-----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, CUj3iscAL1NfXM21zupDQ655URbtVpFLZvdQKZvDUDZC0gYoxK6JfQo0q2DKRQK0 FhNsLlfIcW61/rX4FEbcyg== /in/edgar/work/0000950144-00-013850/0000950144-00-013850.txt : 20001115 0000950144-00-013850.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950144-00-013850 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL BANCGROUP INC CENTRAL INDEX KEY: 0000092339 STANDARD INDUSTRIAL CLASSIFICATION: [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: 766540 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 g65326e10-q.txt THE COLONIAL BANCGROUP, INC. 1 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 SEPTEMBER 30, 2000 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 of 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 of 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 class of common stock, as of the latest practical date.
Class Outstanding as of October 31, 2000 - ------------------------------------ ------------------------------- Common Stock, $2.50 Par Value 113,078,539
2 THE COLONIAL BANCGROUP, INC. INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Condition - September 30, 2000, December 31, 1999 and September 30, 1999 -1- Condensed Consolidated Statements of Income - Nine months ended September 30, 2000 and September 30, 1999 and Three months ended September 30, 2000 and September 30, 1999 -2- Condensed Consolidated Statements of Comprehensive Income - Nine months ended September 30, 2000 and September 30, 1999 and Three months ended September 30, 2000 and September 30, 1999 -3- Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and September 30, 1999 -4- Noted to Consolidated Financial Statements - September 30, 2000 -5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -9- PART II. OTHER INFORMATION Item 1. Legal Proceedings -19 Item 2. Changes in Securities and Use of Proceeds -19- Item 3. Defaults Upon Senior Securities -19- Item 4. Submission of Matters to a Vote of Security Holders -19- Item 5. Other Information -19- Item 6. Exhibits and Reports on Form 8-K -19- SIGNATURES
3 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) costs or difficulties related to business reorganizations and the integration of the business of The Colonial BancGroup, Inc. ("BancGroup") and acquired institutions are greater than expected , (iv) changes in the interest rate environment which reduce margins; (v) changes which may occur in 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 the relate to BancGroup (including its subsidiaries), or its management are intended to identify forward-looking statements. 4 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Dollars in thousands, except per share amounts)
September 30, December 31, September 30, 2000 1999 1999 ------------- ------------ ------------- ASSETS: Cash and due from banks $ 280,628 $ 338,433 $ 324,015 Interest-bearing deposits in banks and federal funds sold 61,122 30,482 17,355 Securities held for trading -- -- 709 Securities available for sale 1,482,962 1,489,991 1,475,364 Investment securities 47,814 61,682 103,294 Mortgage loans held for Sale 9,940 33,150 182,093 Loans, net of unearned income 9,107,393 8,228,149 7,856,226 Less: Allowance for possible loan losses (103,861) (95,993) (91,752) ------------ ------------ ------------ Loans, net 9,003,532 8,132,156 7,764,474 Premises and equipment 186,239 190,946 194,557 Excess of cost over tangible and identified intangible assets acquired, net 75,691 79,468 80,892 Mortgage serving rights -- 238,405 270,428 Other real estate owned 6,510 9,215 6,196 Accrued interest and other assets 321,090 250,171 201,547 ------------ ------------ ------------ TOTAL ASSETS $ 11,475,528 $ 10,854,099 $ 10,620,924 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits $ 8,043,850 $ 7,967,978 $ 7,601,210 FHLB short-term borrowings 475,000 490,000 370,000 Other short-term borrowings 1,475,526 703,429 912,600 Subordinated debt 111,929 112,048 112,440 Trust preferred securities 70,000 70,000 70,000 FHLB long-term debt 347,136 572,549 645,515 Other long-term debt 134,475 134,974 135,167 Other liabilities 94,036 107,942 93,249 ------------ ------------ ------------ Total liabilities 10,751,952 10,158,920 9,940,181 SHAREHOLDERS' EQUITY Common Stock, $2.50 par value; 200,000,000 shares authorized 113,083,937, 112,106,663 and 111,920,707 shares issued at Sept. 30, 2000; Dec. 31, 1999 and Sept. 30, 1999, respectively 282,710 280,267 279,802 Treasury shares (2,788,420 shares at September 30, 2000) (26,607) -- -- Additional paid in capital 118,650 118,728 118,103 Retained earnings 374,361 326,578 306,462 Unearned compensation (2,942) (1,622) (1,839) Accumulated other comprehensive income (loss), net of taxes (22,596) (28,772) (21,785) ------------ ------------ ------------ Total shareholders' equity 723,576 695,179 680,743 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,475,528 $ 10,854,099 $ 10,620,924 ============ ============ ============
See Notes to the Unaudited Condensed Consolidated Financial Statements -1- 5 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
Nine Months Ended Three Months Ended September 30, September 30, ------------------------- ----------------------- 2000 1999 2000 1999 --------- --------- -------- --------- INTEREST INCOME: Interest and fees on loans $ 579,127 $ 475,930 $202,489 $ 165,851 Interest on investments 81,234 74,573 27,227 25,542 Other interest income 1,967 1,810 712 620 --------- --------- -------- --------- Total interest income 662,328 552,313 230,428 192,013 --------- --------- -------- --------- INTEREST EXPENSE: Interest on deposits 256,576 200,900 92,718 68,945 Interest on short-term borrowings 68,375 37,042 26,870 13,739 Interest on long-term debt 44,564 38,980 14,674 14,207 --------- --------- -------- --------- Total interest expense 369,515 276,922 134,262 96,891 --------- --------- -------- --------- Net Interest Income 292,813 275,391 96,166 95,122 Provision for possible loan losses 21,822 19,468 8,861 7,014 --------- --------- -------- --------- Net Interest Income After Provision for Possible Loan Losses 270,991 255,923 87,305 88,108 --------- --------- -------- --------- NONINTEREST INCOME: Service charges on deposit accounts 28,551 28,660 9,726 9,739 Other charges, fees and commissions 7,925 6,598 2,873 2,091 Securities gains (losses), net (40) 499 21 490 Other income 20,162 22,958 8,029 13,413 --------- --------- -------- --------- Total noninterest income 56,598 58,715 20,649 25,733 --------- --------- -------- --------- NONINTEREST EXPENSE: Salaries and employee benefits 93,501 85,493 32,158 29,380 Occupancy expense, net 22,479 20,863 7,788 7,187 Furniture and equipment expense 21,521 18,749 7,277 6,568 Other expense 49,566 48,374 15,753 17,620 --------- --------- -------- --------- Total noninterest expense 187,067 173,479 62,976 60,755 --------- --------- -------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 140,522 141,159 44,978 53,086 Applicable income taxes 51,305 52,236 16,417 19,723 --------- --------- -------- --------- INCOME FROM CONTINUING OPERATIONS 89,217 88,923 28,561 33,363 Discontinued Operations: Income/(Loss) from discontinued operations, net of income taxes of $(450), $(46), $0, and $(1,771) for the nine months ended September 30, 2000 and 1999 and for the three months ended September 30, 2000 and 1999 (743) (76) -- (2,927) Loss on disposal of discontinued operations (net of income tax benefit of $2,394) (3,956) --------- --------- -------- --------- NET INCOME $ 84,518 $ 88,847 $ 28,561 $ 30,436 ========= ========= ======== ========= EARNINGS PER SHARE: INCOME FROM CONTINUING OPERATIONS: BASIC $ 0.80 $ 0.80 $ 0.26 $ 0.30 DILUTED $ 0.80 $ 0.79 $ 0.26 $ 0.29 NET INCOME: Basic $ 0.76 $ 0.80 $ 0.26 $ 0.27 Diluted $ 0.76 $ 0.79 $ 0.26 $ 0.27
See Notes to the Unaudited Condensed Consolidated Financial Statements -2- 6 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Dollars in thousands, except per share amounts)
Nine Months Ended Three Months Ended September 30, September 30, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- NET INCOME $ 84,518 $ 88,847 $ 28,561 $ 30,436 OTHER COMPREHENSIVE INCOME, NET OF TAXES: Unrealized gains (losses) on securities available for sale arising during the period, net of taxes 6,194 (24,176) 9,681 (7,806) Less: reclassification adjustment for net (gains) losses included in net income, net of taxes (18) 53 (13) 58 -------- -------- -------- -------- 6,176 (24,123) 9,668 (7,748) COMPREHENSIVE INCOME $ 90,694 $ 64,724 $ 38,229 $ 22,688 ======== ======== ======== ========
See Notes to the Unaudited Condensed Consolidated Financial Statements -3- 7 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (Unaudited) (Dollars in thousands, except per share amounts)
Nine Months Ended September 30, ------------------------- 2000 1999 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 299,002 $ 545,480 --------- --------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 146,520 279,217 Proceeds from sales of securities available for sale 178,835 168,264 Purchase of securities available for sale (308,162) (545,040) Proceeds from maturities of investment securities 13,834 68,115 Purchase of investment securities -- (643) Net increase in loans (895,359) (770,373) Capital expenditures (16,319) (34,892) Proceeds from sale of other real estate owned 9,009 13,559 Other, net 2,100 4,777 --------- --------- NET CASH USED IN INVESTING ACTIVITIES (869,542) (817,016) --------- --------- Cash flows from financing activities: Net increase in demand, savings, and time deposits 75,872 155,058 Net increase (decrease) in federal funds purchased, repurchase agreements and other short-term borrowings 632,092 (303,089) Proceeds from issuance of long-term debt 50,000 349,976 Repayment of long-term debt (150,908) (58,477) Proceeds from issuance of common stock 5,366 6,154 Purchase of Treasury Stock (32,317) -- Dividends paid (36,733) (31,682) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 543,372 117,940 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (27,168) (153,596) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 368,918 494,966 --------- --------- CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 341,750 $ 341,370 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during nine months for: Interest $ 374,348 $ 296,952 Income taxes 58,000 54,825 Non-cash investing activities: Transfer of loans to other real estate $ 6,931 $ 10,823 Origination of loans, for the sale of other real estate $ 3,085 $ -- Non-cash financing activities: Conversion of subordinated debentures to common stock $ 119 $ 102
See Notes to the Unaudited Condensed Consolidated Financial Statements -4- 8 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES Notes to the Unaudited Condensed Consolidated Financial Statements NOTE A-ACCOUNTING POLICIES/RESTATEMENT The Colonial BancGroup, Inc. and its subsidiaries ("BancGroup") have not changed their accounting and reporting policies from those stated in the 1999 annual report on Form 10-K other than the election of discontinued operations accounting for its mortgage banking segment (see Note E). These unaudited interim financial statements should be read in conjunction with the audited financial statements and footnotes included in BancGroup's 1999 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 positions as of September 30, 2000 and 1999 and the results of operations and cash flows for the interim periods ended September 30, 2000 and 1999. All 2000 interim amounts are subject to year-end audit, and the results of operations for the interim periods 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 September 30, 2000 will have a materially adverse effect on BancGroup's financial statements. NOTE C-RECENT ACCOUNTING PRONOUNCEMENTS On June 15, 1998, the Financial 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 FASB Statement 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. Management determined that the impact from implementing SFAS No. 133 and SFAS No. 137 will not have a material effect on BancGroup's financial statements. 5 9 NOTE D-MORTGAGE SERVICING RIGHTS An analysis of mortgage servicing rights and the related valuation reserve is as follows:
Nine Months Ended (In thousands) September 30, ------------------------- 2000 1999 --------- --------- MORTGAGE SERVICING RIGHTS Balance, January 1 $ 265,888 $ 221,798 Additions, net 981 60,331 Sales (203,712) -- Scheduled amortization (13,432) (28,329) Hedge losses applied (49,725) 49,164 --------- --------- Balance, September 30 $ -- $ 302,964 ========= ========= VALUATION RESERVE Balance, January 1 $ 27,483 $ 38,329 Reduction (27,783) (6,078) Additions 300 285 --------- --------- Balance, September 30 -- 32,536 --------- --------- MORTGAGE SERVICING RIGHTS, NET $ -- $ 270,428 ========= =========
