SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1999
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
----------------------- ---------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
--------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding for each of the Registrant's classes
of common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,454,494 shares outstanding.
Class B Common Stock of $.01 par value, 2,354,907 shares outstanding.
<PAGE>
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of June 30,
1999 and December 31, 1998 - Unaudited
Consolidated Statements of Operations for the six and three month
periods ended June 30, 1999 and 1998 - Unaudited
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the six months ended June 30, 1999 and 1998 -
Unaudited
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 1999 and December 31, 1998
(in thousands, except share data)
(Unaudited)
Assets
1999 1998
---- ----
Cash and cash equivalents $ 3,711 2,523
Securities available for sale 1,931 450
Investment in BankAtlantic Bancorp, Inc. ("BBC") 75,078 74,565
Mortgage notes and related receivables, net 1,536 1,740
Investment real estate, net 6,007 6,172
Real estate held for development and sale 2,852 1,811
Other assets 4,308 3,996
-------- --------
Total assets $ 95,423 91,257
======== ========
Liabilities and Stockholders' Equity
Subordinated debentures, net 1,455 1,452
Deferred interest on the subordinated debentures 2,457 2,217
Mortgage payables and other borrowings 13,153 10,784
Other liabilities 5,856 5,967
Deferred income taxes 13,818 13,206
-------- --------
Total liabilities 36,739 33,626
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
6,454,494 in 1999 and 6,453,994 in 1998 58 58
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,354,907 in 1999 and 2,355,407 in 1998 21 21
Additional paid-in capital 25,893 26,095
Retained earnings 34,523 30,660
-------- --------
Total stockholders' equity before
accumulated other comprehensive income 60,495 56,834
Accumulated other comprehensive income-
net unrealized appreciation (depreciation) on securities
available for sale, net of deferred income taxes (1,811) 797
-------- --------
Total stockholders' equity 58,684 57,631
-------- --------
Total liabilities and stockholders' equity $ 95,423 91,257
======== ========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations For the six
and three month periods ended June 30, 1999 and 1998
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Interest on mortgage notes and
related receivables $ 173 106 60 53
Interest and dividends on securities
available for sale and escrow accounts 107 129 51 58
Earnings on real estate rental operations, net 587 406 265 165
Sale of real estate 1,072 3,717 243 3,717
Earnings from real estate limited partnerships 847 -- 87 --
Equity in earnings of BBC 5,926 4,459 3,181 2,404
Other income 168 14 166 3
------- ------- ------- -------
Total revenues 8,880 8,831 4,053 6,400
------- ------- ------- -------
Costs and expenses:
Interest on subordinated debentures 247 258 125 130
Interest on mortgages payable
and other borrowings 479 858 240 406
Cost of sale of real estate 748 2,380 169 2,380
Allowance for loss on mortgage notes 150 -- 75 --
Write-down of investment -- 184 -- 184
Expenses (income) related to real estate held
for development and sale, net (12) 71 (1) 30
Employee compensation and benefits 589 566 290 278
Occupancy and equipment 30 21 14 11
General and administrative, net 395 436 183 226
------- ------- ------- -------
Total cost and expenses 2,626 4,774 1,095 3,645
------- ------- ------- -------
Income before income taxes and
extraordinary items 6,254 4,057 2,958 2,755
Provision for income taxes 2,391 1,313 1,015 1,002
------- ------- ------- -------
Income before extraordinary items 3,863 2,744 1,943 1,753
Extraordinary items:
Gain from extinguishment of debt,
net of income taxes of $10,000 for the six
and three months ended June 30, 1998 -- 17 -- 17
------- ------- ------- -------
Net income $ 3,863 2,761 1,943 1,770
======= ======= ======= =======
Basic earnings per share $ 0.49 0.35 0.24 0.22
======= ======= ======= =======
Diluted earnings per share $ 0.43 0.30 0.22 0.19
======= ======= ======= =======
Basic weighted average shares outstanding 7,957 7,950 7,957 7,952
======= ======= ======= =======
Diluted weighted average shares outstanding 8,894 9,210 8,853 9,161
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the six months ended June 30, 1999 and 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net
unrealized
appreciation
Addi- (depreciation)
Compre- Class A Class B tional on securities
hensive Common Common Paid-in Retained available
income Stock Stock Capital Earnings for sale Total
------ ----- ----- ------- -------- -------- -----
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 $ 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 2,761 -- -- -- 2,761 -- 2,761
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 72 -- -- -- -- -- --
Reclassification adjustment
for gains and losses included
in net income (248) -- -- -- -- -- --
-------
Other comprehensive loss (176) -- -- -- -- -- --
-------
Comprehensive income $ 2,585 -- -- -- -- -- --
=======
Net effect of BBC
capital transactions, net of
deferred income taxes -- -- 2,582 -- -- 2,582
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (176) (176)
Exercise of stock options -- -- 34 -- -- 34
------- ------- ------- ------- ------- -------
Balance, June 30, 1998 $ 58 21 26,141 33,041 82 59,343
======= ======= ======= ======= ======= =======
Balance,
December 31, 1998 $ 58 21 26,095 30,660 797 57,631
Comprehensive income
Net income $ 3,863 -- -- -- 3,863 -- 3,863
Other comprehensive income,
net of tax:
Unrealized losses on securities
available for sale (2,854) -- -- -- -- -- --
Reclassification adjustment
for gains and (losses) included
in net income 246 -- -- -- -- -- --
-------
Other comprehensive loss (2,608) -- -- -- -- -- --
-------
Comprehensive income $ 1,255 -- -- -- -- -- --
=======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- (202) -- -- (202)
Change in BBC net unrealized
depreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (2,755) (2,755)
BFC's net unrealized appreciation
on securities available for sale-net
of deferred income taxes -- -- -- -- 147 147
------- ------- ------- ------- ------- -------
Balance, June 30, 1999 $ 58 21 25,893 34,523 (1,811) 58,684
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
June 30,
1999 1998
---- ----
Operating activities:
Net income before extraordinary items $ 3,863 2,744
Adjustments to reconcile net income
to net cash (used in) operating activities:
