in the
indenture. No holder of subordinated debentures may pursue any remedy under the
indenture unless:
/bullet/ the holder has previously given to the trustee written notice
of a continuing event of default, and
/bullet/ the holders of at least 30% in principal amount of the
subordinated debentures then outstanding
/bullet/ have requested the trustee in writing to pursue the
remedy,
/bullet/ offered the trustee satisfactory indemnity against
loss, liability and expense incurred by pursuing the
remedy, and
/bullet/ the trustee has failed so to act within 60 days after receipt
of such request.
The indenture requires us to file periodic reports with the trustee as
to the absence of defaults.
SATISFACTION, DISCHARGE AND DEFEASANCE
The indenture provides that we will at our option either
/bullet/ be deemed to have paid and discharged the entire indebtedness
represented by our obligations under the subordinated
debentures, except for
/bullet/ the obligation to pay the principal of, premium, if
any, and interest on, the subordinated debentures,
and
/bullet/ certain obligations to
/bullet/ register the transfer or exchange of the
subordinated debentures,
/bullet/ replace temporary or mutilated, destroyed,
lost or stolen subordinated debentures,
/bullet/ maintain an office or agency in respect to
the subordinated debentures, and
/bullet/ hold moneys for payment in trust, or
/bullet/ cease to be under any obligation to comply with certain terms,
provisions or conditions of the indenture (other than those
terms, provisions or conditions described in the indenture
under "Consolidation, Merger or Sale") or the terms,
provisions or conditions of the subordinated debentures,
in either case, on the 91st day after
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/bullet/ we have paid or caused to be paid all other sums payable with
respect to the outstanding subordinated debentures and we have
delivered to the trustee a certificate from an authorized
officer and an opinion of legal counsel, each stating that all
conditions precedent relating to the satisfaction and
discharge of the entire indebtedness on all of the outstanding
subordinated debentures have been complied with,
/bullet/ we have deposited or caused to be deposited irrevocably with
the trustee as a trust fund specifically pledged as security
for the benefit of the holders of the subordinated debentures,
/bullet/ dollars in an amount or
/bullet/ direct obligations of the United States of America
(which through the payment of interest and principal
in respect thereof in accordance with their terms
will provide, not later than the due date of any
payment of principal, premium, if any, and interest
on the outstanding subordinated debentures) in an
amount, or
/bullet/ a combination of the two above,
in any case, sufficient to pay and discharge each installment
of principal of and interest or premium, if any, on the
outstanding subordinated debentures on the dates such
installments of interest or principal or premium, if any, are
due, and
/bullet/ no event of default has occurred and is continuing on the date
of such deposit.
Among the conditions of our exercising any such option, we are required to
deliver to the trustee an opinion of independent counsel of recognized standing
to the effect that the
/bullet/ deposit and related defeasance would not cause the holders of
the subordinated debentures to recognize income, gain or loss
for United States federal income tax purposes, and
/bullet/ holders will be subject to United States federal income tax in
the same amounts, in the same manner and at the same times as
would have been the case if such deposit and related
defeasance had not occurred.
MODIFICATION OF THE INDENTURE
The indenture provides that we and the trustee may, without the consent
of any holders of subordinated debentures, enter into supplemental indentures
for purposes, among other things, of:
/bullet/ evidencing the succession of another person to us and the
assumption by any such successor of our covenants,
/bullet/ making any change that does not adversely affect the rights of
any holders of subordinated debentures, or
/bullet/ curing any ambiguity, defect or inconsistency
as long as any of the foregoing will not adversely affect the interest of any
holder in any material respect.
Most of the terms of the indenture and the subordinated debentures may
be modified with the consent of the holders of not less than two-thirds of the
principal amount of subordinated debentures then outstanding.
However, each holder must agree to:
/bullet/ extend the maturity date of the subordinated debentures,
/bullet/ reduce the principal amount or the rate of interest on the
subordinated debentures,
/bullet/ reduce the redemption percentage, or
/bullet/ reduce the two-thirds percentage required for modification.
We may omit in any particular instance to comply with any covenant or
condition as set forth in the indenture if before the time for such compliance
two-thirds of the holders of the principal amount of subordinated debentures
then outstanding shall either waive such compliance in such instance or
generally waive compliance
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with such covenant or condition. No waiver may extend to or affect such covenant
or condition except to the extent so expressly waived. Until the waiver has
become effective, our obligation and the duties of the trustee in respect of any
such covenant will remain in full force and effect. No supplemental indenture
will affect the seniority rights of the holders of Senior Indebtedness without
the consent of such holders.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement among _______________ and us, the underwriter will purchase:
/bullet/ 1,000,000 shares of our Class A Common Stock and
/bullet/ $15,000,000 in aggregate principal amount of subordinated
debentures.
The underwriter will be committed to purchase and pay for all the
shares of Class A Common Stock if any of the shares of Class A Common Stock are
purchased, and will be committed to purchase and pay for all the subordinated
debentures if any of the subordinated debentures are purchased.
The underwriter has advised us that it proposes initially to offer the
Class A Common Stock and the subordinated debentures to the public at the public
offering prices set forth on the cover page of this prospectus, and to certain
dealers at such price less a concession not in excess of $____ per share of
Class A Common Stock and ___% of the principal amount of the subordinated
debentures. The Underwriter may allow and such dealers may re-allow a concession
not in excess of $_______ per share of Class A Common Stock and ___% of the
principal amount of the subordinated debentures to certain other dealers. After
the public offerings, the respective public offering prices and such concessions
may be changed by the underwriter.
We will grant to the underwriter options, exercisable for 30 days from
the date of this prospectus, to purchase up to 150,000 shares of Class A Common
Stock and for up to $2,250,000 additional principal amount of subordinated
debentures, at the public offering prices set forth on the cover page hereof
less underwriting discounts. Each such option will be exercisable separately.
The underwriter will be permitted to exercise either such option to purchase
additional shares of Class A Common Stock or subordinated debentures, as the
case may be, solely for the purpose of covering over-allotments, if any,
incurred in the sale of the Class A Common Stock or subordinated debentures.
We will also agree to reimburse the underwriter for its reasonable
out-of-pocket expenses relating to the offerings and to indemnify the
underwriter against and contribute toward certain liabilities, including
liabilities under the Securities Act of 1933.
In connection with the offerings, we expect that the underwriter and
its affiliates may engage in transactions effected in accordance with Rule 104
of the SEC's Regulation M that are intended to stabilize, maintain or otherwise
affect the market price of the Class A Common Stock or the subordinated
debentures. These transactions may include over-allotment transactions in which
the underwriter creates a short position for its own account by selling more
Class A Common Stock or subordinated debentures than it is committed to
purchase. In such case, to cover all or part of the short position, the
underwriter may exercise either or both of the over-allotment options described
above to purchase additional Class A Common Stock or subordinated debentures or
may purchase Class A Common Stock or subordinated debentures in the open market
following completion of the initial offerings. We also expect that the
underwriter may engage in stabilizing transactions in which it bids for, and
purchases, Class A Common Stock or subordinated debentures at a level above that
which might otherwise prevail in the open market for the purpose of preventing
or retarding a decline in the market price of the Class A Common Stock or the
subordinated debentures. The underwriter may reclaim any selling concessions
allowed to a dealer if the underwriter repurchases Class A Common Stock or
subordinated debentures distributed by that dealer. Any of these transactions
may result in a price for the Class A Common Stock or the subordinated
debentures at a level above that which might otherwise prevail in the open
market. Neither we nor the
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underwriter makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Class A Common Stock or the subordinated debentures. The
underwriter will not be required to engage in any of the foregoing transactions
and, if commenced, it may discontinue those transactions at any time without
notice.
LEGAL MATTERS
Our legal counsel, Stearns Weaver Miller Weissler Alhadeff & Sitterson,
P.A., Miami, Florida, will pass upon the validity of the Class A Common Stock
and the subordinated debentures for us. Certain legal matters will be passed
upon for the underwriter by ______________________.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1997,
and for each of the years in the three-year period ended December 31, 1998, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing. The consolidated financial statements of BBC as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998 have been included herein and in the Registration Statement in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
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<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
BFC FINANCIAL CORPORATION
Independent Auditor's Report....................................................................................F-2
Financial Statements:
Consolidated Statements of Financial Condition - December 31, 1998 and 1997................................F-3
Consolidated Statements of Operations - For each of the years in the three year period ended
December 31, 1998..........................................................................................F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income - For each of the years
in the three year period ended December 31, 1998...........................................................F-5
Consolidated Statements of and Comprehensive Income Cash Flows - For each of the years
in the three year period ended December 31, 1998...........................................................F-6
Notes to Consolidated Financial Statements................................................................ F-7
BANKATLANTIC BANCORP, INC.
Independent Auditor's Report...................................................................................F-29
Financial Statements:
Consolidated Statements of Financial Condition - December 31, 1998 and 1997...............................F-30
Consolidated Statements of Operations - For each of the years in the three year period ended
December 31, 1998.........................................................................................F-31
Consolidated Statements of Stockholders' Equity - For each of the years in the three year period
ended December 31, 1998...................................................................................F-33
Consolidated Statements of Cash Flows - For each of the years in the three year period ended
December 31, 1998.........................................................................................F-35
Notes to Consolidated Financial Statements................................................................F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
BFC Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of BFC Financial Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFC Financial
Corporation and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Fort Lauderdale, Florida
March 2, 1999
F-2
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 1998 and December 31, 1997
(in thousands, except share data)
Assets
1998 1997
---- ----
Cash and cash equivalents $ 655 604
Securities available for sale 2,218 1,478
Investment in BankAtlantic Bancorp, Inc. ("BBC") 74,565 72,185
Mortgage notes and related receivables, net 1,740 1,859
Investment real estate, net 6,172 9,700
Real estate held for development and sale 1,811 6,474
Other assets 4,096 6,571
------- -------
Total assets $91,257 98,871
======= =======
Liabilities and Stockholders' Equity
Subordinated debentures, net 6,736 7,263
Deferred interest on the subordinated debentures 2,217 2,106
Mortgage payables and other borrowings 10,784 22,943
Other liabilities 683 706
Deferred income taxes 13,206 11,711
------- -------
Total liabilities 33,626 44,729
Commitments and contingencies
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value,
authorized 20,000,000 shares; issued and
outstanding 6,453,994 in 1998 and 1997 58 58
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,355,407 in 1998 and 2,346,907 in 1997 21 21
Additional paid-in capital 26,095 23,525
Retained earnings 30,660 30,280
------- -------
Total stockholders' equity before BBC
accumulated other comprehensive income 56,834 53,884
BBC accumulated other comprehensive income-
net unrealized appreciation on securities
available for sale, net of deferred income taxes 797 258
------- -------
Total stockholders' equity 57,631 54,142
------- -------
Total liabilities and stockholders' equity $91,257 98,871
======= =======
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For each of the years in the three year period ended
December 31, 1998
(in thousands, except per share data)
1998 1997 1996
---- ---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 1,108 221 613
Interest and dividends on securities
available for sale and escrow accounts 228 445 694
Earnings on real estate rental
operations, net 979 1,034 1,303
Sale of real estate 11,706 967 9,700
Net gain from sale of stock -- 1,349 --
Equity in earnings (loss) of BBC (1,397) 12,129 8,650
Other income, net 34 209 701
-------- -------- --------
Total revenues 12,658 16,354 21,661
-------- -------- --------
Costs and expenses:
Interest on subordinated debentures 492 723 1,238
Interest on mortgages payable
and other borrowings 1,420 1,996 2,396
Cost of sale of real estate 8,525 632 6,420
Loss on disposition of mortgage
notes and investment, net -- -- 474
Write-down of investment 184 -- --
Expenses related to real estate held
for development and sale, net 68 130 154
Employee compensation and benefits 1,190 1,153 1,153
Occupancy and equipment 50 40 44
Reversal of provision for litigation -- (2,272) (292)
General and administrative, net 778 964 1,092
-------- -------- --------
Total cost and expenses 12,707 3,366 12,679
-------- -------- --------
Income (loss) before income taxes
and extraordinary items (49) 12,988 8,982
Provision (benefit) for income taxes (368) 4,222 2,924
-------- -------- --------
Income before extraordinary items 319 8,766 6,058
Extraordinary items:
Net gain from debt restructuring, net of
income taxes of $114,000 in 1997 -- 181 --
Net gain from extinguishment of debt,
net of income taxes of $39,000 in 1998
and $72,000 in 1997 61 115 --
Gain on settlements of Exchange
litigation, net of income taxes of
$475,000 in 1997 and $611,000 in 1996 -- 756 853
-------- -------- --------
Net income $ 380 9,818 6,911
======== ======== ========
Basic earnings per share:
Before extraordinary items $ 0.04 1.10 0.78
Extraordinary items 0.01 0.13 0.11
-------- -------- --------
Net income $ 0.05 1.23 0.89
======== ======== ========
Diluted earnings per share:
Before extraordinary items $ 0.04 1.00 0.73
Extraordinary items -- 0.12 0.10
-------- -------- --------
Net income $ 0.04 1.12 0.83
======== ======== ========
Basic weighted average shares
outstanding 7,954 7,938 7,811
======== ======== ========
Diluted weighted average shares
outstanding 9,101 8,731 8,347
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income For each of the years in the three
year period ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Addi-
Compre- Class A Class B tional
hensive Common Common Paid-in Retained
income Stock Stock Capital Earnings Other Total
------ ----- ----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- 20 19,490 13,609 2,639 35,758
Comprehensive income
Net income $ 6,911 -- -- -- 6,911 -- 6,911
Other comprehensive income,
net of tax:
Unrealized loss on securities
available for sale (1,230)
Reclassification adjustment
for gains included
in net income (1,098)
------
Other comprehensive income (loss) (2,328)
------
Comprehensive income $ 4,583
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 939 -- -- 939
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (2,328) (2,328)
Exercise of stock options -- 1 181 -- -- 182
------- ------- ------- ------- ------- -------
Balance at December 31, 1996 $ -- 21 20,610 20,520 311 41,462
Comprehensive income
Net income $ 9,818 -- -- -- 9,818 -- 9,818
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 194
Reclassification adjustment
for gains included
in net income (247)
------
Other comprehensive income (loss) (53)
------
Comprehensive income $ 9,765
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 2,759 -- -- 2,759
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (53) (53)
5 for 4 stock split 5 -- -- (5) -- --
3 for 1 stock split 53 -- -- (53) -- --
Exercise of stock options -- -- 156 -- -- 156
------- ------- ------- ------- ------- -------
Balance at December 31, 1997 $ 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 380 -- -- -- 380 -- 380
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 821
Reclassification adjustment
for gains included
in net income (282)
------
Other comprehensive income 539
------
Comprehensive income $ 919
======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 2,510 -- -- 2,510
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- 539 539
Exercise of stock options -- -- 60 -- -- 60
------- ------- ------- ------- ------- -------
Balance at December 31, 1998 $ 58 21 26,095 30,660 797 57,631
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For each of the years in three year period ended
December 31, 1998
(In thousands)
For the years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Operating activities:
Income before extraordinary items $ 319 8,766 6,058
Adjustments to reconcile income
before extraordinary items to net cash
(used in) operating activities:
Equity in (earnings) loss of BBC 1,397 (12,129) (8,650)
Depreciation 575 683 772
Expenses related to real estate held for
development and sale, net 68 130 154
Provision (benefit) for income taxes (368) 4,222 3,033
Amortization on subordinated debentures 11 13 15
Accretion of discount on loans receivable (40) (45) (152)
Increase in real estate development
and construction costs (2,631) (388) --
Gain on sale of real estate, net (3,181) (335) (3,280)
Net gain from sale of stock -- (1,349) --
Loss on disposition of mortgage notes and
investment, net -- -- 474
Proceeds received from litigation settlement -- -- 1,109
Gain from litigation cost, net -- -- (211)
Reversal of provision for litigation -- (2,272) --
Fundings for litigation settlement -- (1,801) (3,690)
Increase in the escrows for called
debenture liability -- (5,158) (4,653)
Proceeds from escrow for called
debenture liability 2,166 -- 2,903
Increase in deferred interest on the
subordinated debentures 482 656 747
Accrued interest income on escrow accounts (124) (237) (161)
Interest accrued regarding called
debenture liability -- 52 475
Increase (decrease) in other liabilities (94) 45 (961)
Decrease in other assets 168 222 533
-------- -------- --------
Net cash used in operating activities (1,252) (8,925) (5,485)
-------- -------- --------
Investing activities:
Proceeds from the sales of
investment real estate 495 128 --
Proceeds from the sale of real estate held
for development and sale, net -- -- 6,480
Proceeds from the sale of stock -- 3,720 --
Deposits received for sale of real estate -- -- --
Common stock dividends received from BBC 1,187 1,025 883
Purchase of securities available for sale -- (19,225) (47,153)
Proceeds from redemption and maturities
of securities available for sale (788) 24,535 45,475
Principal reduction on mortgage notes and
related receivables, net 159 182 2,806
Decrease (increase) in real estate
held for development and sale 9,800 490 (275)
Addition to office properties and equipment -- (21) --
Improvements to investment real estate (83) (22) (74)
-------- -------- --------
Net cash provided by investing activities 10,770 10,812 8,142
-------- -------- --------
Financing activities:
Issuance of common stock 35 91 105
Increase in borrowings -- 9,144 --
Repayments of borrowings (9,502) (12,314) (2,118)
-------- -------- --------
Net cash used in
financing activities (9,467) (3,079) (2,013)
-------- -------- --------
Increase (decrease) in cash
and cash equivalents 51 (1,192) 644
Cash and cash equivalents
at beginning of period 604 1,796 1,152
-------- -------- --------
Cash and cash equivalents at
end of period $ 655 604 1,796
======== ======== ========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BFC Financial Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation - BFC Financial Corporation ("BFC" or
the "Company") is a unitary savings bank holding company as a consequence of its
ownership of the Common Stock of BankAtlantic Bancorp, Inc. ("BBC").
BankAtlantic, a Federal Savings Bank, ("BankAtlantic") is a wholly-owned
subsidiary of BankAtlantic Bancorp ("BBC"). The Company's primary asset is the
capital stock of BBC and its primary activities currently relate to that asset.
The financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP"). In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the statements of consolidated financial
condition and income and expenses for the periods presented. Actual results
could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the next year relate to the
determination of the valuation allowance for real estate and the allowance for
mortgage notes and related receivables.
The financial statements and notes to consolidated financial statements of
BankAtlantic Bancorp, Inc. and Subsidiaries are incorporated herein by
reference.
Principles of Consolidation - The consolidated financial statements reflect the
activities of BFC and its wholly owned subsidiaries. Because the Company's
ownership in BBC is less than 50%, the Company's investment in BBC is carried on
the equity method.
Cash Equivalents - Cash equivalents include liquid investments with original
maturities of three months or less.
Securities Available for Sale - The Company's securities are available for sale.
These securities are carried at fair value, with any related unrealized
appreciation or depreciation reported as a separate component of stockholders'
equity, net of income taxes. A write-down is reflected in the statement of
operations to the extent that securities are other than temporarily impaired.
Mortgage Notes and Related Receivables, net - Mortgage notes and related
receivables, net, are carried at the lower of cost or fair value.
Allowance for Loan Losses - BFC bases the measurement of loan impairment in
accordance with FAS 114. Non-collateral dependent loan impairment is based on
the present value of the estimated future cash flows. Impairment losses are
included in the allowance for loan losses through a charge to the provision for
loan losses. Adjustments to impairment losses resulting from changes in the fair
value of an impaired loan's collateral or projected cash flows are included in
the provision for loan losses. Upon disposition of an impaired loan, any related
valuation allowance is relieved from the allowance for loan losses.
Real Estate - Investment real estate is held for use. Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Indirect land development costs are
allocated to parcels based upon the the square footage of parcels benefited.
Land costs were allocated to the various parcels based upon the relative sales
value method. Real estate held for sale is stated at the lower of carrying
amount or fair value less cost to sell. Real estate held for development is
evaluated for impairment based upon the undiscounted future cash flows of the
property compared to the carrying value of the property. If the undiscounted
future cash flows are lower than the carrying value of the property, a valuation
allowance is established for the difference between the carrying amount of the
parcel and the fair value of the parcel, less cost to sell. The fair value of
real estate is evaluated based on existing and anticipated market conditions.
The evaluation takes into consideration the current status of the property,
various restrictions, carrying costs, costs of disposition and any other
circumstances which may affect estimated fair value.
F-7
<PAGE>
Profit or loss on real estate sold is recognized in accordance with Statement of
Financial Accounting Standard No. 66, "Accounting for Sales of Real Estate". Any
estimated loss is recognized in the period in which it becomes apparent.
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of -
Long-lived assets and assets held for sale are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that the Company expects to
hold and use is based on the fair value of the asset.
Depreciation - Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which generally range up to 31.5 years for
buildings and 4 years for tenant improvements.
Income Taxes - The Company does not include BBC and its subsidiaries in its
consolidated income tax return with its wholly owned subsidiaries, since the
Company owns less than 80% of the outstanding stock of BBC. Deferred income
taxes are provided on elements of income that are recognized for financial
accounting purposes in periods different than such items are recognized for
income tax purposes.
The Company utilizes the asset and liability method to account for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the statutory enactment
date. A valuation allowance is provided to the extent it is more likely than not
that deferred tax assets will not be utilized.
Excess Cost Over Fair Value of Net Assets Acquired (Goodwill) - The ownership
position in BBC was acquired at different times. In some acquisitions, the fair
market value of the net assets of BBC were greater than the Company's cost. At
other acquisitions, the Company's cost was in excess of the fair market value of
BBC's net assets. The excess of fair market value over cost was recorded as a
reduction to the fair market value of non-current assets. The excess of cost
over fair market value was recorded as goodwill and is being amortized on the
straight-line basis over a 15-year period. Some minor increases in ownership of
BBC were recorded utilizing BBC's cost basis of assets and liabilities as fair
market value. The excess of such cost basis over the Company's purchase price
was recorded as a reduction to property and equipment and is being amortized on
a straight-line basis over a ten-year period. Cost over fair value of net assets
acquired and other intangible assets is evaluated by management for impairment
on an on-going basis based on the facts and circumstances related to the net
assets acquired. That evaluation includes a review of current and estimated
future earnings and dividend paying ability.
Earnings Per Share - While the Company has two classes of common stock
outstanding, the two-class method is not presented because the Company's capital
structure does not provide for different dividend rates or other preferences,
other than voting rights, between the two classes. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
shares were exercised. Common stock options, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options are
included in the weighted average number of dilutive common shares outstanding
based on the treasury stock method. For all periods, the shares issued in
connection with a 1984 acquisition are considered outstanding after elimination
of the Company's ownership of the shares issued in the acquisition,
respectively.
Stock Splits - On October 6, 1997, the Board of Directors of the Company
declared a five for four stock split effected in the form of 25% stock dividend,
payable in shares of the Company's newly authorized Class A Common Stock. The
Class A Common Stock was a newly authorized series of the Company's capital
stock and no shares were outstanding prior to the dividend. Pursuant to the
Company's Articles of Incorporation, the Company's then existing common stock
was automatically redesignated as Class B Common Stock without changing any of
its rights and preferences upon the authorization by the Board of the stock
dividend. The Class A Common Stock and the
F-8
<PAGE>
Class B Common Stock have substantially identical terms except that (i) the
Class B Common Stock is entitled to one vote per share while the Class A Common
Stock will have no voting rights other than those required by Florida law and
(ii) each share of Class B Common Stock is convertible at the option of the
holder thereof into one share of Class A Common Stock. On January 15, 1998, the
Board of Directors of the Company declared a three for one stock split effected
in the form of a stock dividend of two shares of Class A Common Stock for each
share of outstanding Class A and Class B Common Stock. Due to accounting and tax
considerations, outstanding options to purchase Class B Common Stock previously
granted under the Company's stock option plans were adjusted to reflect
additional Class B stock options instead of options on Class A Common Stock.
Where appropriate, amounts throughout this report have been adjusted to reflect
the stock splits.
Stock Based Compensation Plans - The Company maintains both qualifying and
non-qualifying stock-based compensation plans for its employees and directors.
The Company has elected to account for its employee stock-based compensation
plans under APB No. 25.
Reclassifications - For comparative purposes, certain prior year balances have
been reclassified to conform with the 1998 financial statement presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
The Company has acquired its 31.3% ownership of all outstanding BBC Common Stock
at December 31, 1998 through various acquisitions and sales. Where appropriate,
amounts throughout this report of all BBC share and per share amounts have been
adjusted for stock splits declared by BBC. BBC's Class A Common Stock is
non-voting and is entitled to receive cash dividends equal to at least 110% of
any cash dividends declared and paid on the Class B Common Stock. At December
31, 1998, the Company owned 6,578,671 shares of BBC Class A Common Stock and
4,876,124 shares of BBC Class B Common Stock. The aggregate market value of the
Company's investment in BBC at December 31, 1998 was approximately $77.1 million
or approximately $2.5 million in excess of the carrying value in the financial
statements. The following table reflects BFC's percentage ownership in BBC:
Class A Class B
Common Common Total
Stock Stock Outstanding
----- ----- -----------
December 31, 1996 35.1% 46.2% 41.5%
December 31, 1997 30.6% 45.6% 35.6%
December 31, 1998 25.1% 47.1% 31.3%
A reconciliation of the carrying value in BBC to BBC's Stockholders equity at
December 31, 1998 and 1997 is as follows:
1998 1997
---- ----
BBC stockholders' equity $ 240,440 207,171
Ownership percentage 31.3% 35.6%
----- -----
75,340 73,691
Purchase accounting adjustments (775) (1,506)
------- ------
Investment in BBC $ 74,565 72,185
======= =======
The acquisition of BankAtlantic has been accounted for as a purchase and
accordingly, the assets and liabilities acquired have been revalued to reflect
market values at the dates of acquisition. The discounts and premiums arising as
a result of such revaluation are generally being accreted or amortized (i.e.
added into income or deducted from income), net of tax, using the level yield or
interest method over the remaining life of the assets and liabilities. The net
impact of such accretion, amortization and other purchase accounting adjustments
was to increase consolidated net earnings during each of the years ended
December 31, 1998 and 1997 by approximately $741,000 and $545,000 in 1996. Such
amounts are included in equity in earnings (loss) of BBC. Assuming no sales or
dispositions of the related assets or liabilities by BBC, the Company believes
the net increase (decrease) in earnings resulting from the net
amortization/accretion of the adjustments to net assets acquired resulting from
the use of the purchase method of
F-9
<PAGE>
accounting will be remain at a similar level for 1999 and anticipates an
increase in earnings from 2000 to 2003 of approximately $52,000 per year.
Excess cost over fair value of net assets acquired at December 31, 1998 and
1997, was approximately $454,000, $577,000 and $700,000, respectively. Excess
cost over fair value of net assets acquired at December 31, 1998 and 1997 is
included in the investment in BBC in the accompanying statements of financial
condition, in addition to other unamortized purchase accounting adjustments. The
excess cost over fair value of net assets acquired will be fully amortized in
2002.
In June 1998 BBC acquired Ryan, Beck & Co., Inc. ("RBCO"), an investment banking
firm that is principally engaged in the underwriting, distribution and trading
of tax-exempt obligations and bank and thrift equity and debt securities. BBC
acquired all of RBCO's outstanding shares of common stock in exchange for shares
of BBC's Class A common stock in an acquisition accounted for under the purchase
method of accounting. Upon acquisition of RBCO, BBC assumed all options
outstanding under RBCO's existing stock option plans, resulting in the
additional issuance of options to purchase 314,145 shares of Class A Common
Stock at various exercise prices based upon the exercise prices of the assumed
options. The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of BBC's Class A Common Stock
representing 20% of the total transaction value were allocated to key employees
of RBCO. The retention pool consists of 683,362 shares of restricted Class A
Common Stock, which will vest in four years to employees who remain for the
period. BFC's ownership percentage of BBC as of December 31, 1998, excludes the
shares of restricted Class A Common Stock.
In March 1998, BBC acquired Leasing Technology Inc. ("LTI"), a company engaged
in the equipment leasing and finance business. BBC issued 718,413 shares of
Class A Common Stock to acquire LTI. Upon regulatory approval, on June 30, 1998,
BBC contributed LTI at its book value to BankAtlantic.
Pursuant to previously announced plans by BBC to purchase shares of its common
stock, during the year ended December 31, 1998, BBC paid $10.9 million to
repurchase and retire 769,500 shares of Class B Common Stock.
During the year ended December 31, 1998, BBC issued 907,319 shares of Class A
Common Stock upon the conversion of $5.9 million in principal amount of BBC's
6 3/4% Convertible Subordinated Debentures due 2006.
On February 3, 1998, BBC's shareholders increased the authorized shares of BBC's
Class A and Class B Common Stock to 80 million shares and 45 million shares,
respectively.
The decrease in the ownership percentage at December 31, 1998 from 35.6% to
31.3% of all outstanding common stock of BBC was primarily due to BBC's issuance
of Class A Common Stock to acquire RBCO and LTI. This decrease was offset in
part by changes in BBC's outstanding common stock primarily due to BBC's
repurchases of its shares. The decrease in the ownership percentage at December
31, 1997 from 41.5% to 35.6% of all outstanding common stock of BBC was
primarily due to the issuance by BBC of 4,312,500 shares of Class A Common Stock
in a public offering and the sale of 449,805 shares of BBC's Class A Common
Stock by the Company. This decrease in the ownership was offset in part during
the year ended December 31, 1997 by the net effect of other BBC capital
transactions such as BBC's repurchase of 1,040,625 shares of Class A and 365,625
shares of Class B Common Stock, the conversion of 6 3/4% debentures into 57,252
shares of BBC Class A common and the issuance of additional shares in connection
with BBC's stock option plans.
On November 25, 1997, in a dual public offering, BBC issued 4,312,500 shares of
Class A Common Stock and $100.0 million of 5 5/8% convertible subordinated
debentures ("5 5/8% Debentures"). The net proceeds to BBC from the sale of Class
A Common Stock was $43.4 million, net of $107,000 of offering costs and from the
sale of the 5 5/8% Debentures, $96.5 million, net of $3.5 million of offering
costs. The 5 5/8% Debentures are convertible at an exercise price of $12.94 per
share into an aggregate of 7,727,975 shares of Class A Common Stock.
