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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE #0-07945
THE COLONIAL BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0661573
(State of Incorporation) (IRS Employer Identification No.)
ONE COMMERCE STREET
POST OFFICE BOX 1108
MONTGOMERY, AL 36101 (334) 240-5000
(Address of principal executive offices) (Telephone No.)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $2.50 REGISTERED ON THE NEW YORK STOCK
EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
(Title of Class)
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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of February 20, 2001 based on the closing price of $12.80 per
share for Common Stock was $1,304,708,595. (For purposes of calculating this
amount, all directors, officers and principal shareholders of the registrant are
treated as affiliates).
Shares of Common Stock outstanding at February 20, 2001 were 110,543,599.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
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Portions of Definitive Proxy Statement Part III
for 2000 Annual Meeting as specifically
referred to herein
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Colonial BancGroup, Inc.("BancGroup") is a Delaware
corporation organized in 1974 as a bank holding company under the Bank Holding
Act of 1956, as amended (the "BHCA"). BancGroup was originally organized as
Southland Bancorporation, and its name was changed in 1981. In 1997, pursuant to
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
BancGroup consolidated its banking subsidiaries located in Georgia, Florida and
Tennessee into Colonial Bank, its banking subsidiary in Alabama, ("Colonial
Bank").
The principal activity of BancGroup is to supervise and coordinate the
business of its subsidiaries and to provide them with capital and services.
BancGroup derives substantially all of its income from dividends received from
Colonial Bank. Various statutory provisions and regulatory policies limit the
amount of dividends Colonial Bank may pay without regulatory approval. In
addition, federal statutes restrict the ability of Colonial Bank to make loans
to BancGroup.
BANK SUBSIDIARY
As of December 31, 2000 Colonial Bank had a total of 239 branches, with 119
branches in Alabama, 85 branches in Florida, 22 branches in Georgia, three
branches in Tennessee, two branches in Texas and eight branches in Nevada.
Colonial Bank conducts a general commercial banking business in its respective
service areas. Colonial Bank offers a variety of demand, savings and time
deposit products as well as extensions of credit through personal, commercial
and mortgage loans within each of its market areas. Colonial Bank also provides
additional services to its markets through cash management services, electronic
banking services, credit card and merchant services and wealth management
services. Wealth management services include trust services and the sales of
various types of investment products such as mutual funds, annuities, stocks,
municipal bonds and U.S. government securities. Colonial Bank exited the
mortgage servicing business in December 2000.
Colonial Bank encounters intense competition in its commercial banking
business, generally from other banks located in its respective metropolitan and
service areas. Colonial Bank competes for interest bearing funds with other
banks and with many non-bank issuers of commercial paper and other securities.
In the case of larger customers, competition exists with banks in other
metropolitan areas of the United States, many of which are larger in terms of
capital resources and personnel. In the conduct of certain aspects of its
commercial banking business, Colonial Bank competes with savings and loan
associations, credit unions, mortgage banks, factors, insurance companies and
other financial institutions. At December 31, 2000, Colonial Bank accounted for
approximately 99.9% of BancGroup's consolidated assets.
The competitive environment for both Colonial Bank and BancGroup has been
affected by the enactment of the Gramm-Leach-Bliley Financial Services
Modernization Act ("Gramm-Leach") in 1999. This law, which became effective on
March 11, 2000, eliminated many barriers between investment banking, commercial
banking and insurance underwriting and sales. See "-- Certain Regulatory
Matters." Elimination of these barriers has created the potential for greater
competition for BancGroup and its subsidiaries, including Colonial Bank, by
increasing the number and type of competitors and by encouraging increased
consolidation within the financial services industry.
NONBANKING SUBSIDIARIES
BancGroup has the following directly and wholly owned nonbanking
subsidiaries that are currently active. The Colonial BancGroup Building
Corporation, an Alabama corporation was established primarily to own and lease
certain buildings and land used by Colonial Bank. Colonial Capital II, a
Delaware business trust, issued $70 million in trust preferred securities in
1997, which are guaranteed by BancGroup. Colonial Brokerage, Inc., a Delaware
corporation, was established in 2000 to provide broker/dealer services and
investment advice.
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Colonial Bank controls the following significant subsidiaries: CBG, Inc., a
Nevada corporation, owns certain trade names and trademarks which it licenses to
BancGroup and Colonial Bank for use in their businesses. CBG Investments, Inc.,
a Nevada corporation, owns and manages investment securities. Colonial
Investment Services, Inc., an Alabama Corporation; Colonial Investments Services
of Florida, Inc., a Florida corporation; Colonial Investment Services of
Tennessee, Inc., a Tennessee corporation and Colonial Investment Services of
Georgia, Inc., a Georgia corporation, offer various insurance products and
annuities for sale to the public. Colonial Asset Management, Inc., an Alabama
corporation, is an investment adviser registered under the Investment Advisers
Act of 1940.
In the fourth quarter of 2000, BancGroup formed Colonial Brokerage, Inc.
BancGroup hopes to have Colonial Brokerage, Inc. operational as a broker/dealer
in 2001. Colonial Brokerage, Inc. has made application for membership in the
National Association of Securities Dealers.
At December 31, 2000, BancGroup and its subsidiaries employed approximately
3,212 persons. BancGroup's principal offices are located at and its mailing
address is: One Commerce Street, Post Office Box 1108, Montgomery, Alabama
36101. Its telephone number is (334) 240-5000.
CERTAIN REGULATORY CONSIDERATIONS
BancGroup is a registered bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). As such, it is subject to the BHCA and many of the Federal Reserve's
regulations promulgated thereunder.
Colonial Bank, an Alabama state chartered bank that is a member of the
Federal Reserve System, is subject to supervision and examination by the Federal
Reserve and the Alabama State Banking Department (the "Department"). The
deposits of Colonial Bank are insured by the FDIC to the extent provided by law.
The FDIC assesses deposit insurance premiums the amount of which may, in the
future, depend in part on the condition of Colonial Bank. Moreover, the FDIC may
terminate deposit insurance of Colonial Bank under certain circumstances. Both
the Federal Reserve and the Department have jurisdiction over a number of the
same matters, including lending decisions, branching and mergers.
One limitation under the BHCA and the Federal Reserve's regulations
requires that BancGroup obtain prior approval of the Federal Reserve before
BancGroup acquires, directly or indirectly, more than 5% of any class of voting
securities of another bank. Prior approval also must be obtained before
BancGroup acquires all or substantially all of the assets of another bank, or
before it merges or consolidates with another bank holding company. BancGroup
may not engage in "non-banking" activities unless it demonstrates to the Federal
Reserve's satisfaction that the activity in question is closely related to
banking and a proper incident thereto. Because BancGroup is a registered bank
holding company, persons seeking to acquire 25% or more of any class of its
voting securities must receive the approval of the Federal Reserve. Similarly,
under certain circumstances, persons seeking to acquire between 10% and 25% also
may be required to obtain prior Federal Reserve approval.
In 1989, Congress expressly authorized the acquisition of savings
associations by bank holding companies. BancGroup must obtain the prior approval
of the Federal Reserve (among other agencies) before making such an acquisition,
and must demonstrate that the likely benefits to the public of the proposed
transaction (such as greater convenience, increased competition, or gains in
efficiency) outweigh potential burdens (such as an undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices).
As a result of enactment in 1991 of the FDIC Improvement Act, banks are
subject to increased reporting requirements and more frequent examinations by
the bank regulatory agencies. The agencies also have the authority to dictate
certain key decisions that formerly were left to management, including
compensation standards, loan underwriting standards, asset growth, and payment
of dividends. Failure to comply with these standards, or failure to maintain
capital above specified levels set by the regulators, could lead to the
imposition of penalties or the forced resignation of management. If a bank
becomes critically undercapitalized,
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the banking agencies have the authority to place an institution into
receivership or require that the bank be sold to, or merged with, another
financial institution.
In September 1994, Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHCA to permit bank holding companies, subject to certain limitations, to
acquire either control or substantial assets of a bank located in states other
than that bank holding company's home state regardless of state law
prohibitions. This legislation became effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act to
permit, beginning on June 1, 1997 (or earlier where state legislatures provided
express authorization), the merger of insured banks with banks in other states.
The officers and directors of BancGroup and Colonial Bank are subject to
numerous insider transaction restrictions, including limits on the amount and
terms of transactions involving Colonial Bank. There are a number of other laws
that govern the relationship between Colonial Bank and its customers. For
example, the Community Reinvestment Act is designed to encourage lending by
banks to persons in low and moderate income areas. The Home Mortgage Disclosure
Act and the Equal Credit Opportunity Act attempt to minimize lending decisions
based on impermissible criteria, such as race or gender. The Truth-in-Lending
Act and the Truth-in-Savings Act require banks to provide certain disclosure of
relevant terms related to loans and savings accounts, respectively. Anti-tying
restrictions (which prohibit, for instance, conditioning the availability or
terms of credit on the purchase of another banking product) further restrict
Colonial Bank's relationships with its customers.
The bank regulatory agencies have broad enforcement powers over depository
institutions under their jurisdiction, including the power to terminate deposit
insurance, to impose fines and other civil and criminal penalties, and to
appoint a conservator or receiver if any of a number of conditions are met. The
Federal Reserve has broad enforcement powers over bank holding companies,
including the power to impose substantial fines and civil penalties.
On November 12, 1999, President Clinton signed Gramm-Leach into law, and it
became effective on March 11, 2000. The primary purpose of Gramm-Leach was to
eliminate barriers between investment banking and commercial banking and to
permit, within certain limitations, the affiliation of financial service
providers. Generally, Gramm-Leach (1) repealed the historical restrictions
against, and eliminated many federal and state law barriers to, affiliations
among banks, securities firms, insurance companies and other financial service
providers, (2) provided a uniform framework for the activities of banks, savings
institutions and their holding companies, (3) broadened the activities that may
be conducted by national banks and banking subsidiaries of bank holding
companies, (4) provided an enhanced framework for protecting the privacy of
consumer's information, (5) adopted a number of provisions related to the
capitalization, membership, corporate governance and other measures designed to
modernize the Federal Home Loan Bank System, (6) modified the laws governing the
implementation of the Community Reinvestment Act, and (7) addressed a variety of
other legal and regulatory issues affecting both day-to-day operations and
long-term activities of financial institutions.
More specifically, under Gramm-Leach, bank holding companies, such as
BancGroup, that meet certain management, capital, and Community Reinvestment Act
standards, are permitted to become financial holding companies and, by doing so,
to affiliate with securities firms and insurance companies and to engage in
other activities that are financial in nature and complementary thereto. A bank
holding company may become a financial holding company if each of its subsidiary
banks is well capitalized under the FDIC Improvement Act prompt corrective
action provisions, is well managed and has at least a satisfactory rating under
the Community Reinvestment Act. The required filing is a declaration that the
bank holding company wishes to become a financial holding company and meets all
applicable requirements. BancGroup became a financial holding company on May 12,
2000.
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No prior regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities permitted under Gramm-Leach. Activities cited by Gramm-Leach as
being financial in nature include:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking activities; and
- activities that the Federal Reserve has determined to be closely related
to banking.
In 2000, the federal banking regulators issued final regulations
implementing certain provisions of Gramm-Leach governing the privacy of consumer
financial information. The regulations, which were effective November 13, 2000
but are not mandatory until July 1, 2001, limit the disclosure by financial
institutions such as Colonial Bank of nonpublic personal information about
individuals who obtain financial products or services for personal, family, or
household purposes. Subject to certain exceptions allowed by law, the
regulations cover information sharing between financial institutions and
nonaffiliated third parties. More specifically, the regulations require
financial institutions to i) provide initial notices to customers about their
privacy policies, describing the conditions under which they may disclose
nonpublic personal financial information to nonaffiliated third parties; ii)
provide annual notices of their privacy policies to their current customers; and
iii) provide a reasonable method for consumers to "opt out" of disclosures to
nonaffiliated third parties.
Certain subsidiaries of Colonial Bank currently sell insurance products in
Alabama, Georgia, Florida, Tennessee, Texas, and Nevada. The sale of insurance
products is conducted in Colonial Bank branches, but, in accordance with
applicable law, is segregated from banking activities. Those states where
products are currently being sold allow the sale of insurance products by bank
subsidiaries, subject to regulation by each state's Department of Insurance
and/or each state's Banking Department. The extent of regulation varies
materially from state to state. However, the enactment of Gramm-Leach requires
all states to allow the sale of insurance by financial institutions.
Colonial Asset Management, Inc., a Colonial Bank subsidiary, is a
registered investment adviser under the Investment Advisers Act of 1940. It is
regulated by the Securities Exchange Commission (SEC).
Colonial Brokerage, Inc., a BancGroup subsidiary, has made application with
the National Association of Securities Dealers (NASD) for membership. It hopes
to be operational as a securities broker/dealer during 2001. It will be
regulated by the SEC and NASD.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
BancGroup is a legal entity separate and distinct from its subsidiaries,
including Colonial Bank. There are various legal and regulatory limitations on
the extent to which BancGroup's subsidiaries can, among other things, finance,
or otherwise supply funds to, BancGroup. Specifically, dividends from Colonial
Bank are the principal source of BancGroup's cash funds and there are certain
legal restrictions under federal and state law on the payment of dividends by
banks. The relevant regulatory agencies also have authority to prohibit Colonial
Bank from engaging in what, in the opinion of such regulatory body, constitutes
an unsafe or unsound banking practice. The payment of dividends could, depending
upon the financial condition of Colonial Bank, be deemed to constitute such an
unsafe or unsound practice.
In addition, Colonial Bank and its subsidiaries are subject to limitations
under Section 23A of the Federal Reserve Act with respect to extensions of
credit to, investments in, and certain other transactions with, BancGroup and
its other subsidiaries. Furthermore, loans and extensions of credit are also
subject to various collateral requirements.
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CAPITAL ADEQUACY
The Federal Reserve has adopted minimum risk-based and leverage capital
guidelines for bank holding companies. The minimum required ratio of total
capital to risk-weighted assets (including certain off-balance-sheet items, such
as standby letters of credit) is 8%, of which 4% must consist of Tier 1 capital.
As of December 31, 2000, BancGroup's total risk-based capital ratio was 10.58%,
including 8.21% of Tier 1 capital. The minimum required leverage capital ratio
(Tier 1 capital to average total assets) is 3% for banking organizations that
meet certain specified criteria, including that they have the highest regulatory
rating. A minimum leverage ratio of an additional 100 to 200 basis points is
required for banking organizations not meeting these criteria. As of December
31, 2000, BancGroup's leverage capital ratio was 6.63%. Failure to meet capital
guidelines can subject a banking organization to a variety of enforcement
remedies, including restrictions on its operations and activities.
As regards to depository institutions, federal banking statutes establish
five capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized"), and impose significant restrictions on the operations of an
institution that is not at least adequately capitalized. Under certain
circumstances, an institution may be downgraded to a category lower than that
warranted by its capital levels, and subjected to the supervisory restrictions
applicable to institutions in the lower capital category. As of December 31,
2000, Colonial Bank was "well capitalized" under the regulatory framework for
prompt corrective action.
An undercapitalized depository institution is subject to restrictions in a
number of areas, including capital distributions, payments of management fees
and expansion. In addition, an undercapitalized depository institution is
required to submit a capital restoration plan. A depository institution's
holding company must guarantee the capital plan up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount needed to restore the capital of the institution
to the levels required for the institution to be classified as adequately
capitalized at the time the institution fails to comply with the plan. A
depository institution is treated as if it is significantly undercapitalized if
it fails in any material respect to implement a capital restoration plan.
Significantly undercapitalized depository institutions may be subject to a
number of additional significant requirements and restrictions, including
requirements to sell sufficient voting stock to become adequately capitalized,
to improve management, to restrict asset growth, to prohibit acceptance of
correspondent bank deposits, to restrict senior executive compensation and to
limit transactions with affiliates. Critically undercapitalized depository
institutions are further subject to restrictions on paying principal or interest
on subordinated debt, making investments, expanding, acquiring or selling
assets, extending credit for highly-leveraged transactions, paying excessive
compensation, amending their charters or bylaws and making any material changes
in accounting methods. In general, a receiver or conservator must be appointed
for a depository institution within 90 days after the institution is deemed to
be critically undercapitalized.
SUPPORT OF SUBSIDIARY BANK
Under Federal Reserve Board policy, BancGroup is expected to act as a
source of financial strength to, and to commit resources to support, Colonial
Bank. This support may be required at times when, absent such Federal Reserve
Board policy, BancGroup might not otherwise be inclined to provide it. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
FDIC INSURANCE ASSESSMENTS
The FDIC is an independent federal agency established originally to insure
the deposits, up to prescribed statutory limits, of federally insured banks and
to preserve the safety and soundness of the banking industry. The FDIC maintains
two separate insurance funds: the BIF and the SAIF. Colonial Banks deposit
accounts are insured by the FDIC under the BIF to the maximum extent permitted
by law. Colonial Bank pays deposit
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insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all BIF-member institutions.
Under FDIC regulations, institutions are assigned to one of three capital
groups for insurance premium purposes ("well capitalized", "adequately
capitalized" and "undercapitalized"). "Well capitalized" and "adequately
capitalized" institutions are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed previously.
"Undercapitalized" institutions are those that do not qualify as either "well
capitalized" or "adequately capitalized". These three groups are then divided
into subgroups which are based on supervisory evaluations by the institutions
primary federal regulator, resulting in nine assessment classifications.
Assessment rates vary depending upon the assessment classification. In addition,
regardless of the potential risk to the insurance fund, federal law requires the
FDIC to establish assessment rates that will maintain each insurance funds ratio
of reserves to insured deposits at 1.25%. During 2000 and for the first
semiannual assessment period of 2001, assessment rates for BIF-insured
institutions ranged from 0% of insured deposits for well-capitalized
institutions with minor supervisory concerns to .27% of insured deposits for
undercapitalized institutions with substantial supervisory concerns. BancGroup's
subsidiary bank is now assessed at the well-capitalized level where the premium
rate is zero.
In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against the insured deposits of Colonial Bank to be paid to
the Finance Corporation ("FICO") to service FICO debt incurred in the 1980s. The
FICO assessment rate is adjusted quarterly. The average annual assessment rate
in 2000 was 2.07% per $100 of BIF-insured deposits. For the first quarter of
2001, the FICO assessment rate for such deposits will be 1.96% per $100.
The Bank's assessment expense for the year ended December 31, 2000 equaled
$1,595,000.
It should be noted that supervision, regulation, and examination of
BancGroup and Colonial Bank are intended primarily for the protection of
depositors, not security holders.
ADDITIONAL INFORMATION
Additional information, including statistical information concerning the
business of BancGroup, is set forth herein. See "Selected Financial Data and
Selected Quarterly Financial Data 2000-1999" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EXECUTIVE OFFICERS AND DIRECTORS
Pursuant to general instruction G, information regarding executive officers
of BancGroup is contained herein at Item 10.
ITEM 2. PROPERTIES
The principle executive offices of BancGroup and Colonial Bank are located
in Montgomery, Alabama in the Colonial Financial Center.
BancGroup leases operation centers in Birmingham and Orlando and maintains
regional executive offices in Alabama, Florida, Georgia, Nevada, and Texas.
As of December 31, 2000, Colonial Bank owned 174 and leased 65 of its
full-service banking offices. See Notes to the Consolidated Financial Statements
included herein.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of BancGroup, based on review and consultation with legal
counsel, the outcome of any litigation presently pending is not anticipated to
have a material adverse effect on BancGroup's consolidated financial statements
or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
BancGroup's Common Stock is traded on the New York Stock Exchange under the
symbol "CNB." This trading commenced on February 24, 1995. As of March 1, 2001,
BancGroup had outstanding 110,545,047 shares of Common Stock, with 9,895
shareholders of record.
The following table indicated the high and low closing prices for and
dividends paid on Common Stock during 1999 and 2000.
SALE PRICE OF
COMMON DIVIDENDS
STOCK DECLARED
----------------- ON COMMON STOCK
HIGH LOW (PER SHARE)
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1999
1st Quarter.............................................. $12.563 $11.375 $.095
2nd Quarter.............................................. 13.938 11.188 .095
3rd Quarter.............................................. 15.000 10.375 .095
4th Quarter.............................................. 12.938 10.188 .095
2000
1ST QUARTER.............................................. 10.750 8.625 .11
2ND QUARTER.............................................. 11.250 9.000 .11
3RD QUARTER.............................................. 10.750 9.688 .11
4TH QUARTER.............................................. 11.125 8.313 .11
BancGroup has historically paid dividends each quarter. The restrictions
imposed upon Colonial Bank in regard to its ability to pay dividends to
BancGroup, which in turn limit BancGroup's ability to pay dividends are
described herein. See "Payments of Dividends and Other Restrictions".
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years:
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF INCOME:
Interest Income..................... $897,761 $750,828 $664,645 $571,936 $470,894
Interest expense.................... 507,870 378,406 334,444 280,269 227,896
-------- -------- -------- -------- --------
Net interest income................. 389,891 372,422 330,201 291,667 242,998
Provision for possible loan
losses............................ 29,680 28,707 26,345 16,321 14,442
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses................... 360,211 343,715 303,856 275,346 228,556
Noninterest income.................. 75,299 74,087 58,952 49,626 41,261
Noninterest expense................. 249,982 231,672 233,222 194,137 171,153
SAIF special assessment(1).......... -- -- -- -- 4,754
Acquisition and Y2K expense(2)...... -- 1,867 26,152 6,895 11,918
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............... 185,528 184,263 103,434 123,940 81,992
Applicable income taxes............. 67,732 68,193 37,790 44,716 28,248
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS... 117,796 116,070 65,644 79,224 53,744
-------- -------- -------- -------- --------
Discontinued Operations:(3)
Income/(Loss) from discontinued
operations, net of income taxes of
($450), $2,134, ($6,384), $6,698,
and $4,834 for the year ended
December 31, 2000, 1999, 1998,
1997, and 1996, respectively...... (743) 3,527 (10,448) 11,138 8,105
Loss on disposal of discontinued
operations (net of income tax
benefit of $2,616)................ (4,322) -- -- -- --
-------- -------- -------- -------- --------
NET INCOME.......................... $112,731 $119,597 $ 55,196 $ 90,362 $ 61,849
======== ======== ======== ======== ========
INCOME FROM CONTINUING OPERATIONS
EXCLUDING MERGER RELATED EXPENSES
AND OTHER NONRECURRING ITEMS (NET
OF INCOME TAXES)(1)(2)(3)(4)...... $117,796 $110,907 $ 83,163 $ 84,663 $ 66,369
EARNINGS PER COMMON SHARE:(5)
Basic............................. $ 1.06 $ 1.00 $ 0.76 $ 0.81 $ 0.69
Diluted........................... 1.06 0.97 0.74 0.78 0.66
Income from continuing operations
(net of income taxes):
Basic............................. $ 1.06 $ 1.04 $ 0.60 $ 0.76 $ 0.56
Diluted........................... 1.06 1.03 0.59 0.73 0.54
Average shares outstanding:
Basic............................. 110,761 111,678 110,062 105,010 97,246
Diluted........................... 111,472 113,252 112,431 108,396 101,128
Cash dividends per common share:.... $ 0.44 $ 0.38 $ 0.34 $ 0.30 $ 0.27
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(1) Legislation approving a one-time assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") resulted in $4,754,000 in expenses
before income taxes and $3,091,000 net of applicable income taxes in 1996.
