-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G1AWD0gfs1igrRLQeR2cwwnLj89ZXpFo/Ckz43duKVhsJbYNPnTiCV6RWkqTF3Ye HCC3sMuXUqmA1IjIv0OJ3w== 0000931763-01-500666.txt : 20010516 0000931763-01-500666.hdr.sgml : 20010516 ACCESSION NUMBER: 0000931763-01-500666 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL BANCGROUP INC CENTRAL INDEX KEY: 0000092339 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630661573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13508 FILM NUMBER: 1636900 BUSINESS ADDRESS: STREET 1: ONE COMMERCE ST STE 800 STREET 2: P O BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36104 BUSINESS PHONE: 3342405000 MAIL ADDRESS: STREET 1: ONE COMMERCE STREET STE 800 STREET 2: PO BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHLAND BANCORPORATION DATE OF NAME CHANGE: 19820205 10-Q 1 d10q.txt FORM 10-Q PERIOD ENDING 03/31/2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2001 COMMISSION FILE NUMBER 1-13508 THE COLONIAL BANCGROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 63-0661573 - ------------------------------------------ ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Commerce Street Montgomery, Alabama 36104 --------------------------------------- (Address of principle executive offices) (334) 240-5000 -------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at April 30, 2001 - ------------------------------------------ --------------------------------- Common Stock, $2.50 Par Value 110,676,810 THE COLONIAL BANCGROUP, INC. INDEX
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Condition - March 31, 2001, December 31, 2000 and March 31, 2000 4 Consolidated Statements of Income -Three months ended March 31, 2001 and March 31, 2000 5 Consolidated Statements of Comprehensive Income - Three months ended March 31, 2001 and March 31 2000 6 Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and March 31, 2000 7 Notes to Consolidated Financial Statements - March 31, 2001 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings 28 Item 6. Exhibits and Reports on Form 8-K 29 SIGNATURES 29
2 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This report contains "forward-looking statements" within the meaning of the federal securities laws. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: (i) deposit attrition, customer loss, or revenue loss in the ordinary course of business; (ii) increases in competitive pressure in the banking industry; (iii) changes in the interest rate environment which reduce margins; (iv) general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality, (v) changes which may occur in the regulatory environment; (vi) a significant rate of inflation (deflation); and (vii) changes in the securities markets. When used in this Report, the words "believes," "estimates," "plans," "expects," "should," "may," "might," "outlook," and "anticipates," and similar expressions as they relate to BancGroup (including its subsidiaries), or its management are intended to identify forward-looking statements. 3 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Dollars in thousands, except per share amounts)
March 31, December 31, March 31, 2001 2000 2000 -------------------------------------------- ASSETS: Cash and due from banks $ 290,371 $ 348,891 $ 330,456 Interest-bearing deposits in banks and federal funds sold 7,516 15,855 24,517 Securities available for sale 1,461,208 1,449,386 1,602,881 Investment securities 41,881 44,310 57,246 Mortgage loans held for sale 20,811 9,866 23,291 Loans, net of unearned income 9,879,577 9,416,770 8,550,412 Less: Allowance for possible loan losses (113,613) (107,165) (98,095) -------------------------------------------- Loans, net 9,765,964 9,309,605 8,452,317 Premises and equipment, net 184,588 184,831 189,865 Excess of cost over tangible and identified intangible 93,224 74,393 78,287 assets acquired, net Mortgage servicing rights - - 86,982 Other real estate owned 9,680 8,928 6,391 Accrued interest and other assets 273,794 281,572 370,718 -------------------------------------------- TOTAL ASSETS: $12,149,037 $11,727,637 $11,222,951 ============================================ LIABILITIES AND SHAREHOLDERS EQUITY: Deposits $ 8,274,669 $ 8,143,017 $ 8,129,586 FHLB short-term borrowings 425,000 425,000 350,000 Other short-term borrowings 1,471,356 1,463,328 1,047,134 Subordinated debt 111,865 111,900 112,016 Trust preferred securities 70,000 70,000 70,000 FHLB long-term debt 796,832 547,022 572,364 Other long-term debt 102,325 102,325 134,755 Other liabilities 107,663 108,193 112,131 -------------------------------------------- TOTAL LIABILITIES 11,359,710 10,970,785 10,527,986 -------------------------------------------- SHAREHOLDERS' EQUITY: Preference Stock, $2.50 par value; 1,000,000 shares authorized, none issued -- -- -- Common Stock, $2.50 par value; 200,000,000 shares authorized; 113,071,807, 113,081,198, and 112,844,273 shares issued at March 31, 2001, December 31, 2000, and March 31, 2000, respectively 282,680 282,703 282,111 Treasury stock; 2,419,251, 2,773,752, and 1,416,876 at March 31, 2001, December 31, 2000, and March 31, 2000, respectively (22,973) (26,467) (13,104) Additional paid in capital 119,832 118,600 118,298 Retained earnings 405,643 390,442 344,116 Unearned compensation (4,924) (2,541) (3,838) Accumulated other comprehensive income (loss), net of taxes 9,069 (5,885) (32,618) -------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 789,327 756,852 694,965 -------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,149,037 $11,727,637 $11,222,951 ============================================
See Notes to the Unaudited Condensed Consolidated Financial Statements 4 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended March 31, ------------------------------------ 2001 2000 ------------ --------------- INTEREST INCOME: Interest and fees on loans $ 208,469 $ 180,993 Interest and dividends on securities 25,521 26,685 Other interest income 738 503 ------------ --------------- Total interest income 234,728 208,181 ------------ --------------- INTEREST EXPENSE: Interest on deposits 93,431 77,786 Interest on short-term borrowings 23,245 18,771 Interest on long-term debt 18,214 14,305 ------------ --------------- Total interest expense 134,890 110,862 ------------ --------------- NET INTEREST INCOME 99,838 97,319 Provision for possible loan losses 9,464 5,547 ------------ --------------- Net Interest Income After Provision for Possible Loan Losses 90,374 91,772 ------------ --------------- NONINTEREST INCOME: Service charges on deposit accounts 9,286 9,274 Wealth management 2,242 2,561 Electronic banking 1,531 1,282 Mortgage origination 1,613 1,196 Securities gains (losses), net 1,143 8 Other income 4,635 4,126 ------------ --------------- Total noninterest income 20,450 18,447 ------------ --------------- NONINTEREST EXPENSE: Salaries and employee benefits 33,911 30,852 Occupancy expense of bank premises, net 8,085 7,301 Furniture and equipment expenses 7,158 6,980 Amortization of intangibles 1,631 1,302 Other expense 15,599 15,683 ------------ --------------- Total noninterest expense 66,384 62,118 ------------ --------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 44,440 48,101 Applicable income taxes 15,998 17,568 ------------ --------------- INCOME FROM CONTINUING OPERATIONS 28,442 30,533 DISCONTINUED OPERATIONS: Income/(Loss) from discontinued operations, net of income taxes of $0 and ($358) for the three months ended March 31, 2001 and 2000 - (592) ------------ --------------- NET INCOME $ 28,442 $ 29,941 ============ =============== EARNINGS PER SHARE: INCOME FROM CONTINUING OPERATIONS: Basic $ 0.26 $ 0.27 Diluted $ 0.26 $ 0.27 NET INCOME Basic $ 0.26 $ 0.27 Diluted $ 0.26 $ 0.27