During 1997, the Company sold 449,805 shares of BankAtlantic Bancorp, Inc. Class
A Common Stock. Net proceeds received from these sales amounted to approximately
$3.7 million and a net gain of approximately $1.3 million was recognized.
In March 1997, BBC formed BBC Capital Trust I ("BBC Capital"). BBC Capital is a
statutory business trust which was formed for the purpose of issuing 9 1/2%
Cumulative Trust Preferred Securities ("Preferred Securities") and
F-10
<PAGE>
investing the proceeds thereof in Junior Subordinated Debentures of BBC. In a
public offering in April 1997, BBC Capital issued 2.99 million shares of
Preferred Securities for proceeds of approximately $75 million. BBC Capital used
the gross proceeds received from the sale of the Preferred Securities to
purchase $71.8 million of 9 1/2% Junior Subordinated Debentures from BBC, which
mature on June 30, 2027. The net proceeds from the sale of the Junior
Subordinated Debentures were utilized as follows: $21.2 million was used by
BankAtlantic to acquire St. Lucie West Holding Corp. and subsidiaries and to
invest in a real estate joint venture, $12.2 million was used to repurchase
BBC's Common Stock and the remaining proceeds is being utilized by BBC for
general corporate purposes. St. Lucie West Holding Corp. is the developer of the
master planned community of St. Lucie West, located in St. Lucie County,
Florida.
In March 1996, BBC issued 2.80 million shares of Class A Common Stock in an
underwritten public offering at $6.14 per share resulting in a decrease in the
Company's ownership of all outstanding BBC Common Stock from approximately 46%
to 41.5%. At June 30, 1996, the Company's ownership in all outstanding BBC's
Common Stock further decreased to 40.8% upon BBC's issuance of Class A Common
Stock in connection with exercise of employee stock options and in April 1996
the underwriter exercised an overallotment option to purchase an additional
395,027 shares of Class A Common Stock. At December 31, 1996, the Company's
ownership in all outstanding Common Stock of BBC increased to 41.5%, upon BBC's
repurchase of 356,445 and 175,781 shares of BBC Class A and B Common Stock,
respectively. At December 31, 1996, the Company's ownership in BBC Class A and B
Common Stock was approximately 35.1% and 46.2%, respectively.
During 1996, BBC issued $57.5 million of 6 3/4% convertible debentures due July
1, 2006, (the 6 3/4% Debentures"). The 6 3/4% debentures are convertible into
Class A Common Stock at an exercise price of $6.55 per share. Net proceeds to
BBC were $55.2 million net of underwriting discount and offering expenses. The
net proceeds were utilized by BankAtlantic for the acquisition of Bank of North
America ("BNA") and general corporate purposes by BBC and BankAtlantic.
BBC's principal assets include the capital stock of BankAtlantic and its
subsidiaries and RBCO. BBC's principal source of cash flow is dividends from
BankAtlantic. BBC's annual debt service associated with its $246.9 million of
9%, 6 3/4%, 5 5/8% Debentures and Trust Preferred Securities is approximately
$18 million and its estimated current annual dividends to common shareholders is
$4 million. BBC also obtains funds through the exercise of stock options as
previously noted, through the sale of common shares and issuance of debt
securities. It is anticipated that funds for payment of these expenses will be
obtained from BankAtlantic. Additionally, the ultimate repayment by BBC of its
outstanding debentures may be dependent upon dividends from BankAtlantic. BBC
has paid a regular quarterly dividend since its formation and management of BBC
has stated its intention to pay regular quarterly cash dividends on its common
stock
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 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 (1) 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. At December 31, 1998, BankAtlantic met the definition of a Tier 1
association.
3. SUBORDINATED DEBENTURES
During 1989 and 1991, the Company exchanged (the "Exchange Transactions")
approximately $45.4 million of its subordinated unsecured debentures (the
"Debentures") for all of the assets and liabilities of six affiliated limited
partnerships. The major assets and liabilities of these partnerships consisted
principally of commercial real estate properties and related non-recourse
mortgage debt. Of the properties acquired, one property plus a 50% interest in
another property is still owned by the Company at December 31, 1998 and 1997.
The Company deposited $30.6 million into escrow accounts in connection with the
settlement of litigation that arose pertaining to the Exchange Transactions. All
of the funding required in connection with the Exchange settlements has been
provided. Payments on the settlement relating to one of the 1989 Exchange
litigation settlements commenced in January 1997. Payments on all other
settlements had commenced prior to that date. The final time
F-11
<PAGE>
period for filing a claim in the settlements expired in January 1998. Pursuant
to terms of escrow agreements, during January 1998 approximately $2.1 million
and during June 1996 approximately $3.0 million was released from escrow
accounts established to fund payment on subordinated debentures that had been
called. Any amounts remaining in escrow in January 2000 will be released to the
Company and after that date any payments on the called debentures will be paid
directly by the Company. Included in subordinated debentures at December 31,
1998, 1997 and 1996, was approximately $5.4 million, $ 5.5 million and $16.2
million, respectively, of debentures that have been called. Such debentures do
not bear interest. Included in other assets at December 31, 1998, 1997 and 1996
was approximately $2.7 million, $5.0 million and $10.5 million held in escrow
accounts related to a portion of these called debentures.
Initially, the amount that was to be paid under these settlements was not
determined with certainty because the amount of settlement depended upon whether
the class member still owned the debenture issued to them in the exchange
transaction ("Class Members Still Owning Debentures") or whether the class
member sold the debenture transferred to them in the exchange transaction
("Class Members No Longer Owning Debentures"). The determination of which group
a debenture holder falls into was complicated by the fact that when a transfer
of ownership occurs, the transfer may not be a bona fide sale transaction (i.e.,
involved a transfer to street name or to a family member). When a debenture is
held by a Class Member Still Owning Debentures, the amount of gain recognized on
that debenture is greater because the debenture and any related accrued interest
is removed from the books whereas if the debenture was sold to a non class
member, a settlement payment is made to the Class Member No Longer Owning the
Debenture and the debenture and all related accrued interest remains on the
books in the name of the current holder of the debenture. When the settlements
were recorded, the gain recorded was based upon the determination that if the
debenture had been transferred since issue, the debenture was classified in the
group of Class Members No Longer Owning Debentures. As debentures were presented
for payment, if a determination was made that the debenture belonged in the
group of Class Members Still Owning Debentures, an adjustment was made and
additional gain was recognized. Additionally, Class Members No Longer Owning
Debentures had a specified time period for filing a claim and as the
determination of the claim amounts were made and when the time period expired an
adjustment was made and additional gain was recognized. Extraordinary gains, net
of income taxes of approximately $756,000 and $853,000 were recognized for the
years ended December 31, 1997 and 1996, respectively, based upon claims made and
paid pursuant to the settlements of litigation relating to Class Members No
Longer Owning Debentures (as defined).
The components of the gain from the settlements of litigation are as follows (in
thousands):
For the years ended
December 31,
------------
1997 1996
---- ----
Decrease in subordinated debentures, net $ 710 872
Decrease in deferred interest on the
subordinated debentures 735 663
----- -----
1,445 1,535
Called debenture liability (214) (71)
----- ------
Pre-tax gain on settlement of litigation 1,231 1,464
Income taxes 475 611
----- -----
Net gain on settlements of litigation $ 756 853
===== =====
For financial statement purposes, the Debentures in the 1991 and 1989 Exchange
Transactions have been discounted to yield 19% and 12%, respectively, over their
term. The interest on the debentures in the 1991 and 1989 Exchange Transactions
is 13% and 12%, respectively per annum. As a result of the litigation
settlements, the Company's obligation to pay interest on debentures is limited
to only those debentures held by persons that acquired debentures in an arms
length transaction prior to the date on which the settlements were reached
("Holders in Due Course"), or debentures held by persons that opted out of the
litigation. Pursuant to the terms of the debentures, the Company may elect to
defer interest payments on its subordinated debentures if management of the
Company determines in its discretion that the payment of interest would impair
the operations of the Company. Any interest not paid quarterly by the Company
("Deferred Interest") will accrue interest at the same rate as the Debentures
until paid. Items considered in the decision to defer the interest payment would
include, among other items, the ability to identify which debentures are held by
Holders in Due Course and current operating expenses. Since December 31, 1991,
the Company has deferred interest payments on its subordinated debentures. The
deferred interest on the subordinated
F-12
<PAGE>
debentures at December 31, 1998 and 1997 was approximately $2.2 million and $2.1
million, respectively. No dividends may be paid to the holders of any equity
securities of the Company while any deferred interest remains unpaid.
During the year ended December 31, 1998, the Company reacquired approximately
$603,000 of debentures and accrued interest for approximately $503,000 resulting
in a gain of approximately $100,000. Such gain is reflected as an extraordinary
item, net of income taxes of $39,000 in the accompanying financial statements.
During the year ended December 31, 1997, the Company reacquired approximately
$1,147,000 of debentures and accrued interest for approximately $960,000,
resulting in a gain of approximately $187,000. Such gain is reflected as an
extraordinary item, net of income taxes of $72,000 in the accompanying financial
statements.
4. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at December 31, 1998 and 1997
is as follows (in thousands):
1998 1997
---- ----
U.S. Treasury Bills $ 1,802 1,072
Investment in preferred stock 343 343
Other 73 63
----- ------
$ 2,218 1,478
===== =====
5. MORTGAGE NOTES AND RELATED RECEIVABLES - NET
Mortgage notes and related receivables as of December 31, 1998 and 1997 are
summarized below (in thousands):
1998 1997
---- ----
Originating from:
Investment properties $ 3,375 3,533
Less: Principally, deferred profit (863) (902)
Allowance for impairment (772) (772)
------ ------
Total $ 1,740 1,859
===== =====
In January 1997, mortgage notes and related receivables, net, decreased due to
the conversion of approximately $184,000 of a note due from an affiliated
limited partnership to an equity position in the partnership.
In 1996, the Company recorded a loss of approximately $474,000 in connection
with the disposition of mortgage notes and investments, net from affiliated
limited partnerships. During 1996, such limited partnerships were liquidated. In
connection with the disposition of the mortgage notes, the Company received
approximately $297,000 of accrued interest that was not previously recorded on
the books. Such interest has been recorded in interest income and is not
included below. The components of the 1996 loss on disposition of mortgage notes
and investment, net are as follows:
1996
----
Mortgage receivables $ 1,328
Less: Principally, deferred profit (947)
Valuation allowance (162)
219
Investment in limited partnerships, net 255
----
Net loss $ 474
====
During 1996, the Company received approximately $1.7 million resulting from the
satisfaction of loans due from affiliated limited partnerships upon the sale of
the partnerships' properties. Also, during 1996 approximately $1.1 million was
received for a loan due from an unaffiliated third party.
F-13
<PAGE>
6. INVESTMENT REAL ESTATE
Investment real estate consists of the following (in thousands):
December 31,
------------
1998 1997
---- ----
Land $ 1,031 1,062
Buildings and improvements 10,203 10,424
Other real estate 86 3,257
-------- -------
11,320 14,743
Less:
Accumulated depreciation 4,431 3,998
Deferred profit 717 1,045
-------- -------
5,148 5,043
------- -------
$ 6,172 9,700
====== ======
In October 1998, the Company sold approximately 15,000 square feet of the BMOC
property to an unaffiliated third party for $500,000 and the Company recognized
a net gain from the sale of real estate of approximately $301,000.
An unaffiliated tenant contaminated certain property formerly owned by BFC. The
tenant, while contractually responsible for the cleanup of the contamination,
refused to do so. BFC, therefore, conducted the cleanup and sought to collect
the cleanup costs from the tenant. An aggregate of approximately $898,000 of
costs and attorneys' fees relating to this matter had been recorded by BFC as a
receivable. In July 1996, approximately $1.1 million was received as payment for
costs incurred by BFC. Based on such receipt, a net gain of approximately
$211,000 was recognized during 1996 relating to this matter.
7. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Company and the Abdo Group will
share equally in profits after any profit participation due to any other
partners in the ventures and after interest earned by the Company on advances
made by the Company. The Company bears the risk of loss, if any, under the
arrangement. On such basis, the Company acquired interests in two properties. In
June 1994, an entity controlled by the Company acquired from an independent
third party 23.7 acres of unimproved land known as the "Cypress Creek" property
located in Fort Lauderdale, Florida. In March 1996, the Cypress Creek property
was sold to an unaffiliated third party for approximately $9.7 million and the
company recognized a gain of approximately $3.3 million. In connection
therewith, the Abdo Group received approximately $2.9 million as their share of
the profit from the transaction, which is included in cost of sale of real
estate. As part of the sale of the Cypress Creek property, the Company received
a limited partnership interest in an unaffiliated limited partnership that will
entitle it to receive approximately 4.5% of any profits from development and
operation of the property. In January 1999, the Company received approximately
$259,000 when the limited partnership was liquidated. In December 1994, an
entity controlled by the Company acquired from an unaffiliated seller
approximately 70 acres of unimproved land known as the "Center Port" property in
Pompano Beach, Florida. Through December 31, 1998, 42 acres had been sold from
the Center Port property to unaffiliated third parties for approximately $11.7
million and the Company recognized net gains from the sale of real estate of
approximately $2.8 million. Included in cost of sales is approximately $2.0
million, representing the Abdo Group's profit participation from the
transactions. All proceeds from the sale were utilized to reduce the borrowing
for which the Center Port property serves as partial collateral. The current
balance on this borrowing is approximately $1,000. Payment of profit
participation to the Abdo Group will be deferred until the lender and the
Company are repaid on loans, advances and interest. The remainder of the Center
Port property is currently being marketed for sale.
F-14
<PAGE>
8. MORTGAGES PAYABLE AND OTHER BORROWINGS
Mortgages payable and other borrowings at December 31, 1998 and 1997 are
summarized as follows (in thousands):
Approximate December 31,
Type of Debt Maturity Interest Rate 1998 1997
------------ -------- ------------- ---- ----
Related to mortgage
receivables 1999-2010 6% - 9.75% $ 1,434 1,633
Related to real estate 1999-2007 9.20%- Prime
plus 1.5% 8,999 19,460
Other borrowings 1999 Prime-Prime
plus 1% 351 1,850
------- ------
$ 10,784 22,943
====== ======
All mortgage payables and other borrowings above are from unaffiliated parties.
Included in other borrowings at December 31, 1998 and 1997 is approximately
$351,000 and $1.8 million, respectively, due to financial institutions.
The Company in 1996 sold a 50% interest in the Delray Industrial Park, located
in Delray Beach, Florida. Since the Company was the sole maker on the
non-recourse mortgage note on the property and since the Company maintained a
50% interest in the subject property, the gain on the sale of approximately
$632,000 was deferred, reducing the Company's carrying value in real estate and
the mortgage remained on the Company's books. During May 1998, the property was
refinanced with the other 50% owner also liable under the note. At that time,
the Company recognized 50% of the deferred profit on the transaction, and
removed the mortgage from the Company's books. The remaining investment in the
property is included in investment real estate using the equity method of
accounting.
On October 29, 1996, a balloon payment of approximately $9.4 million was due on
the mortgage note that was secured by the Burlington Manufacturers Outlet
Center. Such payment was not made and the Company entered into an agreement for
forbearance and an extension agreement, which extended the maturity through
April 1997. In April 1997, new financing was obtained from an unaffiliated
lender and the previous mortgage note was satisfied. The principal amount of the
new financing was approximately $9.1 million, the note bears interest at a rate
of 9.2% per annum, requires monthly payments of $77,992 and matures on May 1,
2007. Upon satisfaction of the previous mortgage note, the Company recognized an
extraordinary gain of approximately $181,000 from debt restructuring, net of
income taxes.
In August 1997, a $3.5 million note due in September 1999 was converted to a
revolving line of credit, requiring only interest payments at prime plus 1% and
a maximum amount of $2,857,600. At December 31, 1998 and 1997 the balance due on
the revolving line of credit was $350,000 and $1.8 million, respectively.
In December 1994, the Company established a broker line of credit in the amount
of $850,000 which is currently collateralized by 170,000 shares of BankAtlantic
Bancorp, Inc. Class B Common Stock. At December 31, 1998, the outstanding
balance on the above line was zero.
At December 31, 1998 the aggregate principal amount of the above indebtedness
maturing in each of the next five years is approximately as follows (in
thousands):
Year ended
December 31, Amount
------------ ------
1999 $ 612
2000 281
2001 307
2002 325
2003 246
Thereafter 9,013
------
$ 10,784
======
The majority of the Company's marketable securities, mortgage receivables, real
estate held for development and sale and investment real estate, net are as to
real estate and marketable securities, encumbered by, or, as to
F-15
<PAGE>
mortgages receivable, subordinate to mortgages payable and other debt. In the
aggregate, approximately 10.4% of the shares of common stock of BBC owned by BFC
are pledged as collateral on mortgages payable and other borrowings.
9. INCOME TAXES
The provision for income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996 consists of the following (in thousands):
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 90 - (124)
State - - 15
----- ----- -----
90 - (109)
----- ----- -----
Deferred :
Federal (394) 3,621 2,598
State (64) 601 435
----- ----- -----
(458) 4,222 3,033
----- ----- -----
Total $ (368) 4,222 2,924
===== ===== =====
For the years ended December 31, 1998, 1997 and 1996, deferred income taxes
applicable to extraordinary items were $39,000, $661,000 and $611,000,
respectively.
A reconciliation from the statutory federal income tax rate of 35% for the years
ended December 31, 1998, 1997and 1996 to the effective tax rate is as follows
(in thousands):
Year ended December 31,
-----------------------
1998(1) 1997(1) 1996(1)
Amount Amount Amount
------ ------ ------
Expected tax
expense (benefit) (17) 4,546 3,144
Provision (benefit) for
state taxes net of
federal benefit (42) 410 321
Dividend received
deduction (333) (287) (272)
Other, net 24 (447) (269)
----- ----- -----
(368) 4,222 2,924
===== ===== =====
- ----------
(1) Expected tax is computed based upon income (loss) before extraordinary
items.
F-16
<PAGE>
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities at December 31, 1998,
1997 and 1996 were (in thousands):
December 31,
------------
1998 1997 1996
---- ---- ----
Deferred tax assets:
Mortgages receivable $ 283 284 287
Litigation accruals -- -- 1,571
Other liabilities 118 134 106
Other assets 74 53 10
Alternative minimum tax credit 66 -- --
Net operating loss carryforwards 5,649 6,945 6,215
------ ------ ------
Total gross deferred tax assets 6,190 7,416 8,189
Less:
Valuation allowance -- -- --
------ ------ ------
Deferred tax assets after
valuation allowance 6,190 7,416 8,189
Deferred tax liabilities:
Real estate, net 722 1,353 1,496
Investment in BBC 18,574 17,656 11,763
Subordinated Debentures 100 118 207
------ ------ ------
Total gross deferred tax liabilities 19,396 19,127 13,466
------ ------ ------
Net deferred tax liability $13,206 11,711 5,277
====== ====== ======
The Company believes it will utilize its deferred tax assets through taxable
income generated in future years by the reversal of deferred tax liabilities
existing as of December 31, 1998.
At December 31, 1998, the Company had estimated state and federal net operating
loss carry forwards as follows (in thousands):
Expiration
Year State Federal
---- ----- -------
2005 $ 1,303 --
2006 2,001 1,309
2007 4,235 7,199
2008 2,332 3,322
2011 1,662 1,831
2012 669 984
-------- ------
$ 12,202 14,645
======== ======
The Company received income tax refunds of approximately $70,000 and $16,000
during the years ended December 31, 1997 and 1996, respectively, and none in
1998. The Company made income tax payments of approximately $62,000 and $122,000
during the years ended December 31, 1998 and 1996, respectively and none in
1997. BBC is not included in the Company's consolidated tax return.
10. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $.01 par value preferred stock. The Board of Directors has
the authority to divide the authorized preferred stock into series or classes
having the relative rights, preferences and limitations as may be determined by
the Board of Directors without the prior approval of shareholders. The Board of
Directors has the power to issue this preferred stock on terms which would
create a preference over the Company's Common Stock with respect to dividends,
liquidation and voting rights. No further vote of security holders would be
required prior to the issuance of the shares.
The Company's Articles of Incorporation authorize the Company to issue both a
Class A Common Stock, par value $.01 per share and a Class B Common Stock, par
value $.01 per share. The Class A Common Stock and the Class B
F-17
<PAGE>
Common Stock have substantially identical terms except that (i) the Class B
Common Stock is entitled to one vote per share while the Class A Common Stock
will have no voting rights other than those required by Florida law and (ii)
each share of Class B Common Stock is convertible at the option of the holder
thereof into one share of Class A Common Stock.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's Class B Common Stock to shareholders of record
on January 21, 1997. Each Right will become exercisable only upon the occurrence
of certain events, including the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing control shareholders (as
specified in the Rights Plan), and will entitle the holder to purchase either
BFC stock or shares in the acquiring entity at half the market price of such
shares. The Rights may be redeemed by the Board of Directors at $.01 per Right
until the tenth day following the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing controlling shareholders. The
Board may also, in its discretion, extend the period for redemption. The Rights
will expire on January 10, 2007.
11. EARNINGS ON RENTAL REAL ESTATE OPERATIONS, NET
Following are the components of earnings on real estate rental operations, net
for each of the years in the three year period ended December 31, 1998 (in
thousands):
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Operations from
investment real estate (see note 6) $ 939 989 1,151
Deferred profit recognized 40 45 152
---- ---- -----
$ 979 1,034 1,303
===== ===== =====
12. RELATED PARTY TRANSACTIONS
Related party transactions arise from transactions with affiliated entities. In
addition to transactions described in notes elsewhere herein, a summary of
originating related party transactions is as follows (in thousands):
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Property management fee revenue $ 9 10 90
=== === ===
Reimbursement revenue for
administrative, accounting
and legal services $41 52 121
=== === ===
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment, approximately $441,000, was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. Any recovery will be
recognized in income when received. In March 1999, the partnership sold 31 of
the 34 convenience stores that it owned resulting in a net gain to the Company
of approximately $200,000 that will be recognized during the first quarter of
1999.
Included in other assets at December 31, 1998, 1997 and 1996 was approximately
$202,000, $158,000 and $125,000 respectively due from affiliates.
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp, Inc.
and BankAtlantic.
F-18
<PAGE>
John E. Abdo, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of BBC and BankAtlantic and is a director and
President of BankAtlantic Development Corporation ("BDC"), a wholly owned
subsidiary of BankAtlantic.
Glen R. Gilbert, Executive Vice President of the Company also serves as a
director and Vice President of BDC.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan is
the principal shareholder and a member of the Board of Florida Partners
Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the
Company holds similar positions at Florida Partners Corporation.
The trustee for the escrow account with respect to the called debenture
liability maintains such account at BankAtlantic.
13. EMPLOYEE BENEFIT PLANS
The Company's Stock Option Plan provides for the grant of stock options to
purchase shares of the Company's Common Stock. The plan provided for the grant
of both incentive stock options and non-qualifying options. The exercise price
of a stock option will not be less than the fair market value of the Common
Stock on the date of the grant and the maximum term of the option is ten years.
The following table sets forth information on all outstanding options:
Class B
Outstanding
Options Price per Share
--------- ---------------
Outstanding at December 31, 1995 1,631,250 1.13 to 1.32
Exercised (82,497) 1.20 to 1.32
---------
Outstanding at December 31, 1996 1,548,753 1.13 to 1.32
Issued 918,750 4.07 to 4.47
Exercised (72,096) 1.13 to 1.32
---------
Outstanding at December 31, 1997 2,395,407 1.13 to 4.47
Issued 532,500 10.33 to 10.33
Exercised (8,500) 4.07 to 4.07
---------
Outstanding at December 31, 1998 2,919,407 1.13 to 10.33
=========
Exercisable at December 31, 1998 2,193,782 1.13 to 4.47
=========
Available for grant at December 31, 1998 725,625
=========
The weighted average exercise price of options outstanding at December 31, 1998,
1997 and 1996 was $3.90, $2.47 and $1.28, respectively. The weighted average
price of options exercised was $4.07, $1.24 and $1.27 during the years 1998,
1997 and 1996, respectively.
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $3,099,000, $1,066,000 and $138,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The effect of
FAS 123 under the fair value based method would have affected net income and
earnings per share as follows:
F-19
<PAGE>
For the Years Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Net income:
As reported $ 380 9,818 6,911
Proforma (1,441) 9,164 6,826
Basic earnings per share:
As reported .05 1.23 .89
Proforma (.18) 1.15 .87
Diluted earnings per share:
As reported .04 1.12 .83
Proforma (.16) 1.05 .82
The option model used to calculate the FAS 123 compensation adjustment was the
Black-Scholes model with the following grant date fair values and assumptions:
<TABLE>
<CAPTION>
Number of Risk Free Expected Expected
Date of Options Grant Date Type of Exercise Interest Life Expected Dividend
Grant Granted Fair Value Grant Price Rate (Years) Volatility Yield
----- ------- ---------- ----- ----- ---- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/7/95 750,000 $0.878 NQ $ 1.247 7.143% 8 74.81% 0%
2/7/95 37,500 $0.878 ISO $ 1.133 7.143% 6 74.81% 0%
7/1/97 49,176 $1.623 ISO $ 4.067 5.800% 6 27.40% 0%
7/1/97 119,574 $1.849 NQ $ 4.067 5.820% 7.5 27.40% 0%
7/1/97 750,000 $1.703 NQ $ 4.467 5.820% 7.5 27.40% 0%
1/13/98 532,500 $5.873 * $10.334 5.530% 7.5 44.46% 0%
</TABLE>
- ----------
* both non-qualified and incentive stock option were granted.
The employee turnover was considered to be none. The weighted average fair value
of options granted during the years ended December 31, 1998, 1997 and 1995 was
$5.87, $1.71 and $0.87, respectively.
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$1.13 to $1.32 1,476,657 5.6 Years $1.28 1,476,657 $1.28
$4.07 to $4.47 910,250 8.4 Years $4.40 450,875 $4.40
$10.34 to $10.34 532,500 9.0 Years $10.34 266,250 $10.34
</TABLE>
The Company has an employee's profit-sharing plan which provides for
contributions to a fund of a sum as defined, but not to exceed the amount
permitted under the Internal Revenue Service Code as deductible expense. The
provision charged to operations was approximately $20,000 for the year ended
December 31, 1998 and $10,000 for each of the years ended December 31, 1997 and
1996, respectively. Contributions are funded on a current basis.
14. LITIGATION
The following is a description of certain lawsuits to which the Company is or
has been a party.
Alan B. Levan and BFC Financial Corporation v. Capital Cities/ABC, Inc. and
William H. Wilson, in the United States District Court for the Southern District
of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, The ABC television
program 20/20 broadcast a story about Alan B. Levan and BFC which purportedly
depicted some securities transactions in which they were involved. The story
contained numerous false and defamatory statements about the Company and Mr.
Levan and on February 7, 1992, a defamation lawsuit was filed on behalf of the
Company and Mr. Levan against Capital Cities/ABC, Inc. and William H. Wilson,
the producer of the broadcast. In
F-20
<PAGE>
December 1996, a jury found in favor of the Company and Mr. Levan and awarded a
compensatory judgment of $1.25 million to the Company and $8.75 million to Mr.
Levan. Capital Cities/ABC, Inc. and William H. Wilson have filed an appeal in
this matter. That appeal is currently pending. The Company will recognize such
amount, less applicable attorneys' fees, in income upon receipt.
Kugler, et.al., (formerly Martha Hess, et. al.), v. I.R.E. Real Estate Income
Fund, et al. In connection with the above referenced matter, in October 1996,
approximately $3.7 million was placed in escrow to rescind sales and in March
1997, approximately $1.0 million was placed in escrow for attorneys' fees. On
April 30, 1997, the Courts approved the Kugler settlement and amounts were paid.
Short vs. Eden United, Inc., et al. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In connection with certain
litigation related to the purchase and sale of an apartment complex in Indiana,
in April 1997, the Company paid approximately $783,000 and received a release
and satisfaction of judgment. At December 31, 1996, the Company had an accrual
of approximately $3.0 million included in other liabilities with respect to this
matter. The remaining accrual in the amount of approximately $2.3 million was
reversed during 1997.
The Company is also a party to certain other litigation arising in the ordinary
course of its business. Management does not believe such litigation will have a
material adverse affect on its financial condition or results of operations.
15. QUARTERLY FINANCIAL INFORMATION (unaudited)
Following is quarterly financial information for the years ended December 31,
1998, 1997 and 1996 (in thousands, except per share data):
1998 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------ ------- ------- ------- -----
Revenues $2,431 6,400 1,953 1,874 12,658
Costs and expenses 1,129 3,645 4,067 3,866 12,707
Income (loss) before
extraordinary item 991 1,753 (1,196) (1,229) 319
Net income (loss) 991 1,770 (1,152) (1,229) 380
====== ====== ====== ====== ======
Basic earnings (loss) per share:
Before extraordinary items .13 .22 (.15) (.15) .04
Extraordinary items -- -- .01 -- .01
------ ------ ------ ------ ------
Net income (loss) .13 .22 (.14) (.15) .05
====== ====== ====== ====== ======
Diluted earnings (loss) per share:
Before extraordinary items .11 .19 (.13) (.14) .04
Extraordinary items -- -- -- -- --
------ ------ ------ ------ ------
Net income (loss) .11 .19 (.13) (.14) .04
====== ====== ====== ====== ======
Basic weighted average number of
common shares outstanding 7,949 7,952 7,957 7,957 7,954
====== ====== ====== ====== ======
Diluted weighted average number of
common shares outstanding 9,252 9,161 9,049 8,972 9,101
====== ====== ====== ====== ======
During the three month periods ended June 30, 1998, September 30, 1998 and
December 31, 1998, the Company sold approximately 18 acres, 17 acres and 3 acres
of the Center Port property to unaffiliated third parties for approximately $3.4
million, $4.4 million and $3.1 million, respectively. The Company recognized a
net gain from
F-21
<PAGE>
the sale of real estate of approximately $1.0 million, $1.3 million and $267,000
for the three month periods ended June 30, 1998, September 30, 1998 and December
31, 1998, respectively.
Operations for the quarter ended June 30, 1998 and September 30, 1998 included
extraordinary gains of approximately $17,000 and $44,000, respectively, net of
income taxes due to extinguishment of debt.
