<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 JUNE 30, 2000 COMMISSION FILE NUMBER 1-13508
THE COLONIAL BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0661573
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Commerce Street
Montgomery, Alabama 36104
------------------------------------------
(Address of principle executive offices)
(334) 240-5000
-----------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at July 31, 2000
----------------------------- ----------------------------
Common Stock, $2.50 Par Value 113,101,053
<PAGE> 2
THE COLONIAL BANCGROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Condition - June 30, 2000, December 31, 1999 and June 30, 1999 1
Consolidated Statements of Income -Six months ended June 30, 2000 and June 30, 1999 and Three months ended 2
June 30, 2000 and June 30, 1999
Consolidated Statements of Comprehensive Income - Six months ended June 30, 2000 and June 30 1999 and Three 3
months ended June 30, 2000 and June 30, 1999
Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and June 30, 1999 4
Notes to Consolidated Financial Statements - June 30, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
</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 businesses of BancGroup and acquired
institutions are greater than expected; (iv) changes in the interest rate
environment which reduce margins (v) changes in mortgage servicing rights
prepayment assumptions; (vi) changes which may occur in the regulatory
environment; (vii) a significant rate of inflation (deflation); and (viii)
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.
<PAGE> 4
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
-------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 361,432 $ 338,433 $ 314,332
Interest-bearing deposits in banks and federal funds sold 86,937 30,482 31,670
Securities available for sale 1,586,907 1,489,991 1,656,866
Investment securities 52,046 61,682 141,562
Mortgage loans held for sale 18,377 33,150 376,996
Loans, net of unearned income 8,913,328 8,228,149 7,590,662
Less: Allowance for possible loan losses (101,390) (95,993) (88,069)
-------------------------------------------------------
Loans, net 8,811,938 8,132,156 7,502,593
Premises and equipment, net 187,878 190,946 185,312
Excess of cost over tangible and identified intangible
Assets acquired, net 76,989 79,468 82,199
Mortgage servicing rights 81,800 238,405 262,348
Other real estate owned 7,011 9,215 7,226
Accrued interest and other assets 348,726 250,171 203,022
-------------------------------------------------------
TOTAL ASSETS $ 11,620,041 $ 10,854,099 $ 10,764,126
=======================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits $ 8,251,265 $ 7,967,978 $ 7,603,162
FHLB short-term borrowings 525,000 490,000 595,000
Other short-term borrowings 1,354,657 703,429 924,092
Subordinated debt 111,939 112,048 112,464
Trust preferred securities 70,000 70,000 70,000
FHLB long-term debt 372,250 572,549 570,649
Other long-term debt 134,583 134,974 135,341
Other liabilities 104,094 107,942 86,848
-------------------------------------------------------
Total liabilities 10,923,788 10,158,920 10,097,556
-------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common Stock, $2.50 par value; 200,000,000 shares
authorized; 113,075,283, 112,106,663, and 111,615,532
shares issued at June 30, 2000, December 31, 1999, and
June 30, 1999, respectively 282,688 280,267 279,039
Treasury stock (2,882,076 at June 30, 2000) (27,500) -- --
Additional paid in capital 118,824 118,728 116,801
Retained earnings 357,927 326,578 286,649
Unearned compensation (3,421) (1,622) (1,882)
Accumulated other comprehensive income (loss),
net of taxes (32,264) (28,772) (14,037)
-------------------------------------------------------
Total shareholders' equity 696,253 695,179 666,570
-------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,620,041 $ 10,854,099 $ 10,764,126
=======================================================
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 5
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 376,638 $ 310,080 $ 195,644 $ 158,401
Interest on investments 54,007 49,031 27,322 25,591
Other interest and dividends income 1,255 1,190 753 632
--------- --------- --------- ---------
Total interest income 431,900 360,301 223,719 184,624
--------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits 163,858 131,955 86,072 67,290
Interest on short-term borrowings 41,296 22,512 22,612 10,814
Interest on long-term debt 30,099 25,564 15,707 14,115
--------- --------- --------- ---------
Total interest expense 235,253 180,031 124,391 92,219
--------- --------- --------- ---------
NET INTEREST INCOME 196,647 180,270 99,328 92,405
Provision for possible loan losses 12,961 12,454 7,414 6,436
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 183,686 167,816 91,914 85,969
--------- --------- --------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 18,825 18,921 9,477 9,476
Other charges, fees and commissions 5,167 4,547 2,963 2,187
Securities gains, net of losses (61) 9 (69) --
Other income 12,133 9,545 6,220 4,480
--------- --------- --------- ---------
