XNYS:BBX BBX Capital Corp Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission files number 001-13133

 

 

BankAtlantic Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   65-0507804

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2100 West Cypress Creek Road

Fort Lauderdale, Florida

  33309
(Address of principal executive offices)   (Zip Code)

(954) 940-5000

(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.    x  YES    ¨  NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  YES    ¨  NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  YES    x  NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of Each Class

  

Outstanding at May 3, 2012

Class A Common Stock, par value $0.01 per share    15,505,564
Class B Common Stock, par value $0.01 per share    195,045

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  
Part I. FINANCIAL INFORMATION   

Reference

  

Item 1. Financial Statements

     3-35   

Consolidated Statements of Financial Condition – March 31, 2012 and December  31, 2011 – Unaudited

     3   

Consolidated Statements of Operations – For the Three months ended March  31, 2012 and 2011 – Unaudited

     4   

Consolidated Statements of Comprehensive Loss – For the Three Months Ended March  31, 2012 and 2011 – Unaudited

     5   

Consolidated Statements of (Deficit) Equity – For the Three Months Ended March  31, 2012 and 2011 – Unaudited

     6   

Consolidated Statements of Cash Flows – For the Three Months Ended March  31, 2012 and 2011 – Unaudited

     7   

Notes to Consolidated Financial Statements – Unaudited

     8-35   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     35-52   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     52   

Item 4. Controls and Procedures

     52-53   

Part II. OTHER INFORMATION

  

Item 1A. Risk Factors

     53   

Item 6. Exhibits

     53   

Signatures

     54   


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION – UNAUDITED

 

(In thousands, except share data)    March 31,
2012
    December 31,
2011
 

ASSETS

    

Cash and interest bearing deposits in other banks

   $ 1,059,468        770,292   

Securities available for sale, at fair value

     26        46,435   

Tax certificates, net of allowance of $5,345 and $7,488

     6,120        46,488   

Loans held for sale

     62,791        55,601   

Loans receivable, net of allowance for loan losses of $7,167 and $129,887

     385,817        2,448,203   

Accrued interest receivable

     3,845        18,432   

Real estate owned

     84,805        87,174   

Investments in unconsolidated companies

     10,226        10,106   

Office properties and equipment, net

     3,263        139,165   

Other assets

     710        8,221   

Assets held for sale

     2,229,805        —     

Federal Home Loan Bank (“FHLB”) stock, at cost which approximates fair value

     —          18,308   

Real estate held for sale

     —          3,898   

Goodwill

     —          13,081   

Prepaid FDIC deposit insurance assessment

     —          12,715   
  

 

 

   

 

 

 

Total assets

   $ 3,846,876        3,678,119   
  

 

 

   

 

 

 

LIABILITIES AND (DEFICIT) EQUITY

    

Liabilities:

    

Deposits

    

Interest bearing deposits

   $ —          2,433,226   

Non-interest bearing deposits

     —          846,857   

Deposits held for sale

     3,457,460        —     
  

 

 

   

 

 

 

Total deposits

     3,457,460        3,280,083   
  

 

 

   

 

 

 

Subordinated debentures

     —          22,000   

Junior subordinated debentures

     341,082        337,114   

Other liabilities

     21,137        55,848   

Other liabilities held for sale

     58,759        —     
  

 

 

   

 

 

 

Total liabilities

     3,878,438        3,695,045   
  

 

 

   

 

 

 

Commitments and contingencies (Note 10)

    

(Deficit) Equity:

    

Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding

     —          —     

Class A common stock, $.01 par value, authorized 25,000,000 shares; issued and outstanding 15,505,564 and 15,434,564 shares

     155        154   

Class B common stock, $.01 par value, authorized 1,800,000 shares; issued and outstanding 195,045 and 195,045 shares

     2        2   

Additional paid-in capital

     330,090        329,995   

Accumulated deficit

     (340,900     (326,692

Accumulated other comprehensive loss

     (20,909     (20,385
  

 

 

   

 

 

 

Total deficit

     (31,562     (16,926
  

 

 

   

 

 

 

Total liabilities and deficit

   $ 3,846,876        3,678,119   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements – Unaudited

 

3


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

 

(In thousands, except share and per share data)    For the Three Months
Ended March 31,
 
     2012     2011  

Interest income:

    

Interest and fees on loans

   $ 8,335        11,802   

Interest and dividends on taxable securities

     —          36   
  

 

 

   

 

 

 

Total interest income

     8,335        11,838   

Interest on subordinated debentures

     4,167        3,784   
  

 

 

   

 

 

 

Net interest income

     4,168        8,054   

Provision for (recovery from) loan losses

     (765     6,827   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     4,933        1,227   
  

 

 

   

 

 

 

Non-interest income:

    

Income from unconsolidated companies

     120        381   

Gain (loss) on sale of loans

     3        (99

Other

     84        13   
  

 

 

   

 

 

 

Total non-interest income

     207        295   
  

 

 

   

 

 

 

Non-interest expense:

    

Employee compensation and benefits

     5,259        5,523   

Occupancy and equipment

     2,168        3,044   

Advertising and promotion

     153        113   

Professional fees

     6,197        2,128   

Impairments on loans held for sale

     263        628   

Impairment of real estate owned

     1,741        1,688   

Other

     2,530        2,598   
  

 

 

   

 

 

 

Total non-interest expense

     18,311        15,722   
  

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (13,171     (14,200

Provision for income taxes

     1        1   
  

 

 

   

 

 

 

Loss from continuing operations

     (13,172     (14,201
  

 

 

   

 

 

 

Loss from discontinued operations

     (1,036     (8,686
  

 

 

   

 

 

 

Net loss

     (14,208     (22,887

Less: net income attributable to non-controlling interest

     —          (295
  

 

 

   

 

 

 

Net loss attributable to BankAtlantic Bancorp, Inc.

   $ (14,208     (23,182
  

 

 

   

 

 

 

Basic loss per share

    

Continuing operations

   $ (0.84     (1.16

Discontinued operations

     (0.07     (0.69
  

 

 

   

 

 

 

Basic loss per share

   $ (0.91     (1.85
  

 

 

   

 

 

 

Diluted loss per share

    

Continuing operations

   $ (0.84     (1.16

Discontinued operations

     (0.07     (0.69
  

 

 

   

 

 

 

Diluted loss per share

   $ (0.91     (1.85
  

 

 

   

 

 

 

Basic weighted average number of common shares outstanding

     15,659,257        12,544,809   
  

 

 

   

 

 

 

Diluted weighted average number of common and common equivalent shares outstanding

     15,659,257        12,544,809   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements – Unaudited

 

4


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS – UNAUDITED

 

     For the Three Months
Ended March 31,
 
(In thousands, except share and per share data)    2012     2011  

Net loss

   $ (14,208     (22,887
  

 

 

   

 

 

 

Other comprehensive loss, net of tax:

    

Unrealized loss on securities available for sale

     (524     (719

Provision for income taxes

     —          —     
  

 

 

   

 

 

 

Unrealized loss on securities available for sale, net of tax

     (524     (719
  

 

 

   

 

 

 

Reclassification adjustments:

    

Net realized loss on securities available for sale

     —          —     
  

 

 

   

 

 

 

Reclassification adjustments

     —          —     
  

 

 

   

 

 

 

Other comprehensive loss, net of tax

     (524     (719
  

 

 

   

 

 

 

Comprehensive loss

     (14,732     (23,606

Less: Comprehensive loss attributable to noncontrolling interest

     —          295   
  

 

 

   

 

 

 

Total comprehensive loss attributable to BankAtlantic Bancorp Inc.

   $ (14,732     (23,901
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements – Unaudited

 

5


Table of Contents

BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

For the Three Months Ended March 31, 2012 and 2011 – Unaudited

 

(In thousands)   Common
Stock
    Additional
Paid-in
Capital
    (Accumulated
Deficit)
    Accumulated
Other
Comprehensive
Loss
    BankAtlantic
Bancorp
(Deficit) Equity
    Non-
Controlling
Interest
    Total
(Deficit) Equity
 

BALANCE, DECEMBER 31, 2010

  $ 125        317,863        (297,615     (6,088     14,285        458        14,743   

Net loss

    —          —          (23,182     —          (23,182     295        (22,887

Change in other comprehensive loss

    —          —          —          (719     (719     —          (719

Non-controlling interest distributions

    —          —          —          —          —          (245     (245

Issuance of Class A Common Stock pursuant to stock-based compensation awards

    1        (1     —          —          —          —          —     

Share based compensation expense

    —          378        —          —          378        —          378   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, MARCH 31, 2011

  $ 126        318,240        (320,797     (6,807     (9,238     508        (8,730
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2011

  $ 156        329,995        (326,692     (20,385     (16,926     —          (16,926

Net loss

    —          —          (14,208     —          (14,208     —          (14,208

Change in other comprehensive loss

    —          —          —          (524     (524     —          (524

Share based compensation expense

    1        95        —          —          96        —          96   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, MARCH 31, 2012

  $ 157        330,090        (340,900     (20,909     (31,562     —          (31,562
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements – Unaudited

 

6


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BANKATLANTIC BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

 

     For the Three Months
Ended March 31,
 
(In thousands)    2012     2011  

Net cash provided by operating activities

   $ 9,186        23,109   
  

 

 

   

 

 

 

Investing activities:

    

Proceeds from redemption of tax certificates

     10,345        20,567   

Purchase of tax certificates

     (145     (9,415

Proceeds from maturities of securities available for sale

     5,365        47,299   

Proceeds from maturities of interest bearing deposits

     5,655        2,480   

Net repayments of loans

     120,498        135,346   

Proceeds from the sales of loans transferred to held for sale

     1,000        3,100   

Proceeds from sales of real estate owned

     14,081        3,245   

Purchases of office property and equipment

     (8     (232

Proceeds from the sale of office properties and equipment

     1,154        106   
  

 

 

   

 

 

 

Net cash provided by investing activities

     157,945        202,496   
  

 

 

   

 

 

 

Financing activities:

    

Net increase in deposits

     177,377        113,317   

Net repayments of FHLB advances

     —          (125,010

Net decrease in securities sold under agreements to repurchase

     —          (4,518

Increase in short-term borrowings

     —          127   

Noncontrolling interest distributions

     —          (245
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     177,377        (16,329
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     344,508        209,276   

Cash and cash equivalents at the beginning of period

     764,636        507,908   

Change in cash and cash equivalents held for sale

     (49,676     (333
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,059,468        716,851   
  

 

 

   

 

 

 

Cash paid (received) for:

    

Interest on borrowings and deposits

   $ 3,286        4,655   

Income tax refund

     (1,053     —     

Supplementary disclosure of non-cash investing and financing activities:

    

Loans and tax certificates transferred to REO

     12,467        6,679   

Loans receivable transferred to loans held- for- sale

     16,140        27,522   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements – Unaudited

 

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Table of Contents

BankAtlantic Bancorp, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

 

1. Presentation of Interim Financial Statements

Basis of Financial Statement Presentation BankAtlantic Bancorp, Inc. and its subsidiaries may also be referred to as “the Company”, “we”, “us,” or “our” in the notes to the consolidated financial statements. BankAtlantic Bancorp, Inc. (the “Parent Company” or “BankAtlantic Bancorp”) is a unitary savings bank holding company organized under the laws of the State of Florida in 1994. BankAtlantic Bancorp’s principal asset is its investment in BankAtlantic and its subsidiaries (BankAtlantic”). BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida, provides traditional retail banking services and a wide range of commercial banking products and related financial services through a broad network of community branches located in Florida.