NOTE E-DISCONTINUED OPERATIONS On July 17, 2000, the Board of Directors of BancGroup approved a letter of intent with a third party to sell the rights to service approximately $5 billion of mortgage loans serviced by Colonial Bank. This sale was completed on August 28, 2000. Final transfer of servicing is expected to be completed in the fourth quarter of 2000. With the completion of this transaction, along with previously disclosed sales of mortgage servicing, BancGroup will exit the mortgage servicing business. BancGroup has entered into a five year agreement with a third party to service its residential real estate portfolio loans. For the quarter ended June 30, 2000, BancGroup recorded a loss on the disposal of the discontinued operations of $4.0 million after tax. The results of the mortgage servicing business have been classified as a discontinued operation in the accompanying financial statements. Loss from discontinued operations, net of income taxes, for the nine months ended September 30, 2000 and 1999 were $4.7 million and $76,000, respectively and $0 and $2.9 million for the three months ended September 30, 2000 and 1999, respectively. 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:
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE PER SHARE PER SHARE AMOUNTS) INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------- ------- --------- ------- ------- --------- 2000 Basic EPS Net Income $84,518 110,917 $ 0.76 $28,561 110,260 $ 0.26 Effect of dilutive securities Options 135 112 Convertible debentures 143 598 48 593 ------- ------- ------- ------- Diluted EPS $84,661 111,650 $ 0.76 $28,609 110,965 $ 0.26 ======= ======= ======= ======= 1999 Basic EPS $88,847 111,580 $ 0.80 $30,436 111,815 $ 0.27 Net Income Effect of dilutive securities Options 978 951 Convertible debentures 164 671 54 667 ------- ------- ------- ------- Diluted EPS $89,011 113,229 $ 0.79 $30,490 113,433 $ 0.27 ======= ======= ======= =======
6 10 NOTE G-SEGMENT INFORMATION Through its wholly owned subsidiary Colonial Bank, BancGroup segments its operations into two distinct lines of business: Commercial Banking and Mortgage Banking. Colonial Bank operates 233 branches throughout 6 states. Operating results of the two segments reflect those 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 tables reflect the approximate amounts of consolidated revenues, expense, and assets for the quarters and nine months ended September 30, 2000 and 1999 for each segment: (in thousands)
DISCONTINUED CONTINUING OPERATIONS OPERATIONS(1) -------------------------------------- ------------ NINE MONTHS ENDED SEPTEMBER 30, 2000 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED BANKING OTHER* TOTAL BANKING BANCGROUP ----------------------------------------------------------------- Net interest income $ 298,045 $(5,232) $292,813 $ -- $292,813 Provision for possible loan losses 21,822 -- 21,822 -- 21,822 Noninterest income 56,622 (24) 56,598 -- 56,598 Depreciation and Amortization 23,148 (311) 22,837 -- 22,837 Non interest expense 160,933 3,297 164,230 -- 164,230 --------- ------- -------- ------- -------- Income from Continuing Operations before Income Taxes 148,764 (8,242) 140,522 -- 140,522 Applicable income taxes 53,552 (2,247) 51,305 -- 51,305 --------- ------- -------- ------- -------- INCOME FROM CONTINUING OPERATIONS $ 95,212 $(5,995) $ 89,217 $ -- $ 89,217 Income (Loss) from Discontinued Operations and Loss on Disposal (Net of Taxes) (4,699) (4,699) --------- ------- -------- ------- -------- NET INCOME $ 95,212 $(5,995) $ 89,217 $(4,699) $ 84,518 ========= ======= ======== ======= ========
DISCONTINUED CONTINUING OPERATIONS OPERATIONS(1) -------------------------------------- ------------ NINE MONTHS ENDED SEPTEMBER 30, 1999 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED BANKING OTHER* TOTAL BANKING BANCGROUP ----------------------------------------------------------------- Net interest income $ 281,060 $(5,669) $275,391 $ -- $275,391 Provision for possible loan losses 19,468 -- 19,468 -- 19,468 Noninterest income 58,494 221 58,715 -- 58,715 Depreciation and Amortization 20,939 (306) 20,633 -- 20,633 Non interest expense 150,442 2,404 152,846 -- 152,846 --------- ------- -------- ------- -------- Income from Continuing Operations before Income Taxes 148,705 (7,546) 141,159 -- 141,159 Applicable income taxes 54,896 (2,660) 52,236 -- 52,236 --------- ------- -------- ------- -------- INCOME FROM CONTINUING OPERATIONS $ 93,809 $(4,886) $ 88,923 $ -- $ 88,923 Income (Loss) from Discontinued Operations and Loss on Disposal (Net of Taxes) (76) (76) --------- ------- -------- ------- -------- NET INCOME $ 93,809 $(4,886) $ 88,923 $ (76) $ 88,847 ========= ======= ======== ======= ========
* Includes eliminations of certain intercompany transactions (1) See Note E for additional information related to Discontinued Operations. 7 11
DISCONTINUED CONTINUING OPERATIONS OPERATIONS(1) -------------------------------------- ------------ QUARTER ENDED SEPTEMBER 30, 2000 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED BANKING OTHER* TOTAL BANKING BANCGROUP ----------------------------------------------------------------- Net interest income $ 97,969 $(1,803) $ 96,166 $ -- $ 96,166 Provision for possible loan losses 8,861 -- 8,861 -- 8,861 Noninterest income 20,657 (8) 20,649 -- 20,649 Depreciation and Amortization 7,661 (105) 7,556 -- 7,556 Non interest expense 54,246 1,174 55,420 -- 55,420 --------- ------- -------- ------- -------- Income from Continuing Operations before Income Taxes 47,858 (2,880) 44,978 -- 44,978 Applicable income taxes 17,214 (797) 16,417 -- 16,417 --------- ------- -------- ------- -------- INCOME FROM CONTINUING OPERATIONS $ 30,644 $(2,083) $ 28,561 $ -- $ 28,561 Income (Loss) from Discontinued Operations and Loss on Disposal (Net of Taxes) -- -- --------- ------- -------- ------- -------- NET INCOME $ 30,644 $(2,083) $ 28,561 $ -- $ 28,561 ========= ======= ======== ======= ========