Total noninterest income 36,064 33,022 18,591 16,143
--------- --------- --------- ---------
NONINTEREST EXPENSE:
Salaries and employee benefits 61,343 56,113 31,498 28,621
Occupancy expense of bank premises, net 14,691 13,676 7,390 6,942
Furniture and equipment expenses 14,244 12,181 7,264 6,238
Other expense 33,928 30,795 16,910 14,317
--------- --------- --------- ---------
Total noninterest expense 124,206 112,765 63,062 56,118
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 95,544 88,073 47,443 45,994
Applicable income taxes 34,888 32,513 17,320 17,051
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 60,656 55,560 30,123 28,943
========= ========= ========= =========
DISCONTINUED OPERATIONS:
Income/(Loss) from discontinued operations, net of income
Taxes of ($128), $1,725, ($35), and $1,210 for the six
months ended June 30, 2000 and for the three months
ended June 30, 2000 and 1999 (743) 2,851 (151) 1,320
Loss of disposal of discontinued operations (net of income
tax benefit of $2,394) (3,956) -- (3,956) --
--------- --------- --------- ---------
NET INCOME $ 55,957 $ 58,411 $ 26,016 $ 30,263
========= ========= ========= =========
EARNINGS PER SHARE:
INCOME FROM CONTINUING OPERATIONS:
Basic $ 0.55 $ 0.50 $ 0.27 $ 0.26
Diluted $ 0.54 $ 0.49 $ 0.27 $ 0.26
NET INCOME
Basic $ 0.50 $ 0.52 $ 0.24 $ 0.27
Diluted $ 0.50 $ 0.52 $ 0.23 $ 0.27
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 6
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET INCOME $ 55,957 $ 58,411 $ 26,016 $ 30,263
OTHER COMPREHENSIVE INCOME, NET OF TAXES:
Unrealized gains (losses) on securities available for sale
arising during the period, net of taxes (3,487) (16,369) (1,022) (8,848)
Less: reclassification adjustment for net (gains) losses
included in net income (5) (5)
COMPREHENSIVE INCOME $ 52,465 $ 42,037 $ 24,994 $ 21,415
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 7
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 164,384 $ 303,228
-------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 99,429 190,004
Proceeds from sales of securities available for sale 41,034 53,277
Purchase of securities available for sale (242,812) (511,822)
Proceeds from maturities of investment securities 9,602 29,650
Net increase in loans (705,030) (498,112)
Capital expenditures (10,299) (16,533)
Proceeds from sale of other real estate owned 6,781 9,541
Other, net 261 1,425
-------------------------
NET CASH USED IN INVESTING ACTIVITIES (801,034) (742,570)
-------------------------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits 283,287 157,010
Net increase (decrease) in federal funds purchased,
repurchase agreements and other short-term borrowings 561,225 (41,594)
Proceeds from issuance of long-term debt 50,000 199,975
Repayment of long-term debt (125,688) (8,173)
Proceeds from issuance of common stock 4,206 4,220
Purchase of treasury stock (32,317) _
Dividends paid ($0.22 and $0.19 per share for
2000 and 1999, respectively) (24,609) (21,060)
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 716,104 290,378
-------------------------
Net increase (decrease) in cash and cash equivalents 79,454 (148,964)
Cash and cash equivalents at beginning of year 368,915 494,966
-------------------------
Cash and cash equivalents at June 30 $ 448,369 $ 346,002
=========================
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
<PAGE> 8
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:
<TABLE>
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $ 231,993 $ 194,574
Income taxes 36,200 42,823
Non-cash investing activities:
Transfer of loans to other real estate $ 4,818 $ 7,139
Origination of loans, for the sale of other real estate $ 3,085 $ --
Non-cash financing activities:
Conversion of subordinated debentures $ 109 $ 78
Reissuance of shares of treasury stock, for
conversion of stock options -- --
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements.
<PAGE> 9
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") have not changed
their accounting and reporting policies from those stated in the 1999 annual
report on Form 10K other than the election of discontinued operations accounting
for its mortgage banking segment. 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 position as of
June 30, 2000 and 1999 and the results of operations and cash flows for the
interim periods ended June 30, 2000 and 1999. All 2000 interim amounts are
subject to year-end audit, and the results of operations for the interim period
herein are not necessarily indicative of the results of operations to be
expected for the year.
NOTE B - COMMITMENTS AND CONTINGENCIES
BancGroup and its subsidiaries are from time to time defendants in legal
actions arising from normal business activities. Management does not anticipate
that the ultimate liability arising from litigation outstanding at June 30,
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.
<PAGE> 10
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 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 is currently evaluating the impact
that SFAS No. 133 and SFAS No. 137 will have on BancGroup's financial
statements.
