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