-----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, IgfxoD7URrVqx8eH+JSWXSxri9t/DthB0Q95Es3hnpbL9AGhmuJLADAfKS4RPmeC rPd+sCGRWh4oswrc1yKu1A== 0000931763-01-501271.txt : 20010809 0000931763-01-501271.hdr.sgml : 20010809 ACCESSION NUMBER: 0000931763-01-501271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010808 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: 1934 Act SEC FILE NUMBER: 001-13508 FILM NUMBER: 1700302 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 JUNE 30, 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 JUNE 30, 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 Identification No.) incorporation or organization) 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 July 31, 2001 - ----------------------------- ---------------------------- Common Stock, $2.50 Par Value 113,149,749
THE COLONIAL BANCGROUP, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Condition - June 30, 2001, December 31, 2000 and June 30, 2000 4 Consolidated Statements of Income - Six months ended June 30, 2001 and June 30, 2000 and Three months ended June 30, 2001 and June 30, 2000 5 Consolidated Statements of Comprehensive Income - Six months ended June 30, 2001 and June 30, 2000 and Three months ended June 30, 2001 and June 30, 2000 6 Consolidated Statements of Cash Flows - Six months ended June 30, 2001 and June 30, 2000 7-8 Notes to Consolidated Financial Statements - June 30, 2001 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 31 Item 6. Exhibits and Reports on Form 8-K 32 SIGNATURES 32
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 then 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 or 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)
June 30, December 31, June 30, 2001 2000 2000 -------------------------------------------- ASSETS: Cash and due from banks $ 267,024 $ 348,891 $ 361,432 Interest-bearing deposits in banks and federal funds sold 137,072 15,855 86,936 Securities available for sale 1,600,845 1,449,386 1,586,907 Investment securities 37,463 44,310 52,046 Mortgage loans held for sale 29,273 9,866 10,018 Loans, net of unearned income 9,759,185 9,416,770 8,921,687 Less: Allowance for possible loan losses (113,706) (107,165) (101,390) -------------------------------------------- Loans, net 9,645,479 9,309,605 8,820,297 Premises and equipment, net 183,250 184,831 187,878 Excess of cost over tangible and identified intangible assets acquired, net 91,585 74,393 76,989 Mortgage servicing rights - - 81,800 Other real estate owned 10,813 8,928 7,011 Accrued interest and other assets 272,688 281,572 348,727 -------------------------------------------- TOTAL ASSETS: $12,275,492 $11,727,637 $11,620,041 ============================================ Liabilities and Shareholders' Equity: Deposits $ 8,324,605 $ 8,143,017 $ 8,251,265 FHLB short-term borrowings 100,000 425,000 525,000 Other short-term borrowings 1,410,295 1,463,328 1,354,657 Subordinated debt 260,058 111,900 111,939 Trust preferred securities 70,000 70,000 70,000 FHLB long-term debt 1,121,718 547,022 372,250 Other long-term debt 88,064 102,325 134,583 Other liabilities 94,948 108,193 104,094 -------------------------------------------- Total liabilities 11,469,688 10,970,785 10,923,788 -------------------------------------------- SHAREHOLDERS' EQUITY: Common Stock, $2.50 par value; 200,000,000 shares authorized; 113,090,845, 113,081,198, and 113,075,283 shares issued at June 30, 2001, December 31, 2000, and June 30, 2000, respectively 282,727 282,703 282,688 Treasury stock (2,376,746, 2,773,782, and 2,882,076 at June 30, 2001, December 31, 2000, and June 30, 2000, respectively) (22,571) (26,467) (27,500) Additional paid in capital 119,731 118,600 118,824 Retained earnings 422,459 390,442 357,926 Unearned compensation (4,027) (2,541) (3,421) Accumulated other comprehensive income (loss), net of taxes 7,485 (5,885) (32,264) -------------------------------------------- Total shareholders' equity 805,804 756,852 696,253 -------------------------------------------- Total Liabilities and shareholders' equity $12,275,492 $11,727,637 $11,620,041 ============================================
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)
Six Months Ended Three Months Ended June 30, June 30, --------------------------------------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Interest Income: Interest and fees on loans $411,791 $376,638 $203,322 $195,644 Interest on investments 48,755 54,007 23,234 27,322 Other interest and dividends income 1,435 1,255 697 753 --------------------------------------------------- Total interest income 461,981 431,900 227,253 223,719 --------------------------------------------------- Interest Expense: Interest on deposits 178,634 163,858 85,203 86,072 Interest on short-term borrowings 42,468 41,505 19,223 22,734 Interest on long-term debt 39,086 29,890 20,872 15,585 --------------------------------------------------- Total interest expense 260,188 235,253 125,298 124,391 --------------------------------------------------- Net Interest Income 201,793 196,647 101,955 99,328 Provision for possible loan losses 16,897 12,961 7,433 7,414 --------------------------------------------------- Net Interest Income After Provision for Possible Loan Losses 184,896 183,686 94,522 91,914 --------------------------------------------------- Noninterest Income: Service charges on deposit accounts 19,761 18,678 10,475 9,404 Wealth Management 4,524 4,942 2,282 2,381 Electronic Banking 3,147 2,693 1,620 1,406 Mortgage Origination 3,518 2,410 1,905 1,214 Securities gains (losses), net 1,899 (61) 756 (69) Other income 9,463 8,295 4,824 4,174 --------------------------------------------------- Total noninterest income 42,312 36,957 21,862 18,510 --------------------------------------------------- Noninterest Expense: Salaries and employee benefits 69,049 62,352 35,138 31,500 Occupancy expense of bank premises, net 16,679 14,691 8,594 7,390 Furniture and equipment expenses 14,355 14,244 7,197 7,264 Amortization of intangibles 3,270 2,601 1,639 1,299 Other expense 32,398 31,211 16,799 15,528 --------------------------------------------------- Total noninterest expense 135,751 125,099 69,367 62,981 --------------------------------------------------- Income from Continuing Operations before Income Taxes 91,457 95,544 47,017 47,443 Applicable Income taxes 32,925 34,888 16,927 17,320 --------------------------------------------------- Income from Continuing Operations 58,532 60,656 30,090 30,123 Discontinued Operations: Net loss from discontinued operations and loss on disposal, net of income taxes of $0, ($2,844), $0, and ($2,486) for the six months ended and for the three months ended June 30, 2001 and 2000, respectively - (4,699) - (4,107) --------------------------------------------------- Net Income $ 58,532 $ 55,957 $ 30,090 $ 26,016 =================================================== Earnings Per Share: Income from Continuing Operations: Basic $ 0.53 $ 0.55 $ 0.27 $ 0.27 Diluted $ 0.53 $ 0.54 $ 0.27 $ 0.27 Net Income Basic $ 0.53 $ 0.50 $ 0.27 $ 0.24 Diluted $ 0.53 $ 0.50 $ 0.27 $ 0.23
