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BankAtlantic Bancorp, Inc. (NYSE:BBX)

Q4 2008 Earnings Call

February 10, 2009 08:30 AM ET

Executives

Leo Hinkley - Senior Vice President of Investor Relations

Alan B. Levan - Chairman and Chief Executive Officer

Jarett S. Levan - President and Chief Executive Officer

Valerie C. Toalson - Executive Vice President and Chief Financial Officer

Analysts

Bill Chen - Barrington Partners

Robert Patten - Morgan Keegan

Jefferson Harralson - Keefe, Bruyette & Woods

Operator

Good morning. My name is Rachel and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BankAtlantic Bancorp Fourth Quarter and Full Year 2008 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer period. (Operator Instructions).

As a reminder ladies and gentlemen, this conference is being recorded today February 10, 2009. Thank you, I would now like to introduce Mr. Leo Hinkley, Senior Vice President of Investor Relations. Mr. Hinkley, you may begin your conference.

Leo Hinkley

Well, thank you Rachel and good morning everyone. Thank you for joining us at the BankAtlantic Bancorp teleconference call and webcast discussing our financial results for the fourth quarter and full year of 2008.

Our speakers today will include BankAtlantic Bancorp's Chairman and Chief Executive Officer, Mr. Alan B. Levan; and Valerie C. Toalson, BankAtlantic Bancorp's Chief Financial Officer, as well as BankAtlantic's President and Chief Executive Officer, Mr. Jarett S. Levan.

We'll begin our call with a discussion from Alan, Valerie and Jarett. At the conclusion of the discussion and time permitting, we'll then conduct a question-and-answer period. Copies of the press release issued earlier today Tuesday, February 10, 2009 are available on the Press Room section of our website, bankatlanticbancorp.com. Copies of the quarterly and supplemental financials tables are also available on the Investor Relations section of the BankAtlantic Bancorp website by clicking the quarterly and/or supplemental financial navigation links. Individual copies maybe obtained by contacting Investor Relations at 954-940-5300 or by e-mail at investorrelations@bankatlanticbancorp.com.

Now before beginning our discussion, I'd like to remind everyone that certain statements made today may constitute forward-looking statements with respect to plans, projections and/or the future performance of the company. Forward-looking statements are based largely on the expectations of BankAtlantic Bancorp and involve a number of risks and uncertainties that are subject to change based on factors which are in many cases beyond the company's control. Actual results, performance or achievements could differ materially from those expressed or implied during these statements. And the company cautions that the foregoing factors are not exclusive.

In addition to the risks and factors identified, reference is also made to other risks and factors detailed in the press release issued today, as well as reports filed by the company with the Securities and Exchange Commission.

And now it's my pleasure to introduce Mr. Alan B. Levan. Alan?

Alan B. Levan

Thank you Leo. Good morning everybody, thank you for dialing in this morning. I hope you have had an opportunity to review our press release. As we've discussed over the last several quarters, our major focus has really been in three areas. Number one, improving core earnings; number two, maintaining appropriate capital levels, and number three, managing credit in this very difficult economy. And through these objectives we believe we've reported satisfactory to positive results.

Number one, core earnings had increased 29% in 2008 over 2007. We consider this to be a major achievement because when we get to the other side of this economy, it's the core earnings that ultimately will be coming down to the bottom line, which will drive our entire results when this economy settles down.

Number two, our capital is essentially unchanged from the fourth quarter of 2007 and it continues to exceed all regulatory well capitalized thresholds. On the credit front, of course I don't have to tell you what's going on nationally in the economy as well as in the Florida market, the Florida economy mirrors the national landscape. However in many respects the South Florida markets has been impacted more severely than the U.S. markets in general. These factors resulted in an increase at our non-performing loans in the portfolio. When we get to the question-and-answer period, we will be happy to answer your specific questions with regard to credit and these portfolios.

In our other lending portfolios, they are actually holding their own, delinquencies excluding non-accrual loans at 12/31 where as follows, in the consumer area delinquencies at 1.34%, small-business 1.31%, and in the residential portfolio, which is just about half our entire lending portfolio, it's just shy of 1%, actually comes in at about 99 basis points.

The earnings release also shows that we charged off goodwill of $48 million and the differed tax assets of $67 million. It's very important to note that these are non-cash charges and as we've seen again-and-again from the large banks reporting over the last few weeks that most of the large banks either are reporting or will be charging down these items of goodwill and the deferred tax assets. And none of these charges impact regulatory capital and it's of course, while it's a large number, it's important to continue to understand that these are non-cash numbers. As we know most of our analysts and investors really follow tangible capital anyway as opposed to the intangibles, which improves these items which we're charging off.

