SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000
Commission File Number
000-09811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
----------------------- ---------------------------------------
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
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(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
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Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding for each of the Registrant's classes
of common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,454,494 shares outstanding.
Class B Common Stock of $.01 par value, 2,354,907 shares outstanding.
<PAGE>
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
September 30, 2000 and December 31, 1999 - Unaudited
Consolidated Statements of Operations for the three and
nine month periods ended September 30, 2000 and 1999 -
Unaudited
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the nine months ended September
30, 2000 and 1999 - Unaudited
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999
(In thousands, except share data)
(Unaudited)
Assets
2000 1999
---- ----
<S> <C> <C>
Cash and due from depository institutions $ 82,389 1,545
Federal Funds sold and securities purchased under resell agreements 3,318 --
Tax certificates and other securities held to maturity 396,878 8,408
Loans receivable, net 2,674,431 1,325
Loan held for sale, net 77,248 --
Securities available for sale, at market value 763,786 255
Trading securities, at market value 25,879 --
Accrued interest receivable 40,902 --
Real estate held for development and sale and joint ventures 157,349 1,840
Real estate owned, net 10,925 5,803
Office properties and equipment, net 59,086 90
Federal Home Loan Bank stock, at cost which approximated market value 49,988 --
Deferred income tax asset (liability), net 14,116 --
Cost over fair value of net assets acquired 50,898 --
Investment in BankAtlantic Bancorp, Inc. ("BBC") -- 73,764
Other assets 26,104 3,715
----------- -----------
Total assets $ 4,433,297 96,745
=========== ===========
Liabilities and Stockholders' Equity
Deposits $ 2,186,728 --
Advances from FHLB 979,749 --
Federal Funds purchased 13,500 --
Securities sold under agreements to repurchase 623,795 --
Subordinated debentures, notes and bonds payable 240,144 18,253
Guaranteed preferred beneficial interests in BBC's
Junior Subordinated Debentures 74,750 --
Advances by borrowers for taxes and insurance 11,022 --
Deferred income tax liability -- 13,594
Other liabilities 89,017 5,933
----------- -----------
Total liabilities 4,218,705 37,780
Minority interest 148,168 --
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value, authorized 20,000,000
shares; issued and outstanding 6,454,494 in 2000 and 1999 58 58
Class B common stock, of $.01 par value; authorized 20,000,000
shares; issued and outstanding 2,354,907 in 2000 and 1999 21 21
Additional paid-in capital 25,915 25,890
Retained earnings 42,428 38,086
----------- -----------
Total stockholders' equity before
accumulated other comprehensive loss 68,422 64,055
Accumulated other comprehensive loss - net unrealized
depreciation on securities available for sale of the
Company and BBC, net of deferred income taxes (1,998) (5,090)
----------- -----------
Total stockholders' equity 66,424 58,965
----------- -----------
Total liabilities and stockholders' equity $ 4,433,297 96,745
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the three and nine month periods ended September 30, 2000 and 1999
(In thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $ 62,483 992 183,188 1,165
Interest on banker's acceptances 212 -- 699
Interest and dividends on securities available for sale 12,346 66 39,018 173
Interest and dividends on tax certificates and other
securities held to maturity and trading securities 10,293 -- 20,754 --
-------- -------- -------- --------
Total interest income 85,334 1,058 243,659 1,338
-------- -------- -------- --------
Interest expense:
Interest on deposits 24,070 -- 66,175 --
Interest on advances from FHLB 15,158 -- 46,698 --
Interest on securities sold under agreements
to repurchase and federal funds purchased 10,317 -- 24,306 --
Interest on subordinated debentures, guaranteed
preferred interest in BBC's Junior Subordinated
Debentures and notes and bonds payable 7,908 407 22,179 1,133
Capitalized interest (1,400) -- (4,926) --
-------- -------- -------- --------
Total interest expense 56,053 407 154,432 1,133
-------- -------- -------- --------
Net interest income 29,281 651 89,227 205
Provision for loan losses 6,696 75 22,016 225
-------- -------- -------- --------
Net interest income (loss) after provision for loan losses 22,585 576 67,211 (20)
-------- -------- -------- --------
Non-interest income:
Loan late fees and other loan income 981 -- 3,088 --
Losses on loans held for sale, net of write down (144) -- (433) --
Gain on sales of property and equipment, net -- -- 240 --
(Losses) gains on sales of securities available for sale,
net of write down (8) -- 223 --
Trading securities (losses) gain (16) -- 5 --
Gains on sales of real estate and joint venture activities, net 5,731 766 12,284 1,090
Levitt Corp. utility expansion receivable -- -- 4,265 --
Ryan, Beck Principal transactions 2,993 -- 11,994 --
Ryan, Beck Investment banking 1,314 -- 6,353 --
Ryan, Beck Commissions 4,875 -- 16,539 --
Equity in earnings of BBC -- 3,187 -- 9,113
Transaction fees 3,351 -- 9,823 --
ATM fees 2,827 -- 8,060 --
Other 1,663 320 5,179 1,934
-------- -------- -------- --------
Total non-interest income 23,567 4,273 77,620 12,137
-------- -------- -------- --------
Non-interest expense:
Employee Compensation / benefits excluding
Ryan, Beck and Levitt Corp. 11,884 298 34,553 887
Compensation in connection with corporate merger 1,320 -- 1,320 --
Employee Compensation / benefits for Ryan, Beck and Levitt Corp 9,583 -- 30,800 --
Occupancy and equipment 6,965 13 19,934 43
Advertising and promotion 1,953 -- 6,089 --
Foreclosed asset activity, net 24 -- 299 --
Amortization of cost over fair value of net assets acquired 1,018 -- 3,058 --
Other excluding Ryan, Beck and Levitt Corp. 5,885 129 16,956 524
Other - Ryan, Beck and Levitt Corp. 4,515 -- 14,813 --
-------- -------- -------- --------
Total non-interest expense 43,147 440 127,822 1,454
-------- -------- -------- --------
Income before income taxes, minority interest,
extraordinary items and discontinued operations 3,005 4,409 17,009 10,663
Provision for income taxes 2,107 1,614 8,536 4,005
Minority interest in income of consolidated subsidiary 3,637 -- 11,987 --
-------- -------- -------- --------
(Loss) income from continuing operations
before discontinued operations and extroardinary items (2,739) 2,795 (3,514) 6,658
Income from discontinued operations, net of taxes 165 -- 424 --
-------- -------- -------- --------
(Loss) income before extraordinary items (2,574) 2,795 (3,090) 6,658
Extraordinary items, net of taxes 3,966 113 7,432 113
-------- -------- -------- --------
Net income $ 1,392 2,908 4,342 6,771
======== ======== ======== ========
Basic (loss) earnings per share from continuing operations $ (0.34) 0.35 (0.44) 0.84
Basic earnings per share from discontinued operations 0.02 -- 0.05 --
Basic earnings per share from extraordinary items 0.50 0.01 0.94 0.01
-------- -------- -------- --------
Basic earnings per share $ 0.18 0.36 0.55 0.85
======== ======== ======== ========
Diluted (loss) earnings per share from continuing operations $ (0.32) 0.32 (0.41) 0.75
Diluted earnings per share from discontinued operations 0.02 -- 0.05 --
Diluted earnings per share from extraordinary items 0.46 0.01 0.87 0.01
-------- -------- -------- --------
Diluted earnings per share $ 0.16 0.33 0.51 0.76
======== ======== ======== ========
Basic weighted average shares outstanding 7,957 7,957 7,957 7,957
======== ======== ======== ========
Diluted weighted average shares outstanding 8,492 8,780 8,508 8,858
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the nine months ended September 30, 2000 and 1999
(In thousands)
(Unaudited)
Net
Unrealized
Appreciation
Addi- (Depreciation)
Compre- Class A Class B tional on Securities
hensive Common Common Paid-in Retained Available
income Stock Stock Capital Earnings for Sale Total
------ ----- ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1998 $ 58 21 26,095 30,660 797 57,631
Comprehensive income
Net income $ 6,771 -- -- -- 6,771 -- 6,771
-------
Other comprehensive loss,
net of tax:
Change in unrealized losses on
securities available for sale (3,807) -- -- -- -- -- --
Reclassification adjustment
for net gains included
in net income (297) -- -- -- -- -- --
-------
Other comprehensive loss (4,104) -- -- -- -- -- --
-------
Comprehensive income $ 2,667 -- -- -- -- -- --
=======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- (52) -- -- (52)
Change in net unrealized appreciation
(depreciation) on securities
available for sale-net of
deferred income taxes -- -- -- -- (4,104) (4,104)
------- ------- ------- ------- ------- -------
Balance at September 30, 1999 $ 58 21 26,043 37,431 (3,307) 60,246
======= ======= ======= ======= ======= =======
Balance at
December 31, 1999 $ 58 21 25,890 38,086 (5,090) 58,965
Net income $ 4,342 -- -- -- 4,342 -- 4,342
-------
Other comprehensive income,
net of tax:
Change in unrealized gains on
securities available for sale 3,552 -- -- -- -- -- --
Reclassification adjustment
for net gains included
in net income (460) -- -- -- -- -- --
-------
Other comprehensive income 3,092 -- -- -- -- -- --
-------
Comprehensive income $ 7,434 -- -- -- -- -- --
=======
Net effect of BBC capital
transactions, net of
deferred income taxes -- -- 25 -- -- 25
Change in net unrealized
appreciation (depreciation) on
securities available for sale-net of
deferred income taxes -- -- -- -- 3,092 3,092
------- ------- ------- ------- ------- -------
Balance at September 30, 2000 $ 58 21 25,915 42,428 (1,998) 66,424
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<TABLE>
<CAPTION>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999
(In thousands)
(Unaudited)
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Operating activities:
(Loss) income from continuing operations $ (3,514) 6,658
Income from discontinued operations, net of taxes 424 --
Extraordinary items, net of taxes 7,432 113
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Provision for loan losses 22,016 225
Provision for losses on real estate owned 80 --
Depreciation, amortization and accretion, net 10,446 363
Equity in earnings of BankAtlantic Bancorp, Inc. ("BBC") -- (9,113)
Minority interest in income of consolidated subsidiary 11,987 --
Write-off of deferred offering costs 1,314 --
Decrease in deferred tax asset, net 768 4,025
Trading account gains (5) --
Proceeds from sales of trading securities 5 --
Increase in trading securities owned - Ryan Beck (2,568) --
Losses on sales of real estate owned 82 --
Change in real estate inventory (1,230) (235)
Gains on sales of securities available for sale (1,003) --
Write-down of securities available for sale 780 --
Loans held for sale valuation allowance 557 --
Gains on sales of property and equipment (240) --
Proceeds from sales of loans held for sale 42,730 --
Funding of loans held for sale (28,093) --
Loans purchased, classified as held for sale (92,707) --
Compensation in connection with corporate merger 1,320 --
Gain on sales of loans held for sale (124) --
Provision for tax certificates losses 675 --
Increase in accrued interest receivable (10,307) --
Equity in earnings of unconsolidated real estate
joint ventures (1,096) (847)
Proceeds from escrow for called debenture liability 2,455 --
Decrease (increase) in other assets 3,549 (468)
Increase in other liabilities 17,574 343
----------- -----------
Net cash (used in) provided by operating activities (16,693) 1,064
Investing activities:
Common stock dividends received from BBC -- 914
Proceeds from redemption and maturities of tax certificates 85,972 --
Principal pay-down on mortgage-backed securities
held to maturity 10,360 --
Purchases of tax certificates and other securities (136,766) (7,450)
Proceeds from sales of securities available for sale 89,810 8
Principal collected on securities available for sale 135,456 --
Purchases of securities available for sale (81,986) --
Purchases of mortgage-backed securities held to maturity (235,458) --
Proceeds from sales of FHLB stock 14,627 --
FHLB stock acquired (8,205) --
Principal reduction on loans 802,444 107
Loan fundings for portfolio (661,744) --
Loans purchased for portfolio (172,445) --
Proceeds from maturities of banker's acceptances 8,742 --
Purchases of banker's acceptances (2,898) --
Proceeds from sales of real estate owned 3,711 --
Cost of equipment acquired for lease (41,864) --
Additions to office property and equipment (8,816) --
Proceeds from sales of property and equipment 422 --
Improvements to real estate owned (226) (94)
Investment in and advances to joint ventures, net (3,226) --
Acquisition, net of cash acquired (222)
Other 56 40
----------- -----------
Net cash used in investing activities (202,256) (6,475)
Financing activities:
Net increase in deposits 101,567 --
Interest credited to deposits 57,269 --
Repayment of FHLB advances (1,182,441) --
Proceeds from FHLB advances 1,064,004 --
Net increase in securities sold under agreements to repurchase 200,572 --
Net increase in federal funds purchased 7,600 --
Repayment of notes payable (53,080) (4,307)
Increase in notes payable 62,306 8,079
Retirement of subordinated debentures (50,786) --
Issuance of investment notes 34,678 --
Proceeds received upon exercise of employee stock options 2,169 --
Payments to acquire and retire BBC common stock (4,363) --
Payments to acquire and retire publicly held BBC Class B
Common Stock (33,050) --
Common stock dividends paid to other
shareholders (excluding BFC) (2,144) --
Receipts of advances by borrowers for taxes and insurance 8,427 --
----------- -----------
Net cash provided by financing activities 212,728 3,772
----------- -----------
Decrease in cash and cash equivalents (6,221) (1,639)
Cash and cash equivalents at beginning of period 1,545 --
Cash resulting from consolidation of BBC 90,383 2,523
----------- -----------
Cash and cash equivalent at end of period $ 85,707 884
=========== ===========
Supplementary disclosure and non-cash investing and
financing activities:
Interest paid on borrowings and deposits $ 157,727 2,999
Income taxes paid 2,466 --
Loans transferred to real estate owned 5,204 --
Commercial non-mortgage loans held for investment transferred
to held for sale 123,868 --
Residential loans held for sale transferred to held for investment 221,757 --
Loan charge-offs 20,027 --
Tax certificate charge-offs, net 458 --
Change in stockholders' equity resulting from the Company's
proportionate share of BBC's net unrealized appreciation
(depreciation) on securities available for sale, net of
deferred income taxes 3,099 (4,199)
Change in stockholders' equity resulting from the Company's
net unrealized (depreciation) appreciation on securities
available for sale, net of deferred income taxes (7) 95
Net effect of BBC capital transactions, net of deferred income taxes 25 (52)
Loan securitization 58,491 --
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 2000
1. Presentation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
by BFC Financial Corporation (the "Company" or "BFC") in accordance with the
accounting policies described in its 1999 Annual Report and should be read in
conjunction with the notes to the consolidated financial statements which appear
in that report.
