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 March 31, 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 March 31,
1999 and December 31, 1998 - Unaudited
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 - Unaudited
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the three months ended March 31, 1999
and 1998 - Unaudited
Consolidated Statements of Cash Flows for the three months
ended March 31, 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
March 31, 1999 and December 31, 1998
(in thousands, except share data)
(Unaudited)
Assets
1999 1998
---- ----
Cash and cash equivalents $ 2,821 2,523
Securities available for sale 906 450
Investment in BankAtlantic Bancorp, Inc. ("BBC") 75,730 74,565
Mortgage notes and related receivables, net 1,638 1,740
Investment real estate, net 6,064 6,172
Real estate held for development and sale 2,312 1,811
Other assets 4,056 3,996
------- -------
Total assets $93,527 91,257
======= =======
Liabilities and Stockholders' Equity
Subordinated debentures, net 6,653 6,736
Deferred interest on the subordinated debentures 2,335 2,217
Mortgage payables and other borrowings 10,718 10,784
Other liabilities 773 683
Deferred income taxes 14,154 13,206
------- -------
Total liabilities 34,633 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 25,985 26,095
Retained earnings 32,580 30,660
------- -------
Total stockholders' equity before
accumulated other comprehensive income 58,644 56,834
Accumulated other comprehensive income-
net unrealized appreciation on securities
available for sale, net of deferred income taxes 250 797
------- -------
Total stockholders' equity 58,894 57,631
------- -------
Total liabilities and stockholders' equity $93,527 91,257
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998
(in thousands, except per share data)
(Unaudited)
Three months ended
March 31,
---------
1999 1998
---- ----
Revenues:
Interest on mortgage notes and
related receivables $ 113 53
Interest and dividends on securities
available for sale and escrow accounts 56 71
Earnings on real estate rental operations, net 322 241
Sale of real estate 829 --
Earnings from real estate limited partnerships 760 --
Equity in earnings of BBC 2,745 2,055
Other income 2 11
------- -------
Total revenues 4,827 2,431
------- -------
Costs and expenses:
Interest on subordinated debentures 122 128
Interest on mortgages payable
and other borrowings 239 452
Cost of sale of real estate 579 --
Allowance for loss on mortgage notes 75 --
Expenses (income) related to real estate held
for development and sale, net (11) 41
Employee compensation and benefits 299 288
Occupancy and equipment 16 10
General and administrative, net 212 210
------- -------
Total cost and expenses 1,531 1,129
------- -------
Income before income taxes 3,296 1,302
Provision for income taxes 1,376 311
------- -------
Net income $ 1,920 991
======= =======
Basic earnings per share $ 0.24 0.13
======= =======
Diluted earnings per share $ 0.22 0.11
======= =======
Basic weighted average shares outstanding 7,957 7,949
======= =======
Diluted weighted average shares outstanding 8,928 9,252
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and
Comprehensive Income For the three months ended
March 31, 1999 and 1998
(in thousands)
(Unaudited)
Net
unrealized
appreciation
Addi- on
Compre- Class A Class B tional 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>
December 31, 1997 $ -- 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income 991 -- -- -- 991 -- 991
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 11 -- -- -- -- -- --
Reclassification adjustment
for gains and losses included
in net income (169) -- -- -- -- -- --
-------
Other comprehensive loss (158) -- -- -- -- -- --
-------
Comprehensive income $ 833 -- -- -- -- -- --
=======
Net effect of BBC
capital transactions, net of
deferred income taxes -- -- 140 -- -- 140
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (158) (158)
Exercise of stock options -- -- 4 -- -- 4
------- ------- ------- ------- ------- -------
Balance, March 31, 1998 $ 58 21 23,669 31,271 100 55,119
======= ======= ======= ======= ======= =======
Balance,
December 31, 1998 $ -- $ 58 21 26,095 30,660 797 57,631
Comprehensive income
Net income 1,920 -- -- -- 1,920 -- 1,920
Other comprehensive income,
net of tax:
Unrealized losses on securities
available for sale (661) -- -- -- -- -- --
