BankAtlantic Bancorp Inc. is under pressure from analysts to scale back its branch expansion to boost earnings, but its chief executive said the company is committed to its current strategy.
BankAtlantic, in Fort Lauderdale, Fla., last week reported an 86% drop in its third-quarter net income, to $2.3 million, and blamed the decline on a $4.8 million loss at its investment banking subsidiary Ryan Beck & Co., sluggish net growth in low-cost deposits, and increased noninterest expenses.
Some analysts say the poor results underscore that the $6.6 billion-asset BankAtlantic needs to delay its branch expansion and slash its marketing budget - both key components of its plan to increase deposits.
But chairman and CEO Alan Levan remains committed to the plan and said he will tweak the strategy rather than scrap it. Without being specific, he said BankAtlantic was evaluating ways to operate the strategy more efficiently.
"Just keep in mind, this is the same company that has had extraordinary growth in low-cost deposits for the last four years … and it's the same management team," Mr. Levan said Thursday in a conference call with analysts.
"We're just working as fast as we can, and as hard as we can to bring in the results that we expect and, of course, the Street expects," he said. "But it just doesn't happen overnight, without totally abandoning the strategy, which we're not prepared to do."
Analysts who cover BankAtlantic, however, said they are losing confidence in its management team.
"Management's 'trust us' message is not winning over investors and is injuring credibility," Albert Savastano of Janney Montgomery Scott LLC wrote in an Oct. 20 research note.
BankAtlantic "is a fabulous franchise; however, management's credibility is low," Laurie Hunsicker, with Friedman, Billings, Ramsey & Co. Inc., wrote in an Oct. 19 report.
Ms. Hunsicker's report mentioned a Dec. 9, 2005, investor lunch in New York. Mr. Levan said that day, she wrote, that BankAtlantic "expects to see the marketing expenses start to pay off in 'wildly successful growth numbers' during 1Q06 or 2Q06 (which will justify the higher costs) 'or we are going to go back … and cut our expenses back down.' "
"Guess what?" Ms. Hunsicker said in an interview. "We haven't seen" the results "and they're not backing off." Mr. Levan "is seemingly ignorant of what shareholders have been asking for. And I am just an analyst. If I was a shareholder I'd be pretty upset."
BankAtlantic's stock is down about 20% since reaching its 52-week high in mid-April. It was trading at $12.82 late Tuesday.
Mr. Levan did not return phone calls seeking a response to analysts' comments.
But Jefferson Harralson, an analyst at Keefe, Bruyette & Woods Inc., pointed out that management owns roughly $50 million of the company's stock. It has "just as much" interest as "the frustrated investors in bringing the company back to industry-level profitability," he said.
Moreover, Mr. Harralson said, the seasonably weak third quarter, coupled with industrywide changes in funding mix and more competitive rates for certificates of deposit, make it difficult to evaluate the strategy's earnings impact.
"I'm not calling their credibility into question at this time," Mr. Harralson said. "To make a knee-jerk reaction in your most seasonably weak quarter, in a quarter where we saw mass deposit mix change in the entire industry, is not the right thing to do."
"That said, the time to put a critical eye on the strategy is now," Mr. Harralson added.
Ms. Hunsicker, who downgraded the BankAtlantic's stock to "underperform," said in her research note that immediate action is needed or "the stock will trade in a depressed range for the next several years." She wrote it must substantially reduce expenses by putting off branch openings, repurchasing stock, and selling or spinning off Ryan Beck.
BankAtlantic, which has about 80 branches, has opened six branches this year and plans to open 34 more in its home state by the end of 2007. Its expansion plan is largely a response to the $44 billion-asset Commerce Bancorp Inc. of Cherry Hill, N.J., which entered Florida last year and has said it plans to open 150 branches in the state within the next seven years.
Ms. Hunsicker said that BankAtlantic has overreacted. "Commerce has all of seven branches" in Florida, she said.
In July, BankAtlantic postponed an initial public offering for Ryan Beck because of a weakening market for investment banking stocks and the unit's poor second-quarter earnings. In the conference call, Mr. Levan said that though it was unlikely BankAtlantic would come out with an IPO for Ryan Beck within the next two quarters.