Equity in earnings of BBC (5,926) (4,459)
Depreciation 250 320
Expenses (income) related to real estate held for
development and sale, net (12) 71
Earnings from real estate limited partnership (847) --
Provision for income taxes 2,391 1,313
Allowance for loss on mortgage notes 150 --
Amortization on subordinated debentures 5 5
Accretion of discount on loans receivable (17) (22)
Increase in real estate development
and construction costs (1,765) (1,075)
Gain on sale of real estate, net (324) (1,337)
Proceeds from escrow for called debenture liability -- 2,161
Increase in deferred interest on the
subordinated debentures 242 252
Accrued interest income on escrow accounts (62) (66)
Increase in other liabilities 27 11
Increase in other assets (415) (97)
------- -------
Net cash (used in) operating activities (2,440) (179)
------- -------
Investing activities:
Distributions from real estate
limited partnerships 847 --
Common stock dividends received from BBC 606 581
Purchase of securities available for sale (1,250) (4,827)
Proceeds from redemption and maturities
of securities available for sale 8 5,390
Principal reduction on mortgage notes and
related receivables, net 71 90
Decrease in real estate
held for development and sale 1,031 3,239
Improvements to investment real estate (94) (83)
Other 40 --
------- -------
Net cash provided by investing activities 1,259 4,390
------- -------
Financing activities:
Issuance of common stock -- 18
Borrowings 2,500 --
Repayments of borrowings (131) (3,749)
------- -------
Net cash provided by (used in) financing activities 2,369 (3,731)
------- -------
Increase in cash and cash equivalents 1,188 480
Cash and cash equivalents at beginning of period 2,523 604
------- -------
Cash and cash equivalents at end of period $ 3,711 1,084
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
June 30, 1999
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by BFC Financial Corporation (the "Company" or "BFC") in accordance with the
accounting policies described in its 1998 Annual Report and should be read in
conjunction with the notes to the consolidated financial statements which appear
in that report.
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Company's unaudited
consolidated statements of financial condition at June 30, 1999 and December 31,
1998, the unaudited consolidated statements of operations for the six and three
month periods ended June 30, 1999 and 1998, the unaudited consolidated
statements of stockholders' equity and comprehensive income for the six months
ended June 30, 1999 and 1998 and the unaudited consolidated statements of cash
flows for the six months ended June 30, 1999 and 1998. Such adjustments
consisted only of normal recurring items. The unaudited consolidated financial
statements and related notes are presented as permitted by Form 10-Q and should
be read in conjunction with the notes to consolidated financial statements
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Certain prior year balances have been reclassified to conform
with the 1999 presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
A reconciliation of the carrying value in BankAtlantic Bancorp, Inc. ("BBC") to
BBC stockholders' equity at June 30, 1999 and December 31, 1998 is as follows
(dollars in thousands):
June 30, December 31,
1999 1998
---- ----
BBC stockholders' equity $ 236,588 240,440
Ownership percentage 31.9% 31.3%
--------- ---------
75,519 75,340
Purchase accounting adjustments (441) (775)
--------- ---------
Investment in BBC $ 75,078 74,565
========= =========
At June 30, 1999, the Company owned 6,578,671 shares of BBC Class A Common Stock
and 4,876,124 shares of BBC Class B Common Stock representing 31.92% of all
outstanding BBC Common Stock. At June 30, 1999, the Company's ownership of BBC
Class A and Class B Common Stock was approximately 26% and 47%, respectively.
The aggregate market value of the Company's investment in BBC at June 30, 1999
was approximately $87.3 million or approximately $12.2 million in excess of the
carrying value in the financial statements.
On July 21, 1999 BBC's Board of Directors approved a 15% common stock dividend,
payable in Class A common stock to both Class A and Class B common shareholders
of record at the close of business on August 16, 1999. The distribution date of
this common stock dividend is August 26, 1999. In this Form 10Q, the Company's
Class A Common Stock in BBC have not been restated to reflect the 15% common
stock dividend.
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. 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 restricted shares of Class A Common
Stock, which will vest four years from the date of grant to employees who remain
throughout the entire period. BFC's ownership percentage of BBC as of June 30,
1999 assumes that the 557,446 shares of restricted Class A Common Stock is not
outstanding.
On July 14, 1999, BBC's Board of Directors approved the repurchase on the open
market of up to $3.5 million shares of BBC's common stock. The BBC's Board
authorized the repurchase of common stock on a "time-to-time" basis, depending
upon market conditions and subject to compliance with applicable securities
laws.
On April 6, 1999, BBC's Board of Directors granted, pursuant to the BankAtlantic
Bancorp 1996 stock option plan, incentive stock options and nonqualifying stock
options to purchase 361,458 shares and 145,792 shares, respectively, of Class A
common stock with an exercise price of $7.125 to all officers of BankAtlantic.
The options vest in five years and expire ten years after the grant date.
Additionally, on April 6, 1999, BBC's Board of Directors granted nonqualifying
stock options to purchase 10,000 shares of Class A common stock to employees of
the Abdo Companies and nonqualifying stock options to purchase 20,000 shares of
Class A common stock to outside Directors. The options vested on the grant date
and expire ten years from the date of grant.
On April 6, 1999, BBC's Board of Directors granted, pursuant to the BankAtlantic
Bancorp 1999 nonqualifying stock option plan, nonqualifying stock options to
purchase 26,000 shares of Class A common stock with an exercise price of $7.125
to selected employees of BankAtlantic. The options vest in five years and expire
ten years after the grant date.
On April 6, 1999, the Board of Directors granted, pursuant to the BankAtlantic
Bancorp 1998 stock option plan, incentive stock options and nonqualifying stock
options to purchase 190,035 shares and 15,965 shares of Class A common stock
with an exercise price of $7.125 to certain employees of RBCO. The options vest
in five years and expire ten years after the grant date.