On November 1, 2011, BankAtlantic Bancorp entered into a definitive agreement to sell BankAtlantic to BB&T Corporation (“BB&T”), which agreement was amended on March 13, 2012 (the “Agreement”). The Agreement was amended to, among other things, provide for the assumption by BB&T of BankAtlantic Bancorp’s $285 million in principal amount of outstanding trust preferred securities (“TruPs”) obligations. BankAtlantic Bancorp remains obligated to pay at the closing of the transaction all interest accrued on the TruPs through closing, and agreed to pay or escrow certain legal fees and expenses with respect to the now resolved TruPs-related litigation brought in the Delaware Chancery Court against the Company by holders of the TruPs and certain trustees. The accrued interest on the TruPs as of March 31, 2012 was $45.5 million. The Company expects to fund the TruPs accrued interest and the TruPs related legal obligation from transaction proceeds. The Agreement provides that BankAtlantic will form two subsidiaries, BBX Capital Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”). BankAtlantic will contribute certain performing and non-performing loans, tax certificates, cash and real estate owned to FAR that were recorded on the Statement of Financial Condition of BankAtlantic at $402 million as of March 31, 2012, inclusive of $12 million in cash. BankAtlantic will also contribute non-performing commercial loans, commercial real estate owned and cash as well as previously written off assets to CAM that were recorded on the Statement of Financial Condition of BankAtlantic at $208 million as of March 31, 2012, inclusive of $67 million in cash. The assets contributed to FAR and CAM are referred to herein on a combined basis as “Retained Assets”. At the closing of the transaction, BankAtlantic will contribute the membership interests in FAR and CAM to BankAtlantic Bancorp, and then BankAtlantic Bancorp will sell to BB&T all of the shares of capital stock of BankAtlantic. As a result of BB&T’s assumption of the TruPs obligations, BB&T will receive from BankAtlantic Bancorp a 95% preferred membership interest in the net cash flows of FAR until such time as it has recovered $285 million in preference amount plus a priority return of LIBOR + 200 basis points per annum. At that time, BB&T’s interest in FAR will terminate, and BankAtlantic Bancorp, which will initially hold a 5% preferred membership interest in the net cash flows of FAR, will thereafter be entitled to any and all residual proceeds. FAR’s assets are expected to be monetized over a period of seven years, or longer provided BB&T’s preference amount is repaid within such seven-year period. BankAtlantic Bancorp has also agreed to provide BB&T with an incremental $35 million guarantee to further assure BB&T’s recovery within seven years of the $285 million preference amount. FAR will assume any liabilities and servicing costs related to the assets contributed to it by BankAtlantic.

Pursuant to the Agreement, BankAtlantic Bancorp will receive a purchase premium of 10.32% of non-certificate deposits at closing (provided that the purchase premium will not exceed $315.9 million) resulting in the Company recognizing a gain from the transaction approximately equal to the purchase premium less transaction costs. The transaction, which is currently anticipated to close during the second quarter of 2012, is subject to regulatory approvals and other customary terms and conditions. At the closing of the transaction, the sum of the purchase premium and the net asset value of BankAtlantic, as calculated pursuant to the Agreement after giving effect to the distribution to BankAtlantic Bancorp of the membership interests in CAM and FAR, is to be paid in cash. If the sum is a positive number, it is to be paid by BB&T to BankAtlantic Bancorp. If the sum is a negative number, it is to be paid by BankAtlantic Bancorp to BB&T. Upon consummation of the transaction, BankAtlantic Bancorp expects to have a controlling financial interest in FAR and anticipates consolidating FAR in the Company’s financial statements. BB&T’s 95% preferred interest in FAR is mandatorily redeemable; therefore, the Company expects to account for BB&T’s interest in FAR as debt.

Based on the probable sale of BankAtlantic, the Company presented the assets and liabilities anticipated to be transferred to BB&T, which consists of all of BankAtlantic’s assets and liabilities less the Retained Assets, as “Assets held for sale” and “Liabilities held for sale” in its unaudited Consolidated Statement of Financial Condition as of March 31, 2012. The majority of cash and interest bearing deposits in other banks will transfer to BB&T upon closing of the transaction; however, except for the cash at BankAtlantic’s branches and automated teller machines, this cash and interest bearing deposits are not presented as “Assets held for sale” as of March 31, 2012. The assets and liabilities anticipated to be

 

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BankAtlantic Bancorp, Inc. and Subsidiaries

 

transferred to BB&T are measured on a combined basis as a single disposal group at the lower of cost or fair value less cost to sell. Accordingly, the assets and liabilities held for sale are presented in the Company’s unaudited Consolidated Statement of Financial Condition as of March 31, 2012 based on their carrying value as the Company anticipates recording a gain associated with the transaction.

BankAtlantic’s community banking, investment, capital services and tax certificate reporting units are reflected as “Discontinued Operations” in the Company’s unaudited Consolidated Statements of Operations for all periods presented. The Company will continue to service and manage and may originate commercial loans after the sale of BankAtlantic to BB&T and as a result, the results of operations for the Commercial Lending reporting unit are included in the Company’s unaudited Consolidated Statement of Operations as continuing operations for all periods presented. The assets and liabilities anticipated to be transferred to BB&T were not reclassified to assets and liabilities held for sale in the Company’s Consolidated Statement of Financial Condition as of December 31, 2011. The Consolidated Statement of Stockholders’ Equity, Consolidated Statements of Comprehensive Loss and Consolidated Statement of Cash Flows remain unchanged from prior period historical presentation for all periods presented. Additionally, pursuant to the Agreement, the Company agreed to sell to BB&T certain assets and liabilities associated with its commercial lending reporting unit and these assets and liabilities are included in assets and liabilities held for sale in the Company’s Statement of Financial Condition as of March 31, 2012. The Company will retain certain assets and liabilities associated with the disposed reporting units and these assets and liabilities are included in the Company’s Consolidated Statement of Financial Condition in the respective line item as of March 31, 2012.

In connection with the closing of the transaction with BB&T, BankAtlantic Bancorp has requested from the Federal Reserve decertification as a savings and loan holding company. After consummation of the transaction, BankAtlantic Bancorp expects to no longer operate as a unitary savings bank holding company.

The Company’s consolidated financial statements have been prepared on a going concern basis, which reflects the realization of assets and the repayments of liabilities in the normal course of business.

All significant inter-company balances and transactions have been eliminated in consolidation. Throughout this document, the term “fair value” in each case is an estimate of fair value as discussed herein.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) as are necessary for a fair statement of the Company's consolidated financial condition at March 31, 2012, the consolidated results of operations for the three months ended March 31, 2012 and 2011, and the consolidated stockholders' equity, comprehensive loss and cash flows for the three months ended March 31, 2012 and 2011. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results of operations that may be expected for the year ended December 31, 2012. The consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the consolidated financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Certain amounts for prior years have been reclassified to conform to the revised financial statement presentation for 2012.

 

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BankAtlantic Bancorp, Inc. and Subsidiaries

 

2. Assets and Liabilities Held For Sale

The assets and liabilities held for sale included in the Company’s Consolidated Statement of Financial Condition consisted of the following (in thousands):

 

     March 31,
2012
 

Cash and due from banks

   $ 49,676   

Securities available for sale, at fair value

     40,527   

Tax certificates

     29,881   

Federal Home Loan Bank stock

     18,308   

Loans receivable

     1,912,575   

Accrued interest receivable

     12,813   

Office properties and equipment

     133,205   

Goodwill

     13,081   

Other assets

     19,739   
  

 

 

 

Total assets held for sale

   $ 2,229,805   
  

 

 

 

Deposits

  

Interest free checking

   $ 919,933   

Insured money fund savings

     626,454   

Now accounts

     1,155,314   

Savings accounts

     435,266   
  

 

 

 

Total non-certificate accounts

     3,136,967   

Certificate accounts

     320,493   
  

 

 

 

Total deposits held for sale

   $ 3,457,460   
  

 

 

 

Subordinated debentures

   $ 22,000   

Other liabilities

     36,759   
  

 

 

 

Total other liabilities held for sale

   $ 58,759   
  

 

 

 

Total liabilities held for sale

   $ 3,516,219   
  

 

 

 

The majority of the cash and interest bearing deposits in other banks on the Company’s Consolidated Statement of Financial Position will also be transferred to BB&T in connection with the assumption of liabilities by BB&T.

BankAtlantic’s five reporting units each reflect a component of the BankAtlantic entity and each is the lowest level for which cash flows can be clearly distinguished, operationally and for financial reporting purposes. These five components are Community Banking, Commercial Lending, Tax Certificates, Investments, and Capital Services. The Company determined that its Community Banking, Investments, Capital Services and Tax Certificates reporting units should be treated as discontinued operations. The Agreement commits the Company to a plan to sell all operations and the majority of the assets and liabilities of these discontinued reporting units. Management does not intend to continue in any material respect any activities of or have any continuing involvement with these reporting units. The Company intends to continue Commercial Lending reporting unit activities after the closing of the transaction. Therefore, although certain assets of this reporting unit will be sold to BB&T and are presented as assets and liabilities held for sale in the Consolidated Statement of Financial Condition as of March 31, 2012, the Commercial Lending reporting unit was not reported as discontinued operations.

Pursuant to the Agreement, FAR will include certain assets and liabilities that were associated with BankAtlantic Bancorp’s disposed reporting units (Community Banking, Tax Certificates, Investments, and Capital Services reporting

 

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units). The Company determined that the ongoing cash flows of the disposed reporting units were not significant relative to the historical cash flows of each reporting unit; therefore the income and expenses associated with the disposed reporting units are reported in discontinued operations for each period presented. The carrying value of the disposed reporting units’ net assets anticipated to be included in FAR’s total assets discussed above was $134 million as of March 31, 2012. BankAtlantic Bancorp and BB&T intend to hire asset managers to manage and ultimately liquidate these FAR assets in orderly transactions over a seven year period. Ninety-five percent of the cash flows from these assets net of operating expenses and the preferred return will be applied toward the payment of BB&T’s preferred interest in FAR.

The loss from Community Banking, Investments, Capital Services and Tax Certificates reporting units included in discontinued operations in the Company’s Statement of Operations was as follows (in thousands):

 

     For the Three Months
Ended March 31,
 
     2012     2011  

Total interest income

   $ 20,727        27,667   

Total interest expense

     3,254        4,712   
  

 

 

   

 

 

 

Net interest income

     17,473        22,955   

Provision for loan losses

     9,217        20,985   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     8,256        1,970   
  

 

 

   

 

 

 

Non-interest income:

    

Service charges on deposits

     7,851        12,032   

Other service charges and fees

     5,938        7,191   

Securities activities, net

     —          (24

Other

     3,735        3,294   
  

 

 

   

 

 

 

Total non-interest income

     17,524        22,493   
  

 

 

   

 

 

 

Non-interest expense (1):

    

Employee compensation and benefits

     11,690        13,767   

Occupancy and equipment

     7,272        9,122   

Advertising and promotion

     1,016        1,583   

Professional fees

     1,823        1,232   

Other

     5,015        7,445   
  

 

 

   

 

 

 

Total non-interest expense

     26,816        33,149   
  

 

 

   

 

 

 

Loss from discontinued operations

     (1,036     (8,686

Provision for income taxes

     —          —     
  

 

 

   

 

 

 

Net loss from discontinued operations

   $ (1,036     (8,686
  

 

 

   

 

 

 

 

(1) Pursuant to applicable accounting rules, all general corporate overhead was allocated to continuing operations.