1997 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------- ------- ------- ------- -----
Revenues $3,868 4,488 4,068 3,930 16,354
Costs and expenses 1,422 (884) 1,828 1,000 3,366
Income before extraordinary item 2,156 3,125 1,734 1,751 8,766
Net income 2,273 3,789 1,941 1,815 9,818
====== ====== ===== ===== ======
Basic earnings per share:
Before extraordinary items .27 .39 .22 .22 1.10
Extraordinary items .01 .08 .03 .01 .13
Net income .28 .47 .25 .23 1.23
====== ====== ===== ===== ======
Diluted earnings per share:
Before extraordinary items .25 .37 .20 .19 1.00
Extraordinary items .01 .08 .02 .01 .12
------ ------ ----- ----- ------
Net income .26 .45 .22 .20 1.12
====== ====== ===== ===== ======
Basic weighted average number of
common shares outstanding 7,906 7,949 7,949 7,949 7,938
====== ====== ===== ===== ======
Diluted weighted average number of
common shares outstanding 8,513 8,559 8,790 9,079 8,731
====== ====== ===== ===== ======
During January and June 1997, the Company sold 449,805 shares of BankAtlantic
Bancorp, Inc. Class A Common Stock. Net proceeds received from these sales
amounted to approximately $3.7 million and a net gain of approximately $1.3
million was recognized in 1997.
During the second quarter of 1997, the Company recognized a gain of
approximately $2.3 million for the reversal of a provision for litigation in
connection with the Short vs. Eden et. al. litigation. Also, during the second
quarter of 1997 approximately four acres were sold from the Center Port property
to unaffiliated third parties for approximately $818,000 and the Company
recognized a net gain from the sale of real estate of approximately $204,000.
Included in cost of sales is approximately $204,000 representing the Abdo Group
profit participation from the transaction.
During the first quarter of 1997, the Company sold 12.7 acres located in
Birmingham, Alabama to an unaffiliated third party for approximately $149,000
and the company recognized a net gain on the sale of approximately $132,000.
During the first, second, third and fourth quarter of 1997, the Company
recognized extraordinary gains net of deferred income taxes of approximately
$117,000, $483,000, $92,000 and $64,000, respectively related to revising the
estimate of the amounts to be paid regarding the Exchange Transactions.
F-22
<PAGE>
1996 Quarter Ended
------------------
Mar 31, Jun 30, Sep 30, Dec 31, Total
------ -------- ------- ------- -----
Revenues $12,664 3,027 1,532 4,438 21,661
Costs and expenses 8,121 1,664 1,573 1,321 12,679
Income (loss) before
extraordinary item 3,069 1,531 (41) 1,499 6,058
Net income (loss) 3,818 1,537 (41) 1,597 6,911
====== ====== ===== ===== ======
Basic earnings per share:
Before extraordinary items .39 .20 (.01) .19 .78
Extraordinary items .10 -- -- .01 .11
------ ------ ----- ----- ------
Net income .49 .20 (.01) .20 .89
====== ====== ===== ===== ======
Diluted earnings per share:
Before extraordinary items .38 .18 -- .18 .73
Extraordinary items .09 -- -- .01 .10
------ ------ ----- ----- ------
Net income .47 .18 -- .19 .83
====== ====== ===== ===== ======
Basic weighted average number of
common shares outstanding 7,794 7,794 7,797 7,858 7,811
====== ====== ===== ===== ======
Diluted weighted average number of
common shares outstanding 8,182 8,288 8,328 8,490 8,347
====== ====== ===== ===== ======
During the first, second and fourth quarter of 1996, the Company recognized
extraordinary gains of approximately $749,000, $6,000 and $98,000, respectively,
related to revising the estimate of the amounts to be paid regarding the
Exchange Transactions. In March 1996, Cypress Creek was sold to an unaffiliated
third party for approximately $9.7 million. The cost of sale was approximately
$6.4 million.
F-23
<PAGE>
16. Consolidated Statements of Cash Flows
In addition to the non-cash investing and financing activities described
elsewhere herein, other non-cash investing and financing activities are as
follows:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
The net gains associated with the settlements of
litigation, net of income taxes -- 756 853
===== ====== ======
The change in stockholders' equity resulting from
the Company's proportionate share of BBC's net
unrealized appreciation on securities available
for sale, less related deferred income taxes 539 (53) (2,328)
===== ====== ======
Net gain from extinguishment of debt,
net of income taxes 61 115 --
===== ====== ======
Net gain on debt restructuring,
net of income taxes -- 181 --
===== ====== ======
Transfers from escrow accounts to reflect payments
on subordinated debentures 306 10,930 537
===== ====== ======
Net effect of BBC capital transactions,
net of income taxes 2,510 2,759 939
===== ====== ======
Loss on disposition of mortgage notes
and investment, net -- -- 474
===== ====== ======
Conversion of mortgage receivable to an
equity interest in an affiliated partnership -- 184 --
===== ====== ======
Increase in equity for the tax effect related to
the exercise of employee stock options 25 65 77
===== ====== ======
Deferred profit recognized 316 -- --
===== ====== ======
BBC dividends on common stock
declared and paid in subsequent period 303 288 227
===== ====== ======
Interest paid on borrowings 1,444 2,073 2,396
===== ====== ======
17. Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" (FAS 107) issued by the
FASB.
Management has made estimates of fair value discount rates that it believes to
be reasonable. However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair value
presented would be indicative of the value negotiated in an actual sale. The
Company's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates. Due to the lack of an active trading market on the subordinated
debentures, fair value is presumed to equal carrying value.
F-24
<PAGE>
The following table presents information for the Company's financial instruments
as of December 31, 1998 and 1997 (in thousands):
December 31, 1998 December 31, 1997
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Amount Value
----- ----- ------ -----
Financial assets:
Cash and cash equivalents $ 655 655 604 604
Investment in BBC 74,565 77,096 72,185 151,192
Securities available for sale 2,218 2,218 1,478 1,478
Mortgage notes and related
receivables, net 1,740 1,740 1,859 1,859
Escrow for called debentures 2,738 2,738 5,033 5,033
Financial liabilities:
Mortgage payables and other
borrowings 10,784 10,784 22,943 22,943
Subordinated debentures, net 6,736 6,736 7,263 7,263
Deferred interest on debentures 2,217 2,217 2,106 2,106
18. Earnings Per Share
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for each of the years in the three year
period ended December 31, 1998 (in thousands, except per share data):
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Basic Numerator:
Net income $ 380 9,818 6,911
====== ====== ======
Basic Denominator
Weighted average shares outstanding (3) 7,954 7,938 7,811
====== ====== ======
Basic earnings per share $ .05 1.23 .89
====== ====== ======
Diluted Numerator:
Dilutive net income $ 380 9,818 6,911
====== ====== ======
Diluted Denominator
Basic weighted average shares outstanding (3) 7,954 7,938 7,811
Options (2) 1,147 793 536
------ ------ ------
Diluted weighted average shares outstanding 9,101 8,731 8,347
====== ====== ======
Diluted earnings per share $ .04 1.12 .83
====== ====== ======
(1) Prior to 1997 there were no Class A common shares outstanding. All
shares outstanding prior to 1997 were Class B common shares. While the
Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(2) The number of options considered outstanding shares for diluted
earnings per share is based upon application of the treasury stock
method to the options outstanding as of the end of the period.
(3) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share.
F-25
<PAGE>
19. Segment Reporting
The Company has three reportable segments:
o Investment in BBC
o Real estate operations
o Other
Investment in BBC consist of the Company's ownership interest in the common
stock of BBC. The Company's ownership position is carried on the equity method
and as of December 31, 1998, 1997 and 1996 the Company's ownership in BBC was
approximately 31.3%, 35.6% and 41.5% of all of the outstanding BBC Common Stock.
In addition to its investment in BBC, the Company owns and manages real estate,
included in the Consolidated Statements of Financial Condition as investment
real estate, net and real estate held for development and sale. Investment real
estate, net includes the BMOC property and a 50% interest in the Delray
property. The real estate held for development and sale includes land held for
development and land held for sale for the Center Port property, which the
Company owns an interest of 50%. Real estate operations also includes mortgage
notes receivables which relate to the sale of properties previously owned by the
Company. Other segments includes securities available for sale, repurchase
agreements and escrow accounts related to a portion of called debentures.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
The Company evaluates segment performance based on its operating profit (loss)
before tax and overhead allocations. The table below is segment information for
the three years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Real
Investment Estate
1998 in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ (1,397) 13,675 243 137 12,658
====== ====== === === ======
Operating profit (loss) $ (1,397) 3,821 59 137 2,620
====== ====== === ===
Interest on subordinated debentures (492)
Interest on mortgages payable
and other borrowings (159)
Employee compensation and benefits (1,190)
Occupancy and equipment (50)
General and administrative, net (778)
-----
Loss before income taxes
and extraordinary items $ (49)
======
Identifiable assets at December 31, 1998 $ 74,565 10,522 5,366 - 90,453
====== ====== ===== ===
Corporate assets 804
------
Total assets at December 31, 1998 $ 91,257
======
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Real
Investment Estate
1997 in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 13,478 2,103 642 131 16,354
====== ===== === === ======
Operating profit (loss) $ 13,478 (407) 642 131 13,844
====== ====== === ===
Interest on subordinated debentures (723)
Interest on mortgages payable
and other borrowings (248)
Reversal of provision for litigation 2,272
Employee compensation and benefits (1,153)
Occupancy and equipment (40)
General and administrative, net (964)
------
Income before income taxes
and extraordinary items $ 12,988
======
Identifiable assets at December 31, 1997 $ 72,185 18,989 6,886 - 98,060
====== ====== ===== ===
Corporate assets 811
------
Total assets at December 31, 1997 $ 98,871
======
</TABLE>
<TABLE>
<CAPTION>
Real
Investment Estate
1996 in BBC Operations Other Eliminations Consolidated
------- ------------ ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 8,650 11,708 1,169 134 21,661
====== ====== ===== === ======
Operating profit $ 8,650 2,585 1,169 134 12,538
====== ====== ===== ===
Interest on subordinated debentures (1,238)
Interest on mortgages payable
and other borrowings (321)
Reversal of provision for litigation 292
Employee compensation and benefits (1,153)
Occupancy and equipment (44)
General and administrative, net (1,092)
------
Income before income taxes
and extraordinary items $ 8,982
======
Identifiable assets at December 31, 1996 $ 59,039 19,686 18,497 - 97,222
====== ====== ===== ===
Corporate assets 1,619
------
Total assets at December 31, 1996 $ 98,841
======
</TABLE>
20. Subsequent Event
On February 11, 1999, BFC Financial Corporation filed a Form S-1 registration
statement with the Securities and Exchange Commission. The registration
statement would register approximately 1,000,000 shares of Class A Common Stock
and approximately $15,000,000 of subordinated debentures. The net proceeds from
the Offerings will be used to redeem the Company's outstanding unsecured
subordinated debentures including the payment of deferred interest
F-27
<PAGE>
thereon (totaling approximately $4.0 million). The Company intends to use the
balance of the net proceeds from the offerings for the acquisition of additional
shares in affiliated companies, for investments in the securities of
publicly-traded or privately held companies and for general corporate purposes.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BankAtlantic Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of BankAtlantic Bancorp, Inc. and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BankAtlantic
Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
fort Lauderdale, Florida
January 29, 1999
F-29
<PAGE>
<TABLE>
<CAPTION>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
------------------------
(In thousands, except share data) 1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from depository institutions ................................................ $ 100,823 $ 82,787
Investment securities, net - held to maturity, at cost which approximates market value ... 51,811 55,213
Loans receivable, net .................................................................... 2,466,488 1,911,263
Loans held for sale ...................................................................... 168,881 161,562
Securities available for sale (at market value) .......................................... 597,520 607,490
Trading securities (at market value) ..................................................... 30,005 5,067
Accrued interest receivable .............................................................. 27,771 22,624
Real estate held for development and sale and joint ventures ............................. 67,845 18,638
Real estate owned, net ................................................................... 5,503 7,528
Office properties and equipment, net ..................................................... 58,090 51,130
Federal Home Loan Bank stock, at cost which approximates market value .................... 52,230 34,887
mortgage servicing rights, net ........................................................... 44,315 38,789
Deferred tax asset, net .................................................................. 20,148 3,197
Cost over fair value of net assets acquired, net ......................................... 55,493 26,188
Other assets ............................................................................. 42,052 38,117
----------- ----------
Total assets .................................................................... $ 3,788,975 $3,064,480
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................................................. $ 1,925,772 $1,763,733
Advances from FHLB ....................................................................... 1,044,572 697,707
Federal Funds purchased .................................................................. 18,500 2,500
Securities sold under agreements to repurchase ........................................... 162,093 58,716
Subordinated debentures, notes and bonds payable ......................................... 177,114 179,600
Guaranteed preferred beneficial interests in Company's Junior Subordinated Debentures .... 74,750 74,750
Advances by borrowers for taxes and insurance ............................................ 62,346 39,397
Other liabilities ........................................................................ 83,388 40,906
---------- ----------
Total liabilities ............................................................... 3,548,535 2,857,309
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding 0 0
Class A common stock, $.01 par value, authorized 80,000,000 shares;
issued and outstanding 26,799,368 and 21,509,159 shares ............................... 268 215
Class B common stock, $.01 par value, authorized 45,000,000 shares;
issued and outstanding 10,356,431 and 10,690,231 shares ............................... 104 107
Additional paid-in capital ............................................................... 147,686 98,475
Unearned compensation - restricted stock grants .......................................... (7,062) 0
Retained earnings ........................................................................ 95,818 107,650
----------- ----------
Total stockholders' equity before accumulated other comprehensive income ................. 236,814 206,447
Accumulated other comprehensive income - net unrealized appreciation on securities
available for sale - net of deferred income taxes ...................................... 3,626 724
----------- ----------
Total stockholders' equity ...................................................... 240,440 207,171
----------- ----------
Total liabilities and stockholders' equity ...................................... $ 3,788,975 $3,064,480
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-30
<PAGE>
<TABLE>
<CAPTION>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
INTEREST INCOME: 1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Interest and fees on loans ..................................................... $ 208,094 $171,212 $ 107,922
Interest on banker's acceptances ............................................... 1,062 473 22
Interest on securities available for sale ...................................... 34,924 31,177 38,159
Interest and dividends on investment and trading securities .................... 10,058 7,692 6,528
--------- -------- ---------
Total interest income .................................................. 254,138 210,554 152,631
--------- -------- ---------
INTEREST EXPENSE:
Interest on deposits ........................................................... 66,714 68,231 54,646
Interest on advances from FHLB ................................................. 52,763 27,345 9,221
Interest on securities sold under agreements to repurchase and federal
funds purchased .............................................................. 13,767 8,906 8,480
Interest on subordinated debentures, notes and bonds payable and
guaranteed
beneficial interests in Company's Junior Subordinated Debentures ............. 19,643 11,542 4,018
Capitalized interest on investments in and advances to real estate joint ....... (1,034) 0 0
ventures
--------- -------- ---------
Total interest expense ................................................. 151,853 116,024 76,365
--------- -------- ---------
Net interest income ............................................................ 102,285 94,530 76,266
Provision for loan losses ...................................................... 21,788 11,268 5,844
--------- -------- ---------
Net interest income after provision for loan losses ............................ 80,497 83,262 70,422
--------- -------- ---------
NON-INTEREST INCOME:
Loan late fees and other loan income ........................................... 4,299 2,293 1,590
Gains on sales of loans held for sale .......................................... 4,104 6,820 534
Trading securities gains ....................................................... 898 2,463 0
Gains on sales of real estate held for sale .................................... 6,055 470 0
Gains on sales of securities available for sale, net of write-downs ............ 309 2,367 5,959
Gains (losses) on sales of property and equipment, net ......................... (11) 852 3,061
Principal transactions ......................................................... 4,417 0 0
Investment banking ............................................................. 8,345 0 0
Commissions .................................................................... 4,132 103 21
Transaction fees ............................................................... 12,589 9,302 8,600
ATM fees ....................................................................... 6,650 5,329 3,944
Other .......................................................................... 5,093 3,367 3,109
---------
-------- ---------
Total non-interest income .............................................. 56,880 33,366 26,818
--------- -------- ---------
NON-INTEREST EXPENSE:
Employee compensation/benefits excluding RBCO and real estate operations ....... 45,063 37,666 30,893
Employee compensation/benefits for RBCO and real estate operations ............. 12,443 144 0
Occupancy and equipment ........................................................ 21,444 17,693 12,823
SAIF special assessment ........................................................ 0 0 7,160
Federal insurance premium ...................................................... 1,042 1,084 2,495
Advertising and promotion ...................................................... 5,749 2,203 2,061
Foreclosed asset activity, net ................................................. 754 82 (725)
Restructuring charges and write-downs .......................................... 2,565 0 0
Pension curtailment gain, net .................................................. (3,128) 0 0
Amortization of cost over fair value of net assets acquired .................... 3,311 2,508 1,545
Other excluding RBCO and real estate operations ................................ 23,641 16,087 11,969
Other for RBCO and real estate operations ...................................... 7,781 255 0
-------- ---------
---------
Total non-interest expense ............................................. 120,665 77,722 68,221
--------- -------- ---------
Income before income taxes and discontinued operations ......................... 16,712 38,906 29,019
Provision for income taxes ..................................................... 6,526 15,248 11,380
--------- -------- ---------
Income from continuing operations .............................................. 10,186 23,658 17,639
Income (loss) from operations of discontinued mortgage servicing business
(less applicable income taxes (benefit) of ($11,101), $2,505 and $861) ....... (18,220) 4,111 1,372
--------- -------- ---------
Net income (loss) .............................................................. $ (8,034) $ 27,769 $ 19,011
========= ======== =========
</TABLE>
(Continued)
F-31
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share data) FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
CLASS A COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.30 $ 0.84 $ 0.59
Basic earnings (loss) per share from discontinued operations . (0.54) 0.14 0.05
------------- -------------- --------------
Basic earnings (loss) per share .............................. $ (0.24) $ 0.98 $ 0.64
============= ============== ==============
Diluted earnings per share from continuing operations ........ $ 0.29 $ 0.67 $ 0.54
Diluted earnings (loss) per share from discontinued operations (0.51) 0.11 0.04
------------- -------------- --------------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.78 $ 0.58
============= ============== ==============
Basic weighted average number of common shares outstanding ... 24,161,923 18,029,784 17,616,000
============= ============== ==============
Diluted weighted average number of common and common
equivalent shares outstanding .............................. 24,792,545 27,893,534 21,968,058
============= ============== ==============
CLASS B COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.27 $ 0.81 $ 0.68
Basic earnings (loss) per share from discontinued operations . (0.49) 0.13 0.04
------------- -------------- --------------
Basic earnings (loss) per share .............................. $ (0.22) $ 0.94 $ 0.72
============= ============== ==============
Diluted earnings per share from continuing operations ........ $ 0.26 $ 0.67 $ 0.62
Diluted earnings (loss) per share from discontinued operations (0.48) 0.10 0.04
------------- -------------- --------------
Diluted earnings (loss) per share ............................ $ (0.22) $ 0.77 $ 0.66
============= ============== ==============
Basic weighted average number of common shares outstanding ... 10,483,522 10,649,135 10,589,000
============= ============== ==============
Diluted weighted average number of common and common
equivalent shares outstanding .............................. 11,383,033 11,765,385 11,576,500
============= ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
F-32
<PAGE>
<TABLE>
<CAPTION>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
ACCUMUL-
ATED
OTHER
COMPRE- ADDITIONAL COMPRE-
HENSIVE COMMON PAID-IN RETAINED HENSIVE
(In thousands) INCOME STOCK CAPITAL EARNINGS INCOME (A) TOTAL
--------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............................... $ 106 $ 48,905 $ 65,817 $ 5,733 $ 120,561
Net income .............................................. $ 19,011 0 0 19,011 0 19,011
Other comprehensive income (A) .......................... (4,985)
--------
Comprehensive income .................................... 14,026
========
Proceeds from issuance of Class A common stock, net...... 12 17,992 0 0 18,004
Dividends on Class A common stock ....................... 0 0 (460) 0 (460)
Dividends on Class B common stock........................ 0 0 (1,699) 0 (1,699)
Exercise of Class B common stock options................ 0 413 0 0 413
Tax effect relating to the exercise of stock options..... 0 118 0 0 118
Purchase and retirement of Class A common stock.......... (1) (1,856) 0 0 (1,857)
Purchase and retirement of Class B common stock.......... (1) (1,401) 0 0 (1,402)
5 for 4 stock split July 1996............................ 30 0 (30) 0 0
5 for 4 stock split February 1997 ....................... 37 0 (37) 0 0
Net change in unrealized appreciation on securities
available for sale - net of deferred income taxes...... 0 0 0 (4,985) (4,985)
--------- --------- -------- ---------- --------
BALANCE, DECEMBER 31,1996................................ 183 64,171 82,602 748 147,704
Net income .............................................. 27,769 0 0 27,769 0 27,769
Other comprehensive income .............................. (24)
--------
Comprehensive income (A) ................................ $ 27,745
========
Proceeds from issuance of Class A common stock, net ..... 35 43,339 0 0 43,374
Issuance of Class A common stock upon conversion of
subordinated debentures ............................... 0 375 0 0 375
Dividends on Class A common stock ....................... 0 0 (1,365) 0 (1,365)
Dividends on Class B common stock........................ 0 0 (1,244) 0 (1,244)
Exercise of Class A common stock options ................ 0 97 0 0 97
Exercise of Class B common stock options ............... 3 1,757 0 0 1,760
Tax effect relating to the exercise of stock options.... 0 913 0 0 913
Purchase and retirement of Class A common stock ......... (3) (3,340) 0 0 (3,343)
Purchase and retirement of Class B common stock ......... (8) (8,837) 0 0 (8,845)
5 for 4 stock split July 1997............................ 48 0 (48) 0 0
5 for 4 stock split February 1998 ....................... 64 0 (64) 0 0
Net change in unrealized appreciation on securities
available for sale - net of deferred income taxes...... 0 0 0 (24) (24)
--------- --------- -------- ---------- --------
BALANCE, DECEMBER 31, 1997............................... $ 322 $ 98,475 $107,650 $ 724 $207,171
========= ========= ======== ========== ========
</TABLE>
(Continued)
F-33
<PAGE>
<TABLE>
<CAPTION>
UNEARNED ACCUMUL-
COMPEN- ATED
ADDI- SATION- OTHER
COMPRE- TIONAL RESTRICTED COMPRE-
HENSIVE COMMON PAID-IN RETAINED STOCK HENSIVE
(IN THOUSANDS) INCOME STOCK CAPITAL EARNINGS GRANTS INCOME (A) TOTAL
---------- --------- --------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 ....................... $ 322 $ 98,475 $ 107,650 $ 0 $ 724 $207,171
Net loss .........................................$(8,034) 0 0 (8,034) 0 0 (8,034)
-------
Other comprehensive income, net of income tax:
Unrealized gains on securities available
for sale..................................... 3,705
Reclassification adjustment for losses
included in net loss ........................ (803)
------
Other comprehensive income (A) ................... 2,902
------
Comprehensive loss ...............................$(5,132)
=======
Dividends on Class A common stock ................ 0 0 (2,773) 0 0 (2,773)
Dividends on Class B common stock ................ 0 0 (1,025) 0 0 (1,025)
Exercise of Class A common stock options ......... 0 200 0 0 0 200
Exercise of Class B common stock options ......... 4 1,380 0 0 0 1,384
Tax effect relating to the exercise of stock
options......................................... 0 709 0 0 0 709
Purchase and retirement of Class B common stock .. (7) (10,853) 0 0 0 (10,860)
Issuance of Class A common stock for
acquisitions.................................... 43 41,819 0 0 0 41,862
Issuance of Class A restricted stock ............. 1 583 0 0 0 584
Issuance of Class A common stock options
upon acquisition of RBCO ....................... 0 1,582 0 0 0 1,582
Issuance of Class A common stock upon
conversion of subordinated debentures, net ..... 9 5,720 0 0 0 5,729
Unearned compensation - restricted stock grants .. 0 8,071 0 (8,071) 0 0
Amortization of unearned compensation --
restricted stock grants ....................... 0 0 0 1,009 0 1,009
Net change in unrealized appreciation on
securities available for sale-net of deferred
income taxes ................................... 0 0 0 0 2,902 2,902
------- --------- ---------- ---------- ----------- --------
BALANCE, DECEMBER 31, 1998 ....................... $ 372 $ 147,686 $ 95,818 $ (7,062) $ 3,626 $240,440
======= ========= ========== ========== =========== ========
<FN>
(A) The components of comprehensive income relate to the net unrealized
appreciation (depreciation) on securities available for sale, net of
income taxes.
</FN>
</TABLE>
See Notes to Consolidated Financial Statements
F-34
<PAGE>
<TABLE>
<CAPTION>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
(In thousands) 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations .................................................... $ 10,186 23,658 $ 17,639
Income (loss) from discontinued operations ........................................... (18,220) 4,111 1,372
ADJUSTMENT TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Provision for loan losses ............................................................ 21,788 11,268 5,844
Provision for (reversal of) losses on real estate owned .............................. 1,115 (56) (197)
Gain on sales of real estate held for development and sale ........................... (6,055) (470) 0
Gains on sales of securities available for sale ...................................... (2,445) (2,367) (5,959)
Gains on sales of mortgage servicing rights .......................................... (2,611) (7,905) (4,182)
Gains on sales of real estate owned .................................................. (1,012) (354) (575)
Gains on sales of loans held for sale ................................................ (4,104) (6,820) (534)
(Gains) losses on sales of office properties and equipment ........................... 11 (852) (3,061)
Depreciation, amortization and accretion, net ........................................ 13,157 10,853 6,476
Amortization of mortgage servicing rights ............................................ 18,977 8,210 6,849
Restructuring charges and write-downs ................................................ 2,565 0 0
Provision for disposal of mortgage servicing business ................................ 10,000 0 0
Provision for valuation of mortgage servicing rights ................................. 10,690 0 0
Provision (benefit) for deferred income taxes ........................................ (18,263) 173 1,495
Proceeds from sales of loans held for sale ........................................... 283,138 280,703 59,942
Fundings of loans held for sale ...................................................... (127,214) (79,832) (57,097)
Loans purchased, classified as held for sale ......................................... (29,997) 0 0
Purchase of trading securities, net .................................................. (4,142) (6,243) 0
Proceeds from sales of trading securities ............................................ 8,712 3,640 0
Trading securities gains ............................................................ (898) (2,463) 0
Write-down of securities available for sale .......................................... 2,136 0 0
Increase in accrued interest receivable .............................................. (5,147) (1,869) (2,021)
Amortization of cost over fair value of net assets acquired .......................... 3,311 2,508 1,545
Increase (decrease) in other assets .................................................. (919) 1,720 804
Pension curtailment gain, net ........................................................ (3,128) 0 0
Increase in other liabilities ........................................................ 15,700 8,859 740
Write down of office properties and equipment ........................................ 0 0 263
Loss on joint venture operations ..................................................... 77 12 0
Provision for (reversal of ) allowance for tax certificate losses .................... 234 (98) (184)
Decrease in securities sold not yet purchased ........................................ (462) 0 0
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................ 177,180 246,386 29,159
--------- -------- --------
(Continued)
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
(In thousands) 1998 1997 1996
----------- -------- ----------
<S> <C> <C> <C>
INVESTING ACTIVITIES:
Purchase of investment securities .............................................. (53,214) (47,822) (56,884)
Proceeds from redemption and maturity of investment securities ................. 58,297 47,218 52,413
Purchase of securities available for sale ...................................... (916,445) (664,993) (231,765)
Principal collected on securities available for sale ........................... 224,565 141,775 43,236
Proceeds from sales of securities available for sale ........................... 706,033 357,863 374,413
Loans purchased ................................................................ (1,263,502) (524,498) (465,942)
Principal reduction on loans ................................................... 1,498,352 947,299 548,536
Loan fundings for portfolio .................................................... (1,072,530) (720,620) (692,546)
Banker's acceptances funded .................................................... (110,180) (159,709) (86)
Proceeds from maturity of banker's acceptances ................................. 219,808 287 108
Proceeds from sales of banker's acceptances .................................... 41,877 0 0
Cost of equipment acquired for lease ........................................... (19,214) 0 0
Leases purchased ............................................................... (6,054) 0 0
Principal collected on mortgage-backed securities held to maturity ............. 0 0 131,361
Proceeds from sales of real estate owned ....................................... 6,774 2,876 4,938
Additions to dealer reserve .................................................... (7,525) (9,409) (4,203)
Additions to office properties and equipment ................................... (9,994) (7,934) (10,326)
Proceeds from sales of properties and equipment ................................ 0 1,144 2,666
Investments and advances to joint ventures ..................................... (38,339) (1,325) 0
Purchases of FHLB stock net of redemptions ..................................... (17,343) (20,100) (1,923)
Proceeds from maturities of interest bearing deposits with banks ............... 0 0 19,795
Proceeds from sales of mortgage servicing rights ............................... 31,454 35,550 15,586
Mortgage servicing rights purchased and originated ............................. (64,176) (45,840) (27,681)
Proceeds for sales of real estate held for development and sale ................ 12,922 2,133 0
Additional investment in real estate held for development and sale ............. (14,561) (623) 0
Acquisitions, net of cash acquired ............................................. 433 (17,917) (38,311)
----------- -------- ---------
NET CASH USED BY INVESTING ACTIVITIES .......................................... (792,562) (684,645) (336,615)
----------- -------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ............................................ 108,462 (122,938) 15,905
Interest credited to deposits .................................................. 53,577 53,754 47,433
Proceeds from FHLB advances .................................................... 1,727,000 763,006 577,643
Repayments of FHLB advances .................................................... (1,380,135) (360,999) (488,755)
Net increase (decrease) in federal funds purchased ............................ 16,000 2,500 (1,200)
Proceeds from notes and bonds payable .......................................... 4,135 563 0
Repayment of notes and bonds payable .......................................... (9,051) (903) (1)
Net increase (decrease) in securities sold under agreements to repurchase ...... 103,377 (131,872) 122,329
Proceeds from the issuance of subordinated debentures .......................... 0 100,000 57,500
Deferred costs on the issuance of subordinated debentures ...................... 0 (3,488) (2,356)
Proceeds from issuance of guaranteed preferred interests in the Company's
Junior Subordinated Debentures ............................................... 0 74,750 0
Deferred offering costs from issuance of guaranteed preferred interests
in the Company's Junior Subordinated Debentures .............................. 0 (2,908) 0
Payment to acquire and retire common stock ..................................... (10,860) (12,188) (3,259)
Issuance of common stock, net .................................................. 0 43,374 18,004
Issuance of common stock upon exercise of stock options ........................ 1,584 1,857 413
Receipts of advances by borrowers for taxes and insurance, net ................. 22,949 9,738 5,235
Common stock dividends paid .................................................... (3,620) (2,343) (2,159)
----------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 633,418 411,903 346,732
----------- -------- ---------
Increase (decrease) in cash and cash equivalents ............................... 18,036 (26,356) 39,276
Cash and cash equivalents at the beginning of period ........................... 82,787 109,143 69,867
----------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 100,823 82,787 $ 109,143
=========== ======== =========
</TABLE>
(Continued)
F-36
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
(In thousands) 1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid on borrowings and deposits ........................................... $ 149,375 $ 112,161 $ 71,656
Income taxes paid .................................................................. 9,372 15,060 8,600
Loans transferred to real estate owned ............................................. 4,852 5,076 1,788
Residential loans transferred to held for sale ..................................... 108,465 321,360 0
Loans charged-off .................................................................. 16,095 11,330 7,718
Real estate owned charged-off ...................................................... 1,415 244 803
Tax certificates charged-off (recoveries), net ..................................... 163 419 (2)
Issuance of Class A common stock upon conversion of subordinated
debentures ....................................................................... 5,729 375 0
Issuance of Class A common stock upon acquisitions ................................. 41,862 0 0
Issuance of Class A common stock options upon acquisition of RBCO .................. 1,582 0 0
Issuance of Class A restricted stock ............................................... 584 0 0
Increase in real estate held for development and sale resulting from
St. Lucie West Holding Company ("SLWHC") purchase accounting adjustments ......... 1,502 0 0
Decrease in other assets resulting from SLWHC purchase accounting
adjustment ....................................................................... (1,502) 0 0
Increase in equity for the tax effect related to the exercise of
stock options .................................................................... 709 913 118
Class A common stock cash dividends declared and paid in subsequent
period ........................................................................... 737 496 168
Class B common stock cash dividends declared and paid in subsequent
period ........................................................................... 260 321 384
Net change in unrealized appreciation (depreciation) on securities
available for sale ................................................................ 4,678 (39) (8,115)
Change in deferred taxes on net unrealized (depreciation) appreciation
on securities available for sale ................................................. 1,776 (15) (3,130)
Change in stockholders' equity from net unrealized (depreciation)
appreciation on securities available for sale, less related deferred
income taxes ..................................................................... 2,902 (24) (4,985)
Proceeds receivable from sales of mortgage servicing rights ........................ 7,639 7,388 9,522
Originated mortgage servicing rights ............................................... 111 1,668 311
Proceeds receivable from sales of properties leased to others ...................... 0 0 5,401
Transfer from securities available for sale to trading securities .................. 1,755 6,230 0
</TABLE>
See Notes to Consolidated Financial Statements
F-37
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION -- BankAtlantic Bancorp, Inc.
