BankAtlantic Bancorp, Inc. Q1 2008 Earnings Call Transcript

BankAtlantic Bancorp, Inc. (BBX)

Q1 2008 Earnings Call Transcript

April 29, 2008 11:00 am ET

Executives

Leo Hinkley – SVP and IRO

Alan B. Levan – Chairman and CEO

Jarett S. Levan – President

Valerie C. Toalson – EVP and CFO

Analysts

Al Savastano – Fox-Pitt Kelton

Paul Miller – FBR Capital Markets

Terry McEvoy – Oppenheimer

Jefferson Harrelson – KBW

Craig Weller [ph] – Morgan Keegan

Brian Orie [ph] – Allegheny Capital

Larry Schumacher – Oppenheimer

Presentation

Operator

Good morning. My name is Regina, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BankAtlantic Bancorp First Quarter 2008 Financial Results Conference Call. (Operator instructions) As a reminder, ladies and gentlemen, this conference is being recorded today Tuesday, April 29, 2008. 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

Thank you, Regina, and good morning, everyone. Thank you for joining us at the BankAtlantic Bancorp Teleconference Call and Webcast discussing our financial results for the first quarter of 2008.

Our speakers today will be 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 Jarett, Valerie and Alan, and at the conclusion of the discussion and time permitting, we'll have a question-and-answer period. Copies of the press release issued on Monday, April 28, 2008 are available on the Press Room section of the Web site, bankatlanticbancorp.com. Copies of the quarterly financials and supplemental financials are also available on the Investor Relations section of the BankAtlantic Bancorp Web site 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 [e-mail].

Before beginning our discussion, I would 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 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 other factors identified, reference is also made to other risks and factors detailed in the press release issued yesterday on April 28, 2008, 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. As you can see from reading the release, we've had a very busy quarter, and we believe that we've made significant progress on a number of fronts. I don't have to launch into an economic treatise here. But of course, as you all recognize, we've no control over the economy and particularly in Florida, which has been impacted in the real estate area more than most areas. But what we've done is we've approached the economic issues and the issues hit the Bank reasonably, methodically, addressing three particular areas which I'll describe to you, and some other things that we've done and then turn it over to Jarett and Valerie.

The three areas that we've talked about in the past of course relate to credit, capital in our core operations. So let me just let me take each one of those. We are estimating that this down credit cycle will last somewhere between another four and six quarters. That'll take us to the first quarter of '09 or the middle of '09. Of course, nobody's got that crystal ball. But we are working our credit issues very aggressively.

We do see the market currently continuing to deteriorate, and so we are just dealing with these credits and particularly the non-performing credits, as we recognize them. We are being very aggressive in working through these issues, as well as trying to put some creativity into it as well. As you know, we announced earlier in the month that we had created what we’re calling a workout subsidiary at the holding company. We took approximately $100 million of non-accruals from BankAtlantic and placed them in a fully owned subsidiary of BankAtlantic Bancorp holding company. And in exchange for those non-performing loans, we sent down $100 million, Valerie will give you the exact details of that, in cash down to BankAtlantic Bancorp.

Of course, what you don't see in our numbers yet is the benefits from the earnings of that cash as opposed to the non-earnings from the non-accruals, and we'll start to see that in subsequent quarters. It was a very busy quarter on the credit front. We sold some of our non-performing loans. We put a number of new non-performing loans into that status, and we wrote down a number of loans as well during the quarter.

The net-net result of all of that activity in the credit is that our non-performing loans overall for the company are down, and particularly at the Bank, which is where we continue to focus on capital, they are down at the Bank very, very substantially because of the movement from those non-performing loans from the Bank up to the holding company.

The second area I want to address is capital. Obviously, we are very focused on capital. After all of this movement in the first quarter, we continue to remain well-capitalized. And as you know, also we filed a shelf registration last week, a Form F-3. While we don't have any current plans to use that shelf, we wanted to make sure that we had an active and clear the registration from the SEC, so then in the event either an opportunity arose for us to raise capital or that we thought it would be prudent to raise capital, we would be able to do that.

