BankAtlantic Bancorp Inc.’s shares fell to a six-year low Friday after the Fort Lauderdale company reported a $29.6 million third-quarter loss, almost all related to the crumbling Florida real estate market.
Chairman and chief executive Alan B. Levan warned during a Friday conference call that the Florida market “is going to get worse before it gets better.
“I don’t believe that the market has recognized yet or to some extent other lenders recognized the seriousness of this situation,” he said.
BankAtlantic said that, since the second quarter, nonperforming assets increased a whopping 659%, to $165 million. Mr. Levan noted that if the company had reported its earnings on Sept. 30, when the quarter ended, the numbers would have been dramatically different because many borrowers were in good standing at the time but then missed their Oct. 1 payments.
Matt Olney, an analyst at Stephens Inc., said the fact that the asset-quality problem became evident only within the last month “suggests we’re still not at the bottom.”
The suddenness of the trouble does not bode well for other Florida banking companies, he added, noting that two other South Florida companies, Seacoast Banking Corp. of Florida in Stuart and BankUnited Financial Corp. in Coral Gables, had “very ugly” quarters.
“Most of Florida is very concerning to us right now,” he said.
In heavy trading, shares of BankAtlantic closed at $4.72 Friday, down 38.3% from Thursday’s closing price. The company has lost more than 65% of its market value since Jan. 1.
Mr. Olney said the company’s capital seems adequate but is declining.
“I don’t know how many more quarters they can have like this before it will take some kind of capital infusion from an investor or a sale,” he said.
Mr. Levan, who controls the holding company that is BankAtlantic’s largest shareholder, dismissed talk of a sale.
“I would say strategic options are not being considered at this particular time,” he said in the conference call. “This is a time to focus on the issues, solve these problems.”
John Pancari, an analyst at JPMorgan Chase & Co., said that, though the Florida real estate market played a major role in BankAtlantic’s performance, he believes some of the blame could be put on the bank’s “lax underwriting standards.”
Mr. Olney said Florida’s now floundering real estate values spiraled up during the past few years, leading to looser underwriting by many lenders, though “it’s too early to say” whether BankAtlantic was one of them.
Mr. Levan specified three areas within the portfolio where the bank’s loans went south: credits to local developers with prearranged plans to sell to national home builders, loans directly to home builders, and loans to local builders that had no prearranged plans with national builders.
The bank has been making these types of loans for more than 20 years, he said, and “the underwriting for these loans did not become more liberal over the last few years” but remained “reasonably conservative.”
Of the loans with prearranged options to sell to national home builders, five, totaling $81.1 million, were placed on nonaccrual status, and three, totaling $28.7 million, were considered classified assets at the end of the quarter.
Mr. Levan said the national home buyers decided to exercise their contractual options and “walked away” from their deals.
The direct loans to home builders numbered 24, totaling $165.3 million, of which seven, totaling $62 million, were put on nonaccrual status and four, totaling $41.9 million, were placed as classified assets at Sept. 30.
“The national market is pretty much in turmoil,” he said, “and particularly Florida has been recognized as having excess inventory of land where the market just become super-overheated over the last few years.”
In the second category of loans to developers, those lacking an arrangement with a national home builder, the loans did relatively better. Of the 37 loans totaling $218.5 million overall, three totaling $13.2 million were placed on nonaccrual and five totaling $19.7 million were considered classified assets.
Mr. Levan said that, because no national homeowner contract was involved, the underwriting for these loans was more favorable to the bank, the borrowers were stronger, and more equity was required.
Even in situations where a borrower made the Oct. 1 payment, he said, the bank has kept the loan on nonaccrual status because of the uncertainty in the market. “If we get some relief, this portfolio gets better overnight,” Mr. Levan said
Mr. Olney said he expects more trouble for BankAtlantic and other Florida banking companies.
In the quarter, Seacoast’s earnings fell more than 95% from a year earlier, to $285,000, due to a surge in chargeoffs and nonperforming loans. Nonperformers at Sept. 30 more than quadrupled, to $45.9 million.
BankUnited’s net income in its fiscal fourth quarter fell 75%, to $6.4 million, due to unexpected deterioration in its residential real estate portfolio. In early October it said it expected to take an $8 million to $10 million loss provision for the quarter; but when it reported earnings Oct. 23, the provision had roughly doubled, to $19.1 million.