(the "Company") is a unitary savings bank holding company. The Company's
principal assets include the capital stock of BankAtlantic and Ryan Beck & Co.
("RBCO") and its wholly owned subsidiaries. Under applicable law, the Company
generally has broad authority with few restrictions to engage in various types
of business activities. During 1997 BankAtlantic acquired St. Lucie West Holding
Company ("SLWHC"). SLWHC is the developer of a master planned community located
in Port St. Lucie, Florida. The Company acquired Leasing Technologies Inc.
("LTI") and contributed the common stock to BankAtlantic in June 1998. The
Company and BankAtlantic invested in various real estate limited partnerships
during the latter part of 1997 and during 1998. At December 31, 1998, BFC
Financial Corporation ("BFC") owned 47% of the Company's voting common stock and
31% of the Company's total common stock.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition and
operations for the periods presented. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the next year relate to the determination of the allowance
for loan losses, the valuation of real estate acquired in connection with
foreclosure or in satisfaction of loans, real estate held for development and
sale, and the provision for disposal of the Company's mortgage servicing
business which includes the estimation of the value of mortgage servicing rights
upon sale. In connection with the determination of the allowances for loan
losses and real estate owned, management obtains independent appraisals for
significant properties when it is deemed prudent.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1998. Prior years Statements of Operations were
restated for discontinued operations.
CONSOLIDATION POLICY -- The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All the Company's
subsidiaries are 100% owned except for investments in joint ventures accounted
for under the equity method of accounting. The Company's non-consolidated
ownership interest in these joint ventures range from 40% to 50%. All
intercompany transactions and balances have been eliminated.
CASH EQUIVALENTS -- Cash and due from depository institutions include
demand deposits at other financial institutions and federal funds sold.
Generally, federal funds are sold for one-day periods.
SECURITIES -- Securities that management has both the positive intent
and ability to hold to maturity are classified as securities held-to-maturity
and are carried at cost, adjusted for amortization of premium or accretion of
discount using the interest method. Securities that may be sold prior to
maturity for asset/liability management purposes, or that may be sold in
response to changes in interest rates, to changes in prepayment risk, to
increase regulatory capital or other similar factors, are classified as
securities available-for-sale and carried at fair value with any adjustments to
fair value, after tax, reported as a separate component of stockholders' equity.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses. Securities purchased for trading
purposes are held in the trading portfolio at fair value, with changes in fair
value included in noninterest income.
Interest and dividends on securities, including the amortization of
premiums and the accretion of discounts, are reported in interest and dividends
on securities using the interest method. Gains and losses on the sale of
securities are recorded on the trade date and are calculated using the
specific-identification method.
TAX CERTIFICATES -- Tax certificates are carried at cost. All tax
certificates are classified as held to maturity because management has the
positive intent and ability to hold such certificates to maturity. Tax
certificates and resulting deeds are classified as non-accrual when a tax
certificate is 48 months delinquent and a deed has aged 48 months from
BankAtlantic's acquisition date. At that time interest ceases to be accrued.
F-38
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for tax certificate losses represents the amount which
management believes is sufficient to provide for future losses that are probable
and subject to reasonable estimation. In establishing its allowance 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.
CONSTRUCTION AND DEVELOPMENT LENDING -- BankAtlantic's construction and
development lending generally requires an equity investment in the form of
contributed assets or direct cash investment from the borrower. BankAtlantic had
no loans with participation in profits at December 31, 1998, 1997 and 1996.
Accordingly, all construction and development lending arrangements have been
classified and accounted for as loans other than loans to joint ventures (see
"investment in joint ventures" below).
NON-ACCRUAL LOANS AND IMPAIRED LOANS -- Interest income on loans,
including the recognition of discounts and loan fees, is accrued based on the
outstanding principal amount of loans using the interest method. A loan is
generally placed on nonaccrual status at the earlier of management becoming
aware that the borrower has entered bankruptcy proceedings and the loan is
delinquent or when the loan is past due 90 days as to either principal or
interest. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. A nonaccrual loan may be restored
to accrual status when delinquent loan payments are collected and the loan is
expected to perform according to its contractual terms.
Management considers a loan to be impaired when, based upon current
information and events, it believes it is probable that BankAtlantic will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Loans collectively reviewed by BankAtlantic for impairment include
residential and consumer loans and performing commercial real estate and
commercial business loans (including small business loans) under $500,000,
excluding loans which are individually reviewed based on specific criteria, such
as delinquency and condition of collateral property. Generally, BankAtlantic
recognizes interest income on impaired loans on a cash basis.
ALLOWANCE FOR LOAN LOSSES -- In determining the adequacy of its
allowance for loan losses management segregates the loan portfolio into broad
categories , such as: commercial real estate; residential real estate; small
business; commercial business; lease financing, international 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. First, general loss percentages are calculated based upon historical
analyses. In considering this portion of the provision, greater emphasis is
placed on current trends, if such trends are adverse. Secondly, 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; 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 observable market price of the impaired loans, 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.
Management believes the allowance for loan loss is adequate and that it
has a sound basis for estimating the adequacy of the allowance for loan losses,
however actual charge-offs incurred in the future are highly dependent upon
future events, including the economy of the geographical areas in which
BankAtlantic holds loans. In addition, various regulatory agencies, as an
integral
F-39
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
REAL ESTATE OWNED ("REO") -- REO is recorded at the lower of the loan
balance, plus acquisition costs, or fair value, less estimated disposition
costs. Expenditures for capital improvements made thereafter are generally
capitalized. Real estate acquired in settlement of loans are anticipated to be
sold and valuation allowance adjustments are made to reflect any subsequent
changes in fair values from the initially recorded amount. Costs of holding REO
are charged to operations as incurred. Provisions and reversals in the REO
valuation allowance are reflected in operations.
LOANS HELD FOR SALE AND LOANS HELD FOR INVESTMENT -- Residential first
mortgage loans held for sale are reported at the lower of cost or estimated
aggregate fair value based on current market prices for similar loans. Loan
origination fees and related direct loan origination costs and premiums and
discounts on purchased loans are deferred until the related loan is sold. As
part of its normal operations the Company makes bulk purchases of residential
loans which are generally categorized, at the time of purchase, as held for
investment. The Company continually evaluates these purchased loans and such
evaluations may result in transfers from the held for investment category;
however, such transfers would not normally exceed 10% of the average annual
balance of the portfolio.
LOAN ORIGINATION AND COMMITMENT FEES, PREMIUMS AND DISCOUNTS ON LOANS
AND RESIDENTIAL LOAN PORTFOLIO PURCHASES -- Origination and commitment fees
collected are deferred net of direct costs and are being amortized to interest
income over the estimated life of the loan, adjusted for prepayments using the
level yield method. Amortization of deferred fees is discontinued when the
related loan is placed on non-accrual status. Commitment fees related to expired
commitments are recognized as income when the commitment expires.
Unearned discounts on installment, second mortgage and home improvement
loans are amortized to income using the level yield method over the terms of the
related loans. Unearned discounts and premiums on purchased loans are amortized
to income using the level yield method over the estimated life of the loans,
adjusted for prepayments.
INVESTMENT BANKING ACTIVITIES -- RBCO securities transactions (and
related revenues and expenses) are recorded on a trade date basis. RBCO selling
concessions, consulting fees, management fees and underwriting fees, less
related expenses, are recorded in income as earned. All securities owned and
sold, but not yet purchased by RBCO are valued at market, which results in
unrealized gains and losses being reflected in operations.
Investment banking revenues include gains, losses and fees, net of
syndicate expense, arising from securities offerings in which RBCO acts as an
underwriter or agent. Investment banking revenues also include fees earned from
providing merger and acquisition and financial restructuring advisory services.
Principal Transactions - Principal transactions are sales and trading
activities of tax exempt debt securities, taxable debt securities and equity
securities conducted by RBCO.
COMMISSIONS -- Commission revenues reflect fees earned by RBCO from
retail customers upon the execution of equity and mutual fund trades.
LOAN SERVICING FEES -- BankAtlantic services mortgage loans for its own
account and for investors. The Company in December 1998 decided to exit the
mortgage servicing business ("MSB"). Accordingly, results of operations of the
mortgage servicing business are presented as "Discontinued Operations" in the
Consolidated Statements of Operations for all periods presented. Mortgage loans
serviced for investors are not included in the accompanying consolidated
statements of financial condition. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and are
recognized as income when related loan payments from mortgagors are collected.
Loan servicing costs are charged to expense as incurred. BankAtlantic recognizes
as an asset the right to service mortgage loans whether such servicing rights
are purchased or originated. Originated servicing rights are measured at the
date of sale based on the relative fair value of the servicing rights and
related loans. Mortgage servicing rights ("MSR") are stated at the lower of
amortized cost or fair value. The amortization of MSR are on an individual loan
basis. Both purchased and originated MSR are amortized to expense using the
level yield method over the estimated life of the loan and continually adjusted
for prepayments. For the purpose of evaluating and measuring impairment of MSR,
and determining the amount of any valuation allowance, BankAtlantic stratifies
those rights based on the
F-40
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
predominant risk characteristics of the underlying loans. Those characteristics
include loan type, note rate and term. Adjustments to the valuation allowance
are reflected in operations.
DEALER RESERVES, NET -- The dealer reserve receivable represents the
portion of interest rates passed through to dealers on indirect consumer loans.
BankAtlantic funds 100% of the dealer reserves at the inception of the loan.
Dealer reserves are amortized over the contractual life of the related loans,
adjusted for actual prepayments and losses, using the interest method and
classified as an adjustment to interest income except for the Subject Portfolio
discussed further in Note 17 herein. Dealer reserves are stated net of
accumulated amortization, allowances, and any unfunded amounts due to the
dealer.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE -- Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Land and indirect land development costs
are allocated to the various parcels based upon the relative sales value method.
Real estate held for sale is stated at the lower of carrying amount or fair
value less cost to sell. Real estate held for development is evaluated for
impairment based upon the undiscounted future cash flows of the property
compared to the carrying value of the property. If the undiscounted future cash
flows are lower than the carrying value of the property, a valuation allowance
is established for the difference between the carrying amount of the parcel and
the fair value of the parcel, less cost to sell. The fair value of real estate
is evaluated based on existing and anticipated market conditions. The evaluation
takes into consideration the current status of the property, various
restrictions, carrying costs, costs of disposition and any other circumstances
which may affect estimated fair value.
INVESTMENTS IN JOINT VENTURES -- Investments in joint ventures are
accounted for by the equity method of accounting. All intercompany profits and
losses are eliminated until realized through third party transactions. Interest
is capitalized on real estate joint ventures while the investee has activities
in progress necessary to commence its planned principal operations based on the
average balance outstanding of investments and advances to joint ventures.
Interest income on loans from BankAtlantic to joint ventures is eliminated based
on the Company's ownership percentage in consolidation until realized by the
joint venture.
Profit or loss on real estate sold including REO, joint ventures and
real estate held for development and sale is recognized in accordance with
Statement of Financial Accounting Standards No. 66, "ACCOUNTING FOR SALES OF
REAL ESTATE". Any estimated loss is recognized in the period in which it becomes
apparent.
IMPAIRMENT -- Long-lived assets, assets to be disposed of, cost over
fair value of net assets acquired and certain identifiable intangibles to be
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets, assets to be disposed of, and identifiable intangibles
that the Company expects to hold and use is based on the fair value of the
asset.
OFFICE PROPERTIES AND EQUIPMENT -- Land is carried at cost. Office
properties and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets which generally range up to 50 years for buildings and 3-10
years for equipment. The cost of leasehold improvements is being amortized using
the straight-line method over the terms of the related leases.
Expenditures for new properties and equipment and major renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred and gains or losses on disposal of assets are
reflected in current operations.
COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
- - - Cost over fair value of assets acquired and other intangible assets are
being amortized on a straight-line basis over its estimated useful life of 7-25
years. A non-competition agreement, originated in 1995, was amortized on a
straight-line basis over its useful life of approximately three years.
ADVERTISING -- Advertising expenditures are expensed as incurred.
F-41
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALLOCATION OF INTEREST INCOME (EXPENSE) TO DISCONTINUED OPERATIONS --
Interest income (expense) was imputed to discontinued operations based on the
discontinued operations net assets and the Company's short term borrowing rate
during the years ended December 31, 1998, 1997 and 1996.
INCOME TAXES -- The Company and its subsidiaries file consolidated
federal and state income tax returns. The Company utilizes the asset and
liability method to account for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the statutory enactment date. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be utilized.
DERIVATIVE INSTRUMENTS -- The Company does not purchase, sell or enter
into derivative financial instruments or derivative commodity instruments as
defined by Statement of Financial Accounting Standards No. 119, "DISCLOSURES
ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS"
other than fixed rate loan commitments. Such commitments were $71.8 million at
December 31, 1998, which the Company believes are at market value.
COMMON STOCK -- The Company has two classes of common stock; Class A
non-voting common stock and Class B voting common stock. The Class A common
stock and the Class B common stock have substantially identical terms except
that (i) the Class B common stock is entitled to one vote per share while the
Class A common stock has no voting rights other than those which may be required
by Florida law in certain limited circumstances and (ii) the Class A common
stock is entitled to receive cash dividends equal to at least 110% of any cash
dividends declared and paid on the Class B common stock.
EARNINGS PER COMMON SHARE -- The Company is required to use the
two-class method to report its earnings per share, since it has a capital
structure which includes two classes of common stock with different dividend
rates. Holders of Class A common stock are entitled to receive cash dividends
equal to at least 110% of any cash dividends declared and paid on Class B common
stock. Non-cash distributions on Class A common stock must be identical to those
declared and issued on Class B common stock, except that a distribution to
holders of Class A common stock may be declared and issued in Class A common
stock while a distribution to holders of Class B common stock may be declared
and issued in either Class A common stock or Class B common stock. Under the
"two class method", net income available to common shareholders is allocated to
Class A and Class B common shares first by actual cash dividends paid for actual
shares outstanding during the period and secondly, through the allocation of
undistributed earnings. Since Class A common shareholders are entitled to
receive cash dividends equal to at least 110% of any cash dividend declared and
paid on Class B common shares, undistributed earnings are allocated to Class A
and Class B shares on a 110 to 100 basis, respectively, based upon the ratio of
the weighted average number of shares for each class outstanding during the
period to total shares (allocation percentage). Because the allocation
percentage for each class differs for basic and diluted EPS purposes, allocated
undistributed earnings differs for such calculations. Outstanding shares during
the period are retroactively restated for stock splits declared in subsequent
periods. The impact of retroactively restating Class A common stock outstanding
during each period for Class A common stock issued to Class B common
shareholders in stock splits is to change the allocation percentage for
undistributed earnings that was originally utilized in the calculation of EPS in
prior periods such that the ratio of Class A EPS declines in relation to Class B
EPS for such restated periods. Basic earnings per share excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if options, convertible securities or warrants to
issue common shares were exercised. In calculating diluted income per share,
interest expense net of taxes on convertible securities is added back to net
income, with the resulting amount divided by the weighted average number of
dilutive common shares outstanding, when dilutive. Common stock options,
warrants, convertible securities and restricted stock, if dilutive, are
considered in the weighted average number of dilutive common shares outstanding.
The options, warrants and restricted stock are included in the weighted average
number of dilutive common shares outstanding based on the treasury stock method.
STOCK BASED COMPENSATION PLANS -- The Company maintains both qualifying
and non-qualifying stock-based compensation plans for its employees and
directors. The Company has elected to continue to account for its employee
stock-based compensation plans under APB No. 25.
NEW ACCOUNTING PRONOUNCEMENTS -- Financial Accounting Standards Board
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133") was issued in June 1998. This statement establishes
accounting and
F-42
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as:
(a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm
commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or
(c) a hedge of the foreign currency exposure of a net investment in
a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. For a derivative designated as hedging the exposure to
changes in the fair value of a recognized asset or liability or a firm
commitment (referred to as a fair value hedge), the gain or loss is recognized
in earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. The effect of that
accounting is to reflect in the results of operations the extent to which the
hedge is not effective in achieving offsetting changes in fair value. For a
derivative designated as hedging the exposure to variable cash flows of a
forecasted transaction (referred to as a cash flow hedge), the effective portion
of the derivative as a gain or loss is initially reported as a component of
other comprehensive income (outside the results of operations) and subsequently
reclassified into results of operations when the forecasted transaction affects
the results of operations. The ineffective portion of the gain or loss is
reported in the results of operations immediately. For a derivative designated
as hedging the foreign currency exposure of a net investment in a foreign
operation, the gain or loss is reported in other comprehensive income (outside
the results of operations) as part of the cumulative translation adjustment. The
accounting for a fair value hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security. Similarly, the accounting for a
cash flow hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of a foreign-currency-denominated forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in the results of operations in the period of change.
Under this statement, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. This statement should not be applied retroactively to
financial statements of prior periods. The Company intends to implement FAS 133,
as of January 1, 2000 and its potential impact on the Statement of Operations
and Statement of Financial Condition is currently under review by management.
Financial Accounting Standards Board Statement No. 134 "ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE" was issued in October 1998. This
statement requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interest based on its ability and
intent to sell or hold those investments. This statement shall be effective for
the first fiscal quarter beginning after December 15, 1998. The Company
implemented this statement on January 1, 1999 and this statement did not have a
material impact on the Company's financial condition or results of operations.
Financial Accounting Standards Board Statement No. 135 "RECISION OF
FASB STATEMENT NO. 75 AND TECHNICAL CORRECTIONS" was issued in February 1999.
This statement rescinds certain accounting requirements for pension plans to
state and local governmental units and amends other existing authoritative
literature to make various technical corrections, clarify meanings, or describe
applicability under changed conditions. The statement is effective for financial
statements issued for fiscal years ending after February 15, 1999. This
statement will not have a material impact on the Company's financial statements.
F-43
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations and the allocation of earnings (loss)
between Class A and Class B common shares for the years ended:
<TABLE>
<CAPTION>
(In thousands,
except per
share data DECEMBER 31, DECEMBER 31, DECEMBER 31,
and percentages) 1998 1997 1996
----------------------------------- ---------------------------------- ----------------------------------
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
---------- ----------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC NUMERATOR
Actual dividends
declared.............$ 2,773 $ 1,025 $ 3,798 $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159
Basic allocated
undistributed
earnings from
continuing
operations........... 4,583 1,805 6,388 13,695 7,354 21,049 10,010 5,470 15,480
---------- ----------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Income from
continuing
operations.......... 7,356 2,830 10,186 15,060 8,598 23,658 10,470 7,169 17,639
Income (loss) from
discontinued
operations.......... (13,066) (5,154) (18,220) 2,675 1,436 4,111 887 485 1,372
---------- ----------- --------- ---------- ----------- ---------- ---------- ---------- ---------
Net income (loss).....$ (5,710) $ (2,324) $ (8,034) $ 17,735 $ 10,034 $ 27,769 $ 11,357 $ 7,654 $ 19,011
========== =========== ========= ========== ========== ========== ========== ========== =========
BASIC DENOMINATOR
Weighted average
shares
outstanding ........24,161,923 10,483,522 18,029,784 10,649,135 17,616,000 10,589,000
========== =========== ========== ========== ========== ==========
Allocation
percentage.......... 71.71 28.29 65.06 34.94% 64.66 35.34
========== =========== ========== ========== ========== ==========
Basic earnings
per share
from
continuing
operations..........$ 0.30 $ 0.27 $ 0.84 $ 0.81 $ 0.59 $ 0.68
Basic earnings
(loss) per
share from
discontinued
operations ......... (0.54) (0.49) 0.14 0.13 0.05 0.04
---------- ------------ ---------- ---------- ---------- ----------
Basic earnings
(loss) per share....$ (0.24) $ (0.22) $ 0.98 $ 0.94 $ 0.64 $ 0.72
========== ============ ========== ========== ========== ==========
DILUTED NUMERATOR
Actual dividends
declared............$ 2,773 $ 1,025 $ 3,798 $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Basic allocated
undistributed
earnings from
continuing
operations ......... 4,583 1,805 6,388 13,695 7,354 21,049 10,010 5,470 15,480
Reallocation of
basic
undistributed
earnings due to
change in
allocation
percentage ......... (74) 74 0 1,520 (1,520) 0 456 (456) 0
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Diluted allocated
undistributed
earnings from
continuing
operations.......... 4,509 1,879 6,388 15,215 5,834 21,049 10,466 5,014 15,480
Interest expense
on convertible
debt................ 0 0 0 2,091 802 2,893 984 471 1,455
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Dilutive net
income from
continuing
operations.......... 7,282 2,904 10,186 18,671 7,880 26,551 11,910 7,184 19,094
Dilutive net
income (loss)
from
discontinued
operations.......... (12,855) (5,365) (18,220) 2,971 1,140 4,111 928 444 1,372
---------- ------------ --------- ---------- ---------- ---------- ---------- ---------- ---------
Net income (loss).....$ (5,573) $ (2,461) $ (8,034) $ 21,642 $ 9,020 $ 30,662 $ 12,838 $ 7,628 $ 20,466
========== ============ ========= ========== ========== ========== ========== ========== =========
DILUTED DENOMINATOR
Basic weighted
average
shares
outstanding ........24,161,923 10,483,522 18,029,784 10,649,135 17,616,000 10,589,000
Convertible
debentures.......... 0 0 9,513,000 0 4,352,058 0
Options, warrants
and restricted
common stock........ 630,622 899,511 350,750 1,116,250 0 987,500
---------- ------------ ---------- ----------- ---------- ----------
Diluted weighted
average shares
outstanding.........24,792,545 11,383,033 27,893,534 11,765,385 21,968,058 11,576,500
========== ============ =========== =========== ========== ==========
Allocation
percentage.......... 70.55% 29.45% 72.28% 27.72% 67.61% 32.39%
========== ============ =========== =========== ========== ==========
Diluted earnings
per share
from
continuing
operations..........$ 0.29 $ 0.26 $ 0.67 $ 0.67 $ 0.54 $ 0.62
Diluted earnings
(loss) per
share from
discontinued
operations.......... (0.51) (0.48) 0.11 0.10 0.04 0.04
----------- ------------ ----------- ----------- ---------- ----------
Diluted earnings
(loss) per
share...............$ (0.22) $ (0.22) $ 0.78 $ 0.77 $ 0.58 $ 0.66
=========== ============ =========== =========== ========== ==========
</TABLE>
F-44
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
3. SECURITIES AND SHORT-TERM INVESTMENTS
The following summarizes securities available-for-sale and
held-to-maturity (in thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1998 COST APPRECIATION DEPRECIATION FAIR VALUE
- - ----------------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES(1):
FNMA mortgage-backed securities .............. $116,255 $ 856 $ 0 $117,111
FHLMC mortgage-backed securities ............. 148,745 1,057 59 149,743
FNMA real estate mortgage investment conduits 34,333 0 1,353 32,980
FHLMC real estate mortgage investment conduits 271,844 1,890 166 273,568
-------- ------ ------ --------
Total mortgage-backed securities ........ 571,177 3,803 1,578 573,402
-------- ------ ------ --------
INVESTMENT SECURITIES:
U.S. Treasury Notes .......................... 4,992 49 0 5,041
Corporate Bonds .............................. 2,342 0 362 1,980
Equity securities(2) ......................... 13,150 4,024 77 17,097
-------- ------ ------ --------
Total investment securities ............. 20,484 4,073 439 24,118
-------- ------ ------ --------
Total .............................. $591,661 $7,876 $2,017 $597,520
======== ====== ====== ========
AVAILABLE FOR SALE
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST APPRECIATION DEPRECIATION FAIR VALUE
- - ----------------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES(1):
FNMA mortgage backed securities .............. $206,980 $ 839 $ 81 $207,738
FHLMC mortgage backed securities ............. 367,787 797 205 368,379
-------- ------ ------ --------
Total mortgage-backed securities......... 574,767 1,636 286 576,117
-------- ------ ------ --------
INVESTMENT SECURITIES:
FHLB Bonds ................................... 10,000 4 0 10,004
Asset-backed securities ...................... 3,194 0 18 3,176
U.S. Treasury Notes .......................... 9,959 91 0 10,050
Corporate Bonds .............................. 2,360 0 290 2,070
Equity securities ............................ 5,122 456 415 5,163
Other ........................................ 910 0 0 910
-------- ------ ------ --------
Total investment securities ............. 31,545 551 723 31,373
-------- ------ ------ --------
Total .............................. $606,312 $2,187 $1,009 $607,490
======== ====== ====== ========
<FN>
(1) The estimated fair value of securities pledged for the following obligations
are (in thousands):
</FN>
</TABLE>
1998 1997
--------- ---------
FHLB advances................................. $ 90,600 $ 0
Commercial letters of credit.................. 0 4,900
Treasury tax and loan......................... 3,500 5,900
Repurchase agreements......................... 181,210 65,402
Public funds.................................. 52,977 23,900
Subordinated debentures....................... 5,800 5,800
---------- ---------
$ 334,087 $ 105,902
========== =========
(2) Amortized cost reflects a $2.1 million impairment resulting from other than
temporary declines in the fair value.
F-45
<PAGE>
The scheduled maturities of mortgage-backed and debt securities available for
sale were (in thousands):
AVAILABLE FOR SALE
--------------------------
ESTIMATED
AMORTIZED FAIR
DECEMBER 31, 1998(1) COST VALUE
- ------------------- -------- ---------
Due within one year .......................... $ 36,864 $ 37,035
Due after one year, but within five years .... 33,672 33,603
Due after five years, but within ten years ... 12,074 11,660
Due after ten years .......................... 495,901 498,125
-------- --------
Total ................................... $578,511 $580,423
======== ========
(1) Scheduled maturities in the above table may vary significantly from actual
maturities due to prepayments.
<TABLE>
<CAPTION>
HELD TO MATURITY
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1998 COST APPRECIATION DEPRECIATION VALUE
- - ----------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Tax certificates --
Net of allowance of $ $1,020 ......... $49,896 $0 $0 $49,896
Other ...................................... 1,915 0 0 1,915
------- -- -- -------
$51,811 $0 $0 $51,811
======= == == =======
DECEMBER 31, 1997
- - -----------------
Tax certificates --
net of allowance of $949(1) ............... $55,213 $0 $0 $55,213
======= == == =======
<FN>
(1) Management considers estimated fair value equivalent to book value for tax
certificates since these securities have no readily traded market.
</FN>
</TABLE>
The estimated repayments of investment securities held to maturity were (in
thousands):
BOOK ESTIMATED
DECEMBER 31, 1998 VALUE FAIR VALUE
- ----------------- ------- ----------
Due in one year or less .................... $37,711 $37,711
Due after one year through five years ...... 14,100 14,100
Due after five years through ten years ..... 0 0
------- -------
Total ............................ $51,811 $51,811
======= =======
F-46
<PAGE>
Securities held to maturity primarily consist of tax certificates which
represent a priority lien against real property for which assessed real estate
taxes are delinquent. BankAtlantic's experience with this type of investment has
been favorable as rates earned are generally higher than many alternative
investments and substantial repayment occurs over a two year period. The primary
risks BankAtlantic has experienced with tax certificates have related to the
risk that additional funds may be required to purchase other certificates
related 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. See Note 6 for activity in the allowance for tax certificate
losses.