The movement of $100 million in cash from BankAtlantic Bancorp's banks down to BankAtlantic, of course, does quite a bit on the positive side for capital as well. It reduces the non-accruals of the Bank very substantially and really gives us what we believe to be a number of quarters of breathing room, where we would continue to be well capitalized. So here again on the capital front, we are pleased as to where we are currently.

The third area is in core operations. Again here, we are pleased with our progress. We had said number of times over the last few quarters that we believe that we will emerge from this credit cycle, as we have in the last two down credit cycles. We will emerge a stronger and more profitable company, and we believe that we are continuing to make a good deal of progress in that regard. Jarrett's going to talk about the fact that expenses are down, deposits are up.

We have a pretty good feel for revenue and for margin at this particular time, and we think those trends are neutral to positive in both of those. And as a result, our core earnings quarter over quarter, first quarter to first quarter, as well as linked quarter, those core earnings are dramatically up. And of course, that's a very important focus for us. But as we deal with the credit issues, which will continue to be nagging as long as the economic cycle is down, and we focus on capital, which currently continues to be well-capitalized. The real key is when will this down cycle end, and what will we look like when we come out. And we are pleased at what we are seeing and the results that we are having on our core operating basis. So let me turn it over to Jarrett at this point to talk about more of the specifics.

Jarett S. Levan

Thank you, Alan. I'm going to highlight some of the positive trends that were reflected in the release which I think are important to speak this morning. As reported in the release, operating results from the Bank, pretax earnings before the impact of the loan loss provision was $14.9 million, compared to $2 million in the fourth quarter of '07 and $8.3 million in the first quarter of '07, positive trends coming from growth in core deposits and also coming from our overall commitment to reduction in non-interest expense.

Strong core deposits as reported for the quarter are $107 million in core deposit growth, which is about 5% over the fourth quarter of '07. We opened approximately 62,000 new core deposit accounts, which is an increase of about 9% over the fourth quarter, and these results are despite, as I talked about in the past, the reduction in marketing and advertising over the last several quarters.

Total deposits for the quarter were up about $42 million. The biggest decline in the deposit category was the CD. We are still seeing a pricing which we believe is rational and out of market, and it's pricing that we are not going to compete with, and we'll just take what we can get with our current pricing standards.

New stores contributed about 23,000 new core deposit accounts in the quarter and about $50 million growth in core deposits. We have 35 new stores since the inception of the program January of '05, representing about $412 million in total deposits and about $275 million in core deposits. We now have a total of 106 stores in Florida, as I previously announced on the last call and in our last earnings release, we have made a decision to settle our Orlando franchise which represents five stores, and we've reached an agreement with Mercantile Bank, and that transaction should close in June of this year.

Our loan portfolio was relatively flat year over year, which we've expected as we've tightened credit standards, in some cases encouraged run off, and our residential portfolio, which Valerie likely will talk about, is really just a balancing of our overall assets. The biggest decline, as expected was the CRE portfolio. We did see double-digit growth in our small business loan portfolio and loan outstanding. We've got a tremendous focus on building relationship on the loan side as well as on the deposit side, and we are starting to see the fruits of that labor in this quarter.

A substantial progress, as you obviously or hopefully saw in the press release, we've talked about our commitment to reduction of non-interest expense over the last few quarters. We have almost 10% reduction compared to the first quarter of '07 and about a 9.5% reduction compared to the fourth quarter of '07. We've a company-wide focus on expense reduction. As we reported last quarter, we've identified a senior level manager, who's termed the Expense Czar. He's looking with management under every rock, leaving no stone unturned, and we've made some difficult decisions, but we think important decisions over the last few quarters, some of which we've already discussed, reduction in marketing, slowdown of new stores, consolidation of some back-office operation. And then in December, we reduced our hours slightly for our seven-day banking model.