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)
Six Months Ended Three Months Ended June 30, June 30, ----------------------------------------- ------------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $58,532 $55,957 $30,090 $26,016 Other Comprehensive Income, Net of Taxes: Unrealized gains (losses) on securities available for sale arising during the period, net of taxes 14,586 (3,487) (1,101) (1,022) Less: reclassification adjustment for net (gains) losses included in net income (1,216) (5) (484) - ---------------------------------------------------------------------------- Comprehensive Income $71,902 $52,465 $28,505 $24,994 ============================================================================
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)
Six Months Ended June 30, ---------------------------------- 2001 2000 ---------------------------------- Net Cash (Used) Provided by Operating Activities $ (14,560) $ 164,383 --------------------------------- Cash flows from investing activities: Proceeds from maturities and calls of securities available for sale 242,360 99,429 Proceeds from sales of securities available for sale 52,993 41,034 Purchase of securities available for sale (353,079) (242,812) Proceeds from maturities of investment securities 6,634 9,602 Net increase in loans (310,894) (705,030) Cash received in bank acquisitions 32,801 - Capital expenditures (10,844) (10,299) Proceeds from sale of other real estate owned 5,641 6,781 Other, net 173 261 --------------------------------- Net Cash Used in Investing Activities (334,215) (801,034) --------------------------------- Cash flows from financing activities: Net increase in demand, savings, and time deposits 78,706 283,287 Net (decrease) increase in federal funds purchased, repurchase agreements and other short-term borrowings (223,036) 561,225 Proceeds from issuance of long-term debt 575,000 50,000 Repayment of long-term debt (169,563) (125,688) Proceeds from issuance of subordinated debt 150,000 - Proceeds from issuance of common stock 3,534 4,206 Purchase of treasury stock - (32,317) Dividends paid ($0.24 and $0.22 per share for 2001 and 2000, respectively) (26,516) (24,609) --------------------------------- Net Cash Provided by Financing Activities 388,125 716,104 --------------------------------- Net increase in cash and cash equivalents 39,350 79,453 Cash and cash equivalents at beginning of year 364,746 368,915 --------------------------------- Cash and Cash equivalents at June 30 $ 404,096 $ 448,368 =================================
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: Six Months Ended June 30, ------------------------------------- 2001 2000 ------------------------------------- Cash paid during the year for: Interest $266,293 $231,993 Income taxes 32,925 36,200 Non-cash investing activities: Transfer of loans to other real estate $ 8,566 $ 4,818 Securitization of residential mortgage loans 307,523 - Origination of loans for the sale of other real estate 169 3,085 Non-cash financing activities: Conversion of subordinated debentures $ 177 $ 109
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 June 30, 2001 and 2000 and the results of operations and cash flows for the interim periods ended June 30, 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 June 30, 2001 will have a materially adverse effect on BancGroup's financial statements. NOTE C: BUSINESS COMBINATIONS AND ACQUISITIONS 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. During the second quarter, Colonial BancGroup entered into a definitive agreement to acquire Manufacturers Bancshares, Inc. ("Manufacturers") and its wholly owned subsidiary, Manufacturers Bank of Florida ("Manufacturers Bank"). Manufacturers Bank, which operates four branches in the Tampa area, had $294.8 million in assets as of June 30, 2001. BancGroup estimates approximately 3,852,814 shares of its common stock will be issued to stockholders of Manufacturers. This estimate is based on criteria established in the Agreement and Plan of Merger dated June 18, 2001 and may change based on movement in the market price of BancGroup common stock prior to closing. This transaction is pending approval by various regulatory agencies and the shareholders of Manufacturers. It is expected that this transaction will be accounted for as a pooling of interest and 9 will close in the fourth quarter of 2001. The Company also expects to reissue approximately 800,000 shares of Treasury stock prior to completing the acquisition. Also during the second quarter, Colonial BancGroup entered into a branch purchase and assumption agreement with Union Planters Corporation to acquire 13 Union Planters offices. Nine of these offices are located in Florida in the Tampa and Naples areas and have approximately $244 million in deposits. The remaining four offices, which have approximately $114 million in deposits, are located in Alabama in Elmore County, which is just north of Montgomery. This transaction is pending approval by various regulatory agencies and is expected to close in the fourth quarter of 2001. NOTE D: 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. 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 adopted SFAS No. 133 and SFAS No. 137 on January 1, 2001 and as of the date of these financial statements, all of BancGroup's hedging relationships qualified for hedge accounting treatment per these statements. The effect of these statements is immaterial to the financials statements presented. 