On August 17, 2000, BankAtlantic Bancorp, Inc. ("BBC") Class A and Class B
shareholders approved a transaction which resulted in the redemption and
retirement of all of its outstanding shares of Class B Common Stock not owned by
BFC. The Class B Common Stock represents 100% of the voting rights of BBC. The
consolidated financial statements include the accounts of BFC, its wholly owned
subsidiaries and majority controlled subsidiary, BankAtlantic Bancorp, Inc.
("BBC"). Adjustments to operations relating to changes in the Company's
percentage ownership are reflected in minority interest. All significant
intercompany accounts and transactions have been eliminated in consolidation. In
1999, BBC was carried using the equity method and prior year amounts have not
been restated as a result of the consolidation.
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Company's unaudited
consolidated statements of financial condition at September 30, 2000 and
December 31, 1999, the unaudited consolidated statements of operations for the
nine and three month periods ended September 30, 2000 and 1999, the unaudited
consolidated statements of stockholders' equity and comprehensive income for the
nine months ended September 30, 2000 and 1999 and the unaudited consolidated
statements of cash flows for the nine months ended September 30, 2000 and 1999.
Such adjustments consisted only of normal recurring items. The unaudited
consolidated financial statements and related notes are presented as permitted
by Form 10-Q and should be read in conjunction with the notes to consolidated
financial statements appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
2. Investment in BankAtlantic Bancorp, Inc., Subordinated Debentures and
Investment Notes
At September 30, 2000, the Company's ownership of BBC Class A and Class B Common
Stock was approximately 26.2% and 100%, respectively. On August 17, 2000, BBC's
Class A and Class B shareholders approved a transaction which resulted in the
redemption and retirement of all publicly held shares of Class B Common Stock at
a price of $6.00 per share that had the effect of converting the Company's
4,876,124 shares of BBC Class B Common Stock into Class B Common Stock with an
equivalent economic value. Pursuant to the transaction, BBC paid $33.1 million
(including $1.4 million of transaction expenses) to retire 5,275,752 shares of
Class B Common Stock. As a result of the transaction that was structured as a
merger, BFC Financial Corporation became the sole holder of all BBC Class B
Common Stock. The Class B Common Stock held by BFC represents 100% of the voting
rights of BBC.
The following are equity transactions of BBC that impact or could impact the
Company's ownership percentage of BBC.
Outstanding options to purchase BBC Class A Common Stock remained exercisable
for the same number of shares of BBC Class A Common Stock of BBC for the same
exercise price and upon the same terms as in effect before the merger. Likewise,
BBC's 6-3/4% Convertible Subordinated Debentures due 2006 and 5-5/8% Convertible
Subordinated Debentures due 2007 remained convertible into the same number of
shares of BBC Class A Common Stock of BBC at the same conversion price and upon
the same terms as in effect before the merger.
The redemption and retirement of all publicly held shares of BBC's Class B
Common Stock pursuant to the merger transaction resulted in compensation expense
of $1.3 million for the three and nine months ended September 30, 2000. The
compensation charge resulted from the exercise of options to acquire BBC's Class
B common six months before the merger date.
On September 29, 2000, BBC completed a tender offer and purchased $25 million
aggregate principal amount of BBC's 5 5/8% Debentures for an aggregate purchase
price of $18.25 million. BBC recognized a $3.8 million (net of income tax)
extraordinary gain upon the retirement of the Debentures. During the third
quarter of 2000 BBC purchased $700,000 of 5-5/8% Debentures in the secondary
market and recognized an extraordinary gain of $158,000, net of tax.
The merger transaction and the tender offer were funded through the issuance of
investment notes and funds obtained from the revolving credit facility.
On August 24, 2000, BBC closed on a revolving credit facility of up to $20
million from an independent financial institution. The credit facility has a
three year term and bears interest at prime minus 50 basis points. The Credit
facility contains customary covenants including financial covenants relating to
regulatory capital and maintenance of certain loan loss reserves and is secured
by the Common Stock of BankAtlantic. At September 30, 2000, the credit facility
had an outstanding balance of $19.96 million. BBC was in compliance with all
loan covenants at September 30, 2000.
In January 2000, BBC commenced an offering of up to $150 million of subordinated
investment notes. BBC currently anticipates that no more than $50 million of
investment notes will be outstanding at any time. No minimum amount of
investment notes must be sold and BBC may terminate the offering at any time.
The interest rate and maturity date are fixed upon issuance. At September 30,
2000 BBC had issued an aggregate of $34.7 million of investment notes with
interest rates between 10% and 11.75% and maturity dates between February 2002
and September 2002.
The following table sets forth the activity of all outstanding options issued
under BBC's stock option plans:
Class B Class A
------- -------
Outstanding at December 31, 1999 1,759,468 3,588,336
Issued (canceled) in connection with
merger transaction (1,136,108) 1,704,148
Exercised 623,360 --
Granted -- 350,000
Canceled -- (92,652)
---------- ----------
Outstanding at September 30, 2000 -- 5,549,832
========== ==========
Exercisable at September 30, 2000 -- 2,157,570
========== ==========
Exercise price per share outstanding -- $2.26-12.23
========== ==========
In August 2000, BBC's Class B Common Stock shareholder approved the BankAtlantic
Bancorp 2000 non-qualifying stock option plan which authorized the issuance of
options to acquire up to 1,704,148 shares of BBC's Class A Common Stock. The
plan was established pursuant to the merger transaction in order to exchange
options to acquire BBC's Class B Common Stock for options to acquire BBC's Class
A Common Stock. All outstanding options to acquire BBC's Class B Common Stock
were exchanged for 1,704,148 non-qualifying options to acquire BBC's Class A
Common Stock at an exercise price ranging from $2.26 to $2.32 based upon the
exercise price of the relevant Class B option. The options issued had the same
intrinsic value as the BBC's Class B options canceled and had substantially the
same terms and conditions as the former options to purchase shares of BBC's
Class B Common Stock, including vesting and term. The 1994 option plan for the
issuance of options to acquire Class B Common Stock was terminated.
On May 2, 2000, BBC's Board of Directors granted, pursuant to the BankAtlantic
Bancorp 1999 stock option plan, incentive stock options and non-qualifying stock
options to purchase 317,500 shares of BBC's Class A Common Stock to selected
officers and directors of BBC. The options vest in five years and expire ten
years after the grant date except for options issued to non-officer Directors
which vested immediately and 34,064 options which vest 66 months from the grant
date. The exercise price for all of the above option grants was $3.688, the
market value of the underlying common stock at the date of grant except for
90,000 options that were issued at 110% of the fair market value at the date of
the grant. Furthermore, during the nine months ended September 30, 2000, 32,500
options to acquire BBC's Class A Common Stock were issued to selected officers
with exercise prices ranging from $3.94 to $4.44. The options were issued at
fair value at the date of the grant, vest in five years and expire ten years
after the grant date.
3. Tax Certificates and Other Securities Held to Maturity
Included in other securities are investments that the Company (not including
BBC) has made in connection with limited partnerships that it has formed or will
form. The Company currently intends to sponsor future limited partnerships that
will provide venture capital to unaffiliated third parties. As the Company
identifies an investment that it believes may be suitable for one of these
partnerships, it may make an investment with the view towards transferring the
investment to a future partnership. Through 1999, the Company made investments
of approximately $6.7 million in five unaffiliated technology entities for this
purpose. During 2000, the ownership in the technology entities was transferred
at the Company's cost therein to a specified asset limited partnership managed
by a subsidiary. In March 2000, a total of $8.0 million in interests, including
interests retained by the Company and affiliates, were sold by such partnership
to accredited investors in a private offering. In April 2000, the Company
received approximately $5.8 million from the partnership representing repayment
of the amounts advanced plus $303,000 of interest on the advances net of the
Company's $1.3 million retained investment in the partnership. The Company also
received an administrative services fee and out-of pocket expenses from the
partnership. In addition to the amount invested by the Company, officers,
directors and affiliates of the Company invested approximately $3.9 million in
the Partnership.
During the nine months ended September 30, 2000, the Company made additional
advances to a subsidiary of approximately $6.4 million to acquire venture
capital investments in entities in the technology industry. In August 2000, an
approximately $1.6 million investment was transferred to a limited partnership
managed by a subsidiary of the Company. The Company received approximately $1.7
million from the partnership representing payment of the amounts advanced of
approximately $1.6 million plus $82,000 of interest on the advances and $18,000
of administrative services fee. The Company retained an investment in this
partnership of approximately $292,500. The remaining advances will be repaid,
with interest, when the partnerships are funded. The Company's venture
investments have been made in entities whose interests are not publicly traded
and therefore there is no liquidity in the investments and no available quoted
market value for the investments. Accordingly, the investments are carried at
the Company's cost, which is believed to approximate market value
In 1999, the Company also invested approximately $1.7 million in three entities
in the retail sector which are included in other securities. In 2000, the
Company invested $1.7 million in affiliated limited partnerships with
investments in the technology sector. It is anticipated that the Company will
make additional investments in partnerships that it sponsors.
4. Trading Securities
During the three and nine months ended September 30, 2000, BBC realized losses
of $16,000 and gains of $5,000 on trading securities. During the third quarter
of 2000, BBC discontinued its government securities and Euro-dollar trading
activities closing out all option and future contracts because these trading
activities did not meet BBC's overall growth and profit objectives.
Ryan Beck losses and gains on trading securities were associated with sales and
trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of Ryan Beck. Transactions as
principal involve making markets in securities which are held in inventory to
facilitate sales to and purchases from customers. Included in other liabilities
at September 30, 2000 was $5.9 million of securities sold not yet purchased,
relating to Ryan Beck trading activity.
BBC's trading securities consisted of the following (in thousands):
September 30,
2000
----
Debt obligations:
States and municipalities $ 6,185
Corporations 707
U.S. Government and agencies 4,944
Corporate equities 3,004
Certificate of deposit 11,039
-------
Total $25,879
=======
5. Loans Held for Sale
BBC continuously evaluates its business units for profitability, growth and
overall efficiency. As a result, BBC made a determination to discontinue its
capital markets activities and its participation in syndication lending.
BankAtlantic's Capital Markets Group purchased residential loans with the intent
to package and sell, securitize or retain these loans based on individual
characteristics. As a consequence of BBC discontinuing its Capital Markets
activities, $222 million of residential loans held for sale were transferred
from the held for sale portfolio to the held to maturity portfolio resulting in
BBC realizing a loss of $654,000. As a result of BBC discontinuing its
syndication lending activities, the entire portfolio of $123.9 million of
syndication loans was transferred at June 30, 2000 from loans held to maturity
to loans held for sale.