 

3. Regulatory and Liquidity Considerations

On February 23, 2011, BankAtlantic Bancorp and BankAtlantic each entered into a Stipulation and Consent to Issuance of Order to Cease and Desist with the Office of Thrift Supervision (“OTS”), BankAtlantic Bancorp’s and BankAtlantic’s primary regulator on that date. Since July 21, 2011, the regulatory oversight of BankAtlantic Bancorp is under the Federal Reserve Bank (“FRB”) and the regulatory oversight of BankAtlantic is under the Office of the Comptroller of the Currency (“OCC”) as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The Order to Cease and Desist to which BankAtlantic Bancorp is subject is referred to as the “Company Order,” the Order to Cease and Desist to which BankAtlantic is subject is referred to as the “Bank Order”

 

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and the Company Order and Bank Order are referred to collectively as the “Orders.” The OTS issued the Orders due to the Company’s losses over the prior three years, high levels of classified assets and inadequate levels of capital based on BankAtlantic’s risk profile as determined by the OTS following its examination. BankAtlantic Bancorp submitted written plans to the OTS that address, among other things, BankAtlantic’s capital and set forth BankAtlantic Bancorp’s business plan. In addition, under the terms of the Company Order, BankAtlantic Bancorp is prohibited from taking certain actions without receiving the prior written non-objection of the FRB, including, without limitation, declaring or paying any dividends or other capital distributions and incurring certain indebtedness. BankAtlantic Bancorp is also required to ensure BankAtlantic’s compliance with the terms of the Bank Order as well as all applicable laws, rules, regulations and agency guidance.

Pursuant to the terms of the Bank Order, BankAtlantic is required to maintain a tier 1 (core) capital ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 14%. At March 31, 2012, BankAtlantic had a tier 1 (core) capital ratio of 7.72% and a total risk-based capital ratio of 15.77%. BankAtlantic’s tier 1 capital ratio fell below the regulatory requirements due to growth in assets during the three months ended March 31, 2012. The increase in assets reflects $179.6 million in deposit growth with the proceeds invested in cash at the Federal Reserve Bank. If the BB&T transaction is not completed, BankAtlantic would take steps to improve its tier 1 capital ratio through the reduction of cash at the Federal Reserve Bank with a corresponding reduction in deposits. Since BankAtlantic’s tier 1 capital ratio fell below the minimum required tier 1 capital ratio in the Bank Order, BankAtlantic may, upon any written request from the OCC, be required to submit a contingency plan, which must detail actions which BankAtlantic would take to either merge with or be acquired by another banking institution. BankAtlantic would not be required to implement such contingency plan until such time as it receives written notification from the OCC to do so. BankAtlantic believes that any contingency plan requirement would be met by the Agreement with BB&T. In addition, the Bank Order requires BankAtlantic to limit its asset growth and restricts BankAtlantic from originating or purchasing new commercial real estate loans or entering into certain material agreements, in each case without receiving the prior written non-objection of the OCC. As a result of the deposit growth noted above, BankAtlantic’s assets grew during the first quarter of 2012 by $172.6 million, all of which was maintained in cash balances. Separately, the OTS confirmed that it has no objection to BankAtlantic originating loans to facilitate the sale of certain assets or the renewal, extension or modification of existing commercial real estate loans, subject in each case to compliance with applicable regulations and bank policies. Under the terms of the Bank Order, BankAtlantic has revised certain of its plans, programs and policies and submitted to the OCC certain written plans, including a capital plan, a business plan and a plan to reduce BankAtlantic’s delinquent loans and non-performing assets. The Bank Order prohibits the payment of dividends and other distributions without the prior written non-objection of the OCC. The Orders also include certain restrictions on compensation paid to directors and named executive officers of BankAtlantic Bancorp and BankAtlantic, and restrictions on agreements with affiliates.

In the event the BB&T transaction is not consummated, BankAtlantic Bancorp may seek to issue the Company’s Class A Common Stock in public or private offerings, and BankAtlantic would seek to adopt operating strategies to increase revenues and to reduce asset balances, non-interest expenses, and non-performing loans in order to meet the heightened regulatory capital levels and asset growth restrictions under the Bank Order. There can be no assurance that BankAtlantic Bancorp or BankAtlantic will be able to execute these or other strategies in order for BankAtlantic to comply with these requirements in subsequent periods.

Each Order became effective on February 23, 2011 and will remain in effect until terminated, modified or suspended by the OCC, as it relates to the Bank Order, or the FRB, as it relates to the Company Order. No fines or penalties were imposed in connection with either Order. If there is any material failure by BankAtlantic Bancorp or BankAtlantic to comply with the terms of the Orders, or if unanticipated market factors emerge, and/or if the Company is unable to successfully execute its plans, or comply with other regulatory requirements, then the regulators could take further action, which could include the imposition of fines and/or additional enforcement actions. Enforcement actions broadly available to regulators include the issuance of a capital directive, removal of officers and/or directors, institution of proceedings for receivership or conservatorship, and termination of deposit insurance. Any such action would have a material adverse effect on the Company’s business, results of operations and financial position.

Liquidity Considerations

Both BankAtlantic Bancorp and BankAtlantic actively manage liquidity and cash flow needs. BankAtlantic’s liquidity is primarily dependent on its ability to maintain or increase deposit levels and secondarily dependent on the availability of its lines of credit borrowings with the Federal Home Loan Bank (“FHLB”) as well as the Treasury and Federal Reserve lending programs. As of March 31, 2012, BankAtlantic had $1.1 billion of cash and approximately $578

 

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million of available unused borrowings, consisting of $543 million of unused FHLB line of credit capacity, $7 million of unpledged securities, and $28 million of available borrowing capacity at the Federal Reserve. BankAtlantic has $601 million of loans pledged against the FHLB unused borrowings and $30 million of securities available for sale pledged against unused Federal Reserve borrowings. However, such available borrowings are subject to regular reviews and may be terminated, suspended or reduced at any time at the discretion of the issuing institution or based on the availability of qualifying collateral. Additionally, interest rate changes, additional collateral requirements, disruptions in the capital markets, adverse litigation or regulatory actions, or deterioration in BankAtlantic’s financial condition may reduce the amounts it is able to borrow, make borrowings unavailable or make terms of the borrowings and deposits less favorable. As a result, BankAtlantic’s cost of funds could increase and the availability of funding sources could decrease.

BankAtlantic Bancorp had cash of $4.8 million and current liabilities of $6.9 million as of March 31, 2012. BankAtlantic Bancorp does not have debt maturing until March 2032 and has the ability to defer interest payments on its junior subordinated debentures until December 2013; however, based on current interest rates, accrued and unpaid interest of approximately $76 million would be owed as of December 2013 if interest is deferred until that date. BankAtlantic Bancorp’s operating expenses for the three months ended March 31, 2012 were $5.7 million with the majority of these expenses associated with the now resolved TruPs litigation in the Delaware Chancery Court. The majority of the current liabilities were associated with the TruPs litigation and are anticipated to be paid upon consummation of the transaction with BB&T. BankAtlantic Bancorp’s liquidity is dependent on the consummation of the Agreement, repayments of loans, sales of loans and real estate, and obtaining funds from external sources. Based on the current and expected liquidity needs and sources, the Company expects to be able to meet its liquidity needs over the next 12 months. In the event that the BB&T transaction is not consummated, BankAtlantic Bancorp may seek to increase liquidity to meet its obligations through the sale of assets or the issuance of its Class A common stock.

 

4. Fair Value Measurement

The following tables present major categories of the Company’s assets measured at fair value on a recurring basis as of December 31, 2011 (in thousands):

 

            Fair Value Measurements Using  

Description

   As of
December 31,
2011
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Mortgage-backed securities

   $ 13,418         —           13,418         —     

REMICS

     31,690         —           31,690         —     

Equity securities

     1,327         827         500         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 46,435         827         45,608         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no recurring liabilities measured at fair value in the Company’s financial statements as of March 31, 2012 or December 31, 2011.

The valuation techniques and the inputs used in our financial statements to measure the fair value of our recurring financial instruments are described below.

The fair values of mortgage-backed and real estate mortgage conduit securities (“REMICS”) are estimated using independent pricing sources and matrix pricing. Matrix pricing uses a market approach valuation technique and Level 2 valuation inputs as quoted market prices are not available for the specific securities that the Company owns. The independent pricing sources value these securities using observable market inputs including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads and other reference data in the secondary institutional market, which is the principal market for these types of assets. To validate fair values obtained from the pricing sources, the Company reviews fair value estimates obtained from brokers, investment advisors and others to determine the reasonableness of the fair values obtained from independent pricing sources. The Company reviews any price that it determines may not be reasonable and requires the pricing sources to explain the differences in fair value or re-evaluate its estimated fair value.

 

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Equity securities are generally fair valued using the market approach and quoted market prices (Level 1) or matrix pricing (Level 2) with inputs obtained from independent pricing sources, if available. We also obtain non-binding broker quotes to validate fair values obtained from matrix pricing. We also invest in private limited partnerships that do not have readily determinable fair values. We use the net asset value per share as provided by the partnership to estimate the fair value of these investments. The net asset value of the partnership is a Level 2 input since we have the ability to require the redemption of our investment at its net asset value.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2012 (in thousands):

 

     Fair Value Measurements Using         

Description

   March 31,
2012
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments (1)
For the Three
Months Ended
 

Impaired real estate owned

   $ 15,223         —           —           15,223         1,741   

Impaired loans held for sale

     7,914         —           —           7,914         263   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23,137         —           —           23,137         2,004   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total impairments represent the amount recognized during the three months ended March 31, 2012 on assets that were held and measured at fair value as of March 31, 2012.

Quantitative information about significant unobservable inputs within Level 3 non-recurring major categories of assets is as follows (dollars in thousands):

 

As on March 31, 2012

Description

   Fair
Value
    

Valuation

Technique

   Unobservable
Inputs
    

Range (Average)(1)

Impaired real estate owned

   $ 15,223       Fair Value of Property      Appraisal       $0.4 - 3.5 million (2.5 million)

Impaired loans held for sale

     7,914       Fair Value of Collateral      Appraisal       $0.9 - 3.6 million (2.6 million)
  

 

 

          

Total

   $ 23,137            
  

 

 

          
(1) Range and average appraised value includes cost to sell.

The following table presents major categories of assets measured at fair value on a non-recurring basis as of March 31, 2011 (in thousands):

 

     Fair Value Measurements Using         

Description

   March 31,
2011
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Impairments (1)
For the Three
Months Ended
 

Loans measured for impairment using the fair value of the underlying collateral

   $ 238,540         —           —           238,540         14,497   

Impaired loans held for sale

     33,664         —           —           33,664         4,479   

Impaired real estate owned

     19,728         —           —           19,728         2,323   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 291,932         —           —           291,932         21,299   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Total impairments represent the amount recognized during the three months ended March 31, 2011 on assets that were measured at fair value as of March 31, 2011.

There were no material liabilities measured at fair value on a non-recurring basis in the Company’s financial statements.

