<PAGE>
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 34-027228
---------
BANKATLANTIC BANCORP, INC.
--------------------------
(Exact name of registrant as specified in its Charter)
Florida 65-0507804
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Sunrise Boulevard
Ft. Lauderdale, Florida 33304
----------------------- -----
(Address of principal executive offices) (Zip Code)
(954) 760-5000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
preferred and common stock as of the latest practicable date.
Outstanding at
Title of Each Class November 10, 1998
------------------- ------------------
Class A Common Stock, par value $0.01 per share 26,709,814
Class B Common Stock, par value $0.01 per share 10,356,431
<PAGE>
TABLE OF CONTENTS
PAGE
FINANCIAL INFORMATION REFERENCE
- --------------------- ----------
Financial Statements........................................ 1-12
Consolidated Statements of Financial Condition -
September 30, 1998 and 1997 and December 31, 1997
- Unaudited.............................................. 1
Consolidated Statements of Operations - For the Three
and Nine Months Ended September 30, 1998 and 1997
- Unaudited.............................................. 2
Consolidated Statements of Stockholders' Equity for
the Nine Months Ended September 30, 1998 and 1997
- Unaudited.............................................. 3
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 1998 and 1997 - Unaudited..... 4-6
Notes to Consolidated Financial Statements - Unaudited..... 7-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 13-25
OTHER INFORMATION
Exhibits and Reports on Form 8K............................ 26
Signatures................................................. 27
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
September 30, December 31, September 30,
(In thousands, except share data) 1998 1997 1997
- --------------------------------- ------------ ----------- ------------
ASSETS
<S> <C> <C> <C>
Cash and due from depository institutions ......................................... $ 88,321 $ 82,787 $ 113,734
Federal Funds sold ................................................................ 3,250 0 1,534
Loans receivable, net ............................................................. 2,379,935 1,911,263 1,768,498
Loans held for sale ............................................................... 166,238 161,562 194,729
Investment securities-net, held to maturity, at cost which approximates
market value ..................................................................... 55,853 55,213 59,953
Securities available for sale, at market value .................................... 609,115 607,490 495,093
Trading securities, at market value ............................................... 23,123 5,067 4,237
Accrued interest receivable ....................................................... 26,912 22,624 21,432
Investments in real estate held for development and sale and joint ventures, net .. 51,056 18,638 0
Real estate owned, net ............................................................ 5,319 7,528 5,909
Office properties and equipment, net .............................................. 56,954 51,130 50,283
Federal Home Loan Bank stock, at cost which approximates market value ............. 52,377 34,887 27,437
Mortgage servicing rights, net .................................................... 51,651 38,789 31,952
Deferred tax asset, net ........................................................... 13,565 3,197 3,718
Cost over fair value of net assets acquired ....................................... 56,368 26,188 26,815
Other assets ...................................................................... 42,587 38,117 39,672
--------- --------- ---------
Total assets ...................................................................... $3,682,624 $3,064,480 $2,844,996
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .......................................................................... $1,883,229 $1,763,733 $1,763,373
Advances from FHLB ................................................................ 1,047,520 697,707 548,706
Federal Funds purchased ........................................................... 0 2,500 0
Securities sold under agreements to repurchase .................................... 110,060 58,716 128,369
Subordinated debentures and notes payable ......................................... 178,334 179,600 78,300
Guaranteed preferred beneficial interests in the Company's Junior
Subordinated Debentures .......................................................... 74,750 74,750 74,750
Advances by borrowers for taxes and insurance ..................................... 71,906 39,397 57,467
Other liabilities ................................................................. 69,504 40,906 37,473
--------- --------- ---------
Total liabilities ................................................................. 3,435,303 2,857,309 2,688,438
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized:
none issued and outstanding .................................................... 0 0 0
Class A Common Stock, $0.01 par value, authorized 80,000,000 shares;
issued and outstanding, 26,709,814, 21,509,159 and 17,166,837 shares ......... 267 215 116
Class B Common Stock, $0.01 par value, authorized 45,000,000 shares;
issued and outstanding, 10,387,431, 10,690,231 and 10,677,778 shares ......... 104 107 107
Additional paid-in capital ........................................................ 147,316 98,475 54,857
Unearned compensation - restricted stock grants .................................. (7,566) 0 0
Retained earnings ................................................................. 106,946 107,650 100,352
--------- --------- ---------
Total stockholders' equity before accumulated other comprehensive income .......... 247,067 206,447 155,432
--------- --------- ---------
Accumulated other comprehensive income - net unrealized appreciation
on securities available for sale - net of deferred income taxes ................ 254 724 1,126
--------- --------- ---------
Total stockholders' equity ........................................................ 247,321 207,171 156,558
--------- --------- ---------
Total liabilities and stockholders' equity ........................................ $3,682,624 $3,064,480 $2,844,996
========= ========= =========
See Notes to Consolidated Financial Statements - Unaudited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months For the Nine Months
(In thousands, except share data) Ended September 30, Ended September 30,
----------------------- -------------------------
Interest income: ......................................................... 1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest and fees on loans and leases .................................... $ 54,645 $ 44,333 $ 157,651 $ 127,404
Interest and dividends on securities available for sale .................. 8,865 7,139 26,237 22,927
Interest and dividends on investment securities held to maturity
and trading securities ................................................. 2,862 2,048 7,317 5,679
--------- ---------- ---------- ----------
Total interest income .................................................... 66,372 53,520 191,205 156,010
--------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits ..................................................... 16,771 17,193 49,888 51,510
Interest on advances from FHLB ........................................... 14,297 7,685 38,769 18,752
Interest on securities sold under agreements to repurchase ............... 3,846 1,496 9,998 6,354
Interest on subordinated debentures, guaranteed preferred interest
in the Company's Junior Subordinated Debentures and notes payable ...... 4,857 3,320 14,646 7,634
Capitalized interest on investments in and advances to joint ventures ... (252) 0 (470) 0
--------- ---------- ---------- ----------
Total interest expense .................................................. 39,519 29,694 112,831 84,250
--------- ---------- ---------- ----------
NET INTEREST INCOME ..................................................... 26,853 23,826 78,374 71,760
Provision for loan losses ............................................... 3,033 3,671 9,811 8,833
--------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ..................... 23,820 20,155 68,563 62,927
--------- ---------- ---------- ----------
NON-INTEREST INCOME (LOSS):
Loan servicing and other loan fees, net ................................. (2,463) 797 (1,065) 3,773
Provision for valuation of mortgage servicing rights .................... (15,000) 0 (15,000) 0
Gains on sales of loans available for sale .............................. 780 1,488 3,612 2,653
Gains on sales of mortgage servicing rights ............................. 261 1,914 2,661 6,548
Gains on sales of securities available for sale ......................... 269 194 2,462 1,136
Trading account gains (losses) .......................................... (1,226) 1,508 (523) 1,495
Gains on sales of real estate held for development and sale ............. 676 0 5,935 0
Principal transactions .................................................. 1,469 0 1,469 0
Investment banking ...................................................... 3,914 0 3,914 0
Commissions ............................................................. 2,117 19 2,179 71
Transaction fees ........................................................ 2,981 2,375 8,621 6,787
ATM fees ................................................................ 1,786 1,335 4,673 4,000
Other ................................................................... 1,542 1,643 3,949 3,468
--------- ---------- ---------- ----------
Total non-interest income (loss), net ................................... (2,894) 11,273 22,887 29,931
--------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Employee compensation/benefits excluding RBCO and real estate operations. 11,942 10,033 35,424 28,866
Employee compensation/benefits for RBCO and real estate operations ...... 5,679 0 6,042 0
Occupancy and equipment ................................................. 5,836 4,773 16,390 13,810
Federal insurance premium ............................................... 266 269 786 822
Advertising and promotion ............................................... 1,951 667 4,458 1,561
Amortization of cost over fair value of net assets acquired ............. 977 627 2,337 1,881
Other excluding RBCO and real estate operations ......................... 6,678 4,532 17,470 13,804
Other for RBCO and real estate operations ............................... 2,733 0 4,612 0
---------- ---------- ---------- ----------
Total non-interest expense .............................................. 36,062 20,901 87,519 60,744
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) ............................. (15,136) 10,527 3,931 32,114
Provision (benefit) for income taxes .................................... (5,592) 4,098 1,828 12,523
---------- ---------- ---------- ----------
NET INCOME (LOSS) ....................................................... $ (9,544) $ 6,429 $ 2,103 $ 19,591
========== ========== ========== ==========
Basic earnings (loss) per share Class A common stock .................... $ (0.27) $ 0.24 $ 0.07 $ 0.70
========== ========== ========== ==========
Basic earnings (loss) per share Class B common stock .................... $ (0.25) $ 0.22 $ 0.05 $ 0.68
========== ========== ========== ==========
Diluted earnings (loss) per share Class A common stock .................. $ (0.27) $ 0.18 $ 0.06 $ 0.56
========== ========== ========== ==========
Diluted earnings (loss) per share Class B common stock .................. $ (0.25) $ 0.18 $ 0.05 0.56
========== ========== ========== ==========
Basic weighted average shares outstanding Class A common stock .......... 26,020,125 17,170,265 23,533,659 17,748,827
========== ========== ========== ==========
Basic weighted average shares outstanding Class B common stock .......... 10,384,137 10,603,426 10,524,893 10,638,411
========== ========== ========== ==========
Diluted weighted average shares outstanding Class A common stock ........ 26,020,125 26,474,831 24,212,021 26,817,120
========== ========== ========== ==========
Diluted weighted average shares outstanding Class B common stock ........ 10,384,137 12,072,176 11,485,065 11,734,281
========== ========== ========== ==========
See Notes to Consolidated Financial Statements - Unaudited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net
Unearned Unrealized
Compen- Appreci-
Addi- sation - ation on
Compre- tional Restricted Securities
hensive Common Paid-in Retained Stock Available
(In thousands) Income Stock Capital Earnings Grants For Sale Total
------- ------ ------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 183 $ 64,171 $ 82,602 $ 0 $ 748 $147,704
Comprehensive income
Net income ....................................... $19,591 0 0 19,591 0 0 19,591
------
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale. 963
Reclassification adjustment for gains and
(losses) included in net income ................ (585)
------
Other comprehensive income ....................... 378
------
Comprehensive income .............................. $19,969
======
Dividends on Class A common stock ................. 0 0 (870) 0 0 (870)
Dividends on Class B common stock ................. 0 0 (923) 0 0 (923)
Exercise of Class A common stock options .......... 0 987 0 0 0 987
Exercise of Class B common stock options .......... 3 815 0 0 0 818
Tax effect relating to the exercise of stock
options .......................................... 0 861 0 0 0 861
Purchase and retirement of Class A common stock ... (8) (8,839) 0 0 0 (8,847)
Purchase and retirement of Class B common stock ... (3) (3,338) 0 0 0 (3,341)
Issuance of Class A common stock upon conversion
of subordinated debentures, net .................. 0 200 0 0 0 200
5 for 4 common stock split ........................ 48 0 (48) 0 0 0
Net change in unrealized appreciation on
securities available for sale-net of deferred
income taxes ..................................... 0 0 0 0 378 378
------ ------- ------- ------- ------ -------
BALANCE, SEPTEMBER 30, 1997 ....................... $ 223 $ 54,857 $100,352 $ 0 $ 1,126 $156,558