DISCONTINUED CONTINUING OPERATIONS OPERATIONS(1) -------------------------------------- ------------ QUARTER ENDED SEPTEMBER 30, 1999 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED BANKING OTHER* TOTAL BANKING BANCGROUP ----------------------------------------------------------------- Net interest income $ 97,059 $(1,937) $ 95,122 $ -- $ 95,122 Provision for possible loan losses 7,014 -- 7,014 -- 7,014 Noninterest income 25,741 (8) 25,733 -- 25,733 Depreciation and Amortization 6,973 (102) 6,871 -- 6,871 Non interest expense 53,362 522 53,884 -- 53,884 --------- ------- -------- ------- -------- Income from Continuing Operations before Income Taxes 55,451 (2,365) 53,086 -- 53,086 Applicable income taxes 20,634 (911) 19,723 -- 19,723 --------- ------- -------- ------- -------- INCOME FROM CONTINUING OPERATIONS $ 34,817 $(1,454) $ 33,363 $ -- $ 33,363 Income (Loss) from Discontinued Operations and Loss on Disposal (Net of Taxes) (2,927) (2,927) --------- ------- -------- ------- -------- NET INCOME $ 34,817 $(1,454) $ 33,363 $(2,927) $ 30,436 ========= ======= ======== ======= ========
* Includes eliminations of certain intercompany transactions (1) See Note E for additional information related to Discontinued Operations. 8 12 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 nine months and twelve months ended September 30, 2000, respectively, as follows (in thousands):
DECEMBER 31, 1999 September 30, 1999 TO SEPTEMBER 30, 2000 to September 30, 2000 INCREASE (DECREASE) Increase (Decrease) -------------------------- --------------------------- AMOUNT % Amount % -------------------------- --------------------------- Assets Bank $ 857,029 8.2% $ 1,236,807 12.2% Mortgage Banking (235,778) -69.0% (382,435) -78.3% Other 178 1.4% 232 1.9% -------------------------- --------------------------- Total assets 621,429 5.7% 854,604 8.0% -------------------------- --------------------------- Securities (20,897) -1.3% (48,591) -3.1% Mortgage loans held for sale (23,210) -70.0% (172,153) -94.5% Loans, net of unearned income 879,244 10.7% 1,251,167 15.9% Mortgage Servicing Rights (238,405) -100.0% (270,428) -100.0% Deposits 75,872 1.0% 442,640 5.8% Long term debt (225,912) -31.9% (299,071) -38.3%
ASSETS: BancGroup's assets have increased 8.0% and 5.7% since September 30, 1999 and December 31, 1999, respectively. This growth resulted primarily from internal loan growth throughout BancGroup's banking regions. SECURITIES: Investment securities and securities available for sale have decreased $49 million (3.1%) and $21 million (1.3%) since September 30, 1999 and December 31, 1999, respectively. These fluctuations were due to strong demand for funds. LOANS AND MORTGAGE LOANS HELD FOR SALE: Loans, net of unearned income, have increased $1.3 billion (16%) and $879 million (11%) from September 30, 1999, and December 31, 1999, respectively. These increases are primarily due to internal growth. For the nine months of 2000, loan growth was concentrated in the Florida, Georgia, and Alabama markets which represented 56%, 20%, and 18% of the growth, respectively. Mortgage loans held for sale are funded on a short-term basis (less than 90 days) while they are being packaged for sale in the secondary market. In October 1999, BancGroup sold the wholesale production unit of the mortgage banking division. As a result of decreased activity due to this sale and increasing mortgage rates, mortgage loans held for sale decreased $172 million from September 30, 1999. Mortgage loans held for sale decreased $23 million from December 31, 1999 due to a decline in retail mortgage production. 9 13 GROSS LOANS BY CATEGORY (In thousands)
SEPT. 30, Dec. 31, Sept. 30, 2000 1999 1999 ---------- ---------- ---------- Commercial, financial, and agricultural $1,164,525 $1,126,191 $1,074,796 Real estate - commercial 2,962,449 2,538,304 2,459,944 Real estate - construction 1,706,198 1,435,004 1,297,822 Real estate - residential 2,546,494 2,528,413 2,440,681 Installment and consumer 285,284 297,555 304,286 Other 442,443 302,682 278,697 ---------- ---------- ---------- Total loans $9,107,393 $8,228,149 $7,856,226 ========== ========== ==========
The majority of the $879 million in loan growth for nine months of 2000 has been in loans collateralized by commercial real estate, which increased approximately $424 million from December 31, 1999 and construction loans which increased approximately $271 million from December 31, 1999. The increase of $1.3 billion from September 30, 1999, consisted primarily of commercial real estate loans of $503 million and construction loans of $408 million. Residential real estate loans increased $18 million and $106 million from December 31, 1999 and September 30, 1999, respectively. Residential real estate loans consist primarily of adjustable rate first mortgage loans. BancGroup generally sells fixed rate loans in the secondary markets. BancGroup's loans are concentrated in various areas in Alabama, the metropolitan Atlanta market, as well as BancGroup's Florida markets. Colonial's loan portfolio is distributed throughout its banking regions as follows: 42% in Alabama, 39% in Florida, 12% in Georgia, 4% in Nevada, and 3% in Texas. Other loans includes a unit established for loans to unaffiliated mortgage companies to provide warehouse lines of credit while those companies' loans are being packaged for sale in the secondary market. The increase in other loans is primarily due to the increase in these warehouse lines. 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 allocations of the total allowance represents an approximation of the reserves for each category of loans based on management's evaluation of risk within each loan type. ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
PERCENT OF Percent of Percent of SEPT. 30, LOANS TO Dec. 31, Loans to Sept. 30, Loans to 2000 TOTAL LOANS 1999 Total Loans 1999 Total Loans --------- ----------- -------- ----------- --------- ----------- (In thousands) Commercial, financial, and agricultural $ 25,660 12.8% $23,051 13.7% $22,085 13.7% Real estate - commercial 40,767 32.5 34,729 30.8 32,930 31.3 Real estate - construction 17,439 18.7 16,907 17.4 17,634 16.5 Real estate - residential 12,732 28.0 12,642 30.7 12,203 31.1 Installment and consumer 3,276 3.1 3,992 3.6 4,101 3.9 Other 3,987 4.9 4,672 3.8 2,799 3.5 -------- ----- ------- ----- ------- ---- TOTAL $103,861 100.0% $95,993 100.0% $91,752 100.0% ======== ===== ======= ===== ======= ====
10 14 SUMMARY OF LOAN LOSS EXPERIENCE