Loans Measured For Impairment

Impaired loans are generally valued based on the fair value of the underlying collateral less cost to sell. The Company primarily uses third party appraisals to assist in measuring non-homogenous impaired loans. These appraisals generally use the market or income approach valuation technique and use market observable data to formulate an opinion of the fair value of the loan’s collateral. However, the appraiser uses professional judgment in determining the fair value of the collateral or properties, and we may also adjust these values for changes in market conditions subsequent to the appraisal date. When current appraisals are not available for certain loans, we use our judgment on market conditions to adjust the most current appraisal. The sales prices may reflect prices of sales contracts not closed, and the amount of time required to sell out the real estate project may be derived from current appraisals of similar projects. As a consequence, the calculation

 

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of the fair value of the collateral are considered Level 3 inputs. The Company generally recognizes impairment losses when impaired homogenous loans become 120 days delinquent based on third party broker price opinions or an automated valuation service to obtain the fair value of the collateral less cost to sell. These third party valuations from real estate professionals also use Level 3 inputs in determining fair values. The observable market inputs used to fair value loans are comparable property sales, rent rolls, market capitalization rates on income producing properties, risk adjusted discounts rates and foreclosure period and exposure periods. The fair value of our loans may significantly increase or decrease based on property values as our loans are primarily real estate loans.

Impaired Real Estate Owned

Real estate is generally valued using third party appraisals or broker price opinions. These appraisals generally use the market approach valuation technique and use market observable data to formulate an opinion of the fair value of the properties. The market observable data was generally comparable property sales, rent rolls, market capitalization rates on income producing properties and risk adjusted discount rates. However, the appraisers or brokers use professional judgments in determining the fair value of the properties and we may also adjust these values for changes in market conditions subsequent to the valuation date. As a consequence of using appraisals, broker price opinions and adjustments to appraisals, the fair values of the properties are considered Level 3 inputs.

Loans Held for Sale

Loans held for sale are valued using an income approach with Level 3 inputs as market quotes or sale transactions of similar loans are generally not available. The fair value is estimated by discounting forecasted cash flows, using a discount rate that reflects the risks inherent in the loans held for sale portfolio. For non-performing loans held for sale, the forecasted cash flows are based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure or sale.

Financial Disclosures about Fair Value of Financial Instruments

 

            Fair Value Measurements Using  

(in thousands)

Description

   Carrying
Amount

As of
March 31,
2012
     As of
March 31,
2012
     Quoted prices in
Active Markets
for Identical
Assets

(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets:

              

Cash and interest bearing deposits in other banks

   $ 1,059,468         1,059,468         1,059,468         —           —     

Securities available for sale

     26         26         26         

Tax certificates

     6,120         5,982         —           —           5,982   

Loans receivable including loans held for sale, net

     448,608         433,477         —           —           433,477   

Financial liabilities:

              

Junior subordinated debentures

     341,082         305,713         —           305,713         —     

 

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     December 31, 2011  
(in thousands)    Carrying
Amount
     Fair
Value
 

Financial assets:

     

Cash and interest bearing deposits in other banks

   $ 770,292         770,292   

Securities available for sale

     46,435         46,435   

Tax certificates

     46,488         45,562   

Federal home loan bank stock

     18,308         18,308   

Loans receivable including loans held for sale, net

     2,503,804         2,317,144   

Financial liabilities:

     

Deposits

     3,280,083         3,279,562   

Subordinated debentures

     22,000         21,989   

Junior subordinated debentures

     337,114         226,991   

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments and management has derived the fair value of the majority of these financial instruments using the income approach technique with Level 3 unobservable inputs, the Company may not receive the estimated value upon sale or disposition of the asset or pay the estimated value upon disposition of the liability in advance of its scheduled maturity. Management estimates used in its net present value financial models rely on assumptions and judgments regarding issues where the outcome is unknown and actual results or values may differ significantly from these estimates. The Company’s fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates.

Fair values are estimated for loan portfolios with similar financial characteristics. Loans are segregated by category, and each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans is calculated by using an income approach with Level 3 inputs. The fair value of performing loans is estimated by discounting forecasted cash flows through the estimated maturity using estimated market discount rates that reflect the interest rate risk inherent in the loan portfolio. The estimate of average maturity is based on BankAtlantic's historical experience with prepayments for each loan classification, modified as required, by an estimate of the effect of current economic and lending conditions. Management assigns a credit risk premium and an illiquidity adjustment to these loans based on risk grades and delinquency status. The fair value of non-performing collateral dependent loans is estimated using an income approach with Level 3 inputs. The fair value of non-performing loans utilizes the fair value of the collateral adjusted for operating and selling expenses and discounted over the estimated holding period based on the market risk inherent in the property.

The fair value of tax certificates is calculated using the income approach with Level 3 inputs. The fair value is based on discounted expected cash flows using discount rates that take into account the risk of the cash flows of tax certificates relative to alternative investments.

The fair value of FHLB stock is its carrying amount as the FHLB redeems its stock at par.

As permitted by applicable accounting guidance, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings and NOW accounts, and money market and checking accounts, is shown in the above table at book value. The fair value of certificates of deposit is based on an income approach with Level 3 inputs. The fair value is calculated by the discounted value of contractual cash flows with the discount rate estimated using current rates offered by BankAtlantic for similar remaining maturities.

The fair value of BankAtlantic’s subordinated debentures was based on discounted values of contractual cash flows at a market discount rate adjusted for non-performance risk (Level 3 inputs).

 

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In determining the fair value of all of the Company’s junior subordinated debentures, the Company used NASDAQ price quotes available with respect to its $75.0 million of publicly traded trust preferred securities related to its junior subordinated debentures (“public debentures”). However, $266.1 million of the outstanding trust preferred securities related to its junior subordinated debentures are not traded, but are privately held in pools (“private debentures”) and with no liquidity or readily determinable source for valuation. We have deferred the payment of interest with respect to all of our junior subordinated debentures as permitted by the terms of these securities. Based on the deferral status and the lack of liquidity and ability of a holder to actively sell such private debentures, the fair value of these private debentures may be subject to a greater discount to par and have a lower fair value than indicated by the public debenture price quotes. However, due to their private nature and the lack of a trading market, fair value of the private debentures was not readily determinable at March 31, 2012 and December 31, 2011, and as a practical alternative, management used the NASDAQ price quotes of the public debentures to value all of the outstanding junior subordinated debentures whether privately held or public traded. As such, the private debentures were valued using Level 2 inputs.

 

5. Securities Available for Sale

The following table summarizes securities available for sale (in thousands):

 

     As of December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

Government agency securities:

           

Mortgage-backed securities

   $ 12,533         885         —           13,418   

Real estate mortgage investment conduits

     30,561         1,129         —           31,690   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     43,094         2,014         —           45,108   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

     1,260         67         —           1,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44,354         2,081         —           46,435   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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6. Loans Receivable

The loan portfolio below, as of March 31, 2012, excludes loans to be transferred to BB&T under the terms of the Agreement as these loans are included in assets held for sale.

The loan portfolio consisted of the following (in thousands):

 

     March 31,
2012
    December 31,
2011
 

Commercial non-real estate

   $ 29,805        118,145   

Commercial real estate:

    

Residential

     66,708        104,593   

Land

     3,496        24,202   

Owner occupied

     9,026        86,809   

Other

     174,292        464,902   

Small Business:

    

Real estate

     23,152        184,919   

Non-real estate

     11,999        99,835   

Consumer:

    

Consumer – home equity

     21,043        545,908   

Consumer other

     31        10,704   

Deposit overdrafts

     —          1,971   

Residential:

    

Residential-interest only

     19,468        375,498   

Residential-amortizing

     34,048        558,026   
  

 

 

   

 

 

 

Total gross loans

     393,068        2,575,512   
  

 

 

   

 

 

 

Adjustments:

    

Premiums, discounts and net deferred fees

     (84     2,578   

Allowance for loan losses

     (7,167     (129,887
  

 

 

   

 

 

 

Loans receivable – net

   $ 385,817        2,448,203   
  

 

 

   

 

 

 

Loans held for sale

   $ 62,791        55,601   
  

 

 

   

 

 

 

Loans held for sale – Loans held for sale as of March 31, 2012 consisted of $46.2 million of commercial real estate loans and $16.6 million of residential loans. Included in the commercial real estate loans held for sale was $16.1 million of loans transferred from loans held-to-maturity during the three months ended March 31, 2012. Loans held for sale as of December 31, 2011 consisted of $35.8 million of commercial real estate loans and $19.8 million of residential loans. The Company transfers loans to held-for-sale when, based on the current economic environment and related market conditions, it does not have the intent to hold those loans for the foreseeable future.

 

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The recorded investment (unpaid principal balance less charge-offs and deferred fees) of non-accrual loans receivable and loans held for sale was (in thousands):

 

Loan Class

   March 31,
2012
     December 31,
2011
 

Commercial non-real estate

   $ 4,460         19,172   

Commercial real estate:

     

Residential

     63,118         71,719   

Land

     12,888         14,839   

Owner occupied

     4,064         4,168   

Other

     86,022         123,396   

Small business:

     

Real estate

     7,093         10,265   

Non-real estate

     1,368         1,751   

Consumer

     9,398         14,134   

Residential:

     

Interest only

     23,539         33,202   

Amortizing

     38,438         52,653   
  

 

 

    

 

 

 

Total nonaccrual loans

   $ 250,388         345,299   
  

 

 

    

 

 

 

An age analysis of the past due recorded investment in loans receivable and loans held for sale as of March 31, 2012 and December 31, 2011 was as follows (in thousands):

 

March 31, 2012

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More
     Total
Past Due
     Current      Total
Loans
Receivable
 

Commercial non-real estate

   $ 1,096         —           1,381         2,477         27,328         29,805   

Commercial real estate:

                 

Residential

     —           —           47,141         47,141         23,740         70,881   

Land

     —           —           12,888         12,888         —           12,888   

Owner occupied

     —           —           3,926         3,926         6,428         10,354   

Other

     7,708         —           52,720         60,428         145,009         205,437   

Small business:

                 

Real estate

     551         172         5,983         6,706         16,408         23,114   

Non-real estate

     135         —           30         165         11,834         11,999   

Consumer

     357         616         9,398         10,371         10,807         21,178   

Residential:

                 

Residential-interest only

     397         —           23,051         23,448         1,477         24,925   

Residential-amortizing

     1,170         1,061         34,182         36,413         8,781         45,194   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,414         1,849         190,700         203,963         251,812         455,775   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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December 31, 2011

   31-59 Days
Past Due
     60-89 Days
Past Due
     90 Days
or More (1)
     Total
Past Due
     Current      Total
Loans
Receivable
 

Commercial non-real estate

   $ —           2,248         13,292         15,540         102,605         118,145   

Commercial real estate:

                 

Residential

     —           —           44,633         44,633         64,134         108,767   

Land

     681         —           14,839         15,520         18,070         33,590   

Owner occupied

     2,008         —           4,031         6,039         82,102         88,141   

Other

     —           5,467         47,841         53,308         431,399         484,707   

Small business:

                 

Real estate

     2,089         372         9,449         11,910         173,009         184,919   

Non-real estate

     —           462         76         538         99,187         99,725   

Consumer

     5,339         3,996         14,134         23,469         538,569         562,038   

Residential:

                 

Residential-interest only

     2,656         3,488         32,317         38,461         343,958         382,419   

Residential-amortizing

     3,968         4,513         48,189         56,670         514,570         571,240   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,741         20,546         228,801         266,088         2,367,603         2,633,691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes an $80,000 commercial loan that was past due greater than 90 days and still accruing.

