As filed with the Securities and Exchange Commission on February 12, 1999.
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
BFC FINANCIAL CORPORATION
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA
-------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
59-2022148
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(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1750 EAST SUNRISE BOULEVARD
FORT LAUDERDALE, FLORIDA 33304
TELEPHONE (954) 760-5200
--------------------------
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
ALAN B. LEVAN
BFC FINANCIAL CORPORATION
1750 EAST SUNRISE BOULEVARD
FORT LAUDERDALE, FLORIDA 33304
TELEPHONE (954) 760-5200
--------------
(Name, address, including Zip Code, and telephone
number, including area code, of registrant's agent for service)
Copies to:
ALISON W. MILLER, ESQ.
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
150 WEST FLAGLER STREET, SUITE 2200
MIAMI, FLORIDA 33130
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box [ ].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering [ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ].
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ].
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box [ ].
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Title of each class Proposed maxi- Amount of
of securities to be Amount to be Proposed maximum mum aggregate registration
registered registered offering price offering price fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
___% Subordinated Debentures 17,125 (1) $1,000 $17,250,000(1) $4,796
Class A Common Stock, $0.01 Par Value Per Share 1,150,000 (2) $7.00 (3) $8,050,000 (3) $2,238
=============================================================================================================================
</TABLE>
(1) Includes up to $2,250,000 additional principal amount of __% Subordinated
Debentures which may be acquired by the Underwriter to cover
over-allotments, if any.
(2) Includes up to 150,000 additional shares of Class A Common Stock which may
be acquired by the Underwriter to cover over-allotments if any.
<PAGE>
(3) Calculated in accordance with Rule 457(c), based upon the average of the
bid and ask price of the Class A Common Stock on February 9, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY __, 1999
BFC FINANCIAL CORPORATION
$15,000,000 ___% SUBORDINATED DEBENTURES DUE 2009
AND
1,000,000 SHARES CLASS A COMMON STOCK (NON-VOTING)
THE SUBORDINATED DEBENTURES:
/bullet/ are being offered and sold to the public by BFC Financial Corporation.
/bullet/ will mature on __________, 2009 and accrue interest at the rate of ___%
per annum.
/bullet/ are unsecured general obligations of BFC Financial Corporation
subordinate in right of payment to more senior debt.
/bullet/ will not be listed on any securities exchange and will not be included
for quotation on any quotation system.
THE CLASS A COMMON STOCK:
/bullet/ is being offered and sold to the public by BFC Financial Corporation.
/bullet/ is listed on the OTC Bulletin Board under the symbol "BFCFA".
/bullet/ has no voting rights other than as may be required by Florida law.
_____________ is underwriting these offerings on a firm commitment
basis and has been granted an over-allotment option to purchase up to 150,000
shares of Class A Common Stock and $2,250,000 aggregate principal amount of
subordinated debentures. The offering of the Class A Common Stock and the
offering of the subordinated debentures are independent and neither is
contingent upon the other.
<TABLE>
<CAPTION>
PER TOTAL
SUBORDINATED SUBORDINATED PER SHARE BFC CLASS TOTAL BFC CLASS A
DEBENTURE DEBENTURES A COMMON STOCK COMMON STOCK
--------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
PRICE TO PUBLIC $1,000 $15,000,000 $________ $________
UNDERWRITING
DISCOUNT $________ $________ $________ $________
PROCEEDS TO BFC
FINANCIAL CORPORATION $________ $________ $________ $________
</TABLE>
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS.
PLEASE NOTE THAT THESE SECURITIES:
/bullet/ ARE NOT BANK ACCOUNTS OR DEPOSITS;
/bullet/ ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION; AND
/bullet/ ARE NOT INSURED BY ANY OTHER STATE OR FEDERAL AGENCY
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 1999
<PAGE>
SUMMARY
This summary highlights selected information to assist you in getting
an initial overview of the offerings, but it does not contain all the
information that you need to consider in making your investment decision. To
understand all the terms of these securities read the entire Prospectus
carefully. In preparing the information and data in this Prospectus we have
assumed that the underwriter's over-allotment options will not be exercised.
THE COMPANY
BFC Financial Corporation (the "Company") is a unitary savings bank
holding company which at September 30, 1998 owned approximately 25% of the
outstanding Class A Common Stock (the "BBC Class A Common Stock") of
BankAtlantic Bancorp, Inc., a Florida corporation ("BBC"), and approximately 47%
of the outstanding Class B Common Stock of BBC (the "BBC Class B Common Stock"
and, together with the BBC Class A Common Stock, the "BBC Common Stock"). BBC is
also a unitary savings bank holding company that owns 100% of the outstanding
capital stock of BankAtlantic, A Federal Savings Bank ("BankAtlantic"). The
Company's principal business activity is its ownership of BBC's stock. The
Company also holds investments in real estate and mortgage notes. The Company's
principal executive offices are located at 1750 East Sunrise Boulevard, Fort
Lauderdale, Florida 33304. Its telephone number is (954) 760-5200.
Under the equity method of accounting, the Company's investment in BBC
Common Stock represents approximately 82% of the Company's consolidated assets
as of September 30, 1998. Since 1993, the Company's ownership of BBC has been
less than 50% and BBC has not been consolidated in the Company's financial
statements.
BBC's primary activities relate to its ownership of 100% of
BankAtlantic's capital stock. BankAtlantic is a federally-chartered,
federally-insured savings bank organized in 1952 which provides traditional
retail banking services and a full range of commercial banking products and
related financial services. The principal business of BankAtlantic is attracting
checking and savings deposits from the public and general business customers and
using these deposits to originate commercial real estate and business loans,
residential real estate loans and consumer loans, to purchase wholesale
residential loans from third parties and to make other permitted investments
including investments in mortgage-backed securities, tax certificates and other
investment securities. BankAtlantic currently operates through 70 branch offices
located primarily in Miami-Dade, Broward and Palm Beach Counties in South
Florida. BankAtlantic is regulated and examined by the Office of Thrift
Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC") and
its deposit accounts are insured up to applicable limits by the FDIC.
In 1998, BBC acquired Ryan, Beck & Co., Inc. ("Ryan Beck"), an
investment banking firm that underwrites, distributes and trades tax-exempt
securities and provides capital raising and advisory services to the financial
services industry. BBC has also engaged in real estate development and
investment activities through St. Lucie West Holding Corp., the developer of a
master planned residential, commercial and industrial community in St. Lucie
County, Florida, and through several minority interest investments in real
estate development projects in South Florida. However, the Board of Directors of
BBC has announced that it is considering the spin-off of BBC's real estate and
development business through a distribution to BBC's shareholders of the capital
stock of BankAtlantic Development Corp., a wholly-owned subsidiary of
BankAtlantic. The spin-off is subject to a number of conditions including the
receipt of board approval and regulatory approvals. See " -- Recent
Developments". If the spin-off is effectuated as currently proposed, the Company
would receive approximately 31% of the outstanding stock of the real estate
subsidiary in the distribution and would be the largest shareholder.
In addition to its investment in BBC, the Company owns and manages real
estate. Since its inception in 1980, and prior to acquiring control of BBC, the
Company's primary business was the organization, sale and management of real
estate investment programs. A subsidiary of the Company continues to serve as
the corporate
-1-
<PAGE>
general partner of a public limited partnership which files periodic reports
with the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Subsidiaries of the
Company also serve as corporate general partners of a number of private limited
partnerships formed in prior years. The Company ceased the organization and sale
of real estate investment programs in 1987.
REDESIGNATION OF COMMON STOCK; RECENT STOCK SPLITS
Prior to October 1997, the Company's outstanding capital stock
consisted of a single class of common stock. On October 6, 1997, the Company
declared a five-for-four stock split effected in the form of a 25% stock
dividend issued in shares of its newly created Class A Common Stock (the "Class
A Common Stock"). As a result of the initial issuance of the Class A Common
Stock, the existing common stock was redesignated as Class B Common Stock (the
"Class B Common Stock"). On January 15, 1998, the Company effected a
three-for-one stock split in the form of a stock dividend of two shares of Class
A Common Stock for each outstanding share of Class A Common Stock and Class B
Common Stock. All amounts in this Prospectus have been adjusted to reflect those
stock splits. In addition, BBC has effected stock splits on its common stock.
Where appropriate throughout this Prospectus, BBC share and per share amounts
have been adjusted to reflect five-for-four common stock splits effected by BBC
in February 1998, August 1997 and March 1997 in the form of 25% stock dividends
issued in shares of BBC Class A Common Stock.
OPERATING STRATEGY
BFC's primary activities during the past ten years relate to its
ownership of BBC Common Stock. However, the Company also actively holds and
manages real estate interests. As described in "-- BBC--Recent Developments,"
BBC has announced that it is considering a spin-off to its shareholders of a
subsidiary which holds significant assets. If the spin-off is completed, the
Company will own approximately 31% of the outstanding stock of the resulting
entity. The Company may seek to increase its ownership in that entity or to use
its available funds to invest in other public or private entities.
THE OFFERINGS
The offering of the Class A Common Stock and the offering of the
Subordinated Debentures are independent, and neither is contingent upon the
other.
<TABLE>
<S> <C>
CLASS A COMMON STOCK
- --------------------
Class A Common Stock Offered............................ 1,000,000 shares of Class A Common Stock
(1,150,000 shares if the Underwriter's over-
allotment option is exercised in full).
Common Stock to be outstanding
after the Offering:
Class A Common Stock.................................. 7,453,994 shares
Class B Common Stock.................................. 2,355,407 shares(1)(2)
Total.............................................. 9,809,401 shares
</TABLE>
- ------------------------
(1) Does not include 2,653,157 shares of Class B Common Stock issuable upon
exercise of currently exercisable stock options.
(2) Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of the holder thereof.
-2-
<PAGE>
<TABLE>
<S> <C>
Voting Rights........................................... Holders of Class A Common Stock have no voting
rights, except as may be required by Florida law.
Holders of Class B Common Stock have one vote
per share. See "Description of Capital Stock -
Voting."
Dividends............................................... Holders of Class A Common Stock are entitled to
receive cash dividends equal to any cash dividends
which the Company declares and pays on the Class
B Common Stock. Non-cash distributions on the
Class A Common Stock must be identical to those
which the Company declares and issues on the Class
B Common Stock, except that a distribution to
holders of Class A Common Stock may be declared
and issued in Class A Common Stock while a
distribution to holders of Class B Common Stock
may be declared and issued in either Class A
Common Stock or Class B Common Stock. See
"Description of Capital Stock - Dividends."
Ticker Symbols:
Class A Common Stock.................................. BFCFA (OTC Bulletin Board)
Class B Common Stock.................................. BFCFB (OTC Bulletin Board)
THE SUBORDINATED DEBENTURES
- ---------------------------
Subordinated Debentures
Offered ................................................ $15,000,000 in aggregate principal amount of ___%
subordinated debentures due 2009 (the "Subordinated
Debentures"). ($17,250,000 in aggregate principal
amount if the underwriter's over-allotment option
is exercised)
Maturity Date........................................... ____________, 2009 (the "Stated Maturity").
Interest and interest
payment dues............................................ Interest accrues on the Subordinated Debentures at an
annual rate of ___% and is payable semi-annually on
__________ and _________ of each year.
Redemption.............................................. The Company may redeem the Subordinated
Debentures at its option, in whole or in part at fixed
redemption prices specified in this Prospectus. The
Company may also repurchase the Subordinated
Debentures at any price in the open market. See
"Description of the Subordinated Debentures -
Redemption or Repurchase of Debentures."
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Subordination........................................... The Subordinated Debentures are junior in right of
repayment (i.e, subordinated) to all existing and
future "Senior Indebtedness." Senior Indebtedness is
defined under the indenture relating to the
Subordinated Debentures (the "Indenture") as any
indebtedness or liability of the Company, regardless
of when incurred or created, which is not expressly
subordinate or equal in right of payment to the
Subordinated Debentures. The Indenture does not
limit the Company's or its subsidiaries' ability to
incur indebtedness, including Senior Indebtedness.
See "Description of the Debentures -
Subordination." At September 30, 1998, the
Company had outstanding approximately $12.34
million of Senior Indebtedness.
The Company's obligations under the Subordinated
Debentures will be structurally subordinated to all
existing and future liabilities and obligations of its
subsidiaries (including BBC and BankAtlantic).
Certain Restrictions.................................... The Indenture restricts the Company from paying
dividends or distributions on, or purchasing or
redeeming its capital stock if the Company is in
default in the payment of interest on the Subordinated
Debentures or an Event of Default has occurred.
The Company may not consolidate or merge with
another entity unless:
/bullet/ such entity, as survivor, assumes the Company's
obligations under the Indenture and, immediately
after the transaction, is not in default under the
Indenture, or
/bullet/ immediately after the transaction, the Company,
as survivor, is not in default under the Indenture.
See "Description of the Subordinated Debentures -
Restrictions on Dividends and Other Distributions"
and "- Consolidation, Merger or Sale of Assets."
Events of Default....................................... The Company is in default under the Subordinated
Debentures if:
/bullet/ it fails to pay principal of or premium, if any,
on the Subordinated Debentures at maturity or
upon redemption,
/bullet/ it fails to pay interest on any of the
Subordinated Debentures and such failure
continues for a 30-day period,
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
/bullet/ it breaches any of the provisions of the
Indenture and such breach continues after 60
days' notice, or
/bullet/ it reorganizes or becomes bankrupt or insolvent
in certain events.
The Company may be required as a result of certain
events of default to accelerate its payment of
principal and interest on the Subordinated
Debentures. See "Description of the Debentures -
Defaults and Remedies."
Trustee................................................. U.S. Bank Trust National Association.
Market Maker Debentures................................. The Subordinated Debentures are not listed on any
securities exchange or included for quotation on any
quotation system and no established trading market
exists. The Underwriter intends to make a market
in the Subordinated Debentures but it is under no
obligation to do so and such market making, if
commenced, may be terminated at any time in its
discretion.
Use of Proceeds......................................... 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. See "Use of Proceeds."
</TABLE>
RISK FACTORS
Before you make an investment decision, you should consider all of the
information contained in this Prospectus. In particular, you should evaluate the
factors discussed under "Risk Factors," including, but not limited to:
/bullet/ the Company's limited sources of funds from which it may
meet its obligationis;
/bullet/ regulatory limitations on BBC's and BankAtlantic's ability to
pay dividends;
/bullet/ the potential adverse impact on BankAtlantic's profitability
of changes in interest rates;
/bullet/ BankAtlantic's recent rapid growth and increased operating
expenses and its announced restructuring which may not prove
to be successful;
/bullet/ BankAtlantic's loan portfolio is subject to both interest rate
and credit risk;
/bullet/ the highly competitive nature of BBC's and BankAtlantic's
businesses.
BBC- RECENT DEVELOPMENTS
OPERATING RESULTS
BBC reported a loss for the year ended December 31, 1998 of $(8.0)
million, or $(.22) fully diluted loss per share for BBC Class A Common Stock and
BBC Class B Common Stock, compared to December 31, 1997 income of $27.8 million,
or fully diluted income per share of $.78 for BBC Class A Common Stock and $.77
for BBC Class B Common Stock.
The results for the year ended December 31, 1998 are comprised of
income from continuing operations of $10.2 million, or fully diluted earnings
per share of $.29 for BBC Class A Common Stock and $.26 for BBC Class B Common
Stock, and a loss from discontinued operations of $(18.2) million, or a fully
diluted loss per share from discontinued operations of $(.51) for BBC Class A
Common Stock and $(.48) for BBC Class B Common Stock. As discussed below, BBC is
exiting the mortgage servicing business and accordingly the results of this line
of business are characterized as discontinued operations. Comparable amounts for
the year ended
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<PAGE>
December 31, 1997 were income from continuing operations of $23.7 million, or
fully diluted earnings per share of $.67 for BBC Class A Common Stock and BBC
Class B Common Stock, and income from discontinued operations of $4.1 million,
or fully diluted earnings per share of $.11 for BBC Class A Common Stock and
$.10 for BBC Class B Common Stock.
For the quarter ended December 31, 1998, BBC reported a net loss of
$(10.1) million compared to net income of $8.2 million for the same period in
1997. BBC reported a loss from continuing operations for the fourth quarter of
1998 of $(4.3) million compared to income from continuing operations of $7.8
million for the fourth quarter of 1997. Loss from discontinued operations for
the fourth quarter of 1998 was $(5.8) million compared to income from
discontinued operations of $393,000 for the same period in 1997.
Contributing to the loss from continuing operations for the fourth
quarter of 1998 were restructuring charges and write-downs of $2.6 million and
an increase in the provision for loan losses from $2.4 million for the fourth
quarter of 1997 to $12.0 million for the fourth quarter of 1998. These charges
were partially offset by a $3.1 million gain relating to the freezing of
benefits under BBC's defined benefit pension plan. The provision for loan losses
was increased as a result of additional risks associated with BBC's indirect
consumer lending portfolio, BBC's recent growth in small business lending, and
credit risks arising as BBC's borrowers face Year 2000 issues.
BBC's stockholders' equity was $240 million at December 31, 1998,
compared to $207 million at December 31, 1997. Total assets of BBC increased to
$3.8 billion at December 31, 1998, compared to $3.1 billion at December 31,
1997.
RESTRUCTURING INITIATIVES
Included in the fourth quarter and year end 1998 results are the impact
of various restructuring initiatives announced by BBC on December 15, 1998 as
part of a year long efficiency study aimed at streamlining operations, improving
efficiencies and increasing non-interest income. A summary of the announced
restructuring initiatives and the related restructuring charges are summarized
below:
/bullet/ BBC reduced its full time employees by approximately 185.
Approximately 100 of these individuals were no longer
employed by BBC at December 31, 1998, and it is anticipated
that approximately 15 employees, related to the closing of
three branches, will be released by the end of the first
quarter of 1999. The remaining 70 employees are associated
with the mortgage servicing business and are expected to
remain with BBC through the second quarter of 1999.
Severance and benefits associated with the downsizing is
estimated to be approximately $1.9 million and is included
in 1998 charges. Total annual compensation and benefits
related to employees impacted by the restructuring were
approximately $4.6 million for continued operations and
approximately $2.0 million for discontinued operations.
/bullet/ BBC will exit the mortgage servicing business. While this
business has been a strong performer for BBC in the past,
the current volatility in financial markets has made earnings
unpredictable. During the third quarter of 1998, BBC
established a $15 million valuation allowance for impairment
of mortgage servicing rights ("MSRs"). The estimated loss in
exiting this line of business is $10 million and is included
in the loss from discontinued operations. BBC anticipates that
disposition of this business will take approximately six
months. At December 31, 1998, the number of loans being
serviced was approximately 36,000, with outstanding principal
balances serviced of approximately $3.5 billion and net MSRs
of $44 million.
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<PAGE>
/bullet/ BBC is considering a spin-off to all shareholders as a
dividend of 100% of the capital stock of BankAtlantic
Development Corporation ("BDC"), a 100% owned service
corporation subsidiary of BankAtlantic. Included in this
subsidiary is the St. Lucie West master planned community as
well as five joint ventures. There is currently approximately
$43 million in capital in this subsidiary. While
BankAtlantic's regulatory capital would not be impacted by the
spin-off because all capital in BDC is already excluded from
the calculation of regulatory capital, the spin-off will
decrease BBC's assets and stockholders' equity. The spin-off
is subject to a number of conditions, including the prior
receipt of regulatory approvals.
/bullet/ BBC announced that it will discontinue new production in the
indirect automobile consumer loan business. At December 31,
1998, the indirect portfolio totaled $220 million and will be
liquidated over time through portfolio run-off.
/bullet/ BBC will close and merge three branches.
/bullet/ BBC announced that it will freeze the present status of its
defined benefit pension plan and is exploring alternative
employee benefit programs, including enhanced 401(k) benefits.
/bullet/ BBC closed its mortgage banking operations on Florida's West
Coast. BBC will continue to offer residential loans throughout
Florida with centralized processing and underwriting of these
loans.
There is no assurance that the restructuring will result in improved
efficiencies or increased income. Additionally, while management of BBC does not
anticipate that BBC's results will be further impacted from discontinued
operations, actual results will depend on future events and market conditions.
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<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Summary Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
-------- --------- -------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $ 10,784 12,423 16,354 21,661 11,711
Costs and expenses 8,841 2,366 3,366 12,679 7,481
-------- --------- -------- ---------- -----------
Income (loss) before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary items 1,943 10,057 12,988 8,982 4,230
Provision for income taxes (benefit) 395 3,042 4,222 2,924 -
Extraordinary items, net of income
taxes and minority interest 61 (d) 988 (e) 1,052 (f) 853 (g) 3,702 (h)
-------- --------- -------- ---------- -----------
Net income (loss) 1,609 8,003 9,818 6,911 7,932
======== ========= ======== ========== ===========
Basic earnings per share (k) 0.20 1.00 1.23 0.89 1.03
======== ========= ======== ========== ===========
Diluted earnings per share (k) 0.18 0.93 1.12 0.83 1.03
======== ========= ======== ========== ===========
Ratio of earnings to fixed charges (c) 1.80 2.04 1.69 1.33 0.26
======== ========= ======== ========== ===========
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993
-------- -----------
<S> <C> <C>
Revenues 27,289 15,815
Costs and expenses 24,376 17,118
-------- -----------
Income (loss) before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary items 2,913 (1,303)
Provision for income taxes (benefit) (2,009) -
Extraordinary items, net of income
taxes and minority interest 22,744 (i) (501)(j)
-------- -----------
Net income (loss) 27,666 (1,804)
======== ===========
Basic earnings per share (k) 3.59 (0.34)
======== ===========
Diluted earnings per share (k) 3.59 (0.34)
======== ===========
Ratio of earnings to fixed charges (c) 0.47 (0.30)
======== ===========
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------------- ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- --------- -------- ---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 76,844 72,185 59,039 52,662 43,768 36,436
Total assets 93,751 98,871 98,841 96,896 91,291 87,495
Subordinated debentures, net 6,782 7,263 19,135 19,774 25,011 35,651
Mortgages payable
and other borrowings 12,344 22,943 25,498 27,616 26,618 30,367
Deferred interest on the
subordinated debentures 2,110 2,106 2,806 2,722 3,494 12,049
Stockholders' equity (deficit) 58,162 54,142 41,462 35,758 26,532 (6,988)
Book value per share (k) 7.31 6.81 5.26 4.64 3.44 (0.16)
Book value per share
assuming market value of BBC (k) 8.58 13.27 7.01 10.22 5.33 (9.58)
Return on assets (a) 1.6 % 10.5 % 7.0 % 8.5 % 30.8 % (2.1)%
Return on equity (a) 2.8 % 21.1 % 17.7 % 26.4 % 327.9 % (237.1)%
Equity to assets ratio (a) 57.7 % 49.7 % 39.4 % 32.3 % 9.4 % 0.9 %
</TABLE>
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
(d) Net gain from extinguishment of debt, net of income taxes of
$39,000.
(e) Gain from debt restructuring of approximately $181,000, net of income
taxes of $114,000, net gain from extinguishment of debt of $115,000,
net of income taxes of 72,000 and gain on settlements of litigation of
approximately $692,000, net of income taxes of $435,000.
(f) Gain on settlements of Exchange litigation of approximately $756,000,
net of income taxes of $475,000, net gain from extinguishment of debt
of $115,000, net of income taxes of $72,000 and net gain from debt
restructuring of approximately $181,000, net of income taxes of
$114,000.
(g) Gain on settlements of Exchange litigation of approximately $853,000,
net of income taxes of $611,000.
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(h) Gain from extinguishment of debt of approximately $460,000, net of
income taxes of $218,000 and gain on settlements of Exchange litigation
of approximately $3.2 million, net of income taxes of $1.5 million.
(i) Gain on settlements of Exchange litigation, net of income taxes of
$214,000.
(j) Cumulative effect of change in accounting for income taxes
(k) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share and book value per share.
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RISK FACTORS
An investment in the Class A Common Stock or the Subordinated
Debentures involves a high degree of risk. You should carefully consider,
together with the other information contained in this Prospectus, the following
factors in evaluating the Company and its business before purchasing the Class A
Common Stock or the Subordinated Debentures.
Some of the statements contained in this Prospectus are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act. The words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of these forward-looking statements. Actual results
could differ materially from those suggested by 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:
/bullet/ the Company's limited sources of funds from which it may
meet its obligations,
/bullet/ the potential adverse impact on BankAtlantic's operations and
profitability of changes in interest rates and future
legislation,
/bullet/ economic factors (both generally and particularly in areas
where the Company or its subsidiaries (including BBC,
BankAtlantic and their subsidiaries) operate or hold assets),
/bullet/ interest rate and credit risk associated with BankAtlantic's
loan portfolio,
/bullet/ increased operating expenses and the successful integration of
recently acquired businesses and new lines of business,
/bullet/ regulatory limitations on BBC's and BankAtlantic's ability to
pay dividends, and
/bullet/ the highly competitive nature of BBC's and BankAtlantic's
businesses.
Many of these factors are beyond the Company's control and beyond the control of
BBC and BankAtlantic.
RISKS ASSOCIATED WITH THE COMPANY
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The majority of BBC's assets and liabilities are monetary in nature and
subject BBC to significant risk from changes in interest rates. Changes in
interest rates can impact BBC's net interest income as well as the valuation of
its assets and liabilities.
INTEREST RATE SENSITIVITY GAP
BankAtlantic's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on its
interest-earning assets (such as loans) and its interest expense on its
interest-bearing liabilities (such as deposits). Like most financial
institutions, changes in general interest rate levels and other economic factors
affect BankAtlantic's profitability. If there is a mismatch between the dollar
amount of repricing or maturing assets (such as loans) and liabilities (such as
time deposits), a financial institution is said to have an "interest rate
sensitivity gap." A financial institution's interest rate risk arises from an
interest rate sensitivity gap. Financial institutions measure this interest rate
risk in terms of the ratio of the interest rate sensitivity gap to the
institution's total assets. If more assets reprice or mature over a given time
frame than liabilities, the financial institution is considered
"asset-sensitive." This risk is reflected as a positive gap. Conversely, if more
liabilities reprice or mature over a given time frame than assets, the financial
institution will be considered "liability-sensitive." This risk is reflected as
a negative gap.
An asset-sensitive position (i.e., a positive gap) will generally
enhance earnings in a rising interest rate environment (because more
interest-earning assets will be repriced or replaced at higher interest rates
than interest-paying liabilities). In a falling interest environment an
asset-sensitive position will generally negatively
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impact earnings (since more interest-earning assets will be repriced or replaced
at lower interest rates than interest-bearing liabilities). Conversely, a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment (more interest-bearing
liabilities are replaced or repriced at lower rates than interest-earning
assets) and negatively impact earnings in a rising interest rate environment
(more interest-bearing liabilities will be replaced or repriced at higher rates
than interest-earning assets).
At September 30, 1998, BankAtlantic had a one year negative
cumulative gap of 2.80%. This negative one year gap position may, as noted
above, have a negative impact on BankAtlantic's earnings in a rising interest
rate environment. However, it is important to note that BBC makes a number of
assumptions to calculate its interest rate sensitivity gap. These assumptions
relate to interest rates, loan prepayment rates and deposit decay rates and the
assumptions may not prove to be correct. Accordingly, BBC's interest rate
sensitivity gap may not accurately reflect the impact of changes in interest
rates on BBC's profitability. In addition, management of BankAtlantic may take
reactive measures in response to changes in interest rates that may not be
reflected in the calculation of its interest rate sensitivity gap. While
BankAtlantic has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates, there is no assurance that these strategies will be successful.
ADVERSE IMPACT OF ACCELERATED PREPAYMENTS ON NET INTEREST INCOME
Generally, as interest rates fall, loan prepayments accelerate. Owing
in part to current historically low interest rates, BankAtlantic experienced a
high volume of loan prepayments in its mortgage portfolio and in its servicing
portfolio during the nine months ended September 30, 1998. Those prepayments
adversely affected its earnings during this period, especially during the three
months ended September 30, 1998. Loan servicing and other loan fee income
declined by $3.9 million as a result of increased mortgage prepayments during
the nine-month period, including the amortization of premiums associated with
MSRs relating to the prepaid loans. BankAtlantic amortized the MSRs because the
prepayment of the associated loans terminated the servicing associated with
them. The yields earned with respect to the portion of BankAtlantic's mortgage
portfolio which were prepaid were greater than alternative short term
investments in which BankAtlantic reinvested such funds, also adversely impacted
earnings for the nine-month period. Significant loan prepayments in
BankAtlantic's mortgage portfolio and MSR portfolio in the future could have a
similar adverse effect on earnings. Prepayments of the underlying loans also
have an adverse effect on BankAtlantic's ability to sell MSRs at a profit. At
September 30, 1998, BankAtlantic serviced approximately 31,000 loans with
outstanding principal balances serviced of $3.0 billion and net MSRs of $51.7
million.
ADVERSE IMPACT OF ACCELERATED PREPAYMENTS ON VALUATION OF FINANCIAL
INSTRUMENTS
Changes in general interest rate levels also affect the valuation of
BBC's assets and liabilities that are interest rate sensitive, including MSRs.
BBC may be required under generally accepted accounting principles to establish
a valuation allowance to reflect a decline in the market value of its assets as
a result of changes in interest rates. For the three months ended September 30,
1998, BankAtlantic established a valuation allowance of $15 million to reflect
the decline in the market value of its MSRs primarily as a result of
historically low interest rate levels and the anticipated acceleration of
prepayments of the loans associated with the MSRs. While BBC intends to exit the
mortgage servicing business, BBC's results of operations would be adversely
affected in future periods if changes in interest rates adversely impacts the
market value of its assets and liabilities. See "Summary-BBC-Recent
Developments".
RECENT RAPID GROWTH AND INCREASED OPERATING EXPENSES
During the last three years, BBC and BankAtlantic have grown rapidly
and significantly. Total assets of BBC have increased from $1.75 billion at
December 31, 1995 to $2.6 billion at December 31, 1996, to $3.1 billion at
December 31, 1997 and to approximately $3.7 billion at September 30, 1998. BBC
also experienced a
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significant level of loan growth. BBC's loan portfolio increased from $828.6
million at December 31, 1995, to $2.5 billion at September 30, 1998. Part of
such growth reflects BBC's acquisition of Bank of North America ("BNA"), a
commercial bank located in South Florida.
BBC has recently initiated several new business units, hired additional
personnel and taken steps to enhance and expand its operational and management
information systems. These steps are intended to support and manage its expanded
operations and to provide management resources to support further expansion and
growth.
BBC has attempted to monitor its rapid growth, the adequacy of
management and the resources available to support continued growth. However,
there is no assurance that BBC will be successful in managing all aspects of its
growth. The growth and expansion of operations through both mergers and
acquisitions and internal growth has resulted in a significant increase in
assets, loans and deposits, as well as increases in non-interest expenses.
Employee compensation and benefits increased 21.13% from $33.2 million to $40.2
million for 1996 compared to 1997. During the same period, its occupancy and
equipment costs also increased 37.1% from $13.6 million to $18.7 million.
Employee compensation and benefits costs increased 43.6% from $28.8 million
during the nine months ended September 30, 1997 to $41.5 million during the nine
months ended September 30, 1998. Employee compensation and cost of benefits of
BankAtlantic alone (which excludes Ryan Beck and real estate operations)
increased 22.7% from $28.8 million during the nine months ended September 30,
1997 to $35.4 million during the nine months ended September 30, 1998. Likewise,
occupancy and equipment costs increased 18.7% from $13.8 million during the nine
months ended September 30, 1997 to $16.4 million during the nine months ended
September 30, 1998. These increased expenses were primarily attributable to:
/bullet/ the BNA and Ryan, Beck acquisitions,
/bullet/ the opening of new branch offices, including 10 new branches
since January, 1998 and the growth of the ATM network during
1998,
/bullet/ the start-up by BankAtlantic of new business units, including
small business lending, trade finance, direct consumer
lending, sales management, electronic banking, cash management
and capital markets, and
/bullet/ the conversion of a substantial portion of BankAtlantic's data
processing functions in October of 1996 to an outside service
bureau.
Expenses associated with past growth have had, and expenses associated with
additional future growth will likely have, an adverse impact on earnings.
On December 15, 1998, BBC announced various restructuring initiatives
with a view to streamlining BBC operations and improving efficiencies. See
"Summary -- BBC - Recent Developments." However, there is no assurance that BBC
will be successful in its efforts.
CONSUMER LOAN PORTFOLIO - INDIRECT AUTOMOBILE LENDING
During the past several years, BankAtlantic has experienced significant
growth in its consumer loan portfolio, partially as a result of its acquisition
of financial institutions which had originated consumer loans in prior years.
Consumer loans (excluding second mortgages) increased to $259 million at
September 30, 1998 from $48.8 million at December 31, 1994. A significant amount
of these loans were indirect automobile loans (loans which BankAtlantic funds
through automobile dealers rather than funding directly to its retail
customers). At September 30, 1998, $216 million of BankAtlantic's consumer loan
portfolio consisted of indirect loans, primarily automobile loans.
Consumer loans, especially indirect automobile loans, generally present
more credit risk than other types of loans such as home equity or residential
real estate loans. Because these loans present a greater risk, they also
generally result in a higher level of charge-offs (amounts written off as
uncollected) than those of other loans.
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During the year ended December 31, 1997 and the nine months ended September 30,
1998, consumer loan net charge-offs were $8.4 million and $6.0 million,
respectively, of which $6.6 million and $5.3 million, respectively, were
attributable to indirect automobile loans. On December 15, 1998, BBC announced
that BankAtlantic has discontinued the production of new indirect automobile
consumer loans because available interest rate spreads and credit quality are
not consistent with its long term goals. See "Summary -- BBC- Recent
Developments." However, BankAtlantic may re-enter this market in the future and
may suffer additional losses in its current consumer loan portfolio.
LOAN PORTFOLIO CONSIDERATIONS
Loans receivable, net at BankAtlantic (the amount payable to
BankAtlantic on the loans it originates less its reserve for nonpaying loans)
increased by approximately $1.7 billion or 207% at September 30, 1998 from
December 31, 1995. Balances for all loan categories increased in 1996, 1997 and
in the first three quarters of 1998 due to approximately $395.0 million of loans
acquired in connection with the acquisition of BNA and approximately $465.9
million, $524.5 million and $1.1 billion of wholesale residential loan purchases
during 1996, 1997 and the nine months ended September 30, 1998, respectively.
BankAtlantic's commercial real estate and construction and development
loans increased by approximately $247.2 million or 52.3% at September 30, 1998
from December 31, 1995. The real estate underlying many of those commercial real
estate and construction and development loans is concentrated in Broward,
Miami-Dade and Palm Beach Counties, Florida and may be in the early stages of
development. BankAtlantic's competitors over the last several years have also
increased their funding availability for commercial real estate projects. These
increases could result in over building and a decline in real estate values. A
decline in the real estate market, or in economic conditions in general, in
Broward, Miami-Dade and Palm Beach counties could have a material adverse effect
on BankAtlantic's financial condition and results of operations.
The real estate securing the wholesale residential loans purchased by
BankAtlantic is generally located outside BankAtlantic's primary market area.
These loans are subject to risks associated with the economy where the
collateral is located and additional risks regarding collection.
BROAD ACQUISITION AUTHORITY
Under applicable law, the Company and BBC each generally have broad
authority to engage in various types of business activities, including
investments in real estate, real estate development and real estate related
businesses. Since its inception in 1980, and prior to acquiring control of BBC,
the Company's primary business was the organization, sale and management of real
estate investment programs. A subsidiary of the Company continues to serve as
the corporate general partner of a public limited partnership which files
periodic reports with the SEC under the Exchange Act. Subsidiaries of the
Company also serve as corporate general partners of a number of private limited
partnerships formed in prior years. During the last five years, the Company has
made significant investments in two projects, the "Cypress Creek" and "Center
Port" properties. Although the Company sold its interest in the Cypress Creek
property in 1996, the Company continues to hold its interest in the Center Port
property. While the Company ceased the organization and sale of new real estate
investment programs in 1987, the Company could resume the organization of real
estate investment programs or pursue additional real estate investments in the
future.
BBC has historically made acquisitions and investments as a means of
diversifying its sources of non-interest income and to increase non-interest
revenues. BankAtlantic and BBC have made, among others, the following
acquisitions and investments:
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/bullet/ REAL ESTATE - BankAtlantic acquired St. Lucie West Holding
Corp. ("SLWHC") in October 1997 for approximately $20 million.
SLWHC is the developer of St. Lucie West, a master planned
residential, commercial and industrial community located in
St. Lucie County, Florida. In addition, BankAtlantic and BBC
have made minority investments in real estate development
projects located in South Florida.
/bullet/ EQUIPMENT LEASING - On March 20, 1998 BBC acquired Leasing
Technology, Inc. ("LTI"), an equipment leasing and finance
company located in South Florida, in a stock for stock
exchange valued at approximately $6.2 million. BBC contributed
the capital stock of LTI to BankAtlantic shortly after the
acquisition and LTI is now operated as a subsidiary of
BankAtlantic.
/bullet/ INVESTMENT BANKING AND BROKERAGE SERVICES - On June 30, 1998,
BBC acquired Ryan Beck, in a stock for stock exchange valued
at approximately $38 million. Ryan Beck is operated as an
independent, autonomous subsidiary of BBC under the direction
of its current management.
These acquisitions of and investments in businesses not engaged in
traditional banking activities subject BBC, and the Company as the principal
shareholder of BBC, to the risks inherent in the businesses of the acquired
companies.
REAL ESTATE DEVELOPMENT ACTIVITIES
In addition to the Company's direct real estate activities in
connection with the Center Port property and its other real estate assets, BBC
currently engages in real estate development and investment activities, both
through SLWHC and through BankAtlantic's minority interests in real estate
development projects.
The real estate industry is highly cyclical by nature and future market
conditions are uncertain. Accordingly, investments in real estate activities are
highly speculative and represent a high degree of risk. Factors which adversely
affect the real estate and home building industries include:
/bullet/ decreases in employment levels,
/bullet/ the availability and cost of financing,
/bullet/ decreases in demand,
/bullet/ unfavorable interest rates,
/bullet/ over-building,
/bullet/ a slow down in home sales and construction,
/bullet/ a surplus of available real estate and related projects, and
/bullet/ the significant volatility and fluctuations in underlying
real estate values.
In addition, SLWHC, the developer of St. Lucie West, incurred operating
expenses of approximately $3.7 million for the nine months ended September 30,
1998. Periodic sales of properties in St. Lucie West may be insufficient to
ensure profitability of SLWHC. Further, if sales are not adequate to cover
operating expenses, SLWHC or BDC will be required to seek a source of additional
operating funds.
While BBC has announced that it is considering a spin-off of its real
estate activities in BDC to its shareholders, there is no assurance that the
spin-off will be effected and even if effected, the Company, as a significant
shareholder of BDC, will continue to be subject to the risks of the investment.
See "Summary -- BBC- Recent Developments." Further, declines in real estate
values or in the economy generally could have a material adverse impact on BBC's
and the Company's results of operations based on the nature of the Company's
assets and the composition of BankAtlantic's loan portfolio.
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REGULATORY OVERSIGHT
The banking industry is one of this country's most heavily regulated
industries. The OTS is BankAtlantic's chartering authority and its primary
federal regulator. The OTS regulates, supervises and examines BankAtlantic. The
OTS also regulates and oversees the Company and BBC, as the holding companies of
BankAtlantic. In addition to the OTS, the FDIC also regulates, supervises and
examines BankAtlantic by virtue of insuring its deposits up to applicable
limits. Furthermore, BankAtlantic is a member of the FHLB of Atlanta and,
consequently, is subject to certain limited regulation by the Federal Reserve
Board. The regulation and supervision of financial institutions governs their
activities and is intended primarily for the protection of the FDIC insurance
funds and depositors. Regulatory authorities possess extensive discretion in
connection with their supervisory and enforcement activities. As an example,
banking regulators have implemented regulations which have increased capital
requirements, have increased insurance premiums and have resulted in increased
administrative, professional and compensation expenses for the institutions
which they regulate. Any change in the existing regulatory structure or the
applicable statutes could have a material impact on BankAtlantic, BBC and the
Company and their respective operations. Additional future legislation and
regulations could significantly affect the powers, authority and operations of
BankAtlantic, BBC, the Company and their competitors. Any such future
legislation or regulation could have a material adverse effect on BankAtlantic,
BBC and the Company and their respective operations.
COMPETITION
Competitors of BankAtlantic, BBC and the Company include:
/bullet/ other savings institutions,
/bullet/ investment firms,
/bullet/ commercial banks,
/bullet/ finance companies,
/bullet/ mortgage banking companies,
/bullet/ money market funds,
/bullet/ credit unions, and
/bullet/ real estate developers and operators.
Many of these competitors have substantially greater financial
resources than BBC and the Company and, in some cases, operate under fewer
regulatory constraints. BBC and BankAtlantic compete not only with financial
institutions headquartered in the State of Florida but also with a growing
number of financial institutions headquartered outside of Florida who are active
in the state.
RISKS INHERENT IN INVESTMENTS; LIMITED INVESTMENT TRACK RECORD
The Company may invest a significant portion of the proceeds from the
Offerings in securities of publicly-traded and privately held companies.
The Company's investment in a business will be subject to the risks associated
with the industry in which that business operates as well as general economic
conditions. Additionally, an investment in a public company will be subject to
fluctuations in the stock market generally. Investments in privately-held
companies are generally illiquid and the Company may not be able to liquidate
its investment at prices reflective of inherent value. To date, the Company has
not identified any prospective companies or industries in which to invest, and
accordingly, there is no basis to evaluate the merits or risks of the businesses
in which the Company may ultimately invest.
Although management will evaluate the risks inherent in a particular
industry or business prior to making an investment decision, you should know
that management's experience has generally consisted of making investments for
their individual and joint accounts. Management has no established track record
of investing
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corporate funds in the debt or equity securities of third parties from which you
can evaluate the success of prior investments. There is no assurance that the
Company will make profitable investments.
INVESTMENT COMPANY ACT CONSIDERATIONS
The Company may invest proceeds of the Offerings in securities of
publicly-traded and privately held businesses. These investments could subject
the Company to the registration requirements of the Investment Company Act of
1940 (the "Investment Company Act"). Registration under the Investment Company
Act would subject the Company to substantive regulations which could have a
material adverse effect on its business. The Company intends to conduct its
business in a manner which would not result in the Company being subject to the
Investment Company Act's registration requirements. While management believes
that the Company can avoid becoming subject to those registration requirements,
there is no assurance that the Company will not become subject to those
requirements in the future.
RISK ASSOCIATED WITH THE CLASS A COMMON STOCK AND THE SUBORDINATED DEBENTURES
SOURCES OF PAYMENTS TO HOLDERS OF THE COMPANY'S SECURITIES
The Company's holdings in BBC represent approximately 31% of BBC's
outstanding common stock and represent approximately 82% of the Company's total
assets. BBC is the holding company for BankAtlantic and owns 100% of
BankAtlantic's outstanding capital stock. The Company depends upon dividends
from BBC for a significant portion of its revenues. In turn, BBC depends upon
dividends from BankAtlantic for a significant portion of its revenues.
BankAtlantic's ability to pay dividends or make other capital distributions to
BBC is governed by OTS regulations, which focus primarily on BankAtlantic's
regulatory capital levels and net income. OTS regulations define "capital
distributions" as (i) cash dividends, (ii) payments by a savings association or
savings bank holding company to repurchase or otherwise acquire its shares,
(iii) payments to shareholders of another entity in a cash-out merger, and (iv)
other distributions charged against capital.
If an institution has regulatory capital that is at least equal to its
capital requirements (both before and after giving effect to the distribution),
and has not been notified that it "is in need of more than normal supervision,"
the OTS deems it a "Tier 1 association." BankAtlantic currently qualifies as a
Tier 1 association under applicable OTS regulations. The OTS permits a Tier 1
association to make capital distributions during a calendar year of up to the
greater of (i) 100% of net income for the current calendar year, plus 50% of its
capital surplus ("surplus" being the amount of capital in excess of its
regulatory capital requirements) or (ii) 75% of its net income over the most
recent four quarters. However, the association seeking to pay the capital
distribution must first notify the OTS of its intention and the OTS must not
raise any objection to the distribution. Any additional capital distributions
would require prior regulatory approval. Additionally, all capital distributions
of BankAtlantic are subject to the OTS' right to object to a distribution on
safety and soundness grounds. There is no assurance that BankAtlantic will
remain a Tier 1 association or that it will be in a position to make capital
distributions to BBC in an amount sufficient for BBC to satisfy its obligations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of recent losses incurred during the third quarter
of 1998 BBC and see "Summary -- BBC -- Recent Developments" for a discussion of
losses incurred by BBC for the year ended December 31, 1998.
The Company's ability to pay interest on the Subordinated Debentures
and dividends on the Class A Common Stock will be significantly dependent on the
ability of BankAtlantic to pay dividends to BBC in amounts sufficient to service
BBC's obligations and for BBC to pay dividends to the Company in amounts
sufficient for the Company to satisfy its obligations. BBC's obligations include
making payments on its outstanding:
/bullet/ 9% Subordinated Debentures due 2005 ($21 million outstanding
principal amount at September 30, 1998),
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/bullet/ 6 3/4% Convertible Subordinated Debentures due 2006 ($51.2
million outstanding principal amount at September 30, 1998),
/bullet/ 5 5/8% Convertible Subordinated Debentures due 2007 ($100.0
million outstanding principal amount at September 30, 1998),
and
/bullet/ 9 1/2% Junior Subordinated Debentures due 2027 ($74.75
million outstanding principal amount at September 30, 1998),
BBC may also become obligated to make other payments on securities which it
issues in the future which are pari passu or have a preference over the BBC
Common Stock with respect to the payment of principal, interest or dividends.
The Company's obligations, not including BBC or BankAtlantic's obligations,
include making payments on its outstanding:
/bullet/ unsecured subordinated debentures (with an outstanding
principal amount of $1.7 million and approximately $2.1
million of accrued deferred interest at September 30, 1998);
/bullet/ mortgage notes payable (aggregating $10.5 million in
outstanding principal amount at September 30, 1998); and
/bullet/ other borrowings aggregating approximately $1.8 million in
principal amount at September 30, 1998.
The Company may also become obligated to make other payments on
securities which it issues in the future which are pari passu or have a
preference over either the Class A Common Stock or Subordinated Debentures with
respect to the payment of principal, interest or dividends. The Company intends
to use the proceeds of these offerings to redeem its outstanding unsecured
subordinated debentures and to pay the deferred interest thereon.
LACK OF VOTING RIGHTS OF CLASS A COMMON STOCK; VOTING CONTROL
Holders of Class B Common Stock currently possess all voting power of
the Company. Holders of Class A Common Stock will have no right to vote in
connection with the election of the directors of the Company or any other matter
except in limited circumstances as provided by Florida law. As a group, the
directors and executive officers of the Company beneficially owned 3,515,710
shares, or approximately 73.4%, of the outstanding Class B Common Stock at
November 25, 1998. As such, the Company's existing management can control the
policies and management of the Company and elect a majority of the Company's
Board of Directors. Additionally, Alan B. Levan, the Chairman of the Board and
Chief Executive Officer of the Company, BBC and BankAtlantic, and John E. Abdo,
a director of the Company and BBC and the Vice-Chairman of the Board and
Chairman of the Executive Committee of BankAtlantic, may be deemed to
beneficially own at November 25, 1998 approximately 44.9% and 24.3% of the
shares of Class B Common Stock, respectively. Additionally, the ownership and
acquisition of additional shares by such persons are excepted from the terms of
the Company's Shareholder Rights Plan. See "Description of Common
Stock--Shareholder Rights Plan".
SECURITIES ARE NOT INSURED
Neither the Class A Common Stock nor the Subordinated Debentures are
insured by the Bank Insurance Fund or the Savings Association Insurance Fund of
the FDIC or by any other governmental agency.
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POSSIBLE ISSUANCE OF ADDITIONAL SECURITIES
There is generally no restriction on the Company's ability to issue
securities which are pari passu or have a preference over the Class A Common
Stock or the Subordinated Debentures. Likewise, there is also no
restriction on the ability of BBC or BankAtlantic to issue additional capital
stock or incur additional indebtedness. At September 30, 1998, 13,546,006 shares
of Class A Common Stock and 17,644,593 shares of Class B Common Stock were
authorized and available for issuance from time to time in the discretion of the
Company's Board of Directors, including issuances in connection with
acquisitions. In addition, at November 10, 1998, 53,290,186 shares of BBC Class
A Common Stock and 34,643,569 shares of BBC Class B Common Stock were authorized
and available for issuance from time to time in the discretion of BBC's Board of
Directors. The Company does not anticipate that shareholder approval will be
sought in connection with any such future issuances unless required by law or
the rules of any applicable stock exchange. In addition, the Company's Articles
of Incorporation also provide the Company's Board of Directors with the
authority to issue up to 10,000,000 shares of preferred stock, and to fix the
relative rights and preferences of the preferred stock, in each case without
shareholder approval.
RISKS ASSOCIATED WITH THE SUBORDINATED DEBENTURES
SUBORDINATION
The Subordinated Debentures are subordinated to all "Senior
Indebtedness" of the Company. Senior Indebtedness is generally defined as any
indebtedness or liability of the Company, regardless of when incurred or
created, which is not, by its terms, expressly subordinate or equal in right of
payment to the Subordinated Debentures. As of September 30, 1998, the Company
had approximately $12.34 million of Senior Indebtedness, approximately $8.89
million of indebtedness ranking on a par with the Subordinated Debentures ($4.0
million of which will be repaid using a portion of the proceeds of the
Offerings) and no indebtedness junior to the Subordinated Debentures. The
Indenture does not limit the Company's ability to incur additional indebtedness,
including Senior Indebtedness, or additional indebtedness by BBC, BankAtlantic
or the Company's other subsidiaries.
The Subordinated Debentures are obligations of the Company only and are
not obligations of BBC or BankAtlantic. Because the Company is a holding
company, its rights and the rights of its creditors, including the holders of
the Subordinated Debentures, to participate in any distribution of the assets of
BBC or BankAtlantic (either as a shareholder or as a creditor), upon a
liquidation, reorganization or insolvency of BBC or BankAtlantic (and the
consequent right of the holders of the Subordinated Debentures to participate in
those assets) is subject to the claims of the creditors of BBC or BankAtlantic
(including depositors in BBC or BankAtlantic). If the Company is a creditor of
BBC or BankAtlantic, the claims of the Company would be subject to any prior
security interest in the assets of BBC or BankAtlantic and any indebtedness of
BBC or BankAtlantic senior to that of the Company. As of September 30, 1998, BBC
had approximately $3.4 billion of liabilities (including $1.9 billion of
BankAtlantic deposits) and stockholders' equity of approximately $247 million.
LIMITED COVENANTS
The covenants in the Indenture are limited and do not protect holders
of Subordinated Debentures in the event of a material adverse change in the
Company's financial condition or results of operations. In addition, payment of
principal of and interest on the Subordinated Debentures can only be accelerated
if the Company:
/bullet/ fails to pay principal of or premium, if any, on the Subordinated
Debentures at maturity or upon redemption,
/bullet/ fails to pay interest on any of the Subordinated Debentures and such
failure continues for a 30-day period,
-18-
<PAGE>
/bullet/ breaches any of the provisions of the Indenture and such breach
continues for a period of 60 days after receipt of notice, or
/bullet/ reorganizes or becomes bankrupt or insolvent in certain circumstances.
The Company is not required to adhere to any financial ratios or specified
levels of liquidity. In addition, the Company is not required to repurchase,
redeem or modify the terms of the Subordinated Debentures upon a change in
control or other events involving the Company which may adversely affect the
creditworthiness of the Subordinated Debentures. Therefore, neither the
covenants nor the other provisions of the Indenture should be a significant
factor in evaluating whether the Company will be able to comply or will comply
with its obligations under the Subordinated Debentures. See "Description of the
Subordinated Debentures."
ABSENCE OF MARKET FOR SUBORDINATED DEBENTURES
The Subordinated Debentures have no established trading market. The
Company expects that the Subordinated Debentures will be traded in the
over-the-counter market and listed on the "yellow sheets" published by the
National Quotation Bureau, LLC. Although it has no obligation to do so,
__________________ intends to make a market in the Subordinated Debentures as
long as the volume of trading and other market-making considerations justify
such an undertaking. However, a public market having depth, liquidity and
orderliness depends on the presence in the marketplace of a sufficient number of
buyers and sellers at any given time; neither the Company nor market makers have
control over such a marketplace. In the event that ________________ or any other
entity does not make a market in the Subordinated Debentures, holders of
Subordinated Debentures would be limited to selling the Subordinated Debentures
in privately negotiated transactions. It is unlikely that an active trading
market will develop for the Subordinated Debentures. If an active trading market
does develop, there can be no assurance that such trading market will continue.
If a trading market does not develop, or is not maintained, holders of the
Subordinated Debentures may experience difficulty in reselling them or may be
unable to sell them at all. Additionally, since the prices of securities
generally fluctuate, there can be no assurance that purchasers of the
Subordinated Debentures will be able to sell the Subordinated Debentures at or
above the purchase price paid for such Subordinated Debentures.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Subordinated
Debentures are estimated to be approximately $___________ million ($_________
million if the Underwriter's over-allotment option is exercised in full) after
deduction of the underwriting discount and estimated expenses. The net proceeds
to the Company from the sale of the Class A Common Stock are estimated to be
approximately $___ million ($___ million if the Underwriter's over-allotment
option is exercised in full) after deduction of the underwriting discount and
estimated expenses. The net proceeds from the sale of the Subordinated
Debentures and the Class A Common Stock will be used to redeem the Company's
unsecured subordinated debentures (the "Debentures") and to pay deferred
interest accrued on the redeemed Debentures. The Company intends to use the
balance of the net proceeds to acquire additional shares of its affiliated
companies, to invest in the securities of publicly traded or privately held
companies and for general corporate purposes. At September 30, 1998, the Company
had outstanding an aggregate of $1.7 million of Debentures, together with
deferred interest payable on the Debentures of approximately $2.1 million.