10 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." This statement is effective for transfers after April 1, 2001. The implementation of SFAS No. 140 did not have a material impact on BancGroup's financial statements. On June 29, 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations". The effective date for this statement is effective for all business combinations initiated after June 30, 2001. This statement supercedes Accounting Principles Board Opinion No. 16, "Business Combinations". SFAS No. 141 requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001, establishes specific criteria for the recognition of intangible assets separately from goodwill, and requires unallocated negative goodwill to be written off immediately as an extraordinary gain instead of being deferred and amortized. Management is currently evaluating the impact that SFAS No. 141 will have on BancGroup's financials. On June 29, 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Intangible Assets". The effective date for this statement is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 requires that goodwill and indefinite lived intangible assets no longer be amortized, that goodwill will be tested for impairment at least annually, that intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and that amortization period of intangible assets with finite lives will no longer be limited to forty years. Management is currently evaluating the impact that SFAS No. 142 will have on BancGroup's financials. NOTE E: 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 $229 million reduction in average noninterest bearing deposits from June 30, 2000 to June 30, 2001. At June 30, 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. 11 NOTE F: MORTGAGE SERVICING RIGHTS An analysis of mortgage servicing rights and the related valuation reserve is as follows: (in thousands)
Six Months Ended June 30, ---------------------------------- 2001 2000 ---------------------------------- Mortgage Servicing Rights Balance, January 1 $ - $ 265,888 Additions, net - 981 Sales - (134,664) Scheduled amortization - (11,518) Hedge losses applied - (28,345) ------------------------------- Balance, June 30 - 92,342 ------------------------------- Valuation Reserve Balance, January 1 - 27,483 Reductions - (17,241) Additions - 300 ------------------------------- Balance, June 30 - 10,542 ------------------------------- Mortgage Servicing Rights, net $ - $ 81,800 ===============================
As a result of the exit of the mortgage servicing business, all hedges related to MSR's were liquidated during the third quarter of 2000. 12 NOTE G: 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) Six Months Ended June 30, Three Months Ended June 30, ------------------------------------------------ -------------------------------------------------- Per Share Per Share 2001 Income Shares Amount Income Shares Amount ------------ ------------- --------------- ------------- -------------- --------------- Basic EPS Net Income $58,532 110,594 $0.53 $30,090 110,685 $0.27 Effect of dilutive securities: Options 383 430 Convertible debentures 97 577 49 569 - ----------------------------------------------------------------------------------------------------------------------------- Diluted EPS $58,629 111,554 $0.53 $30,139 111,684 $0.27 - ----------------------------------------------------------------------------------------------------------------------------- 2000 Basic EPS Net income $55,957 111,249 $0.50 $26,016 110,551 $0.24 Effect of dilutive securities Options 165 128 Convertible debentures 95 601 50 595 - ----------------------------------------------------------------------------------------------------------------------------- Diluted EPS $56,052 112,015 $0.50 $26,066 111,274 $0.23 - -----------------------------------------------------------------------------------------------------------------------------
NOTE H: 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. Mortgage Banking was discontinued as a line of business in July 2000. Colonial Bank operates 243 branches throughout 6 states. 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 June 30, 2001, respectively, as follows (Dollars in thousands):
December 31, 2000 June 30, 2000 to June 30, 2001 to June 30, 2001 Increase (Decrease) Increase (Decrease) ---------------------------------------------------------------------------- Amount % Amount % ---------------------------------------------------------------------------- Assets: Bank $ 572,401 4.9% $ 858,879 7.5% Mortgage Banking (24,877) -71.0% (203,767) -95.2% Other 331 2.6% 339 2.7% ----------------------------------------------------------------------------- Total Assets 547,855 4.7% 655,451 5.6% Securities 144,612 9.7% (645) 0% Loans, net of unearned income 342,415 3.6% 837,498 9.4% Deposits: Bank 193,850 2.4% 317,490 4.0% Mortgage Banking (12,262) -98.5% (244,150) -99.9% ---------------------------------------------------------------------------- Total Deposits 181,588 2.2% 73,340 .9% Short-term debt (378,033) -20.0% (369,362) -19.7% Long-term debt 708,593 85.2% 851,068 123.6%
Assets: BancGroup's assets have increased 5.6% and 4.7% since June 30, 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 E to the consolidated financial statements. Securities: Investment securities and securities available for sale have decreased $645,000 and increased $144.6 million (9.7%) from June 30, 2000 and December 31, 2000, respectively. In addition to normal business activities, in June 2001 BancGroup securitized $307 million of single-family real estate loans. BancGroup retained substantially all of the interest earned on the securitized assets which are reflected as mortgage backed securities in the investment portfolio. 14 Loans and Mortgage Loans Held for Sale: Loans, net of unearned income, have increased $837.5 million (9.4%) and $342.4 million (3.6%) from June 30, 2000 and December 31, 2000, respectively. Loan growth was partially offset by the securitization of $307 million of single- family real estate loans which were transferred to securities in the investment portfolio as mortgage backed securities. Internal loan growth from June 30, 2000 and December 31, 2000 was 12.3% and 12.8% annualized, respectively. The Mortgage Warehouse Lending unit, which provides lines of credit secured by single-family residential loans in the process of being sold, contributed $584.6 million and $480.5 million of this growth from June 30, 2000 and December 31, 2000, respectively. 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 C of the consolidated financial statements.