(2) Acquisition expenses reflect costs associated with the business combinations
discussed in Note 2 to the Consolidated Financial Statements. Restructuring
charges are discussed in Note 19 to the Consolidated Financial Statements.
(3) In December 2000, the company exited the mortgage servicing business. The
financial results for this line of business have been separately reported as
Discontinued Operations in all periods presented.
(4) Gain on the sale of certain branches and other one time miscellaneous income
of $10,167,000 before tax and $6,405,000 after tax have been excluded from
1999.
(5) Restated to reflect the impact of two-for-one stock splits effected in the
form of stock dividends paid February 11, 1997 and August 14, 1998.
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2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF CONDITION DATA
AT YEAR END:
Total assets.................... $11,727,637 $10,854,099 $10,456,285 $8,061,566 $6,630,642
Loans, net of unearned income... 9,416,770 8,228,149 7,110,295 5,951,067 4,835,274
Mortgage loans held for sale.... 9,866 33,150 692,042 238,540 167,993
Deposits........................ 8,143,017 7,967,978 7,446,153 6,325,690 5,135,215
Long-term debt.................. 831,247 889,571 746,447 315,281 39,092
Shareholders' equity............ 756,852 695,179 639,807 590,017 483,717
AVERAGE BALANCES:
Total assets.................... 11,334,955 10,590,197 9,195,895 7,432,493 6,132,367
Interest-earning assets......... 10,484,078 9,609,152 8,300,873 6,804,087 5,610,184
Loans, net of unearned income... 8,828,899 7,617,585 6,451,427 5,497,737 4,488,023
Mortgage loans held for sale.... 14,711 341,692 407,672 158,966 135,135
Deposits........................ 8,053,138 7,581,939 6,750,880 5,902,179 4,797,516
Shareholders' equity............ 710,293 673,255 642,287 547,886 458,807
Book value per share.............. 6.86 6.20 5.77 5.55 4.71
Tangible book value per share..... 6.16 5.51 5.00 4.90 4.41
SELECTED RATIOS:
Income from continuing operations
excluding merger related
expenses and other nonrecurring
items(1)(2)(3)(4) Average
assets.......................... 1.04% 1.05% 0.90% 1.14% 1.08%
Average shareholders' equity.... 16.58 16.47 12.95 15.45 14.47
Income from continuing operations:
Average assets.................. 1.04 1.17 0.77 1.11 0.91
Average shareholders' equity.... 16.60 17.99 10.79 15.33 12.18
Efficiency ratio from continuing
operations excluding merger
related expenses and other
nonrecurring
items(1)(2)(3)(4)............... 53.74 52.67 53.21 54.86 54.35
Efficiency ratio from continuing
operations...................... 53.74 51.89 59.93 56.88 60.21
Dividend payout ratio............. 43.14 35.51 68.00 34.88 42.86
Average equity to average total
assets.......................... 6.27 6.36 6.98 7.37 7.48
Total nonperforming assets to net
loans, other real estate and
repossessions(5)................ 0.54 0.55 0.60 0.74 0.80
Net charge-offs to average
loans........................... 0.21 0.21 0.26 0.23 0.16
Allowance for possible loan losses
to total loans (net of unearned
income)......................... 1.14 1.17 1.18 1.21 1.28
Allowance for possible loan losses
to nonperforming loans(5)....... 256% 269% 245% 247% 234%
- ---------------
(1) Legislation approving a one-time assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") resulted in $4,754,000 in expenses
before income taxes and $3,091,000 net of applicable income taxes in 1996.
(2) Acquisition expenses reflect costs associated with the business combinations
discussed in Note 2 to the Consolidated Financial Statements. Restructuring
charges are discussed in Note 19 to the Consolidated Financial Statements.
(3) Gain on the sale of certain branches and other one time miscellaneous income
of $10,167,000 before tax and $6,405,000 after tax have been excluded from
1999.
(4) In December 2000, the company exited the mortgage servicing business. The
financial results for this line of business have been separately reported as
Discontinued Operations in all periods presented.
(5) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial condition and Results of
Operations -- Nonperforming Assets.
9
11
SELECTED QUARTERLY FINANCIAL DATA -- 2000-1999
2000 1999
----------------------------------------- -----------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest income........... $235,433 $230,428 $223,719 $208,181 $198,515 $192,013 $184,624 $175,676
Interest expense.......... 138,355 134,262 124,391 110,862 101,484 96,891 92,219 87,812
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income....... 97,078 96,166 99,328 97,319 97,031 95,122 92,405 87,864
Provision for loan
losses.................. 7,858 8,861 7,414 5,547 9,239 7,014 6,436 6,018
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan
loss.................... 89,220 87,305 91,914 91,772 87,792 88,108 85,969 81,846
INCOME FROM CONTINUING
OPERATIONS.............. 28,579 28,561 30,123 30,533 27,147 33,363 28,943 26,617
Discontinued
operations(1)........... (366) -- (4,107) (592) 3,603 (2,927) 1,320 1,531
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (loss)......... $ 28,213 $ 28,561 $ 26,016 $ 29,941 $ 30,750 $ 30,436 $ 30,263 $ 28,148
======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE:
Income from continuing
operations (net of
income taxes)(1):
Basic................... $ 0.26 $ 0.26 $ 0.27 $ 0.27 $ 0.24 $ 0.30 $ 0.26 $ 0.24
Diluted................. $ 0.26 $ 0.26 $ 0.27 $ 0.27 $ 0.24 $ 0.29 $ 0.26 $ 0.24
Net income (loss):
Basic................... $ 0.26 $ 0.26 $ 0.24 $ 0.27 $ 0.27 $ 0.27 $ 0.27 $ 0.25
Diluted................. $ 0.25 $ 0.26 $ 0.23 $ 0.27 $ 0.27 $ 0.27 $ 0.27 $ 0.25
- ---------------
(1) In December 2000, the company exited the mortgage servicing business. The
financial results for this line of business have been separately reported as
Discontinued Operations in all periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on the following pages. The principal purpose of this
review is to provide the reader of the attached financial statements and
accompanying footnotes with a detailed analysis of the financial results of The
Colonial BancGroup, Inc. and subsidiaries (for the purposes of this Item 7,
"BancGroup" or the "Company"). Among other things, this discussion provides
commentary on BancGroup's history, operating philosophies, the components of net
interest margin and balance sheet strength as measured by the quality of assets,
the composition of the loan portfolio and capital adequacy.
STRATEGY
BancGroup was reorganized in 1981 as a holding company with one bank and
$166 million in assets. Through the acquisition of 57 community banks and strong
internal growth, BancGroup has grown to a $11.7 billion multi-state bank holding
company whose bank subsidiary, Colonial Bank, operates 239 branch sales offices
through 11 operating regions in six states. These operating regions are
sometimes referred to in this discussion as "regional banks".
The foundation of BancGroup is built upon a community banking philosophy
that allows local responsibility for customer relationships. This operating
philosophy has been important in making acquisitions, retaining skilled and
highly motivated local management teams and developing a strong customer base,
particularly with respect to lending relationships.
The expertise in each local market is supported by consolidated operations
and a centralized credit review function, which allows the local banking
officers to concentrate on the customer. Through this structure of local
customer relationship responsibility and consolidated operations, the local
banks have decision making
10
12
capability while at the same time having an effective operational structure at
their disposal to service the customer in the most cost effective and efficient
manner.
There will continue to be considerable competition in all of BancGroup's
markets. Now that the previous objectives of expanding our geographic footprint
through acquisitions and streamlining operations have been substantially
achieved, BancGroup has positioned itself to continue its success by focusing
inward, employing internal growth strategies and fully utilizing its corporate
synergies and efficiencies. These internal growth strategies include quality
loan growth through its management expertise in each regional market, generating
deposit growth through the development of customer relationships and competitive
product offerings, continued development of its presence in the Company's higher
growth markets, growth in noninterest income through continued expansion of its
fee based products and services and the ongoing development of its sales
oriented business culture with an emphasis on customer service.
LOAN AND DEPOSIT GROWTH
From 1996 through 1998, BancGroup's acquisitions established operations in
some of the highest growth markets in the country such as Atlanta, Orlando,
Miami, Southwest Florida, Dallas and Las Vegas. Due to the success of these
efforts BancGroup's concentration of loans and deposits has significantly
changed. From 1996 to 2000, the Company's loans in Alabama as a percent of total
loans have declined from 81% to 45% while during the same time loans in Florida
as a percentage of total loans have increased from 5% in 1996 to 37% in 2000. We
expect our presence in all of these new markets to provide BancGroup the basis
for future earnings growth.
The following table illustrates the change in BancGroup's regional
composition of loans and deposits (years prior to 1998 are as originally
reported, prior to restatements for poolings of interests).
% TO TOTAL
AT DECEMBER 31,
--------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
LOANS:
Alabama..................................................... 45% 49% 51% 63% 81%
Florida..................................................... 37 34 33 27 5
Georgia..................................................... 12 10 10 9 12
Other....................................................... 6 7 6 1 2
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
DEPOSITS:
Alabama..................................................... 46% 46% 47% 59% 80%
Florida..................................................... 39 37 35 30 8
Georgia..................................................... 9 9 9 9 9
Other....................................................... 6 8 9 2 3
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Loan and deposit growth is emphasized in each market area through the
Company's regional banks. BancGroup has been successful in competing for loans
against other larger institutions, due primarily to the Company's local lending
strategy which includes direct involvement by local management and directors.
Because markets and communities differ widely, customers require different
answers and solutions to their financial needs. Customers appreciate the
knowledge of their business needs and the local environment that local banking
officers can provide. BancGroup's goal is to meet the financial needs of retail
and commercial banking customers.
BancGroup expects to continue its successful growth by building on these
local relationships. Internal loan growth was 16% and 17% for 2000 and 1999,
respectively, while average retail deposits grew 9% for both 2000 and 1999. The
following table illustrates the contribution of each state and reflects the
significant impact of the high growth markets on consolidated loan and deposit
growth.
11
13
% OF TOTAL AT
DECEMBER 31,
--------------
2000 1999
----- -----
CONTRIBUTION TO INTERNAL LOAN GROWTH:
Alabama................................................... 17% 33%
Florida................................................... 54 42
Georgia................................................... 23 15
Other..................................................... 6 10
--- ---
100% 100%
=== ===
CONTRIBUTION TO RETAIL DEPOSIT GROWTH:
Alabama................................................... 29% 40%
Florida................................................... 69 57
Georgia................................................... 5 14
Other..................................................... (3) (11)
--- ---
100% 100%
=== ===
Not only is it important to continue our growth but to also maintain our
consistent strength in asset quality. Loan portfolio strength is sustained
through establishing customer relationships, maintaining variety in the real
estate loan portfolio and maintaining geographic diversity while continuing our
conservative underwriting standards and credit review process.
Eighty percent of the loan portfolio is secured by real estate. There are
no major concentrations in any particular type of real estate loan. The loan
portfolio reflects geographic diversity from Alabama to Atlanta then south to
Central, Southwest and South Florida and westward in Dallas and Nevada. Each of
these markets has a unique business environment which reacts quite differently
to various economic conditions. Atlanta is considered the financial hub of the
Southeast, a distribution center and light-manufacturing center while central
Georgia is more rural with agricultural emphasis. In addition to the many
retirement communities throughout Florida, there is also significant development
in other business sectors. Central Florida is considered a travel and
entertainment destination, and is a growing area for service and support
businesses. South Florida is considered a "gateway to Latin America and South
America" which provides for an opportunity to expand international banking
activities. Dallas is a financial hub in the Southwest and is the home of
numerous corporate headquarters, which generate significant growth in
infrastructure and support services. Las Vegas and Reno are both travel and
entertainment destinations and are fast becoming retiree destinations as well.
Consequently, the Company believes that this overall geographic diversity will
allow the loan portfolio to fare well during challenging national economic
conditions.
The local expertise with established customer relationships combined with
independent oversight of credit decisions and conservative underwriting
standards are key to the maintenance of high asset quality. The senior credit
administration function provides the primary oversight of the credit review
process. This administration function reviews larger credits prior to approval
and also provides an independent review of credits on a continual basis. In
addition, the Company has established regional bank loan committees made up of
local officers and directors that approve loans up to certain levels. These
committees provide local business and market expertise while BancGroup's senior
management provides independent oversight through their participation in the
state loan committees.
As previously stated, establishing local customer relationships,
maintaining variety in the real estate loan portfolio, maintaining geographic
diversity, continuing conservative underwriting standards and utilizing local
expertise with independent oversight in credit decisions are all factors that
allow BancGroup to maintain high asset quality, which is at the forefront of the
Company's strategy. BancGroup's asset quality is demonstrated by its charge-off
history and nonperforming asset levels, which for the past ten years have been
among the lowest of our southeastern peers. Nonperforming assets as a percentage
of loans and other real estate was 0.54% at December 31, 2000, its lowest year
end level in ten years. Net charge-offs were 0.21% of average loans in 2000 and
1999 which also compare favorably to national averages.
12
14
Deposit growth is a primary focus of the Company's sales efforts.
Management has established several initiatives to accomplish its deposit growth
goals. In January 2000, BancGroup established a branch incentive program in
which one of the key goals is for employees to achieve a quarterly deposit
growth rate in their branches. In order to provide branch sales personnel with
the necessary tools to accomplish their goals, they receive an on-going series
of training programs in relationship-based selling, which develops their sales
skills. The Company is in the process of enhancing its customer information
system in order to facilitate the further development of existing customer
relationships. This enhanced system will allow sales personnel to more
effectively sell products and services to its customers by providing information
related to the customer's product or service needs. Management has also
contracted with a marketing consultant to target specific products and markets
for future deposit campaigns in order to more cost effectively increase and
retain its deposit base. Each of these initiatives is designed to provide a
solid foundation for achieving the Company's deposit growth objectives.
The regional banks have additional growth opportunities through the
development of customer relationships by cross selling a variety of bank
products and services. These products and services include various deposit
products as well as other services such as wealth management, cash management,
electronic banking, credit card and merchant services. As market demographics
change, products and services are structured to meet the needs of a particular
region or customer. Strong regional bank management supported by BancGroup's
asset/liability and product and services management teams provide the Company
with the resources to remain competitive in its deposit markets through on-going
efforts to identify and implement products and services with attractive pricing
that meet customer needs. The Company has established a strategy to grow and
retain its deposit base while remaining competitive in deposit pricing and
meeting the Company's funding and liquidity goals through the monitoring of our
markets and customer needs and the expansion of sales efforts in the local
branch sales office network.
GROWTH MARKET EXPANSION
As noted above, BancGroup, through acquisitions has established operations
in some of the highest growth markets in the country such as Atlanta, Orlando,
Miami, Southwest Florida, Dallas and Las Vegas. As evidenced by the previous
charts, this strategy has contributed significantly to the Company's growth.
BancGroup plans to continue its expansion in these high growth areas by
selectively filling in these markets. This expansion will come primarily through
the strategic placement of new branch locations that will expand our market
presence and provide additional customer service in these areas. BancGroup's
subsidiary bank acquired two additional branches in Nevada in January 2001 and
has plans to establish approximately 11 new branches in the high growth markets
listed above in the next two years.
NONINTEREST INCOME GROWTH
Customer needs are constantly changing and BancGroup continues to
investigate methods of improving customer service through new services, product
enhancements and technological advancements. Our current objective is to grow
income from noninterest income sources by concentrating on wealth management
products and services, cash management services, international banking services
and electronic banking services. Noninterest income from continuing operations
excluding nonrecurring income from the gain on sale of certain branches and
other miscellaneous items increased 18% in 2000 and 8% in 1999.
Because of our markets and the customers we serve, the Company expects
wealth management products and services to play a major role in future growth.
Through BancGroup's current investment services, the Company offers discount
brokerage, investment sales, asset management, trust services and insurance
including term, universal, whole life and long-term care. In 2001 the Company
expects to complete the establishment of Colonial Brokerage, Inc. as a member of
the NASD which will allow the Company to perform additional broker/dealer
activities in order to better service its customers. Income from wealth
management services has increased 131% in the last two years. Growth rates are
expected to continue upward with the implementation of a financial planning
department and the expanded services of Colonial Brokerage, Inc.
13
15
BancGroup offers a complete package of cash management services, which
include lock box services, sweep accounts, zero balance accounts, electronic
data interchange, automated clearinghouse, and Business Banker Plus(TM), an
online tool for bank account reporting services. Revenue from cash management
services increased 133% in the last two years. BancGroup expects to continue
growth in cash management services by expanding these services to existing
customers through cross sell opportunities and enhanced sales efforts in our
growth markets.
The Company has in place strong local management with expertise in
international banking. Through the efforts of this management team,
international banking revenues have increased 308% in the last two years. The
Company provides letters of credit to top-tier banks, pre-export financing,
import financing, funds transfer and check clearing services, trade syndication,
merchant banking services and other miscellaneous services through the
International Banking Department. The Company also services international
customers through its private and executive banking group in Miami. BancGroup
expects revenue from these services to grow through the increase in
international customers and the need for these services.
To meet customer's demands for banking when and where they want it,
BancGroup continues to expand its electronic banking services. The Company has
plans to offer additional services through the Internet and to introduce a Visa
Business Check Card. The Company added 26 new ATMs to its network in 2000 and
will continue to install ATMs in the most convenient and high traffic locations
in order to provide better customer service and complement BancGroup's retail
branch sales office network. Revenue generated by electronic banking services
has increased 42% in the last two years.
The Company plans to continue to expand resources to ensure all products
and services are among the most competitive in our markets. BancGroup has
established a Product Review Team to perform an in-depth study of all products
and services and recommend future product enhancement strategies by mid-2001.
SALES RELATIONSHIPS, CUSTOMER SERVICE AND PROFITS
BancGroup recognizes the need to continue its focus on a sales oriented
culture. The Company has taken several steps to promote a more sales focused
environment. These initiatives include converting branches to sales offices by
reducing operational tasks to allow sales office personnel to focus on selling
customer services, implementation of sales training for employees and the
establishment of a sales incentive program designed to reward employees based on
their sales office's achievement of specific objectives. The Company also
incorporated into the incentive plan a customer service rating through the use
of an independent company to "shop" the sales offices to test their level of
product knowledge and customer service. Loan officers also participate in
production oriented incentive compensation programs. The Company began an effort
in 2000 to assign customers to a particular bank officer or branch sales
representative. This assignment of customers will make one banker responsible
for each customer relationship which will enhance customer relationships through
better anticipation of the customer's financial needs. We believe that all of
these efforts have contributed to the previously discussed growth experienced in
loans, deposits and noninterest income as well as the effective containment of
noninterest expenses. In addition these efforts are expected to enhance cross
selling of products and services and expand customer relationships to include
additional services.
BancGroup cannot guarantee its success in implementing the initiatives or
reaching the goals outlined in this discussion. The following analysis of
financial condition and results of operations provides details with respect to
this summary material and identifies trends concerning the initiatives taken in
2000.
14
16
BUSINESS COMBINATIONS
BancGroup's growth strategy has been to merge other financial institutions
into BancGroup in order to increase the Company's market share in existing
markets, expand into other growth markets, more efficiently absorb the Company's
overhead and add profitable new lines of business. BancGroup has completed the
following business combinations with other financial institutions. These
business combinations have been reflected in the financial statements at
December 31, 2000. The balances reflected below are as of the date of
consummation.
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
---------------------- ---------- ----------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
1998
United American Holding Corp.
(FL).......................... Pooling 02/02/98 4,226,412 $275,263 $197,623 $236,773
ASB Bancshares, Inc. (AL)....... Purchase 02/05/98 934,514 158,656 110,093 135,940
First Central Bank (FL)......... Pooling 02/11/98 1,377,368 62,897 40,451 52,048
South Florida Banking Corp.
(FL).......................... Pooling 02/12/98 3,864,458 255,769 172,992 226,999
Commercial Bank of Nevada (NV).. Pooling 06/15/98 1,684,314 129,577 86,251 117,749
CNB Holding Corporation (FL).... Pooling 08/12/98 1,767,562 89,893 58,456 81,445
FirstBank (TX).................. Pooling 08/31/98 2,782,038 187,445 59,664 163,254
First Macon Bank & Trust (GA)... Pooling 10/01/98 4,643,025 199,525 135,651 174,774
Prime Bank of Central Florida
(FL).......................... Pooling 10/06/98 1,173,019 74,502 42,547 66,955
InterWest Bancorp (NV).......... Pooling 10/15/98 1,748,338 131,590 83,689 114,516
TB&T, Inc. (TX)................. Purchase 12/01/98 1,248,499 110,986 42,689 101,335
The 1998 combinations with United American, First Central, South Florida,
Commercial Bank of Nevada, FirstBank, First Macon, Prime Bank and InterWest were
accounted for using the pooling-of-interests method. Accordingly, all financial
statement amounts have been restated to reflect the financial condition and
results of operations as if the combinations had occurred at the beginning of
the earliest period presented. The 1998 combination with CNB Holding was
accounted for using the pooling-of-interests method; however, due to
immateriality, the prior year financial statements were not restated. The
remaining business combinations were accounted for as purchases, and the
operations and income of the combined institutions are included in the income of
BancGroup from the date of purchase. The 1998 combination with TB&T, Inc.
included shares previously re-purchased by the company as treasury shares. Each
of the combined institutions that were accounted for as purchases was merged
into BancGroup or one of its subsidiaries as of the listed dates, and the income
and expenses have not been separately accounted for since the respective
mergers. For this reason and due to the fact that significant changes have been
made to the cost structure of each combined institution, a separate
determination of the impact after combination on the earnings of BancGroup for
1998 cannot reasonably be determined.