Debentures in an aggregate principal amount of approximately $1.4 million bear
interest at a rate of 12% per annum and mature in July 2009 and Debentures in an
aggregate principal amount of approximately $280,000 bear interest at a rate of
13% per annum and mature in July 2011.
-19-
<PAGE>
PRICE RANGE FOR COMMON STOCK AND DIVIDENDS
The Class A Common Stock and the Class B Common Stock are each traded
on the OTC Bulletin Board under the symbols "BFCFA" and "BFCFB," respectively.
On September 30, 1998 there were approximately 658 record holders of the Class A
Common Stock and 6,453,994 shares issued and outstanding and 650 record holders
of the Class B Common Stock and 2,355,407 shares issued and outstanding.
On October 6, 1997, the Board of Directors of the Company declared a
five-for-four stock split effected in the form of a 25% stock dividend issued in
shares of the Company's Class A Common Stock. The Class A Common Stock was a
newly authorized series of the Company's capital stock and no shares were
outstanding prior to the dividend. Pursuant to the Company Articles of
Incorporation, the Company's then existing common stock was automatically
redesignated as Class B Common Stock without changing any of its rights and
preferences upon the authorization by the Board of the stock dividend. On
January 15, 1998, the Board of Directors of the Company declared a three-for-one
stock split effected in the form of a stock dividend of two shares of Class A
Common Stock for each outstanding share of Class A Common Stock and Class B
Common Stock.
The following table sets forth, for the periods indicated, the high bid
and low asking prices of the Class A Common Stock and the Class B Common Stock
as reported by the National Quotation Bureau, L.L.C.
-20-
<PAGE>
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1998
First Quarter............................................ $15.50 $ 9.34 $15.17 $ 9.34
Second Quarter........................................... $12.63 $ 9.25 $12.75 $ 9.00
Third Quarter............................................ $11.63 $ 6.25 $10.88 $ 6.00
Fourth Quarter through November 30, 1998................. $ 9.13 $ 4.31 $10.50 $ 6.00
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter............................................ N/A N/A $3.73 $3.00
Second Quarter........................................... N/A N/A $4.00 $3.13
Third Quarter............................................ N/A N/A $10.13 $3.93
Fourth Quarter .......................................... $10.17 $9.33 $10.40 $7.33
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter............................................ N/A N/A $2.07 $1.67
Second Quarter........................................... N/A N/A $2.47 $2.07
Third Quarter............................................ N/A N/A $3.73 $2.13
Fourth Quarter........................................... N/A N/A $3.93 $3.07
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter............................................ N/A N/A $1.35 $0.87
Second Quarter........................................... N/A N/A $1.77 $1.23
Third Quarter............................................ N/A N/A $3.00 $1.60
Fourth Quarter........................................... N/A N/A $2.40 $1.73
</TABLE>
On February 9, 1999, the last sale price of the Class A Common Stock
was $7.00 per share and the last sale price of the Class B Common Stock was
$7.75 per share, in each case as reported by the National Quotation Bureau,
L.L.C.
No cash dividends have been paid by the Company since its inception.
There are no restrictions on the payment of cash dividends by the Company except
that no cash dividends may be paid to the holders of any equity securities of
the Company while any deferred interest on the Debentures remains unpaid. The
Company has deferred interest payments on the Debentures in an aggregate amount
of approximately $2.1 million at September
-21-
<PAGE>
30, 1998. The Company's ability to pay cash dividends is significantly dependent
on the ability of BBC to pay dividends on the BBC Common Stock.
While there is no assurance that BBC will pay dividends in the future,
BBC has paid a regular quarterly dividend to its common stockholders since
August, 1993. Each share of BBC Class A Common Stock is entitled to receive cash
dividends equal to at least 110% of any cash dividends declared and paid on the
BBC Class B Common Stock. Management of BBC has indicated that it will seek to
declare regular quarterly cash dividends on the BBC Common Stock. However, the
payment of dividends by BBC is subject to declaration by BBC's Board of
Directors and will depend upon, among other things, the results of operations,
financial condition and cash requirements of BBC and on the ability of
BankAtlantic to pay dividends or otherwise advance funds to BBC, which in turn
is subject to OTS regulations and is based upon BankAtlantic's regulatory
capital levels and net income. See "Risk Factors-Sources of Payments to Holders
of the Company's Securities." See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of recent losses
incurred during the third quarter of 1998 at BankAtlantic and BBC and see
"Summary -- BBC -- Recent Developments" for a discussion of losses incurred by
BBC for the year ended December 31, 1998.
On January 10, 1997, the Board of Directors of the Company adopted a
Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of the Company's Class B Common Stock to shareholders of
record on January 21, 1997. Each Right will become exercisable only upon the
occurrence of certain events, including the acquisition of 20% or more of Class
B Common Stock by persons other than the then existing control shareholders (as
specified in the Rights Plan), and will entitle the holder to purchase either
BFC stock or shares in the acquiring entity at half the market price of such
shares. The Rights may be redeemed by the Board of Directors at $.01 per Right
until the tenth day following the acquisition of 20% or more of the Class B
Common Stock by persons other than the existing control shareholders. The Board
may also, in its discretion, extend the period for redemption.
The Rights will expire on January 10, 2007.
MARKET FOR THE SUBORDINATED DEBENTURES
The Company expects that the Subordinated Debentures will be traded in
the over-the-counter market and listed on the "yellow sheets" published by the
National Quotation Bureau, L.L.C. Although the Company expects that the
Underwriter will make a market in the Subordinated Debentures, such Underwriter
will not be obligated to do so and any such market making may be discontinued at
any time. Accordingly, there is no assurance that an active and liquid trading
market will develop or, if developed, that such a market will be sustained. The
offering price and interest rate for the Subordinated Debentures will be
determined by negotiations among representatives of the Company and the
Underwriter, however, the offering price of the Subordinated Debentures may not
be indicative of the market price following the Offering. See "Underwriting."
CAPITALIZATION
The following table sets forth the consolidated historical
capitalization of the Company at September 30, 1998 and as adjusted to reflect
(i) the sale of the Class A Common Stock offered hereby and the estimated net
proceeds therefrom, (ii) the sale of the Subordinated Debentures offered hereby
and the estimated net proceeds therefrom and (iii) the sale of both the Class A
Common Stock and the Subordinated Debentures offered hereby and the aggregate
estimated net proceeds therefrom. The information below should be read in
conjunction with the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
-22-
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------------
AS AS AS
ACTUAL ADJUSTED(1) ADJUSTED(2) ADJUSTED(3)
------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES:
Subordinated debentures, net $ 6,782 $ 5,082 $ 5,082 $ 5,082
Deferred interest on subordinated debentures 2,110 0 0 0
Mortgage and other borrowings 12,344 12,344 12,344 12,344
____% Subordinated Debentures due _________, 2009 ---- ---- $ 15,000 $ 15,000
SHAREHOLDERS' EQUITY
Class A common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding 6,453,994,
7,453,994, 6,453,994 and 7,453,994, respectively 58 ___________ 58 __________
Class B common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding 2,355,407 21 21 21 21
Additional paid-in capital 26,114 ___________ 26,114 __________
Retained earnings 31,889 31,889 31,889 31,889
------------- -------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 58,082 59,343
============= ============== ============= =============
</TABLE>
(1) As adjusted for the estimated net proceeds from the sale of the
Class A Common Stock being offered hereby and assumes that
the Underwriter's over allotment option is not exercised.
(2) As adjusted for the estimated net proceeds from the sale of the
Subordinated Debentures and assumes that the Underwriter's over
allotment option is not exercised.
(3) As adjusted for the estimated aggregate net proceeds from the sale of
both the Class A Common Stock and the Subordinated Debentures
offered hereby.
SELECTED HISTORICAL FINANCIAL DATA
The Selected Consolidated Financial Data presented below has been derived
from the audited and unaudited consolidated financial statements of the Company
and BBC and are qualified in their entirety by reference to the more detailed
respective consolidated financial statements and independent auditors' reports
of each of the Company and BBC included elsewhere in this Prospectus. Where
appropriate, amounts and percentages have been adjusted to reflect the Company's
five-for-four common stock split effected in the form of a 25% stock dividend
issued in shares of Class A Common Stock in October 1997 and the Company's
three-for-one common stock split effected in the form of a dividend issued in
January 1998 of two shares of Class A Common Stock for each outstanding share of
Class A Common Stock and Class B Common Stock. In addition, where appropriate
amounts and percentages relating to BBC have been adjusted to reflect BBC's
five-for-four common stock splits effected in the form of 25% stock dividends
issued in shares of BBC Class A Common Stock in February 1998 and August 1997.
-23-
<PAGE>
<TABLE>
<CAPTION>
BFC FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data
(In thousands, except for per share data and percents)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------------------------------
1998 1997 1997 1996 1995
--------- ------------ --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $ 10,784 12,423 16,354 21,661 11,711
Costs and expenses 8,841 2,366 3,366 12,679 7,481
Income (loss) before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary items 1,943 10,057 12,988 8,982 4,230
Provision for income taxes (benefit) 395 3,042 4,222 2,924 -
Extraordinary items, net of income
taxes and minority interest 61 (d) 988 (e) 1,052 (f) 853 (g) 3,702 (h)
Net income (loss) 1,609 8,003 9,818 6,911 7,932
COMMON STOCK (L):
Basic earnings per share (m)
Before Extraordinary items 0.19 0.88 1.10 0.78 0.55
Extraordinary items 0.01 0.12 0.13 0.11 0.48
Net income (loss) 0.20 1.00 1.23 0.89 1.03
Diluted earnings per share (m)
Before Extraordinary items 0.17 0.82 1.00 0.73 0.55
Extraordinary items 0.01 0.11 0.12 0.10 0.48
Net income (loss) 0.18 0.93 1.12 0.83 1.03
Basic weighted average of common
shares outstanding (m) 7,953 7,935 7,938 7,811 7,709
Diluted weighted average of common
shares outstanding (m) 9,156 8,592 8,731 8,347 7,709
Ratio of earnings to fixed charges (c) 1.80 2.04 1.69 1.33 0.26
Dollar deficiency of earnings to
fixed charges (c) - - - - 3,370
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993
------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues 27,289 15,815
Costs and expenses 24,376 17,118
Income (loss) before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary items 2,913 (1,303)
Provision for income taxes (benefit) (2,009) -
Extraordinary items, net of income
taxes and minority interest 22,744 (i) (501) (j)
Net income (loss) 27,666 (1,804)
COMMON STOCK (L):
Basic earnings per share (m)
Before Extraordinary items 0.64 (0.27)
Extraordinary items 2.95 (0.07)
Net income (loss) 3.59 (0.34)
Diluted earnings per share (m)
Before Extraordinary items 0.64 (0.27)
Extraordinary items 2.95 (0.07)
Net income (loss) 3.59 (0.34)
Basic weighted average of common
shares outstanding (m) 7,709 7,355
Diluted weighted average of common
shares outstanding (m) 7,709 7,355
Ratio of earnings to fixed charges (c) 0.47 (0.30)
Dollar deficiency of earnings to
fixed charges (c) 4,374 11,796
(continued)
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------- -----------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- -------- -------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Investment in BankAtlantic
Bancorp, Inc. ("BBC") 76,844 72,185 59,039 52,662 43,768 36,436
Loans receivable, net 1,766 1,859 2,180 5,168 4,904 9,179
Securities available for sale 919 1,478 6,819 5,105 5,869 20,373
Investment
real estate, net (k) 6,496 9,700 10,383 11,072 11,169 18,315
Real estate held for development
and sale 2,538 6,474 6,497 10,211 9,912 -
Total assets 93,751 98,871 98,841 96,896 91,291 87,495
Subordinated debentures, net 6,782 7,263 19,135 19,774 25,011 35,651
Mortgages payable
and other borrowings 12,344 22,943 25,498 27,616 26,618 30,367
Deferred interest on the
subordinated debentures 2,110 2,106 2,806 2,722 3,494 12,049
Redeemable common stock - - - - - 5,776
Stockholders' equity 58,162 54,142 41,462 35,758 26,532 (6,988)
Book value per share (m) 7.31 6.81 5.26 4.64 3.44 (0.16)
Book value per share
assuming market value of BBC (m) 8.58 13.27 7.01 10.22 5.33 (9.58)
Return on assets (a) 1.6 % 10.5 % 7.0 % 8.5 % 30.8 % (2.1)%
Return on equity (a) 2.8 % 21.1 % 17.7 % 26.4 % 327.9 % (237.1)%
Equity to assets ratio (a) 57.7 % 49.7 % 39.4 % 32.3 % 9.4 % 0.9 %
</TABLE>
(a) Ratios were computed using quarterly averages.
(b) Since its inception, the Company has not paid any dividends.
(c) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
(d) Gain from extinguishment of debt, net of income taxes of $39,000.
(e) Gain from debt restructuring of approximately $181,000, net of income
taxes of $114,000, net gain from extinguishment of debt of $115,000,
net of income taxes of $72,000 and gain on settlements of litigation of
approximately $692,000, net of income taxes of $435,000.
(f) Gain on settlements of Exchange litigation of approximately $756,000,
net of income taxes of $475,000, net gain from extinguishment of debt
of $115,000, net of income taxes of $72,000 and net gain from debt
restructuring of approximately $181,000, net of income taxes of
$114,000.
(g) Gain on settlements of Exchange litigation of approximately $853,000,
net of income taxes of $611,000. (h) Gain from extinguishment of debt
of approximately $460,000, net of income taxes of $218,000 and gain on
settlements of Exchange litigation of approximately $3.2 million, net
of income taxes of $1.5 million.
(i) Gain on settlements of Exchange litigation, net of income taxes of
$214,000.
(j) Cumulative effect of change in accounting for income taxes
(k) Investment real estate, net represents the properties acquired in the
1989 and 1991 Exchange. (l) Prior to 1997 there were no Class A common
shares outstanding.
All shares outstanding prior to 1997 were Class B common shares. While
the Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(m) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share and book value per share.
-25-
<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BFC FINANCIAL CORPORATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a unitary savings bank holding company which owns in the
aggregate approximately 31.5% of the outstanding BBC Common Stock. BBC is the
holding company for BankAtlantic and owns 100% of its outstanding common stock.
The Company's ownership interest in BBC has been recorded by the purchase method
of accounting. Based on the equity method of accounting, the Company's
investment in BBC represents approximately 82% of the Company's consolidated
assets as of September 30, 1998. At September 30, 1998, the Company owned
6,578,671 shares of BBC Class A Common Stock and 4,876,124 shares of BBC Class B
Common Stock representing 31.5% of all outstanding BBC Common Stock. At
September 30, 1998, the Company's ownership in the outstanding BBC Class A and B
Common Stock was approximately 25% and 47%, respectively. The aggregate market
value of the Company's investment in BBC at September 30, 1998 was approximately
$92.4 million or approximately $15.6 million in excess of the carrying value in
the financial statements. At December 31, 1997, the Company's ownership in the
outstanding BBC Class A and B Common Stock was approximately 30.6% and 45.6%,
respectively, in the aggregate representing 35.6% of all outstanding BBC Common
Stock
On October 6, 1997, the Board of Directors of the Company declared a five for
four stock split effected in the form of 25% stock dividend, payable in shares
of the Company's newly authorized Class A Common Stock. The Class A Common Stock
was a newly authorized series of the Company's capital stock and no shares were
outstanding prior to the dividend. Pursuant to the Company's Articles of
Incorporation, the Company's then existing common stock was automatically
redesignated as Class B Common Stock without changing any of its rights and
preferences upon the authorization by the Board of the stock dividend. On
January 15, 1998, the Board of Directors of the Company declared a three for one
stock split effected in the form of a stock dividend of two shares of Class A
Common Stock for each share of outstanding Class A and Class B Common Stock. Due
to accounting and tax considerations, outstanding options to purchase Class B
Common Stock previously granted under the Company's stock option plans were
adjusted to reflect additional stock options for shares of Class B Common Stock
instead of options on Class A Common Stock.
In addition to its investment in BBC, the Company owns and manages real estate.
Since its inception in 1980 and prior to the acquisition of control of
BankAtlantic in 1987, the Company's primary business was the organization, sale
and management of real estate investment programs. Effective as of December 31,
1987, the Company ceased the organization and sale of new real estate investment
programs, but continues to own and manage real estate assets. At September 30,
1998, a subsidiary of the Company continues to serve as the corporate general
partner of one public limited partnership which files periodic reports with the
Securities and Exchange Commission under the Securities Exchange Act. Other
subsidiaries of the Company also serve as corporate general partners of a number
of private limited partnerships formed in prior years.
RESULTS OF OPERATIONS
The Company's basic and diluted earnings per share were $0.20 and $0.18 for the
nine months ended September 30, 1998, compared to $1.00 and $.93 for the
comparable period in 1997. The 1998 period included an extraordinary gain of
$.01 in basic and diluted earnings per share. The 1997 period included an
extraordinary gain of $0.12 basic and $.11 diluted earnings per share.
The Company's basic and diluted earnings per share for common stock were $1.23
and $1.12 for the year ended December 31, 1997, $.89 and $.83 for the year ended
December 31, 1996 and $1.03 for the year ended December 31, 1995, respectively.
For the nine months ended September 30, 1998, the Company reported net income of
approximately $1.6 million as compared to net income of approximately $8.0
million for the comparable period in 1997. Operations for the nine months ended
September 30, 1998 and 1997 included extraordinary gains of approximately
$61,000 and $988,000, respectively. The 1998 extraordinary gain, net of income
taxes was due to extinguishment of debt. The 1997 extraordinary gains, net of
income taxes was due to debt restructuring of approximately $181,000,
extinguishment of debt of approximately $115,000 and gains on settlements of
litigation of approximately $692,000.
-26-
<PAGE>
Net income available for common shares for the year ended December 31, 1997,
1996 and 1995 was approximately $9.8 million, $6.9 million and $7.9 million,
respectively. Operations for 1997, 1996 and 1995 included extraordinary gains of
approximately $756,000, $853,000 and $3.2 million, respectively, net of income
taxes, due to changes in the estimate of the amount of the settlement liability
associated with the exchange litigation. Operations for 1997 also included an
extraordinary gain of approximately $181,000 on debt restructuring, net of
income taxes. Operations for 1997 and 1995 included extraordinary gains of
approximately $115,000 and $460,000, respectively, net of income taxes, from
extinguishment of debt.
The Company's equity in earnings of BBC for the nine months ended September 30,
1998 and 1997 was approximately $1.6 million and $8.6 million, respectively.
Operations for the nine months ended September 30, 1998 and 1997 included a net
gain on the sale of real estate of approximately $2.6 million and $316,000,
respectively. Operations for the nine months ended September 30, 1997 included
the reversal of a provision for litigation of approximately $2.3 million.
The Company's equity in earnings of BBC for the year ended December 31, 1997,
1996 and 1995 was approximately $12.1 million, $8.7 million and $8.4 million,
respectively. The Company's 1997, 1996 and 1995 operations included a net gain
on the sale of real estate of approximately $335,000, $3.3 million and $206,000,
respectively. The Company's 1997 operations also included a net gain on the sale
of BBC Class A Common Stock of approximately $1.3 million and the reversal of a
provision for litigation of approximately $2.3 million. The 1996 revenues
included a net gain of approximately $211,000 associated with the settlement of
litigation related to the cleanup of contamination on a property formerly owned
by the Company and an adjustment to the provision for litigation of
approximately $292,000. Operations in 1995 included provisions for loss on loan
receivables of approximately $335,000. Approximately $723,000, $1.2 million and
$2.0 million of 1997, 1996 and 1995 operations, respectively, related to
interest expense on the Debentures issued in the 1989 and 1991 Exchanges. The
1996 operations included a loss on disposition of mortgage notes and investment,
net of approximately $474,000 due from affiliated limited partnerships.
The following table shows the components of revenues and the changes between the
periods indicated (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS 1998 1997 1996
ENDED TO FOR THE YEARS TO TO
SEPTEMBER 30, 1997 ENDED DECEMBER 31, 1996 1995
----------------- ------- --------------------------- ------- -------
1998 1997 CHANGE 1997 1996 1995 CHANGE CHANGE
------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on mortgage
notes and related
receivables $ 159 166 (7) 221 613 451 (392) 162
Interest and
dividends on
securities available
for sale and
escrow accounts 178 365 (187) 445 694 648 (249) 46
Dividend on
redemption of
BBC preferred stock -- -- -- -- -- 191 -- (191)
Earnings on real
estate rental
operations, net 683 772 (89) 1,034 1,303 1,033 (269) 270
Sale of real estate 8,134 992 7,142 967 9,700 375 (8,733) 9,325
Net gain from sale
of stock -- 1,349 (1,349) 1,349 -- -- 1,349 --
Equity in earnings
of BBC 1,607 8,579 (6,972) 12,129 8,650 8,419 3,479 231
Other income, net 23 200 (177) 209 701 594 (492) 107
------- ------- ------- ------- ------- ------- ------- -------
$10,784 12,423 (1,639) 16,354 21,661 11,711 (5,307) 9,950
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
-27-
<PAGE>
Interest and dividends on securities available for sale and escrow accounts
decreased for the nine months ended September 30, 1998, as compared with the
same period in 1997 primarily due to decreases in investable funds.
Earnings on real estate rental operations include earnings from investment real
estate, real estate held for development and sale and deferred profit
recognition on sales of real estate by the Company and its subsidiaries other
than BBC. Earnings on real estate rental operations, net decreased for the nine
months ended September 30, 1998, as compared to the same period in 1997
primarily due to an increase in landscaping maintenance and repairs and
maintenance at Burlington Manufacturers Outlet Center ("BMOC").
During the nine months ended September 30, 1998, the Company sold approximately
35 acres of the Center Port property to unaffiliated third parties for
approximately $7.8 million and the company recognized a net gain from the sale
of real estate of approximately $2.3 million. In 1996, the Company sold a 50%
interest in a property located in Delray Beach, Florida, included in investment
real estate, net. Since the Company was the maker on the non-recourse mortgage
note on the Delray Beach 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.
In February 1997, the Company sold 12.7 acres of land located in Birmingham,
Alabama to an unaffiliated third party for approximately $149,000 and a net gain
on the sale of approximately $131,000 was recognized during the nine months
ended September 30, 1997. In August 1997, approximately four acres of the Center
Port property were sold to unaffiliated third parties for approximately $818,000
and the company recognized a net gain from the sale of real estate of
approximately $185,000. In June 1994, an entity controlled by the Company
acquired from an independent third party 23.7 acres of unimproved land know as
"Cypress Creek" located in Fort Lauderdale, Florida. In March 1996, Cypress
Creek was sold to an unaffiliated third party for approximately $9.7 million and
the company recognized a net gain of approximately $3.3 million. In April 1995,
the Company sold a property located in Galesburg, Illinois for approximately
$375,000 and the Company reported a net gain of approximately $206,000.
In June 1997 and January 1997, the Company sold an aggregate of 449,805 shares
of BBC's Class A Common Stock. Net proceeds received from these sales amounted
to approximately $3.7 million and a net gain of approximately $1.3 million was
recognized during the nine month period ended September 30, 1997.
BBC's net income applicable to common shareholders for the nine months ended
September 30, 1998 was $2.1 million compared to net income of $19.6 million for
the nine months ended September 30, 1997. The Company's equity in BBC's net
income for the nine months ended September 30, 1998 was $1.6 million compared to
net income of $8.6 million for the comparable period in 1997. The decrease in
equity in earnings of BBC during the 1998 periods as compared to 1997 was due to
a decrease in earnings by BBC and the Company's decreased ownership percentage
in BBC. The primary reasons for BBC's decline in earnings for the nine month
period ended September 30, 1998 as compared to the same period in 1997 was
primarily due to provisions for valuation of mortgage servicing rights because
of anticipated accelerated prepayments due to declining interest rate
environment and high levels of refinancing, losses in BBC's trading portfolio
tied to the recent downturn in the securities market, and expenses incurred in
connection with the branch expansion and the startup of new business lines. The
Company's ownership in BBC at September 30, 1998 and 1997 was 31.46% and 41.14%,
respectively, of all outstanding BBC Common Stock. The decrease in ownership was
attributable to BBC's issuance of Class A Common Stock in a public offering in
November 1997, BBC's issuance of Class A Common Stock to acquire RBCO and LTI
and the sale of shares of BBC Class A Common Stock by the Company during 1997.
This decrease was offset in part by reductions in the outstanding shares of BBC
Common Stock primarily due to BBC's repurchases of its shares. At September 30,
1998, the Company's ownership of BBC Class A and B Common Stock was
approximately 25% and 47%, respectively.
Other income decreased for the nine months ended September 30, 1998 as compared
to the same period in 1997 primarily due to proceeds received during the 1997
period relating to a loan from an affiliate which was written-off in prior
years.
Interest on mortgage notes and related receivables decreased for the year ended
December 31, 1997 as compared to the same period in 1996 primarily due to the
satisfaction of a loan receivable in 1996, the reduction of the amount of
mortgage note receivables from affiliated limited partnerships held by the
Company and proceeds received during 1996
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<PAGE>
of approximately $297,000 for interest due from affiliated limited partnerships.
This interest was not accrued in prior years. Interest on mortgage notes and
related receivables increased for the year ended December 31, 1996 as compared
to 1995 primarily due to proceeds received during 1996 of approximately $297,000
for interest due from affiliated limited partnerships. The increase in interest
on mortgage notes and related receivables was offset in part during 1996 as
compared to 1995 primarily due to a reduction of the amount of mortgage note
receivables from affiliated limited partnerships held by the Company.
Interest and dividends on securities available for sale and escrow accounts
decreased for the year ended December 31, 1997 as compared to the 1996 period
primarily due to decreases in investable funds attributable to the funding of
the litigation settlement. Interest and dividends on other securities available
for sale and escrow accounts increased during the year ended December 31, 1996
compared to the same period in 1995 primarily due to increases in investable
funds. Such increase was offset in part by decreases in yields on securities
available for sale and decreases in the yield and average balance of escrow
accounts established in connection with the settlement of litigation.
In October 1995, BankAtlantic redeemed all of its preferred stock at $25.00 per
share. BFC's aggregate purchase price relating to its ownership of the preferred
stock was approximately $143,000 and all such preferred stock was redeemed for
approximately $334,000. Therefore, BFC reported a gain on redemption of BBC
preferred stock of approximately $191,000.
Earnings on real estate rental operations include earnings from investment real
estate, real estate held for development and sale and deferred profit
recognition on sales of real estate by the Company and its subsidiaries other
than BBC. Earnings on real estate rental operations, net decreased for the year
1997 as compared to the same period in 1996 primarily due to the sale of a 50%
interest in a property and the accounting for the remaining ownership under the
equity method and a decrease in the deferred profit recognition primarily due to
the satisfaction of mortgage notes in 1996 due from affiliated limited
partnership. This decrease was offset in part by an increase in net operating
income at BMOC. The 1996 increase in earnings on real estate operations, net as
compared to the 1995 period was primarily due to an increase in occupancy and an
increase in tenant reimbursements for common area maintenance and insurance at
BMOC.
During 1997, the Company sold 449,805 shares of BBC. Class A Common Stock. Net
proceeds received from these sales amounted to approximately $3.7 million and a
net gain of approximately $1.3 million was recognized.
Other income, net was less for the year ended December 31, 1997 and 1995 than
the comparable period in 1996 primarily due to a net gain in 1996 of
approximately $211,000 associated with the settlement of litigation related to
the cleanup of contamination on a property formerly owned by the Company and
$142,000 which was recognized when the first mortgage holder on a property
formerly owned by the Company allowed the release of funds from an escrow
account that was established during the time the Company owned the property.
However, in 1997 other income included proceeds received relating to a loan from
an affiliate which was written-off in prior years and in 1995 other income
included proceeds received in connection with advances due from an affiliate
which were written-off in prior years.
BBC's net income available for common shares for the year ended December 31,
1997, 1996 and 1995 was approximately $27.8 million, $19.0 million and $16.4
million, respectively. The Company's equity in BBC's net income for the year
ended December 31, 1997, 1996 and 1995 was approximately $12.1 million, $8.7
million and $8.4 million, respectively. The increase in equity in earnings of
BBC was due to an increase in earnings by BBC, offset in part by the Company's
decreased ownership percentage in BBC. The decrease in ownership was primarily
due to BBC's issuance of 4,312,500 shares of BBC Class A Common Stock in a
public offering during November 1997 and the sale of 449,805 shares of BBC Class
A Common Stock by the Company during 1997. This decrease was offset in part by
reductions in the outstanding shares of BBC Common Stock primarily due to the
repurchase of its shares. The following table gives information regarding the
Company's ownership interest in BBC at the dates indicated:
-29-
<PAGE>
BBC BBC
CLASS A CLASS B
COMMON COMMON TOTAL
STOCK STOCK OUTSTANDING
------- -------- -----------
December 31, 1995 n/a 46.0% 46.0%
December 31, 1996 35.1% 46.2% 41.5%
June 30, 1997 36.4% 45.5% 40.8%
December 31, 1997 30.6% 45.6% 35.6%
September 30, 1998 25.3% 47.0% 31.5%
The following table shows the components of costs and expenses and the changes
between the periods indicated (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS 1998 1997 1996
ENDED TO FOR THE YEARS TO TO
SEPTEMBER 30, 1997 ENDED DECEMBER 31, 1996 1995
----------------- ------- ----------------------------- ------- -------
1998 1997 CHANGE 1997 1996 1995 CHANGE CHANGE
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on subordinated
debentures $ 373 595 (222) 723 1,238 1,976 (515) (738)
Interest on mortgage
payables and other
borrowings 1,161 1,533 (372) 1,996 2,396 2,598 (400) (202)
Cost of sale of real
estate 5,521 676 4,845 632 6,420 169 (5,788) 6,251
Provision for loan
losses -- -- -- -- -- 335 -- (335)
Loss on disposition of
mortgage notes
and investment, net -- -- -- -- 474 -- (474) 474
Write-down of
investment 184 -- 184 -- -- -- -- --
Expenses related to
real estate held for
development and
sale, net 107 172 (65) 130 154 93 (24) 61
Employee compensation
and benefits 865 863 2 1,153 1,153 1,232 -- (79)
Occupancy
and equipment 32 31 1 40 44 46 (4) (2)
Reversal of provision
for litigation -- (2,272) 2,272 (2,272) (292) -- (1,980) (292)
General and
administrative, net 598 768 (170) 964 1,092 1,032 (128) 60
------- ------- ------- ------- ------- ------- ------- -------
$ 8,841 2,366 6,475 3,366 12,679 7,481 (9,313) 5,198
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Interest on subordinated debentures decreased for the nine months ended
September 30, 1998 as compared to the same period in 1997 primarily due to
reduction in the outstanding amount of Debentures and the accrual of interest
during the nine month period ended September 30, 1997 on the delayed funding of
the 1989 Exchange settlement liability.
Interest on mortgage payables and other borrowings decreased for nine months
ended September 30, 1998 as compared to the same periods in 1997 primarily due
to reduction in borrowings.
In June 1998, the Company reduced its carrying value on an investment in an
affiliated partnership by $184,000.
-30-
<PAGE>
The expenses related to real estate held for development and sale, net represent
the Company's expenses and revenues relating to the Center Port property located
in Pompano Beach, Florida and a 50% interest in a property located in Delray
Beach, Florida. Expenses related to real estate held for development and sale,
net decreased for the nine months ended September 30, 1998 as compared to the
same period in 1997 primarily due to decreased property taxes and professional
fees at the Center Port property. This decrease was offset in part by an
increase in administrative expenses.
In connection with the litigation entitled Short vs. Eden, et al., the Company
at December 31, 1996 had an accrual of approximately $3.0 million included in
other liabilities. The Company in April 1997 disbursed approximately $783,000
and received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997.
General and administrative, net, decreased for the nine months ended September
30, 1998 as compared to the same period in 1997 primarily due to decreased legal
fees, trustee fees and amortization expense. This decrease was offset in part
with an increase in intangible taxes.
Interest on subordinated debentures decreased for the year ended December 31,
1997 as compared to the same period in 1996 as a result of the accrual of
interest on certain Debentures during 1996 related to the delayed funding of the
1989 Exchange settlement liability and the reduction in the amount payable on
the Debentures in 1997 as compared to 1996 due to funding of such settlement.
Interest on subordinated debentures decreased in 1996 as compared to the same
period 1995 as a result of the 1991 and 1989 Exchange settlements and decreases
in the amounts payable on the Debentures.
Interest on mortgage payables and other borrowings decreased for the year ended
December 31, 1997 as compared to the same period in 1996 primarily due to the
sale during 1996 of a 50% interest in a property acquired in the 1989 Exchange
and a reduction in borrowings. Interest on mortgage payables and other
borrowings decreased for the year ended December 31, 1996 as compared to the
same period in 1995 primarily due to a reduction in borrowings and lower
interest rates.
In 1995 the Company recorded a provision for loss on loan receivables due from
affiliated limited partnerships of approximately $335,000. This loss was based
upon management's determination regarding the net carrying value of the
receivables and the estimated fair value of the underlying collateral.
During 1996, the Company recorded a loss of approximately $474,000 in connection
with the disposition of mortgage notes and investments from five affiliated
limited partnerships. During 1996, the limited partnerships were dissolved and
liquidated.
The expenses related to real estate held for development and sale, net represent
expenses and revenues relating to the Center Port property and a 50% interest in
a property located in Delray Beach, Florida. Expenses related to real estate
held for development and sale, net decreased for the year ended December 31,
1997 as compared to the same period in 1996 primarily due to a decrease in real
estate taxes, land clearing, association fees and professional services at the
Center Port property. This decrease was offset in part by increases in
administrative expenses at the Center Port property and a net loss of
approximately $27,000 from the Delray property. Expenses related to real estate
held for development and sale, net increased for the year ended December 31,
1996 as compared to the same period in 1995 primarily due to administrative
expenses, land clearing expenses and professional services at the Center Port
property.
Employee compensation and benefits decreased for the year ended December 31,
1996 as compared to the same period in 1995 primarily due to a bonus paid in
1995.
In connection with the litigation entitled Short vs. Eden, et al., the Company
at December 31, 1996 had an accrual of approximately $3.0 million included in
other liabilities. The Company in April 1997 disbursed approximately $783,000
and received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997. In connection with the litigation entitled Kugler, et al. v. I.R.E.
Real Estate Income Fund, Ltd., the Company in October 1996 placed approximately
$3.7 million in escrow to fund the rescission of sales and in March 1997,
approximately $1.0 million was placed in escrow for
-31-
<PAGE>
plaintiffs attorneys' fees. In 1996 the Company recorded an adjustment to the
accrual associated with the Kugler litigation in the amount of $292,000. On
April 30, 1997, the Court approved the Kugler settlement.
General and administrative, net decreased for the year ended December 31, 1997
as compared to the same period in 1996 primarily due to decreased legal fees.
This decrease was offset in part by increases in trustee fees, intangible taxes,
professional and consulting fees associated with the ABC litigation and the
elimination of reimbursements of administrative costs from an affiliated
partnership which was liquidated in 1996. General and administrative, net
increased for the year ended December 31, 1996 as compared to the same period in
1995 primarily due to an increase in legal fees. This increase was offset in
part by decreases in professional and consulting fees, trustee fees and audit
expenses.
The Company does not include BBC and its subsidiaries in its consolidated income
tax return with its wholly-owned subsidiaries, since the Company owns less than
80% of the outstanding stock of BBC. The Company utilizes the asset and
liability method to account for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. As of September 30, 1998, December 31, 1997 and 1996, the Company's
deferred income taxes were approximately $13.6 million, $11.7 million and $5.3
million, respectively. The increase in deferred income taxes at September 30,
1998 as compared to December 31, 1997 was primarily due to the tax effect on the
increase in the investment in BBC of approximately $4.6 million. The increase in
deferred income taxes at December 31, 1997 as compared to December 31, 1996 was
primarily due to the tax effect on the increase in the investment in BBC of
approximately $13.1 million.
FINANCIAL CONDITION - SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997
The Company's total assets at September 30, 1998 and at December 31, 1997 were
$93.8 million and $98.9 million, respectively. The majority of the difference at
September 30, 1998 as compared to December 31, 1997 was due to decreases in (i)
securities available for sale, (ii) real estate held for development and sale,
(iii) investment real estate, net and (iv) other assets. These decreases were
offset in part by the increase in investment in BBC.
Securities available for sale decreased primarily due to sales of securities so
as to fund the advances for development and construction costs at the Company's
Center Port property. This decrease in securities available for sale was offset
in part by the availability of funds provided from the release of the Meador
(1989 Exchange) settlement escrow which were invested in securities available
for sale.
Real estate held for development and sale decreased primarily due to the sale of
35 acres of the Company's Center Port property to unaffiliated third parties.
This decrease in real estate held for development and sale, net was offset in
part with an increase in advances for development and construction costs.
The Company in 1996 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, the investment real estate and mortgage note were not removed
from the financial statements. In May 1998, the mortgage note was refinanced and
the Company is no longer the maker on the non-recourse mortgage note on the
property. Therefore, the mortgage note and investment real estate entries
relating to the property were removed from the Company's Consolidated Statements
of Financial Condition in 1998 and the Company's remaining investment in the
property is now carried in investment real estate using the equity method of
accounting.
Investment in BBC increased by $4.7 million due to equity in earnings of BBC of
approximately $1.6 million and the net effect of other BBC capital transactions
of approximately $4.0 million. This increase was offset in part by dividends of
approximately $0.9 million in 1998.
Other assets decreased due to the release from escrow of approximately $2.1
million that had been placed in an escrow account related to the Meador
litigation settlement and payments made in accordance with the terms of the
Exchange litigation settlements. The settlement agreement provided for a release
from escrow of any balances remaining at the end of a specified period and
accordingly, approximately $2.1 million was released from escrow in January
1998. Any balances remaining in the escrow accounts under litigation settlements
will be released to the Company in January 2000.
-32-
<PAGE>
FINANCIAL CONDITION -DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
The Company's total assets at both December 31, 1997 and 1996, were
approximately $98.9 million. While total assets were relatively unchanged, the
composition of total assets changed. There were decreases in (i) securities
available for sale, (ii) mortgage notes and related receivables, net, (iii) real
estate held for development and sale, net, (iv) investment in real estate, net
and (v) other assets. There was an increase in investment in BBC.
Securities available for sale decreased in connection with the funding of the
1989 Exchange settlement escrow account of approximately $5.1 million and the
funding of the Kugler and Short litigation settlements of approximately $1.0
million and $783,000, respectively. This decrease was offset in part by net
proceeds of approximately $3.7 million received in connection with the sale of
449,805 shares of BBC Class A Common Stock which were invested in securities
available for sale.
Mortgage notes and related receivables, net, decreased due to the conversion of
approximately $184,000 of a note due from an affiliated limited partnership to
an equity position in the partnership in January 1997 and principal reductions
on loans according to their terms.
Other assets decreased primarily due to payments made in accordance with the
terms of the Exchange litigation settlements from the escrow established to fund
payment on Debentures that had been called. This decrease was offset in part by
the funding of the second half of the Meador settlement escrow account of
approximately $5.1 million.
Subordinated debentures and deferred interest on the subordinated debentures
decreased primarily due to the redemption of Debentures and identification of
class members that were previously estimated to belong to the group of Debenture
holders classified as "Holders in Due Course". The decrease in deferred interest
as a consequence of the redemption of Debentures was offset in part by the
continued deferral of interest on the outstanding Debentures pursuant to their
terms.
Mortgages payable and other borrowings decreased primarily due to the (i)
payment of approximately $1.2 million on a revolving line of credit, (ii)
payment of approximately $792,000 upon the sale of approximately four acres at
the Center Port property (iii) payment of an outstanding balance on a broker
line of credit of approximately $131,000 and (iv) principal payments made on
loans according to their terms. This decrease was offset in part by a net
increase in borrowing of approximately $200,000 relating to an April 1997 debt
restructuring and refinancing of a mortgage loan secured by the BMOC.
Other liabilities decreased primarily due to the payment of approximately $1.0
million in connection with the Kugler litigation escrow account. In connection
with the Short litigation, at December 31, 1996, the Company had an accrual of
approximately $3.0 million included in other liabilities. The Company in April
1997 disbursed approximately $783,000 and received a release and satisfaction of
judgment. Accordingly, the remaining accrual of approximately $2.3 million was
reversed to income during 1997.
Investment in BBC increased by $13.1 million due to an increase in equity in
earnings of BBC of approximately $12.1 million and $6.5 million primarily due to
the equity gain from BBC's issuance of 4,312,500 shares of BBC Class A Common
Stock in a public offering in November 1997. This increase was offset in part by
the net effect of other BBC capital transactions including approximately $2.0
million primarily due to the repurchase by BBC of its shares in the open market,
the sale of 449,805 shares of BBC Class A Common Stock by the Company having a
book value of approximately $2.4 million, the change in BBC's net unrealized
appreciation on debt securities available for sale, net of deferred income taxes
of approximately $53,000 and dividends on BBC Class A and Class B Common Stock
of approximately $1.0 million.
PURCHASE ACCOUNTING
The acquisition of BBC was accounted for as a purchase and accordingly, the
assets and liabilities acquired were revalued to reflect market values at the
dates of acquisition. The discounts and premiums arising as a result of such
revaluation are generally being accreted or amortized (i.e. added into income or
deducted from income), net of tax, using the level yield or interest method over
the remaining life of the assets and liabilities. The net impact of such
-33-
<PAGE>
accretion, amortization and other purchase accounting adjustments was to
increase consolidated net earnings during the nine months ended September 30,
1998 and 1997 by approximately $556,000 and for the years ended December 31,
1997, 1996 and 1995 by approximately $741,000, $545,000 and $677,000,
respectively. Assuming no sales or dispositions of the related assets or
liabilities by BBC, the Company believes the net increase (decrease) in earnings
resulting from the net amortization and accretion of the adjustments to net
assets acquired resulting from the use of the purchase method of accounting will
remain at a similar level in future years.
Excess cost over fair value of net assets acquired at September 30, 1998,
December 31, 1997 and 1996, was approximately $485,000, $577,000 and $700,000,
respectively. Such excess cost over fair value of net assets acquired is
included in the investment in BBC in the accompanying statements of financial
condition
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to terms of escrow agreements, approximately $2.1 million was released
during January 1998 from escrow accounts established to fund payment on
Debentures that had been called for redemption. At September 30, 1998,
approximately $2.8 million remained to fund future payments. Any amounts
remaining in escrow in January 2000 will be released to the Company and any
future payments on the called Debentures will be paid from the Company's working
capital. At September 30, 1998, there was approximately $5.3 million of called
but unpresented Debentures.
The Company is not obligated to pay interest on Debentures once they are called
for redemption. Pursuant to the terms of the Debentures, the Company may elect
to defer interest payments on its 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 would include, among other items, the ability to identify which
Debentures are held by Holders in Due Course and current operating expenses.
Since December 31, 1991, the Company has deferred interest payments on its
Debentures.
As previously indicated the Company holds approximately 31.5% 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.
Currently, BBC pays a quarterly dividend of $.0275 and $.025 per share for Class
A and Class B Common Stock, respectively. BBC's principal source of cash flow is
dividends from BankAtlantic. BBC's annual debt service associated with its
$247.0 million of 9%, 6-3/4% and 5-5/8% Debentures and Trust Preferred
Securities is approximately $18.1 million. BBC also obtains funds through the
exercise of stock options, through the sale of common shares and issuance of
debt securities. See "Risk Factors - Sources of Payments to Holders of the
Company's Securities" and "Price Range for Common Stock and Dividends."
At September 30, 1998, BankAtlantic's core, Tier 1 risk-based and total
risk-based capital ratios were 9.12%, 13.71% and 14.96%, 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 follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by:
Operating activities $ (608) (8,265) (8,925) (5,485) (1,963)
Investing activities 9,068 9,911 10,812 8,142 2,321
Financing activities (7,907) (2,996) (3,079) (2,013) 83
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $ 553 (1,350) (1,192) 644 441
======= ======= ======= ======= =======
</TABLE>
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<PAGE>
The primary sources of funds to the Company for the nine months ended September
30, 1998 were release of funds from escrow accounts, principal reduction on loan
receivables, proceeds from redemption and maturities of securities available for
sale, 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. Funds received from the sale of real estate were
utilized to reduce related mortgage debt.
The primary sources of funds to the Company during the year ended December 31,
1997 were proceeds from the sale of real estate, sale of BBC Class A Common
Stock, principal reduction on loans, proceeds from redemption and maturities of
securities available for sale, revenues from property operations, release of
funds from an escrow account established for redeemed Debentures, increase in
borrowings and dividends from BBC. These funds were primarily utilized to reduce
mortgage payables and other borrowings, to fund litigation settlements including
the Exchange escrow, to purchase securities available for sale, operating
expenses and general and administrative expenses. The Company believes it has
sufficient current liquidity to meet its operating needs.
Impact of Inflation - The financial statements and related financial data and
notes presented herein have been prepared in accordance with GAAP, which require
the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
BFC does not believe that inflation has had any material impact on the Company,
however, economic conditions generally have had an adverse effect on the values
and operations of its real estate assets. Inflation could also have an effect on
the market value of the Company's ownership in its BBC Common Stock. Virtually
all of the assets and liabilities of BBC are monetary in nature. As a result,
interest rates have a more significant impact on BBC's performance than the
effects of general price levels. Although interest rates generally move in the
same direction as inflation, the magnitude of such changes varies. See "Risk
Factors - Potential Impact of Changes in Interest Rates."
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 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 September 30, 1998 based on
percentage changes in market price. Actual future price changes may be different
from the changes identified in the table below (in thousands):
PERCENT
CHANGE IN MARKET
MARKET PRICE VALUE
------------ --------
20.00% $110,885
10.00% 101,644
0.00% 92,404
(10.00)% 83,196
(20.00)% 73,923
Management does not believe that market risk on other equity instruments would
have a significant impact on the financial condition of the Company.
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Below is an analysis of BBC's equity pricing risk at September 30, 1998. The
following table measures changes in the fair value of BBC's trading, available
for sale securities and securities sold not yet purchased at September 30, 1998
based on percentage changes in fair value. (Dollars in thousands)
<TABLE>
<CAPTION>
AVAILABLE
FOR SALE
PERCENT TRADING EQUITY SECURITIES
CHANGE IN SECURITIES SECURITIES SOLD NOT YET
FAIR VALUE FAIR VALUE FAIR VALUE PURCHASED
---------- ---------- ---------- ---------
<S> <C> <C> <C>
20.00% $ 27,748 $13,710 $ 1,632
10.00% 25,435 12,568 1,496
0.00% 23,123 11,425 1,360
(10.00)% 20,811 10,283 1,224
(20.00)% 18,498 9,140 1,088
</TABLE>
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 September 30, 1998 resulting
from change in interest rates. The model calculates the net potential gains and
losses in net portfolio fair value by : (i) discounting cash flows from existing
assets, liabilities and off-balance sheet contracts to determine fair values at
September 30, 1998, and (ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to determine fair values at
September 30, 1998. 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, 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.
Below is an analysis of BBC's interest rate risk at September 30, 1998 as
calculated utilizing BBC's model. The table measures changes in net portfolio
value for instantaneous and parallel shifts in the yield curve in 100 basis
point increments up or down (dollars in thousands).
<TABLE>
<CAPTION>
CHANGES NET PORTFOLIO DOLLAR
IN RATE VALUE AMOUNT CHANGE
------- ------------ --------
<S> <C> <C>
+200 bp $ 316,481 $(27,358)
+100 bp 354,096 10,257
0 bp 343,839 0
(100) bp 276,090 (67,749)
(200) bp 213,216 (130,623)
</TABLE>
Certain assumptions by BBC in assessing the interest rate risk were utilized in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and market values of certain assets under
various interest rate scenarios. It was also assumed that delinquency rates will
not change as a result of changes in interest rates although there can be no
assurance that this will 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.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in the
date field. These programs were
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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. Additionally, the Company does not anticipate that it will have any
material expenditure with respect to real estate owned by the Company. 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.
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 which was presented to the 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, (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. However, its renovation, validation and implementation phases were
only approximately 10% completed at September 30, 1998 with anticipated 80%, 95%
and 100% completion as of December 31, 1998, March 31, 1999 and June 30, 1999,
respectively. The contingency planning phase has not commenced but is currently
scheduled to be 50% complete as of December 31, 1998, 90% complete as of March
31, 1999 and 100% completed as of June 30, 1999. BBC and its third party vendors
are currently formulating a contingency strategy on how to handle most likely
worst case scenarios related to the year 2000 disruptions.
Although BBC expects to meet its action plan schedule, there are no assurances
that this timetable will be completed according to schedule.
The majority of BBC's mission critical information technology system structure
("IT") has been outsourced to third party vendors. BBC's internal IT primarily
consists of a minicomputer for item processing and a personal computer based
wide area network. The wide area network's primary function is to communicate
with third party service bureaus and secondarily to run non-critical personal
computer applications such as E-mail, word processing and spreadsheet programs.
BBC has various non-IT systems with embedded microcontrollers, including but not
limited to, vault security equipment, branch security equipment, telephone
systems, circuit boards on building equipment, building elevators, and
appliances. The above IT and non-IT systems could fail or create erroneous
results by or at the year 2000.
BBC relies on third party vendors to perform the loan, deposit, general ledger
and other application processing. BBC is monitoring the progress of these third
party vendors in meeting their year 2000 obligations and is actively involved in
the implementation and testing of the modified application programs. The third
party vendors are scheduled to complete the update of the application programs
during the fourth quarter of 1998 with BBC testing the programs during the first
quarter of 1999. Although BBC currently has no indication that its third party
vendors will not be able to operate as a result of year 2000 related problems,
there is no assurance that these third party vendors will meet their obligations
to BBC based on potential problems relating to year 2000. Included in the
Statement of Operations during the three and nine months ended September 30,
1998 were $87,000 and $150,000, respectively of third party expenses related to
the year 2000 action plan. BBC estimates that it will spend an additional
$130,000 on
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<PAGE>
year 2000 upgrades during the remaining three months of 1998 and another
$600,000 during the year ended December 31, 1999, which expenditures will be
funded from operating cash flows. The above expenses do not include employee
compensation allocated for time spent on the year 2000 project.
NEW ACCOUNTING STANDARDS AND POLICIES
The Financial Accounting Standard Board ("FASB") issued FASB Statement No. 130
("FAS 130") "Reporting Comprehensive Income" and FASB Statement No. 131 ("FAS
131") "Disclosures About Segments of an Enterprise and Related Information" in
June 1997. FAS 130 establishes standards for reporting comprehensive income in
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Some of the items included in
comprehensive income are unrealized gains or losses on securities available for
sale, underfunded pension obligations and employee stock options. FASB Statement
No.131 ("FAS 131") establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires that those companies report selected information about operating
segments in interim financial statements issued to shareholders. FAS 130 and FAS
131 are effective for periods beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Implementation of FAS 130 and FAS 131 will
impact disclosures in the 1998 Financial Statements but will not have an impact
on the Company's Statement of Financial Condition or Statement of Operations.
Financial Accounting standards Board Statement No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" ("FAS 132") was issued in
February 1998. This statement revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practical, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. The statement suggests combined formats
for presentation of pension and other postretirement benefit disclosures. This
statement is effective for fiscal years beginning after December 15, 1997.
Implementation of FAS 132 will impact disclosure only, but will not have an
impact on the Company's Consolidated Statement of Operations or Statement of
Financial Condition.
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<PAGE>
BUSINESS
GENERAL
The Company is a unitary savings bank holding company as a consequence of its
ownership of the BBC Common Stock. BBC is also a unitary savings bank holding
company which owns 100% of the outstanding stock of BankAtlantic. At September
30, 1998, the Company's ownership in BBC Class A Common Stock and Class B Common
Stock was approximately 25% and 47%, respectively, in the aggregate representing
31% of all of the outstanding BBC Common Stock. The Company's principal business
is the ownership of BankAtlantic through BBC and its investment in real estate
and mortgage notes.
The Company acquired control of BBC in 1987 for a total investment of
approximately $43 million. From 1987 through June 1993, the Company increased
its ownership in BBC and BBC was consolidated in the Company's financial
statements from October 1987 through November 1993. In November 1993, the
Company's ownership of BBC decreased from 77.83% to 48.17%, as a consequence of
the Company's and BBC's sales of shares of BBC Common Stock. Since 1993, BBC has
not been consolidated in the Company's financial statements because the
Company's ownership of BBC was less than 50%. BBC represented approximately 97%
of the Company's consolidated assets when it was consolidated with the Company.
At September 30, 1998, based on the equity method of accounting for the
Company's investment in BBC, the investment represented approximately 82% of the
Company's consolidated assets.
BBC's primary activities relate to its ownership of 100% of BankAtlantic's
capital stock. BankAtlantic is a federally-chartered, federally-insured savings
bank organized in 1952, which provides traditional retail banking services and a
full range of commercial banking products and related financial services. The
principal business of BankAtlantic is attracting checking and savings deposits
from the public and general business customers and using these deposits to
originate commercial real estate and business loans, residential real estate
loans and consumer loans, to purchase wholesale residential loans from third
parties and to make other permitted investments including investments in
mortgage-backed securities, tax certificates and other investment securities.
BankAtlantic currently operates through 70 branch offices located primarily in
Miami-Dade, Broward and Palm Beach Counties in South Florida. As reported by an
independent reporting service, BankAtlantic is currently the largest financial
institution headquartered in the State of Florida based on deposits at March 31,
1998. BankAtlantic is regulated and examined by the Office of Thrift Supervision
("OTS") and the Federal Deposit Insurance Corporation ("FDIC") and its deposit
accounts are insured up to applicable limits by the FDIC.
In 1998, BBC acquired Ryan Beck, an investment banking firm that underwrites,
distributes and trades tax-exempt securities and provides capital raising and
advisory services to the financial services industry. In addition, BBC also
engages in real estate development and investment activities through its
acquisition of SLWHC, the developer of a master planned residential, commercial
and industrial community in St. Lucie County, Florida, and through several
minority interest investments in real estate development projects in South
Florida.