GROSS LOANS BY CATEGORY June 30, December 31, June 30, (Dollars in thousands) 2001 2000 2000 ------------------------------------------------------ Commercial, financial, and agricultural $1,177,052 $1,221,131 $1,164,636 Real estate-commercial 3,509,731 3,174,483 2,829,400 Real estate-construction 1,764,708 1,693,958 1,634,039 Real estate-residential 2,135,794 2,562,708 2,593,683 Installment and consumer 255,227 272,124 290,594 Mortgage warehouse lending 857,450 376,995 272,864 Other 59,245 115,413 136,557 ------------------------------------------------------ Total Loans $9,759,207 $9,416,812 $8,921,773 ======================================================
Commercial loans collateralized by real estate and construction loans increased approximately $335.2 million and $70.8 million, respectively from December 31, 2000 and $680.3 million and $130.7 million, respectively, from June 30, 2000. 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. The decrease in Residential Real Estate is primarily due to the second quarter securitization previously discussed. 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 $504 million, up from $193 million at December 31, 2000. Substantially all of this increase was attributed to the growth within our Mortgage Warehouse Lending unit. 15 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 June 30, 2001. 16 CONSTRUCTION & COMMERCIAL REAL ESTATE GEOGRAPHIC DIVERSITY AND INDUSTRY DISTRIBUTION JUNE 30, 2001
(Dollars in thousands) Construction Commercial Real Estate --------------- ------------------------- Average Loan Size $ 674 $ 431 Geographic Diversity Alabama $ 232,412 $ 933,905 Georgia 362,792 474,058 Florida 812,336 1,515,497 Texas 167,214 123,767 Nevada 76,800 141,702 Other 113,154 320,802 --------------- ------------------------- Total $1,764,708 $3,509,731 - -------------------------------------------------------------------------------------------------------------------------------
Industry Distribution % of Industry Distribution to % of Industry Distribution to ------------------------------- ------------------------------------- Construction Total Commercial Real Total Portfolio Portfolio Estate Portfolio Portfolio ------------- --------- ------------------------------------- Residential 29% 5% Retail 16% 6% Developments 25% 4% Office 16% 6% Condominium 11% 2% Multi-Family 12% 4% Multi-Family 8% 2% Lodging 11% 4% Retail 7% 1% Land Only 8% 3% Office 5% 1% Warehouse 6% 2% Other (13 types) 15% 3% Other (11 types) 31% 11% -------- ------- ------- ------- Total Commercial Total Construction 100% 18% Real Estate 100% 36% -------- ------- ------- ------ - -------------------------------------------------------------------------------------------------------------------------------
Characteristics of the 75 Largest Loans
Construction Commercial Real Estate ---------------- ---------------------- 75 Largest Loans Total $805,479 $749,975 % of 75 largest loans to category total 46.8% 21.3% Average Loan to Value Ratio (75 largest loans) 70% 70% Debt Coverage Ratio (75 largest loans) N/A 1.33x - ----------------------------------------------------------------------------------------------------------------------------------
Substantially all Construction and Commercial Real Estate loans have personal guarantees of the principals involved. Owner occupied Commercial Real Estate portfolio totals represented 30% of the total Commercial Real Estate portfolio at June 30, 2001. 17 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 June 30, Loans to December 31, Loans to June 30, Loans to (Dollars in thousands) 2001 Total Loans 2000 Total Loans 2000 Total Loans ------------------------------------------------------------------------------- Commercial, financial, and agricultural $ 33,877 12.1% $ 27,861 13.0% $ 28,194 13.1% Real estate-commercial 45,892 36.0% 43,843 33.7% 36,192 31.7% Real estate-construction 14,256 18.1% 15,909 18.0% 17,182 18.3% Real estate-mortgage 10,679 21.9% 12,814 27.2% 12,926 29.0% Installment and consumer 2,942 2.6% 2,927 2.9% 3,345 3.3% Mortgage warehouse lending 2,143 8.8% 942 4.0% 682 3.1% Other 3,917 0.5% 2,869 1.2% 2,869 1.5% ----------------------------------------------------------------------------- TOTAL $113,706 100.0% $107,165 100.0% $101,390 100.0% =============================================================================
SUMMARY OF LOAN LOSS EXPERIENCE June 30, December 31, June 30, (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 7,068 10,493 4,671 Real estate-commercial 2,566 3,240 980 Real estate-construction 45 529 66 Real estate-residential 1,488 3,260 1,485 Installment and consumer 1,482 4,345 2,160 Other 442 1,119 549 --------------------------------------------------- Total charge-offs 13,091 22,986 9,911 --------------------------------------------------- Recoveries: Commercial, financial, and agricultural 315 1,210 866 Real estate-commercial 250 627 176 Real estate-construction 8 62 8 Real estate-residential 297 440 237 Installment and consumer 1,190 1,856 881 Other 108 283 179 --------------------------------------------------- Total recoveries 2,168 4,478 2,347 ---------------------------------------------------
18
June 30, December 31, June 30, (Dollars in thousands) 2001 2000 2000 ------------------------------------------------- Net charge-offs 10,923 18,508 7,564 Addition to allowance for branch acquisition 567 - - Addition to allowance charged to operating expense 16,897 29,680 12,961 ------------------------------------------------- Allowance for possible loan losses-end of period $113,706 $107,165 $101,390 =================================================