See Notes to the Unaudited Condensed Consolidated Financial Statements 5 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended March 31, ---------------------------------- 2001 2000 ----------- ---------- Net Income $ 28,442 $ 29,941 OTHER COMPREHENSIVE INCOME, NET OF TAXES: Unrealized gains (losses) on securities available for sale arising during the period, net of taxes 15,686 (3,841) Less: reclassification adjustment for net (gains) losses included in net income (732) (5) ----------- ---------- COMPREHENSIVE INCOME $ 43,396 $ 26,095 =========== ==========
See Notes to the Unaudited Condensed Consolidated Financial Statements 6 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended March 31, ---------------------------------- 2001 2000 ---------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,828 $ 91,950 ---------------------------------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 107,883 46,530 Proceeds from sales of securities available for sale 26,968 15,193 Purchase of securities available for sale (121,806) (181,234) Proceeds from maturities of investment securities 2,228 4,413 Net increase in loans (419,125) (324,200) Cash received in branch acquisition 32,801 -- Capital expenditures (5,318) (5,405) Proceeds from sale of other real estate owned 1,829 1,363 Other, net 24 9 ---------------------------------- NET CASH USED IN INVESTING ACTIVITIES (374,516) (443,331) ---------------------------------- Cash flows from financing activities: Net increase in demand, savings, and time deposits 28,770 161,608 Net increase in federal funds purchased, repurchase agreements and other short-term borrowings 138,026 203,705 Proceeds from issuance of long-term debt 250,000 -- Repayment of long-term debt (130,189) (404) Proceeds from issuance of common stock 3,464 2,834 Purchase of treasury stock -- (17,901) Dividends paid ($0.12 and $0.11 per share for 2001 and 2000, respectively) (13,242) (12,403) ---------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 276,829 337,439 ---------------------------------- Net decrease in cash and cash equivalents (66,859) (13,942) Cash and cash equivalents at beginning of year 364,746 368,915 ---------------------------------- Cash and cash equivalents at March 31 $ 297,887 $ 354,973 ==================================
See Notes to the Unaudited Condensed Consolidated Financial Statements 7 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (Dollars in thousands, except per share amounts)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Three Months Ended March 31, ------------------------------ 2001 2000 ------------------------------ Cash paid during the year for: Interest $145,148 $119,989 Income taxes $ 15,998 14,200 Non-cash investing activities: Transfer of loans to other real estate $ 10,909 $ 2,623 Origination of loans from the sale of other real estate $ 3,085 $ 2,326 Non-cash financing activities: Conversion of subordinated debentures $ 35 $ 32 Reissuance of shares of treasury stock for stock plans $ 3,003 $ 4,797
See Notes to the Unaudited Condensed Consolidated Financial Statements. 8 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A: ACCOUNTING POLICIES The Colonial BancGroup, Inc. and its subsidiaries ("BancGroup" or the "Company") have not changed their accounting and reporting policies from those stated in the 2000 annual report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the audited financial statements and footnotes included in BancGroup's 2000 annual report on Form 10-K. In the opinion of BancGroup, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2001 and 2000 and the results of operations and cash flows for the interim periods ended March 31, 2001 and 2000. All 2001 interim amounts are subject to year-end audit, and the results of operations for the interim period herein are not necessarily indicative of the results of operations to be expected for the year. NOTE B: COMMITMENTS AND CONTINGENCIES BancGroup and its subsidiaries are from time to time defendants in legal actions arising from normal business activities. Management does not anticipate that the ultimate liability arising from litigation outstanding at March 31, 2001 will have a materially adverse effect on BancGroup's financial statements. NOTE C: RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financials Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. 9 Under this Statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. On September 23, 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," an amendment to delay the effective date of SFAS No. 133. The effective date for this statement was delayed from fiscal years beginning after June 15, 1999 to fiscal years beginning after June 15, 2000. BancGroup had no significant derivative position or exposure in 2000 or the first quarter of 2001; therefore, there was no impact as a result of the implementation of SFAS No. 133 and SFAS No. 137. On September 29, 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a Replacement of FASB Statement No. 125." The effective date for this statement is for transfers that occur after April 1, 2001. Management has determined that the implementation of SFAS No. 140 will not have a material impact on BancGroup's financial statements. NOTE D: DISCONTINUED OPERATIONS As noted in prior quarters, in July 2000 the Company decided to exit the mortgage servicing business and discontinue the operations of mortgage servicing as a separate business unit. As of December 31, 2000, all loan transfers were completed and the mortgage servicing rights removed from the Company's balance sheet. In addition, the escrow and custodial deposits related to those servicing rights have been transferred out of Colonial Bank resulting in a $168 million reduction in average noninterest bearing deposits from March 31, 2000 to March 31, 2001. At March 31, 2001, the balance sheet of the Company includes approximately $7.4 million in receivables and other advances related to the various transfers of servicing. These receivable and advance balances represent the expected recoverable amounts once all documentation supporting the transferred loans is provided to the new servicer. The anticipated costs of providing the necessary documents have been accrued. However, due to the volume of loans transferred and the costs and complexity in providing certain documentation, the Company's current estimate of recoverable amounts or costs may be revised for future periods. 10 NOTE E: MORTGAGE SERVICING RIGHTS An analysis of mortgage servicing rights (MSR's) and the related valuation reserve is as follows:
Three Months Ended March 31 ------------------------- 2001 2000 ------------------------- (Dollars in thousands) MORTGAGE SERVICING RIGHTS Balance, January 1 $ - $ 265,888 Additions, net - 920 Sales - (162,380) Scheduled amortization - (8,568) Hedge losses applied - 1,720 ----------- --------- Balance, March 31 - 97,580 ----------- --------- VALUATION RESERVE Balance, January 1 - 27,483 Reductions - (17,185) Additions - 300 ----------- --------- Balance, March 31 - 10,598 ----------- --------- Mortgage Servicing Rights, net $ - $ 86,982 =========== =========
As a result of the previously discussed plan to exit the mortgage servicing business, all hedges related to MSR's were liquidated during the third quarter of 2000. NOTE F: EARNINGS PER SHARE The following table reflects a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation:
(Dollars in thousands, except per share amounts) Three Months Ended March 31, 2001 ------------------------------------------------ Per Share Income Shares Amount ----------- -------------- --------------- Basic EPS Income from continuing operations $28,442 110,502 $0.26 Effect of dilutive securities: Options 352 Convertible debentures 48 585 - ------------------------------------------------------------------------------------------------------------------------------ Diluted EPS $28,490 111,439 $0.26 - ------------------------------------------------------------------------------------------------------------------------------
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(Dollars in thousands, except per share amounts) Three Months Ended March 31, 2000 ------------------------------------- Per Share Income Shares Amount ------------- -------------- --------------- Basic EPS Income from continuing operations $30,533 111,948 $0.27 Effect of dilutive securities Options 255 Convertible debentures 46 608 ---------------------------------------------------------------------------------------------------------- Diluted EPS $30,579 112,811 $0.27 ----------------------------------------------------------------------------------------------------------
NOTE G: SEGMENT INFORMATION Through its wholly owned subsidiary Colonial Bank, BancGroup has previously segmented its operations into two distinct lines of business: Commercial Banking and Mortgage Banking (which has been discontinued as a line of business effective July 2000). Colonial Bank operates 239 branches throughout six states. Operating results and asset levels of the two segments reflect those which are specifically identifiable or which are based on an internal allocation method. The two segments are designed around BancGroup's organizational and management structure and while the assignments and allocations have been consistently applied for all periods presented, the results are not necessarily comparable to similar information published by other financial institutions. The following table reflects the approximate amounts of consolidated revenues, expense, and assets for the quarters ended March 31, for each segment (Dollars in thousands):
Discontinued Continuing Operations Operations ------------------------------------------------------ QUARTER ENDED MARCH 31, 2001 Commercial Corporate Mortgage Consolidated Banking Other* Totals Banking BancGroup -------------------------------------------------------------------- Net interest income $ 101,652 $ (1,814) $ 99,838 -- $ 99,838 Provision for possible loan losses 9,464 -- 9,464 -- 9,464 Noninterest income 20,458 (8) 20,450 -- 20,450 Depreciation and Amortization 8,108 (109) 7,999 -- 7,999 Noninterest expense 57,173 1,212 58,385 -- 58,385 -------------------------------------------------------------------- Income from continuing Operations before income taxes 47,365 (2,925) 44,440 -- 44,440 Applicable income taxes 16,813 (815) 15,998 -- 15,998 -------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 30,552 (2,110) 28,442 -- 28,442 Income (Loss) from Discontinued Operations and loss on disposal (net of taxes) -- -- -- -- -- -------------------------------------------------------------------- NET INCOME $ 30,552 $ (2,110) $ 28,442 -- $ 28,442 --------------------------------------------------------------------
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Discontinued Continuing Operations Operations ------------------------------------------------ QUARTER ENDED MARCH 31, 2000 Commercial Corporate Mortgage Consolidated Banking Other* Total Banking BancGroup --------------------------------------------------------------- Net interest income $98,987 $(1,668) $97,319 $ -- $97,319 Provision for possible loan losses 5,547 -- 5,547 -- 5,547 Noninterest income 18,455 (8) 18,447 -- 18,447 Depreciation and Amortization 8,010 (102) 7,908 -- 7,908 Noninterest expense 53,129 1,081 54,210 -- 54,210 --------------------------------------------------------------- Income from continuing Operations before income 50,756 (2,655) 48,101 -- 48,101 taxes Applicable income taxes 18,283 (715) 17,568 -- 17,568 --------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 32,473 (1,940) 30,533 -- 30,533 Income (Loss) from Discontinued Operations and loss on disposal (net of taxes) -- -- -- (592) (592) --------------------------------------------------------------- NET INCOME $32,473 $(1,940) $30,533 $(592) $29,941 ---------------------------------------------------------------
* Includes elimination's of certain intercompany transactions. NOTE H: BUSINESS ACQUISITIONS AND COMBINATIONS On January 13, 2001, Colonial Bank acquired two branches in Nevada from First Security Bank in a branch divestiture resulting from their merger with Wells Fargo. Through this acquisition, the Company purchased $49.5 million in loans and assumed $102.9 million in deposits at a purchase price of $70.2 million. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF -------------------------------------------------------------------------- OPERATIONS ---------- FINANCIAL CONDITION: Ending balances of total assets, securities, mortgage loans held for sale, net loans, mortgage servicing rights, deposits, and long term debt changed for the three months and twelve months ended March 31, 2001, respectively, as follows (Dollars in thousands):