In addition to its investment in BBC, the Company owns and manages real
estate. Since its inception in 1980, and prior to the acquisition of control of
BankAtlantic, the Company's primary business was the organization, sale and
management of real estate investment programs. A subsidiary of the Company
continues to serve as the corporate general partner of a public limited
partnership which files periodic reports with the SEC under the Exchange Act.
Subsidiaries of the Company also serve as corporate general partners of a number
of private limited partnerships formed in prior years. Effective as of December
31, 1987, the Company ceased the organization and sale of new real estate
investment programs.
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<PAGE>
REAL ESTATE AND OTHER ACTIVITIES
In addition to its investment in BBC and unrelated to the public limited
partnership programs and its property management activities, the Company holds
mortgage notes receivable of approximately $1.8 million which were received in
connection with the sale of properties previously owned by the Company. Further,
in recent years, the Company has made additional real estate investments. 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 a priority return in favor of the Company.
The Company bears any risk of loss under the arrangement.
The Company has acquired interests in two properties pursuant to this
arrangement. In June 1994, an entity controlled by the Company acquired from an
independent third party 23.7 acres of unimproved land known as the "Cypress
Creek" property located in Fort Lauderdale, Florida. In March 1996, the Cypress
Creek property was sold to an unaffiliated third party for approximately $9.7
million and the company recognized a gain of approximately $3.3 million. In
connection therewith, the Abdo Group received approximately $2.9 million as its
share of the profit from the transaction, which is included in the cost of sale
of real estate. As part of the sale of the Cypress Creek property, the Company
received a limited partnership interest in an unaffiliated limited partnership
that will entitle it to receive approximately 4.5% of any profits from the
development and operation of the property. In December 1994, an entity
controlled by the Company acquired from an unaffiliated seller approximately 70
acres of unimproved land known as the "Center Port" property in Pompano Beach,
Florida. Through September 30, 1998, approximately 39 acres had been sold from
the Center Port property to unaffiliated third parties for approximately $8.6
million and the Company recognized net gains from the sale of real estate of
approximately $2.5 million. Included in cost of sales is approximately $2.5
million representing the Abdo Group's profit participation from the transaction.
All proceeds from the sale were utilized to reduce the borrowing for which the
Center Port property serves as partial collateral. The current balance on this
borrowing is approximately $1,000 and is due to an unaffiliated lender. Payment
of any profit participation will be deferred until the lender is repaid. The
remainder of the Center Port property is currently being marketed for sale.
In October 1996, the Company sold a 50% interest in the Delray Industrial
Park, located in Delray Beach, Florida. Since the Company was the sole maker on
the non-recourse mortgage note on the property and since the Company maintained
a 50% interest in the subject property, the gain on the sale of approximately
$600,000 was deferred, reducing the Company's carrying value in the real estate
and the mortgage remained on the Company's books. During May 1998, the property
was refinanced with the other 50% owner also liable under the note. At that
time, the Company recognized 50% of the deferred profit on the transaction, and
removed the mortgage from the Company's books. The remaining investment in the
property is reflected using the equity method of accounting.
STATE TAXATION
The State of Florida imposes a corporate income tax at the rate of 5.5% on
taxable income as determined for Florida income tax purposes. Taxable income for
this purpose is based on federal taxable income in excess of $5,000 as adjusted
by certain items.
EMPLOYEES
At September 30, 1998, the Company employed 8 full-time employees and 1
part-time employee. Management believes that its relations with its employees
are satisfactory. The employee benefits offered by the Company are considered by
management to be generally competitive with employee benefits provided by other
major employers in Florida. The Company's employees are not represented by any
collective bargaining group.
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<PAGE>
PROPERTIES
The Company maintains its offices in approximately 1,500 square feet located
in a building owned by BankAtlantic. The space is leased on terms no less
favorable than that which management believes could be obtained from an
independent third party.
The properties listed below are not utilized by the Company but are held by
the Company as investments. All are zoned for their current uses. Lease terms do
not include options.
/bullet/ A parcel of land located in Springfield, Massachusetts containing
approximately 4.4 acres subject to an estate for years expiring in
July 2006.
/bullet/ A parcel of land located in Aurora, Illinois containing
approximately 4.4 acres subject to an estate for years expiring in
July 2006.
/bullet/ A parcel of land located in Fort Lauderdale, Florida, referred to
herein as the Center Port property, containing approximately 70
acres of which approximately 39 acres have been sold through
September 30, 1998.
/bullet/ A shopping center known as the Burlington Manufacturers Outlet
Center located in Burlington, North Carolina containing
approximately 280,265 leaseable square feet.
/bullet/ A 50% interest in an industrial park known as Delray Industrial Park
located in Delray Beach, Florida containing approximately 134,237
leaseable square feet.
REGULATION AND SUPERVISION
The Company, by virtue of its ownership of the BBC Common Stock, is a unitary
savings bank holding company subject to regulatory oversight by the OTS. As
such, the Company is required to register with and be subject to OTS
examination, supervision and certain reporting requirements. In addition, BBC is
subject to the same oversight by the OTS as discussed herein with respect to the
Company.
BankAtlantic is a member of the Federal Home Loan Bank ("FHLB") system and
its deposit accounts are insured up to applicable limits by the FDIC.
BankAtlantic is subject to supervision, examination and regulation by the OTS
and to a lesser extent by the FDIC as the insurer of its deposits. As a member
of the FHLB System, BankAtlantic is also subject to limited regulation by the
Federal Reserve Board. BankAtlantic must file reports with the OTS and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions. The OTS and
the FDIC periodically review BankAtlantic's compliance with various regulatory
requirements. The regulatory structure also gives regulatory authorities
extensive discretion with respect to the classification of non-performing and
other assets and the establishment of adequate loan loss reserves for regulatory
purposes.
The Home Owner's Loan Act ("HOLA") prohibits a savings bank holding company
from directly or indirectly acquiring control, including through an acquisition
by merger, consolidation or purchase of assets, of any savings association (as
defined in Section 3 of the Federal Deposit Insurance Act) or any other savings
and loan or savings bank holding company, without prior OTS approval. In
considering whether to grant approval for any such transaction, the OTS will
take into consideration a number of factors, including the competitive effects
of the transaction, the financial and managerial resources and future prospects
of the holding company and its bank or thrift subsidiaries following the
transaction, and the compliance records of such subsidiaries with the Community
Reinvestment Act. Generally, a savings bank holding company may not acquire more
than five percent of the voting shares of any savings association unless by
merger, consolidation or purchase of assets, in each case subject
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to prior OTS approval. Another provision of HOLA permits a savings bank holding
company to acquire up to 15% of the voting shares of certain undercapitalized
savings associations.
Federal law empowers the Director of the OTS to take substantive action when
it determines that there is reasonable cause to believe that the continuation by
a savings bank holding company of any particular activity constitutes a serious
risk to the financial safety, soundness, or stability of a savings bank holding
company's subsidiary savings institution. The Director of the OTS has oversight
authority for all holding company affiliates, not just the insured institution.
Specifically, the Director of the OTS may, as necessary: (i) limit the payment
of dividends by the savings institution, (ii) limit transactions between the
savings institution, the holding company and the subsidiaries or affiliates of
either, or (iii) limit any activity of the savings institution that might create
a serious risk that the liabilities of the holding company and its affiliates
may be imposed on the savings institution. Any such limits would be issued in
the form of a directive having the legal effect of a cease and desist order.
The Company will remain a unitary savings bank holding company under
applicable law until it (or BBC) acquires as a separate subsidiary another
savings institution or savings institution holding company. A savings bank
holding company whose sole subsidiary qualifies as a qualified thrift lender
("QTL") generally has the broadest authority to engage in various types of
business activities with little to no restrictions on its activities. A holding
company that acquires another institution and maintains it as a separate
subsidiary or whose sole subsidiary fails to meet the QTL test will become
subject to the activities limitations applicable to multiple savings bank
holding companies. In general, a multiple savings bank holding company (or
subsidiary thereof that is not an insured institution) may not commence, or
continue for more than a limited period of time after becoming a multiple
savings bank holding company (or a subsidiary thereof), any business activity
other than (i) furnishing or performing management services for a subsidiary
insured institution, (ii) conducting an insurance agency or an escrow business,
(iii) holding, managing or liquidating assets owned by or acquired from a
subsidiary insured institution, (iv) holding or managing properties used or
occupied by a subsidiary insured institution, (v) acting as trustee under deeds
of trust, (vi) those activities previously directly authorized by the OTS by
regulation as of March 5, 1987 to be engaged in by multiple savings bank holding
companies, or (vii) subject to prior approval of the OTS, those activities
authorized by the Federal Reserve Board as permissible investments for bank
holding companies. These restrictions do not apply to a multiple savings bank
holding company if (a) all, or all but one, of its insured institution
subsidiaries were acquired in emergency thrift acquisitions or assisted
acquisitions and (b) all of its insured institution subsidiaries are QTLs.
BankAtlantic and BBC are subject to restrictions in their dealings with the
Company and any other companies that are affiliates of the Company under HOLA
and certain provisions of the Federal Reserve Act that are made applicable to
savings institutions by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and OTS regulations.
LEGAL PROCEEDINGS
The following is a description of a lawsuit in which the Company is a party.
ALAN B. LEVAN AND BFC FINANCIAL CORPORATION V. CAPITAL CITIES/ABC, INC. AND
WILLIAM H. WILSON, in the United States District Court for the Southern District
of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, The ABC television
program 20/20 broadcast a story about Alan B. Levan and the Company which
purportedly depicted a number of securities transactions in which Mr. Levan and
the Company were involved. The story contained numerous false and defamatory
statements about the Company and Mr. Levan and, on February 7, 1992, a
defamation lawsuit was filed on behalf of the Company and Mr. Levan against
Capital Cities/ABC, Inc. and William H. Wilson, the producer of the broadcast.
In December 1996, a jury found in favor of the Company and Mr. Levan and awarded
a compensatory judgment of $1.25 million to the Company and $8.75 million to Mr.
Levan.
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Capital Cities/ABC, Inc. and William H. Wilson have filed an appeal in this
matter. That appeal is currently pending.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional offices at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
SEC maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers who file electronically with
the SEC. The address of that site is http://www.sec.gov.
The Company has filed with the SEC a Registration Statement on Form S-1
(together with all amendments thereto, the "Registration Statement"), of which
this Prospectus is a part, under the Securities Act, with respect to the Class A
Common Stock and the Subordinated Debentures. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain portions
of which have been omitted as permitted by the rules and regulations of the SEC.
For further information with respect to the Company, the Class A Common Stock,
and the Subordinated Debentures, reference is made to the Registration
Statement, including the exhibits thereto. Any statements contained herein
concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC are not necessarily
complete and, in each instance, reference is made to the copy of such document
so filed for a more complete description of the matter involved. Each such
statement is qualified in its entirety by such reference. The Registration
Statement may be inspected without charge at the principal office of the SEC in
Washington, D.C., and copies of all or part of it may be obtained from the SEC
upon payment of the prescribed fees.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names and ages of the directors and executive
officers of the Company as well as the positions and offices held by such
persons. A summary of the background and experience of each of these individuals
is set forth after the table. The officers of the Company serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Alan B. Levan......................... 54 President, Chairman of the Board, Director
John E. Abdo.......................... 55 Director, Vice Chairman of the Board
Glen R. Gilbert....................... 54 Executive Vice President, Chief Financial Officer and Secretary
Carl E. B. McKenry, Jr................ 69 Director
Earl Pertnoy.......................... 72 Director
</TABLE>
ALAN B. LEVAN formed the I.R.E. Group (predecessor companies to the
Company) in 1972. Since 1978, he has been the Chairman of the Board, President,
and Chief Executive Officer of the Company or its predecessors. He is Chairman
of the Board and President of I.R.E. Realty Advisors, Inc., I.R.E. Properties,
Inc., I.R.E. Realty Advisory Group, Inc., U.S. Capital Securities, Inc., and
Florida Partners Corporation. He is President, Chairman of the Board
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and Chief Executive Officer of BBC and BankAtlantic. He is an individual general
partner and an officer and a director of the corporate general partner of a
public limited partnership which is affiliated with the Company.
JOHN E. ABDO has been President and Chief Executive Officer of The Abdo
Companies, Inc., a real estate development, construction and brokerage firm, for
more than five years. He has been a director of the Company since 1989 and Vice
Chairman of the Board of the Company since 1993. He has been a director of
BankAtlantic since 1984, Chairman of the Executive Committee of BankAtlantic
since October 1985 and Vice Chairman of the Board of BankAtlantic since April
1987. In 1994, he became a director of BBC. He is also a Director of Benihana
National Corporation, a national restaurant chain.
GLEN R. GILBERT has been Executive Vice President of the Company since July
1997. Prior to that date he served in the position of Senior Vice President of
the Company. In May 1987 he was appointed Chief Financial Officer and in October
1988 was appointed Secretary. He joined the Company in November 1980 as Vice
President and Chief Accountant. He has been a certified public accountant since
1970. He serves as an officer of Florida Partners Corporation and of the
corporate general partner of a public limited partnership which is affiliated
with the Company. He has been Vice President and a director of BDC since 1997.
CARL E. B. MCKENRY, JR. is the Director of the Small Business Institute at
the University of Miami in Coral Gables, Florida. He has been associated in
various capacities with the University since 1955. He has been a Director of the
Company since 1981 and is also a director of the corporate general partner of a
public limited partnership which is affiliated with the Company.
EARL PERTNOY has been a real estate investor and developer for more than the
past five years. He has been a director of the Company and its predecessor
companies since 1978 and is also a director of the corporate general partner of
a public limited partnership which is affiliated with the Company.
EXECUTIVE COMPENSATION
The following table and the notes thereto set forth information with respect
to the annual compensation paid by the Company and its subsidiaries, excluding
BBC and its subsidiaries, for services rendered in all capacities during the
year ended December 31, 1997 to each of the executive officers of the Company as
well as the total annual compensation paid to each of those individuals for the
prior two years.
-44-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
RESTRICTED STOCK
NAME AND OTHER ANNUAL STOCK OPTION ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS AWARDS LTIP COMPENSATION
- ------------------ YEAR ($) ($) ($) (#) (#)(2) ($) ($)(3)
---- --- --- --- --- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan B. Levan (1) 1997 509,910 --- --- --- 375,000 1,628 80,495
Chairman of the
Board, President
and Chief
Executive Officer
1996 508,176 --- --- --- --- 1,622 80,774
1995 315,000 180,500 --- --- 375,000 1,634 92,709
Glen R. Gilbert 1997 210,625 8,070 --- --- 93,750 1,628 ---
Executive Vice
President, Chief
Financial Officer
and Secretary
1996 209,817 7,760 --- --- --- 1,662 ---
1995 199,827 16,066 --- --- 37,500 1,634 ---
</TABLE>
- -------------------------
(1) Excludes salary, bonuses and other compensation, respectively, paid by
BankAtlantic in the amount of $350,574, $0 and $156,432 for 1997,
$321,168, $193,740 and $158,045 for 1996 and $313,080, $0 and $900 for
1995. No amounts were paid to Mr. Levan by BBC.
(2) The number of options has been adjusted to reflect stock splits
effected after the grant date.
(3) Represents reimbursements or payments for life and disability
insurance.
The foregoing table includes only executive officers of the Company and does
not include executive officers of BBC or BankAtlantic. With the exception of Mr.
Levan, executive officers of BBC and BankAtlantic do not have significant
executive responsibilities with respect to key policy decisions of the Company.
STOCK OPTIONS
The following table sets forth information concerning individual grants of
stock options to the named executives in the Summary Compensation Table pursuant
to the Company's Stock Option Plan during the year ended December 31, 1997. The
Company has not granted and does not currently grant stock appreciation rights.
-45-
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS TABLE
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO ----------------- TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED (#)(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- -------------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Alan B. Levan 375,000 40.8% $4.47 7/1/2007 $1,053,400 $2,669,534
Glenn R. Gilbert 93,750 10.2% $4.07 7/1/2007 $239,766 $607,617
</TABLE>
- -----------------
(1) Options vested 50% on January 1, 1998 and 50% on January 1, 1999. All option
grants are in Class B Common Stock.
(2) Amounts for the named executive have been calculated by multiplying the
exercise price by the annual appreciation rate shown (compounded for the
remaining term of the options), subtracting the exercise price per share and
multiplying the gain per share by the number of shares covered by the
options. The dollar amounts under these columns are the result of
calculations based upon assumed rates of annual compounded stock price
appreciation specified by regulation and are not intended to forecast actual
future appreciation rates of the Company's stock price.
The following table sets forth as to each of the named executive
officers information with respect to the number of shares of Class B Common
Stock acquired upon exercise of options during 1997 and underlying unexercised
options at December 31, 1997. The Company has not granted and does not currently
grant stock appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUE TABLE
NUMBER OF NUMBER OF SECURITIES UNDERLYING
SHARES VALUE REALIZED UNEXERCISED OPTIONS ON VALUE OF UNEXERCISED IN-THE-MONEY
ACQUIRED OR UPON DECEMBER 31, 1997 OPTIONS ON DECEMBER 31, 1997(1)
NAME EXERCISED(#) EXERCISE($) EXERCISABLE(#) UNEXERCISABLE (#) EXERCISABLE (#) UNEXERCISABLE (#)
---- ------------ ----------- -------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Alan B. Levan 34,596 78,767 670,407 375,000 5,972,182 2,145,225
Glen R. Gilbert 37,500 90,000 18,750 93,750 169,760 573,805
</TABLE>
- ----------------
(1) Based upon a price of $10.625, which was the average of the last bid
and the last ask as reported by the National Quotation Bureau, L.L.C.
for the last trading day of 1997.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of the Company who are not employees
of the Company receive $1,750 per month for serving on the Company's Board.
Additionally, members of the Audit Committee receive a fee of $1,000 per Audit
Committee meeting attended. Other than such compensation, there are no other
arrangements pursuant to which any director is compensated for his services.
LONG-TERM INCENTIVE COMPENSATION
The Company has made available a profit-sharing plan (the "Profit
Sharing Plan") to all of its employees (which does not include BBC employees)
who meet certain minimum requirements. The Company is not required to make any
contribution and the amount of the Company's contribution is determined each
year by the Board of
-46-
<PAGE>
Directors. The Profit Sharing Plan requires a uniform allocation to each
employee of 0% to 15% of compensation (with the maximum compensation considered
being $50,000). Vesting is in increments over a 7-year period to 100%. Alan B.
Levan and Glen R. Gilbert are 100% vested.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
NAME AMOUNT OF AWARD MATURATION OF PAYMENT THRESHOLD, TARGET AND MAXIMUM
---- --------------- --------------------- -----------------------------
<S> <C> <C> <C>
Alan B. Levan $1,628 100% vested $96,375
Glen R. Gilbert $1,628 100% vested $74,628
</TABLE>
STOCK PERFORMANCE GRAPH AND COMPENSATION COMMITTEE REPORT
STOCK PERFORMANCE GRAPH
The following graph provides an indicator of cumulative total
stockholder returns for the Company as compared with the Total Return Index for
the NASDAQ Stock Market (U.S. companies) and Total Return Index for the NASDAQ
Financial Stocks:
[INSERT STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BFC Financial Corporation 100 225 213 403 688 1,910
Nasdaq Stock Market 100 115 112 159 195 240
Nasdaq Financial Stocks 100 116 117 170 218 334
</TABLE>
-47-
<PAGE>
COMPENSATION COMMITTEE REPORT
Directors McKenry and Pertnoy have been designated by the Board of
Directors to serve on the Compensation Committee. The Compensation Committee has
provided the following report on executive compensation.
EXECUTIVE OFFICER COMPENSATION
The Compensation Committee of the Company met to consider the
appropriate compensation package to recommend to the Board of Directors for the
Chairman and President, Alan B. Levan. From the meeting the following elements
have been developed:
EXECUTIVE COMPENSATION POLICY - The Company's overall compensation
philosophy is to retain quality personnel, which is critical to both the
short-term and long-term success of the Company. In order to implement that
philosophy the Company's approach to base compensation is to offer competitive
salaries in comparison to market practices.
COMPENSATION HISTORY - Compensation to executive officers in mid 1991
was voluntarily reduced based on the Company's transition from the real estate
syndication business to a savings bank holding company and the losses incurred
by the Company's savings bank subsidiaries as it shifted its activities from
those of a traditional thrift to those more closely related to commercial
banking. During 1995, with the return of profitability at the savings bank
subsidiary, compensation was returned to pre-1991 levels.
GENERAL - During 1997 total compensation for all executives, including
the President, was maintained at the 1995 and 1996 levels. In deciding to
maintain this base compensation, market compensation levels and trends in the
labor market were considered and available market information was used as a
frame of reference for annual salary adjustments.
STOCK OPTIONS - Stock options were granted to executive officers during
1997. All of the stock options were granted with an exercise price equal to at
least 100% of the market values of the Class B Common Stock on the date of the
grant. As such, the stock options only have value if the value of the Class B
Common Stock increases. The granting of options is totally discretionary and
options are awarded based on an assessment of an employee's contribution to the
success and growth of the Company. Grants of stock options are based on the
level of an executive's position with the Company, and evaluation of the
executive's past and expected performance, the number of outstanding and
previously granted options and discussions with the executive. The Committee
believes that granting of stock options as a part of executive compensation more
closely aligns the executives' interests with those of the Company's
stockholders, since the ultimate value of such compensation is directly
dependent on the stock price.
CEO COMPENSATION - In evaluating the performance of the Chief
Executive, Mr. Levan, the committee considered the Company's net worth, earnings
and stock price. The Committee also considered that Mr. Levan spends
considerable effort and attention in connection with the operations of
BankAtlantic and that the performance of BankAtlantic has been a substantial
factor in the success of the Company.
1993 OBRA EXECUTIVE COMPENSATION TAX DEDUCTIBILITY - The Omnibus Budget
Reduction Act ("OBRA") of 1993 included a provision which eliminates a company's
tax deduction for any compensation over one million dollars paid to any one of
the executives who appear in the Summary Compensation Table, subject to several
statutory exceptions. The Committee does not anticipate additional tax exposure
based on the Company's current executive compensation program.
The above report was submitted by Earl Pertnoy and Carl E. B. McKenry.
-48-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 a priority return in favor of the
Company. The Company bears any risk of loss under the arrangement. Under the
arrangement, the Company in December 1994, acquired from an unaffiliated seller
approximately 70 acres of unimproved land known as the "Center Port" property in
Pompano Beach, Florida. Through September 30, 1998, approximately 39 acres had
been sold from the Center Port property to unaffiliated third parties for
approximately $8.6 million and the Company recognized a net gain from the sale
of approximately $2.5 million. Included in the cost of sales is approximately
$2.5 million representing the Abdo Group's profit participation from the
transaction. However, all proceeds from the sale were used to reduce a loan
secured by the Center Port property and any profit participation will be paid
when the loan is repaid in full. The property is currently being marketed for
sale and serves as partial collateral for a loan to the Company from an
unaffiliated lender.
Management believes that all transactions between the Company and its
affiliates were on terms at least as favorable as could have been obtained from
unaffiliated third parties.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Listed in the table below are the beneficial owners known by the
Company to hold as of November 25, 1998 more than 5% of the Company's
outstanding Class A Common Stock or Class B Common Stock. In addition, this
table includes the outstanding securities beneficially owned by the executive
officers and directors and the number of shares owned by directors and executive
officers as a group. The Company knows of no other persons who beneficially own
5% or more of its outstanding Class A Common Stock or Class B Common Stock.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
CLASS A COMMON CLASS B COMMON CLASS A CLASS B
BENEFICIAL OWNER STOCK OWNERSHIP STOCK OWNERSHIP COMMON STOCK COMMON STOCK
---------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
I.R.E. Realty Advisory Group, Inc.
(2)(5) 1,375,000 500,000 21.3% 10.4%
I.R.E. Properties, Inc. (5) 375,832 136,666 5.8% 2.9%
I.R.E. Realty Advisors, Inc. (5) 66,108 242,221 10.3% 5.1%
Florida Partners Corporation (5) 366,614 133,314 5.7% 2.8%
Alan B. Levan (1)(3)(5) 156,929 1,139,972 2.4% 23.8%
John E. Abdo (1)(5) 1,019,563 1,163,478 15.8% 24.3%
Dr. Herbert A. Wertheim (4) 1,145,232 416,448 17.7% 8.7%
Glen R. Gilbert (1)(5) 2,690 96,603 * 2.0%
Earl Pertnoy (1)(5) 18,975 53,478 * 1.1%
Carl E.B. McKenry, Jr. (1)(5) 688 48,978 * 1.0%
All directors and executive officers of
the Company as a group (5
persons)(1)(2) 3,982,399 3,514,710 61.7% 73.4%
</TABLE>
- -------------------
* Represents less than 1% of the total.
(1) The above ownership amounts and nature of beneficial ownership and
percent of class include shares that may be acquired within 60 days
pursuant outstanding stock options to purchase Class B Common Stock as
follows: Alan B. Levan - 1,082,907, John E. Abdo - 1,162,500, Glen R.
Gilbert - 95,625, Earl Pertnoy - 52,500, and Carl E.B. McKenry -
48,000.
(2) The Company owns 45.5% of I.R.E. Realty Advisory Group, Inc.
(3) Alan B. Levan is a controlling and majority shareholder of the
corporate general partner of a limited partnership that owns 153,629
shares of Class A Common Stock and 55,865 shares of Class B Common
Stock. The family limited partnership is a controlling and majority
shareholder of I.R.E. Realty Advisors, Inc., I.R.E. Properties, Inc.
and may be deemed to be the controlling shareholder of I.R.E. Realty
Advisory Group, Inc. and Florida Partners Corporation and therefore may
be deemed to be the beneficial owner of the shares of Common Stock
owned by such entities. Additionally, included above is 3,300 shares of
Class A Common Stock and 1,200 shares of Class B Common Stock held of
record by Mr. Levan's wife. Alan B. Levan, therefore, may be deemed to
have an aggregate beneficial ownership of 2,940,483 shares of Class A
Common Stock (45.56%) and 2,152,173 shares of Class B Common Stock
(44.93%).
(4) Dr. Wertheim's ownership was reported in a Rebuttal of Control
Agreement filed on December 20, 1996 with the OTS (as adjusted for
stock splits since the date of filing). The Rebuttal of Control
Agreement indicates that Dr. Wertheim has no intention to manage or
control the Company, directly or indirectly. Dr. Wertheim's mailing
address is 191 Leucadendra Drive, Coral Gables, Florida 33156.
-50-
<PAGE>
(5) The mailing address is 1750 East Sunrise Boulevard, Fort Lauderdale,
Florida 33304.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock does
not purport to be complete and is subject to the more detailed provisions of the
Company's Articles of Incorporation and Bylaws and is qualified in its entirety
by reference thereto.
The authorized capital stock of the Company consists of 20,000,000
shares of Class A Common Stock, par value $.01 per share, 20,000,000 shares of
Class B Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). As of
September 30, 1998, the Company had 6,453,994 shares of Class A Common Stock and
2,355,407 shares of Class B Common Stock issued and outstanding and no shares of
Preferred Stock were outstanding.
The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that the Class B Common Stock is entitled
to one vote per share while the Class A Common Stock has no voting rights other
than those which may be required by Florida law in certain limited
circumstances.
VOTING
The holders of Class B Common Stock currently possess exclusive voting
rights in the Company. Shares of Preferred Stock issued in the future may be
granted voting rights at the discretion of the Board of Directors. On matters
submitted to the shareholders of the Company, the holders of the Class B Common
Stock will be entitled to one vote for each share held, while holders of Class A
Common Stock will not be entitled to vote except as may be required by Florida
law. Under the Florida Business Corporation Act (the "FBCA"), holders of Class A
Common Stock would currently be entitled to vote as a separate voting group on
certain amendments to the Company's Articles of Incorporation including, without
limitation, amendments which (i) increase or decrease the authorized number of
shares of Class A Common Stock, (ii) change the designation, rights, preferences
or limitations of the Class A Common Stock, (iii) create a new class of shares,
or increase the rights, preferences or number of authorized shares, which would
have rights or preferences with respect to distributions or dissolution that are
prior, superior or substantially equal to the Class A Common Stock, or (iv)
effect an exchange or reclassification of shares of another class of stock into
shares of Class A Common Stock or of Class A Common Stock into shares of another
class. In addition, under the FBCA holders of Class A Common Stock would
currently be entitled to vote as a separate voting group on any plan of merger
or plan of share exchange which contains a provision which, if included in a
proposed amendment to the Articles of Incorporation, would require their vote as
a separate voting group. No shares have cumulative voting rights.
DIVIDENDS
Holders of shares of Class A Common Stock and Class B Common Stock are
entitled to receive pro rata such dividends as may be declared by the Board of
Directors out of funds legally available therefor. With respect to dividends
other than cash (including stock splits and stock dividends), the distribution
per share with respect to Class A Common Stock must be identical to the
distribution per share with respect to Class B Common Stock, except that a stock
dividend or other distribution to holders of Class A Common Stock may be
declared and issued in Class A Common Stock while a stock dividend or other
distribution to holders of Class B Common Stock may be declared and issued in
either Class A Common Stock or Class B Common Stock (at the discretion of the
Board) provided that the number of any shares so issued is, on a per share
basis, the same. The ability of the Company to pay cash dividends is subject to
the ability of BBC to pay dividends or make other distributions to the Company,
which is in turn dependent on the ability of BankAtlantic to pay dividends or
make other distributions to the Company, which is itself in turn subject to
limitations imposed by law and regulation.
-51-
<PAGE>
CONVERSION
Each share of Class B Common Stock is convertible into one share of
Class A Common Stock at the option of the holder thereof at any time. Shares of
Class A Common Stock are not convertible into shares of Class B Common Stock or
any other security.
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of the Company, all
assets of the Company legally available for distribution after payment or
provision for payment of: (i) all debts and liabilities of the Company; (ii) any
accrued dividend claims; (iii) liquidation preferences of any Preferred Stock
which may be outstanding; and (iv) any interests in the Company's liquidation
account, will be distributed ratably, in cash or in kind, among the holders of
Class A Common Stock and Class B Common Stock.
TRANSFER AGENT AND REGISTRAR - American Stock Transfer Company.
OTHER CHARACTERISTICS - Neither the Class A Common Stock nor the Class
B Common Stock is entitled to any preemptive right to subscribe for or receive
any shares of any class of stock of the Company (or any securities convertible
into shares of stock of the Company) issued in the future.
PREFERRED STOCK
By amendment to its Articles of Incorporation without shareholder vote,
the Company may provide for one or more classes of Preferred Stock, which must
be separately identified. The shares of any such class may be divided into and
issued in series, with each series separately designated so as to distinguish
the shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the Company's
Articles of Incorporation and may provide for, among other things, board
representation, voting rights and dividend and liquidation preferences. All
shares of the same class must be identical except as to certain relative rights
and preferences specified in the Company's Articles of Incorporation, as to
which there may be variations between different series.
In connection with the adoption of its Shareholder Rights Plan (the
"Rights Plan"), the Company has established a series of preferred stock
designated the Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock"), consisting of 100,000 shares of Preferred Stock. No shares of
Series A Preferred Stock are presently outstanding.
SHAREHOLDER RIGHTS PLAN
On January 10, 1997, the Company's Board of Directors adopted the
Rights Plan. As part of the Rights Plan, the Company declared a dividend
distribution of one preferred stock purchase right (the "Right") for each
outstanding share of Class B Common Stock to shareholders of record on January
21, 1997. Each Right will become exercisable only upon the occurrence of certain
events, including the acquisition of 20% or more of the Class B Common Stock by
persons other than the then existing control shareholders (as specified in the
Rights Plan), will entitle the holder to purchase either shares of Series A
Preferred Stock or shares in the acquiring entity at half the market price of
such shares. The Rights may be redeemed by the Board of Directors at $.01 per
Right until the tenth day following the acquisition of 20% or more of the Class
B Common Stock by persons other than the existing shareholders. The Board may
also, in its discretion, extend the period for redemption. The Rights will
expire on January 10, 2007.
-52-
<PAGE>
DESCRIPTION OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures are a series of debt securities issued
under an Indenture, dated as of ______________, 1999 (the "Indenture"), between
the Company and U.S. Bank Trust National Association, as trustee (the
"Trustee"). The Subordinated Debentures are not savings accounts or deposits and
are not insured by the FDIC or any other governmental agency. The terms and
provisions of the Subordinated Debentures include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The Subordinated Debentures are subject to all such terms, and
holders of the Subordinated Debentures are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. The Indenture is filed as an exhibit to the
Registration Statement, of which this Prospectus is a part. For purposes of this
section, the term "Company" means only BFC Financial Corporation and not its
subsidiaries.
GENERAL
The Subordinated Debentures are general obligations of the Company
limited to $17.25 million in aggregate principal amount. The Subordinated
Debentures are not secured by the assets of the Company or otherwise and do not
have the benefit of a sinking fund for the retirement of principal. The
Subordinated Debentures rank on par with all subordinated indebtedness of the
Company and are subordinated and junior in right of payment to all Senior
Indebtedness (as defined below) of the Company, which may include obligations of
the Company to BBC or BankAtlantic. The Company, or any subsidiary of the
Company including BBC or BankAtlantic, may incur additional indebtedness
constituting Senior Indebtedness or indebtedness that ranks on par with the
Subordinated Debentures. The Indenture does not limit the total indebtedness
that either the Company or any of its subsidiaries may incur. The Subordinated
Debentures are subordinate to all indebtedness of the Company that does not
state that it is subordinate to or on par with the Subordinated Debentures. As
of September 30, 1998, the Company had outstanding approximately $12.34 million
of Senior Indebtedness and approximately $8.89 million in indebtedness which
ranks on par with the Subordinated Debentures. A portion of the proceeds of the
Offerings will be used to repay approximately $4.0 million of indebtedness
ranking on a par with The Subordinated Debentures. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of a subsidiary, including BBC or BankAtlantic, upon any liquidation or
reorganization or otherwise of such subsidiary (and thus the ability of Holders
(as defined below) of the Subordinated Debentures to benefit indirectly from
such distribution), is subject to the prior claims of creditors of the
subsidiary (including depositors in BankAtlantic), except to the extent that the
Company may itself be recognized as a creditor of the subsidiary.
The Subordinated Debentures mature on __________, 2009, unless redeemed
earlier at the option of the Company. See "--Redemption or Repurchase of
Subordinated Debentures." The Subordinated Debentures bear interest at the rate
of ___% per annum from the most recent Debenture Interest Payment Date (as
defined below) to which interest has been paid or provided for, payable
semi-annually on __________ and ____________ of each year, commencing on
___________, 1999, to the person in whose name the Debenture (or any predecessor
Debenture) is registered at the close of business on the preceding _____________
or _____________, as the case may be. Interest on the Subordinated Debentures is
computed on the basis of a 360-day year of twelve 30-day months. The Trustee
serves as Debenture Registrar and Paying Agent for the Subordinated Debentures
(the "Registrar"). Principal and interest are payable by check mailed by the
Trustee to the person entitled to payment on the Debenture Interest Payment
Date.
The Subordinated Debentures are denominated in U.S. dollars and
payments of principal of and interest on the Subordinated Debentures are in U.S.
dollars. The Subordinated Debentures were issued only in fully registered form,
without coupons, in denominations of $1,000 and integral multiples thereof. The
Subordinated Debentures may be presented for registration of transfer or
exchange and shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by the holder
thereof or his
-53-
<PAGE>
attorney duly authorized in writing. The registered holder of a Debenture will
be treated as its owner for all purposes. Money for the payment of principal or
interest upon redemption remaining unclaimed for two years will be paid back to
the Company at its request.
The Company's primary source of funds for the payment of principal and
interest on the Subordinated Debentures is dividends from BBC, and BBC's primary
source of funds for the payment of dividends on the BBC Common Stock is
BankAtlantic. From time to time while the Subordinated Debentures are
outstanding BBC may be subject to regulatory or contractual constraints that
restrict its ability to pay dividends to the Company and BankAtlantic may be
subject to regulatory or contractual restraints that restrict its ability to pay
dividends to BBC.
REDEMPTION OR REPURCHASE OF SUBORDINATED DEBENTURES
The Subordinated Debentures are redeemable at the option of the
Company, in whole or in part, at any time, on not less than 30 days notice, but
not more than 60 days prior to the redemption date at the following redemption
prices (expressed as percentages of principal amount), plus accrued interest to
the redemption date, if redeemed during the twelve month period beginning
_____________ of the years indicated below:
2004...........................
2005...........................
2006...........................
2007...........................
2008...........................
2009........................... 100%
The Company may at any time repurchase the Subordinated Debentures at
any price in the open market or otherwise. Subordinated Debentures so purchased
by the Company may be held or resold or, at the discretion of the Company, may
be surrendered to the Trustee for cancellation.
SUBORDINATION
The principal and premium, if any, and interest on the Subordinated
Debentures is subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness of the Company. The Indenture does not limit the
amount of Senior Indebtedness or other indebtedness, secured or unsecured, that
the Company or any of its subsidiaries may incur. If payments on any Senior
Indebtedness are accelerated, the Company shall be prohibited from making any
payment of principal, premium or interest on the Subordinated Debentures until
payments of the Senior Indebtedness are made or provided for. Upon any
distribution of assets of the Company in connection with any dissolution,
winding up, liquidation or reorganization of the Company, payment of principal,
premium or interest on the Subordinated Debentures will be subordinated, to the
extent and in the manner set forth in the Indenture, to the prior payment in
full of Senior Indebtedness. By reason of such subordination, in the event of a
distribution of assets in any such proceeding, certain general creditors of the
Company may recover more, ratably, than Holders of the Subordinated Debentures.
CERTAIN DEFINITIONS
"Capitalized Lease Obligation" means any lease obligations of a Person
incurred with respect to any property (whether real, personal or mixed) acquired
or leased by such Person and used in its business that is required to be
recorded as a capitalized lease in accordance with generally accepted accounting
principles.
"Capital Stock" means any and all shares, interests, participation
rights or other equivalents (however designated) of corporate stock.
-54-
<PAGE>
"Debenture Interest Payment Date" means the stated maturity of an
installment of interest on the Debenture.
"Holder" means a Person in whose name a Debenture is registered.
"Indebtedness" means (a) all Obligations of the Company for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of the Company or only to a portion thereof), (b) all indebtedness of the
Company which is evidenced by a note, debenture, bond or other similar
instrument, including Capitalized Lease Obligations, (c) all indebtedness of the
Company representing the unpaid balance of the purchase price of any goods or
other property or balance owed for any services rendered, (d) all indebtedness
of the Company, including Capitalized Lease Obligations, incurred, assumed or
given in an acquisition (whether by way of purchase, merger or otherwise) of any
business, real property or other assets, (e) any indebtedness of others
described in the preceding clauses (a), (b), (c) and (d) that the Company has
guaranteed or for which it is otherwise liable and (f) any amendment, renewal,
extension, deferral, modification, restructuring or refunding of any such
indebtedness, obligation or guarantee.
"Obligations" mean, with respect to any indebtedness, any principal,
premium, interest, penalties, fees and other liabilities payable from time to
time and obligations performable under the documentation governing such
Indebtedness.
"Senior Indebtedness" means any and all Indebtedness of the Company,
except any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall be subordinate or shall rank pari passu in right of payment
to the Subordinated Debentures.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged.
The Indenture contains certain customary covenants found in indentures
under the Trust Indenture Act, including covenants with respect to the payment
of principal and interest, maintenance of an office or agency for administering
the Subordinated Debentures, holding of funds for payments on the Subordinated
Debentures in trust, payment by the Company of taxes and other claims,
maintenance by the Company of its properties and its corporate existence and
delivery of annual certifications to the Trustee.
RESTRICTIONS ON DIVIDENDS
The Indenture provides that the Company cannot declare or pay dividends
on, or purchase, redeem or acquire for value its Capital Stock, return any
capital to holders of its Capital Stock as such, or make any distribution of
assets to holders of its Capital Stock, as such, unless at the time of any such
dividend declaration or the date of any such purchase, redemption, payment or
distribution specified above, the Company is not in default in the payment of
interest on the Subordinated Debentures or an Event of Default has not occurred.
The Indenture does not prohibit or restrict the Company from selling
additional shares of its Capital Stock or other debt securities nor from
pledging its shares of BBC's Capital Stock. Further, neither BBC nor
BankAtlantic is restricted from issuing any shares of their respective Capital
Stock or debt securities.
DEFAULTS AND REMEDIES
An "Event of Default," as defined in the Indenture, includes (i) the
failure by the Company to pay principal of or premium, if any, on the
Subordinated Debentures at maturity or upon redemption (whether or not such
payment is prohibited by the subordination provisions), (ii) the failure by the
Company to pay interest on any
-55-
<PAGE>
of the Subordinated Debentures on any Debenture Interest Payment Date and such
failure continues for a period of 30 days (whether or not such payment is
prohibited by the subordination provisions), (iii) the failure by the Company to
comply with any of its other agreements or covenants in, or provisions of, the
Indenture and such default continues for the period after the notice specified
below and (iv) certain events of bankruptcy, insolvency or reorganization of the
Company.
A default under clause (iii) above is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the Subordinated Debentures then outstanding notify the
Company and the Trustee in writing, of the default, and the Company does not
cure the default within 60 days after receipt of the notice. The notice must
specify the default, demand that it be remedied and state that the notice is a
"Notice of Default." Such notice shall be given by the Trustee if so requested
in writing by the Holders of at least 25% in principal amount of the
Subordinated Debentures then outstanding. Any notice required to be delivered by
the Trustee to the Company shall be given promptly after the Trustee becomes
aware of such default or is requested by the Holders to deliver such notice.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any default known to it, mail to the Holders notice of such
default, provided that, except in the case of default in the payment of
principal of or interest on any of the Subordinated Debentures, the Trustee
shall be protected in withholding such notice if it in good faith determines
that the withholding of such notice is in the interest of the Holders.
The Indenture only permits acceleration of payment of principal of the
Subordinated Debentures upon an Event of Default resulting from the failure of
the Company to pay principal or interest on the Subordinated Debentures or upon
certain events of bankruptcy, insolvency or reorganization. If an Event of
Default resulting from the failure of the Company to pay principal or interest
on the Subordinated Debentures or upon certain events of bankruptcy, insolvency
or reorganization shall have occurred and be continuing, the Trustee or the
Holders of not less than 30% in aggregate principal amount of the Subordinated
Debentures then outstanding, by notice in writing to the Company (and to the
Trustee if given by the Holders), may declare to be immediately due and payable
all unpaid principal of all the Subordinated Debentures. An acceleration and its
consequences may be rescinded and past defaults waived by Holders of a majority
in principal amount of the Subordinated Debentures then outstanding upon
conditions provided in the Indenture. No Holder may pursue any remedy under the
Indenture unless such Holder has previously given to the Trustee written notice
of a continuing Event of Default and unless the Holders of at least 30% in
principal amount of the Subordinated Debentures then outstanding have requested
the Trustee in writing to pursue the remedy and offered the Trustee indemnity
satisfactory to the Trustee against loss, liability and expense to be thereby
incurred and the Trustee has failed so to act within 60 days after receipt of
the same.
The Indenture requires the Company to file periodic reports with the
Trustee as to the absence of defaults.
SATISFACTION, DISCHARGE AND DEFEASANCE
The Indenture provides that the Company will at its option either (a)
be deemed to have paid and discharged the entire indebtedness represented by its
obligations under the Subordinated Debentures (except for the obligation to pay
the principal of, premium, if any, and interest on, the Subordinated Debentures
and certain obligations to register the transfer or exchange of the Subordinated
Debentures, to replace temporary or mutilated, destroyed, lost or stolen
Subordinated Debentures, to maintain an office or agency in respect to the
Subordinated Debentures and to hold moneys for payment in trust) ("legal
defeasance") or (b) cease to be under any obligation to comply with certain
terms, provisions or conditions of the Indenture (except for those terms,
provisions or conditions described in the Indenture under "Consolidation, Merger
or Sale") or the terms, provisions or conditions of the Subordinated Debentures
("covenant defeasance") in either case, on the 91st day after (i) the Company
has paid or caused to be paid all other sums payable with respect to the
outstanding Subordinated Debentures and the Company has delivered to the Trustee
a certificate from an authorized officer and an opinion
-56-
<PAGE>
of legal counsel, each stating that all conditions precedent relating to the
satisfaction and discharge of the entire indebtedness on all of the outstanding
Subordinated Debentures have been complied with; (ii) the Company has deposited
or caused to be deposited irrevocably with the Trustee as a trust fund
specifically pledged as security for the benefit of the holders of the
Subordinated Debentures, (x) dollars in an amount or (y) U.S. Government
Obligations (which through the payment of interest and principal in respect
thereof in accordance with their terms will provide, not later than the due date
of any payment of principal, premium, if any, and interest on the outstanding
Subordinated Debentures) in an amount or (z) a combination of (x) and (y),
sufficient to pay and discharge each installment of principal of and interest or
premium, if any, on the outstanding Subordinated Debentures on the dates such
installments of interest or principal or premium, if any, are due; and (iii) no
Event of Default has occurred and is continuing on the date of such deposit.
Among the conditions of the Company's exercising any such option, the Company is
required to deliver to the Trustee an opinion of independent counsel of
recognized standing to the effect that the deposit and related defeasance would
not cause the holders of the Subordinated Debentures to recognize income, gain
or loss for United States Federal income tax purposes and that the holders will
be subject to United States Federal income tax in the same amounts, in the same
manner and at the same times as would have been the case if such deposit and
related defeasance had not occurred.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Indenture provides that the Company will not merge or consolidate
with or sell all or substantially all of its assets to, any Person unless it is
the surviving or successor Person in such transaction and, immediately
thereafter, is not in default under the Indenture or, if it is not the surviving
or successor Person, the successor Person expressly assumes the Company's
obligations under the Indenture and, immediately after such transaction, the
successor Person is not in default under the Indenture. Any successor Person
shall assume by supplemental indenture all of the obligations of the Company
under the Subordinated Debentures and the Indenture and the Person formed by
such consolidation or into which the Company is merged shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture, and thereafter the predecessor Person shall be relieved of all
obligations and covenants under the Indenture and the Subordinated Debentures
issued thereunder and may thereafter be liquidated and dissolved.
MODIFICATION OF THE INDENTURE
The Indenture provides that the Company and the Trustee may, without
the consent of any Holders of Subordinated Debentures, enter into supplemental
indentures for purposes, among other things, of: (a) evidencing the succession
of another Person to the Company and the assumption by any such successor of the
covenants of the Company; (b) making any change that does not adversely affect
the rights of any Holders; or (c) curing any ambiguity, defect or inconsistency;
provided, however, that such action shall not adversely affect the interest of
the Holders in any material respect.
Most of the terms of the Indenture and the Subordinated Debentures may
be modified with the consent of the Holders of not less than two-thirds of the
principal amount of Subordinated Debentures then outstanding. However, each
Holder must agree to: (i) an extension of maturity, (ii) a reduction in
principal amount or the rate of interest on the Subordinated Debentures, (iii) a
reduction in redemption percentage or (iv) a reduction in the aforesaid
percentage required for modification.
The Company may omit in any particular instance to comply with any
covenant or condition as set forth in the Indenture if before the time for such
compliance two-thirds of the Holders of the principal amount of Subordinated
Debentures then outstanding shall either waive such compliance in such instance
or generally waive compliance with such covenant or condition, but no such
waiver may extend to or affect such covenant or condition except to the extent
so expressly waived, and until such waiver has become effective, the obligation
of the Company and the duties of the Trustee in respect of any such covenant
will remain in full force and effect.
-57-
<PAGE>
No supplemental indenture will affect the seniority rights of the holders of
Senior Indebtedness without the consent of such holders.
REGARDING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and
conduct other banking transactions with the Trustee in the ordinary course of
their businesses.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement among the Company and _______________ (the "Underwriter"), the
Underwriter will purchase (i) 1,000,000 shares of Class A Common Stock and (ii)
1,500,000 Subordinated Debentures. The Underwriter will be committed to purchase
and pay for all the shares of Class A Common Stock if any of the shares of Class
A Common Stock are purchased. The Underwriter is committed to purchase and pay
for all the Subordinated Debentures if any of the Subordinated Debentures are
purchased.
The Company has been advised by the Underwriter that it proposes
initially to offer the Class A Common Stock and the Subordinated Debentures to
the public at the respective public offering prices set forth on the cover page
of this Prospectus, and to certain dealers at such price less a concession not
in excess of $____ per share of Class A Common Stock and ___% of the principal
amount of the Subordinated Debentures. The Underwriter may allow and such
dealers may re-allow a concession not in excess of $_______ per share of Class A
Common Stock and ___% of the principal amount of the Subordinated Debentures to
certain other dealers. After the public offerings, the respective public
offering prices and such concessions may be changed by the Underwriter.
The Company will grant to the Underwriter options, exercisable for 30
days from the date of this Prospectus, to purchase up to 150,000 shares of Class
A Common Stock and up to $2,250,000 in aggregate principal amount of additional
Subordinated Debentures, respectively, at the respective public offering prices
set forth on the cover page hereof less underwriting discounts. The Underwriter
will be permitted to exercise either such option to purchase additional shares
of Class A Common Stock or Subordinated Debentures, as the case may be, solely
for the purpose of covering over-allotments, if any, incurred in the sale of the
Class A Common Stock or Subordinated Debentures, as applicable.
The Company will also agree to reimburse the Underwriter for its reasonable
out-of-pocket expenses relating to the Offerings and to indemnify the
Underwriter against and contribute toward certain liabilities, including
liabilities under the Securities Act.
In connection with the Offerings, the Company expects that the Underwriter
and its affiliates may engage in transactions effected in accordance with Rule
104 of the SEC's Regulation M that are intended to stabilize, maintain or
otherwise affect the market price of the Class A Common Stock or the
Subordinated Debentures. Such transactions may include over-allotment
transactions in which the Underwriter creates a short position for its own
account by selling more Class A Common Stock or Subordinated Debentures than it
is committed to purchase. In such case, to cover all or part of the short
position, the Underwriter may exercise either or both of the over-allotment
options described above to purchase additional Class A Common Stock or
Subordinated Debentures, as the case may be, or may purchase Class A Common
Stock or Subordinated Debentures in the open market following completion of the
initial Offerings thereof. The Company also expects that the Underwriter also
may engage in stabilizing transactions in which it bids for, and purchases,
Class A Common Stock or Subordinated Debentures at a level above that which
might otherwise prevail in the open market for the purpose of preventing or
retarding a decline in the market price of the Class A Common Stock or the
Subordinated Debentures. The Underwriter also may reclaim any selling
concessions allowed to a dealer if the Underwriter repurchases Class A Common
Stock or Subordinated Debentures distributed by that dealer. Any of the
foregoing transactions may result in the
-58-
<PAGE>
maintenance of a price for the Class A Common Stock or the Subordinated
Debentures at a level above that which might otherwise prevail in the open
market. Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock or the
Subordinated Debentures. The Underwriter will not be required to engage in any
of the foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
LEGAL MATTERS
The validity of the Class A Common Stock, and the Subordinated Debentures
will be passed upon for the Company by Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A., Miami, Florida. Certain legal matters will be passed upon for
the Underwriter by ______________________.
EXPERTS
The consolidated financial statements of BFC Financial Corporation as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing. The consolidated financial statements of
BankAtlantic Bancorp, Inc. as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997 have been included herein
and in the Registration Statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
-59-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
BFC FINANCIAL CORPORATION
Independent Auditor's Report.......................................................................................F-2
Financial Statements:
Consolidated Statements of Financial Condition - September 30, 1998 (unaudited),
December 31, 1997 and 1996....................................................................................F-3
Consolidated Statements of Operations - For the Nine Months Ended September 30,
1998 and 1997 (unaudited) and each of the years in the three year period ended
December 31, 1997.............................................................................................F-4
Consolidated Statements of Stockholders' Equity - For the Nine Months Ended
September 30, 1998 and 1997 (unaudited) and each of the years in the three
year period ended December 31, 1997...........................................................................F-6
Consolidated Statements of Cash Flows - For the Nine Months Ended September 30,
1998 and 1997 (unaudited) and each of the years in the three year period ended December 31, 1997..............F-7
Notes to Consolidated Financial Statements....................................................................F-11
BANKATLANTIC BANCORP, INC.
Independent Auditors' Report.......................................................................................F-32
Financial Statements:
Consolidated Statements of Financial Condition - September 30, 1998 (unaudited),
December 31, 1997 and 1996....................................................................................F-33
Consolidated Statements of Operations - For the Nine Months Ended September 30,
1998 and 1997 (unaudited) and each of the years in the three year period ended
December 31, 1997.............................................................................................F-34
Consolidated Statements of Stockholders' Equity - For the Nine Months Ended
September 30, 1998 (unaudited) and each of the years in the three year period
ended December 31, 1997.......................................................................................F-35
Consolidated Statements of Cash Flows - For the Nine Months Ended September 30,
1998 and 1997 (unaudited) and each of the years in the three year period ended December 31, 1997..............F-38
Notes to Consolidated Financial Statements....................................................................F-41
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BFC Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of BFC Financial Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BFC Financial
Corporation and subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principals.