As expected based on softening economic conditions, nonperforming assets increased to 0.72% of net loans and other real estate at June 30, 2001. Nonperforming assets have increased $19.5 million from December 31, 2000. Most of this increase was from one loan relationship. Annualized net charge-offs remained low at .22% of loans year to date, well below industry averages. Management continuously monitors and evaluates recoverability of problem assets and adjusts loan loss reserves accordingly. Loan loss reserve was 1.17% of loans at June 30, 2001 compared to 1.14% at December 31, 2000 and 1.14% at June 30, 2000.
NONPERFORMING ASSETS ARE SUMMARIZED BELOW June 30, December 31, June 30, (Dollars in thousands) 2001 2000 2000 ------------------------------------------------------------------- Nonaccrual loans $58,238 $40,624 $38,380 Restructured loans 1,137 1,161 1,185 ----------------------------------------------------------------- Total nonperforming loans * 59,375 41,785 39,565 Other real estate owned and in substance foreclosures 10,813 8,928 7,011 ----------------------------------------------------------------- Total nonperforming assets * $70,188 $50,713 $46,576 ================================================================= Aggregate loans contractually past due 90 days $20,080 $ 9,841 $ 6,227 for which interest is being accrued Net charge-offs quarter-to-date $ 7,340 $ 4,554 $ 4,119 Net charge-offs year-to-date $10,923 $18,508 $ 7,564 Ratios Period end: Total nonperforming assets as a percent of net loans and other real estate 0.72% 0.54% 0.52% Allowance as a percent of net loans 1.17% 1.14% 1.14% Allowance as a percent of nonperforming assets * 162% 211% 218% Allowance as a percent of nonperforming loans * 192% 256% 256% For the period ended: Net charge-offs as a percent of average net loans- (annualized basis): 0.29% 0.20% 0.19% Quarter to date Year to date 0.22% 0.21% 0.18% * Does not include loans contractually past due 90 days or more which are still accruing interest.
19 Management, through its loan officers, internal credit review staff and external examinations by regulatory agencies, has identified approximately $159.7 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 June 30, 2001, substantially all of these loans were 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 not currently expect the ratio of nonperforming assets to total loans to exceed .80% and net charge-offs to average loans to exceed .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 June 30, 2001 was $54.2 million and these loans had a corresponding valuation allowance of $25.3 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. Core deposit growth is a primary focus of BancGroup's funding and liquidity strategy. Average retail deposits excluding time deposits grew at an annualized rate of 13% for the six months ended June 30, 20 2001. This growth continues to be primarily from the Company's high growth markets, with Florida contributing 37% of this growth. 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 long and short term 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 June 30, 2001. It should be noted that these are estimates, these funding sources are not guaranteed lines. Estimated Wholesale Funding Sources as of June 30, 2001 Dollars in millions
- ---------------------------------------------------------------------------------------------------- Total Outstanding Available - ---------------------------------------------------------------------------------------------------- FHLB Advances* $2,277 $1,322 $ 955 Fed Funds lines 1,863 734 1,129 Brokered Deposits 1,029 369 660 - ---------------------------------------------------------------------------------------------------- Total $5,169 $2,425 $2,744 - ----------------------------------------------------------------------------------------------------
* Based on Residential and Commercial Real Estate loans and securities pledged at 06/30/01. Management believes its liquidity sources and funding strategies are adequate given the nature of its asset base and current loan demand. On May 23, 2001, Colonial Bank issued $150 million in subordinated notes at 9.375% due June 1, 2011 for general corporate and banking purposes in the ordinary course of business. This debt qualifies as Tier II capital. In connection with this issuance, BancGroup executed an interest rate swap whereby BancGroup will receive a fixed rate and pay a floating rate, effectively converting the fixed rate notes to floating. The result of this interest rate swap created a current effective rate on the notes for the second quarter ending June 30, 2001 of 7.2175%. INTEREST RATE SENSITIVITY: The Federal Reserve has lowered the target fed funds rate a total of 275 basis points since December 31, 2000. The Federal Reserve actions have been dramatic and appear to be designed to 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 21 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. 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 June 30, 2001 As of March 31, 2001 As of December 31, 2000 ----------------------- ------------------------- ---------------------------- Fed Funds Rate under Stable Environment 3.75% 5.00 % 6.00 % Basis Points change from stable.... - ----------------------------------- +200............................... 1% (3)% (3)% +100............................... 1 (1) (2) - - 100.............................. (1) 0 1 - - 200.............................. (2) (2) 1 - ---------------------------------------------------------------------------------------------------------------------