====== ======= ======= ======= ====== =======
BALANCE, DECEMBER 31, 1997 ........................ $ 322 $ 98,475 $107,650 $ 0 $ 724 $207,171
Net income ........................................ $ 2,103 0 0 2,103 0 0 2,103
------
Other comprehensive income, net of tax:
Unrealized gains on securities available for .... 333
sale
Reclassification adjustment for gains and
(losses)included in net income ................. (803)
------
Other comprehensive income ....................... (470)
------
Comprehensive income .............................. $ 1,633
======
Dividends on Class A common stock ................. 0 0 (2,042) 0 0 (2,042)
Dividends on Class B common stock ................. 0 0 (765) 0 0 (765)
Exercise of Class A common stock options .......... 0 200 0 0 0 200
Exercise of Class B common stock options .......... 4 1,380 0 0 0 1,384
Tax effect relating to the exercise of stock options 0 709 0 0 0 709
Purchase and retirement of Class B common stock ... (7) (10,640) 0 0 0 (10,647)
Issuance of Class A common stock for acquisitions . 43 41,819 0 0 0 41,862
Issuance of Class A common stock options
upon acquisition of RBCO ......................... 0 1,582 0 0 0 1,582
Issuance of Class A common stock upon conversion
of subordinated debentures, net .................. 9 5,720 0 0 0 5,729
Unearned compensation - restricted stock grants ... 0 8,071 0 (8,071) 0 0
Amortization of unearned compensation - restricted
stock grants ..................................... 0 0 0 505 0 505
Net change in unrealized depreciation on
securities available for sale-net of deferred
income taxes ..................................... 0 0 0 0 (470) (470)
------ ------- ------- ------ ------ -------
BALANCE, SEPTEMBER 30, 1998 ....................... $ 371 $147,316 $106,946 $(7,566) $ 254 $247,321
====== ======= ======= ====== ======= =======
See Notes to Consolidated Financial Statements - Unaudited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the Nine Months
(In thousands, except share data) Ended September 30,
----------------------
Operating activities: 1998 1997
--------------------- ------- -------
<S> <C> <C>
Net income ...................................................................... $ 2,103 $ 19,591
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ....................................................... 9,811 8,833
Provision for losses on real estate owned ....................................... 522 0
Depreciation .................................................................... 4,499 3,577
Amortization of mortgage servicing rights ....................................... 12,603 5,767
Amortization of unearned compensation - restricted stock grants ................. 505 0
Gains on sales of mortgage servicing rights ..................................... (2,661) (6,548)
Provision for valuation of mortgage servicing rights ............................ 15,000 0
Increase in deferred tax asset, net ............................................. (9,592) (600)
Net accretion of securities ..................................................... (958) (302)
Trading account (gains) losses .................................................. 523 (1,495)
Purchases of trading securities ................................................. (1,621) (6,243)
Proceeds from sales of trading securities ....................................... 1,848 3,501
Decrease in RBCO trading securities owned at market ............................. 9,803 0
Net amortization of deferred loan origination fees .............................. (1,206) (801)
Gains on sales of real estate owned ............................................. (984) (328)
Gains on sales of real estate held for development and sale ..................... (5,935) 0
Gains on sales of securities available for sale ................................. (2,462) (1,136)
Proceeds from sales of loans available for sale ................................. 240,444 137,549
Fundings of loans available for sale ............................................ (92,032) (67,715)
Loans purchased for resale ...................................................... (29,997) 0
Gains on sales of loans available for sale ...................................... (3,612) (2,653)
Tax certificate (recoveries) provision .......................................... 98 (164)
Amortization of dealer reserve .................................................. 6,336 6,054
Amortization of cost over fair value of net assets acquired ..................... 2,337 1,881
Net accretion of purchase accounting adjustments ................................ (54) (335)
Amortization of deferred borrowing costs ........................................ 583 303
Increase in accrued interest receivable ......................................... (4,288) (677)
Decrease (increase) in other assets ............................................. (2,730) 6,793
Increase in RBCO clearing agent receivable ...................................... (6,052) 0
Net gains (loss) on sales of property and equipment ............................. 6 (852)
Income from joint ventures ..................................................... (103) 0
Increase in other liabilities ................................................... 2,907 7,580
Decrease in RBCO securities sold not yet purchased .............................. (1,974) 0
------- -------
Net cash provided by operating activities ....................................... $143,667 $111,580
======= =======
See Notes to Consolidated Financial Statements - Unaudited (Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (CONTINUED)
For the Nine Months
(In thousands, except share data) Ended September 30,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Investing activities:
Proceeds from redemption and maturities of investment securities ........ $ 43,464 $ 34,232
Purchase of investment securities ....................................... (44,202) (39,510)
Proceeds from sales of securities available for sale .................... 702,999 273,770
Principal collected on securities available for sale .................... 177,845 106,138
Purchases of securities available for sale .............................. (881,781) (433,495)
Proceeds from sales of FHLB stock ....................................... 9,827 1,550
FHLB stock acquired ..................................................... (27,317) (14,200)
Principal reduction on loans ............................................ 1,100,381 493,109
Loan fundings for portfolio ............................................. (791,249) (331,578)
Loans purchased ......................................................... (1,050,542) (376,502)
Proceeds from maturities of banker's acceptances ........................ 210,527 287
Purchases of banker's acceptances ....................................... (94,622) (77)
Proceeds from sales of banker's acceptances ............................. 41,877 0
Additions to dealer reserve ............................................. (6,421) (7,522)
Proceeds from sales real estate owned ................................... 6,300 2,558
Mortgage servicing rights acquired ...................................... (47,599) (43,199)
Proceeds from sales of mortgage servicing rights ........................ 27,962 26,554
Cost of equipment acquired for lease .................................... (13,620) 0
Leases repurchased ...................................................... (3,519) 0
Additions to office property and equipment .............................. (7,294) (5,878)
Proceeds from sales of property and equipment ........................... 0 1,144
Investment in and advances to joint ventures ............................ (30,871) (1,738)
Proceeds from sales of real estate held for development and sale ........ 12,750 0
Additional investment in real estate held for development and sale ...... (5,334) 0
Acquisitions, net of cash acquired ...................................... 433 0
-------- --------
Net cash used in investing activities ................................... (670,006) (314,357)
-------- --------
Financing activities:
Net increase (decrease) in deposits ..................................... 78,345 (110,525)
Interest credited to deposits ........................................... 41,151 41,008
Repayments of FHLB advances ............................................. (832,187) (320,000)
Proceeds from FHLB advances ............................................. 1,182,000 573,006
Net increase (decrease) in securities sold under agreements to repurchase 51,344 (62,219)
Net decrease in federal funds purchased ................................. (2,500) 0
Repayment of notes payable .............................................. (7,376) 0
Increase in notes payable ............................................... 3,680 0
Deferred offering costs from issuance of guaranteed preferred
interests in the Company's Junior Subordinated Debentures .............. 0 (2,908)
Proceeds from issuance of guaranteed preferred interests in
the Company's Junior Subordinated Debentures ........................... 0 74,750
Issuance of common stock relating to exercise of employee stock options . 1,584 1,805
Payments to acquire and retire common stock ............................. (10,647) (12,188)
Receipts of advances by borrowers for taxes and insurance ............... 32,509 27,808
Common stock dividends paid ............................................. (2,780) (1,635)
--------- ---------
Net cash provided by financing activities .............................. 535,123 208,902
--------- ---------
Increase in cash and cash equivalents ................................... 8,784 6,125
Cash and cash equivalents at beginning of period ........................ 82,787 109,143
--------- ---------
Cash and cash equivalents at end of period .............................. $ 91,571 $ 115,268
========= =========
See Notes to Consolidated Financial Statements - Unaudited (Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(CONTINUED)
For the Nine Months
Ended September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Supplementary disclosure and non-cash investing and financing activities:
Interest paid on borrowings and deposits .......................................... $ 109,674 $ 83,087
Income taxes paid ................................................................. 8,737 10,825
Loans transferred to real estate owned ............................................ 3,629 3,221
Net change in proceeds receivable from sales of mortgage servicing rights ......... (5,614) 10,476
Purchased residential loans held for investment transferred to held
for sale ......................................................................... 108,465 245,703
Issuance of Class A common stock upon acquisitions ................................ 41,862 0
Issuance of Class A common stock options upon acquisition of RBCO ................. 1,582 0
Issuance of Class A common stock upon conversion of subordinated
debentures ....................................................................... 5,729 200
Decrease in deferred offering costs upon conversion of subordinated
debentures ....................................................................... 214 0
Decrease in subordinated debentures upon conversion to Class A
common stock ..................................................................... (5,943) 0
Loan charge-offs .................................................................. 10,342 8,322
Tax certificate charge-offs (recoveries), net ..................................... 41 (755)
Class A common stock dividends; not paid until October ............................ 735 383
Class B common stock dividends; not paid until October ............................ 260 320
Accrual for the purchase of bulk mortgage servicing rights not
yet fully paid for ............................................................... 12,553 0
Increase in equity for the tax effect related to the exercise of
employee stock options ........................................................... 709 861
Change in net unrealized appreciation (depreciation) on
securities available for sale .................................................... (782) 615
Change in deferred taxes on net unrealized appreciation (depreciation)
on securities available for sale ................................................. (312) 237
Change in stockholders' equity from net unrealized appreciation
(depreciation) on securities available for sale, less related
deferred income taxes ........................................................... (470) 378
Increase in real estate held for development and sale resulting from St. Lucie West
Holding Company ("SLWHC") purchase accounting adjustments ....................... 1,502 0
Decrease in other assets resulting from SLWHC purchase accounting adjustments ..... (1,502) 0
====== ========
See Notes to Consolidated Financial statements - Unaudited
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
BankAtlantic Bancorp, Inc. (the "Company") is a unitary savings bank
holding company. The Company's primary asset is the capital stock of
BankAtlantic, its wholly owned subsidiary. Under applicable law, the Company
generally has broad authority with few restrictions to engage in various types
of business activities. The Company's primary activities have related to the
operations of BankAtlantic and BankAtlantic's subsidiaries. However, on June 30,
1998 the Company acquired Ryan, Beck & Co., ("RBCO") an investment banking firm
which is being operated as an independent autonomous subsidiary of the Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
In management's opinion, the accompanying consolidated financial statements
contain such adjustments necessary to present fairly the Company's consolidated
financial condition at September 30, 1998 and 1997, the consolidated results of
operations for the three and nine months ended September 30, 1998 and 1997, the
consolidated stockholders' equity for the nine months ended September 30, 1998
and 1997 and the consolidated cash flows for the nine months ended September 30,
1998 and 1997. Such adjustments consisted only of normal recurring items except
that the valuation of mortgage servicing rights resulted in a $15.0 million
charge to earning whereas no valuation allowance was needed in prior periods.