December 31, 2000 March 31, 2000 to March 31, 2001 to March 31, 2001 Increase (Decrease) Increase (Decrease) ---------------------------------------------------------------------------- Amount % Amount % ---------------------------------------------------------------------------- Assets: Bank $445,006 3.8% $1,152,405 10.3% Mortgage Banking (23,798) -67.8% (226,518) -95.2% Other 192 1.5% 199 1.6% ---------------------------------------------------------------------------- Total Assets 421,400 3.6% 926,086 8.3% Securities 9,393 0.6% (157,038) -9.5% Mortgage loans held for sale 10,945 110.9% (2,480) -10.7% Loans, net of unearned income 462,807 4.9% 1,329,165 15.6% Mortgage servicing rights -- 0% (86,982) -100.0% Deposits 131,652 1.6% 145,083 1.8% Long-term debt 249,774 30.1% 191,886 21.6%
Assets: BancGroup's total assets have increased 8.3% and 3.6% since March 31, 2000 and December 31, 2000, respectively. This growth resulted primarily from internal loan growth throughout BancGroup's banking regions partially offset by the decline in mortgage banking assets due to the discontinuance of this line of business as discussed in Note D to the consolidated financial statements. Securities: Investment securities and securities available for sale have decreased $157.0 million (-9.5%) and increased $9.4 million (0.6%) from March 31, 2000 and December 31, 2000, respectively. These fluctuations were due to normal business activities. Loans and Mortgage Loans Held for Sale: Loans, net of unearned income, have increased $1.3 billion (15.6%) and $462.8 million (4.9%) from March 31, 2000 and December 31, 2000, respectively. This increase is primarily due to 15% internal loan growth from March 31, 2000 and 18% annualized internal loan growth from December 31, 2000. The Mortgage Warehouse Lending unit, which generates lines of credit secured by single-family residential 14 loans in the process of being sold, contributed $458.7 million and $267.5 million of this growth from March 31, 2000 and December 31, 2000, respectively. Internal loan growth excluding the Mortgage Warehouse Lending Unit was 9% annualized from December 31, 2000 compared to 14% for the full year of 2000. In addition to internal growth, $49.5 million of the increase in loans was the result of the acquisition of two branches in Nevada, as discussed in Note H of the consolidated financial statements.
GROSS LOANS BY CATEGORY March 31, December 31, March 31, (In thousands) 2001 2000 2000 -------------------------------------------------- Commercial, financial, and agricultural $ 1,254,944 $ 1,221,131 $ 1,163,781 Real estate-commercial 3,268,950 3,174,483 2,661,897 Real estate-construction 1,810,132 1,693,958 1,560,371 Real estate-residential 2,541,015 2,562,708 2,566,887 Installment and consumer 263,837 272,124 292,481 Mortgage warehouse lending 644,484 376,995 185,816 Other 96,246 115,413 119,309 -------------------------------------------------- Total Loans $ 9,879,608 $ 9,416,812 $ 8,550,542 ==================================================
Commercial loans collaterialized by real estate and construction loans increased approximately $94.5 million and $116.2 million, respectively from December 31, 2000 and $607.1 million and $249.8 million, respectively, from March 31, 2000. Commercial, financial, and agricultural loans increased $33.8 million and $91.2 million from December 31, 2000 and March 31, 2000, respectively. Mortgage Warehouse Lending's loan growth was due primarily to declines in mortgage interest rates which significantly increased the volume of mortgage loan applications for new and refinanced borrowing. BancGroup's loans are concentrated in various areas in Alabama, the metropolitan Atlanta market in Georgia as well as BancGroup's markets in Florida, Nevada, and Texas. BancGroup does not have a syndicated lending department; however, the Company has commitments (including unfunded amounts) that fall within the regulatory definition of a "shared national credit". These commitments total approximately $460.0 million, up from $193.0 million at December 31, 2000. Substantially all of this increase was attributed to the growth within our Mortgage Warehouse Lending unit. The quality of these credits remains strong, with no credits being adversely rated. Management believes that any existing distribution of loans, whether geographically, by industry, or by borrower, does not expose BancGroup to unacceptable levels of risk. The current distribution of loans remains diverse in location, size, and collateral function. These differences, in addition to our emphasis on quality underwriting, serve to reduce the risk of losses. The following chart reflects the geographic diversity, and industry distribution of Construction and Commercial Real Estate loans as of March 31, 2001. 15 CONSTRUCTION & COMMERCIAL REAL ESTATE GEOGRAPHIC DIVERSITY AND INDUSTRY DISTRIBUTION
Construction Commercial Real Estate -------------- ---------------------- Average Loan Size $ 663,576 $ 407,467 (Dollars in Thousands) Geographic Diversity Alabama $ 235,500 $ 891,159 Georgia 396,181 417,702 Florida 824,392 1,430,050 Texas 154,749 99,973 Nevada 95,699 139,748 Other 63,070 303,347 -------------- ---------------------- Total $1,769,591 $3,281,979
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Industry Distribution % of Industry Distribution to % of Industry Distribution to ------------------------------ ----------------------------- Construction Total Commercial Real Total Portfolio Portfolio Estate Portfolio Portfolio ------------- ---------- ---------------- --------- Residential 29% 5% Retail 17% 6% Developments 21% 4% Office 17% 6% Multi-Family 10% 2% Lodging 11% 3% Condominium 9% 2% Multi-Family 10% 3% Office 7% 1% Land Only 7% 2% Retail 6% 1% Warehouse 6% 2% Other (13 types) 18% 3% Other (11 types) 32% 11% ------------- ---------- ---------------- --------- Total Commercial Real Total Construction 100% 18% Estate 100% 33% ------------- ---------- ---------------- ---------
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Characteristics of the 75 Largest Loans Construction Commercial Real Estate ------------ ---------------------- 75 Largest Loans Total $ 800,685 $ 678,924 % of 75 largest loans to category total 44.7% 20.7% Average Loan to Value Ratio (75 largest loans) 71% 69% Debt Coverage Ratio (75 largest loans) N/A 1.35x
- -------------------------------------------------------------------------------- Substantially all Construction and Commercial Real Estate loans have personal guarantees of the borrower. Owner occupied Commercial Real Estate portfolio totals represented 30% of the total Commercial Real Estate portfolio at March 31, 2001. 16 ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES Allocations of the allowance for possible loan losses are made on an individual loan basis for all identified potential problem loans with a percentage allocation for the remaining portfolio. The allocation of the remaining allowance represents an approximation of the reserves for each category of loans based on management's evaluation of the respective historical charge-off experience and risk within each loan type.