NOTE D: MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights and the related valuation reserve is
as follows: (in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------
2000 1999
-------------------------
MORTGAGE SERVICING RIGHTS
<S> <C> <C>
Balance, January 1 $ 265,888 $ 221,798
Additions, net 981 46,398
Sales (134,664) --
Scheduled amortization (11,518) (19,060)
Hedge losses applied (28,345) 45,748
--------- ---------
Balance, June 30 92,342 294,884
--------- ---------
VALUATION RESERVE
Balance, January 1 27,483 38,329
Reductions (17,241) (6,078)
Additions 300 285
--------- ---------
Balance, June 30 10,542 32,536
--------- ---------
Mortgage Servicing Rights, net $ 81,800 $ 262,348
========= =========
</TABLE>
The estimated fair value of mortgage servicing rights closely approximated the
amounts reflected in the financial statements at June 30, 2000 and 1999. As of
June 30, 2000, the Mortgage Banking Division services or subservices
approximately $13.84 billion of loans for third parties. Included in the loans
<PAGE> 11
serviced at June 30, 2000 were loans being serviced under subservicing
agreements with total principal balances of $9 billion. On March 31, 2000,
BancGroup sold MSR's relating to loans with approximately $9 billion of
principal balance from its loan servicing portfolio. BancGroup will continue to
subservice these loans for a contractually specified period of time.
NOTE E: 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)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------------------ -----------------------------------
PER SHARE PER SHARE
2000 INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net Income $ 55,957 111,249 $ 0.50 26,016 110,551 $ 0.24
Effect of dilutive securities:
Options 165 128
Convertible debentures 95 601 50 595
------------------------------------------------------------------------------- -----------------------------------
Diluted EPS $ 56,052 112,015 $ 0.50 $26,066 111,274 $ 0.23
------------------------------------------------------------------------------- -----------------------------------
1999
Basic EPS
Net income $ 58,411 111,460 $ 0.52 $30,263 111,590 $ 0.27
Effect of dilutive securities
Options 991 998
Convertible debentures 110 673 55 670
------------------------------------------------------------------------------- -----------------------------------
Diluted EPS $ 58,521 113,124 $ 0.52 $30,318 113,258 $ 0.27
------------------------------------------------------------------------------- -----------------------------------
</TABLE>
NOTE F: 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 235 branches throughout 6 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
<PAGE> 12
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 June 30 and six months ended June 30, for
each segment: (in thousands)
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
-------------------------------------- ------------
SIX MONTHS ENDED JUNE 30, 2000 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 200,076 $ (3,429) $196,647 $ -- $ 196,647
Provision for possible loan losses 12,961 -- 12,961 -- 12,961
Noninterest income 36,080 (16) 36,064 -- 36,064
Depreciation and Amortization 15,485 (205) 15,280 -- 15,280
Noninterest expense 106,803 2,123 108,926 -- 108,926
-----------------------------------------------------------------------
Income from continuing Operations before Income Taxes 100,907 (5,363) 95,544 -- 95,544
Applicable income taxes 36,338 (1,450) 34,888 -- 34,888
-----------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 64,569 $ (3,913) $ 60,656 $ -- $ 60,656
-----------------------------------------------------------------------
Income (Loss) from Discontinued Operations and Loss on
Disposal (Net of Taxes) -- -- -- (4,699) (4,699)
-----------------------------------------------------------------------
NET INCOME $ 64,569 $ (3,913) $ 60,656 $ (4,699) $ 55,957
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
-------------------------------------- ------------
SIX MONTHS ENDED JUNE 30, 1999 COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 184,305 $ (4,035) $180,270 $ -- $ 180,270
Provision for possible loan losses 12,454 -- 12,454 -- 12,454
Noninterest income 32,838 184 33,022 -- 33,022
Depreciation and Amortization 13,579 (19) 13,560 -- 13,560
Noninterest expense 97,869 1,336 99,205 -- 99,205
-----------------------------------------------------------------------
Income from continuing Operations before Income Taxes 93,241 (5,168) 88,073 -- 88,073
Applicable income taxes 34,152 (1,639) 32,513 -- 32,513
-----------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 59,089 $ (3,529) $ 55,560 -- $ 55,560
Income (Loss) from Discontinued Operations and Loss on
Disposal (Net of Taxes) -- -- -- 2,851 2,851
-----------------------------------------------------------------------
NET INCOME $ 59,089 $ (3,529) $ 55,560 $ 2,851 $ 58,411
</TABLE>
* Includes elimination's of certain intercompany transactions.