KPMG LLP
Fort Lauderdale, Florida
March 20, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 1998, December 31, 1997 and December 31, 1996
(in thousands, except share data)
ASSETS SEPTEMBER 30, DECEMBER 31,
-------------- --------------------
1998 1997 1996
-------------- -------- -------
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 1,157 604 1,796
Securities available for sale 919 1,478 6,819
Investment in BankAtlantic Bancorp, Inc. ("BBC") 76,844 72,185 59,039
Mortgage notes and related receivables, net 1,766 1,859 2,180
Investment real estate, net 6,496 9,700 10,383
Real estate held for development and sale 2,538 6,474 6,497
Other assets 4,031 6,571 12,127
-------------- -------- -------
Total assets $ 93,751 98,871 98,841
============== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Subordinated debentures, net 6,782 7,263 19,135
Deferred interest on the subordinated debentures 2,110 2,106 2,806
Mortgage payables and other borrowings 12,344 22,943 25,498
Other liabilities 709 706 4,663
Deferred income taxes 13,644 11,711 5,277
-------------- -------- -------
Total liabilities 35,589 44,729 57,379
Commitments and contingencies
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued - - -
Class A common stock of $.01 par value,
authorized 20,000,000 shares; issued and outstanding
6,453,994 in 1998 and 1997 and 0 shares in 1996 58 58 -
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,355,407 in 1998, 2,346,907 in 1997
and 2,327,682 in 1996 21 21 21
Additional paid-in capital 26,114 23,525 20,610
Retained earnings 31,889 30,280 20,520
-------------- -------- -------
Total stockholders' equity before BBC
accumulated other comprehensive 58,082 53,884 41,151
BBC accumulated other comprehensive income-
net unrealized appreciation on securities available for sale,
net of deferred income taxes 80 258 311
-------------- -------- -------
Total stockholders' equity $ 58,162 54,142 41,462
-------------- -------- -------
Total liabilities and stockholders' equity $ 93,751 98,871 98,841
============== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the nine months ended September 30,
1998 and 1997 and each of the years in the
three year period ended
December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest on mortgage notes and
related receivables $ 159 166 221 613 451
Interest and dividends on securities
available for sale and escrow accounts 178 365 445 694 648
Dividend on redemption of BBC
preferred stock -- -- -- -- 191
Earnings on real estate rental operations, net 683 772 1,034 1,303 1,033
Sale of real estate 8,134 992 967 9,700 375
Net gain from sale of stock -- 1,349 1,349 -- --
Equity in earnings of BBC 1,607 8,579 12,129 8,650 8,419
Other income, net 23 200 209 701 594
------- ------- ------- ------- -------
Total revenues 10,784 12,423 16,354 21,661 11,711
------- ------- ------- ------- -------
COSTS AND EXPENSES:
Interest on subordinated debentures 373 595 723 1,238 1,976
Interest on mortgages payable
and other borrowings 1,161 1,533 1,996 2,396 2,598
Cost of sale of real estate 5,521 676 632 6,420 169
Provision for loan losses -- -- -- -- 335
Loss on disposition of mortgage
notes and investment, net -- -- -- 474 --
Write-down of investment 184 -- -- -- --
Expenses related to real estate held
for development and sale, net 107 172 130 154 93
Employee compensation and benefits 865 863 1,153 1,153 1,232
Occupancy and equipment 32 31 40 44 46
Reversal of provision for litigation -- (2,272) (2,272) (292) --
General and administrative, net 598 768 964 1,092 1,032
------- ------- ------- ------- -------
Total cost and expenses 8,841 2,366 3,366 12,679 7,481
------- ------- ------- ------- -------
Income before income taxes
and extraordinary items 1,943 10,057 12,988 8,982 4,230
Provision for income taxes 395 3,042 4,222 2,924 --
------- ------- ------- ------- -------
Income before extraordinary items 1,548 7,015 8,766 6,058 4,230
Extraordinary items:
Net gain from debt restructuring, net of
income taxes of $114,000 in 1997 -- 181 181 -- --
Net gain from extinguishment of debt,
net of income taxes of $39,000 in 1998,
$72,000 in 1997 and $218,000 in 1995 61 115 115 -- 460
Gain on settlements of Exchange
litigation, net of income taxes of $435,000 for
the nine months ended September 30, 1997,
$475,000 in 1997, $611,000 in 1996
and $1,461,000 in 1995 -- 692 756 853 3,242
------- ------- ------- ------- -------
NET INCOME $ 1,609 8,003 9,818 6,911 7,932
======= ======= ======= ======= =======
</TABLE>
F-4
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the nine months ended September 30,
1998 and 1997 and each of the years in the
three year period ended
December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Before extraordinary items $ 0.19 0.88 1.10 0.78 0.55
Extraordinary items 0.01 0.12 0.13 0.11 0.48
------- ------- ------- ------- -------
Net income $ 0.20 1.00 1.23 0.89 1.03
======= ======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Before extraordinary items $ 0.17 0.82 1.00 0.73 0.55
Extraordinary items 0.01 0.11 0.12 0.10 0.48
------- ------- ------- ------- -------
Net income $ 0.18 0.93 1.12 0.83 1.03
======= ======= ======= ======= =======
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 7,953 7,935 7,938 7,811 7,709
======= ======= ======= ======= =======
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 9,156 8,592 8,731 8,347 7,709
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 1998 and 1997 and
each of the years in the three year period ended December 31, 1997
(in thousands)
ADDI-
COMPRE- CLASS A CLASS B TIONAL
HENSIVE COMMON COMMON PAID-IN RETAINED
INCOME STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
------- -------- ------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 $ -- 20 20,742 5,677 93 26,532
Comprehensive income
Net income $ 7,932 7,932 7,932
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 2,546
Reclassification adjustment
for gains and (losses) included
in net income --
-------
Other comprehensive income 2,546
-------
Comprehensive income $10,478
=======
Effect of issuance by BBC
of BBC's common stock by
BBC to shareholders other
than BFC -- -- (1,252) -- -- (1,252)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- 2,546 2,546
-------- ------- -------- -------- ------ ------
BALANCE AT
DECEMBER 31, 1995 $ -- 20 19,490 13,609 2,639 35,758
Comprehensive income
Net income $ 6,911 6,911 6,911
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale (1,230)
Reclassification adjustment
for gains and (losses) included
in net income (1,098)
-------
Other comprehensive income (loss) (2,328)
-------
Comprehensive income $ 4,583
=======
Effect of issuance by BBC
of BBC's common stock by
BBC to shareholders other
than BFC -- -- 1,274 -- -- 1,274
Net effect of other BBC
capital transactions -- -- (335) -- -- (335)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (2,328)(2,328)
Exercise of stock options -- 1 181 -- -- 182
------- -------- ------- -------- -------- ----- ------
BALANCE AT
DECEMBER 31, 1996 $ -- 21 20,610 20,520 311 41,462
</TABLE>
(continued)
F-6
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 1998 and 1997 and
each of the years in the three year period ended December 31, 1997
(in thousands)
ADDI-
COMPRE- CLASS A CLASS B TIONAL
HENSIVE COMMON COMMON PAID-IN RETAINED
INCOME STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
------- -------- ------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income
Net income $ 9,818 9,818 9,818
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 194
Reclassification adjustment
for gains and (losses) included
in net income (247)
-------
Other comprehensive income (loss) (53)
-------
Comprehensive income $ 9,765
=======
Effect of issuance by BBC
of BBC's Class A common stock
by BBC to shareholders other
than BFC, net of
deferred income taxes - - 3,975 - - 3,975
Net effect of other BBC
capital transactions, net
of deferred income taxes - - (1,216) - - (1,216)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes - - - - (53) (53)
5 for 4 stock split 5 - - (5) - -
3 for 1 stock split 53 - - (53) - -
Exercise of stock options - - 156 - - 156
-------- ------- -------- ------- ------ ------
BALANCE AT
DECEMBER 31, 1997 $ 58 21 23,525 30,280 258 54,142
======== ======= ======== ======= ====== ======
BALANCE AT
DECEMBER 31, 1996 $ - 21 20,610 20,520 311 41,462
Comprehensive income
Net income $ 8,003 - - - 8,003 - 8,003
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 396 - - - - - -
Reclassification adjustment
for gains and (losses) included
in net income (244) - - - - - -
-------
Other comprehensive income 152 - - - - - -
-------
Comprehensive income $ 8,155 - - - - - -
=======
Net effect of other BBC
capital transactions - - (1,966) - - (1,966)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes - - - - 152 152
5 for 4 stock split October 1997 5 - - (5) - -
Exercise of stock options - - 156 - - 156
-------- ------- -------- ------- ------ ------
BALANCE AT
SEPTEMBER 30, 1997 (UNAUDITED) $ 5 21 18,800 28,518 463 47,807
======== ======= ======== ======= ====== ======
(continued)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 1998 and 1997 and
each of the years in the three year period ended December 31, 1997
(in thousands)
ADDI-
COMPRE- CLASS A CLASS B TIONAL
HENSIVE COMMON COMMON PAID-IN RETAINED
INCOME STOCK STOCK CAPITAL EARNINGS OTHER TOTAL
------- -------- ------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 $ 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 1,609 - - - 1,609 - 1,609
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 105 - - - - - -
Reclassification adjustment
for gains and (losses) included
in net income (283) - - - - - -
-------
Other comprehensive income (loss) (178) - - - - - -
-------
-
Comprehensive income $ 1,431 - - - - - -
=======
Net effect of other BBC
capital transactions, net of
deferred income taxes - - 2,529 - - 2,529
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes - - - - (178) (178)
Exercise of stock options - - 60 - -- 60
-------- ------- -------- --------- ------ ------
BALANCE AT
SEPTEMBER 30, 1998 (UNAUDITED) $ 58 21 26,114 31,889 80 58,162
======== ======= ======== ========= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and
1997 and each of the years in the three year period
ended December 31, 1997
(In thousands)
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Income before extraordinary items $ 1,548 7,015 8,766 6,058 4,230
Adjustments to reconcile income
before extraordinary items to net cash
(used in) operating activities:
Equity in earnings of BBC (1,607) (8,579) (12,129) (8,650) (8,419)
Depreciation 449 513 683 772 762
Expenses related to real estate held for
development and sale, net 107 172 130 154 93
Provision for income taxes 395 3,042 4,222 3,033 --
Accretion on subordinated debentures
and mortgages payable 8 11 13 15 29
Amortization of discount on loans receivable (31) (34) (45) (152) (168)
Increase in real estate development
and construction costs (1,455) -- (388) -- --
Gain on sale of real estate, net (2,613) (316) (335) (3,280) (206)
Net gain from sale of stock -- (1,349) (1,349) -- --
Gain on redemption of BBC preferred stock -- -- -- -- (191)
Provision to state mortgage receivable
at fair value -- -- -- -- 335
Loss on disposition of mortgage notes and
investment, net -- -- -- 474 --
Proceeds received from litigation settlement -- -- -- 1,109 --
Gain from litigation cost, net -- -- -- (211) --
Reversal of provision for litigation -- (2,272) (2,272) -- --
Fundings for litigation settlement -- (1,801) (1,801) (3,690) --
Increase in the escrows for called
debenture liability -- (5,148) (5,158) (4,653) --
Proceeds from escrow for called
debenture liability 2,161 -- -- 2,903 --
Increase in deferred interest on the
subordinated debentures 366 531 656 747 1,423
Accrued interest income on escrow accounts (96) (183) (237) (161) (272)
Interest accrued regarding called
debenture liability -- 52 52 475 524
Increase (decrease) in other liabilities (53) (8) 45 (961) 89
Decrease (increase) in other assets 213 89 222 533 (192)
------- ------- ------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES (608) (8,265) (8,925) (5,485) (1,963)
------- ------- ------- ------- -------
(continued)
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and
1997 and each of the years in the three year period
ended December 31, 1997
(In thousands)
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Proceeds from the sales of
investment real estate -- 131 128 -- 341
Proceeds from the sale of real estate held
for development and sale, net -- -- -- 6,480 --
Proceeds from the sale of stock -- 3,720 3,720 -- --
Deposits received for sale of real estate -- -- -- -- 750
Common stock dividends received from BBC 884 737 1,025 883 819
Purchase of securities available for sale (6,716) (19,039) (19,225) (47,153) (20,091)
Proceeds from redemption and maturities
of securities available for sale 7,275 23,774 24,535 45,475 21,046
Loans originated -- -- -- -- (475)
Principal reduction on mortgage notes and
related receivables, net 124 136 182 2,806 733
Decrease (increase) in real estate 7,584 476 490 (275) (392)
Addition to office properties and equipment -- (21) (21) -- (35)
Improvements to investment real estate (83) (3) (22) (74) (375)
------- ------- ------- ------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 9,068 9,911 10,812 8,142 2,321
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Issuance of common stock 35 92 91 105 --
Increase in borrowings -- 9,144 9,144 -- 513
Repayments of borrowings (7,942) (12,232) (12,314) (2,118) (430)
------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (7,907) (2,996) (3,079) (2,013) 83
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 553 (1,350) (1,192) 644 441
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 604 1,796 1,796 1,152 711
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,157 446 604 1,796 1,152
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
BFC Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 1998 and 1997
(unaudited) and the years ended December 31,
1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - BFC Financial Corporation ("BFC" or
the "Company") is a savings bank holding company as a consequence of its
ownership of the Common Stock of BankAtlantic Bancorp, Inc. BankAtlantic, a
Federal Savings Bank, ("BankAtlantic") is a wholly-owned subsidiary of BBC. The
Company's primary asset is the capital stock of BankAtlantic Bancorp, Inc.
("BBC") and its primary activities currently relate to that asset. The financial
statements have been prepared in conformity with generally accepted accounting
principles ("GAAP"). In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the statements of consolidated financial condition and income and
expenses for the periods presented. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the next year relate to the determination of the valuation
allowance for real estate and the allowance for mortgage notes and related
receivables.
Amounts presented as of or for the periods ended September 30, 1998 and 1997 are
unaudited. All normal recurring adjustments and accruals for the unaudited
periods ended September 30, 1998 and 1997 are reflected herein.
The financial statements and notes to consolidated financial statements of
BankAtlantic Bancorp, Inc. and Subsidiaries are incorporated herein by
reference.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements reflect the
activities of BFC and its wholly owned subsidiaries. Because the Company's
ownership in BBC is less than 50%, the Company's investment in BBC is carried on
the equity method.
CASH EQUIVALENTS - Cash equivalents include liquid investments with original
maturities of three months or less.
SECURITIES AVAILABLE FOR SALE - The Company's securities are available for sale.
These securities are carried at fair value, with any related unrealized
appreciation or depreciation reported as a separate component of stockholders'
equity, net of income taxes. A write-down is reflected in the statement of
operations to the extent that securities are permanently impaired.
MORTGAGE NOTES AND RELATED RECEIVABLES, NET - Mortgage notes and related
receivables, net, are carried at the lower of cost or fair value.
ALLOWANCE FOR LOAN LOSSES - BFC bases the measurement of loan impairment in
accordance with FAS 114. Non-collateral dependent loan impairment is based on
the present value of the estimated future cash flows. Impairment losses are
included in the allowance for loan losses through a charge to the provision for
loan losses. Adjustments to impairment losses resulting from changes in the fair
value of an impaired loan's collateral or projected cash flows are included in
the provision for loan losses. Upon disposition of an impaired loan, any related
valuation allowance is relieved from the allowance for loan losses.
REAL ESTATE - Investment real estate is held for use. Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Land and indirect land development costs
are allocated to the various parcels based upon the relative sales value method.
Real estate held for sale is stated at the lower of carrying amount or fair
value less cost to sell. Real estate held for development is evaluated for
impairment based upon the undiscounted future cash flows of the property
compared to the carrying value of the property. If the undiscounted future cash
flows are lower than the carrying value of the property, a valuation allowance
is established for the difference
F-11
<PAGE>
between the carrying amount of the parcel and the fair value of the parcel, less
cost to sell. The fair value of real estate is evaluated based on existing and
anticipated market conditions. The evaluation takes into consideration the
current status of the property, various restrictions, carrying costs, costs of
disposition and any other circumstances which may affect estimated fair value.
Profit or loss on real estate sold is recognized in accordance with Statement of
Financial Accounting Standard No. 66, "Accounting for Sales of Real Estate". Any
estimated loss is recognized in the period in which it becomes apparent.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF -
Long-lived assets and assets held for sale are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that the Company expects to
hold and use is based on the fair value of the asset.
DEPRECIATION - Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which generally range up to 31.5 years for
buildings and 4 years for tenant improvements.
INCOME TAXES - The Company does not include BBC and its subsidiaries in its
consolidated income tax return with its wholly owned subsidiaries, since the
Company owns less than 80% of the outstanding stock of BBC. Deferred income
taxes are provided on elements of income that are recognized for financial
accounting purposes in periods different than such items are recognized for
income tax purposes.
The Company utilizes the asset and liability method to account for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the statutory enactment
date. A valuation allowance is provided to the extent it is more likely than not
that deferred tax assets will not be utilized.
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED (GOODWILL) - The ownership
position in BankAtlantic was acquired at different times. In some acquisitions,
the fair market value of the net assets of BankAtlantic were greater than the
Company's cost. At other acquisitions, the Company's cost was in excess of the
fair market value of BankAtlantic's net assets. The excess of fair market value
over cost was recorded as a reduction to the fair market value of non-current
assets. The excess of cost over fair market value was recorded as goodwill and
is being amortized on the straight-line basis over a 15-year period. Some minor
increases in ownership of BankAtlantic were recorded utilizing BankAtlantic's
cost basis of assets and liabilities as fair market value. The excess of such
cost basis over the Company's purchase price was recorded as a reduction to
property and equipment and is being amortized on a straight-line basis over a
ten-year period. Cost over fair value of net assets acquired and other
intangible assets is evaluated by management for impairment on an on-going basis
based on the facts and circumstances related to the net assets acquired. That
evaluation includes a review of current and estimated future earnings and
dividend paying ability.
EARNINGS PER SHARE - Financial Accounting Standards Board Statement No. 128,
Earnings per Share ("FAS 128") was issued in February 1997. This statement
simplifies the standards for computing earnings per share ("EPS") and is
effective for financial statements issued for periods ending after December 15,
1997. FAS 128 requires restatement of all prior-period EPS data presented. FAS
128 replaced primary and fully diluted earnings per share with basic and diluted
earnings per share. While the Company has two classes of common stock
outstanding, the two-class method is not presented because the Company's capital
structures does not provide for different dividend rates or other preferences,
other than voting rights, between the two classes. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options to issue common
F-12
<PAGE>
shares were exercised. Common stock options, if dilutive, are considered in the
weighted average number of dilutive common shares outstanding. The options are
included in the weighted average number of dilutive common shares outstanding
based on the treasury stock method. For all periods, the shares issued in
connection with a 1984 acquisition are considered outstanding after elimination
of the Company's ownership of the shares issued in the acquisition,
respectively.
STOCK SPLITS - On October 6, 1997, the Board of Directors of the Company
declared a five for four stock split effected in the form of 25% stock dividend,
payable in shares of the Company's newly authorized Class A Common Stock. The
Class A Common Stock was a newly authorized series of the Company's capital
stock and no shares were outstanding prior to the dividend. Pursuant to the
Company's Articles of Incorporation, the Company's then existing common stock
was automatically redesignated as Class B Common Stock without changing any of
its rights and preferences upon the authorization by the Board of the stock
dividend. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock. On January 15, 1998, the Board of Directors of
the Company declared a three for one stock split effected in the form of a stock
dividend of two shares of Class A Common Stock for each share of outstanding
Class A and Class B Common Stock. Due to accounting and tax considerations,
outstanding options to purchase Class B Common Stock previously granted under
the Company's stock option plans were adjusted to reflect additional Class B
stock options instead of options on Class A Common Stock. Where appropriate,
amounts throughout this report have been adjusted to reflect the stock splits.
STOCK BASED COMPENSATION PLANS - The Company maintains both qualifying and
non-qualifying stock-based compensation plans for its employees and directors.
The Company has elected to account for its employee stock-based compensation
plans under APB No. 25.
NEW ACCOUNTING STANDARDS - The Financial Accounting Standard Board ("FASB")
issued FASB Statement No. 130 ("FAS 130") "Reporting Comprehensive Income" and
FASB Statement No. 131 ("FAS 131") "Disclosures About Segments of an Enterprise
and Related Information" in June 1997. FAS 130 establishes standards for
reporting comprehensive income in financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Some of the
items included in comprehensive income are unrealized gains or losses on
securities available for sale, underfunded pension obligations and employee
stock options. FASB Statement No.131 ("FAS 131") establishes standards for the
way that public companies report information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in interim financial statements issued to
shareholders. FAS 130 and FAS 131 are effective for periods beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Implementation of FAS 130 and FAS
131 will impact disclosures in the 1998 Financial Statements but will not have
an impact on the Company's Statement of Financial Condition or Statement of
Operations.
Financial Accounting standards Board Statement No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" ("FAS 132") was issued in
February 1998. This statement revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practical, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. The statement suggests combined formats
for presentation of pension and other postretirement benefit disclosures. This
statement is effective for fiscal years beginning after December 15, 1997.
Implementation of FAS 132 will impact disclosure only, but will not have an
impact on the Company's Consolidated Statement of Operations or Statement of
Financial Condition.
RECLASSIFICATIONS - For comparative purposes, certain prior year balances have
been reclassified to conform with the 1998 financial statement presentation.
F-13
<PAGE>
2. INVESTMENTS IN BANKATLANTIC BANCORP, INC.
The Company has acquired its 31.5% ownership of all outstanding BBC Common Stock
at September 30, 1998 through various acquisitions and sales. Where appropriate,
amounts throughout this report of all BBC share and per share amounts have been
adjusted for stock splits declared by BBC. BBC's Class A Common Stock is
non-voting and is entitled to receive cash dividends equal to at least 110% of
any cash dividends declared and paid on the Class B Common Stock. At September
30, 1998, the Company owned 6,578,671 shares of BBC Class A Common Stock and
4,876,124 shares of BBC Class B Common Stock. The aggregate market value of the
Company's investment in BBC at September 30, 1998 was approximately $92.4
million or approximately $15.6 million in excess of the carrying value in the
financial statements. The following table reflects BFC's percentage ownership in
BBC:
CLASS A CLASS B
COMMON COMMON TOTAL
STOCK STOCK OUTSTANDING
------- -------- -----------
December 31, 1995 n/a 46.0% 46.0%
December 31, 1996 35.1% 46.2% 41.5%
June 30, 1997 36.4% 45.5% 40.8%
December 31, 1997 30.6% 45.6% 35.6%
September 30, 1998 25.3% 47.0% 31.5%
A reconciliation of the carrying value in BBC to BBC's Stockholders equity at
September 30, 1998, December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
BBC stockholders' equity $ 247,321 207,171 147,704
Ownership percentage 31.5% 35.6% 41.5%
------------ ----------- ------------
77,807 73,691 61,327
Purchase accounting adjustments (963) (1,506) (2,288)
------------ ----------- ------------
Investment in BBC $ 76,844 72,185 59,039
============ ============= ============
</TABLE>
The acquisition of BankAtlantic has been accounted for as a purchase and
accordingly, the assets and liabilities acquired have been revalued to reflect
market values at the dates of acquisition. The discounts and premiums arising as
a result of such revaluation are generally being accreted or amortized (i.e.
added into income or deducted from income), net of tax, using the level yield or
interest method over the remaining life of the assets and liabilities. The net
impact of such accretion, amortization and other purchase accounting adjustments
was to increase consolidated net earnings during the nine months ended September
30, 1998 and 1997 by approximately $556,000 and for the years ended December 31,
1997, 1996 and 1995 by approximately $741,000, $545,000 and $677,000,
respectively. Such amounts are included in equity in earnings of BBC. Assuming
no sales or dispositions of the related assets or liabilities by BBC, the
Company believes the net increase (decrease) in earnings resulting from the net
amortization/accretion of the adjustments to net assets acquired resulting from
the use of the purchase method of accounting will be remain at a similar level
in future years.
Excess cost over fair value of net assets acquired at September 30, 1998,
December 31, 1997 and 1996, was approximately $485,000, $577,000 and $700,000,
respectively. Excess cost over fair value of net assets acquired at September
30, 1998, December 31, 1997 and 1996 is included in the investment in BBC in the
accompanying statements of financial condition, in addition to other unamortized
purchase accounting adjustments. The excess cost over fair value of net assets
acquired will be fully amortized in 2002.
In June 1998 BBC acquired Ryan, Beck & Co., Inc. ("RBCO"), an investment firm
that is principally engaged in the underwriting, distribution and trading of
tax-exempt obligations and bank and thrift equity and debt securities. BBC
issued 2,863,367 shares of Class A Common Stock to acquire RBCO. Upon
acquisition of RBCO, BBC assumed all options outstanding under RBCO's existing
stock option plans, resulting in the issuance of options to purchase 314,145
shares of Class A Common Stock at various exercise prices based upon the
exercise prices of the assumed options. The RBCO acquisition agreement provided
for the establishment of an incentive and retention pool, under
F-14
<PAGE>
which shares of BBC's Class A Common Stock representing 20% of the total
transaction value were allocated to key employees of RBCO. The retention pool
consists of 683,362 shares of restricted Class A Common Stock, which will vest
in four years to employees who remain for the period. BFC's ownership percentage
of BBC as of September 30, 1998, excludes the 683,362 shares of restricted Class
A Common Stock.
On March 20, 1998, BBC acquired Leasing Technology Inc. ("LTI"), a company
engaged in the equipment leasing and finance business. BBC issued 718,413 shares
of Class A Common Stock to acquire LTI. Upon regulatory approval, on June 30,
1998, BBC transferred LTI to BankAtlantic at BBC's cost.
Pursuant to previously announced plans by BBC to purchase shares of its common
stock, during the nine months ended September 30, 1998, BBC paid $10.6 million
to repurchase and retire 738,500 shares of Class B Common Stock.
During the nine months ended September 30, 1998, BBC issued 907,319 shares of
Class A Common Stock upon the conversion of $5.9 million in principal amount of
BBC's 6 3/4% Convertible Subordinated Debentures due 2006.
On February 3, 1998, BBC's shareholders during a special meeting increased the
authorized shares of BBC's Class A and Class B Common Stock to 80 million shares
and 45 million shares, respectively.
On August 4, 1998, the Board of Directors of BBC granted pursuant to the
BankAtlantic Bancorp 1998 stock option plan 391,630 shares of Class A incentive
stock options and 89,525 shares of Class A nonqualifying stock options with a
$9.50 exercise price to officers of BankAtlantic. All of the incentive and
non-qualifying stock options are exercisable for BBC's Class A Common Stock,
with an exercise price equal to the fair market value at the date of grant. Also
on August 4, 1998, the Board of Directors of BBC granted 47,875 shares of Class
A incentive stock options to a beneficial owner of BBC at an above market price
of $10.45.
The decrease in the ownership percentage at September 30, 1998 from 35.6% to
31.5% of all outstanding common stock of BBC was primarily due to BBC's issuance
of Class A Common Stock to acquire RBCO and LTI. This decrease was offset in
part by changes in BBC's outstanding common stock primarily due to BBC's
repurchases of its shares. The decrease in the ownership percentage at December
31, 1997 from 41.5% to 35.6% of all outstanding common stock of BBC was
primarily due to the issuance by BBC of 4,312,500 shares of Class A Common Stock
in a public offering and the sale of 449,805 shares of BBC's Class A Common
Stock by the Company. This decrease in the ownership was offset in part during
the year ended December 31, 1997 by the net effect of other BBC capital
transactions such as BBC's repurchase of 1,040,625 shares of Class A and 365,625
shares of Class B Common Stock, the conversion of 6 3/4% debentures into 57,252
shares of BBC Class A common and the issuance of additional shares in connection
with BBC's stock option plans.
On November 25, 1997, in a dual public offering, BBC issued 4,312,500 shares of
Class A Common Stock and $100.0 million of 5 5/8% convertible subordinated
debentures ("5 5/8% Debentures"). The net proceeds to BBC from the sale of Class
A Common Stock was $43.4 million, net of $107,000 of offering costs, from the
sale of the 5 5/8% Debentures, $96.5 million, net of $3.5 million of offering
costs. The 5 5/8% Debentures are convertible at an exercise price of $12.94 per
share into an aggregate of 7,727,975 shares of Class A Common Stock.
During 1997, the Company sold 449,805 shares of BankAtlantic Bancorp, Inc. Class
A Common Stock. Net proceeds received from these sales amounted to approximately
$3.7 million and a net gain of approximately $1.3 million was recognized.
In March 1997, BBC formed BBC Capital Trust I ("BBC Capital"). BBC Capital is a
statutory business trust which was formed for the purpose of issuing 9 1/2%
Cumulative Trust Preferred Securities ("Preferred Securities") and investing the
proceeds thereof in Junior Subordinated Debentures of BBC. In a public offering
in April 1997, BBC Capital issued $75 million, 2.99 million shares of Preferred
Securities. BBC Capital used the gross proceeds received from the sale of the
Preferred Securities to purchase $71.8 million of 9 1/2% Junior Subordinated
Debentures from BBC, which mature on June 30, 2027. The net proceeds from the
sale of the Junior Subordinated Debentures were utilized as follows: $21.2
million was used by BankAtlantic to acquire St. Lucie West Holding Corp. and
subsidiaries and to invest in a real estate joint venture, $12.2 million was
used to repurchase BBC's Common Stock and the remaining proceeds is being
utilized by BBC for general corporate purposes. St. Lucie West
F-15
<PAGE>
Holding Corp. is the developer of the master planned community of St. Lucie
West, located in St. Lucie County, Florida
In March 1996, BBC issued 2.80 million shares of Class A Common Stock in an
underwritten public offering at $6.14 per share resulting in a decrease in the
Company's ownership of all outstanding BBC Common Stock from approximately 46%
to 41.5%. At June 30, 1996, the Company's ownership in all outstanding BBC's
Common Stock further decreased to 40.8% upon BBC's issuance of Class A Common
Stock in connection with exercise of employee stock options and in April 1996
the underwriter exercised an overallotment option to purchase an additional
395,027 shares of Class A Common Stock. At December 31, 1996, the Company's
ownership in all outstanding Common Stock of BBC increased to 41.5%, upon BBC's
repurchase of 356,445 and 175,781 shares of BBC Class A and B Common Stock,
respectively. At December 31, 1996, the Company's ownership in BBC Class A and B
Common Stock was approximately 35.1% and 46.2%, respectively.
During 1996, BBC issued $57.5 million of 6 3/4% convertible debentures due July
1, 2006, (the 6 3/4% Debentures"). The 6 3/4% debentures are convertible into
Class A Common Stock at an exercise price of $6.55 per share. Net proceeds to
BBC were $55.2 million net of underwriting discount and offering expenses. The
net proceeds were utilized by BankAtlantic for the acquisition of Bank of North
America ("BNA") and general corporate purposes by BBC and BankAtlantic.
BBC's primary asset is the capital stock of BankAtlantic, its wholly owned
subsidiary. BBC's principal activities relate to the operations of BankAtlantic
and BankAtlantic's subsidiaries. BBC's primary use of funds is to pay dividends
on its outstanding common stock and interest on outstanding debentures. It is
anticipated that funds for payment of these expenses will be obtained from
BankAtlantic. Additionally, the ultimate repayment by BBC of its outstanding
debentures may be dependent upon dividends from BankAtlantic. Also, BBC obtains
funds through the exercise of stock options. BBC has paid a regular quarterly
dividend since its formation and management of BBC has stated its intention to
pay regular quarterly cash dividends on its common stock.
Current regulations applicable to the payment of cash dividends by savings
institutions impose limits on capital distributions based on an institution's
regulatory capital levels and net income. An institution that meets all of its
fully phased-in capital requirements (both before and after giving effect to the
distribution) and is not in need of more than normal supervision would be a
"Tier 1 association". Upon prior notice to, and non-objection by, the OTS, a
Tier 1 association may make capital distributions during a calendar year up to
the greater of (1) 100% of net income for the current calendar year plus 50% of
its capital surplus or (ii) 75% of its net income over the most recent four
quarters. Any additional capital distributions would require prior regulatory
approval. At June 30, 1998 and December 31, 1997, BankAtlantic met the
definition of a Tier 1 association.
3. SUBORDINATED DEBENTURES
During 1989 and 1991, the Company exchanged (the "Exchange Transactions")
approximately $45.4 million of its subordinated unsecured debentures (the
"Debentures") for all of the assets and liabilities of six affiliated limited
partnerships. The major assets and liabilities of these partnerships consisted
principally of commercial real estate properties and related non-recourse
mortgage debt. Of the properties acquired, one property plus a 50% interest in
another property is still owned by the Company at September 30, 1998 and
December 31, 1997.
The Company deposited $30.6 million into escrow accounts in connection with the
settlement of litigation that arose pertaining to the Exchange Transactions,
including a deposit of $5.1 million in March 1997. All of the funding required
in connection with the Exchange settlements had been provided as of March 31,
1997. Payments on the settlement relating to one of the 1989 Exchange litigation
settlements commenced in January 1997. Payments on all other settlements had
commenced prior to that date. The final time period for filing a claim in the
settlements expired in January 1998. Pursuant to terms of escrow agreements,
during January 1998 approximately $2.1 million and during June 1996
approximately $3.0 million was released from escrow accounts established to fund
payment on subordinated debentures that had been called. Any amounts remaining
in escrow in January 2000 will be released to the Company and after that date
any payments on the called debentures will be paid directly by the Company.
Included in subordinated debentures at September 30, 1998, December 31, 1997 and
1996, was approximately $5.3 million, $ 5.5 million and $16.2 million,
respectively, of debentures that have been called. Such debentures do not
F-16
<PAGE>
bear interest. Included in other assets at September 30, 1998, December 31, 1997
and 1996 was approximately $2.8 million, $5.0 million and $10.5 million held in
escrow accounts related to a portion of these called debentures.
Initially, the amount that was to be paid under these settlements was not
determined with certainty because the amount of settlement depended upon whether
the class member still owned the debenture issued to them in the exchange
transaction ("Class Members Still Owning Debentures") or whether the class
member sold the debenture transferred to them in the exchange transaction
("Class Members No Longer Owning Debentures"). The determination of which group
a debenture holder falls into was complicated by the fact that when a transfer
of ownership occurs, the transfer may not be a bona fide sale transaction (i.e.,
involved a transfer to street name or to a family member). When a debenture is
held by a Class Member Still Owning Debentures, the amount of gain recognized on
that debenture is greater because the debenture and any related accrued interest
is removed from the books whereas if the debenture was sold to a non class
member, a settlement payment is made to the Class Member No Longer Owning the
Debenture and the debenture and all related accrued interest remains on the
books in the name of the current holder of the debenture. When the settlements
were recorded, the gain recorded was based upon the determination that if the
debenture had been transferred since issue, the debenture was classified in the
group of Class Members No Longer Owning Debentures. As debentures were presented
for payment, if a determination was made that the debenture belonged in the
group of Class Members Still Owning Debentures, an adjustment was made and
additional gain was recognized. Additionally, Class Members No Longer Owning
Debentures had a specified time period for filing a claim and as the
determination of the claim amounts were made and when the time period expired an
adjustment was made and additional gain was recognized. Extraordinary gains, net
of income taxes of approximately $692,000, $756,000, $853,000 and $3.2 million
were recognized for the nine months ended September 30, 1997, for the years
ended December 31, 1997, 1996 and 1995, respectively, based upon claims made and
paid pursuant to the settlements of litigation relating to Class Members No
Longer Owning Debentures (as defined).
The components of the gain from the settlements of litigation are as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-------------------- -----------------------------
1997 1997 1996 1995
---- ------- -------- ------
<S> <C> <C> <C> <C>
Adjustment of basis in the properties acquired in
debenture exchange, net $ -- -- -- 273
Decrease in other assets -- -- -- (43)
Decrease in subordinated debentures, net 661 710 872 2,835
Decrease in deferred interest on the
subordinated debentures 680 735 663 2,196
------- ------- -------- ------
1,341 1,445 1,535 5,261
Called debenture liability (214) (214) (71) (558)
------- ------- -------- ------
Pre-tax gain on settlement of litigation 1,127 1,231 1,464 4,703
Income taxes 435 475 611 1,461
------- ------- -------- ------
Net gain on settlements of litigation $ 692 756 853 3,242
======= ======= ======== ======
</TABLE>
As a result of the litigation settlements, the Company's obligation to pay
interest on debentures is limited to only those debentures held by persons that
acquired debentures in an arms length transaction prior to the date on which the
settlements were reached ("Holders in Due Course"), or debentures held by
persons that opted out of the litigation. Pursuant to the terms of the
debentures, the Company may elect to defer interest payments on its subordinated
debentures if management of the Company determines in its discretion that the
payment of interest would impair the operations of the Company. Items considered
in the decision to defer the interest payment would include, among other items,
the ability to identify which debentures are held by Holders in Due Course and
current operating expenses. Since December 31, 1991, the Company has deferred
interest payments on its subordinated debentures.
For financial statement purposes, the Debentures in the 1991 and 1989 Exchange
Transactions have been discounted to yield 19% and 12%, respectively, over their
term. The interest on the debentures in the 1991 and 1989 Exchange Transactions
is 13% and 12%, respectively per annum. Any interest not paid quarterly by the
Company ("Deferred Interest") will accrue interest at the same rate as the
Debentures until paid. No dividends may be paid to the holders
F-17
<PAGE>
of any equity securities of the Company while any deferred interest remains
unpaid. Since December 31, 1991, the Company has deferred the interest payments
relating to the debentures issued in both the 1989 Exchange and the 1991
Exchange. The deferred interest on the subordinated debentures was approximately
$2.1 million at September 30, 1998 and December 31, 1997 and $2.8 million at
December 31, 1996.
During the nine months ended September 30, 1998, the Company reacquired
approximately $603,000 of debentures and accrued interest for approximately
$503,000 resulting in a gain of approximately $100,000. Such gain is reflected
as an extraordinary item, net of income taxes of $39,000 in the accompanying
financial statements.
During the year ended December 31, 1997, the Company reacquired approximately
$1,147,000 of debentures and accrued interest for approximately $960,000,
resulting in a gain of approximately $187,000. Such gain is reflected as an
extraordinary item, net of income taxes of $72,000 in the accompanying financial
statements.
4. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at September 30, 1998, December
31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------
1998 1997 1996
-------- ------ ------
<S> <C> <C> <C>
U.S. Treasury Bills $ 501 1,072 6,591
Investment in preferred stock 343 343 150
Other 75 63 78
-------- ------ ------
$ 919 1,478 6,819
======== ====== ======
</TABLE>
Market value at September 30, 1998, December 31, 1997 and 1996 approximated book
value.
5. MORTGAGE NOTES AND RELATED RECEIVABLES - NET
Mortgage notes and related receivables as of September 30, 1998, December 31,
1997 and 1996 are summarized below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------
1998 1997 1996
------------- --------- --------
<S> <C> <C> <C>
Originating from:
Investment properties $ 3,410 3,533 3,974
Less: Principally, deferred profit (872) (902) (1,022)
Allowance for impairment (772) (772) (772)
------------- --------- --------
Total $ 1,766 1,859 2,180
============= ========= ========
</TABLE>
In January 1997, mortgage notes and related receivables, net, decreased due to
the conversion of approximately $184,000 of a note due from an affiliated
limited partnership to an equity position in the partnership.
In 1996, the Company recorded a loss of approximately $474,000 in connection
with the disposition of mortgage notes and investments, net from affiliated
limited partnerships. During 1996, such limited partnerships were liquidated. In
connection with the disposition of the mortgage notes, the Company received
approximately $297,000 of accrued interest that was not previously recorded on
the books. Such interest has been recorded in interest income and is not
included below. The components of the 1996 loss on disposition of mortgage notes
and investment, net are as follows:
1996
----------
Mortgage receivables $ 1,328
Less: Principally, deferred profit (947)
Valuation allowance (162)
219
Investment in limited partnerships, net 255
----------
Net loss $ 474
==========
F-18
<PAGE>
During 1996, the Company received approximately $1.7 million resulting from the
satisfaction of loans due from affiliated limited partnerships, upon the sale of
the partnerships' properties. Also, during 1996 approximately $1.1 million was
received for a loan due from an unaffiliated third party.
Through September 1994, the Company had attempted to negotiate an extension of a
$1.0 million balloon payment on a note payable that matured in June 1993.
However, the lender exercised the acceleration provision on the note and in
September 1994, the underlying security that consisted of five wrap mortgage
receivables from affiliated limited partnerships was transferred to an affiliate
of the lender. In September 1994, the Company removed the related receivables
and payables from its books but deferred the gain because negotiations with the
lender were ongoing. At that time the Company remained liable to the lender for
the difference between the balance owed at the time of the acceleration and the
amount the lender sold the underlying security for. The Company continued
negotiations with the lender and in September 1995, an agreement was reached
whereby the lender was paid $500,000, two of the wrap mortgage receivables were
transferred to the affiliated limited partnerships and three of the wrap
mortgage receivables were transferred to the Company. Further, the Company was
released from any further liability to the lender. The three wrap mortgage
receivables transferred to the Company were reinstated on the Company's books at
their former carrying value reduced by payments made between September 1994 and
September 1995. The Company accounted for this transaction as a debt
extinguishment and accordingly reflected the gain on the transaction as an
extraordinary item in its financial statements. The components of the gain
recognized in 1995 are as follows (in thousands):
1995
--------
Mortgage notes and related receivables, net $ (1,729)
Underlying mortgage payables 1,520
Other liabilities 53
Credit from lender on sale of receivables 720
Balance forgiven by lender 261
---------
Pre-Tax Gain recognized $ 825
=========
In December 1995, the Company recorded a pre-tax loss on forgiveness of debt of
approximately $147,000 and accordingly removed the mortgage receivable, net due
from an affiliated limited Partnership. This limited Partnership in November
1995 sold its property and the remaining mortgage payable due to a subsidiary
of BFC was forgiven. The Company has accounted for this transaction as an
extraordinary item.
6. INVESTMENT REAL ESTATE
Investment real estate consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- ---------------------
1998 1997 1996
-------------- -------- --------
<S> <C> <C> <C>
Land $ 1,062 1,062 1,062
Buildings and improvements (a) 10,507 10,424 10,401
Other real estate (b) 93 3,257 3,284
-------------- -------- --------
11,662 14,743 14,747
Less:
Accumulated depreciation 4,437 3,998 3,319
Deferred profit 729 1,045 1,045
-------------- -------- --------
5,166 5,043 4,364
-------------- -------- --------
$ 6,496 9,700 10,383
============== ======== ========
</TABLE>
(a) Estimated lives for buildings is 31.5 years and improvements 4 years.
(b) The Company in 1996 sold a property included in investment real estate
to a joint venture in which the Company has a 50% interest. Since the
Company was the maker on the non-recourse mortgage note on the
property, the other real estate and mortgage note were not removed from
the financial statements and the gain on the sale of the
F-19
<PAGE>
property of approximately $0.6 million was deferred. In May 1998, the
mortgage note was refinanced and the Company is no longer the maker on
the non-recourse mortgage note on the property. The mortgage note and
investment real estate entries relating to the property were removed
from the Company's Consolidated Statements of Financial Condition in
1998, a partial sale was recognized and the Company's remaining
investment in the property is now carried in investment real estate
using the equity method of accounting. Recognition of the partial sale
during the quarter ended June 30, 1998 resulted in 50% of the deferred
profit (approximately $0.3 million) being recognized. The remaining
deferred profit will be recognized when the property is sold by the
joint venture.
An unaffiliated tenant contaminated certain property formerly owned by BFC. The
tenant, while contractually responsible for the cleanup of the contamination,
refused to do so. BFC, therefore, conducted the cleanup and sought to collect
the cleanup costs from the tenant. An aggregate of approximately $898,000 of
costs and attorneys' fees relating to this matter had been recorded by BFC as a
receivable. In July 1996, approximately $1.1 million was received as payment for
costs incurred by BFC. Based on such receipt, a net gain of approximately
$211,000 was recognized during 1996 relating to this matter.
7. REAL ESTATE HELD FOR DEVELOPMENT AND SALE
In 1994, the Company agreed to participate in certain real estate opportunities
with John E. Abdo, Vice Chairman of the Board, and certain of his affiliates
(the "Abdo Group"). Under the arrangement, the Company and the Abdo Group will
share equally in profits after any profit participation due to any other
partners in the ventures and after a priority return in favor of the Company.
The Company bears the risk of loss, if any, under the arrangement. On such
basis, the Company acquired interests in two properties. In June 1994, an entity
controlled by the Company acquired from an independent third party 23.7 acres of
unimproved land known as the "Cypress Creek" property located in Fort
Lauderdale, Florida. In March 1996, the Cypress Creek property was sold to an
unaffiliated third party for approximately $9.7 million and the company
recognized a gain of approximately $3.3 million. In connection therewith, the
Abdo Group received approximately $2.9 million as their share of the profit from
the transaction, which is included in cost of sale of real estate. As part of
the sale of the Cypress Creek property, the Company received a limited
partnership interest in an unaffiliated limited partnership that will entitle it
to receive approximately 4.5% of profits, if any, from development and operation
of the property. In December 1994, an entity controlled by the Company acquired
from an unaffiliated seller approximately 70 acres of unimproved land known as
the "Center Port" property in Pompano Beach, Florida. During the nine months
ended September 30, 1998, the Company sold approximately 35 acres of the Center
Port property to unaffiliated third parties for approximately $7.8 million and
the Company recognized a net gain from the sale of real estate of approximately
$2.3 million. In August 1997, approximately four acres were sold from the Center
Port property to unaffiliated third parties for approximately $818,000 and the
company recognized a net gain from the sale of real estate of approximately
$204,000. Included in cost of sales in 1998 and 1997 is approximately $2.3
million and $204,000, respectively, representing the Abdo Group profit
participation from the transactions. All proceeds from the sale were utilized to
reduce the borrowing for which the Center Port property serves as partial
collateral. The current balance on the borrowing is approximately $1,000 and is
due to an unaffiliated lender. Payment of profit participation will be deferred
until the lender and the Company are repaid on loans, advances and interest. The
remainder of the Center Port property is currently being marketed for sale.
F-20
<PAGE>
8. MORTGAGES PAYABLE AND OTHER BORROWINGS
Mortgages payable and other borrowings at September 30, 1998, December 31, 1997
and 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
APPROXIMATE SEPTEMBER 30, DECEMBER 31,
TYPE OF DEBT MATURITY INTEREST RATE 1998 1997 1996
------------ -------- ------------- ------------- ------- ------
<S> <C> <C> <C> <C>
Related to mortgage
receivables 1998-2010 6% - 9.75% $ 1,472 1,633 1,877
Related to real estate 1998-2007 9.20%- Prime
plus 1.5% 9,022 19,460 20,457
Other borrowings 1999 Prime-Prime
plus 1% 1,850 1,850 3,164
------------- ------- -------
$ 12,344 22,943 25,498
============= ======= =======
</TABLE>
All mortgage payables and other borrowings above are from unaffiliated parties.
Included in other borrowings at September 30, 1998 and December 31, 1997 is
approximately $1.8 million due to financial institutions, and $3.0 million at
December 31, 1996.
The Company in 1996 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, the investment real estate and mortgage note were not removed
from the financial statements. In May 1998, the mortgage note was refinanced and
the Company is no longer the sole maker on the non-recourse mortgage note on the
property. Therefore, the mortgage note and investment real estate entries
relating to the property were removed from the Company's Consolidated Statements
of Financial Condition in 1998 and the Company's remaining investment in the
property is now carried in investment real estate using the equity method of
accounting.
On October 29, 1996, a balloon payment of approximately $9.4 million was due on
the mortgage note that was secured by the Burlington Manufacturers Outlet
Center. Such payment was not made and the Company entered into an agreement for
forbearance and an extension agreement, which extended the maturity through
April 1997. In April 1997, new financing was obtained from an unaffiliated
lender and the previous mortgage note was satisfied. The principal amount of the
new financing was approximately $9.1 million, the note bears interest at a rate
of 9.2% per annum, requires monthly payments of $77,992 and matures on May 1,
2007. Upon satisfaction of the previous mortgage note, the Company recognized an
extraordinary gain of approximately $181,000 from debt restructuring, net of
income taxes.
In August 1997, a $3.5 million note due in September 1999 was converted to a
revolving line of credit, requiring only interest payments at prime plus 1% and
a maximum amount of $2,857,600. At September 30, 1998 and December 31, 1997 the
balance due on the revolving line of credit was $1,850,000. At December 31, 1996
the balance due on the $3.5 million note was $3,032,800.
In December 1994, the Company established a broker line of credit in the amount
of $850,000 which is currently collateralized by 170,000 shares of BankAtlantic
Bancorp, Inc. Class B Common Stock . At September 30, 1998, the outstanding
balance on the above line was zero.
At December 31, 1997 the aggregate principal amount of the above indebtedness
maturing in each of the next five years is approximately as follows (in
thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ----------
1998 $ 10,663
1999 2,111
2000 281
2001 307
2002 325
Thereafter 9,256
----------
$ 22,943
==========
F-21
<PAGE>
The majority of the Company's marketable securities, mortgage receivables, real
estate held for development and sale, net and investment real estate are as to
real estate and marketable securities, encumbered by, or, as to mortgages
receivable, subordinate to mortgages payable and other debt. In the aggregate,
approximately 9.6% of the shares of common stock of BBC owned by BFC are pledged
as collateral on mortgages payable and other borrowings.
9. INCOME TAXES
The provision for income tax expense (benefit) for the nine months ended
September 30, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995
consists of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 61 - - (124) -
State - - - 15 -
-------- ------- -------- --------- ---------
61 - - (109) -
-------- ------- -------- --------- ---------
Deferred :
Federal 286 2,608 3,621 2,598 -
State 48 434 601 435 -
-------- ------- -------- --------- ---------
334 3,042 4,222 3,033 -
-------- ------- -------- --------- ---------
Total $395 3,042 4,222 2,924 -
======== ======= ========= ========= =========
</TABLE>
Current taxes applicable to extraordinary items were $46,000 for the year ended
December 31, 1995 and none for the other periods presented. For the nine months
ended September 30, 1998 and 1997, deferred income taxes applicable to
extraordinary items were $39,000 and $621,000, respectively. For the years ended
December 31, 1997, 1996, and 1995 deferred income taxes applicable to
extraordinary items were $661,000, $611,000 and $1,633,000, respectively.
A reconciliation from the statutory federal income tax rate of 35% for the nine
months ended September 30, 1998 and 1997 and the years ended December 31, 1998,
1997, 1996 and 1995, to the effective tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------- -------------------------------------------------------
1998(1) 1997(1) 1997(1) 1996(1) 1995(1)
-------------- --------------- ---------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expected tax
expense $ 680 35.0 3,520 35.0 4,546 35.0 3,144 35.0 1,481 35.0
Provision for
state taxes net of
federal benefit 42 2.2 296 2.9 410 3.2 321 3.6 151 3.6
Dividend received
deduction (248) (12.7) (227) (2.3) (287) (2.2) (272) (3.0) (253) (5.8)
Change in the
valuation allowance
as a result of items
other than
extraordinary (2) - - - - - - - (1,377) (31.6)
Other, net (79) (4.2) (547) (5.4) (447) (3.5) (269) (3.0) (2) (1.2)
------ ------- ------ ------- ------ ------- ------- ------- -------- -------
395 20.3 3,042 30.2 4,222 32.5 2,924 32.6 - -
====== ======= ====== ======= ====== ======= ======= ======= ======== =======
</TABLE>
(1) Expected tax is computed based upon income before extraordinary items.
F-22
<PAGE>
(2) The remaining change in the deferred tax asset valuation allowance in
1995 relates to income generated from the extraordinary item.
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and tax liabilities at September 30, 1998,
December 31, 1997 and 1996 were (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------
1998 1997 1996
------------- ---------- -------
<S> <C> <C> <C>
Deferred tax assets:
Mortgages receivable $ 283 284 287
Litigation accruals - - 1,571
Other liabilities 118 134 106
Other assets 74 53 10
Alternative minimum tax credit 61 - -
Net operating loss carryforwards 5,751 6,945 6,215
------------- ---------- ------
Total gross deferred tax assets 6,287 7,416 8,189
Less:
Valuation allowance - - -
------------- ---------- ---------
Deferred tax assets after
valuation allowance 6,287 7,416 8,189
Deferred tax liabilities:
Real estate, net 379 1,353 1,496
Investment in BBC 19,452 17,656 11,763
Subordinated Debentures 100 118 207
------------- ---------- ---------
Total gross deferred tax liabilities 19,931 19,127 13,466
------------- ---------- ---------
Net deferred tax liability $ 13,644 11,711 5,277
============= ========== =========
</TABLE>
The Company believes it will utilize its deferred tax assets through taxable
income generated in future years by the reversal of deferred tax liabilities
existing as of September 30, 1998.
At December 31, 1997, the Company had estimated state and federal net operating
loss carry forwards as follows (in thousands):
EXPIRATION
YEAR STATE FEDERAL
---- -------- -------
2003 $ 253 -
2004 585 -
2005 2,757 -
2006 2,001 4,621
2007 4,235 7,199
2008 2,332 3,322
2011 1,662 1,831
2012 936 1,032
-------- -------
$ 14,761 18,005
======== =======
The Company received income tax refunds of approximately $70,000, $16,000 and
$229,000 during the years ended December 31, 1997, 1996 and 1995, respectively.
The Company made income tax payments of approximately $30,000, $122,000 and
$213,500 during nine months ended September 30, 1998, the years ended December
31, 1996 and 1995, respectively and none in December 31, 1997. BBC is not
included in the Company's consolidated tax return.
F-23
<PAGE>
10. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of $.01 par value preferred stock. The Board of Directors has
the authority to divide the authorized preferred stock into series or classes
having the relative rights, preferences and limitations as may be determined by
the Board of Directors without the prior approval of shareholders. The Board of
Directors has the power to issue this preferred stock on terms which would
create a preference over the Company's Common Stock with respect to dividends,
liquidation and voting rights. No further vote of security holders would be
required prior to the issuance of the shares.
The Company's Articles of Incorporation authorize the Company to issue both a
Class A Common Stock, par value $.01 per share and a Class B Common Stock, par
value $.01 per share. The Class A Common Stock and the Class B Common Stock have
substantially identical terms except that (i) the Class B Common Stock is
entitled to one vote per share while the Class A Common Stock will have no
voting rights other than those required by Florida law and (ii) each share of
Class B Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock.
On January 10, 1997, the Board of Directors of BFC Financial Corporation adopted
a Shareholder Rights Plan. As part of the Rights Plan, the Company declared a
dividend distribution of one preferred stock purchase right (the "Right") for
each outstanding share of BFC's Class B Common Stock to shareholders of record
on January 21, 1997. Each Right will become exercisable only upon the occurrence
of certain events, including the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing control shareholders (as
specified in the Rights Plan), and will entitle the holder to purchase either
BFC stock or shares in the acquiring entity at half the market price of such
shares. The Rights may be redeemed by the Board of Directors at $.01 per Right
until the tenth day following the acquisition of 20% or more of BFC's Class B
Common Stock by persons other than the existing shareholders. The Board may
also, in its discretion, extend the period for redemption. The Rights will
expire on January 10, 2007.