6. Real Estate Held for Development and Sale and Joint Venture Activities
Levitt Corporation is a wholly owned subsidiary of BankAtlantic. Levitt
Corporation's real estate held for development and sale and joint venture
activities consists of the combined activities of St. Lucie West Holding
Corporation ("SLWHC"), and Levitt & Sons, Inc. SLWHC is the developer of the
master planned community of St. Lucie West in St. Lucie County Florida. Levitt &
Sons, which was acquired in December 1999, is a developer of single-family home
communities and condominium and rental apartment complexes primarily in Florida.
Also, included in real estate held for development and sale and joint venture
activities is BFC's real estate in the Center Port property, completely sold in
2000.
Real estate held for development and sale and joint ventures consisted of the
following (in thousands):
September 30, December 31,
2000 1999
-------- --------
Inventory of real estate, Levitt & Sons $ 77,193 --
SLWHC land 32,763 --
Loans to joint ventures 37,523 --
Equity investments in joint ventures 6,077 --
Other 3,793 1,840
-------- --------
$157,349 1,840
======== ========
7. Comprehensive Income
The income tax provision relating to the Company's proportionate share of BBC's
comprehensive income reclassification adjustment in the Consolidated Statements
of Stockholders' Equity and Comprehensive Income for the nine months ended
September 30, 2000 and 1999 was $252,000 and $150,000, respectively.
8. Discontinued Operations
At December 31, 1998, BBC's Board of Directors adopted a formal plan to dispose
of BBC's mortgage servicing business ("MSB"). During the three and nine months
ended September 30, 2000 the BBC recognized income from discontinued operations,
net of tax of $165,000 and $424,000, respectively. The $165,000 liability
adjustment during the three months ended September 30, 2000 was associated with
lower than projected costs associated with loans serviced in the former mortgage
loan servicing unit of BankAtlantic. The remaining liability adjustment of
$259,000, net of tax, resulted from the sale of a building used in BBC's MSB
operations at a higher than projected sales price.
9. Derivatives
During the nine months ended September 30, 2000, BBC entered into interest rate
swap contracts with various primary brokers in an aggregate notional amount of
$275 million, of which $150 million terminate two years from the date of
issuance and are callable six months after the issue date, $75 million terminate
one year from the date of issuance, $30 million terminate one year from the date
of issuance and are callable three months after the issue date and $20.0 million
terminate five years from date of issue date and are callable one year after the
issue date. The interest rate swap contracts obligate BBC to pay the one month
LIBOR index and BBC receives an average fixed rate of interest of 7.08% for the
two year interest rate swaps, 6.83% for the one year interest rate swaps, 7.10%
for the one-year-callable interest rate swaps and 7.20% for the
five-year-callable interest rate swaps. The interest rate swap contracts were
executed to convert BBC's fixed rate callable time deposits to a one-month LIBOR
interest rate. The interest rate swaps were accounted for as a synthetic
alteration. The net interest receivable or payable on the interest rate swaps
was accrued and recognized as an adjustment to interest expense in the Company's
Statement of Operations for the three and nine months ended September 30, 2000.
10. Segment Reporting
Operating segments are defined as components of an enterprise about which
separate financial information is available that is regularly reviewed by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
contribution calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating segments
into reportable segments in 2000 and 1999:
Reportable Segment Operating Segments Aggregated
------------------ -----------------------------
Bank Investment Operations:
Other Investment Division, Tax Certificate
Department, Trading, Equity Portfolio
Wholesale Residential Real Estate Capital Services, Capital Markets
Bank Loan Operations:
Commercial Commercial Lending, Syndications,
International and Trade Finance
Retail Residential Lending, CRA Lending, Indirect
and Direct Consumer Lending, Small Business
Lending, Lease financing
Real Estate Operations Includes the BMOC property, Center Port
property, 50% interest in the Delray
property and mortgage receivables that
relate to previously owned properties and
Levitt Corporation which includes Levitt &
Sons, SLWHC, and real estate joint ventures
Investment Banking Operations Ryan, Beck & Co.
Other BFC BFC's minority interest in BBC, other
securities and investments and BFC's
overhead and interest expense
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements or an allocated cost of funds and are effectively eliminated in
the interest expense and overhead allocations.
Segment performance is evaluated based on net contribution after tax The
following table presents segment information for income (loss) from continuing
operations for the three and nine month periods ended September 30, 2000 and
1999. Since, the Company acquired control of BBC voting rights in August 2000,
the 1999 table excludes BBC's segment performance on a consolidated basis. In
1999, the Company's ownership position of approximately 32.1% in BBC was carried
under the equity method.
The following table is segment information for income (loss) from continuing
operations for the three and nine months ended September 30, 2000:
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2000
---------------------------------------------
Bank Investment Bank Loan
Operations Operations
---------- ----------
Wholesale
Other Residential Commercial Retail
----- ----------- ---------- ------
<S> <C> <C> <C> <C>
(in thousands)
Interest income $ 21,098 24,182 27,315 11,196
Interest expense
and overhead (20,092) (20,884) (19,923) (7,342)
Provision
for loan losses -- 37 (8,185) 1,452
Non-interest income 30 (152) 474 686
=========== =========== =========== ===========
Segment profits
(losses) before taxes $ 198 2,738 (227) 2,395
Provision (benefit)
for income taxes 71 986 (82) 1,305
Minority interest -- -- -- --
----------- ----------- ----------- -----------
Segment net income (loss) $ 127 1,752 (145) 1,090
=========== =========== =========== ===========
Segment total assets $ 1,075,383 1,283,821 1,156,124 229,514
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Investment
Real Estate Banking Other Segment
Operations Operations BFC Total
---------- ---------- --- -----
<S> <C> <C> <C> <C>
(in thousands)
Interest income $ 854 558 131 85,334
Interest expense
and overhead (1,707) 90 (687) (70,545)
Provision
for loan losses -- -- -- (6,696)
Non-interest income 6,311 9,345 60 16,754
=========== =========== =========== ===========
Segment profits
(losses) before taxes $ 423 (2,026) (496) 3,005
Provision (benefit)
for income taxes 163 (701) 365 2,107
Minority interest -- -- 3,637 3,637
----------- ----------- ----------- -----------
Segment net income (loss) 260 (1,325) (4,498) (2,739)
=========== =========== =========== ===========
Segment total assets $ 167,447 62,201 11,563 3,986,053
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 2000
--------------------------------------------
Bank Investment Bank Loan
Operations Operations
---------- ----------
Wholesale
Other Residential Commercial Retail
----- ----------- ---------- ------
<S> <C> <C> <C> <C>
(in thousands)
Interest income $ 56,154 74,901 75,722 33,371
Interest expense
and overhead (51,225) (61,728) (51,408) (20,139)
Provision --
for loan losses -- (141) (10,474) (11,401)
Non-interest income 121 368 745 2,132
=========== =========== =========== ===========
Segment profits
(losses) before taxes $ 1,887 11,519 13,305 (8,153)
Provision (benefit)
for income taxes 748 4,519 5,346 (2,913)
Minority interest -- -- -- --
----------- ----------- ----------- -----------
Segment net income (loss) $ 1,139 7,000 7,959 (5,240)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Investment
Real Estate Banking Other Segment
Operations Operations BFC Total
---------- ---------- --- -----
<S> <C> <C> <C> <C>
(in thousands)
Interest income $ 1,490 1,499 522 243,659
Interest expense
and overhead (4,486) (188) (2,259) (191,433)
Provision
for loan losses -- -- -- (22,016)
Non-interest income 18,199 35,518 305 57,388
=========== =========== =========== ===========
Segment profits
(losses) before taxes $ 2,645 (2,763) (1,431) 17,009
Provision (benefit)
for income taxes 369 (908) 1,375 8,536
Minority interest -- -- 11,987 11,987
----------- ----------- ----------- -----------
Segment net income (loss) $ 2,276 (1,855) (14,793) (3,514)
=========== =========== =========== ===========
</TABLE>
The following table is segment information for income from continuing operations
for the three and nine months ended September 30, 1999:
For the Three Months Ended September 30, 1999
Real Estate Other Segment
Operations BFC Total
---------- --- -----
(in thousands)
Interest income $ 997 61 1,058
Interest expense and overhead (233) (614) (847)
Equity in earnings in BBC -- 3,187 3,187
Provision for loan losses (75) -- (75)
Non-interest income 1,028 58 1,086
======== ======== ========
Segment profits before taxes $ 1,717 2,692 4,409
Provision for income taxes 662 952 1,614
-------- -------- --------
Segment net income $ 1,055 1,740 2,795
======== ======== ========
Segment total assets $ 11,107 88,086 99,193
======== ======== ========
For the Nine Months Ended September 30, 1999
Real Estate Other Segment
Operations BFC Total
---------- --- -----
(in thousands)
Interest income $ 1,178 160 1,338
Interest expense and overhead (698) (1,889) (2,587)
Equity in earnings in BBC -- 9,113 9,113
Provision for loan losses (225) -- (225)
Non-interest income 2,733 291 3,024
======== ======== ========
Segment profits before taxes $ 2,988 7,675 10,663
Provision for income taxes 1,153 2,852 4,005
-------- -------- --------
Segment net income $ 1,835 4,823 6,658
======== ======== ========
The differences between total segment assets and total consolidated assets and
the difference between segment non-interest income and total consolidated
non-interest income are as follows:
September 30,
-------------
2000 1999
---- ----
(in thousands)
Total Assets
Total Assets for reportable segments $3,986,053 99,193
Assets in overhead 447,244 --
---------- ----------
Total consolidated assets $4,433,297 99,193
========== ==========
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Non-interest Income
Total non-interest income for
reportable segments $16,754 1,086 57,388 3,024
Equity in earnings in BBC -- 3,187 -- 9,113
Items included in interest
expense and overhead:
Transaction fee income 3,351 -- 9,823 --
ATM fees 2,827 -- 8,060 --
Gains on sales of property
and equipment -- -- 240 --
Other deposit related fees 635 -- 2,109 --
------- ------- ------- -------
Total consolidated non-interest
income $23,567 4,273 77,620 12,137
======= ======= ======= =======
11. New Accounting Standards and Policies
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.
The Company intends to implement FAS 133, as amended by FAS 137 and 138 as of
January 1, 2001 and its potential impact on the Statement of Operations and
Statement of Condition is currently under review by management.
Financial Accounting Standards Board Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("FAS 140") was issued in September 2000. FAS 140 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial-components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 140 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
FAS 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Disclosures about securitization and collateral accepted need
not be reported for periods ending on or before December 15, 2000, for which
financial statements are presented for comparative purposes. FAS 140 is to be
applied prospectively with certain exceptions. Other than those exceptions,
earlier or retroactive application of its accounting provisions is not
permitted.
The potential impact on the Statement of Operations and Statement of Condition
of FAS 140 is currently under review by management.
12. Reclassifications
Certain amounts for prior periods have been reclassified to conform with the
statement presentation for the periods in 2000.
13. (Loss) Earnings per Share
The following table reconciles the numerators and denominators of the basic and
diluted (loss) earnings per share computations for the three and nine month
periods ended September 30, 2000 and 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Numerator:
(Loss) income from continuing operations
available for common shareholders $(2,739) 2,795 (3,514) 6,658
Income from discontinued operations
net of taxes available
for common shareholders 165 -- 424 --
Extraordinary item, net of taxes
available for common shareholders 3,966 113 7,432 113
------- ------- ------- -------
Net income available for
common shareholders $ 1,392 2,908 4,342 6,771
======= ======= ======= =======
Basic Denominator:
Weighted average shares
outstanding 7,957 7,957 7,957 7,957
======= ======= ======= =======
Basic (loss) earnings per share
from continuing operations $ (.34) 0.35 (.44) .84
Basic earnings per share from
discontinued operations .02 -- .05 --
Basic earnings per share from
extraordinary items .50 .01 .94 .01
------- ------- ------- -------
Basic earnings per share $ .18 .36 .55 .85
======= ======= ======= =======
Diluted Numerator:
(Loss) income from continuing operations
available for common shareholders $(2,739) 2,795 (3,514) 6,658
Income from discontinued operations
net of taxes available
for common shareholders 165 -- 424 --
Extraordinary item, net of taxes
available for common shareholders 3,966 113 7,432 113
------- ------- ------- -------
Net income available for
common shareholders $ 1,392 2,908 4,342 6,771
======= ======= ======= =======
Diluted Denominator
Basic weighted average shares
outstanding 7,957 7,957 7,957 7,957
Options 535 823 551 901
------- ------- ------- -------
Diluted weighted average shares
outstanding 8,492 8,780 8,508 8,858
======= ======= ======= =======
Diluted (loss) earnings per share
from continuing operations $ (.32) .32 (.41) .75
Diluted earnings per share from
discontinued operations .02 -- .05 --
Diluted earnings per share from
extraordinary items .46 .01 .87 .01
------- ------- ------- -------
Diluted earnings per share $ .16 .33 .51 .76
======= ======= ======= =======
</TABLE>
The Company has two classes of common stock outstanding. The two-class method is
not presented because the Company's capital structure does not provide for
different dividend rates or other preferences, other than voting rights, between
the two classes.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
BFC Financial Corporation (the "Company" or "BFC") is a savings bank holding
company that owns approximately 26.2% and 100%, respectively of the outstanding
BankAtlantic Bancorp, Inc. ("BBC") Class A and Class B Common Stock. BBC is the
holding company for BankAtlantic, A Federal Savings Bank ("BankAtlantic") by
virtue of its ownership of 100% of the outstanding BankAtlantic common stock.