On June 28, 1999, RBCO acquired the assets of Southeast Research Partners, Inc.
for consideration consisting of 137,344 shares of restricted Class A common
stock and $875,000 of cash. BBC also accrued $57,000 of acquisition costs. The
assets of Southeast Research Partners primarily consisted of fixed assets with a
fair value of $160,000. The goodwill from the acquisition, approximately $1.7
million, is tax deductible and will be amortized over its estimated useful life
of 15 years. Furthermore, pursuant to the Southeast Research Partners
acquisition agreement 41,950 shares of restricted Class A common stock were
placed in an incentive retention pool for the benefit of certain employees of
Southeast Research Partners. The restricted stock has a three year vesting
period from the date of acquisition. All the restricted shares issued in
connection with the acquisition were issued under the BankAtlantic Bancorp -
Ryan Beck restricted stock incentive plan. Also, pursuant to the acquisition
agreement, certain employees of Southeast Research Partners, as employees of
RBCO, received options under the BankAtlantic Bancorp 1998 stock option plan to
purchase 35,000 shares of Class A common stock with an exercise price of $7.25.
The options vest in five years and expire ten years from the date of grant.
Southeast Research Partners will be operated as a division of RBCO.
The exercise price for all of BBC's above option grants was equal to the market
value of BBC's underlying common stock at the date of the grant.
On June 1, 1999, pursuant to the February 1998 acquisition agreement pursuant to
which RBCO acquired Cumberland Advisors, BBC issued 35,625 shares of Class A
common stock and made a cash payment of $266,000 to the former Cumberland
Advisor partners. The Class A common stock is subject to restrictions
prohibiting transfers for two years.
Pursuant to previously announced plans, during the six months ended June 30,
1999, BBC paid $8.4 million to repurchase and retire 999,700 shares of its Class
A Common Stock, none of which were purchased by BFC.
3. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at June 30, 1999 and December
31, 1998 was as follows (in
thousands):
June 30, December 31,
1999 1998
---- ----
Investment in Mars, Inc. 593 343
Investment in Coin Wash Holdings, Inc. 1,000 --
Other 338 107
------ ------
$1,931 450
====== ======
At June 30, 1999 and December 31, 1998, the market value of other securities
available for sale approximated book value. Mars, Inc. and Coin Wash Holdings,
Inc. are not public companies and therefore there is not a quoted market value
for these investments. They are carried at the Company's cost therein which
should approximate their market value.
The Company has provided and intends to provide in the future venture capital to
companies in the early stages of their development. In connection therewith,
through June 30, 1999 investments have been made in the following entities:
o Mars, Inc., is the nation's third-largest musical-instrument retailer,
with stores in 10 states. Mars plans to have 34 stores open by the end
of 1999, and 50 stores open by the end of the year 2000. The typical
store is 38,000 square feet of space devoted to selling over 200,000
brand name products, a learning center, individual demo rooms, a fully
operational stage, instrument service and repair centers and a
recording studio, as well as educational and community outreach
programs.
o Coin Wash Holdings, Inc. (Laundromax), is rolling out a national chain
of laundromat and dry cleaning superstores with the long-term objective
of becoming a dominant provider of laundry services in the United
States.
In July 1999, the Company made additional investments in two other companies:
o Flexion Systems is developing new products and services that integrate
voice and data communications, aimed at the rapidly growing small
business sector. Flexion will develop a complete portfolio of hardware,
software and services that will add recognizable business benefits to
the end-user. The Company has made an investment of $1.5 million in
Flexion.
o nCipher Corporation Ltd. develops secure hardware solutions with a goal
of enabling the seamless application of cryptographic technologies for
server applications including web sites, electronic commerce and
digital certification. Its products include both software and hardware
for the application of cryptographic acceleration. nCipher's flagship
products, the nFast cryptographic accelerator provides a sophisticated
and secure key management environment. The Company has made an
investment of $1.7 million in nCipher.
The ownership of Mars was made directly by the Company and the ownership in the
other companies has been made through investments in limited liability companies
(LLC's) formed specifically for the purpose of owning the investments. The
Company will act as the manager for the LLC's.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the six months ended June 30, 1999 and 1998 were as follows (in
thousands):
June 30,
1999 1998
---- ----
Change in stockholders' equity
resulting from the Company's
proportionate share of BBC's
net unrealized appreciation
(depreciation) on securities
available for sale, net of
deferred income taxes (2,755) (176)
====== ======
Net effect of BBC capital transactions,
net of income taxes (202) 2,582
====== ======
Change in stockholders' equity resulting
from the Company's net unrealized
appreciation on securities available for
sale, net of deferred income taxes 147 --
====== ======
Transfers from escrow accounts to reflect
payments on the called debenture liability 149 200
====== ======
Allowance for loss on mortgage notes 150 --
====== ======
BBC's dividends on common stock
declared and received in subsequent period 303 291
====== ======
Increase in equity for the tax effect related to
the exercise of stock options -- 16
====== ======
Deferred profit recognized -- 316
====== ======
Net gain from extinguishment of debt,
net of income taxes -- 17
====== ======
Interest paid on borrowings 479 872
====== ======
5. OTHER ASSETS AND OTHER LIABILITIES
Included in other liabilities at June 30, 1999 and December 31, 1998 was
approximately $5.1 million and $5.3 million, respectively, of amounts associated
with settlement of litigation. Such amounts do not bear interest. Included in
other assets at June 30, 1999 and December 31, 1998 was approximately $2.7
million held in escrow accounts relating to payments associated with a portion
of the settlement. Payments are made when a claimant presents a subordinated
debenture that was cancelled upon settlement of the litigation. In January 2000,
any amounts remaining in escrow will be released to the Company and after that
date any payments would be paid directly by the Company.
6. BORROWINGS
At June 30, 1999, the Company had two revolving lines of credit. One is a $2.8
million line requiring only interest payments at prime plus 1%, an outstanding
balance of approximately $350,000 and a maturity date of September 1999. The
other was a $8.0 million line requiring only interest payments at prime plus 1%,
an outstanding balance of approximately $2.5 million and a maturity date of
February 2000.
7. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for the six and three month periods
ended June 30, 1999 and 1998 (in thousands, except per share data):
Six months ended Three months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
------ ------ ------ ------
Basic Numerator:
Net income available
for common shareholders $3,863 2,761 1,943 1,770
====== ====== ====== ======
Basic Denominator
Weighted average shares
outstanding 7,957 7,950 7,957 7,952
====== ====== ====== ======
Basic earnings per share $ .49 .35 .24 .22
====== ====== ====== ======
Diluted Numerator:
Dilutive net income available
to common shareholders $3,863 2,761 1,943 1,770
====== ====== ====== ======
Diluted Denominator
Basic weighted average shares
outstanding 7,957 7,950 7,957 7,952
Options 937 1,260 896 1,209
------ ------ ------ ------
Diluted weighted average shares
outstanding 8,894 9,210 8,853 9,161
====== ====== ====== ======
Diluted earnings per share $ .43 .30 .22 .19
====== ====== ====== ======
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.
<PAGE>
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
BFC Financial Corporation (the "Company" or "BFC") is a unitary savings bank
holding company which owns in the aggregate approximately 31.92% of the
outstanding BankAtlantic Bancorp, Inc. ("BBC") Common Stock. BBC is the holding
company for BankAtlantic, A Federal Savings Bank ("BankAtlantic") by virtue of
its ownership of 100% of the outstanding BankAtlantic Common Stock.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. When used in this report, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results could differ materially from
these forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, economic factors (both generally
and particularly in areas where the Company or its subsidiaries operate or hold
assets), year 2000 considerations, the Company's limited sources of funds,
regulatory limitations on the ability of BBC and BankAtlantic to pay dividends,
interest rate risks, credit risks, competitive and other factors affecting the
operations, markets, products and services, and expansion strategies of the
Company and its subsidiaries including BBC and BankAtlantic, the speculative
nature of the Company's real estate development activities, the speculative
nature of the Company's investments described in "Securities Available for Sale"
and the other factors discussed elsewhere in this report and in the documents
filed by the Company with the Securities and Exchange Commission.
Many of these factors are beyond the Company's control.
Results of Operations
The Company's basic and diluted earnings per share were $0.24 and $0.22 for the
quarter ended June 30, 1999, compared to basic and diluted earnings per share of
$0.22 and $0.19 for the comparable period in 1998.
The Company's basic and diluted earnings per share were $0.49 and $0.43 for the
six months ended June 30, 1999, compared to $0.35 and $0.30 for the comparable
period in 1998.
For the three months ended June 30, 1999, the Company reported net income of
approximately $1.9 million as compared to net income of approximately $1.8
million for the comparable period in 1998. Operations for the quarter ended June
30, 1998 included extraordinary gains of approximately $17,000 due to
extinguishment of debt.
For the six months ended June 30, 1999, the Company reported net income of
approximately $3.9 million as compared to net income of approximately $2.8
million for the comparable period in 1998. Operations for the six months ended
June 30, 1998 included extraordinary gains of approximately $17,000. The 1998
extraordinary gain, net of income taxes was due to extinguishment of debt.
Increases (decreases) in revenues for the six and three month periods ended June
30, 1999, as compared to the comparable periods in 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest on mortgage notes and
related receivables $ 173 106 67 60 53 7
Interest and dividends on securities
available for sale and escrow accounts 107 129 (22) 51 58 (7)
Earnings on real estate rental operations, net 587 406 181 265 165 100
Sale of real estate 1,072 3,717 (2,645) 243 3,717 (3,474)
Earnings from real estate limited partnership 847 -- 847 87 -- 87
Equity in earnings of BBC 5,926 4,459 1,467 3,181 2,404 777
Other income, net 168 14 154 166 3 163
------ ------ ------ ------ ------ ------
$8,880 8,831 49 4,053 6,400 (2,347)
====== ====== ====== ====== ====== ======
</TABLE>
Interest on mortgage notes and related receivables increased for the six and
three month periods ended June 30, 1999 as compared to the same periods in 1998
primarily due to the interest earned on advances associated with the Company's
development and construction of the Center Port property in Pompano Beach,
Florida. The interest recognized on the Center Port advances during the six and
three-month periods ended June 30, 1999 was approximately $96,000 and $22,000,
respectively, and none was recognized during the 1998 periods. This increase was
partially offset by a decrease in interest on mortgage notes receivables from an
affiliated limited partnership.
Interest and dividends on securities available for sale and escrow accounts
decreased for the six and three month periods ended June 30, 1999, as compared
with the same periods in 1998 primarily due to a decrease in yields of
investable funds and decreases in the average amount of investable funds.
Earnings on real estate rental operations, net increased for the six and three
month periods ended June 30, 1999 as compared to the same periods in 1998
primarily due to an increase in rental income and decreases in depreciation and
repair and maintenance expenses at the Company's Burlington Manufacturers Outlet
Center ("BMOC") property. The increase in rental income was primarily due to
rent received when a tenant cancelled a lease prior to its expiration.
During 1999, the Company sold approximately 5 acres of the Center Port property
to an unaffiliated third party for approximately $1.1 million. The Company
recognized a net gain from the sale of the real estate of approximately
$324,000. During 1998, the Company sold approximately 18 acres of the Center
Port property to unaffiliated third parties for approximately $3.4 million and
the company recognized a net gain from the sale of real estate of approximately
$1.0 million. In 1996, the Company sold a 50% interest in a property included in
investment real estate. Since the Company was the 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 $0.6 million was
deferred. During the quarter ended June 30, 1998, 50% of the deferred profit of
approximately $0.3 million was recognized upon refinancing the property's
mortgage note. The remaining deferred profit will be recognized when the
remaining interest in the property is sold.
During the six and three months ended June 30, 1999, the Company received a
distribution of approximately $501,000 and $87,000, respectively, from a real
estate limited partnership in which the Company holds an interest. The limited
partnership sold 30 of 34 convenience stores that it owned during the first
quarter of 1999. The limited Partnership sold another store in the second
quarter of 1999. The Company has a 49.5% interest in this partnership and had
written off its investment of approximately $441,000 in 1990 due to the
bankruptcy of the entity leasing the real estate. The $501,000 and $87,000 has
been included in earnings from real estate limited partnerships.