NINE MONTHS Year Nine Months ENDED Ended Ended (In thousands) SEPT. 30, 2000 Dec. 31, 1999 Sept. 30, 1999 -------------- ------------- -------------- Allowance for possible loan losses - January 1 $ 95,993 $83,562 $83,562 Charge-offs: Commercial, financial, and agricultural 8,513 9,627 7,512 Real estate - commercial 2,557 3,226 2,153 Real estate - construction 117 1,171 404 Real estate - residential 2,208 2,579 2,043 Installment and consumer 3,189 5,044 3,589 Other 882 1,711 1,274 -------- ------- ------- Total charge-offs 17,466 23,358 16,975 ======== ======= ======= Recoveries: Commercial, financial, and agricultural 1,083 2,516 2,352 Real estate - commercial 375 601 340 Real estate - construction 61 54 42 Real estate - residential 397 849 797 Installment and consumer 1,340 2,678 1,848 Other 256 384 318 -------- ------- ------- Total recoveries 3,512 7,082 5,697 -------- ------- ------- Net charge-offs 13,954 16,276 11,278 Addition to allowance charged to operating expense 21,822 28,707 19,468 -------- ------- ------- Allowance for possible loan losses-end of period $103,861 $95,993 $91,752 ======== ======= =======
NONPERFORMING ASSETS ARE SUMMARIZED BELOW
(In thousands) SEPT. 30, 2000 Dec. 31, 1999 Sept. 30, 1999 -------------- ------------- -------------- Nonaccrual loans $ 43,179 $34,461 $28,255 Restructured loans 1,174 1,265 1,270 -------- ------- ------- Total nonperforming loans* 44,353 35,726 29,525 Other real estate owned and in substance foreclosures 6,510 9,215 6,196 -------- ------- ------- Total nonperforming assets* $ 50,863 $44,941 $35,721 ======== ======= ======= Aggregate loans contractually past due 90 days for which interest is being accrued $ 10,161 $11,184 $ 8,750 Net charge-offs: Quarter-to-Date $ 6,390 $ 4,998 $ 3,336 Year-to-Date 13,954 16,276 11,278 RATIOS Period end: Total nonperforming assets as a percent of net loans and other real estate 0.56% 0.55% 0.45% Allowance as a percent of net loans 1.14% 1.17% 1.17% Allowance as a percent of nonperforming assets* 204% 214% 257% Allowance as a percent of nonperforming loans* 234% 269% 311% For the period end: Net charge-offs as a percent of average net loans (annualized basis) Quarter-to-Date 0.29% 0.25% 0.17% Year-to-Date 0.21% 0.21% 0.20%
* Total does not include loans contractually past due 90 days or more, which are still accruing interest 11 15 Asset quality as measured by nonperforming assets remains strong at 0.56% of net loans and other real estate at September 30, 2000. Nonperforming assets have increased $5.9 million from December 31, 1999. The increase in nonperforming assets primarily resulted from a $8.6 million increase in nonaccrual loans, partially offset by a $2.7 million decrease in other real estate. The increase in nonaccrual loans is primarily the result of three large credits in Alabama. The reduction in other real estate is primarily from the sale of one property in Alabama. Management continuously monitors and evaluates recoverability of problem assets and adjusts loan loss reserves accordingly. Allowance for possible loan losses is 1.14% of loans at September 30, 2000 as compared to 1.17% at December 31, 1999 and 1.17% at September 30, 1999. Annualized net charge-offs quarter to date remain low at .29% of loans for the quarter, half of which were from a single large loan to an Alabama customer. Annualized year to date charge-offs of .21% of loans were equal to the .21% experience for the full year 1999. Colonial continues to focus its efforts on relationship-based lending to known customers in its geographical market areas. Therefore, Colonial does not have significant exposure to losses from nationwide syndicated lending operations that generate loans outside of Colonial's geographic markets, indirect auto financing, or sub-prime lending. Management, through its loan officers, internal loan review staff, and external examinations by regulatory agencies has identified approximately $193 million of potential problem loans not included above. The status of these loans is reviewed at least quarterly by loan officers and loan administration and annually by regulatory agencies. In connection with such reviews, collateral values are updated where considered necessary. If collateral values are judged insufficient and 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 September 30, 2000, substantially all of these loans are current with their existing repayment terms. 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. The above nonperforming loans and potential problem loans represent all material credits for which management has doubts as to the ability of the borrowers to comply with the loan repayment terms. The recorded investment in impaired loans at September 30, 2000 was $32.3 million and these loans had a corresponding valuation allowance of $14.4 million. MORTGAGE SERVICING RIGHTS: The balance of Mortgage Servicing Rights was $0 at September 30, 2000 and $270.4 million at September 30, 1999. The company sold MSR's related to approximately $9 billion and $5 billion of principle balances from the mortgage loan servicing portfolio in March 2000 and August 2000, respectively. With the transfers of these loans, which is expected to be completed by this year-end, the company will have completed its plans to exit the mortgage servicing business. Included in Other Assets are the funds due from third parties upon completion of this transfer. As a result of the previously discussed plans to exit the mortgage servicing business, all hedges related to MSR's were liquidated during the third quarter of 2000. 12 16 LIQUIDITY: The maintenance of adequate liquidity position and the monitoring of rate sensitivity are the responsibility of BancGroup's asset/liability management committee. BancGroup's governing policy provides for daily and longer term monitoring of both sources and uses of funds to properly maintain the liquidity position. The policy also establishes the criteria for monitoring the short and long term impact of interest rate fluctuations on these funds. BancGroup has credit facilities at the FHLB, excluding funds available through short and long term federal funds lines. This credit facility is collateralized by BancGroup's, residential and real estate loans. At September 30, 2000, BancGroup had FHLB borrowings of $1,048 million outstanding leaving credit availability of $374 million based on current collateral. In addition to FHLB borrowings, correspondent banks and customers provide a consistent base of short-term funds with $1,247 million in Fed Funds purchased and repurchase agreements outstanding at September 30, 2000. BancGroup has entered into reverse repurchase arrangements under which it purchased mortgage backed securities. These securities are collateral for $274 million in debt. During 1999, BancGroup entered into