Reclassification adjustment
for gains and (losses) included
in net income 114 -- -- -- -- -- --
-------
Other comprehensive loss (547) -- -- -- -- -- --
-------
Comprehensive income $ 1,373 -- -- -- -- -- --
=======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- (110) -- -- (110)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (678) (678)
BFC's net unrealized appreciation
on securities available for sale-net
of deferred income taxes -- -- -- -- 131 131
------- ------- ------- ------- ------- -------
Balance, March 31, 1999 $ 58 21 25,985 32,580 250 58,894
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
(In thousands)
(Unaudited)
March 31,
---------
1999 1998
---- ----
Operating activities:
Net income $ 1,920 991
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in earnings of BBC (2,745) (2,055)
Depreciation 124 157
Expenses (income) related to real estate
held for development and sale, net (11) 41
Provision for income taxes 1,376 311
Allowance for loss on mortgage notes 75 --
Amortization on subordinated debentures 2 3
Accretion of discount on loans receivable (8) (12)
Increase in real estate development
and construction costs (1,172) (390)
Gain on sale of real estate, net (1,010) --
Proceeds from escrow for called debenture liability -- 2,100
Increase in deferred interest on the
subordinated debentures 118 126
Accrued interest income on escrow accounts (29) (38)
Increase in other liabilities 75 20
Increase in other assets (125) (126)
------- -------
Net cash provided by (used in) operating activities (1,410) 1,128
------- -------
Investing activities:
Distributions from real estate
limited partnerships 760 --
Common stock dividends received from BBC 303 291
Purchase of securities available for sale (250) (3,011)
Proceeds from redemption and maturities
of securities available for sale 8 2,067
Principal reduction on mortgage notes and
related receivables, net 35 47
Decrease (increase) in real estate
held for development and sale 918 (31)
Improvements to investment real estate -- (43)
------- -------
Net cash provided by (used in) investing activities 1,774 (680)
------- -------
Financing activities:
Issuance of common stock -- 4
Repayments of borrowings (66) (87)
------- -------
Net cash used in financing activities (66) (83)
------- -------
Increase in cash and cash equivalents 298 365
Cash and cash equivalents at beginning of period 2,523 604
------- -------
Cash and cash equivalents at end of period $ 2,821 969
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
March 31, 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 March 31, 1999 and December
31, 1998, the unaudited consolidated statements of operations for the three
months ended March 31, 1999 and 1998, the unaudited consolidated statements of
stockholders' equity and comprehensive income for the three months ended March
31, 1999 and 1998 and the unaudited consolidated statements of cash flows for
the three months ended March 31, 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 March 31, 1999 and December 31, 1998 is as follows
(dollars in thousands):
March 31, December 31,
1999 1998
---- ----
BBC stockholders' equity $ 236,795 240,440
Ownership percentage 32.2% 31.3%
--------- ---------
76,320 75,340
Purchase accounting adjustments (590) (775)
--------- ---------
Investment in BBC $ 75,730 74,565
========= =========
At March 31, 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 32.23% of
all outstanding BBC Common Stock. At March 31, 1999, the Company's ownership of
BBC Class A and B Common Stock was approximately 26% and 47%, respectively. The
aggregate market value of the Company's investment in BBC at March 31, 1999 was
approximately $80.3 million or approximately $4.6 million in excess of the
carrying value in the financial statements.
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. During the three months ended March 31, 1999, BBC
issued 29,356 shares of restricted Class A Common Stock to new employees of
RBCO, vested 3,974 shares of retention pool restricted stock to an employee
leaving RBCO, and canceled 10,098 shares of restricted Class A Common Stock for
terminated employees. The restricted Class A Common Stock issued to new
employees vests in four years from the grant date. As of March 31, 1999, BFC's
ownership percentage of BBC, excludes 640,514 shares of restricted Class A
Common Stock.