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
BancGroup's primary line of business is commercial banking through its
wholly owned subsidiary Colonial Bank. The following summary of BancGroup's
results of operations discusses the related impact of this line of business on
the earnings of the Company.
15
17
LINE OF BUSINESS RESULTS
CONTINUING OPERATIONS DISCONTINUED
---------------------------------- OPERATIONS
COMMERCIAL CORPORATE/ MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING(1) BANCGROUP
---------- ---------- -------- ------------ ------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000
Net interest income..................... $396,912 $(7,021) $389,891 $389,891
Provision for possible loan losses...... 29,680 -- 29,680 29,680
Noninterest income...................... 75,331 (32) 75,299 75,299
Amortization and depreciation........... 31,167 (418) 30,749 30,749
Noninterest expense..................... 215,241 3,992 219,233 219,233
-------- ------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 196,155 (10,627) 185,528 185,528
Income taxes............................ 70,596 (2,864) 67,732 67,732
-------- ------- -------- -------- --------
Income from continuing operations....... 125,559 (7,763) 117,796 117,796
Income (loss) from discontinued
operations and loss on disposal (net
of taxes)............................. -- -- -- (5,065) (5,065)
-------- ------- -------- -------- --------
Net income (loss)............. $125,559 $(7,763) $117,796 $ (5,065) $112,731
======== ======= ======== ======== ========
YEAR ENDED DECEMBER 31, 1999
Net interest income..................... $379,687 $(7,265) $372,422 $372,422
Provision for possible loan losses...... 28,707 -- 28,707 28,707
Noninterest income...................... 73,874 213 74,087 74,087
Amortization and depreciation........... 27,676 (408) 27,268 27,268
Noninterest expense..................... 203,003 3,268 206,271 206,271
-------- ------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 194,175 (9,912) 184,263 184,263
Income taxes............................ 71,874 (3,681) 68,193 68,193
-------- ------- -------- -------- --------
Income from continuing operations....... 122,301 (6,231) 116,070 116,070
Income (loss) from discontinued
operations (net of taxes)............. -- -- -- 3,527 3,527
-------- ------- -------- -------- --------
Net income (loss)............. $122,301 $(6,231) $116,070 $ 3,527 $119,597
======== ======= ======== ======== ========
YEAR ENDED DECEMBER 31, 1998
Net interest income..................... $336,970 $(6,769) $330,201 $330,201
Provision for possible loan losses...... 26,345 -- 26,345 26,345
Noninterest income...................... 60,055 (1,103) 58,952 58,952
Amortization and depreciation........... 25,227 (283) 24,944 24,944
Noninterest expense..................... 231,979 2,451 234,430 234,430
-------- ------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 113,474 (10,040) 103,434 103,434
Income taxes............................ 40,760 (2,970) 37,790 37,790
-------- ------- -------- -------- --------
Income from continuing operations....... 72,714 (7,070) 65,644 65,644
Income (loss) from discontinued
operations (net of taxes)............. -- -- -- (10,448) (10,448)
-------- ------- -------- -------- --------
Net income (loss)............. $ 72,714 $(7,070) $ 65,644 $(10,448) $ 55,196
======== ======= ======== ======== ========
- ---------------
* Includes elimination of certain intercompany transactions.
(1) In December 2000, the Company exited the mortgage servicing business. The
financial results for this line of business have been separately reported as
Discontinued Operations in all periods presented.
16
18
The most significant factors affecting income for 2000, 1999 and 1998 are
highlighted below and discussed in greater detail in subsequent sections. All
results discussed are in reference to continuing operations, unless otherwise
noted.
- An increase of 9.1% in average earning assets in 2000. This follows an
increase of 15.8% in 1999 and 22.0% in 1998.
- In 2000, the Company exited the mortgage servicing business. The
financial results for this line of business have been separately reported
as Discontinued Operations.
- Net interest margin decreased to 3.74% in 2000 from 3.97% in 1999.
- An increase of $11.4 million (18%) and $4.9 million (8%) in noninterest
income in 2000 and 1999, respectively, (excluding gain on sale of certain
branches and other one time miscellaneous income from 1999).
- Internal loan growth of 15.9% from December 31, 1999 to December 31,
2000, following an increase of 16.8% from December 31, 1998 to December
31, 1999.
- Maintenance of high asset quality and reserve coverage ratios. Net
charge-offs were $18.5 million or 0.21% of average net loans in 2000 and
$16.3 million or 0.21% of average net loans in 1999.
- Noninterest expense, excluding acquisition and restructuring costs, and
Y2K expenses, is 2.21% of average assets in 2000 compared to 2.34% in
1999. Noninterest expense for 1998 included $37.0 million in impairment
of mortgage servicing rights.
- Completion of the sale of the Dalton, Georgia branches and five
supermarket branches resulting in an after-tax gain of $4.4 million in
1999.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on
loans, securities and other interest earning assets (interest income) and
interest paid on deposits and borrowed funds (interest expense). Three-year
comparisons of net interest income in dollars and the yields on a tax equivalent
basis are reflected on the following schedule. This schedule is presented on a
consolidated basis, which includes the mortgage operations. The net yield on
interest-earning assets was 3.74% in 2000 compared to 3.97% in 1999 and 4.17% in
1998. Over this period net interest income on a tax-equivalent basis increased
to $393 million for 2000 from $381 million for 1999 and $346 million for 1998.
The principal factors affecting the Company's yields and net interest income are
discussed on the following pages.
Levels of Interest Rates. In mid 1998, the Federal Reserve began raising
their target for the fed funds rate from 4.75% to 6.50% up a total of 175 basis
points by May 2000. The average fed funds rate target for 2000 was 6.37%, 116
basis points above the 1999 average of 5.21%. This large and rapid increase in
market rates contributed to the decline in BancGroup's net interest margin. The
funding mix also contributed to the decline as deposit growth was concentrated
in higher cost CD's and a new higher rate money market account launched in early
2000. These changes in funding mix were primarily the result of competitive
pressure and the customers' desire for higher rate deposits in each of the
Company's markets. Additionally short term and therefore rate sensitive
borrowings rose $215 million. Altogether the rate on interest bearing
liabilities rose 78 basis points from 4.72% in 1999 to 5.50% in 2000. The yield
on earning assets was not able to keep pace rising just 49 basis points from
8.11% in 1999 to 8.60% in 2000. Additionally, we estimate that BancGroup's exit
from the mortgage servicing business accounted for 1 basis point of the decline
in margin. This is due to the average decline for 2000 of $327 million in
mortgage loans held for sale, the $98 million in mortgage servicing rights and
the $127 million in non-interest bearing custodial deposits.
The outlook for rates in 2001 is much different. The economy appears to
have slowed and the Federal Reserve has reacted quickly with two 50 basis point
declines in their target fed funds rate in January 2001 alone. The market has
expectations for additional declines as well. As discussed in the Liquidity and
Interest
17
19
Rate Sensitivity section, BancGroup's net interest income and margin should
benefit from the rate decline in 2001.
Growth in Earning Assets. One of the most significant factors in the
Company's increase in income has been the 9.1%, 15.8% and 22.0% increase in
average interest-earning assets in 2000, 1999, and 1998, respectively. In
addition, and equally significant, average net loans increased $1.2 billion
(15.9%) from December 31, 1999 to December 31, 2000. Earning assets as a
percentage of total average assets were 92.5%, 90.7% and 90.3% in 2000, 1999 and
1998 respectively. However, the impact on net interest income from the growth in
average loans was over shadowed by the compression in the net interest margin as
previously discussed.
Mortgage Loans Held for Sale. Mortgage loans held for sale represent
single family residential mortgage loans originated or acquired then packaged
and sold. The level and direction of long-term interest rates have a dramatic
impact on the volume of mortgage loan originations from new construction and
refinancings. In October 1999, the Company sold the wholesale production unit of
the mortgage banking division. As a result of decreased activity due to the
aforementioned sale and increasing mortgage interest rates, average mortgage
loans held for sale decreased to $14.7 million in 2000 from $341.7 million in
1999 and $407.7 million in 1998. Also as a result of the sale of the wholesale
production unit, the Company has entered into a third party correspondent
relationship for the sale of its retail production of fixed rate mortgage loans,
which substantially eliminates the need to hedge interest rate risk associated
with new production.
Loan Mix. At December 31, 2000, the Company's mix of loans reflected an
increase in construction loans and commercial real estate loans to 18.0% and
33.7% of the total portfolio from 17.4% and 30.8%, respectively, at December 31,
1999. Residential real estate loans decreased to 27.2% of the total portfolio at
December 31, 2000, from 30.7% at December 31, 1999. The increase in the
construction and commercial real estate loans is primarily the result of loan
growth in the Georgia, Florida, Nevada and Texas regions. The residential real
estate loans are predominantly adjustable rate first mortgages that have a low
level of credit risk and accordingly have lower yields than other types of
loans.
Noninterest Earning Assets. The decline in average noninterest-earning
assets of $130 million from 1999 to 2000 is primarily due to the sale of the
mortgage servicing rights as a result of the Company's exit from that line of
business, and more efficient cash management. Average cash balances declined by
$26 million in 2000 and $20 million in 1999, as a result of specific programs
aimed at improving the Company's cash management efficiency.
Cost of Funds. The average cost of funds increased to 5.50% in 2000,
compared to 4.72% in 1999 and 4.94% in 1998. The higher average cost of funds is
primarily the result of the previously discussed increase in interest rates that
began July 1999 and continued into 2000. BancGroup funds loans primarily with
customer deposits. Competitive pressures on new time deposits and variable
interest deposits remained strong. Due to these pressures, the Company's funding
mix has shifted during the past two years to a higher concentration of
borrowings, primarily through credit facilities with the Federal Home Loan Bank.
The percentage of average total borrowings to total funding sources is 23% for
2000 and 1999 and 19% for 1998. These borrowings are an excellent funding source
since they are at rates lower than or comparable to what the market rates are
for new time deposit funds. In addition to these sources, the Company has
initiated strategies to increase deposits through its retail branch network. As
discussed under Liquidity and Interest Sensitivity, BancGroup's management
considers these sources of funds to be adequate to fund future loan growth.
Noninterest-Bearing Deposits. Noninterest-bearing deposits decreased by
$127 million from 1999 to 2000 as a result of the transfer of custodial deposits
linked to the mortgage servicing rights sold during late 1999 and 2000 as part
of the Company's decision to exit the mortgage servicing business.
18
20
AVERAGE VOLUME AND RATES
2000 1999 1998
-------------------------------- -------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME INTEREST RATE VOLUME INTEREST RATE VOLUME INTEREST RATE
----------- -------- ------- ----------- -------- ------- ---------- -------- -------
(IN THOUSANDS)
ASSETS:
Interest-earning assets:
Loans, net of unearned
income(1)............. $ 8,828,899 $789,621 8.94% $ 7,617,585 $650,017 8.53% $6,451,427 $575,851 8.93%
Mortgage loans held for
sale.................. 14,711 1,168 7.94% 341,692 25,229 7.38% 407,672 29,585 7.26%
Investment securities
and securities
available for sale:
Taxable................... 1,420,098 94,540 6.66% 1,422,065 88,873 6.25% 1,152,624 73,829 6.41%
Nontaxable(2)......... 110,639 8,221 7.43% 92,335 6,729 7.29% 93,721 6,981 7.45%
Equity securities..... 77,960 5,195 6.66% 83,709 5,670 6.77% 88,920 4,775 5.37%
----------- -------- ----------- -------- ---------- --------
Total
securities...... 1,608,697 107,956 6.71% 1,598,109 101,272 6.34% 1,335,265 85,585 6.41%
Federal funds sold and
securities purchased
under resale agreements
and other short-term
investments............. 31,771 2,714 8.54% 51,766 2,585 4.99% 106,509 5,641 5.30%
----------- -------- ----------- -------- ---------- --------
Total interest-earning
assets.................. 10,484,078 901,459 8.60% 9,609,152 779,103 8.11% 8,300,873 696,662 8.39%
----------- -------- ----------- -------- ---------- --------
Allowance for loan
losses.................. (101,788) (88,685) (76,683)
Cash and due from banks... 285,191 311,275 331,680
Premises and equipment,
net..................... 188,705 188,494 175,492
Other assets.............. 478,769 569,961 464,533
----------- ----------- ----------
TOTAL ASSETS.............. $11,334,955 $10,590,197 $9,195,895
=========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
Interest-bearing demand
deposits.............. $ 1,684,639 $ 58,060 3.45% $ 1,578,498 $ 43,081 2.73% $1,493,490 $ 44,330 2.97%
Savings deposits........ 504,329 17,100 3.39% 570,197 17,373 3.05% 531,032 16,872 3.18%
Time deposits........... 4,601,056 276,733 6.01% 4,043,004 213,154 5.27% 3,428,448 195,244 5.69%
Short-term borrowings... 1,521,095 96,274 6.33% 1,306,060 66,756 5.11% 1,004,372 54,866 5.46%
Long-term debt.......... 946,630 60,671 6.41% 937,243 57,626 6.15% 641,367 39,129 6.10%
----------- -------- ----------- -------- ---------- --------
Total interest-bearing
liabilities........... 9,257,749 508,838 5.50% 8,435,002 397,990 4.72% 7,098,709 350,441 4.94%
----------- -------- ----------- -------- ---------- --------
Noninterest-bearing
demand deposits....... 1,263,114 1,390,240 1,297,910
Other liabilities....... 103,799 91,700 156,989
----------- ----------- ----------
Total liabilities....... 10,624,662 9,916,942 8,553,608
Shareholders' equity.... 710,293 673,255 642,287
----------- ----------- ----------
Total liabilities and
shareholders' equity.... $11,334,955 $10,590,197 $9,195,895
=========== =========== ==========
Rate differential......... 3.10% 3.39% 3.45%
Net interest income and
net yield on
interest-earning
assets(3)............... $392,621 3.74% $381,113 3.97% $346,221 4.17%
======== ======== ========
- ---------------
(1) Loans classified as nonaccruing are included in the average volume
calculation. Interest earned and average rates on non-taxable loans are
reflected on a tax equivalent basis. This interest is included in the total
interest earned for loans. Tax equivalent interest earned is actual interest
earned times 145%.
(2) Interest earned and average rates on obligations of states and political
subdivisions are reflected on a tax equivalent basis. Tax equivalent
interest earned is actual interest earned times 145%. Tax equivalent average
rate is tax equivalent interest earned divided by average volume.
(3) Net interest income divided by average total interest-earning assets.
19
21
AN ANALYSIS OF INTEREST INCREASES (DECREASES)
2000 CHANGE FROM 1999 1999 CHANGE FROM 1998
------------------------------ -----------------------------
ATTRIBUTED TO(1) ATTRIBUTED TO(1)
AMOUNT VOLUME RATE AMOUNT VOLUME RATE
-------- -------- -------- ------- -------- --------
(IN THOUSANDS)
INTEREST INCOME:
Taxable securities................ $ 5,667 $ (123) $ 5,790 $15,044 $ 16,878 $ (1,834)
Nontaxable securities(2).......... 1,492 1,358 134 (252) (102) (150)
Equity securities................. (475) (384) (91) 895 (293) 1,188
-------- -------- -------- ------- -------- --------
Total securities.................. 6,684 851 5,833 15,687 16,483 (796)
Total loans (net of unearned
income)........................ 139,604 107,180 32,424 74,166 100,407 (26,241)
Mortgage loans held for sale...... (24,061) (25,828) 1,767 (4,356) (4,864) 508
Federal funds sold and securities
purchased under resale
agreements and other short-term
investments.................... 129 (1,248) 1,377 (3,056) (2,741) (315)
-------- -------- -------- ------- -------- --------
Total..................... 122,356 80,955 41,401 82,441 109,285 (26,844)
-------- -------- -------- ------- -------- --------
INTEREST EXPENSE:
Interest-bearing demand
deposits....................... 14,979 3,052 11,927 (1,249) 2,439 (3,688)
Savings deposits.................. (273) (2,121) 1,848 501 1,211 (710)
Time deposits..................... 63,579 31,472 32,107 17,910 33,161 (15,251)
Short-term borrowings............. 29,518 12,061 17,457 11,890 15,607 (3,717)
Long-term debt.................... 3,045 582 2,463 18,497 18,190 307
-------- -------- -------- ------- -------- --------
Total..................... 110,848 45,046 65,802 47,549 70,608 (23,059)
-------- -------- -------- ------- -------- --------
Net interest income....... $ 11,508 $ 35,909 $(24,401) $34,892 $ 38,677 $ (3,785)
======== ======== ======== ======= ======== ========
- ---------------
(1) Increases (decreases) are attributed to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate. Rate
Change = change in rate times old volume. The Rate/Volume change = change in
volume times change in rate, and it is allocated between Volume Change and
Rate Change at the ratio that the absolute value of each of those components
bear to the absolute value of their total.
(2) Interest earned and average rates on obligations of states and political
subdivisions are reflected on a tax equivalent basis. Tax equivalent
interest earned is: actual interest earned times 145%. Tax equivalent
average rate is: tax equivalent interest earned divided by average volume.
20
22
NONINTEREST INCOME
One of BancGroup's primary strategies has been to expand its noninterest
income. The Company continues to emphasize growth in wealth management services,
international banking, electronic banking services and cash management services.
These services provide a broader base of revenue generation capabilities.
Noninterest income increased $1.2 million or 2% from 1999 to 2000 and $15.0
million or 26% from 1998 to 1999. Noninterest income from continuing operations
excluding nonrecurring income from the gain on sale of certain branches and
other miscellaneous items increased 18% in 2000 and 8% in 1999.
INCREASE (DECREASE)
--------------------------------
YEARS ENDED DECEMBER 31, 2000 1999
--------------------------- COMPARED COMPARED
2000 1999 1998 TO 1999 % TO 1998 %
------- ------- ------- -------- --- -------- ---
(IN THOUSANDS)
Noninterest income (from continuing
operations):
Service charges on deposit
accounts......................... $38,019 $38,490 $37,361 $ (471) (1)% $ 1,129 3%
Other charges, fees, and
commissions...................... 10,885 8,434 7,634 2,451 29 800 10
Other income........................ 25,747 25,893 13,090 (146) (1) 12,803 98
------- ------- ------- ------ -------
Subtotal.............................. 74,651 72,817 58,085 1,834 3 14,732 25
Other noninterest income items:
Securities gains, net............... 538 497 1,449 41 (952)
Gain (loss) on disposal of other
real estate and repossessions.... 110 773 (582) (663) 1,355
------- ------- ------- ------ -------
Total noninterest income.... $75,299 $74,087 $58,952 $1,212 2% $15,135 26%
======= ======= ======= ====== =======
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. Average noninterest bearing retail deposits remained flat in 2000
while service charges declined 1%. Competitive pressures and increasing rates
resulting in a shift to other deposit products are the primary reason for the
decline in service charges in 2000. The increase in 1999 of 3% is primarily the
result of increases in volume, increases in service fee rates, and the
acquisitions completed in 1998.
Other income of $10 million was recorded in 1999 as a result of gains on
the sales of the five supermarket branches and the Company's Dalton, Georgia
branches as well as other one-time miscellaneous income. Excluding these one
time gain items from 1999, other income increased $9.9 million or 62% in 2000
and $2.6 million or 20% in 1999. The increase in other service charges and fees
and other income are primarily the result of additional fees generated by wealth
management, electronic banking, and international banking services.
Income from wealth management services was $8.2 million in 2000 as compared
to $5.5 million in 1999, a 48% increase. Wealth management services include
asset management, investment sales, trust services and annuity sales. Electronic
banking fees which include ATM surcharges and check card fees has increased by
$900,000, or 20%, in 2000 as compared to 1999. The international banking
department located in the Miami region generated $1.6 million of income in 2000
compared to $1.4 million in 1999, an 18% increase.
As shown in the table above, securities gains in each of the three years
were $538,000, $497,000 and $1,449,000, respectively. While a substantial
portion of the securities portfolio is considered available for sale, BancGroup
currently intends to hold substantially its entire securities portfolio for
investment purposes.
NONINTEREST EXPENSE
Noninterest expense to average assets was 2.21%, 2.34%, and 2.73% in 2000,
1999, and 1998, respectively (from continuing operations excluding acquisition
and restructuring costs, and Y2K expenses.)
21
23
The Company completed the conversion of banks acquired in Texas in the
first quarter of 2000, and conversions of banks acquired in Nevada in the second
quarter of 2000. The Company completed the sale of five supermarket branches in
the first quarter of 1999, closed several unprofitable branches in the second
quarter of 1999, completed the sale of its Dalton, Georgia branches in the third
quarter of 1999 and sold the wholesale mortgage production unit in the fourth
quarter of 1999. In July 2000, the Company announced definitive plans to exit
the mortgage servicing business. As of December 31, 2000 all sales of servicing
rights and transfers of underlying loans were completed. As a result of this
sale, the 13 retail mortgage offices were merged into the regional bank
structure of Colonial Bank. The expenses related to discontinued operations are
not reflected in the following table. Each of these initiatives resulted in a
reduction in operating expenses after its completion.
INCREASE (DECREASE)
--------------------------------
YEARS ENDED DECEMBER 31, 2000 1999
------------------------------ COMPARED COMPARED
2000 1999 1998 TO 1999 % TO 1998 %
-------- -------- -------- -------- ---- -------- ---
(IN THOUSANDS)
Noninterest expense (from
continuing operations):
Salaries and employee
benefits.................... $124,370 $114,790 $113,985 $ 9,580 8% $ 805 1%
Occupancy expense, net......... 30,756 28,194 29,459 2,562 9 (1,265) (4)
Furniture and equipment
expenses.................... 28,824 25,633 22,881 3,191 12 2,752 12
Amortization of intangible
assets...................... 5,196 5,241 4,927 (45) (1) 314 6
Acquisition and restructuring
expense..................... -- 1,307 21,535 (1,307) (100) (20,228) (94)
Y2K expense.................... -- 560 4,617 (560) (100) (4,057) (88)
FDIC and state assessments..... 1,951 1,629 2,221 322 20 (592) (27)
Advertising and public
relations................... 7,789 7,757 9,143 32 -- (1,386) (15)
Stationery, printing and
supplies.................... 4,827 5,599 5,879 (772) (14) (280) (5)
Telephone...................... 6,482 6,157 5,650 325 5 507 9
Legal fees..................... 4,504 4,453 5,218 51 1 (765) (15)
Postage and courier............ 6,780 6,717 5,997 63 1 720 12
Insurance...................... 1,394 1,456 1,576 (62) (4) (120) (8)
Professional services.......... 6,246 7,002 9,752 (756) (11) (2,750) (28)
Travel......................... 3,462 3,535 4,643 (73) (2) (1,108) (24)
Other.......................... 17,401 13,509 11,891 3,892 29 1,618 14
-------- -------- -------- ------- ---- -------- ---
Total noninterest
expense.............. $249,982 $233,539 $259,374 $16,443 7% $(25,835) (10)%
======== ======== ======== ======= ==== ======== ===
Noninterest expense from
continuing operations
excluding, acquisition,
restructuring and Y2K expenses
to average assets.............. 2.21% 2.34% 2.73%
Salaries and benefits increased by $9.6 million in 2000 and $805,000 in
1999. The increase in 2000 is due to normal salary rate increases and increases
in commissions and incentives. The Company implemented a branch incentive
program in 2000 in an effort to create a more "sales" and "team oriented"
approach to servicing customers. The increase in 1999 is primarily due to normal
salary rate increases offset by a reduction in personnel resulting from branch
sales and closings. As discussed in Note 1 to BancGroup's Consolidated Financial
Statements, BancGroup defers certain salary and benefit costs associated with
loan originations and amortizes these costs as yield adjustments over the life
of the related loans.
