BankAtlantic Bancorp Inc. Reports Operating Results (10-Q)
BankAtlantic is a fed.-charteredfed.-insured savings bank which provides traditional retail banking services & a full range of commercial banking products & related financial services.The principal business of BankAtlantic is attracting checking & savings deposits from the public & general business customers & using these deposits to originate commercial real estate & business loansres. real estate loans & consumer loansto purchase wholesale res. loans from 3rd parties & to make other permitted investments. BankAtlantic Bancorp Inc. has a market cap of $49.8 million; its shares were traded at around $4.42 with and P/S ratio of 0.1. BankAtlantic Bancorp Inc. had an annual average earning growth of 1.4% over the past 5 years. Highlight of Business Operations: The increase in BankAtlantics net loss during the 2009 quarter compared to the same 2008 quarter primarily resulted from a $9.1 million goodwill impairment charge and an increase in the provision for loan losses. Additionally, there was no recognition of any tax benefit related to BankAtlantics loss because a deferred tax valuation allowance was established for the tax benefits associated with the loss. BankAtlantic did not recognize a goodwill impairment charge during the 2008 quarter and recorded an $11.0 million benefit for income taxes associated with the 2008 loss. Also contributing to the increase in BankAtlantics net loss for the 2009 quarter compared to the 2008 quarter was lower net interest income and fee income as well as termination costs recognized in 2009 as a result of a reduction in its workforce. The decline in BankAtlantics net interest income primarily resulted from lower earning asset balances as BankAtlantic slowed the origination and purchase of loans and sold $149.1 million in agency securities in order to enhance liquidity and improve regulatory capital ratios. The decline in fee income mainly reflects lower customer overdraft fees recognized during 2009 compared to 2008. In March 2009, BankAtlantic reduced it workforce by 7%, incurring one-time termination benefit costs of $1.9 million. BankAtlantics non-interest expenses excluding goodwill impairment and termination benefits declined by $8.2 million during the 2009 quarter compared to the same 2008 quarter. This decline in expenses was primarily due to BankAtlantics expense reduction initiatives during 2008 which included workforce reductions, consolidation of certain back-office facilities, sale of five central Florida stores, renegotiation of vendor contracts, outsourcing of certain back-office functions and other targeted expense reduction programs. In addition, BankAtlantics provision for loan losses was $43.5 million for the 2009 quarter compared to $42.9 million for the 2008 quarter. The provision during 2009 primarily related to charge-offs and loan loss reserves associated with our consumer, residential and commercial real estate loan portfolios. The 2008 provision mainly resulted from reserves and charge-offs associated with our commercial residential loan portfolio, which consist of builder land bank loans, land acquisition and development loans and land acquisition, development and construction loans.
The decrease in the Parent Companys net loss in the 2009 quarter compared to the same 2008 quarter resulted from a $1.4 million decline in net interest expenses, recognition of a deferred tax valuation allowance and an improvement in securities activities, net. The lower net interest expense reflects a decline in interest expense on junior subordinated debentures associated with a significant decline in the three-month LIBOR interest rate from March 2008 to March 2009, as the majority of the Parent Companys debentures are indexed to the three-month LIBOR interest rate. The improvement in securities activities, net reflects a $0.1 million gain from the sales of securities during 2009 compared to a net loss from securities activities of $5.1 million during 2008. The above improvements in the Parent Companys performance were partially offset by a $0.8 million provision for loan losses recognized in the 2009 quarter associated with non-performing loans transferred from BankAtlantic to an asset work-out subsidiary of the Parent Company in March 2008. The Parent Company did not recognize a provision for loan losses during the 2008 quarter. Also, the Parent Company recognized a $4.1 million income tax benefit in the 2008 quarter while no income tax benefit was recognized during the 2009 quarter.
Interest expense on interest bearing liabilities declined by $14.7 million during the 2009 quarter compared to the 2008 quarter. The decline was primarily due to lower interest rates and a change in the mix of liabilities from higher cost FHLB advance borrowings to lower cost deposits. The lower interest rates on BankAtlantics interest bearing liabilities primarily resulted from the lower interest rate environment in the 2009 quarter compared to the 2008 quarter. The decline in interest rates generally was offset in part by a shift in deposit mix to a greater proportion of higher cost deposits. The increase in certificate accounts reflects higher average brokered deposit account balances as well as high yield certificate account promotions during 2008. Brokered deposits increased from $15.0 million at March 31, 2008 to $269.1 million at March 31, 2009 or 6.6% of deposits as of March 31, 2009, which included $121.1 million of CDARS reciprocal deposit balances from BankAtlantics customers at March 31, 2009. BankAtlantic significantly reduced its borrowings with the FHLB as these borrowings generally have higher interest rates than deposits or short-term borrowings with other financial institutions. Additionally, in order to improve its net interest margin and lower borrowing costs, BankAtlantic used cash and funds from low interest rate short-term borrowings to prepay higher rate FHLB advances during the fourth quarter of 2008 and the first quarter of 2009.
Non-performing assets were substantially higher at March 31, 2009 compared to December 31, 2008. The higher non-performing assets primarily resulted from a $48.5 million and a $10.9 million increase in non-accrual commercial and residential loans, respectively. Approximately half of the new commercial non-accrual loans were associated with commercial non-residential loans. BankAtlantic is experiencing unfavorable trends in commercial loans collateralized by land and retail income producing properties and may encounter increased non-performing loans in these loan products in subsequent periods. The increase in residential non-accrual loans reflects the general deterioration in the national economy and the residential real estate market as home prices throughout the country continued to decline and it is taking longer than historical time-frames to foreclose on and sell homes. Additionally, BankAtlantics small business and consumer non-accrual loan balances increased by $2.7 million and $1.2 million, respectively. During the three months ended March 31, 2009, BankAtlantic continued to experience unfavorable delinquency trends in these loan portfolios.
The increase in the allowance for loan losses at March 31, 2009 compared to December 31, 2008 primarily resulted from an increase in reserves for consumer, small business and residential loans of $10.0 million, $1.3 million and $6.0 million, respectively, due to unfavorable delinquency trends and an increase in charge-offs in these portfolios during the first quarter of 2009 compared to prior periods. The remaining increase in the allowance for loan losses was due to higher specific reserves on commercial real estate loans associated with deteriorating real estate values during the first quarter of 2009. Continued declines in home prices during 2009 and recent substantial increases in unemployment have affected our borrowers ability to perform under the loan agreements and resulted in higher residential and home equity loan charge-offs and delinquencies. As a consequence, we significantly increased our residential and consumer allowance for loan losses as of March 31, 2009.
During the three months ended March 31, 2009, BankAtlantic modified $9.9 million, $4.7 million and $3.7 million of home equity, residential and small business loans, respectively, in troubled debt restructurings. In response to the increase in unemployment and the general economic conditions in its markets, BankAtlantic has developed loan modification programs for certain borrowers experiencing financial difficulties that reduce and/or defer monthly payments. BankAtlantic currently anticipates collecting all principal and interest on these loans based on the modified loan terms; however, there is no assurance this will be the case.
Read the The complete ReportBBX is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Charles Brandes of Brandes Investment.