Pursuant to previously announced plans, during the three months ended March 31,
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 March 31, 1999 and December
31, 1998 was as follows (in thousands):
March 31, December 31,
1999 1998
---- ----
Investment in preferred stock $ 593 343
Other 313 107
---- ----
$ 906 450
==== ====
Investment in preferred stock at March 31, 1999, consisted of $250,000 $193,000
and $150,000 in Series C Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series A Preferred Stock, respectively, of an unaffiliated
entity. At December 31, 1998, investment in preferred stock consisted of
$193,000 and $150,000 in Series B Convertible Preferred Stock and Series A
Preferred Stock, respectively, of an unaffiliated entity. At March 31, 1999 and
December 31, 1998, the market value of investment in preferred stock
approximated book value. At March 31, 1999, net unrealized gains on other
securities was approximately $131,000. At December 31, 1998, the market value of
other securities approximated book value.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the three months ended March 31, 1999 and 1998 were as follows
(in thousands):
March 31,
---------
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 (678) (158)
==== ====
Net effect of BBC capital transactions,
net of income taxes (110) 140
==== ====
Change in stockholders' equity resulting
from the Company's net unrealized
appreciation on securities available for
sale, net of deferred income taxes 131 --
==== ====
Transfers from escrow accounts to reflect
payments on the called debenture liability -- 116
==== ====
Allowance for loss on mortgage notes 75 --
==== ====
BBC's dividends on common stock
declared and received in subsequent period 303 291
==== ====
Interest paid on borrowings 239 452
==== ====
5. SUBORDINATED DEBENTURES
Included in subordinated debentures at March 31, 1999 and December 31, 1998 was
approximately $5.2 million and $5.3 million, respectively, of amounts associated
with payments due on subordinated debentures which were cancelled in connection
with a settlement of litigation. Such amounts do not bear interest. Included in
other assets at March 31, 1999 and December 31, 1998 was approximately $2.8
million held in escrow accounts relating to payments associated with a portion
of these debentures. In January 2000, any amounts remaining in escrow will be
released to the Company and after that date any payments associated with these
debentures would be paid directly by the Company.
6. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for the three months ended March 31,
1999 and 1998 (in thousands, except per share data):
Three months ended
March 31,
---------
1999 1998
---- ----
Basic Numerator:
Net income available
for common shareholders $1,920 991
====== ======
Basic Denominator
Weighted average shares
outstanding 7,957 7,949
====== ======
Basic earnings per share $ .24 .13
====== ======
Diluted Numerator:
Dilutive net income available
to common shareholders $1,920 991
====== ======
Diluted Denominator
Basic weighted average shares
outstanding 7,957 7,949
Options 971 1,303
------ ------
Diluted weighted average shares
outstanding 8,928 9,252
====== ======
Diluted earnings per share $ .22 .11
====== ======
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 32.2% 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), 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 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
three months ended March 31, 1999, compared to basic and diluted earnings per
share of $0.13 and $0.11 for the comparable period in 1998.
For the three months ended March 31, 1999, the Company reported net income of
approximately $1.9 million as compared to net income of approximately $991,000
for the comparable period in 1998.
Increases (decreases) in revenues for the three months ended March 31, 1999, as
compared to the comparable period in 1998 were as follows (in thousands):
Three months ended
March 31,
--------- Increases
1999 1998 (decreases)
------ ------ ------
Interest on mortgage notes and
related receivables $ 113 53 60
Interest and dividends on securities
available for sale and escrow accounts 56 71 (15)
Earnings on real estate rental operations, net 322 241 81
Sale of real estate 829 -- 829
Earnings from real estate limited partnership 760 -- 760
Equity in earnings of BBC 2,745 2,055 690
Other income, net 2 11 (9)
------ ------ ------
Total revenues $4,827 2,431 2,396
====== ====== ======
Interest on mortgage notes and related receivables increased for the three
months ended March 31, 1999 as compared to the same period in 1998 primarily due
to the recognition of approximately $74,000 of interest earned on advances
associated with the Company's development and construction of the "Center Port"
property in Pompano Beach, Florida. 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 three months ended March 31, 1999, as compared with the same
period in 1998 primarily due to a decrease in yields of investable funds and
decreases in the average of investable funds.