The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2012 was as follows (in thousands):

 

     Commercial
Non-Real Estate
    Commercial
Real

Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

            

Beginning balance

   $ 16,407        67,054        7,168        22,554        16,704        129,887   

Charge-off:

     (14,615     (51,503     (1,624     (6,564     (10,209     (84,515

Recoveries:

     54        —          142        795        996        1,987   

Provision:

     1,410        (2,175     —          —          —          (765

Discontinued operations

            

Provision:

     —          —          (212     4,220        5,210        9,218   

Transfer to assets held for sale:

     (1,897     (9,164     (4,454     (20,639     (12,491     (48,645
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,359        4,212        1,020        366        210        7,167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance individually evaluated for impairment

   $ 243        222        702        —          —          1,167   

Ending balance collectively evaluated for impairment

     1,116        3,990        318        366        210        6,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,359        4,212        1,020        366        210        7,167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

            

Ending balance individually evaluated for impairment

   $ 7,403        197,551        959        9,048        44,617        259,578   

Ending balance collectively evaluated for impairment

   $ 22,402        55,971        34,192        12,026        8,899        133,490   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 29,805        253,522        35,151        21,074        53,516        393,068   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

   $ —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

   $ —          1,000        —          —          —          1,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to loans held for sale

   $ —          16,140        —          —          —          16,140   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011 was as follows (in thousands):

 

    Commercial
Non-Real Estate
    Commercial
Real
Estate
    Small
Business
    Consumer     Residential     Total  

Allowance for Loan Losses:

           

Beginning balance

  $ 10,786        83,859        11,514        32,043        23,937        162,139   

Charge-offs:

    (464     (12,667     (2,611     (7,814     (13,702     (37,258

Recoveries:

    791        718        310        408        131        2,358   

Provision:

    (405     7,232        —          —          —          6,827   

Discontinued operations

           

Provision:

    —          —          912        2,874        17,199        20,985   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $ 10,708        79,142        10,125        27,511        27,565        155,051   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance individually evaluated for impairment

  $ 9,024        59,274        1,565        1,453        7,369        78,685   

Ending balance collectively evaluated for impairment

    1,684        19,868        8,560        26,058        20,196        76,366   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 10,708        79,142        10,125        27,511        27,565        155,051   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans receivable:

           

Ending balance individually evaluated for impairment

  $ 16,495        343,809        10,562        24,033        84,667        479,566   

Ending balance collectively evaluated for impairment

  $ 115,961        520,029        285,654        586,088        1,038,637        2,546,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 132,456        863,838        296,216        610,121        1,123,304        3,025,935   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Purchases of loans

  $ —          —          —          —          3,864        3,864   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds from loan sales

  $ —          3,100        —          —          7,618        10,718   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transfer to loans held for sale

  $ —          2,450        —          —          25,072        27,522   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the transition of the regulation of OTS savings associations to the OCC, the OCC provided guidance to thrifts related to their transition to OCC regulatory reporting, which was to be implemented no later than March 31, 2012, including guidance surrounding specific valuation allowances on collateral dependent loans. Under OCC guidance, where the appraised value of collateral on a collateral dependent loan is less than the recorded investment of the loan, a charge-off of the amount of the deficiency rather than a specific valuation allowance is now generally required. Management considered the appraisals on its impaired collateral dependent loans, including appraised values and appraisal dates, and during the first quarter of 2012, the Company charged down the recorded investment of loans by $66.5 million to the fair value of the collateral less cost to sell. This charge down consisted entirely of the charging-off of existing specific valuation allowances. As a specific valuation allowance was previously established for these loans, the charge-offs did not impact the provision for loan losses or the net loss during the three months ended March 31, 2012, but did reduce the Company’s allowance for loan losses and recorded investment in the loans.

Impaired Loans – Loans are considered impaired when, based on current information and events, the Company believes it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructured agreement. Impairment is evaluated based on past due status for consumer and residential loans. Impairment is evaluated as part of the Company’s on-going credit monitoring process for commercial and small business loans which results in the evaluation for impairment of

 

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all criticized loans. Factors considered in determining if a loan is impaired are past payment history, strength of the borrower or guarantors, and cash flow associated with the collateral or business. The Company generally measures loans for impairment using the fair value of collateral less cost to sell method. If a loan is impaired, a specific valuation allowance is allocated, if necessary, based on the present value of estimated future cash flows using the loan’s existing interest rate or based on the fair value of the loan. Collateral dependent impaired loans are charged down to the fair value of collateral less cost to sell. Interest payments on impaired loans for all loan classes are recognized on a cash basis, unless collectability of the principal and interest amount is probable, in which case interest is recognized on an accrual basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans held for sale are measured for impairment based on the estimated fair value of the collateral less cost to sell adjusted for foreclosure expenses and other operating expenses of the underlying collateral until foreclosure and sale.

 

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Impaired loans as of March 31, 2012 and December 31, 2011 were as follows (in thousands):

 

    As of March 31, 2012     As of December 31, 2011  
          Unpaid                 Unpaid        
    Recorded     Principal     Related     Recorded     Principal     Related  
    Investment     Balance     Allowance     Investment     Balance     Allowance  

With a related allowance recorded:

           

Commercial non-real estate

  $ 1,189        1,189        243        17,792        17,792        15,408   

Commercial real estate:

           

Residential

    —          —          —          64,841        70,780        20,986   

Land

    —          —          —          5,451        5,451        1,765   

Owner occupied

    —          —          —          1,715        1,715        100   

Other

    20,000        20,000        222        130,771        149,742        29,731   

Small business:

           

Real estate

    —          —          —          6,499        6,499        85   

Non-real estate

    959        959        702        1,339        1,339        776   

Consumer

    —          —          —          15,951        17,502        1,454   

Residential:

           

Residential-interest only

    —          —          —          15,441        20,667        2,982   

Residential-amortizing

    —          —          —          20,554        24,545        3,960   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with allowance recorded

  $ 22,148        22,148        1,167        280,354        316,032        77,247   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

With no related allowance recorded:

           

Commercial non-real estate

  $ 6,960        19,451        —          5,922        5,922        —     

Commercial real estate:

           

Residential

    69,789        141,483        —          26,735        71,759        —     

Land

    12,888        35,768        —          9,388        30,314        —     

Owner occupied

    5,483        6,573        —          3,882        4,872        —     

Other

    136,014        193,704        —          63,024        86,052        —     

Small business:

           

Real estate

    13,112        14,640        —          10,265        12,007        —     

Non-real estate

    744        902        —          792        1,107        —     

Consumer

    20,220        25,571        —          9,719        13,246        —     

Residential:

           

Residential-interest only

    23,539        39,741        —          17,761        28,042        —     

Residential-amortizing

    40,713        57,931        —          34,494        45,680        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total with no allowance recorded

  $ 329,462        535,764        —          181,982        299,001        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial non-real estate

  $ 8,149        20,640        243        23,714        23,714        15,408   

Commercial real estate

    244,174        397,528        222        305,807        420,685        52,582   

Small business

    14,815        16,501        702        18,895        20,952        861   

Consumer

    20,220        25,571        —          25,670        30,748        1,454   

Residential

    64,252        97,672        —          88,250        118,934        6,942   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 351,610        557,912        1,167        462,336        615,033        77,247   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Average recorded investment and interest income recognized on impaired loans as of March 31, 2012 and 2011 were (in thousands):

 

    For the Three Months Ended     For the Three Months Ended  
    March 31, 2012     March 31, 2011  
    Average Recorded     Interest Income     Average Recorded     Interest Income  
    Investment     Recognized     Investment     Recognized  

With an allowance recorded:

       

Commercial non-real estate

  $ 1,174        11        15,958        16   

Commercial real estate:

       

Residential

    —          —          87,825        435   

Land

    —          —          10,319        42   

Owner occupied

    —          —          2,930        —     

Other

    20,000        169        105,215        404   

Small business:

       

Real estate

    —          —          5,292        14   

Non-real estate

    960        —          1,864        17   

Consumer

    —          —          10,489        —     

Residential:

       

Residential-interest only

    —          —          24,632        —     

Residential-amortizing

    —          —          20,211        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total with allowance recorded

  $ 22,134        180        284,735        928   
 

 

 

   

 

 

   

 

 

   

 

 

 

With no related allowance recorded:

       

Commercial non-real estate

  $ 13,218        142        2,211        7   

Commercial real estate:

       

Residential

    80,683        283        34,626        91   

Land

    13,864        —          15,378        —     

Owner occupied

    5,540        14        3,919        36   

Other

    154,904        699        80,269        614   

Small business:

       

Real estate

    14,401        116        12,594        148   

Non-real estate

    792        13        489        14   

Consumer

    21,078        86        16,178        111   

Residential:

       

Residential-interest only

    26,932        —          13,883        4   

Residential-amortizing

    45,192        33        28,544        34   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total with no allowance recorded

  $ 376,604        1,386        208,091        1,059   
 

 

 

   

 

 

   

 

 

   

 

 

 

Commercial non-real estate

  $ 14,392        153        18,169        23   

Commercial real estate

    274,991        1,165        340,481        1,622   

Small business

    16,153        129        20,239        193   

Consumer

    21,078        86        26,667        111   

Residential

    72,124        33        87,270        38   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 398,738        1,566        492,826        1,987   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Impaired loans without specific valuation allowances represent loans that were written-down to the fair value of the collateral less cost to sell, loans in which the collateral value less cost to sell was greater than the carrying value of the loan, loans in which the present value of the cash flows discounted at the loans’ effective interest rate were equal to or greater than the carrying value of the loans, or large groups of smaller-balance homogeneous loans that were collectively measured for impairment.

The Company monitors collateral dependent loans and performs an impairment analysis on these loans quarterly. Generally, a full appraisal is obtained when a real estate loan is initially evaluated for impairment and an updated full appraisal is obtained within one year from the prior appraisal date, or earlier if management deems it appropriate based on significant changes in market conditions. In instances where a property is in the process of foreclosure, an updated appraisal may be postponed beyond one year, as an appraisal is required on the date of foreclosure; however, such loans are subject to quarterly impairment analyses. Included in total impaired loans as of March 31, 2012 was $191.7   million of collateral dependent loans, of which $96.8 million were measured for impairment using current appraisals and $94.9 million were measured by adjusting appraisals greater than six months old, as appropriate, to reflect changes in market conditions subsequent to the last appraisal date. Appraised values with respect to 10 loans which did not have current appraisals were adjusted down by an aggregate amount of $2.7 million to reflect the change in market conditions since the appraisal date.

The Company had commitments to lend $2.6 million of additional funds on impaired loans as of March 31, 2012.

Credit Quality Information

Management monitors delinquency trends, net charge-off levels of classified loans, impaired loans and general economic conditions nationwide and in Florida in an effort to assess loan credit quality. The Company uses a risk grading matrix to monitor credit quality for commercial and small business loans. Risk grades are assigned to each commercial and small business loan upon origination. The loan officers monitor the risk grades and these risk grades are reviewed periodically by a third party consultant. The Company assigns risk grades on a scale of 1 to 13. A general description of the risk grades is as follows:

Grades 1 to 7 – The loans in these risk grades are generally well protected by the current net worth and paying capacity of the borrower or guarantors or by the fair value, less cost to sell, of the underlying collateral.

Grades 8 to 9 – Not used.

Grade 10 – These loans are considered to have potential weaknesses that deserve management’s close attention. While these loans do not expose the Company to immediate risk of loss, if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.

Grade 11 – These loans are considered to be inadequately protected by the current sound net worth and paying capacity of the borrower or guarantors or by the collateral pledged, if any. Loans in this grade have well-defined weaknesses that jeopardize the liquidation of the loan and there is a distinct possibility that the Company may sustain some credit loss if the weaknesses are not corrected.

Grade 12 – These loans are considered to have all the weaknesses of a Grade 11 with the added characteristic that the weaknesses make collection of the Company’s investment in the loan highly questionable and improbable on the basis of currently known facts, conditions and fair values of the collateral.