At this point let me turn it over to Jarett and then when Jarett and Valerie are finished, we'll come back for the Q&A. Jarett?

Jarett S. Levan

Thank you Alan. Fourth quarter was clearly a challenging quarter for the general economy and in some of our especially related to credit it's was no different at BankAtlantic. We are certainly disappointed with the increased levels of non-accrual loans at the bank. But despite these trends as reflected in the release, our charge-off did come down in the quarter.

As Alan mentioned capital levels at the Bank remained above all capitalized levels and it's important to note that there were no downstream or contributions from Bancorp in the quarter in terms of capital.

Other highlights of the bank, something that we talked about over the last few quarters and Alan just touched on is the increase in core earnings. Our team is very focused on -- we're all focused on the credit trends in the capital. We're very focused on core earnings because certainly that will be our run-rate as we navigate through this, through the cycle.

Our core deposits remain strong. Just to remind you, our core deposits is made up of 66% which is non-CD balances with the deposit cost of 61 basis points and a total cost to deposit for the entire portfolio of 159. For the quarter we increased core deposits $16 million and total deposits $58 million. It's not reflected in the release, that our retail low cost deposits increased about 100 million year-over-year.

Our business low cost deposits were up about $50 million up through the summer and then started to tear off as businesses started to move deposits around and also as our business customers have been affected by the general economy.

Another notable percent is that our total deposits makes up only about 4% of assets, which we believe is certainly lower than other financial institutions in Florida. Now also during the quarter, we were successful in reducing our leverage ratio to about 25% by paying down some sort of home loan bank advances, which turned about 500 million during the quarter. We, in terms of the asset generation, we funded about $150 million in commercial, consumer, and small business loans during the quarter, which we believe is prudent in this economy to help our customers to grow their businesses to navigate through this economy. At the same time, we were successful in reducing our assets by about $300 million through repayments in our RE capital, our real estate capital purchase loan portfolio as well as reduction of investment securities.

Now Valerie will talk about the margin impact during the quarter. I do want to touch for a moment on the non-interest income. You notice from the financials that our fee income came down in the fourth quarter and also trended down for the year. And that's the trend we are watching very closely but we would expect that that trend will probably continue in the foreseeable future because of the value of the -- not only the general economy but also as we work towards increasing or migrating to higher balance accounts which results in lower overall accounts for the bank.

On the expense side, we thought we've been successful throughout the course of the year and also in the fourth quarter in reducing core expenses. Now, there were some one time events in the fourth quarter, some related to our debt redemption, related to write-downs of our store real-estate that we have talked about, excess land that we have tried to sell throughout the course of the year and in many cases have been successful, and provisions related to our legacy tax deficit portfolio.

But all in all, our spends assured about a 10% improvement over the fourth quarter of 2007. On the expense side, as we talked about, we have got all hands on approach focused on the expenses as revenue stays flat and declines slightly throughout the course of the year. It's very important as we know to reduce the core expenses.

Valerie is going to touch on in more detail on the goodwill impairment, the deferred tax asset allowance and credit and capital but before she does that I just want to mention that I am very proud of the BankAtlantic team, all of our colleagues that have worked together to accomplish the growth in core earnings, committed to the plan, and focused -- are very focused on 2008 and again remain very focused on 2009. Valerie?

Valerie C. Toalson

Thanks Jarett. As we have indicated the supplemental financial tables provide details on the financial results of the bank for the period and the consolidated entities.

In summary, the losses for the fourth quarter and for the 2008 end year were led by three key items, two of which where large non-cash charges that don't impact our well capitalized capital status, our cash flow or our ongoing operations. The third key driver was loan provisioning as we increased our loan loss reserves addressing the correct credit environment.

First of all, I will address the two non-cash charges that drove the loss. First of all, goodwill like many institutions we have recorded goodwill on our books related to acquisitions. We had 70 million on our books resulting originally from various core acquisitions from 2002 and prior years.

Our goodwill impairment evaluation work was impacted not only by the economic environment in Florida and the impact on our businesses but also by the sustained declines in the market price of BBX and other financial institutions. And as such, as you've seen with many financial institutions during the last quarter, our goodwill evaluation (ph) analysis resulted in an impairment of 48.3 million. This charge increased our non-interest expense in the fourth quarter but again, importantly, had no impact on our regulatory capital, our tangible equity, our cash flows or ongoing business operations. Our remaining goodwill at 12.31 was approximately $22 million.

The second non-cash charge in the quarter was a valuation allowance for deferred tax assets. On a consolidated basis, we have an 81.3 million deferred tax asset with 67.4 million of it at the bank levels created materially by the last several quarters of losses. The deferred tax assets represent future tax benefits available to us. And while this asset can be used over the next 20 years based on the current tax laws, after careful consideration of the impact of BankAtlantic's recent history of losses combined with the deterioration in the general economic conditions and how that applies to the application of FAS 109 accounting rules, we established the valuation allowance to offset those tax benefits for financial reporting purposes.