Earnings on real estate rental operations, net increased for the three months
ended March 31, 1999 as compared to the same period in 1998 primarily due to an
increase in rental income and decreases in depreciation and general and
administrative expenses at the Company's Burlington Manufacturers Outlet Center
("BMOC") property. The increase in rental income was primarily due to the rent
cancellation of a tenant.
During the three months ended March 31, 1999, the Company sold approximately 4
acres of the Center Port property to an unaffiliated third party for
approximately $829,000. The Company recognized a net gain from the sale of the
real estate of approximately $250,000. During the three months ended March 31,
1999, the Company received a distribution of approximately $501,000 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. 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 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.
BBC's net income available for common shareholders for the three months ended
March 31, 1999 and 1998 are summarized below (in thousands):
For the Three Months
Ended March 31,
---------------
1999 1998
---- ----
Income from continuing operations $8,171 4,846
Income from discontinued operations
net of taxes -- 410
------ ------
Net income $8,171 5,256
====== ======
The Company's equity in the earnings of BBC for the three months ended March 31,
1999 and 1998 was approximately $2.7 million and $2.1 million, respectively. The
increase in equity in earnings of BBC for the three months ended March 31, 1999
as compared to the same period in 1998 was primarily due to an increase in
earnings by BBC. BBC's net income from continuing operations increased by 69%
during the three months ended March 31, 1999 as compared to the same period in
1998. The primary reasons for the increase BBC's continuing operations was:
1. an improvement in BBC's net interest income resulting from an increase
in interest earning assets and recognition of interest income on a
nonaccrual loan which was completely repaid in 1999 ,
2. additional earnings from BBC's real estate operations,
3. BBC's higher transaction fee income resulting from changes made to the
pricing of BBC's deposit products and
4. a decline in employee compensation from bank operations due to a
reduction of BBC's full time employees by approximately 148.
The above improvements in income from continuing operations were partially
offset by:
1. an increase in BBC's provision for loan losses resulting from small
business and indirect consumer loan charge-offs,
2. BBC's lower trading account gains and gains on the sale of its
securities available for sale and loans held for sale, and
3. BBC's higher occupancy costs due to an expanded branch and ATM
network.
BBC's discontinued operations - BBC's income from its discontinued operations
for the three months ended March 31, 1999 was zero compared to $410,000, net of
taxes, for the same 1998 period. During the three months ended March 31, 1999
there were no changes in BBC's disposal cost estimates to exit the mortgage
servicing business ("MSB"). BBC's income from its discontinued operations during
1998 resulted from gains on its sales of mortgage servicing rights significantly
offset by traditional servicing operations.
The Company's ownership in BBC at March 31, 1999 and 1998 was 32.2% and 34.7%,
respectively, of all outstanding BBC Common Stock. The decrease in ownership at
March 31, 1999 as compared to 1998 was primarily due to BBC's issuance of Class
A Common Stock to acquire RBCO and Leasing Technologies, Inc. ("LTI"). This
decrease was offset in part by reductions 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
----- ----- -----------
March 31, 1998 29.4% 45.6% 34.7%
March 31, 1999 26.1% 47.1% 32.2%
Increases (decreases) in the Company's expenses for the three months ended March
31, 1999, as compared to the comparable period in 1998 were as follows (in
thousands):
Three months ended
March 31,
--------- Increases
1999 1998 (decreases)
---- ---- -----------
Interest on subordinated debentures $ 122 128 (6)
Interest on mortgages payable
and other borrowings 239 452 (213)
Cost of sale of real estate 579 -- 579
Allowance for loss on mortgage notes 75 -- 75
Expenses (income) related to real estate
held for development and sale (11) 41 (52)
Employee compensation and benefits 299 288 11
Occupancy and equipment 16 10 6
General and administrative, net 212 210 2
------- ------- -------
Increase in total cost and expenses $ 1,531 1,129 402
======= ======= =======
Interest on mortgage payables and other borrowings decreased for the three
months ended March 31, 1999 as compared to the same period in 1998 primarily due
to reduction in borrowings.