<PAGE> 13
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
-------------------------------- ------------
COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTALS BANKING BANCGROUP
QUARTER ENDED JUNE 30, 2000 ---------- --------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net interest income $101,089 $(1,761) $99,328 $ -- $99,328
Provision for possible loan losses 7,414 -- 7,414 -- 7,414
Noninterest income 18,599 (8) 18,591 -- 18,591
Depreciation and Amortization 7,476 (103) 7,373 -- 7,373
Noninterest expense 54,647 1,042 55,689 -- 55,689
-------- ------- ------- ------- -------
Income from continuing Operations before Income Taxes 50,151 (2,708) 47,443 -- 47,443
Applicable income taxes 18,055 (735) 17,320 -- 17,320
-------- ------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS $ 32,096 $(1,973) 30,123 $ -- $30,123
-------- ------- ------- ------- -------
Income (Loss) from Discontinued Operations and Loss on
Disposal (Net of Taxes) -- -- -- (4,107) (4,107)
-------- ------- ------- ------- -------
NET INCOME $ 32,096 $(1,973) $30,123 $(4,107) $26,016
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
-------------------------------- ------------
COMMERCIAL CORPORATE MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
QUARTER ENDED JUNE 30, 1999 ---------- --------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 94,342 $(1,937) $92,405 $ -- $92,405
Provision for possible loan losses 6,436 -- 6,436 -- 6,436
Noninterest income 16,151 (8) 16,143 -- 16,143
Depreciation and Amortization 6,973 (102) 6,871 -- 6,871
Noninterest expense 48,725 522 49,247 -- 49,247
-------- ------- ------- ------- -------
Income from continuing Operations before Income Taxes 48,359 (2,365) 45,994 -- 45,994
Applicable income taxes 17,962 (911) 17,051 -- 17,051
-------- ------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS $ 30,397 $(1,454) $28,943 $ -- $28,943
Income (Loss) from Discontinued Operations and Loss on
Disposal (Net of Taxes) -- -- -- 1,320 1,320
-------- ------- ------- ------- -------
NET INCOME $ 30,397 $(1,454) $28,943 $ 1,320 $30,263
</TABLE>
* Includes eliminations of certain intercompany transactions.
Note G: 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. With the completion of
this transaction, along with previously discussed sales of mortgage servicing,
BancGroup will exit the mortgage servicing business.
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. Income/(Loss) from discontinued operations, net of income taxes, for
the six months ended June 30, 2000 and 1999 were ($743,000) and $2.9 million,
respectively and ($151,000) and $1.3 million for the three months ended June
30, 2000 and 1999, respectively.
<PAGE> 14
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
six months and twelve months ended June 30, 2000, respectively, as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999 June 30, 1999
to June 30, 2000 to June 30, 2000
Increase (Decrease) Increase (Decrease)
------------------------------------------------------
Amount % Amount %
------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Bank $ 889,334 8.5% $1,323,557 13.2%
Mortgage Banking (123,588) -36.2% (468,036) -68.2%
Other 196 1.6% 394 3.2%
------------------------------------------------------
Total Assets 765,942 7.1% 855,915 8.0%
Securities 87,280 5.6% (159,475) -8.9%
Mortgage loans held for sale (14,773) -44.6% (358,619) -95.1%
Loans, net of unearned income 685,179 8.3% 1,322,666 17.4%
Mortgage servicing rights (156,605) -65.7% (180,548) -68.8%
Deposits 283,287 3.6% 648,103 8.5%
Long term debt (75,796) -7.7% (74,716) -7.6%
</TABLE>
Assets:
BancGroup's assets have increased 8.0% and 7.1% since June 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 $159
million (9%) and increased $87 million (6%) from June 30, 1999 and December 31,
1999, 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 (17%) and $685
million (8%) from June 30, 1999 and December 31, 1999, respectively. This
increase is primarily due to 17% internal loan growth from June 30, 1999 and
from December 31, 1999 on an annualized basis. For the first six months of 2000,
loan growth was concentrated in the Florida, Alabama, and Georgia markets which
represented 52%, 22%, and 16% 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
<PAGE> 15
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
$359 million from June 30, 1999. Mortgage loans held for sale decreased $14
million (45%) from December 31, 1999 due to a decline in retail mortgage
production which was a result of higher mortgage rates.
<TABLE>
<CAPTION>
GROSS LOANS BY CATEGORY June 30, Dec. 31, June 30,
(In thousands) 2000 1999 1999
-----------------------------------------------
<S> <C> <C> <C>
Commercial, financial, and agricultural $ 1,164,636 $ 1,126,191 $ 1,197,762
Real estate-commercial 2,829,400 2,538,304 2,399,864
Real estate-construction 1,634,039 1,435,004 1,101,493
Real estate-residential 2,585,238 2,528,413 2,385,685
Installment and consumer 290,594 297,555 311,509
Other 409,421 302,682 194,349
-----------------------------------------------
Total Loans $ 8,913,328 $ 8,228,149 $ 7,590,662
===============================================
</TABLE>
The majority of the $685 million in loan growth for the six months ended June
30, 2000 has been in commercial loans collateralized by real estate and
construction loans which increased approximately $291 million and $199 million,
respectively from December 31, 1999. The increase of $1.3 billion from June 30,
1999 consisted primarily of commercial real estate loans of $430 million and
construction loans of $533 million. Residential real estate loans, increased
$57 million and $200 million from December 31, 1999 and June 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 in Georgia as well as BancGroup's
markets in Florida.