Now, this does not impact our ability to use that asset in the future and, in fact, the accounting rules allow a reversal of the allowance in future periods when economic and other circumstances may change. And again, this charge does not impact our well capitalized Spanish (ph) cash flows or business operations.

So these two non-cash items represented about 116 million of BankAtlantic's loss and approximately 130 million of the consolidated Bancorp loss. Now, focusing on the bank only, the third key factor, I mentioned, that impacted BankAtlantic's loss in the quarter was the additional loan loss provisions, as we increased our allowance for loan loss to 2.87% of total loans. The fourth quarter 2008 loan loss provisions was 31.8 million driven materially by additional reserves in our commercial real estate portfolio as well as additional reserves in the consumer portfolio.

This quarter's loan provision related approximately 44% to commercial real estate, 35% to consumer, 10% to the purchase residential, 8% to small business, and then 3% to other commercial business. While our loan provision was increased during the quarter, total net charge-offs, as Jarett mentioned, with the bank declined from prior 2008 quarters to 12.6 million for the fourth quarter. Of this quarter's net loan charge-offs 9 million or about two-thirds came from the consumer home equity portfolio. These charge-offs were up as expected from 7.6 million in consumer charge-offs in the second quarter.

Small business charge-offs were up about 300,000 from the prior quarters to 1.6 million. Primarily in real-estate related businesses and purchase residential charge-offs increased about 950,000 from the prior quarter.

While we didn't increase... while we did increase the loan provision related to the commercial real estate portfolio, we did not reflect any net charge-offs for this portfolio in the fourth quarter which drove the decline in the total net bank net charge-offs. As Alan mentioned, non-accrual loans increased approximately 118 million in the quarter led by the increases in the commercial real estate portfolio of 105 million in purchase residential of 10 million.

Moving on to net interest income, the net interest income of 44.5 million in the fourth quarter was down from the comparative 2007 quarter and the prior quarter due in part to the impact of the additional non-accrual loans that had about 1.3 million impact compared to the prior year as well as the impact of reduced earning assets as we brought down our balance sheet that Jarett spoke to. That had an impact of about 1.9 million.

During the quarter, we chose to use cash flows from tax certificate redemptions and residential loan payments to reduce our borrowings bringing down that leverage ratio. While that negatively impacted the margin and the action certainly had a much more favorable impact on capital and leverage. The decline in net interest income during the quarter was a combination of these lower earnings asset balances, increased non-accrual loans, and a lag effect with our asset reprising quicker than our liabilities with the fourth quarter rate declines. Now this lag effect should be mitigated somewhat in early 2009 due in part to the early repayments of several home loan bank borrowings and while we incurred 1.2 million charge on that debt redemption in the fourth quarter that will serve to improve our borrowing cost in 2009 by over $4 million.

In non-interest expenses the largest item was goodwill impairment charge that I already spoke to and I believe Jarett covered, the overall continued work to reduce core operating expenses, and the full year improvements in that area. BankAtlantic's capital base remain solid and continues to be supported by the operations of the bank and active management of our balance sheet including the reduction of over 283 million in assets during the quarter. BankAtlantic's core Tier 1 and total capital ratios are well in excess of a regulatory well capitalized threshold.

A couple of items on the parent company, I already discussed the deferred tax asset evaluation, which amounted to close to 14 million as a parent. Key activity in the workout subsidiary included charge-offs and provisioning of 2.7 million and 11.7 million respectively driven by updated evaluations during the quarter and the parent company continues to hold cash and securities of approximately $40 million at the quarter end as well as approximately 68 million in net loans receivables.

Finally, discontinued operations, which includes additional policies received from the sales volumes back in the first quarter of 2007 included pre-tax income of 10.6 million recognized from the private client contingent payment, earned as part of the sale of Ryan Beck. This contingent payment period will conclude at the end of February 2009.

So in summary, the losses for the fourth quarter and for the 2008 year were led by the three key items, two of which the large non-cash charges that don't impact our well capitalized capital status, our cash flow, or ongoing operations. The third key driver was loan provisioning as we increased our loan loss reserves addressing the current credit environment. At the same time, we continued to work toward a leaner and more efficient operating platform reflected in our pre-tax core operating earnings improvements during 2008.

And finally in response to the challenges, during 2008 we focused on balance sheet strength. Through decreasing our leverage, maintaining our low cost deposit base and continuing to maintain regulatory capital ratios materially unchanged from prior year-end.