Grade 13 – These loans, or portions thereof, are considered uncollectible and of such little value that continuance on the Company’s books as an asset is not warranted. Such loans are generally charged down or completely charged off.

 

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The following table presents risk grades for commercial and small business loans including loans held for sale as of March 31, 2012 (in thousands):

 

March 31, 2012

  Commercial
Non

Real Estate
    Commercial
Residential
    Commercial
Land
    Owner Occupied
Commercial
Real Estate
    Other
Commercial
Real Estate
    Small
Business
Real Estate
    Small
Business
Non-Real  Estate
 

Grade:

             

Grades 1 to 7

  $ 267        —          —          4,608        22,959        —          645   

Grade 10

    5,718        1,460        —          —          49,235        2,591        4,161   

Grade 11

    23,820        69,421        12,888        5,746        133,243        20,523        7,193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (1)

  $ 29,805        70,881        12,888        10,354        205,437        23,114        11,999   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents risk grades for commercial and small business loans including loans held for sale as of December 31, 2011 (in thousands):

 

    Commercial
Non

Real Estate
    Commercial
Residential
    Commercial
Land
    Owner Occupied
Commercial
Real Estate
    Other
Commercial
Real Estate
    Small
Business
Real Estate
    Small
Business
Non-Real  Estate
 

Risk Grade:

             

Grades 1 to 7

  $ 71,798        16,085        18,752        82,251        250,238        157,237        85,942   

Grade 10

    6,021        1,375        —          —          50,208        2,837        4,306   

Grade 11

    40,326        91,307        14,838        5,890        184,261        24,845        9,477   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (1)

  $ 118,145        108,767        33,590        88,141        484,707        184,919        99,725   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) There were no loans risk graded 12 or 13 as of March 31, 2012 or December 31, 2011

The Company monitors the credit quality of residential loans through loan-to-value ratios of the underlying collateral. Elevated loan-to-value ratios indicate the likelihood of increased credit losses upon default which results in higher loan portfolio credit risk.

The loan-to-value ratios of the Company’s residential loans were as follows (in thousands):

 

     As of March 31, 2012 (1)      As of December 31, 2011 (1)  

Loan-to-value ratios

   Residential
Interest Only
     Residential
Amortizing
     Residential
Interest Only
     Residential
Amortizing
 

Ratios not available (2)

   $ 5,072         21,357         124,868         304,372   

=<60%

     413         3,544         20,314         68,817   

60.1% - 70%

     548         1,154         10,316         30,033   

70.1% - 80%

     254         1,852         24,784         32,271   

80.1% - 90%

     988         2,045         27,622         27,523   

>90.1%

     17,650         15,242         174,515         108,224   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,925         45,194         382,419         571,240   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Current loan-to-value ratios (“LTV”) for the majority of the portfolio were obtained as of the second quarter of 2011 based on automated valuation models.
(2) Ratios not available consisted of property addresses not in the automated valuation database, and $10.7 million and $78.8 million as of March 31, 2012 and December 31, 2011, respectively, of loans originated under the community reinvestment act program that are not monitored based on loan-to-value.

 

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The Company monitors the credit quality of its portfolio of consumer loans secured by real estate utilizing loan-to-value ratios at origination. The Company’s experience indicates that default rates are significantly lower with loans that have lower loan-to-value ratios at origination.

The loan-to-value ratios at loan origination of the Company’s consumer loans secured by real estate were as follows (in thousands):

 

     Consumer Home Equity  
     March 31,      December 31,  

Loan-to-value ratios

   2012      2011  

<70%

   $ 17,878         334,050   

70.1% - 80%

     2,104         97,516   

80.1% - 90%

     1,061         62,674   

90.1% -100%

     —           40,327   

>100%

     —           11,341   
  

 

 

    

 

 

 

Total

   $ 21,043         545,908   
  

 

 

    

 

 

 

The Company monitors the credit quality of its consumer non-real estate loans based on loan delinquencies.

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, extending loan maturities, deferring loan payments until the loan maturity date and other actions intended to minimize potential losses. The majority of concessions for consumer loans were changing monthly payments from interest and principal payments to interest only payments as well as deferring monthly loan payments until the loan maturity date. Commercial real estate and non-real estate loan concessions were primarily below market interest rates based on the risk profile of the loan and extensions of maturity dates. Residential and small business loan concessions were mainly reductions of monthly payments by extending the amortization period and/or deferring monthly payments.

There was no financial statement effect of consumer and residential troubled debt restructured loans as the affected loans were generally on non-accrual status and measured for impairment before the restructuring. The financial statement effects of commercial and small business troubled debt restructured loans was the establishment of specific valuation allowances, if any, in place of the general allowance for those loans that had not already been placed on nonaccrual status. There was an impact to the allowance for loan losses as a result of the concessions made, which generally results from the expectation of slower future cash flows.

 

 

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Troubled debt restructurings during the three months ended March 31, 2012 and 2011 were as follows (dollars in thousands):

 

     For the Three Months Ended  
     March 31, 2012      March 31, 2011  
     Number      Recorded
Investment
     Number      Recorded
Investment
 

Troubled Debt Restructurings

           

Commercial non-real estate

     —         $ —           —           —     

Commercial real estate:

           

Residential

     —           —           —           —     

Land

     —           —           —           —     

Owner occupied

     —           —           —           —     

Other

     —           —           3         11,118   

Small business:

           

Real estate

     2         342         —           —     

Non-real estate

     —           —           —           —     

Consumer

     —           —           1         50   

Residential:

           

Residential-interest only

     —           —           1         547   

Residential-amortizing

     1         62         8         1,401   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Troubled Debt Restructured

     3       $ 404         13         13,116   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no loans that were modified in troubled debt restructurings since January 1, 2011 which defaulted during the three months ended March 31, 2012.

The following table represents the recorded investment of loans that were modified in troubled debt restructurings beginning January 1, 2010 and experienced a payment default during the three months ended March 31, 2011 (dollars in thousands):

 

     For the Three Months Ended  
     March 31, 2011  
     Number      Recorded
Investment
 

Troubled Debt Restructurings which have subsequently defaulted:

     

Commercial non-real estate

     —         $ —     

Commercial real estate:

     

Residential

     —           —     

Land

     1         3,458   

Owner occupied

     1         860   

Other

     —           —     

Small business:

     

Real estate

     —           —     

Non-real estate

     —           —     

Consumer

     1         20   

Residential:

     

Residential-interest only

     —           —     

Residential-amortizing

     —           —     
  

 

 

    

 

 

 

Total Troubled Debt Restructured

     3       $ 4,338   
  

 

 

    

 

 

 

 

7. Share-based Compensation and Common Stock

Share-based Compensation

In February 2010, the Board of Directors granted to employees 320,000 restricted Class A Common Stock awards (“RSAs”) under the BankAtlantic Bancorp, Inc. 2005 Restricted Stock and Option Plan. The Board of Directors also granted 15,000 RSAs to employees of BFC Financial Corporation (“BFC”) that perform services for the Company. The RSAs vest pro-rata over four years and had a fair value of $6.20 per share at the grant date.

 

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The following is a summary of the Company’s non-vested restricted Class A common share activity:

 

     Class A
Non-vested
Restricted
Stock
    Weighted
Average
Grant  date

Fair Value
 

Outstanding at December 31, 2010

     313,780      $ 7.40   

Vested

     (76,750     6.20   

Forfeited

     (6,500     6.20   

Granted

     —          —     
  

 

 

   

 

 

 

Outstanding at March 31, 2011

     230,530      $ 7.80   
  

 

 

   

 

 

 

Outstanding at December 31, 2011

     211,900      $ 6.96   

Vested

     (70,500     6.20   

Forfeited

     (500     6.20   

Granted

     —          —     
  

 

 

   

 

 

 

Outstanding at March 31, 2012

     140,900      $ 6.77   
  

 

 

   

 

 

 

As of March 31, 2012, the total unrecognized compensation cost related to non-vested restricted stock compensation was approximately $0.9 million. The cost is expected to be recognized over a weighted-average period of approximately one year. The fair value of shares vested during the three months ended March 31, 2012 and 2011 was $247,000 and $407,000, respectively.

 

8. Related Parties

The Company, BFC and Bluegreen Corp. (“Bluegreen”) may be deemed to be under common control. The controlling shareholder of the Company and Bluegreen is BFC. Shares of BFC’s capital stock representing a majority of the voting power are owned or controlled by the Company’s Chairman and Vice Chairman, both of whom are also directors of the Company, executive officers and directors of BFC and directors of Bluegreen. The Company, BFC and Bluegreen share certain office premises and employee services, pursuant to the agreements described below.

In March 2008, BankAtlantic entered into an agreement with BFC to provide information technology support in exchange for monthly payments by BFC to BankAtlantic. In May 2008, BankAtlantic also entered into a lease agreement with BFC under which BFC pays BankAtlantic monthly rent for office space in BankAtlantic’s corporate headquarters.

The Company maintains service agreements with BFC pursuant to which BFC provides human resources, risk management and investor relations services to the Company. BFC is compensated for these services based on its cost.

During the second quarter of 2010, BankAtlantic and BankAtlantic Bancorp entered into a real estate advisory service agreement with BFC for assistance relating to the work-out of loans and the sale of real estate owned. BFC is compensated $12,500 per month by each of BankAtlantic and BankAtlantic Bancorp and, if BFC’s efforts result in net recoveries of any non-performing loan or the sale of real estate owned, it will receive a fee equal to 1% of the net value recovered. During the three months ended March 31, 2012 and 2011, the Company incurred $0.2 million and $0.1 million, respectively, of real estate advisory service fees under this agreement.

 

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The table below shows the effect of service arrangements with related parties on the Company’s Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (in thousands):

 

     For the Three Months Ended
March 31,
 
     2012     2011  

Non-interest income:

   $ 83        117   

Non-interest expense:

    

Employee compensation and benefits

     (9     (16

Other - back-office support

     (468     (397
  

 

 

   

 

 

 

Net effect of affiliate transactions

   $ (394     (296
  

 

 

   

 

 

 

The Company, in prior periods, issued options to acquire shares of the Company’s Class A Common Stock to employees of BFC. Additionally, employees of the Company have transferred to affiliated companies and the Company has elected, in accordance with the terms of the Company’s stock option plans, not to cancel the stock options held by those former employees. The Company also issues options and restricted stock awards to BFC employees that perform services for the Company. During the year ended December 31, 2010, the Company granted 15,000 restricted Class A Common Stock awards to BFC employees that perform services for the Company. These stock awards vest pro-rata over a four year period. There were no options exercised by former employees during the three months ended March 31, 2012 and 2011 and the Company recorded $9,000 and $16,000 of expenses relating to these awards for the three months ended March 31, 2012 and 2011, respectively.

Options and non-vested restricted stock outstanding to BFC employees consisted of the following as of March 31, 2012:

 

     Class A
Common
Stock
     Weighted
Average
Price
 

Options outstanding

     5,667       $ 333.85   

Non-vested restricted stock

     7,500         —     

BFC had deposits at BankAtlantic totaling $2.2 million and $0.2 million as of March 31, 2012 and December 31, 2011, respectively. The Company recognized nominal interest expense in connection with the above deposits. These deposits were on the same general terms as those offered to unaffiliated third parties.