Despite all these reductions in expenses, we are still committed to our seven-day banking model. It's our brand in the Florida marketplace. We are known as Florida's most convenient bank, and it's important to us to continue to deliver the convenience strategy and customer service standards that we've developed over the years. Despite the operating results, which we are very pleased with, we cannot and will not lose focus on the credit issues. But as Alan mentioned, we are committed to emerging from this credit cycle a stronger organization, and I believe we are on the right track. Valerie?

Valerie C. Toalson

Thanks, Jarrett. The supplemental financial tables that are published on our Web site really lay out pretty clearly the financial results of the Bank, the parent, and then the consolidated entities. So, I'm going to focus my comments on perhaps some areas where a little bit of clarity may be helpful. I'll discuss the parent results first, and then the Bank.

Included in the parent company results, there's a securities pre-tax loss of $5.1 million in the quarter, and this loss was really driven by two key items. The first one, most significantly is a one time $4.7 million pre-tax loss related to our sale of the 2.1 million shares of Stifel Financial common stock in the quarter. That transaction did generate over $82 million in net proceeds.

The second item in that is the $1.9 million loss of the quarterly valuation of the Stifel warrants that we received in the Stifel, Ryan Beck transaction in the first quarter. Those two items materially make up that $5.1 million item in the parent company. Additionally, in discontinued operations this quarter, we reflected $1.7 million pre-tax gain. This is related to the first year's portion of the investment banking contingent earn-out that was based on the first year's performance following the sale of Ryan Beck.

For the Bank, again just reiterating Alan's and Jarett's comments, it really reflects key areas of focus for us, a continuing credit focus, ensuring a strong capital foundation and improving the operating profitability of the core bank. Regarding credit, this quarter's loan charge-offs at $47.2 million to get us detailed by loan portfolio in the supplemental financials. About 85% of that comes from commercial real estate, about 10% of that from the consumer portfolio.

On the loan loss provision, the $42.9 million, that was related about 70% to commercial real estate and about 25% to the consumer portfolio. I thought I'd try to clarify for you some of the changes in some of the non-performing loan balances during the quarter. I know it's been a little bit confusing, since we created the workout sub to try to get your arms around that. So if you bear with me, I'll walk you through some of that. I think it's going to be easiest if we start from the consolidated Bancorp total.

So on a consolidated Bancorp basis, non-performing loans decreased by $21.3 million. That decline reflects increases of non-accrual loans of $6.5 million in residential and $1.2 million in consumer, and that's offset by a decrease of $28.6 million in commercial real estate non-accruals. So to further break down the $28.6 million in the commercial real estate non-accruals, this actually includes $48.7 million of new non-accrual loans in the quarter that are reduced by charge-offs of $40.6 million, external sales of $30 million, one transfer to real estate-owned of $1.9 million, and the net pay-downs for another activity of about $4.8 million.

So all of those activities during the quarter nets out to the $28.6 million reduction in the commercial real estate loans on a consolidated basis. At the bank-only level, the decrease in non-performing loans of $122.8 million is simply the $21.3 million on the consolidated basis that I already spoke to, plus the transfer of the $101.5 million in loans to the workout sub. There are a lot of moving parts that matters, we are actively managing through this. So I'll be happy to go through that with you off line or again as necessary.

Speaking specifically to the transfer of the loans to the workout sub, the growth loans prior to charge-offs that we transferred to the workout sub totaled about $115 million. And in the quarter, we reflected close to $14 million of charge-offs on those loans, netting down to the $101.5 million. In addition to those loans, we also transferred over $6.4 million of specific reserves, which when you net all that out gets to the $95.1 million in cash that the parent company paid or that the subsidiary paid for those loans to the Bank.

Moving on to capital, at March 31, after reflecting the impact of this quarter's loss, BankAtlantic's core, Tier 1 and total capital ratios were 6.87, 10.04 and 11.83 respectively; all of which were well in excess of the regulatory well-capitalized thresholds of 5, 6 and 10. In addition, even though we were already well-capitalized, the parent company provided an additional $20 million in capital to the Bank. And as Alan mentioned, we filed a shelf registration for added flexibility there as we go forward into the future.