Alan B. Levan

Thank you Valerie. Operator, we will now open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Bob Ramsey with FBR Capital Market.

Unidentified Analyst

Good morning.

Alan Levan

Good morning.

Jarett Levan

Hi Bob.

Unidentified Analyst

First question for you, I know you all said back in October that you applied for TARP. Is there any update on the status of that?

Alan Levan

There is no update on that. I will give you little bit of color. We applied for TARP early in the process back in October. There was some flurry of activity in the November timeframe, where it was unclear as to whether TARP would go to BankAtlantic Bancorp where we initially applied or BankAtlantic, the insured institution or BFC Financial, which is the top tier holding company. If you remember under the TARP application the regs were that the funds were to go to the top tier holding company and while we applied in BankAtlalntic Bancorp there was some thoughts in the regulatory scheme that the top tier holing company entitled to the money would it had been BFC Financial Corporation.

We later made the case that BFC because preponderance of its assets are not in the financial arena under the rules and also BFC is not traded on a national exchange then the TARP would default back to the institution which would be BankAtlantic. In early December, I think the second week of December I received a call from the Director of the Capital Purchase Program from Treasury directly. And that gentleman I had a discussion with regard to where the appropriate level would be. And he indicated that he thought that BankAtlantic would be the appropriate recipient for the TARP money. That was second week of December.

Subsequent to that, as our understanding they notified our regulator that BankAtlantic would be the proper recipient and that the regulators should prepare a case for support in the name of BankAtlantic. It is our understanding that that was done in the regulatory scheme. Subsequent to that of course was the inauguration. All the people that, the gentlemen that I was talking to who was Head of the Capital Purchase Program is no longer at Treasury and we've heard virtually nothing from Treasury since the second week of December. So all we can determine at this point is that somewhere in the queue we have no idea where it is and have heard nothing either to positive or to negative, with regard to TARP.

Unidentified Analyst

And when you say, at BankAtlantic, you mean the Bank or Bancorp?

Alan Levan

At BankAtlantic, the insured institution.

Unidentified Analyst

Okay.

Alan Levan

Treasury told us at that time, that because our top tier holding company, which is BFC Financial Corporation does not meet the two tests of either financial assets, the preponderance of financial assets and also trading on a national exchange that then the program defaults to the insured institution in which case the TARP money, if it were to be given to us, would be done as a community bank, which means its preferred stock or without warrants and that's really the last conversation we had with Treasury on this subject.

Unidentified Analyst

So what is your understanding at the time of this conversation that BankAtlantic would qualify or was that not determined at that point?

Alan Levan

That was not determined at that time. It was trying to determine where the appropriate, who the appropriate candidate would be within the regulatory scheme. And we have reached an understanding from Treasury on that and it was... the understanding was communicated to our regulator.

But I think we are in the same position that many, many banks are in and that we have just not heard any definitive information with regard to TARP. We have no idea whether we qualify for TARP in light of all the changes that have taken place in the program. We have no idea, obviously, even if there's anybody else, what announcements are going to be made today at Washington. So we don't know that.

We continue to take the position as we have always that we expect to remain well capitalized, we will operate our business with or without TARP funds, and in light of all the things that are going on with TARP that we've read about in the press, we really don't know what that program is going to look like after today, anyway. So that's as much as I can tell you about TARP.

Unidentified Analyst

Okay, that's helpful. And if I could just ask one question on the deferred tax asset write down. Does this mean that in the future periods to the extent that there are losses, that there will be no income tax benefit that you would have nothing run to that line if there are losses in future quarters on the GAAP income statement?

Valerie Toalson

Yeah, as long as we have the full valuation allowance in place, that's exactly right. We would differentially be increasing the asset and increasing the contract asset valuation at the same time.

Unidentified Analyst

Okay, thank you very much.

Operator

(Operator Instructions). Your next question comes from the line of Bill Chen with Barrington Partners.

Bill Chen - Barrington Partners

Thanks for taking my question. Two quick things, so of your purchase residential portfolio, how much of that's interest only?

Jarett Levan

About half of it is IO.

Bill Chen - Barrington Partners

And have you guys ever given any information in terms of geography of that portfolio?

Alan Levan

Yes, that portfolio is just about in all the states. It's spread out and widely throughout the country, about 25% of it is in California. The IO portfolio, the interest only portfolio's performance levels are a little bit below the fully amortizing portfolio but our delinquencies and our charge-offs in that portfolio are so small that it really it's not indicative of anything.

Jarett Levan

It's important to note that as we have reflected in the release that, that portfolio has no sub-prime, no neg am, no optional arm. It's a Fannie, Freddie qualified portfolio.