The consolidated financial statements and related notes are presented as
permitted by Form 10Q and should be read in conjunction with the notes to
consolidated financial statements appearing in the Company's Annual Report on
Form 10K for the year ended December 31, 1997 and the Form 10Q for each of the
periods ended March 31, 1998 and June 30, 1998.
2. EQUITY CAPITAL
Pursuant to previously announced plans to purchase shares of its common
stock, during the nine months ended September 30, 1998, the Company paid $10.6
million to repurchase and retire 738,500 shares of Class B common stock. During
the nine months ended September 30, 1997, the Company paid $8.8 million and $3.3
million to repurchase 1.1 million shares and 292,500 shares of Class A and Class
B common stock, respectively. During the nine months ended September 30, 1998,
the Company issued 907,319 shares of Class A common stock upon the conversion of
$5.9 million in principal amount of the Company's 6 3/4% Convertible
Subordinated Debentures due 2006 (the "6 3/4% Convertible Debentures") at a
conversion price of $6.55. This conversion increased stockholders' equity $5.7
million, net of offering costs. On August 4, 1998, the Board of Directors
granted pursuant to the BankAtlantic Bancorp 1998 stock option plan incentive
stock options to purchase 391,630 shares of Class A common stock and
nonqualifying stock options to purchase 89,525 shares of Class A common stock,
each with a $9.50 exercise price to officers of BankAtlantic. Also on August 4,
1998, the Board of Directors granted incentive stock options to purchase 47,845
shares of Class A common stock at $10.45 (110% of the market price at the grant
date).
The following table sets forth the terms of the stock options granted on
August 4, 1998:
Shares issued Type Vesting Expiration
------------- -------------- ------- ----------
89,525 Non-qualifying 5 Years 10 Years
367,682 Incentive 5 Years 10 Years
47,845 Incentive Pro-rata 5 Years
15,000 Incentive 6 Years 10 Years
8,948 Incentive 7 Years 10 Years
<PAGE>
The following table sets forth all outstanding options:
Outstanding Outstanding
Options Options
Class B Class A
----------- ------------
Options Outstanding at December 31, 1997.. 2,115,547 1,616,632
Options Issued in connection with the
acquisition of RBCO ................... 0 314,145
Options granted ......................... 0 577,750
Options Exercised ....................... (434,542) (15,352)
Options Canceled ........................ (12,465) (108,416)
----------- ------------
Options Outstanding at September 30, 1998 1,668,540 2,384,759
=========== ============
Exercisable at September 30, 1998 ....... 75,289 186,913
=========== ============
Exercise price per share outstanding .... $3.90-$4.00 $3.97-$14.06
=========== ============
Included in options granted were non-qualifying stock options to purchase
21,007 shares of Class A common stock and incentive stock options to purchase
27,743 shares of Class A common stock. The above options were granted pursuant
to the Company's 1996 stock option plan.
3. SALES OF FINANCIAL ASSETS
During the nine months ended September 30, 1998, the Company sold $19.7
million of mortgage servicing rights relating to approximately $1.3 billion of
underlying loans realizing gains of $2.0 million. In addition, the Company
realized $261,000 and $661,000 of deferred revenues relating to mortgage
servicing rights sold during the three and nine months ended September 30, 1998,
respectively. During the three and nine months ended September 30, 1997, the
Company sold $8.9 million and $20.0 million of mortgage servicing rights
realizing gains of $1.9 million and $6.5 million, respectively. These mortgage
servicing rights related to approximately $562.1 million and $1.6 billion of
loans, respectively. Included in other assets at September 30, 1998 and December
31, 1997 were $1.8 million and $7.4 million of receivables, respectively, from
the sales of mortgage servicing rights. During the three and nine months ended
September 30, 1998, the Company sold $312.4 million and $700.5 million of
securities available for sale for aggregates gains of $269,000 and $2.5 million,
respectively. During the three and nine months ended September 30, 1997, the
Company sold $66.9 million and $272.6 million of securities available for sale
for aggregate gains of $194,000 and $1.1 million, respectively. During the three
and nine months ended September 30, 1998, the Company sold $94.9 million and
$236.8 million of loans held for sale for gains of $780,000 and $3.6 million,
respectively. During the three and nine months ended September 30, 1998, the
Company transferred $0 and $108.5 million of purchased residential loans from
the held for investment category to the loans held for sale category. As part of
its normal operations the Company purchases bulk residential loans and
continually evaluates the portfolio. These evaluations may result in transfers
from the held for investment category to the held for sale category; however,
such transfers would not normally exceed 10% of the average annual balance of
the portfolio. During the three and nine months ended September 30, 1997, the
Company transferred $245.7 million of purchased residential loans from the held
for investment category to the loans held for sale category and sold $80.2
million and $134.9 million of loans held for sale for gains of $1.5 million and
$2.7 million, respectively.
4. TRADING SECURITIES
The unrealized and realized gains (losses) on trading securities for the
three and nine months ended September 30, 1998 were $(1.3 million) and $96,000
and $(1.2 million) and $656,000, respectively. Included in realized gains on
trading account securities for the three and nine months ended September 30,
1998 was $96,000 of gains related to government securities trading. Included in
trading account securities at September 30, 1998 were $17.7 million of
securities owned by RBCO. These securities were associated with sales and
trading activities conducted both as principal and as agent on behalf of
individual and institutional investor clients of RBCO. Transactions as principal
involve making markets in securities which are held in inventory to facilitate
sales to and purchases from customers. During the three months ended September
30, 1998, RBCO realized net gains from principal transactions of $1.5 million.
Furthermore, included in other liabilities was $1.4 million of securities sold
not yet purchased relating to RBCO trading activity.
<PAGE>
The Company's trading securities consist of the following (in
thousands):
September 30, December 31,
1998 1997
------------ -----------
Debt obligations:
States and municipalities .... $ 6,689 $ 0
Corporations ................. 778 0
U.S. Government and agencies . 131 0
Corporate equities ............. 15,525 5,067
------ -----
$23,123 $5,067
====== =====
5. REAL ESTATE HELD FOR DEVELOPMENT AND SALE AND JOINT VENTURE ACTIVITIES
In October 1997, the Company acquired St. Lucie West Holding Corp.
("SLWHC"), the developer of the master planned community of St. Lucie West in
St. Lucie County Florida. During the three and nine months ended September 30,
1998, SLWHC land sales resulted in gains of $676,000 and $5.9 million,
respectively. Furthermore the Company has formed various joint venture
partnerships with developers to develop residential, multi-family and commercial
non-residential properties. These projects are currently in the construction
phase. Included in investment in real estate held for development and sale and
joint venture activities, net at September 30, 1998 was $18.6 million of SLWHC
land, $16.7 million of equity investments in real estate joint ventures, $13.9
million of advances to real estate joint ventures and $1.9 million of
investments and advances to a broker/dealer joint venture partner. During the
three and nine months ended September 30, 1998, the Company capitalized $252,000
and $470,000 of interest expense in connection with investments and advances to
real estate joint ventures and recognized income from joint ventures of $41,000
and $103,000, respectively.
6. COMPREHENSIVE INCOME
The income tax benefit relating to the comprehensive income
reclassification adjustment in the statement of stockholders' equity for the
nine months ended September 30, 1998 and 1997 was $504,000 and $367,000,
respectively.
7. ACQUISITIONS
In March 1998, the Company acquired Leasing Technology, Inc. ("LTI"), a
company engaged in the equipment leasing and finance business and in June 1998
the capital stock of LTI was contributed by the Company to BankAtlantic
effective June 30, 1998. Also in June 1998 the Company acquired RBCO. RBCO is an
investment firm that is principally engaged in the underwriting, distribution
and trading of tax-exempt obligations and bank and thrift equity and debt
securities.
<PAGE>
The analysis of the fair value of assets acquired and liabilities assumed
in connection with the acquisitions of RBCO and LTI effective June 30, 1998 and
March 1, 1998, respectively, is as follows:
In thousands RBCO LTI Total
------ ------ -------
Cash acquired ........................ $ 733 $ 0 $ 733
Leases receivable, net ............... 0 8,419 8,419
Securities available for sale ........ 0 121 121
Trading account securities ........... 27,484 0 27,484
Property and equipment ............... 2,916 119 3,035
Deferred income tax (liability) assets 1,015 (551) 464
Other assets ......................... 4,104 975 5,079
Securities sold not yet purchased .... (3,334) 0 (3,334)
Notes payable ........................ (1,704) (6,670) (8,374)
Other liabilities .................... (7,709) (4,151) (11,860)
Subordinated loan from the Company ... (10,000) 0 (10,000)
------- ------ -------
Fair value of net tangible assets
acquired ............................ 13,505 (1,738) 11,767
------- ------ -------
Estimated fair value of Class A common
stock issued ........................ 35,017 0 35,017
Estimated fair value of restricted
Class A common stock issued ......... 1,062 5,783 6,845
Estimated fair value of Class A common
stock options issued ................ 1,582 0 1,582
Cash paid to shareholder ............. 0 300 300
Acquisition costs .................... 500 100 600
------- ------ -------
Total purchase price ................. 38,161 6,183 44,344
------- ------ -------
Cost over fair value of net assets
acquired ............................ $ 24,656 $ 7,921 $ 32,577
======= ====== =======
The net cash acquired in connection with both of the above acquisitions was
$433,000. During March 1998, the Company extended RBCO a $10.0 million
subordinated loan on an arms length basis to enable RBCO to expand into new
products and markets. Upon acquisition, the loan was eliminated in
consolidation. Included in cost over fair value of net assets acquired was $2.6
million of goodwill related to the February 1998 acquisition by RBCO of
Cumberland Advisors and Cumberland Consulting. The goodwill associated with the
Cumberland entities will be amortized on a straight line basis over 15 years
resulting in an annual tax deductible expense of $171,000. The remaining
goodwill of $22.0 million associated with RBCO will be amortized on a straight
line basis over 25 years resulting in an annual expense of approximately
$900,000 that will not be tax deductible.