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
represent 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
June 30, Loans to Dec. 31, Loans to June 30, Loans to
(In thousands) 2000 Total Loans 1999 Total Loans 1999 Total Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 28,194 13.1% $23,051 13.7% $21,351 15.8%
Real
estate-commercial 36,192 31.7% 34,729 30.8% 32,855 31.6%
Real
estate-construction 17,182 18.3% 16,907 17.4% 14,852 14.5%
Real
estate-mortgage 12,926 29.0% 12,642 30.7% 11,919 31.4%
Installment and
consumer 3,345 3.3% 3,992 3.6% 4,574 4.1%
Other
3,551 4.6% 4,672 3.8% 2,518 2.6%
---------------------------------------------------------------------------------------------
TOTAL $101,390 100.0% $95,993 100.0% $88,069 100.0%
=============================================================================================
</TABLE>
<PAGE> 16
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
(In thousands) 2000 1999 1999
-------------------------------------------
<S> <C> <C> <C>
Allowance for possible loan losses - January 1 $95,993 $83,562 $83,562
Charge-offs:
Commercial, financial, and agricultural 4,671 9,627 4,621
Real estate-commercial 980 3,226 1,391
Real estate-construction 66 1,171 242
Real estate-residential 1,485 2,579 1,057
Installment and consumer 2,160 5,044 2,505
Other 549 1,711 870
-------------------------------------------
Total charge-offs 9,911 23,358 10,686
-------------------------------------------
Recoveries:
Commercial, financial, and agricultural 866 2,516 686
Real estate-commercial 176 601 158
Real estate-construction 8 54 36
Real estate-residential 237 849 379
Installment and consumer 881 2,678 1,351
Other 179 384 129
-------------------------------------------
Total recoveries 2,347 7,082 2,739
-------------------------------------------
Net charge-offs 7,564 16,276 7,947
Addition to allowance charged to operating expense 12,961 28,707 12,454
-------------------------------------------
Allowance for possible loan losses-end of period $101,390 $95,993 $88,069
===========================================
</TABLE>
Asset quality as measured by nonperforming assets remains strong at 0.52% of net
loans and other real estate at June 30, 2000. Nonperforming assets have
increased $1.6 million from December 31, 1999. The increase in nonperforming
assets primarily resulted from a $3.9 million increase in nonaccrual loans
partially offset by a $2.2 million decrease in other real estate. 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. Loan loss reserve is 1.14% of loans
at June 30, 2000 and 1.17% at December 31, 1999 compared to 1.16% at June 30,
1999.
<PAGE> 17
NONPERFORMING ASSETS ARE SUMMARIZED BELOW
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
(In thousands) 2000 1999 1999
------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 38,380 $ 34,461 $ 29,259
Restructured loans 1,185 1,265 1,279
------------------------------------------
Total nonperforming loans * 39,565 35,726 30,538
Other real estate owned and in substance foreclosures 7,011 9,215 7,226
------------------------------------------
Total nonperforming assets * $ 46,576 $ 44,941 $ 37,764
==========================================
Aggregate loans contractually past due 90 days
for which interest is being accrued $ 6,227 $ 11,184 $ 7,051
Net charge-offs quarter-to-date $ 4,119 $ 4,998 $ 4,523
Net charge-offs year-to-date $ 7,564 $ 16,276 $ 7,942
RATIOS
PERIOD END:
Total nonperforming assets as a percent of net
loans and other real estate 0.52% 0.55% 0.50%
Allowance as a percent of net loans 1.14% 1.17% 1.16%
Allowance as a percent of nonperforming assets * 218% 214% 233%
Allowance as a percent of nonperforming loans * 256% 269% 288%
FOR THE PERIOD ENDED:
Net charge-offs as a percent of average net loans -
(annualized basis)
Quarter to date 0.19% 0.25% 0.24%
Year to date 0.18% 0.21% 0.22%
</TABLE>
* Total does not include loans contractually past due 90 days or more which are
still accruing interest.
Management, through its loan officers, internal loan review staff, and external
examinations by regulatory agencies has identified approximately $187 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 June 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
<PAGE> 18
recorded investment in impaired loans at June 30, 2000 was $29 million and
these loans had a corresponding valuation allowance of $15.5 million.
MORTGAGE SERVICING RIGHTS (MSRs):
The balances of Mortgage Servicing Rights were $82 million and $262 million at
June 30, 2000 and 1999, respectively. The decrease is primarily due to the sale
in March 2000 of MSRs related to approximately $9 billion of principal balances
from the loan servicing portfolio.
BancGroup has signed a letter of intent with Homeside Lending, Inc. to sell the
rights to service approximately $5.0 billion of mortgage loans serviced by
BancGroup. With the completion of this transaction scheduled for the fourth
quarter 2000, along with the previously discussed sale of mortgage servicing,
BancGroup will exit from the mortgage servicing business.
BancGroup, with the assistance of a third party advisor, developed a strategy
to hedge MSRs against future volatility in interest rates. At June 30, 2000,
BancGroup had hedged approximately 44% of the mortgage servicing rights asset
primarily through the use of floors and principal-only strips. The hedge
positions are monitored daily and adjusted as necessary for changes in the
market and projected interest rate movement. The objective of this strategy is
to achieve a high degree of correlation between changes in value associated
with the hedged asset (the servicing portfolio and the related servicing
rights) and the servicing hedge. The servicing hedge is designed to rise in
value when interest rates fall and decline in value when interest rates rise,
in contrast to the expected movements in value of the servicing asset,
therefore reducing earnings volatility caused by interest rate movements.