It's also important to remember that the parent company continues to hold cash and securities of over $56 million that can provide further support to the Bank if necessary. Speaking to core Bank earnings, as previously discussed, obviously the largest single factor that drove the loss in the quarter was the lone provisioning. And aside from this, the results were significantly impacted on a favorable basis by strong expense control.

Compared to the fourth quarter, and backing out restructuring costs, you can refer to it on a more ongoing operating basis, the non-interest expenses declined by $7.2 million dollars or 9.4% with $3 million of that decline in personnel costs and the rest really spread throughout most of the other categories. Compared to the first quarter of '07, and again backing out the restructuring costs, total non-interest expenses declined by $7.5 million with about $6.4 million of that in personnel costs.

Regarding net interest margin and net interest income, the first quarter '08, net interest income of $48 million was up about $700,000 or 1.5% over the fourth quarter of '07, as we saw a 7 basis point improvement in our net interest spread between the quarters. Compared to the first quarter of '07, that net interest income decreased about $4 million due in large part to the additional impact of the non-performing assets during those periods.

Our tax equivalent net interest margin for the quarter was 3.37% down just slightly from 3.41% in the fourth quarter, and down 3.78% from the prior year's first quarter. As I mentioned, a meaningful portion of those declines compared to the first quarter of '07 are directly attributable to the levels of non-performing assets. We estimate that that impact in the first quarter of '08 is $3.8 million or 27 basis points, versus $3.7 million or 26 basis points in the fourth quarter of '07, compared to only $600,000 or 4 basis points in the first quarter of '07.

Period end, the net loans at the Bank were down about $135 million, and that's primarily due to the transfer of the loans to the workout subsidiary. In summary, we are actively managing our credit with lower quarter-end levels of non-accrual loans, both at the Bank and on a consolidated basis. We are well-capitalized, and our attention to improving bank profitability is clearly evidenced by the improvement in the Bank's overall efficiency during the quarter.

Alan B. Levan

Thank you, Valerie. Operator, we are available to take questions at this point.

Question-and-Answer Session

Operator

(Operator instructions) Your first question will be from the line of Al Savastano of Fox-Pitt Kelton

Al Savastano – Fox-Pitt Kelton

Good morning, how are you?

Alan B. Levan

Good morning, Al.

Valerie C. Toalson

Good morning, Al.

Al Savastano – Fox-Pitt Kelton

Could you give us some color on the decision to sell $30 million worth of loans, just that thought process there? And give us some color on the $48.7 million of new CRE non-performing loans, please?

Alan B. Levan

Yes, I'll take a shot at the first part of that and ask Valerie to take a shot at the second part. Selling loans is a fairly dynamic process. Most of the buyers in the marketplace today are vulture funds, or what they are called distressed buyers. And so, going in that dealing with a number of these buyers, it's going to be challenging. For the most part, the loans that we have that are – which are almost exclusively lands are entitled and fully developed. There's no urgency to sell those loans. But where the process of development is more complex, either it's a work-in-process or there's entitlements that are needed to be protected or certain development – we've become motivated to sell those kinds of assets, because for us to set up the operational piece to manage that becomes challenging and complex. And also it's a function of how much new money we have to put into the property to continue to do it. So on these particular loans, it just made sense for us to sell them based on a dynamic modeling and feel that we have for the markets. One of the reasons that we consummated the transfer from the Bank to the holding company of non-accruals or non-performing is because as a holding company, we don't have the capital issues that exist in the Bank. And as a result, you probably will see less sales at the holding company, where we just may take a position to hold some of those assets longer, until the credit markets improve and the efficiency in the markets improve. Valerie, did you have any to add to that?

Valerie C. Toalson

Sure. Al, on the loans, that the additional non-accrual loans there were nine of those. I believe they were all out of the land and land-development acquisition buckets that we've talked about previously. One of those loans was one of the ones that we sold during the quarter, and all the others are part of the group that moved to the workout sub.

Al Savastano – Fox-Pitt Kelton

Thank you.

Alan B. Levan

Thank you.

Operator

(Operator instructions) Your next question will be from the line of Paul Miller, FBR Capital Markets.