<PAGE>
The following is proforma information for the nine months ended September
30, 1998 and 1997 as if the RBCO acquisition was consummated on January 1, 1998
and 1997, respectively. The proforma information is not necessarily indicative
of the results of operations which would have been realized had the acquisition
been consummated as of the dates for which the proforma financial information is
presented or future performance (in thousands, except for per share data):
For the Nine Months Ended
-------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
Historical Proforma Historical Proforma
---------- -------- ---------- --------
Net interest income .............. $ 78,374 $ 78,653 $ 71,760 $ 72,152
-------- ------- -------- -------
Provision for loan losses ........ 9,811 9,811 8,833 8,833
-------- ------- -------- -------
Non-interest income .............. 22,887 45,322 29,931 53,022
Non-interest expense ............. 87,519 109,334 60,744 84,064
-------- ------- -------- -------
Provision for income taxes ....... 1,828 2,342 12,523 12,748
-------- ------- -------- -------
Net Income ....................... $ 2,103 $ 2,488 $ 19,591 $ 19,529
======== ======= ======== =======
Basic earnings per share Class A . $ 0.07 $ 0.07 $ 0.70 $ 0.63
======== ======= ======== =======
Basic earnings per share Class B . $ 0.05 $ 0.06 $ 0.68 $ 0.61
======== ======= ======== =======
Diluted earnings per share Class A $ 0.06 $ 0.07 $ 0.56 $ 0.52
======== ======= ======== =======
Diluted earnings per share Class B $ 0.05 $ 0.06 $ 0.56 $ 0.52
======== ======= ======== =======
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock representing 20% of the total transaction value was allocated to key
employees of RBCO. The retention pool consists of 683,362 shares of restricted
Class A common stock which will vest in four years to employees who remain for
the period. The retention pool, valued at $8.1 million at the acquisition date,
will be amortized to compensation expense over the four year vesting period and
is tax deductible at the vesting date. Included in the Company's Statement of
Financial Condition at September 30, 1998 were the assets and liabilities of
RBCO. The operations of RBCO during the three months ended September 30, 1998
were included in the Company's Statement of Operations for the three and nine
months ended September 30, 1998 and Consolidated Statement of Cash Flows for the
nine months ended September 30, 1998.
8. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights ("MSR") are stated at the lower of amortized cost
or fair value. For the purpose of evaluating and measuring impairment of MSRs,
and determining the amount of any valuation allowance, the Company stratifies
those rights based on the predominant risk characteristics of the underlying
loans and continually adjusts its valuation model assumptions based on current
market forecasts and information. As a result of the fair value evaluation at
September 30, 1998, a $15.0 million valuation allowance for mortgage servicing
rights was established. No valuation allowance was established in prior periods.
9. NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits" ("FAS 132") was
issued in February 1998. This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practical, requires additional information on changes in the benefit obligations
and fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer useful. The statement suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. This statement is effective for fiscal years beginning after
December 15, 1997. Implementation of FAS 132 will impact disclosure only, but
will not have an impact on the Company's Consolidated Statement of Operations or
Statement of Financial Condition.
<PAGE>
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") was issued in June
1998. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. For a derivative
designated as hedging the exposure to changes in the fair value of a recognized
asset or liability or a firm commitment (referred to as a fair value hedge), the
gain or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. The effect of that accounting is to reflect in earnings the extent to
which the hedge is not effective in achieving offsetting changes in fair value.
For a derivative designated as hedging the exposure to variable cash flows of a
forecasted transaction (referred to as a cash flow hedge), the effective portion
of the derivative as a gain or loss is initially reported as a component of
other comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. The ineffective
portion of the gain or loss is reported in earnings immediately. For a
derivative designated as hedging the foreign currency exposure of a net
investment in a foreign operation, the gain or loss is reported in other
comprehensive income (outside earnings) as part of the cumulative translation
adjustment. The accounting for a fair value hedge described above applies to a
derivative designated as a hedge of the foreign currency exposure of an
unrecognized firm commitment or an available-for-sale security. Similarly, the
accounting for a cash flow hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of a
foreign-currency-denominated forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in earnings
in the period of change.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of this statement should be
as of the beginning of an entity's fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. Earlier application of all of the provisions of this
statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this statement. This statement
should not be applied retroactively to financial statements of prior periods.
The Company intends to implement FAS 133, January 1, 2000 and its potential
impact on the Statement of Operations and Statement of Condition is currently
under review by management.
10. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform with
statement presentation for 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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 (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), 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, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained
herein. 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 conditions, competitive and other factors affecting
the Company's assets, operations, markets, products and services, as well as
expansion strategies, including the addition of ATM machines and the success of
its real estate activities, potential impact of change in interest rates and
future legislation, the successful integration of acquired businesses, the
success of new lines of business, regulatory oversight and other factors
discussed in the Company's Annual Report on Form 10K for the year ended December
31, 1997. Many of these factors are beyond the Company's control.
The Company's basic and diluted earnings (loss) per share for Class A
common stock were $(0.27) and $(0.27), respectively, for the three months ended
September 30, 1998 compared to $0.24 and $0.18 for the comparable 1997 periods.
The Company's basic and diluted earnings (loss) per share for Class B common
stock were $(0.25) and $(0.25), respectively, for the three months ended
September 30, 1998 compared to $0.22 and $0.18 for the comparable 1997 periods.
The Company's net income declined from $6.4 million during the three months
ended September 30, 1997 to a $9.5 million loss during the comparable 1998
period. The primary reasons for the decline were: (1) provisions for valuation
of mortgage servicing rights because of anticipated accelerated prepayments due
to the declining interest rate environment and high levels of refinancing; (2)
losses in the Company's trading portfolio tied to the recent downturn in the
securities market; and (3) expenses incurred in connection with branch expansion
and the startup of new business lines.
The Company's basic and diluted earnings per share for Class A common stock
were $0.07 and $0.06, respectively, for the nine months ended September 30, 1998
compared to $0.70 and $0.56 for the comparable 1997 periods. The Company's basic
and diluted earnings per share for Class B common stock were $0.05 and $0.05,
respectively, for the nine months ended September 30, 1998 compared to $0.68 and
$0.56 for the comparable 1997 periods. The Company's net income declined from
$19.6 million during the nine months ended September 30, 1997 to $2.1 million
during the comparable 1998 period. The primary reasons for the decline in net
income were the same as discussed above for the three month period.
NET INTEREST INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
(In thousands) 1998 1997 Change 1998 1997 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans ......................... $ 54,645 $ 44,333 $ 10,312 $157,651 $127,404 $ 30,247
Interest and dividends on securities available
for sale .......................................... 8,865 7,139 1,726 26,237 22,927 3,310
Interest and dividends on investment securities
held to maturity and trading securities ........... 2,862 2,048 814 7,317 5,679 1,638
Interest on deposits ............................... (16,771) (17,193) 422 (49,888) (51,510) 1,622
Interest on advances from FHLB ..................... (14,297) (7,685) (6,612) (38,769) (18,752) (20,017)
Interest on securities sold under agreements to
repurchase ........................................ (3,846) (1,496) (2,350) (9,998) (6,354) (3,644)
Interest on subordinated debentures, notes payable
and guaranteed preferred interest in the Company's
Junior Subordinated Debentures .................... (4,857) (3,320) (1,537) (14,646) (7,634) (7,012)
Capitalized interest ............................... 252 0 252 470 0 470
------- ------- ------- ------- ------- -------
Net interest income .............................. $ 26,853 $ 23,826 $ 3,027 $ 78,374 $ 71,760 $ 6,614
======= ======= ======= ======= ======= =======
</TABLE>
The increase in interest and fees on loans during the three months ended
September 30, 1998 compared to the same period in 1997 reflects higher average
balances resulting from the purchase of residential mortgage loans and the
origination and purchase of lease receivables, international loans and small
business loans. The additional interest income from higher average loan balances
was partially offset by lower rates earned on the loan portfolio due to a shift
from higher yielding consumer and commercial loans to lower yielding residential
loans. Residential loans as a percentage of total average loans receivable
increased from 54% at September 30, 1997 to 59% during the same 1998 period.
Purchased residential loans, lease receivables, and international loans and
small business loans average balances for the September 30, 1998 three month
period were $1.4 billion, $19.3 million, $50.9 million and $90.3 million,
respectively, compared to purchased residential loan average balances of $659.1
million during the September 30 1997 three month period. Lease receivables,
small business and international loans were new product lines established
subsequent to September 30, 1997. The increase in interest and dividends on
securities available for sale during the 1998 quarter compared to the same 1997
period resulted from higher average balances, partially offset by lower average
yields earned. The investments available for sale average balances increased
from $462.5 million during the three months ended September 30, 1997 to $599.1
million during the same 1998 period while average yields on investments
available for sale declined from 6.17% for the 1997 quarter to 5.92% during the
same 1998 period. The increases in interest and dividends on investment and
trading securities during the 1998 three month period were primarily due to
higher FHLB stock average balances, partially offset by lower average balances
and yields earned on tax certificate investments. FHLB stock average balances
increased from $25.1 million during the three months ended September 30, 1997 to
$49.6 million during the comparable 1998 period. Increases in FHLB stock were
required based on higher FHLB advance levels. Tax certificate average balances
and yields declined from $65.8 million and 8.81% during the three months ended
September 30, 1997 to $60.2 million and 8.08% during the three months ended
September 30, 1998. The lower tax certificate average yields and balances
resulted from a decline in volume and yields of Florida tax certificate
purchases in 1998 compared to prior years due to increased competition.
Furthermore, included in interest and dividends on investment and trading
securities during the three months ended September 30, 1998 was $326,000 of
interest income on RBCO trading securities.
The decrease in interest on deposits for the quarter ended September 30,
1998 compared to the 1997 quarter resulted from lower average interest bearing
deposit rates. Rates paid on deposits decreased from 4.21% during the 1997 third
quarter to 4.12% during the comparable 1998 quarter. The lower rates paid on
deposits were due to the declining interest rate environment throughout the 1998
period and a decline in higher rate certificate account average balances and an
increase in lower rate interest bearing transaction account average balances.
Certificate account average balances decreased from $862.7 million for the three
months ended September 30, 1997 to $827.2 million for the three months ended
September 30, 1998, whereas average interest bearing transaction account
balances increased from $757.2 million during the 1997 quarter to $786.9 million
during the same 1998 period. The increase in interest expense on advances from
FHLB was primarily due to higher average balances. Advances from FHLB average
balances increased from $491.4 million during the third quarter of 1997 to
$976.3 million during the comparable 1998 quarter. The additional FHLB
borrowings were primarily intermediate term advances used to fund purchases of
residential loans. The higher interest expense on securities sold under
agreements to repurchase resulted from higher average balances during 1998.
Securities sold under agreements to repurchase average balances increased from
$113.1 million during the three months ended September 30, 1997 to $295.9
million during the comparable 1998 three month period. The increase in interest
on subordinated debentures, guaranteed preferred interest in the Company's
Junior Subordinated Debentures and notes payable resulted from the issuance in
November 1997 of $100 million of 5 5/8% Convertible Subordinated Debentures due
2007 ("5 5/8% Convertible Debentures") as well as interest expense on $6.2
million of notes payable relating to SLWHC, RBCO and LTI. Interest expense was
capitalized in connection with investments and advances to real estate joint
venture partnerships. The Company was not a partner in any real estate joint
ventures during the 1997 period.