In March 1996, as part of the sale of the Company's Cypress Creek property in
Fort Lauderdale, Florida, the Company received a 4.5% limited partnership
interest in the partnership that acquired the property. In January 1999, the
Company received a distribution of approximately $259,000 from the liquidation
of this partnership. The $259,000 has been included in earnings from real estate
limited partnerships.
Other income increased for the six and three month periods ended June 30, 1999
as compared to the same periods in 1998 primarily due to proceeds received
relating to advances due from an affiliate which were written-off in prior
years.
BBC's net income available for common shareholders for the six and three month
periods ended June 30, 1999 and 1998 are summarized below (in thousands):
For the six months For the three months
ended June 30, ended June 30,
-------------- --------------
1999 1998 1999 1998
------- ------- ------- -------
Income from continuing operations $16,800 11,866 8,629 7,019
Income (loss) from discontinued
operations net of income taxes 801 (219) 801 (628)
------- ------- ------- -------
Net income $17,601 11,647 9,430 6,391
======= ======= ======= =======
The Company's equity in the earnings of BBC for the six and three month periods
ended June 30, 1999 and 1998 was approximately $5.9 million and $4.5 million,
respectively. The Company's equity in earnings of BBC for the quarter ended June
30, 1999 and 1998 was approximately $3.2 million and $2.4 million, respectively.
The increase in equity in earnings of BBC for the six and three month periods
ended June 30, 1999 as compared to the same periods in 1998 was primarily due to
an increase in earnings by BBC. BBC's net income from continuing operations
increased by 42% and 23% during the six and three month periods ended June 30,
1999 as compared to the same periods in 1998, respectively. The primary reasons
for the increase in BBC's income from continuing operations were related to the
following items:
1. an improvement in BBC's net interest income resulting from an increase
in interest earning assets and recognition of deferred interest income
on a loan accounted for as a joint venture during 1998,
2. BBC's higher transaction fee income resulting from changes made to the
pricing of BBC's deposit products,
3. BBC's additional ATM fees due to additional ATM machines added during
1998,
4. BBC's sale of a branch location for a $1.5 million gain,
5. BBC's sale of one parcel of previously foreclosed commercial real estate
for a $1.3 million gain,
6. BBC's decline in employee compensation from bank operations due to a
reduction of BBC's full time employees by approximately 201,
7. BBC's lower other expenses from BBC's bank operations caused by the
December 1998 restructuring, and
8. BBC's decline in advertising expense.
The above improvements in BBC's income from continuing operations were partially
offset by:
1. an increase in BBC's provision for loan losses resulting from small
business loan charge-offs,
2. BBC's lower trading securities and loans held for sale gains,
3. BBC's higher occupancy costs due to an expanded branch and ATM network,
4. BBC's lower gains from real estate sales and real estate joint venture
operations, and
5. a $3.1 million loss before taxes from RBCO
The increase in income from continuing operations during the six months ended
June 30, 1999 as compared to the same period in 1998 were also due to earnings
from BBC's real estate joint venture activities.
BBC's discontinued operations - BBC's income from its discontinued operations
for the three and six months ended June 30, 1999 was $801,000 compared to losses
of $628,000 and $219,000 net of income taxes, respectively for the same 1998
periods. Substantially all of BBC's mortgage servicing assets were sold during
the second quarter. BBC's income from discontinued operations resulted primarily
from slower loan repayments than originally estimated which were caused by
rising residential loan interest rates during the period. BBC's losses from
discontinued operations during 1998 resulted from accelerated amortization of
mortgage servicing rights reflecting prepayments of loans during the period and
higher operating expenses
The Company's ownership in BBC at June 30, 1999 and 1998 was 31.9% and 31.8%,
respectively, of all outstanding BBC Common Stock. The increase was primarily
due to a reduction in the outstanding shares of BBC's Common Stock, primarily
due to BBC's repurchases of its shares. The following table gives information
regarding the Company's ownership interest in BBC at the dates indicated:
BBC BBC
Class A Class B
Common Common Total
Stock Stock Outstanding
----- ----- -----------
June 30, 1998 25.7% 47.0% 31.8%
June 30, 1999 25.8% 47.0% 31.9%
Increases (decreases) in the Company's expenses for the six and three month
periods ended June 30, 1999, as compared to the comparable periods in 1998 were
as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended June 30, Three months ended June 30,
------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest on subordinated debentures $ 247 258 (11) 125 130 (5)
Interest on mortgages payable
and other borrowings 479 858 (379) 240 406 (166)
Cost of sale of real estate 748 2,380 (1,632) 169 2,380 (2,211)
Allowance for loss on mortgage notes 150 -- 150 75 -- 75
Write-down of investment -- 184 (184) -- 184 (184)
Expenses (income) related to real estate
held for development and sale, net (12) 71 (83) (1) 30 (31)
Employee compensation and benefits 589 566 23 290 278 12
Occupancy and equipment 30 21 9 14 11 3
General and administrative, net 395 436 (41) 183 226 (43)
------- ------- ------- ------- ------- -------
$ 2,626 4,774 (2,148) 1,095 3,645 (2,550)
======= ======= ======= ======= ======= =======
</TABLE>
Interest on mortgage payables and other borrowings decreased for the six and
three month periods ended June 30, 1999 as compared to the same periods in 1998
primarily due to a reduction in borrowings.
The Company recorded an allowance for loss on mortgage notes due from affiliated
limited partnerships of approximately $75,000 for each of the quarters ended
June 30, 1999 and March 31, 1999. This allowance for mortgage notes was based
upon management's determination regarding the net carrying value of the loans
and the estimated fair value of the underlying loan collateral.
Expenses (income) related to real estate held for development and sale decreased
for the six and three month periods ended June 30, 1999 as compared to the same
periods in 1998 primarily due to decreased property taxes, association fees and
administrative expenses and an increase in rental income.
Employee compensation and benefits increased for the six and three month periods
ended June 30, 1999 as compared to the same periods in 1998 primarily due to an
increase in personnel and employee's profit sharing plan accrual contribution.