11. EARNINGS ON RENTAL REAL ESTATE OPERATIONS, NET
Following are the components of earnings on real estate rental operations, net
for the nine months ended September 30, 1998 and 1997 and each of the years in
the three year period ended December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------
1998 1997 1997 1996 1995
----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Deferred profit recognized $ 31 34 45 152 161
Operations from
investment real estate (see note 6) 652 738 989 1,151 872
----- ----- ------- ----- -----
$ 683 772 1,034 1,303 1,033
===== ===== ======= ===== =====
</TABLE>
12. RELATED PARTY TRANSACTIONS
Related party transactions arise from transactions with affiliated entities. In
addition to transactions described in notes elsewhere herein, a summary of
originating related party transactions is as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------
1998 1997 1997 1996 1995
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Property management fee revenue $ 3 4 10 90 78
====== ===== ===== ===== =====
Reimbursement revenue for
administrative, accounting
and legal services $ 28 36 52 121 91
====== ===== ===== ===== =====
</TABLE>
F-24
<PAGE>
The Company has a 49.5% interest and affiliates and third parties have a 50.5%
interest in a limited partnership formed in 1979, for which the Company's
Chairman serves as the individual General Partner. The partnership's primary
asset is real estate subject to net lease agreements. The Company's cost for
this investment, approximately $441,000, was written off in 1990 due to the
bankruptcy of the entity leasing the real estate. Any recovery will be
recognized in income when received.
Included in other assets at September 30, 1998, December 31, 1997, 1996 and
1995, was approximately $168,000, $158,000, $125,000 and $704,000 respectively
due from affiliates.
Alan B. Levan, President and Chairman of the Board of the Company also serves as
Chairman of the Board and Chief Executive Officer of BankAtlantic Bancorp, Inc.
and BankAtlantic.
John E. Abdo, Vice Chairman of the Board of the Company also serves as Vice
Chairman of the Board of Directors of BBC and BankAtlantic and is a director and
President of BankAtlantic Development Corporation a wholly owned subsidiary of
BankAtlantic ("BDC").
Glen R. Gilbert, Executive Vice President of the Company also serves as a
director and Vice President of BDC.
Florida Partners Corporation owns 133,314 shares of the Company's Class B Common
Stock and 366,615 shares of the Company's Class A Common Stock. Alan B. Levan is
the principal shareholder and a member of the Board of Florida Partners
Corporation. Glen R. Gilbert, Executive Vice President and Secretary of the
Company holds similar positions at Florida Partners Corporation.
The trustee for the escrow account with respect to the called debenture
liability maintains such account at BankAtlantic.
13. EMPLOYEE BENEFIT PLANS
The Company's Stock Option Plan provides for the grant of stock options to
purchase shares of the Company's Common Stock. The plan provided for the grant
of both incentive stock options and non-qualifying options. The exercise price
of a stock option will not be less than the fair market value of the Common
Stock on the date of the grant and the maximum term of the option is ten years.
The following table sets forth information on all outstanding options:
<TABLE>
<CAPTION>
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
------------ ------------------------
<S> <C> <C>
Outstanding at December 31, 1994 843,750 1.20 to 1.32
Issued 787,500 1.13 to 1.25
------------
Outstanding at December 31, 1995 1,631,250 1.13 to 1.32
Exercised (82,497) 1.20 to 1.32
------------
Outstanding at December 31, 1996 1,548,753 1.13 to 1.32
Issued 918,750 4.07 to 4.47
Exercised (72,096) 1.13 to 1.32
------------
Outstanding at December 31, 1997 2,395,407 1.13 to 4.47
Issued 532,500 10.33 to 10.33
Exercised (8,500) 4.07 to 4.07
------------
Outstanding at September 30, 1998 2,919,407 1.13 to 10.33
============
Exercisable at September 30, 1998 2,193,782 1.13 to 4.47
============
Available for grant at September 30, 1998 725,625
============
</TABLE>
The weighted average exercise price of options outstanding at September 30,
1998, December 31, 1997, 1996 and 1995 was $3.90, $2.47, $1.28 and $1.28,
respectively. The weighted average price of options exercised was $4.07, $1.24
and $1.27 during the nine months ending September 30, 1998 and the years 1997
and 1996, respectively. No options were exercised in 1995.
F-25
<PAGE>
The adoption of FAS 123 under the fair value based method would have increased
compensation expense by approximately $1,066,000, $138,000 and $539,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The effect of FAS
123 under the fair value based method would have effected net income and
earnings per share as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income:
As reported $ 9,818 6,911 7,932
Proforma 9,164 6,826 7,601
Basic earnings per share:
As reported 1.23 .89 1.03
Proforma 1.15 .87 .99
Diluted earnings per share:
As reported 1.12 .83 1.03
Proforma 1.05 .82 .99
</TABLE>
The option model used to calculate the FAS 123 compensation adjustment was the
Black-Scholes model with the following grant date fair values and assumptions:
<TABLE>
<CAPTION>
NUMBER OF RISK FREE EXPECTED EXPECTED
DATE OF OPTIONS GRANT DATE TYPE OF EXERCISE INTEREST LIFE EXPECTED DIVIDEND
GRANT GRANTED FAIR VALUE GRANT PRICE RATE (YEARS) VOLATILITY YIELD
----- ------- ---------- ------- ------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/7/95 750,000 $0.878 NQ 1.247 7.143% 8 74.81% 0%
2/7/95 37,500 $0.878 ISO 1.133 7.143% 6 74.81% 0%
7/1/97 49,176 $1.623 ISO 4.067 5.800% 6 27.40% 0%
7/1/97 119,574 $1.849 NQ 4.067 5.820% 7.5 27.40% 0%
7/1/97 750,000 $1.703 NQ 4.467 5.820% 7.5 27.40% 0%
</TABLE>
The employee turnover was considered to be none. The weighted average fair value
of options granted during the years ended December 31, 1997 and 1995 was $1.71
and $0.87, respectively.
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ --------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$1.13 to $1.32 1,476,657 6.6 Years $1.28 1,476,657 $1.28
$4.07 to $4.47 918,750 9.4 Years $4.39 - -
</TABLE>
The Company has an employee's profit-sharing plan which provides for
contributions to a fund of a sum as defined, but not to exceed the amount
permitted under the Internal Revenue Service Code as deductible expense. The
provision charged to operations was approximately $10,000 for each of the years
ended December 31, 1997, 1996 and 1995, respectively. Contributions are funded
on a current basis.
14. LITIGATION
The following is a description of certain lawsuits to which the Company is or
has been a party.
ALAN B. LEVAN AND BFC FINANCIAL CORPORATION V. CAPITAL CITIES/ABC, INC. AND
WILLIAM H. WILSON, in the United States District Court for the Southern District
of Florida, Case No. 92-325-Civ-Atkins. On November 29, 1991, The ABC television
program 20/20 broadcast a story about Alan B. Levan and BFC which purportedly
depicted some securities transactions in which they were involved. The story
contained numerous false and defamatory statements
F-26
<PAGE>
about the Company and Mr. Levan and on February 7, 1992, a defamation lawsuit
was filed on behalf of the Company and Mr. Levan against Capital Cities/ABC,
Inc. and William H. Wilson, the producer of the broadcast. In December 1996, a
jury found in favor of the Company and Mr. Levan and awarded a compensatory
judgment of $1.25 million to the Company and $8.75 million to Mr. Levan. Capital
Cities/ABC, Inc. and William H. Wilson have filed an appeal in this matter. That
appeal is currently pending. The Company will recognize such amount, less
applicable attorneys' fees, in income upon receipt.
KUGLER, ET.AL., (FORMERLY MARTHA HESS, ET. AL.), V. I.R.E. REAL ESTATE INCOME
FUND, ET AL. In connection with the above referenced matter, in October 1996,
approximately $3.7 million was placed in escrow to rescind sales and in March
1997, approximately $1.0 million was placed in escrow for attorneys' fees. On
April 30, 1997, the Courts approved the Kugler settlement and amounts were paid.
SHORT VS. EDEN UNITED, INC., ET AL. in the Marion County Superior Court, State
of Indiana. Civil Division Case No. S382 0011. In connection with certain
litigation related to the purchase and sale of an apartment complex in Indiana,
in April 1997, the Company paid approximately $783,000 and received a release
and satisfaction of judgment. At December 31, 1996, the Company had an accrual
of approximately $3.0 million included in other liabilities with respect to this
matter. The remaining accrual in the amount of approximately $2.3 million was
reversed during the quarter ended June 30, 1997.
The Company is also a party to certain other litigation arising in the ordinary
course of its business. Management does not believe such litigation will have a
material adverse affect on its financial condition or results of operations.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is quarterly financial information for the nine months ended September
30, 1998 and for the years ended December 31, 1997and 1996 (in thousands, except
per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
1998 MARCH 31, JUNE 30, SEPTEMBER 30, TOTAL
--------- -------- ------------- ------
<S> <S> <C> <C> <C>
Revenues $ 2,431 6,400 1,953 10,784
Costs and expenses 1,129 3,645 4,067 8,841
Income (loss) before extraordinary item 991 1,753 (1,196) 1,548
Net income (loss) 991 1,770 (1,152) 1,609
========= ======== ============= =======
Basic earnings (loss) per share:
Before extraordinary items .13 .22 (.15) .19
Extraordinary items - - .01 .01
--------- -------- ------------- -----
Net income (loss) .13 .22 (.14) .20
========= ======== ============= =======
Diluted earnings (loss) per share:
Before extraordinary items .11 .19 (.13) .17
Extraordinary items - - - .01
--------- -------- ------------- -----
Net income (loss) .11 .19 (.13) .18
========= ======== ============= =======
Basic weighted average number of
common shares outstanding 7,949 7,952 7,957 7,953
========= ======== ============= =======
Diluted weighted average number of
common shares outstanding 9,252 9,161 9,049 9,156
========= ======== ============= =======
</TABLE>
F-27
<PAGE>
During the three month periods ended June 30, 1998 and September 30, 1998, the
Company sold approximately 18 acres and 17 acres of the Center Port property to
unaffiliated third parties for approximately $3.4 million and $ 4.4 million,
respectively. The Company recognized a net gain from the sale of real estate of
approximately $1.0 million and $1.3 million for the three month periods ended
June 30, 1998 and September 30, 1998, respectively.
Operations for the quarter ended June 30, 1998 and September 30, 1998 included
extraordinary gain of approximately $17,000 and $44,000, respectively. The 1998
extraordinary gain, net of income taxes was due to extinguishment of debt.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
1997 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
---------- -------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,868 4,488 4,068 3,930 16,354
Costs and expenses 1,422 (884) 1,828 1,000 3,366
Income before extraordinary item 2,156 3,125 1,734 1,751 8,766
Net income 2,273 3,789 1,941 1,815 9,818
========== ======== ============= ============ ======
Basic earnings per share:
Before extraordinary items .27 .39 .22 .22 1.10
Extraordinary items .01 .08 .03 .01 .13
Net income .28 .47 .25 .23 1.23
========== ======== ============= ============ ======
Diluted earnings per share:
Before extraordinary items .25 .37 .20 .19 1.00
Extraordinary items .01 .08 .02 .01 .12
---------- -------- ------------- ------------- ------
Net income .26 .45 .22 .20 1.12
========== ======== ============= ============ ======
Basic weighted average number of
common shares outstanding 7,906 7,949 7,949 7,949 7,938
========== ======== ============= ============ ======
Diluted weighted average number of
common shares outstanding 8,513 8,559 8,790 9,079 8,731
========== ======== ============= ============ ======
</TABLE>
During January and June 1997, the Company sold 449,805 shares of BankAtlantic
Bancorp, Inc. Class A Common Stock. Net proceeds received from these sales
amounted to approximately $3.7 million and a net gain of approximately $1.3
million was recognized in 1997.
During the second quarter of 1997, the Company recognized a gain of
approximately $2.3 million for the reversal of a provision for litigation in
connection with the Short vs. Eden et. al. litigation. Also, during the second
quarter of 1997 approximately four acres were sold from the Center Port property
to unaffiliated third parties for approximately $818,000 and the company
recognized a net gain from the sale of real estate of approximately $204,000.
Included in cost of sales is approximately $204,000 representing the Abdo Group
profit participation from the transaction.
During the first quarter of 1997, the Company sold 12.7 acres located in
Birmingham, Alabama to an unaffiliated third party for approximately $149,000
and the company recognized a net gain on the sale of approximately $132,000.
During the first, second, third and fourth quarter of 1997, the Company
recognized extraordinary gains net of deferred income taxes of approximately
$117,000, $483,000, $92,000 and $64,000 related to revising the estimate of the
amounts to be paid regarding the Exchange Transactions.
F-28
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------
1996 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
---------- -------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 12,664 3,027 1,532 4,438 21,661
Costs and expenses 8,121 1,664 1,573 1,321 12,679
Income (loss) before extraordinary item 3,069 1,531 (41) 1,499 6,058
Net income (loss) 3,818 1,537 (41) 1,597 6,911
Basic earnings per share:
Before extraordinary items .39 .20 (.01) .19 .78
Extraordinary items .10 - - .01 .11
---------- -------- ------------- ------------ ------
Net income .49 .20 (.01) .20 .89
========== ======== ============= ============ ======
Diluted earnings per share:
Before extraordinary items .38 .18 - .18 .73
Extraordinary items .09 - - .01 .10
---------- -------- ------------- ------------ ------
Net income .47 .18 - .19 .83
========== ======== ============= ============ ======
Basic weighted average number of
common shares outstanding 7,794 7,794 7,797 7,858 7,811
========== ======== ============= ============ ======
Diluted weighted average number of
common shares outstanding 8,182 8,288 8,328 8,490 8,347
========== ======== ============= ============ ======
</TABLE>
During the first, second and fourth quarter of 1996, the Company recognized
extraordinary gains of approximately $749,000, $6,000 and $98,000 related to
revising the estimate of the amounts to be paid regarding theExchange
Transactions. In March 1996, Cypress Creek was sold to an unaffiliated third
party for approximately $9.7 million. The cost of sale was approximately $6.4
million.
F-29
<PAGE>
16. CONSOLIDATED STATEMENTS OF CASH FLOWS
In addition to the non-cash investing and financing activities described
elsewhere herein, other non-cash investing and financing activities are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------
1998 1997 1997 1996 1995
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
The net gains associated with the settlements of
litigation, net of income taxes - 692 756 853 3,242
====== ======= ====== ======= =======
The change in stockholders' equity resulting from
the Company's proportionate share of BBC's net
unrealized appreciation on securities available
for sale, less related deferred income taxes (178) 152 (53) (2,328) 2,546
====== ======= ====== ======= =======
Net gain from extinguishment of debt,
net of income taxes 61 115 115 - 460
====== ======= ====== ======= =======
Net gain on debt restructuring,
net of income taxes - 181 181 - -
====== ======= ====== ======= =======
Reinstatement of mortgage receivables
related to extinguishment of debt - - - - 1,484
====== ======= ====== ======= =======
Reinstatement of mortgage payables
related to extinguishment of debt - - - - 976
====== ======= ====== ======= =======
Transfers from escrow accounts to reflect payments
on subordinated debentures 248 10,765 10,930 537 3,697
====== ======= ====== ======= =======
Effect of issuance by BBC of BBC's
Common Stock to shareholders other than BFC,
net of deferred income taxes - - 3,975 1,274 (1,252)
====== ======= ====== ======= =======
Net effect of other BBC capital transactions,
net of income taxes 2,529 (1,966) (1,216) (335) -
====== ======= ====== ======= =======
Loss on disposition of mortgage notes
and investment, net - - - 474 -
====== ======= ====== ======= =======
Conversion of mortgage receivable to an
equity interest in an affiliated partnership - 184 184 - -
====== ======= ====== ======= =======
Increase in equity for the tax effect related to
the exercise of employee stock options 25 64 65 77 -
====== ======= ====== ======= =======
Deferred profit recognized 316 - - - -
====== ======= ====== ======= =======
BBC dividends on common stock
declared and paid in subsequent period 303 288 288 227 215
====== ======= ====== ======= =======
Interest paid on borrowings 1,182 1,611 2,073 2,396 2,520
====== ======= ====== ======= =======
</TABLE>
17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated fair value
of the Company's financial instruments presented in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" (FAS 107) issued by the
FASB.
Management has made estimates of fair value discount rates that it believes to
be reasonable. However, because there is no market for many of these financial
instruments, management has no basis to determine whether the fair value
presented would be indicative of the value negotiated in an actual sale. The
Company's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates. Due to the lack of an active trading market on the subordinated
debentures, fair value is presumed to equal carrying value.
F-30
<PAGE>
The following table presents information for the Company's financial instruments
as of September 30, 1998, December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
-------------------- --------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE AMOUNT VALUE AMOUNT VALUE
-------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 1,157 1,157 604 604 1,796 1,796
Securities available for sale 919 919 1,478 1,478 6,819 6,819
Mortgage notes and related
receivables, net 1,766 1,766 1,859 1,859 2,180 2,180
Financial liabilities:
Mortgage payables and other
borrowings 12,344 12,344 22,943 22,943 25,498 25,498
Subordinated debentures, net 6,782 6,782 7,263 7,263 19,135 19,135
</TABLE>
18. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations for the nine months ended September 30,
1998 and 1997 and for each of the years in the three year period ended December
31, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Basic Numerator:
Net income available for common shareholders $ 1,609 8,003 9,818 6,911 7,932
======== ======== ====== ====== =======
Basic Denominator
Weighted average shares outstanding 7,953 7,935 7,938 7,811 7,709
======== ======== ====== ====== =======
Basic earnings per share $ .20 1.00 1.23 .89 1.03
======== ======== ====== ====== =======
Diluted Numerator:
Dilutive net income available to
common shareholders $ 1,609 8,003 9,818 6,911 7,932
======== ======== ====== ====== =======
Diluted Denominator
Basic weighted average shares outstanding 7,953 7,935 7,938 7,811 7,709
Options (2) 1,203 657 793 536 -
-------- -------- ------ ------ ------
Diluted weighted average shares outstanding 9,156 8,592 8,731 8,347 7,709
======== ======== ====== ====== =======
Diluted earnings per share $ .18 .93 1.12 .83 1.03
======== ======== ====== ====== =======
</TABLE>
(1) Prior to 1997 there were no Class A common shares outstanding. All
shares outstanding prior to 1997 were Class B common shares. While the
Company has two classes of common stock outstanding, the two-class
method is not presented because the company's capital structure does
not provide for different dividend rates or other preferences, other
than voting rights, between the two classes.
(2) The number of options considered outstanding shares for diluted
earnings per share is based upon application of the treasury stock
method to the options outstanding as of the end of the period.
(3) I.R.E. Realty Advisory Group, Inc. ("RAG") owns 1,375,000 of BFC
Financial Corporation's Class A Common Stock and 500,000 shares of BFC
Financial Corporation Class B Common Stock. Because the Company owns
45.5% of the outstanding common stock of RAG, 624,938 shares of Class A
Common Stock and 227,500 shares of Class B Common Stock are eliminated
from the number of shares outstanding for purposes of computing
earnings per share.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BankAtlantic Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of BankAtlantic Bancorp, Inc. and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BankAtlantic
Bancorp, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG LLP
Fort Lauderdale, Florida
January 21, 1998, except Note 23,
which is dated February 26, 1998
F-32
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------- -----------------------
(In thousands, except share data) 1998 1997 1996
----------- ---------- ----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Cash and due from depository institutions ................................................. $ 88,321 $ 82,787 $ 102,995
Federal Funds sold ........................................................................ 3,250 0 6,148
Investment securities, net - held to maturity, at cost which approximates
market value ............................................................................ 55,853 55,213 54,511
Loans receivable, net ..................................................................... 2,379,935 1,911,263 1,808,649
Loans held for sale ....................................................................... 166,238 161,562 16,207
Securities available for sale (at market value) ........................................... 609,115 607,490 439,345
Trading securities (at market value) ...................................................... 23,123 5,067 0
Accrued interest receivable ............................................................... 26,912 22,624 20,755
Investment in real estate held for development and sale and joint ventures, net ........... 51,056 18,638 0
Real estate owned, net .................................................................... 5,319 7,528 4,918
Office properties and equipment, net ...................................................... 56,954 51,130 48,274
Federal Home Loan Bank stock, at cost which approximates market value ..................... 52,377 34,887 14,787
mortgage servicing rights ................................................................. 51,651 38,789 25,002
Deferred tax asset, net ................................................................... 13,565 3,197 3,355
Cost over fair value of net assets acquired ............................................... 56,368 26,188 28,591
Other assets .............................................................................. 42,587 38,117 31,990
----------- ---------- ----------
Total assets ..................................................................... $ 3,682,624 $3,064,480 $2,605,527
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .................................................................................. $ 1,883,229 $1,763,733 $1,832,780
Advances from FHLB ........................................................................ 1,047,520 697,707 295,700
Federal Funds purchased ................................................................... 0 2,500 0
Securities sold under agreements to repurchase ............................................ 110,060 58,716 190,588
Subordinated debentures and notes payable ................................................. 178,334 179,600 78,500
Guaranteed preferred beneficial interests in Company's Junior Subordinated Debentures ..... 74,750 74,750 0
Advances by borrowers for taxes and insurance ............................................. 71,906 39,397 29,659
Other liabilities ......................................................................... 69,504 40,906 30,596
----------- ---------- ----------
Total liabilities ................................................................ 3,435,303 2,857,309 2,457,823
----------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none
issued and outstanding ................................................................... 0 0 0
Class A common stock, $.01 par value, authorized 80,000,000 shares;
issued and outstanding 26,709,814, 21,509,159 and 18,128,782 shares .................... 267 215 78
Class B common stock, $.01 par value, authorized 45,000,000 shares;
issued and outstanding 10,387,431, 10,690,231 and 10,542,116 shares .................... 104 107 105
Additional paid-in capital ................................................................ 147,316 98,475 64,171
Unearned compensation - restricted stock grants .......................................... (7,566) 0 0
Retained earnings ......................................................................... 106,946 107,650 82,602
----------- ---------- ----------
Total stockholders' equity before accumulated other comprehensive income .................. 247,067 206,447 146,956
----------- ---------- ----------
Accumulated other comprehensive income - net unrealized appreciation on
securities available for sale - net of deferred income taxes ............................ 254 724 748
----------- ---------- ----------
Total stockholders' equity ....................................................... 247,321 207,171 147,704
----------- ---------- ----------
Total liabilities and stockholders' equity ....................................... $ 3,682,624 $3,064,480 $2,605,527
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-33
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
(In thousands, except per share data) SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
--------- ------- -------- --------- ---------
INTEREST INCOME: (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and fees on loans ............................................... $ 156,705 127,404 $171,220 $ 107,922 $ 72,841
Interest on banker's acceptances ......................................... 946 0 473 22 0
Interest on mortgage-backed securities held to maturity .................. 0 0 0 0 37,855
Interest on securities available for sale ................................ 26,237 22,927 31,177 38,159 7,207
Interest and dividends on investment and trading securities .............. 7,317 5,679 7,692 6,528 12,174
--------- ------- -------- --------- ---------
Total interest income ............................................ 191,205 156,010 210,562 152,631 130,077
--------- ------- -------- --------- ---------
INTEREST EXPENSE:
Interest on deposits ..................................................... 49,888 51,510 68,281 55,028 46,646
Interest on advances from FHLB ........................................... 38,769 18,752 27,345 9,221 7,449
Interest on securities sold under agreements to repurchase and federal
funds purchased ........................................................ 9,998 6,354 8,023 8,764 10,815
Interest on subordinated debentures, notes payable and guaranteed
beneficial interests in Company's Junior Subordinated Debentures ....... 14,646 7,634 11,582 4,018 776
Capitalized interest on investments in and advances to joint ventures .... (470) 0 0 0 0
--------- ------- -------- --------- ---------
Total interest expense ......................................... 112,831 84,250 115,231 77,031 65,686
--------- ------- -------- --------- ---------
Net interest income ...................................................... 78,374 71,760 95,331 75,600 64,391
Provision for loan losses ................................................ 9,811 8,833 11,268 5,844 4,182
--------- ------- -------- --------- ---------
Net interest income after provision for loan losses ...................... 68,563 62,927 84,063 69,756 60,209
--------- ------- -------- --------- ---------
NON-INTEREST INCOME (LOSS):
Loan servicing and other loan fees, net .................................. (1,065) 3,773 4,640 4,216 3,524
Provision for valuation of mortgage servicing rights .................... (15,000) 0 0 0 0
Gains on sales of loans held for sale .................................... 3,612 2,653 6,802 534 395
Trading account gains (losses) ........................................... (523) 1,495 2,463 0 589
Gains on sales of mortgage servicing rights .............................. 2,661 6,548 7,905 4,182 2,744
Gains on sales of securities available for sale .......................... 2,462 1,136 2,367 5,959 0
Gains on sales of real estate held for development and sale .............. 5,935 0 727 0 0
Gains (losses) on sales of property and equipment ........................ (6) 852 852 3,061 18
Principal transactions ................................................... 1,469 0 0 0 0
Investment banking ....................................................... 3,914 0 0 0 0
Commissions .............................................................. 2,179 71 103 21 0
Transaction fees ......................................................... 8,621 6,787 9,302 8,600 6,963
ATM fees ................................................................. 4,673 4,000 5,329 3,944 2,033
Other .................................................................... 3,955 2,616 3,572 3,220 3,122
--------- ------- -------- --------- ---------
Total non-interest income ........................................ 22,887 29,931 44,062 33,737 19,388
--------- ------- -------- --------- ---------
NON-INTEREST EXPENSE:
Employee compensation/benefits excluding RBCO and real estate ............ 35,424 28,866 40,236 33,216 25,403
operations
Employee compensation/benefits for RBCO and real estate operations ....... 6,042 0 143 0 0
Occupancy and equipment .................................................. 16,390 13,810 18,666 13,615 10,831
SAIF special assessment .................................................. 0 0 0 7,160 0
Federal insurance premium ................................................ 786 822 1,084 2,495 2,750
Advertising and promotion ................................................ 4,458 1,561 2,211 2,079 2,144
Foreclosed asset activity, net ........................................... (17) 245 118 (725) (3,178)
Amortization of cost over fair value of net assets acquired .............. 2,337 1,881 2,508 1,545 1,122
Other excluding RBCO and real estate operations .......................... 17,487 13,559 17,637 12,856 12,088
Other for RBCO and real estate operations ................................ 4,612 0 0 0 0
--------- ------- -------- --------- ---------
Total non-interest expense ....................................... 87,519 60,744 82,603 72,241 51,160
--------- ------- -------- --------- ---------
Income before income taxes ............................................... 3,931 32,114 45,522 31,252 28,437
Provision for income taxes ............................................... 1,828 12,523 17,753 12,241 10,018
--------- ------- -------- --------- ---------
Net income ............................................................... 2,103 19,591 27,769 19,011 18,419
--------- ------- -------- --------- ---------
Dividends on non-cumulative preferred stock .............................. 0 0 0 0 677
Amount classified as dividends on non-cumulative preferred
stock redemption(A)..................................................... 0 0 0 0 1,353
--------- ------- -------- --------- ---------
Total dividends on non-cumulative preferred stock ................ 0 0 0 0 2,030
--------- ------- -------- --------- ---------
Net income available for common shares ................................... $ 2,103 19,591 $ 27,769 $ 19,011 $ 16,389
========= ======= ======== ========= =========
BASIC EARNINGS PER SHARE CLASS A COMMON STOCK ............................ $ 0.07 0.70 $ 0.98 $ 0.64 $ N/A
========= ======= ======== ========= =========
BASIC EARNINGS PER SHARE CLASS B COMMON STOCK ............................ $ 0.05 0.68 $ 0.94 $ 0.72 $ 0.64
========= ======= ======== ========= =========
DILUTED EARNINGS PER SHARE CLASS A COMMON STOCK .......................... $ 0.06 0.56 $ 0.78 $ 0.58 $ N/A
========= ======= ======== ========= =========
DILUTED EARNINGS PER SHARE CLASS B COMMON STOCK .......................... $ 0.05 0.56 $ 0.77 $ 0.66 $ 0.62
========= ======= ======== ========= =========
</TABLE>
(A) The excess of the redemption price above the recorded amount of
preferred stock is considered a preferred stock dividend. The impact of
the October 1995 preferred stock redemption for the year ended December
31, 1995 was a reduction of $0.05 for basic and diluted earnings per
share.
See Notes to Consolidated Financial Statements
F-34
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
ADDITIONAL ON
PAID-IN SECURITIES
COMPRE- CAPITAL ADDITIONAL AVAILABLE
HENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED FOR
(In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS SALE TOTAL
-------- ------- -------- ----- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 ...................... $ 3 $ 7,027 $ 65 $ 47,027 $ 51,205 $ 193 $ 105,520
Net income ...................................... $ 18,419 0 0 0 0 18,419 0 18,419
Other comprehensive income, net of tax:
Unrealized gain on securities
available for sale ............................. 5,540
--------
Comprehensive income ............................ $ 23,959
========
5 for 4 stock split June 1995 ................... 0 0 16 0 (16) 0 0
5 for 4 stock split January 1996 ................ 0 0 21 0 (21) 0 0
Dividends on preferred stock .................... 0 0 0 0 (677) 0 (677)
Redemption of preferred stock ................... (3) (7,027) 0 0 (1,353) 0 (8,383)
Dividends on common stock ....................... 0 0 0 0 (1,740) 0 (1,740)
Exercise of 1984 Class B common
stock options .................................. 0 0 2 706 0 0 708
Tax effect relating to the
exercise of stock options ....................... 0 0 0 173 0 0 173
Exercise of stock warrants ...................... 0 0 2 999 0 0 1,001
Net change in unrealized
appreciation on securities
available for sale
- net of deferred income taxes ................. 0 0 0 0 0 5,540 5,540
------- -------- ----- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1995 ...................... 0 0 106 48,905 65,817 5,733 120,561
Net income ...................................... $ 19,011 0 0 0 0 19,011 0 19,011
Other comprehensive income, net of tax:
Unrealized gains on securities
available for sale ............................. (6,227)
Reclassification adjustment for
gains and (losses) included in net
income ......................................... 1,242
--------
Other comprehensive loss ........................ (4,985)
--------
Comprehensive income ............................ $ 14,026
========
Proceeds from issuance of Class A
common stock, net .............................. 0 0 12 17,992 0 0 18,004
Dividends on Class A common stock ............... 0 0 0 0 (460) 0 (460)
Dividends on Class B common stock ............... 0 0 0 0 (1,699) 0 (1,699)
Exercise of 1984 Class B common
stock options .................................. 0 0 0 413 0 0 413
Tax effect relating to the
exercise of stock options ...................... 0 0 0 118 0 0 118
Purchase and retirement of Class A
common stock .................................. 0 0 (1) (1,856) 0 0 (1,857)
Purchase and retirement of Class
B common stock ................................. 0 0 (1) (1,401) 0 0 (1,402)
5 for 4 stock split July 1996 ................... 0 0 30 0 (30) 0 0
5 for 4 stock split February 1997 ............... 0 0 37 0 (37) 0 0
Net change in unrealized
appreciation on securities
available for sale - net of
deferred income taxes .......................... 0 0 0 0 0 (4,985) (4,985)
------- -------- ----- -------- -------- ------- ---------
BALANCE, DECEMBER 1996 .......................... 0 0 183 64,171 82,602 748 147,704
------- -------- ----- -------- -------- ------- ---------
</TABLE>
See Notes to Consolidated Financial Statements. (Continued)
F-35
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
ON
SECURITIES
COMPRE- ADDITIONAL AVAILABLE
HENSIVE COMMON PAID-IN RETAINED FOR
(In thousands) INCOME STOCK CAPITAL EARNINGS SALE TOTAL
--------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ....................... $ 183 $ 64,171 $ 82,602 748 $ 147,704
Net income ....................................... $ 27,769 0 0 27,769 0 27,769
Other comprehensive income, net of tax:
Unrealized gains on securities
available for sale .............................. 526
Reclassification adjustment for gains
and (losses) included in net income ............. (550)
--------
Other comprehensive loss ......................... (24)
--------
Comprehensive income ............................. $ 27,745
========
Proceeds from issuance of Class A
common stock, net ............................... 35 43,339 0 0 43,374
Issuance of Class A common stock upon
conversion of subordinated debentures .......... 0 375 0 0 375
Dividends on Class A common stock ................ 0 0 (1,365) 0 (1,365)
Dividends on Class B common stock ................ 0 0 (1,244) 0 (1,244)
Exercise of Class A common
stock options ................................... 0 97 0 0 97
Exercise of Class B common
stock options ................................... 3 1,757 0 0 1,760
Tax effect relating to the exercise of
stock options ................................... 0 913 0 0 913
Purchase and retirement of Class A
common stock .................................... (3) (3,340) 0 0 (3,343)
Purchase and retirement of Class B
common stock .................................... (8) (8,837) 0 0 (8,845)
5 for 4 stock split July 1997 .................... 48 0 (48) 0 0
5 for 4 stock split February 1998 ................ 64 0 (64) 0 0
Net change in unrealized appreciation on
securities available for sale
- net of deferred income taxes .................. 0 0 0 (24) (24)
-------- -------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997 ....................... $ 322 $ 98,475 $ 107,650 $ 724 $ 207,171
======== ======== ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements (Continued)
F-36
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNEARNED UNREALIZED
COMPEN- APPRECI-
ADDI- SATION - ATION ON
COMPRE- TIONAL RESTRICTED SECURITIES
HENSIVE COMMON PAID-IN RETAINED STOCK AVAILABLE
(IN THOUSANDS) INCOME STOCK CAPITAL EARNINGS GRANTS FOR SALE TOTAL
------- ------- --------- -------- ------- ----- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 ......................... $ 322 $ 98,475 $107,650 $ 0 $ 724 $ 207,171
Net income ......................................... $ 2,103 0 0 2,103 0 0 2,103
-------
Other comprehensive income, net of tax:
Unrealized gains on securities available for
sale .............................................. 333
Reclassification adjustment for gains and
(losses) included in net income .................... (803)
------
Other comprehensive loss ......................... (470)
------
Comprehensive income ............................... $ 1,633
=======
Dividends on Class A common stock .................. 0 0 (2,042) 0 0 (2,042)
Dividends on Class B common stock .................. 0 0 (765) 0 0 (765)
Exercise of Class A common stock options ........... 0 200 0 0 0 200
Exercise of Class B common stock options ........... 4 1,380 0 0 0 1,384
Tax effect relating to the exercise of stock options 0 709 0 0 0 709
Purchase and retirement of Class B common stock .... (7) (10,640) 0 0 0 (10,647)
Issuance of Class A common stock for acquisitions .. 43 41,819 0 0 0 41,862
Issuance of Class A common stock options
upon acquisition of RBCO .......................... 0 1,582 0 0 0 1,582
Issuance of Class A common stock upon
conversion of subordinated debentures, net ........ 9 5,720 0 0 0 5,729
Unearned compensation - restricted stock grants .... 0 8,071 0 (8,071) 0 0
Amortization of unearned compensation
- restricted stock grants ......................... 0 0 0 505 0 505
Net change in unrealized depreciation on
securities available for sale-net of
deferred income taxes ............................. 0 0 0 0 (470) (470)
------- --------- -------- ------- ----- ---------
BALANCE, SEPTEMBER 30, 1998 ........................ $ 371 $ 147,316 $106,946 $(7,566) $ 254 $ 247,321
======= ========= ======== ======= ===== =========
</TABLE>
F-37
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- -------- --------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ............................................................... $ 2,103 $ 19,591 $ 27,769 $ 19,011 $ 18,419
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Provision for loan losses ................................................ 9,811 8,833 11,268 5,844 4,182
Provision for (reversal of) losses on real estate owned .................. 522 0 (56) (197) (1,187)
Gain on sales of real estate held for development and sale ............... (5,935) 0 (727) 0 0
Depreciation ............................................................. 4,499 3,577 4,786 3,835 3,203
Amortization of mortgage servicing rights ............................... 12,603 5,767 8,210 6,849 4,362
Provision for valuation of mortgage servicing rights ..................... 15,000 0 0 0 0
Amortization of unearned compensation -restricted stock grants .......... 505 0 0 0 0
Increase (decrease) for deferred income taxes ............................ (9,592) (600) 173 1,495 1,551
Net amortization (accretion) of securities .............................. (958) (302) (826) (257) 780
Gains on sales of real estate owned ...................................... (984) (328) (354) (575) (2,032)
Net accretion of deferred loan origination fees and costs ................ (1,206) (801) (1,170) (1,154) (1,095)
Proceeds from sales of loans held for sale ............................... 240,444 137,549 280,703 59,942 34,548
Fundings of loans held for sale .......................................... (92,032) (67,715) (79,832) (57,097) (41,326)
Loans purchased for resale ............................................... (29,997) 0 0 0 0
Gains on sales of loans held for sale .................................... (3,612) (2,653) (6,802) (534) (395)
Tax certificate (recoveries) provision ................................... 98 (164) (98) (184) (145)
(Gains) losses on sales of office properties and equipment ............... 6 (852) (852) (3,061) (18)
Purchase of trading securities, net ...................................... (1,621) (6,243) (6,243) 0 0
Proceeds from sales of trading securities ................................ 1,848 3,501 3,640 0 9,524
Decrease in RBCO securities owned at market .............................. 9,803 0 0 0 0
Unrealized and realized (gains) losses on trading securities ............. 523 (1,495) (2,463) 0 (589)
Gains on sales of securities available for sale .......................... (2,462) (1,136) (2,367) (5,959) 0
Gains on sales of mortgage servicing rights .............................. (2,661) (6,548) (7,905) (4,182) (2,744)
Loss (income) from joint venture operations .............................. (103) 0 12 0 (6)
Decrease (increase) in accrued interest receivable ....................... (4,288) (677) (1,869) (2,021) 1,593
Amortization of dealer reserve ........................................... 6,336 6,054 8,035 4,159 2,071
Amortization of cost over fair value of net assets acquired .............. 2,337 1,881 2,508 1,545 1,122
Net accretion of other purchase accounting adjustments ................... (54) (335) (417) (329) (612)
Amortization of deferred borrowing costs ................................. 583 303 445 222 98
Decrease (increase) in other assets ...................................... (2,730) 6,793 1,977 804 4,574
Increase in clearing agent receivable .................................... (6,052) 0 0 0 0
Increase in other liabilities ........................................... 2,907 7,580 8,859 740 651
Decrease in RBCO securities sold not yet purchased ....................... (1,974) 0 0 0 0
Writedown of office properties and equipment ............................. 0 0 0 263 120
--------- --------- --------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 143,667 111,580 246,404 29,159 36,649
--------- --------- --------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements (continued)
F-38
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ---------------------------------
1998 1997 1997 1996 1995
----------- --------- --------- --------- ---------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Purchase of investment securities .................................... (44,202) (39,510) (47,822) (56,884) (70,872)
Proceeds from redemption and maturity of investment securities ....... 43,464 34,232 47,218 52,413 140,837
Purchase of securities available for sale ............................ (881,781) (433,495) (664,993) (231,765) 0
Principal collected on securities available for sale ................. 177,845 106,138 141,775 43,236 11,989
Proceeds from sales of securities available for sale ................. 702,999 273,770 357,863 374,413 852
Residential loans purchased .......................................... (1,050,542) (376,502) (524,498) (465,942) (9,930)
Principal reduction on loans ......................................... 1,100,381 658,991 947,281 548,536 444,867
Loan fundings for portfolio .......................................... (791,249) (497,460) (720,620) (692,546) (597,274)
Banker's acceptances funded .......................................... (94,622) (77) (159,709) (86) 0
Proceeds from maturity of banker's acceptances ....................... 210,527 287 287 108 0
Proceeds from sales of banker's acceptances .......................... 41,877 0 0 0 0
Mortgage-backed securities purchased held to maturity ................ 0 0 0 0 (75,262)
Principal collected on mortgage-backed securities held to maturity ... 0 0 0 131,361 110,084
Proceeds from sales of real estate owned ............................. 6,300 2,558 2,876 4,938 5,373
Additions to dealer reserve .......................................... (6,421) (7,522) (9,409) (4,203) (3,684)
Additions to office properties and equipment ......................... (7,294) (5,878) (7,934) (10,326) (5,535)
Proceeds from sales of office properties and equipment ............... 0 1,144 1,144 2,666 18
Proceeds received from joint ventures ................................ 0 0 0 0 1,239
Investment in joint ventures ......................................... (30,871) (1,738) (1,325) 0 0
Purchases of FHLB stock net of redemptions ........................... (17,490) (12,650) (20,100) (1,923) (1,249)
Proceeds from maturities of interest bearing deposits with banks ..... 0 0 0 19,795 0
Proceeds from sales of mortgage servicing rights ..................... 27,962 26,554 35,550 15,586 8,340
Mortgage servicing rights purchased .................................. (47,599) (43,199) (45,840) (27,681) (10,112)
Cost of equipment acquired for lease ................................. (13,620) 0 0 0 0
Leases repurchased ................................................... (3,519) 0 0 0 0
Proceeds for sales of real estate held for development and sale ..... 12,750 0 2,133 0 0
Additional investment in real estate held for development and sale ... (5,334) 0 (623) 0 0
Acquisitions, net of cash acquired ................................... 433 0 (17,917) (38,311) (14,914)
----------- --------- --------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES ................................ (670,006) (314,357) (684,663) (336,615) (65,233)
----------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits .................................. 78,345 (110,525) (122,938) 15,905 51,093
Interest credited to deposits ........................................ 41,151 41,008 53,754 47,433 43,447
Proceeds from FHLB advances .......................................... 1,182,000 573,006 763,006 577,643 641,785
Repayments of FHLB advances .......................................... (832,187) (320,000) (360,999) (488,755) (602,050)
Net increase (decrease) in federal funds purchased ................. (2,500) 0 2,500 (1,200) 1,200
Proceeds from notes payable .......................................... 3,680 0 563 0 4,000
Repayment of notes payable ........................................... (7,376) 0 (903) (1) (3,999)
Net increase (decrease) in securities sold under agreements to ...... 51,344 (62,219) (131,872) 122,329 (104,207)
repurchase
Proceeds from the issuance of subordinated debentures ................ 0 0 100,000 57,500 21,000
Deferred costs on the issuance of subordinated debentures ............ 0 0 (3,488) (2,356) (1,052)
Preferred stock redemption ........................................... 0 0 0 0 (8,383)
Proceeds from issuance of guaranteed preferred interests in the
Company's Junior Subordinated Debentures ........................... 0 74,750 74,750 0 0
Deferred offering costs from issuance of guaranteed preferred
interests in the Company's Junior Subordinated Debentures ......... 0 (2,908) (2,908) 0 0
Payment to acquire and retire common stock ........................... (10,647) (12,188) (12,188) (3,259) 0
Issuance of common stock, net ........................................ 0 0 43,374 18,004 0
Issuance of common stock upon exercise of stock options and warrants . 1,584 1,805 1,857 413 1,709
Receipts (payments) of advances by borrowers for taxes and
insurance, net ...................................................... 32,509 27,808 9,738 5,235 277
Preferred stock dividends paid ....................................... 0 0 0 0 (677)
Common stock dividends paid .......................................... (2,780) (1,635) (2,343) (2,159) (1,672)
----------- --------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 535,123 208,902 411,903 346,732 42,471
----------- --------- --------- --------- ---------
Increase (decrease ) in cash and cash equivalents .................... 8,784 6,125 (26,356) 39,276 13,887
Cash and cash equivalents at the beginning of period ................. 82,787 109,143 109,143 69,867 55,980
----------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 91,571 $ 115,268 $ 82,787 $ 109,143 $ 69,867
=========== ========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements (continued)
F-39
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------------------------
1998 1997 1997 1996 1995
----------- --------- --------- --------- ------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid ............................................................. $ 109,674 $ 83,087 $ 112,161 $ 71,656 $ 65,708
Income taxes paid ......................................................... 8,737 10,825 15,060 8,600 9,320
Income taxes refunded ..................................................... 0 0 0 0 88
Loans transferred to real estate owned .................................... 3,629 3,221 5,076 1,788 1,029
Residential loans held to maturity transferred to available for sale ...... 108,465 245,703 321,360 0 0
Loans charged-off ......................................................... 10,342 8,322 11,330 7,718 5,433
Real estate owned charged-off ............................................. 802 0 244 803 213
Tax certificates charged-off (recoveries), net ............................ 41 (755) 419 (2) 1,192
Book value of securities transferred to available for sale ............... 0 0 0 0 638,818
Issuance of Class A common stock upon acquisitions ........................ 41,862 0 0 0 0
Issuance of Class A common stock upon acquisition of RBCO ................. 1,582 0 0 0 0
Issuance of Class A common stock upon conversion of
subordinated debentures .................................................. 5,729 200 375 0 0
Decrease in deferred offering costs upon conversion of
subordinated debentures .................................................. 214 0 0 0 0
Decrease in subordinated debentures upon conversion to Class A
common stock ............................................................. (5,943) 0 0 0 0
Increase in equity for the tax effect related to the exercise of
stock options ............................................................ 709 861 913 118 173
Class A common stock cash dividends declared and paid in
subsequent period ........................................................ 735 383 496 168 0
Class B common stock cash dividends declared and paid in
subsequent period ........................................................ 260 320 321 384 467
Change in unrealized appreciation (depreciation) on
securities available for sale ............................................ (782) 615 (39) (8,115) 9,019
Change in deferred taxes on net unrealized (depreciation)
appreciation on securities available for sale .......................... (312) 237 (15) (3,130) 3,479
Change in stockholders' equity from net unrealized (depreciation)
appreciation on securities available for sale, less related
deferred income taxes .................................................... (470) 378 (24) (4,985) 5,540
Net change in proceeds receivable from sales of mortgage
servicing rights ......................................................... (5,614) 10,476 7,388 9,522 0
Originated mortgage servicing rights ...................................... 1,550 1,194 1,668 311 0
Proceeds receivable from sales of properties leased to others ............. 0 0 0 5,401 0
Transfer from securities available for sale to trading securities ......... 1,125 6,230 6,230 0 0
Accrual for the purchase of bulk mortgage servicing rights not yet
fully paid for ........................................................... 12,553 0 0 0 0
Increase in real estate held for development and resale resulting
from St. Lucie West Company ("SLWHC") purchase accounting
adjustments .............................................................. 1,502 0 0 0 0
Decrease in other assets resulting from SLWHC purchase
accounting adjustments ................................................... (1,502) 0 0 0 0
</TABLE>
See Notes to Consolidated Financial Statements
F-40
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION -- BankAtlantic Bancorp, Inc.
(the "Company") is a unitary savings bank holding company. The Company's primary
asset is the capital stock of BankAtlantic, its wholly owned subsidiary and its
primary activities currently relate to the operations of BankAtlantic and
BankAtlantic's subsidiaries. Under applicable law, the Company generally has
broad authority with few restrictions to engage in various types of business
activities, including investments in financial service companies. BankAtlantic's
subsidiaries historically have primarily been utilized to dispose of real estate
acquired through foreclosure. The Company's recent activities during 1998 and
1997 include the acquisition of Ryan, Beck & Co., ("RBCO") an investment banking
firm which is being operated as an independent antonomous subsidiary of the
Company, the acquisition of Leasing Technology, Inc. ("LTI"), a small ticket
lease finance company, the formation of BBC Capital Trust I, a wholly owned
subsidiary, acquisition of St. Lucie West Holding Corp. ("SLWHC") (See Note 21)
and the ownership of 50% of the voting common stock of Florida Atlantic
Securities Inc., ("FASI") a full-service investment banking and securities
brokerage firm. All significant intercompany balances and transactions have been
eliminated in consolidation. At September 30, 1998 and December 31, 1997 BFC
Financial Corporation ("BFC") owned 47% and 46% of the Company's voting common
stock and 31% and 36% of the Company's total common stock, respectively.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statements of financial condition and
operations for the periods presented. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible to
significant change in the next year relate to the determination of the allowance
for loan losses, allowance for tax certificate losses, the valuation of real
estate acquired in connection with foreclosure or in satisfaction of loans, real
estate held for development and sale, and the evaluation of the value of
mortgage servicing rights. In connection with the determination of the
allowances for loan losses and real estate owned, management obtains independent
appraisals for significant properties when it is deemed prudent.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1998.
Amounts as of and for the periods ended September 30, 1998 and 1997 are
unaudited.
CASH EQUIVALENTS -- Cash and due from depository institutions include
demand deposits at other financial institutions and federal funds sold.
Generally, federal funds are sold for one-day periods.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES -- Investments in securities
which BankAtlantic has a positive intent and ability to hold to maturity are
classified as securities held to maturity and are carried at cost, adjusted for
discounts and premiums which are accreted or amortized to estimated maturity
under the interest method. A security cannot be classified as held to maturity
if it might be sold in response to changes in market interest rates, related
changes in the security's prepayment risk, liquidity needs, changes in the
availability of and the yield on alternative investments, and changes in funding
sources and terms.
Debt and equity securities and options related thereto, purchased or
sold for the purpose of a short-term profit are classified as "trading account
securities" and are recorded at fair value. Unrealized gains and losses in
trading securities are reflected in operations.
Principal transactions from trading securities are recorded on a trade
date basis. Selling concessions, consulting fees, management fees and
underwriting fees, less related expenses, are recorded in income as earned. All
trading securities owned and sold, but not yet purchased by the Company are
valued at market, which results in unrealized gains and losses being reflected
in current earnings.
Debt and equity securities not classified as held to maturity or
trading account securities are classified as "available for sale". Debt and
equity securities available for sale are carried at fair value, with the related
unrealized appreciation or depreciation, net of deferred income taxes, reported
as a separate component of stockholders' equity.
Losses relating to permanent impairment of securities are reflected in
the statement of operations.
On November 15, 1995, the Financial Accounting Standards Board ("FASB")
issued Special Report No. 155-B, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES (the "Special
Report"). Pursuant to the Special Report, BankAtlantic was permitted to conduct
a one-time reassessment of the classifications of all
F-41
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities held at that time. Any reclassifications from the held-to-maturity
category made in conjunction with that reassessment would not call into question
an enterprise's intent to hold other debt securities to maturity in the future.
BankAtlantic undertook such a reassessment and, effective December 15, 1995, all
mortgage-backed and investment securities, excluding tax certificates then
classified as held-to-maturity were reclassified as available for sale.
Investment banking revenues include gains, losses and fees, net of
syndicate expense, arising from securities offerings in which the Company acts
as an underwriter or agent. Investment banking revenues also include fees earned
from providing merger and acquisition and financial restructuring advisory
services.
TAX CERTIFICATES -- Tax certificates are carried at cost. All tax
certificates are classified as held to maturity because management has the
positive intent and ability to hold such certificates to maturity. Tax
certificates and resulting deeds are classified as non-accrual when a tax
certificate is 48 months delinquent and a deed has aged 48 months from
BankAtlantic's acquisition date. At that time interest ceases to be accrued.
Allowance for tax certificate losses represents the amount which
management believes is sufficient to provide for future losses that are probable
and subject to reasonable estimation. In establishing its allowance for tax
certificates, management considers past loss experience, present indicators,
such as the length of time the certificate has been outstanding, economic
conditions and collateral values.
CONSTRUCTION AND DEVELOPMENT LENDING -- BankAtlantic's construction and
development lending generally requires an equity investment in the form of
contributed assets or direct cash investment from the borrower. Other than
advances to joint ventures, BankAtlantic has no loans which provide for a
participation in profits at September 30, 1998 and 1997 and December 31, 1997,
1996 and 1995. Accordingly, construction and development lending arrangements
have been classified and accounted for as loans.
NON-ACCRUAL LOANS, IMPAIRED LOANS AND REAL ESTATE OWNED -- Interest
income on loans, including the recognition of discounts and loan fees, is
accrued based on the outstanding principal amount of loans using the interest
method. A loan is generally placed on nonaccrual status at the earlier of
management becoming aware that the borrower has entered bankruptcy proceedings
and the loan is delinquent or when the loan is past due 90 days as to either
principal or interest. When a loan is placed on nonaccrual status, interest
accrued but not received is reversed against interest income. A nonaccrual loan
may be restored to accrual status when delinquent loan payments are collected
and the loan is expected to perform according to its contractual terms.
Management considers a loan to be impaired when, based upon current information
and events, it believes it is probable that BankAtlantic will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Loans collectively reviewed by BankAtlantic for impairment include
residential and consumer loans and performing commercial real estate and
business loans under $500,000, excluding loans which are individually reviewed
based on specific criteria, such as delinquency and condition of collateral
property. Generally, BankAtlantic recognizes interest income on impaired loans
on a cash basis.
ALLOWANCE FOR LOAN LOSSES -- BankAtlantic follows a consistent
procedural discipline and accounts for loan loss contingencies in accordance
with Statement of Financial Accounting Standards No. 5, "ACCOUNTING FOR
CONTINGENCIES" ("Statement 5"). The following is a description of how each
portion of the allowance for loan losses is determined.
BankAtlantic segregates the loan portfolio for loan loss purposes into
broad segments, such as: commercial real estate; residential real estate;
commercial business; and various types of consumer loans. BankAtlantic provides
for a general allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss percentages are
calculated based upon historical analyses. A supplemental portion of the
allowance is calculated for inherent losses which probably exist as of the
evaluation date even though they might not have been identified by the more
objective processes used for the portion of the allowance described above. This
is due to the risk of error and/or inherent imprecision in the process. This
portion of the allowance is particularly subjective and requires judgments based
on qualitative factors which do not lend themselves to exact mathematical
calculations such as: trends in delinquencies and nonaccruals; migration trends
in the portfolio; trends in volume, terms and portfolio mix; new credit products
and/or changes in the geographic distribution of these products; changes in
lending policies and procedures; loan review reports on the efficacy of the risk
identification process; changes in the outlook for local, regional and national
economic conditions; concentrations of credit; and peer group comparisons.
F-42
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the probable loss
upon liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan loss is increased or decreased in order to
adjust the allowance for loan losses to the required level as determined above.