During the nine months ended September 30, 1998, net interest income
increased by $6.6 million. The increase in interest income was impacted by
higher average balances in all categories of interest earning assets partially
offset by lower yields. Average interest earning assets increased from $2.5
billion during the nine months ended September 30, 1997 to $3.2 billion for the
nine months ended September 30, 1998 while average interest rates on interest
earning assets declined from 8.32% during the 1997 nine month period to 7.89%
during the comparable 1998 period. The higher interest earning asset average
balances and lower yields were primarily related to the items discussed above
for the quarter. The increase in interest expense was impacted by higher
interest bearing liabilities average balances and rates. Average interest
bearing liabilities increased from $2.3 billion during the nine months ended
September 30, 1997 to $3.0 billion during the nine months ended September 30,
1998 while rates on interest bearing liabilities increased from 4.84% during the
nine months ended September 30, 1997 to 5.04% during the nine months ended
September 30, 1998. The higher interest bearing liabilities average balances and
higher yields were primarily related to the items discussed above for the
quarter.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the third quarter 1998 was $3.0 million
compared to $3.7 million during the comparable 1997 period. The lower 1998
provision for loan losses primarily resulted from $750,000 and $350,000 of
specific reserves established for a commercial real estate loan and a commercial
business loan, both associated with the BNA acquisition during the third quarter
of 1997. The $350,000 specific reserve was recovered during 1998. Net
charge-offs during the third quarter of 1998 increased $112,000 compared to the
same 1997 period. Net charge-offs of $395,000 and $278,000 related to the new
small business and lease finance activities. Commercial real estate net
charge-offs were $111,000 during the three months ended September 30, 1998
compared to a $132,000 recovery during the comparable 1997 period. These
increased charge-offs were partially offset by $697,000 and $104,000 of lower
consumer and residential loan net charge-offs. The allowance for loan losses was
increased by $400,000 during the third quarter of 1998 due to current
delinquency trends.
The provision for loan losses for the nine months ended September 30, 1998
increased by $978,000 from the comparable 1997 period. Net charge-offs during
the nine months ended September 30, 1998 increased by $1.7 million compared to
the same 1997 period. Net charge-offs of $535,000 and $517,000 related to the
new small business and lease finance activities. Commercial business net
charge-offs increased by $419,000 due primarily to a $783,000 charge-off of a
factoring account partially offset by the $350,000 recovery mentioned above. The
allowance for loan losses was increased by $2.6 million to $31.0 million during
the nine months ended September 30, 1998 reflecting the $676,000 allowance
acquired in connection with the LTI acquisition and transfers of other
liabilities for leases sold with recourse to allowance for loan loss upon the
repurchase of $3.5 million of leases previously sold to investors with recourse.
The remaining increase in the allowance for loan losses was due to loan growth
and current trends. The allowance for loan losses was increased by $2.6 million
during the nine months ended September 30, 1997 due to loan growth, current
trends and the items discussed above.
Allowance for loan loss activity was as follows:
For the Three Ended For the Nine Ended
September 30, September 30,
------------------- -------------------
(in thousands) 1998 1997 1998 1997
------- ------- ------- -------
Balance, beginning of period ..... $ 30,600 $ 27,200 $ 28,450 $ 25,750
Charge-offs:
Commercial business loans ....... (8) (118) (792) (177)
Small business loans ............ (395) 0 (552) 0
Lease financing ................. (332) 0 (683) 0
Commercial real estate loans .... (117) (48) (385) (49)
Consumer loans .................. (2,418) (3,196) (7,761) (7,916)
Residential real estate loans ... 0 (104) (169) (180)
------- ------- ------- -------
Total charge-offs ................ (3,270) (3,466) (10,342) (8,322)
------- ------- ------- -------
Recoveries:
Commercial business loans ....... 41 148 430 234
Small business loans ............ 0 0 17 0
Lease financing ................. 54 0 166 0
Commercial real estate loans .... 6 180 9 206
Consumer loans .................. 536 617 1,783 1,649
------- ------- ------- -------
Total recoveries ................. 637 945 2,405 2,089
------- ------- ------- -------
Net charge-offs .................. (2,633) (2,521) (7,937) (6,233)
Provision for loan losses ........ 3,033 3,671 9,811 8,833
------- ------- ------- -------
Allowance for loan losses acquired 0 0 676 0
------- ------- ------- -------
Balance, end of period ........... $ 31,000 $ 28,350 $ 31,000 $ 28,350
======= ======= ======= =======
<PAGE>
At the indicated dates the Company's risk elements and non-performing
assets were (in thousands):
September 30, December 31,
1998 1997
------------ -----------
Nonaccrual :
Tax certificates .................... $ 834 $ 880
Loans and leases .................... 18,281 17,569
------- -------
Total nonaccrual .................... 19,115 18,449
------- -------
Repossessed Assets:
Real estate owned, net of allowance .. 5,319 7,528
Vehicles and equipment ............... 2,262 2,912
------- -------
Total repossessed assets ............. 7,581 10,440
------- -------
Contractually past due 90 days or more (1) 3,710 647
------- -------
Total non-performing assets .......... 30,406 29,536
Restructured loans ....................... 10 4,043
------- -------
Total risk elements .................. $ 30,416 $ 33,579
======= =======
(1) The majority of these loans have matured and the borrower continues to make
payments under the matured loan agreement. BankAtlantic is in the process
of renewing or extending these matured loans.
Total risk elements at September 30, 1998 compared to December 31, 1997
decreased by $3.2 million. The decrease in risk elements was primarily related
to a $4.0 million decline in restructured loans, partially offset by an $870,000
increase in nonperforming assets. The increase in nonperforming assets resulted
from a $3.1 million increase in commercial loans contractually past due 90 days
or more and a $666,000 increase in nonaccrual assets partially offset by a $2.9
million decline in repossessed assets. The decline in restructured loans
reflects a $1.1 million restructured loan that was transferred to loans
contractually past due 90 days or more and a $2.9 million commercial
non-residential loan that was transferred out of risk elements. The increase in
loans contractually past due 90 days or more reflects the commercial
non-residential loan transferred from restructured loans and a $1.5 million
commercial non-residential loan that matured and is currently in the renewal
process. Included in nonaccrual loans and leases at September 30, 1998 were
$858,000 of LTI leases compared to zero at December 31, 1997. The above
increases in nonperforming assets at September 30, 1998 were significantly
offset by lower repossessed assets. The change in repossessed assets resulted
from a $650,000 and $2.2 million decline in repossessed vehicles and equipment
and real estate owned, respectively.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NON-INTEREST INCOME (LOSS)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
(In thousands) 1998 1997 Change 1998 1997 Change
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME EXCLUDING RBCO AND REAL ESTATE OPERATION
Loan servicing and other loan fees ............ $ (2,463) $ 797 $ (3,260) $ (1,065) $ 3,773 $ (4,838)
Provision for valuation of mortgage servicing
rights ....................................... (15,000) 0 (15,000) (15,000) 0 (15,000)
Gains on sales of loans held for sale ......... 780 1,488 (708) 3,612 2,653 959
Gains on sales of mortgage servicing rights ... 261 1,914 (1,653) 2,661 6,548 (3,887)
Trading account gains (losses) ................ (1,226) 1,508 (2,734) (523) 1,495 (2,018)
Gains on sales of securities available for sale 269 194 75 2,462 1,136 1,326
Commissions ................................... 29 19 10 91 71 20
Transaction accounts .......................... 2,981 2,375 606 8,621 6,787 1,834
ATM fees ...................................... 1,786 1,335 451 4,673 4,000 673
Other ......................................... 1,181 1,643 (462) 3,069 3,468 (399)
------- ------- ------- -------- ------- -------
Non-interest income (loss) excluding RBCO
and real estate operations .................. $(11,402) $ 11,273 $(22,675) $ 8,601 $ 29,931 $(21,330)
------- ------- ------- -------- ------- -------
RBCO OPERATIONS
Principal transactions ........................ $ 1,469 $ 0 $ 1,469 $ 1,469 $ 0 $ 1,469
Investment banking ............................ 3,914 0 3,914 3,914 0 3,914
Commissions ................................... 2,088 0 2,088 2,088 0 2,088
Other ......................................... 121 0 121 121 0 121
------- ------- ------- -------- ------- -------
Non-interest income - RBCO .................... 7,592 0 7,592 7,592 0 7,592
------- ------- ------- -------- ------- -------
REAL ESTATE OPERATIONS
Gains on sales of real estate held for
development and sale ......................... 676 0 676 5,935 0 5,935
Other ......................................... 240 0 240 759 0 759
------- ------- ------- -------- ------- -------
Non-interest income - real estate operations .. 916 0 916 6,694 0 6,694
------- ------- ------- -------- ------- -------
Total non-interest income (loss)............... $ (2,894) $ 11,273 $(14,167) $ 22,887 $ 29,931 $ (7,044)
======= ======= ======= ======== ======= =======
</TABLE>
NON-INTEREST INCOME (LOSS) EXCLUDING RBCO AND REAL ESTATE OPERATIONS
The decrease in loan servicing and other loan fees during the three and
nine month period in 1998 compared to the corresponding 1997 periods resulted
from a $3.9 million and $5.4 million decline in loan servicing income, net. Loan
servicing income declined due to accelerated amortization of mortgage servicing
rights caused by mortgage prepayments during the periods. Additionally, an
allowance for valuation of mortgage servicing rights was established during the
third quarter of 1998. The valuation allowance and the lower servicing fee
income were caused by the rapid decline in interest rates during the three
months ended September 30, 1998 resulting in higher actual prepayments and
higher prepayment speed assumptions used for valuation purposes. Historically,
mortgage servicing has been a positive source of revenue for the Company by
generating net fee income, and providing a low cost source of funds from escrow
balances. Additionally, the Company has realized gains from sales from the
servicing portfolio. The current interest rate environment, coupled with
competition and technological advances has led to a refinancing climate which
has not been seen in recent years and, as a result has caused significant
volatility. This volatility has resulted in the use of new assumptions for
valuing servicing rights which have resulted in lower valuations of such rights.
During the three and nine months ended September 30, 1998 late fee and other
loan fee income increased $678,000 and $1.6 million, respectively primarily due
to a larger loan portfolio.
<PAGE>
During the three and nine months ended September 30, 1998, the Company sold
$94.9 million and $236.8 million of loans held for sale for gains reported in
the preceding table. During the three and nine months ended September 30, 1998,
the Company transferred $0 and $108.5 million of purchased residential loans
from the held for investment category to the loans held for sale category. As
part of its normal operations the Company purchases bulk residential loans and
continually evaluates the portfolio. These evaluations may result in transfers
from the held for investment category to the held for sale category; however,
such transfers would not normally exceed 10% of the average annual balance of
the portfolio. During the three and nine months ended September 30, 1997, the
Company transferred $245.7 million of purchased residential loans from the held
for investment category to loans held for sale category and sold $80.2 million
and $134.9 million of loans held for sale for gains reported in the preceding
table. Furthermore, during the three months ended September 30, 1998, the
Company purchased $30.0 million of residential loans which upon purchase were
placed in the held for sale category.
During the nine months ended September 30, 1998, the Company sold $19.7
million of mortgage servicing rights for gains reported in the above table.
