BankAtlantic Bancorp Q2 2009 Earnings Call Transcript

| About: BBX Capital (BBX)

BankAtlantic Bancorp. (NYSE:BBX)

Q2 2009 Earnings Call

July 23, 2009; 11:00 am ET


Alan Levan - Chief Executive Officer

Valerie Toalson - Executive Vice President & Chief Financial Officer

Jarett Levan - BankAtlantic President & Chief Executive Officer

Leo Hinkley - Senior Vice President & Investor Relations Officer


Maclovio Pina - Morningstar Equity

Jeff Harralson - KBW

Jessica Halenda - FBR Capital

Theodore Kobeleff - Horwitz & Associates

Peter Carmack - Smith Barney



Good morning. My name is Richard and I will be your conference facilitator today. At this time I would like to welcome everyone to the BankAtlantic Bancorp, second quarter 2009 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)

I would now like to introduce Mr. Leo Hinkley, Senior Vice President of Investor Relations; you may now begin.

Leo Hinkley

Thank you Richard and good morning everyone, and thank you for joining us at the BankAtlantic Bancorp teleconference call and webcast, discussing our financial results for the second quarter 2009.

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 Jarett S. Levan, BankAtlantic’s President and Chief Executive Officer. We’ll begin our call with a discussion from Alan, Valerie and Jarett. At the conclusion of the discussion, time permitting, we will then conduct a question and answer period.

Copies of the press release issued yesterday on Wednesday, July 22, 2009 are available on the press room section of our website, Detailed financial details 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 may also be obtained by contacting our investor relations department at 954-940-5300 or by e-mail at

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 other future performance of the company. Forward-looking statements are based largely on the expectations of the company and involve a number of risks and uncertainties that are subject to change, based on factors which are in many instances beyond the company’s control.

Actual results, performance or achievements could differ materially from those expressed or implied by 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 our other risks and factors detailed in the press release issued yesterday, July 22, 2009, as well as reports filed by the company with the Securities and Exchange Commission.

Now it’s my pleasure to introduce Mr. Alan B. Levan.

Alan Levan

Thank you, Leo. Good morning everyone. Thank you for dialing in this morning. Those of you that saw the release that we put out last night know that we reported a loss of $38 million or $3.41 a share. While this loss is double the loss from last year at June 30, we believe the real story here is that it is significantly improved from the loss of $46.5 million from the first quarter of this year.

Virtually everything that we can control shows improved trend lines, and Jarett and Valerie will give you the details on this, but the things of course that are within our control; deposits, leverage, core earnings, margin, non-interest expense, all were improved, and those trend lines are looking pretty good.

Our capital continues to be well-capitalized. We down streamed $5 million from BankAtlantic Bancorp down to the bank, but it should be noted that that $5 million really had nothing to do with our well-capitalized status. BankAtlantic would have been well capitalized with good margin and room for plenty of cushion without that $5 million.

The things that we don’t control, and of course that relates almost exclusively to the economy, is still challenging and creating issues for us and the rest of the industry. By this time, it’s pretty obvious that Florida is going to lag the country in the recovery of this recession.

If stabilization is now expected for the third or fourth quarter nationally, most are predicting that Florida will lag that and recovery or stabilization will really be in the first or second quarter of next year; and of course, that’s what we continue to do our strategy around and prepare for. If recovery is earlier than that, then that will be a truly good thing.

Having said that, and of course credit issues are still plaguing every financial institution, but we are pleased to report that the area that we have seen significant increases in non-performing loans, is in the commercial real estate portfolio, and with regard to that portfolio this quarter, the net increase was basically zero. It was flat quarter-over-quarter in that commercial real estate portfolio, so we’re pretty pleased about that.

We also saw some slowing in the other portfolios, particularly in the residential and the consumer portfolio, some slowing in the increases of non-performing loans. So we are cautiously optimistic about that.