 

9. Segment Reporting

The information provided for Segment Reporting is based on internal reports utilized by management. Results of continuing operations are reported through two reportable segments: BankAtlantic’s Commercial Lending reporting unit (“CLRU”) and the Parent Company. CLRU’s activities consist of managing a commercial loan portfolio which includes construction, residential development, land acquisition and commercial business loans. The activities during the three months ended March 31, 2012 and 2011 consisted of, but were not limited to, renewing, modifying, increasing, extending, refinancing and making protective advances on commercial loans, as well as the servicing of commercial loans The Parent Company activities include the managing of non-performing loans and related real estate owned acquired from BankAtlantic.

The accounting policies of the segments are generally the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Intersegment transactions are eliminated in consolidation.

The Company evaluates segment performance based on segment net income from continuing operations.

 

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The table below is segment information for segment net income from continuing operations for the three months ended March 31, 2012 and 2011 (in thousands):

 

For the Three Months Ended:    CLRU     Parent
Company
    Adjusting  and
Elimination
Entries
    Segment
Total
 

March 31, 2012:

        

Interest income

   $ 8,158        177        —          8,335   

Interest expense

     —          (4,167     —          (4,167

Recovery of loan losses

     761        4        —          765   

Non-interest income

     70        459        (322     207   

Non-interest expense

     (12,930     (5,703     322        (18,311
  

 

 

   

 

 

   

 

 

   

 

 

 

Segments loss before income taxes

     (3,941     (9,230     —          (13,171

Provision for income tax

     1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment net loss

   $ (3,942     (9,230     —          (13,172
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 787,998        315,997        2,742,881        3,846,876   
  

 

 

   

 

 

   

 

 

   

 

 

 
For the Three Months Ended:    CLRU     Parent
Company
    Adjusting and
Elimination
Entries
    Segment
Total
 

March 31, 2011:

        

Interest income

   $ 11,753        89        (4     11,838   

Interest expense

     —          (3,784     —          (3,784

(Provision for) recovery of loan losses

     (6,847     20        —          (6,827

Non-interest income

     1        590        (296     295   

Non-interest expense

     (12,586     (3,432     296        (15,722
  

 

 

   

 

 

   

 

 

   

 

 

 

Segments loss before income taxes

     (7,679     (6,517     (4     (14,200

Provision for income tax

     1        —          —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment net loss

   $ (7,680     (6,517     (4     (14,201
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,053,645        317,860        3,099,124        4,470,629   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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10. Commitments and Contingencies

Financial instruments with off-balance sheet risk were (in thousands):

 

     March 31,
2012
     December 31,
2011
 

Commitments to sell fixed rate residential loans

   $ 14,570         14,882   

Commitments to originate loans held for sale

     14,325         14,089   

Commitments to originate loans held to maturity

     13,127         10,383   

Commitments to extend credit, including the undisbursed portion of loans in process

     335,490         328,872   

Standby letters of credit

     5,549         6,269   

Commercial lines of credit

     63,886         51,990   

Standby letters of credit are conditional commitments issued by BankAtlantic to guarantee the performance of a customer to a third party. BankAtlantic’s standby letters of credit are generally issued to customers in the construction industry guaranteeing project performance. These types of standby letters of credit had a maximum exposure of $5.1 million at March 31, 2012. BankAtlantic also issues standby letters of credit to commercial lending customers guaranteeing the payment of goods and services. These types of standby letters of credit had a maximum exposure of $0.4 million at March 31, 2012. These guarantees are primarily issued to support public and private borrowing arrangements and have maturities of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. BankAtlantic may hold certificates of deposit and residential and commercial liens as collateral for such commitments.

The Company and its subsidiaries are parties to lawsuits as plaintiff or defendant involving its bank operations, lending and tax certificates. Although the Company believes it has meritorious defenses in all current legal actions, the outcome of litigation and regulatory matters and timing of ultimate resolution are inherently difficult to predict and uncertain.

Reserves are accrued for matters in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. These accrual amounts as of March 31, 2012 are not material to the Company’s financial statements. The actual costs of resolving these legal claims may be substantially higher or lower than the amounts accrued for these claims.

A range of reasonably possible losses is estimated for matters in which it is reasonably possible that a loss has been incurred or that a loss is probable but not reasonably estimable. Management currently estimates the aggregate range of reasonably possible losses as $0.2 million to $1.4 million in excess of the accrued liability relating to these legal matters. This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information currently available as of March 31, 2012. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which a reasonable estimate is not possible are not included within this estimated range and, therefore, this estimated range does not represent the Company’s maximum loss exposure. During the three months ended March 31, 2012, a matter associated with tax certificates activities was settled for $1.6 million reducing the range of possible losses reported as of December 31, 2011 and the settlement amount was included in other liabilities in the Company’s unaudited Consolidated Statement of Financial Condition.

In certain matters we are unable to estimate the loss or reasonable range of loss until additional developments in the case provide information sufficient to support an assessment of the loss or range of loss. Frequently in these matters the claims are broad and the plaintiffs have not quantified or factually supported the claim.

We believe that liabilities arising from litigation and regulatory matters, discussed below, in excess of the amounts currently accrued, if any, will not have a material impact to the Company’s financial statements. However, due to the significant uncertainties involved in these legal matters, we may incur losses in excess of accrued amounts and an adverse outcome in these matters could be material to the Company’s financial statements.

 

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The following is a description of the ongoing litigation and regulatory matters:

Class action securities litigation

In October 2007, the Company and current or former officers of the Company were named in a lawsuit which alleged that during the period of November 9, 2005 through October 25, 2007, the Company and the named officers knowingly and/or recklessly made misrepresentations of material fact regarding BankAtlantic and specifically BankAtlantic’s loan portfolio and allowance for loan losses. The Complaint asserted claims for violations of the Securities Exchange Act of 1934 and Rule 10b-5 and sought unspecified damages. On November 18, 2010, a jury returned a verdict awarding $2.41 per share to shareholders who purchased shares of the Company’s Class A Common Stock during the period of April 26, 2007 to October 26, 2007 who retained those shares until the end of the period. The jury rejected the plaintiffs’ claim for the six month period from October 19, 2006 to April 25, 2007. Prior to the beginning of the trial, the plaintiffs abandoned any claim for any prior period. On April 25, 2011, the Court granted defendants’ post-trial motion for judgment as a matter of law and vacated the jury verdict, resulting in a judgment in favor of all defendants on all claims. The plaintiffs have appealed the Court’s order setting aside the jury verdict with respect to certain of the defendants, which is pending before the United States Court of Appeals for the Eleventh Circuit.

Class Action Overdraft Processing Litigation

In November 2010, the two pending class action complaints against BankAtlantic associated with overdraft fees were consolidated. The Complaint, which asserts claims for breach of contract and breach of the duty of good faith and fair dealing, alleges that BankAtlantic improperly re-sequenced debit card transactions from largest to smallest, improperly assessed overdraft fees on positive balances, and improperly imposed sustained overdraft fees on customers. BankAtlantic has filed a motion to dismiss, which is pending with the Court.

Office of Thrift Supervision Overdraft Processing Examination

As previously disclosed, the Office of Thrift Supervision advised BankAtlantic that it had determined that BankAtlantic had engaged in deceptive and unfair practices in violation of Section 5 of the Federal Trade Commission Act relating to certain of BankAtlantic’s deposit-related products. BankAtlantic filed an appeal of the OTS position. As a result of the integration of the OTS and the OCC, the appeal was reviewed by the OCC and on February 27, 2012 the OCC concurred with the OTS determination that certain of BankAtlantic’s practices were deceptive in violation of Section 5 of the FTC Act, but found that those practices were not unfair under Section 5. Based on such findings, management does not believe any monetary fines or restitution will be imposed.

Securities and Exchange Commission Complaint

On January 18, 2012, the SEC brought an action in the United States District Court for the Southern District of Florida against BankAtlantic Bancorp and Alan B. Levan, BankAtlantic Bancorp’s Chairman and Chief Executive Officer, alleging that they violated securities laws by not timely disclosing known adverse trends in BankAtlantic Bancorp’s commercial real estate loans, selectively disclosing problem loans and engaging in improper accounting treatment of certain specific loans which may have resulted in a material understatement of its net loss in BankAtlantic Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2007. Further, the complaint alleges that Mr. Alan B. Levan intentionally misled investors in related earnings calls. The SEC is seeking a finding by the court of violations of securities laws, a permanent injunction barring future violations, civil money penalties and, in the case of Mr. Alan B. Levan, an order barring him from serving as an officer or director of a public company. The defendants have filed a motion to dismiss, which is pending before the Court. BankAtlantic Bancorp believes the claims to be without merit and intends to vigorously defend the actions.

Bancorp Shareholders Lawsuit Seeking to Block the sale of BankAtlantic to BB&T under the Agreement

On April 5, 2012, J.Phillip Max filed a class action complaint in the Circuit Court for the Seventeenth Judicial Circuit in Broward County, Florida against Alan Levan, Jarett Levan, John Abdo, Steven Coldren, D. Keith Cobb, Charles C. Winningham III, Bruno Di Giulian, Willis Holcombe, David Lieberman, BankAtlantic Bancorp, Inc., BFC Financial Corporation, and BB&T Corporation. The complaint alleges that the individual defendants breached their fiduciary duties of care, good faith and loyalty by causing or permitting BankAtlantic Bancorp to sell substantially all of its assets to BB&T. The complaint further alleges that Bancorp, BFC and BB&T aided and abetted these breaches of fiduciary duty. The complaint seeks declaratory and equitable relief, including an injunction against the proposed transaction between BankAtlantic Bancorp and BB&T, as well as seeking damages. BankAtlantic Bancorp believes the claims to be without merit and intends to vigorously defend the lawsuit.

 

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11. New Accounting Pronouncements

Update Number 2011-12 – Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In this update, the FASB deferred only changes in ASU 2011-5 that relate to the presentation of reclassification adjustments. The deferral allows the FASB to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income of the components of net income and other comprehensive income for all periods presented. All other requirements of ASU 2011-5 are not affected by this deferral.

Update Number 2011-11 – Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendment requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial condition and instruments and transactions subject to an agreement similar to a master netting arrangement. This amendment includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This accounting standard update is effective for annual and interim periods beginning on or after January 1, 2013. The Company believes that this update will not have a material impact on its financial statements.

Update Number 2011-10 – Property, Plant, and Equipment (Topic 360): Derecognition of In-substance Real Estate – a Scope Clarification. Generally, when a reporting entity ceases to have a controlling financial interest in a subsidiary that is in-substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance of Topic 360 to determine whether it should derecognize the in-substance real estate. The reporting entity would continue to include the real estate and debt on its financial statements until legal title to the real estate is transferred to legally satisfy the debt. This accounting standard update is effective for annual and interim periods beginning on or after June 15, 2012. The Company believes that this update will not have a material impact on its financial statements.

Update Number 2011-08 – Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This accounting standard update allows entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this option, an entity is no longer required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. This accounting standard update is effective for annual and interim goodwill impairment tests performed beginning January 1, 2012. This update did not have a material impact on the Company’s financial statements.

Update Number 2011-05 – Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This update makes available the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The update did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. However, the update eliminated the presentation of other comprehensive income as part of the statement of changes in stockholders’ equity. This update is effective for the first interim period beginning after December 15, 2011, and must be applied retrospectively. The Company implemented this update as of January 1, 2012 except for the presentation of reclassification adjustments on the face of the financial statements which was deferred in Update Number 2011-12. Pursuant to the implementation of this update, The Company changed its presentation of comprehensive income from the presentation of comprehensive income as part of its Statement of Changes in Stockholders’ Equity to presenting comprehensive income in a separate statement. The implementation of this update did not have a material effect on the Company’s financial statements.

