<PAGE> 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)
<TABLE>
<S> <C>
DELAWARE 63-0661573
------------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
</TABLE>
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.
<TABLE>
<CAPTION>
Class Outstanding as of October 31, 2000
------------------------------------ -------------------------------
<S> <C>
Common Stock, $2.50 Par Value 113,078,539
</TABLE>
<PAGE> 2
THE COLONIAL BANCGROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
<S> <C> <C>
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
</TABLE>
<PAGE> 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.
<PAGE> 4
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
-1-
<PAGE> 5
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- -----------------------
2000 1999 2000 1999
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
-2-
<PAGE> 6
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
-3-
<PAGE> 7
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
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
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
-4-
<PAGE> 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
<PAGE> 9
NOTE D-MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights and the related valuation
reserve is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands) September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
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
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
6
<PAGE> 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)
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS(1)
-------------------------------------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
========= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS(1)
-------------------------------------- ------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
========= ======= ======== ======= ========
</TABLE>
* Includes eliminations of certain intercompany transactions
(1) See Note E for additional information related to Discontinued Operations.
7
<PAGE> 11
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS(1)
-------------------------------------- ------------
QUARTER ENDED SEPTEMBER 30, 2000 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
========= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS(1)
-------------------------------------- ------------
QUARTER ENDED SEPTEMBER 30, 1999 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
========= ======= ======== ======= ========
</TABLE>
* Includes eliminations of certain intercompany transactions
(1) See Note E for additional information related to Discontinued Operations.
8
<PAGE> 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):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 September 30, 1999
TO SEPTEMBER 30, 2000 to September 30, 2000
INCREASE (DECREASE) Increase (Decrease)
-------------------------- ---------------------------
AMOUNT % Amount %
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
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
<PAGE> 13
GROSS LOANS BY CATEGORY
(In thousands)
<TABLE>
<CAPTION>
SEPT. 30, Dec. 31, Sept. 30,
2000 1999 1999
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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%
======== ===== ======= ===== ======= ====
</TABLE>
10
<PAGE> 14
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
NINE MONTHS Year Nine Months
ENDED Ended Ended
(In thousands) SEPT. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
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
======== ======= =======
</TABLE>
NONPERFORMING ASSETS ARE SUMMARIZED BELOW
<TABLE>
<CAPTION>
(In thousands) SEPT. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
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%
</TABLE>
* Total does not include loans contractually past due 90 days or more, which
are still accruing interest
11
<PAGE> 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
<PAGE> 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
<PAGE> 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):
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------------------------
<S> <C> <C>
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%
</TABLE>
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
<PAGE> 18
<TABLE>
<CAPTION>
AVERAGE VOLUME AND RATE
(UNAUDITED)
(Dollars in thousands) THREE MONTHS ENDED, SEPTEMBER 30,
-------------------------------------------------------------------------
2000 1999
------------------------------------ ----------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
========= =========
</TABLE>
(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
<PAGE> 19
<TABLE>
<CAPTION>
AVERAGE VOLUME AND RATE
(UNAUDITED)
(Dollars in thousands) NINE MONTHS ENDED, SEPTEMBER 30,
-------------------------------------------------------------------------
2000 1999
------------------------------------ ----------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
========= =========
</TABLE>
(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
<PAGE> 20
<TABLE>
<CAPTION>
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
-------- -------- -------- -------
<S> <C> <C> <C> <C>
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)
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
CHANGE FROM 1999
ATTRIBUTED TO (1)
TOTAL VOLUME RATE MIX
-------- -------- -------- -------
<S> <C> <C> <C> <C>
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)
======== ======== ======== =======
</TABLE>
(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
<PAGE> 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
<PAGE> 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
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