We certainly don’t believe that the recession is over or that these non-performing loans are behind us, and it’s really too early to tell whether we could count on continued improvement in that area, but we’ll take each quarter as they come, and we would consider this quarter a pretty good quarter in terms of all of the core operating stats, as well as where we are on the credit front.

So with that introduction, let me turn it over to Jarett and then to Valerie, to give you more details on our quarter.

Jarett Levan

Thank you, Alan. As reported in the press release for the second quarter, the bank, we reported a $24 million net loss for the quarter and as Alan mentioned, we believe that most of this loss is related to the general economy. Despite this loss, I am very pleased with the results of the quarter and very pleased with many, many of the positive trends that we reported this quarter. Valerie and I will go into more detail and be happy to answer any questions.

Just to reflect on some of those trends, core earnings are up, core deposits are at record levels, and year-to-date we had a record growth. Year-to-date our margin is up, core non-interest income is up; borrowings are down to near-record levels. Core non-interest expense is down, provision is down for the first quarter, charge-offs were relatively flat.

The NPAs were up, but as Alan mentioned, no net increases in commercial real estate NPAs, the assets continue to trend down. So there’s no question that BankAtlantic was taking advantage of the opportunities in the marketplace and not resting on our laurels, and using this economy to really improve our balance sheet, and more importantly, strengthen the company for the future.

Our three main priorities which we discussed on several times throughout the year are maintaining capital and managing credit, and improving core earnings. As we’ve disclosed in the release, our capital remains strong, and our credit, we’re managing that as well as we can in this economy.

In terms of core earnings, our core earnings were up about 16% over the first quarter to $19 million, and these core earnings are going to be a pretty good indication of what the company will look like as we emerge from the cycle.

As I mentioned, a very favorable quarter in terms of deposit growth. Usually in the second and the third quarter we would see a degradation of deposits because of seasonality in the Florida marketplace. In 2009, so far it appears that we’ve bucked that trend, and we put a lot of strategies and conducted a lot of training in 2008, and we’re starting to see the rewards from those efforts.

Month-to-date, the trends continue in our core deposit growth, and we are hoping that that momentum continues into the fourth quarter, as the fourth quarter typically is a strong quarter for us.

Just to remind you, our deposit franchise consists of about $4 billion in total deposits, 70% of which is non-CD balances at an average cost, which is down by about 36 basis points and an average cost for the whole portfolio of about 113 basis points. So, we believe one of the strongest core deposit franchise is in Florida.

Our broker deposit which I think is worth noting, represents about 4.3% of total assets, which is also we believe a pretty good number and represents a strong deposit franchise. We are also successful because of the reduction in assets, as well as the increase in core deposits. We were successful in continuing to pay down our borrowings. They are now at less than 15% to total deposits and borrowings, which is also close to a record low, and at least the lowest it’s been in almost 12 years.

Our revenue was relatively flat in the quarter compared to the first quarter. Remember that revenue is suffered by the impact of the non-performing loans, as well as the decision to reduce overall assets. Despite that, core non-interest income was up, and we’re pretty pleased with that trend.

On the expense side, obviously something that we talked about over the last four, five six quarters. Our core expenses came down again in the quarter, with very strong focus throughout the company on our expenses, and we were down 8% over Q1, 18% over second quarter of last year, and almost 30% from our high of four or five quarters ago.

So despite the reduction in expenses, not only do we have as I mentioned earlier the core deposit growth, but we remain very focused on the customer service and the customer experience, especially because of the tremendous disintermediation in the market place.

There was a recent report that came out, issued by JD Powers, which was their 2009 retail banking satisfaction study, and BankAtlantic was ranked number five in the southeast region in that study on customer satisfaction. What’s important about that is that BankAtlantic was ranked higher than all of the regional national banks and all of the community banks.

The other four organizations that were on that list do not conduct business in South Florida. So we were very pleased with those results, and it’s a testament to how hard and how focused our people are working in our stores and throughout our network.