Update Number 2011-4 – Fair Value Measurement (Topic 820). Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This guidance clarifies the FASB’s intent regarding the highest and best use valuation premise and also provides guidance on measuring the fair value of an instrument classified

 

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in shareholders’ equity, the treatment of premiums and discounts in fair value measurements and measuring fair value of financial instruments that are managed within a portfolio. This standard also expands the disclosure requirements related to fair value measurements, including a requirement to disclose valuation processes and sensitivity of the fair value measurements to changes in unobservable inputs for fair value measurements categorized within Level 3 of the fair value hierarchy and categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value measurement is required to be disclosed. The effective date of this update is for the first interim period beginning after December 15, 2011, and early application is not permitted. The Company implemented this disclosure update as of January 1, 2012 and the implementation of this update did not have a material effect on the Company’s financial statements.

 

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The objective of the following discussion is to provide an understanding of the financial condition and results of operations of BankAtlantic Bancorp, Inc. and its subsidiaries (the “Company”, which may also be referred to as “we,” “us,” or “our”) for the three months ended March 31, 2012. The principal assets of BankAtlantic Bancorp consist of its ownership in BankAtlantic, a federal savings bank headquartered in Fort Lauderdale, Florida, and its subsidiaries (“BankAtlantic”). On November 1, 2011, BankAtlantic Bancorp entered into a definition agreement to sell BankAtlantic to BB&T Corporation (“BB&T”), which agreement was amended on March 13, 2012, (“Agreement”). Based on the probable sale of BankAtlantic, the financial statements reflect BankAtlantic’s Community Banking, Investments, Tax Certificates and Capital Services reporting units as discontinued operations for the three months ended March 31, 2012 and 2011, respectively. The Company expects to continue commercial lending activities subsequent to the transaction resulting in the inclusion of BankAtlantic’s Commercial Lending reporting unit (“CLRU”) in continuing operations for the three months ended March 31, 2012 and 2011. See Note 1 – “Basis of Financial Statement Presentation” to the Notes to the Company’s Consolidated Financial Statements for a further discussion of the presentation of the Company’s results of operations and Note 2 – “Assets and Liabilities Held for Sale “ to the Notes to the Company’s Consolidated Financial Statements for a further discussion of the presentation of assets and liabilities in the Company’s Statement of Condition.

This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements and include words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would” and words and phrases of similar import. The forward looking statements in this document are also 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”), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to have been correct. Future results could differ materially as a result of a variety of risks and uncertainties, many of which are outside of the control of management. These risks and uncertainties include, but are not limited to the impact of economic, competitive and other factors affecting the Company and BankAtlantic and their operations, markets, products and services, including the impact of the changing regulatory environment, a continued or deepening recession, decreases in real estate values, and increased unemployment or sustained high unemployment rates on our business generally, BankAtlantic’s regulatory compliance, the ability of our borrowers to service their obligations and of our customers to maintain account balances and the value of collateral securing our loans; credit risks and loan losses, and the related sufficiency of the allowance for loan losses, including the impact of the economy and real estate market values on our assets and the credit quality of our loans (including those held in the asset workout subsidiary of the Company); the risk that loan losses will continue and the risks of additional charge-offs, impairments and required increases in our allowance for loan losses; the impact of and expenses associated with litigation including but not limited to litigation relating to overdraft fees and litigation brought by the SEC; risks associated with maintaining required capital levels and that failing to comply with regulatory mandates will result in the imposition of additional regulatory requirements and/or fines; changes in interest rates and the effects of, and changes in, trade, monetary and fiscal policies and laws including their impact on the bank’s net interest margin; adverse conditions in the stock market, the public debt market and other financial and credit markets and the impact of such conditions on our activities and our ability to raise capital; and the risks associated with the impact of periodic valuation testing of goodwill, deferred tax assets and other assets. Past performance and perceived trends may not be indicative of future results. In addition, this document contains forward looking statements relating to the agreement to sell BankAtlantic to BB&T that involve a number of risks and uncertainties including, but not limited to, the following: that the transaction between BB&T and BankAtlantic Bancorp may not be completed in the time frame indicated, on anticipated terms, or at all; that BankAtlantic Bancorp’s and/or BankAtlantic’s business or net asset values may be negatively affected by the pendency of the proposed transaction or otherwise; that regulatory approvals may not be received or may be subject to burdensome or unacceptable conditions; that the transaction may not be as advantageous to

 

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BankAtlantic Bancorp as expected; that BankAtlantic Bancorp’s shareholders may not realize the anticipated benefits; that BankAtlantic Bancorp’s future business plans may not be realized as anticipated, if at all; that the Company’s Class A Common Stock may not meet the requirements for continued listing on the NYSE; and that the assets retained by BankAtlantic Bancorp directly or through subsidiaries may not be monetized at the values currently ascribed to them. In addition to the risks and factors identified above, reference is also made to other risks and factors detailed in reports filed by the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The Company cautions that the foregoing factors are not exclusive.

Critical Accounting Policies

Management views critical accounting policies as accounting policies that are important to the understanding of our financial statements and also involve estimates and judgments about inherently uncertain matters. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Statements of Financial Condition and assumptions that affect the recognition of income and expenses on the Consolidated Statements of Operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in subsequent periods relate to the determination of the allowance for loan losses, evaluation of goodwill and other intangible assets for impairment, the valuation of securities as well as the determination of other-than-temporary declines in value, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the amount of the deferred tax asset valuation allowance, accounting for uncertain tax positions, accounting for contingencies, and assumptions used in the valuation of stock based compensation. The two accounting policies that we have identified as critical accounting policies are allowance for loan losses and impairment of long-lived assets including goodwill. For a more detailed discussion of these critical accounting policies see “Critical Accounting Policies” appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Consolidated Results of Operations

Loss from continuing operations from each of the Company’s reportable segments was as follows (in thousands):

 

     For the Three Months Ended March 31,  
     2012     2011     Change  

CLRU

   $ (3,942     (7,680     3,738   

Parent Company

     (9,230     (6,521     (2,709
  

 

 

   

 

 

   

 

 

 

Loss from continuing operations

   $ (13,172     (14,201     1,029   
  

 

 

   

 

 

   

 

 

 

For the Three Months Ended March 31, 2012 Compared to the Same 2011 Period:

CLRU’s improved performance during the 2012 quarter compared to the same 2011 quarter was primarily the result of a decrease in the provision for loan losses and lower operating expenses partially offset by a decline in net interest income and higher impairments on real estate owned.

The decrease in the provision for loan losses primarily reflects a slowing in the amount of commercial loans migrating to a delinquency or non-accrual status compared to prior periods resulting in improved loss experience during 2012 compared to 2011 with corresponding declines in the allowance for loan losses. The decrease in operating expenses reflects lower compensation and occupancy expenses. The decline in employee compensation resulted primarily from a reduction in commercial lending personnel associated with the decision to significantly limit commercial loan originations and purchases. The lower occupancy expense reflects the consolidation of back-office facilities. The lower net interest income resulted primarily from a significant reduction in commercial loan average balances and secondarily from lower average loan yields. The lower average balances reflect the significant reduction in commercial real estate loan originations and purchases. During the three months ended March 31, 2012, BBX recognized real estate owned impairments of $1.7 million compared to a recovery of $0.2 million during the same 2011 period.

The increase in the Parent Company’s loss for the 2012 quarter compared to the same 2011 quarter resulted primarily from a $4.6 million increase in professional fees due to TruPs related litigation in Delaware associated with the BB&T transaction, which includes an estimate of reimbursements to trustees for their legal and related expenses in that litigation. Also contributing to the increase in the Parent Company’s loss was a $0.3 million increase in junior subordinated debenture interest expense due to higher average debenture balances as a result of the Parent Company’s election to defer the payment of interest on the debentures.

 

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Results of Discontinued Operations

The loss from BankAtlantic’s discontinued operations was as follows (in thousands):

 

     For the Three Months Ended March 31,  
     2012     2011     Change  

Net interest income

   $ 17,473        22,955        (5,482

Provision for loan losses

     (9,217     (20,985     11,768   

Non-interest income

     17,524        22,493        (4,969

Non-interest expense

     (26,816     (33,149     6,333   

Provision for income taxes

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

   $ (1,036     (8,686     7,650   
  

 

 

   

 

 

   

 

 

 

The reduced loss in discontinued operations during 2012 compared to 2011 primarily resulted from a decline in the provision for loan losses and lower non-interest expenses partially offset by a decline in net interest income and other non-interest income.

The improvement in the provision for loan losses resulted primarily from a significant decline in the provision for residential loan losses reflecting an improved loss experience during 2012 compared to 2011. The decrease in operating expenses reflects lower compensation and occupancy expenses associated with the consolidation of back-office facilities, workforce reductions, normal attrition and elimination of expenses associated with BankAtlantic’s Tampa operations as a result of the completion of the Tampa branch sale on June 3, 2011. The lower net interest income in 2012 resulted primarily from a significant reduction in earning assets and an increasing proportion of investments in low yielding cash balances at the Federal Reserve Bank. The reduction in non-interest income primarily reflects the sale of the Tampa branches and lower overdraft fees recognized during 2012 compared to 2011. We believe that the decline in the overdraft fees reflects higher customer balances, regulatory initiatives and changes in our overdraft policies, as well as changes in customer behavior.

CLRU Results of Operations

The following table is a condensed income statement summarizing the results of operations of the Commercial Lending Reporting Unit (“CLRU”) (in thousands):

 

     For the Three  Months
Ended March 31,
    Change
2012 vs
 
     2012     2011     2011  

Interest income

   $ 8,158        11,753        (3,595

Provision for loan losses

     761        (6,847     7,608   
  

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     8,919        4,906        4,013   

Non-interest income

     70        1        69   

Non-interest expense

     (12,930     (12,586     (344
  

 

 

   

 

 

   

 

 

 

CLRU loss before income taxes

     (3,941     (7,679     3,738   

Provision for income taxes

     1        1        —     
  

 

 

   

 

 

   

 

 

 

CLRU net loss

   $ (3,942     (7,680     3,738   
  

 

 

   

 

 

   

 

 

 

 

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Interest Income

The average balance and average yield of CLRU’s commercial loans during the three months ended March 31, 2012 were $783.6 million and 4.17%, respectively, compared to $1.0 billion and 4.66%, respectively, during the same 2011 period. The reduction in average balances reflects loan repayments, migration of loans to real estate owned and loan sales as well as a substantial decline in loan originations. The lower yields reflect the repayment of loans with higher yields than the existing loan portfolio and a greater percentage of loans on non-accrual during 2012 compared to 2011.

Asset Quality

The loans and real estate owned presented below as of March 31, 2012 and for the three months ended March 31, 2012 excludes loans and real estate owned to be transferred to BB&T under the terms of the Agreement as these loans are included in assets held for sale.

The table below presents the allocation of the allowance for loan losses (“ALL”) by various loan classifications, the percent of allowance to each loan category (“ALL to gross loans percent”) and the percentage of loans in each category to total loans (“Loans to gross loans percent”). The allowance shown in the table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages or that the allowance accurately reflects future charge-off amounts or trends (dollars in thousands):

 

     March 31, 2012     December 31, 2011  
            ALL     Loans            ALL     Loans  
            to gross     by            to gross     by  
     ALL      loans     category     ALL      loans     category  
     by      in each     to gross     by      in each     to gross  
     category      category     loans     category      category     loans  

Commercial non-real estate

   $ 1,359