Paul Miller – FBR Capital Markets

Yes. I'm not sure, (inaudible) answered this question already, but on the $30 million that you did sell, what was the par value of this loans?

Valerie C. Toalson

We wrote down about a third of the value.

Paul Miller – FBR Capital Markets

A third of the value? So roughly in the $0.65 range?

Valerie C. Toalson

That's approximate, right.

Alan B. Levan

Yes –

Paul Miller – FBR Capital Markets

And then that – go ahead.

Alan B. Levan

And I wouldn’t draw a conclusion there necessarily related to the entire portfolio. When you are selling in this market, it's an extraordinarily inefficient market, and clearly a buyer's market. So we are going to be fairly judicious to what we sell going forward, only because as the credit markets improve, and we think there's a good – there's a general feeling that the liquidity in credit markets will improve above where they are today by the end of the year. Then, we think that we'd be better off holding some of these assets, which is why we've worked hard to make sure that we remain well-capitalized.

Paul Miller – FBR Capital Markets

And then, the loans that you transferred over into the workout sub, it looks like you transferred them right around $0.80 to $0.83 on the dollar. And you said that one of the advantages is that you get to hold these for a longer period of time, it's not so much pressure on your capital. Would the holding company regulators, I guess which would be the Fed, would they, you know if these prices do not recover for like a year to a year and a half, would they eventually make you write that down or they give that – would that be up to you?

Alan B. Levan

Well, I don't think it's a regulatory issue it's really a GAAP issue. And that is we test these assets every single quarter to what we believe to be market value, and we are required under GAAP to do that. And so unless the market deteriorates, then we won't be writing those down. From a regulatory standpoint, we are a savings bank holding company. And as a result, there is no specific capital requirement in the holding company. The capital requirements are in the Bank, which of course as we've talked about, the Bank is well-capitalized. So we believe that by putting these loans in the workout sub, it will allow us to entertain potential joint ventures in the sub, perhaps even selling the sub. But we can deal with these loans in a different way with a different focus than we were dealing with them at the bank level.

Paul Miller – FBR Capital Markets

Yes, thank you very much.

Alan B. Levan

Yes.

Operator

Your next question will from the line of Terry McEvoy of Oppenheimer

Terry McEvoy – Oppenheimer

Good morning.

Alan B. Levan

Good morning.

Terry McEvoy – Oppenheimer

I was wondering if you could talk about the new asset workout group. And will they play a greater role in the company quarter to quarter or is this more of a one-off scenario in the first quarter and that we shouldn't expect a further transfer of assets reserves, et cetera in the coming quarters?

Alan B. Levan

I don't think you can draw that conclusion. No decisions have been made at this point. We are reasonably comfortable today where the non-performing loans are at the Bank after the transfer. We think from the insured institution standpoint that we stand pretty well compared to the peer group in terms of the non-accruals that are on the Bank's books. So with that comment, we are not inclined to transfer any more, but if the non-accruals continue to increase, the non-performing continues to increase at the Bank, or we think that there's a logical reason to transfer, you may see more transfers. So we really look at it as trying continually to show the Bank in the best light, so that its capital is strong, and that the marketplace views the capital as strong. And so, no decisions have been made currently about any other transfers, but you may see more transfers. You really shouldn't read anything into that, other than the fact that we just feel that that may be a good thing to do at the time.

Terry McEvoy – Oppenheimer

Within the press release, it seems like you are a little bit more upbeat about the future performance of the purchase residential loans as opposed to the consumer loans where you talk about elevated levels of delinquencies and charge-offs. What's the difference there in your outlook between those two portfolios?

Jarett S. Levan

This is Jarett. The difference is that the residential portfolio over time has performed quite well. And generally, in this first mortgage portfolio, if we have to foreclose, there's a time to sell. And the difference in this cycle is that it’s taking longer to dispose of the real estate for our borrowers, and then if we have to take the loan back. On the consumer side, it's more challenging in this market because it depends on value, depends on the change in value of the second mortgage, it depends how much is left on the first mortgage, and where we stand in that position. But we feel pretty good in first position on the residential portfolio at 70% or so LTV.