General and administrative, net decrease for the six months ended June 30, 1999
as compared to the same periods in 1998 primarily due to a decrease in leasing
fees and intangible taxes.
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 June 30, 1999 and 1998 the Company's ownership in BBC was
approximately 31.9% and 31.8%, respectively, 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 is the Center
Port property, part of which is being developed and the remainder is being held
for sale. 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 debentures which were cancelled in connection
with the settlement of litigation.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies described in its 1998 Annual Report.
The Company evaluates segment performance based on its operating profit before
tax and overhead allocations. The tables below provide segment information for
the six and three month periods ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Real
Investment Estate
in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
For the six months ended June 30, 1999
<S> <C> <C> <C> <C> <C>
Total revenues $ 5,926 2,706 183 65 8,880
======== ===== ===== == ========
Operating profit $ 5,926 1,356 183 65 7,530
======== ===== ===== ==
General non-allocable expenses:
Interest on subordinated debentures (247)
Interest on mortgages payable
and other borrowings (15)
Employee compensation and benefits (589)
Occupancy and equipment (30)
General and administrative, net (395)
--------
Income before income taxes $ 6,254
========
Identifiable assets at June 30, 1999 $ 75,078 11,420 6,580 -- 93,078
Corporate assets 2,345
--------
Total assets at June 30, 1999 $ 95,423
========
</TABLE>
<TABLE>
<CAPTION>
Real
Investment Estate
in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
For the six months ended June 30, 1998
<S> <C> <C> <C> <C> <C>
Total revenues $ 4,459 4,159 143 70 8,831
======== ===== ===== == ========
Operating profit $ 4,459 754 143 70 5,426
======== ===== ===== ==
General non-allocable expenses:
Interest on subordinated debentures (258)
Interest on mortgages payable
and other borrowings (88)
Employee compensation and benefits (566)
Occupancy and equipment (21)
General and administrative, net (436)
--------
Income before income taxes $ 4,057
========
Identifiable assets at June 30, 1998 $ 80,090 14,863 4,228 -- 99,181
Corporate assets 951
--------
Total assets at June 30, 1998 $100,132
========
</TABLE>
<TABLE>
<CAPTION>
Real
Investment Estate
in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
For the three months ended June 30, 1999
<S> <C> <C> <C> <C> <C>
Total revenues $ 3,181 711 128 33 4,053
======== ===== ===== == ========
Operating profit $ 3,181 235 128 33 3,577
======== ===== ===== ==
General non-allocable expenses:
Interest on subordinated debentures (125)
Interest on mortgages payable
and other borrowings (7)
Employee compensation and benefits (290)
Occupancy and equipment (14)
General and administrative, net (183)
--------
Income before income taxes $ 2,958
========
Identifiable assets at June 30, 1999 $ 75,078 11,420 6,580 -- 93,078
Corporate assets 2,345
--------
Total assets at June 30, 1999 $ 95,423
========
</TABLE>
<TABLE>
<CAPTION>
Real
Investment Estate
in BBC Operations Other Eliminations Consolidated
------ ---------- ----- ------------ ------------
For the three months ended June 30, 1998
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,404 3,902 61 33 6,400
======== ===== ===== == ========
Operating profit $ 2,404 946 61 33 3,444
======== ===== ===== ==
General non-allocable expenses:
Interest on subordinated debentures (130)
Interest on mortgages payable
and other borrowings (44)
Employee compensation and benefits (278)
Occupancy and equipment (11)
General and administrative, net (226)
--------
Income before income taxes $ 2,755
========
Identifiable assets at June 30, 1998 $ 80,090 14,863 4,228 -- 99,181
Corporate assets 951
--------
Total assets at June 30, 1998 $100,132
========
</TABLE>
Financial Condition
The Company's total assets at June 30, 1999 and at December 31, 1998 were $95.4
million and $91.3 million, respectively. The majority of the difference at June
30, 1999 as compared to December 31, 1998 was due to increases in securities
available for sale, investment in BBC and real estate held for development and
sale and other assets.
Securities available for sale increased due to the $1.0 million investment in
Coin Wash Holdings, Inc. and an additional investment of $250,000 in Mars, Inc.
Subsequent to the end of the quarter, the Company invested $3.2 million in other
entities.
Real estate held for development and sale increased primarily due to advances
for development and construction costs. This increase in real estate held for
development and sale was offset in part with the sale of 5 acres of the
Company's Center Port property to unaffiliated third parties.
Investment in BBC increased by $513,000 due to equity in earnings of BBC of
approximately $5.9 million. This increase was offset in part by the net effect
of BBC capital transactions of approximately $481,000 and BBC's change in net
unrealized appreciation on securities available for sale of approximately $4.3
million and dividends of approximately $606,000.
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. The Company's primary
market risk is equity risk through its investment in BBC. The Company also bears
a market risk in the investments included in securities available for sale.
Equity Pricing Risk
The Company's primary equity investment is its investment in BBC. 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 the Company's financial
statements, however, a change in market price could likely have an impact on the
investment community's view of the Company. This investment was entered into for
purposes other than trading purposes. The following table shows changes in the
market value of the Company's investment in BBC at June 30, 1999 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% $ 104,777
10.00% 96,045
0.00% 87,314
(10.00)% 78,582
(20.00)% 69,851
BBC maintains a portfolio of trading and available for sale securities which
subjects BBC to equity pricing risks. The change in fair values of equity
securities represents instantaneous changes in all equity prices segregated by
trading securities, securities sold not yet purchased and available for sale
securities. The following are hypothetical changes in the fair value of BBC's
securities sold not yet purchased, trading and available for sale securities at
June 30, 1999 based on percentage changes in fair value. Actual future price
appreciation or depreciation may be different from the changes identified in the
table below.