We will continue to focus on the expenses; we will continue to drive the core deposit growth, and before I turn it over to Valerie, I just want to mention, on behalf of our management team, how proud we are of the BankAtlantic colleagues that have worked so hard in this economy to improve the balance sheet, improve core deposits, improve core earnings, and more importantly, position BankAtlantic for the future. Valerie.

Valerie Toalson

Thanks Jarett. As Leo noted, the supplemental financial tables on our website provide details on the financial results of the bank only, the parent and consolidated entities. So I’ll speak to BankAtlantic first.

While we continued to incur losses due to loan provisioning, we are, as both Jarett and Alan mentioned, very pleased with foundational progress on several fronts. First and foremost is the continued stability in BankAtlantic’s capital ratios during the quarter, with our total capital ratio at 11.81%, our tier 1 capital ratio at 9.93%, and our tier 1 common at 9.82%; our core capital ratio, 7.01%, and BankAtlantic’s tangible capital to tangible equity ratio at 7.09%.

This stability in our capital ratios was driven by the continued improvement in core earnings, the impact of the balance sheet deleveraging, as well as the $5 million capital contribution from the parent company. All of these served to materially offset the impact on our regulatory capital ratios of the loan provisioning and then other non-core costs in the quarter.

To summarize, BankAtlantic’s second quarter 2000 net lost was $24.2 million, and that’s compared to a net loss of $40.6 million in the prior quarter. That second quarter loss of $24.2 million is comprised of the core earnings, the core operating earnings of approximately $19 million, and that’s offset by net charge-offs of $26 million, additional loan provisioning on top of that of another $10 million, and then about $7 million in non-core expenses, and I’ll talk about those in a few moments.

Before diving into the earnings, I wanted to speak a little bit more about the deleveraging activities that Jarett noted; that’s certainly been an important part of our strategy in the quarter. Our assets reduced by approximately $300 million or about 5.5% during the second quarter, and that was primarily through routine runoff, routine payments within our purchase mortgage loan portfolio, tax certificate redemptions, as well as the sale of about $40 million in mortgage-backed securities during the quarter.

When you look at our balance sheet at June 30 ‘08, the balance sheet has actually been reduced by about $1.2 billion or approximately 18%. When you combine this asset reduction with the quarter’s growth in deposits that Jarett spoke to, we were able to effectively reduce our borrowings.

We brought our borrowings down by about $291 million in the quarter or 30%. When you compare that to where we were a year ago, our total borrowings have been reduced by $1.15 billion or 63%. That brings our ratio of borrowings to total deposits plus borrowings down to 14% at the end of June ‘09, and that compares to 32% at the end of June ‘08.

So again, very, very pleased with that deleveraging activity in the second quarter. It also served on the deposit growth side as well as the loan pay-downs, to improve BankAtlantic’s loan to deposit ratio. That improved to 102% at the end of June 30, ‘09 compared to 113% at June 30, ‘08.

Jarett spoke to the improvement in the pretax core earnings which were up for the second consecutive quarter to almost $19 million in the second quarter of ‘09. That’s up 16% from the prior quarter and up 97% from the fourth quarter of 2008.

Total revenue compared to the prior quarter was relatively stable. It was down about $1.8 million, even with the decline in the earning assets. Excluding securities gains in the two quarters, total revenue was actually up however, approximately $0.5 million in the second quarter of ‘09.

Breaking the revenue into its components, the second quarter ‘09 net interest income of $40.1 million was down $1.7 million from the prior quarter. That was primarily due to the smaller balance sheet size, offset somewhat by improvement in both the net interest spread and in the net interest margin during the quarter of approximately 10 basis points. That’s really due to a combination of all of the mix shift in the balance sheet in the quarter, including the decline in the average borrowings, the growth in the lower cost deposits.