Terry McEvoy – Oppenheimer

Thank you very much.

Operator

Your next question will be from the line if Jefferson Harrelson of KBW.

Jefferson Harrelson – KBW

Thanks. I want to follow up on the loan sale question. You guys mentioned, I think the value was $0.65 on the dollar. It seems like from reading the text, it was $0.65 maybe on the NPA, but that NPA could have been marked down before? So within that context, it's a $0.65 on the dollar of the dollar amount had they marked down as an NPA or what was the amount that had already been marked down before you sold it for $30 million?

Valerie C. Toalson

Yes, on these loans specifically there were not prior charge-offs.

Jefferson Harrelson – KBW

Okay.

Valerie C. Toalson

But there was an original differential between the loan-to-value that these loans would have been made at obviously to their underlying collateral, but there was no specific charge-offs on these loans prior to the sale.

Alan B. Levan

As you all know, there's a real accounting issue here relative to how you deal with the mark-to-market on these loans. No buyer in today's market is going to offer more than $0.20, $0.30, $0.50 on the dollar, in this case $0.65 on the dollar for loans. And there's a constant push-pull here as to what the real value of these loans are. If you are looking to sell them, they are going to be a whole lot worse, whole lot less than if you are just looking to hold them, because in an inefficient market, that's what happens. So with our capital where it is, we are going to be cautious about what we put up for sale and what we liquidate in this market.

Jefferson Harrelson – KBW

It seems like doesn’t $0.65 in that context seem like a really rich price for the land loans that were the most untitled and the most (inaudible) furthest away from being ready for distribution? It seemed like a really good price for that.

Alan B. Levan

Actually, I would argue the other. I would argue it’s not a very good price. But we had specific reasons for wanting to sell those particular loans. I mean, if we go back to the underwriting of these loans, we believe that these loans were for the most part well located, well underwritten. The loan-to-values at the time we made those loans were appropriate. We didn't make 100% loans. So 65% is off the loan amount but probably I don't know 50%, 45% of the original value of that property. So the biggest issue that investors have in valuing whether our stock should be selling at 3 or book value is use our loan portfolio properly valued to the marketplace. And one of the things that we've done from the third quarter of last year is we have really worked with a fine pencil to make sure that we are out front, and in many cases pioneer in the banking arena down here of putting these loans on non-accrual and writing them down where appropriate. But it is a very, very dynamic market and it changes every day.

Jefferson Harrelson – KBW

Right. And for my last follow-up, how do you guys think about your holding company leverage? Is there a limit to the holding company leverage or should we just look at the corporate, tangible equity ratio or how do you think about the holding company's ability to put more capital into the Bank if needed or to borrow money, and what ratios can you point us to think about the limits of holding company leverage?

Alan B. Levan

Yes, I'm not sure that I can give you guidance on that. And I'm not sure that I want to be quoted on what our thinking is on that. The $100 million that we transferred up to the holding company is unencumbered. We've got a great measure of comfort in that, as well as the other liquidity that we have in the holding company. So we can give you the fact pattern of what we hold up in the holding company, and you can draw your own conclusion as to what our appropriate levels are. Our specific focus in the last several quarters is making sure the bank looks as pristine as we can make it look in this environment, making sure that it's well-capitalized. Anybody that runs comparables of non-performing loans and capital at peer banks, we think at this point, we would show very, very well. And we'll deal with the non-performing and the holding company totally as a separate activity.

Jefferson Harrelson – KBW

All right, thanks a lot.

Operator

(Operator instructions) Your next question will be from the line of Bob Patton of Morgan Keegan.

Craig Weller – Morgan Keegan

Hi, guys, thanks for taking the call. This is actually Craig Weller [ph] on behalf of Bob Patton. We are just trying to get a sense of how often you guys update your appraisal values, particularly on your non-performers (inaudible) refresh of FICO and LTV scores? Thanks.