Net occupancy expense increases are primarily due to new branch
construction, improvements to existing branch locations and the relocation of
certain branches and regional headquarters for better market presence. Furniture
and equipment expense increases are due to the previously mentioned branch
initiatives as well as improvements to the Company's computer and communications
technology. These improvements give the
22
24
Company the ability to expand its customer base and continue to improve customer
service and back-office efficiencies. In 1999 these increases were offset by
reductions in costs related to the sale of certain branches.
A waiver of the state assessment in the first and second quarters of 1999
caused the decrease in the FDIC and state assessments in 1999 of $592,000.
Decreases in supplies are primarily due to operating efficiencies gained through
technological advancements specifically related to the imaging of internal
reports. The decrease in 2000 of professional services and travel and the
remaining decreases in 1999 are primarily the result of the completion of the
conversion process in 2000 and 1999 of two and seven acquired banks,
respectively. The increases in other expenses are due to normal expenses
resulting from the Company's growth.
ACQUISITION EXPENSE AND RESTRUCTURING CHARGES
The results for 2000 and 1999 reflect the continued implementation of the
Company's plan to de-emphasize acquisitions, complete system conversions,
streamline operations and eliminate less profitable operations. As a result of
this focus, the Company recognized acquisition and conversion related expenses
of $0, $1.3 million, and $12.5 million for the years ended December 31, 2000,
1999, and 1998, respectively. These expenses related primarily to transaction
costs such as legal and accounting fees and incremental charges related to the
integration of acquired banks, such as system conversion (including contract
buy-outs and write-offs of equipment) and employee severance. As of December 31,
2000, two lease obligations remain outstanding from the Florida Region
restructuring. These lease obligations will expire in mid 2001.
YEAR 2000 DISCLOSURE
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 expenditures of approximately $12,500,000 in
expenditures on the Year 2000 project, with $0 in 2000, $1,076,000 during 1999
and $11,000,000 in 1998. Year 2000 project costs of approximately $560,000 were
expensed during 1999 while $4,617,000 was expensed during 1998.
INCOME TAXES
The provision for income taxes is as follows:
2000 1999 1998
------- ------- -------
Continuing operations..................................... $67,732 $68,193 $37,790
Discontinued operations................................... (3,066) 2,134 (6,384)
------- ------- -------
Total........................................... $64,666 $70,327 $31,406
======= ======= =======
BancGroup is subject to federal and state taxes at combined rates of
approximately 36.5% for regular tax purposes and 23% for alternative minimum tax
purposes. These rates are reduced or increased for certain nontaxable income or
nondeductible expenses, primarily consisting of tax exempt interest income,
partially taxable dividend income, nondeductible amortization of goodwill, and
certain nondeductible acquisition expenses.
DISCONTINUED OPERATIONS
In July 2000, BancGroup announced its definitive plans to exit the mortgage
servicing business. BancGroup recorded a loss on disposal of the discontinued
operations of $4.3 million after tax. The results of the mortgage servicing
business have been classified as discontinued operations.
The effects of this decision are the elimination of risk associated with
mortgage servicing rights and the related volatility in earnings. It also allows
the Company to reallocate approximately $40 million of capital for more
profitable purposes.
23
25
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Changes in ending asset balances of the company's segments and changes in
selected components of the Company's balance sheet from December 31, 1999 to
December 31, 2000 are as follows:
INCREASE (DECREASE)
AMOUNT %
---------- ----------
(IN THOUSANDS)
Assets:
Commercial Banking........................................ $1,179,694 11.2%
Mortgage Banking(1)....................................... (306,360) (89.7)
Corporate/Other(2)........................................ 204 1.6
----------
Total Assets...................................... $ 873,538 8.0%
==========
Other Balance Sheet Components:
Securities available for sale and investment securities... $ (57,977) (3.7)%
Mortgage loans held for sale.............................. (23,284) (70.2)
Loans, net of unearned income............................. 1,188,621 14.4
Mortgage servicing rights(1).............................. (238,405) (100.0)
Deposits.................................................. 175,039 2.2
Short-term borrowings..................................... 694,899 58.3
Long-term debt............................................ 58,324 (6.6)
- ---------------
(1) The mortgage banking segment was discontinued in 2000.
(2) Includes eliminations of certain intercompany transactions.
Management continually monitors the financial condition of BancGroup in
order to protect depositors, increase shareholder value and protect current and
future earnings. The most significant factors affecting BancGroup's financial
condition from 1999 through 2000 have been:
- Internal loan growth of 15.9% in 2000 following 16.8% growth in 1999.
- Loan mix changed to reflect a decrease in residential real estate loans
to 27.2% of the total loan portfolio from 30.7% in 1999.
- Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were 0.54% and 0.55% of related assets at
December 31, 2000 and 1999, respectively. Net charge-offs were 0.21% of
average loans during 2000 and 1999. The allowance for possible loan
losses was 1.14% of loans at December 31, 2000, providing a 256% coverage
of nonperforming loans (nonaccrual and renegotiated).
- A loan to deposit ratio of 115.6% and 103.3% at December 31, 2000 and
1999, respectively. Federal Home Loan Bank borrowings, correspondent fed
funds lines and brokered CD's continue to be a source of funding allowing
the Company funding flexibility.
- Decrease of $23 million in mortgage loans held for sale during 2000 due
primarily to the sale of the wholesale mortgage production unit in
October 1999 as well as a decrease in refinancing activities.
- The exiting of the mortgage servicing business through the sales of
servicing rights and transfers of the underlying loans resulting in no
mortgage servicing rights at December 31, 2000 compared to $238 million
at December 31, 1999. This initiative also resulted in the transfer of
$220 million in noninterest-bearing custodial deposits.
- Issuance of $100 million 8% subordinated notes in 1999 which qualifies as
Tier II Capital.
- Repurchase of 3,382,200 shares of the Company's common stock for issuance
in stock plans.
- These items, as well as a more detailed analysis of BancGroup's financial
condition, are discussed in the following sections.
24
26
LOANS
Growth in loans and maintenance of a high quality loan portfolio are
principal ingredients for improved earnings. Management's emphasis within all of
BancGroup's banking regions is on loan growth in accordance with local market
demands and in reliance upon the lending experience and expertise in the
regional banks. Management believes that its strategy of meeting local demands
and utilizing local lending expertise has proved successful. This success is
evident in internal loan growth of 15.9% in 2000, 16.8% in 1999, 15.1% in 1998
and 9.8% in 1997, excluding acquisitions. Internal loan growth continues to be a
major factor in BancGroup's increasing earnings. This local customer
relationship responsibility combined with independent oversight of credit
decisions and conservative underwriting standards are key to the maintenance of
the Company's high asset quality.
Management believes that any existing concentrations of loans, whether
geographically, by industry, or by borrower, do not expose BancGroup to
unacceptable levels of risk. The current concentration of loans remains diverse
in location, size, and collateral function. These differences, in addition to
our emphasis on quality underwriting, serve to reduce the risk of losses.
BancGroup has a significant concentration of commercial real estate and
construction loans representing 33.7% and 18% of total loans, respectively.
BancGroup's commercial real estate and construction loans are spread
geographically throughout Alabama and Florida and other areas including
metropolitan Atlanta, Georgia, Dallas, Texas and Reno and Las Vegas, Nevada with
no more than 19% of these loans in any one geographic region. The Alabama
economy experiences a generally slow but steady rate of growth, while Georgia,
Florida, Texas and Nevada are experiencing higher rates of growth. Real estate
in BancGroup's lending areas has not experienced significantly inflated values
due to excessive speculation or inflationary pressures. The collateral held in
the commercial real estate and construction portfolios consists of various
property types with no one property type constituting a concentration. For
BancGroup, these property types are primarily multi-family housing, hotels,
office buildings, warehouses, shopping centers, amusement/recreational
facilities, one-to-four family residential housing developments, and health
service facilities. BancGroup has diversified its portfolio of commercial real
estate loans with less than 10% of its loan portfolio concentrated in any of the
previously mentioned income producing activities. Risk is further reduced by the
relatively small average loan size and the application of conservative
underwriting guidelines. BancGroup's commercial real estate and construction
loans continue to perform at acceptable levels. Net charge-offs to average loans
for the commercial real estate portfolio were .09% and 0.11% for 2000 and 1999,
respectively. Net charge-offs to average loans for the construction portfolio
were .03% and .10% for 2000 and 1999, respectively.
BancGroup also continues to have a significant concentration of residential
real estate loans as they represent 27.2% of total loans. Substantially all of
these loans are adjustable rate first mortgages on single-family, owner-occupied
properties, and therefore, have minimal credit risk and lower interest rate
sensitivity. A portion of these loans was acquired through bank acquisitions.
BancGroup has a history of successfully lending in the residential real estate
market and its quality ratios remain favorable in this portfolio segment.
Loans classified as commercial, financial, and agricultural, representing
13% of total loans, consist of secured and unsecured credit lines and equipment
loans for various industrial, agricultural, commercial, financial retail, or
service businesses. The risk associated with loans in this category are
generally related to earnings capacity of, and the cash flows generated from,
the individual business activities of the borrowers.
Consumer loans, representing 2.9% of total loans, are loans to individuals
for various purposes. Automobile loans and unsecured loans make up the majority
of these loans. The principle source of repayment is the earning capacity of the
individual borrower, as well as the value of the collateral for secured loans.
BancGroup's international banking department, located in the Miami region,
engages in confirming letters of credit, primarily with top-tier banks in Latin
America. Loans outstanding to Latin American banks at December 2000 totaled
approximately $125 million. However, due to the immaterial balance of these
loans in relation to total loans, these amounts will not be reported separately.
25
27
BancGroup established a mortgage warehouse lending department in the third
quarter of 1998. This department provides lines of credit collateralized by
residential mortgage loans to top tier mortgage companies predominantly in the
Southeast. Loans outstanding at December 31, 2000 and 1999 were $340 million and
$162 million, respectively, with unfunded commitments of $250 million and $268
million at December 31, 2000 and 1999, respectively. These loans are categorized
as other loans in the following schedule.
BancGroup does not have a syndicated lending department; however, the
Company has fourteen credits with commitments (funded and unfunded) of $193
million that fall within the bank regulatory definition of a "Shared National
Credit" (generally defined as a total loan commitment in excess of $20 million
that is shared by three or more lenders). The largest outstanding amount to any
single borrower is under $30 million, with the smallest credit being
approximately $190,000.
Although by definition these are considered Shared National Credits,
BancGroup's loan officers have established long-term relationships with each of
these borrowers. These commitments are comprised of the following:
- 51% -- commercial real estate projects located within existing markets
- 16% -- international credits which are comprised of unfunded short-term
commitments to tier one correspondent banks
- 18% -- mortgage warehouse lines to two large institutions (the mortgage
warehouse lending department conducts its own audits of these borrowers)
- 15% -- operating facilities to two large national corporations
headquartered in the Florida markets
BancGroup participates heavily in the management of each of the 14
relationships. Management believes that these are sound participations involving
credits that fit within Colonial's lending philosophy and meet it's conservative
underwriting guidelines. Furthermore, none of these credits was adversely
classified in the last federal bank regulatory examination of "Shared National
Credits," and these loans are currently in full compliance with all terms and
agreements.
As discussed more fully in subsequent sections, management has established
policies and procedures to ensure maintenance of adequate liquidity and
liquidity sources. BancGroup has arranged funding sources in addition to
customer deposits that provide the company the capability to exceed a 100% loan
to deposit ratio and maintain adequate liquidity.
GROSS LOANS BY CATEGORY
DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Commercial, financial and
agricultural....................... $1,221,131 $1,126,191 $1,102,446 $ 751,375 $ 692,761
Real estate -- commercial............ 3,174,483 2,538,304 2,006,851 1,673,505 1,217,175
Real estate -- construction.......... 1,693,958 1,435,004 1,028,471 734,239 545,681
Real estate -- residential........... 2,562,708 2,528,413 2,438,236 2,382,324 2,010,420
Installment and consumer............. 272,124 297,555 344,860 329,136 315,143
Other................................ 492,408 302,860 189,934 81,181 58,607
---------- ---------- ---------- ---------- ----------
Total loans................ $9,416,812 $8,228,327 $7,110,798 $5,951,760 $4,839,787
========== ========== ========== ========== ==========
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ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
Allocations of the allowance for possible loan losses are made on an
individual loan basis for all identified potential problem loans with a
percentage allocation for the remaining portfolio. The allocation of the
remaining allowance represents an approximation of the reserves for each
category of loans based on management's evaluation of the respective historical
charge-off experience and risk within each loan type.
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
DECEMBER 31,
--------------------------------------------------------
2000 1999 1998
---------------------- --------------------- -------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
-------- ----------- ------- ----------- -------
(IN THOUSANDS)
Balance at end of period
Applicable to:
Commercial, financial,
and agricultural..... $ 27,861 13.0% $23,051 13.7% $19,068
Real estate
commercial........... 43,843 33.7% 34,729 30.8% 30,382
Real estate
construction......... 15,909 18.0% 16,907 17.4% 14,681
Real estate --
residential.......... 12,814 27.2% 12,642 30.7% 12,191
Installment and
consumer............. 2,927 2.9% 3,992 3.6% 4,930
Other.................. 3,811 5.2% 4,672 3.8% 2,310
-------- ----- ------- ----- -------
Total............ $107,165 100.0% $95,993 100.0% $83,562
======== ===== ======= ===== =======
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
----------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------- ----------- ------- -----------
(IN THOUSANDS)
Balance at end of period
Applicable to:
Commercial, financial,
and agricultural..... 15.5% $13,955 12.6% $12,932 14.3%
Real estate
commercial........... 28.2% 25,979 28.1% 19,792 25.1%
Real estate
construction......... 14.5% 13,854 12.3% 10,886 11.3%
Real estate --
residential.......... 34.3% 11,912 40.1% 11,303 41.5%
Installment and
consumer............. 4.8% 5,079 5.5% 4,673 6.5%
Other.................. 2.7% 1,328 1.4% 2,146 1.3%
----- ------- ----- ------- -----
Total............ 100.0% $72,107 100.0% $61,732 100.0%
===== ======= ===== ======= =====
LOAN MATURITY/RATE SENSITIVITY
As discussed in a subsequent section, BancGroup seeks to maintain adequate
liquidity and minimize exposure to interest rate volatility. The goals of
BancGroup with respect to loan maturities and rate sensitivity continue to focus
on shorter-term maturities and floating or adjustable rate loans. At December
31, 2000, approximately 50.4% of loans were floating rate loans.
Contractual maturities may vary significantly from actual maturities due to
loan extensions, early payoffs due to refinancing and other factors.
Fluctuations in interest rates are also a major factor in early loan pay-offs.
The uncertainties of future events, particularly with respect to interest rates,
make it difficult to predict the actual maturities. The following table
represents the contractual maturity at December 31, 2000.
LOAN MATURITY/RATE SENSITIVITY
DECEMBER 31, 2000
----------------------------------------------------------------------------------------
RATE SENSITIVITY,
MATURING LOANS MATURING
------------------------------------ RATE SENSITIVITY OVER 1 YEAR
WITHIN OVER 5 ----------------------- -----------------------
1 YEAR 1-5 YEARS YEARS FIXED FLOATING FIXED FLOATING
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Commercial, financial, and
agricultural....................... $ 553,830 $ 159,635 $ 507,666 $ 528,293 $ 692,838 $ 373,272 $ 294,029
Real estate -- commercial............ 619,897 875,213 1,679,373 2,238,482 936,001 1,979,617 574,969
Real estate -- construction.......... 917,317 111,131 665,510 386,103 1,307,855 138,053 638,588
Real estate -- residential........... 236,714 681,665 1,644,329 1,172,487 1,390,221 1,060,504 1,265,490
Installment and consumer............. 90,744 19,539 161,841 249,419 22,705 172,441 8,939
Other................................ 403,021 34,673 54,714 75,586 416,822 49,294 40,093
---------- ---------- ---------- ---------- ---------- ---------- ----------
$2,821,523 $1,881,856 $4,713,433 $4,650,370 $4,766,442 $3,773,181 $2,822,108
========== ========== ========== ========== ========== ========== ==========
LOAN QUALITY
A major key to long-term earnings growth is maintenance of a high quality
loan portfolio. BancGroup's directive in this regard is carried out through its
policies and procedures for the underwriting and ongoing review of loans and
through a company wide senior credit administration function. This function
reviews larger credits prior to approval and also provides an independent review
of credits on a continued basis. In addition, the Company has established
regional bank loan committees made up of local officers and directors that
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29
approve loans up to certain levels. These committees provide local business and
market expertise while BancGroup's senior management provides independent
oversight by participating in the state loan committees.
BancGroup has standard policies and procedures for the evaluation of new
credits, including debt service evaluations and collateral guidelines.
Collateral guidelines vary with the credit worthiness of the borrower, but
generally require maximum loan-to-value ratios of 85% for commercial real estate
and 90% for residential real estate. Commercial non-real estate, financial and
agricultural loans are generally collateralized by business inventory, accounts
receivables or new business equipment at 50%, 80% and 90% of estimated value,
respectively. Installment and consumer loan collateral, where required, is based
on 90% or lower loan to value ratios. Collateral values referenced above are
monitored and estimated by loan officers through inspections, reference to broad
measures of market values, and current experience with similar properties or
collateral. Loans with loan-to-value ratios in excess of 80% have potentially
higher risks which are offset by other factors including the borrowers, or
guarantors' credit worthiness, the borrowers other banking relationships, the
bank's lending experience with the borrower, and any other potential sources of
repayment.
Based on the credit review process and loan grading system, BancGroup
determines its allowance for possible loan losses and the amount of provision
for loan losses. The allowance for possible loan losses is maintained at a level
which, in management's opinion, is adequate to absorb potential losses on loans
present in the loan portfolio. The amount of the allowance is affected by: (1)
loan charge-offs, which decrease the allowance; (2) recoveries on loans
previously charged-off, which increase the allowance; (3) the provision for
possible loan losses charged to income, which increases the allowance, and (4)
the allowance for loan losses of acquired banks. In determining the provision
for possible loan losses, it is necessary for management to monitor fluctuations
in the allowance resulting from actual charge-offs and recoveries and to
periodically review the size and composition of the loan portfolio in light of
historical loss experience and current economic conditions.
The overall goal and result of these policies and procedures is to provide
a sound basis for new credit extensions and an early recognition of problem
assets to allow increased flexibility in their timely disposition.
LOAN LOSS EXPERIENCE
The ratio of net charge-offs to average loans was 0.21%, 0.21%, and 0.26%
in 2000, 1999, and 1998, respectively. As a result of the Company's localized
lending strategies and early identification of potential problem loans,
BancGroup's net charge-offs have been consistently low. In addition, the current
concentration of residential real estate loans has had a favorable impact on net
charge-offs.
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30
The following schedule reflects greater than 100% coverage of nonperforming
loans (nonaccrual and renegotiated) by the allowance for loan losses. Management
has not targeted any specific coverage ratio in excess of 100%, and the coverage
ratio may fluctuate significantly as larger loans are placed into or removed
from nonperforming status. Management's focus has been on establishing reserves
related to an early identification of potential problem loans. Management is
committed to maintaining adequate reserve levels to absorb losses present in the
loan portfolio.
SUMMARY OF LOAN LOSS EXPERIENCE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Allowance for possible loan losses --
January 1.......................... $ 95,993 $ 83,562 $ 72,107 $ 61,732 $ 53,770
Charge-offs:
Commercial, financial and
agricultural.................... 10,493 9,627 6,001 5,577 3,627
Real estate -- commercial.......... 3,240 3,226 3,273 2,972 2,389
Real estate -- construction........ 529 1,171 1,731 433 1,803
Real estate -- residential......... 3,260 2,579 3,380 1,765 911
Installment and consumer........... 4,345 5,044 6,803 5,695 3,482
Other.............................. 1,119 1,711 1,469 694 239
---------- ---------- ---------- ---------- ----------
Total charge-offs.......... 22,986 23,358 22,657 17,136 12,451
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and
agricultural.................... 1,210 2,516 1,206 1,001 1,452
Real estate -- commercial.......... 627 601 1,399 1,024 1,533
Real estate -- construction........ 62 54 43 91 1
Real estate -- residential......... 440 849 545 244 697
Installment and consumer........... 1,856 2,678 1,945 1,820 1,589
Other.............................. 283 384 789 137 82
---------- ---------- ---------- ---------- ----------
Total recoveries........... 4,478 7,082 5,927 4,317 5,354
---------- ---------- ---------- ---------- ----------
Net charge-offs...................... 18,508 16,276 16,730 12,819 7,097
Addition to allowance charged to
operating expense.................. 29,680 28,707 26,345 16,321 14,442
Allowance added from bank
acquisitions....................... -- -- 1,840 6,873 617
---------- ---------- ---------- ---------- ----------
Allowance for possible loan losses --
December 31........................ $ 107,165 $ 95,993 $ 83,562 $ 72,107 $ 61,732
========== ========== ========== ========== ==========
Loans (net of unearned income)
December 31........................ $9,416,770 $8,228,149 $7,110,295 $5,951,067 $4,835,274
Ratio of ending allowance to ending
loans (net of unearned income)..... 1.14% 1.17% 1.18% 1.21% 1.28%
Average loans (net of unearned
income)............................ $8,828,899 $7,617,585 $6,451,427 $5,497,737 $4,488,023
Ratio of net charge-offs to average
loans (net of unearned income)..... 0.21% 0.21% 0.26% 0.23% 0.16%
Allowance for loan losses as a
percent of nonperforming loans
(nonaccrual and renegotiated)...... 256% 269% 245% 247% 234%
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NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual, past
due, renegotiated and other potential problems. When management determines that
a loan no longer meets the criteria for a performing loan and collection of
interest appears doubtful, the loan is placed on nonaccrual status. Loans are
generally placed on nonaccrual if full collection of principal and interest
becomes unlikely (even if all payments are current) or if the loan is delinquent
in principal or interest payments for 90 days or more, unless the loan is well
secured and in the process of collection. BancGroup's policy is also to charge
off consumer installment loans 120 days past due unless they are in the process
of foreclosure and are adequately collateralized. Management closely monitors
all loans that are contractually 90 days past due, renegotiated or nonaccrual.