Available Securities Total
Percent Trading for Sale Sold Not Dollar
Change in Securities Securities Yet Change from
Fair Value Fair Value Fair Value Purchased 0%
---------- ---------- ---------- --------- ---------
(dollars in thousands)
20 % $ 24,050 $ 33,750 $ (3,321) $ 10,464
10 % $ 22,046 $ 30,938 $ (3,736) $ 5,232
0 % $ 20,042 $ 28,125 $ (4,151) $ 0
(10) % $ 18,038 $ 25,313 $ (4,566) $ (5,232)
(20) % $ 16,034 $ 22,500 $ (4,981) $(10,464)
RBCO 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.
Management does not believe that market risk on the Company's other equity
instruments and investments would have a significant impact on the financial
condition of the Company.
Interest Rate Risk
The majority of BBC's assets and liabilities are monetary in nature subjecting
BBC to significant interest rate risk. During 1998, BBC began trading government
securities which are generally bought and sold on the same day. During the
second quarter of 1999 BBC's trading activities were expanded beyond trading in
government securities to trading in options and futures on Eurodollar time
deposits which expire in three months or less. Eurodollar time deposits are
indexed to the LIBOR. BBC has developed a model using vendor software to
quantify its interest rate risk. A sensitivity analysis was performed measuring
BBC's potential gains and losses in net portfolio fair values of interest rate
sensitive instruments at June 30, 1999 resulting from a change in interest
rates.
Interest rate sensitive instruments included in the model were BBC's:
o loan portfolio,
o debt securities available for sale,
o investment securities,
o FHLB stock,
o Federal Funds sold,
o deposits,
o advances from FHLB,
o securities sold under agreements to repurchase,
o Federal Funds purchased,
o Notes and Bonds payable
o Subordinated Debentures,
o Trust Preferred Securities,
o off-balance sheet loan commitments, and
o Eurodollar time deposit options and futures
BBC has no off-balance sheet derivatives other than fixed rate loan commitments
aggregating $13.5 million at June 30, 1999.
The model calculates the net potential gains and losses in net portfolio fair
value by:
(i) discounting anticipated cash flows from existing assets,
liabilities and off-balance sheet contracts at market
rates to determine fair values at June 30, 1999,
(ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to
determine fair values, and
(iii) the difference between the fair value calculated in (i)
and (ii) is the potential gains and loss in net portfolio
fair values.
BBC's management has made estimates of 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.
Presented below is an analysis of BBC's interest rate risk at June 30, 1999 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 $ 298,084 (42,090)
+100 bp 317,344 (22,830)
0 bp 340,174 0
(100) bp 362,490 22,316
(200) bp 339,333 (841)
In preparing the above BBC table, BBC makes various assumptions to determine the
net portfolio value at the assumed changes in interest rate. These assumptions
include:
o loan prepayment rates,
o deposit decay rates,
o market values of certain assets under the representative interest rate
scenarios, and
o 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.
Liquidity and Capital Resources
Pursuant to the terms of the applicable escrow agreements established to fund
payment of amounts associated with a settlement of litigation, at June 30, 1999,
approximately $2.7 million remained in escrow accounts to fund future payments.
Any amounts remaining in escrow in January 2000 will be released to the Company
and any future payments associated with these settlements will be paid from the
Company's working capital. Payments are made when a claimant presents a
subordinated debenture that was cancelled upon settlement of the litigation. At
June 30, 1999, there was approximately $5.1 million associated with these
settlements that could be presented for payment. The Company is not obligated to
pay interest on these amounts.
Pursuant to their terms, the Company may elect to defer interest payments on the
outstanding subordinated debentures if management of the Company determines in
its discretion that the payment of interest would impair the operations of the
Company. Items considered in the decision to defer the interest payment include,
among other items, the ability to identify which subordinated debentures are
held by Holders in Due Course and the Company's current operating expenses.
Since December 31, 1991, the Company has deferred interest payments on its
subordinated debentures.
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 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 the
Cypress Creek property, consisting of 23.7 acres of unimproved land. 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 was
included in cost of sale of real estate. As part of the sale of the Cypress
Creek property, the Company received a 4.5% limited partnership interest in the
partnership that acquired the property. In January 1999, the Company received a
distribution of approximately $259,000 from the liquidation of the partnership.
In December 1994, an entity controlled by the Company acquired from an
unaffiliated seller the Center Port property consisting of approximately 70
acres of unimproved land. Through June 30, 1999, 47 acres had been sold from the
Center Port property to unaffiliated third parties for approximately $12.8
million and the Company recognized net gains from the sale of real estate of
approximately $3.1 million. Included in cost of sales is approximately $2.2
million, representing the Abdo Group's profit participation from the
transactions. Payment of profit participation to the Abdo Group will be deferred
until the Company is repaid on advances and interest. The remainder of the
Center Port property is currently being marketed for sale.
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 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. The offerings may
be made only by means of a prospectus. There is no assurance that the
registration statement containing the prospectus will become effective or that
the offerings will be consummated.
As previously indicated the Company holds approximately 31.9% of all outstanding
BBC Common Stock. BBC has paid a regular quarterly dividend since its formation
and management of BBC has indicated that it currently anticipates that it will
pay regular quarterly cash dividends on the BBC Common Stock. The availability
of funds for the payment of dividends by BBC is dependent upon BankAtlantic's
ability to pay dividends to BBC. The Company's cash position and its ability to
meet its obligations will in part be dependent on the financial condition of BBC
and the payment by BBC of dividends to its shareholders, including the Company.
At June 30, 1999, the Company had available approximately $5.5 million on
revolving lines of credit.
At June 30, 1999, BankAtlantic's core, Tier 1 risk-based and total risk-based
capital ratios were 7.73%, 12.36% and 13.61%, respectively. Based on these
capital ratios, BankAtlantic meets the definition of a "well-capitalized"
institution.
Cash Flows
A summary of the Company's consolidated cash flows is as follows (in thousands):
Six months ended
June 30,
--------
Net cash provided (used) by: 1999 1998
------- -------
Operating activities $(2,440) (179)
Investing activities 1,259 4,390
Financing activities 2,369 (3,731)
------- -------
Increase in cash and cash equivalents $ 1,188 480
======= =======
The primary sources of funds to the Company for the six months ended June 30,
1999, were distributions from real estate limited partnerships, increase in
borrowings, principal reductions on loan receivables, revenues from property
operations, and dividends from BBC. These funds were primarily utilized to
reduce mortgage payables and other borrowings, to fund development and
construction costs at the Center Port property, to purchase securities available
for sale and to fund operating expenses and general and administrative expenses.