A loan is impaired when collection of principal and interest based on
the contractual terms of the loan is not probable. BankAtlantic measures
impairment based on (a) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective interest rate, (b)
the observable market price of the impaired loans, or (c) the fair value of the
collateral of a collateral-dependent loan. BankAtlantic selects the measurement
method on a loan-by-loan basis, except that collateral-dependent loans for which
foreclosure is probable are measured at the fair value of the collateral.
Specific allowances are provided, as noted above, in the event the impairment
calculation is in excess of the general allowance allocation. In a troubled debt
restructuring, BankAtlantic measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
Although BankAtlantic believes it has a sound basis for estimating the
adequacy of the allowance for loan losses, actual charge-offs incurred in the
future are highly dependent upon future events, including the economic of the
areas in which BankAtlantic lends. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review
BankAtlantic's allowance for loan losses. Such agencies may require BankAtlantic
to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
LOANS HELD FOR SALE -- Residential first mortgage loans held for sale
are reported at the lower of cost or estimated aggregate fair value. Loan
origination fees and direct loan origination costs and purchased
premiums/discounts are deferred until the related loan is sold.
LOAN ORIGINATION AND COMMITMENT FEES, PREMIUMS AND DISCOUNTS ON LOANS
AND MORTGAGE BANKING ACTIVITIES -- Origination and commitment fees collected are
deferred net of direct costs and are being amortized to interest income over the
loan life using the level yield method. Amortization of deferred fees is
discontinued when the related loan is placed on non-accrual status. Commitment
fees related to expired commitments are recognized as income when the commitment
expires.
Unearned discounts on installment, second mortgage and home improvement
loans are amortized to income using the level yield method over the terms of the
related loans. Unearned discounts on purchased loans are amortized to income
using the level yield method over the estimated life of the loans.
LOAN SERVICING FEES -- BankAtlantic services mortgage loans for its own
account and for investors. Mortgage loans serviced for investors are not
included in the accompanying consolidated statements of financial condition.
Loan servicing fees are based on a stipulated percentage of the outstanding loan
principal balances being serviced and are recognized as income when related loan
payments from mortgagors are collected. Loan servicing costs are charged to
expense as incurred. BankAtlantic recognizes as an asset the right to service
mortgage loans whether such servicing rights are purchased or originated.
Originated servicing rights are measured at the date of sale based on the
relative fair value of the servicing rights and related loans. Mortgage
servicing rights ("MSR") are stated at the lower of amortized cost or fair
value. The amortization of MSR are on an individual loan basis. Both purchased
and originated MSR are amortized to expense using the level yield method over
the estimated life of the loan and continually adjusted for prepayments. For the
purpose of evaluating and measuring impairment of MSR, and determining the
amount of any valuation allowance, BankAtlantic stratifies those rights based on
the predominant risk characteristics of the underlying loans. Those
characteristics include loan type, note rate and term. Adjustments to the
valuation allowance are reflected in operations.
DEALER RESERVES, NET -- The dealer reserve receivable represents the
portion of interest rates passed through to dealers on indirect consumer loans.
BankAtlantic funds 100% of the dealer reserves at the inception of the loan.
Dealer reserves are amortized over the contractual life of the related loans,
adjusted for actual prepayments and losses, using the interest method and
classified as an adjustment to interest income except for the Subject Portfolio
discussed further in Note 17 herein. Dealer reserves are stated net of
accumulated amortization, allowances, and any unfunded amounts due to the
dealer.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE -- Real estate held for
development and sale includes land held for development and land held for sale.
Costs clearly associated with the development of a specific parcel are
capitalized as a cost of that parcel. Land and indirect land development costs
are allocated to the various parcels based upon the relative sales value method.
Real estate held for sale is stated at the lower of carrying amount or fair
value less cost to sell. Real estate held for
F-43
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development is evaluated for impairment based upon the undiscounted future cash
flows of the property compared to the carrying value of the property. If the
undiscounted future cash flows are lower than the carrying value of the
property, a valuation allowance is established for the difference between the
carrying amount of the parcel and the fair value of the parcel, less cost to
sell. The fair value of real estate is evaluated based on existing and
anticipated market conditions. The evaluation takes into consideration the
current status of the property, various restrictions, carrying costs, costs of
disposition and any other circumstances which may affect estimated fair value.
REAL ESTATE OWNED ("REO") -- REO is recorded at the lower of the loan
balance, plus acquisition costs, or fair value, less estimated disposition
costs. Expenditures for capital improvements made thereafter are generally
capitalized. Real estate acquired in settlement of loans are anticipated to be
sold and valuation allowance adjustments are made to reflect any subsequent
changes in fair values from the initially recorded amount. Costs of holding REO
are charged to operations as incurred. Provisions and reversals in the REO
valuation allowance are reflected in operations.
Profit or loss on real estate sold includes both REO and real estate
held for development and sale and is recognized in accordance with Statement of
Financial Accounting Standard No. 66, "ACCOUNTING FOR SALES OF REAL ESTATE". Any
estimated loss is recognized in the period in which it becomes apparent.
JOINT VENTURES -- Investment in joint ventures are accounted for by the
equity method. Interest is capitalized on investments, loans and advances to
real estate joint ventures based on the weighted average borrowing rate of the
Company during the period.
IMPAIRMENT -- Long-lived assets, assets to be disposed of, and certain
identifiable intangibles to be held and used by an entity are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets, assets to be disposed
of, and identifiable intangibles that an entity expects to hold and use is based
on the fair value of the asset.
OFFICE PROPERTIES AND EQUIPMENT -- Land is carried at cost. Office
properties and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets which generally range up to 50 years for buildings and 3-10
years for equipment. The cost of leasehold improvements is being amortized using
the straight-line method over the terms of the related leases.
Expenditures for new properties and equipment and major renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred and gains or losses on disposal of assets are
reflected in current operations.
COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
- - Cost over fair value of assets acquired is being amortized on a straight-line
basis over their estimated useful lives of 10-25 years. A non-competition
agreement is being amortized on a straight-line basis over its useful life of
approximately three years. Cost over fair value of net assets acquired and other
intangible assets is evaluated by management for impairment on an annual basis
based upon undiscounted cash flows of the related net assets acquired.
INCOME TAXES -- The Company and its subsidiaries file consolidated
federal and state income tax returns. The Company utilizes the asset and
liability method to account for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the statutory enactment date. A deferred tax asset valuation
allowance is recorded when it is more likely than not that deferred tax assets
will not be utilized.
PREFERRED STOCK -- All three Series of preferred stock originally
issued by BankAtlantic had a preference value of $25.00 per share and the shares
issued were redeemable by BankAtlantic at $25.00 per share. In October 1995, all
preferred stock was
F-44
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redeemed. For purposes of calculating income per common share, the excess of the
redemption price above the recorded amount was considered a preferred stock
dividend.
STOCK SPLIT -- On January 15, 1998, the Company's Board of Directors
approved a five for four common stock split effected in the form of a 25% 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 February 4, 1998. The
common stock dividend was issued on February 18, 1998. When appropriate, amounts
throughout the report have been adjusted to reflect the stock dividend.
DERIVATIVE INSTRUMENTS -- The Company does not purchase, sell or enter
into derivative financial instruments or derivative commodity instruments as
defined by Statement of Financial Accounting Standards No. 119, "DISCLOSURES
ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS"
other than fixed rate loan commitments which were $17.2 million and $83.9
million at September 30, 1998 and December 31, 1997, respectively, which the
Company believes are at market value.
EARNINGS PER COMMON SHARE -- In February 1997 the FASB issued Statement
of Financial Accounting Standards No. 128 ("FAS 128") EARNINGS PER SHARE
("EPS"). This statement is effective for periods ending after December 15, 1997
and requires the restatement of all prior periods. FAS 128 replaced primary and
fully diluted earnings per share with basic and diluted earnings per share. The
statement also requires the two-class method for companies with capital
structures which includes a class of common stock with different dividends rates
from another class of common stock. The two-class method is an earnings
allocation formula that determines earnings per share for each class of common
stock according to dividends declared and each class of common stock's rights to
undistributed earnings. Basic earnings per share excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if options, convertible securities or warrants to
issue common shares were exercised. In calculating diluted income per share
interest expense net of taxes on convertible securities is added back to net
income, with the resulting amount divided by the weighted average number of
dilutive common shares outstanding, when dilutive. Common stock options,
warrants and convertible securities, if dilutive, are considered in the weighted
average number of dilutive common shares outstanding. The options and warrants
are included in the weighted average number of dilutive common shares
outstanding based on the treasury stock method.
STOCK BASED COMPENSATION PLANS -- The Company maintains both qualifying
and non-qualifying stock-based compensation plans for its employees and
directors. The Company has elected to account for its employee stock-based
compensation plans under APB No. 25.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997 the FASB issued
Statements No. 130 ("FAS 130") "REPORTING COMPREHENSIVE INCOME" and No. 131
("FAS 131") "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION". FAS 130 establishes standards for reporting comprehensive income
in financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Some of the items included in
comprehensive income are unrealized gains or losses on securities available for
sale, underfunded pension obligations and employee stock options. FAS 131
establishes standards for the manner in which public companies report
information about operating segments in annual financial statements and requires
that those companies report selected information about operating segments in
interim financial statements issued to shareholders. FAS 130 and FAS 131 are
effective for periods beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. Implementation of FAS 131 requires additional disclosures in the
financial statements but does not have an impact on the Company's Statement of
Financial Condition or Statement of Operations.
Financial Accounting Standards Board Statement No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits" ("FAS 132") was
issued in February 1998. This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practical, requires additional information on changes in the benefit obligations
and fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer useful. The statement suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. This statement is effective for fiscal years beginning after
December 15, 1997. Implementation of FAS 132 will impact disclosure only, but
will not have an impact on the Company's Consolidated Statement of Operations or
Statement of Financial Condition.
F-45
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") was issued in June
1998. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. For a derivative
designated as hedging the exposure to changes in the fair value of a recognized
asset or liability or a firm commitment (referred to as a fair value hedge), the
gain or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. The effect of that accounting is to reflect in earnings the extent to
which the hedge is not effective in achieving offsetting changes in fair value.
For a derivative designated as hedging the exposure to variable cash flows of a
forecasted transaction (referred to as a cash flow hedge), the effective portion
of the derivative as a gain or loss is initially reported as a component of
other comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. The ineffective
portion of the gain or loss is reported in earnings immediately. For a
derivative designated as hedging the foreign currency exposure of a net
investment in a foreign operation, the gain or loss is reported in other
comprehensive income (outside earnings) as part of the cumulative translation
adjustment. The accounting for a fair value hedge described above applies to a
derivative designated as a hedge of the foreign currency exposure of an
unrecognized firm commitment or an available-for-sale security. Similarly, the
accounting for a cash flow hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of a
foreign-currency-denominated forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in earnings
in the period of change.
Under this statement, an entity that elects to apply hedge accounting
is required to establish at the inception of the hedge the method it will use
for assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. Earlier application of all of the provisions of this
statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this statement. This statement
should not be applied retroactively to financial statements of prior periods.
The Company intends to implement FAS 133, January 1, 2000 and its potential
impact on the Statement of Operations and Statement of Condition is currently
under review by management.
F-46
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------- -------------------------------------
(In thousands, except per 1998 1997
share data and percentages) ---------------------------------------------- -------------------------------------
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
------------ ------------ ------------ ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BASIC NUMERATOR
Actual dividends declared ............ $ 2,039 $ 765 $ 2,804 $ 871 $ 922 $ 1,793
Basic allocated undistributed
earnings (loss) (2) ................. (499) (202) (701) 11,521 6,277 17,798
------------ ------------ ------------ ----------- ---------- -------
Allocated net income available
for common shareholders ............. $ 1,540 $ 563 $ 2,103 $ 12,392 $ 7,199 $19,591
============ ============ ============ =========== ========== =======
BASIC DENOMINATOR
Weighted average shares
outstanding ........................ 23,533,659 10,524,893 17,748,827 10,638,411
============ ============ =========== ==========
Allocation percentage (2) ............ 71.09% 28.91% 64.73% 35.27%
============ ============ =========== ==========
Basic earnings per share ............. $ 0.07 $ 0.05 $ 0.70 $ 0.68
============ ============ =========== ==========
DILUTED NUMERATOR
Actual dividends declared ............ $ 2,039 $ 765 $ 2,804 $ 871 $ 922 $ 1,793
------------ ------------ ------------ ----------- ---------- -------
Basic allocated undistributed
earnings (loss) (2) ................ (499) (202) (701) 11,521 6,277 17,798
Reallocation of basic
undistributed earnings due to
change in allocation percentage ..... 9 (9) 0 1,212 (1,212) 0
------------ ------------ ------------ ----------- ---------- -------
Diluted allocated undistributed
earnings ........................... (490) (211) (701) 12,733 5,065 17,798
Interest expense on
convertible debt ................... 0 0 0 1,361 542 1,903
------------ ------------ ------------ ----------- ---------- -------
Allocated dilutive net
income available
to common shareholders ............. $ 1,549 $ 554 $ 2,103 $ 14,965 $ 6,529 $21,494
============ ============ ============ =========== ========== =======
DILUTED DENOMINATOR
Basic weighted average shares
outstanding ........................ 23,533,659 10,524,893 17,748,827 10,638,411
Convertible debentures (3) (4) ....... 0 0 8,759,479 0
Options (5) .......................... 678,362 960,172 308,814 1,095,870
------------ ------------ ----------- ----------
Diluted weighted average
shares outstanding .................. 24,212,021 11,485,065 26,817,120 11,734,281
============ ============ ========== ==========
Allocation percentage (2) ............ 69.87% 30.13% 71.54% 28.46%
============ ============ ========== ==========
Diluted earnings per share ........... $ 0.06 $ 0.05 $ 0.56 $ 0.56
============ ============ ========== ==========
</TABLE>
F-47
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------------------------- ------------------------------------ -------------
(In thousands, except per share 1997 1996 1995
data and percentages) ----------------------------------------- ------------------------------------ -------------
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL TOTAL (1)
------------ ------------ ----------- ----------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BASIC NUMERATOR
Actual dividends declared ........ $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159 $ 1,740
Basic allocated undistributed
earnings (2) .................... 16,371 8,789 25,160 10,897 5,955 16,852 14,649
------------ ------------ ----------- ----------- ------------ ------- -----------
Allocated net income available
for common shareholders ......... $ 17,736 $ 10,033 $ 27,769 $ 11,357 $ 7,654 $19,011 $16,389
=========== ============ =========== =========== ============ ======= ===========
BASIC DENOMINATOR
Weighted average shares
outstanding .................... 18,029,784 10,649,135 17,616,000 10,589,000 25,411,604
=========== ============ =========== ============ ==========
Allocation percentage (2) ........ 65.06% 34.94% 64.66% 35.34% N/A
=========== ============ =========== ============ ===========
Basic earnings per share ......... $ 0.98 $ 0.94 $ 0.64 $ 0.72 $ 0.64
=========== ============ =========== ============ ===========
DILUTED NUMERATOR
Actual dividends declared ........ $ 1,365 $ 1,244 $ 2,609 $ 460 $ 1,699 $ 2,159 $ 1,740
------------ ------------ ----------- ----------- ------------ ------- -----------
Basic allocated undistributed
earnings (2) ................... 16,371 8,789 25,160 10,897 5,955 16,852 14,649
Reallocation of basic
undistributed earnings due to
change in allocation percentage . 1,815 (1,815) 0 467 (467) 0 0
------------ ------------ ----------- ----------- ------------ ------- -----------
Diluted allocated undistributed
earnings ....................... 18,186 6,974 25,160 11,364 5,488 16,852 14,649
Interest expense on
convertible debt ............... 2,091 802 2,893 984 471 1,455 0
------------ ------------ ----------- ----------- ------------ ------- -----------
Allocated dilutive net
income available
to common shareholders ......... $ 21,642 $ 9,020 $ 30,662 $ 12,808 $ 7,658 $20,466 $16,389
=========== ============ =========== =========== ============ ======= ===========
DILUTED DENOMINATOR
Basic weighted average shares
outstanding .................... 18,029,784 10,649,135 17,616,000 10,589,000 25,411,604
Convertible debentures (3) ....... 9,513,000 0 4,352,058 0 0
Options (5) ...................... 350,750 1,105,287 0 976,537 886,126
Warrants (5) ..................... 0 10,963 0 10,963 144,172
------------ ------------ ----------- ----------- -----------
Diluted weighted average
shares outstanding .............. 27,893,534 11,765,385 21,968,058 11,576,500 26,441,902
=========== ============ =========== ============ ===========
Allocation percentage (2) ........ 72.28% 27.72% 67.61% 32.39% N/A
=========== ============ =========== ============ ===========
Diluted earnings per share ....... $ 0.78 $ 0.77 $ 0.58 $ 0.66 $ 0.62
=========== ============ =========== ============ ===========
</TABLE>
(1) Prior to 1996 there were no Class A common shares outstanding. All shares
outstanding in 1995 were what are now identified as Class B common shares.
(2) The Company calculates earnings per share on Class A and Class B common
shares under the "two class method". Under the "two class method", net
income available to common shareholders is allocated to Class A and Class B
common shares first by actual cash dividends paid for actual shares
outstanding during the period and secondly, through the allocation of
undistributed earnings. Since Class A common shareholders are entitled to
receive cash dividends equal to at least 110% of any cash dividend declared
and paid on Class B common shares, undistributed earnings are allocated to
Class A and Class B shares on a 110 to 100 basis, respectively, based upon
the ratio of the weighted average number of shares for each class
outstanding during the period to total shares (allocation percentage).
Because the allocation percentage for each class differs for basic and
diluted EPS purposes, allocated undistributed earnings differs for such
calculations. Outstanding shares during the period are retroactively
restated for stock splits declared in subsequent periods. The impact of
retroactively restating Class A common stock outstanding during each period
for Class A common stock issued to Class B common shareholders in stock
splits is to change the allocation percentage for undistributed earnings
that was originally utilized in the calculation of EPS in prior periods
such that the ratio of Class A EPS declines in relation to Class B EPS for
such restated periods.
(3) For purposes of computing diluted earnings per share, convertible
debentures are assumed to be converted into common shares at the beginning
of the period or from the point at which such debentures were outstanding,
if dilutive.
(4) Convertible debentures were anti-dilutive to earnings per share during the
nine months ended September 30, 1998 and therefore not included in diluted
weighted average shares outstanding.
(5) The number of options and warrants considered outstanding shares for
diluted earnings per share is based upon application of the treasury stock
method to such instruments outstanding as of December 31.
F-48
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SECURITIES AVAILABLE-FOR-SALE, HELD-TO-MATURITY AND TRADING
Effective December 15, 1995 all mortgage-backed and investment
securities, excluding tax certificates then classified as held-to-maturity were
reclassified as available for sale. On the effective date of the
reclassification, the securities transferred had a carrying value of $638.8
million and an estimated fair value of $644.1 million resulting in a net
increase to stockholders' equity for the net unrealized appreciation of $3.3
million after deducting applicable income taxes of $1.2 million.
The following summarizes securities available-for-sale and
held-to-maturity (in thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SEPTEMBER 30, 1998 COST APPRECIATION DEPRECIATION FAIR VALUE
- ------------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (1):
FNMA mortgage backed securities .................... $126,722 $ 783 $ 0 $127,505
FHLMC mortgage backed securities ................... 171,441 823 69 172,195
FNMA real estate mortgage investment conduits ...... 34,263 13 571 33,705
FHLMC real estate mortgage investment conduits ..... 251,459 2,534 71 253,922
-------- ------ ------ --------
Total mortgage-backed securities .............. 583,885 4,153 711 587,327
-------- ------ ------ --------
INVESTMENT SECURITIES:
U.S. Treasury Notes ................................ 7,991 74 0 8,065
Corporate Bonds .................................... 2,298 0 198 2,100
Equity Securities .................................. 14,527 0 2,904 11,623
-------- ------ ------ --------
Total investment securities ................... 24,816 74 3,102 21,788
-------- ------ ------ --------
Total .................................... $608,701 $4,227 $3,813 $609,115
======== ====== ====== ========
AVAILABLE FOR SALE
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST APPRECIATION DEPRECIATION FAIR VALUE
- ------------------ ------------- -------------- -------------- -------------
MORTGAGE-BACKED SECURITIES (2):
FNMA mortgage backed securities .................... $206,980 $ 839 $ 81 $207,738
FHLMC mortgage backed securities ................... 367,787 797 205 368,379
-------- ------ ------ --------
Total mortgage-backed securities .............. 574,767 1,636 286 576,117
-------- ------ ------ --------
INVESTMENT SECURITIES:
FHLB Bonds ......................................... 10,000 4 0 10,004
Asset-backed securities ............................ 3,194 0 18 3,176
U.S. Treasury Notes ................................ 9,959 91 0 10,050
Corporate Bonds .................................... 2,360 0 290 2,070
Equity securities .................................. 5,122 456 415 5,163
Other .............................................. 910 0 0 910
-------- ------ ------ --------
Total investment securities ................... 31,545 551 723 31,373
-------- ------ ------ --------
Total .................................... $606,312 $2,187 $1,009 $607,490
======== ====== ====== ========
F-49
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AVAILABLE FOR SALE
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1996 COST APPRECIATION DEPRECIATION FAIR VALUE
- ------------------ ------------- -------------- -------------- -------------
MORTGAGE-BACKED SECURITIES (3):
FNMA mortgage backed securities .................... $ 95,180 $ 822 $ 172 $ 95,830
FHLMC mortgage backed securities ................... 191,462 443 708 191,197
FNMA real estate mortgage investment conduits ...... 5,201 352 2 5,551
FHLMC real estate mortgage investment conduits ..... 2,046 139 23 2,162
-------- ------ ------ --------
Total mortgage-backed securities .............. 293,889 1,756 905 294,740
-------- ------ ------ --------
INVESTMENT SECURITIES:
FHLB Bonds ......................................... 15,406 150 34 15,522
FHLMC Bond ......................................... 1,843 102 0 1,945
FNMA Bond .......................................... 6,762 57 0 6,819
Asset-backed securities ............................ 28,943 89 65 28,967
U.S. Treasury Notes ................................ 91,284 83 15 91,352
-------- ------ ------ --------
Total investment securities ................... 144,238 481 114 144,605
-------- ------ ------ --------
Total .................................... $438,127 $2,237 $1,019 $439,345
======== ====== ====== ========
</TABLE>
(1) The estimated fair value of pledged collateral was $0 million, $3.5
million, $121.6 million and $46.0 million for commercial letters of credit,
treasury tax and loan, repurchase agreements and public funds,
respectively.
(2) The estimated fair value of pledged collateral was $4.9 million, $5.9
million, $65.4 million and $23.9 million for commercial letters of credit,
treasury tax and loan, repurchase agreements and public funds,
respectively.
(3) The estimated fair value of pledged collateral was $4.1 million, $5.9
million, $214.2 million and $18.7 million for commercial letters of credit,
treasury tax and loan, repurchase agreements and public funds,
respectively.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-50
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the December 31, 1996 tables are approximately $14.7
million (at market) of government agency bonds and real estate mortgage conduits
which were acquired during the MegaBank acquisition, and are adjustable rate
securities tied to various short term and long term indices. The above
securities were sold during 1997.
The maturities of mortgage-backed and investment securities available
for sale were (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------------- ---------------------------
FAIR FAIR
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST VALUE COST VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due within one year .................................... $ 50,728 $ 47,895 $ 36,668 $ 36,686
Due after one year, but within five years .............. 56,286 56,518 307,259 308,158
Due after five years, but within ten years ............. 7,268 7,128 2,971 2,707
Due after ten years .................................... 494,419 497,574 259,414 259,939
-------- -------- -------- --------
Total ............................................. $608,701 $609,115 $606,312 $607,490
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
-------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 1998 COST APPRECIATION DEPRECIATION VALUE
- ------------------ --------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
Tax certificates --
net of allowance of $1,005(1) ........................ $ 55,853 $ 0 $ 0 $ 55,853
======== ======== ======== ========
DECEMBER 31, 1997
Tax certificates --
net of allowance of $949(1) .......................... $ 55,213 $ 0 $ 0 $ 55,213
-------- ======== ======== ========
DECEMBER 31, 1996
Tax certificates --
net of allowance of $1,466(1) ........................ $ 54,511 $ 0 $ 0 $ 54,511
======== ======== ======== ========
</TABLE>
(1) Management considers estimated fair value equivalent to book value for tax
certificates since these securities have no readily traded market.
The maturities of tax certificates held to maturity were (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Due in one year or less ................................ $ 34,366 $ 34,366 $ 38,448 $ 38,448
Due after one year through five years .................. 21,487 21,487 16,765 16,765
Due after five years through ten years ................. 0 0 0 0
-------- -------- -------- --------
Total ........................................ $ 55,853 $ 55,853 $ 55,213 $ 55,213
======== ======== ======== ========
</TABLE>
Tax certificates represent a priority lien against real property for
which assessed real estate taxes are delinquent. BankAtlantic's experience with
this type of investment has been favorable as rates earned are generally higher
than many alternative investments and substantial repayment occurs over a two
year period. The primary risks BankAtlantic has experienced
F-51
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with tax certificates have related to the risk that additional funds may be
required to purchase other certificates related to the property, the risk that
the liened property may be unusable and the risk that potential environmental
concerns may make taking title to the property untenable. See Note 6 for
activity in the allowance for tax certificate losses.
During the year ended December 31, 1995, $253,000 of Federal Reserve
stock and $599,000 of GNMA mortgage-backed securities classified as available
for sale were sold. During the year ended December 31, 1996, BankAtlantic sold
$136.6 million of adjustable rate mortgage-backed securities, $20.5 million of
15 year mortgage-backed securities, $5.9 million of seven year balloon
mortgage-backed securities and $205.5 million of treasury notes for gains of
$6.0 million. During the year ended December 31, 1997, BankAtlantic sold $231.0
million of U.S. Treasury notes, $66.0 million of seven year balloon
mortgage-backed securities, $28.1 million of five year balloon mortgage-backed
securities, $9.4 million of adjustable rate mortgage-backed securities, $7.6
million of federal agency obligations, $6.4 million of 30 year mortgage-backed
securities, $5.9 million of real estate mortgage investment conduits and $1.1
million of 15 year mortgage-backed securities for gains of $2.4 million. During
the nine months ended September 30, 1998, BankAtlantic sold $127.9 million of
seven year and $27.2 million of five year balloon mortgage-backed securities,
$10.0 million of FHLB bonds, $178.6 million U.S. Treasury notes, $597,000 of
equity securities, and $356.3 million of adjustable rate securities for gains of
$2.5 million. During the nine months ended September 30, 1998, BankAtlantic sold
$28.7 million of a 5 year balloon mortgage-backed securities, $6.0 million of
Remic's, $7.6 million of Federal agency obligations, and $230.3 million of U.S.
Treasury Notes, for gains of $1.1 million.
There were no gains during 1995 and no losses during 1996, 1997 and 1998.
During the nine months ended September 30, 1998, the ending balance,
maximum amount of repurchase agreements outstanding at any month end and the
average amount invested for the period was zero, zero and $3.4 million,
respectively. The average yield on repurchase agreements during the 1998 nine
month period was 5.53%. During the nine months ended September 30, 1997, the
ending balance, maximum amount of repurchase agreements outstanding at any month
end and the average amount invested for the period was zero, zero, $3.8 million.
The average yield on repurchase agreements during the 1997 nine month period was
5.23%.
During the year ended December 31, 1997, the ending balance, maximum
amount of repurchase agreements outstanding at any month end and the average
amount invested for the year was zero, zero and $2.9 million, respectively. The
average yield on repurchase agreements during 1997 was 5.45%. During the year
ended December 31, 1996, the ending balance, maximum amount of repurchase
agreements outstanding at any month end and the average amount invested for the
year was zero, zero and $1.9 million, respectively. The average yield on
repurchase agreements during 1996 was 5.47%. BankAtlantic did not invest in
repurchase agreements during 1995. The underlying securities were in the
possession of BankAtlantic. During the nine months ended September 30, 1998 and
1997 and during the years ended December 31, 1997 and 1996 BankAtlantic sold
Federal Funds. The outstanding balances at September 30, 1998, December 31, 1997
and 1996, of Federal Funds sold was $3.3 million, zero and $6.1 million,
respectively. The maximum amount of Federal Funds sold which were outstanding at
any month end and the average amount invested for the nine months needed
September 30, 1998 and 1997 and for the years ended December 31, 1997 and 1996
were $21.0 million, $3.0 million, $12.4 million and $1.1 million and $12.4
million, $1.4 million, $16.0 million and $2.7 million, respectively.
During the year ended December 31, 1995, BankAtlantic sold two treasury
notes acquired through the exercise of European put options during 1994 for a
$589,000 realized gain. During the year ended December 31, 1997, the Company
purchased $6.2 million of marketable equity trading securities and sold $2.9
million of these trading securities for a $699,000 realized gain. The unrealized
gain on trading securities at December 31, 1997 was $1.8 million. During the
nine months ended September 30, 1998 and 1997, BankAtlantic sold $1.2 million
and $2.8 million of trading securities for a $560,000 and $672,000 gain. The
Company also realized a $96,000 of gains related to government securities
trading during the nine months ended September 30, 1998. Additionally, the
Company purchased $1.6 million and $6.2 million in trading securities during the
nine months ended September 30, 1998 and 1997, respectively. The unrealized
gains (losses) on trading securities for the nine months ended September 30,
1998 and 1997 were ($1.2) million and $823,000, respectively.
Included in trading account securities at September 30, 1998 were $17.7
million of securities owned by RBCO. These securities were associated with sales
and trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of RBCO. Transactions as principal
involve making markets in securities which are held in inventory to facilitate
sales to and purchases from customers. During the three months ended September
30, 1998, RBCO realized net gains from principal transactions of $1.5 million.
Furthermore, included in other liabilities was $1.4 million of securities sold
not yet purchased relating to RBCO trading activity.
F-52
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's trading securities consist of the following (in
thousands):
SEPTEMBER 30, DECEMBER 30,
------------- --------------------
1998 1997 1996
------- ------- -------
Debt obligations:
States and municipalities ......... $ 6,689 $ 0 $ 0
Corporations ...................... 778 0 0
U.S. Government and agencies ...... 131 0 0
Corporate equities .................. 15,525 5,067
------- ------ ------
Total ............................... $23,123 $5,067 $ 0
======= ====== ======
Securities sold, but not yet purchased consist of the following (in
thousand):
SEPTEMBER 30, 1998
------------------
Debt obligations:
States and municipalities ........... $ 41
Corporations ......................... 87
U.S. Government and agencies ......... 0
Corporate equities ..................... 1,232
------
Total .................................. $1,360
======
F-53
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS RECEIVABLE
Loans receivable net were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Real estate loans:
Residential ................................................................ $ 0 $ 37,813 $ 438,359
Purchased residential ...................................................... 1,297,999 772,932 428,722
Residential held for sale (market value of $180,636 , $164,153 and $16,535) 166,238 161,562 16,207
Construction and development ............................................... 398,754 325,951 301,813
FHA and VA insured ......................................................... 523 1,025 4,013
Commercial ................................................................. 321,112 396,357 427,235
Lease financing ............................................................ 19,978 0 0
Other loans:
Second mortgages - direct .................................................. 59,580 65,810 86,234
Second mortgages - indirect ................................................ 9,030 12,461 9,894
Commercial business ........................................................ 162,766 55,615 78,177
Due from foreign banks ..................................................... 49,288 12,256 0
Banker's acceptances ....................................................... 3,269 160,105 207
Deposit overdrafts ......................................................... 1,613 1,211 2,434
Consumer loans - other direct .............................................. 41,908 50,347 74,072
Consumer loans - other indirect ............................................ 215,881 204,689 172,056
----------- ----------- -----------
Total gross loans .................................................. 2,747,939 2,258,134 2,039,423
----------- ----------- -----------
Adjustments:
Undisbursed portion of loans in process .................................... (182,979) (163,237) (190,874)
Unearned premiums .......................................................... 12,512 7,047 2,762
Unearned discounts on commercial real estate loans ......................... (299) (669) (705)
Allowance for loan losses .................................................. (31,000) (28,450) (25,750)
----------- ----------- -----------
Loans receivable -- net ............................................ $ 2,546,173 $ 2,072,825 $ 1,824,856
=========== =========== ===========
</TABLE>
BankAtlantic is subject to economic conditions which could adversely
affect both the performance of the borrower or the collateral securing the loan.
At December 31, 1997, 55% of total aggregate outstanding loans were to borrowers
in Florida, 10% of total loans were to borrowers in the Northeastern United
States 13% of the total loans were to borrowers in California, and 22% were to
borrowers located elsewhere. Deferred loan fees netted against loan balances
were $2.7 million, $3.6 million and $1.5 million at September 30, 1998, December
31, 1997 and 1996, respectively. Commitments to sell residential mortgage loans
were $18.0 million, $11.9 million and $7.3 million at September 30, 1998,
December 31, 1997 and 1996, respectively. Variable rate commitments to sell
residential mortgage loans were $73,000, $832,000 and $153,000, whereas, fixed
rate commitments to sell residential mortgage loans were $17.9 million, $11.1
million and $7.1 million at September 30, 1998, December 31, 1997 and 1996,
respectively. During the nine months ended September 30, 1998, and 1997 the
Company transferred $108.5 million and $245.7 million of purchased residential
loans from the held for investment category to the loans held for sale category.
As part of its normal operations the Company purchases bulk residential loans
and continually evaluates the portfolio. These evaluations may result in
transfers from the held for investment category to the held for sale category;
however, such transfers would not normally exceed 10% of the average annual
balance of the portfolio. Included in other assets was $10.5 million, $10.4
million and $9.1 million of prepaid dealer reserves related to indirect consumer
lending at September 30, 1998, December 31, 1997 and 1996, respectively. The
market value of loans held for sale was determined on an aggregate basis.
F-54
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the allowance for loan losses was (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period ........................ $ 28,450 $ 25,750 $ 25,750 $ 19,000 $ 16,250
Charge-offs:
Commercial business loans ......................... (1,344) (177) (180) (1,048) (382)
Lease financing ................................... (683) 0 0 0 0
Commercial real estate loans ...................... (385) (49) (276) (266) (222)
Consumer loans .................................... (7,761) (7,916) (10,694) (6,337) (4,566)
Residential real estate loans ..................... (61) (76) (76) (67) (263)
Purchased residential real estate loans .......... (108) (104) (104) 0 0
----------- ----------- ----------- ----------- ---------
(10,342) (8,322) (11,330) (7,718) (5,433)
----------- ----------- ----------- ----------- ---------
Recoveries:
Commercial business loans ......................... 447 234 301 518 738
Lease financing ................................... 166 0 0 0 0
Commercial real estate loans ...................... 9 206 208 47 102
Consumer loans .................................... 1,783 1,649 2,253 1,659 1,219
----------- ----------- ----------- ----------- ---------
Net charge-offs ..................................... (7,937) (6,233) (8,568) (5,494) (3,374)
Additions charged to operations ..................... 9,811 8,833 11,268 5,844 4,182
Allowance for loan losses acquired .................. 676 0 0 6,400 1,942
----------- ----------- ----------- ----------- ---------
Balance, end of period .............................. $ 31,000 $ 28,350 $ 28,450 $ 25,750 $ 19,000
=========== =========== =========== =========== =========
Average outstanding loans during the period ......... $ 2,520,084 $ 1,918,179 $ 1,940,060 $ 1,177,334 $ 750,058
=========== =========== =========== =========== =========
Average outstanding banker's acceptances
during the period ................................. $ 21,737 $ 0 $ 7,966 $ 329 $ 0
=========== =========== =========== =========== =========
Ratio of net charge-offs to average outstanding loans 0.42% 0.43% 0.44% 0.47% 0.45%
=========== =========== =========== =========== =========
Ratio of net charge-offs to average outstanding
loans including banker's acceptances ............. 0.42% 0.43% 0.44% 0.47% 0.45%
=========== =========== =========== =========== =========
</TABLE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-55
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate loans to and repayments of loans by directors, executive
officers, principal stockholders and other related interests for the periods
ended September 30, 1998, December 31, 1997 and 1996 were (in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 ADDITIONS DELETIONS 1996 ADDITIONS DELETIONS 1997
-------------- ------------ ------------ -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 937 24 594 367 86 68 $ 385
============== ============ ============ ============== ============ ============ ===============
BALANCE AT BALANCE AT
DECEMBER 31, SEPTEMBER 30,
1997 ADDITIONS DELETIONS 1998
-------------- ---------- ----------- ----------------
<S> <C> <C> <C>
$ 385 0 118 $ 267
============== ========== =========== ================
Accrued interest receivable consisted of (in thousands):
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Loans receivable ........................... $18,412 $14,432 $13,713
Investment securities held to maturity ..... 3,922 3,828 3,705
Securities available for sale .............. 4,578 4,364 3,337
------- ------- -------
$26,912 $22,624 $20,755
======= ======= =======
</TABLE>
5. MORTGAGE SERVICING RIGHTS
At September 30, 1998 and 1997, December 31, 1997, 1996 and 1995
BankAtlantic serviced loans for the benefit of others amounting to approximately
$3.0 billion, $2.7 billion, $2.9 billion, $2.7 billion, and $1.8 billion,
respectively. At September 30, 1998, December 31, 1997 and 1996 other
liabilities includes approximately $11.2 million, $10.3 million and $7.7
million, respectively, of loan payments due to others.
Activity in mortgage servicing rights ("MSR") was (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------ ---------------------------------
1998 1997 1997 1996 1995
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period .................................. $38,789 $ 25,002 $25,002 $20,738 $20,584
Mortgage servicing rights acquired in BNA acquisition ......... 0 0 0 4,047 0
Servicing rights originated ................................... 1,550 1,194 1,668 311 0
Servicing rights purchased .................................... 58,602 31,529 45,840 27,681 10,112
Servicing rights sold ......................................... (19,687) (20,006) (25,511) (20,926) (5,596)
Provision for valuation of mortgage servicing rights .......... (15,000) 0 0 0 0
Amortization of servicing rights .............................. (12,603) (5,767) (8,210) (6,849) (4,362)
------- -------- -------- -------- --------
Balance, end of period ........................................ $51,651 $ 31,952 $38,789 $25,002 $20,738
======= ======== ======== ======== ========
</TABLE>
The fair value of the MSR at September 30, 1998 and December 31, 1997
was estimated at $52.1, $54.3 million and $42.7 million, respectively. As a
result of a fair value evaluation at September 30, 1998, a $15.0 million
valuation allowance for mortgage servicing rights was established. No valuation
allowance was established in prior periods. The fair value was calculated using
market prepayment assumptions and discount rates (see Note 24).
F-56
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RISK ELEMENTS
Risk elements consist of non-accrual loans, non-accrual tax
certificates, restructured loans, past-due loans, REO, repossessed assets, and
other loans which management has doubts about the borrower's ability to comply
with the contractual repayment terms. Non-accrual loans are loans on which
interest recognition has been suspended because of doubts as to the borrower's
ability to repay principal or interest. Non-accrual tax certificates are tax
deeds or securities in which interest recognition has been suspended due to the
aging of the certificate or deed. Restructured loans include loans for which the
terms have been altered to provide a reduction or deferral of interest or
principal because of a deterioration in the borrower's financial position.
BankAtlantic did not have any commitments outstanding to lend additional funds
on restructured loans at September 30, 1998 and December 31, 1997 and 1996.
Risk elements were (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual -- tax certificates .......................... $834 986 $880 $1,835 $2,044
Non-accrual -- loans, net of specific allowances ......... 18,281 12,487 17,569 12,424 11,174
Loans contractually past due 90 days or more (1) ......... 3,710 580 647 2,961 1,536
Real estate owned, net of allowance ...................... 5,319 5,909 7,528 4,918 6,279
Vehicles and equipment ................................... 2,262 2,419 2,912 1,992 461
------- ------ ------- ------- -------
Total non-performing ........................... 30,406 22,381 29,536 24,130 21,494
Restructured ............................................. 10 3,855 4,043 3,718 2,533
------- ------ ------- ------- -------
Total risk elements ............................ $30,416 26,236 $33,579 $27,848 $24,027
======= ====== ======= ======= =======
Allowance for tax certificate losses ..................... $1,005 785 $949 $1,466 $1,648
======= ====== ======= ======= =======
Allowance for loan losses ................................ $31,000 28,350 $28,450 $25,750 $19,000
======= ====== ======= ======= =======
</TABLE>
(1) The majority of these loans have matured and the borrower continues to make
the payments under the matured loan agreement. BankAtlantic is in the
process of renewing or extending these matured loans.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-57
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes impaired loans (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------ ------------------------
GROSS GROSS
RECORDED SPECIFIC RECORDED SPECIFIC
INVESTMENT ALLOWANCES INVESTMENT ALLOWANCES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nonaccrual loans:
With specific allowances ......................................... $1,737 810 $2,491 $1,117
Without specific allowances ...................................... 17,354 0 16,195 0
------ ------- ------- ------
19,091 810 18,686 1,117
------ ------- ------- ------
Restructured loans:
Without specific allowances ....................................... 10 0 4,043 0
------ ------- ------- ------
Other impaired loans:
Other impaired commercial loans with specific allowances(1) ....... 418 189 1,038 539
Other impaired commercial loans without specific allowances ....... 3,710 0 647 0
------ ------- ------- ------
Total .................................................... $23,229 999 $24,414 $1,656
======= ======= ======= =======
</TABLE>
(1) These loans are not included in risk elements, since subsequent to the date
of impairment these loans have performed based on their contractual terms.
Recorded investment of impaired loans reflects direct deferrals of
interest of $1.2 million, $60,000, zero, $240,000, and $480,000 at September 30,
1998 and 1997, December 31, 1997, 1996 and 1995, respectively.
There was no net interest forgone related to restructured loans at
September 30, 1998 and 1997 and December 31, 1997, 1996 and 1995. Interest
income of $1,000, $482,000, $799,000 and $336,000 was recognized on restructured
loans during the periods ended September 30, 1998 and 1997 and December 31, 1997
and 1996, respectively.
The average net recorded investment in impaired loans for the periods
ended September 30, 1998 and 1997 and December 31, 1997, 1996 and 1995 was $24.7
million, $19.6 million, $20.2 million, $15.4 million and $16.4 million,
respectively. Interest income which would have been recorded under the
contractual terms of impaired loans and the interest income actually recognized
was (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
---------------------- -------------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income which would have been recorded .......... $1,600 $1,516 $2,487 $1,795 $1,662
Interest income recognized .............................. (564) (823) (1,548) (988) (788)
------- ------- ------- ------- -------
Interest income forgone ................................. $1,036 $693 $939 $807 $874
======= ======= ======= ======= =======
</TABLE>
F-58
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of "Foreclosed asset activity, net" were (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------- -------------------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C
Real estate acquired in settlement of loans:
Operating expenses, net ................................. $445 $573 $528 $47 $41
Provision (reversals) of losses on REO .................. 522 0 (56) (197) (1,187)
Net gains on sales ...................................... (984) (328) (354) (575) (2,032)(A)
----- ----- ----- ----- -------
Total (income) loss ........................... $(17) $245 $118 $(725) $(3,178)
===== ===== ===== ===== =======
</TABLE>
(A) Includes a $1.3 million gain related to a property originally acquired
through tax deed.
Activity in the allowance for real estate owned consisted of (in
thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
----------------------- ---------------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period ....................... $1,500 $1,800 $1,800 $2,800 $4,200
Charge-offs:
Commercial real estate ........................... (595) 0 0 (781) (213)
Residential real estate .......................... (207) 0 (244) (22) 0
------- ------- ------- ------- -------
(802) 0 (244) (803) (213)
Provision (reversals) of losses on REO .......... 522 0 (56) (197) (1,187)
------- ------- ------- ------- -------
Balance, end of period ............................. $1,220 $1,800 $1,500 $1,800 $2,800
======= ======= ======= ======= =======
</TABLE>
Activity in the allowance for tax certificate losses was: (in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
---------------------- -------------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period ............................ $949 $1,466 $1,466 $1,648 $2,985
Charge-offs ............................................. (731) (1,424) (1,444) (909) (1,854)
Recoveries .............................................. 689 907 1,025 911 662
------- ------- ------- ------- -------
Net recoveries (charge-offs) ............................ (42) (517) (419) 2 (1,192)
Provision (reversals) charged to operations ............. 98 (164) (98) (184) (145)
------- ------- ------- ------- -------
Balance, end of period .................................. $1,005 $785 $949 $1,466 $1,648
======= ======= ======= ======= =======
</TABLE>
F-59
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment was comprised of (in thousands):
FOR THE NINE
MONTHS ENDED FOR THE YEARS
SEPTEMBER 30, ENDED DECEMBER 31,
------------ ------------------
1998 1997 1996
-------- ------- -------
Land ....................................... $13,900 $12,112 $12,115
Building and improvements .................. 46,856 46,384 42,593
Furniture and equipment .................... 32,329 25,921 26,257
-------- ------- -------
Total ............................ 93,085 84,417 80,965
Less accumulated depreciation .............. (36,131) (33,287) (32,691)
-------- ------- -------
Office properties and equipment -- net ..... $56,954 $51,130 $48,274
======== ======= =======
Properties with a net book value of $4.0 million at December 1995, were
leased to unrelated third parties. Capitalized improvements to the properties of
$1.0 million were performed during the year ended December 31, 1996. These
properties were sold for $8.1 million (net of selling costs) during 1996 for a
net gain of $3.1 million. During the nine months ended September 30, 1997 and
the year ended December 31, 1997 land adjacent to the above properties with a
net book value of $197,000 was sold for a net gain on $882,000.
Net rental income for each of the years ended December 31, 1997, 1996
and 1995 was zero, $368,000, and $343,000, respectively. Net rental income
during the nine months ended September 30, 1998 and 1997 was zero.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-60
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. DEPOSITS
The weighted average nominal interest rate payable on deposit accounts
at September 30, 1998, December 31, 1997 and 1996 was 3.61%, 3.70% and 3.78%,
respectively. The stated rates and balances at which BankAtlantic paid interest
on deposits were:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------ ---------- ------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest free checking ...................... $203,251 10.79% $162,788 9.23% $163,616 8.93%
Insured money fund savings
3.86% at September 30, 1998,
3.90% at December 31, 1997,
3.76% at December 31, 1996 ................ 429,561 22.81 289,413 16.41 358,927 19.58
NOW accounts
1.10% at September 30, 1998,
2.20% at December 31, 1997,
1.60% at December 31, 1996 ................ 217,524 11.55 223,679 12.68 216,587 11.82
Savings accounts
1.16% at September 30, 1998,
2.04% at December 31, 1997,
1.30% at December 31, 1996 ................ 131,036 6.96 262,685 14.90 170,352 9.29
---------- ------ ---------- ------ ---------- ------
Total non-certificate accounts .............. 981,372 52.11 938,565 53.22 909,482 49.62
---------- ------ ---------- ------ ---------- ------
Certificate accounts:
0.00% to 4.00% ............................ 50,085 2.66 14,275 0.81 23,361 1.27
4.01% to 5.00% ............................ 158,835 8.43 37,803 2.14 275,991 15.06
5.01% to 6.00% ............................ 609,226 32.36 184,800 10.48 478,148 26.09
6.01% to 7.00% ............................ 68,027 3.61 493,845 28.00 112,865 6.16
7.01% and greater ......................... 11,550 0.61 90,882 5.15 30,749 1.68
---------- ------ ---------- ------ ---------- ------
Total certificate accounts .................. 897,723 47.67 821,605 46.58 921,114 50.26
---------- ------ ---------- ------ ---------- ------
Total deposit accounts ...................... 1,879,095 99.78 1,760,170 99.80 1,830,596 99.88
---------- ------ ---------- ------ ---------- ------
Interest earned not credited to
deposit accounts .......................... 4,134 0.22 3,563 0.20 2,184 0.12
---------- ------ ---------- ------ ---------- ------
Total ....................................... $1,883,229 100.00% $1,763,733 100.00% $1,832,780 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
Interest expense by deposit category was (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Money fund savings and NOW accounts ................ $9,783 $10,706 $14,020 $12,154 $11,591
Savings accounts ................................... 6,509 4,475 6,617 2,150 1,987
Certificate accounts -- below $100,000 ............. 22,882 28,839 37,973 32,416 27,059
Certificate accounts, $100,000 and above ........... 10,982 7,633 9,882 8,513 6,269
Less early withdrawal penalty ...................... (268) (143) (211) (205) (260)
-------- -------- -------- -------- --------
Total ............................... $49,888 $51,510 $68,281 $55,028 $46,646
======== ======== ======== ======== ========
</TABLE>
F-61
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in other non-interest income is approximately $8.6 million,
$6.8 million, $9.3 million, $8.6 million, and $7.0 million of checking account
fees for the nine months ended September 30, 1998 and 1997 and for the years
ended December 31, 1997, 1996 and 1995, respectively.
At September 30, 1998 and December 31, 1997, the amounts of scheduled
maturities of certificate accounts were (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDING SEPTEMBER 30,
----------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 4.00%............ $ 47,002 $ 2,403 $ 388 $ 52 $ 42 $ 198
4.01% to 5.00%............ 118,004 36,819 3,044 368 427 173
5.01% to 6.00%............ 517,345 70,019 8,665 7,094 5,611 492
6.01% to 7.00%............ 33,180 13,419 4,915 15,669 723 121
7.01% and greater......... 499 10,855 72 0 124 0
----------- ----------- ----------- ------------ ------------ ------------
Total........... $ 716,030 $ 133,515 $ 17,084 $ 23,183 $ 6,927 $ 984
=========== =========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------------
1998 1999 2000 2001 2002 THEREAFTER
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 4.00%........... $ 12,336 $ 1,740 $ 76 $ 42 $ 72 $ 9
4.01% to 5.00%........... 37,530 204 16 53 0 0
5.01% to 6.00%........... 172,410 10,051 1,164 871 116 188
6.01% to 7.00%........... 434,702 38,736 8,124 5,103 6,597 583
7.01% and greater........ 21,238 30,071 18,809 8,727 11,365 672
----------- ----------- ----------- ------------ ------------ ------------
Total.......... $ 678,216 $ 80,802 $ 28,189 $ 14,796 $ 18,150 $ 1,452
=========== =========== =========== ============ ============ ============
</TABLE>
Time deposits of $100,000 and over had the following maturities at (in
thousands):
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
Less than 3 months..................... $ 60,321 $ 64,235
3 to 6 months.......................... 70,111 34,123
6 to 12 months......................... 72,822 53,566
More than 12 months.................... 87,964 24,338
--------------- ---------------
Total....................... $ 291,218 $ 176,262
=============== ===============
During the nine months ended September 30, 1998, BankAtlantic obtained
$38 million of brokered time deposits from RBCO. The Company did not obtain
brokered time deposits in prior periods. In November 1996, Merrill Lynch granted
BankAtlantic a facility for broker deposits of up to $135.0 million. The
facility will be considered as an alternative source of borrowings, when and if
needed.
F-62
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
Advances from Federal Home Loan Bank ("FHLB") incur interest and were
repayable as follows (in thousands):
<TABLE>
<CAPTION>
REPAYABLE DURING YEAR SEPTEMBER 30, DECEMBER 31,
-----------------------------
ENDING DECEMBER 31, INTEREST RATE 1998 1997 1996
- ---------------------------------------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
1997.......................................... 5.50% to 7.73% $ 0 $ 0 $ 119,965
1998.......................................... 6.00% to 6.64% 102,928 153,143 43,143
1999.......................................... 6.00% to 6.83% 56,393 56,393 42,892
2000.......................................... 6.13% to 7.00% 54,392 54,393 40,892
2001.......................................... 6.29% to 7.09% 37,777 37,778 33,118
2002.......................................... 6.35% to 7.18% 21,490 21,460 6,150
2003.......................................... 7.24% to 7.25% 9,540 9,540 9,540
----------------- ------------- -------------
Total fixed rate advances............... 282,520 332,707 295,700
----------------- ------------- -------------
2002.......................................... 5.68% to 6.20% 175,000 175,000 0
2003.......................................... 5.39% 25,000 0 0
2007.......................................... 5.68% 25,000 25,000 0
2008.......................................... 4.87% to 5.67% 540,000 0 0
----------------- ------------- -------------
Total callable advances.................. 765,000 200,000 0
----------------- ------------- -------------
1998.......................................... 5.78% to 5.91% 0 165,000 0
----------------- ------------- -------------
Total adjustable rate advances........... 0 165,000 0
----------------- ------------- -------------
Total FHLB advances...................... $ 1,047,520 $ 697,707 $ 295,700
================= ============= =============
</TABLE>
Included in fixed rate advances at September 30, 1998 and December 31,
1997 were $95.0 million and $110.0 million of overnight advances, respectively.
The September 1998 and December 1997 adjustable rate advances were indexed to
the one and three month LIBOR rate. Callable advances give the FHLB the option
to convert, at a specific date, in whole, into a three month Libor-based
floating rate advance. BankAtlantic has established a blanket floating lien with
the FHLB. Under the lien, BankAtlantic assigns a security lien against its
residential loans. At September 30, 1998, December 31, 1997 and 1996, $1.4
billion, $891.9 million and $611.4 million of 1-4 family residential loans were
pledged against FHLB advances. In addition, FHLB stock is pledged as collateral
for outstanding FHLB advances. BankAtlantic has a $500 million line of credit
with the FHLB with a maximum term of 10 years.