These loans are summarized as follows:
NONPERFORMING ASSETS
DECEMBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
Aggregate loans for which interest is not
being accrued $40,624 $34,461 $32,823 $28,209 $24,729
Aggregate loans renegotiated to provide a
reduction or deferral of interest or
principal because of deterioration in
the financial condition of the borrower 1,161 1,265 1,334 1,014 1,683
------- ------- ------- ------- -------
Total nonperforming loans* 41,785 35,726 34,157 29,223 26,412
Other real estate and in-substance
foreclosure 8,630 9,009 8,164 14,044 11,834
Repossessions 298 206 564 796 338
------- ------- ------- ------- -------
Total nonperforming assets* $50,713 $44,941 $42,885 $44,063 $38,584
------- ------- ------- ------- -------
Aggregate loans contractually past due 90
days for which interest is being
accrued................................ $ 9,841 $11,184 $ 8,992 $ 7,335 $ 7,860
Total nonperforming loans as a percent of
net loans.............................. 0.44% 0.43% 0.48% 0.49% 0.55%
Total nonperforming assets as a percent
of net loans, other real estate and
repossessions.......................... 0.54% 0.55% 0.60% 0.74% 0.80%
Total nonperforming and 90 day past due
loans for which interest is being
accrued as a percent of total loans.... 0.64% 0.57% 0.61% 0.61% 0.71%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual and
renegotiated).......................... 256% 269% 245% 247% 234%
- ---------------
* Total does not include loans contractually past due 90 days or more which are
still accruing interest
Fluctuations from year to year in the balances of nonperforming assets are
attributable to several factors including changing economic conditions in
various markets, nonperforming assets obtained in various acquisitions and the
disproportionate impact of larger (over $500,000) individual credits.
Management, through its loan officers, internal credit 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 annually by BancGroup's
centralized credit review function and by regulatory agencies. In connection
with such reviews, collateral values are updated where considered necessary. If
collateral values are judged insufficient or other sources of repayment
inadequate, the loans are reduced to estimated recoverable amounts through
increases in reserves allocated to the loans or charge-offs. As of December 31,
2000, substantially all of these loans are current with their existing repayment
terms. Management believes that classification of such loans as potential
problem
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loans well in advance of their reaching a delinquent status allows the Company
the greatest flexibility in correcting problems and providing adequate reserves.
Given the reserves and the ability of the borrowers to comply with the existing
repayment terms, management believes any exposure from these potential problem
loans has been adequately addressed at the present time.
The above nonperforming loans and potential problem loans represent all
material credits for which management has serious doubts as to the ability of
the borrowers to comply with the loan repayment terms. Management also expects
that the resolution of these problem credits as well as other performing loans
will not materially impact future operating results, liquidity or capital
resources.
Interest income recognized and interest income foregone on nonaccrual loans
was not significant for the years ended December 31, 2000, 1999, 1998, 1997, and
1996.
The recorded investment in impaired loans at December 31, 2000 and 1999 was
$29.5 million and $23.3 million, respectively and these loans had a
corresponding valuation allowance of $14.5 million and $13.8 million,
respectively. The average investment in impaired loans during 2000 and 1999
totaled $29.1 million and $21.2 million, respectively.
SECURITIES
On a daily basis, BancGroup determines the funds available for short-term
investment. Funds available for long-term investment are projected based upon
anticipated loan and deposit growth, liquidity needs, pledging requirements and
maturities of securities, as well as other factors. Based on these factors and
management's interest rate and income tax forecasts, an investment strategy is
determined. Significant elements of this strategy as of December 31, 2000
include:
- BancGroup's investment in U.S. Treasury securities and obligations of
U.S. government agencies including mortgage backed securities are
substantially all pledged against public funds deposits or used as
collateral for repurchase agreements.
- BancGroup is required to carry Federal Home Loan Bank (FHLB) Stock in
connection with its borrowings from the FHLB. BancGroup is also required
to carry Federal Reserve Stock since its subsidiary bank is a member bank
of the Federal Reserve System.
- Investment alternatives that maximize the after-tax net yield are
considered.
- Management has also attempted to increase the investment portfolio's
overall yield by investing funds in excess of pledging requirements in
high-grade corporate notes and mortgage-backed securities.
- The maturities of investment alternatives are determined in consideration
of the yield curve, liquidity needs and the Company's asset/liability gap
position.
- The risk elements associated with the various types of securities are
also considered in determining investment strategies. U.S. Treasury and
non-callable U.S. government agency obligations are considered to contain
virtually no default or prepayment risk. Mortgage-backed securities have
varying degrees of risk of impairment of principal. Impairment risk is
primarily associated with changes in interest rates and accelerated
prepayments, particularly with respect to longer maturities purchased at
a premium and interest-only strip securities. BancGroup's mortgage-backed
security portfolio as of December 31, 2000 does not include any
interest-only strip securities and the amount of unamortized premium on
mortgage-backed securities is approximately $1,854,000.
- Obligations of state and political subdivisions, as well as other
securities, have varying degrees of credit risk associated with the
individual borrowers. The credit ratings and the credit worthiness of
these securities are reviewed periodically and appropriate reserves are
established when necessary.
Investment securities are those securities which management has the ability
and intent to hold until maturity. The decline in investment securities is due
to maturities and calls in the portfolio.
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33
Securities available for sale represent those securities that BancGroup
intends to hold for an indefinite period of time or that may be sold in response
to changes in interest rates, prepayment risk and other similar factors. These
securities are recorded at market value with unrealized gains or losses, net of
any tax effect, added or deducted from shareholders' equity. The balance in
securities available for sale decreased from $1.5 billion at December 31, 1999,
to $1.4 billion at December 31, 2000.
At December 31, 2000, there was no single issuer, with the exception of the
U.S. government and U.S. government agencies, where the aggregate book value of
these securities exceeded 10% of shareholders' equity ($75.7 million).
The changes noted above are reflected on the following table.
SECURITIES BY CATEGORY
CARRYING VALUE AT DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Investment securities:
U.S. Treasury securities and obligations of U.S.
Government Agencies................................... $ 500 $ 1,581 $ 83,322
Mortgage-backed securities............................... 15,132 24,833 45,037
Obligations of state and political subdivisions.......... 27,143 33,620 41,185
Other.................................................... 1,535 1,648 1,410
---------- ---------- ----------
Total............................................ $ 44,310 $ 61,682 $ 170,954
========== ========== ==========
Securities available for sale:
U.S. Treasury securities and obligations of U.S.
Government Agencies................................... $ 228,821 $ 166,799 $ 152,162
Mortgage-backed securities............................... 900,557 1,089,249 1,030,801
Obligations of state and political subdivisions.......... 93,435 71,652 58,316
Other.................................................... 226,573 162,291 172,939
---------- ---------- ----------
Total............................................ $1,449,386 $1,489,991 $1,414,218
========== ========== ==========
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The carrying value of securities at December 31, 2000 mature as follows:
MATURITY DISTRIBUTION OF SECURITIES(3)
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS
-------------------- ----------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ------- ------- ------- ------ ------- ------ -------
(IN THOUSANDS)
Investment securities:
U.S. Treasury securities..... $ -- --% $ -- --% $ -- --% $ 500 7.25%
Obligations of U.S.
government agencies and
mortgage backed
securities................. 5,157 7.11% 3,800 6.76% 2,475 6.77% 3,700 7.71%
Obligations of state and
political
subdivisions(1)............ 3,518 7.49% 16,135 7.58% 4,982 7.55% 2,508 7.99%
Other........................ 310 7.90% 1,225 6.90% -- --% -- --%
---------- ---- ------- ---- ------ ---- ------ ----
Total................. $ 8,985 7.28% $21,160 7.39% $7,457 7.29% $6,708 7.75%
========== ==== ======= ==== ====== ==== ====== ====
Securities available for
sale(2):
U.S. Treasury securities and
Obligations of U.S.
government Agencies........ $ 228,821 6.18%
Mortgage-backed securities... 900,557 6.47%
Obligations of state and
Political
subdivisions(1)............ 93,435 7.18%
Other........................ 149,888 7.05%
---------- ----
Total................. $1,372,701 6.52%
========== ====
- ---------------
(1) The weighted average yields are calculated on the basis of the cost and
effective yield weighted for the scheduled maturity of each security. The
weighted average yields on tax exempt obligations have been computed on a
fully taxable equivalent basis using a tax rate of 38%. The taxable
equivalent adjustment represents the annual amounts of income from tax
exempt obligations multiplied by 145%.
(2) Securities available for sale are shown as maturing within one year although
BancGroup intends to hold these securities for an indefinite period of time.
(See Contractual Maturities in Note 3 to the consolidated financial
statements.) This category excludes all corporate common and preferred stock
since these instruments have no maturity date.
(3) Expected and actual maturities could differ from contractual maturities
because borrowers may have the right to call or pre-pay obligations without
call or pre-payment penalties.
MORTGAGE SERVICING RIGHTS AND SERVICING HEDGE
In July, 2000, the Company announced definitive plans to exit the mortgage
servicing business. As of December 31, 2000, all sales of servicing rights and
transfers of underlying loans were completed. For this reason, MSR's were $0 at
December 31, 2000 compared to $238 million at December 31, 1999. (See Note 6 to
the Consolidated Financial Statements for details on discontinued operations)
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. At December 31, 1999, the Company had hedged approximately 58%
of the MSR asset primarily through the use of floors and principal-only strips.
The hedge positions were monitored daily and adjusted as necessary for changes
in the market and projected interest rate movement. The objective of this
strategy was 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 was designed to
rise in value when interest rates fell and decline in value when interest rates
rose, in contrast to the expected movements in value of the servicing asset,
therefore reducing earnings volatility caused by interest rate movements.
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35
DEPOSITS
BancGroup's deposit structure consists of the following:
DECEMBER 31, % OF TOTAL
----------------------- -------------
2000 1999 2000 1999
---------- ---------- ----- -----
(IN THOUSANDS)
Noninterest-bearing demand deposits.............. $1,182,036 $1,326,880 14.5% 16.7%
Interest-bearing demand deposits................. 1,831,445 1,696,802 22.5 21.3
Savings deposits................................. 454,051 572,113 5.6 7.2
Certificates of deposits less than $100,000...... 2,935,008 2,872,044 36.0 36.0
Certificates of deposits more than $100,000...... 1,370,312 1,140,001 16.8 14.3
IRA's............................................ 318,479 309,562 4.0 3.9
Open time deposits............................... 51,686 50,576 0.6 0.6
---------- ---------- ----- -----
Total deposits......................... $8,143,017 $7,967,978 100.0% 100.0%
========== ========== ===== =====
BancGroup, through its acquisitions and branch expansion programs, has
increased its market presence into high growth markets in the country. Prior to
1998, the expansion was concentrated in Florida and the Atlanta metropolitan
area. In 1998, Colonial continued its efforts by moving west into Dallas, Texas
and Reno and Las Vegas, Nevada. The principal goal is to provide the Company's
retail customer base with convenient access to branch locations while enhancing
the Company's potential for future increases in profitability. The growth of
deposits continues to be a primary strategic initiative of BancGroup, although
competition for deposits remains strong within the banking industry as well as
increased competition from other business sectors.
BancGroup is continuing initiatives to grow deposits throughout its
markets. The high growth areas of Florida are a primary focus due to the lower
cost of funds in that market. Average retail deposits (excluding mortgage
custodial and brokered deposits) increased $593 million in 2000 which represents
a 9% growth over 1999's average. BancGroup's retail deposit base is currently
46% in Alabama, 39% in Florida, 9% in Georgia, 3% in Texas, and 3% in Nevada. As
market demographics change, products and services are structured to meet the
needs of a particular region or customer base. Strong regional bank management
supported by BancGroup's asset/liability and product and services management
teams provide the Company with resources to remain competitive in it's deposit
markets. 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. The Company began a process to enhance its customer information system
which will allow more effective marketing of deposit products. Management also
contracted with a marketing consultant to target specific markets and products
for future campaigns. Each of these initiatives should provide a solid
foundation for achieving BancGroup's deposit objectives.
The growth in retail deposits in 2000 provided funds which allowed for the
reduction in the brokered deposits of $369 million as well as off-setting the
reduction in mortgage custodial deposits of $220 million. The reduction in
mortgage custodial deposits is a result of the Company's exit from the mortgage
servicing business discussed previously. The Company's brokered Certificate of
Deposit (CD) program offers CD's in increments of $1,000 to $99,000 to out of
market customers at competitive rates and maturities. At December 31, 2000 and
1999, $413 million and $609 million, respectively were outstanding under this
program. The Company has a brokered money market program that attracts deposits
from out-of-market customers. At December 31, 2000 and 1999, $66 million and
$239 million were outstanding, respectively.
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36
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31, 2000,
1999 and 1998:
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
FHLB borrowings.................................... $ 425,000 $ 490,000 $ 769,987
Federal Funds purchased and securities sold under
repurchase agreements............................ 1,145,657 452,337 480,008
Reverse repurchase agreements...................... 89,144 150,571 184,834
Current maturities FHLB Advances................... 225,527 100,521 50,840
Other short-term borrowings........................ 3,000 -- 25,299
---------- ---------- ----------
Total.................................... $1,888,328 $1,193,429 $1,510,968
========== ========== ==========
To assist in funding loan growth, BancGroup has credit facilities with the
FHLB. At December 31, 2000 and 1999, BancGroup had borrowings of $1,198,000 and
$1,163,000 outstanding of which $547 million and $573 million, respectively, are
included in long-term debt with the remaining portion included in short-term
borrowings, leaving credit availability at December 31, 2000 of $184 million
based on current collateral. This credit facility is collateralized by the
Company's residential real estate loans.
Correspondent banks and customers provide a consistent base of short-term
funds with $1,146 million and $452 million outstanding at December 31, 2000 and
1999, respectively, in Fed Funds purchased and repurchase agreements.
Short-term borrowings, including FHLB borrowings, have been used to fund
short-term assets, primarily mortgage loans held for sale and loans. As
discussed more fully in the "Liquidity and Interest Rate Sensitivity" section of
this report, the line of credit with FHLB is considered a primary source of
funding for the Company's asset growth. Recent changes in the FHLB collateral
policy will allow BancGroup to pledge commercial real estate loans in addition
to residential real estate loans. Given BancGroup's commercial real estate
portfolio this will provide additional borrowing capacity.
BancGroup entered into reverse repurchase arrangements under which it
purchased mortgage backed securities. These securities are collateral for the
$89 million in short-term debt as well as the $132 million in long-term 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 December 31, 2000.
LIQUIDITY AND INTEREST RATE SENSITIVITY
BancGroup has addressed its liquidity and interest rate sensitivity through
its policies and structure for asset/liability management. It has created the
Asset/Liability Management Committee ("ALMCO"), the objective of which is to
optimize the net interest margin while assuming reasonable business risks. ALMCO
annually establishes operating constraints for critical elements of BancGroup's
business, such as liquidity and interest rate sensitivity. ALMCO constantly
monitors performance and takes action in order to meet its objectives.
Of primary concern to ALMCO, is maintaining adequate liquidity. Liquidity
is the ability of an organization to meet its financial commitments and
obligations on a timely basis. These commitments and obligations include credit
needs of customers, withdrawals by depositors, repayment of debt when due and
payment of operating expenses and dividends.
The consolidated statement of cash flows identifies the three major sources
and uses of cash (liquidity) as operating, investing and financing activities.
Operating activities reflect cash generated from operations. Management views
cash flow from operations as a major source of liquidity. Investing activities
represent a primary usage of cash with the major net increase being attributed
to loan growth. When securities mature they are generally reinvested in new
securities or assets held for sale. Financing activities generally provide
35
37
funding for the growth in loans and securities with increased deposits.
Short-term borrowings are used to provide funding for temporary gaps in the
funding of long-term assets and deposits, as well as to provide funding for
mortgage loans held for sale and loan growth. BancGroup has the ability to tap
other markets for certificates of deposits and to utilize established lines for
Federal funds purchased and FHLB advances. BancGroup maintains and builds
diversified funding sources in order to provide flexibility in meeting its
requirements.
From 1998 through 2000, the significant changes in BancGroup's cash flows
have centered around loan growth and fluctuations in mortgage loans held for
sale. Loan growth of $1.2 billion in both 2000 and 1999 has been one of the
principal uses of cash in both years. Mortgage loans held for sale decreased in
2000 providing $23 million in funds compared to $659 million provided in 1999.
The increase in deposits of $175 million in 2000 and $522 million in 1999
provided the primary source of funding for internal loan growth. Short-term
borrowings increased $570 million in 2000 due to the funding of internal loan
growth and decreased $367 million in 1999 as a result of year end decline in
mortgage loans held for sale.
BancGroup had $2.6 billion and $2.5 billion of residential real estate
loans at December 31, 2000 and 1999, respectively. These loans provide
collateral for the current $2.0 billion credit facility at the FHLB. As
discussed above, additional borrowing capacity will be available in the future.
At December 31, 2000, the FHLB unused line of credit was $220 million of which
$184 million was available based on current collateral. This line provides the
Company significant flexibility in asset/liability management, liquidity and
deposit pricing.
On March 16, 1999, Colonial Bank issued $100 million in 8% Subordinated
Notes due March 15, 2009. These notes are not subject to redemption prior to
maturity and pay interest semiannually on March 15 and September 15. This
subordinated debt qualifies as Tier II capital. In July 1999, the Company
entered into a revolving credit facility with an unaffiliated financial
institution totaling $25 million of which $3 million was outstanding at December
31, 2000. This facility bears interest at a rate of 0.85% above LIBOR and
expires in July 2000.
In 1998, BancGroup entered into reverse repurchase arrangements under which
it purchased mortgage backed securities. At December 31, 2000 these securities
are collateral for the $89 million in short-term debt as well as the $102
million in long-term debt.
During 1998, and in connection with the acquisition of ASB Bancshares,
Inc., BancGroup issued $7.73 million of variable rate subordinated debentures.
The debentures bear interest equal to the New York Prime Rate minus 1% (but not
less than 7%). BancGroup had an outstanding term note with an unaffiliated
financial institution in the amount of $25 million at December 31, 1998 which
was paid in full upon maturity.
In January 1997, BancGroup issued $70 million in Trust Preferred
Securities. These securities qualify as Tier I Capital and carry an 8.92%
interest rate. A portion of the proceeds of the offering was utilized to pay off
a term note and revolving debt outstanding. The remainder of the proceeds was
used for acquisitions and other business purposes.
BancGroup has outstanding, $66.7 million and $33.4 million of Bank-Owned
Life Insurance ("BOLI") at December 31, 2000 and 1999, respectively. This
long-term asset represents life insurance purchased from highly rated insurance
companies on certain employees with BancGroup named as the beneficiary. The
Company considers these funds available for the future payment of benefits due
the employee's beneficiaries from group benefit plans.
Management believes its liquidity sources and funding strategies are
adequate given the nature of its asset base and current loan demand.
The primary uses of funds as reflected in the holding company only
statement of cash flows (Note 25) were $7.6 million for the payment of interest
on debt, $31.9 million for the purchase of treasury stock, and $48.9 million for
the payment of dividends. The holding company's primary sources of funds were
$63.7 million in dividends received from its subsidiaries, $3.0 million in
short-term borrowings, and cash. Dividends payable by national and state banks
in any year, without prior approval of the appropriate regulatory
36
38
authorities, are limited to the bank's net profits (as defined) for that year
combined with its retained net profits for the preceding two years. Under these
limitations, approximately $134 million of retained earnings plus certain 2001
earnings would be available for distribution to BancGroup, from its
subsidiaries, as dividends in 2001 without prior approval from the respective
regulatory authorities. The holding company anticipates that the cash flow needs
of the holding company will be less than the regulatory dividend restrictions of
its subsidiary bank.
At December 31, 2000, BancGroup's liquidity position was adequate with loan
maturities of $2.8 billion, or 30% of the total loan portfolio, due within one
year. Securities totaling $1.5 billion or 97.6% of the total portfolio also had
maturities within one year or have been classified as available for sale. As of
December 31, 2000, there were, however, no current plans to dispose of any
significant portion of these securities. In addition BancGroup has $184 million
in additional borrowing capacity at the FHLB, $482 million from Fed Fund lines
and $22 million from a revolving credit facility with an unaffiliated financial
institution.
BancGroup's asset/liability management policy has also established targets
for interest rate sensitivity. Changes in interest rates will necessarily lead
to changes in the net interest margin. It is ALMCO's goal to minimize volatility
in the net interest margin by taking an active role in managing the level, mix
and maturities of assets and liabilities and by analyzing and taking action to
manage mismatch and basis risk.
BancGroup's profitability is affected by fluctuations in interest rates. A
sudden and substantial change in interest rates may adversely impact the
Company's earnings to the extent that the interest rates on interest earning
assets and interest bearing liabilities do not change at the same speed, to the
same extent or on the same basis. The Company monitors the impact of changes in
interest rates on its net interest income using several tools. One measure of
the Company's exposure to differential changes in interest rates between assets
and liabilities is shown in the Company's Maturity and Rate Sensitivity
Analysis. The following table represents the output from the Company's
simulation model and measures the impact on net interest income and on net
portfolio value of an immediate change in interest rates in 100 basis point
increments. Net portfolio value is defined as the net present value of
interest-sensitive assets, interest-sensitive liabilities, and off-balance sheet
contracts. Following are the estimated impacts of immediate changes in interest
rates at the specified levels at December 31, 2000.
PERCENTAGE CHANGE IN
-----------------------------------------------
BASIS POINTS NET INTEREST INCOME(1) NET PORTFOLIO VALUE(2)
- ------------ ---------------------- ----------------------
+200........................................... (3)% (9)%
+100........................................... (2) (4)
- -100........................................... 1 3
- -200........................................... 1 3
- ---------------
(1) The percentage change in this column represents variance in net interest
income for 12 months in a stable interest rate environment versus the net
interest income in the various scenarios. The stable environment was as of
December 31, 2000 when the federal funds rate was 6.50%.