During the years ended December 31, 1998, 1997 and 1996, the Company
sold the following securities available for sale for realized gains of $2.4
million, $2.4 million and $6.0 million, respectively.
<TABLE>
<CAPTION>
SALES (1)
------------------------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
7 year balloon mortgage-backed securities ...... $127,915 $ 66,021 $ 5,900
5 year balloon mortgage-backed securities ...... 27,151 28,096 0
30 year mortgage backed securities ............. 0 6,412 0
15 year mortgage backed securities ............. 0 1,066 20,500
Real estate mortgage investment conduit ........ 0 5,900 205,454
U.S. treasury notes ............................ 181,558 231,038 0
Federal agency obligations ..................... 0 7,600 0
Corporate bonds ................................ 9,977 0 0
-------- -------- --------
Total fixed rate securities ............... 346,601 346,133 231,854
5-1 Adjustable rate mortgages .................. 253,129 9,363 0
3-1 Adjustable rate mortgages .................. 103,183 0 136,600
Marketable equity securities ................... 675 0 0
-------- -------- --------
Total securities available for sale activity. $703,588 $355,496 $368,454
======== ======== ========
<FN>
(1) Stated at cost.
</FN>
</TABLE>
During the year ended December 31, 1997, the Company purchased $6.2
million of marketable equity trading securities and sold $2.9 million of these
trading securities for a $699,000 realized gain. During the year ended December
31, 1998, the Company began trading government securities which are generally
bought and sold on the same day. The Company realized a $62,000 gain from
trading government securities during the year ended December 31, 1998.
The Company's trading account consists of the following (in thousands):
DECEMBER 31, DECEMBER 31,
1998 1997
------------ -----------
Debt obligations:
States and municipalities ............. $18,476 $ 0
Corporations .......................... 615 0
U.S. Government and agencies .......... 172 0
Corporate equity ........................ 10,448 5,067
Other ................................... 294 0
------- ------
Total .............................. $30,005 $5,067
======= ======
All the trading securities outstanding at December 31, 1998 were
associated with trading activities conducted both as principal and as agent on
behalf of individual and institutional investor clients of RBCO. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. During the period from
acquisition through December 31, 1998, RBCO realized net gains from principal
transactions of $4.4
F-47
<PAGE>
million. Included in other liabilities at December 31, 1998 were $2.9 million of
securities sold not yet purchased relating to RBCO trading activity. All of the
trading securities outstanding at December 31, 1997 were associated with the
Company's trading activities.
Securities sold, but not yet purchased consists of the following (in
thousands):
Corporate equity............... $ 2,842
Corporate debt obligations..... 15
Municipal debt obligations..... 15
-------
Total..................... $ 2,872
=======
Securities sold, but not yet purchased are a part of RBCO's normal
activities as a broker and dealer in securities and are subject to
off-balance-sheet market risk of loss should RBCO be unable to acquire the
securities for delivery to the purchaser at prices equal to or less than the
current recorded amounts.
The following table provides information on repurchase agreements (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Ending Balance ..................................... $ 0 $ 0 $ 0
Maximum outstanding at any month end within period.. $4,000 $ 0 $ 0
Average amount invested during period .............. $3,000 $2,900 $1,900
Average yield during period ........................ 4.66% 5.45% 5.47%
</TABLE>
The underlying securities associated with the repurchase agreements
during the years ended December 31, 1998, 1997 and 1996 were in BankAtlantic's
possession.
The following table provides information on Federal Funds sold (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Ending Balance ..................................... $ 0 $ 0 $ 6,100
Maximum outstanding at any month end within period.. $21,000 $12,400 $16,000
Average amount invested during period .............. $ 2,688 $ 1,401 $ 2,670
Average yield during period ........................ $ 5.54% 6.28% 4.08%
</TABLE>
F-48
<PAGE>
4. LOANS RECEIVABLE
Loans receivable net were:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans:
Residential ...................................... $ 0 $ 37,813
Purchased residential ............................ 1,336,100 772,932
Construction and development ..................... 439,418 325,951
FHA and VA insured ............................... 487 1,025
Commercial ....................................... 341,738 378,718
Small business - real estate ..................... 20,275 17,639
Other loans:
Second mortgages - direct ........................ 60,403 65,810
Second mortgages - indirect ...................... 8,032 12,461
Commercial business .............................. 91,591 41,858
Lease financing .................................. 25,055 0
Small business - non-mortgage .................... 98,543 13,757
Due from foreign banks ........................... 27,293 12,256
Banker's acceptances ............................. 9,662 160,105
Deposit overdrafts ............................... 1,638 1,211
Consumer loans - other direct .................... 39,292 50,347
Consumer loans - other indirect .................. 212,571 204,689
----------- -----------
Total gross loans ........................ 2,712,098 2,096,572
----------- -----------
Adjustments:
Undisbursed portion of loans in process .......... (218,937) (163,237)
Premiums related to purchased loans .............. 11,563 7,047
Unearned discounts on commercial real estate loans (286) (669)
Allowance for loan losses ........................ (37,950) (28,450)
----------- -----------
Loans receivable -- net .................. $ 2,466,488 $ 1,911,263
=========== ===========
</TABLE>
BankAtlantic is subject to economic conditions which could adversely
affect both the performance of the borrower or the collateral securing the loan.
At December 31, 1998, 45% of total aggregate outstanding loans were to borrowers
in Florida, 12% of total loans were to borrowers in the Northeastern United
States 10% of the total loans were to borrowers in California, and 33% were to
borrowers located elsewhere. Additionally, deferred loan fees netted against
loan balances were $2.8 million and $3.6 million at December 31, 1998 and 1997,
respectively. Commitments to sell residential mortgage loans were $45.4 million
and $11.9 million at December 31, 1998 and 1997, respectively. Variable rate
commitments to sell residential mortgage loans were zero and $832,000, whereas,
fixed rate commitments to sell residential mortgage loans were $45.4 million and
$11.1 million at December 31, 1998 and 1997, respectively. Such residential
mortgage loan sales related to loans originated for sale.
Included in other assets were $10.0 million and $10.4 million of
prepaid dealer reserves at December 31, 1998 and 1997, respectively.
During the year ended December 31, 1998 and 1997, the Company
transferred $108.5 million and $321.4 million of purchased residential loans
from the held for investment category to the loans held for sale category,
respectively. As part of its normal operations, the Company purchases bulk
residential loans and continually evaluates the portfolio. These evaluations may
result in transfers from the held for investment category to the held for sale
category; however, such transfers would not normally exceed 10% of the average
annual balance of the portfolio.
F-49
<PAGE>
Activity in the allowance for loan losses was (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of period .................................. $ 28,450 $ 25,750 $ 19,000
Charge-offs:
Commercial business loans ................................... (896) (180) (1,048)
Commercial real estate loans ................................ (562) (276) (266)
Lease financing ............................................. (1,233) 0 0
Small business - real estate ................................ (72) 0 0
Small business - non-mortgage ............................... (1,971) 0 0
Consumer loans - indirect ................................... (9,446) (7,885) (4,581)
Consumer loans - direct ..................................... (1,746) (2,809) (1,756)
Residential real estate loans ............................... (61) (76) (67)
Purchased residential real estate loans .................... (108) (104) 0
----------- ----------- -----------
(16,095) (11,330) (7,718)
----------- ----------- -----------
Recoveries:
Commercial business loans ................................... 489 301 518
Small business - non-mortgage ............................... 30 0 0
Commercial real estate loans ................................ 9 208 47
Lease financing ............................................. 229 0 0
Consumer loans - indirect ................................... 1,449 1,462 382
Consumer loans - direct ..................................... 844 791 1,277
----------- ----------- -----------
Net charge-offs ............................................... (13,045) (8,568) (5,494)
Additions charged to operations ............................... 21,788 11,268 5,844
Allowance for loan losses acquired ............................ 757 0 6,400
----------- ----------- -----------
Balance, end of period ........................................ $ 37,950 $ 28,450 $ 25,750
=========== =========== ===========
Average outstanding loans during the period ................... $ 2,540,271 $ 1,940,060 $ 1,177,325
=========== =========== ===========
Average outstanding banker's acceptances during the period .... $ 16,790 $ 7,966 $ 329
=========== =========== ===========
Ratio of net charge-offs to average outstanding loans ......... 0.51% 0.44% 0.47%
=========== =========== ===========
Ratio of net charge-offs to average outstanding loans including
banker's acceptances ........................................ 0.51% 0.44% 0.47%
=========== =========== ===========
</TABLE>
Aggregate loans to and repayments of loans by directors, executive
officers, principal stockholders and other related interests for the years ended
December 31, 1998 and 1997 were (in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 ADDITIONS DELETIONS 1997 ADDITIONS DELETIONS 1998
<S> <C> <C> <C> <C> <C> <C> <C>
-------------- ------------ ------------ -------------- ------------ ------------ ---------------
$ 367 86 68 385 0 122 $ 263
============== ============ ============ ============== ============ ============ ===============
</TABLE>
Certain directors, who are also executive officers, have investments or
are partners in real estate joint ventures with developers that have loans with
BankAtlantic or are partners in BDC joint ventures. Also, beginning in September
1998, BDC agreed to pay a company controlled by the Vice Chairman of the Company
$50,000 per month for services and management relating to SLWHC and the joint
ventures.
F-50
<PAGE>
Accrued interest receivable consisted of (in thousands):
DECEMBER 31,
-----------------------
1998 1997
------- -------
Loans receivable ....................... $19,127 $14,432
Investment securities held to maturity.. 4,077 3,828
Securities available for sale .......... 4,567 4,364
------- -------
$27,771 $22,624
======= =======
5. DISCONTINUED OPERATIONS, RESTRUCTURING CHARGES AND OTHER WRITE-DOWNS
DISCONTINUED OPERATIONS
At December 31, 1998, the Board of Directors adopted a formal plan to
dispose of the Company's MSB operations. The Company concluded that the MSB no
longer met the Company's standards for profitability and the Company decided to
exit the MSB. It is anticipated that the exit plan will be substantially
completed by June 30, 1999. The Company intends to exit the MSB by: (1) selling
the mortgage servicing rights ("MSR") along with the related MSB facilities to
unrelated third parties; (2) terminating 70 full-time employees and (3)
terminating contracts associated with the MSB operations. The MSB had total
assets of $49.6 million and total liabilities of $79.7 million at December 31,
1998. The assets primarily consist of MSR and receivables from previous sales of
MSR. The liabilities are primarily advances by borrowers for taxes and insurance
and collections of principal and interest payments due to investors. Loss from
discontinued operations includes the results of operations through December 31,
1998, the measurement date, as well as the anticipated loss from operations
through the anticipated disposal date (including estimated losses on sale of MSB
assets). The Company recognized a $10.0 million ($6.1 million net of tax)
estimated loss on exiting the MSB.
The Company, effective December 31, 1998, began implementing a plan to
exit the MSB. The estimated pre-tax loss on exiting the MSB is as follows (in
thousands):
Employee severance and benefits .............................. $ 925
Provision for servicing contract cancellation ................ 900
Fixed asset write-downs ...................................... 430
Estimated cost to sell MSR ................................... 3,600
Anticipated loss from operations through disposal date ....... 4,145
-------
Total ...................................................... $10,000
=======
The disposal costs of exiting the MSB are estimates and are subject to
change based on market conditions, actual prepayment rates, completeness of
underlying loan documents and transferability issues and amount of time
necessary to complete the exit plan. Changes in estimates will be accounted for
prospectively and included in income (loss) from discontinued operations in the
Company's Consolidated Statement of Operations during the year ending December
31, 1999.
F-51
<PAGE>
The components of earnings (loss) from discontinued operations are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net interest income (expense) ......................... $ 1,038 $ 833 $ (666)
Loan servicing fees, net of amortization .............. (6,574) 2,478 2,737
Provision for valuation of mortgage servicing rights... (10,690) 0 0
Gain on sale of mortgage servicing rights ............. 2,661 7,887 4,182
Non-interest expenses ................................. (5,756) (4,582) (4,020)
-------- ------- -------
Income (loss) before income taxes from operations ..... (19,321) 6,616 2,233
Income tax provision (benefit) ........................ (7,315) 2,505 861
-------- ------- -------
Income (loss) from operations net of tax .............. (12,006) 4,111 1,372
-------- ------- -------
Estimated loss on disposal of MSB ..................... (10,000) 0 0
Income tax benefit .................................... (3,786) 0
-------- ------- -------
Estimated loss on disposal of MSB, net of tax benefit.. (6,214) 0 0
-------- ------- -------
Income (loss) from discontinued operations ............ $(18,220) $ 4,111 $ 1,372
-------- ------- -------
</TABLE>
At December 31, 1998, 1997 and 1996 BankAtlantic serviced loans for the
benefit of others amounting to approximately $3.5 billion, $2.9 billion, and
$2.7 billion, respectively. At December 31, 1998 and 1997 other liabilities
includes approximately $16.5 million (included in total liabilities above) and
$10.3 million, respectively, of loan payments due to others. The activity in
mortgage servicing rights was (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Balance, beginning of period .......................... $ 38,789 $ 25,002 $ 20,738
Mortgage servicing rights acquired in BNA acquisition.. 0 0 4,047
Servicing rights originated ........................... 111 1,668 311
Servicing rights purchased ............................ 64,176 45,840 27,681
Servicing rights sold ................................. (29,094) (25,511) (20,926)
Write-downs of mortgage servicing rights .............. (10,690) 0 0
Amortization of servicing rights ...................... (18,977) (8,210) (6,849)
-------- -------- --------
Balance, end of period ................................ $ 44,315 $ 38,789 $ 25,002
======== ======== ========
</TABLE>
MSRs were valued at the lower of cost or market at December 31, 1998.
The market value was calculated by an independent appraiser using average market
prepayment assumptions of 295% PSA, weight average gross coupon of 7.42% and a
discount rate of 9.87%.
The activity in the MSR valuation allowance was as follows:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- ------- -------
Beginning valuation allowance ...... $ 0 $0 $0
Provision for valuation of MSR (1).. 15,000 0 0
Reversals of provision (2) ......... (4,310) 0 0
-------- -- --
Ending valuation allowance ......... $ 10,690 $0 $0
======== == ==
(1) Quarter ended September 30, 1998.
(2) Quarter ended December 31, 1998.
RESTRUCTURING CHARGES AND WRITE-DOWNS
During December 1998, the Company commenced a restructuring of its
operations as part of a year long efficiency study conducted with the assistance
of an outside consulting firm. As part of the restructuring, the Company ceased
the
F-52
<PAGE>
origination of indirect automobile loans and consolidated its mortgage banking
operations in the Tampa Bay area into a centralized processing operation on
December 15, 1998. Three branch offices will close by March 31, 1999 and the
facilities will be closed, subleased or sold. In addition, one drive-through
facility was closed on December 15, 1998. It is anticipated that the facility
will be sold by the fourth quarter of 1999. The restructuring reduced the
Company's number of full time employees by approximately 115.
Restructuring charges and other write-downs during 1998 consisted of
(in thousands)
Employee severance and benefits .................. $1,000
Impairment of assets due to facility closures .... 1,085
Provision for lease contracts on closed branches.. 247
Other ............................................ 233
------
Total restructuring charges ................. $2,565
======
The items in the above table were established on December 31, 1998 and
included in other liabilities in the Company's Statement of Financial Condition
at December 31, 1998.
The employee severance benefits will be substantially paid during the
three months ended March 31, 1999. The book value of assets to be disposed of
was $2.8 million at December 31, 1998 and the impairment thereon was based on an
independent third party appraisal.
6. RISK ELEMENTS
Risk elements consist of non-accrual loans, non-accrual tax
certificates, restructured loans, past-due loans, REO, repossessed assets, and
other impaired loans which management has doubts about the borrower's ability to
comply with the contractual repayment terms. Non-accrual loans are loans on
which interest recognition has been suspended because of doubts as to the
borrower's ability to repay principal or interest. Non-accrual tax certificates
are tax deeds or securities in which interest recognition has been suspended due
to the aging of the certificate or deed. Restructured loans include loans for
which the terms have been altered to provide a reduction or deferral of interest
or principal because of a deterioration in the borrower's financial position.
Impaired loans are loans in which the collection of principal and interest based
on the contractual term of the loan is not probable. BankAtlantic did not have
any commitments outstanding to lend additional funds on restructured loans at
December 31, 1998 and 1997.
Risk elements were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Non-accrual -- tax certificates .................. $ 765 $ 880 $ 1,835
Non-accrual -- loans, net of specific allowances.. 23,364 17,569 12,424
Loans contractually past due 90 days or more (1).. 3,182 647 2,961
Real estate owned, net of allowance .............. 5,503 7,528 4,918
Other repossessed assets ......................... 1,896 2,912 1,992
------- ------- -------
Total non-performing ................... 34,710 29,536 24,130
Restructured (2) ................................. 7 4,043 3,718
------- ------- -------
Total risk elements .................... $34,717 $33,579 $27,848
======= ======= =======
Allowance for tax certificate losses ............. $ 1,020 $ 949 $ 1,466
======= ======= =======
Allowance for loan losses ........................ $37,950 $28,450 $25,750
======= ======= =======
</TABLE>
(1) The majority of these amounts represent loans that have matured and the
borrower continues to make the payments under the matured loan
agreement. BankAtlantic is in the process of renewing or extending
these matured loans.
(2) The 1997 restructured loans either were paid in full by the borrower or
were performing to the terms of the amended loan agreement for over one
year.
F-53
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes impaired loans (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ---------------------------
GROSS GROSS
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nonaccrual loans:
With specific allowances .................................... $ 1,913 $ 619 $ 2,491 $ 1,117
Without specific allowances ................................. 22,070 0 16,195 0
-------- ------- ------- -------
23,983 619 18,686 1,117
-------- ------- ------- -------
Restructured loans:
Without specific allowances .................................. 7 0 4,043 0
-------- ------- ------- -------
Loans contractually past due 90 days or more .................. 3,182 0 647 0
-------- ------- ------- -------
Other impaired loans:
Other impaired commercial loans with specific allowances(1).... 414 189 1,038 539
Other impaired commercial loans without specific allowances(1). 5,861 0 0 0
-------- ------- ------- -------
Total ............................................... $ 33,447 $ 808 $24,414 $ 1,656
======== ======= ======= =======
</TABLE>
(1) These loans are not included in risk elements, since subsequent to the date
of impairment these loans have performed based on their contractual terms.
Recorded investment of impaired loans reflects direct deferrals of
interest of $1.2 million, zero, and $240,000 at December 31, 1998, 1997 and
1996, respectively.
There was no net interest forgone related to restructured loans at
December 31, 1998, 1997 and 1996. Interest income of $1,000, $799,000, and
$336,000 was recognized on restructured loans during 1998, 1997 and 1996,
respectively.
The average net recorded investment in impaired loans for the years
ended December 31, 1998, 1997 and 1996 was $24.3 million, $20.2 million and
$15.4 million, respectively. Interest income which would have been recorded
under the contractual terms of impaired loans and the interest income actually
recognized was (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest income which would have been recorded.. $ 3,058 $ 2,487 $ 1,795
Interest income recognized ..................... (1,850) (1,548) (988)
------- ------- -------
Interest income forgone ........................ $ 1,208 $ 939 $ 807
======= ======= =======
</TABLE>
F-54
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RISK ELEMENTS- REAL ESTATE OWNED, NET
The components of "Foreclosed asset activity, net" were (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Real estate acquired in settlement of loans and tax
certificates:
Operating expenses, net ........................... $ 651 $ 492 $ 47
Provisions (reversals) of losses on REO ........... 1,115 (56) (197)
Net gains on sales ................................ (1,012) (354) (575)
------- ----- -----
Total (income) loss ..................... $ 754 $ 82 $(725)
======= ===== =====
</TABLE>
Activity in the allowance for real estate owned consisted of (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Balance, beginning of period ............... $ 1,500 $ 1,800 $ 2,800
Charge-offs:
Commercial real estate (A) ............... (514) 0 (781)
Residential real estate .................. (901) (244) (22)
------- ------- -------
(1,415) (244) (803)
Provision for (reversal of) losses on REO 1,115 (56) (197)
------- ------- -------
Balance, end of period ..................... $ 1,200 $ 1,500 $ 1,800
======= ======= =======
</TABLE>
(A) Acquired through tax deed.
RISK ELEMENTS - TAX CERTIFICATES
Activity in the allowance for tax certificate losses was: (in
thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of period ................ $ 949 $ 1,466 $ 1,648
Charge-offs ................................. (976) (1,444) (909)
Recoveries .................................. 813 1,025 911
------- ------- -------
Net recoveries (charge-offs) ................ (163) (419) 2
Provision (reversals) charged to operations.. 234 (98) (184)
------- ------- -------
Balance, end of period ...................... $ 1,020 $ 949 $ 1,466
======= ======= =======
</TABLE>
F-55
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment was comprised of (in thousands):
DECEMBER 31,
-------------------------
1998 1997
--------- ---------
Land ...................................... $ 14,543 $ 12,112
Building and improvements.................. 47,464 46,384
Furniture and equipment.................... 33,493 25,921
--------- ---------
Total............................ 95,500 84,417
Less accumulated depreciation.............. 37,410 33,287
--------- ---------
Office properties and equipment -- net..... $ 58,090 $ 51,130
========= =========
Properties leased to third parties during the year ended December 31,
1996 were sold for $8.1 million (net of selling costs) during 1996 for a net
gain of $3.1 million. During 1997 land adjacent to the above properties with a
net book value of $197,000 was sold for a net gain on $882,000.
Net rental income for the years ended December 31, 1998, 1997 and 1996
was zero, zero and $368,000, respectively.
8. DEPOSITS
The weighted average nominal interest rate payable on deposit accounts
at December 31, 1998 and 1997 was 3.42% and 3.70% , respectively. The stated
rates and balances at which BankAtlantic paid interest on deposits were:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997
----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest free checking ........................... $ 235,124 12.21% $ 162,788 9.23%
Insured money fund savings
3.86% at December 31, 1998,
3.90% at December 31, 1997 ..................... 421,978 21.91 289,413 16.41
NOW accounts
1.00% at December 31, 1998,
2.20% at December 31, 1997 ..................... 234,185 12.16 223,679 12.68
Savings accounts
1.06% at December 31, 1998,
2.04% at December 31, 1997 ..................... 127,747 6.63 262,685 14.90
---------- ------ ---------- ------
Total non-certificate accounts ................... 1,019,034 52.91 938,565 53.22
---------- ------ ---------- ------
Certificate accounts:
0.00% to 4.00% ................................. 77,146 4.01 14,275 0.81
4.01% to 5.00% ................................. 238,943 12.41 37,803 2.14
5.01% to 6.00% ................................. 521,570 27.08 184,800 10.48
6.01% to 7.00% ................................. 52,937 2.75 493,845 28.00
7.01% and greater .............................. 11,478 0.60 90,882 5.15
---------- ------ ---------- ------
Total certificate accounts ....................... 902,074 46.85 821,605 46.58
---------- ------ ---------- ------
Total deposit accounts ........................... 1,921,108 99.76 1,760,170 99.80
---------- ------ ---------- ------
Interest earned not credited to deposit accounts.. 4,664 0.24 3,563 0.20
---------- ------ ---------- ------
Total ............................................ $1,925,772 100.00% $1,763,733 100.00%
========== ====== ========== ======
</TABLE>
F-56
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interest expense by deposit category was (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Money fund savings and NOW accounts.................. $ 14,038 $ 13,970 $ 11,772
Savings accounts..................................... 7,018 6,617 2,150
Certificate accounts -- below $100,000............... 29,447 37,973 32,416
Certificate accounts, $100,000 and above............. 16,543 9,882 8,513
Less early withdrawal penalty........................ (332) (211) (205)
--------- ---------- ----------
Total................................. $ 66,714 $ 68,231 $ 54,646
========= ========== ==========
</TABLE>
At December 31, 1998, the amounts of scheduled maturities of
certificate accounts were (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 4.00%........... $ 68,986 $ 6,700 $ 980 $ 221 $ 184 $ 75
4.01% to 5.00%........... 151,960 81,630 3,092 437 1,690 134
5.01% to 6.00%........... 439,583 62,593 7,432 6,264 5,340 358
6.01% to 7.00%........... 29,178 7,980 7,079 8,015 565 120
7.01% and greater........ 1,138 10,167 47 126 0 0
----------- ----------- ----------- ------------ ------------ ------------
Total.......... $ 690,845 $ 169,070 $ 18,630 $ 15,063 $ 7,779 $ 687
=========== =========== =========== ============ ============ ============
</TABLE>
Time deposits of $100,000 and over had the following maturities at (in
thousands):
DECEMBER 31,
1998
------------
Less than 3 months........ $ 91,434
3 to 6 months............. 42,551
6 to 12 months............ 61,933
More than 12 months....... 128,595
---------
Total........... $ 324,513
=========
Included in certificate accounts at December 31, 1998 and 1997 were
$38.2 million and zero of brokered deposits and $114.8 million and $30.9 million
of State of Florida public deposits, respectively. RBCO acted as the principal
dealer in obtaining the brokered deposits. BankAtlantic did not have brokered
deposits in prior years. BankAtlantic has various facilities for obtaining
brokered deposits. These facilities are considered as an alternative source of
borrowings, when and if needed.
F-57
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Advances from Federal Home Loan Bank ("FHLB") incur interest and were
repayable as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
REPAYABLE DURING YEAR -----------------------
ENDING DECEMBER 31, INTEREST RATE 1998 1997
- - ------------------------------------ -------------- ---------- ---------
<S> <C> <C> <C> <C>
1998................................ 6.60% to 6.64% $ 0 $ 153,143
1999................................ 5.15% to 6.83% 156,393 56,393
2000................................ 6.13% to 7.00% 54,393 54,393
2001................................ 6.29% to 7.09% 37,778 37,778
2002................................ 6.35% to 7.18% 21,468 21,460
2003................................ 7.24% to 7.25% 9,540 9,540
---------- ---------
Total fixed rate advances..... 279,572 332,707
---------- ---------
2002................................ 5.68% to 6.20% 175,000 175,000
2003................................ 5.39% 25,000 0
2007................................ 5.68% 25,000 25,000
2008................................ 4.87% to 5.67% 540,000 0
---------- ---------
Total callable advances........ 765,000 200,000
---------- ---------
1998................................ 5.78% to 5.91% 0 165,000
---------- ---------
Total adjustable rate advances. 0 165,000
---------- ---------
Total FHLB advances............ $1,044,572 $ 697,707
========== =========
</TABLE>
Included in fixed rate advances at December 31, 1998 and 1997 was
$100.0 million and $110.0 million of overnight advances, respectively. At
December 31, 1998 $90.6 million of mortgage-backed securities were pledged as
collateral on overnight advances. Callable advances give the FHLB the option to
convert, at a specific date, in whole, into a three month Libor-based floating
rate advance. BankAtlantic has established a blanket floating lien with the
FHLB. Under the lien, BankAtlantic assigns a security lien against its
residential loans. At December 31, 1998 and 1997, $1.6 billion and $891.9
million of 1-4 family residential loans were pledged against FHLB advances. In
addition, FHLB stock is pledged as collateral for outstanding FHLB advances.
BankAtlantic has an unused $1.1 billion line of credit with the FHLB, subject to
available collateral, with a maximum term of 10 years at December 31, 1998.
BankAtlantic established $65.0 million of lines of credit with four
federally insured banking institutions for the purchase of Federal Funds. At
December 31, 1998 and 1997, the outstanding balance of these lines of credit was
$18.5 million and $2.5 million, respectively. The average balance outstanding
during the years ended December 31, 1998 and 1997, of the Federal Funds
purchased lines of credit was $5.4 million and $1.9 million, respectively. The
maximum outstanding balance at any month end during 1998 and 1997 of the Federal
Funds purchased lines of credit was $18.5 million and $7.0 million,
respectively.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized below (in
thousands):
DECEMBER 31,
----------------------
1998 1997
-------- ---------
Agreements to repurchase the same security......... $103,204 $ 0
Customer repurchase agreements..................... 58,889 58,716
-------- ---------
Total.................................... $162,093 $ 58,716
======== =========
F-58
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table provides information on the agreements to
repurchase (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Maximum borrowing at any month-end within the period... $404,874 $255,967 $362,147
Average borrowing during the period ................... $264,866 $167,569 $173,008
Average interest cost during the period ............... 5.09% 5.26% 4.83%
Average interest cost at end of the period ............ 4.94% 4.80% 5.13%
</TABLE>
Average borrowing was computed based on average daily balances during
the period. Average interest rates during the period were computed by dividing
interest expense for the period by the average borrowing during the period.
Customer repurchase agreements at December 31, 1998 and 1997 included a
$2.3 million and $4.7 million customer repurchase agreements, respectively,
relating to a BFC escrow account. Total interest expense related to this reverse
repurchase agreement was approximately $105,000, $210,000 and $312,000 during
the years ended December 31, 1998, 1997 and 1996, respectively.
The following table lists the amortized cost and estimated fair value
of securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
ESTIMATED AVERAGE
AMORTIZED FAIR REPURCHASE INTEREST
COST VALUE BALANCE RATE (COST)
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998 (1)
- - ---------------------
FNMA mortgage-backed securities $ 7,610 $ 7,669 $ 6,053 4.00%
FHLMC mortgage-backed securities 66,167 66,650 58,143 4.86
FHLMC REMIC 76,338 76,796 74,115 5.09
FNMA REMIC 31,286 30,095 23,782 4.00
----------- ---------- ---------- ----
Total $ 181,401 $ 181,210 $ 162,093 4.94%
=========== ========== ========== ====
DECEMBER 31, 1997(1)
- - --------------------
FHLB Bonds $ 2,650 $ 2,651 $ 2,380 4.80
FNMA 8,440 8,462 7,597 4.80
FHLMC 54,302 54,289 48,739 4.80
----------- ---------- ---------- ----
Total $ 65,392 $ 65,402 $ 58,716 4.80%
=========== ========== ========== ====
<FN>
(1) At December 31, 1998 and 1997 these securities are classified as available
for sale and recorded at market value in the consolidated statements of
financial condition.
</FN>
</TABLE>
Repurchase agreements at December 31, 1998 matured and were repaid in
January 1999. These securities were held by unrelated broker dealers. All
repurchase agreements at December 31, 1997 were customer repurchase agreements
which are due on demand.