a revolving credit facility with an unaffiliated financial institution totaling $25 million of which $3 million was outstanding at September 30, 2000. BancGroup also has an established brokered Certificate of Deposit (CD) program to offer CD's in increments of $1,000 to $99,000 to out of market customers at competitive rates and maturities. At September 30, 2000, $326 million was outstanding under this program as compared to $608 million at December 31, 1999. BancGroup has a brokered money market program that attracts deposits from out-of-market customers. At September 30, 2000, $60 million was outstanding in this program, as compared to $239 million at December 31, 1999. In addition to these external sources of funds, BancGroup through its acquisitions and branch expansion programs has increased its market presence in high growth markets in the country. The expansion was concentrated in Florida with additional growth in the Atlanta metropolitan area, Dallas, Texas and Reno and Las Vegas, Nevada. The company's growth market strategy put in place in 1996 has resulted in considerable success in the 2000 growth rates in various markets. The company's Alabama markets have experienced 6% annualized loan growth and 6% deposit growth, while the company's higher growth markets have contributed 25% loan growth and 16% deposit growth during this year. The principle goal is to provide BancGroup's retail customer base with convenient access to branch locations while enhancing BancGroup's potential for future increased profitability. BancGroup continues several initiatives to grow deposits throughout its market. The high growth areas of Florida are a primary target due to lower cost funds in that market. Average retail deposits increased $518 million in the nine month period ending September 30, 2000. This increase represents 12% average internal growth on an annualized basis. The company's retail deposit base is currently 45% in Alabama, 39% in Florida, 10% in Georgia, 3% in Nevada, and 3% in Texas. The growth of deposits continues to be a primary strategic initiative of BancGroup, although competition for deposits remain strong within the banking industry as well as increased competition from other business sectors. In January 2000, a branch incentive plan was implemented in which a key goal is for employees to obtain an established deposit growth rate in their branches. Management has contracted with a consultant to target specific products and markets for future deposit campaigns in order to more cost effectively grow deposits. Each of these initiatives should provide a solid foundation for achieving BancGroup's deposit growth objectives. The growth in retail deposits provided funds which allowed the reduction in the brokered deposits discussed above as well as off-setting the reduction in custodial deposits resulting from the transfer of mortgage loan servicing to a third party as previously discussed. 13 17 CAPITAL RESOURCES: Management continuously monitors BancGroup's capital adequacy and potential for future growth. BancGroup has access to equity capital markets through both public and private issuance's. Management considers these sources and the related return in addition to internally generated capital in evaluating future capital resources. The Federal Reserve has issued guidelines identifying Tier I and Tier II capital components as well as minimum Tier I leverage ratios relative to total assets and minimum capital ratios relative to risk-adjusted assets. BancGroup issued $70 million in Trust Preferred Securities in 1997 that qualifies as Tier I capital and Colonial Bank issued $100 million in 8% Subordinated Notes in March 1999 that qualifies as Tier II capital. As a result of BancGroup's share repurchase plan, 2,788,420 of treasury shares were remaining at September 30, 2000. The capital related to these treasury shares is reflected as a reduction in Tier One Capital. BancGroup's actual capital ratios and the components of capital and risk adjusted asset information (subject to regulatory review) as of September 30, 2000 are stated below: Capital (in thousands): Tier I Capital: Shareholders' equity (as adjusted for unrealized loss on securities available for sale, less intangibles plus Trust Preferred Securities) $ 740,846 Tier II Capital: Allowable loan loss reserve 103,861 Subordinated debt 111,929 ----------- Total Capital $ 956,636 =========== Risk Adjusted Assets (in thousands) $ 8,862,187
September 30, December 31, 2000 1999 ---------------------------------------- Tier I leverage ratio (minimum 3%) 6.50% 6.58% Risk Adjusted Capital Ratios: Tier I Capital Ratio (minimum 4%) 8.36% 8.71% Total Capital Ratio (minimum 8%) 10.79% 11.31%
Management believes that capital levels are sufficient to support future internally generated growth and fund the quarterly dividend rates that are currently $0.11 per share each quarter. YEAR 2000 READINESS DISCLOSURE: Until recently, many computer software programs and processing systems, including some of those used by BancGroup and its subsidiaries in their operations, were not designed to accommodate entries beyond the year 1999 in date fields. Failure to address the anticipated consequences of this design deficiency could have had material adverse effects on the business and operations of any business, including BancGroup, that relies on computers and associated technologies. BancGroup aggressively addressed the challenges that Year 2000 presented to its operations. The transition into Year 2000 went according to plan with all functions doing business as usual. BancGroup incurred approximately $12,500,000 in expenditures on the Year 2000 project. Year 2000 project costs of approximately $560,000 were expensed during 1999 of which $260,000 was expensed during the nine months ended September 30, 1999. BancGroup does not anticipate additional material expenses in connection with the Year 2000 project. 14 18