These risk-management activities do not eliminate interest-rate risk in the
Mortgage Servicing Rights. Treasury rates, LIBOR rates and the Constant
Maturity Swap index, to which the majority of the mortgage servicing right
hedges are indexed, may not move in tandem with mortgage interest rates. As
mortgage interest rates change, actual prepayments may not respond exactly as
anticipated. Other pricing factors, such as the volatility of the market
yields, may affect the value of the hedges without similarly impacting the
mortgage servicing rights.
As a result of the previously discussed plan to exit the mortgage servicing
business, all hedges related to the MSRs were liquidated subsequent to June 30,
2000.
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 cash
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 real estate loans. At June 30, 2000, BancGroup had
FHLB borrowings of $1,123 million outstanding leaving credit availability of
$453 million based on current collateral. In addition to FHLB borrowings,
correspondent banks and customers provide a consistent base of short-term funds
with $982 million in Fed Funds purchased and repurchase agreements outstanding
at June 30, 2000.
BancGroup entered into reverse repurchase arrangements under which it
purchased mortgage backed securities. These securities are collateral for the
$277 million in debt. During 1999, BancGroup entered
<PAGE> 19
into a revolving credit facility with an unaffiliated financial institution
totaling $25 million of which $3 million was outstanding at June 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 June 30, 2000, $531 million was
outstanding under this program. BancGroup has a brokered money market program
that attracts deposits from out-of-market customers. At June 30, 2000, $61
million was outstanding in this program.
In addition to these external sources of funds, BancGroup through its
acquisitions and branch expansion programs has increased its market presence
into 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 principal goal is to provide BancGroup's
retail customer base with convenient access to branch locations while enhancing
BancGroup's potential for future increases in profitability.
In the fourth quarter of 1999, BancGroup initiated and continues several
campaigns to grow its deposit base. The high growth areas of Florida were a
primary target due to lower cost funds in that market. Retail deposits increased
$496 million in the six month period ending June 30, 2000. This increase
represents 15% internal growth on an annualized basis. 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.
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. Management considers these sources and 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 2,882,976 of treasury shares were outstanding on June 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 June 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
and disallowed mortgage servicing rights plus Trust
Preferred Securities) $ 716,219
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
Tier II Capital:
Allowable loan loss reserve 101,390
Subordinated debt 111,939
-----------
Total Capital $ 929,548
===========
Risk Adjusted Assets (in thousands) $ 8,864,176
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31,
2000 1999
---------------------------
<S> <C> <C>
Tier I leverage ratio (minimum 3%) 6.32% 6.58%
Risk Adjusted Capital Ratios:
Tier I Capital Ratio (minimum 4%) 8.08% 8.71%
Total Capital Ratio (minimum 8%) 10.49% 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 $200,000 was expensed during the six months ended June 30, 1999.
<PAGE> 21
AVERAGE VOLUME AND RATE
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- -------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
--------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net $ 8,765,295 $ 195,438 8.96% $ 7,465,919 158,680 8.52%
Mortgage loans held for sale 19,895 424 8.52% 448,078 8,033 7.17%
Investment securities and securities available
For sale and other interest-earning assets 1,690,215 28,699 6.79% 1,733,992 26,788 6.20%
------------------------ -----------------------
Total interest-earning assets(1) 10,475,405 224,561 8.61% 9,647,989 193,501 8.04%
--------- --------
Nonearning assets 905,494 1,002,903
----------- -----------
Total assets $11,380,899 $10,650,892
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits $ 6,805,097 86,072 5.09% $ 6,191,701 67,290 4.36%
Short-term borrowings 1,451,161 22,733 6.30% 1,326,773 16,243 4.91%
Long-term debt 955,996 15,182 6.39% 954,583 14,644 6.15%
------------------------ -----------------------
Total interest-bearing liabilities 9,212,254 123,987 5.41% 8,473,057 98,177 4.65%
------------------------ -----------------------
Noninterest-bearing demand deposits 1,365,427 1,423,856
Other liabilities 108,913 83,811
----------- -----------
Total liabilities 10,686,594 9,980,724
Shareholders' equity 694,305 670,168
----------- -----------
Total liabilities and shareholders' equity $11,380,899 $10,650,892
=========== ===========
RATE DIFFERENTIAL 3.20% 3.39%
NET YIELD ON INTEREST-EARNING ASSETS $ 100,574 3.85% $ 95,324 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. Dividends earned and
average rates for preferred stocks are reflected on a tax equivalent
basis. Tax equivalent dividends are equal to actual dividends times
137.7%.