On August 17, 2000, BBC's Class A and Class B shareholders approved a
transaction which resulted in the redemption and retirement of all publicly held
shares of Class B Common Stock at a price of $6.00 per share that had the effect
of converting the Company's 4,876,124 shares of Class B Common Stock into Class
B Common Stock with an equivalent economic value. Pursuant to the above
transaction, BBC paid $33.1 million (including $1.4 million of transaction
expenses) to retire 5,275,752 shares of Class B Common Stock. As a result of the
transaction that was structured as a merger, BFC Financial Corporation became
the sole holder of the BBC Class B Common Stock. The Class B Common Stock
represents 100% of the voting rights of BBC.
As the sole holder of BBC Class B Common Stock BFC now controls greater than 50%
of the vote of BBC and BBC is consolidated in the financial statements of BFC
instead of carried on the equity basis. Adjustments to operations relating to
changes in the Company's percentage ownership are reflected in minority
interest. Since the structure of the Company has changed, the following
management's discussion and analysis deals primarily with the activities of BBC
since it now represents substantially all of the Company's assets and business
operations. Comparative amounts for BBC are included in much of the discussion
although they are not consolidated in the comparable accompanying financial
statements.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. When used in this report, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results could differ materially from
these forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, economic factors (both generally
and particularly in areas where the Company or its subsidiaries operate or hold
assets), interest rates, competitive and other factors affecting the operations,
markets, products and services, and expansion strategies of the Company and its
subsidiaries including BBC and BankAtlantic, the success of its venture capital
and real estate investments and the other factors discussed elsewhere in this
report and in the documents filed by the Company with the Securities and
Exchange Commission. Many of these factors are beyond the Company's control.
Results of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Loss) income from continuing operations $(2,739) 2,795 (3,514) 6,658
Income from discontinued operations, net of taxes 165 -- 424 --
------- ----- ----- -----
(Loss) income before extraordinary items (2,574) 2,795 (3,090) 6,658
Extraordinary items, net of taxes 3,966 113 7,432 113
------- ----- ----- -----
Net income $ 1,392 2,908 4,342 6,771
======= ===== ===== =====
Basic (loss) earnings per share:
Basic (loss) earnings per share from continuing operations $ (0.34) 0.35 (0.44) 0.84
Basic earnings per share from discontinued operations 0.02 -- 0.05 --
Basic earnings per share from extraordinary items 0.50 0.01 0.94 0.01
------- ----- ----- -----
Basic earnings per share $ 0.18 0.36 0.55 0.85
======= ===== ===== =====
Diluted (loss) earnings per share:
Diluted (loss) earnings per share from continuing operations $ (0.32) 0.32 (0.41) 0.75
Diluted earnings per share from discontinued operations 0.02 -- 0.05 --
Diluted earnings per share from extraordinary items 0.46 0.01 0.87 0.01
------- ----- ----- -----
Diluted earnings per share $ 0.16 0.33 0.51 0.76
======= ===== ===== =====
Basic weighted average shares outstanding 7,957 7,957 7,957 7,957
======= ===== ===== =====
Diluted weighted average shares outstanding 8,492 8,780 8,508 8,858
======= ===== ===== =====
</TABLE>
BFC Financial Corporation (loss) income from continuing operations
BFC's (loss) income from continuing operations decreased for the three months
ended September 30, 2000 as compared to 1999. The primary reasons for the
decrease were:
o a decline in BBC's earnings (as discussed below in BBC's operations),
o interest received in 1999 from an affiliated real estate limited
partnership that had not been accrued in prior years which did not
recur in 2000. As a result of the sale of its real estate properties,
the affiliated limited partnership obtained the funds which allowed it
to make the interest payment. This decrease in interest income was
offset in part by an increase in interest earned from advances
relating to real estate held for development and sale and interest
received in 2000 from affiliates in connection with amounts advanced
for venture capital investments,
o a decrease in interest expense due to a reduction in borrowings, and
o an increase in other non-interest expense primarily due to venture
expenses in 2000 which were not incurred in 1999.
BFC's (loss) income from continuing operations decreased for the nine months
ended September 30, 2000 as compared to 1999 primarily due to
o a decline in BBC's earnings (as discussed below in BBC's operations),
o interest received in 1999 from an affiliated real estate limited
partnership that had not been accrued in prior years which did not
recur in 2000. As a result of the sale of its real estate properties,
the affiliatedlimited partnership obtained the funds which allowed it
to make the interest payment. This decrease in interest income was
offset in part by an increase in interest earned from advances
relating to real estate held for development and sale and interest
received from affiliates in connection with amounts advanced for
venture capital investments,
o a decrease in interest expense due to a reduction in borrowings,
o a 1999 provision for loan losses on mortgage notes due from affiliated
limited partnerships, based upon management's determination regarding
the net carrying value of the loans and the estimated fair value of
the underlying loan collateral,
o an increase in sale of real estate at Center Port,
o a decrease in other non-interest income relating to distributions
received in 1999 from real estate limited partnerships and
o an increase in other expenses primarily due to venture expenses in
2000 which were not incurred in 1999.
BFC's extraordinary items - BFC's operations for the three and nine month
periods ended September 30, 1999 included an extraordinary gain, net of income
taxes of approximately $113,000 due to a gain on settlement of litigation of
approximately $292,000 and an extraordinary loss from extinguishment of debt of
approximately $179,000.
The following discusses BBC's comparative information, not including BFC, for
the three and nine month periods ended September 30, 2000 as compared to the
same periods in 1999.
BBC's income from continuing operations for the quarter- Income from continuing
operations declined significantly during the three months ended September 30,
2000 compared to the same period during 1999. The primary reasons for the
decline were:
o a substantial decrease in Ryan Beck investment banking income
reflecting revenues from a $544 million initial public offering that
closed during 1999 with no corresponding initial public offering
closings during 2000,
o a significant increase in bank operations compensation associated with
the hiring of a new senior management team and higher labor costs due
to market competition,
o a compensation charge associated with the redemption and retirement of
all publicly traded BBC's Class B Common Stock,
o a significant increase in other real estate expenses resulting from
the acquisition of Levitt & Sons in December 1999,
o an increase in bank operations occupancy expenses associated with
repairs and maintenance on bank branches, data processing services and
maintenance contracts associated with ATM operations,
o lower gains on the sale of residential loans held for sale, net of
$436,000 in write-downs,
o an increase in advertising costs associated with the operations of
Levitt & Sons and the promotions of new deposit and loan products,
o higher other expenses excluding Ryan Beck and real estate operations
primarily associated with consulting fees related to technology
investments, internet banking operating costs and general corporate
expenses associated with deposit and loan growth, and
o a decrease in net interest income due to a decline in the net interest
margin reflecting the rising interest rate environment which began in
July 1999.
The above reductions in income from continuing operations were partially offset
by:
o a decrease in the provision for loan losses resulting from a decline
in indirect consumer loan charge-offs and lower aggregate small
business and indirect consumer loan portfolio balances,
o an increase in gains on sales of real estate held for sale due to the
December 1999 Levitt & Sons acquisition,
o an increase in Ryan Beck commissions income due to mutual fund sales,
and
o a benefit recognized in BBC's defined pension plan.
BBC's income from continuing operations for the nine months -BBC's income from
continuing operations for the nine months ended September 30, 2000 declined by
62% compared to the same period during 1999. The primary reasons for the decline
were related to the items discussed above along with:
o an increase in the provision for loan losses attributed to charge-offs
and delinquency trends in the small business, syndication and indirect
consumer loan portfolios,
o a $695,000 realized loss on the sale of a syndication loan,
o a decline in income from foreclosed asset activity, net attributable
to the sale of a REO property during 1999 for a $1.4 million gain, and
o lower gains on the sale of property and equipment resulting from a
$1.5 million gain on the sale of a branch facility during 1999.
The above reductions in income from continuing operations were partially offset
by a $651,000 decline in the deferred tax asset valuation allowance due to gains
on the sale of real estate from Levitt Corporation and the related decrease in
the provision for income taxes. Furthermore, SLWHC realized a $4.3 million gain
from the utility expansion receivable sale during the nine months ended
September 30, 2000.
BBC's discontinued operations - Income from discontinued operations for the
three and nine months ended September 30, 2000 was $165,000 and $424,000, net of
income taxes, respectively. The $165,000 gain represents a liability adjustment
associated with lower than projected costs associated with loans serviced in the
former mortgage loan servicing unit of BankAtlantic. The remaining liability
adjustment during the nine months ended September 30, 2000 resulted from the
sale of a building.
During the three and nine months ended September 30, 1999 the discontinued
operations gain resulted primarily from slower loan repayments than originally
estimated which were the result of rising residential loan interest rates during
the period.
BBC's extraordinary items - The extraordinary items resulted from the early
extinguishment of debt. On February 29, 2000, BBC repurchased $25 million
aggregate principal amount of its 5 5/8% Debentures for $18.75 million. Included
in the extraordinary item was $250,000 of costs associated with the tender offer
and a $673,000 write-off of unamortized original issuance costs. On September
29, 2000, BBC repurchased another $25 million aggregate principal amount of its
5-5/8% Debentures for $18.25 million. Included in the extraordinary item was
$250,000 of costs associated with the tender offer and a $641,000 writeoff of
unamortized original issuance costs. Also, during the third quarter of 2000 BBC
purchased $700,000 of its 5-5/8% Debentures in the secondary market and
recognized an extraordinary gain of $158,000, net of tax.
BBC's net interest income
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
(In thousands) 2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans and leases $ 62,241 54,444 7,797 182,089 163,378 18,711
Interest on banker's acceptances 212 348 (136) 699 736 (37)
Interest and dividends on securities available
for sale 12,292 14,496 (2,204) 38,866 39,167 (301)
Interest and dividends on investment
securities held to maturity and trading
securities 10,293 3,936 6,357 20,754 9,886 10,868
Interest on deposits (24,070) (20,525) (3,545) (66,175) (57,645) (8,530)
Interest on advances from FHLB (15,158) (13,227) (1,931) (46,698) (40,061) (6,637)
Interest on securities sold under agreements
to repurchase (10,317) (4,732) (5,585) (24,306) (13,129) (11,177)
Interest on subordinated debentures, notes
payable and guaranteed preferred interest
in the BBC's Junior Subordinated (7,570) (5,176) (2,394) (21,091) (14,875) (6,216)
Debentures
Capitalized interest 1,400 171 1,229 4,926 503 4,423
-------- -------- -------- -------- -------- --------
Net interest income $ 29,323 29,735 (412) 89,064 87,960 1,104
======== ======== ======== ======== ======== ========
Net interest margin 2.92 % 3.13 % (0.21)% 2.97 % 3.17 % (0.20)%
======== ======== ======== ======== ======== ========
</TABLE>
BBC - third quarter this year versus the same quarter last year:
Net interest income was slightly lower primarily resulting from a narrowing of
the net interest margin partially offset by interest earning asset growth. The
net interest margin declined 21 basis points from 3.13% to 2.92%. The narrowing
of the net interest margin was due to the rising interest rate environment which
began in July 1999. The increase in earning assets during the period primarily
resulted from the origination and purchases of commercial real estate loans.