These rights related to approximately $1.3 billion of loans serviced for others.
Included in the gain for the three and nine months ended September 30, 1998 was
$261,000 and $661,000, respectively, of previously deferred revenues relating to
mortgage servicing rights sold during prior periods. During the three and nine
months ended September 30, 1997, the Company sold $8.9 million and $20.0 million
of mortgage servicing rights relating to approximately $562.1 million and $1.6
billion of loans serviced by others, for gains as reported in the above table.
During the nine months ended September 30, 1998 and 1997, the Company sold
the following securities held in the available for sale portfolio (in
thousands), at cost:
1998 1997
------- -------
7 year balloon mortgage-backed securities .. $127,915 $ 0
5 year balloon mortgage-backed securities .. 27,151 28,702
REMIC ...................................... 0 5,992
Federal agency obligations ................. 0 7,597
FHLB Bonds ................................. 9,977 0
U.S. treasury notes ........................ 178,585 230,343
------- -------
Total fixed rate securities ............... 343,628 272,634
------- -------
Equity securities .......................... 597 0
------- -------
5-1 adjustable rate mortgages .............. 253,129 0
3-1 adjustable rate mortgages .............. 103,183 0
------- -------
Total adjustable rate securities ........... 356,312 0
------- -------
Total sales of securities available for sale $700,537 $272,634
======= =======
During the three and nine months ended September 30, 1998, the Company sold
marketable equity trading securities for a $560,000 gain and realized $96,000 of
gains related to government securities trading. The unrealized losses on trading
securities for the three and nine months ended September 30, 1998 were $1.3
million and $1.2 million, respectively. During the three and nine months ended
September 30, 1997, the Company sold $2.8 million of trading securities for a
$672,000 gain. The unrealized gains on trading securities for the three and nine
months ended September 30, 1997 were $836,000 and $823,000, respectively.
The increase in transaction account fees during the three and nine months
ended September 30, 1998 compared to the corresponding 1997 period resulted from
higher checking account fee income reflecting increased balances held in
transaction accounts. Average transaction account balances including
non-interest bearing accounts increased from $907.4 million during the nine
months ended September 30, 1997 to $976.7 million during the comparable 1998
period.
<PAGE>
The increase in ATM fee income during the third quarter of 1998 resulted
from installations of ATM machines in Alabama and Georgia Wal-Mart superstores
as well as installations of ATM machines in gas stations, convenience stores,
and cruise ships. Approximately 800 ATM machines are expected to be in service
by the end of 1998.
Included in other income during the three and nine months ended September
30, 1997 was a $882,000 realized gain from the sale of vacant land acquired in
1989.
RBCO OPERATIONS
RBCO revenues are generated from principal transactions, investment banking
and commissions. Principal transactions are sales and trading activities of tax
exempt debt securities, taxable debt securities and equity securities.
Investment banking revenues include management fees and underwriting fees earned
in connection with all underwriting participations and selling concessions
earned in connection with RBCO's participation in tax-exempt debt, corporate
debt and equity underwriting. Commission revenues reflect fees earned from
retail customers upon the execution of equity security and mutual fund trades.
During the three and nine months ended September 30, 1998 RBCO earned revenues
on principal transactions, investment banking and commissions as shown in the
preceding table. As previously noted, RBCO was acquired by the Company on June
30, 1998 in a transaction recorded under the purchase method of accounting.
Accordingly, only the operations of RBCO subsequent to June 30, 1998 are
included in the Company's Statement of Operations.
REAL ESTATE OPERATIONS
Real estate held for development and sale represents the net profits on
sales of real estate by SLWHC. During the three and nine months ended September
30, 1998 SLWHC sold $2.5 million and $6.8 million of developed land for gains as
reported above. Other income represents accretion of impact fee receivables
established at the acquisition date.
NON-INTEREST EXPENSES
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
(In thousands) 1998 1997 Change 1998 1997 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
EXPENSES EXCLUDING RBCO AND REAL ESTATE
OPERATIONS
Employee compensation and benefits .... $11,942 $10,033 $ 1,909 $35,424 $28,866 $ 6,558
Occupancy and equipment ............... 5,369 4,773 596 15,923 13,810 2,113
Federal insurance premium ............. 266 269 (3) 786 822 (36)
Advertising and promotion ............. 1,582 667 915 3,765 1,561 2,204
Amortization of cost over fair value of
net assets acquired .................. 706 627 79 2,066 1,881 185
Other ................................. 6,629 4,532 2,097 17,421 13,804 3,617
------ ------ ------ ------ ------ ------
Non-interest expenses ................. 26,494 20,901 5,593 75,385 60,744 14,641
------ ------ ------ ------ ------ ------
RBCO OPERATIONS
Employee compensation and benefits .... 5,517 0 5,517 5,517 0 5,517
Occupancy and equipment ............... 467 0 467 467 0 467
Advertising and promotion ............. 192 0 192 192 0 192
Amortization of cost over fair value of 0 0 0 0
net assets acquired .................. 271 0 271 271 0 271
Other ................................. 1,970 0 1,970 1,970 0 1,970
------ ------ ------ ------ ------ ------
Non-interest expenses ................. 8,417 0 8,417 8,417 0 8,417
------ ------ ------ ------ ------ ------
REAL ESTATE OPERATIONS
Employee compensation and benefits .... 162 0 162 525 0 525
Advertising and promotion ............. 177 0 177 501 0 501
Selling, general and administrative ... 812 0 812 2,691 0 2,691
------ ------ ------ ------ ------ ------
Non-interest expenses ................. 1,151 0 1,151 3,717 0 3,717
------ ------ ------ ------ ------ ------
Total non-interest expenses ........... $36,062 $20,901 $15,161 $87,519 $60,744 $26,775
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
The increase in employee compensation and benefits during the three and
nine months ended September 30, 1998 compared to the 1997 periods resulted from
the expansion of BankAtlantic's branch network, the acquisition of LTI and the
start-up of five new business units (small business lending, international
banking, trade finance, commercial loan syndications, and capital markets),
which involved the hiring of approximately 100 employees including senior
managers, support and branch personnel. Occupancy and equipment expenses
increased during the three months ended September 30, 1998 due to the expanded
ATM and branch network resulting in $142,000 of higher depreciation expense, and
$196,000 of additional rent expense. Depreciation and rent expenses increased by
$922,000, and $672,000, respectively, during the nine months ended September 30,
1998 compared to the same 1997 period.
The increase in advertising and promotion expenses during the three and
nine months ended September 30, 1998 compared to the same 1997 period resulted
from the implementation of a new print and TV identity campaign as well as
branch expansion promotions in Miami-Dade County and the Tampa Bay markets.
Advertising and promotion costs are expensed as incurred.
The increase in the amortization of cost over fair value of net assets
acquired for the three and nine months ended September 30, 1998 relates to the
LTI and RBCO acquisitions.
The increase in other expenses during the three months ended September 30,
1998 compared to the 1997 period resulted primarily from increases in ATM,
consulting, legal, and loan servicing expenses of $610,000, $477,000, $341,000,
and $269,000, respectively. The ATM expense increase reflects the larger ATM
network during 1998 compared to the 1997 period. The higher consulting fees
resulted from the hiring of the consulting firm Alex Sheshunoff & Co. to provide
an efficiency and profit improvement study from which recommendations are
expected to be implemented beginning in the fourth quarter of 1998. The primary
focus of the review has been staffing models, branch consolidations, and a
business line review and justification analysis. It is anticipated that
implementation of the results of the Sheshunoff review will result in a
corporate restructuring that will involve a restructuring charge in the fourth
quarter. The higher legal fees primarily resulted from litigation associated
with bank accounts seized by federal authorities during 1996. The increase in
loan servicing expenses reflects real estate tax penalties associated with the
payment of real estate taxes to municipalities. The remaining other expense
increases reflects additional costs of operating a larger organization. During
the nine months ended September 30, 1998 compared to the 1997 period ATM,
consulting, and loan servicing expenses increased by $1.3 million, $1.0 million
and $367,000, respectively. Furthermore, tax certificate recoveries were
$260,000 lower during the 1998 nine month period compared to the same 1997
period.
RBCO NON-INTEREST EXPENSES
The RBCO acquisition agreement provided for the establishment of an
incentive and retention pool, under which shares of the Company's Class A common
stock were allocated to key employees of RBCO. Included in employee compensation
and benefits was $505,000 of retention pool compensation amortization. The
retention pool was valued at $8.1 million at the acquisition date and the shares
vest in four years. As a result, the Company is amortizing the $8.1 million
value of the retention pool into compensation expense over the vesting period.
Occupancy and equipment expense primarily consisted of $255,000 of rent expense,
$163,000 of depreciation expense and a $49,000 charge for data processing. Other
expenses were primarily floor broker and clearing fees of $681,000, consulting
costs of $373,000 and $283,000 for third party quotation services . The
remaining expenses were general and administrative costs. See also discussion
above "RBCO Operations".
REAL ESTATE OPERATIONS NON-INTEREST EXPENSES
Real estate operations non-interest expenses primarily related to SLWHC
expenses. Selling, general and administrative expenses were mainly real estate
taxes on developed land.
FINANCIAL CONDITION
The Company's total assets at September 30, 1998 were $3.7 billion compared
to $3.1 billion at December 31, 1997. Loans receivable, net, trading securities,
investments in real estate held for development and joint ventures, net, FHLB
stock, mortgage servicing rights, cost over fair value of net assets acquired
and deferred taxes increased by $468.7 million, $18.1 million, $32.4 million,
$17.5 million, $12.9 million, $30.2 million, and $10.4 million, respectively.
The higher loans receivable balances resulted from the purchase of $1.0 billion
of wholesale residential loans and $791.2 million of loan fundings for
portfolio, partially offset by $1.1 billion of principal reductions on loans and
$236.8 million of loan sales. Included in trading securities was $17.7 million
of debt and equity securities of RBCO. During the nine months ended September
30, 1998, the Company through a wholly owned subsidiary invested and advanced
$30.9 million in real estate joint ventures located in Florida. The additional
FHLB stock balances was due to higher FHLB advances. The higher mortgage
servicing rights balances reflects $60.2 million of mortgage servicing rights
acquired partially offset by the sale of $19.7 million of mortgage servicing
rights and $27.6 million of amortization and impairment reserves. The LTI and
RBCO acquisitions increased cost over fair value of net assets acquired by $32.6
million partially offset by amortization of existing goodwill. The increase in
deferred tax asset, net primarily resulted from the establishment of a $15.0
million allowance for valuation of mortgage servicing rights .