<PAGE> 22
AVERAGE VOLUME AND RATE
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands) SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- -------------------------------
AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE
--------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net $ 8,559,695 $376,082 8.83% $ 7,336,078 310,600 8.52%
Mortgage loans held for sale 22,815 953 8.35% 530,279 18,999 7.17%
Investment securities and securities available
For sale and other interest-earning assets 1,673,225 56,586 6.77% 1,656,876 51,330 6.20%
------------------------ -----------------------
Total interest-earning assets(1) 10,255,735 433,621 8.49% 9,523,233 380,929 8.04%
------------------------ -----------------------
Nonearning assets 935,704 984,664
----------- -----------
Total assets $11,191,439 $10,507,897
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits $ 6,699,492 163,858 4.92% $ 6,052,929 131,955 4.40%
Short-term borrowings 1,385,345 41,505 6.02% 1,425,882 35,340 5.00%
Long-term debt 972,958 30,736 6.35% 881,482 26,542 6.07%
------------------------ -----------------------
Total interest-bearing liabilities 9,057,795 236,099 5.24% 8,360,293 193,837 4.68%
------------------------ -----------------------
Noninterest-bearing demand deposits 1,328,169 1,396,891
Other liabilities 110,321 89,453
----------- -----------
Total liabilities 10,496,285 9,846,637
Shareholders' equity 695,154 661,260
----------- -----------
Total liabilities and shareholders' equity $11,191,439 $10,507,897
=========== ===========
RATE DIFFERENTIAL 3.25% 3.36%
NET YIELD ON INTEREST-EARNING ASSETS $ 197,522 3.86% $187,092 3.94%
=========== ========
</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. Dividends earned and
average rates for preferred stocks are reflected on a tax equivalent
basis. Tax equivalent dividends are equal to actual dividends times
137.7%.
<PAGE> 23
ANALYSIS OF INTEREST INCREASES (DECREASES)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
(Dollars in thousands) CHANGE FROM 1999 ATTRIBUTED TO (1)
TOTAL VOLUME RATE MIX
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Total loans, net $ 36,758 $ 27,542 $ 8,466 $ 750
Mortgage loans held for sale (7,609) (7,667) 1,499 (1,441)
Investment securities and securities
for sale and other interest-earning assets 1,911 (694) 2,662 (57)
-------- -------- -------- --------
Total interest income(2) 31,060 19,181 12,627 (748)
-------- -------- -------- --------
INTEREST EXPENSE:
Interest-bearing deposits $ 18,782 $ 6,644 $ 11,125 1,013
Short-term borrowings 6,490 1,605 4,817 68
Long-term debt 538 50 546 (58)
-------- -------- -------- --------
Total interest expense 25,810 8,299 16,488 1,023
-------- -------- -------- --------
Net interest income $ 5,250 $ 10,882 $ (3,861) $ (1,771)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
CHANGE FROM 1999 ATTRIBUTED TO (1)
TOTAL VOLUME RATE MIX
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Total loans, net $ 65,482 $ 51,983 $ 11,340 $ 2,159
Mortgage loans held for sale (18,046) (18,143) 3,120 (3,023)
Investment securities and securities
for sale and other interest-earning assets 5,256 506 4,709 41
-------- -------- -------- --------
Total interest income(2) 52,692 34,346 19,169 (823)
-------- -------- -------- --------
INTEREST EXPENSE:
Interest-bearing deposits $ 31,903 $ 14,185 $ 15,694 $ 2,024
Short-term borrowings 6,165 (1,011) 7,252 (76)
Long-term debt 4,194 2,769 1,231 194
-------- -------- -------- --------
Total interest expense 42,262 15,943 24,177 2,142
-------- -------- -------- --------
Net interest income $ 10,430 $ 18,403 $ (5,008) $ (2,965)
======== ======== -------- ========
</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.
<PAGE> 24
Analysis of Continuing Operations
NET INTEREST INCOME
Net interest income on a tax equivalent basis increased $5.3 million to $100.6
million for the quarter ended June 30, 2000 from $95.3 million for the quarter
ended June 30, 1999. The net yield on interest earning assets decreased from
3.96% to 3.85% for the three months ended June 30, 1999 and 2000, respectively.
For the six months ended June 30, 2000, net interest income on a tax equivalent
basis increased $10.4 million to $197.5 million as compared to $187.1 million
for the same period in 1999. The net yield on interest earning assets decreased
from 3.94% to 3.86% for the six months ended June 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 six months was primarily attributable to loan growth, which was
partially offset by higher funding rates. During the first six months of 1999
the prime rate was 7.75% compared to a weighted average of 8.91% for the first
six months of 2000. The increase in rates and increased use of wholesale funding
are the primary reason for the decline in net interest margin.
LOAN LOSS PROVISION:
The provision for possible loan losses for the six months ended June 30, 2000
was $12,961,000 compared to $12,454,000 for the same period in 1999. While asset
quality remains good, strong loan growth in 2000 has required an increased loan
loss provision. The current allowance for possible loan losses provides 256%
coverage of nonperforming loans compared to 269% at December 31, 1999 and 288%
at June 30, 1999. 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 $3.0 million for the six months ended June 30, 2000
compared to the same period in 1999 and $2.4 million for the three months ended
June 30, 2000 over the three months ended June 30, 1999. These increases are
primarily attributable to additional fee income related to wealth management,
and electronic banking activities as well as retail mortgage production in the
banking regions.