11. SUBORDINATED DEBENTURES AND OTHER DEBT
On March 31, 1991, BankAtlantic issued to certain of its existing
shareholders, 18,611 shares of common stock and $8,000 of 14% subordinated
debentures, having a March 1998 maturity date, with related detachable warrants
to purchase 17,548 shares of common stock. The $8,000 of subordinated debentures
were redeemed on August 31, 1993. The warrants relating to such debentures were
detachable and expired on March 31, 1998.
F-59
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has the following subordinated debentures and notes and
bonds payable outstanding at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
BEGINNING
OPTIONAL
ISSUE DECEMBER 31, INTEREST MATURITY CONVERSION CLASS OF REDEMPTION
--------------------
DATE 1998 1997 RATE DATE PRICE STOCK DATE
-------- -------- -------- ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9% Debentures ........... 9/22/95 $ 21,000 $ 21,000 9.00% 10/01/2005 N/A N/A 10/01/1998
6 3/4% Debentures(1)..... 7/03/96 51,182 57,125 6.75% 7/01/2006 $ 6.55 A 7/01/1999
5 5/8% Debentures(1)..... 11/25/97 100,000 100,000 5.63% 12/01/2007 $12.94 A 12/01/2000
Capital Improvement
Bond series 1995(2)..... 2/01/95 1,192 1,475 7.50% 2/01/2000 N/A N/A N/A
Capital Improvement
Bond series 1997(2)..... 2/01/97 553 0 6.38% 8/01/2002 N/A N/A N/A
Acquisition note(2)...... 4/01/98 2,500 0 8.00% 4/01/2002 N/A N/A N/A
St. Lucie Fire District
obligation(2) .......... 3/26/88 600 0 7.00% 3/26/2007 N/A N/A N/A
Notes payable(3) ........ Various 87 0 9.20% Various N/A N/A N/A
-------- --------
$177,114 $179,600
======== ========
</TABLE>
(1) Convertible at the option of the Debenture holder.
(2) Acquired with SLWHC.
(3) Acquired with LTI.
Included in other assets was $5.4 million and $6.3 million of
unamortized underwriting discounts and costs at December 31, 1998 and 1997,
respectively, associated with the issuance of subordinated debentures.
The Indenture relating to the Trust Preferred Securities and all of the
Debenture indentures contain certain customary covenants found in Indentures
under the Trust Indenture Act, including covenants with respect to the payment
of principal and interest, maintenance of an office or agency for administering
the Debentures, holding of funds for payments on the Debentures in Trust,
payment by the Company of taxes and other claims, maintenance by the Company of
its properties and its corporate existence and delivery of annual certifications
to the Trustee.
The Debenture indentures for the 9% and 6 3/4% Debentures provide that
the Company cannot declare or pay dividends on, or purchase, redeem or acquire
for value its capital stock, return any capital to holders of capital stock as
such, or make any distributions of assets to holders of capital stock as such,
unless, from and after the date of any such dividend declaration (a "Declaration
Date") or the date of any such purchase, redemption, payment or distribution (a
"Redemption Date"), the Company retains cash, cash equivalents (as determined in
accordance with generally accepted accounting principles) or marketable
securities (with a market value as measured on the applicable Declaration Date
or Redemption Date) in an amount sufficient to cover the two consecutive
semi-annual interest payments that will be due and payable on the Debentures
following such Declaration Date or Redemption Date, as the case may be. These
indentures further provide that the amount of any interest payment made by the
Company with respect to the Debentures after any applicable Declaration Date or
Redemption Date shall be deducted from the aggregate amount of cash or cash
equivalents which the Company shall be required to retain pursuant to the
foregoing provision. At December 31, 1998 and 1997 the Company designated $5.8
million of securities available for sale to satisfy the above provision.
During the year ended December 31, 1998, the Company issued 907,319
shares of Class A common stock upon the conversion of $5.9 million in principal
amount of the Company's 6 3/4% Convertible Subordinated Debentures due 2006 at a
conversion price of $6.55.
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital").
BBC Capital is a statutory business trust which was formed for the purpose of
issuing 9 1/2% Cumulative Trust Preferred Securities ("Trust Preferred
Securities") and investing the proceeds thereof in Junior Subordinated
Debentures of the Company. In a public offering in April 1997, BBC Capital
issued for $74.75 million, 2.99 million shares of Trust Preferred Securities at
a price of $25 per share. BBC Capital used the gross proceeds received from the
sale of the Trust Preferred Securities and $2.3 million of contributed capital
from the Company to purchase $77.1 million of 9 1/2% Junior Subordinated
Debentures from the
F-60
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company which mature on June 30, 2027. The net proceeds to the Company from the
sale of the Junior Subordinated Debentures were $71.8 million after deduction of
the underwriting discount and expenses. At December 31, 1998 and 1997, the
balance of Trust Preferred Securities was $74.75 million. The net proceeds from
the sale of the Junior Subordinated Debentures were utilized as follows: $21.2
million of the proceeds were contributed to BankAtlantic, $12.2 million of the
proceeds were used to repurchase the Company's common stock and the remaining
proceeds are being used by the Company for general corporate purposes.
BankAtlantic used $21.2 million of the contributed capital to acquire St. Lucie
West Holding Corp, and subsidiaries and to invest in a real estate joint
venture. Interest on the Junior Subordinated Debentures and Distributions on the
Trust Preferred Securities are fixed at 9 1/2% per annum and are payable
quarterly in arrears, with the first payment paid June 30, 1997. Distributions
on the Trust Preferred Securities are cumulative and based upon the liquidation
value of $25 per Trust Preferred Security. The Company has the right, at any
time, so long as no event of default, as defined, has occurred and is
continuing, to defer payments of interest on the Junior Subordinated Debentures
for a period not exceeding 20 consecutive quarters; provided, that such deferral
may not extend beyond the stated maturity of the Junior Subordinated Debentures.
To date no interest has been deferred. The Trust Preferred Securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
Junior Subordinated Debentures at maturity or their earlier redemption. The
Company has the right to redeem the Junior Subordinated Debentures after June
30, 2002 and also has the right to redeem the Junior Subordinated Debentures in
whole (but not in part) within 180 days following certain events, as defined,
whether occurring before or after June 30, 2002, and therefore cause a mandatory
redemption of the Preferred Securities. The exercise of such right is subject to
the Company having received regulatory approval to do so if then required under
applicable capital guidelines or regulatory policies. In addition to the above
right, the Company has the right, at any time, to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than June 30, 2002.
Exercise of this right is also subject to the Company having received regulatory
approval to do so if then required under applicable capital guidelines or
regulatory policies.
On November 25, 1997, the Company issued, in a public offering, 4.3
million shares of Class A common stock and $100.0 million of 5 5/8% convertible
subordinated debentures ("5 5/8% Debentures"). The net proceeds to the Company
from the sale of Class A common stock was $43.4 million net of $107,000 of
offering costs and $96.5 million from the sale of the 5 5/8% Debentures net of
$3.5 million of offering costs.
In March 1998, the Company announced a plan to purchase up to 2.0
million shares of common stock. During the year ended December 31, 1998 the
company paid $10.9 million to repurchase and retire 769,500 shares of Class B
common stock. In August 1996, the company announced a plan to purchase up to
1.56 million shares of common stock. During the year ended December 31, 1997 the
company paid $12.2 million to repurchase and retire 1,040,625 and 365,625 shares
of the Company's Class A and Class B common stock, respectively.
12. STOCK OPTION PLANS
On April 6, 1984, the Company's stockholders approved a Stock Option
Plan ("1984 Plan") under which options to purchase up to 1,182,556 shares of
Class B common stock could have been granted. The plan provided for the grant of
both incentive stock options and non-qualifying options. The exercise price of
an incentive stock option was not to be less than the fair market value of the
common stock on the date of the grant. The exercise price of non-qualifying
options was determined by a committee of the Board of Directors. The "1984 Plan"
expired on May 25, 1998, and all outstanding options were exercised on or before
such date.
On May 31, 1994, the stockholders of the Company approved the
BankAtlantic 1994 Stock Option Plan ("1994 Plan"), authorizing the issuance of
options to acquire up to 2,288,819 shares of Class B common stock. All employee
stock options under the 1994 Plan vest and are exercisable five years from the
date of grant while directors' stock options vested immediately. The plan
expires ten years from the date of adoption and outstanding options could be
exercised ten years after their grant date.
F-61
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On May 21, 1996 the shareholders of the Company approved the
BankAtlantic Bancorp 1996 Stock Option Plan (the "1996 Plan") which authorized
the issuance of options to acquire up to 1.95 million shares of Class A common
stock. All of the incentive and non-qualifying stock options are exercisable for
Class A common stock, with an exercise price equal to the fair market value at
the date of grant. All employee stock options vest and are exercisable five
years from the date of grant while directors' stock options vested immediately.
The plan expires ten years from the date of adoption and outstanding options
could be exercised ten years after their grant date.
Upon acquisition of RBCO, the Company assumed all options outstanding
under RBCO's existing stock option plans resulting in the addition issuance of
options to purchase 315,145 shares of Class A common stock at various exercise
prices based upon the exercise prices of the assumed option. No new options will
be issued under the RBCO Plans and such Plans will terminate when the
outstanding options expire. The value of such options at the acquisition date
was included in the cost of the RBCO acquisition and credited to additional
paid-in-capital.
On March 13, 1998, the Company's shareholders approved the BankAtlantic
Bancorp 1998 Employee Stock Option Plan ("1998 Plan") authorizing the issuance
of options to acquire up to 800,000 shares of Class A common stock and 150,000
shares of Class B common stock. Employee stock options vest at the discretion of
the Compensation Committee and directors stock options vest immediately. The
plan expires ten years from the date of adoption and outstanding options could
be exercised ten years after their grant date. On December 14, 1998, the
Compensation Committee approved an exchange program whereby stock options held
by employees other than executive management and members of the Board of
Directors of the Company with an exercise price greater than $7.25 per share
could be surrendered for cancellation and exchanged for new options with an
exercise price equal to the fair market value for Class A common stock at
December 14, 1998, contingent upon such offer being accepted by such option
holders by December 14, 1998. The number of new options, vesting schedule and
terms other than the exercise price were the same as the options canceled.
On December 1, 1998 the Board of Directors of the Company adopted a
Restricted Stock Incentive Plan to provide additional incentives to officers and
key employees of its subsidiary, RBCO. As part of the Plan, the Board of
Directors delegated administration of the Plan to the Directors or a committee
of RBCO. The Plan provides for the granting of up to 750,000 Class A common
shares of restricted stock, of which not more than 250,000 shares may be granted
to any one person. The Plan allows the Board of Directors of the Company to
impose an annual cap on awards. The Plan generally makes awards to a broad-based
group of employees.
The Board of Directors or Committee administering the Plan has
discretion about which RBCO employees receive awards and the vesting of the
awards under the Plan. During the restricted period, dividends paid on the
shares may be accumulated and paid out at the end of the restricted period or
may be paid out currently to the employee. The vesting for these purposes is
usually approximately one year from the date of grant. Under these awards, the
participants receive the dividends and vote the restricted stock during the
restricted period, if applicable. The employee forfeits the restricted stock if
he leaves the employment of RBCO prior to vesting. All awards were granted
subject to shareholder approval. In December 1998, the Board granted 89,751
shares of restricted Class A common stock under this plan to key employees of
RBCO which vest one year from the grant date. The fair value of such awards were
recorded as compensation expense in 1998, since such awards related to services
performed in 1998.
F-62
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of stock option activity segregated by class of stock was:
<TABLE>
<CAPTION>
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
--------- -----------------
<S> <C> <C> <C>
Outstanding December 31, 1995................................. 3,063,130 $ 2.28 to $ 4.00
Exercised..................................................... (138,392) 2.96 to 3.01
Forfeited..................................................... (189,677) 3.90 to 4.00
--------- ------ ------
Outstanding December 31, 1996................................. 2,735,061 2.28 to 4.00
Exercised..................................................... (547,740) 2.28 to 3.90
Forfeited..................................................... (71,774) 3.90 to 3.90
--------- ------ -----
Outstanding December 31, 1997................................. 2,115,547 3.01 to 4.00
Exercised..................................................... (442,015) 3.01 to 4.00
Forfeited..................................................... (33,896) 3.90 to 4.00
--------- ------ -----
Outstanding December 31, 1998................................. 1,639,636 $ 3.90 to $ 4.00
========= ====== ======
Exercisable at December 31, 1998.............................. 67,816 $ 3.90 to $ 4.00
========= ====== ======
Available for grant at December 31, 1998...................... 421,586
=========
<CAPTION>
CLASS A
OUTSTANDING
OPTIONS PRICE PER SHARE
------------ -----------------
<S> <C> <C> <C>
Outstanding December 31, 1995................................. 0 $ 0.00 to $ 0.00
Issued........................................................ 1,029,440 5.74 to 6.25
Forfeited..................................................... (101,023) 5.74 to 5.74
--------- ------ ------
Outstanding December 31, 1996................................. 928,417 5.74 to 6.25
Exercised..................................................... (16,775) 5.74 to 7.17
Forfeited..................................................... (104,994) 5.74 to 8.64
Issued........................................................ 809,984 5.74 to 12.35
--------- ------ ------
Outstanding December 31, 1997................................. 1,616,632 5.74 to 12.35
Options issued in connection with the acquisition of RBCO..... 315,145 3.97 to 9.70
Exercised..................................................... (18,371) 5.26 to 7.92
Forfeited..................................................... (1,045,296) 5.74 to 14.38
Issued........................................................ 1,317,655 5.18 to 14.38
--------- ------ ------
Outstanding at December 31, 1998.............................. 2,185,765 $ 3.97 to $14.06
========= ====== ======
Exercisable at December 31, 1998.............................. 230,144 $ 3.97 to $14.06
========= ====== ======
Available for grant at December 31, 1998...................... 841,653
=========
</TABLE>
The weighted average exercise price of options outstanding at December
31, 1998, 1997 and 1996 was $5.64, $5.14 and $4.21, respectively. The weighted
average exercise price of stock options exercised was $3.42, $3.28 and $3.01 for
the years ended December 31, 1998, 1997 and 1996, respectively. The weighted
average exercise price of options forfeited during the years ended December 31,
1998, 1997 and 1996 was $7.80, $5.27 and $4.56, respectively.
During the years ended December 31, 1998, 1997 and 1996, 164,818,
373,328 and 12,736 of non-qualifying and 295,568, 191,187 and 125,656 of
incentive stock options issued under the 1984, 1994 and 1996 plans were
exercised resulting in increases of $2.3 million, $2.8 million and $531,000 in
stockholders' equity, respectively. The tax effect, included in the preceding
amounts, of the exercised stock options for December 31, 1998, 1997 and 1996 was
$709,000, $913,000 and $118,000, respectively, and has been reflected in
additional paid in capital. During the years ended December 31, 1998, 1997 and
1996, 325,000 of options were forfeited under the 1998 plan, 720,296, 104,994
and 101,023 of options were forfeited under the 1996 Plan and 33,896, 71,774 and
189,677 of options were forfeited under the 1994 Plan, respectively.
F-63
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During the latter part of 1996 and early 1997, certain executives and
officers received prorata vesting as part of their severance arrangements
relating to previously granted 1994 and 1996 Plan options. Forfeited and vested
options were 148,778 shares and 194,559 shares for the 1994 plan and 84,231
shares and 25,634 shares for the 1996 plan, respectively. During 1998 certain
executives and officers received accelerated prorata vesting as part of their
severance package from the 1994, 1996 and 1998 plans. These options will vest in
1999 and 2000. Forfeited options were 18,158, 99,167 and 35,104 from the 1994,
1996 and 1998 plans, respectively and vested options were 124,970, 85,535 and
4,771 from the 1994, 1996 and 1998 plans. Under the exchange program mentioned
previously, 303,903, and 292,000 of options to purchase Class A common stock
issued pursuant to the 1996 and 1998 stock options plans to all optionees other
than executive management and members of the Board of Directors with an exercise
price of $7.92 and $9.50, respectively were exchanged for options with the same
terms except the exercise price was reduced to $6.50. Also on December 14, 1998,
161,323 of options to purchase Class A common stock issued pursuant to RBCO
stock option plans with various exercise prices greater than $7.25 were
exchanged for similar options with a $6.50 exercise price.
The adoption of FAS 123 under the fair value based method would have
increased compensation expense (net of tax) by $884,000, $497,000 and $474,000
for the years ended December 31, 1998, 1997 and 1996, respectively. The effect
of FAS 123 under the fair value based method would have effected net income and
earnings per share as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
(In thousands, except per share data) DECEMBER 31,
---------------------------------------------
1998 1997 1996
------- ---------- ---------
<S> <C> <C> <C>
Net income (loss) As reported........ $(8,034) $ 27,769 19,011
======= ========== =========
Pro forma.......... (8,918) 27,272 18,537
======= ========== =========
Basic earnings (loss) per share Class A As reported........ $ (0.24) $ 0.98 0.64
======= ========== =========
Pro forma.......... (0.26) 0.97 0.63
======= ========== =========
Basic earnings (loss) per share Class B As reported........ $ (0.22) $ 0.94 0.72
======= ========== =========
Pro forma.......... (0.25) 0.93 0.71
======= ========== =========
Diluted earnings (loss) per share Class A As reported........ $ (0.22) $ 0.78 0.58
======= ========== =========
Pro forma.......... (0.25) 0.77 0.57
======= ========== =========
Diluted earnings (loss) per share Class B As reported........ $ (0.22) $ 0.77 0.66
======= ========== =========
Pro forma.......... (0.25) 0.76 0.64
======= ========== =========
</TABLE>
The option method used to calculate the FAS 123 compensation adjustment
was the Black-Scholes model with the following grant date fair values and
assumptions:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------------------------------------------------
NUMBER OF RISK FREE EXPECTED
YEAR OF OPTIONS GRANT DATE EXERCISE INTEREST EXPECTED DIVIDEND
GRANT GRANTED FAIR VALUE PRICE RATE VOLATILITY YIELD
- - --------------- --------- ---------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996 1,029,440 $ 2.95 $ 5.77 6.86% 18.60% 0.36%
1997 809,984 $ 3.36 $ 8.08 6.60% 27.40% 0.99%
1998 560,429 $ 4.40 $ 8.63 5.02% 50.00% 1.03%
</TABLE>
The employee turnover factor was 5.88% for incentive and non-qualifying stock
options during the year ended December 31, 1998 and 5.97 % and 13.40% for
incentive stock options and 3.55% and 5.20% for non-qualifying stock options,
for the years ended December 31, 1997 and 1996, respectively. The expected life
for all options issued was 7.5 years.
F-64
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
CLASS OF RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
COMMON EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
STOCK PRICES AT 12/31/98 CONTRACTUAL LIFE PRICE AT 12/31/98 PRICE
- - ------------ --------------- -------------- ---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
B $3.90 to 4.00 1,639,636 5.3 years $ 3.94 67,816 $ 3.90
A $3.90 to 9.00 1,909,723 7.9 years 6.48 191,007 6.62
A $9.01 to 14.06 276,042 9.9 years 9.98 39,137 11.78
--------- --------- ------ ------- ------
3,825,401 6.9 years $ 5.64 297,960 $ 6.68
========= ========= ====== ======= ======
</TABLE>
13. INCOME TAXES
For federal income tax purposes, BankAtlantic reports its income and
expenses on the accrual method of accounting. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code of 1986 (the "Code") relating primarily to the
composition of their assets and the nature of their business activities were,
within certain limitations, permitted to establish, and deduct additions to,
reserves for bad debts in amounts in excess of those which would otherwise be
allowable on the basis of actual loss experience. A qualifying savings
institution could elect annually, and was not bound by such election in any
subsequent year, one of the following two methods for computing additions to its
bad debt reserves for losses on "qualifying real property loans" (generally,
loans secured by interests in improved real property): (i) the experience method
or (ii) the percentage of taxable income method. BankAtlantic has utilized both
the percentage of taxable income method and the experience method in computing
the tax-deductible addition to its bad debt reserves. Additions to the reserve
for losses on non-qualifying loans, however, must be computed under the
experience method and reduce the current year's addition to the reserve for
losses on qualifying real property loans, unless the qualifying addition also is
determined under the experience method. The sum of the addition to each reserve
for each year was BankAtlantic's annual bad debt deduction.
The Small Business Job Protection Act of 1996 repealed the reserve
method of accounting for bad debts for tax years beginning after 1995. As a
"large" thrift (more than $500 million in assets), BankAtlantic had to change to
the specific charge-off method to compute its bad debt deduction starting in
1996. BankAtlantic is required to recapture into taxable income the portion of
its bad debt reserves that exceeds its base year reserves. For financial
reporting purposes, deferred taxes have previously been provided for amounts in
excess of the base year tax bad debt reserve and accordingly, recapture of such
amounts for tax purposes will not trigger expense for financial reporting
purposes. BankAtlantic will have to recapture $1.7 million (after tax) of bad
debt reserve due to the law change. BankAtlantic's recapture amount will be
taken into taxable income ratably (on a straight-line basis) over a six-year
period beginning in 1998 at $306,000 per year ($1.4 million remaining at
December 31, 1998), for which deferred income taxes have been provided.
BankAtlantic met the residential loan requirement for the tax years beginning in
1996 and 1997, and recapture of the reserves was suspended for such tax years.
During the year ended December 31, 1998 BankAtlantic recaptured $306,000 of tax
effected reserves into current taxable income. At December 31, 1998,
BankAtlantic had a $3.9 million (after tax) base year reserve for which deferred
taxes have not been provided which is subject to recapture if BankAtlantic
redeems its common stock or certain other events occur.
F-65
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes consisted of (in thousands):
1998 1997 1996
----------- ---------- ---------
Continuing operations................ $ 6,526 $ 15,248 $ 11,380
Discontinued operations.............. (11,101) 2,505 861
--------- -------- --------
Total................................ (4,575) 17,753 12,241
========= ======== ========
Continuing operations:
Current:
Federal............................ 14,051 13,462 8,566
State.............................. 1,658 2,539 1,323
---------- -------- --------
15,709 16,001 9,889
---------- -------- --------
Deferred:
Federal............................. (7,571) (651) 1,283
State.............................. (1,612) (102) 208
---------- -------- --------
(9,183) (753) 1,491
---------- -------- --------
Provision for income taxes.......... $ 6,526 $ 15,248 $ 11,380
========== ======== ========
The December 31, 1998, 1997, and 1996 amounts above do not include
deferred taxes of $2.2 million, $455,000 and $470,000, respectively, related to
unrealized appreciation on securities available for sale which is a separate
component of stockholders' equity.
BankAtlantic's actual provision for continuing operations differs from
the Federal expected income tax provision as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Income tax provision (benefit) at expected federal income tax rate(1)............. $ 5,849 $13,617 $10,156
Increase (decrease) resulting from:
Tax-exempt interest income...................................................... (36) (22) (26)
Provision (benefit) for state taxes net of federal benefit...................... 478 1,351 1,038
Change in valuation allowance for deferred tax assets.......................... (827) 0 0
Amortization of costs over fair value of net assets acquired.................... 1,217 878 541
Other -- net.................................................................... (155) (576) (329)
------- ------- ------
Provision for income taxes............................................. $ 6,526 $15,248 $11,380
======= ======= =======
<FN>
- ---------------
(1) The expected federal income tax rate is 35% for the years ended December
31, 1998, 1997 and 1996.
</FN>
</TABLE>
F-66
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
DEFERRED TAX ASSETS: (IN THOUSANDS)
Provision for discontinued operations, restructuring charges and write-downs......... $ 4,758 $ 0 $ 0
Allowance for loans, REO and tax certificate losses, for
financial statement purposes...................................................... 14,360 10,700 8,692
Other allowances and expense accruals recorded for financial statement
purposes not currently recognized for tax purposes................................ 3,655 412 1,495
Deferred compensation accrued for financial statement purposes not
currently recognized for tax purposes............................................... 351 353 266
RBCO unearned compensation........................................................... 333 0 0
Unearned commitment fees............................................................. 167 125 114
Amortization of mortgage servicing rights for financial
reporting purposes in excess of amount amortized for tax purposes................. 5,370 146 251
Amortization of intangible assets for financial statement purposes in excess of
amounts amortized for tax purposes................................................. 128 169 225
Net operating loss carryforward acquired............................................. 1,387 1,222 0
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes.................. 1,670 1,414 0
Purchase accounting adjustments for SLWHC acquisition................................ 1,336 1,548 0
Purchase accounting adjustments for bank acquisitions................................ 136 (501) 170
Other................................................................................ 54 10 10
------- ------- -------
Total gross deferred tax assets........................................................ 33,705 15,598 11,223
Less valuation allowance relating to SLWHC acquisition................................. 3,357 4,184 0
------- ------- -------
Total deferred tax assets.............................................................. 30,348 11,414 11,223
------- ------- -------
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base year reserve 1,378 1,684 1,684
Office properties and equipment and real estate owned due to depreciation differences 140 447 1,172
FHLB stock, due to differences in the recognition of stock dividends 1,049 1,610 1,740
Deferred loan income, due to differences in the recognition of loan origination
fees and discounts 2,917 1,962 2,039
Discount on securities, due to the accretion of discounts 0 0 286
Prepaid pension expenses 1,429 995 313
Deferred tax liability on unrealized appreciation on securities available for sale 2,231 455 470
Prepaid insurance 192 219 142
Mortgage servicing rights recognized for financial statement purposes in excess of
amounts recognized for tax purposes 743 826 0
Other 121 19 22
------- ------- -------
Total gross deferred tax liabilities 10,200 8,217 7,868
------- ------- -------
Net deferred tax asset 20,148 3,197 3,355
Less deferred income tax (assets) liabilities at beginning of period (3,197) (3,355) 744
Acquired net deferred tax asset, net of valuation allowance (464) 0 (2,464)
Increase (decrease) in deferred tax liability on unrealized appreciation on debt
securities available for sale included as a separate component of stockholders' equity 1,776 (15) (3,130)
------- ------- -------
Benefit (provision) for deferred income taxes $18,263 $ (173) $(1,495)
======= ======= =======
</TABLE>
F-67
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Due to IRS limitations, the net operating loss ("NOL") carryforward
acquired in connection with the SLWHC acquisition can only be utilized if SLW
has taxable income. The NOL carryforward will expire in varying amounts through
the year 2011.
The unrecognized tax attributes acquired on October 31, 1997 in
connection with the SLWHC acquisition were (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforward................................................. $ 1,206 $ 1,222
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes............ 815 1,414
Fair value of real estate held for development and sale lower than tax basis.... 1,336 1,548
------- -------
Total deferred tax assets....................................................... 3,357 4,184
Valuation allowance............................................................. 3,357 4,184
------- -------
Deferred tax assets, net........................................................ $ 0 $ 0
======= =======
</TABLE>
On December 31, 1998 and 1997, the Company had a valuation allowance
relating to the deferred tax assets acquired in connection with the SLWHC
acquisition. These acquired deferred tax assets can only be realized if SLWHC
has taxable income of an appropriate character.
14. PENSION PLAN
BankAtlantic sponsors a non-contributory defined benefit pension plan
(the "Plan") covering substantially all of its employees. The benefits are based
on years of service and the employee's average earnings received during the
highest five consecutive years out of the last ten years of employment. The
funding policy is to contribute an amount not less than the ERISA minimum
funding requirement nor more than the maximum tax-deductible amount under
Internal Revenue Service rules and regulations. At December 31, 1998, the
Company froze its defined benefit pension plan whereby participants of the Plan
will not accrue service benefits beyond December 31, 1998 and vested all
participants in the plan. The Company will be subject to future pension expense
or income based on future actual plan returns and actuarial values of the plan
obligations incurred prior to January 1, 1999. Additionally, the Company is
exploring employee benefit alternatives such as enhanced 401K benefits and other
types of benefit plans. Plan assets consist of cash equivalents, common stocks
and mutual funds.
F-68
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth the Plan's funded status and the prepaid
pension cost included in the Consolidated Statements of Financial Condition at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected benefit obligation at the beginning of the year .................. $ 20,478 $ 17,300
Service cost ............................................................... 1,791 1,260
Interest cost .............................................................. 1,443 1,270
Amendments ................................................................. 135 618
Termination benefits ....................................................... 162 0
Actuarial loss ............................................................. 1,246 511
Benefits paid .............................................................. (545) (481)
Gross curtailment gain ..................................................... (5,113) 0
-------- --------
Projected benefit obligation at end of year ................................ $ 19,597 $ 20,478
======== ========
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Fair value of Plan assets at the beginning of year ......................... $ 20,169 $ 15,728
Actual return on Plan assets ............................................... 3,096 3,580
Employer contribution ...................................................... 652 1,342
Benefits paid .............................................................. (545) (481)
-------- --------
Fair value of Plan assets as of actuarial date ............................. $ 23,372 $ 20,169
======== ========
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of projected benefit obligation for service
rendered to date ......................................................... $(19,597) $(20,478)
Plan assets at fair value as of the actuarial date ......................... 23,372 20,169
-------- --------
Plan assets in excess (below) projected benefit obligation ................. 3,775 (309)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions ..................................... 0 2,248
Prior service (cost) benefit not yet recognized in net periodic pension cost 0 611
Unrecognized net asset at October 1, 1987, being recognized over 15 years .. 0 (1,272)
-------- --------
Prepaid pension cost ....................................................... $ 3,775 $ 1,278
======== ========
</TABLE>
F-69
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Net pension cost includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned during the period ............ $ 1,791 $ 1,260 $ 1,065
Interest cost on projected benefit obligation ............. 1,443 1,270 1,151
Expected return on plan assets ............................ (1,814) (1,520) (1,297)
Amortization of transition asset .......................... (268) (268) (268)
Amortization of prior service costs ....................... 68 68 9
Amortization of unrecognized net gains and losses ........ 63 71 256
Curtailment gain less termination benefits, and recognition
of
previously unrecognized deferred items .................. (3,128) 0 0
------- ------- -------
Net periodic pension expense (benefit) (1) ................ $(1,845) $ 881 $ 916
======= ======= =======
</TABLE>
(1) Periodic pension expense, excluding the curtailment gain, is included in
employee compensation/benefits excluding RBCO and real estate operations
on the Consolidated Statements of Operations.