Alan Levan

When you look at the $2 billion in that portfolio, and you compare it against almost any major bank in the country, I would think that that portfolio would -- the performance levels of that portfolio would be well and above in flying colors against any standard that you would use.

Bill Chen - Barrington Partners

[Question Inaudible].

Valerie Toalson

The next largest state is Florida at 8% and beyond that it's pretty well, that's first throughout the nation.

Alan Levan

And in California it's pretty well diversified as well.

Valerie Toalson

At half north.

Alan Levan

Yes, there is no major concentrations other than, it's pretty much spread across. And of course California is so large they have different economies in California as well.

Bill Chen - Barrington Partners

When you say Fannie and Freddie qualified, what does that mean, exactly?

Alan Levan

These are all purchased loans. We didn't originate any of these loans but we underwrote each one independently. So, what would happen is we would buy a portfolio of $50 million or $100 million, we would go through those portfolios, look at them loan-by-loan, in any case as we would reject, anywhere from 5% to 50% of the loans that we committed to buy because they didn't meet our underwriting standards. While, we have left them in the whole loan forum, they generally meet Fannie and Freddie guidelines, if we wanted to securitize them.

Valerie Toalson

The only thing we would add to that, is that the majority of these are jumbo. And so they are beneath the guidelines accepted as highest.

Bill Chen - Barrington Partners

So they are not backed by Freddie or Fannie, right?

Alan Levan

They are not backed by Freddie and Fannie.

Valerie Toalson

Just our underwriting guidelines.

Bill Chen - Barrington Partners

Okay, fair enough. Thanks very much.

Alan Levan

Thank you.

Operator

Our next question is a follow-up from the line of Bob Ramsey (ph) with FBR Capital Markets.

Unidentified Analyst

Thank you for taking the follow-up. Just wanted to talk real quickly about the tangible common equity ratio, I know you all said in the release that it was 6.8%. But I am calculating at least on a GAAP basis, it's more like 3-7. What is the difference there, I guess I'm coming up with 214.9 million of tangible common?

Valerie Toalson

Yeah, I think probably the difference in your calculation is again our focus on the bank and then I believe that you're probably looking at the Bancorp number.

Unidentified Analyst

Okay.

Valerie Toalson

And I do believe that the number is actually higher than that somewhat. If you take the equity back out, the remaining goodwill in core deposit intangibles and then the same from the asset side you should be able to get I think what you're looking for.

Unidentified Analyst

Okay. That's what I'm doing to get the 3.7, but you are saying that still sounds low to you?

Valerie Toalson

And perhaps we can touch base and perhaps go through exact numbers after the call and part of it maybe using average versus period, etcetera.

Unidentified Analyst

Okay, that area is certainly high on average basis. And then how do you all think about what is the appropriate... I know you all said you feel that you're still well capitalized, how do you all think about capital ratios in this environment particularly in light of having 6% non-performing loans?

Alan Levan

Well, we look at it as a... we look at it from a trend line basis in terms of the stability of the capital and the designation of well capitalized. Our focus is that our core earnings are... have been increasing so significantly over the last year and a half, that we can continue to deal with charge-offs as they come, in the nature of this economy, so that our difference of capital is not particularly significant, particularly with the ability to have some flexibility in our balance sheet, so that our ratios stay the same. So if we can manage to continue increase our earnings which is our focus by virtue of increased revenue and decreased expenses with that flexibility in terms of the size of our balance sheet then we can deal with the charge-offs that come over the next year, year and half or however long it's going to take this economy to turn around. We also have some significant assets at our parent company, BankAtlantic Bancorp, in terms of the asset that we transferred up to BankAtlantic Bancorp, as well as the cash at Bancorp and so it gives us a pretty strong strategy in terms of maintaining well capitalized through the cycle.

Unidentified Analyst

And I guess in terms of that, I know you all said you did not dividend any funds down from Bancorp to BankAtlantic this quarter, how much excess liquidity do you have that would be available dividend down?

Jarett Levan

Well, we have today somewhere $40 million and $50 million in cash as well as we have between $60 million and $80 million of mortgage loans that are pretty clear and unencumbered up in the new holding company. Those are there as a result of us creating the work out subsidiary. So those are non-performing loans, but we've written those down each quarter as appropriate and our book value on those still exceeds in excess of $60 million.

Unidentified Analyst

Okay, thank you again.

Jarett Levan

Thank you.

Operator

(Operator Instructions) Your next question is from the line Bob Patten with Morgan Keegan.

Robert Patten - Morgan Keegan

Good morning everybody. Thanks for taking my call. I guess, first one, you talked about consumer and purchase residential portfolios, as conditions have continued to accelerate to deteriorate in terms of unemployment and real estate, a lot of the banks have significantly ramped up the disclosure, in terms of FICOs, appraisals, current loan to values, detailing trends by vintages in both home equity and residential.