(2) The percentage change in this column represents net portfolio value of the
Company in a stable interest rate environment versus the net portfolio value
in the various rate scenarios.
The results of our simulation model reflect that BancGroup's net interest
income will benefit from a decline in rates versus rates as of year end 2000,
while the current risk exposure is to rising rates.
The computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay rates, and should not be
relied upon as indicative of actual results. Further, the computations do not
contemplate any actions BancGroup could undertake in response to changes in
interest rates.
37
39
The following table summarizes BancGroup's interest rate sensitivity at
December 31, 2000.
AT DECEMBER 31, 2000
------------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
------------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
BALANCE DAYS DAYS DAYS YEARS 5 YEARS
----------- ---------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
RATE SENSITIVE ASSETS:
Federal Funds sold
and resale
Agreements........ $ 15,855 $ 15,630 $ -- $ -- $ 225 $ --
Investment
securities........ 44,310 966 1,364 6,656 18,634 16,690
Securities available
for sale.......... 1,449,386 120,723 85,610 66,382 410,780 765,891
Mortgage loans held
for sale.......... 9,866 9,866 -- -- -- --
----------- ---------- ----------- ----------- ---------- ----------
Loans, net of
unearned income... 9,416,770 4,247,238 470,698 799,442 3,403,142 496,250
Allowances for
possible loan
losses............ (107,165) (48,334) (5,357) (9,098) (38,729) (5,647)
----------- ---------- ----------- ----------- ---------- ----------
Net loans.............. 9,309,605 4,198,904 465,341 790,344 3,364,413 490,603
Nonearning assets...... 898,615 -- 898,615
----------- ---------- ----------- ----------- ---------- ----------
Total
Assets..... $11,727,637 $4,346,089 $ 552,315 $ 863,382 $3,794,052 $2,171,799
=========== ========== =========== =========== ========== ==========
RATE SENSITIVE
LIABILITIES:
Interest-bearing
demand deposits... $ 1,831,445 $ 497,831 $ 365,081 $ -- $ 949,528 $ 19,005
Savings deposits..... 454,051 154,618 90,815 -- 190,519 18,099
Certificates of
deposits less than
$100,000.......... 2,935,008 774,272 745,643 1,141,269 273,655 169
Certificates of
deposits more than
$100,000.......... 1,370,312 397,909 346,661 493,778 131,964 --
IRAs................. 318,479 68,419 65,042 96,198 88,691 129
Open time deposits... 51,686 51,686 -- -- -- --
Short-term
borrowings........ 1,888,328 1,613,328 175,000 100,000 -- --
Long-term debt....... 831,247 10,013 -- 486 404,246 416,502
Noncosting
liabilities &
equity............ 2,047,081 -- -- -- -- 2,047,081
----------- ---------- ----------- ----------- ---------- ----------
Total
Liabilities
& Equity... $11,727,637 $3,568,076 $ 1,788,242 $ 1,831,731 $2,038,603 $2,500,985
=========== ========== =========== =========== ========== ==========
Gap.................... $ -- $ 778,013 $(1,235,927) $ (968,349) $1,755,449 $ (329,186)
=========== ========== =========== =========== ========== ==========
Cumulative Gap......... $ -- $ 778,013 $ (457,914) $(1,426,263) $ 329,186 $ --
=========== ========== =========== =========== ========== ==========
The last two lines of the preceding table represents interest rate
sensitivity gap which is the difference between rate sensitive assets and rate
sensitive liabilities. The interest sensitivity schedule reflects a 12.16%
negative gap at 12 months; therefore, as of December 31, 2000 BancGroup
generally has a greater exposure to net income if interest rates increase.
In reviewing the table, it should be noted that the balances are shown for
a specific point in time and, because the interest sensitivity position is
dynamic, it can change significantly over time. For all interest earning assets
and interest bearing liabilities, variable rate assets and liabilities are
reflected in the time interval of the assets or liabilities' earliest repricing
date. Fixed rate assets and liabilities have been allocated to various time
intervals based on contractual repayment. Furthermore, the balances reflect
contractual repricing of the deposits and management's position on repricing
certain deposits where management discretion is
38
40
permitted. Prepayment assumptions are applied at a constant rate based on the
Company's historical experience. Certain demand deposit accounts and regular
savings accounts have been classified as repricing beyond one year in accordance
with regulatory guidelines. While these accounts are subject to immediate
withdrawal, experience and analysis have shown them to be relatively rate
insensitive. If these accounts were included in the 0-90 day category, the gap
in that time frame would be a negative $399 million with a corresponding
cumulative gap at one year of negative $2.6 billion.
CAPITAL ADEQUACY AND RESOURCES
Management is committed to maintaining capital at a level sufficient to
protect stockholders and depositors, provide for reasonable growth and fully
comply with all regulatory requirements. Management's strategy to achieve these
goals is to retain sufficient earnings while providing a reasonable return to
shareholders in the form of dividends and return on equity. The Company's
dividend payout ratio target range is 30-45%. Dividend rates are determined by
the Board of Directors in consideration of several factors including current and
projected capital ratios, liquidity and income levels and other bank dividend
yields and payment ratios.
The amount of a cash dividend, if any, rests with the discretion of the
Board of Directors of BancGroup as well as upon applicable statutory constraints
such as the Delaware law requirement that dividends may be paid only out of
capital surplus or net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year.
BancGroup also has access to equity capital markets through both public and
private issuances. Management considers these sources and related return in
addition to internally generated capital in evaluating future expansion or
acquisition opportunities.
The Federal Reserve Board has issued guidelines identifying minimum Tier I
leverage ratios relative to total assets and minimum capital ratios relative to
risk-adjusted assets. The minimum leverage ratio is 3% but is increased from 100
to 200 basis points based on a review of individual banks by the Federal
Reserve. The minimum risk adjusted capital ratios established by the Federal
Reserve are 4% for Tier I and 8% for total capital. BancGroup's actual capital
ratios and the components of capital and risk adjusted asset information
(subject to regulatory review) as of December 31, 2000 are stated below:
Capital (thousands)
Tier I Capital:
Shareholders' equity (excluding unrealized gain on
securities available for sale, disallowed MSRs and
intangibles plus Trust Preferred Securities)........... $ 758,344
Tier II Capital:
Allowable loan loss reserve............................... 107,165
Subordinated debt......................................... 111,900
-----------
Total Capital..................................... $ 977,409
Risk Adjusted Assets (thousands)............................ $ 9,234,055
Total Assets (thousands).......................... $11,727,637
2000 1999
----- -----
Tier I leverage ratio....................................... 6.63% 6.58%
Risk Adjusted Capital Ratios:
Tier I Capital Ratio.............................. 8.21% 8.71%
Total Capital Ratio............................... 10.58% 11.31%
BancGroup has increased capital gradually through normal earnings retention
as well as through stock registrations to capitalize acquisitions. The decreases
in the risk adjusted ratios shown above are primarily due to asset growth and
the repurchase of $32 million in BancGroup stock. Asset growth was partially
funded by approximately $40 million in capital available as a result of exiting
the mortgage servicing business.
39
41
REGULATORY RESTRICTIONS
As noted previously, dividends payable by national and state banks in any
year, without prior approval of the appropriate regulatory authorities, are
limited.
Colonial Bank is also required by law to maintain noninterest-bearing
deposits with the Federal Reserve Bank to meet regulatory reserve requirements.
At December 31, 2000, these deposits were not material to BancGroup's funding
requirements.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
In June 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 SFAS No. 133. The effective date for
this statement will be delayed from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Due to the fact BancGroup doesn't
have significant derivatives exposure, management has determined that the impact
from implementing SFAS No. 133 and SFAS No. 137 will not have a material effect
on BancGroup's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
and by Item 302 of Regulation S-K are set forth in the pages listed below.
PAGE
----
Report of Independent Accountants........................... 41
Consolidated Statements of Condition as of December 31, 2000
and 1999.................................................. 42
Consolidated Statements of Income for the years ended
December 31, 2000, 1999, and 1998......................... 43
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2000, 1999, 1998................. 44
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999, and 1998..... 45
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998......................... 46
Notes to Consolidated Financial Statements.................. 47
Quarterly Results (Unaudited)............................... 10
40
42
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders
The Colonial BancGroup, Inc.
In our opinion, the accompanying consolidated statements of condition and
the related consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of The Colonial BancGroup, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Montgomery, Alabama
February 28, 2001
41
43
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
----------------------------
2000 1999
----------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 348,891 $ 338,433
Interest-bearing deposits in banks and federal funds sold... 15,855 30,482
Securities available for sale............................... 1,449,386 1,489,991
Investment securities (market value: 2000, $45,098, 1999,
$61,922).................................................. 44,310 61,682
Mortgage loans held for sale................................ 9,866 33,150
Loans, net of unearned income............................... 9,416,770 8,228,149
Less:
Allowance for possible loan losses........................ (107,165) (95,993)
----------- ------------
Loans, net........................................ 9,309,605 8,132,156
Premises and equipment, net................................. 184,831 190,946
Excess of cost over tangible and identified intangible
assets acquired, net...................................... 74,393 79,468
Mortgage servicing rights................................... -- 238,405
Other real estate owned..................................... 8,928 9,215
Accrued interest and other assets........................... 281,572 250,171
----------- ------------
Total............................................. $11,727,637 $ 10,854,099
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand................................ $ 1,182,036 $ 1,326,880
Interest-bearing demand................................... 1,831,445 1,696,802
Savings................................................... 454,051 572,113
Time...................................................... 4,675,485 4,372,183
----------- ------------
Total deposits.................................... 8,143,017 7,967,978
FHLB short-term borrowings.................................. 425,000 490,000
Other short-term borrowings................................. 1,463,328 703,429
Subordinated debt........................................... 111,900 112,048
Trust preferred securities.................................. 70,000 70,000
FHLB long-term debt......................................... 547,022 572,549
Other long-term debt........................................ 102,325 134,974
Other liabilities........................................... 108,193 107,942
----------- ------------
Total liabilities................................. 10,970,785 10,158,920
Commitments and contingencies (Notes 8, 14, 17)
Shareholders' equity
Common Stock, $2.50 par value; 200,000,000 shares
authorized; 113,081,198 and 112,106,663 shares issued at
December 31, 2000 and December 31, 1999, respectively..... 282,703 280,267
Treasury Stock (2,773,782 shares at December 31, 2000)...... (26,467) --
Additional paid in capital.................................. 118,600 118,728
Retained earnings........................................... 390,442 326,578
Unearned compensation....................................... (2,541) (1,622)
Accumulated other comprehensive loss, net of taxes.......... (5,885) (28,772)
----------- ------------
Total shareholders' equity........................ 756,852 695,179
----------- ------------
Total............................................. $11,727,637 $ 10,854,099
=========== ============
See Notes to Consolidated Financial Statements.
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44
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
INTEREST INCOME:
Interest and fees on loans.................................. $789,679 $649,147 $575,597
Interest and dividends on securities:
Taxable................................................... 94,236 88,873 73,829
Nontaxable................................................ 5,669 4,631 4,815
Dividends................................................. 5,498 5,670 4,764
Interest on federal funds sold and securities purchased
under resale agreements................................... 1,955 1,797 4,661
Other interest.............................................. 724 710 979
-------- -------- --------
Total interest income.............................. 897,761 750,828 664,645
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits........................................ 351,893 273,608 256,446
Interest on short-term borrowings........................... 96,274 51,386 40,414
Interest on long-term debt.................................. 59,703 53,412 37,584
-------- -------- --------
Total interest expense............................. 507,870 378,406 334,444
-------- -------- --------
NET INTEREST INCOME......................................... 389,891 372,422 330,201
Provision for possible loan losses.......................... 29,680 28,707 26,345
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN
LOSSES.................................................... 360,211 343,715 303,856
-------- -------- --------
NONINTEREST INCOME:
Service charges on deposit accounts......................... 38,019 38,490 37,361
Securities gains, net....................................... 538 497 1,449
Other charges, fees and commissions......................... 10,885 8,434 7,634
Other income................................................ 25,857 26,666 12,508
-------- -------- --------
Total noninterest income........................... 75,299 74,087 58,952
-------- -------- --------
NONINTEREST EXPENSE:
Salaries and employee benefits.............................. 124,370 114,790 113,985
Occupancy expense of bank premises, net..................... 30,756 28,194 29,459
Furniture and equipment expenses............................ 28,824 25,633 22,881
Amortization of intangible assets........................... 5,196 5,241 4,927
Year 2000 expense........................................... -- 560 4,617
Acquisition and restructuring expense....................... -- 1,307 21,535
Other expense............................................... 60,836 57,814 61,970
-------- -------- --------
Total noninterest expense.......................... 249,982 233,539 259,374
-------- -------- --------
Income from continuing operations before income taxes....... 185,528 184,263 103,434
Applicable income taxes..................................... 67,732 68,193 37,790
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 117,796 116,070 65,644
-------- -------- --------
DISCONTINUED OPERATIONS: (NOTE 6)
Income/(Loss) from discontinued operations, net of income
taxes of ($450), $2,134, and ($6,384) for the year ended
December 31, 2000, 1999, and 1998, respectively......... (743) 3,527 (10,448)
Loss on disposal of discontinued operations, net of income
tax benefit of ($2,616)................................... (4,322) -- --
-------- -------- --------
NET INCOME.................................................. $112,731 $119,597 $ 55,196
======== ======== ========
EARNINGS PER SHARE -- INCOME FROM CONTINUING OPERATIONS:
Basic..................................................... $ 1.06 $ 1.04 $ 0.60
Diluted................................................... 1.06 1.03 0.59
EARNINGS PER SHARE -- NET INCOME:
Basic..................................................... $ 1.02 $ 1.07 $ 0.50
Diluted................................................... 1.01 1.06 0.49
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic..................................................... 110,761 111,678 110,062
Diluted................................................... 111,472 113,252 112,431
See Notes to Consolidated Financial Statements.
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45
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
-------- -------- -------
NET INCOME.................................................. $112,731 $119,597 $55,196
OTHER COMPREHENSIVE INCOME, NET OF TAXES:
Unrealized gains (losses) on securities available for sale
arising during the period, net of taxes................ 22,905 (30,787) 1,880
Less: reclassification adjustment for net (gains) losses
included in net income, net of taxes................... (18) (323) (1,784)
-------- -------- -------
COMPREHENSIVE INCOME........................................ $135,618 $ 88,487 $55,292
======== ======== =======
See Notes to Consolidated Financial Statements.
44
46
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
COMMON STOCK ADDITIONAL
---------------------- PAID IN TREASURY RETAINED
SHARES AMOUNT CAPITAL STOCK EARNINGS
----------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1997............. 106,282,975 $265,707 $ 97,324 $ -- $226,513
Issuance of shares for immaterial
Poolings:
CNB Holding Company.................... 1,767,562 4,419 (4,125) 7,965
Shares issued under:
Directors Plan....................... 79,092 198 621
Stock Option Plans................... 1,513,701 3,784 794
Stock Bonus Plan..................... 94,080 235 1,506
Employee Stock Purchase Plan......... 47,221 118 571
Issuance of common stock by pooled
banks Prior to merger................ 88,714 222 5,341 (4,000)
Purchase of treasury stock for issuance
in business combination.............. (1,275,000) (3,188) (13,912)
Issuance of shares for business
Combinations......................... 2,183,013 5,458 10,628 13,557
Net income............................. 55,196
Cash dividends ($.34 per share)........ (35,869)
Cash dividends by pooled banks prior to
Merger............................... (508)
Conversion of 7 1/2% convertible
debt................................. 181,007 453 809
Change in unrealized gain on securities
Available for sale, net of taxes.....
----------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1998............. 110,962,365 277,406 113,469 (355) 249,297
=========== ======== ======== ======== ========
Shares issued under:
Directors Plan....................... 60,435 151 860
Stock Option Plans................... 774,878 1,937 1,791 355
Stock Bonus Plan..................... (380) (1) 20
Employee Stock Purchase Plan......... 57,519 144 551
401k Plan............................ 118,359 296 1,137
Dividend Reinvestment Plan........... 62,923 158 582
Net income............................. 119,597
Cash dividends ($.38 per share)........ (42,316)
Conversion of 7 1/2% convertible
debt................................. 70,564 176 318
Change in unrealized gain (loss) on
Securities available for sale, net of
taxes................................
----------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1999............. 112,106,663 280,267 118,728 -- 326,578
=========== ======== ======== ======== ========
Shares issued under:
Directors Plan....................... 88,643 222 838 19
Stock Option Plans................... 760,755 1,902 (1,810) 5,192
Stock Bonus Plan..................... 75,400 188 543 19
Employee Stock Purchase Plan......... 28,601 71 206 237
Purchase of treasury stock for issuance
in stock plans....................... (31,934)
Net income............................. 112,731
Cash dividends ($.44 per share)........ (48,867)
Conversion of 7 1/2% convertible
debt................................. 21,136 53 95
Change in unrealized gain (loss) on
securities available for sale, net of
taxes................................
----------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 2000............. 113,081,198 $282,703 $118,600 $(26,467) $390,442
=========== ======== ======== ======== ========
ACCUMULATED
OTHER TOTAL
UNEARNED COMPREHENSIVE SHAREHOLDERS'
COMPENSATION INCOME EQUITY
------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1997............. $(1,750) $ 2,223 $590,017
Issuance of shares for immaterial
Poolings:
CNB Holding Company.................... 19 8,278
Shares issued under:
Directors Plan....................... 819
Stock Option Plans................... 4,578
Stock Bonus Plan..................... (598) 1,143
Employee Stock Purchase Plan......... 689
Issuance of common stock by pooled
banks Prior to merger................ 1,563
Purchase of treasury stock for issuance
in business combination.............. (17,100)
Issuance of shares for business
Combinations......................... 29,643
Net income............................. 55,196
Cash dividends ($.34 per share)........ (35,869)
Cash dividends by pooled banks prior to
Merger............................... (508)
Conversion of 7 1/2% convertible
debt................................. 1,262
Change in unrealized gain on securities
Available for sale, net of taxes..... 96 96
------- -------- --------
BALANCE, DECEMBER 31, 1998............. (2,348) 2,338 639,807
======= ======== ========
Shares issued under:
Directors Plan....................... 1,011
Stock Option Plans................... 4,083
Stock Bonus Plan..................... 726 745
Employee Stock Purchase Plan......... 695
401k Plan............................ 1,433
Dividend Reinvestment Plan........... 740
Net income............................. 119,597
Cash dividends ($.38 per share)........ (42,316)
Conversion of 7 1/2% convertible
debt................................. 494
Change in unrealized gain (loss) on
Securities available for sale, net of
taxes................................ (31,110) (31,110)
------- -------- --------
BALANCE, DECEMBER 31, 1999............. (1,622) (28,772) 695,179
======= ======== ========
Shares issued under:
Directors Plan....................... 1,079
Stock Option Plans................... 5,284
Stock Bonus Plan..................... (919) (169)
Employee Stock Purchase Plan......... 514
Purchase of treasury stock for issuance
in stock plans....................... (31,934)
Net income............................. 112,731
Cash dividends ($.44 per share)........ (48,867)
Conversion of 7 1/2% convertible
debt................................. 148
Change in unrealized gain (loss) on
securities available for sale, net of
taxes................................ 22,887 22,887
------- -------- --------
BALANCE, DECEMBER 31, 2000............. $(2,541) $ (5,885) $756,852
======= ======== ========
See Notes to Consolidated Financial Statements.
45
47
THE COLONIAL BANCGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
----------- ---------- -----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 112,731 $ 119,597 $ 55,196
Adjustments to reconcile net income:
Loss on disposal of discontinued operations, net of
taxes................................................... 4,322 -- --
Depreciation, amortization and accretion.................. 28,660 29,138 28,249
Amortization and impairment of mortgage servicing
rights.................................................. 13,432 34,478 62,909
Provision for loan loss................................... 29,680 28,707 26,345
Deferred taxes............................................ (4,473) 1,794 (17,459)
Gain on sale of securities, net........................... (538) (497) (1,449)
(Gain) loss on sale and disposal of other assets.......... (1,492) (1,107) 10,627
Decrease (increase) in mortgage servicing rights, net..... 224,973 (89,413) (104,338)
Net decrease (increase) in mortgage loans held for sale... 23,284 658,892 (453,502)
Increase in interest receivable........................... (15,238) (19,599) (22,216)
Decrease (increase) in prepaids and other receivables..... 1,765 (6,234) (12,604)
Decrease in accrued expenses & accounts payable........... (7,343) (8,145) (13)
(Decrease) increase in accrued income taxes............... (23) (4,550) 5,009
Increase in interest payable.............................. 7,618 11,192 7,558
Other, net................................................ (190) (6,028) 7,430
----------- ---------- -----------
Total adjustments....................................... 304,437 628,628 (463,454)
----------- ---------- -----------
Net cash provided by (used in) operating activities..... 417,168 748,225 (408,258)
----------- ---------- -----------
Cash flows from investing activities:
Proceeds from maturities of securities available for
sale.................................................... 214,235 332,641 243,325
Proceeds from sales of securities available for sale...... 209,429 201,051 716,574
Purchase of securities available for sale................. (346,082) (657,166) (1,667,591)
Proceeds from maturities of investment securities......... 17,333 109,795 207,136
Purchase of investment securities......................... -- (750) (65,045)
Net increase in loans..................................... (1,212,901) (1,153,848) (974,465)
Purchase of bank owned life insurance..................... (33,218) (1,660) (1,684)
Cash received in bank acquisitions........................ -- -- 80,682
Capital expenditures...................................... (20,206) (40,522) (46,865)
Proceeds from sale of other real estate owned............. 10,951 16,878 16,204
Other, net................................................ 2,153 7,277 516
----------- ---------- -----------
Net cash used in investing activities................... (1,158,306) (1,186,304) (1,491,213)
----------- ---------- -----------
Cash flows from financing activities:
Net increase in demand, savings, and time deposits........ 175,039 521,826 799,522
Net increase (decrease) in federal funds purchased,
repurchase agreements and other short-term borrowings... 569,893 (367,220) 646,386
Proceeds from issuance of long-term debt.................. 250,000 404,976 560,232
Repayment of long-term debt............................... (183,171) (211,675) (2,307)
Purchase of treasury stock for issuance in a business
combination............................................. -- -- (17,100)
Purchase of treasury stock................................ (31,934)
Proceeds from issuance of common stock.................... 6,009 6,437 6,830
Dividends paid............................................ (48,867) (42,316) (36,377)
----------- ---------- -----------
Net cash provided by financing activities............... 736,969 312,028 1,957,186
----------- ---------- -----------
Net (decrease) increase in cash and cash equivalents........ (4,169) (126,051) 57,715
Cash and cash equivalents at beginning of year.............. 368,915 494,966 437,251
----------- ---------- -----------
Cash and cash equivalents at December 31.................. $ 364,746 $ 368,915 $ 494,966
=========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................ $ 501,219 $ 386,798 $ 342,883
Income taxes............................................ 70,327 74,813 37,881
Non-cash investing activities:
Transfer of loans to other real estate.................... $ 10,909 $ 17,249 $ 10,865
Origination of loans from the sale of other real estate... -- -- 399
Non-cash financing activities:
Conversion of subordinated debentures to common stock..... $ 148 $ 494 $ 1,262
Assets acquired in business combinations.................. -- -- 277,810
Liabilities assumed in business combinations.............. -- -- 247,464
Reissuance of treasury stock for business combinations.... -- -- 16,745
Reissuance of treasury stock for stock plans.............. 5,448 -- --
See Notes to Consolidated Financial Statements
46
48
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Colonial BancGroup, Inc. ("BancGroup" or the "Company") and its
subsidiaries operate predominantly in the domestic commercial banking industry.