The Company's total liabilities at September 30, 1998 were $3.4 billion
compared to $2.9 billion at December 31, 1997. Deposits, FHLB advances,
securities sold under agreements to repurchase, advances by borrowers for taxes
and insurance and other liabilities increased by $119.5 million, $349.8 million,
$51.3 million, $32.5 million, and $28.6 million, respectively. The deposit
increase primarily came from the Miami-Dade and Palm Beach County markets and
new small business banking relationships. Also included in the deposit increase
was $38 million of brokered certificate accounts in which RBCO acted as
principal dealer. The increase in other liabilities primarily resulted from RBCO
liabilities and the Company's obligations associated with the purchase of
mortgage servicing rights. Proceeds from FHLB advances, securities sold under
agreements to repurchase, deposit inflows and advances by borrowers for taxes
and insurance, brokered time deposits, loan repayments, sales of financial
assets, principal collected on securities available for sale and investment
securities held to maturity were used to repay securities sold under agreements
to repurchase, fund loan growth and loan purchases, fund deposit outflows and to
purchase securities available for sale, trading securities, mortgage servicing
rights, FHLB stock, tax certificates and to acquire outstanding shares of common
stock.
During the third quarter of 1998, the Company established the Capital
Markets group through which the Company will purchase loans with the intent to
generate revenues from the securitization and sale of these loans to mortgage
bankers or other financial institutions. During September 1998, the Company
purchased $30.0 million of residential loans and classified the loans as held
for sale.
MARKET RISK
Market risk is the risk arising from changes in interest rates, foreign
currency exchange rates, and commodity and equity prices. The Company maintains
a portfolio of trading and available for sale securities which subjects the
Company to equity pricing risks. Included in the Company's statement of
financial position was $17.7 million of RBCO debt and equity trading securities
held by RBCO as well as securities sold not yet purchased. The debt obligations
in RBCO's trading portfolio primarily consist of municipal obligations issued by
the State of New Jersey or Municipalities within that State. Substantially all
of the equity securities are instruments issued by banking and thrift
institutions. RBCO's primary market risk is equity pricing. The Company's
primary market risk is interest rate risk.
EQUITY PRICING RISK
Presented below is an analysis of the Company's equity pricing risk at
September 30, 1998, which includes RBCO's equity securities. The following table
measures changes in the fair value of the Company's trading, available for sale
equity securities and equity securities sold not yet purchased at September 30,
1998 based on percentage changes in fair value.
Available
Trading for Sale Equity
Percent Equity Equity Securities
Change In Securities Securities Sold Not Yet
Fair Value Fair Value Fair Value Purchased
---------- ---------- ---------- ------------
(Dollars in thousands)
20.00 % $27,748 $13,710 $1,632
10.00 % $25,435 $12,568 $1,496
0.00 % $23,123 $11,425 $1,360
10.00) % $20,811 $10,283 $1,224
(20.00) % $18,498 $ 9,140 $1,088
<PAGE>
INTEREST RATE RISK
The majority of the Company's assets and liabilities are monetary in nature
subjecting the Company to significant interest rate risk. The Company has
developed a model using third party vendor software to quantify its interest
rate risk. A sensitivity analysis was performed measuring the Company's
potential gains and losses in net portfolio fair values of interest rate
sensitive instruments at September 30, 1998 resulting from a change in interest
rates. The model calculates the net potential gains and losses in net portfolio
fair value by: (i) discounting cash flows from existing assets, liabilities and
off-balance sheet contracts to determine fair values at September 30, 1998, and
(ii) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values at September 30,
1998. The difference between the fair value calculated in (i) and (ii) is the
potential gains and losses in net portfolio fair values. 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 the Company's interest rate risk at
September 30, 1998 as calculated utilizing the Company's model. The table
measures changes in net portfolio value for instantaneous and parallel shifts in
the yield curve in 100 basis point increments up or down.
Net Portfolio
Changes Value Dollar
in Rate Amount Change
------- ------------- ------
(Dollars in thousands)
+200 bp $ 316,481 $ (27,358)
+100 bp $ 354,096 $ 10,257
0 bp $ 343,839 $ 0
(100)bp $ 276,090 $ (67,749)
(200)bp $ 213,216 $(130,623)
Certain assumptions for assessing the Company's interest rate risk were
utilized in developing the model and preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and market values of certain assets under various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Furthermore, even if interest rates change in the designated
increments, there can be no assurance that the Company's assets and liabilities
would perform as indicated in the table above. In addition, a change in U.S.
Treasury rates in the designated amounts, accompanied by a change in the shape
of the yield curve could cause significantly different changes to the fair
values than indicated above. Furthermore, the result of the calculations in the
preceding table are subject to significant deviations based upon actual future
events, including anticipatory and reactive measures which the Company may take
in the future.
LIQUIDITY AND CAPITAL RESOURCES
BankAtlantic's primary sources of funds during the first nine months of
1998 were from principal collected on loans, securities available for sale and
investment securities held to maturity, and sales of securities available for
sale, FHLB advances, securities sold under agreements to repurchase, mortgage
servicing rights sales, deposit inflows and advances from borrowers for taxes
and insurance. These funds were primarily utilized to fund operating expenses,
deposit outflows, loan purchases and fundings, pay dividends and to purchase
FHLB stock, tax certificates, trading securities, mortgage servicing rights and
securities available for sale and acquire common stock. At September 30, 1998,
BankAtlantic met all applicable liquidity and regulatory capital requirements.
<PAGE>
BankAtlantic's commitments to originate loans, and purchase securities
available for sale at September 30, 1998 were $169.0 million, and $12.0 million,
respectively, compared to $80.0 million and $50.2, respectively, at September
30, 1997. At September 30, 1997 BankAtlantic had $67.0 million committed to
purchase residential mortgage loans. BankAtlantic expects to fund the 1998 loan
commitments from loan and securities available for sale repayments. At September
30, 1998, loan commitments were 6.64% of net loans receivable.
LTI is obligated on leases sold with full recourse by LTI to investors
prior to the Company's acquisition. Under the terms of such agreements, LTI is
subject to recourse for 100% of the remaining balance of the lease receivable
sold upon a default by the lessees. At September 30, 1998, the amount of lease
payments subject to such recourse provisions was approximately $8.4 million and
a $195,000 estimated liability on leases sold with recourse is included in other
liabilities in the Company's Statement of Financial Condition.
At the indicated date BankAtlantic's capital amounts and ratios were:
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------- ----------------- -------------------
(In thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
AT SEPTEMBER 30, 1998:
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital $350,365 14.96% > $187,312 > 8.00% > $234,140 > 10.00%
= = = =
Tier I risk-based capital $321,076 13.71% > $ 93,656 > 4.00% > $140,484 > 6.00%
= = = =
Tangible capital ........ $321,076 9.12% > $ 52,809 > 1.50% > $ 52,809 > 1.50%
= = = =
Core capital ............ $321,076 9.12% > $140,825 > 4.00% > $176,031 > 5.00%
= = = =
AT DECEMBER 31, 1997:
Total risk-based capital $355,930 18.64% > $152,785 > 8.00% > $190,981 > 10.00%
= = = =
Tier I risk-based capital $332,010 17.38% > $ 76,392 > 4.00% > $114,588 > 6.00%
= = = =
Tangible capital ........ $332,010 11.12% > $ 44,798 > 1.50% > $ 44,798 > 1.50%
= = = =
Core capital ............ $332,010 11.12% > $ 89,595 > 3.00% > $149,325 > 5.00%
= = = =
</TABLE>
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 Company's Annual Report on Form 10K for the year ended December 31,
1997.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The consequences of incomplete or untimely resolution of year 2000 issues
represent an uncertainty that could affect future financial results. The year
2000 issue affects virtually all companies and organizations.
The Company has undertaken various initiatives intended to ensure that
computer applications will function properly with respect to dates in the year
2000 and thereafter. The Company has established a year 2000 action plan which
was presented to the Board of Directors on December 2, 1997. The action plan was
developed using the guidelines outlined in the Federal Financial Institutions
Examination Council's "The Effect of 2000 on Computer Systems". The six phases
of the Company's action plan are: (1) Awareness - Define the Year 2000 issues,
gain executive level support, establish a project team and develop a strategy
which encompasses technology and business issues, (2) Assessment - Assess the
size and complexity of the issues and detail the magnitude of the effort
necessary to address them, (3) Renovation - Code enhancements, hardware and
software upgrades, and system replacements, (4) Validation - Testing of
software, system components and connections between systems, (5) Implementation
- - Systems should be certified as Year 2000 ready by the business users, (6)
Contingency planning - determination of strategy to handle the most likely worst
case scenarios on year 2000 issues.
The Company believes that it has completed the awareness and assessment
phases of its action plan. However, its renovation, validation and
implementation phases were only approximately 10% completed at September 30,
1998 with anticipated 80%, 95% and 100% completion as of December 31, 1998,
March 31, 1999 and June 30, 1999, respectively. The contingency planning phase
has not commenced but is currently scheduled to be 50% complete as of December
31, 1998, 90% complete as of March 31, 1999 and 100% completed as of June 30,
1999. The Company and its third party vendors are currently formulating a
contingency strategy on how to handle most likely worst case scenarios related
to possible year 2000 disruptions.
Although the Company expects to meet its action plan schedule, there is no
assurance that this timetable will be completed according to schedule.
The majority of the Company's mission critical information technology
system structure ("IT") have been outsourced to third party vendors. The
Company's internal IT primarily consists of a minicomputer for item processing
and a personal computer based wide area network. The wide area network's primary
function is to communicate with third party service bureaus and secondarily to
run non-critical personal computer applications such as E-mail, word processing
and spreadsheet programs. The Company has various non-IT systems with embedded
microcontrollers, including but not limited to, vault security equipment, branch
security equipment, telephone systems, circuit boards on building equipment,
building elevators, and appliances. The above IT and non-IT systems could fail
or create erroneous results by or at the year 2000.
The Company relies on third party vendors to perform the loan, deposit,
general ledger and other application processing. The Company is monitoring the
progress of these third party vendors in meeting their year 2000 obligations and
is actively involved in the implementation and testing of the modified
application programs. The third party vendors are scheduled to complete the
update of the application programs during the fourth quarter of 1998 with the
Company testing the programs during the first quarter of 1999. Although the
Company currently has no indication that its third party vendors will not be
able to operate as a result of year 2000 related problems, there is no assurance
that these third party vendors will meet their obligations to the Company based
on potential problems relating to year 2000. Included in the Statement of
Operations during the three and nine months ended September 30, 1998 were
$87,000 and $150,000, respectively of third party expenses related to the year
2000 action plan. The Company estimates that it will spend an additional
$110,000 on year 2000 upgrades during the remaining three months of 1998. The
Company estimates that it will spend approximately $100,000 on year 2000
consulting services, $300,000 on software and hardware upgrades specifically
related to year 2000,, $100,000 on RBCO system upgrades and $100,000 for
contingency planning during the year ended December 31, 1999. The above items
will be expensed as incurred and do not include employee compensation allocated
for time spent on the year 2000 project.
Risk factors associated with the year 2000 event include the risk that the
Company's business could be disrupted due to vendors, suppliers, and customer
system failures, or even the possible loss of electrical power or phone service.