Total interest income increased by $11.8 million while total interest expense
increased by $12.2 million. The increase in interest income resulted from higher
average interest earning assets and average yields. BBC experienced significant
loan growth concentrated in the commercial real estate segment of bank loan
operations. Additionally, other securities held to maturity increased due to
purchases of mortgage-backed securities and tax certificate fundings. The above
increases in interest earning assets were partially offset by declines in
securities available for sale resulting from principal pay-downs and sales.
Average yields on interest earning assets increased due to a rising interest
rate environment.
The increase in total interest expense reflects the funding of the asset growth
primarily with FHLB advances and securities sold under agreements to repurchase
and an increase in associated average borrowing rates as well as increased
borrowings related to the merger transaction which resulted in the retirement of
all publicly traded Class B Common Stock. The increased average rates on
interest paying liabilities primarily resulted from competition in BBC's deposit
markets and the increasing interest rate environment discussed above resulting
in higher rates on institutional borrowings. Additionally, BBC funded the
retirement of $50.8 million of 5-5/8% Debentures and the retirement of all
publicly traded BBC Class B common stock with the issuance of $34.7 million of
Investment Notes with interest rates ranging from 10% to 11.75% and borrowings
of $19.96 million from a revolving credit facility obtained from an independent
financial institution. The revolving credit facility bears interest at prime
minus 50 basis points.
The increase in loan interest income primarily resulted from increases in
average loan balances and higher average yields. BBC experienced growth in
commercial real estate loans, lease financings and home equity loans. The
increase in loan average balances was partially offset by declines in BBC's
consumer, residential and small business loan portfolios. The decline in
consumer loans resulted from BBC ceasing the origination of indirect consumer
loans as part of its December 1998 restructuring plan. The decline in small
business loan average balances resulted from a significant decrease in loan
originations during the 1999 fiscal year and the nine months of 2000 compared to
the 1998 fiscal year. The residential loan portfolio decline reflects lower
originations associated with the downsizing of the residential loan division as
well as lower residential loan originations during 1999 and the nine months of
2000 compared to prior periods. Also contributing to the increase in loan
interest income was higher yields due to the increases in the prime interest
rate.
The decline in banker's acceptances interest income resulted from lower average
balances partially offset by higher yields.
The decrease in securities available for sale interest income primarily resulted
from lower average balances partially offset by higher average yields. The lower
average balances resulted from principal pay-downs and sales of mortgage-backed
securities. The higher yields were due to new purchases of securities at higher
rates than the existing portfolio and interest rate increases on adjustable rate
mortgage-backed securities.
The increase in interest and dividends on investment securities held to maturity
and trading securities primarily resulted from interest income associated with
tax certificates and mortgage-backed securities held to maturity. The additional
tax certificate income resulted from expansion of BBC's tax certificate
operations outside of the State of Florida. The increased mortgage-backed
securities held to maturity average balances resulted from purchases. BBC did
not have mortgage-backed securities held to maturity during the 1999 periods.
The increase in deposit expense primarily resulted from higher rates on deposits
partially offset by lower time deposit average balances. The decline in time
deposit average balances was due to the maturity of brokered deposits. The
increased deposit average rates reflect the introduction of new transaction and
time deposit products and a rising interest rate environment during the latter
half of 1999 and the first nine months of 2000. The new deposit products have
higher interest rates than BBC's other deposits. Overall, the average rates on
interest-bearing deposits increased from 4.09% during the 1999 quarter to 4.97%
during the comparable 2000 period.
The increase in interest expense on advances from FHLB was primarily due to
higher average balances and rates. The additional FHLB advance average balances
were used to fund loan growth. The higher rates reflect the origination of new
advances during 2000 at higher rates than the existing portfolio as well as the
repricing of callable advances.
The higher interest expense on securities sold under agreements to repurchase
resulted from higher average balances and rates. The higher average balances
funded tax certificate and loan growth as well as the purchase of other
securities held to maturity. The higher rates reflect a rising interest rate
environment.
The increase in interest on subordinated debentures, guaranteed preferred
interest in BBC's Junior Subordinated Debentures and notes and bonds payable
resulted from notes payable acquired in connection with the Levitt & Sons
acquisition and borrowings to fund the redemption and retirement of all publicly
owned BBC Class B common stock and the repurchase and retirement of $50.8
million of the 5 5/8% Debentures. The Levitt Corporation average notes payable
balance during the 2000 period was $51 million compared to $10.5 million during
the 1999 period. The reduction of interest expense associated with the
retirement of $50.8 million of the 5 5/8% Debentures was offset by the interest
expense related to the issuance of $34.7 million of investment notes and $19.96
million of borrowings from an independent financial institution.
Interest expense of $1.4 million was capitalized during the three months ended
September 30, 2000 associated with Levitt Corporation real estate operations and
investments and advances to joint ventures. During the three months ended
September 30, 1999 $171,000 of interest expense was capitalized in connection
with investments and advances to real estate joint ventures.
BBC - year-to-date this year versus year-to-date last year:
Net interest income was slightly higher during the current period. Total
interest income increased by $29.2 million while total interest expense
increased by $28.1 million. The change in net interest income primarily resulted
from the items discussed above. The net interest margin declined by 20 basis
points. Yields on earning assets increased from 7.75% during the 1999 period to
8.08% during the 2000 period. Likewise, rates on interest bearing liabilities
increased from 4.86% during the 1999 period to 5.48% during the 2000 period. The
change in net interest margin primarily resulted from the items discussed above
for the three months ended September 30, 2000.
BBC - provision for loan losses
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period $ 48,650 38,100 44,450 37,950
Charge-offs:
Commercial real estate loans -- -- -- (211)
Non-mortgage commercial -- (26) (24) (87)
Lease financing (427) (231) (1,349) (779)
Small business - real estate -- (51) (85) (136)
Small business- non-mortgage (4,072) (3,039) (10,167) (7,870)
Consumer loans -indirect (1,594) (2,321) (5,988) (7,939)
Consumer loans - direct (243) (368) (2,020) (1,580)
Residential real estate (53) (10) (394) (113)
-------- -------- -------- --------
(6,389) (6,046) (20,027) (18,715)
-------- -------- -------- --------
Recoveries:
Commercial real estate loans -- 5 -- 203
Residential real estate 9 -- 108 --
Lease financing 59 32 221 181
Non-mortgage commercial 38 18 80 168
Small business - non-mortgage 330 49 617 123
Consumer loans -indirect 790 479 2,335 1,429
Consumer loans - direct 167 140 550 605
-------- -------- -------- --------
1,393 723 3,911 2,709
-------- -------- -------- --------
Net charge-offs (4,996) (5,323) (16,116) (16,006)
Additions charged to operations 6,696 8,223 22,016 19,056
-------- -------- -------- --------
Balance, end of period $ 50,350 41,000 50,350 41,000
======== ======== ======== ========
</TABLE>
The provision for loan losses decreased during the three months ended September
30, 2000 compared to the same 1999 period. The improvement primarily resulted
from lower credit losses in BBC's indirect loan portfolio, declining aggregate
small business and indirect loan balances and improved delinquency trends during
the 2000 quarter compared to the same period during 1999. The majority of BBC's
net charge-offs were from the small business and indirect loan portfolios. The
aggregate balances in these portfolios declined from $238.2 million at September
30, 1999 to $151.3 million at September 30, 2000. The above positive trends were
partially offset by higher lease financings charge-offs, potential problem loans
and a $3.7 million specific reserve in the syndication loan portfolio. The
increase in lease financing charge-offs primarily associated with portfolio
growth.
The provision for loan losses increased during the nine months ended September
30, 2000 compared to the same 1999 period primarily due to losses experienced in
the small business and consumer lending portfolios, including an increase in
direct consumer loan second mortgage charge-offs and additional reserves
assigned to the syndication and indirect consumer loan portfolios.
The increase in the allowance for loan losses for the nine months ended
September 30, 2000 resulted from small business, and consumer loan delinquency
trends, potential problem loans and a $1.3 million specific reserves assigned to
the indirect consumer loan portfolio and the syndication loan specific reserve
mentioned above.
At the indicated dates BBC's non-performing assets were (in thousands):
September 30, December 31,
2000 1999
---- ----
Nonaccrual:
Tax certificates $ 2,664 2,258
Loans and leases 27,574 42,741
------- -------
Total nonaccrual 30,238 44,999
------- -------
Repossessed Assets:
Real estate owned, net of allowance 5,282 3,951
Vehicles and equipment 1,301 1,253
------- -------
Total repossessed assets 6,583 5,204
------- -------
Contractually past due 90 days or more (1) 2 410
------- -------
Total non performing assets $36,823 50,613
======= =======
(1) The majority of these loans in both periods had matured but the
borrowers continued to make payments under the matured loan
agreement.
The decrease in non-accrual loans and leases resulted from:
o $4.5 million decrease in consumer non-accrual loans,
o a $8.1 million decline in non-accrual residential loans including a
$4.5 million decline in non-accrual residential loans purchased,
o a $2.0 million reduction in non-accrual small business loans and
o a $1.2 million decrease in non-accrual commercial loans.
Non-accrual and repossessed consumer loans decreased significantly due to a
change in collection procedures. Repossessed equipment associated with lease
financing increased by $437,000 primarily as a result of portfolio growth.
The improvement in residential non-accrual loans reflect that BBC either
negotiated a payoff or foreclosed and sold the collateral on non-accrual
residential loans acquired. The remaining decline in residential non-accrual
loans reflects improvements in the delinquency trends of the portfolio.
The increase in nonaccrual tax certificates was attributed to portfolio growth.
The reduction in small business non-accrual loans resulted from a declining
portfolio and changes in the collection process resulting in improvements in the
delinquency trends.
Non-accrual commercial loans improved due to a payoff of a nonresidential
commercial real estate loan and the foreclosure of a commercial real estate
loan.
The increase in REO balances was attributed to increased residential REO and the
foreclosure mentioned above.
Two syndication loans totaling $22 million and $5.2 million of small business
loans were not included in the above table but are considered potential problem
loans. The two syndication loans did not meet their loan covenants resulting in
management having serious doubts as to the ability of such borrowers to comply
with the present loan repayment terms. The small business loans were considered
impaired resulting in management having serious doubts that BBC will collect all
contractual principal and interest payments. As noted previously, BBC had
established allowances for loan loss reserves for these problem loans. At
September 30, 2000 both syndication loans and the impaired loans in the small
business portfolio had made all contractual principal and interest payments.
BBC non-interest income
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 Change 2000 1999 Change
(In thousands) ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Non-interest income
Bank operations
Loan late fees and other loan income $ 981 1,404 (423) 3,088 3,893 (805)
Gains on sales of loans held for sale, net
of write-down (144) 759 (903) (433) 1,626 (2,059)
Gains on sales of property and equipment -- 34 (34) 240 1,494 (1,254)
Trading account gains (losses) (16) (5) (11) 5 (59) 64
Gains (losses) on sales of securities
available for sale (8) 31 (39) 223 1,449 (1,226)
Transaction accounts 3,351 3,480 (129) 9,823 10,499 (676)
ATM fees 2,827 2,617 210 8,060 7,320 740
Other 860 791 69 2,586 2,919 (333)
-------- -------- -------- -------- -------- --------
Non-interest income - banking operations 7,851 9,111 (1,260) 23,592 29,141 (5,549)
-------- -------- -------- -------- -------- --------
Ryan Beck operations
Principal transactions 2,993 3,680 (687) 11,994 8,384 3,610
Investment banking 1,314 14,475 (13,161) 6,353 18,815 (12,462)
Commissions 4,875 4,422 453 16,539 10,429 6,110
Other 163 210 (47) 632 504 128
-------- -------- -------- -------- -------- --------
Non-interest income - Ryan Beck 9,345 22,787 (13,442) 35,518 38,132 (2,614)
-------- -------- -------- -------- -------- --------
Levitt operations
Gains on sales of real estate held for sale 3,518 241 3,277 9,687 5,628 4,059
Equity in earnings of unconsolidated
real estate joint ventures 1,501 (170) 1,671 1,089 1,140 (51)
Utility expansion receivable sale -- -- -- 4,265 -- 4,265
Other 318 425 (107) 932 501 431
-------- -------- -------- -------- -------- --------
Non-interest income - real estate
operations 5,337 496 4,841 15,973 7,269 8,704
-------- -------- -------- -------- -------- --------
Total non-interest income $ 22,533 32,394 (9,861) 75,083 74,542 541
======== ======== ======== ======== ======== ========
</TABLE>
BBC's non-interest income - bank operations
Loan late fees and other loan income decreased during the three and nine months
ended September 30, 2000 compared to the same periods during 1999. The decrease
primarily resulted from lower prepayment penalties on commercial real estate
loans, a decline in late fees on consumer and residential loans and a decrease
in renewal fee income on small business loans.