Percent of Percent of Percent of March 31, Loans to December 31, Loans to March 31, Loans to (Dollars In thousands) 2001 Total Loans 2000 Total Loans 2000 Total Loans ----------------------------------------------------------------------------- Commercial, financial, and agricultural $ 32,503 12.7% $ 27,861 13.0% $ 26,647 13.6% Real estate-commercial 44,909 33.1% 43,843 33.7% 34,146 31.1% Real estate-construction 15,344 18.3% 15,909 18.0% 16,804 18.3% Real estate-mortgage 12,705 25.7% 12,814 27.2% 12,835 30.0% Installment and consumer 2,514 2.7% 2,927 2.9% 3,840 3.4% Mortgage warehouse lending 1,611 6.6% 942 4.0% 465 2.2% Other 4,027 0.9% 2,869 1.2% 3,358 1.4% ----------------------------------------------------------------------------- TOTAL $113,613 100.0% $107,165 100.0% $ 98,095 100.0% =============================================================================
SUMMARY OF LOAN LOSS EXPERIENCE
March 31, December 31, March 31, (Dollars In thousands) 2001 2000 2000 ---------------------------------------------- Allowance for possible loan losses - January 1 $ 107,165 $ 95,993 $ 95,993 Charge-offs: Commercial, financial, and agricultural 2,737 10,493 1,982 Real estate-commercial 201 3,240 571 Real estate-construction 45 529 37 Real estate-residential 652 3,260 601 Installment and consumer 839 4,345 1,072 Other 173 1,119 272 ---------------------------------------------- Total charge-offs 4,647 22,986 4,535 ---------------------------------------------- Recoveries: Commercial, financial, and agricultural 115 1,210 325 Real estate-commercial 191 627 129 Real estate-construction 7 62 1 Real estate-residential 194 440 88 Installment and consumer 497 1,856 422 Other 60 283 125 ---------------------------------------------- Total recoveries 1,064 4,478 1,090 ==============================================
17
March 31, December 31, March 31, 2001 2000 2000 ----------------------------------------------- Net charge-offs 3,583 18,508 3,445 Addition to allowance for branch acquisition 567 - - Addition to allowance charged to operating expense 9,464 29,680 5,547 ----------------------------------------------- Allowance for possible loan losses-end of period $ 113,613 $ 107,165 $ 98,095 ===============================================
Nonperforming assets were 0.53% of net loans and other real estate at March 31, 2001. Nonperforming assets have increased $1.3 million from December 31, 2000. The increase in nonperforming assets primarily resulted from a $585,000 increase in nonaccrual loans and a $752,000 increase in other real estate. Management continuously monitors and evaluates recoverability of problem assets and adjusts loan loss reserves accordingly. Loan loss reserve is 1.15% of loans at March 31, 2001 and 1.14% at December 31, 2000 compared to 1.15% at March 31, 2000. NONPERFORMING ASSETS ARE SUMMARIZED BELOW
March 31, December 31, March 31, (Dollars In thousands) 2001 2000 2000 ----------------------------------------------- Nonaccrual loans $ 41,209 $ 40,624 $ 34,937 Restructured loans 1,147 1,161 1,252 ----------------------------------------------- Total nonperforming loans * 42,356 41,785 36,189 Other real estate owned and in substance foreclosures 9,680 8,928 6,391 ----------------------------------------------- Total nonperforming assets * $ 52,036 $ 50,713 $ 42,580 =============================================== Aggregate loans contractually past due 90 days $ 16,739 $ 9,841 $ 12,693 for which interest is being accrued Net charge-offs year-to-date $ 3,583 $ 18,508 $ 3,445 RATIOS PERIOD END: Total nonperforming assets as a percent of net loans and other real estate 0.53% 0.54% 0.50% Allowance as a percent of net loans 1.15% 1.14% 1.15% Allowance as a percent of nonperforming assets * 218% 211% 230% Allowance as a percent of nonperforming loans * 268% 256% 271% FOR THE PERIOD ENDED: Net charge-offs as a percent of average net loans - (annualized basis): Quarter to date 0.15% 0.21% 0.16%
* Does not include loans contractually past due 90 days or more which are still accruing interest. 18 Management, through its loan officers internal credit review staff, and external examinations by regulatory agencies, has identified approximately $194.9 million of potential problem loans not included above. The status of these loans is reviewed at least quarterly by loan officers and annually by BancGroup's centralized credit review function and by regulatory agencies. In connection with such reviews, collateral values are updated where considered necessary. If collateral values are judged insufficient or other sources of repayment inadequate, the loans are reduced to estimated recoverable amounts through increases in reserves allocated to the loans or charge-offs. As of March 31, 2001, substantially all of these loans are current with their existing repayment terms. Management believes that classification of such loans as potential problem loans well in advance of their reaching a delinquent status allows the Company the greatest flexibility in correcting problems and providing adequate reserves. Given the reserves and the ability of the borrowers to comply with the existing repayment terms, management believes any exposure from these potential problem loans has been adequately addressed at the present time. Management does expect nonperforming assets and net charge-offs to increase in the near term over the balances recorded as of March 31, 2001. However, nonperforming assets to total loans is not expected to exceed 0.75% and net charge-offs to average loans is not expected to exceed 0.25% for the year. The above nonperforming loans and potential problem loans represent all material credits for which management has serious doubts as to the ability of the borrowers to comply with the loan repayment terms. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. The recorded investment in impaired loans at March 31, 2001 was $36.5 million and these loans had a corresponding valuation allowance of $15.7 million. LIQUIDITY: BancGroup has addressed its liquidity and interest rate sensitivity through its policies and structure for asset/liability management. It has created the Asset/Liability Management Committee ("ALMCO"), the objective of which is to optimize the net interest margin while assuming reasonable business risks. ALMCO annually establishes operating constraints for critical elements of BancGroup's business, such as liquidity and interest rate sensitivity. ALMCO constantly monitors performance and takes action in order to meet its objectives. A prominent focus of ALMCO is maintaining adequate liquidity. Liquidity is the ability of an organization to meet its financial commitments and obligations on a timely basis. These commitments and obligations include credit needs of customers, withdrawals by depositors, repayment of debt when due and payment of operating expenses and dividends. 