(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 following table summarizes BancGroup's Maturity / Rate Sensitivity or Gap at June 30, 2001. (Dollars in millions)
0-90 days 0-365 days ------------------------- ------------------------ Rate Sensitive Assets (RSA) $5,509 $6,744 Rate Sensitive Liabilities (RSL) 3,737 7,097 Cumulative Gap (RSA-RSL) 1,772 (353) Cumulative Gap Ratio (Cum. Gap / Total Assets) 14% (3%)
The last two lines of the proceeding table represents interest rate sensitivity gap which is the difference between rate sensitive assets and rate sensitive liabilities. The interest sensitivity table reflects a 14% positive gap at 90 days and a (3%) negative gap at 12 months. The six reductions in the Federal Funds rate by the federal reserve during the year have had a negative impact on the margin due to the company's asset sensitive position in the first three months following rate changes. Thereafter, the company is liability sensitive and should benefit from rate reductions as liabilities catch up and reprice to lower levels. 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 22 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. 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. 23 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 June 30, 2001 are stated below:
Capital (in thousands): Tier I Capital: Shareholders' equity (as adjusted for unrealized gain on $ 776,748 securities available for sale, less intangibles plus Trust Preferred Securities) Tier II Capital: Allowable loan loss reserve 113,706 Subordinated debt 260,059 ----------- Total Capital $ 1,150,513 =========== Risk Adjusted Assets (in thousands) $10,219,683
Capital Ratios: June 30, 2001 December 31, 2000 ------------------ ------------------------- Tier I leverage ratio (minimum 3%) 6.46% 6.63% Risk Adjusted Capital Ratios: Tier I Capital Ratio (minimum 4%) 7.60% 8.21% Total Capital Ratio (minimum 8%) 11.26% 10.58%
BancGroup has increased capital gradually through normal earnings retention as well as through stock registrations to capitalize acquisitions. The decrease in the Tier I Capital Ratio is primarily due to asset growth and a change in the mix of assets. The increase in the Total Capital Ratio is due to the issuance on May 23, 2001 of $150 million in subordinated debt by Colonial Bank that qualifies as Tier II Capital. Management continuously monitors its capital levels in order to ensure 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. 24 Average Volume and Rate (Unaudited)
(Dollars in thousands) Three Months Ended June 30, ----------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------------------ Average Average Volume Interest Rate Volume Interest Rate ------------------------------------ ------------------------------------ Assets Loans, net $10,121,974 $203,111 8.05% $ 8,765,295 $195,438 8.96% Mortgage loans held for sale 22,788 382 6.69% 19,895 424 8.52% Investment securities and securities available for sale and other interest- earning assets 1,509,902 24,557 6.51% 1,690,215 28,699 6.79% ----------------------- ----------------------- Total interest-earning assets(1) 11,654,664 228,050 7.84% 10,475,405 224,561 8.61% --------- --------- Nonearning assets 649,082 905,494 ----------- ----------- Total assets $12,303,746 $11,380,899 =========== =========== Liabilities and Shareholders' Equity: Interest-bearing deposits $ 7,124,565 85,203 4.80% $ 6,805,097 86,072 5.09% Short-term borrowings 1,704,153 19,223 4.52% 1,451,161 22,733 6.30% Long-term debt 1,404,817 20,988 6.00% 955,996 15,182 6.39% ----------------------- ----------------------- Total interest-bearing liabilities 10,233,535 125,414 4.92% 9,212,254 123,987 5.41% ----------------------- ----------------------- Noninterest-bearing demand deposits 1,181,195 1,365,427 Other liabilities 97,734 108,913 ----------- ----------- Total liabilities 11,512,464 10,686,594 Shareholders' equity 791,282 694,305 ----------- ----------- Total liabilities and shareholders' equity $12,303,746 $11,380,899 =========== =========== Rate differential 2.92% 3.20% Net yield on interest-earning assets $102,636 3.53% $100,574 3.85% ======== ========
(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. 25
Average Volume and Rate (Unaudited) (Dollars in thousands) Six Months Ended June 30, ----------------------------------------------------------------------------- 2001 2000 ------------------------------------ ------------------------------------ Average Average Volume Interest Rate Volume Interest Rate ------------------------------------ ------------------------------------ Assets Loans, net $ 9,892,326 $411,545 8.38% $ 8,559,695 $376,082 8.83% Mortgage loans held for sale 17,417 577 6.63% 22,815 953 8.35% Investment securities and securities available for sale and other interest- earning assets 1,551,001 51,462 6.65% 1,673,225 56,586 6.77% ----------------------- ----------------------- Total interest-earning assets(1) 11,460,744 463,584 8.14% 10,255,735 433,621 8.49% -------- -------- Nonearning assets 656,727 935,704 ----------- ----------- Total assets $12,117,471 $11,191,439 =========== =========== Liabilities and Shareholders' Equity: Interest-bearing deposits $ 7,120,725 178,634 5.03% $ 6,699,492 163,858 4.92% Short-term borrowings 1,663,961 42,468 5.15% 1,385,345 41,505 6.02% Long-term debt 1,308,091 39,086 6.04% 972,958 30,736 6.35% ----------------------- ---------------------- Total interest-bearing liabilities 10,092,777 260,188 5.20% 9,057,795 236,099 5.24% ----------------------- ---------------------- Noninterest-bearing demand deposits 1,141,088 1,328,169 Other liabilities 103,048 110,321 ----------- ----------- Total liabilities 11,336,913 10,496,285 Shareholders' equity 780,558 695,154 ----------- ----------- Total liabilities and shareholders' equity $12,117,471 $11,191,439 =========== =========== Rate differential 2.94% 3.25% Net yield on interest-earning assets $203,396 3.56% $197,522 3.86% ======== ========