Valerie C. Toalson

Yes, hey, Bob, this is Valerie. It really varies. However, I'll say that it's pretty frequent on the commercial and commercial real estate side, absent anything specifically that calls us to get an appraisal. We'll be doing those updates at least every six months or so. And like I said, there may be other activities that are calling on us to do those things more frequently. On the consumer side we update the FICO scores, the Beacon scores there are updated every quarter, as well as we just did a refresh of all the values. And so that's something that obviously in the economic cycle that we are in, we are doing much more frequently than perhaps you would do several years ago. So it's a pretty ongoing process for us right now and will be as we continue through the cycle.

Craig Weller – Morgan Keegan

Okay.

Alan B. Levan

And obviously we are stress-testing each of these portfolios for what we know based on new information that's constantly generated to see how that impacts the capital going forward.

Craig Weller – Morgan Keegan

Okay. Thanks. And I guess, in terms of what you hint at with events that might come up and one day see retake an appraisal on a property. Are we talking about once something moves under non-performing or hits a certain amount past-due, can you give us any sense for that?

Valerie C. Toalson

Again, it's going to really depend on a loan-by-loan basis. If things are in certain loan categories, it's going to trigger to ensure that we get more frequent updates and so forth. If there's other adverse information from the borrower, then even if it doesn't necessarily meet the guideline, we'll jump in and do a reassessment of value.

Craig Weller – Morgan Keegan

Okay. Great. Thank you.

Alan B. Levan

Thank you, Craig.

Operator

Your next question will be from the line of Brian Orie [ph] of Allegheny Capital.

Brian Orie – Allegheny Capital

Hi. Can you give us a sense as to what percent of your home equity loans are on properties with greater than 90% loan to value?

Alan B. Levan

Brian, I’m not sure we have that information with us.

Brian Orie – Allegheny Capital

Okay.

Valerie C. Toalson

We have that information with us. There is about 20% of that portfolio that is first mortgage, that I think is important to understand as well.

Brian Orie – Allegheny Capital

Okay. And are they all located in Florida, those loans?

Alan B. Levan

Yes, they are. Those loans are all originated in our branches.

Brian Orie – Allegheny Capital

Okay. Do you have some kind of an estimate of what it's going to cost you to carry the loans that were transferred to the holding company in terms of property taxes and other things? Annually, what you think the cost of carrying those loans is?

Alan B. Levan

Don't have that information.

Valerie C. Toalson

As far as the actual loans, there's really only the servicing aspect surrounding that. As any of those loans move into real estate-owned, then there could be additional costs associated with that. But again, it wouldn't be anticipated to be significant.

Brian Orie – Allegheny Capital

Okay. And then I think you mentioned that the holding company had moved $20 million to the bank level. Can you just help us understand the thinking behind that, and what motivated that decision?

Alan B. Levan

That was just motivated by – we recognized we were going to take a loss this quarter. We just wanted to downstream the cash, just so that there was no question. Again, a lot of what the marketplace looks at today is a uptick [ph]. We feel pretty good about where we are, and the fact that our capital is where it is, but different people have different opinions. So we had the cash in the holding company, we just decided to downstream it in light of the loss that we took. Then going back to your question on the carrying costs, generally the taxes on vacant land will run about 1% to 2% of value. So if it's $100 million, it'll cost $1 million to $2 million in real estate taxes, that if we owned the real estate. From a servicing standpoint, these nonaccruals are pretty much in some state of workout or litigation. So, you got really the legal fees that are probably over time more significant than any of the other costs.

Brian Orie – Allegheny Capital

Okay. Just one follow-up on the funds that were sent down to the Bank, did your conversations with the regulators have informed that decision to any meaningful degree?

Alan B. Levan

I'm sorry, would you ask that question again?

Brian Orie – Allegheny Capital

Sure. On the $20 million that you sent down to the Bank from the holding company, to what extent did your conversations with the regulators motivate or inform that decision?

Alan B. Levan

It’s unrelated.

Brian Orie – Allegheny Capital

Okay.

Alan B. Levan

It’s unrelated. The decision to move down $20 million was an internal decision. Obviously we informed the regulators. They are always happy to see capital being infused into the Bank. But there was no request from the regulators to do that.