19 Core deposit growth is a primary focus of BancGroup's funding and liquidity strategy. Average retail deposits grew at an annualized rate of 10% for the first quarter of 2001 compared to 9% for 2000. This growth continues to be primarily from the Company's high growth markets, with Florida contributing 86% and 69% of the growth in the first quarter of 2001 and in 2000, respectively. Deposit growth will continue to be a primary strategic objective of the Company. In addition to funding growth through core deposits, BancGroup has worked to expand the availability of wholesale funding sources. The following table estimates the total wholesale funding sources that BancGroup believes would be available to it, along with what portion of those sources were used as of March 31, 2001. It should be noted that these are estimates, these funding sources are not guaranteed lines. Estimated Wholesale Funding Sources as of March 31, 2001 $ in millions =============================================================================== Total Outstanding Available - ------------------------------------------------------------------------------- FHLB Advances* $2,230 $1,300 $ 930 Fed Funds lines 1,757 943 814 Brokered Deposits 1,049 449 600 - ------------------------------------------------------------------------------- Total $5,036 $2,692 $2,344 =============================================================================== * Based on Residential and Commercial Real Estate loans pledged at 03/31/01. Management believes its liquidity sources and funding strategies are adequate given the nature of its asset base and current loan demand. INTEREST RATE SENSITIVITY: The Federal Reserve has lowered the target fed funds rate a total of 200 basis points in four 50 basis point moves since December 31, 2000. The latest move on April 18, 2001 was the second action taken between FOMC (Federal Open Market Committee) meetings this year. The Federal Reserve actions have been dramatic and appear to be designed to re-stimulate growth in the economy and head off the potential for a recession. ALMCO's goal is to minimize volatility in the net interest margin by taking an active role in managing the level, mix, repricing characteristics and maturities of assets and liabilities and by analyzing and taking action to manage mismatch and basis risk. ALMCO monitors the impact of changes in interest rates on net interest income using several tools, including static rate sensitivity reports, or Gap reports, and income simulations modeling under multiple rate scenarios. 20 The following table represents the output from the Company's simulation model and measures the impact on net interest income of an immediate and sustained change in interest rates in 100 basis point increments for the 12 calendar months following the date of the change.
Percentage Change in Net Interest Income (1) -------------------------------------------- As of December 31, 2000 As of March 31, 2001 ----------------------- -------------------- Fed Funds Rate under Stable Environment 6.00% 5.00% Basis Points change from stable..... - ------------------------------------ +200................................ (3)% (3)% +100................................ (2) (1) - -100............................... 1 0 - -200............................... 1 (2) - ------------------------------------------------------------------------------------------------------
(1) The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions BancGroup could undertake in response to changes in interest rates. The rate shock results in the simulation model as of December 31, 2000 reflect that BancGroup's net interest income would benefit from the 200 basis point rate decline experienced thus far in 2001 versus if rates had not changed. The results as of March 31, 2001 are very similar, net interest income for the next 12 months will be best under the stable scenario (100 basis points below year- end levels) or under another 100 basis point decline (200 basis points below year-end). As of March 31, 2001 net interest income is lower under a more dramatic immediate rate decrease of 200 basis points to a 3.00% fed funds rate, than under the stable scenario, due to the rate compression which occurs in historically low rate environments. These results also reflect that currently BancGroup's largest interest rate risk exposure is to an immediate and sustained rate increase of 200 basis points. Overall interest rate risk is well within the constraints set by ALMCO. The following table summarizes BancGroup's Maturity / Rate Sensitivity or Gap at March 31, 2001. (Dollars in millions) 0-90 days 0-365 days --------- ----------- Rate Sensitive Assets (RSA) $5,014 $ 6,477 Rate Sensitive Liabilities (RSL) 3,933 7,526 Cumulative Gap (RSA-RSL) 1,080 (1,049) Cumulative Gap Ratio (Cum. Gap / Total Assets) 8.9% (8.6%) The last two lines of the proceeding table represent interest rate sensitivity gap which is the difference between rate sensitive assets and rate sensitive liabilities. The interest sensitivity schedule reflects an 8.9% positive cumulative gap at three months but a (8.6%) negative cumulative gap at 12 months. Gap 21 schedules have limitations as discussed in the following paragraph. Given these limitations, what may be inferred from these results is that as of March 31, 2001 BancGroup's earning in the first three months after a rate decrease will not perform as well as if rates stayed unchanged. However, over the course of 12 months as liabilities reprice at lower rate levels, earnings are positively impacted by the rate decline. These results are consistent with the income simulation results discussed earlier. The March 31, 2001 stable rate scenario, with fed funds at 5.00%, is currently the most positive outcome, since the full impact of the rate declines since January 2001 have not yet been fully reflected in the assets and liabilities as of March 31, 2001. Therefore, a simulation with stable rates will include the additional downward repricing of the liabilities over the course of the next 12 months. In reviewing the table, it should be noted that the balances are shown for a specific point in time and, because the interest sensitivity position is dynamic, it can change significantly over time. For all interest earning assets and interest bearing liabilities, variable rate assets and liabilities are reflected in the time interval of the assets or liabilities' earliest repricing date. Fixed rate assets and liabilities have been allocated to various time intervals based on contractual repayment. Furthermore, the balances reflect contractual repricing of the deposits and management's position on repricing certain deposits where management discretion is permitted. Prepayment assumptions are applied at a constant rate based on the Company's historical experience. Certain demand deposit accounts and regular savings accounts have been classified as repricing beyond one year in accordance with regulatory guidelines. While these accounts are subject to immediate withdrawal, experience and analysis have shown them to be relatively rate insensitive. CAPITAL RESOURCES: Management is committed to maintaining capital at a level sufficient to protect shareholders and depositors, provide for reasonable