(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. 26 Analysis of Interest Increases / (Decreases) (Unaudited)
(Dollars in thousands) Three Months Ended June 30, 2001 Change from 2000 Attributed to (1) Total Volume Rate ---------------- ----------------- -------------- Interest Income: Total loans, net $ 7,673 $22,434 $(14,761) Mortgage loans held for sale (42) 87 (129) Investment securities and securities for sale and other interest-earning assets (4,142) (2,985) (1,157) ---------------- ----------------- -------------- Total interest income(2) 3,489 19,536 (16,047) ---------------- ----------------- -------------- Interest Expense: Interest-bearing deposits $ (869) $ 4,005 $ (4,874) Short-term borrowings (3,510) 5,615 (9,125) Long-term debt 5,806 6,676 (870) ---------------- ----------------- -------------- Total interest expense 1,427 16,296 (14,869) ---------------- ----------------- -------------- Net interest income $ 2,062 $ 3,240 $ (1,178) ================ ================= ==============
(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. 27 Analysis of Interest Increases / (Decreases) (Unaudited)
(Dollars in thousands) Six Months Ended June 30, 2001 Change from 2000 Attributed to (1) Total Volume Rate ---------------- ---------------- --------------- Interest Income: Total loans, net $35,463 $52,650 $(17,187) Mortgage loans held for sale (376) (201) (175) Investment securities and securities for sale and other interest-earning assets (5,124) (4,126) (998) ---------------- ---------------- --------------- Total interest income(2) 29,963 48,323 (18,360) ---------------- ---------------- --------------- Interest Expense: Interest-bearing deposits $14,776 $10,908 $ 3,868 Short-term borrowings 963 3,398 (2,435) Long-term debt 8,350 9,724 (1,374) ---------------- ---------------- --------------- Total interest expense 24,089 24,030 59 ---------------- ---------------- --------------- Net interest income $ 5,874 $24,293 $(18,419) ================ ================ ===============
(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 $2.6 million to $102.8 million for the quarter ended June 30, 2001 from $100.2 million for the quarter ended June 30, 2000. For the six months ended June 30, 2001, net interest income from continuing operations on a tax equivalent basis increased $5.0 million to $203.4 as compared to $198.4 million for the same period in 2000. Net interest margins decreased to 3.53% for the second quarter of 2001 compared to 3.59% for the first quarter of 2001, and 3.85% for the second quarter of 2000. Net interest margins decreased from 3.86% to 3.56% for the six months ended June 30, 2000 compared to the same period in 2001. Growth in loans, specifically mortgage warehouse loans had a significant impact on the margin for the quarter and six months. Mortgage warehouse loans have lower margins due to their relatively low credit risk. The growth in this unit resulted in an 11 basis point reduction in the margin from second quarter 28 2000 to second quarter 2001 and a 9 basis point reduction for the six months ended June 30, 2001 as compared to the same period in 2000. The average rate on loans was 8.05% for the second quarter of 2001 compared to 8.73% for the first quarter 2001 and 8.96% for the second quarter of 2000, respectively. During this same time, the rate on average interest bearing deposits was 4.80% for the second quarter of 2001 compared to 5.32% and 5.09% for the first quarter of 2001 and second quarter of 2000, respectively. Although rates on deposits have declined, they reprice more slowly than loan rates primarily due to market competition and the natural lag in the repricing of the CD's portfolio. Although Certificates of Deposits represent approximately 52% of Interest Bearing Deposits as of June 30, 2001, $2.4 billion will mature and reprice within the next six months at rates that are expected to be approximately 2% below their current cost. Certificates of Deposits maturities range from seven days to five years but the weighted average remaining maturity as of June 30, 2001 was less than seven months. The Company also expects approximately $1.0 billion in fixed rate assets to reprice in that same time frame at less than a 1.0% reduction in rate. The increase in long term debt is due to the Company funding loan growth and also due to BancGroup shifting its mix of wholesale funding from short-term to long-term funds as rates have declined during 2001. LOAN LOSS PROVISION: The provision for possible loan losses for the first quarter ended June 30, 2001 was $7,433,000 compared to $7,414,000 for the same period in 2000. The Company continues to focus its efforts on relationship based lending to known customers in its local market areas. The current allowance for possible loan losses provides a 192% coverage of nonperforming loans compared to 256% at December 31, 2000 and 256% at June 30, 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 $5.4 million (14.5%) for the six months ended June 30, 2001 compared to the same period in 2000 and $3.4 (18.1%) million for the three months ended June 30, 2001 over the three months ended June 30, 2000. These increases are primarily attributable to service charges on deposit accounts, cash management services, mortgage origination income and electronic banking fees and securities gains. 