The declines in gains on sales of loans held for sale during the three and nine
months ended September 30, 2000 resulted from a decline in residential loans
originations for resale and losses associated with capital markets activities.
The realized loss on the syndication loan sale resulted from BBC accepting an
offer from the underwriter of a syndication loan to purchase the loan at a
discount. The borrower on the syndication loan received a going concern opinion
from its independent auditors'. In September 2000, BBC discontinued its capital
markets activities and reclassified all its loans held for sale to loans held to
maturity.
During the three months ended September 30, 2000 BBC sold $6.4 million of
residential loans and a $12.5 million syndication loan held for sale for
realized gains of $288,000 and a realized loss of $695,000, respectively. BBC
had established a $700,000 valuation allowance associated with the syndicated
loan in a prior period. Additionally, BBC transferred $222 million of
residential loans held for sale to loans held to maturity and recorded a
$654,000 writedown on the transfer date. BBC had established a $217,000
valuation allowance associated with the residential loans in prior periods.
During the nine months ended September 30, 2000 BBC sold $42.6 million of loans
held for sale for a $819,000 gain and recorded a $557,000 loss related to
residential loans held for sale and a $695,000 loss associated with the
syndication loan sale mentioned above.
During the three months ended September 30, 1999 BBC sold $30.1 million of loans
held for sale for a $759,000 gain. During the nine months ended September 30,
1999 BBC sold $95.1 million of loans held for sale, $20.4 million of loans
purchased and classified as held for sale and $1.4 million of leases for a $1.6
million gain.
During the nine months ended September 30, 2000, BBC sold ATM equipment and a
parcel of land for gains of $58,000 and $182,000, respectively. There were no
sales of properties and equipment during the three months ended September 30,
2000.
During the three and nine months ended September 30, 1999, two branches were
consolidated and the vacated property was sold for a gain of $1.5 million.
During the three and nine months ended September 30, 2000, BBC's trading
operations resulted in a $16,000 loss and a $5,000 gain, respectively, compared
to a $5,000 and a $59,000 loss during the same 1999 periods. During the third
quarter of 2000 BBC discontinued its government securities and Euro-dollar
trading activities closing out all option and future contracts. These trading
activities did not meet BBC's overall growth and profit objectives.
During the three months ended September 30, 2000 BBC sold $2.8 million of equity
securities for a $75,000 loss and $1.5 million of securitized mortgage-backed
securities for a $67,000 gain.
During the nine months ended September 30, 2000, BBC securitized $58.5 million
of loans held for sale and sold $31.4 million of the resulting securities for a
$379,000 gain. BBC also sold $49.9 million of treasury notes for a $18,000 gain,
$2.3 million of corporate bonds for a $112,000 loss and $6.2 million of
securities available for sale for a $62,000 loss. The $62,000 loss includes a
$781,000 write-down of marketable equity securities available for sale. The
write-down was made due to a significant decline in the market value of the
security. The decline was considered other than temporary due to the magnitude
and length of time of the decline and the financial condition and the near term
prospects for the issuer of the security. The securities was sold in September
2000.
During the three and nine months ended September 30, 1999 BBC sold $84.1 million
and $222.6 million of securities available for sale for gains as shown on the
above table. Included in the sales of securities available for sale were $24.1
million of securitized loans.
Transaction fee income declined during the three and nine months ended September
30, 2000. BBC experienced lower analysis charges and monthly transaction fee
income during the three and nine months ended September 30, 2000 compared to the
same periods in 1999. Overdraft charges were slightly higher during the three
months ended September 30, 2000 compared to the same 1999 period.
The increase in ATM fee income during the three and nine months ended September
30, 2000 was primarily the result of a renegotiated profit sharing agreement for
certain locations and increased ATM activity at BBC's branch locations.
The increase in other income during the three months ended September 30, 2000
was due to higher fees earned on deposit customer services and additional fee
income from BBC's lease financing operations.
The decrease in other income during the nine months ended September 30, 2000
resulted from lower commissions earned from teller check outsourcing and deposit
customer services.
BBC's non-interest income - Ryan Beck operations
The decline in principal transaction income during the three months ended
September 30, 2000 compared to the same 1999 period was due to a volatile equity
market and overall negative market sentiment exhibited by investors during the
current quarter. Furthermore, Ryan Beck realized approximately $500,000 of
trading gains in connection with a $544 million initial public offering that it
managed during 1999.
The increase in principal transaction income during the nine months ended
September 30, 2000 compared to the same 1999 period reflects revenues generated
in general market research and internet stocks during the first half of this
year. Additionally, Ryan Beck absorbed a significant one-day trading loss during
the second quarter of 1999.
The significant decrease in investment banking revenues during the three and
nine months ended September 30, 2000 compared to the same 1999 period resulted
from the effect of a $544 million initial public offering during the 1999
quarter while investment banking revenues during the current quarter were at
their lowest level since the quarter ended June 30, 1999.
The significant increase in commission income during the three months ended
September 30, 2000 compared to the same 1999 period was attributed to mutual
fund sales which was due to increased interest in the various mutual fund
products offered to Ryan Beck clients. The increase in commission income during
the nine months ended September 30, 2000 compared to the same 1999 period
resulted from commissions from general market research stocks and BankAtlantic
Bank Brokerage.
The decrease in other income during the three months ended September 30, 2000
resulted from lower fees from insurance sales. The increased other income during
the nine months ended September 30, 2000 compared to the same 1999 period
resulted from increased transaction fee income and an unrealized gain in a hedge
fund investment.
BBC's non-interest income - Levitt operations
During the three and nine months ended September 30, 2000 SLWHC land sales
resulted in gains of $266,000 and $2.1 million, respectively, while Levitt &
Sons sales of real estate resulted in net gains of $3.2 million and $7.6
million, respectively. During the three and nine months ended September 30, 1999
SLWHC land sales resulted in gains of $241,000 and $5.6 million, respectively.
Levitt Corporation's equity in earnings from joint ventures was $1.5 million and
$1.1 million during the three and nine months ended September 30, 2000 compared
to a loss of $170,000 during the three months ended September 30, 1999 and a
gain of $1.1 million during the nine months ended September 30, 1999. During the
quarter ended September 30, 2000, a real estate joint venture closed on the sale
of a multi-family apartment complex for a gain allocable to BBC of $664,000.
During the first quarter of 1999, one of the real estate joint ventures closed
on a land sale to an unaffiliated developer resulting in the recognition of a
gain allocable to BBC of $1.7 million. Additionally, during the nine months
ended September 30, 1999, BBC relinquished its equity participation rights in a
loan accounted for as a joint venture in exchange for substantial principal
repayments on the loan and a guarantee from a real estate investment trust
resulting in BBC transferring $20.8 million in investments in joint ventures to
loans receivable. The loan was repaid in full in 1999.
During February 2000, SLWHC received a cash payment of $8.5 million representing
the full satisfaction of a receivable from public municipality providing water
and wastewater services to St. Lucie West resulting in a $3.9 million gain. The
gain was subsequently adjusted upward during the second quarter of 2000 by
$363,000. The adjustment related to the finalization of proceeds due to minority
participants. The cash payment is in full settlement of a receivable pursuant to
the agreement dated December 1991 between SLWHC and the municipality. The 1991
agreement required the municipality to reimburse SLWHC for its cost of
increasing the service capacity of the utility plant via payment to SLWHC of the
future connection fees generated from such capacity.
During the three and nine months ended September 30, 2000, BBC capitalized $1.4
million and $4.9 million of interest expense associated with real estate
inventory and investments and advances to real estate joint ventures. During the
three and nine months ended September 30, 1999 BBC capitalized $171,000 and
$503,000 of interest expense.
Other income during the three and nine months ended September 30, 2000
represents other revenues from Levitt & Sons and storage income from a marina
property. Other income during the three months and nine months ended September
30, 1999 primarily represents accretion of SLWHC impact fee receivables
established at the acquisition date. Levitt & Sons was acquired in December
1999.
BBC's non-interest expenses
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest expense bank operations
Employee compensation and benefits $ 11,548 9,657 1,891 33,553 28,332 5,221
Compensation in connection with merger 1,320 -- 1,320 1,320 -- 1,320
Occupancy and equipment 6,053 5,497 556 17,292 16,086 1,206
Foreclosed asset activity, net 24 (205) 229 299 (1,470) 1,769
Advertising and promotion 914 483 431 2,947 1,282 1,665
Amortization of cost over fair value of net
assets acquired 708 709 (1) 2,125 2,130 (5)
Other 5,653 4,985 668 16,129 14,914 1,215
-------- -------- -------- -------- -------- --------
Non-interest expense 26,220 21,126 5,094 73,665 61,274 12,391
-------- -------- -------- -------- -------- --------
Ryan Beck operations
Employee compensation and benefits 7,957 12,415 (4,458) 26,533 25,346 1,187
Occupancy and equipment 903 873 30 2,611 1,959 652
Advertising and promotion 384 337 47 1,039 846 193
Amortization of cost over fair value of net
assets acquired 310 306 4 933 854 79
Other 2,271 2,542 (271) 8,209 6,524 1,685
-------- -------- -------- -------- -------- --------
Non-interest expenses 11,825 16,473 (4,648) 39,325 35,529 3,796
-------- -------- -------- -------- -------- --------
Real estate operations
Employee compensation and benefits 1,626 141 1,485 4,267 529 3,738
Advertising and promotion 655 152 503 2,103 537 1,566
Selling, general and administrative 2,244 1,282 962 6,604 3,264 3,340
-------- -------- -------- -------- -------- --------
4,525 1,575 2,950 12,974 4,330 8,644
-------- -------- -------- -------- -------- --------
Total non-interest expense $ 42,570 39,174 3,396 125,964 101,133 24,831
======== ======== ======== ======== ======== ========
</TABLE>
BBC's non-interest expense - bank operations
The significant increase in compensation expense during the three and nine
months ended September 30, 2000 primarily resulted from the hiring of a new
senior management team, as well as annual salary and benefit increases and
recruiting expenses. Due to competitive local labor market conditions, BBC
substantially increased its employee health insurance and 401(k) retirement
benefits. Additionally, increased loan and deposit growth resulted in
significant increases in bonuses and incentive compensation. The above
compensation increases were partially offset by a recognized benefit of 538,000
and $931,000 for the three and nine months ended September 30, 2000 associated
with BBC's defined benefit pension plan. The benefit was recognized due to a
change in actuarial assumptions during 2000 associated with the rising interest
rate environment. There was no corresponding benefit recognized during the 1999
periods.
The redemption and retirement of all publicly held shares of Class B Common
Stock pursuant to the merger transaction resulted in compensation expense of
$1.3 million for the three and nine months ended September 30, 2000. The
compensation charge resulted form the exercise of options to acquire Class B
common exercised six months before the merger date.
The increase in occupancy and equipment expenses during the three and nine
months ended September 30, 2000 resulted from higher ATM equipment repair and
maintenance, additional data processing fees, higher costs associated with
branch network repairs and maintenance, and additional rental expense associated
with new data processing facilities.
Higher advertising and promotion expense related to promotions associated with
BankAtlantic's new deposit and loan products as well as promotional costs
associated with internet banking.
The foreclosed asset activity, net primarily reflects residential loan REO
operations during the three and nine months ended September 30, 2000.
The foreclosed asset activity, net included during the three months ended
September 30, 1999 a $316,000 gain from the sale of foreclosed land acquired in
connection with the acquisition of the Bank of North America in 1996. The
foreclosed asset activity, net, included a $1.3 million gain from the sale of
one parcel of previously foreclosed commercial real estate property during the
nine months ended September 30, 1999.
The increase in other expenses during the three and nine months ended September
30, 2000 resulted from:
o higher consulting fees primarily associated with internet banking and upgrades
to BBC's technology infrastructure, o increased provision for tax certificates
attributed to the growth in the portfolio and o additional operating expenses
such as postage, telephone and general corporate expenses associated with
deposit and loan growth.
The above increases in other expense were partially offset by lower ATM
expenses. The decline in ATM expenses primarily resulted from a review and
renegotiation of various contracts with ATM vendors and suppliers.
BBC's non-interest expense - Ryan Beck
The decrease in compensation and benefits expense during the three months
ended September 30, 2000 compared to the same 1999 period was primarily due to
the $544 million initial public offering that closed in July 1999. Ryan Beck
did not close on an initial public offerings during the 2000 quarter.