growth and fully comply with all regulatory requirements. Management's strategy to achieve these goals is to retain sufficient earnings while providing a reasonable return to shareholders in the form of dividends and return on equity. The Company's dividend payout ratio target range is 30-45%. Dividend rates are determined by the Board of Directors in consideration of several factors including current and projected capital ratios, liquidity and income levels and other bank dividend yields and payment ratios. The amount of a cash dividend, if any, rests with the discretion of the Board of Directors of BancGroup as well as upon applicable statutory constraints such as the Delaware law requirement that dividends may be paid only out of capital surplus or net profits for the fiscal year in which the dividend is declared or the preceding fiscal year. 22 BancGroup also has access to equity capital markets through both public and private issuances. Management considers these sources and related return in addition to internally generated capital in evaluating future expansion or acquisition opportunities. The Federal Reserve Board has issued guidelines identifying minimum Tier I leverage ratios relative to total assets and minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% but is increased from 100 to 200 basis points based on a review of individual banks by the Federal Reserve. The minimum risk adjusted capital ratios established by the Federal Reserve are 4% for Tier I and 8% for total capital. BancGroup's actual capital ratios and the components of capital and risk adjusted asset information (subject to regulatory review) as of March 31, 2001 are stated below:
Capital (Dollars in thousands): Tier I Capital: Shareholders' equity (as adjusted for unrealized loss on securities available for sale, less intangibles plus Trust Preferred Securities) $ 757,035 Tier II Capital: Allowable loan loss reserve 113,613 Subordinated debt 111,865 ----------------- Total Capital $ 982,513 ================= Risk Adjusted Assets (Dollars in thousands) $ 9,771,609 Capitol Ratios: March 31, 2001 December 31, 2000 -------------- ----------------- Tier I leverage ratio (minimum 3%) 6.40% 6.63% Risk Adjusted Capital Ratios: Tier I Capital Ratio (minimum 4%) 7.75% 8.21% Total Capital Ratio (minimum 8%) 10.05% 10.58%
BancGroup has increased capital gradually through normal earnings retention as well as through stock registrations to capitalize acquisitions. The decreases in the risk adjusted ratios shown above were primarily due to asset growth. The reduction in capital due to outstanding treasury stock was $23.0 million and $26.5 million at March 31, 2001 and December 31, 2000, respectively. Management continuously monitors its capital levels in order to insure it is taking the necessary steps to support future internally generated growth and fund the quarterly dividend rates that are currently $0.12 per share each quarter. 23
AVERAGE VOLUME AND RATE (UNAUDITED) (Dollars in thousands) Three Months Ended March 31, ---------------------------- 2001 2000 --------------------------------- ------------------------------------ Average Average Volume Interest Rate Volume Interest Rate --------------------------------- ------------------------------------ ASSETS Loans, net $ 9,660,125 $ 208,439 8.73% $ 8,354,096 $180,641 8.69% Mortgage loans held for sale 11,987 195 6.51% 25,736 528 8.21% Investment securities and securities available for sale and other interest-earning assets 1,592,557 26,905 6.76% 1,656,234 27,887 6.74% ----------------------- ----------------------- Total interest-earning assets(1) 11,264,669 235,539 8.45% 10,036,066 209,056 8.37% --------- ---------- Nonearning assets 664,459 965,925 ----------- ----------- Total assets $11,929,128 $11,001,991 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing deposits $ 7,116,844 93,432 5.32% $ 6,593,888 77,786 4.75% Short-term borrowings 1,623,323 23,244 5.81% 1,319,528 18,772 5.72% Long-term debt 1,210,291 18,401 6.17% 989,922 15,554 6.32% ----------------------- ----------------------- Total interest-bearing liabilities 9,950,458 135,077 5.51% 8,903,338 112,112 5.06% ----------------------- ----------------------- Noninterest-bearing demand deposits 1,100,535 1,290,912 Other liabilities 108,420 111,729 ----------- ----------- Total liabilities 11,159,413 10,305,979 Shareholders' equity 769,715 696,012 ----------- ----------- Total liabilities and shareholders' equity $11,929,128 $11,001,991 =========== =========== RATE DIFFERENTIAL 2.94% 3.31% NET YIELD ON INTEREST-EARNING ASSETS $ 100,462 3.59% $ 96,944 3.87% ========= ========
(1) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is equal to actual interest earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest expense deductions, for federal income tax purposes, related to certain tax- free assets. 24 ANALYSIS OF INTEREST INCREASES (DECREASES) (UNAUDITED)
(Dollars in thousands) Three Months Ended March 31, 2001 Change from 2000 Attributed to (1) Total Volume Rate ------------- ------------ ---------- INTEREST INCOME: Total loans, net $ 27,798 $ 27,009 $ 789 Mortgage loans held for sale (333) (241) (92) Investment securities and securities for sale and other interest-earning assets (982) (1,063) 81 ------------- ------------- ----------- Total interest income(2) 26,483 25,705 778 ------------- ------------- ----------- INTEREST EXPENSE: Interest-bearing deposits $ 15,646 $ 6,257 $ 9,389 Short-term borrowings 4,472 4,188 284 Long-term debt 2,847 3,184 (337) ------------- ------------- ----------- Total interest expense 22,965 13,629 9,336 ------------- ------------- ----------- Net interest income $ 3,518 $ 12,076 $ (8,558) ============= ============= ============
(1) Increases (decreases) are attributed to volume changes and rate changes on the following basis: Volume Change = change in volume times old rate. Rate Change = change in rate times old volume. The Rate/Volume Change = change in volume times change in rate, and it is allocated between Volume Change and Rate Change at the ratio that the absolute value of each of those components bear to the absolute value of their total. (2) Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is: actual interest earned times 145%. Tax equivalent average rate is: tax equivalent interest earned divided by average volume. NET INTEREST INCOME: Net interest income from continuing operations on a tax equivalent basis increased $2.5 million to $100.6 million for the quarter ended March 31, 2001 from $98.1 million for the quarter ended March 31, 2000. Net interest margins decreased to 3.59% for the first quarter of 2001 compared to 3.62% for the fourth quarter of 2000, and 3.87% for the first quarter of 2000. The three 50 basis point reductions in the Fed Funds Rate by the Federal Reserve during the first quarter have had a slightly negative impact on the margin due to the Company's asset sensitive position in the first three months following rate changes. The Company is liability sensitive after the first three months of a rate change and therefore should benefit from rate reductions after that time frame. 