We also had some runoff of some higher-rate CDs, a little bit higher fixed-rate maturing deposits, which helped to offset the impact of the decline in average the earning assets, as well as a slight uptick in the nonperforming assets during the quarter as well.

Non-interest income was essentially flat over the prior quarter. The second quarter of ‘09, however, included about $2 million in securities gains from the mortgage backed securities sales I mentioned, and that compares to $4.3 million in securities gains in the first quarter of ‘09. So when you back those securities gains out, our non-interest income actually improved about $2.2 million, and that reflected stabilization or slight increases really in all of our major fee categories throughout the second quarter.

Once again, our results really reflect a strong focus on the expenses in the quarter as we continued to realize efficiencies in our operation, with our core non-interest expense down another $4.4 million in the quarter or close to 8%.

For the six month period ended June 30, ‘09 compared to June 30, ‘08, our core expenses are down nearly $22 million, and that’s pretty impressive actually in our opinion. As you look at the size of BankAtlantic’s network, it represents the lowest level of quarterly expense since 2005, while our network has grown sizable since that period.

Included in our total non-interest expense was $7 million in non-core expenses in the second quarter of ‘09, and those include $2.4 million in the FDIC’s special assessment charge, another $1.4 million in debt redemption costs related directly to our deleveraging activities, another $1.8 million related to impairments of properties and leaseholds held for sale and OREO write-downs, and then $1.4 million in tax certificate provisions.

Speaking to credit, during the second quarter of 2009 BankAtlantic’s non-accrual loans increased $24 million to $295 million, and this included residential non-accruals increasing $19 million, consumer increasing $3.8 million, and as was noted, the commercial real estate flat on a net basis quarter-to-quarter.

The net charge-offs at the bank were $25.8 million, reflecting an increase of $3.3 million from the first quarter ‘09, primarily due to an increase in the commercial real estate net charge-offs which were up to $10.5 million versus $5.6 million and the prior quarter. Delinquencies excluding non-accrual loans actually declined at all major portfolios to a total of 1.5% of total loans at the end of June ‘09 versus 2.14% in the prior quarter and 2.54% at December 31, ‘08.

During the second quarter we increased the allowance for loan losses by $10 million, approximately 7%. It now reaches 3.79% of total loans, and that was really driven primarily by the increases in the non-accrual loans and continued elevated delinquencies and net charge-offs, particularly in the residential, consumer and CRE portfolios.

Our second quarter ‘09 loan loss provision of $36 million related approximately 39% to the residential portfolio, 29% to the commercial real estate portfolio, 25% to consumer, and then 7% to all other.

So again, just to pull it all together, BankAtlantic’s net loss for the quarter of $24.2 million was comprised of the improved core earnings at $19 million, reduced by a loan provision of $36 million and then the other non-core expenses of $7 million. Because of that deferred tax asset valuation allowance, there is no tax benefit or provision for the quarter.

A couple of quick notes on the parent company; key second quarter activities included the $5 million capital contribution to BankAtlantic as an ongoing show of the parent company’s support.

The parent results also included an other than temporary impairment of $1.4 million of an investment, and the parent continues to have cash of approximately $16 million, and its workout subs holds the loans and REO of $72 million or $57 million net of specific reserves. The workout sub at the parent company incurred a second quarter ‘09 loan provision of $7.5 million, and that was reported in the parent company results.

To summarize, the consolidated Bancorp net loss of $38.4 million was comprised of BankAtlantic’s net loss of $24.2 million, the workout sub loan provision of $7.5 million, the investment impairment of $1.4 million, and then its ongoing operating costs of about $5.3 million, a large portion of that which represents the net interest expenses related to the trust preferred held at the parent.

Again, because of the full deferred tax asset valuation allowance, there is no tax benefit or provision for the quarter.

Alan Levan

Thank you, Valerie. Operator, before I summarize and close the call, let’s see if there’s any questions in the queue.