The increase in compensation and benefits for the nine months ended September
30, 2000 compared to the same 1999 period resulted form higher commission
expenses associated with the higher commission revenues referred to above and
increases in salary, bonus, payroll taxes, profit sharing and insurance
expenses associated with nearly 60 additional employees. Ryan Beck during 1999
significantly expanded its business activities including the diversification
into the healthcare, consumer and technology industries, the expansion of
investment banking activities, the expansion of retail operations into
BankAtlantic branches and the acquisition of the Southeast Research Group.
The increases in occupancy and equipment during the three and nine months
ended September 30, 2000 compared to the same periods in 1999 reflects
additional rent and depreciation expenses associated with the expansion of
business activities indicated above and significant additions to assets
related to upgrades of information hardware and software systems.
The higher amortization of cost over fair value of net assets acquired for the
nine months ended September 30, 2000 compared to the same 1999 period was
attributable to the June 28, 1999 acquisition of the Southeast Research Group.
The decrease in other expenses during the three months ended September 30,
2000 resulted from lower professional fees and clearing fees. During the
September 2000 quarter Ryan Beck renegotiated its clearing agreement which
significantly reduced its clearing fees.
The increase in other expense during the nine months ended September 30, 2000
resulted from additional telephone, quotation and postage expenses associated
with the expanded business activities as well as a significant increase in
floor brokerage and clearing fees associated with a 73% increase in the number
of trades.
BBC's non-interest expense - real estate operations
The increase in real estate operations non-interest expenses primarily related
to the December 1999 acquisition of Levitt & Sons.
BBC's Segment Reporting
The table below provides segment information for continuing operations:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net contribution after income taxes
Bank investment operations-wholesale residential $ 1,752 2,459 7,000 7,068
Bank investment operations - other 127 1,602 1,139 5,294
Bank loan operations - retail products 1,090 (2,673) (5,240) (4,440)
Bank loan operations - commercial products (145) 4,595 7,959 14,702
Real estate operations (300) (1,069) 880 1,492
Investment banking operations (1,325) 3,976 (1,855) 1,575
------- ------- ------- -------
Net contributions $ 1,199 8,890 9,883 25,691
======= ======= ======= =======
</TABLE>
BBC bank investment operations - wholesale residential
Segment net contribution decreased during the three months ended September 30,
2000 compared to the same 1999 period primarily from a substantial increase in
allocated overhead partially offset by higher interest income associated with
a larger portfolio. The higher allocated overhead resulted from a significant
increase in non-interest expenses as well as higher bank-wide interest expense
primarily due to deposit and other borrowing rate increases. The additional
interest income resulted from improvement in yields on interest earning
assets.
Segment net contribution during the months remained at 1999 levels due to
higher average earnings assets and average yields during the nine month period
of 2000 compared to the same 1999 period. The additional interest income from
increased average assets and yields was offset by the substantially higher
allocated overhead.
BBC bank investment operations - other
Segment net contribution declined during the three and nine months ended
September 30, 2000 compared to the same 1999 period due to lower gains on the
sale of loans and securities available for sale as well as a realized losses
on the sales of marketable equity securities. The increase in interest income
during the three and nine months ended September 30, 2000 compared to the same
1999 period resulted from increased average earning assets relating primarily
to the purchase of securities during the period. The higher interest income
was offset by allocated overhead.
BBC bank loan operations - retail
Segment net contribution increased during the three months ended September 30,
2000 due primarily to a substantial decrease in the provision for loan losses
partially offset by lower earning asset balances, higher allocated overhead
and lower fee income. The decline in the provision for loan losses reflects
lower credit losses in BBC's indirect loan portfolio and declining aggregate
small business and indirect loan balances. The decline in portfolio balances
reflects lower fundings of small business loans and BBC's decision to cease
the origination of indirect consumer loans during 1998. Additionally,
non-interest income declined reflecting lower small business renewal fee
income.
Segment net contribution during the nine months ended September 30, 2000
compared to the same 1999 period decreased due to lower earning asset balances
and a decline in fee income. The above decreases in net contributions were
partially offset by an improvement in the provision for loan losses..
BBC bank loan operations - commercial
Segment net contribution declined substantially during the three and nine
months ended September 30, 2000 compared to the same periods during 1999 due
to a significant increase in the provision for loan losses, a $695,000
realized loss associated with a syndicated loan, and higher allocated
overhead. The provision for loan losses increase resulted from higher loan
balances and increased classified and problem assets in the syndicated loan
portfolio.
BBC real estate operations
Segment net contribution from real estate operations during the three months
ended September 30, 2000 compared to the same 1999 period increased due to a
higher earnings from joint venture operations, and earnings from Levitt & Sons
operations partially offset by additional overhead allocations. The decline in
net contribution during the nine months ended September 30, 2000 reflects
additional overhead allocations due to increased inter-company borrowings
partially offset by the sale of a utility expansion receivable and a reduction
in the deferred tax asset valuation allowance.
BBC investment banking operations
Segment net contribution from investment banking operations during the three and
nine months ended September 30, 2000 compared to the same 1999 period declined
primarily due to the $544 million initial public offering that closed in July
1999, higher operating expenses resulting from the expansion of Ryan Beck
operations and the acquisition of Southeast Research Group in June 1999.
Financial Condition
The Company's total assets at September 30, 2000 and December 31, 1999 were $4.4
billion and $96.7 million, respectively. On August 17, 2000, BankAtlantic
Bancorp, Inc. ("BBC") Class A and Class B shareholders approved a transaction
which resulted in the redemption and retirement of all of its outstanding shares
of Class B common stock not owned by BFC. The Class B Common Stock represents
100% of the voting rights of BBC. As the sole holder of BBC Class B Common
Stock, BFC now controls greater than 50% of the vote of BBC and will be
consolidated in the financial statement of BFC instead of carried on the equity
basis. The financial statements for 2000 and the various financial schedules
reflect major changes from the previous periods as a result of this transaction.
Since the structure of the Company has changed, at September 30, 2000 and
thereafter, BBC represents substantially all of the Company's assets and
business operations. Comparative amounts for BBC are included in much of the
discussion although they are not included in the accompanying financial
statements.
BBC 's - Financial Condition
BBC's total assets at September 30, 2000 were $4.4 billion compared to $4.2
billion at December 31, 1999. The increase in total assets primarily resulted
from increased:
o tax certificates and other securities held to maturity due to
purchases of mortgage-backed securities held to maturity and the
funding of tax certificate acquisitions,
o loans receivable, net resulting primarily from the origination and
purchase of commercial real estate loans,
o real estate held for development and sale and joint ventures due to
the funding of loan commitments to real estate joint ventures,
o accrued interest receivable reflecting the growth in earnings assets
and payments receivable on interest rate swaps,
o office properties and equipment resulting from computer hardware and
software expenditures,
o real estate owned reflecting a commercial nonresidential loan
foreclosure and
o trading securities related to Ryan Beck operations
The above increases in total assets were partially offset by decreased:
o securities available for sale resulting from principal pay-downs and
sales of mortgage-backed securities, REMICs, and equity securities,
o FHLB stock reflecting sales during the period,
o other assets reflecting lower balances in broker-dealer receivable,
dealer reserve and prepaid expenses, and
o deferred tax asset, net attributed to a decline in unrealized
depreciation on securities available for sale.
BBC's total liabilities at September 30, 2000 were $4.2 billion compared to $3.9
billion at December 31, 1999. The increase in total liabilities primarily
resulted from increased:
o deposit balances reflecting the introduction of new deposit products,
o securities sold under agreements to repurchase and federal funds
purchased used to fund growth in loans receivable, and other
securities held to maturity and to pay-down FHLB advances,
o advances by borrowers for taxes and insurance due to an increase in
commercial real estate escrow balances and
o other liabilities resulting from increased teller check balances,
higher current taxes payable and the establishment of a deferred
compensation liability associated with the BankAtlantic Bancorp-Ryan
Beck Deferred Compensation Plan.
The retirement of $50.8 million of BBC's 5.625% convertible subordinated
debenture during the nine months ended September 30, 2000 was offset by BBC
issuing $34.7 million of investment notes and borrowing $19.96 million from an
independent financial institution.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuation that arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is equity risk through its investment in BBC. The Company also bears
a market risk in its venture capital investments and real estate.
Equity Price Risk
The Company has made venture capital investments in various entities and has
invested in affiliated partnerships which hold investments in various entities
with the anticipation that it will be able to achieve a return on its investment
when these entities are either acquired by other companies or sell their stock
in public offerings. It is possible that the products being developed by these
entities will not gain market acceptance or that the public markets will not
support a pricing of these entities that would provide the Company with a return
on or recoupment of its investments in these entities. Management does not
believe that market risk on these equity instruments would have a significant
impact on the financial condition of the Company.
BBC maintains a portfolio of trading and available for sale securities which
subjects BBC to equity pricing risks. The change in fair values of equity
securities represents instantaneous changes in all equity prices segregated by
trading securities, securities sold not yet purchased and available for sale
securities. The following are hypothetical changes in the fair value of BBC's
securities sold not yet purchased, and trading and available for sale securities
at September 30, 2000 based on percentage changes in fair value. Actual future
price appreciation or depreciation may be different from the changes identified
in the table below.
Available
for Sale Securities
Percent Trading Equity Sold Not Total
Change in Securities Securities Yet Appreciation
Fair Value Fair Value Fair Value Purchased (Depreciation)
---------- ---------- ---------- --------- --------------
20 % $31,055 34,406 (7,058) 9,734
10 % 28,467 31,539 (6,470) 4,867
- % 25,879 28,672 (5,882) 0
(10)% 23,291 25,805 (5,294) (4,867)
(20)% 20,703 22,938 (4,706) (9,734)
Ryan Beck is a market maker in equity securities which could from time to time
require them to hold securities during declining markets. BBC attempts to manage
its equity price risk by maintaining a relatively small portfolio of securities
and evaluating equity securities as part of BBC's overall asset and liability
management process.
Interest Rate Risk
The majority of BBC's assets and liabilities are monetary in nature subjecting
BBC to significant interest rate risk. During the nine months ended September
30, 2000 BBC has entered into callable and noncallable interest rate swap
contracts to change fixed rate time deposits to floating rate borrowings.
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, 2000 resulting from a change in interest rates. Interest rate
sensitive instruments included in the model include BBC's loans, securities,
other earning assets, deposits, other borrowings, debentures, financial
derivatives and off balance sheet loan commitments.
BBC had fixed rate loan commitments aggregating $16.7 million at September 30,
2000.
The model calculates the net potential gains and losses in net portfolio fair
value by:
(i) discounting anticipated cash flows from existing assets, liabilities
and off-balance sheet contracts at market rates to determine fair
values at September 30, 2000,
(ii) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values, and
(iii) the difference between the fair value calculated in (i) and (ii) is
the potential gain or loss in net portfolio fair values.
BBC's management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no quoted market for many
of these financial instruments, management has no basis to determine whether the
fair value presented would be indicative of the value negotiated in an actual
sale. BankAtlantic's fair value estimates do not consider the tax effect that
would be associated with the disposition of the assets or liabilities at their
fair value estimates.
Presented below is an analysis of BBC's interest rate risk at September 30, 2000
as calculated utilizing BBC's model. The table measures changes in net portfolio
value for instantaneous and parallel shifts in the yield curve in 100 basis
point increments up or down.
Net Portfolio
Changes Value Dollar
in Rate Amount Change
------- ------ ------
(In thousands)
+200 bp $ 184,072 (110,100)
+100 bp 242,857 (51,315)
0 bp 294,172 --
(100) bp 332,765 38,593
(200) bp 321,771 27,599
In preparing the above table, BBC makes various assumptions to determine the net
portfolio value at the assumed changes in interest rate. These assumptions
include loan prepayment rates, deposit decay rates, market values of certain
assets under the assumed interest rate scenarios, and repricing of certain
deposits and borrowings.
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that BBC's assets and liabilities would be impacted as indicated
in the table above. In addition, a change in U.S. Treasury rates in the
designated amounts, accompanied by a change in the shape of the yield curve
could cause significantly different changes to the fair values than indicated
above. Furthermore, the result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory and reactive measures which BBC may take in the future
Liquidity and Capital Resources
The primary sources of funds to the Company (without consideration of BBC's
liquidity and capital resources) for the nine months ended September 30, 2000
were dividends from BBC, return of amounts previously held in escrow for called
Subordinated Debentures, interest received on advances to an affiliate in
connection with real estate held for development and sale, revenues from
property operations, principal reduction on loan receivables and fees and
interest received upon formation of affiliated partnerships. These funds were
primarily utilized to invest in venture capital technology entities, reduce
mortgage payable and other borrowings and to fund operating expenses and general
and administrative expenses.