The Company is currently assessing the probability of these events occurring and
is formulating contingency plans. The Company could be also subjected to
litigation due to year 2000 noncompliance from customers, borrowers and
suppliers as a result of both internal and third party system failures. The
Company as part of its action plan has sent brochures to customers, and
questionnaires to borrowers and suppliers, and as mentioned above is addressing
both IT and non-IT year 2000 issues. Further, the credit quality of the
Company's loans may be affected by the failure of a borrower's operating or
other systems as a consequence of a year 2000 issue or the related failure of a
borrower's key suppliers, customers, or service providers resulting in higher
provisions for loan losses. The Company is currently assessing the incremental
risk in its loan portfolio and if necessary will establish additional allowances
for loan losses. Additionally, the Company is evaluating the need to adjust its
underwriting and credit policies for potential year 2000 issues. There is no
assurance that these borrowers will be able to meet their obligation to the
Company relating to potential year 2000 problems. Certain assets of the Company
may have to be written down or replaced, based on upgrades to equipment and
software that were already required to fulfill the Company's business needs,
rapidly developing technology, and a three year capital equipment and software
replacement plan. The Company does not anticipate impairment or significant
replacement of assets related to the year 2000 issue.
<PAGE>
There is no assurance that the foregoing has identified all costs, risks or
possible losses which the Company may experience associated with year 2000
issues. The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-party suppliers, borrowers and
customers, the Company is unable to determine at this time whether the
consequences of year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The goal of the Year
2000 Project is to significantly reduce the Company's level of uncertainty about
the year 2000 problem and, the Company believes that, with the implementation of
new business systems and completion of the project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
<PAGE>
PART II - OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8K
Exhibit 11 Statement re: Computation of Per Share Earnings.
<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.
BANKATLANTIC BANCORP, INC.
November 16, 1998 By: /s/Alan B. Levan
----------------- -------------------------------
Date Alan B. Levan
Chief Executive Officer/
Chairman/President
November 16, 1998 By: /s/ Frank V. Grieco
----------------- -------------------------------
Date Frank V. Grieco
Senior Executive Vice President
Chief Accounting Officer
<PAGE>
EXHIBIT 11
EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 1998 September 30, 1997
(In thousands, except per share ----------------------------------- -----------------------------------
data and percentages) Class A Class B Total Class A Class B Total
---------- ---------- ------- --------- ---------- --------
Basic Numerator
<S> <C> <C> <C> <C> <C> <C>
Actual dividends declared .............. $ 735 $ 260 $ 995 $ 383 $ 320 $ 703
Basic allocated undistributed
earnings (loss) ....................... (7,733) (2,806) (10,539) 3,667 2,059 5,726
---------- --------- -------- ---------- --------- --------
Allocated basic net income (loss)
available for common shareholders ..... $ (6,998) $ (2,546) $ (9,544) $ 4,050 $ 2,379 $ 6,429
========== ========== ======== ========== ========== ========
Basic Denominator
Weighted average shares outstanding .... 26,020,125 10,384,137 17,170,265 10,603,426
========== ========== ========== ==========
Allocation percentage .................. 73.38% 26.62% 64.04% 35.96%
========== ========== ========== ==========
Basic earnings (loss) per share ........ $ (0.27) $ (0.25) $ 0.24 $ 0.22
========== ========== ========== ==========
Diluted Numerator
Actual dividends declared .............. $ 735 $ 260 $ 995 $ 383 $ 320 $ 703
---------- ---------- -------- ---------- ---------- --------
Basic allocated undistributed
earnings (loss) ...................... (7,733) (2,806) (10,539) 3,667 2,059 5,726
Reallocation of basic undistributed
earnings due to change in allocation
percentage ............................ 0 0 0 381 (381) 0
---------- ---------- -------- ---------- ---------- --------
Diluted allocated undistributed earnings (7,733) (2,806) (10,539) 4,048 1,678 5,726
---------- ---------- -------- ---------- ---------- --------
Interest expense on convertible debt ... 0 0 0 447 185 632
---------- ---------- -------- ---------- ---------- --------
Allocated dilutive net income (loss)
available to common shareholders ...... $ (6,998) $ (2,546) $ (9,544) $ 4,878 $ 2,183 $ 7,061
========== ========== ======== ========== ========= ========
Diluted Denominator
Basic weighted average shares
outstanding ........................... 26,020,125 10,384,137 17,170,265 10,603,426
Convertible debentures (1).............. 0 0 8,748,316 0
Options (1)............................. 0 0 556,250 1,468,750
---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding .................... 26,020,125 10,384,137 26,474,831 12,072,176
========== ========== ========== ==========
Allocation percentage .................. 73.38% 26.62% 70.69% 29.31%
========== ========== ========== ==========
Diluted earnings (loss) per share ...... $ (0.27) $ (0.25) $ 0.18 $ 0.18
========== ========== ========== ==========
(1) Convertible debentures and options were anti-dilutive during the three
months ended September 30, 1998 and therefore not included in diluted
weighted average shares outstanding.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months ended For the Nine Months ended
September 30, 1998 September 30, 1997
(In thousands, except per share ---------------------------------- -----------------------------------
data and percentages) Class A Class B Total Class A Class B Total
----------- ---------- -------- ---------- ---------- -------
Basic Numerator
<S> <C> <C> <C> <C> <C> <C>
Actual dividends declared .............. $ 2,039 $ 765 $ 2,804 $ 871 $ 922 $ 1,793
Basic allocated undistributed
earnings (loss) ....................... (499) (202) (701) 11,521 6,277 17,798
---------- ---------- -------- ---------- ---------- -------
Allocated basic net income available
for common shareholders ............... $ 1,540 $ 563 $ 2,103 $ 12,392 $ 7,199 $ 19,591
========== ========== ======== ========== ========== =======
Basic Denominator
Weighted average shares outstanding .... 23,533,659 10,524,893 17,748,827 10,638,411
========== ========== ========== ==========
Allocation percentage .................. 71.09% 28.91% 64.73% 35.27%
========== ========== ========== ==========
Basic earnings per share ............... $ 0.07 $ 0.05 $ 0.70 $ 0.68
========== ========== ========== ==========
Diluted Numerator
Actual dividends declared .............. $ 2,039 $ 765 $ 2,804 $ 871 $ 922 $ 1,793
---------- ---------- -------- ---------- ---------- -------
Basic allocated undistributed
earnings (loss) ....................... (499) (202) (701) 11,521 6,277 17,798
Reallocation of basic undistributed
earnings due to change in allocation
percentage ............................ 9 (9) 0 1,212 (1,212) 0
---------- ---------- -------- ---------- ---------- -------
Diluted allocated undistributed earnings (490) (211) (701) 12,733 5,065 17,798
Interest expense on convertible debt ... 0 0 0 1,361 542 1,903
---------- ---------- -------- ---------- ---------- -------
Allocated dilutive net income available
to common shareholders ................ $ 1,549 $ 554 $ 2,103 $ 14,965 $ 6,529 $ 21,494
========== ========== ======== ========== ========== =======
Diluted Denominator
Basic weighted average shares
outstanding ........................... 23,533,659 10,524,893 17,748,827 10,638,411
Convertible debentures (1) ............. 0 0 8,759,479 0
Options ................................ 678,362 960,172 308,814 1,095,870
---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding .................... 24,212,021 11,485,065 26,817,120 11,734,281
========== ========== ========== ==========
Allocation percentage .................. 69.87% 30.13% 71.54% 28.46%
========== ========== ========== ==========
Diluted earnings per share ............. $ 0.06 $ 0.05 $ 0.56 $ 0.56
========== ========== ========== ==========
(1) Convertible debentures were anti-dilutive during the nine months ended
September 30, 1998 and therefore not included in diluted weighted average
shares outstanding.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information
extracted from the Consolidated Statement of Financial
Condition at September 30, 1998 and the
Consolidated Statement of Operations for the nine months
ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 921768
<NAME> BankAtlantic Bancorp, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 88,321
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,250
<TRADING-ASSETS> 23,123
<INVESTMENTS-HELD-FOR-SALE> 609,115
<INVESTMENTS-CARRYING> 55,853
<INVESTMENTS-MARKET> 55,853
<LOANS> 2,546,173
<ALLOWANCE> 31,000
<TOTAL-ASSETS> 3,682,624
<DEPOSITS> 1,883,229
<SHORT-TERM> 110,060
<LIABILITIES-OTHER> 141,410
<LONG-TERM> 1,300,604
0
0
<COMMON> 371
<OTHER-SE> 246,950
<TOTAL-LIABILITIES-AND-EQUITY> 3,682,624
<INTEREST-LOAN> 157,651
<INTEREST-INVEST> 33,554
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 191,205
<INTEREST-DEPOSIT> 49,888
<INTEREST-EXPENSE> 112,831
<INTEREST-INCOME-NET> 78,374
<LOAN-LOSSES> 9,811
<SECURITIES-GAINS> 1,939
<EXPENSE-OTHER> 87,519
<INCOME-PRETAX> 3,931
<INCOME-PRE-EXTRAORDINARY> 3,931
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,103
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 7.89
<LOANS-NON> 18,281
<LOANS-PAST> 3,710
<LOANS-TROUBLED> 10
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,450
<CHARGE-OFFS> 10,342
<RECOVERIES> 2,405
<ALLOWANCE-CLOSE> 31,000
<ALLOWANCE-DOMESTIC> 30,480
<ALLOWANCE-FOREIGN> 520
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1997 (Unaudited)
and the Consolidated Statement of Operations for the nine months ended September
30, 1997 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1
<CASH> 113,734
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,534
<TRADING-ASSETS> 4,237
<INVESTMENTS-HELD-FOR-SALE> 495,093
<INVESTMENTS-CARRYING> 59,953
<INVESTMENTS-MARKET> 59,953
<LOANS> 1,963,227
<ALLOWANCE> 28,350
<TOTAL-ASSETS> 2,844,996
<DEPOSITS> 1,763,373
<SHORT-TERM> 128,369
<LIABILITIES-OTHER> 94,940
<LONG-TERM> 701,756
0
0
<COMMON> 223
<OTHER-SE> 156,335
<TOTAL-LIABILITIES-AND-EQUITY> 2,844,996
<INTEREST-LOAN> 127,404
<INTEREST-INVEST> 28,606
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 156,010
<INTEREST-DEPOSIT> 51,510
<INTEREST-EXPENSE> 84,250
<INTEREST-INCOME-NET> 71,760
<LOAN-LOSSES> 8,833
<SECURITIES-GAINS> 2,631
<EXPENSE-OTHER> 60,744
<INCOME-PRETAX> 32,114
<INCOME-PRE-EXTRAORDINARY> 32,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,591
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 8.32
<LOANS-NON> 12,487
<LOANS-PAST> 580
<LOANS-TROUBLED> 3,855
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 25,750
<CHARGE-OFFS> 8,322
<RECOVERIES> 2,089
<ALLOWANCE-CLOSE> 28,350
<ALLOWANCE-DOMESTIC> 28,350
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