Questions-and-Answers Session


(Operator Instructions) Your first question comes from Maclovio Pina - Morningstar Equity.

Maclovio Pina - Morningstar Equity

First of all, I was wondering if you have any update on your TARP application.

Alan Levan

We have no update on that subject. As far as we know, TARP application has never been acted on. So we have no formal notice one way or the other on that subject. We assume we will not be getting TARP, just in light of what we read in the Wall Street Journal and the New York Times in terms of what’s going on in that subject.

Maclovio Pina - Morningstar Equity

So following up on that, although the bank’s capital seems fine with the TCE ratio of about 7.1%, consolidated is a tad low I’d say, below 3%. So in light of this, that some observers would say shortfall, what are your plans for enhancing that, if any?

Alan Levan

First of all, under our current charter, there is no capital requirement per se on a consolidated level. Our focus is the capital at the bank, which we discussed those ratios. With regard to the consolidated numbers, we continually look at those and have internal strategies related to those, but nothing to report at this time.


Your next question comes from Jeff Harralson - KBW.

Jeff Harralson – KBW

I want to ask you guys about your trust preferred that are in pools. Some are in different types of pools, some are standalone. Can you talk about your efforts if any to redeem these out of the pools, and if so, how optimistic you are that this can be done?

Alan Levan

Well, I can only cite you the covenants in the documents. First of all as you all know, we have the absolute right to defer the interest on those trust preferreds for up to five years. That’s something that was inherent in the documents at the time we negotiated them and accepted those trust preferreds.

We’ve elected the option to defer that under the terms of the loan documents. The documents do say however, that at such time as you are in deferral status, you will not pay dividends, and so there really is a prohibition on Bancorp negotiating to purchase those trust preferreds, because under the current documents, they’d all have to be done at exactly the same time, and that’s pretty challenging in light of the different constituencies related to those instruments.

So Jefferson, that’s all we can tell you at this point. It’s really not been a significant focus of BankAtlantic Bancorp at this point. We have plenty of running room on our deferral, and there are no current plans to bring those current or start making payments on those trust preferreds.


Your next question comes from the line of Paul Miller - FBR Capital.

Jessica Halenda - FBR Capital

This is Jessica Halenda from FBR. You mentioned earlier that you expect Florida to lag the country in the recovery. I was wondering if you talk a little bit about when you expect to see peak net charge-offs and peak provisions, and how that would relate to the timing of peak unemployment.

Alan Levan

Well, I think that’s a very good question. I’m not sure that we are the right person, the right company or individuals to ask that question to. Our crystal ball really is formed from things that we read and opinions that we read from others. I don’t know that we have any specific insight into the markets to give you those specific answers.

We can tell you that anecdotally things feel a little better today than they did last quarter or two quarters or three quarters ago. So I think there’s a lot of stress that has left the market and that developers are spending more time looking for capital as opposed to throwing up their hands that there is no capital available for them.

So we are lending, we are seeing selected appearances in the press of others that are getting financing from other sources. So clearly we are seeing some improvements in the market, but when we get to peaks, when our nonperforming loans start to decelerate, we just don’t know the answer to that.

One of the things that Valerie mentioned, which I think is important, is we have one of the healthier loan loss provisions in the market. It would be hard to find another institution that has as healthy a loan provision as we do, and that works two ways as we all know; one, it’s a good safety valve for more losses, but it also ultimately will burn off and reduce and come back into earnings as portfolios get better and the market improves. So I’m not sure we could add any more intelligence to that question.

Jessica Halenda - FBR Capital

Can I ask just one follow-up question; in terms of your loss trend, we saw decelerating growth in your non-accruals and NPAs. Do you think those are early signs of stabilization or how much do you think those are impacted by seasonality?

Alan Levan

I’m not sure I can answer that either. I’m not sure those trends relate to seasonality. The consumer and residential, I would say are so closely tied to unemployment and that’s where that would be. We didn’t talk about it on this call, but BankAtlantic has none of the esoterics; no subprime in the definition of the way we’ve seen it nationally, no negative ARMs, no Alt-A’s, etc.