29 Mortgage origination fees increased $1.1 million (46.0%) for the six months ended June 30, 2001 compared to the same period in 2000 and $691,000 (56.9%) for the three months ended June 30, 2001 over the three months ended June 30, 2000. This increase is the result of additional production of one-to-four family mortgage loans sold in the secondary market. The increase in production is directly related to the decrease in mortgage rates in the first half 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 16.9% for the six months ended June 30, 2001 and 15.2% for the three months ended June 30, 2001 compared to the same periods in 2000. Service charges on deposit accounts increased $1.1 million (5.8%) for the six months ended June 30, 2001 over the same period in 2000 and $1.1 million (11.4%) for the three months ended June 30, 2001 when compared to the three months ended June 30, 2000. This increase is the result of normal deposit account related fees and an increase in cash management fees of approximately $400,000 (38.8%) and $211,000 (40.0%) for the six months and three months ended June 30, 2001, respectively. Wealth management experienced a $418,000 and a $99,000 decrease in fee income from security sales for the six months and three months ended June 30, 2001 over the same periods in 2000, respectively. This decrease is due to the volatility in the equity market and the overall outlook on the economy by investors. NONINTEREST EXPENSES: In support of the Company's sales culture, BancGroup continues to make strategic investments in its product and service offerings, technology systems, incentives and branch network to enhance the Company's competitive presence in existing markets. BancGroup's philosophy is to make strategic investments in the tools employees need to optimize its customers' financial success. Accordingly, noninterest expense increased 10% for the quarter ended June 30, 2001 as compared to the same period last year. BancGroup's net overhead (total noninterest expense less noninterest income, excluding security gains) was $95.3 million for the six months ended June 30, 2001 and $48.3 million for the three months ended June 30, 2001 compared to $88.1 million and $44.4 million for the six months and three months ended June 30, 2000, respectively. 30 Noninterest expense increased $10.7 million for the first six months of 2001 compared to 2000 and $6.4 million for the second quarter of 2001 compared to the second quarter of 2000. Noninterest expense to average assets remained unchanged at 2.24% for the six months ended June 30, 2001 and 2000. The increase in bank related expenses is primarily due to an increase of approximately $6.7 million and $3.6 million for the six months and three months ended June 30, 2001 over the same periods in 2000, respectively, in salaries and employee benefits. These salary increases are due to normal salary increases, additional incentive related compensation, and increased pension costs. In order to improve the Company's market presence, three of its regional headquarters were relocated in 2001. The Company also opened ten new branches and two loan production offices since June 2000. Occupancy and equipment expense for the six months and second quarter of 2001 increased $2.0 million and $1.2 million, respectively, when compared to the same periods in 2000. This increase is also due to increased rent expense, higher utility cost, and improvements and expansions of bank facilities. In addition to the changes in branch structure, the Company continues to invest in improved technology equipment and software. Intangible asset amortization increased $669,000 and $340,000 for the six months and three months ended June 30, 2001, respectively, over the same periods in 2000 due to the purchase of two branches in Nevada in January of 2001 (See Note C 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 six months ended June 30, 2001 and 2000 was $32,925,000 and $34,888,000, respectively. 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 31 ITEM 3: Defaults Upon Senior Securities - N/A ITEM 4: Submission of Matters to a Vote of Security Holders BancGroup held its 2001 annual shareholders meeting on April 18, 2001. The results of this meeting were disclosed in BancGroup's quarterly filing on Form 10-Q for the quarter ended March 31, 2001. 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 on April 18, 2001 in regard to first quarter 2001 earnings. 2. Form 8-K - Was filed under Item 9 as Regulation FD disclosure on May 8, 2001 in regard to management's presentation to analyst, investors, and participants at the Gulf South Banking Conference on May 8 - 9, 2001. 3. Form 8-K - Was filed under Item 9 as Regulation FD disclosure on May 21, 2001 in connection with an offering of $150 million aggregate principle amount of subordinated notes of Colonial Bank. 4. Form 8-K - Was filed on July 17, 2001 in regard to second quarter 2001 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: August 6, 2001 By: /s/ W. Flake Oakley, IV --------------------------- W. Flake Oakley, IV its Chief Financial Officer 32 -----END PRIVACY-ENHANCED MESSAGE-----