Expenses (income) related to real estate held for development and sale decreased
for the three months ended March 31, 1999 as compared to the same period in 1998
primarily due to decreased property taxes, association fees and administrative
expenses and an increase in rental income.
In March 1999, the Company recorded an allowance for loss on mortgage notes due
from affiliated limited partnerships of approximately $75,000. 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.
Employee compensation and benefits increased for the three months ended March
31, 1999 as compared to the same period in 1998 primarily due to an increase in
personnel and employee's profit sharing plan accrual contribution.
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 March 31, 1999 and 1998 the Company's ownership in BBC was
approximately 32.2% and 34.7%, 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 (loss)
before tax and overhead allocations. The table below is segment information for
the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Real
Investment Estate
1999 in BBC Operations Other Eliminations Consolidated
- ---- ------ ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,745 1,995 55 32 4,827
====== ====== === === =====
Operating profit $ 2,745 1,121 55 32 3,953
====== ====== === ===
Interest on subordinated debentures (122)
Interest on mortgages payable
and other borrowings (8)
Employee compensation and benefits (299)
Occupancy and equipment (16)
General and administrative, net (212)
--------
Income before income taxes 3,296
========
Identifiable assets at March 31, 1999 $75,730 10,561 6,123 - 92,414
====== ===== === ===
Corporate assets 1,113
---------
Total assets at March 31, 1999 93,527
========
</TABLE>
<TABLE>
Real
Investment Estate
1998 in BBC Operations Other Eliminations Consolidated
- ---- ------ ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,055 257 82 37 2,431
====== ==== === === =====
Operating profit (loss) $ 2,055 (192) 82 37 1,982
====== ===== === ===
Interest on subordinated debentures (128)
Interest on mortgages payable
and other borrowings (44)
Employee compensation and benefits (288)
Occupancy and equipment (10)
General and administrative, net (210)
--------
Income before income taxes 1,302
========
Identifiable assets at March 31, 1998 $74,018 18,935 5,997 - 98,950
====== ===== === ===
Corporate assets 1,234
--------
Total assets at March 31, 1998 $ 100,184
========
</TABLE>
Financial Condition
- -------------------
The Company's total assets at March 31, 1999 and at December 31, 1998 were $93.5
million and $91.3 million, respectively. The majority of the difference at March
31, 1999 as compared to December 31, 1998 was due to increases in investment in
BBC and real estate held for development and sale.
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 4 acres of the
Company's Center Port property to unaffiliated third party.
Investment in BBC increased by $1.2 million due to equity in earnings of BBC of
approximately $2.7 million. This increase was offset in part by the net effect
of BBC capital transactions of approximately $342,000 and BBC's change in net
unrealized appreciation on securities available for sale, net of deferred income
taxes of approximately $942,000 and dividends of approximately $303,000.
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.
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 March 31, 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% $ 96,348
10.00% 88,319
0.00% 80,290
(10.00)% 72,261
(20.00)% 64,232
Management does not believe that market risk on the Company's other equity
instruments would have a significant impact on the financial condition of the
Company.
BBC (including RBCO) 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 sold not yet purchased and available
for sale securities. The following are hypothetical changes in the fair value of
BBC's trading securities sold not yet purchased, and available for sale
securities at March 31, 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% $20,705 24,943 1,991 7,940
10% $18,979 22,865 1,825 3,970
0% $17,254 20,786 1,659 0
(10%) $15,529 18,707 1,493 (3,970)
(20%) $13,803 16,629 1,327 (7,940)
During 1998, BBC began trading government securities which are generally bought
and sold on the same day. In addition, 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 the 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. A sensitivity analysis was
performed measuring BBC's potential gains and losses in net portfolio fair
values of interest rate sensitive instruments at March 31, 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 Subordinated Debentures,
o Trust Preferred Securities,
o off-balance sheet loan commitments, and
o mortgage servicing rights.