Our residential portfolio is pretty plain vanilla with good credit scores, and yet we are experiencing delinquencies and nonperforming in that portfolio, which is almost directly tied to unemployment. So it’s obvious, people don’t have jobs, it’s hard to make payments. So I don’t think it’s tied to seasonality.


(Operator Instructions) Your next question comes from [Theodore Kobeleff] - Horwitz & Associates.

Theodore Kobeleff - Horwitz & Associates

Yes. I’ve got several questions for you. You mentioned that you had some security profits that you essentially cashed in this past quarter. I’m wondering how much do you have left over, if any; that’s question one.

Valerie Toalson

Actually that was just $40 million of our overall portfolio of mortgage-backed securities. We’ve got another $650 million in total investment securities on our books. At the end of the quarter, not all that is mortgage-backed, but that was just one piece of our overall investment portfolio.

Theodore Kobeleff - Horwitz & Associates

I’m sure you’re not saying that you’ve got $600 million in continuing profit that can be cashed in.

Valerie Toalson

No. That was the balance sheet size of our total investment portfolio. Our unrealized gains in our investment portfolio at the end of June were approximately $14 million, I believe, in that ballpark.

Theodore Kobeleff - Horwitz & Associates

Then with regard to competition in your area, I’m wondering if you could make any comments on the difference between Commerce and TD.

Jarett Levan

Ted, this is Jarett. First of all, in terms of competition, there’s obviously lots of changes occurring in the marketplace in terms of not only some of the acquisitions and some of the large acquisitions, but also some of the small bank acquisitions. In fact, yesterday there was an announcement of another community bank that’s being acquired by a Spanish bank.

The market is changing dramatically; it’s creating lots of opportunities for our salespeople to go out and not only expand existing relationships, but also attract new relationships that are coming from the other banks, the small and the large banks.

In terms of TD Bank, we see TD Bank in the market. They have I think 15 or 18 locations today. We compete with them like we compete with all the other banks on the street corners.

Theodore Kobeleff - Horwitz & Associates

Then finally, you mentioned that your expense side of the balance sheet had fallen off, and I’m wondering if one were to back out the cost of opening branches, which certainly hasn’t been a large amount recently, whether the numbers would be even or still growing in terms of cost.

Jarett Levan

As Valerie mentioned, we are carrying the cost of 30 new locations that we opened since 2005 and our quarterly expenses are on par with 2005 quarterly expenses. I think it was 2006, we had close to $300 million of core expenses, and based on the second quarter, that run-rate is closer to $210 million, $220 million.

So that includes the carrying cost of those 30 locations, which we started to open in 2005. So our expenses would be lower today than they were in 2005 if it wasn’t for the store expansion program.

Theodore Kobeleff - Horwitz & Associates

Yes, but in 2005, there would have been actually more expenses from your opening of branches, right?

Alan Levan

Well, in 2005 we opened four locations, two in the beginning of the year and two in the second half of the year. So there were some start-up expenses, but there wasn’t a lot of cost related to the new store. Most of our new store expansion kicked off pretty heavily in 2006.


Your next question comes from Peter Carmack - Smith Barney.

Peter Carmack - Smith Barney

Just a follow-up question relating to the first question that came into the Q&A here; with respect to the TARP, the TARP app’s been in for the past couple of quarters and we get questions on it every call, but Alan, you answered it a little bit differently this time, you said no formal notice.

Typical answer there, but then you said that we assume that we won’t get TARP. Now, that’s a little bit of a different comment than what you’ve made historically. Can you elaborate on what’s changed in the last three months to make that change in your commentary?

Alan Levan

We have heard anecdotally, but not in a formal way, but we’ve heard anecdotally that banks that defer trust preferred do not get consideration for TARP. So it’s our understanding that because we are in a deferral status on our trust preferred, that our application for TARP will not be considered.