At September 30, 1998 and December 31, 1997 BankAtlantic had
established $80.0 million and $35.0 million of lines of credit with various
federally insured banking institutions for the purchase of Federal Funds. At
September 30, 1998, December 31, 1997 and 1996, the outstanding balance of these
lines of credit was zero, $2.5 million and zero, respectively. The average
balance outstanding during the nine months ended September 30, 1998 and for the
years ended December 31, 1997 and 1996, of Federal Funds purchased lines of
credit was $3.9 million, $1.9 million and $2.7 million, respectively. The
maximum outstanding balance at any month end during 1998, 1997 and 1996 of the
Federal Funds purchased lines of credit was $13.6 million, $7.0 million and
$16.0 million, respectively.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized below (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------------
1998 1997 1996
--------------- ------------- --------------
<S> <C> <C> <C>
Agreements to repurchase the same security................. $ 47,144 $ 0 $ 143,377
Customer repurchase agreements............................. 62,916 58,716 47,211
--------------- ------------- --------------
Total............................................ $ 110,060 $ 58,716 $ 190,588
=============== ============= ==============
</TABLE>
F-63
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides information on the agreements to
repurchase (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
------------------------- -----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Maximum borrowing at any month-end
within the period........................ $ 404,875 $ 255,967 $ 255,967 $ 362,147 $ 328,666
Average borrowing during the period........ $ 251,424 $ 159,334 $ 150,656 $ 178,883 $ 186,592
Average interest cost during the period.... 5.23 % 5.28 % 5.26 % 4.83 % 5.80 %
Average interest cost at end of the period. 5.04 % 5.09 % 4.80 % 5.13 % 4.59 %
========== ========== =========== =========== ==========
</TABLE>
Average borrowing was computed based on average daily balances during
the period. Average interest rates during the period were computed by dividing
interest expense for the period by the average borrowing during the period.
Customer repurchase agreements at September 30, 1998, December 31, 1997
and 1996 included a $2.3 million, $4.7 million and $9.7 million of customer
repurchase agreements, respectively, relating to a BFC escrow account. Total
interest expense related to this reverse repurchase agreement was approximately
$82,000, $210,000 , $312,000, and $374,000 during the nine months ended
September 30, 1998 and for the three years ended December 31, 1997, 1996 and
1995, respectively.
The following table lists the amortized cost and estimated fair value
of securities sold under repurchase agreements, and the repurchase liability
associated with such transactions (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
ESTIMATED AVERAGE
AMORTIZED FAIR REPURCHASE INTEREST
COST VALUE BALANCE RATE
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998
- ------------------
FNMA Remic........................ $ 17,116 $ 16,623 $ 14,645 3.43 %
FHLMC Remic....................... 41,135 41,549 39,942 5.31
FNMA.............................. 20,515 20,620 18,950 4.73
FHLMC............................. 42,683 42,812 36,523 3.43
------------- ------------- -------------- ------------
Total................... $ 121,449 $ 121,604 $ 110,060 4.34 %
============= ============= ============== ============
DECEMBER 31, 1997 (1)
- ---------------------
FHLB Bonds........................ $ 2,650 $ 2,651 $ 2,380 4.80 %
FNMA.............................. 8,440 8,462 7,597 4.80
FHLMC............................. 54,302 54,289 48,739 4.80
------------- ------------- -------------- ------------
Total................... $ 65,392 $ 65,402 $ 58,716 4.80 %
============= ============= ============== ============
DECEMBER 31, 1996(1)
- --------------------
US Treasuries..................... $ 70,637 $ 70,686 $ 66,622 5.54 %
FHLB Bonds........................ 2,015 2,006 1,481 4.02
FNMA.............................. 73,707 73,897 67,848 5.18
FHLMC............................. 67,735 67,650 54,637 4.59
------------- ------------- -------------- ------------
Total................... $ 214,094 $ 214,239 $ 190,588 5.13 %
============= ============= ============== ============
</TABLE>
(1) At December 31, 1997 and 1996 these securities are classified
as available for sale and recorded at market value in the
consolidated statements of financial condition.
All repurchase agreements at September 30, 1998 and December 31, 1997
matured and were repaid in October 1998, January 1998 and January 1997.
respectively. These securities were held by unrelated broker dealers.
F-64
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBORDINATED DEBENTURES AND OTHER DEBT
In March 1991, $10.2 million of 1986 Capital Notes were exchanged for
noncumulative preferred stock. All three series of preferred stock had a
preference value of $25.00 per share and were redeemable at $25.00 per share.
During July 1994, 260 shares of Series C preferred stock were canceled in
connection with the exercise of dissenters' rights by certain BankAtlantic
preferred shareholders in connection with the reorganization transaction which
resulted in the establishment of the Company as the holding company for
BankAtlantic. In October 1995, all series of preferred stock were redeemed at
$25.00 per share. The October 7, 1995 preferred stock redemption resulted in a
$1.4 million payment above the recorded amount of the preferred stock. Such
excess was treated as a preferred stock dividend and impacted basic and diluted
earnings per share by $.05 per share for the year ended December 31, 1995.
On March 31, 1991, BankAtlantic issued to certain of its existing
shareholders, 18,611 shares of common stock and $8,000 of 14% subordinated
debentures, having a March 1998 maturity date, with related detachable warrants
to purchase 17,548 shares of common stock. The $8,000 of subordinated debentures
were redeemed along with the Capital Notes on August 31, 1993. However, the
warrants relating to such debentures are detachable and remain outstanding until
the earlier of exercise or original maturity of the subordinated debentures. The
warrants outstanding at December 31, 1997 relating to the redeemed debentures
are 10,963 with a $0.45 exercise price. The warrants expired on March 31, 1998;
therefore, there were no warrants outstanding at September 30, 1998.
On March 30, 1995, the Company borrowed $4.0 million from an unrelated
financial institution and incurred financing costs of $69,000. The debt matured
on March 30, 1996, bore interest at prime plus 1% and was collateralized by 12%
non-cumulative preferred stock of BankAtlantic having a preference value of $4.0
million. The $4.0 million was utilized by the Company to purchase the
BankAtlantic preferred stock used as collateral.
The Company has the following subordinated debentures and notes payable
outstanding at September 30, 1998 and December 31, (in thousands):
<TABLE>
<CAPTION>
ISSUE SEPTEMBER DECEMBER 31, INTEREST MATURITY CONVERSION CLASS OF REDEMPTION
---------------------
DATE 30, 1998 1997 1996 RATE DATE PRICE STOCK DATE
--------- ---------- ---------- --------- ------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9% Debentures...... 9/22/95 $ 21,000 21,000 $ 21,000 9.00 % 10/01/2005 N/A N/A 10/01/1998
6 3/4% Debentures.. 7/03/96 51,182 57,125 57,500 6.75 % 7/01/2006 $ 6.55 A 7/01/1999
5 5/8% Debentures.. 11/25/97 100,000 100,000 0 5.63 % 12/01/2007 $ 12.94 A 12/01/2000
Notes payable...... 2/01/95 1,013 1,475 0 7.50 % 2/01/2000 N/A N/A N/A
Notes payable...... 2/01/95 309 0 0 6.38 % 8/01/2002 N/A N/A N/A
Notes payable...... 4/01/98 2,500 0 0 8.00 % 4/01/2002 N/A N/A N/A
Notes payable...... 3/26/88 600 0 0 7.00 % 3/26/2007 N/A N/A N/A
Notes payable...... Various 137 0 0 9.20 % Various N/A N/A N/A
Notes payable...... 11/01/97 1,593 0 0 7.56 % 5/01/2002 N/A N/A N/A
---------- ---------- ---------
$ 178,334 179,600 $ 78,500
========== ========== =========
</TABLE>
Included in other assets were $5.5 million, $6.3 million and $3.2
million of unamortized underwriting discounts and costs associated with the
issuance of subordinated debentures, at September 30, 1998, December 31, 1997
and 1996, respectively.
The Indenture relating to the Trust Preferred Securities and all of the
Debenture indentures contain certain customary covenants found in Indentures
under the Trust Indenture Act, including covenants with respect to the payment
of principal and interest, maintenance of an office or agency for administering
the Debentures, holding of funds for payments on the Debentures in Trust,
payment by the Company of taxes and other claims, maintenance by the Company of
its properties and its corporate existence and delivery of annual certifications
to the Trustee.
The Debenture indentures for the 9% and 6 3/4% Debentures provide that
the Company cannot declare or pay dividends on, or purchase, redeem or acquire
for value its capital stock, return any capital to holders of capital stock as
such, or make any distributions of assets to holders of capital stock as such,
unless, from and after the date of any such dividend declaration (a "Declaration
Date") or the date of any such purchase, redemption, payment or distribution (a
"Redemption
F-65
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Date"), the Company retains cash, cash equivalents (as determined in accordance
with generally accepted accounting principles) or marketable securities (with a
market value as measured on the applicable Declaration Date or Redemption Date)
in an amount sufficient to cover the two consecutive semi-annual interest
payments that will be due and payable on the Debentures following such
Declaration Date or Redemption Date, as the case may be. These indentures
further provide that the amount of any interest payment made by the Company with
respect to the Debentures after any applicable Declaration Date or Redemption
Date shall be deducted from the aggregate amount of cash or cash equivalents
which the Company shall be required to retain pursuant to the foregoing
provision. At September 30, 1998, December 31, 1997 and 1996 the Company
designated $5.8 million of securities available for sale to satisfy the above
provision.
Upon the acquisition of SLWHC, the Company became obligated for a $9.1
million Capital Improvement Revenue Bond Series 1995, payable to a municipality
with a $1.0 million and $1.4 million outstanding at September 30, 1998, and
December 31, 1997. Interest on the note payable is due semi-annually in arrears.
The note is collateralized by "priority assessment liens on residential land".
In March 1997, the Company formed BBC Capital Trust I ("BBC Capital").
BBC Capital is a statutory business trust which was formed for the purpose of
issuing 9 1/2% Cumulative Trust Preferred Securities ("Trust Preferred
Securities") and investing the proceeds thereof in Junior Subordinated
Debentures of the Company. In a public offering in April 1997, BBC Capital
issued for $74.75 million, 2.99 million shares of Trust Preferred Securities at
a price of $25 per share. BBC Capital used the gross proceeds received from the
sale of the Trust Preferred Securities and $2.3 million of contributed capital
from the Company to purchase $77.1 million of 9 1/2% Junior Subordinated
Debentures from the Company which mature on June 30, 2027. The net proceeds to
the Company from the sale of the Junior Subordinated Debentures were $71.8
million after deduction of the underwriting discount and expenses. At September
30, 1998 and December 31, 1997, the balance of Trust Preferred Securities was
$74.75 million. The net proceeds from the sale of the Junior Subordinated
Debentures were utilized as follows: $21.2 million of the proceeds were
contributed to BankAtlantic, $12.2 million of the proceeds were used to
repurchase the Company's common stock and the remaining proceeds are being used
by the Company for general corporate purposes. BankAtlantic used $21.2 million
of the contributed capital to acquire St. Lucie West Holding Corp., and
subsidiaries and to invest in a real estate joint venture. During the nine
months ended September 30,1998, the Company paid $10.6 million to repurchase and
retire 738,500 shares of Class B common stock and during the year ended December
1, 1997, the Company repurchased 1,040,625 and 365,625 shares of the Company's
Class A and Class B common stock, respectively. Interest on the Junior
Subordinated Debentures and Distributions on the Trust Preferred Securities are
fixed at 9 1/2% per annum and are payable quarterly in arrears, with the first
payment paid June 30, 1997. Distributions on the Trust Preferred Securities are
cumulative and based upon the liquidation value of $25 per Trust Preferred
Security. The Company has the right, at any time, so long as no event of
default, as defined, has occurred and is continuing, to defer payments of
interest on the Junior Subordinated Debentures for a period not exceeding 20
consecutive quarters; provided, that such deferral may not extend beyond the
stated maturity of the Junior Subordinated Debentures. The Trust Preferred
Securities are subject to mandatory redemption, in whole or in part, upon
repayment of the Junior Subordinated Debentures at maturity or their earlier
redemption. The Company has the right to redeem the Junior Subordinated
Debentures after June 30, 2002 and also has the right to redeem the Junior
Subordinated Debentures in whole (but not in part) within 180 days following
certain events, as defined, whether occurring before or after June 30, 2002, and
therefore cause a mandatory redemption of the Preferred Securities. The exercise
of such right is subject to the Company having received regulatory approval to
do so if then required under applicable capital guidelines or regulatory
policies. In addition to the above right, the Company has the right, at any
time, to shorten the maturity of the Junior Subordinated Debentures to a date
not earlier than June 30, 2002. Exercise of this right is also subject to the
Company having received regulatory approval to do so if then required under
applicable capital guidelines or regulatory policies.
On November 25, 1997, in a dual public offering, the Company issued 4.3
million of Class A common stock and $100.0 million of 5 5/8% convertible
subordinated debentures ("5 5/8% Debentures"). The net proceeds to the Company
from the sale of Class A common stock was $43.4 million net of $107,000 offering
costs and $96.5 million from the sale of the 5 5/8% Debentures net of $3.5
million of offering costs.
In the ordinary course of business, primarily to finance RBCO's trading
inventories, RBCO borrows under an agreement with its clearing broker by
pledging trading securities as collateral. At September 30, 1998, the balance
due from the clearing broker was $6.1 million. The interest rate earned on this
receivable was 3.90% (see also Note 21).
F-66
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTION PLANS
On April 6, 1984, BankAtlantic's stockholders approved a Stock Option
Plan ("1984 Plan") under which options to purchase up to 1,182,556 shares of
common stock may be granted. The plan provided for the grant of both incentive
stock options and non-qualifying options. The exercise price of an incentive
stock option was not to be less than the fair market value of the common stock
on the date of the grant. The exercise price of non-qualifying options was
determined by a committee of the Board of Directors. The "1984 Plan" has expired
and all Class B stock options issued in May 1993 expired on May 25, 1998.
On May 31, 1994, the stockholders of BankAtlantic approved the
BankAtlantic 1994 Stock Option Plan ("1994 Plan"), authorizing the issuance of
Class B common stock options to acquire up to 2,288,819 shares of BankAtlantic's
common stock. In accordance with the Reorganization, all outstanding options
under the 1984 Plan and 1994 Stock Option Plan became the obligation of the
Company as of July 13, 1994. All employee stock options under the 1994 Plan vest
and are exercisable five years from the date of grant while directors' stock
options vested immediately.
On May 21, 1996 the shareholders approved the BankAtlantic Bancorp 1996
Stock Option Plan (the "1996 Plan") which authorized the issuance of Class A
common stock options to acquire up to 1.95 million shares of Class A common
stock. The 1996 Plan expires on April 2, 2006. During the second quarter of
1996, 48,828 non-qualifying stock options were issued outside of the Plan to
non-employee directors. All of the incentive and non-qualifying stock options
are exercisable for the Company's Class A common stock, with an exercise price
equal to the fair market value at the date of grant. All employee stock options
vest and are exercisable five years for the date of grant while directors' stock
options vested immediately. Upon acquisition of RBCO, the Company assumed all
options outstanding under RBCO's existing stock option plans resulting in the
issuance of options to purchase 314,145 shares of Class A common stock at
various exercise prices based upon the exercise prices of the assumed options.
On April 14, 1998 BankAtlantic's stockholders approved a stock option
plan ("1998 Plan") under which options to purchase up to 800,000 shares of the
Company's Class A common stock and 150,000 shares of Class B common stock could
be issued.
On August 4, 1998, the Board of Directors granted pursuant to the
BankAtlantic Bancorp 1998 stock option plan incentive stock options to purchase
391,630 shares of Class A common stock and nonqualifying stock options to
purchase 89,525 shares of Class A common stock, each with a $9.50 exercise price
to officers of BankAtlantic. Also on August 4, 1998, the Board of Directors
granted incentive stock options to purchase 47,845 shares of Class A common
stock at $10.45 (110% of the market price at the grant date).
The following table sets forth the terms of the stock options granted
on August 4, 1998:
SHARES ISSUED TYPE VESTING EXPIRATION
- -------------------- ------------------ ------------------ -----------------
89,525 Non-qualifying 5 Years 10 Years
367682 Incentive 5 Years 10 Years
47,845 Incentive Pro-rata 5 Years
15,000 Incentive 6 Years 10 Years
8,948 Incentive 7 Years 10 Years
The following table sets forth all outstanding options, adjusted for
the July 1997 and January 1998 five for four common share stock splits effected
in the form of 25% stock dividends in Class A common stock. However, due to
accounting and tax considerations, with respect to options to purchase Class B
common stock previously granted under the Company's stock option plan's
anti-dilution provisions related to Class B common stock options required that
additional Class B options be granted rather than Class A options.
F-67
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity segregated by class of stock was:
<TABLE>
<CAPTION>
CLASS B
OUTSTANDING
OPTIONS PRICE PER SHARE
------------- ---------------------------
<S> <C> <C> <C>
Outstanding December 31, 1994........................................... 2,512,556 $ 2.28 to $ 3.90
Exercised............................................................... (234,315) 2.96 to 3.05
Forfeited............................................................... (102,325) 3.01 to 4.00
Issued.................................................................. 887,214 4.00 to 4.00
------------- --------- ---------
Outstanding December 31, 1995........................................... 3,063,130 $ 2.28 to $ 4.00
Exercised............................................................... (138,392) 2.96 to 3.01
Forfeited............................................................... (189,677) 3.90 to 4.00
------------- --------- ---------
Outstanding December 31, 1996........................................... 2,735,061 2.28 to 4.00
Exercised............................................................... (547,740) 2.28 to 3.90
Forfeited............................................................... (71,774) 3.90 to 3.90
------------- --------- ---------
Outstanding December 31, 1997........................................... 2,115,547 3.01 to 4.00
Exercised............................................................... (434,542) 3.01 to 4.00
Forfeited............................................................... (12,465) 3.90 to 3.90
------------- --------- ---------
Outstanding September 30, 1998.......................................... 1,668,540 $ 3.90 to $ 4.00
============= ========= =========
Exercisable at September 30, 1998....................................... 75,289 $ 3.90 $ 3.90
============= ========= =========
Available for grant at September 30, 1998............................... 552,141
=============
</TABLE>
<TABLE>
<CAPTION>
CLASS A
OUTSTANDING
OPTIONS PRICE PER SHARE
------------- ---------------------------
<S> <C> <C> <C>
Outstanding December 31, 1995.......................................... 0 $ 0.00 to $ 0.00
Exercised.............................................................. 0 0.00 to 0.00
Forfeited.............................................................. (101,023) 5.74 to 5.74
Issued................................................................. 1,029,440 5.74 to 6.25
------------- --------- ---------
Outstanding December 31, 1996.......................................... 928,417 5.74 to 6.25
Exercised.............................................................. (16,775) 5.74 to 7.17
Forfeited.............................................................. (104,994) 5.74 to 8.64
Issued................................................................. 809,984 5.74 to 12.35
------------- --------- ---------
Outstanding December 31, 1997.......................................... 1,616,632 5.74 to 12.35
Issued in connection with the acquisition of RBCO...................... 314,145 3.97 to 9.70
Exercised.............................................................. (15,351) 5.26 to 7.92
Forfeited.............................................................. (108,416) 5.73 to 9.50
Issued................................................................. 577,750 9.00 to 14.38
------------- --------- ---------
Outstanding September 30, 1998......................................... 2,384,760 $ 3.97 to $ 14.38
============= ========= =========
Exercisable at September 30, 1998...................................... 186,913 $ 3.97 $ 14.06
============= ========= =========
Available for grant at September 30, 1998.............................. 671,384
=============
</TABLE>
The weighted average exercise price of options outstanding at September
30, 1998, December 31, 1997, 1996 and 1995 was $6.19, $5.14, $4.21, and $3.67,
respectively. The weighted average exercise price of stock options exercised was
$3.39, $3.28 and $3.01 for the nine months ended September 30, 1998 and the
years ended December 31, 1997 and 1996, respectively. The weighted average
exercise price of options forfeited during the nine months ended September 30,
1998 and the years ended December 31, 1997 and 1996 was $6.86, $5.27 and $4.56,
respectively.
Included in options granted in the nine months ended September 30, 1998
were non-qualifying stock options to purchase 21, 007 shares of Class A common
stock and incentive stock options to purchase 27,743 shares of Class A common
stock. The above options were granted pursuant to the Company's 1996 stock
option plan.
During the nine months ended September 30, 1998 and years ended
December 31, 1997 and 1996, 110,532, 373,328 and 12,736 of non-qualifying and
467,218, 399,048 and 125,656 of incentive stock options issued under the 1984,
1994 and 1996 Plans were exercised resulting in increases of $2.3 million, $2.8
million and $531,000 in stockholders' equity, respectively. The tax effect of
the exercised stock options for December 31, 1997 and 1996 was $709,000,
$913,000 and
F-68
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$118,000, respectively, and has been reflected in additional paid in capital.
During the nine months ended September 30, 1998 and the years ended December 31,
1997 and 1996, 106,780, 104,994 and 101,023 of options under the 1996 Plan and
11,478, 71,774 and 189,677 of options under the 1994 Plan, respectively, were
forfeited.
During 1996 and 1997, certain executives and officers received prorata
vesting as part of their severance arrangements relating to previously granted
1994 and 1996 Plan options. Forfeited and vested options were 148,778 shares and
194,559 shares for the 1994 plan and 84,231 shares and 25,634 shares for the
1996 plan, respectively.
The adoption of FAS 123 under the fair value based method would have
increased compensation expense by $479,245 and $474,000 for the years ended
December 31, 1997 and 1996, respectively. The effect of FAS 123 under the fair
value based method would have effected net income and earnings per share as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
(In thousands, except per share data) DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Net income available for common shares As reported............ $ 27,769 $ 19,011
============= ============
Pro forma.............. 27,272 18,537
============= ============
Basic earnings per share Class A As reported............ $ 0.98 $ 0.64
============= ============
Pro forma.............. 0.97 0.63
============= ============
Basic earnings per share Class B As reported............ $ 0.94 $ 0.72
============= ============
Pro forma.............. 0.93 0.71
============= ============
Diluted earnings per share Class A As reported............ $ 0.78 $ 0.58
============= ============
Pro forma.............. 0.77 0.57
============= ============
Diluted earnings per share Class B As reported............ $ 0.77 $ 0.66
============= ============
Pro forma.............. 0.76 0.64
============= ============
</TABLE>
The option method used to calculate the FAS 123 compensation adjustment
was the Black-Scholes model with the following grant date fair values and
assumptions:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------------------------------------------------------
NUMBER OF RISK FREE EXPECTED
YEAR OF OPTIONS GRANT DATE EXERCISE INTEREST EXPECTED DIVIDEND
GRANT GRANTED FAIR VALUE PRICE RATE VOLATILITY YIELD
- --------------- ------------- ------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1995 887,214 $ 2.14 $ 4.00 6.32 % 25.80 % 0.47 %
1996 1,029,440 $ 2.95 $ 5.77 6.86 % 18.60 % 0.36 %
1997 809,984 $ 3.36 $ 8.08 6.60 % 27.40 % 0.99 %
</TABLE>
The employee turnover factor was 5.97 % and 13.40% for incentive stock options
and 3.55% and 5.20% for non-qualifying stock options, for the years ended
December 31, 1997 and 1996, respectively. The expected life for all options
issued was 7.5 years.
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
CLASS OF RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
COMMON EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
STOCK PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE
- ------------ --------------- -------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
B $3.01 to 348,813 .4 years $ 3.15 348,813 $ 3.15
3.31
B $3.90 to 1,766,734 6.8 years 3.94 148,802 3.92
4.00
A $5.73 to 12.35 1,616,632 8.9 years 6.88 108,661 6.82
-------------- --------------- ----------- ------------- -----------
3,732,179 7.1 years $ 5.14 606,276 $ 4.00
============== =============== =========== ============= ===========
</TABLE>
F-69
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
For federal income tax purposes, BankAtlantic reports its income and
expenses on the accrual method of accounting. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code of 1986 (the "Code") relating primarily to the
composition of their assets and the nature of their business activities were,
within certain limitations, permitted to establish, and deduct additions to,
reserves for bad debts in amounts in excess of those which would otherwise be
allowable on the basis of actual loss experience. A qualifying savings
institution could elect annually, and was not bound by such election in any
subsequent year, one of the following two methods for computing additions to its
bad debt reserves for losses on "qualifying real property loans" (generally,
loans secured by interests in improved real property): (i) the experience method
or (ii) the percentage of taxable income method. BankAtlantic has utilized both
the percentage of taxable income method and the experience method in computing
the tax-deductible addition to its bad debt reserves. Additions to the reserve
for losses on non-qualifying loans, however, must be computed under the
experience method and reduce the current year's addition to the reserve for
losses on qualifying real property loans, unless the qualifying addition also is
determined under the experience method. The sum of the addition to each reserve
for each year was BankAtlantic's annual bad debt deduction.
The Small Business Job Protection Act of 1996 repealed the reserve
method of accounting for bad debts for tax years beginning after 1995. As a
"large" thrift (more than $500 million in assets), BankAtlantic had to change to
the specific charge-off method to compute its bad debt deduction starting in
1996. BankAtlantic is required to recapture into taxable income the portion of
its bad debt reserves that exceeds its base year reserves. For financial
reporting purposes, deferred taxes have previously been provided for amounts in
excess of the base year tax bad debt reserve and accordingly, recapture of such
amounts for tax purposes will not trigger expense for financial reporting
purposes. BankAtlantic will have to recapture $1.7 million (after tax) of bad
debt reserve due to the law change. BankAtlantic's recapture amount will be
taken into taxable income ratably (on a straight-line basis) over a six-year
period. BankAtlantic met the residential loan requirement for the tax years
beginning in 1996 and 1997, and recapture of the reserves has been suspended for
such tax years. At December 31, 1997, BankAtlantic had a $3.9 million (after
tax) base year reserve for which deferred taxes have not been provided which is
subject to recapture if BankAtlantic, redeems its common stock or certain other
events occur. The base year reserve is not amortized and remains fixed. Such
amount would not be subject to recapture upon conversion to a commercial bank
charter.
F-70
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes consisted of (in thousands):
1997 1996 1995
---------- ---------- -----------
Current:
Federal......................... $ 15,248 $ 9,305 $ 7,257
State........................... 2,332 1,441 1,210
---------- ---------- -----------
17,580 10,746 8,467
---------- ---------- -----------
Deferred:
Federal.......................... 150 1,287 1,191
State........................... 23 208 360
---------- ---------- -----------
173 1,495 1,551
---------- ---------- -----------
Provision for income taxes........ $ 17,753 $ 12,241 $ 10,018
========== ========== ===========
The December 31, 1997, 1996 and 1995 amounts above do not include
deferred taxes of $455,000, $470,000 and $3.6 million, respectively, related to
unrealized appreciation on securities available for sale which is a separate
component of stockholders' equity.
BankAtlantic's actual provision differs from the Federal expected
income tax provision as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Income tax provision at expected federal income tax rate (1).................... $ 15,933 $ 10,938 $ 9,953
Increase (decrease) resulting from:
Base year bad debt reserve increase........................................... (582) (362) 0
Tax-exempt interest income.................................................... (22) (26) (104)
Provision for state taxes net of federal benefit.............................. 1,540 1,117 897
Change in the beginning of the period balance of the valuation
allowance for deferred tax assets allocated to income tax credit........... 0 0 (972)
Amortization of costs over fair value of net assets acquired.................. 878 541 393
Charitable deduction of appreciated property.................................. 0 0 (70)
Other -- net 6 33 (79)
----------- ----------- ----------
Provision for income taxes............................................ $ 17,753 $ 12,241 $ 10,018
=========== =========== ==========
</TABLE>
- -------------
(1) The expected federal income tax rate is 35% for the years ended
December 31, 1997, 1996 and 1995.
F-71
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
DEFERRED TAX ASSETS: (IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loans, REO and tax certificate losses, for
financial statement purposes....................................................... $ 10,700 $ 8,692 $ 6,798
Other allowances and expense accruals recorded for financial statement
purposes not currently recognized for tax purposes................................. 412 1,495 3,330
Deferred compensation accrued for financial statement purposes not
currently recognized for tax purposes................................................ 353 266 199
Unearned commitment fees.............................................................. 125 114 101
Amortization of mortgage servicing rights for financial
reporting purposes in excess of amount amortized for tax purposes.................. 146 251 255
Amortization of intangible assets for financial statement purposes in excess of
amounts amortized for tax purposes.................................................. 169 225 0
Net operating loss carryforward acquired.............................................. 1,222 0 0
Real estate held for development and sale capitalized costs for tax purposes
in excess of amounts capitalized for financial statement purposes................... 1,414 0 0
Purchase accounting adjustments for SLWHC acquisition................................. 1,548 0 0
Purchase accounting adjustments for bank acquisitions................................. (501) 170 1,073
Other................................................................................. 10 10 171
----------- ---------- ----------
Total gross deferred tax assets......................................................... 15,598 11,223 11,927
Less valuation allowance relating to SLWHC acquisition.................................. 4,184 0 0
----------- ---------- ----------
Total deferred tax assets............................................................... 11,414 11,223 11,927
----------- ---------- ----------
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base year reserve................................... 1,684 1,684 2,725
Office properties and equipment and real estate owned due to depreciation differences. 447 1,172 1,613
FHLB stock, due to differences in the recognition of stock dividends.................. 1,610 1,740 1,646
Deferred loan income, due to differences in the recognition of loan origination
fees and discounts.................................................................. 1,962 2,039 1,479
Discount on securities, due to the accretion of discounts............................. 0 286 673
Capital leases for financial statement purposes and operating leases for tax purposes. 0 0 21
Prepaid pension expenses.............................................................. 995 313 473
Deferred tax liability on unrealized appreciation on securities available for sale.... 455 470 3,600
Prepaid insurance..................................................................... 219 142 355
Mortgage servicing rights recognized for financial statement purposes in excess of
amounts recognized for tax purposes................................................ 826 0 0
Other................................................................................. 19 22 86
----------- ---------- ----------
Total gross deferred tax liabilities.................................................... 8,217 7,868 12,671
----------- ---------- ----------
Net deferred tax asset (liability)...................................................... 3,197 3,355 (744)
Less deferred income tax (assets) liabilities at beginning of period.................... (3,355) 744 (1,568)
Deferred tax asset, net of valuation allowance related to acquisitions.................. 0 (2,464) (2,718)
Increase (decrease) in deferred tax liability on unrealized appreciation on debt........
securities available for sale included as a separate component of stockholders' equity. (15) (3,130) 3,479
----------- ---------- ----------
Provision for deferred income taxes $ (173) $ (1,495) $ (1,551)
=========== ========== ==========
</TABLE>
F-72
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax attributes acquired on October 31, 1997 in connection with the
SLWHC acquisition were (in thousands):
Net operating loss carryforward................................... $ 1,222
Real estate held for development and sale capitalized costs for
tax purposes in excess of amounts capitalized for financial
statement purposes............................................. 1,414
Fair value of real estate held for development and sale
lower than tax basis........................................... 1,548
----------
Total deferred tax assets......................................... 4,184
Valuation allowance............................................... 4,184
----------
Deferred tax assets, net.......................................... $ 0
==========
On December 31, 1997, the Company had a valuation allowance relating to
the deferred tax assets (including an acquired net operating loss carry forward
("NOL") acquired in connection with the SLWHC acquisition. These acquired
deferred tax assets can only be realized if SLWHC has taxable income. Due to the
recent acquisition of SLWHC, it is difficult for management to predict whether
SLWHC will have sufficient taxable income to realize the deferred tax assets;
therefore, a valuation allowance was established. Such allowance is being
reduced to the extent such deferred tax assets are realized. The NOL
carryforward will expire in varying amounts through the year 2011 (see also Note
21).
At December 31, 1996, the Company had a tax refund receivables of
$723,000 and $132,000 for Federal and State income taxes, respectively. The tax
refunds were acquired with the BNA acquisition and applied against 1997 current
income tax liabilities (see also Note 21).
The NOL and investment tax credits ("ITC") carryovers acquired in
connection with the acquisition of MegaBank were $878,000 and $48,000,
respectively, upon acquisition. Due to IRS limitations, only $784,000 of the NOL
and none of the ITC was utilized in 1995. The remaining NOL and ITC was fully
utilized in 1996. The utilization of MegaBank's NOL and ITC are limited by
regulations. Such utilization was assumed at the date of acquisition of MegaBank
and resulted in an adjustment of cost over fair value of assets acquired and
does not affect the provision for income taxes.
The tax attributes acquired in connection with the March 1, 1998
acquisition of LTI and the June 30, 1998 acquisition of RBCO were (in
thousands):
<TABLE>
<CAPTION>
LTI RBCO
----------- -----------
<S> <C> <C>
Net operating loss carryforward...................................... $ 479 $ 0
Allowance for loans, REO and tax certificate losses, for
financial statement purposes....................................... 685 30
Unearned income on recourse leases due to differences in
recognition of income for tax purposes............................. (1,927) 0
Stock options granted recognized for financial statement
purposes not currently recognized for tax purposes................. 0 (1,017)
Litigation accrual recorded for financial statement purposes
not currently recognized for tax purposes.......................... 0 107
Other................................................................ (702) 303
----------- -----------
Deferred tax assets on liability, net................................ $ (1,465) $ (577)
=========== ===========
</TABLE>
The net operating loss carryforward was acquired in connection with the
LTI acquisition. Due to IRS limitations, the net operating loss can only be
utilized if LTI has taxable income. The NOL carryforward will expire in varying
amounts through the year 2013.
F-73
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. PENSION PLAN
BankAtlantic sponsors a non-contributory defined benefit pension plan
(the "Plan") covering substantially all of its employees. The benefits are based
on years of service and the employee's average earnings received during the
highest five consecutive years out of the last ten years of employment. The
funding policy is to contribute an amount not less than the ERISA minimum
funding requirement nor more than the maximum tax-deductible amount under
Internal Revenue Service rules and regulations.
Plan assets consist of cash equivalents, common stocks and mutual funds.
The following table sets forth the Plan's funded status and the prepaid pension
cost included in the Consolidated Statements of Financial Condition at:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $15,225 and $13,301.............................. $ (16,298) $ (14,370)
------------- --------------
Actuarial present value of projected benefit obligation for service
rendered to date.............................................................. (20,478) (17,301)
Plan assets at fair value as of the actuarial date.............................. 20,169 15,728
------------- --------------
Plan assets in excess (below) projected benefit obligation...................... (309) (1,573)
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions.......................................... 2,248 3,868
Prior service (cost) benefit not yet recognized in net periodic pension cost.... 611 61
Unrecognized net asset at October 1, 1987, being recognized over 15 years....... (1,272) (1,540)
------------- --------------
Prepaid pension cost............................................................ $ 1,278 $ 816
============= ==============
</TABLE>
Net pension cost includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned during the period............... $ 1,260 $ 1,065 $ 785
Interest cost on projected benefit obligation................ 1,270 1,151 1,010
Actual return on plan assets................................. (2,855) (1,297) (1,009)
Net amortization and deferral................................ 1,206 (3) 44
------------ ------------ ------------
Net periodic pension expense................................. $ 881 $ 916 $ 830
============ ============ ============
</TABLE>
The actuarial assumptions used in accounting for the Plan were:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Weighted average discount rate............................. 7.00 % 7.50 % 8.50 %
Rate of increase in future compensation levels............. 4.75 % 5.00 % 6.50 %
Expected long-term rate of return.......................... 9.00 % 9.00 % 9.00 %
</TABLE>
Actuarial assumptions for the years ended December 31, 1997, 1996 and
1995 are projected based upon participant data at October 1 of the same year.
Actuarial estimates and assumptions are based on various market factors and are
evaluated on an annual basis, and changes in such assumptions may impact future
pension costs. Management believes that the impact, if any, of the difference
between actuarial assumptions utilized on October 1 and those appropriate at
December 31 is immaterial. There have been no changes in the plan during the
year ended December 31, 1997 and the nine months ended September 30, 1998 that
would significantly effect the actuarial assumptions. During the nine months
ended September 30, 1998 and 1997 and the years
F-74
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1997 and 1996 and 1995, BankAtlantic funded $577,000,
$954,000 and $954,000, $500,000, and $1.1 million, respectively to the plan (see
also Note 24).
BankAtlantic sponsors a defined contribution plan ("401k Plan") for all
employees who have completed six months of service. Employees can contribute up
to 14% of their salary, not to exceed $10,000 for 1998 and $9,500 for 1997 and
1996 and $9,240 for 1995. For employees that fall within the highly compensated
criteria, maximum contributions are currently 10% of salary. Effective October
1991, BankAtlantic's 401k Plan was amended to include only a discretionary match
as deemed appropriate by the Board of Directors. Included in employee
compensation and benefits on the consolidated statement of operations was
$194,000, $147,000, and $75,000 of expenses and employer contributions related
to the 401k Plan for the years ended December 31, 1997, 1996 and 1995,
respectively. For the years ended December 31, 1997 and 1996, the Board of
Directors declared a discretionary match of 25% of the first 4% of an employee's
contribution. Ten percent of the 25% discretionary match related to meeting
specific profit goals.
15. COMMITMENTS AND CONTINGENCIES
BankAtlantic is lessee under various operating leases for real estate
and equipment extending to the year 2072. The approximate minimum rental under
such leases, at December 31, 1997, for the periods shown was (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ---------
1998.......................................................... $ 4,432
1999.......................................................... 3,550
2000.......................................................... 2,379
2001.......................................................... 1,593
2002.......................................................... 1,250
Thereafter.................................................... 4,031
---------
Total............................................... $ 17,235
=========
Rental expense for premises and equipment was $4.8 million, $3.8
million, $5.1 million, $3.8 million, and $3.4 million for the nine months ended
September 30, 1998 and 1997 years ended December 31, 1997, 1996 and 1995,
respectively. Included in other liabilities at September 30, 1998, December 31,
1997 and 1996, is an allowance of $42,000, $67,000 and $266,000, respectively,
for future rental payments on closed branches. At December 31, 1997 Management
committed to two additional in-store full service branches, which were opened
during the nine months ended September 30, 1998. The estimated annual lease
payments are $48,600, other annual expenses are $20,000, and estimated leasehold
improvements and other capitalizable costs associated with the two branches
opened during 1998, will be approximately $420,000.
At September 30, 1998, BankAtlantic leased 565 ATMs, 273 of which are in
Wal-Mart and Sam's Club locations throughout Florida, Georgia and Alabama.
BankAtlantic also has another 25 ATM machines placed on cruise ships across the
country, and the remaining ATMs are at BankAtlantic branch location and various
sites throughout Florida. During 1998, BankAtlantic signed agreements to install
96 ATM machines in KMart stores in Florida and to place 92 ATMs in Cumberland
Farms convenience stores throughout Florida.
During the ordinary course of business, BankAtlantic and its
subsidiaries are involved as plaintiff or defendant in various lawsuits.
Management, based on discussions with legal counsel believes results of
operations or financial position will not be significantly impacted by the
resolution of these matters (see also Note 17).
In the normal course of its business, BankAtlantic is a party to
financial instruments with off-balance-sheet risk, when it is deemed appropriate
in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby and documentary
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk. BankAtlantic's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented by the
contractual amount of those instruments. BankAtlantic uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
F-75
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial instruments with off-balance sheet risk were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------
1998 1997 1996
--------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Commitments to extend credit to foreign institutions $ 144,681 $ 49,894 $ 0
Commitment to sell residential loans 17,968 11,886 7,275
Commitments to sell investment securities 6,000 4,979 0
Commitment to purchase mortgage-backed securities 12,000 153,946 0
Commitments to extend credit, including the undisbursed
portion of loans in process 393,399 295,776 284,418
Letters of credit 865 56,435 61,626
FHLB advance forward commitments 0 0 12,000
Commitments to purchase residential loans 0 0 28,000
=============== ============= ===========
</TABLE>
Commitments to extend credit are agreements to lend funds to a customer
as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. BankAtlantic evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral required by
BankAtlantic in connection with an extension of credit is based on management's
credit evaluation of the counter-party. Collateral held varies but may include
first mortgages on commercial and residential real estate. As part of the
commitment for standby letters of credit, BankAtlantic is required to
collateralize 120% of the commitment balance with mortgage-backed securities. At
September 30, 1998 and December 31, 1997, zero and $4.9 million of
mortgage-backed securities were pledged against the commitment balance,
respectively.
Standby letters of credit written are conditional commitments issued by
or for the benefit of BankAtlantic to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. BankAtlantic may hold certificates of deposit and residential and
commercial liens as collateral for such commitments which are collateralized
similar to other types of borrowings.
BankAtlantic has commitments to extend credit to foreign financial
institutions in Latin America. The commitments can be terminated at any time.
Each financial institution is evaluated on a case by case basis.
BankAtlantic is required to maintain average reserve balances with the
Federal Reserve Bank. Such reserves consisted of cash and amounts due from banks
of $39.0 million, $33.4 million and $28.3 million at September 30, 1998,
December 31, 1997 and 1996, respectively.
BankAtlantic is a member of the FHLB system. As a member, BankAtlantic
is required to purchase and hold stock in the FHLB of Atlanta, in amounts at
least equal to the greater of (i) 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year or (ii) 5% of its outstanding advances from the FHLB of Atlanta. As
of September 30, 1998 and December 31, 1997, BankAtlantic was in compliance with
this requirement with an investment of approximately $52.4 million and $34.9
million in stock of the FHLB of Atlanta.
16. REGULATORY MATTERS
The Company, by virtue of its ownership of all of the common stock of
BankAtlantic, is a unitary savings bank holding company subject to regulatory
oversight by the OTS. As such, the Company is required to register with and be
subject to OTS examination, supervision and certain reporting requirements.
Further, as a company having a class of publicly held equity securities, the
Company is subject to the reporting and the other requirements of the Exchange
Act. In addition, BFC owns 6,578,671 and 4,876,124 of Class A and Class B common
stock at September 30, 1998 and December 31, 1997 which amounts to 31.46% and
35.57% of the Company's total outstanding common stock at September 30, 1998 and
December 31, 1997, respectively. BFC is subject to the same oversight by the OTS
as discussed herein with respect to the Company.
F-76
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 30, 1996, President Clinton signed into law H.R. 3610,
which recapitalized the SAIF and substantially bridged the assessment rate
disparity existing between SAIF and BIF insured institutions. The new law
subjected institutions with SAIF assessable deposits, including BankAtlantic, to
a one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment, which was paid in November 1996, resulted in
a pre-tax charge of $7.2 million for the year ended December 31, 1996, and under
provisions of the law, was treated as a fully deductible "ordinary and necessary
business expense" for tax purposes. The $7.2 million charge excludes the $2.3
million amount assessed on BNA deposits which was previously expensed by BNA
prior to the acquisition date and was considered a liability of BNA in recording
the acquisition of BNA under the purchase method of accounting. As a result of
the special assessment, discussed herein, the SAIF was capitalized at the target
Designated Reserve Ratio ("DRR") of 1.25 percent of estimated insured deposits
on October 1, 1996.
BankAtlantic's deposits are insured by the SAIF and BIF for up to
$100,000 for each insured account holder, the maximum amount currently permitted
by law. Pursuant to the FDICIA, the FDIC adopted transitional regulations
implementing risk-based insurance premiums that became effective on January 1,
1993. Under these regulations, institutions are divided into groups based on
criteria consistent with those established pursuant to the prompt regulatory
action provisions of the FDICIA (see "Savings Institution Regulations -- Prompt
Regulatory Action", below). Each of these groups is further divided into three
subgroups, based on a subjective evaluation of supervisory risk to the insurance
fund posed by the institution.
BankAtlantic is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary-- actions by regulators that, if undertaken, could have a direct
material effect on BankAtlantic's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
BankAtlantic must meet specific capital guidelines that involve quantitative
measures of BankAtlantic's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. BankAtlantic's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Certain of
BankAtlantic's activities, such as its investment in real estate held for
development and sale, result in a deduction from capital for regulatory capital
measurement.
Quantitative measures established by regulation to ensure capital
adequacy require BankAtlantic to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of September 30, 1998 and
December 31, 1997, that BankAtlantic meets all capital adequacy requirements to
which it is subject.
As of September 30, 1998 and December 31, 1997, BankAtlantic is
considered a well capitalized institution under the regulatory framework for
prompt corrective action. To be categorized as well capitalized BankAtlantic
must maintain minimum total risk-based, Tier I risk-based, tangible and core
capital ratios as set forth in the table. There are no conditions or events
since December 31, 1997 or September 30, 1998 that management believes have
changed the institution's category as a well capitalized institution.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-77
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BankAtlantic's actual capital amounts and ratios are presented in the
table:
<TABLE>
<CAPTION>
FOR CAPITAL
ADEQUACY
ACTUAL PURPOSES
-------------------- --------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
At September 30, 1998:
Total risk-based capital ................... $ 350,365 14.96 % greater than $ 187,312 greater than 8.00 %
or equal to or equal to
Tier I risk-based capital .................. $ 321,076 13.71 % greater than $ 93,656 greater than 4.00 %
or equal to or equal to
Tangible capital............................ $ 321,076 9.12 % greater than $ 52,809 greater than 1.50 %
or equal to or equal to
tere capital ............................... $ 321,076 9.12 % greater than $ 140,825 greater than 4.00 %
or equal to or equal to
As of December 31, 1997:
Total risk-based capital ................... $ 355,930 18.64 % greater than $ 152,785 greater than 8.00 %
or equal to or equal to
Tier I risk-based capital .................. $ 332,010 17.38 % greater than $ 76,392 greater than 4.00 %
or equal to or equal t
Tangible capital ........................... $ 332,010 11.12 % greater than $ 44,798 greater than 1.50 %
or equal to or equal to
Core capital ............................... $ 332,010 11.12 % greater than $ 89,595 greater than 3.00 %
or equal to or equal to
As of December 31, 1996:
Total risk-based capital ................... $ 193,196 10.83 % greater than $ 142,691 greater than 8.00 %
or equal to or equal to
Tier I risk-based capital .................. $ 170,865 9.58 % greater than $ 71,363 greater than 4.00 %
or equal to or equal to
Tangible capital ........................... $ 170,865 6.65 % greater than $ 38,547 greater than 1.50 %
or equal to or equal to
Core capital ............................... $ 170,865 6.65 % greater than $ 77,094 greater than 3.00 %
or equal to or equal to
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
--------------------------------------------------
AMOUNT RATIO
--------------------- -------------------------
<S> <C> <C>
(IN THOUSANDS)
At September 30, 1998:
Total risk-based capital ................... greater than $234,140 greater than 10.00 %
or equal to or equal to
Tier I risk-based capital .................. greater than $140,484 greater than 6.00 %
or equal to or equal to
Tangible capital ........................... greater than $ 52,809 greater than 1.50 %
or equal to or equal to
Core capital ............................... greater than $176,031 greater than 5.00 %
or equal to or equal to
As of December 31, 1997:
Total risk-based capital ................... greater than $190,981 greater than 10.00 %
or equal to or equal to
Tier I risk-based capital .................. greater than $114,588 greater than 6.00 %
or equal to or equal to
Tangible capital ........................... greater than $ 44,798 greater than 1.50 %
or equal to or equal to
Core capital ............................... greater than $149,325 greater than 5.00 %
or equal to or equal to
As of December 31, 1996:
Total risk-based capital ................... greater than $178,407 greater than 10.00 %
or equal to or equal to
Tier I risk-based capital .................. greater than $107,004 greater thatn 6.00 %
or equal to or equal to
Tangible capital ........................... greater than $ 38,547 greater than 1.50 %
or equal to or equal to
Core capital................................ greater than $128,491 greater than 5.00 %
or equal to or equal to
</TABLE>
RBCO is subject to the net capital provision of Rule 15c3-1 under the
Securities Exchange Act of 1934, which requires that RBCO's aggregate
indebtedness shall not exceed 15 times net capital as defined under such
provision. Additionally, RBCO, as a market maker, is subject to supplemental
requirements of Rule 15c3-1(4); which provides for the computation of net
capital to be based on the number and price of issues in which markets are made
by RBCO, not to exceed $1,000,000. At September 30, 1998, RBCO's regulatory net
capital was approximately $13,780,000, which exceeded minimum net capital rule
requirements by $12,780,000.
RBCO operates under the provisions of paragraph (K)(2)(ii) of Rule
15c3-3 of the Securities and Exchange commission as a fully-disclosed broker
and, accordingly, customer accounts are carried on the books of the clearing
broker. However, RBCO safekeeps and redeems municipal bond coupons for the
benefit of its customers. Accordingly, RBCO is subject to the provisions of SEC
Rule 15c3-3 relating to possession or control and customer reserve requirements
and was in compliance with such provisions at September 30, 1998.
17. SUBJECT PORTFOLIO
From 1987 through 1990, BankAtlantic purchased in excess of $50 million
of indirect home improvement loans from certain dealers, primarily in the
northeastern United States. BankAtlantic ceased purchasing loans from such
dealers in the latter part of 1990. These dealers were affiliated with each
other but are not affiliated with BankAtlantic. In connection with loans
originated through these dealers, BankAtlantic funded amounts to the dealers as
a dealer reserve. Such loans and related dealer reserves are hereafter referred
to as the "Subject Portfolio." The risk of amounts advanced to the dealers is
primarily associated with loan performance but secondarily is dependent on the
financial condition of the dealers. The dealers were to be responsible to
BankAtlantic for the amount of the reserve only if the loan giving rise to the
reserve became delinquent or was prepaid. One of the dealers filed for
protection under the bankruptcy laws of the United States, while the other
dealers have not indicated any financial ability to fund the dealer reserve.
In late 1990, questions arose relating to the practices and procedures
used in the origination and underwriting of the Subject Portfolio, which
suggested that the dealers, certain home improvement contractors and borrowers,
together with certain former
F-78
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees of BankAtlantic, engaged in practices intended to defraud
BankAtlantic. Due to these questions and potential exposure, BankAtlantic
performed, certain investigations, notified appropriate regulatory and law
enforcement agencies, and notified its fidelity bond carrier (the "carrier").
After an initial review and discussions with the carrier, BankAtlantic concluded
that any losses sustained from the Subject Portfolio would adequately be covered
by its fidelity bond coverage and, in fact, on August 13, 1991, the carrier
advanced $1.5 million against BankAtlantic's losses. This payment and future
payments by the carrier are subject to identification and confirmation of the
losses which are appropriately covered under the fidelity bond.
Subsequently, commencing in September, 1991, as a consequence of issues
raised by the carrier, BankAtlantic reviewed the Subject Portfolio without
regard to the availability of any fidelity bond coverage. As a result of the
review, the provision for loan losses for the year ended December 31, 1991 was
increased by approximately $5.7 million, approximately $5.5 million of loans
were charged off, and $2.7 million of dealer reserves were charged to current
operations. On December 20, 1991, the carrier denied coverage and BankAtlantic
thereafter filed an appropriate action against the carrier.
On October 30, 1992, BankAtlantic and the carrier entered into the
Covenant. Pursuant to the Covenant, BankAtlantic will continue to pursue its
litigation against National Union but has agreed to limit execution on any
judgment obtained against National Union to $18 million. Further, BankAtlantic
agreed to and did join certain third parties as defendants in the action.
Subsequently, National Union was realigned from a defendant in the action to a
co-plaintiff with BankAtlantic. Pursuant to the Covenant, National Union paid
BankAtlantic approximately $6.1 million on execution of the Covenant, and agreed
to pay an additional $3 million, which was paid in November 1993, and
approximately $2.9 million which was paid on November 1, 1994. Further, National
Union agreed to reimburse BankAtlantic for additional losses (as defined)
incurred in connection with the Subject Portfolio, not in excess of $18 million;
the full amount of which has been paid. In the event of recovery by BankAtlantic
of damages against third party wrongdoers, BankAtlantic will be entitled to
retain such amounts until such amounts plus any payments received from National
Union equal $22 million plus the costs incurred by BankAtlantic of obtaining
such recoveries. Thereafter National Union will be entitled to any such
recoveries to the extent of the $18 million it has paid to BankAtlantic. The
trial was held in February 1998 and judgment was entered in favor of
BankAtlantic and National Union against over fifty third party defendants,
individuals and corporations.
Two actions were filed in New Jersey. One of the New Jersey actions was
brought on behalf of the State of New Jersey and was resolved in 1995. The
remaining New Jersey action, which was brought against over 25 parties,
including BankAtlantic, purported to be a class action on behalf of named and
unnamed plaintiffs that may have obtained loans from dealers who subsequently
sold the loans to financial institutions, including BankAtlantic. This action
sought, among other things, rescission of the loan agreements and damages. In
November 1995, the court in this action entered an order dismissing the
complaint against BankAtlantic; and plaintiff's appealed this ruling. In January
1996, the Appellate Court reversed the lower court's decision and remanded the
case back to the trial court to determine whether the action could be maintained
as a class action. The reversal was without prejudice to BankAtlantic's right to
renew its summary judgment motion after the trial court made a determination as
to plaintiff's ability to maintain this case as a class action. In December
1997, the trial court denied the plaintiff's motion for class certification and
in January 1998 granted BankAtlantic's summary judgment motion. The plaintiffs
appealed this ruling to the Superior Court of New Jersey Appellate Division
which, in March 1998, denied the plaintiffs motion to appeal. Plaintiff
subsequently appealed to the Supreme Court of New Jersey which, on June 30,
1998, granted plaintiffs motion to appeal and remanded the matter to the
Appellate Division to consider the class issue on its merits. The Appellate
Division has not set a date for this matter.
The balance of the loans associated with the Subject Portfolio amounted
to approximately $5.1 million, $6.8 million and $9.9 million at September 30,
1998, December 31, 1997 and 1996, respectively. The related dealer reserve had
been completely charged-off by December 31, 1993. Net charge-offs relating to
the Subject Portfolio amounted to $51,000, $345,000, $370,000, $666,000, and
$1.0 million, for the nine months ended September 30, 1998 and 1997 and each of
the years ended December 31, 1997, 1996 and 1995, respectively. At December 31,
1997, 11% of the loans were secured by collateral in South Florida and 89% of
such loans were secured by collateral in the northeastern United States,
respectively. Collateral for these loans is generally a second mortgage on the
borrower's property. However, it appears that in most cases, the property is
encumbered with loans having high loan to value ratios. Loans in the Subject
Portfolio are charged-off if payments are more than 90 days delinquent. While
management believes that established reserves will be adequate to cover any
additional losses that BankAtlantic may incur from the Subject Portfolio or the
above described litigation, there is no assurance that this will be the case.