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.
The Company's computer system is composed of seven personal computers running on
a Windows NT network. The Company's 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 have indicated that their software is also year
2000 compliant. The spreadsheet and database applications utilized are the most
recent versions available from Microsoft. Accordingly, the Company does not
expect to expend material amounts to third parties to remediate any year 2000
problems. Should any of the above systems fail, the Company believes it would be
able to process its data and monitor its accounts through manual systems or
other alternative means. Additionally, the Company does not anticipate that it
will have any material expenditures with respect to real estate owned by the
Company.
BBC has undertaken various initiatives intended to ensure that 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
BBC's 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: (1) Awareness - Define the Year 2000 issues, gain executive
level support, establish a project team and develop a strategy which encompasses
technology and business issues, (2) Assessment - Assess the size and complexity
of the issues and detail the magnitude of the effort necessary to address them,
(3) Renovation - Code enhancements, hardware and software upgrades, and system
replacements, (4) Validation - Testing of software, system components and
connections between systems, (5) Implementation - Systems should be certified as
Year 2000 ready by the business users, and (6) Contingency planning -
determination of strategy to handle the most likely worst case scenarios on Year
2000 issues.
BBC has completed its action plan except that some validation and implementation
activities with respect to a limited number of non-critical systems and
processes will be completed in the third quarter.
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 including but not limited to, vault security
equipment, branch security equipment, telephone systems, circuit boards on
building equipment, building elevators, and appliances. While the above IT and
non-IT systems could fail or create erroneous results by or at the Year 2000,
BBC believes that all mission critical IT and non-IT systems are Year 2000
compliant. Further, BBC expects that the remaining non-mission critical
applications will be Year 2000 compliant by the third quarter of 1999.
BBC relies on third party vendors to perform loan, deposit, general ledger,
clearing agent functions and other application processing. BBC has monitored the
Year 2000 progress of its mission critical and non-mission critical vendors.
Most contracts with vendors signed after January 1998 have included warranties
regarding the Year 2000 compliance of such vendors' systems. However, while BBC
believes that these contractual provisions are enforceable, BBC is not relying
on the enforceability of the assurances but has instead established alternatives
in its contingency planning in the event Year 2000 issues arise. For those
contracts signed prior to January 1998, BBC has worked closely with vendors to
evaluate Year 2000 compliance. BBC sent out questionnaires to all of its vendors
and 62% of the total vendors responded and 100% of the mission critical vendors
responded. Thirty-three vendors have been identified as providing mission
critical systems, processes or services. All but one of the mission critical
vendors are believed to be Year 2000 compliant. The one vendor not compliant is
a governmental agency which provides software for regulatory reports filed with
such agency. BBC expects to receive an upgraded version of the reporting
software from the governmental agency later this year. The reporting requirement
can be satisfied by filing manual documents if the software is not compliant.
Although BBC expects all of its vendors to be Year 2000 compliant, BBC may
experience adverse consequences if any of its vendors or the services provided
by the vendors experience Year 2000 computer failures. Included in BBC's
Statement of Operations during the three and six months ended June 30, 1999 and
1998 were $19,000 and $67,000 and $35,000 and $36,000, respectively, 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
RBCO 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. Included in BBC's above Year 2000 expenses are
remediation expenses. Remediation expenses through June 30, 1999 were
approximately $25,000. BBC anticipates incurring approximately $50,000 of
additional remediation expenses during 1999.
Risk factors associated with the Year 2000 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 has assessed
the probability of these events and has formulated a contingency plan. BBC could
also be subjected to Year 2000 litigation from customers, borrowers and
suppliers as a result of both internal and third party system failures. 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 has determined that consumer and residential loans involve little or no Year
2000 risk, while small business loans and commercial loans have potential Year
2000 risk. BBC's underwriting and credit policies have been revised to now
include consideration of a borrower's potential Year 2000 issues. BBC's small
business and commercial lending departments have established specific Year 2000
credit policies, which are summarized below.
BBC's Small Business Loans - The individual dollar amount of these loans in this
category is low. Most loans are for less than $100,000. BBC has sent out Year
2000 questionnaires to all small business customers and received a 60% response
rate. Based on our review of the responses, BBC attempted to assess the Year
2000 risk of each borrower.
BBC's Commercial Loans - The majority of BBC's commercial loans are
collateralized by real estate, some of which involve land only, which mitigates
the Bank's risk for category of loan. BBC has sent out Year 2000 questionnaires
to all commercial loan customers and received a 54% response rate. The
Commercial Loan officers have had one-on-one meetings with each Borrower to
discuss Year 2000 issues. Based on the responses and the meetings, the officer's
categorized each loan as High, Medium or Low Year 2000 risk. High risk loans are
being monitored to determine the Borrower's progress towards Year 2000
compliance. Once achieved, the loan is moved to a lower risk category. There
have been no loans made in 1999 that are considered High Risk. Should
BankAtlantic decide to extend a credit to a High Risk Borrower, policies are in
place to mitigate the risk, such as protracted terms or charging a premium on
the loan's interest rate. There is no assurance that BBC's borrowers will be
able to meet their obligations to BBC if these borrowers experience Year 2000
problems.
Certain assets of BBC may have to be replaced, 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 issues 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1 through 5. - Not applicable.
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits:
27. Financial data schedule for the six months ended June 30, 1999.
b) No report on Form 8-K was filed during the three months ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC FINANCIAL CORPORATION
Date: August 6, 1999 By: /s/ Alan B. Levan
-----------------------------------------
Alan B. Levan, President
Date: August 6, 1999 By: /s/ Glen R. Gilbert
-----------------------------------------
Glen R. Gilbert, Executive Vice President
Chief Accounting Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,711
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 1,931
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<ALLOWANCE> 922
<TOTAL-ASSETS> 95,423
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<LONG-TERM> 14,258
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<COMMON> 79
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