The actuarial assumptions used in accounting for the Plan were:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Weighted average discount rate.......................... 6.50% 7.00% 7.50%
Rate of increase in future compensation levels.......... N/A 4.75% 5.00%
Expected long-term rate of return....................... 9.00% 9.00% 9.00%
</TABLE>
Actuarial assumptions for the years ended December 31, 1997 and 1996
were projected based upon participant data at October 1 of the same year.
Actuarial estimates and assumptions are based on various market factors and are
evaluated on an annual basis, and changes in such assumptions may impact future
pension costs. With respect to the years ended December 31, 1997 and 1996,
management believes that the impact, if any, of the difference between actuarial
assumptions utilized on October 1 and those appropriate at December 31 is
immaterial. Participant data at December 31, 1998 was used for the actuarial
assumption for the year ended December 31, 1998. During the years ended December
31, 1998, 1997 and 1996, BankAtlantic funded $577,000, $954,000 and $500,000,
respectively, to the plan.
BankAtlantic sponsors a defined contribution plan ("401k Plan") for all
employees who have completed six months of service. Employees can contribute up
to 14% of their salary, not to exceed $10,000 for 1998 and $9,500 for 1997 and
1996. For employees that fall within the highly compensated criteria, maximum
contributions are currently 10% of salary. Effective October 1991,
BankAtlantic's 401k Plan was amended to include only a discretionary match as
deemed appropriate by the Board of Directors. Included in employee compensation
and benefits on the consolidated statement of operations was $225,000, $194,000
and $147,000 of expenses and employer contributions related to the 401k Plan for
the years ended December 31, 1998, 1997 and 1996, respectively. For the years
ended December 31, 1998, 1997 and 1996, the Board of Directors declared a
discretionary match of 25% of the first 4% of an employee's contribution.
F-70
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES
The Company is lessee under various operating leases for real estate
and equipment including ATMs extending to the year 2072. The approximate minimum
rental under such leases, at December 31, 1998, for the periods shown was (in
thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- - ------------------------ --------
1999.......................................... $ 6,135
2000.......................................... 4,978
2001.......................................... 4,209
2002.......................................... 3,700
2003.......................................... 2,839
Thereafter.................................... 4,464
--------
Total............................... $ 26,325
========
Rental expense for premises and equipment was $6.7 million, $5.1 million
and $3.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Included in other liabilities at December 31, 1998 and 1997, is an
allowance of $409,000 and $67,000, respectively, for future rental payments on
closed branches. The allowance for closed branches includes branches closed in
prior periods, branches closed during 1998, and those branches included in the
restructuring plan (see Note 5).
At December 31, 1998, BankAtlantic leased 746 ATMs, 274 of which are in
Wal-Mart and Sam's Club locations throughout Florida, Georgia and Alabama.. An
additional 185 machines are located in K-Mart stores and Cumberland Farms
convenience stores located in Florida and 28 machines are on cruise ships. The
remaining ATMs are at BankAtlantic branch locations and various retail outlets
including gasoline, convenience food stores, malls, entertainment complexes and
college campuses.
During the ordinary course of business, the Company c and its
subsidiaries including RBCO are involved as plaintiff or defendant in various
lawsuits. Although the Company believes it and its subsidiaries have meritorious
defenses in all current legal actions, the outcome of the various legal actions
is uncertain. Management, based on discussions with legal counsel believes
results of operations or financial position will not be significantly impacted
by the resolution of these matters. (See also Note 17.)
In the normal course of its business, the Company is a party to
financial instruments with off-balance-sheet risk, when it is deemed appropriate
in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby and documentary
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk. BankAtlantic's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented by the
contractual amount of those instruments. BankAtlantic uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments with off-balance sheet risk were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit to foreign institutions......... $ 57,229 $ 49,894
Commitment to sell residential loans......................... 45,353 11,886
Commitments to sell investment securities.................... 0 4,979
Commitment to purchase REMIC's............................... 40,878 153,946
Commitments to extend credit, including the undisbursed
portion of loans in process................................ 436,949 295,776
Letters of credit............................................ 123,480 56,435
Commitments to purchase residential loans.................... 1,200 0
Commitments to purchase trading securities................... 1,000 0
Commitments to sell trading securities....................... $ 1,000 0
========= =========
</TABLE>
Commitments to extend credit are agreements to lend funds to a customer
as long as there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require
F-71
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. BankAtlantic evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral required by
BankAtlantic in connection with an extension of credit is based on management's
credit evaluation of the counter-party. Collateral held varies but may include
first mortgages on commercial and residential real estate.
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 which are collateralized
similar to other types of borrowings.
BankAtlantic has commitments to extend credit to foreign financial
institutions in Latin America. The commitments can be terminated at any time.
Each financial institution is evaluated on a case by case basis.
BankAtlantic is required to maintain average reserve balances with the
Federal Reserve Bank. Such reserves consisted of cash and amounts due from banks
of $39.7 million and $33.4 million at December 31, 1998 and 1997, respectively.
BankAtlantic is a member of the FHLB system. As a member, BankAtlantic
is required to purchase and hold stock in the FHLB of Atlanta, in amounts at
least equal to the greater of (i) 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year or (ii) 5% of its outstanding advances from the FHLB of Atlanta. As
of December 31, 1998, BankAtlantic was in compliance with this requirement with
an investment of approximately $52.2 million in stock of the FHLB of Atlanta.
Upon acquisition of LTI, the Company became obligated on leases sold
with full recourse by LTI to investors prior to the Company's acquisition. Under
the terms of such agreements, LTI is subject to recourse for 100% of the
remaining balance of the lease receivable sold upon a default by the lessees. At
December 31, 1998, the amount of lease payments subject to such recourse
provisions was approximately $7.0 million and a $162,000 estimated liability on
leases sold with recourse is included in other liabilities in the Company's
Statement of Financial Condition.
Upon the acquisition of RBCO the Company became subject to the risks of
investment banking. RBCO's customers' securities transactions are introduced on
a fully disclosed basis to its clearing broker. The clearing broker carries all
of the accounts of the customers of RBCO and is responsible for execution,
collection of and payment of funds and, receipt and delivery of securities
relative to customer transactions. Customers' securities activities are
transacted on a cash and margin basis. These transactions may expose RBCO to
off-balance-sheet risk, wherein the clearing broker may charge RBCO for any
losses it incurs in the event that customers may be unable to fulfill their
contractual commitments and margin requirements are not sufficient to fully
cover losses. RBCO seeks to minimize this risk through procedures designed to
monitor the creditworthiness of its customers and that customer transactions are
executed properly by the clearing broker. RBCO does not utilize futures as a
hedge against interest rate risk for its trading inventory or use derivatives in
its trading activities.
16. REGULATORY MATTERS
The Company, by virtue of its ownership of all of the common 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
Exchange Act of 1934. In addition, BFC Financial Corporation ("BFC") owns
6,578,671 and 4,876,124 shares of Class A and Class B common stock,
respectively, which amounts to 25% and 47% of the Company's outstanding Class A
and Class B common stock, respectively. BFC is subject to the same oversight by
the OTS as discussed herein with respect to the Company.
On September 30, 1996, President Clinton signed into law H.R. 3610,
which recapitalized the SAIF and substantially bridged the assessment rate
disparity existing between SAIF and BIF insured institutions. The new law
subjected institutions with SAIF assessable deposits, including BankAtlantic, to
a one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment, which was paid in November 1996, resulted in
a pre-tax charge of $7.2 million for the year ended December 31, 1996, and under
provisions of the law, was treated as a fully deductible "ordinary and necessary
business expense" for tax purposes. The $7.2 million charge excludes the $2.3
million amount assessed on BNA deposits which was previously expensed by BNA
prior to the acquisition date and was considered a liability of BNA in recording
the acquisition of
F-72
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
BNA under the purchase method of accounting. As a result of the special
assessment, discussed herein, the SAIF was capitalized at the target Designated
Reserve Ratio ("DRR") of 1.25 percent of estimated insured deposits on October
1, 1996.
BankAtlantic's deposits are insured by the SAIF and BIF for up to
$100,000 for each insured account holder, the maximum amount currently permitted
by law. Pursuant to the FDICIA, the FDIC adopted transitional regulations
implementing risk-based insurance premiums that became effective on January 1,
1993. Under these regulations, institutions are divided into groups based on
criteria consistent with those established pursuant to the prompt regulatory
action provisions of the FDICIA (see "Savings Institution Regulations -- Prompt
Regulatory Action", below). Each of these groups is further divided into three
subgroups, based on a subjective evaluation of supervisory risk to the insurance
fund posed by the institution.
BankAtlantic is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on BankAtlantic's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
BankAtlantic must meet specific capital guidelines that involve quantitative
measures of BankAtlantic's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. BankAtlantic's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Certain of
BankAtlantic's activities, such as its investment in real estate held for
development and sale and real estate joint ventures, result in a deduction from
capital for regulatory capital measurement.
Quantitative measures established by regulation to ensure capital
adequacy require BankAtlantic to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998, that
BankAtlantic meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, BankAtlantic is considered a well capitalized
institution under the regulatory framework for prompt corrective action. To be
categorized as well capitalized BankAtlantic must maintain minimum total
risk-based, Tier I risk-based, tangible and core capital ratios as set forth in
the table. There are no conditions or events since December 31, 1998 that
management believes have changed the institution's category.
BankAtlantic's actual capital amounts and ratios are presented in the
table:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ------ ---------- ------ --------- ------
(IN THOUSANDS)
As of December 31, 1998:
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital................. $ 336,131 13.92% $> 193,150 > 8.00% $ 241,438 > 10.00%
- - -
Tier I risk-based capital................ $ 305,860 12.67% $> 96,575 > 4.00% $ 144,863 > 6.00%
- - -
Tangible capital......................... $ 305,860 8.48% $> 54,111 > 1.50% $ 54,111 > 1.50%
- - -
Core capital............................. $ 305,860 8.48% $> 144,297 > 4.00% $ 180,371 > 5.00%
- - -
As of December 31, 1997:
Total risk-based capital................. $ 355,930 18.64% $> 152,785 > 8.00% $ 190,981 > 10.00%
- - -
Tier I risk-based capital................ $ 332,010 17.38% $> 76,392 > 4.00% $ 114,588 > 6.00%
- - -
Tangible capital......................... $ 332,010 11.12% $> 44,798 > 1.50% $ 44,798 > 1.50%
- - -
Core capital............................. $ 332,010 11.12% $> 89,595 > 3.00% $ 149,325 > 5.00%
- - -
</TABLE>
The Company's wholly owned subsidiary, RBCO is subject to the net
capital provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that RBCO's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. Additionally, RBCO, as a market marker,
is subject to supplemental requirements of Rule 15c3-1(a)4, which provides for
the computation of net capital to be based on the number and price of issues in
which markets are made by RBCO, not
F-73
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
to exceed $1,000,000. At December 31, 1998, RBCO's regulatory net capital was
approximately $12.1 million, which exceeded minimum net capital rule
requirements by $11.1 million.
RBCO operates under the provisions of paragraph (K)(2)(ii) of Rule
15c3-3 of the Securities and Exchange commission as a fully-disclosed broker
and, accordingly, customer accounts are carried on the books of the clearing
broker. However, RBCO safekeeps and redeems municipal bond coupons for the
benefit of its customers. Accordingly, RBCO is subject to the provisions of SEC
Rule 15c3-3 relating to possession or control and customer reserve requirements
and was in compliance with such provisions at December 31, 1998.
17. SUBJECT PORTFOLIO
From 1987 through 1990, BankAtlantic purchased in excess of $50 million
of indirect home improvement loans from certain dealers, primarily in the
northeastern United States. BankAtlantic ceased purchasing loans from such
dealers in the latter part of 1990. These dealers were affiliated with each
other but were not affiliated with BankAtlantic. In connection with loans
originated through these dealers, BankAtlantic funded amounts to the dealers as
a dealer reserve. Such loans and related dealer reserves are referred to herein
as the "Subject Portfolio."
In late 1990, questions arose relating to this portfolio and such
questions revolved around practices which were intended to defraud BankAtlantic.
As a consequence of this activity BankAtlantic filed a claim with its insurance
carrier which resulted in payments of $18 million by the carrier to BankAtlantic
during 1992 through 1994. The carrier has no obligation to make further payments
on this matter to BankAtlantic. As part of the settlement agreement with the
carrier ("Covenant"), BankAtlantic agreed to and did file suit against certain
third parties. The Covenant provides that in the event of recovery by
BankAtlantic of damages against third party wrongdoers, BankAtlantic will be
entitled to retain such amount until such amounts plus any payments received
from National Union equal $22 million plus the costs incurred by BankAtlantic to
obtain such recoveries. A trial against various wrongdoers was held in February
1998 and judgment was entered in favor of BankAtlantic and the carrier against
over fifty third party defendants, individuals and corporations. A number of
these third party defendants have been convicted of criminal fraud.
Additionally, BankAtlantic has been named as a defendant in various litigation
instituted by or for the benefit of various consumers who were mortgagors of the
loans. At December 31, 1998, all such litigation had been resolved except for
the ongoing action in New Jersey, discussed below.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions, including BankAtlantic. This action
sought, among other things, rescission of the loan agreements and damages. In
November 1995, the court in this action entered an order dismissing the
complaint against BankAtlantic; and 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 its 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
appealed this ruling to the superior Court of New Jersey Appellate Division
which, in March 1998, denied the plaintiffs motion to appeal. Plaintiff
subsequently appealed to the Supreme Court of New Jersey which, on June 30,
1998, granted plaintiffs motion to appeal and remanded the matter to the
Appellate Division to consider the class issue on its merit. The Appellate
Division has set March 24, 1999 for oral arguments on this matter.
The balance of the loans associated with the Subject Portfolio amounted
to approximately $4.5 million and $6.8 million at December 31, 1998 and 1997,
respectively. The related dealer reserve had been completely charged-off by
December 31, 1993. Net charge-offs relating to the Subject Portfolio amounted to
$103,000, $370,000 and $666,000, for the years ended December 31, 1998, 1997 and
1996, respectively. At December 31, 1998, 11% of the loans were secured by
collateral in South Florida and 89% of such loans were secured by collateral in
the northeastern United States, respectively. Collateral for these loans is
generally a second mortgage on the borrower's property. However, it appears that
in most cases, the property is encumbered with loans having high loan to value
ratios. Loans in the Subject Portfolio are charged-off if payments are more than
90 days delinquent.
Since discovery of this issue, appropriate consideration has been given
to insurance coverage availability, the Covenant, loan collectibility and
related dealer reserves. Management believes it has meritorious defenses to the
remaining litigation in New Jersey, but there is no assurance that BankAtlantic
will ultimately be successful in defending this litigation.
F-74
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statements of Financial Condition at December 31, 1998 and
1997 and Condensed Statements of Operations for each of the years in the three
year period ended December 31, 1998 are shown below. (in thousands):
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31,
---------------------------
ASSETS 1998 1997
--------- --------
<S> <C> <C>
Cash deposited at BankAtlantic ................................................. $ 13,496 $ 48,514
Securities available for sale (at market value) ................................. 19,276 7,233
Loan receivable from subsidiary, net ............................................ 10,000 6,275
Trading securities (at market value) ........................................... 0 5,067
Investment in subsidiaries ...................................................... 426,243 383,126
Investment and advances in joint ventures ....................................... 12,629 1,749
Due from BankAtlantic ........................................................... 657 0
Deferred offering costs on junior subordinated and subordinated debentures ...... 8,087 9,107
Income tax receivable from BankAtlantic ......................................... 3,145 5,312
Other assets .................................................................... 208 263
--------- --------
Total assets .......................................................... $ 493,741 $466,646
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior subordinated debentures and subordinated debentures ...................... $ 249,244 $255,187
Due to BankAtlantic ............................................................. 0 39
Other liabilities ............................................................... 4,057 3,976
--------- --------
Total liabilities ............................................................... 253,301 259,202
--------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value 10,000,000 shares authorized; none outstanding 0 0
Class A common stock, $0.01 par value, authorized 80,000,000 shares; issued and
outstanding, 26,799,368 and 21,509,159 shares .............................. 268 215
Class B common stock, $0.01 par value, authorized 45,000,000 shares; issued and
outstanding, 10,356,431 and 10,690,231 shares .............................. 104 107
Additional paid-in capital .................................................... 147,686 98,475
Unearned compensation - restricted stock awards ............................... (7,062) 0
Retained earnings ............................................................. 95,818 107,650
--------- --------
Total stockholders' equity before net unrealized appreciation on debt securities
available for sale-net of deferred income taxes ............................... 236,814 206,447
Net unrealized appreciation (depreciation) on securities available for sale owned
by the Company and BankAtlantic - net of deferred income taxes ................ 3,626 724
--------- --------
Total stockholders' equity ...................................................... 240,440 207,171
--------- --------
Total liabilities and stockholders' equity ............................ $ 493,741 $466,373
========= ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest income on repurchase agreements and deposits at BankAtlantic .......... $ 1,096 $ 2,337 $ 597
Interest income on loans and investments ....................................... 1,055 837 209
-------- -------- --------
Total interest income ................................................. 2,151 3,174 806
-------- -------- --------
Interest expense on subordinated debentures and junior subordinated debentures 18,823 11,689 4,018
Capitalized interest ........................................................... (732) 0 0
-------- -------- --------
Net interest (expense) ....................................................... 18,091 (8,515) (3,212)
Gains of trading account securities, unrealized and realized ................... 834 2,463 0
Loss on investment securities available for sale ............................... (2,074) 0 0
Other expenses ................................................................. (495) (544) (39)
-------- -------- --------
Loss before income tax benefit and earnings of subsidiaries .................... (17,675) (6,596) (3,251)
Income tax benefit ........................................................... 6,572 2,481 1,253
-------- -------- --------
(Loss) before income of subsidiaries ......................................... (11,103) (4,115) (1,998)
Equity in undistributed net income (loss) of subsidiaries excluding BankAtlantic (317) 152 27
Equity in income from BankAtlantic's continuing operations ..................... 21,606 27,621 19,610
Equity in income (loss) from BankAtlantic's discontinued operations ............ (18,220) 4,111 1,372
-------- -------- --------
Net income (loss) .................................................... $ (8,034) $ 27,769 $ 19,011
======== ======== ========
</TABLE>
F-75
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations ....................................... $ 10,186 $ 23,658 $ 17,639
Income from discontinued operations ..................................... (18,220) 4,111 1,372
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Equity in net earnings of BankAtlantic and other subsidiaries ........... (3,069) (31,884) (21,009)
Amortization and accretion, net ......................................... 792 388 13
Other than temporary impairment of securities available for sale ........ 2,136 0 0
Gains on sales of securities available for sale ......................... (62) 0 0
Purchase of trading securities, net ..................................... (1,621) (6,243) 0
Proceeds from sales of trading securities ............................... 8,648 3,640 0
Trading securities gains ................................................ (834) (2,463) 0
Increase (decrease) in accrued interest payable ......................... (282) 599 1,859
Increase (decrease) in other liabilities ................................ 394 78 (42)
(Decrease) increase in receivable (payable) from (to) BankAtlantic ..... (696) (2,703) 3,381
Increase in other assets ................................................ 86 (35) 0
Increase in income tax receivable ....................................... 984 (2,474) (1,371)
-------- --------- --------
Net cash provided (used) by operating activities ........................ (1,558) (13,328) 1,842
-------- --------- --------
INVESTING ACTIVITIES:
Loan participations with BankAtlantic ................................... 0 (6,500) 0
Loans originated to subsidiaries ........................................ (10,000) 0 0
Principal reduction on loans ............................................ 6,275 358 0
Investment in BBC Capital Trust I ....................................... 0 (2,312) 0
Investment and advances to joint ventures ............................... (10,696) (1,870) 0
Additional investment in BankAtlantic ................................... (17,325) (161,200) (54,000)
Dividends from subsidiaries ............................................. 22,025 13,386 6,080
Purchase of securities available for sale ............................... (12,030) (7,482) (13,617)
Proceeds from maturity of securities available for sale ................. 0 5,900 9,700
Proceeds from sales of securities available for sale .................... 603 0 0
-------- --------- --------
Net cash used by investing activities ................................... (21,148) (159,720) (51,837)
-------- --------- --------
FINANCING ACTIVITIES:
Issuance of common stock upon exercise of options ....................... 1,584 1,857 413
Issuance of Class A restricted common stock ............................ 584 0 0
Proceeds from issuance of Class A common stock, net ..................... 0 43,374 18,004
Common stock dividends paid ............................................. (3,620) (2,343) (2,159)
Proceeds from issuance of junior subordinated debentures ................ 0 77,062 0
Deferred costs on junior subordinated debentures ........................ 0 (2,908) 0
Repayment of notes payable .............................................. 0 0 (1)
Proceeds from issuance of subordinated debentures ....................... 0 100,000 57,500
Deferred costs on subordinated debentures ............................... 0 (3,518) (2,356)
Payment to acquire and retire common stock .............................. (10,860) (12,188) (3,259)
-------- --------- --------
Net cash provided (used) by financing activities ........................ (12,312) 201,336 68,142
-------- --------- --------
Increase in cash and cash equivalents ................................... (35,018) 28,288 18,147
Cash and cash equivalents at beginning of period ........................ 48,514 20,226 2,079
-------- --------- --------
Cash and cash equivalents at end of period .............................. $ 13,496 $ 48,514 $ 20,226
======== ========= ========
(CONTINUED)
</TABLE>
F-76
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid .............................................................. $18,541 $ 11,090 $ 1,937
Issuance of class A common stock upon acquisitions ......................... 41,862 0 0
Issuance of common stock options upon acquisition of RBCO .................. 1,582 0 0
Common stock dividends declared and not paid until subsequent period ....... 997 817 552
Increase (decrease) in stockholders' equity from net unrealized appreciation
on debt securities available for sale by BankAtlantic, less related
deferred income taxes .................................................... 2,902 (24) (4,985)
Increase in equity for the tax effect related to the exercise of employee
stock options ............................................................ 709 913 118
Issuance of Class A common stock upon conversion of subordinated debentures 5,729 375 0
</TABLE>
During each of the years in the three year period ended December 31,
1998, the Company received $22.0 million, $13.2 million and $6.1 million,
respectively, in dividends from BankAtlantic.
F-77
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. SELECTED QUARTERLY RESULTS (Unaudited)
The following tables summarize the quarterly results of operations for
the years ended December 31, 1998 and 1997 (in thousands except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income .............................. $ 59,810 $ 65,023 $ 66,372 $ 62,933 $ 254,138
Interest expense ............................. 35,336 38,494 39,770 38,253 151,853
----------- ------------ ------------ ------------ ------------
Net interest income .......................... 24,474 26,529 26,602 24,680 102,285
Provision for loan losses .................... 3,407 3,371 3,033 11,977 21,788
----------- ------------ ------------ ------------ ------------
Net interest income after provision for loan
losses ..................................... 21,067 23,158 23,569 12,703 80,497
----------- ------------ ------------ ------------ ------------
Income before income taxes (benefit) ......... 7,652 11,767 4,478 (7,185) 16,712
----------- ------------ ------------ ------------ ------------
Income (loss) from continuing operations ..... $ 4,846 $ 7,019 $ 2,644 $ (4,323) $ 10,186
=========== ============ ============ ============ ============
Income (loss) from discontinued operations ... $ 410 $ (628) $ (12,188) $ (5,814) $ (18,220)
=========== ============ ============ ============ ============
Net income (loss) ............................ $ 5,256 $ 6,391 $ (9,544) $ (10,137) $ (8,034)
=========== ============ ============ ============ ============
Class A basic earnings (loss) per share from
continuing operations ....................... $ 0.15 $ 0.22 $ 0.07 $ (0.12) $ 0.30
Class A basic earnings (loss) per share from
discontinued operations ..................... 0.02 (0.02) (0.34) (0.17) (0.54)
----------- ------------ ------------ ------------ ------------
Class A basic earning (loss) per share ....... $ 0.17 $ 0.20 $ (0.27) $ (0.29) $ (0.24)
=========== ============ ============ ============ ============
Class B basic earnings (loss) per share from
continuing operations ..................... $ 0.14 $ 0.20 $ 0.07 $ (0.11) $ 0.27
Class B basic earnings (loss) per share from
discontinued operations .................... 0.01 (0.02) (0.32) (0.15) (0.49)
----------- ------------ ------------ ------------ ------------
Class B basic earning (loss) per share ....... $ 0.15 $ 0.18 $ (0.25) $ (0.26) $ (0.22)
=========== ============ ============ ============ ============
Class A diluted earnings (loss) per share from
continuing operations ...................... $ 0.13 $ 0.17 $ 0.07 $ (0.12) $ 0.29
Class A diluted earnings (loss) per share from
discontinued operations .................... 0.01 (0.01) (0.33) (0.17) (0.51)
----------- ------------ ------------ ------------ ------------
Class A diluted earning (loss) per share ..... $ 0.14 $ 0.16 $ (0.26) $ (0.29) $ (0.22)
=========== ============ ============ ============ ============
Class B diluted earnings (loss) per share from
continuing operations ...................... $ 0.12 $ 0.17 $ 0.06 $ (0.11) $ 0.26
Class B diluted earnings (loss) per share from
discontinued operations .................... 0.01 (0.01) (0.30) (0.15) (0.48)
----------- ------------ ------------ ------------ ------------
Class B diluted earning (loss) per share ..... $ 0.13 $ 0.16 $ (0.24) $ (0.26) $ (0.22)
=========== ============ ============ ============ ============
Basic weighted average number of common
Class A shares outstanding ................. 21,809,903 22,724,683 26,020,125 26,026,255 24,161,923
=========== ============ ============ ============ ============
Basic weighted average number of common
Class B shares outstanding ................. 10,768,956 10,425,815 10,384,137 10,360,757 10,483,522
=========== ============ ============ ============ ============
Diluted weighted average number of common
Class A shares outstanding ................. 38,764,353 39,320,600 26,482,163 26,026,255 24,792,545
=========== ============ ============ ============ ============
Diluted weighted average number of common
Class B shares outstanding ................. 11,879,110 11,384,648 11,188,378 10,360,757 11,383,033
=========== ============ ============ ============ ============
</TABLE>
F-78
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Income from continuing operations was adversely affected in the fourth
quarter by: (1) an increase in the provision for loan losses resulting from
recent delinquency trends in the small business and consumer indirect
portfolios, and charge-offs and growth in the small business loan portfolio ;
(2) write-downs of securities available for sale due to other than temporary
declines in fair value, (3) realized losses in the Company's trading portfolio
reflecting market declines during the fourth quarter of 1998 compared to the
third quarter of 1998, (4) accelerated premium amortization on purchased
residential loans due to prepayments of the underlying loans, (5) increases in
all categories of noninterest expense due to growth in asset size and number of
departments and personnel, and (6) a restructuring charge and asset write-downs
resulting from employee terminations, branch closings, and the consolidation of
the Tampa Bay area mortgage banking operations. The above declines in income
from continuing operations were partially offset by a $3.1 million net pension
curtailment gain.
Income from discontinued operations during the last two quarters of
1998 were impacted by accelerated amortization of mortgage servicing rights
caused by mortgage prepayments of the underlying loans during the periods.
Additionally, during the third quarter of 1998 a $15 million provision for
valuation of mortgage servicing rights was recognized due to anticipated
accelerated prepayments of underlying mortgages. Income from discontinued
operations during the fourth quarter of 1998 reflects a $10 million estimated
cost to exit the MSB. The estimated cost includes the anticipated loss from MSB
operations through the anticipated disposal date and losses on the sale of the
MSB assets. The exit costs were partially offset by a $4.3 million reversal in
the fourth quarter of the provision for valuation of mortgage servicing rights
established during the third quarter.
F-79
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income ................................... $ 50,444 $ 52,046 $ 53,520 $ 54,544 $ 210,554
Interest expense .................................. 26,297 28,587 29,872 31,268 116,024
----------- ----------- ----------- ----------- -----------
Net interest income ............................... 24,147 23,459 23,648 23,276 94,530
Provision for loan losses ......................... 2,476 2,686 3,671 2,435 11,268
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan losses 21,671 20,773 19,977 20,841 83,262
----------- ----------- ----------- ----------- -----------
Income before income taxes ........................ 7,877 9,166 9,088 12,775 38,906
----------- ----------- ----------- ----------- -----------
Net income from continuing operations ............. $ 4,656 $ 5,582 $ 5,635 $ 7,785 $ 23,658
=========== =========== =========== =========== ===========
Income from discontinued operations ............... $ 1,585 $ 1,239 $ 894 $ 393 $ 4,111
=========== =========== =========== =========== ===========
Net income) ....................................... $ 6,241 $ 6,821 $ 6,529 $ 8,178 $ 27,769
=========== =========== =========== =========== ===========
Class A basic earnings per share from
continuing operations ........................... $ 0.16 $ 0.19 $ 0.21 $ 0.27 $ 0.84
Class A basic earnings per share from
discontinuing operations ........................ 0.06 0.05 0.03 0.01 0.14
----------- ----------- ----------- ----------- -----------
Class A basic earning per share ................... $ 0.22 $ 0.24 $ 0.24 $ 0.28 $ 0.98
=========== =========== =========== =========== ===========
Class B basic earnings per share from
continuing operations ........................... $ 0.16 $ 0.19 $ 0.20 $ 0.25 $ 0.81
Class B basic earnings per share from
discontinuing operations ........................ 0.06 0.04 0.02 0.01 0.13
----------- ----------- ----------- ----------- -----------
Class B basic earning per share ................... $ 0.22 $ 0.23 $ 0.22 $ 0.26 $ 0.94
=========== =========== =========== =========== ===========
Class A diluted earnings per share from
continuing operations ........................... $ 0.13 $ 0.16 $ 0.16 $ 0.21 $ 0.67
Class A diluted earnings per share from
discontinued operations ......................... 0.05 0.03 0.02 0.01 0.11
----------- ----------- ----------- ----------- -----------
Class A diluted earning per share ................. $ 0.18 $ 0.19 $ 0.18 $ 0.22 $ 0.78
=========== =========== =========== =========== ===========
Class B diluted earnings per share from
continuing operations ........................... $ 0.14 $ 0.16 $ 0.16 $ 0.20 $ 0.67
Class B diluted earnings per share from
discontinued operations .......................... 0.04 0.03 0.02 0.01 0.10
----------- ----------- ----------- ----------- -----------
Class B diluted earning per share ................. $ 0.18 $ 0.19 $ 0.18 $ 0.21 $ 0.77
=========== =========== =========== =========== ===========
Basic weighted average number of common
Class A shares outstanding ...................... 18,146,296 17,940,645 17,170,265 18,863,989 18,029,784
=========== =========== =========== =========== ===========
Basic weighted average number of common
Class B shares outstanding ...................... 10,569,392 10,742,040 10,603,426 10,680,958 10,649,135
=========== =========== =========== =========== ===========
Diluted weighted average number of common
Class A shares outstanding ...................... 27,107,912 26,933,436 26,474,831 31,175,239 27,893,534
=========== =========== =========== =========== ===========
Diluted weighted average number of common
Class B shares outstanding ...................... 11,673,630 11,767,040 12,072,176 11,812,208 11,765,385
=========== =========== =========== =========== ===========
</TABLE>
F-80
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in accordance with
the requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107") issued by
the FASB.