In January 2000, in accordance with the terms of the escrow agreement entered
into in connection with litigation settlements, approximately $2.5 million
remaining in escrow to fund future payments associated with the called
Subordinated Debenture was released to the Company. Any future payments
associated with these settlements will be paid from the Company's working
capital. Payments are made only when a claimant presents for cancellation the
subordinated debenture that was cancelled upon settlements of litigation. At
September 30, 2000, there was approximately $5.0 million that could be presented
for payment in the future. The Company is not obligated to pay interest on this
amount.
As previously indicated the Company holds approximately 26.2% of Class A and
100% of Class B Common Stock of BBC. 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 the ability of BankAtlantic to pay dividends or otherwise advance funds
to BBC, which in turn is subject to OTS regulation and is based upon
BankAtlantic's regulatory capital levels and net income. Currently, BFC receives
a quarterly dividend aggregating approximately $322,000 from BBC.
BBC's Liquidity and Capital Resources
BBC's principal source of cash flow is dividends from BankAtlantic, sales of
securities available for sale, borrowings from financial service companies, and
proceeds from the issuance of debt and equity securities. Such funds were
utilized by BBC to pay dividends on its outstanding common stock, interest
payments on its 5-5/8% Debentures, investment notes and notes payable, acquire
its common stock, fund purchases of securities available for sale, and
repurchases of its Debentures. Dividends from BankAtlantic to BBC are currently
subject to regulatory approval.
BankAtlantic's primary sources of funds during the first nine months of 2000
were from principal collected on loans, securities available for sale and
investment securities held to maturity, sales of securities available for sale,
loans held for sale, FHLB stock, REO, and real estate held for development,
borrowings from FHLB advances, securities sold under agreements to repurchase,
sales of property and equipment, and deposit inflows. These funds were primarily
utilized to fund operating expenses, deposit maturities, loan purchases and
fundings, purchases of FHLB stock, and increases in tax certificates, trading
securities, real estate inventory, joint venture investments, securities held to
maturity and securities available for sale. At September 30, 2000, BankAtlantic
met all applicable liquidity and regulatory capital requirements.
BBC's commitments to originate loans at September 30, 2000 were $164.9 million
compared to $173.8 million at September 30, 1999. Additionally, BBC had
commitments to purchase $21.0 million of mortgage-backed securities at September
30, 2000 compared to zero during the same 1999 period. At September 30, 2000,
loan commitments were 6.0% of net loans receivable.
Leasing Technology Inc. ("LTI") is obligated on leases sold with full recourse
by LTI to investors prior to BBC's acquisition. Under the terms of such
agreements, LTI is subject to recourse for 100% of the remaining balance of the
lease receivable of LTI sold upon a default by the lessees. At September 30,
2000, the amount of lease payments subject to such recourse provisions was
approximately $1.2 million and a $47,000 estimated liability on leases sold with
recourse is included in other liabilities in BBC's Statement of Financial
Condition.
On August 17, 2000, BBC's Class A and Class B shareholders approved a
transaction which resulted in the redemption and retirement of all publicly held
shares of BBC Class B Common Stock at a price of $6.00 per share that had the
effect of converting the Company's 4,876,124 shares of BBC Class B Common Stock
into Class B Common Stock with an equivalent economic value. Pursuant to the
transaction, BBC paid $33.1 million (including $1.4 million of transaction
expenses) to retire 5,275,752 shares of BBC Class B Common Stock. As a result of
the transaction that was structured as a merger, BFC Financial Corporation
became the sole holder of all BBC Class B Common Stock. The BBC Class B Common
Stock held by BFC represents 100% of the voting rights of BBC.
Outstanding options to purchase BBC Class A Common Stock remained exercisable
for the same number of shares of BBC Class A Common Stock of BBC as the
surviving corporation for the same exercise price and upon the same terms as in
effect before the merger. Likewise, BBC's 6-3/4% Convertible Subordinated
Debentures due 2006 and 5-5/8% Convertible Subordinated Debentures due 2007
remained convertible into the same number of shares of Class A Common Stock of
BBC as the surviving corporation at the same conversion price and upon the same
terms as in effect before the merger.
All outstanding options to acquire BBC Class B Common Stock were exchanged for
1,704,148 non-qualifying options to acquire BBC Class A Common Stock at an
exercise price ranging from $2.26 to $2.32. The Class A options issued had the
same intrinsic value as BBC Class B options canceled and had substantially the
same terms and conditions as the former options to purchase shares of BBC Class
B Common Stock, including vesting and term. The 1994 option plan for the
issuance of options to acquire Class B Common Stock was terminated.
In August 2000, BBC announced a tender offer for up to $25 million in principal
amount of BBC's outstanding 5 5/8% Debentures due 2007 for a cash price of $730
per $1,000 principal amount of 5-5/8% Debentures. On September 29, 2000 BBC
accepted for purchase the maximum $25 million aggregate principal amount of
5-5/8% Debentures for an aggregate purchase price of $18.25 million under the
terms of the tender offer. Upon expiration of the tender offer, approximately
$45 million aggregate principal amount of the 5-5/8% Debentures had been validly
tendered, and since this amount exceeded the $25 million principal amount
tendered by BBC, the 5-5/8% Debentures tendered were purchased on a pro-rata
basis (at a ratio of approximately 56%) in accordance with the terms of the
tender offer. BBC recognized a $3.8 million (net of income tax) extraordinary
gain upon the retirement of the Debentures. Subject to market conditions and
other factors, BBC may seek to repurchase additional 5-5/8% Debentures in the
future.
In January 2000, BBC announced a tender offer for up to $25 million in principal
amount of BBC's outstanding 5 5/8% Debentures due 2007 for a cash price of $750
per $1,000 principal amount of 5-5/8% Debentures. On February 29, 2000 BBC
accepted for purchase the maximum $25 million aggregate principal amount of
5-5/8% Debentures for an aggregate purchase price of $18.75 million under the
terms of the tender offer. Upon expiration of the tender offer, approximately
$60 million aggregate principal amount of the 5-5/8% Debentures had been validly
tendered, and since this amount exceeded the $25 million principal amount
tendered by BBC, the 5-5/8% Debentures tendered were purchased on a pro-rata
basis (at a ratio of approximately 41%) in accordance with the terms of the
tender offer. BBC recognized a $3.5 million (net of income tax) extraordinary
gain upon the retirement of the Debentures.
During the third quarter of 2000 BBC purchased $700,000 of 5-5/8% Debentures in
the secondary market and recognized an extraordinary gain of $158,000 net of
tax.
In January 2000, BBC began an offering of up to $150 million of its subordinated
investment notes. BBC currently anticipates that no more than $50 million of
investment notes will be outstanding at any time. No minimum amount of
investment notes must be sold and BBC may terminate the offering at any time.
The interest rate and maturity date are fixed upon issuance. At September 30,
2000 BBC had issued an aggregate of $34.7 million of investment notes with
interest rates between 10% and 11.75% and maturity dates between February 2002
and September 2002. BBC may elect at any time prior to maturity to automatically
extend the maturity date of the investment notes for an additional one year. The
investment notes are subordinated to all existing and future senior
indebtedness.
On August 24, 2000, BBC closed on a revolving credit facility of up to $20
million from an independent financial institution. The credit facility has a
three year term and bears interest at prime minus 50 basis points. The Credit
facility contains customary covenants including financial covenants relating to
regulatory capital and maintenance of certain loan loss reserves and is secured
by the common stock of BankAtlantic. At September 30, 2000, the credit facility
had an outstanding balance of $19.96 million. BBC was in compliance with all
loan covenants at September 30, 2000.
BBC used the proceeds from the investment notes and the revolving credit
facility to fund the tender offer and the merger transaction.
On March 1, 2000, 749,533 restricted shares of BBC Class A Common Stock issued
to key employees of Ryan Beck in connection with the acquisition of Ryan Beck
were retired in exchange for the establishment of interests in the BankAtlantic
Bancorp-Ryan Beck Deferred Compensation Plan ("Plan") in the aggregate amount of
$7.8 million. In January 2000, each participant in the Ryan Beck retention pool
was provided the opportunity to exchange those restricted shares that were
allocated to such participant for a cash-based deferred compensation award in an
amount equal to the aggregate value of the restricted shares at the date of the
Ryan Beck acquisition. BBC may at its option terminate the Plan at anytime
without the consent of the participants or stockholders and distribute to the
participants the amount credited to their deferred account (in whole or in
part). Subject to the terms of the Plan, the participant's account will be
settled by BBC in cash on the vesting date (June 28, 2002) except BBC can elect
to defer payment of up to 50% of a participant's interest in the plan for up to
one year following the vesting date. If BBC elects to exercise it rights to
defer 50% of the cash payment, BBC will issue a note bearing interest at prime
plus 1%. As a result of the exchange, stockholders' equity declined by $3.2
million with a corresponding increase in other liabilities.
On July 14, 1999, BBC's Board of Directors approved the repurchase on the open
market of up to 3.5 million shares of BBC's common stock. The Board authorized
the repurchase of common stock on a "time-to-time" basis, depending upon market
conditions and subject to compliance with applicable securities laws. Pursuant
to the above repurchase plan BBC paid $4.4 million to repurchase and retire
736,000 shares of BBC Class B Common Stock during the nine months ended
September 30, 2000. Pursuant to a previously announced plan to repurchase shares
of common stock, BBC paid $8.4 million to repurchase and retire 1,149,655 shares
of Class A Common Stock and $1.6 million to repurchase and retire 221,345 shares
of BBC Class B Common Stock during the nine months ended September 30, 1999.
During the nine months ended September 30, 2000 BBC entered into interest rate
swap contracts with various primary brokers in an aggregate notional amount of
$275 million, of which $150 million terminate two years from the date of
issuance and are callable six months from the date of issuance, $75 million
terminate one year from the date of issuance, $30 million terminate one year
from the date of issuance and are callable three months after the issue date and
$20.0 million terminate five years from the issue date and are callable one year
after the issue date. The interest rate swap contracts obligate BBC to pay the
one month LIBOR index and BBC receives an average fixed rate of interest of
7.08% for the two year interest rate swaps, 6.83% for the one year interest rate
swaps, 7.10% for the one-year-callable interest rate swaps and 7.20% for the
five-year-callable interest rate swaps. The interest rate swap contracts were
executed to convert BBC's fixed rate callable time deposits to a one-month LIBOR
interest rate.
At the indicated date BankAtlantic's capital amounts and ratios were:
Adequately Well
Actual Capitalized Capitalized
Amount Ratio Ratio Ratio
------ ----- ----- -----
(In thousands)
At September 30, 2000:
Total risk-based capital $ 331,025 11.67 % 8.00 % 10.00 %
Tier I risk-based capital 295,444 10.41 4.00 6.00
Tangible capital 295,444 6.99 1.50 1.50
Core capital 295,444 6.99 4.00 5.00
At December 31, 1999:
Total risk-based capital 339,322 13.30 8.00 10.00
Tier I risk-based capital 307,270 12.04 4.00 6.00
Tangible capital 307,270 7.71 1.50 1.50
Core capital 307,270 7.71 4.00 5.00
Savings institutions are also subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). Regulations
implementing the prompt corrective action provisions of FDICIA define specific
capital categories based on FDICIA's defined capital ratios, as discussed more
fully in the BBC's Annual Report on Form 10K for the year ended December 31,
1999.
BBC's wholly owned subsidiary, Ryan Beck, is subject to the net capital
provisions of the Securities Exchange Act of 1934. At September 30, 2000, Ryan
Beck's regulatory net capital was approximately $6.3 million, which exceeded
minimum net capital rule requirements by $5.3 million.
Ryan Beck operates as a fully-disclosed broker and, accordingly, customer
accounts are carried on the books of the clearing broker. However, Ryan Beck
safe keeps and redeems municipal bond coupons for the benefit of its customers.
Accordingly, Ryan Beck is subject to Securities and Exchange Commission rules
relating to possession or control and customer reserve requirements and was in
compliance with such rules at September 30, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1 through 5. - Not applicable.
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits - None
b) No report on Form 8-K was filed during the three months ended
September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC FINANCIAL CORPORATION
Date: November 10, 2000 By: /s/ Alan B. Levan
-----------------------------------------
Alan B. Levan, President
Date: November 10, 2000 By: /s/ Glen R. Gilbert
-----------------------------------------
Glen R. Gilbert, Executive Vice President
Chief Accounting Officer and
Chief Financial Officer