BBC has no off-balance sheet derivatives other than fixed rate loan commitments
aggregating $18.9 million at March 31, 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 March 31, 1999,
(ii) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values,
(iii) the difference between the fair value calculated in (i) and (ii) is
the potential gains and losses 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, management has no basis to determine whether the
fair value presented would be indicative of the value negotiated in an actual
sale. BBC'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 March 31, 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 $ 267,588 (123,023)
+100 bp $ 342,592 (48,019)
0 bp $ 390,611 --
(100) bp $ 364,857 (25,754)
(200) bp $ 319,095 (71,516)
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 payments due on surbordinated debentures
which were cancelled in connection with a settlement of litigation, at March 31,
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 debentures will be
paid from the Company's working capital. At March 31, 1999, there was
approximately $5.2 million associated with these debentures. 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
approximately $1.5 million of outstanding subordinated debentures that have not
been cancelled in connection with a settlement of litigation 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 March 31, 1999, 46 acres had been sold from
the Center Port property to unaffiliated third parties for approximately $12.5
million and the Company recognized net gains from the sale of real estate of
approximately $3.0 million. Included in cost of sales is approximately $2.2
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. At March 31,
1999, 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 lender and the Company are repaid on loans, 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 32.2% 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 March 31, 1999, BankAtlantic's core, Tier 1 risk-based and total risk-based
capital ratios were 7.56%, 12.11% and 13.36%, 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):
Three months ended
March 31,
---------
Net cash provided (used) by: 1999 1998
---- ----
Operating activities $(1,410) 1,128
Investing activities 1,774 (680)
Financing activities (66) (83)
------- -------
Increase in cash and cash equivalents $ 298 365
======= =======
The primary sources of funds to the Company for the three months ended March 31,
1999, were distributions from real estate limited partnerships, 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.
With respect to the Company's subsidiary BBC, 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 that 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 the 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 believes that it has completed the awareness and assessment phases of its
action plan. Renovation, validation and implementation phases were approximately
95% completed at March 31, 1999 and are scheduled to be 100% completed as of
June 30, 1999. The contingency planning phase was 90% completed as of March 31,
1999, and is scheduled to be 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 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.
BBC relies on third party vendors to perform loan, deposit, general ledger,
clearing agent functions 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 and BBC tested these
applications 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 three months ended March 31, 1999 and 1998 were $48,000
and $1,000 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 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.
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 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. 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.
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 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.
<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 three months
ended March 31, 1999.
b) No report on Form 8-K was filed during the three months ended March
31, 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: May 14, 1999 By: /s/ Alan B. Levan
--------------------------
Alan B. Levan, President
Date: May 14, 1999 By: /s/ Glen R. Gilbert
--------------------------
Glen R. Gilbert, Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,821
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 906
<INVESTMENTS-CARRYING> 693
<INVESTMENTS-MARKET> 906
<LOANS> 2,485
<ALLOWANCE> 847
<TOTAL-ASSETS> 93,527
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 773
<LONG-TERM> 11,820
0
0
<COMMON> 79
<OTHER-SE> 58,894
<TOTAL-LIABILITIES-AND-EQUITY> 93,527
<INTEREST-LOAN> 113
<INTEREST-INVEST> 56
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 169
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 361
<INTEREST-INCOME-NET> (192)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 527
<INCOME-PRETAX> 3,296
<INCOME-PRE-EXTRAORDINARY> 3,296
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,920
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 772
<CHARGE-OFFS> 75
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 847
<ALLOWANCE-DOMESTIC> 847
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