The accounting and reporting policies of BancGroup and its subsidiaries conform
to generally accepted accounting principles in the United States of America and
to general practice within the banking industry. The following summarizes the
most significant of these policies.
Basis of Presentation. The consolidated financial statements and notes to
consolidated financial statements include the accounts of BancGroup and its
subsidiaries, all of which are wholly owned. All significant intercompany
balances and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents. BancGroup considers cash and highly liquid
investments with maturities of three months or less when purchased as cash and
cash equivalents. Cash and cash equivalents consist primarily of cash and due
from banks, interest-bearing deposits in banks and Federal funds sold.
Investment Securities and Securities Available for Sale. Securities are
classified as either held to maturity, available for sale or trading.
Held to maturity or investment securities are securities for which
management has the ability and intent to hold on a long-term basis or until
maturity. These securities are carried at amortized cost, adjusted for
amortization of premiums, and accretion of discount to the earlier of the
maturity or call date.
Securities available for sale represent those securities intended to be
held for an indefinite period of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, the need to
increase regulatory capital or other similar factors. Securities available for
sale are recorded at market value with unrealized gains and losses net of any
tax effect, added or deducted directly from shareholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific
identification method.
Mortgage Loans Held For Sale. Mortgage loans held for sale are carried at
the lower of aggregate cost or market. The cost of mortgage loans held for sale
is the mortgage note amount plus certain net origination costs less discounts
collected. Gains and losses resulting from changes in the market value of the
inventory are netted. Any net gain that results is deferred; any net loss that
results is recognized when incurred. The aggregate cost of mortgage loans held
for sale at December 31, 2000 and 1999 is less than their aggregate net
realizable value. Gains or losses on the sale of mortgage loans held for sale
are included in other income.
Loans. Loans are stated at face value, net of unearned income. Interest
income on loans is recognized under the "interest" method except for certain
installment loans where interest income is recognized under the "Rule of 78's"
(sum-of-the-months digits) method, which does not produce results significantly
different from the "interest" method. Nonrefundable fees and costs associated
with originating or acquiring loans are recognized under the interest method as
a yield adjustment over the life of the corresponding loan.
Allowance for Possible Loan Losses. A loan is considered impaired, based
on current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Uncollateralized loans
are
47
49
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
measured for impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. Smaller balance homogeneous loans that consist of residential
mortgages and consumer loans are evaluated collectively and reserves are
established based on historical loss experience.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for loan losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable. When a loan or portion of a loan is
determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance.
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and an analysis of current
economic conditions. While management believes that it has established the
allowance in accordance with generally accepted accounting principles and has
taken into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's regulators
or its economic environment will not require further increases in the allowance.
Income Recognition on Impaired and Nonaccrual Loans. Loans, including
impaired loans, are generally classified as nonaccrual if they are past due as
to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case of
loans with scheduled amortizations where the payment is generally applied to the
oldest payment due. When the future collectibility of the recorded loan balance
is expected, interest income may be recognized on a cash basis. In the case
where a nonaccrual loan has been partially charged off, recognition of interest
on a cash basis is limited to that which would have been recognized on the
recorded loan balance at the contractual interest rate. Receipts in excess of
that amount are recorded as recoveries to the allowance for loan losses until
prior charge offs have been fully recovered. Interest income recognized on a
cash basis was immaterial for the years ended December 31, 2000, 1999 and 1998.
Premises and Equipment. Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
generally using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the improvements, whichever
is shorter. Estimated useful lives range from five to forty years for bank
buildings and leasehold improvements and three to ten years for furniture and
equipment.
Expenditures for maintenance and repairs are charged against earnings as
incurred. Costs of major additions and improvements are capitalized. Upon
disposition or retirement of property, the asset account is relieved of the cost
of the item and the allowance for depreciation is charged with accumulated
depreciation. Any resulting gain or loss is reflected in current income.
48
50
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Real Estate Owned. Other real estate owned includes real estate
acquired through foreclosure or deed taken in lieu of foreclosure. These amounts
are recorded at the lower of the loan balance prior to foreclosure, plus certain
costs incurred for improvements to the property ("cost") or market value less
estimated costs to sell the property. Any write-down from the cost to market
value required at the time of foreclosure is charged to the allowance for
possible loan losses. Subsequent write-downs and gains or losses recognized on
the sale of these properties are included in noninterest income or expense.
Intangible Assets. Intangible assets acquired in acquisitions of banks are
stated at cost, net of accumulated amortization. Amortization is provided over a
period up to twenty-five years for the excess of cost over tangible and
identified intangible assets acquired using the straight-line method or an
accelerated method, as applicable, and ten years for deposit core base
intangibles using an accelerated method. The recoverability of intangible assets
is reviewed periodically based on the current earnings of acquired entities. If
warranted, analyses, including undiscounted income projections, are made to
determine if adjustments to carrying value or amortization periods are
necessary.
Mortgage Servicing Rights, Amortization and Impairment. Prior to the
discontinuation of mortgage servicing activities in 2000, BancGroup recognized
as separate assets the rights to service mortgage loans for others, whether the
servicing rights are acquired through a separate purchase or through loan
origination activities. The total cost of mortgage loans held for sale were
allocated to mortgage loans held for sale and mortgage servicing rights, based
on their relative fair values at date of sale. Amortization of mortgage
servicing rights ("MSR") was based on the ratio of net servicing income received
in the current period to total net servicing income projected to be realized
from the MSR. Projected net servicing income was based on the estimated
remaining life of the underlying mortgage loan portfolio, which declined over
time from prepayments and scheduled loan amortization. The Company estimated
future prepayment rates based on current interest rate levels, other economic
conditions and market forecasts, as well as relevant characteristics of the
servicing portfolio, such as loan types, interest rate stratification and recent
prepayment experience. The carrying value of MSR was evaluated for impairment,
which was recognized in the statement of income during the period in which
impairment occurred as an adjustment to a valuation allowance. For purposes of
performing its impairment evaluation, the Company stratified its portfolio on
the basis of certain risk characteristics including loan type (fixed or
adjustable) and note rate and determined the fair value of MSR based on market
prices for similar MSR and estimates of future net servicing income, considering
market consensus loan prepayment predictions, interest rates, service costs and
other economic factors.
Hedging of MSR. Prior to the discontinuation of mortgage servicing
activities in 2000, BancGroup utilized derivative contacts that were expected to
change in value inversely to the movement of interest rates ("Servicing
Hedges"). These derivatives included Treasury options, futures, CMT floors, CMS
floors, PO strips and interest rate swaps. The Servicing Hedges were designed to
protect the value of the hedged MSR from the effects of increased prepayment
activity that generally resulted from declining interest rates. The value of the
hedging instruments and options was derived from underlying instruments;
however, the notional or contractual amount was not recognized in the balance
sheet. The carrying value of the MSR was adjusted for realized and unrealized
gains and losses in the derivative financial instruments that qualify for hedge
accounting. As of December 31, 1999, the unrealized loss on the Servicing Hedges
was $53,672,000 and was included in the carrying value of MSR. To qualify for
hedge accounting, changes in net value of the Servicing Hedges were expected to
be highly correlated with changes in the value of the hedged MSR throughout the
hedge period, and the Servicing Hedges were designated to a specific portion of
the MSR asset, 58% at December 31, 1999. The Company measured initial and
ongoing correlation by statistical analysis and dollar value offset comparison
of the relative movements of the Servicing Hedges and related MSR. If
correlation were to cease on the derivatives hedging MSR, they would then be
accounted for as trading instruments. If a derivative contract hedging MSR was
terminated, the gain or loss was treated as an adjustment to the carrying value
of the hedged MSR and amortized over its remaining life.
49
51
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage servicing fees were deducted from the monthly payments on mortgage
loans and were recorded as income when earned. Fees from investors for servicing
their portfolios of residential loans generally ranged from 1/4 of 1% to 1/2 of
1% per year on the outstanding principal balance.
Long-Lived Assets. BancGroup reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the future undiscounted cash flows expected to result from the
use of the asset and its eventual disposition are less than the carrying amounts
of the asset, an impairment loss is recognized. Long-lived assets and certain
intangibles to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell.
Income Taxes. BancGroup uses the asset and liability method of accounting
for income taxes (See Note 21). Under the asset and liability method, deferred
tax assets and liabilities are recorded at currently enacted tax rates
applicable to the period in which assets or liabilities are expected to be
realized or settled. Deferred tax assets and liabilities are adjusted to reflect
changes in statutory tax rates resulting in income adjustments in the period
such changes are enacted.
Stock-Based Compensation. SFAS No. 123, "Accounting for Stock-Based
Compensation," defines a fair value based method of accounting for an employee
stock option or similar equity instrument. However, SFAS No. 123 allows an
entity to continue to measure compensation costs for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees. Entities electing to remain with the
accounting in Opinion No. 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 had been applied. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. Under
the intrinsic value based method, compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. BancGroup has elected
to continue to measure compensation cost for its stock option plans under the
provisions in APB Opinion 25.
Advertising Costs. Advertising costs are expensed as incurred.
Reclassifications. Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentations.
Recently Issued Accounting Standards. In June 1998, the Financials
Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk.
50
52
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 23, 1999, the Financial Accounting Standards Board issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," an
amendment to delay the effective date of SFAS No. 133. The effective date for
this statement will be delayed from fiscal years beginning after June 15, 1999
to fiscal years beginning after June 15, 2000. Management has determined that
the implementation of SFAS No. 133 and SFAS No. 137 will not have a material
impact on BancGroup's financial statements due to BancGroup not having any
significant derivative exposure.
2. BUSINESS COMBINATIONS
During the year ended December 31, 1998, BancGroup completed the following
business combinations with other financial institutions. These business
combinations have been reflected in the financial statements. The balances
reflected are as of the date of consummation.
ACCOUNTING DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS TREATMENT CONSUMMATED SHARES ASSETS LOANS DEPOSITS
- ---------------------- ---------- ----------- --------- -------- -------- --------
(IN THOUSANDS)
1998*
United American Holding Corp.
(FL)........................ Pooling 02/02/98 4,226,412 $275,263 $197,623 $236,773
ASB Bancshares, Inc. (AL)..... Purchase 02/05/98 934,514 158,656 110,093 135,940
First Central Bank (FL)....... Pooling 02/11/98 1,377,368 62,897 40,451 52,048
South Florida Banking Corp.
(FL)........................ Pooling 02/12/98 3,864,458 255,769 172,992 226,999
Commercial Bank of Nevada
(NV)........................ Pooling 06/15/98 1,684,314 129,577 86,251 117,749
CNB Holding Corporation (FL).. Pooling (1) 08/12/98 1,767,562 89,893 58,456 81,445
FirstBank (TX)................ Pooling 08/31/98 2,782,038 187,445 59,664 163,254
First Macon Bank & Trust
(GA)........................ Pooling 10/01/98 4,643,025 199,525 135,651 174,774
Prime Bank of Central Florida
(FL)........................ Pooling 10/06/98 1,173,019 74,502 42,547 66,955
InterWest Bancorp (NV)........ Pooling 10/15/98 1,748,338 131,590 83,689 114,516
TB&T, Inc. (TX)............... Purchase(2) 12/01/98 1,248,499 110,986 42,689 101,335
- ---------------
* On June 18, 1998, BancGroup purchased certain assets totaling $8,168,000 and
assumed certain liabilities primarily deposits, totaling $8,871,000 of the
Wade Green branch of Premier Bank in Atlanta, Georgia.
(1) Due to the immaterial impact on BancGroup's financial Statements, prior
years have not been restated to include these poolings of interest.
(2) Shares issued included shares previously re-purchased by the Company as
treasury shares.
The 1998 combinations with United American, South Florida, First Central,
Commercial Bank, FirstBank, First Macon, Prime, and InterWest Bancorp were
accounted for using the pooling-of-interests method. Accordingly, all financial
statement amounts were restated to reflect the financial condition and results
of operations as if these combinations had occurred at the beginning of the
earliest period presented. For the purchase method business combinations, the
operations and income of the combined institutions are included in the income of
BancGroup from the date of purchase.
51
53
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
INVESTMENT SECURITIES
2000 1999
--------------------------------------------- ---------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(IN THOUSANDS)
U.S. Treasury securities and
obligations of U.S. government
agencies........................ $ 500 $ 87 $ -- $ 587 $ 1,581 $ 22 $ (11) $ 1,592
Mortgage-backed securities........ 15,132 147 (26) 15,253 24,833 145 (176) 24,802
Obligations of state and political
subdivisions.................... 27,143 587 (2) 27,728 33,620 440 (178) 33,882
Other............................. 1,535 -- (5) 1,530 1,648 -- (2) 1,646
------- ---- ---- ------- ------- ---- ----- -------
Total..................... $44,310 $821 $(33) $45,098 $61,682 $607 $(367) $61,922
======= ==== ==== ======= ======= ==== ===== =======
The carrying and market values of securities available for sale are
summarized as follows:
SECURITIES AVAILABLE FOR SALE
2000 1999
------------------------------------------------- -------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
U.S. Treasury securities
and obligations of U.S.
government agencies..... $ 225,330 $3,885 $ (394) $ 228,821 $ 168,727 $ 7 $ (1,935) $ 166,799
Mortgage-backed
securities.............. 907,579 2,669 (9,691) 900,557 1,126,274 692 (37,717) 1,089,249
Obligations of state and
political
subdivisions............ 91,929 1,675 (169) 93,435 72,040 517 (905) 71,652
Other..................... 233,601 -- (7,028) 226,573 166,189 21 (3,919) 162,291
---------- ------ -------- ---------- ---------- ------ -------- ----------
Total............. $1,458,439 $8,229 $(17,282) $1,449,386 $1,533,230 $1,237 $(44,476) $1,489,991
========== ====== ======== ========== ========== ====== ======== ==========
The majority of the above securities are traded on national exchanges and
as such, the market values are based upon quotes from those exchanges. The
market values of certain obligations of states and political subdivisions were
established with the assistance of an independent pricing service. They were
based on available market data reflecting transactions of relatively small size
and not necessarily indicative of the prices at which large amounts of
particular issues could be readily sold or purchased.
Included within securities available for sale is $73,951,000 and
$71,372,000 in Federal Home Loan Bank stock at December 31, 2000 and 1999,
respectively. Securities with a carrying value of approximately $1,198,852,000
and $1,159,598,000 at December 31, 1999 and 1998 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $606,000, $595,000 and $2,961,000 and gross losses of
$68,000, $98,000 and $1,512,000 were realized on sales of securities for 2000,
1999, and 1998, respectively.
52
54
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and market value of debt securities at December 31,
2000, by contractual maturity, are as follows. Expected maturities differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
SECURITIES AVAILABLE
INVESTMENT SECURITIES FOR SALE
--------------------- -----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- -------- ---------- ----------
(IN THOUSANDS)
Due in one year or less............................. $ 3,828 $ 3,839 $ 91,333 $ 91,121
Due after one year through five years............... 17,360 17,667 151,757 154,687
Due after five years through ten years.............. 4,982 5,151 66,884 68,954
Due after ten years................................. 3,008 3,188 157,172 150,354
------- ------- ---------- ----------
Total..................................... 29,178 29,845 467,146 465,116
------- ------- ---------- ----------
Mortgage-backed securities.......................... 15,132 15,253 907,579 900,557
Equity securities................................... -- -- 83,713 83,713
------- ------- ---------- ----------
Total..................................... $44,310 $45,098 $1,458,438 $1,449,386
======= ======= ========== ==========
4. LOANS
A summary of loans follows:
2000 1999
---------- ----------
(IN THOUSANDS)
Commercial, financial and agricultural.............. $1,221,131 $1,126,191
Real estate -- commercial........................... 3,174,483 2,538,304
Real estate -- construction......................... 1,693,958 1,435,004
Real estate -- residential.......................... 2,562,708 2,528,413
Installment and consumer............................ 272,124 297,555
Other............................................... 492,408 302,860
---------- ----------
Subtotal.......................................... 9,416,812 8,228,327
Unearned income..................................... (42) (178)
---------- ----------
Total..................................... $9,416,770 $8,228,149
========== ==========
BancGroup's lending is concentrated throughout Alabama, Georgia, Florida,
Texas and Nevada and repayment of these loans is in part dependent upon the
economic conditions in the respective regions of these states. Management does
not believe the loan portfolio contains concentrations of credits either
geographically or by borrower, which would expose BancGroup to unacceptable
amounts of risk. Management continually evaluates the potential risk in all
segments of the portfolio in determining the adequacy of the allowance for
possible loan losses. Other than concentrations of credit risk in commercial
real estate and residential real estate loans in general, management is not
aware of any significant concentrations.
Loans classified as commercial real estate loans are loans which are
collateralized by real estate and substantially dependent upon cash flow from
income-producing improvements attached to the real estate. For BancGroup, these
primarily consist of apartments, hotels, office buildings, warehouses, shopping
centers, amusement/recreational facilities, one-to-four family residential
housing developments, and health service facilities.
Commercial Real Estate loans are underwritten based on projected cash flows
and loan-to-appraised-value ratios of 80% or less. The risks associated with
commercial real estate loans primarily relate to real estate values in local
market areas, the equity investments of borrowers, and the borrowers' experience
and expertise.
53
55
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BancGroup has diversified its portfolio of commercial real estate loans with
less than 10% of its total loan portfolio concentrated in any of the
above-mentioned income producing activities.
Residential Real Estate loans consist of loans made to finance one-to-four
family residences and home equity loans on residences. BancGroup may loan up to
90 to 95% of appraised value on these loans without other collateral or
security. The principal risks associated with one-to-four family residential
loans are the borrowers' debt coverage ratios and real estate values.
Real Estate construction loans include loans to finance single family and
multi-family residential as well as nonresidential real estate. Loan-to-value
ratios for these loans do not exceed 80% to 85%. The principal risks associated
with these loans are related to the borrowers' ability to complete the project,
local market demand, the sales market, presales or preleasing, and permanent
loan commitments. BancGroup evaluates presale requirements, preleasing rates,
permanent loan take-out commitments, as well as other factors in underwriting
construction loans.
BancGroup evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by BancGroup upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, residential houses and
income-producing commercial properties. No additional credit risk exposure,
relating to outstanding loan balances, exists beyond the amounts shown in the
consolidated statement of condition at December 31, 2000. In the normal course
of business, loans are made to officers, directors, principal shareholders and
to companies in which they own a significant interest. Loan activity to such
parties with an aggregate loan balance of more than $60,000 during the year
ended December 31, 2000 are summarized as follows:
BALANCE BALANCE
1/1/00 ADDITIONS REDUCTIONS 12/31/00
- ------- --------- ---------- --------
(IN THOUSANDS)
$19,239 $14,673 $13,471 $20,441
At December 31, 2000 and 1999, the recorded investment in loans for which
impairment has been recognized totaled approximately $29,455,000 and
$23,337,000, respectively, and these loans had a corresponding valuation
allowance of $14,501,000 and $13,787,000, respectively. The impaired loans were
measured for impairment based primarily on the value of underlying collateral.
For the years ended December 31, 2000 and 1999, the average recorded investment
in impaired loans was approximately $29,144,000 and $21,176,000. The amount of
interest recognized on impaired loans during the portion of the year that they
were impaired was not significant for either 2000 or 1999.
BancGroup uses several factors in determining if a loan is impaired.
Generally, nonaccrual loans as well as loans classified by internal loan review
are reviewed for impairment. The internal asset classification procedures
include a thorough review of significant loans and lending relationships, and
include the accumulation of related data. This data includes loan payment
status, borrower's financial data, collateral value and borrower's operating
factors such as cash flows, operating income or loss, etc.
BancGroup's international banking department engages in confirming letters
of credit with top-tier banks in Latin America and direct disbursements to those
banks from U.S. customers. Loans outstanding at December 31, 2000 and 1999,
totaled approximately $125 million and $99 million, respectively. However, due
to the immaterial balance of these loans in relation to total loans, these
amounts will not be disclosed in the table(s) separately.
BancGroup established a mortgage warehouse lending department in the third
quarter of 1998. This department provides lines of credit collateralized by
residential mortgage loans to top tier mortgage companies, predominately in the
Southeast. Loans outstanding at December 31, 2000 and 1999 were $377 million and
$204 million, respectively. These loans are categorized as "Other" on the loan
summary chart above.
54
56
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Balance, January 1..................................... $ 95,993 $ 83,562 $ 72,107
Addition due to acquisitions........................... -- -- 1,840
Provision charged to income............................ 29,680 28,707 26,345
Loans charged off...................................... (22,986) (23,358) (22,657)
Recoveries............................................. 4,478 7,082 5,927
-------- -------- --------
Balance, December 31................................... $107,165 $ 95,993 $ 83,562
======== ======== ========
6. 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 was completed in the fourth quarter of
2000. With the completion of this transaction, along with previous sales of
mortgage servicing related to loans with outstanding balances of $9 billion and
$3 billion at March 31, 2000 and December 31, 1999, respectively, BancGroup
exited the mortgage servicing business.
These non-recourse sales agreements provide for BancGroup to subservice
(generally for up to 90 days) the loans for a fee designed to cover BancGroup's
cost of servicing. As of December 31, 2000, BancGroup has completed the transfer
of all servicing and subservicing to the purchasers thereof. As of December 31,
2000 and 1999, $17 million and $27 million, respectively, of amounts due from
the aforementioned purchasers is included in Other Assets.