You guys still refer to original FICO or FICO that's originated and LTV's, can you talk to us about what you are doing in terms of drilling down to identify potential issues of exposure on these portfolios?

Jarett Levan

Let me talk generally and then Valerie can talk about some of the numbers. Throughout the course of the year and we've talked about this over the previous two or three quarters. We have looked at our specifically our consumer loan portfolio, we've made decisions based on decreased values to reduce commitment amount. And through that process we have reduced commitments by close to $150 million. That's an ongoing process, but we are looking at current values, looking at current scores, and making decisions on a loan by loan basis.

Robert Patten - Morgan Keegan

Yeah, what are current values in that portfolio? And as of what date?

Valerie Toalson

We're actually just fresh off the press did an update of that portfolio and the weighted average.

Robert Patten - Morgan Keegan

Val, can you exclude the first mortgage and give us what the second link portfolios?

Valerie Toalson

Actually, I don't have that, this is actually a more conservative way of looking at it because it includes consideration of the first mortgage, so that we are not giving ourselves false hope if you will by a certain percentage amount. But the current LTV on a weighted average basis for the total portfolio is about 100% as the market prices of homes have continued to decline.

I will say that on a pure average basis for that portfolio, the average of looking at the loans outstanding to the combined value and looking at the combined loan of the first mortgage and the second mortgage to the value is about 69%. I believe it is where those numbers came into play. We also, on the purchase mortgage portfolio, did disclose, we just got this updated as well over the past few weeks is the updated weighted average loan to value for that portfolio is about 75%.

And again, all of that information is very fresh. It's something that we do on a regular basis, looking at the updated values, pricing and dicing every which way you can to ensure that we are effectively managing those portfolios.

Alan Levan

And we're generally looking at the, particularly, the South Florida market is deteriorated in terms of market values, in excess of 30% and in some part it's in excess of 35%. So we consider the remaining LTVs in that portfolio even at current levels is pretty good.

Robert Patten - Morgan Keegan

So you're saying at year-end the LTV and the purchase residential portfolio will be averaged worth 75%.

Valerie Toalson

That's exactly right. We just got some information within the past few weeks.

Robert Patten - Morgan Keegan

What was it's origination?

Valerie Toalson

And it, I think it was below 70% or right about... I think about 69%.

Robert Patten - Morgan Keegan

Okay. And the FICO scores?

Valerie Toalson

Yeah, I don't think I have that bit of information in front of me on that.

Robert Patten - Morgan Keegan

I mean have you guys done recycling of both of those portfolios and looked at your debt ratios?

Valerie Toalson

Yes, one of things that we do want on a regular basis particularly in the HELOC portfolio is look at the updated credit scores along with the updated loan to values in order to look at our outstanding lines and evaluate whether it's appropriate in order to reduce some of those commitments and we've been doing that I believe on about a quarterly basis for about a year now.

Robert Patten - Morgan Keegan

Sure, how much we reduced those.

Alan Levan

We've reduced close to $150 million.

Robert Patten - Morgan Keegan

Can you show how much higher usage ratio is becoming, the commitments I understand that. But I mean going back to FICO, have you updated the FICO and the weighted average debt scores?

Valerie Toalson

I know that our credit folks look at that. I just don't have those updated numbers in front of me.

Robert Patten - Morgan Keegan

Okay and then I will switch into different subject. The market got a little surprise with core news, so I got to ask you the question, have you guys been asked to raise equity or any conditions attached to your getting TARP?

Alan Levan

I have already answered the question on TARP. We've had no communications at all on TARP.

Robert Patten - Morgan Keegan

So there were no conditions and you've not been asked to do anything in order to get TARP.

Alan Levan

I have already answered that question three times.

Robert Patten - Morgan Keegan

Okay. Thank you.

Operator

Your next question comes from the line of Jefferson Harralson with KBW.

Jefferson Harralson - Keefe, Bruyette & Woods

Hi, good morning.

Valerie Toalson

Hi.

Alan Levan

Hi Jefferson.

Jefferson Harralson - Keefe, Bruyette & Woods

What does the... does the holding company, TCE ratio come into play with any of your strategies or any of your assessments for capital needs or anything, any change of business plan, does that number change anything for you guys and do you almost wanted to forecast it or is there a level that you don't want it to go below?

Alan Levan

Sorry, could you ask the question more specifically?

Jefferson Harralson - Keefe, Bruyette & Woods

Yes. The holding company, to the Bancorp TCE ratio, does that matter to you guys what that number is and where it goes to in your business planning?

Alan Levan

Not at this current time, it does not.