AVERAGE VOLUME AND RATE (UNAUDITED) (Dollars in thousands) THREE MONTHS ENDED, SEPTEMBER 30, ------------------------------------------------------------------------- 2000 1999 ------------------------------------ ---------------------------------- AVERAGE AVERAGE VOLUME INTEREST RATE VOLUME INTEREST RATE ------------------------------------ ---------------------------------- ASSETS Loans, net $ 8,953,208 $202,640 9.01% $ 7,749,951 $166,034 8.51% Mortgage loans held for sale 7,820 169 8.64% 215,119 4,226 7.86% Investment securities and securities available for sale and other interest-earning assets 1,674,933 28,591 6.80% 1,697,875 26,643 6.27% ------------------------- -------------------------- Total interest-earning assets(1) 10,635,961 231,400 8.67% 9,662,945 196,903 8.10% --------- --------- Nonearning assets 812,206 979,842 ----------- ----------- Total Assets $11,448,167 $10,642,787 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing deposits $ 6,866,967 $ 92,718 5.37% $ 6,255,514 $ 68,945 4.37% Short-term borrowings 1,626,957 26,870 6.57% 1,245,135 16,000 5.10% Long-term debt 895,477 14,630 6.50% 988,379 15,401 6.19% ------------------------- ------------------------- Total interest-bearing liabilities 9,389,401 134,218 5.69% 8,489,028 100,346 4.69% ------------------------- ------------------------- Noninterest-bearing demand deposits 1,250,118 1,391,870 Other liabilities 95,156 82,719 ----------- ----------- Total liabilities 10,734,675 9,963,617 Shareholders' equity 713,492 679,170 ----------- ----------- Total liabilities and shareholders' equity $11,448,167 $10,642,787 =========== =========== RATE DIFFERENTIAL 2.98% 3.41% NET YIELD ON INTEREST-EARNING ASSETS $ 97,182 3.65% $ 96,557 3.98% ========= =========
(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. 15 19
AVERAGE VOLUME AND RATE (UNAUDITED) (Dollars in thousands) NINE MONTHS ENDED, SEPTEMBER 30, ------------------------------------------------------------------------- 2000 1999 ------------------------------------ ---------------------------------- AVERAGE AVERAGE VOLUME INTEREST RATE VOLUME INTEREST RATE ------------------------------------ ---------------------------------- ASSETS Loans, net $ 8,692,852 $579,020 8.89% $ 7,475,553 $476,633 8.52% Mortgage loans held for sale 16,753 1,005 8.00% 424,071 23,224 7.30% Investment securities and securities available for sale and other interest-earning assets 1,673,797 85,178 6.80% 1,670,692 77,970 6.22% ------------------------- -------------------------- Total interest-earning assets(1) 10,383,402 665,203 8.55% 9,570,316 577,827 8.07% --------- --------- Nonearning assets 894,227 983,040 ---------------- ----------------- Total Assets $11,277,629 $10,553,356 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing deposits $ 6,755,726 $256,576 5.07% $ 6,121,199 $200,900 4.39% Short-term borrowings 1,466,470 68,375 6.23% 1,364,971 51,340 5.03% Long-term debt 946,942 45,365 6.39% 917,506 41,943 6.11% ------------------------- -------------------------- Total interest-bearing liabilities 9,169,138 370,316 5.39% 8,403,676 294,183 4.68% ------------------------- -------------------------- Noninterest-bearing demand deposits 1,301,962 1,395,200 Other liabilities 105,232 87,185 ---------------- ----------------- Total liabilities 10,576,332 9,886,061 Shareholders' equity 701,297 667,295 ---------------- ----------------- Total liabilities and shareholders' equity $11,277,629 $10,553,356 ================ ================= RATE DIFFERENTIAL 3.16% 3.39% NET YIELD ON INTEREST-EARNING ASSETS $294,887 3.79% $283,644 3.96% ========= =========
(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. 16 20
ANALYSIS OF INTEREST INCREASES (DECREASES) (UNAUDITED) (Dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30, 2000 CHANGE FROM 1999 ATTRIBUTED TO (1) TOTAL VOLUME RATE MIX -------- -------- -------- ------- INTEREST INCOME: Total loans, net $ 36,606 $ 25,574 $ 9,424 $ 1,608 Mortgage loans held for sale (4,057) (4,062) (892) 897 Investment securities and securities for sale and other interest-earning assets 1,948 (364) 2,565 (253) -------- -------- -------- ------- Total interest income (2) 34,497 21,148 11,097 2,252 -------- -------- -------- ------- INTEREST EXPENSE: Interest-bearing deposits $ 23,773 $ 6,726 $ 15,552 $ 1,495 Short-term borrowings 10,870 4,843 5,044 983 Long-term debt (771) (1,418) 698 (51) -------- -------- -------- ------- Total interest expense 33,872 10,151 21,294 2,427 -------- -------- -------- ------- Net Interest income $ 625 $ 10,997 $(10,197) $ (175) ======== ======== ======== =======
NINE MONTHS ENDED SEPTEMBER 30, 2000 CHANGE FROM 1999 ATTRIBUTED TO (1) TOTAL VOLUME RATE MIX -------- -------- -------- ------- INTEREST INCOME: Total loans, net $102,387 $ 77,856 $ 20,764 $ 3,767 Mortgage loans held for sale (22,219) (22,321) 2,228 (2,126) Investment securities and securities for sale and other interest-earning assets 7,208 145 7,274 (211) -------- -------- -------- ------- Total interest income (2) 87,376 55,680 30,266 1,430 -------- -------- -------- ------- INTEREST EXPENSE: Interest-bearing deposits $ 55,676 $ 20,911 $ 31,247 $ 3,518 Short-term borrowings 17,035 3,833 12,296 906 Long-term debt 3,422 1,350 1,929 143 -------- -------- -------- ------- Total interest expense 76,133 26,094 45,472 4,567 -------- -------- -------- ------- Net Interest income $ 11,243 $ 29,586 $(15,206) $(3,137) ======== ======== ======== =======
(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 Mix change = change in volume times change in rate. (2) Interest earned on obligations of state and political subdivisions is reflected on a tax equivalent basis. Tax equivalent interest earned is: actual interest earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest, for federal income tax purposes, related to certain tax-free assets. Dividends earned on preferred stock are reflected on a tax equivalent basis. Tax equivalent dividends earned are: actual dividends times 137.7%. Tax equivalent average rate is tax equivalent interest or dividends earned divided by average volume. 