25 In addition to the Fed rate changes and its effect on the repricing of loans and deposit products, margins were impacted by the growth in loans, specifically mortgage warehouse loans. The growth in warehouse loans of $267.5 million and $458.7 million from December 31, 2000 and March 31, 2000, respectively, resulted in an increase of $676,000 and $2.2 million in net interest income for the same periods. However, mortgage warehouse loans have lower margins due to their relatively low credit risk, which resulted in a six basis point reduction in the margin compared to the fourth quarter of 2000. The rate on average interest bearing deposits was 5.32% for the first quarter of 2001 compared to 5.50% and 4.75% for the fourth quarter and first quarter of 2000, respectively. During this same time, the average rate on loans was 8.73% for the first quarter of 2001 compared to 9.08% and 8.69% for the fourth quarter and first quarter of 2000, respectively. Although rates on deposits have declined, they reprice more slowly than loan rates primarily due to market competition and the effect of fixed rates on certificates of deposits. First quarter reductions in the Federal Funds Rate by the Federal Reserve should have a modest benefit over the remainder of 2001 in the net interest margin. Future rate reductions however may postpone a portion of the benefit for Colonial until 2002 due to the Company's interest rate sensitivity position. LOAN LOSS PROVISION: The provision for possible loan losses for the first quarter ended March 31, 2001 was $9.46 million compared to $5.55 million for the same period in 2000. The increased provision reflects management's conservative approach to concerns over a slowing national economy and the related impact on credit quality. The current allowance for possible loan losses provides a 268% coverage of nonperforming loans compared to 256% at December 31, 2000 and 271% at March 31, 2000. See management's discussion on loan quality and the allowance for possible loan losses presented in the Financial Condition section of this report. NONINTEREST INCOME: Noninterest income increased $2.0 million for the three months ended March 31, 2001 compared to the same period in 2000. These increases are primarily attributable to additional fee income related to mortgage origination fees, electronic banking fees, and securities gains. 26 The increase in mortgage origination fees is the result of additional production of one-to-four family mortgage loans sold in the secondary market. This increase in production is directly related to the decrease in mortgage rates in the first quarter of 2001. BancGroup continues to expand electronic banking services through its ATM network, check card services, and internet banking. Non-interest income from electronic banking services increased approximately 20% for the three months ended March 31, 2001 compared to the same period in 2000 while income from traditional banking services such as service charges remained level. Wealth management experienced a $319,000 decrease in fee income from security sales due to the recent volatility in the equity market and the overall outlook on the economy. Noninterest income also included $1.1 million related to gains on the sales of securities. NONINTEREST EXPENSES: BancGroup's net overhead (total noninterest expense less noninterest income, excluding security gains) was $47.1 million for the three months ended March 31, 2001 compared to $43.7 million for the three months ended March 31, 2000. Noninterest expense increased $4.3 million for the first quarter of 2001 compared to the first quarter of 2000. Noninterest expense to average assets improved to 2.23% from 2.26% for the same period in 2000. The increase in bank related expenses is primarily due to an increase of approximately $3.1 million for the three months ended March 31, 2001 over the same period in 2000 in salaries and employee benefits. These salary increases are due to normal salary increases, additional incentive related compensation, and increased pension costs. Occupancy and equipment expense for the first quarter of 2001 increased $962,000 when compared to the same period in 2000. This increase is due to increased rent expense, higher utility cost, and improvements and expansions of bank facilities as well as improved technology equipment and software. Intangible asset amortization increased $329,000 due to the purchase of two branches in Nevada in January of 2001 (See Note H to the Consolidated Financial Statements). PROVISION FOR INCOME TAXES: BancGroup's provision for income taxes is based on an approximate 36.0% and 36.5%, estimated annual effective tax rate for the years 2001 and 2000, respectively. The provision for income taxes for the three months ended March 31, 2001 and 2000 was $16.0 million and $17.6 million, respectively. 27 Item III Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included in Item II. Management's Discussion and Analysis of Financial Condition and Results of Operations. Part II Other Information ITEM 1: Legal Proceedings - See Note B - COMMITMENTS AND CONTINGENCIES AT PART 1 ITEM 2: Changes in Securities - N/A ITEM 3: Defaults Upon Senior Securities - N/A ITEM 4: Submission of Matters to a Vote of Security Holders On April 18, 2001, the annual meeting of the shareholders of Colonial BancGroup was held. The following are the results of the votes cast by shareholders present at such meeting, by proxy or in person, for such proposals. 1) Election of the following directors: For a Term Expiring in 2004. For Withhold ---------------------------- Robert S. Craft 89,654,664 2,500,644 Clinton O. Holdbrooks 89,665,132 2,490,176 Harold D. King 89,649,880 2,505,428 Robert E. Lowder 84,913,288 7,242,020 John C. H. Miller, Jr. 89,466,337 2,688,971 James W. Rane 89,642,339 2,515,969 For a Term Expiring in 2002 Augustus K. Clements, III 89,655,053 2,500,255 28 In addition to the foregoing, the following directors will continue to serve: Term Expires in 2003 Term Expires in 2002 -------------------- -------------------- Lewis E. Beville William Britton Jerry J. Chesser Patrick F. Dye John Ed Mathison Milton E. McGregor Joe D. Mussafer William E. Powell, III Frances E. Roper Simual Sippial Edward V. Welch
For Against Abstain 2) To adopt The Colonial BancGroup, Inc. 2001 Long-Term Incentive Plan. 52,762,246 21,157,535 18,235,527
ITEM 5: Other Information - None ITEM 6: Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K - None (b) Reports on Form 8-K 1. Form 8-K - Was filed under Item 9 as Regulation FD disclosure on January 29, 2001 in regard to presentations to analysts between January 29, 2001 and February 22, 2001. 2. Form 8-K - Was filed on January 17, 2001 in regard to fourth quarter and year-end earnings. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE COLONIAL BANCGROUP, INC. Date: May 15, 2001 By: /s/ W. Flake Oakley, IV --------------------------- W. Flake Oakley, IV its Chief Financial Officer 29 -----END PRIVACY-ENHANCED MESSAGE-----