Valerie Toalson

We just have to believe, where we're positioned there.

Alan Levan

Our focus is the well capitalized nature of the insured institution and that's from a regulatory standpoint that works within the regulatory scheme.

Jefferson Harralson - Keefe, Bruyette & Woods

Okay, and on the new non-performing assets this quarter, the 107 million, has those always been charged-off already to net recoverable value, or will they put on late in the quarter where you may reserve an estimate from them, are you going to charge them off later, where do those new MPA stand as far as where they are?

Valerie Toalson

We do, fairly at the end of the quarter take a hard look at all of the non-accrual loans and the related valuations and ensure that we have that appropriately addressed in our loan loss provisions. The reason that we did have an increase, the majority of our loan provisioning was in the commercial real estate portfolio was in good part due to that increase in non-accruals. And so we chose to because of the nature of the properties, the evaluations, etcetera place either specific or quantitative reserves on those, worst is charging-off.

Jefferson Harralson - Keefe, Bruyette & Woods

Okay.

Valerie Toalson

And that is the loan...

Jarett Levan

Yeah, and make no mistake about the issues with regard to mark-to-market. Mark-to-market creates havoc with us as it does with many in our sector. And the market liquidity for the commercial asset today is extremely low and as a result the comparables in a tier group appraisal are very few and far between. And so as result there is a great effort for conservatism, related to those that produce reports on the value of these assets, particularly, the appraisers and others and as a result, as long as this economy is headed in the direction it's headed, these valuations will continue to reduce. That's the issue that's impacting us as well as everybody else in the country. So here when the question is asked of how could it have been at one level in one quarter and be at different levels the next quarter, it's pretty obvious what's going on, is that every time we touch these assets or an appraisal touches these assets it's at a reduced value. And so you can anticipate that we will continue to charge these down as appropriate as we touch them.

Jefferson Harralson - Keefe, Bruyette & Woods

All right, thanks. And finally on the MPA do you think that the MPA number is likely to increase over the next couple of quarters?

Alan Levan

I think we probably be shocked if we've seen our last MPA. We think we do a pretty good job in looking at the portfolio. What we're seeing is BankAtlantic and again I think that is what the President was talking about yesterday and what we're going to see out of Washington today is the early losses that we saw particularly in the commercial loan portfolio were probably individuals that didn't have a lot of cash or secondary support and were caught by the downturn.

And I think in many cases what we are seeing today is borrowers who still have strong financial statements and liquidity on their financial statements but are concerned about how long this economy is going to be down and as a result have just decided to save their cash and not make payments at this point and fight it out in a lawsuit at judgment or bankruptcy hoping that before we get to the conclusion the economy will return. And nobody knows whether we're dealing with 6 months away based on the stimulus or 2 years away.

We are seeing some pretty weird and conservative actions by many borrowers. So that is kind of a long answer to whether we will see more non-performing assets, I don't think there's any question, we will continue to see non-performing assets because our customers are hurting and again that's not unique to us and that is all over the country. And if Washington is unable to turn this around then we are going to see lots of issues here and elsewhere.

Jefferson Harralson - Keefe, Bruyette & Woods

All right, I appreciate the background on that, thanks.

Operator

Your next question comes from the line of Bruce Bodding (ph) with Raymond James.

Unidentified Analyst

Good morning, thanks for taking my call. Just one quick question, on new accounts here, but on the bank only you had stated that, you had set aside about 31.8 million for loan loss reserves on loans this quarter and then in your statements, you said that the bank lost 27 million when you take out the impairment charges and the tax assets allowance. So without the 31.8 million set aside, would you have been profitable?

Valerie Toalson

Without the loan provisioning set aside?

Unidentified Analyst

Yes.

Alan Levan

Yes we would have been profitable.

Unidentified Analyst

Okay, great. I just wanted to double check. Thank you.

Alan Levan

Thank you.

Operator

Your final question comes from the line of Bill Chen with Barrington Partners.

Bill Chen - Barrington Partners

Thanks for taking my follow up question. First thing, I just wanted to make sure I was running the numbers right, so at origination the purchase mortgage weighted average LTV was 69%?

Alan Levan

It was in the high 60s.

Bill Chen - Barrington Partners

The high 60's. And it's currently at 75%?

Valerie Toalson

Yes.

Bill Chen - Barrington Partners

And what is the vintage year of the purchase mortgage portfolio?

Alan Levan

Some of that goes back 10-15 years.

Bill Chen - Barrington Partners

Okay, but is there any waiting or is it more recent?

Alan Levan

We don't have waiting information for you but some of the early purchases in that portfolio were actually RTC broken tools. So many of those when we repurchased them were at very, very loan to values and those that weren't have been puts for so long they have amortized quite a bit.