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 $4.9 million to non-interest income for the six
months ended June 30, 2000 compared to $3.1 million for the same period last
year. International banking activities resulted in $904,000 in non-interest
income for the six months ended June 30, 2000 compared to $590,000 for the same
period last year. BancGroup also continues to expand electronic banking
services through its ATM network, check card services, and internet banking.
Non-interest income for electronic banking services increased approximately 29%
for the six months ended June 30, 2000 compared to the same period in 1999
while income from traditional banking services such as service charges remained
level.
<PAGE> 25
NONINTEREST EXPENSES:
BancGroup's net overhead (total noninterest expense less noninterest income,
excluding security gains) was $44.5 million and $88.2 million for the three and
six months ended June 30, 2000, respectively compared to $39.9 million and
$79.7 million for the three and six months ended June 30, 1999. BancGroup's
efficiency ratio was 52.97% and 52.46% for the six months ended June 30, 2000
and 1999, respectively.
Noninterest expense increased $11.4 million and $6.9 million for the six and
three months ended June 30, 2000, compared to the same periods in 1999.
The increase in noninterest expenses is primarily due to an increase of
approximately $5.2 million and $2.9 million, for the six and three months ended
June 30, 2000 over the same period in 1999 in salaries and employee benefits.
These salary increases are due to normal wage increases, increased commission
expense related to investment sales activities, and increased compensation for
the 2000 Branch Incentive Program. Occupancy and equipment expense increased
$3.0 million and $1.5 million for the six months and three months ended June 30,
2000, respectively. These increases are due to improvements and expansions of
bank facilities as well as improved technology equipment and software. The
remaining increase of $3.2 million and $2.5 million is primarily the result of
other miscellaneous expenses related to normal business operations.
PROVISION FOR INCOME TAXES:
BancGroup's provision for income taxes is based on an approximately 36.5% and
36.8%, estimated annual effective tax rate for the years 2000 and 1999,
respectively. The provision for income taxes for the six months ended June 30,
2000 and 1999 was $34,888,000 and $32,513,000, respectively.
ANALYSIS OF 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
discontinued mortgage operations will be approximately $4.0 million after tax.
Refer to Note G 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
As previously reported, on April 19, 2000 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.
<PAGE> 26
1) Election of the following directors:
Term Expiring 2003.
<TABLE>
<CAPTION>
For Withhold
------------------------------
<S> <C> <C>
Lewis Beville 86,560,630 2,019,374
Jerry J. Chesser 86,597,383 2,012,621
John Ed Mathison 86,572,653 2,037,351
Joe D. Mussafer 86,588,769 2,021,235
Frances E. Roper 86,542,305 2,067,699
Edward V. Welch 86,580,039 2,029,965
</TABLE>
To elect the nominee named in the Proxy Statement as director
to serve the term of two (2) years. Term Expiring in 2002
William E. Powell III 86,599,414 2,010,590
In addition to the foregoing the following directors will continue
to serve:
<TABLE>
<CAPTION>
Term Expires 2001 Term Expires 2002
----------------- -----------------
<S> <C>
Augustus K. Clements III William Britton
Robert S. Craft Patrick F. Dye
Clinton O. Holdbrooks Milton E. McGregor
Harold D. King Simual Sippial
Robert E. Lowder
John C. H. Miller, Jr.
James Rane
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C> <C>
2) To amend the 1992 Incentive Stock Option Plan of The Colonial
BancGroup, Inc. (the ISO Plan) to increase the number of
shares of Common Stock eligible to be issued under the ISO 83,098,023 4,700,683 811,298
Plan from 4,200,000 shares to 5,700,000 shares
3) To adopt the Management Incentive Plan (the MIP). 81,993,422 4,345,793 2,070,789
4) To amend the 1992 Non-Qualified Stock Option Plan to provide
that the maximum number of shares of Common Stock, with
respect to which options may be granted to any eligible 81,405,732 6,237,840 966,432
employee under the NQSO Plan during any Plan Year, shall not
exceed 200,000.
5) To amend the Stock Bonus and Retention Plan (the Stock Plan)
to (a) provide that during any Plan Year no participant shall
receive more than 150,000 shares of Common Stock under the 83,836,042 3,908,713 865,249
Stock Plan and (b) allow performance-based goals pursuant to
Section 162(m) of the Internal Revenue Code to be used in
making awards.
</TABLE>
ITEM 5: Other Events - N/A
<PAGE> 27
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 principal value of
the mortgage servicing portfolio to a third party.
(b) Exhibit 27 - Financial Data Schedule (for SEC use only)
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE COLONIAL BANCGROUP, INC.
Date: August 14, 2000 By: /s/ W. Flake Oakley, IV
---------------------------
W. Flake Oakley, IV
its Chief Financial Officer