Now I’m not sure that’s been the position of the regulatory agencies from the beginning, and I’m not totally sure that’s an absolute commentary as relates to the regulatory scheme.

So we’ve never seen that in writing, nor have we in a regulatory manual, nor have we seen formal notification from any regulatory body that that is a true statement, but as we have reported in prior quarters, this has been pretty much a black box for us from the time we filed our application to today and so we just assume based on that anecdotal information that TARP will not be forthcoming.

As a practical matter, the bank has been well-capitalized from the beginning. So it’s still questionable based on all the things that we read in the journals and newspapers that come out, whether the TARP is a good thing or not a good thing. So we’ve not been put to the test to make that determination.

Operator are there any other questions?


There are no further questions.

Alan Levan

Thank you. Let me just summarize with some closing comments. First of all, before I summarize I just want to clear up a misconception.

In the marketplace, as we all know, when newspapers print, it gets carried in lots of different places. There’s a local newspaper here in Florida that reported, based on our earnings, that our lending is down because of some constraints that we have, either as it relates to asset size or capital. I wanted to make the comment that that is not a true statement. That reporter got it wrong.

We are active lenders in all of our categories. We are continuing to seek applications for new loans, and we continue to make new loans and there’s absolutely no issues there whatsoever.

The second of course is that the $5 million that we down streamed from BankAtlantic Bancorp to BankAtlantic really was not an issue relative to capital ratios. The bank continued to be well-capitalized and has continued.

From the beginning in fact, our capital ratios probably are at current levels to where they were before the recession started back to 2008. So any down streaming that we did this quarter, really was not an issue relative to capital, our capital has continued to be well-capitalized.

To summarize again, in terms of where I started and what Jarett and Valerie filled in on, we view this as a very good quarter. Unfortunately it’s clouded by a large loss coming from credit, which we relate to the economy, but I think we and others need to look beyond the credit issues, because at some point in time those credit issues will go away, and you have to look at the core operations of the bank.

Again, we are very pleased to report that virtually all of the core operations and trend lines of the bank are improved. Deposits are at all-time highs, matching the all-time highs that we had in 2007, particularly in low-cost or what we call core deposits. Our leverage is at the lowest levels they’ve been in over a decade, and yet we continue to do lending.

Our core earnings continue to improve, and have seen significant improvements over the last several quarters and continue to improve, and our non-interest expenses are at levels that we haven’t seen since 2005. As Jarett indicated, not only are our non-interest expenses of 2005 levels, but in those numbers we have absorbed all of the increases in expenses that come with opening 30 locations.

Our capital is still well-capitalized and continues to be such, and our margin is improved. Also our loan loss provision is a very healthy number, and perhaps one of the highest that you would find in this region, which just demonstrates a level of conservativeness and cautiousness on our part.

One of the questions was, when will we see the peak in nonperforming loans, and we wish we knew the answer to that, but we don’t. We just have to run our business every day with the assumption that the recession will last longer than we anticipate and be deeper than we would like, and just continue to run our business accordingly.

If you look behind the credit losses, the rest of the story is really pretty interesting, pretty exciting, and we are very pleased about it. We feel very confident that as the market turns, whenever that is, third quarter, fourth quarter or first or second of next year, we will be the beneficiary of an improved balance sheet and income statement, and we will enjoy the reductions of credit losses and the reductions of nonperforming loans just as other banks in the market will experience that as well.

Of course we are a smaller regional bank, what we would call a large community bank, we don’t have the trading profits that are coming from a lot of the national banks that have reported, but if you look at their core numbers and you look at our core numbers, I think we compare very favorably if you take out the trading profit.

So with that, thank you very much for dialing in and we’ll close the call today. Thank you, operator.


Thank you for participating in today’s BankAtlantic Bancorp conference call. You may now disconnect.

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