Bill Chen - Barrington Partners

But can you give a ballpark, most of it, early purchases as to half?

Alan Levan

Sorry I can't do that for you other than guess at this point. I just don't have that information.

Bill Chen - Barrington Partners

[Question Inaudible].

Alan Levan

We'll take a look at that information and if it's appropriate, we will, perhaps we will include it in our K, when we file it in a month. We get lots of questions about this portfolio because it was... we believe it was extremely conservatively underwritten and acquired by us. And so when you think about it as $2 billion portfolio, it's performing extremely well to date in this environment. So we get lots of questions about it. But at the end of the day at least to date the proof is in the pudding. It's performing well.

Bill Chen - Barrington Partners

And same is in your commercial real estate portfolio with geographies within that sort of...?

Alan Levan

It is all Florida and it's really throughout the state and we have stores in South Florida and up the East Coast and then in Tampa Bay market. So we have commercial real estate in those markets, but we also have them in the middle of the state, in Orlando area and Jacks Ville area and St. Augustine. So it's pretty much throughout the state.

Bill Chen - Barrington Partners

[Question Inaudible].

Jarett Levan

I think if you look at the release you will see some of that breakout on the residential land portfolio, which is reported over the last three or four quarters, it's a full mix of residential, commercial, office, industrial.

Alan Levan

No condos.

Bill Chen - Barrington Partners

Okay.

Alan Levan

And very little shows construction in progress. Most of it's either in the other categories or in land development.

Bill Chen - Barrington Partners

Okay, great. And last question, (inaudible) but can you give any color on the SEC subpoena, what's going on there?

Alan Levan

Sorry, on what?

Bill Chen - Barrington Partners

The SEC subpoena.

Alan Levan

Well the last time we heard anything about that was when we got it.

Bill Chen - Barrington Partners

All right, but do you know what they are looking for or what... any color on, what does it relates to?

Alan Levan

No idea. We have a number of class actions against the bank all of which we think are pretty much nonsense. One has been dismissed twice and it's been re-filed for a third time. We don't... we really don't put any creditability or energy into those transactions. And with regard to the SEC subpoenas of course we take that seriously. We provided everything that they have asked for and we never considered anything by the SEC as not being serious. I was talking about these class actions which are lawyer driven but the SEC information that they requested we have supplied to them with all the information they have asked for and I don't believe we've heard anything recently from the SEC with regard to the data that we have supplied. But if they have further questions we will give them anything they need and cooperate with them to the fullest.

Bill Chen - Barrington Partners

Okay. Thanks for the color.

Alan Levan

Thank you. Operator, that will conclude our questions. Let me just summarize. Clearly those of you that follow bank stocks, you have heard this story again and again and again from many banks that have reported. Until we see an improvement in the general economy, we are not going to see significant improvement at BankAtlantic or for the industry for that matter.

Our focus is, as we continue to discuss, is increasing core earnings, maintaining our well capitalized status, and managing this credit as the best we can in this economy. The core earnings is really critical to the analysis because having been through this now three times over the last 25 years, the core earnings are critical because at some point in time again whether it's six months, a year or two years, at some point in time these charge-offs will start to lessen and the noise associated with our earnings will subside and what will remain is the core earnings that will start to drop to the bottom line.

So you really need to look forward to these core earnings and what will happen with our GAAP earnings two, three years down the road when the economy has stabilized. Of course, in order to get from here to there we have to continue to remain to be well capitalized which we expect to do and we are working hard to continue to improve our balance sheet and our earnings. But in light of what's going in the world around us, particularly in the Florida market, I understand, for example, the President is going to be in Fort Myers today probably because just like in Indiana, Fort Myers is indicative of how bad the housing market is in this country which is probably why he has picked the Fort Myers as his next stopping place.

And so that's the market we are dealing with in Florida and we are doing the best we can and in some cases we think we are doing better than others and we will leverage, it's going to take it day-by-day and see it through to the end.

Again we have the benefit of having been through this several times and in some cases we saw this coming which is why we exited the high rise condo market three, four years ago and why we avoided certain other issues such as our residential loan portfolio, it is the reason why that is performing so well.

But at the end of the day we are a community bank, we are important to the economy in Florida, we do what is required to support our customers and the vibrancy of our communities. And when the economy is down on its heels then we are going to take those hits just like our customers.

So we hope that you will bear with us and you will pore through the numbers to see what we see in terms of the bright future that we have once this economy is behind us. So thank you all for plugging in.

Operator

Thank you for participating in today's BankAtlantic Bancorp Conference Call. You may now disconnect.

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Source: BankAtlantic Bancorp Q4 2008 Earnings Call Transcript
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