F-79
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statements of Financial Condition at September 30, 1998,
December 31, 1997 and 1996 and Condensed Statements of Operations for September
30, 1998 and 1997 and December 31, 1997, 1996 and 1995 are shown below. (in
thousands):
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------
ASSETS 1998 1997 1996
--------------- ---------- ----------
<S> <C> <C> <C>
Cash ($14,801, $48,514 and $20,226 deposited at BankAtlantic) ................... $ 14,876 $ 48,514 $ 20,226
Securities available for sale (at market value) ................................. 13,771 7,233 5,843
Loan receivable, net ............................................................ 10,000 7,775 0
Trading securities (at market value) ........................................... 5,443 5,067 0
Investment in subsidiaries and joint ventures ................................... 437,570 383,126 200,760
Deferred offering costs on junior subordinated and subordinated debentures ...... 8,278 9,107 3,156
Due from BankAtlantic ........................................................... 6,467 0 0
Income tax receivable from BankAtlantic ......................................... 4,040 5,312 1,819
Other assets .................................................................... 173 239 175
--------------- ---------- ----------
Total assets .......................................................... $ 500,618 $ 466,373 $ 231,979
=============== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior subordinated debentures and subordinated debentures ..................... $ 249,244 $ 255,187 $ 78,500
Due to BankAtlantic ............................................................. 0 39 2,742
Other liabilities ............................................................... 4,053 3,976 3,033
--------------- ---------- ----------
Total liabilities 253,297 259,202 84,275
--------------- ---------- ----------
Stockholders' equity:
Preferred Stock, $0.01 par value 10,000,000 shares authorized; none outstanding 0 0 0
Class A common stock, $0.01 par value, authorized 80,000,000 shares; issued
and outstanding, 26,709,814, 21,509,159 and 18,128,782 shares .............. 267 215 78
Class B common stock, $0.01 par value, authorized 45,000,000 shares; issued and
outstanding, 10,387,431, 10,690,231 and 10,542,116 shares .................. 104 107 105
Additional paid-in capital 147,316 98,475 64,171
Unearned compensation restricted stock grants (7,566) 0 0
Retained earnings 106,946 107,650 82,602
--------------- ---------- ----------
Total stockholders' equity before net unrealized appreciation on debt securities
available for sale - net of deferred income taxes 247,067 206,447 146,956
Net unrealized appreciation (depreciation) on securities available for sale owned
by the Company and BankAtlantic - net of deferred income taxes................ 254 724 748
--------------- ---------- ----------
Total stockholders' equity 247,321 207,171 147,704
--------------- ---------- ----------
Total liabilities and stockholders' equity $ 500,618 $ 466,373 $ 231,979
=============== ========== ==========
(Continued)
</TABLE>
F-80
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest income on repurchase agreements and deposits at BankAtlantic ... $ 950 $ 1,649 $ 2,337 $ 597 $ 51
Interest income on loans and investments ................................ 1,039 569 837 209 29
--------- --------- --------- --------- ---------
Total interest income .......................................... 1,989 2,218 3,174 806 80
--------- --------- --------- --------- ---------
Interest expense on subordinated debentures and junior subordinated 14,300 7,727 11,689 4,018 776
debentures ..............................................................
Capitalized interest expense ........................................... (470) 0 0 0 0
--------- --------- --------- --------- ---------
Net interest (expense)................................................. (11,841) (5,509) 8,515) (3,212) (696)
Trading account gains (losses) .......................................... (618) 1,496 2,463 0 0
Gains on sales of securities available for sale ......................... 82 0 0 0 0
Other expenses .......................................................... (274) (413) (544) (39) (5)
--------- --------- --------- --------- ---------
Loss before income tax benefit and earnings of subsidiaries ............. (12,651) (4,426) (6,596) (3,251) (701)
Income tax benefit..................................................... 4,918 1,670 2,481 1,253 274
--------- --------- --------- --------- ---------
(Loss) before earnings of subsidiaries................................. (7,733) (2,756) (4,115) (1,998) (427)
Equity in undistributed net earnings (loss) of subsidiaries
excluding BankAtlantic .................................................. (525) 86 152 27 1
Equity in net earnings of BankAtlantic .................................. 10,361 22,261 31,732 20,982 18,845
--------- --------- --------- --------- ---------
Net income .................................................... $ 2,103 $ 19,591 $ 27,769 $ 19,011 $ 18,419
========= ========= ========= ========= =========
</TABLE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
F-81
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- --------------------------------
(In thousands) 1998 1997 1997 1996 1995
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $ 2,103 $ 19,591 $ 27,769 $ 19,011 $ 18,419
Adjustment to reconcile net income to net cash provided (used)
by operating activities:
Equity in net earnings of BankAtlantic and other subsidiaries ... (9,836) (22,347) (31,884) (21,009) (18,846)
Accretion on securities available for sale ...................... 13 (62) (57) (209) (29)
Purchase of trading securities, net ............................. (1,621) (6,243) (6,243) 0 69
Sales of trading account securities.............................. 1,848 3,501 3,640 0 0
Realized and unrealized gains (losses) on sales of trading
securities ..................................................... 523 (1,495) (2,463) 0 0
Proceeds from sales of securities available for sale ............ 559 0 0 0 0
Gains on sales of securities available for sale ................. (82) 0 0 0 0
Amortization of subordinated and junior subordinated
debentures' deferred costs .................................... 583 303 445 222 29
Amortization of unearned compensation - restricted stock grant .. 505 0 0 0 0
Increase (decrease) in accrued interest payable ................. (212) (1,391) 599 1,859 522
Increase (decrease) in other liabilities ........................ 480 (3) 78 (42) 416
(Decrease) increase in receivable (payable) from (to)
BankAtlantic ................................................. (6,506) (3,667) (2,703) 3,381 (241)
Increase in other assets ........................................ 98 66 (35) 0 0
Increase (decrease) in income tax receivable..................... 2,372 (2,014) (2,474) (1,371) (448)
Income from joint ventures ...................................... (103) 0 0 0 0
---------- --------- --------- ---------- ---------
Net cash provided (used) by operating activities ................ (9,276) (13,761) (13,328) 1,842 (109)
---------- --------- --------- ---------- ---------
INVESTING ACTIVITIES:
Purchase of BankAtlantic preferred stock .......................... 0 0 0 0 (4,000)
Loan participations with BankAtlantic ............................. 0 (6,500) (6,500) 0 0
Loans to joint ventures and subsidiaries .......................... (10,000) (1,500) (1,633) 0 0
Principal reduction on loans ...................................... 6,275 33 358 0 0
Investment in BBC Capital Trust I ................................. 0 (2,312) (2,312) 0 0
Investment in Florida Atlantic Securities, Inc. ................... 0 (237) (237) 0 0
Investments in joint ventures ..................................... (10,769) 0 0 0 0
Additional investment in BankAtlantic ............................. (4,726) 350 (161,200) (54,000) (6,000)
Dividends from subsidiaries ....................................... 17,717 8,724 13,386 6,080 3,034
Purchase of securities available for sale ......................... (11,006) (2,535) (7,482) (13,617) (3,663)
Proceeds from maturity of securities available for sale ........... 0 5,900 5,900 9,700 1,800
---------- --------- --------- ---------- ---------
Net cash used by investing activities ............................. (12,509) 1,923 (159,720) (51,837) (8,829)
---------- --------- --------- ---------- ---------
(Continued)
</TABLE>
F-82
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- --------------------------------
(In thousands) 1998 1997 1997 1996 1995
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Issuance of common stock upon exercise of options, net ............ 1,584 1,805 1,857 413 1,709
Issuance of common stock, net ..................................... 0 0 43,374 18,004 0
Common stock dividends paid ....................................... (2,780) (1,635) (2,343) (2,159) (1,672)
Preferred stock dividends paid .................................... 0 0 0 0 (677)
Proceeds from issuance of junior subordinated debentures .......... 0 77,062 77,062 0 0
Deferred costs on junior subordinated debentures .................. 0 (2,908) (2,908) 0 0
Proceeds from notes payable ....................................... 0 0 0 0 4,000
Repayment of notes payable ........................................ 0 0 0 (1) (3,999)
Proceeds from issuance of subordinated debentures ................. 0 0 100,000 57,500 21,000
Deferred costs on subordinated debentures 0 0 (3,518) (2,356) (1,052)
Preferred stock redemptions ....................................... (10) 0 0 0 (8,383)
Payment to acquire and retire common stock ........................ (10,647) (12,188) (12,188) (3,259) 0
---------- --------- --------- ---------- ---------
Net cash provided by financing activities ......................... (11,853) 62,136 201,336 68,142 10,926
---------- --------- --------- ---------- ---------
Increase in cash and cash equivalents ............................. (33,638) 50,298 28,288 18,147 1,988
Cash and cash equivalents at beginning of period .................. 48,514 20,226 20,226 2,079 91
---------- --------- --------- ---------- ---------
Cash and cash equivalents at end of period ........................ $ 14,876 $ 70,524 $ 48,514 $ 20,226 $ 2,079
========== ========= ========= ========== =========
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Interest paid .................................................... $ 14,512 $ 9,118 $ 11,090 $ 1,937 $ 161
Common stock dividends declared and not paid until
subsequent period .............................................. 995 703 817 552 467
Increase (decrease) in stockholders' equity from net unrealized
appreciation on debt securities available for sale by
BankAtlantic less related deferred income taxes ................ (470) 378 (24) (4,985) 5,540
Increase in equity for the tax effect related to the exercise
of employee stock options ...................................... 709 861 913 118 173
Issuance of Class A common stock upon conversion of
subordinated debentures ....................................... 5,729 200 375 0 0
Issuance of Class A common stock upon acquisitions ............... 41,862 0 0 0 0
Issuance of Class A common stock options upon acquisition
of RBCO ........................................................ 1,582 0 0 0 0
</TABLE>
F-83
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SELECTED QUARTERLY RESULTS (Unaudited)
The following tables summarize the quarterly results of operations for
the years ended September 30, 1998, December 31, 1997 and 1996 (in thousands
except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD
1998 QUARTER QUARTER QUARTER TOTAL
---- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income ................................ $ 59,810 $ 65,023 66,372 $ 191,205
Interest expense ............................... 35,327 37,985 39,519 112,831
------------ ------------- ------------- ------------
Net interest income ............................ 24,483 27,038 26,853 78,374
Provision for loan losses ...................... 3,407 3,371 3,033 9,811
------------ ------------- ------------- ------------
Net interest income after provision
for loan losses ............................. 21,076 23,667 23,820 68,563
Income (loss) before income taxes .............. 8,311 10,756 (15,136) 3,931
------------ ------------- ------------- ------------
Net income (loss)............................... $ 5,256 $ 6,391 (9,544) $ 2,103
============ ============= ============= ============
Basic earnings (loss) per share Class A ........ $ 0.17 $ 0.20 $ (0.27) $ 0.07
============ ============= ============= ============
Basic earnings (loss) per share Class B ........ $ 0.15 $ 0.18 $ (0.25) $ 0.05
============ ============= ============= ============
Diluted earnings (loss) per share Class A ...... $ 0.14 $ 0.16 $ (0.27) $ 0.06
============ ============= ============= ============
Diluted earnings (loss) per share Class B ...... $ 0.13 $ 0.15 $ (0.25) $ 0.05
============ ============= ============= ============
Basic weighted average number of common
Class A shares outstanding ................... 21,809,903 22,724,683 26,020,125 23,533,659
============ ============= ============= ============
Basic weighted average number of common
Class B shares outstanding ................... 10,768,956 10,425,815 10,384,137 10,524,893
============ ============= ============= ============
Diluted weighted average number of common
Class A shares outstanding ................... 38,764,353 39,320,600 26,020,125 24,212,021
============ ============= ============= ============
Diluted weighted average number of common
Class B shares outstanding ................... 11,879,710 11,384,648 10,384,137 11,485,065
============ ============= ============= ============
</TABLE>
During the third quarter of 1998, BankAtlantic recorded a $15.0 million
provision for valuation of mortgage servicing rights impairment.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest income ................................ $ 50,444 $ 52,046 $ 53,520 $ 54,544 $ 210,554
Interest expense ............................... 26,164 28,392 29,694 30,941 115,191
----------- ------------ ----------- ---------- -----------
Net interest income ............................ 24,280 23,654 23,826 23,603 95,363
Provision for loan losses ...................... 2,476 2,686 3,671 2,435 11,268
Net interest income after provision
for loan losses ............................. 21,804 20,968 20,155 21,168 84,095
----------- ------------ ----------- ---------- -----------
Income before income taxes ..................... 10,428 11,159 10,527 13,408 45,522
----------- ------------ ----------- ---------- -----------
Net income...................................... $ 6,341 $ 6,821 $ 6,429 $ 8,178 $ 27,769
=========== ============ =========== ========== ===========
Basic earnings per share Class A ............... $ 0.22 $ 0.24 $ 0.24 $ 0.28 $ 0.98
=========== ============ =========== ========== ===========
Basic earnings per share Class B ............... $ 0.22 $ 0.23 $ 0.22 $ 0.26 $ 0.94
=========== ============ =========== ========== ===========
Diluted earnings per share Class A ............. $ 0.18 $ 0.19 $ 0.18 $ 0.22 $ 0.78
=========== ============ =========== ========== ===========
Diluted earnings per share Class B ............. $ 0.18 $ 0.19 $ 0.18 $ 0.21 $ 0.77
=========== ============ =========== ========== ===========
Basic weighted average number of common
Class A shares outstanding ................... 18,146,296 17,940,645 17,170,265 18,863,989 18,029,784
============ ============= =========== ========== ===========
Basic weighted average number of common
Class B shares outstanding ................... 10,569,392 10,742,040 10,603,426 10,680,958 10,649,135
============ ============= =========== ========== ===========
Diluted weighted average number of common
Class A shares outstanding ................... 27,107,912 26,933,436 26,474,831 31,175,239 27,893,534
============ ============= ============ =========== ===========
Diluted weighted average number of common
Class B shares outstanding ................... 11,673,630 11,767,040 12,072,176 11,812,208 11,765,385
============ ============= ============ =========== ==========
</TABLE>
F-84
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fourth quarter of 1997, BankAtlantic sold residential loans
for a pre-tax gain of $4.1 million.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER TOTAL
---- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Interest income ................................ $ 32,092 $ 32,758 $ 38,521 $ 49,260 $ 152,631
Interest expense ............................... 15,620 15,096 19,610 26,705 77,031
----------- ------------- ------------- ------------- -------------
Net interest income ............................ 16,472 17,662 18,911 22,555 75,600
Provision for loan losses ...................... 940 1,455 1,869 1,580 5,844
Net interest income after provision for
loan losses................................... 15,532 16,207 17,042 20,975 69,756
----------- ------------- ------------- ------------- -------------
Income before income taxes ..................... 7,851 9,236 1,977 12,188 31,252
----------- ------------- ------------- ------------- -------------
Net income ..................................... $ 4,710 $ 5,549 $ 1,091 $ 7,661 $ 19,011
=========== ============= ============= ============= =============
Basic earnings per share Class A ............... $ 0.17 $ 0.18 $ 0.03 $ 0.27 $ 0.64
=========== ============= ============= ============= =============
Basic earnings per share Class B ............... $ 0.19 $ 0.22 $ 0.05 $ 0.27 $ 0.72
=========== ============= ============= ============= =============
Diluted earnings per share Class A ............. $ 0.16 $ 0.18 $ 0.03 $ 0.21 $ 0.58
=========== ============= ============= ============= =============
Diluted earnings per share Class B ............. $ 0.19 $ 0.20 $ 0.05 $ 0.22 $ 0.66
=========== ============= ============= ============= =============
Basic weighted average number of common
Class A shares outstanding ................... 15,793,315 18,452,054 18,339,399 18,117,275 17,616,000
=========== ============= ============= ============= =============
Basic weighted average number of common
Class B shares outstanding ................... 10,592,999 10,612,612 10,591,030 10,530,246 10,589,000
=========== ============= ============= ============= =============
Diluted weighted average number of common
Class A shares outstanding ................... 15,793,315 18,452,054 18,369,399 27,009,599 21,968,058
=========== ============= ============= ============= =============
Diluted weighted average number of common
Class B shares outstanding.................... 11,540,930 11,626,362 11,517,280 11,598,996 11,576,500
=========== ============= ============= ============= =============
</TABLE>
During the third quarter of 1996, a SAIF one-time special assessment
resulted in a pre-tax charge of $7.2 million. During the fourth quarter of 1996,
the Company sold office properties with a book value of $8.1 million for a
pre-tax gain of $3.1 million.
20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of BankAtlantic's financial instruments presented in accordance with
the requirements of Statement. of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("FAS 107") issued by
the FASB.
Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
BankAtlantic's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category such as commercial, commercial
real estate, residential mortgage, second mortgages, and other installment. Each
loan category is further segmented into fixed and adjustable rate interest terms
and by performing and non-performing categories.
The fair value of performing loans, except residential mortgage and
adjustable rate loans, is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of average
maturity is based on BankAtlantic's historical experience with prepayments for
each loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for national historical prepayment estimates using discount rates based on
secondary market sources adjusted to reflect differences in servicing and credit
costs.
F-85
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For adjustable rate loans, the fair value is estimated at book value
after adjusting for credit risk inherent in the loan. BankAtlantic's interest
rate risk is considered insignificant since the majority of BankAtlantic's
adjustable rate loans are based on prime rates or one year Constant Maturity
Treasuries ("CMT") rates and adjust monthly or generally not greater than one
year.
Fair values of non-performing loans are based on the assumption that
non-performing loans are on a non-accrual status discounted at market rates
during a 24 month work-out period. Assumptions regarding credit risk are
determined using available market information and specific borrower information.
The book value of tax certificates approximates market value. Fair
value of mortgage-backed and investment securities is estimated based on bid
prices available from security dealers. Estimated cash flows of securities were
based on BankAtlantic's historical experience, modified by current economic
conditions.
Fair value of mortgage-backed securities is estimated based on bid
prices available from security dealers.
Under FAS 107, the fair value of deposits with no stated maturity, such
as non-interest bearing demand deposits, savings and NOW accounts, and money
market and checking accounts, is equal to the amount payable on demand at
December 31, 1997 and 1996. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using current rates offered by BankAtlantic for such remaining
maturities.
The book value of securities sold under agreements to repurchase
approximates fair value.
The fair values of advances from FHLB, were based upon comparable terms
to maturity, interest rates and issuer credit standing.
The fair value of convertible subordinated debentures and guaranteed
preferred beneficial interests in the Company's junior subordinated debentures
was based on quoted market prices on NASDAQ. The fair value of other
subordinated debentures and notes payable was based on discounted value of
contractual cash flows based on a market discount rate.
The following table presents information for the Company's financial
instruments at December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from depository
institutions ........................................ $ 82,787 $ 82,787 $ 102,995 $ 102,995
Federal funds sold and other short term investments ... 0 0 6,148 6,148
Securities available for sale ......................... 607,490 607,490 439,345 439,345
Trading securities .................................... 5,067 5,067 0 0
Investment securities.................................. 55,213 55,213 54,511 54,511
Loans receivable ...................................... 2,072,825 2,093,956 1,824,856 1,832,814
Financial liabilities:
Deposits............................................... $ 1,763,733 $ 1,769,849 $ 1,832,780 $ 1,828,656
Securities sold under agreements to repurchase
and federal funds purchased ......................... 61,216 61,216 190,588 190,593
Advances from FHLB .................................... 697,707 704,042 295,700 293,587
Subordinated debentures and note payable .............. 179,600 242,440 78,500 73,036
Guaranteed preferred beneficial interests in
Company's junior subordinated debentures ............ 74,750 78,488 0 0
</TABLE>
The contract amount and related fees of BankAtlantic's commitments to
extend credit, standby letters of credit, financial guarantees and forward FHLB
commitments approximates fair value (see Note 15 for the contractual amounts of
BankAtlantic's financial instrument commitments).
F-86
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. ACQUISITIONS
In March 1988, the Company acquired LTI, a company engaged in the
equipment leasing and finance business. For financial accounting purposes the
acquisition was effective on March 1, 1998. LTI principally leases or finances
trucks, and manufacturing and construction equipment to businesses located
primarily in South Florida. In June 1998, BankAtlantic received regulatory
approval to acquire LTI from the Company and the capital stock of LTI was
contributed by the company to BankAtlantic effective June 30, 1998. The
acquisition of LTI was accounted for under the purchase method of accounting as
if the acquisition had occurred March 1, 1998. The results of LTI are included
in the Company's results of Operations as of March 1, 1998. The company will
amortize goodwill over 25 years on a straight line basis. Based upon an
appraisal from an independent third party, the estimated fair value of Class A
common stock issued in the acquisition was reduced to reflect contractual
transfer restrictions on the Company's stock received by the former LTI
shareholders. This valuation was 65% of the fair value of the Company's Class A
common stock at the acquisition date.
On June 30, 1998 the Company acquired all of RBCO's outstanding shares
of common stock in exchange for shares of the Company's Class A common stock in
an acquisition accounted for under the purchase method of accounting. RBCO will
be operated as an autonomous independent wholly owned subsidiary under RBCO's
management. RBCO is an investment firm that is principally engaged in the
underwriting, distribution and trading of tax-exempt obligations and bank and
thrift equity and debt securities. RBCO provides investment banking, research
and financial advisory services primarily to financial services companies with a
focus on corporate finance and merger-related services. RBCO offers a general
securities brokerage business with investment products for retail and
institutional clients, as well as life insurance and annuity products. RBCO's
retail and institutional brokerage clients consist primarily of high net worth
individuals (primarily residents of New Jersey, other Mid-Atlantic and
Northeastern states and Florida), banking and thrift institutions (primarily
located in New Jersey, Pennsylvania and Florida) and, to a much lesser extent,
insurance companies and specialty finance companies. The principal executive
office RBCO is located in Livingston, New Jersey. RBCO is registered as a
broker-dealer with the Securities and Exchange Commission ("SEC") and is a
member of the National Association of Securities Dealers, Inc. ("NASD") and the
Securities Investor Protection Corporation ("SIPC"). RBCO is not a member of any
securities exchange. Brokerage services to retail and institutional customers
are provided through RBCO's sales force of 84 sales accounting executives
located in the Livingston and Shrewsbury, New Jersey, Bala Cynwyd, Pennsylvania
, and West Palm Beach, Florida offices.
The analysis of the fair value of assets acquired and liabilities
assumed in connection with the acquisitions of RBCO and LTI effective June 30,
1998 and March 1, 1998, respectively, is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS RBCO LTI TOTAL
- ------------ ----------- ---------- ----------
<S> <C> <C> <C>
Cash acquired ........................................... $ 733 $ 0 $ 733
Leases receivable, net .................................. 0 8,419 8,419
Securities available for sale ........................... 0 121 121
Trading account securities .............................. 27,484 0 27,484
Property and equipment .................................. 2,916 119 3,035
Deferred income tax (liability) assets .................. 1,015 (551) 464
Other assets ............................................ 4,104 975 5,079
Securities sold not yet purchased ....................... (3,334) 0 (3,334)
Notes payable ........................................... (1,704) (6,670) (8,374)
Other liabilities ....................................... (7,709) (4,151) (11,860)
Subordinated loan from the Company ...................... (10,000) 0 (10,000)
----------- ---------- ----------
Fair value of net tangible assets acquired .............. 13,505 (1,738) 11,767
----------- ---------- ----------
Estimated fair value of Class A common stock issued ..... 35,017 0 35,017
Estimated fair value of restricted Class A common
stock issued .......................................... 1,062 5,783 6,845
Estimated fair value of Class A common stock
options issued ........................................ 1,582 0 1,582
Cash paid to shareholder ................................ 0 300 300
Acquisition costs ....................................... 500 100 600
----------- ---------- ----------
Total purchase price .................................... 38,161 6,183 44,344
----------- ---------- ----------
Cost over fair value of net assets acquired ............. $ 51,666 $ 4,445 $ 56,111
=========== ========== ==========
</TABLE>
F-87
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net cash acquired in connection with both of the above acquisitions
was $433,000. During March 1998, the Company extended RBCO a $10.0 million
subordinated loan on an arms length basis to enable RBCO to expand into new
products and markets. Upon acquisition, the loan was eliminated in
consolidation. Included in cost over fair value of net assets acquired was $2.6
million of goodwill related to the February 1998 acquisition by RBCO of
Cumberland Advisors and Cumberland Consulting. The goodwill associated with the
Cumberland entities will be amortized on a straight line basis over 15 years
resulting in an annual tax deductible expense of $171,000. The remaining
goodwill of $22.0 million associated with RBCO will be amortized on a straight
line basis over 25 years resulting in an annual expense of approximately
$900,000 that will not be tax deductible.
The following is proforma information for the nine months ended
September 30, 1998 and 1997 as if the RBCO acquisition was consummated on
January 1, 1998 and 1997, respectively. The proforma information is not
necessarily indicative of the results of operations which would have been
realized had the acquisition been consummated as of the dates for which the
proforma financial information is presented or future performance (in thousands,
except for per share data):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
---------------------------- -----------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net interest income ........................... $ 78,374 $ 78,653 $ 71,760 $ 72,152
------------ ------------ ------------- -------------
Provision for loan losses...................... 9,811 9,811 8,833 8,833
------------ ------------ ------------- -------------
Non-interest income ........................... 22,887 45,322 29,931 53,022
Non-interest expense .......................... 87,519 109,334 60,744 84,064
Provision for income taxes .................... 1,828 2,342 12,523 12,748
------------ ------------ ------------- -------------
Net Income .................................... $ 2,103 $ 2,488 $ 19,591 $ 19,529
============ ============ ============= =============
Basic earnings per share Class A .............. $ 0.07 $ 0.07 $ 0.70 $ 0.63
============ ============ ============= =============
Basic earnings per share Class B .............. $ 0.05 $ 0.06 $ 0.68 $ 0.61
============ ============ ============= =============
Diluted earnings per share Class A ............ $ 0.06 $ 0.07 $ 0.56 $ 0.52
============ ============ ============= =============
Diluted earnings per share Class B $ 0.05 $ 0.06 $ 0.56 $ 0.52
============ ============ ============= =============
</TABLE>
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock representing 20% of the total transaction value was allocated to key
employees of RBCO. The retention pool consists of 683,362 shares of restricted
Class A common stock which will vest in four years to employees who remain for
the period. The retention pool, valued at $8.1 million at the acquisition date,
will be amortized to compensation expense over the four year vesting period and
is tax deductible at the vesting date. Included in the Company's Statement of
Financial Condition at September 30, 1998 were the assets and liabilities of
RBCO. The operations of RBCO during the three months ended September 30, 1998
were included in the Company's Statement of Operations for the three and nine
months ended September 30, 1998 and Consolidated Statement of Cash Flows for the
nine months ended September 30, 1998.
In September 1997, the Company entered into a joint ownership agreement
with a newly formed company, FASI. FASI is a full-service investment banking and
securities brokerage firm. Included in other assets is the Company's investment
of $237,500 to acquire 50% ownership of FASI's voting stock and a $1.5 million
five year loan to FASI. The investment is accounted for under the equity method.
Included in the Company's statement of operations in other non-interest income
during the year ended December 31, 1997 is $13,000 of income from FASI's
operations.
Based on an agreement, the individual owning the remaining 50% of
outstanding voting stock can require the Company to purchase such stock after
the year 2000 through the year 2002. The sales price of the stock is based on a
prescribed formula. After the year 2002 the company can require the shareholder
to sell the stock to the Company based on a prescribed formula.
In October 1997, BankAtlantic acquired a 39.5% limited partnership
interest and an .5% general partnership interest in Jupiter Yacht Club, Ltd., a
real estate development project in Jupiter, Florida. Included in other assets is
a $1.2 million investment in the limited partnership. The partnership is
currently in the development stages resulting in no income or loss recorded in
the statement of operations for 1997. The Company and BankAtlantic have invested
in various real estate limited partnerships during 1998. All partnerships are in
the development stages at September 30, 1998.
F-88
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 31, 1997, BankAtlantic acquired SLWHC for approximately
$20.0 million. SLWHC is the developer of the master planned community of SLW,
located in St. Lucie County, Florida.
A preliminary analysis of the fair value of assets acquired and
liabilities assumed in connection with the purchase of all the capital stock of
SLWHC on October 31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
(In thousands)
Cash ......................................................... $ 1,958
Loans receivable, net ........................................ 425
Real estate held for development and sale .................... 19,421
Other assets ................................................. 1,984
--------------
Fair value of assets acquired ................................ 23,788
Notes payable ................................................ 1,816
Other liabilities ............................................ 2,022
--------------
Fair value of liabilities assumed ............................ 3,838
Acquisition costs ............................................ 75
--------------
Purchase of real estate developer............................. 19,875
Cash acquired ................................................ 1,958
--------------
Purchase of real estate developer, net of cash acquired ...... $ 17,917
==============
</TABLE>
Due to timing of the acquisition of SLWHC, the above allocation is
subject to change based upon receipt of appraisals and further evaluation. The
SLWHC acquisition, which was consummated on October 31, 1997, was accounted for
by the purchase method of accounting. Included in other non-interest income is
$98,000 of net income related to the above acquisition from October 31, 1997
through December 31, 1997 which included a gain on sale of real estate of
$727,000 and costs and expenses of $629,000. It is not currently anticipated
that the amortization of purchase accounting adjustments will have a material
effect on future results of operations.
The following is proforma information for the year ended December 31,
1997 and 1996 as if the SLW acquisition was consummated on January 1, 1997 and
1996, respectively. The proforma information is not necessarily indicative of
the combined financial position or results of operations which would have been
realized had the acquisition been consummated during the period or as of the
dates for which the proforma financial information is presented (in thousands,
except for per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- -----------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net interest income after provision for
loan loss ..................................... $ 84,095 $ 83,310 $ 69,756 $ 68,889
------------- ------------- ------------- --------------
Noninterest income .............................. 43,359 42,543 33,737 28,510
Noninterest expenses ............................ 81,932 81,932 72,241 72,241
------------- ------------- ------------- --------------
Net income before provision for income taxes..... 45,522 43,921 31,252 25,158
Provision for income taxes ...................... 17,753 17,135 12,241 9,890
------------- ------------- ------------- --------------
Net income .................................... $ 27,769 $ 26,786 $ 19,011 $ 15,268
============= ============= ============= ==============
Basic earnings per share Class A ................ $ 0.98 $ 0.95 $ 0.64 $ 0.51
============= ============= ============= ==============
Basic earnings per share Class B ................ $ 0.94 $ 0.91 $ 0.72 $ 0.60
============= ============= ============= ==============
Diluted earnings per share Class A .............. $ 0.78 $ 0.75 $ 0.58 $ 0.47
============= ============= ============= ==============
Diluted earnings per share Class B .............. $ 0.77 $ 0.74 $ 0.66 $ 0.55
============= ============= ============= ==============
</TABLE>
On October 11, 1996, BankAtlantic consummated its acquisition of Bank
of North America Bancorp ("BNAB") for $53.8 million in cash. The acquisition was
accounted for as a purchase for financial reporting purposes as of October 1,
1996. The results of operations include BNAB since October 1, 1996. Interest
expense of $87,000 was imputed on the purchase price for the period of October
1, 1996 (effective date) through October 11, 1996 (acquisition date).
BNAB's primary asset was its wholly owned subsidiary, Bank of North
America ("BNA"), a Florida chartered commercial bank. BNA had assets of $525.5
million and a net loss of $2.5 million for the nine months ended September 30,
1996
F-89
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and net income of $2.2 million for the year ended December 31, 1995. BNA
had 13 branches, 5 of which were consolidated with existing branches.
On February 17, 1995, BankAtlantic completed an acquisition of
MegaBank, a Miami-based commercial bank, for $21.4 million in cash, of which
$900,000 was paid to the Chief Executive Officer of MegaBank in connection with
a non-competition agreement. MegaBank had assets of approximately $152 million.
The MegaBank acquisition added 5 branches to BankAtlantic's branch network.
The MegaBank acquisition, accounted for by the purchase method of
accounting, was effective for financial statement purposes as of February 1,
1995. The results of operations include MegaBank since February 1, 1995. Funds
for this acquisition were obtained from traditional sources. Interest expense of
$34,000 was imputed on the purchase price for the period of February 1, 1995
(effective date) through February 17, 1995 (acquisition date).
The fair value of assets acquired and liabilities assumed in
conjunction with the purchase of all the capital stock of Bank of North America
in 1996 and MegaBank in 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
------------- --------------
<S> <C> <C>
(IN THOUSANDS)
Cash ......................................................... $ 16,814 $ 6,512
Interest bearing deposits with banks ......................... 19,795 0
Investments .................................................. 0 1,700
FHLB stock ................................................... 2,788 0
Deferred tax asset ........................................... 2,464 2,718
Loans receivable, net......................................... 395,030 116,389
Debt securities available for sale ........................... 66,371 18,119
Cost over fair value of net assets acquired .................. 19,313 12,072
Accrued interest receivable .................................. 4,181 1,208
Real estate owned ............................................ 1,017 348
Investment in real estate held for sale ...................... 0 0
Property and equipment ....................................... 6,098 613
Mortgage loan servicing rights ............................... 4,047 0
Non-competition agreement .................................... 0 900
Other assets ................................................. 8,220 3,116
------------- --------------
Fair value of assets acquired ...................... 546,138 163,695
Deposits ..................................................... 469,092 120,165
Securities sold under agreements to repurchase ............... 1,935 20,615
FHLB advances ................................................ 5,027 0
Notes payable ................................................ 0 0
Advances by borrowers for taxes and insurance ................ 8,740 0
Other liabilities ............................................ 6,874 1,954
------------- --------------
Fair value of liabilities assumed .................. 491,668 142,734
Acquisition costs ............................................ 655 465
------------- --------------
Purchase of Bank ............................................. 55,125 21,426
------------- --------------
Cash acquired ................................................ 16,814 6,512
------------- --------------
Purchase of Bank, net of cash acquired ...................... $ 38,311 $ 14,914
============= ==============
</TABLE>
F-90
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table indicates the estimated net decrease in earnings
resulting from the net amortization/accretion of the adjustments, including the
excess of costs over fair value of net assets acquired, resulting from the use
of the purchase method of accounting during each of the years 1998 through 2002
for the Bank acquisitions. The amounts (in thousands) assume no sales or
dispositions of the related assets or liabilities.
NET DECREASE
OF
YEARS ENDING DECEMBER 31, NET EARNINGS
- ------------------------ ---------------
1998 ............................................. $ (2,620)
1999 ............................................. $ (2,497)
2000 ............................................. $ (2,508)
2001 ............................................. $ (2,508)
2002 ............................................. $ (2,508)
Thereafter ........................................ $ (13,646)
Adjustments to fair value are being amortized on a straight-line basis,
which approximates the level yield method, over the estimated average term of
three years for loans and investments, and one year for deposits. Cost over fair
value of net assets acquired does not qualify for amortization for tax purposes.
Costs over fair value of net assets acquired is being amortized on a
straight-line basis over its estimated useful life of 15 years and 10 years for
the BNA and MegaBank acquisitions, respectively. The cost over fair value of net
assets acquired as of December 31, 1997 and 1996 is $26.2 million and $28.6
million. The $900,000 non-competition agreement is considered an intangible
asset for tax purposes and amortized ratably over 15 years. At December 31, 1997
and 1996, the non-competition agreement balance was $139,000 and $417,000,
respectively. The agreement is being amortized on a straight-line basis for
financial statement purposes over its useful life which was revised from six
years to approximately three years upon the resignation of the former MegaBank
CEO from BankAtlantic.
The following is proforma information for the year ended December 31,
1996 and 1995 as if the Bank acquisitions were consummated on January 1, 1996
and 1995, respectively. The proforma information is not necessarily indicative
of the combined financial position or results of operations which would have
been realized had the acquisition been consummated during the period or as of
the dates for which the proforma financial information is presented (in
thousands, except for per share data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ----------------------------
HISTORICAL PROFORMA HISTORICAL PROFORMA
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 152,631 $ 182,921 4 130,077 $ 170,071
Interest expense ......................................... 77,031 95,975 65,686 91,756
Provision for loan losses ................................ 5,844 9,087 4,182 5,332
------------ ------------ ------------- -------------
Net interest income after provision for loan losses ...... 69,756 77,859 60,209 72,983
------------ ------------ ------------- -------------
Net Income ............................................... $ 19,011 $ 13,807 $ 18,419 $ 17,143
============ ============ ============= =============
Basic earnings per share Class A ......................... $ 0.64 $ 0.45 $ N/A $ N/A
============ ============ ============= =============
Basic earnings per share Class B ......................... $ 0.72 $ 0.55 $ 0.64 $ 0.59
============ ============ ============= =============
Diluted earnings per share Class A ....................... $ 0.58 $ 0.42 $ N/A $ N/A
============ ============ ============= =============
Diluted earnings per share Class B ....................... $ 0.66 $ 0.51 $ 0.62 $ 0.57
============ ============ ============= =============
</TABLE>
The proforma includes losses incurred by BNA of $3.0 million on the
sale of treasury notes and a $2.3 million SAIF one-time special assessment.
22. OTHER INFORMATION
Alan B. Levan serves as the Chairman, Chief Executive Officer and
President of BankAtlantic, the Company and BFC. John E. Abdo is the Vice
Chairman of BankAtlantic, the Company, and BFC and also President and Chief
Executive Officer of St. Lucie West Holding Corp., a wholly owned subsidiary of
BankAtlantic Development Corporation and President of BankAtlantic Development
Corporation, a wholly owned subsidiary of BankAtlantic.
F-91
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. SUBSEQUENT EVENTS (UNAUDITED)
On February 9, 1998 the Company entered into a definitive agreement
with Ryan, Beck & Co. ("RBCO") whereby all of RBCO outstanding shares would be
acquired by the Company in exchange for shares of the Company's Class A common
stock. RBCO will be a wholly-owned subsidiary of the Company, however it is
anticipated that it will be an autonomous independent subsidiary, operated by
RBCO's current management. RBCO, based in New Jersey, engages in underwriting,
market making distribution, trading of bank and thrift equity and debt
securities, tax exempt bonds, consulting, research and financial advisory
services. The total assets and equity of RBCO at December 31, 1997 were $56.6
million and $14.7 million, respectively, and net income for the year ended
December 31, 1997 was $ 3.9 million. The agreement establishes an exchange ratio
of .761 shares of Class A common stock for each share of RBCO, which ,based on
the closing price of the Class A common stock on February 9, 1998, results in an
aggregate purchase price of approximately $39.4 million. As part of the
agreement, the Company has agreed to grant RBCO a long-term subordinated loan to
enable RBCO to expand into new products and markets.
The agreement establishes an incentive and retention pool, under which
additional Class A shares representing approximately 20% of the transaction
value from the acquisition will be allocated to key employees of RBCO. The
allocated shares will be distributed in four years to employees who remain for
the period. It is anticipated that the retention pool will be considered
compensation under generally accepted accounting principals.
The agreement is subject to the receipt of all regulatory approvals and
the approval of the shareholders of RBCO. It is anticipated that the transaction
will be closed, contingent upon the above approvals, in the second quarter of
1998 and will be accounted for under the purchase method of accounting.
On February 26, 1998, the Company entered into an agreement to acquire
Leasing Technology Inc. ("LTI"). LTI is engaged in all facets of equipment
leasing and financing. LTI principally leases or finances trucks, manufacturing
and construction equipment to businesses primarily located in South Florida.
Total assets and equity at December 31, 1997 were $10.9 million and $2.3
million, respectively, and LTI's adjusted income before taxes for the year ended
December 31, 1997 was $1.5 million. The aggregate purchase price is $9.3
million. All of LTI's outstanding shares will be acquired by the Company for
Class A common stock. LTI is anticipated to operate as a wholly-owned subsidiary
of BankAtlantic and the acquisition will be accounted for under the purchase
method of accounting.
The agreement is subject to the receipt of all regulatory approvals. It
is anticipated that the transaction will be closed, contingent upon the above
approvals in the first quarter of 1998.
On February 3, 1998, a special meeting of shareholders of the Company
was held. The Company's Class A and Class B common shareholders approved an
amendment to the Company's Articles of Incorporation increasing the authorized
number of Class A and Class B common shares to 80,000,000 and 45,000,000,
respectively.
In February 1998 a judgment related to the Subject Portfolio was
entered in favor of BankAtlantic. See Note 17 for further discussion.
F-92
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
24. RECENT DEVELOPMENTS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations ........................ $ (4,324) $ 7,785 $ 10,186 $ 23,658
Income (loss) from discontinued operations net of taxes ......... (5,813) 393 (18,220) 4,111
------------- ------------- -------------- --------------
Net income (loss)................................................ $ (10,137) $ 8,178 $ (8,034) $ 27,769
============= ============= ============== ==============
CLASS A COMMON SHARES
Basic earnings (loss) per share from continuing operations ...... $ (0.12) $ 0.27 $ 0.30 $ 0.84
Basic earnings (loss) per share from discontinued operations..... (0.17) 0.01 (0.54) 0.14
------------- ------------- -------------- --------------
Basic earnings (loss) per share ................................. $ (0.29) $ 0.28 $ (0.24) $ 0.98
============= ============= ============== ==============
Diluted earnings (loss) per share from continuing operations .... $ (0.12) $ 0.21 $ 0.29 $ 0.67
Diluted earnings (loss) per share from discontinued operations... (0.17) 0.01 (0.51) 0.11
------------- ------------- -------------- --------------
Diluted earnings (loss) per share ............................... $ (0.29) $ 0.22 $ (0.22) $ 0.78
============= ============= ============== ==============
CLASS B COMMON SHARES
Basic earnings (loss) per share from continuing operations ...... $ (0.11) $ 0.25 $ 0.27 $ 0.81
Basic earnings (loss) per share from discontinued operations .... (0.15) 0.01 (0.49) 0.13
------------- ------------- -------------- --------------
Basic earnings (loss) per share ................................. $ (0.26) $ 0.26 $ (0.22) $ 0.94
============= ============== ============== ==============
Diluted earnings (loss) per share from continuing operations .... $ (0.11) $ 0.20 $ 0.26 $ 0.67
Diluted earnings (loss) per share from discontinued operations... (0.15) 0.01 (0.48) 0.10
------------- ------------- -------------- --------------
Diluted earnings (loss) per share ............................... $ (0.26) $ 0.21 $ (0.22) $ 0.77
============= ============== ============== ==============
</TABLE>
As discussed below, the Company is exiting the mortgage servicing
business and accordingly the results of this line of business are characterized
as discontinued operations.
Contributing to the loss from continuing operations for the fourth
quarter of 1998 were restructuring charges and write-downs of $2.6 million and
an increase in the provision for loan losses from $2.4 million for the fourth
quarter of 1997 to $12.0 million for the fourth quarter of 1998. These charges
were partially offset by a $3.1 million gain relating to the freezing of
benefits under the Company's defined benefit pension plan. The provision for
loan losses was increased as a result of additional risks associated with the
Company's indirect consumer lending portfolio, the Company's recent growth in
small business lending, and credit risks arising as the Company's borrowers face
Year 2000 issues.
The Company's stockholders' equity was $240 million at December 31,
1998, compared to $207 million at December 31, 1997. Total assets of the Company
increased to $3.8 billion at December 31, 1998, compared to $3.1 billion at
December 31, 1997.
Restructuring Initiatives
Included in the fourth quarter and year end 1998 results are the impact
of various restructuring initiatives announced by the Company on December 15,
1998 as part of a year long efficiency study aimed at streamlining operations,
improving efficiencies and increasing non-interest income. A summary of the
announced restructuring initiatives and the related restructuring charges are
summarized below:
F-93
<PAGE>
BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
/bullet/ The Company reduced its full time employees by approximately 185.
Approximately 100 of these individuals were no longer employed by the
Company at December 31, 1998, and it is anticipated that approximately
15 employees, related to the closing of three branches, will be
released by the end of the first quarter of 1999. The remaining 70
employees are associated with the mortgage servicing business and are
expected to remain with the Company through the second quarter of 1999.
Severance and benefits associated with the downsizing is estimated to
be approximately $1.9 million and is included in 1998 charges. After
the restructuring, BankAtlantic will employ approximately 920 full time
equivalent employees. Total annual compensation and benefits related to
employees impacted by the restructuring were approximately $4.6 million
for continued operations and approximately $2.0 million for
discontinued operations.
/bullet/ The Company will exit the mortgage servicing business. While this
business has been a strong performer for the Company over the years,
the current volatility in financial markets has made earnings
unpredictable. During the third quarter of 1998, the Company
established a $15 million valuation allowance for impairment of
mortgage servicing rights ("MSRs"). The estimated loss in exiting this
line of business is $10 million and is included in the loss from
discontinued operations. The Company anticipates that disposition of
this business will take approximately six months. At December 31, 1998,
the number of loans being serviced was approximately 36,000, with
outstanding principal balances serviced of approximately $3.5 billion
and net MSRs of $44 million.
/bullet/ The Company is considering a spin-off to all shareholders as a dividend
of 100% of the capital stock of BankAtlantic Development Corporation
("BDC"), a 100% owned service corporation subsidiary of BankAtlantic.
Included in this subsidiary is the St. Lucie West master planned
community as well as five joint ventures. There is currently
approximately $43 million in capital in this subsidiary. While
BankAtlantic's regulatory capital would not be impacted by the spin-off
because all capital in BDC is already excluded from the calculation of
regulatory capital, the spin-off will decrease the Company's assets.
The spin-off is subject to a number of conditions, including the prior
receipt of regulatory approvals.
/bullet/ The Company announced that it will discontinue new production in the
indirect automobile consumer loan business. At December 31, 1998, the
indirect portfolio totalled $220 million and will be liquidated over
time through portfolio run-off.
/bullet/ The Company will close and merge three branches.
/bullet/ The Company announced that it will freeze the present status of its
defined benefits pension plan and is exploring alternative employee
benefit programs, including enhanced 401(k) benefits.
/bullet/ The Company closed its mortgage banking operations on Florida's West
Coast. The Company will continue to offer residential loans throughout
Florida with centralized processing and underwriting of these loans.
There is no assurance that the restructuring will result in improved
efficiencies or increased income. Additionally, while management of the Company
does not anticipate that the Company's results will be further impacted from
discontinued operations, actual results will depend on future market conditions.
F-94
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with these Offerings other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company or the Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful.
------------
TABLE OF CONTENTS
PAGE
----
Summary.................................................. 1
Risk Factors.............................................10
Use of Proceeds..........................................19
Price Range for Common Stock and Dividends...............20
Market for the Subordinated Debentures...................22
Capitalization...........................................22
Selected Historical Financial Data.......................23
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................26
Business.................................................39
Management...............................................43
Certain Relationships and Related Transactions...........49
Security Ownership of Certain Beneficial Owners and
Management............................................50
Description of Capital Stock.............................51
Description of the Subordinated Debentures...............53
Underwriting.............................................58
Legal Matters............................................59
Experts..................................................59
Index to Financial Statements and Schedule...............F-1
----------------------------------------------
$15,000,000 ___% SUBORDINATED DEBENTURES DUE 2009
AND
1,000,000 SHARES CLASS A COMMON STOCK (NON-VOTING)
OF
BFC FINANCIAL CORPORATION
----------------------------------------------
----------------
PROSPECTUS
----------------
----------------
___________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee....................................................................$ 7,034
NASD Filing Fee.........................................................................$
Legal Fees and Expenses*................................................................$
Accounting Fees and Expenses*...........................................................$
Printing Expenses*......................................................................$
Blue Sky Qualification Fees and Expenses................................................$
Transfer Agent, Registrar and Trustee Fees and Expenses.................................$
Miscellaneous Expenses..................................................................$
Total*..................................................................................$
</TABLE>
- -----------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida
Act") provides that a director is not personally liable for monetary damages to
the corporation or any person for any statement, vote, decision or failure to
act regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes: (i) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a circumstance under
which the director is liable for an improper distribution; (iv) in a proceeding
by, or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interests of
the corporation, or willful misconduct; or (v) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety or
property.
Section 607.0850 of the Florida Act provides that a corporation shall
have the power to indemnify any person who was or is a party to any proceeding
(other than an action by, or in the right of, the corporation), by reason of the
fact that he is or was a director, officer, or employee or agent of the
corporation against liability incurred in connection with such proceeding if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 607.0850 also provides that a corporation shall have the
power to indemnify any person, who was or is a party to any proceeding by, or in
the right of, the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Under Section 607.0850, indemnification is authorized if such person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification may be
made in respect of any claim, issue, or matter as to which such person is
adjudged to be liable unless, and only to the extent that, the court in which
such proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability, but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court deems proper. To the
extent that a director, officer, employee or agent has been successful on the
merits or otherwise in defense of any of the foregoing proceedings, or in
defense of any claim, issue or matter therein Section 607.0850 provides that, he
shall be indemnified against expenses actually and reasonably incurred by him in
connection therewith. Under Section 607.0850, any indemnification, unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that the indemnification of
the director, officer, employee or agent is proper under the circumstances
because he has met the applicable standard of conduct. Notwithstanding the
failure of a corporation to provide indemnification, and despite any contrary
determination by the corporation in a specific case, Section 607.0850 permits a
director, officer, employee or agent of the corporation who is or was a party to
a proceeding to apply for indemnification to the appropriate court and such
court may order indemnification if it determines that such person is entitled to
indemnification under the applicable standard.
II-1
<PAGE>
Section 607.0850 also provides that a corporation has the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of Section 607.0850.
BFC Financial Corporation's bylaws provide that it shall indemnify its
officers and directors and former officers and directors to the full extent
permitted by law.
BFC Financial Corporation's directors and officers are covered by
insurance policies indemnifying them against certain liabilities, including
liabilities under the federal securities laws (other than liability under
Section 16(b) of the Exchange Act), which might be incurred by them in such
capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS
The following exhibits are either filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
1 Form of Underwriting Agreement.*
3.1 Amended and Restated Articles of Incorporation of BFC Financial Corporation (incorporated by reference
to Exhibit 3.1 of the Registrant's Registration Statement on Form 8-A filed October 16, 1997).
3.2 Bylaws of BFC Financial Corporation (incorporated by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form 8-A filed October 16, 1997).
4.1 Form of Indenture between BFC Financial Corporation and U.S. Bank Trust National Association, as
Trustee, with respect to the ___% Subordinated Debentures.*
4.2 Specimen Subordinated Debenture (included as an exhibit to the Indenture filed as Exhibit 4.2).*
5 Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. regarding the validity of the issuance
of the Subordinated Debentures and the Class A Common Stock of BFC Financial Corporation being
registered hereby.*
10 BFC Financial Corporation Stock Option Plan (incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement filed September 27, 1997).
12 Statement regarding computation of earnings to fixed charges.
21 Subsidiaries of BFC Financial Corporation. (incorporated by reference to Exhibit 21 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997, filed on March 27, 1998)
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. (included in Exhibits 5).*
23.2 Consent of KPMG LLP.
24 Power of Attorney (included with signature pages to this Registration Statement).
25 Form T-1: Statement of Eligibility of U.S. Bank Trust National Association to act as trustee under the
Indenture.
</TABLE>
- --------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BFC Financial
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on the 11th day of February, 1999.
BFC FINANCIAL CORPORATION
By:/S/ ALAN B. LEVAN
-----------------------------------------
Alan B. Levan,
President and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alan B. Levan and Glen R. Gilbert, and each of
them acting alone, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement or any registration
statement relating to this offering to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/S/ ALAN B. LEVAN Director, President, and February 11, 1999
- --------------------------- Chairman of the Board
Alan B. Levan
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/S/ GLEN R. GILBERT Executive Vice President, February 11, 1999
- -------------------------------- Chief Financial Officer,
Glen R. Gilbert and Secretary
/S/ JOHN E. ABDO Director, Vice Chairman February 11, 1999
- -------------------------------- of the Board
John E. Abdo
S/ CARL E.B. MCKENRY, JR. Director February 11, 1999
- --------------------------------
Carl E.B. McKenry, Jr.
/S/ EARL PERTNOY Director February 11, 1999
- --------------------------------
Earl Pertnoy
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
12 Statement regarding computation of earnings to fixed charges.
23.2 Consent of KPMG LLP.
25 Form T-1: Statement of Eligibility of U.S. Bank Trust National
Association to act as trustee under the Indenture.
EXHIBIT 12
<TABLE>
<CAPTION>
BFC Financial Corporation
Calculation of Ratio of Earnings to Fixed Charges
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ----- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest ................. $ 1,534 2,128 2,719 3,634 4,574 8,276 9,063
------- ------- ------- ------- ------- ------- -------
1,534 2,128 2,719 3,634 4,574 8,276 9,063
======= ======= ======= ======= ======= ======= =======
Earnings (loss):
Pretax earnings .......... 1,943 10,057 12,988 8,982 4,230 2,913 (1,303)
Eliminate BBC/BankAtlantic (1,607) (8,579) (12,129) (8,650) (8,419) (8,040) (10,764)
BBC/BankAtlantic dividends 884 737 1,025 883 819 753 271
Fixed charges ............ 1,534 2,128 2,719 3,634 4,574 8,276 9,063
------- ------- ------- ------- ------- ------- -------
$ 2,754 4,343 4,603 4,849 1,204 3,902 (2,733)
======= ======= ======= ======= ======= ======= =======
Ratio ...................... 1.80 2.04 1.69 1.33 0.26 0.47 (0.30)
======= ======= ======= ======= ======= ======= =======
Coverage deficiency ........ $ -- -- -- -- 3,370 4,374 11,796
======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) The operations of BBC have been eliminated since there is a dividend
restriction between BBC's primary subsidiary, BankAtlantic, and BBC.
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
BankAtlantic Bancorp, Inc.:
We consent to the use of our report incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
--------------------------
KPMG LLP
Fort Lauderdale, Florida
February 9, 1999
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
BFC FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 59-2022148
(State of Incorporation) (I.R.S. Employer
Identification No.)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
(Address of Principal Executive Offices) (Zip Code)
__% SUBORDINATED DEBENTURES DUE 2009
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number 333-70709.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 9th day of February,
1999.
U.S. BANK TRUST NATIONAL ASSOCIATION
/S/ S. CHRISTOPHERSON
-------------------------------------------
S. Christopherson
Vice President
/S/ JUDITH M. ZUZEK
- -------------------
Judith M. Zuzek
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: February 9, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
/S/ S. CHRISTOPHERSON
-------------------------------------------
S. Christopherson
Vice President