17 21 NET INTEREST INCOME: As with other banks, the company's net interest margin declined during the quarter. Net interest income on a tax equivalent basis increased $1.3 million to $97.0 million for the quarter ended September 30, 2000, from $95.7 million for the quarter ended September 30, 1999. The net yield on interest earning assets decreased from 3.98% to 3.65% for the three months ended September 30, 1999 and 2000, respectively. For the first nine months of 2000, net interest income on a tax equivalent basis increased $17.7 million to $295.4 million as compared to $277.7 million for the same period in 1999. The net yield on interest earning assets decreased from 3.96% to 3.79% for the nine months ended September 30, 1999 compared to the same period in 2000. As reflected on the previous tables, the increase in net interest income for the three and nine months was primarily attributable to 16% and 12% annualized loan growth. However, loan growth was overshadowed by increased margin compression. The 33 basis point and 17 basis point decline in the net interest margin for the third quarter and nine months ended September 30, 2000, compared to the same period last year, respectively, are mainly due to: (1) Federal Reserve Rate increases, (2) strong loan growth creating an increased funding need resulting in pressure on funding cost, and (3) the shifting of customer deposits from non-interest and low-cost interest bearing accounts to higher yields due to the current rate environment. LOAN LOSS PROVISION: The provision for possible loan losses for the nine months ended September 30, 2000 was $21.8 million compared to $19.5 million for the same period in 1999. While asset quality remains good, strong loan growth in 2000 resulted in an increase in loan loss provision. The current allowance for possible loan losses provides 234% coverage of nonperforming loans compared to 269% at December 31, 1999 and 311% at September 30, 1999. See managements discussion on loan quality and the allowance for possible loan losses presented in the Financial Condition section of this report. NONINTEREST INCOME: Noninterest income, excluding gains on sale of certain branches and other one time miscellaneous income items of $10.2 million and $9.2 million for the nine and three months ended September 30, 1999, increased $8.1 million (17%) for the nine months ended September 30, 2000 compared to the same period in 1999 and $4.1 million (25%) for the three months ended September 30, 2000 over the three months ended September 30, 1999. These increases are primarily attributable to additional fee income related to wealth management services, electronic banking fees, and merchant/cardholder fees. BancGroup is continuing to expand its services through increased efforts in private banking and wealth management services, which include asset management services, trust services, and sales of mutual funds and annuities. Wealth management services contributed $6.6 million to noninterest income for the nine months ended September 30, 2000 compared to $4.1 million for the same period in 1999. International banking activities resulted in $1.2 million in noninterest income for the nine months ended September 30, 2000 compared to $1.0 million for the same period last year. BancGroup also continues to expand electronic banking services through its ATM network, check card services, and internet banking. Noninterest income for electronic banking services increased approximately 24% for the nine months ended September 30, 2000 compared to the same period in 1999 while income from traditional banking services such as service charges remained level. NONINTEREST EXPENSES: BancGroup's net overhead (total noninterest expense less noninterest income, excluding security gains) was $42.3 million and $130.5 million for the three and nine months ended September 30, 2000, respectively compared to $44.2 million and $124.9 million for the three and nine months ended September 30, 1999. Excluding gains on sale of certain branches and one time miscellaneous income items as previously discussed, BancGroups efficiency ratio was 53.14% and 53.18% for the nine months ended September 30, 2000 and 1999 respectively. Noninterest expense increased $13.6 million (8%) for the nine months ended September 30, 2000 compared to the same period in 1999. This increase in bank related expenses is primarily due to an increase of $8.0 million in salaries and employee benefits, $4.4 million in occupancy and equipment expense and $1.2 million in other operating expenses. These salary increases are due to normal wage increases, increased commission expense related to wealth management activities, and increased compensation for the 2000 Branch Incentive Program. The occupancy and equipment increases are due to improvements and expansions of bank facilities as well as improved technology equipment and software. Noninterest expenses for the quarter ended September 30, 2000 increased $2.2 million (4%) over the same period in 1999. This increase in expenses is also due to increases in salaries and employee benefits of $2.8 million and occupancy and equipment expense increase of $1.3 million, partially offset by a decrease in other expenses of $1.9 million as a result of decreased conversion related expenses of previously acquired banks as well as other miscellaneous operating expenses. 18 22 PROVISION FOR INCOME TAXES: BancGroup's provision for income taxes is based on an approximately 36.5% and 37.0%, estimated annual effective tax rate for the years 2000 and 1999, respectively. The provision for income taxes for the nine months ended September 30, 2000 and 1999 was $51.3 million and $52.2 million respectively. DISCONTINUED OPERATIONS: BancGroup estimates that the cost of disposing of its mortgage servicing, net of the operating profit (loss) from June 30, 2000 until final disposition of discontinue mortgage operations will be approximately $4.0 million after tax. Refer to Note E in the Consolidated Financial Statements for additional information related to discontinued operations. PART II - OTHER INFORMATION ITEM 1: Legal Proceedings - See Note C - 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 - N/A ITEM 5: Other Events - N/A ITEM 6: (a) Form 8-K - Was filed on July 18, 2000 in regard to a letter of intent for the sale of approximately $5.0 billion of principle value of the mortgage servicing portfolio to a third party. (b) Form 8-K - Was filed on October 18, 2000 in regard to Colonial BancGroup announcement of 3rd quarter earnings with accompanying financial statements. (c) Exhibit 27 - Financial Data Schedule (for SEC use only) 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: November 14, 2000 By:/S/ W. Flake Oakley, IV -------------------------- W. Flake Oakley, IV its Chief Financial Officer 19 EX-27 2 g65326ex27.txt FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 280,628 12,722 48,400 0 1,482,962 47,814 48,190 9,107,393 103,861 11,475,528 8,043,850 1,950,526 94,036 663,540 0 0 723,576 0 11,475,528 579,127 81,234 1,967 662,328 256,576 369,515 292,813 21,822 (40) 187,067 140,522 89,217 (4,699) 0 84,518 0.76 0.76 3.79 43,179 10,161 0 193,000 95,993 17,466 3,512 103,861 103,861 0 0
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