Management has made estimates of fair value that it believes to be
reasonable. However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair value
presented would be indicative of the value negotiated in an actual sale.
BankAtlantic's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category such as commercial, commercial
real estate, residential mortgage, second mortgages, and other installment. Each
loan category is further segmented into fixed and adjustable rate interest terms
and by performing and non-performing categories.
The fair value of performing loans, except residential mortgage and
adjustable rate loans, is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of average
maturity is based on BankAtlantic's historical experience with prepayments for
each loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for national historical prepayment estimates using discount rates based on
secondary market sources adjusted to reflect differences in servicing and credit
costs.
For adjustable rate loans, the fair value is estimated at book value
after adjusting for credit risk inherent in the loan. BankAtlantic's interest
rate risk is considered insignificant since the majority of BankAtlantic's
adjustable rate loans are based on prime rates or one year Constant Maturity
Treasuries ("CMT") rates and adjust monthly or generally not greater than
annually.
Fair values of non-performing loans are based on the assumption that
non-performing loans are on a non-accrual status discounted at market rates
during a 24 month work-out period. Assumptions regarding credit risk are
determined using available market information and specific borrower information.
The book value of tax certificates approximates market value. Fair
value of mortgage-backed and investment securities is estimated based on bid
prices available from security dealers.
Fair value of mortgage-backed securities is estimated based on bid
prices available from security dealers.
Under FAS 107, the fair value of deposits with no stated maturity, such
as non-interest bearing demand deposits, savings and NOW accounts, and money
market and checking accounts, is equal to the amount payable on demand at
December 31, 1998 and 1997. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using current rates offered by BankAtlantic for such remaining
maturities.
The book value of securities sold under agreements to repurchase
approximates fair value.
The fair values of advances from FHLB, were based upon comparable terms
to maturity, interest rates and issuer credit standing.
The fair value of convertible subordinated debentures and guaranteed
preferred beneficial interests in the Company's junior subordinated debentures
was based on quoted market prices on NASDAQ. The fair value of other
subordinated debentures and notes payable was based on discounted value of
contractual cash flows based on a market discount rate.
F-81
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents information for the Company's financial
instruments at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from depository institutions ............ $ 100,823 $ 100,823 $ 82,787 $ 82,787
Securities available for sale ........................ 597,520 597,520 607,490 607,490
Trading securities ................................... 30,005 30,005 5,067 5,067
Investment securities ................................ 51,811 51,811 55,213 55,213
Loans receivable including loans held for sale, net .. 2,635,369 2,667,362 2,072,825 2,093,956
Financial liabilities:
Deposits ............................................. $1,925,772 $1,873,311 $1,763,733 $1,769,849
Securities sold under agreements to repurchase and
federal funds purchased ............................ 180,593 180,593 61,216 61,216
Advances from FHLB ................................... 1,044,572 1,052,354 697,707 704,042
Subordinated debentures and note payable ............. 177,114 157,208 179,600 242,440
Guaranteed preferred beneficial interests in Company's
junior subordinated debentures ..................... 74,750 71,013 74,750 78,488
</TABLE>
The contract amount and related fees of BankAtlantic's commitments to
extend credit, standby letters of credit, financial guarantees and forward FHLB
commitments approximates fair value (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments).
21. ACQUISITIONS AND EQUITY METHOD INVESTMENTS
ACQUISITIONS
In March 1998, the Company acquired LTI, a company engaged in the
equipment leasing and finance business. For financial accounting purposes the
acquisition was effective on March 1, 1998. LTI principally leases or finances
trucks, and manufacturing and construction equipment to businesses located
primarily in South Florida. LTI was acquired by the Company in exchange for
718,413 shares of Class A common stock and $300,000 cash in a merger accounted
for under the purchase method of accounting. The results of LTI are included in
the Company's results of Operations since March 1, 1998. The Company will
amortize goodwill over 25 years on a straight line basis. The Class A common
stock received by the LTI shareholders was subject to restrictions prohibiting
transfers for periods ranging from one to three years. The estimated fair value
of Class A common stock issued in the acquisition was based upon the average
market price for the common stock immediately prior to and after the terms of
the acquisition were agreed to and announced, reduced by a factor based on an
appraisal from an independent third party to reflect contractual transfer
restrictions on the Company's stock received by the former LTI shareholders.
Effective June 30, 1998, the Company contributed LTI at its book value to
BankAtlantic, after receipt of regulatory approval. Proforma information
relating to LTI is not presented due to lack of significance.
On June 30, 1998 the Company acquired all of RBCO's outstanding shares
of common stock in exchange for shares of the Company's Class A common stock in
an acquisition accounted for under the purchase method of accounting. Results of
operations of RBCO are included as of July 1, 1998. RBCO is operated as an
autonomous independent wholly owned subsidiary under RBCO's management. RBCO is
an investment firm that is principally engaged in the underwriting, distribution
and trading of tax-exempt obligations and bank and thrift equity and debt
securities. RBCO provides investment banking, research and financial advisory
services primarily to financial services companies with a focus on corporate
finance and merger-related services. RBCO offers a general securities brokerage
business with investment products for retail and institutional clients, as well
as life insurance and annuity products. RBCO's retail and institutional
brokerage clients consist primarily of high net worth individuals (primarily
residents of New Jersey, other Mid-Atlantic and Northeastern states and
Florida), banking and thrift
F-82
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
institutions (primarily located in New Jersey, Pennsylvania and Florida) and, to
a much lesser extent, insurance companies and specialty finance companies. The
principal executive office of RBCO is located in Livingston, New Jersey. RBCO is
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") and is a member of the National Association of Securities Dealers, Inc.
("NASD") and the Securities Investor Protection Corporation ("SIPC"). RBCO is
not a member of any securities exchange. Brokerage services to retail and
institutional customers are provided through RBCO's sales force located in the
Livingston and Shrewsbury, New Jersey, Bala Cynwyd, Pennsylvania, and West Palm
Beach, Florida offices.
The fair value of assets acquired and liabilities assumed in connection
with the acquisitions of RBCO and LTI effective June 30, 1998 and March 1, 1998,
respectively, is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS RBCO LTI TOTAL
- ------------ -------- ------- --------
<S> <C> <C> <C>
Cash acquired ................................................ $ 733 $ 0 $ 733
Leases receivable, net ....................................... 0 8,419 8,419
Securities available for sale ................................ 0 121 121
Trading account securities ................................... 27,484 0 27,484
Investment securities ........................................ 1,915 0 1,915
Property and equipment ....................................... 2,916 119 3,035
Deferred income tax (liability) assets ....................... 1,015 (551) 464
Other assets ................................................. 1,895 975 2,870
Securities sold not yet purchased ............................ (3,334) 0 (3,334)
Notes payable ................................................ (1,704) (6,670) (8,374)
Other liabilities ............................................ (7,709) (4,151) (11,860)
Subordinated loan from the Company ........................... (10,000) 0 (10,000)
-------- ------- --------
Fair value of net tangible assets acquired ................... 13,211 (1,738) 11,473
-------- ------- --------
Estimated fair value of Class A common stock issued .......... 35,017 0 35,017
Estimated fair value of restricted Class A common stock issued 1,062 5,783 6,845
Estimated fair value of Class A common stock options issued .. 1,582 0 1,582
Cash paid to shareholder ..................................... 0 300 300
Acquisition costs ............................................ 500 100 600
-------- ------- --------
Total purchase price ......................................... 38,161 6,183 44,344
-------- ------- --------
Cost over fair value of net assets acquired .................. $ 51,372 $ 4,445 $ 55,817
======== ======= ========
</TABLE>
The net cash acquired in connection with both of the above acquisitions
was $433,000. During March 1998, the Company extended RBCO a $10.0 million
subordinated loan on an arms length basis to enable RBCO to expand into new
products and markets. Upon acquisition, the loan was eliminated in
consolidation. Included in cost over fair value of net assets acquired was $2.6
million of goodwill related to the February 1998 acquisition by RBCO of
Cumberland Advisors and Cumberland Consulting. The goodwill associated with the
Cumberland entities is amortized on a straight line basis over 15 years
resulting in an annual tax deductible expense of $171,000. The remaining
goodwill of $22.4 million associated with RBCO is amortized on a straight line
basis over 25 years resulting in an annual expense of approximately $900,000
that is not tax deductible.
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock representing 20% of the total transaction value was allocated to key
employees of RBCO. The retention pool consists of 683,362 shares of restricted
Class A common stock which will vest in four years to employees who remain for
the period. The retention pool was valued at $8.1 million based upon the average
market price for the Company's stock at the grant date, will be amortized to
compensation expense over the four year vesting period and is tax deductible at
the vesting date.
The following is proforma information for the year ended December 31,
1998 and 1997 as if the RBCO acquisition were consummated on January 1, 1998 and
1997, respectively. The proforma information is not necessarily indicative of
the
F-83
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
combined financial position or results of operations which would have been
realized had the acquisition been consummated during the period or as of the
dates for which the proforma financial information is presented (dollars in
thousands, except for per share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997
--------------------------- -------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net interest income after provision for loan loss ............ $ 80,497 $ 80,776 $ 83,262 $ 83,655
----------- ----------- ---------- -----------
Noninterest income ........................................... 56,880 79,386 33,366 65,291
Noninterest expenses ......................................... 120,665 143,943 77,722 111,412
----------- ----------- ---------- -----------
Income before provision for income taxes ..................... 16,712 16,219 38,906 37,534
Provision for income taxes ................................... 6,526 6,949 15,248 14,872
----------- ----------- ---------- -----------
Income from continuing operations ............................ $ 10,186 $ 9,270 $ 23,658 $ 22,662
Income (loss) from discontinued operations ................... (18,220) (18,220) 4,111 4,111
----------- ----------- ---------- -----------
Net income (loss) ............................................ $ (8,034) $ (8,950) $ 27,769 $ 26,773
=========== =========== ========== ===========
CLASS A COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.30 $ 0.27 $ 0.84 $ 0.73
Basic earnings (loss) per share from discontinued operations . (0.54) (0.52) 0.14 0.13
--------- ----------- ---------- -----------
Basic earnings (loss) per share .............................. $ (0.24) $ (0.25) $ 0.98 $ 0.86
========= =========== ========== ===========
Diluted earnings per share from continuing operations ........ $ 0.29 $ 0.25 $ 0.67 $ 0.59
Diluted earnings (loss) per share from discontinued operations (0.51) (0.50) 0.11 0.10
--------- ----------- ---------- -----------
Diluted earnings (loss) per share ............................ $ (0.22) $ (0.25) $ 0.78 $ 0.69
========= =========== ========== ===========
CLASS B COMMON SHARES
Basic earnings per share from continuing operations .......... $ 0.27 $ 0.24 $ 0.81 $ 0.70
Basic earnings (loss) per share from discontinued operations . (0.49) (0.47) 0.13 0.13
--------- ----------- ---------- -----------
Basic earnings (loss) per share .............................. $ (0.22) $ (0.23) $ 0.94 $ 0.83
========= =========== ========== ===========
Diluted earnings per share from continuing operations ........ $ 0.26 $ 0.22 $ 0.67 $ 0.60
Diluted earnings (loss) per share from discontinued operations (0.48) (0.45) 0.10 0.09
--------- ----------- ---------- -----------
Diluted earnings (loss) per share ............................ $ (0.22) $ (0.23) $ 0.77 $ 0.69
========= =========== ========== ===========
</TABLE>
EQUITY METHOD INVESTMENTS
During the fourth quarter of 1997 and during 1998 the Company invested
in six real estate joint ventures. Five of these joint ventures are in various
stages of development. These joint ventures required equity investments by BDC
at the inception of the project of 44.5%-90% of the total venture equity with
profit sharing of 40%-50% in future years. Certain of the joint venture partners
have not made substantive equity investments in the partnerships. BankAtlantic
has also provided financing to these joint ventures typically in accordance with
its usual lending and underwriting policies prior to considering the equity
contribution provided by BDC or BBC. Such lending activities have resulted in
deferral of the recognition of interest income on the financing activity and/or
the deferral of profit recognition from the joint venture. The joint ventures
are accounted for under the equity method of accounting and primarily develop
residential and multifamily properties. Additionally, during 1998 the Company
originated a loan to a developer with an ownership potential. The loan was
accounted for as a joint venture with the Company deferring the recognition of
interest income on the loan. In January 1999, the Company relinquished its
equity participation rights in exchange for a substantial principal repayment on
the loan and a guarantee from a real estate investment trust. Included in real
estate held for development and sale and joint ventures, net in the Company's
Statement of Condition at December 31, 1998 was $7.3 million of equity
investments, $9.3 million of advances to real estate limited partnerships, a
$21.4 million loan, and a $2.0 million equity investment compared to $1.2
million of equity investment at December 31, 1997. The Company had commitments
to loan an additional $7.2 million to joint ventures at December 31, 1998.
Included in the
F-84
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company's Statement of Operations for the year ended December 31, 1998 was $1.0
million of capitalized interest expense, a $257,000 loss from joint venture
activities and $629,000 of interest income recognized on loans to joint
ventures.
The Condensed Statement of Condition and Condensed Statement of
Operations for the six joint ventures is as follows for December 31, 1998:
(In thousands)
Statement of Financial Condition as of December 31, 1998
Real estate assets ......................................... $ 30,176
Other assets ............................................... 3,601
--------
Total Assets ............................................ $ 33,777
========
Due to St. Lucie West ...................................... $ 1,421
Due to BankAtantic ......................................... 9,327
Other liabilities .......................................... 9,007
--------
Total Liabilities ....................................... 19,755
BDC equity ................................................. 7,281
Other partner equity ....................................... 6,741
--------
Equity .................................................. 14,022
--------
Total Liabilities and Equity ............................... $ 33,777
========
Statement of Operations for the year ended December 31, 1998
Revenues ................................................... $ 253
Selling, general and administrative expenses ............... 609
--------
Net loss ................................................... $ (356)
========
Company's share of net loss ................................ $ (257)
========
22. SUBSEQUENT EVENTS AND OTHER INFORMATION (UNAUDITED)
The Company previously announced that it is considering alternatives
relating to its 100% ownership of its real estate operations conducted through
BDC, including a possible spin-off of BDC to the Company's shareholders. The
alternatives include a full or partial spin-off to shareholders, a public
offering for all or a portion of such operations or continued total ownership
and operation. Any partial or total disposition would be subject to regulatory
approval and the structure of the transaction could also be impacted by income
tax considerations. As of December 31, 1998, the Company's investment in BDC
amounted to $43 million and included SLW and six joint ventures. Such investment
is currently excluded for purposes of BankAtlantic's regulatory capital. The
impact to the Company of any type of disposition of BDC is dependent upon the
consideration to be received by the Company for such disposition. Any form of
disposition which results in consideration to the Company or BankAtlantic of
less than the value of its investment in BDC could negatively impact the Company
and BankAtlantic's financial condition and results of operations. However, as
discussed elsewhere herein, there are significant risks associated with real
estate development activities and there is no assurance that the Company's
continued involvement in these activities will positively contribute to the
Company's or BankAtlantic's financial condition or results of operations.
Alan B. Levan serves as the Chairman, Chief Executive Officer and
President of BankAtlantic, the Company and BFC. John E. Abdo is the Vice
Chairman of BankAtlantic, the Company, and BFC and also President and Chief
Executive Officer of St. Lucie West Holding Corp., a wholly owned subsidiary of
BankAtlantic Development Corporation and President of BankAtlantic Development
Corporation, a wholly owned subsidiary of BankAtlantic.
On February 26, 1999 the Compensation Committee approved the
BankAtlantic Bancorp 1999 Non-qualified Stock Option Plan ("1999 Plan")
authorizing the issuance of options to acquire 750,000 shares of the Company's
Class A common stock. Employee stock options vest at the discretion of the
Compensation Committee. The plan expires ten years from the date of adoption
while outstanding options could be exercised ten years after their grant date.
On March 2, 1999, the Compensation
F-85
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Committee approved the issuance of 500 options to every employee of the Company
other than executive management or members of the Board of Directors.
23. SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information". This
standard establishes standards for reporting information about operating
segments and related disclosures about products and services. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is regularly reviewed by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Reportable segments consist of one or more operating segments with
similar economic characteristics, products and services, production processes,
type of customer, distribution system and regulatory environment. The
information provided for Segment Reporting is based on internal reports utilized
by management. Interest expense and certain revenue and expense items are
allocated to the various segments as interest expense and overhead. The
presentation and allocation of interest expense and overhead and the net
contribution calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating
segments into reportable segments:
<TABLE>
<CAPTION>
REPORTABLE SEGMENT OPERATING SEGMENTS AGGREGATED
- - ------------------ -----------------------------
<S> <C>
Bank Investment Operations-Other Investment Division, Tax Certificate Department, Government Trading,
Equity Portfolio
Bank Investment Operations-Wholesale
Residential Real Estate Capital Services, Capital Markets
Bank Loan Operations-Commercial Commercial Lending, Syndications, BA Factors, Inc.
Bank Loan Operations-Retail Residential Lending, CRA Lending, BankAtlantic Mortgage,
Indirect and Direct Consumer Lending, Small Business
Lending, International and Trade Finance, Lease financing
Real Estate Operations BankAtlantic Development Corp. (includes SLW and real estate
joint ventures)
Investment Banking Operations Ryan, Beck & Co.
</TABLE>
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead.
F-86
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company evaluates segment performance based on net contribution
after tax. The table below is segment information for continuing operations the
three years ended December 31, 1998:
<TABLE>
<CAPTION>
BANK INVESTMENT BANK LOAN
OPERATIONS OPERATIONS
-------------------------- -----------------------
INVESTMENT
WHOLESALE COM- REAL ESTATE BANKING SEGMENT
(in thousands) OTHER RESIDENTIAL MERCIAL RETAIL OPERATIONS OPERATIONS TOTAL
---------- ----------- --------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Interest income ............ $ 45,528 $ 92,118 $ 58,526 $ 57,329 $ 0 $ 637 $ 254,138
Interest expense and ....... (43,964) (80,996) (39,084) (39,564) (496) (596) (204,700)
overhead
Provision for loan losses .. 0 (712) (3,758) (17,318) 0 0 (21,788)
Non-interest income ........ 1,953 1,036 1,309 6,361 6,965 17,092 34,716
Depreciation and ........... (28) (4,287) 135 (367) 0 (1,873) (6,420)
amortization
Segment profits before taxes 722 10,563 13,172 (9,059) 1,473 (159) 16,712
Provision for income taxes . 274 4,014 5,006 (3,437) 560 109 6,526
Segment net income ......... $ 448 $ 6,549 $ 8,166 $ (5,622) $ 913 $ (268) $ 10,186
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 696,617 $ 1,411,577 $ 711,001 $ 540,743 $ 35,791 $ 38,840 $ 3,434,569
========= =========== ========= ========= ======== ======== ===========
Equity method investments
included in total assets .. $ 20,758 $ 0 $ 0 $ 0 $ 7,281 $ 2,000 $ 30,039
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 36 $ 0 $ 21 $ 251 $ 0 $ 43 $ 351
========= =========== ========= ========= ======== ======== ===========
DECEMBER 31, 1997
Interest income ............ $ 39,006 $ 46,477 $ 58,915 $ 66,156 $ 0 $ 0 $ 210,554
Interest expense and ....... (36,449) (36,248) (37,045) (46,693) (20) 0 (156,455)
overhead
Provision for loan losses .. 0 (241) 165 (11,192) 0 0 (11,268)
Non-interest income ........ 7,353 109 1,259 7,792 781 0 17,294
Depreciation and ........... (63) (1,759) (445) (159) 0 0 (2,426)
amortization
Segment profits before taxes 6,318 7,906 19,274 5,351 44 13 38,906
Provision for income taxes . 2,473 3,102 7,563 2,088 17 5 15,248
Segment net income ......... $ 3,845 $ 4,804 $ 11,711 $ 3,263 $ 27 $ 8 $ 23,658
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 846,345 $ 825,652 $ 617,469 $ 520,943 $ 24,156 $ 1,805 $ 2,836,370
========= =========== ========= ========= ======== ======== ===========
Equity method investments
included in total assets . $ 0 $ 0 $ 0 $ 0 $ 1,200 $ 249 $ 1,449
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 66 $ 9 $ 12 $ 278 $ 0 $ 0 $ 365
========= =========== ========= ========= ======== ======== ===========
DECEMBER 31, 1996
Interest income ............ $ 46,400 $ 12,216 $ 50,220 $ 43,795 $ 0 $ 0 $ 152,631
Interest expense and ....... (43,679) (10,360) (30,146) (33,581) 0 0 (117,766)
overhead
Provision for loan losses .. 0 (459) 2,442 (7,827) 0 0 (5,844)
Non-interest income ........ 6,021 0 809 810 0 0 7,640
Depreciation and ........... (7) (539) 1,327 67 0 0 848
amortization
Segment profits before taxes 6,126 1,034 21,892 (33) 0 0 29,019
Provision for income taxes . 2,328 393 8,319 340 0 0 11,380
Segment net income ......... $ 3,798 $ 641 $ 13,573 $ (373) $ 0 $ 0 $ 17,639
========= =========== ========= ========= ======== ======== ===========
Segment total assets ....... $ 515,519 $ 480,806 $ 572,057 $ 747,866 $ 0 $ 0 $ 2,316,248
========= =========== ========= ========= ======== ======== ===========
Expenditures for segment
assets ................... $ 38 $ 16 $ 17 $ 359 $ 0 $ 0 $ 430
========= =========== ========= ========= ======== ======== ===========
</TABLE>
F-87
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The difference between segment total assets, net contribution, and
non-interest income and consolidated assets, and noninterest income are as
follows:
<TABLE>
<CAPTION>
(in thousands) FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
TOTAL ASSETS
Total assets for reportable segments ............. $ 3,434,569 $2,836,370 $2,316,248
Assets in discontinued operations ................ 49,600 45,493 23,848
Assets in overhead ............................... 304,806 182,617 265,431
----------- ---------- ----------
Total consolidated assets ........................ $ 3,788,975 $3,064,480 $2,605,527
=========== ========== ==========
NONINTEREST INCOME
Total non-interest income for reportable segments $ 34,716 $ 17,294 $ 7,640
Items included in interest expense and overhead:
Transaction fee income .......................... 12,589 9,302 8,600
ATM fees ........................................ 6,650 5,329 3,944
Gains (losses) on sales of property and equipment (11) 852 3,061
Other deposit related fees ...................... 2,936 589 3,573
----------- ---------- ----------
Total consolidated non-interest income ........... $ 56,880 $ 33,366 $ 26,818
=========== ========== ==========
</TABLE>
Depreciation and amortization consist of: depreciation on property and
equipment, amortization of premiums and discounts on loans and investments,
amortization of cost over fair value of net assets acquired, and amortization of
the retention pool.
F-88
<PAGE>
<PAGE>
================================================================================
We have not authorized any person to give any information or to make any
representations in connection with these offerings other than those contained in
this prospectus and, you must not rely on any such information and
representations must not be relied upon as having been authorized by us or the
underwriter. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in our affairs since the date of this prospectus or that the information
contained in this prospectus is correct as of any time subsequent to the date of
this prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the registered
securities to which it relates. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy such securities in any circumstances
in which such offer or solicitation is unlawful.
----------
TABLE OF CONTENTS
PAGE
----
Summary................................................................ 1
Risk Factors........................................................... 7
Forwarding Looking Statments and Associated Risks...................... 18
Use of Proceeds........................................................ 18
Price Range for Common Stock and Dividends............................. 18
Market for the Subordinated Debentures................................. 20
Capitalization......................................................... 21
Selected Historical Financial Data..................................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 25
Business............................................................... 40
Management............................................................. 45
Certain Relationships and Related Transactions......................... 48
Security Ownership of Certain Beneficial Owners and
Management.......................................................... 49
Description of Capital Stock........................................... 50
Description of the Subordinated Debentures............................. 53
Underwriting........................................................... 58
Legal Matters.......................................................... 59
Experts................................................................ 59
Index to Financial Statements and Schedule............................. F-1
----------------------------------------------
$15,000,000 ___% SUBORDINATED DEBENTURES DUE 2010
AND
1,000,000 SHARES CLASS A COMMON STOCK (NON-VOTING)
OF
BFC FINANCIAL CORPORATION
----------------------------------------------
----------------
PROSPECTUS
----------------
----------------
___________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering are as follows:
SEC Registration Fee..........................................$ 7,034
NASD Filing Fee...............................................$
Legal Fees and Expenses*......................................$
Accounting Fees and Expenses*.................................$
Printing Expenses*............................................$
Blue Sky Qualification Fees and Expenses......................$
Transfer Agent, Registrar and Trustee Fees and Expenses.......$
Miscellaneous Expenses........................................$
Total*........................................................$
========
- -----------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida
Act") provides that a director is not personally liable for monetary damages to
the corporation or any person for any statement, vote, decision or failure to
act regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes: (i) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a circumstance under
which the director is liable for an improper distribution; (iv) in a proceeding
by, or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interests of
the corporation, or willful misconduct; or (v) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety or
property.
Section 607.0850 of the Florida Act provides that a corporation shall
have the power to indemnify any person who was or is a party to any proceeding
(other than an action by, or in the right of, the corporation), by reason of the
fact that he is or was a director, officer, or employee or agent of the
corporation against liability incurred in connection with such proceeding if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 607.0850 also provides that a corporation shall have the
power to indemnify any person, who was or is a party to any proceeding by, or in
the right of, the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Under Section 607.0850, indemnification is authorized if such person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification may be
made in respect of any claim, issue, or matter as to which such person is
adjudged to be liable unless, and only to the extent that, the court in which
such proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability, but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court deems proper. To the
extent that a director, officer, employee or agent has been successful on the
merits or otherwise in defense of any of the foregoing proceedings, or in
defense of any claim, issue or matter therein Section 607.0850 provides that, he
shall be indemnified against expenses actually and reasonably incurred by him in
connection therewith. Under Section 607.0850, any indemnification, unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that the indemnification of
the director, officer, employee or agent is proper under the circumstances
because he has met the applicable standard of conduct. Notwithstanding the
failure of a corporation to provide indemnification, and despite any contrary
determination by the corporation in a specific case, Section 607.0850 permits a
director, officer, employee or agent of the corporation who is or was a party to
a proceeding to apply for indemnification to the appropriate court and such
court may order indemnification if it determines that such person is entitled to
indemnification under the applicable standard.
II-1
<PAGE>
Section 607.0850 also provides that a corporation has the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of Section 607.0850.
BFC Financial Corporation's bylaws provide that it shall indemnify its
officers and directors and former officers and directors to the full extent
permitted by law.
BFC Financial Corporation's directors and officers are covered by
insurance policies indemnifying them against certain liabilities, including
liabilities under the federal securities laws (other than liability under
Section 16(b) of the Securities Exchange Act of 1934), which might be incurred
by them in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS
The following exhibits were previously filed or are either filed
herewith or incorporated by reference to documents filed herewith as indicated
below:
EXHIBITS DESCRIPTION
- -------- -----------
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of BFC
Financial Corporation (incorporated by reference to Exhibit
3.1 of the Registrant's Registration Statement on Form 8-A
filed October 16, 1997).
3.2 Bylaws of BFC Financial Corporation (incorporated by reference
to Exhibit 3.2 of the Registrant's Registration Statement on
Form 8-A filed October 16, 1997).
4.1 Form of Indenture between BFC Financial Corporation and U.S.
Bank Trust National Association, as Trustee, with respect to
the ___% Subordinated Debentures.*
4.2 Specimen Subordinated Debenture (included as an exhibit to the
Indenture filed as Exhibit 4.2).*
5 Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. regarding the validity of the issuance of the
Subordinated Debentures and the Class A Common Stock of BFC
Financial Corporation being registered hereby.*
10 BFC Financial Corporation Stock Option Plan (incorporated by
reference to Exhibit A to the Registrant's Definitive Proxy
Statement filed September 27, 1997).
12 Statement regarding computation of earnings to fixed charges
(incorporated by reference to Exhibit 12 of the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998, filed on March 30, 1999).
21 Subsidiaries of BFC Financial Corporation (incorporated by
reference to Exhibit 21 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998, filed on March
30, 1999).
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A.*
23.2 Consent of KPMG LLP.
24 Power of Attorney.**
25 Form T-1: Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture.**
- --------------------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective.
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<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BFC
Financial Corporation has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on the 11th day of May, 1999.
BFC FINANCIAL CORPORATION
By: /s/ ALAN B. LEVAN
-----------------------------
Alan B. Levan,
President and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ ALAN B. LEVAN President, Chief Executive May 11, 1999
- ------------------------------- Officer and Chairman of
Alan B. Levan the Board
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/s/ GLEN R. GILBERT Executive Vice President, May 11, 1999
- ------------------------------- Chief Financial Officer,
Glen R. Gilbert and Secretary
* Director, Vice Chairman May 11, 1999
- ------------------------------- of the Board
John E. Abdo
* Director May 11, 1999
- -------------------------------
Carl E.B. McKenry, Jr.
* Director May 11, 1999
- -------------------------------
Earl Pertnoy
*By: /s/ ALAN B. LEVAN May 11, 1999
------------------------
Alan B. Levan,
Attorney-in-fact
</TABLE>
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
23.2 Consent of KPMG LLP
Exhibit 23.2
Accountants' Consent
The Board of Directors
BFC Financial Corporation
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Ft. Lauderdale, FL
May 10, 1999