Brian Orie – Allegheny Capital

Okay. Thank you.

Operator

Our last question will be from Larry Schumacher of Oppenheimer.

Larry Schumacher – Oppenheimer

Hi, guys. Can you quantify your exposure toward the new South Florida, Miami condo market? Is there a way to do that?

Alan B. Levan

Quantify our exposure?

Larry Schumacher – Oppenheimer

Yes.

Alan B. Levan

Well, we previously have always been a large condo lender to the developers building condos on a construction basis, where, with appropriate presales, we would fund the construction money. About three years ago, we decided to exit that market. So I'd say generally, we have virtually no exposure to the vertical construction of condos today in the marketplace. We may have some town house projects. We may have some land that’s related to condos. But we have no exposure to the South Florida condo market on a vertical basis.

Larry Schumacher – Oppenheimer

So in the second and third quarter even fourth quarter you don't have any large project exposure down in Miami?

Alan B. Levan

No, we have nothing like that. And in fact, when you look at our – we reported this last quarter, I'm not sure that I have got the numbers at the tip of my fingers, maybe Valerie does. But we virtually other than what we’ve already put on non-performing, we virtually have very, very few loans at all that are over $15 million or $20 million. Most of them are in the $5 million to $15 million range. For that Valerie is shaking her head, so that may not be totally correct. What?

Valerie C. Toalson

For this, I think I don't have the detail for that with me right now.

Alan B. Levan

Okay.

Larry Schumacher – Oppenheimer

And just a minor follow-up, would the WCI Communities – is there exposure there and can you quantify that?

Alan B. Levan

Well, there's no exposure to us. I don't know what their exposure is, but we have no exposure to WCI.

Larry Schumacher – Oppenheimer

Thanks, guys.

Alan B. Levan

WCI has never been a borrower of BankAtlantic.

Larry Schumacher – Oppenheimer

But what about projects they are building, lending to buyers?

Alan B. Levan

To my knowledge, we have no exposure to WCI directly or indirectly. I mean, there may be a borrower somewhere that does business with WCI, but not to our knowledge.

Larry Schumacher – Oppenheimer

Thanks.

Alan B. Levan

So thank you, operator. We'll go to closing comments at this point. And let me just come back to my earlier focus in the summary that I talked about related to credit capital and core operations. We've indicated where we stand on a capital basis. We've always been well-capitalized, we remain well-capitalized. And we moved the assets to the workout subsidiary, one, so that we could pay special attention to those assets outside the Bank, but also from an optic standpoint, the Bank looks much better without those non-performing loans within its regulatory compliance. From a credit standpoint, we are going to go with the punches that are dealt with in this economy. But we are working hard at it. We've got good handles on our portfolios. We can't tell you that we won't produce new non-performing loans over the next few quarters. It's just casualties of the marketplace. But we are on top of it and working pretty hard. From the core operating standpoint, I would encourage those of you that are invested in the Bank, or that are thinking of investing in the Bank that you really spend some time looking at the progress that we are making on the core operating numbers. There is no logical reason that we are trading at this discount to book value other than the fact that the marketplace is very concerned about Florida, and our position in Florida, our lending in Florida and as to whether our book value is a real book value or not. And so as a result, investors have chosen to discount our book value. But I think it's pretty clear, and as we've seen in the prior two down cycles, over the last 20, 25 years, that when the credit cycle is over, and it's back to the operating performances of the Bank and the peer group, that the banks and we particularly will be trading back to closer to book value, at book value or over book value. And the indicator of that will be the core operating performance of the Bank in terms of how are we are generating our income relative to deposit growth, expense reductions and revenue. And we are very focused on that, as Jarett went through it. We are making lots and lots of progress in that regard. And if the past is any indicator, in the past we came shooting out of the market when the all-clear signal was given on the credit front. So we are hopeful that that will be the case this time as well. So thanks for dialing in this morning. And if you have got anything else for us, you can just give us a call off line. Thank you.

Operator

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

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