The 55-year-old Ft. Lauderdale, Fla.-based company, that dubs itself "Florida's Most Convenient Bank", emphasizes its reputation for above-average customer service. The bank was one of the first in Florida to offer branches with extended business hours that are open seven days a week, to attract and retain the low-cost deposits that fuel revenues and earnings. The bank has also wooed customers with a 24-hour customer service center, free checking, free online banking and other perks.
At first glance, the company seems troubled. Faced with high expenses due to rapid expansion, a sagging state housing market, rising problem loans, growing advertising expenses, and fierce competition, BankAtlantic has seen its bottom line take a hit. The company has posted losses for two consecutive quarters. In the first quarter of this year BankAtlantic's profits fell 12%, to $5.7 million, or 9 cents a share, due largely to a growing number of problem residential real estate development and construction loans. (In two cases, developers borrowed from BankAtlantic to buy land, with plans to sell lots to homebuilders, but Florida's housing slump caused land sales to slow, creating cash flow problems for the borrowers.) Company executives are not expecting to take large losses on either loan. The bank's non-accrual loans—those 90 days or more delinquent or are no longer accruing interest—rose from $4.4 million at the end of 2006 to $25.7 million by the end of March. The company also took a one-time charge of $2.6 million for laying off 225 of its roughly 3,000 employees in late March.
But despite the rocky patch, there have been some bright spots. BankAtlantic will save about $10 million a year from the layoffs, and expects to see the impact starting in the current quarter. It also reported an after-tax gain of $7.9 million on the February 28 sale of its securities brokerage subsidiary Ryan Beck Holdings to St. Louis-based Stifel Financial Corp. (SF). BankAtlantick has trimmed its advertising expenses, which reached $10.3 million in the fourth quarter of 2006, to an average of $6.4 million a quarter. And, the bank also has initiated a program to reduce back-office expenses at stores (as it calls its branches).
The company's growth strategy relies primarily on new-store expansion (to ultimately increase low-cost deposits and grow its loan portfolio). It currently operates 94 stores, all in Florida. In an effort to stay ahead of the competition, BankAtlantic plans to open a total of 27 branches this year, expanding its base by almost 30%. While the breakneck pace of these expansion efforts will likely pressure the company's earnings in the short term (since most stores don't turn a profit for 12 to 15 months), the revenue growth generated by the new locations should help the bank successfully compete in the long run.
With the third fastest-growing market for banking in the United States, The Sunshine State holds tremendous potential for BankAtlantic. Bankers often say that "every bank wants to be in South Florida." According to the Federal Deposit Insurance Corporation [FDIC], the region, which includes Palm Beach County, Broward County, and Miami-Dade County, is among the largest deposit and loan markets in the state. (The fact that over 1,000 people move to the area each day doesn't hurt either.)
To help bring in business, BankAtlantic has used a high-profile marketing campaign, featuring a large number of TV and radio ads, in a bid to leverage what makes it unique and reinforce as much in the minds of potential customers. Its efforts have resulted in 270,000 new core deposit accounts in 2006, and another 79,000 in the first quarter of 2007. The company has seen double-digit growth in both residential mortgages and small business loans. BankAtlantic is not alone in its quest to cash in on this lucrative market. A record number of new banks (46) opened for business in Florida in 2005 and 2006 (with several out-of-state operators setting up shop as well), trying to gain market share from national behemoths Wachovia Corp. (WB), Bank of America Corp. (BAC), Washington Mutual Inc. (WM) and Regions Financial Corp. (RF), who collectively dominate South Florida's market share.
Banking on the Future
Hank Fishkind, Ph.D., an economist who is considered Florida's top real estate analyst, recently told the Sarasota Herald-Tribune he believes that the downturn in the residential real estate market is over. If that assessment is true, things can only get better for BankAtlantic's residential mortgage business. At the Stephens, Inc. Spring Investment Conference on June 7, Valerie Toalson, Bankatlantic's CFO, told an audience of institutional investors that the market in Florida holds great potential to support the company's growth strategy. "We believe our stock has significant opportunity for the long-term value holder,” Toalson said. According to Tom Brown, CEO of Second Curve Capital, a New York-based $800 million financial services hedge fund who runs Bankstocks.com, BankAtlantic's aggressive growth plans and long, solid history in the community make it a likely future acquisition target in a climate where large national banks continue to snap up strong smaller competitors.
Standard & Poors expects to see BankAtlantic, which has 6.5 billion in assets with equity of $0.50 billion, grow 7.5% this year (and 11.2% next year), as it moves forward with its ambitious expansion. As for stock prices, the 52-week high was $15.00 on June 30, while the 52-week low was $8.80 on June 5, a slide of almost 36%. Friedman Billings Ramsey analyst Gary B. Townsend's price target of $12.00 compares with the stock's $9.25 close on June 8, 2007. Cumulatively, analysts put a 1-year target of $13.05 on shares. Wall Street pundits like the bank's growth prospects and say its shares are undervalued. In April, Friedman Billings Ramsey upgraded the stock from "Market Perform" to "Outperform," while Janney Montgomery elevated the stock to buy from neutral. All things considered, the company is worth keeping an eye on because it appears to be poised for an upturn, and could, at some point, become a prime candidate for a big-bank takeover.
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