BancGroup recorded a loss on disposal of the discontinued operations of
$4.3 million after tax. The results of the mortgage servicing business have been
classified as discontinued operations in the accompanying financial statements.
Loss from discontinued operations, net of income taxes, for the year ended
December 31, 2000 was approximately $743,000.
7. MORTGAGE SERVICING RIGHTS
An analysis of mortgage servicing rights and the related valuation reserve
is as follows:
2000 1999
--------- --------
(IN THOUSANDS)
Mortgage Servicing Rights Balance, January 1................ $ 265,888 $221,798
Additions................................................... 981 90,078
Scheduled amortization...................................... (13,432) (34,478)
Hedge losses applied, net................................... (49,725) 53,672
Sales....................................................... (203,712) (65,182)
--------- --------
Balance, December 31........................................ $ 0 $265,888
========= ========
Valuation Reserve Balance, January 1........................ $ 27,483 $ 38,329
Additions/(Reductions), net................................. (27,483) (10,846)
--------- --------
Balance, December 31........................................ 0 27,483
--------- --------
Mortgage Servicing Rights, Net.............................. $ 0 $238,405
========= ========
55
57
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, BancGroup serviced or subserviced approximately
$15.2 billion of loans for third parties. The estimated fair value of MSR
closely approximated the amounts reflected in the financial statements.
As a result of the previously discussed plan to exit the mortgage servicing
business, all hedges related to MSR were liquidated during the third quarter of
2000.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
BancGroup is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financial needs of its customers and
to manage interest rate risk. These financial instruments include loan
commitments, standby letters of credit, obligations to deliver and sell mortgage
loans, options on interest rate futures, interest rate floors and principal only
strips. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
BancGroup's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments, standby letters of
credit and obligations to deliver and sell mortgage loans is represented by the
contractual amount of those instruments. BancGroup uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. BancGroup has no significant concentrations of credit risk
with any individual counterparty to originate loans. The total amounts of
financial instruments with off-balance sheet risk as of December 31, 2000 and
1999 are as follows:
CONTRACT AMOUNT
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Financial instruments whose contract amounts represent
credit risk:
Loan commitments............................................ $1,925,369 $2,280,206
Standby letters of credit................................... 256,122 182,828
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit and funding loan
commitments is essentially the same as that involved in extending loan
facilities to customers.
BancGroup has entered into third party correspondent relationships for the
sale of its retail production of fixed rate mortgage loans which substantially
reduces the need to hedge the interest rate risk associated with the production
and sale of such loans. The correlation between the price of the inventory of
mortgage loans held for sale and the related sales agreements is high due to the
similarity of the asset and the related arrangements.
For the financial contracts listed below, BancGroup's exposure to interest
rate risk is mitigated by the expected inverse relationship these instruments
have with mortgage servicing rights.
56
58
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the notional amounts of BancGroup's derivative
contracts:
INTEREST
CALL PUT CMT RATE PO
OPTIONS OPTIONS FUTURES FLOORS STRIPS STRIPS CMS FLOORS
--------- --------- --------- ----------- --------- -------- ----------
(IN THOUSANDS)
Balance, January 1, 1998.... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Additions................... 369,000 426,000 648,000 -- -- -- --
Dispositions/Expirations.... (170,500) (123,000) (305,000) -- -- -- --
--------- --------- --------- ----------- --------- -------- ---------
Balance, December 31,
1998...................... 198,500 303,000 343,000 -- -- -- --
Additions................... -- -- -- 1,730,000 176,000 75,000 293,000
Dispositions/Expirations.... (198,500) (303,000) (343,000) (1,275,000) (176,000) (3,697) --
--------- --------- --------- ----------- --------- -------- ---------
Balance, December 31,
1999...................... -- -- -- 455,000 -- 71,303 293,000
Dispositions/Expirations.... -- -- -- (455,000) -- (71,303) (293,000)
--------- --------- --------- ----------- --------- -------- ---------
Balance, December 31,
2000...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= =========== ========= ======== =========
Prior to the discontinuation of mortgage servicing activities, these
instruments were used by BancGroup to protect the value of its investment in
mortgage servicing rights from the effects of increased prepayment activity that
generally results from declining rates.
9. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
2000 1999
--------- ---------
(IN THOUSANDS)
Land........................................................ $ 41,434 $ 40,643
Bank premises............................................... 115,357 115,683
Equipment................................................... 101,557 104,357
Leasehold improvements...................................... 24,136 22,064
Construction in progress.................................... 6,350 4,646
Automobiles and airplane.................................... 18,248 18,310
--------- ---------
Total............................................. 307,082 305,703
Less accumulated depreciation and amortization.............. (122,251) (114,757)
--------- ---------
Premises and equipment, net................................. $ 184,831 $ 190,946
========= =========
10. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
FHLB borrowings............................................ $ 425,000 $ 490,000 $ 769,987
Federal funds purchased and securities sold under
repurchase agreements.................................... 1,145,657 452,337 480,008
Reverse Repurchase Agreements.............................. 89,144 150,571 184,834
Current maturities of FHLB advances........................ 225,527 100,521 50,840
Other short-term borrowings................................ 3,000 -- 25,299
---------- ---------- ----------
Total............................................ $1,888,328 $1,193,429 $1,510,968
========== ========== ==========
At December 31, 2000 and 1999, BancGroup had reverse repurchase agreements
outstanding in the amount of $89 million and $151 million, respectively (Note
11). This debt corresponds to securities purchased under resale agreements with
other financial institutions.
57
59
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BancGroup is a member of the Federal Home Loan Bank ("FHLB"). At both
December 31, 2000 and 1999, BancGroup had FHLB borrowings of $1.2 billion
outstanding of which $547 million and $573 million, respectively, (Note 11) are
included in long-term debt with the remaining portion included in short-term
borrowings, leaving credit availability at December 31, 2000 of $184 million
based on current collateral. FHLB has a blanket lien on BancGroup's 1-4 family
mortgage loans in the amount of the outstanding 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 December 31, 2000. This facility bears interest at 0.85% above
LIBOR and expires in July 2001. At December 31, 1998, BancGroup had an
outstanding term note with an unaffiliated financial institution in the amount
of $25 million. This term note was paid in full upon maturity on June 30, 1999,
and bore interest at a rate of 1% above LIBOR.
Additional details regarding short-term borrowings (excluding current
maturities of long-term debt) are shown below:
MAXIMUM AVERAGE
OUTSTANDING AVERAGE INTEREST
AT ANY AVERAGE INTEREST RATE AT
MONTH END BALANCE RATE YEAR END
----------- ---------- -------- --------
(IN THOUSANDS)
2000
FHLB borrowings....................................... $1,102,521 $ 834,524 6.52% 6.86%
Other short-term borrowings........................... 1,342,970 1,126,655 6.26 6.49
---------- ---------- ---- ----
$2,445,491 $1,961,179 6.33% 6.57%
========== ========== ==== ====
1999
FHLB borrowings....................................... $1,374,892 $ 530,685 5.27% 5.87%
Other short-term borrowings........................... 823,534 775,375 5.00 5.30
---------- ---------- ---- ----
$2,198,426 $1,306,060 5.11% 5.54%
========== ========== ==== ====
1998
FHLB borrowings....................................... $ 901,149 $ 554,629 5.62% 5.29%
Other short-term borrowings........................... 598,813 449,743 5.26 4.96
---------- ---------- ---- ----
$1,499,962 $1,004,372 5.46% 5.15%
========== ========== ==== ====
11. LONG-TERM DEBT
Long-term debt is summarized as follows:
2000 1999
-------- --------
(IN THOUSANDS)
7 1/2% Convertible Subordinated Debentures.................. $ 3,030 $ 3,178
7% Convertible Subordinated Debentures...................... 1,145 1,145
Variable Rate Subordinated Debentures....................... 7,725 7,725
Subordinated Notes.......................................... 100,000 100,000
Trust Preferred Securities.................................. 70,000 70,000
FHLB Advances............................................... 547,022 572,549
Reverse Repurchase Agreements............................... 102,325 132,325
REMIC Bonds................................................. -- 2,649
-------- --------
Total............................................. $831,247 $889,571
======== ========
The 7 1/2% Convertible Subordinated Debentures due March 31, 2011 ("1986
Debentures") issued in 1986 are convertible at any time into shares of BancGroup
Common Stock, at the conversion price of $7.00
58
60
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
principal amount of 1986 Debentures, subject to adjustment upon the occurrence
of certain events, for each share of stock received. The 1986 Debentures are
redeemable at the option of BancGroup at the face amount plus accrued interest.
In the event all of the remaining 1986 Debentures are converted into shares of
BancGroup Common Stock in accordance with the 1986 Indenture, approximately
433,000 shares of such Common Stock would be issued.
The 7% Convertible Subordinated Debentures due December 31, 2004 ("1994
Debentures"), were issued by D/W Bankshares prior to being merged into
BancGroup. The 1994 Debentures are convertible into BancGroup Common Stock, at
the conversion price of $7.58 principal amount of the 1994 Debentures, subject
to adjustment upon occurrence of certain events, for each share of stock
received. In the event all of the remaining 1994 Debentures are converted into
shares of BancGroup Common Stock in accordance with the 1994 Indenture,
approximately 151,000 shares of such Common Stock would be issued.
In connection with the ASB Bancshares, Inc. acquisition, on February 5,
1998, BancGroup issued $7,725,000 of variable rate subordinated debentures due
February 5, 2008 ("1998 Debentures"). These variable rate subordinated
debentures bear interest equal to the New York Prime Rate minus 1% (but in no
event less than 7% per annum).
On March 15, 1999, BancGroup issued $100 million of subordinated notes, due
March 15, 2009. The notes bears interest at 8.00% and are not subject to
redemption prior to maturity.
On January 29, 1997, BancGroup issued, through a special purpose trust, $70
million of Trust Preferred Securities. The securities bear interest at 8.92% and
are subject to redemption by BancGroup, in whole or in part at any time after
January 29, 2007 until maturity in January 2017. Circumstances are remote that
redemption will occur prior to maturity.
The subordinated debentures, notes and Trust Preferred Securities described
above are subordinate to substantially all remaining liabilities of BancGroup.
BancGroup had long-term FHLB Advances (Note 10) outstanding of $547,022,000
and $572,549,000 at December 31, 2000 and 1999, respectively. These advances
bear interest rates of 4.00% to 7.53% and mature from 2001 to 2013.
BancGroup has received funds under reverse repurchase agreements with
Morgan Stanley, Salomon Brothers and First Boston. At December 31, 2000,
BancGroup had long-term reverse repurchase agreements outstanding of $102
million. These agreements, which are collateralized by mortgage-backed
securities, bear interest rates of 5.80% to 6.03% and mature from 2001 to 2003.
At December 31, 2000, long-term debt, including the current portion, is
scheduled to mature as follows:
CONSOLIDATED
PARENT ONLY BANCGROUP
----------- ------------
(IN THOUSANDS)
2001........................................................ $ 255,527
2002........................................................ 14,262
2003........................................................ 113,769
2004........................................................ $ 1,145 226,215
2005........................................................ 100,000
Thereafter.................................................. 80,755 377,001
------- ----------
Total............................................. $81,900 $1,086,774
======= ==========
59
61
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. CAPITAL STOCK
On July 15, 1998, BancGroup's Board of Directors declared a two-for-one
stock split which was effected in the form of a 100 percent stock dividend
distributed on August 14, 1998. The stated par value was not changed from $2.50
per share. Accordingly, all prior period information has been restated to
reflect the reclassification from additional paid in capital to common stock.
Additionally, all share and per share amounts in earnings per share calculations
have been restated to retroactively reflect the stock split.
The Board of Directors is authorized to issue shares of the preference
stock in one or more series, and in connection with such issuance, to establish
the relative rights, preferences, and limitations of each such series.
Stockholders of BancGroup may not act by written consent or call special
meetings.
13. REGULATORY MATTERS AND RESTRICTIONS
Dividends payable by national and state banks in any year, without prior
approval of the appropriate regulatory authorities, are limited to the bank's
net profits (as defined) for that year combined with its retained net profits
for the preceding two years. Under these limitations, approximately $134 million
of retained earnings plus certain 2001 earnings would be available for
distribution to BancGroup, from its subsidiaries, as dividends in 2001 without
prior approval from the respective regulatory authorities.
Colonial Bank is required by law to maintain noninterest-bearing deposits
with the Federal Reserve Bank to meet regulatory reserve requirements. At
December 31, 2000, these deposits were not material to BancGroup's funding
requirements.
BancGroup and Colonial Bank are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on BancGroup's financial position. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
BancGroup and Colonial Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. BancGroup's and
Colonial Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require BancGroup and Colonial Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000 and 1999, that
BancGroup and Colonial Bank meet all capital adequacy requirements to which they
are subject.
60
62
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized Colonial Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized BancGroup and Colonial Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed BancGroup's category. Actual capital amounts and ratios
for BancGroup and Colonial Bank are also presented in the following table:
TO BE WELL
FOR CAPITALIZED
CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- -------- -----------------
AMOUNT RATIO* AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ----- -------- ------
(IN THOUSANDS)
AS OF DECEMBER 31, 2000
Total Capital (to risk weighted assets)
Consolidated.......................... $977,409 10.58% $738,724 >=8.0% $923,406 >=10.0%
Colonial Bank......................... 978,043 10.60 738,432 >=8.0 923,040 >=10.0
Tier I Capital (to risk weighted assets)
Consolidated.......................... 758,344 8.21 369,362 >=4.0 554,043 >=6.0
Colonial Bank......................... 770,878 8.35 369,216 >=4.0 553,824 >=6.0
Tier I Capital (to average assets)
Consolidated.......................... 758,344 6.63 453,398 >=4.0 566,748 >=5.0
Colonial Bank......................... 770,878 6.81 452,889 >=4.0 566,112 >=5.0
As of December 31, 1999
Total Capital (to risk weighted assets)
Consolidated.......................... $907,535 11.31% $641,801 >=8.0% $802,252 >=10.0%
Colonial Bank......................... 891,302 11.12 641,467 >=8.0 801,834 >=10.0
Tier I Capital (to risk weighted assets)
Consolidated.......................... 699,094 8.71 320,901 >=4.0 481,351 >=6.0
Colonial Bank......................... 695,309 8.67 320,733 >=4.0 481,100 >=6.0
Tier I Capital (to average assets)
Consolidated.......................... 699,094 6.58 425,127 >=4.0 531,408 >=5.0
Colonial Bank......................... 695,309 6.54 424,961 >=4.0 531,201 >=5.0
- ---------------
* These ratios are subject to regulatory review
61
63
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. LEASES
BancGroup and its subsidiaries have entered into certain noncancellable
leases for premises and equipment used in connection with its operations. The
majority of these noncancellable lease agreements contain renewal options for
varying periods at the same or renegotiated rentals, and several contain
purchase options at fair value. Future minimum lease payments under all
noncancellable operating leases with initial or remaining terms (exclusive of
renewal options) of one year or more at December 31, 2000 were as follows:
(IN THOUSANDS)
2001........................................................ $15,009
2002........................................................ 12,082
2003........................................................ 17,570
2004........................................................ 8,924
2005........................................................ 9,922
Thereafter.................................................. 32,127
-------
Total............................................. $95,634
=======
Rent expense for all leases amounted to $16,600,000 in 2000, $14,385,000 in
1999 and $16,064,000 in 1998, respectively.
15. EMPLOYEE BENEFIT PLANS
BancGroup and subsidiaries are participants in a pension plan that covers
most employees who have met certain age and length of service requirements.
BancGroup's policy is to contribute annually an amount that can be deducted for
federal income tax purposes using the frozen entry age actuarial method.
Actuarial computations for financial reporting purposes are based on the
projected unit credit method.
Employee pension benefit plan status at December 31:
2000 1999
------- -------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1........................... $24,769 $21,541
Service cost.............................................. 2,932 2,951
Interest cost............................................. 2,039 1,712
Actuarial gain (loss)..................................... 655 (342)
Benefits paid............................................. (1,126) (1,093)
------- -------
Benefit obligation at December 31......................... 29,269 24,769
------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1.................... 22,927 20,655
Actual return on plan assets.............................. (2,279) 3,365
Employer contributions.................................... 1,608 --
Benefits paid............................................. (1,126) (1,093)
------- -------
Fair value of plan assets at December 31.................. 21,130 22,927
------- -------
Funded status at December 31.............................. (8,139) (1,842)
Unrecognized net actuarial loss (gain).................... 2,413 (2,603)
Unrecognized prior service cost........................... 20 19
------- -------
Accrued benefit cost at December 31....................... $(5,706) $(4,426)
======= =======
62
64
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999 1998
---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount Rate............................................. 7.25% 7.25% 6.75%
Expected return on plan assets............................ 9.00 9.00 9.00
Rate of compensation increase............................. 4.50 4.50 4.00
2000 1999 1998
------- ------- -------
COMPONENTS OF NET PERIODIC BENEFIT COST FOR THE YEAR ENDED
DECEMBER 31:
Service cost.............................................. $ 2,932 $ 2,951 $ 2,095
Interest cost............................................. 2,039 1,712 1,370
Expected return on plan assets............................ (2,081) (1,957) (1,691)
Actuarial gain............................................ (1) (1) (163)
------- ------- -------
Net annual benefit cost................................... $ 2,889 $ 2,705 $ 1,611
======= ======= =======
At both December 31, 2000 and 1999, the pension plan assets included
investments of 164,520 shares of BancGroup Common Stock representing 8% and 7%
of pension plan assets, respectively. At December 31, 2000, BancGroup Common
Stock included in pension plan assets had a cost and market value of
approximately $616,429 and $1,768,590, respectively. Pension plan assets are
distributed with approximately 12% in Cash and Cash Equivalents, 10% in U.S.
Government and agency issues, 18% in Corporate bonds, 52% in equity securities
(including BancGroup Common Stock) and 8% in mutual funds.
BancGroup also has an incentive savings plan (the "Savings Plan") for all
of the employees of BancGroup and its subsidiaries. The Savings Plan provides
certain retirement, death, disability and employment benefits to all eligible
employees and qualifies as a deferred arrangement under Section 401(k) of the
Internal Revenue Code. Participants in the Savings Plan make basic contributions
and may make supplemental contributions to increase benefits. BancGroup
contributes a minimum of 50% of the basic contributions made by the employees
and may make an additional contribution from profits on an annual basis. An
employee's interest in BancGroup's contributions becomes 100% vested after five
years of participation in the Savings Plan. Participants have options as to the
investment of their Savings Plan funds, one of which includes purchase of Common
Stock of BancGroup. Charges to operations for this plan and similar plans of
combined banks amounted to approximately $2,023,000, $2,200,000 and $1,794,000
for 2000, 1999 and 1998, respectively.
16. STOCK PLANS
The 1992 Incentive Stock Option Plan ("the 1992 Plan") provides an
incentive to certain officers and key management employees of BancGroup and its
subsidiaries. Options granted under the 1992 Plan must be at a price not less
than the fair market value of the shares at the date of grant. All options
expire no more than ten years from the date of grant, or three months after an
employee's termination. On April 19, 2000, management proposed, and shareholders
approved an increase in the number of shares eligible to be issued under the
1992 ISO Plan from 4.2 million to 5.7 million. At December 31, 2000 and 1999,
approximately 3,541,000 and 943,000, respectively, remained available for the
granting of options under the 1992 Plan.
The 1992 Nonqualified Stock Option Plan ("the 1992 Nonqualified Plan")
provides an incentive to directors, officers and employees of BancGroup and its
subsidiaries. Options granted under the 1992 Nonqualified Plan must be at a
price not less than 85% of the fair market value of the shares at the date of
grant. All options expire no more than ten years after the date of grant, or
three months after an employee's termination. An aggregate of 3,200,000 shares
of Common Stock is reserved for issuance under the 1992 Nonqualified Plan. At
December 31, 2000 and 1999, approximately 2,397,000 and 2,560,000 shares,
respectively remained available for the granting of options under the 1992
Nonqualified Plan.
63
65
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to 1992, BancGroup had both a qualified incentive stock option plan
("Plan") under which options were granted at a price not less than fair market
value and a nonqualified stock option plan ("Nonqualified Plan") under which
options were granted at a price not less than 85% of fair market value. All
options under the plans expire ten years from the date of grant, or three months
after the employee's termination. Although options previously granted under
these plans may be exercised, no further options may be granted.
Pursuant to the various business combinations, BancGroup assumed qualified
stock options and non-qualified stock options according to the respective
exchange ratios.
Certain options issued during 2000 and 1999 under the 1992 Nonqualified
Plan and the 1992 Plan have vesting requirements. In order to fully vest in the
options granted, the option recipients are required to remain in the employment
of BancGroup (subject to certain exemptions) for periods of between one and five
years (These options become exercisable on a pro-rata basis over a period of one
to five years) or attain certain performance criteria.
Following is a summary of the transactions in Common Stock under these
plans for the years ended December 31, 2000, 1999 and 1998.
QUALIFIED PLANS(1) NONQUALIFIED PLANS(1)
----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- ---------- ----------------
Outstanding at December 31, 1997......... 963,298 $ 8.181 2,643,221 $3.773
Assumed in business combinations (at
$2.378 -- $5.9758 per share)........... 578,339 4.234 226,700 4.419
Granted (at $7.585 -- $18.20315 per
share)................................. 1,695,000 13.821 132,000 12.366
Exercised (at $1.54 -- $12.125 per
share)................................. (567,459) 4.913 (946,242) 3.426
Cancelled (at $8.578 -- $17.1875 per
share)................................. (105,280) 13.778 (30,000) 9.995
---------- ------- ---------- ------
Outstanding at December 31, 1998......... 2,563,898 11.513 2,025,679 4.475
Granted (at $10.5 -- $14.5625 per
share)................................. 1,209,500 12.385 200,000 11.016
Exercised (at $1.54 -- $12.125 per
share)................................. (458,295) 4.979 (430,418) 4.076
Cancelled (at $2.378 -- $18.2032 per
share)................................. (163,811) 12.863 (82,319) 8.184
---------- ------- ---------- ------
Outstanding at December 31, 1999......... 3,151,292 12.495 1,712,942 5.283
Granted (at $8.3438 -- $11.03 per
share)................................. 480,225 10.055 276,024 9.757
Exercised (at $1.54 -- $10.50 per
share)................................. (87,925) 5.621 (1,153,291) 3.318
Cancelled (at $9.5775 -- $18.2032 per
share)................................. (1,578,167) 14.508 (185,192) 8.994
---------- ------- ---------- ------
Outstanding at December 31, 2000......... 1,965,425 $10.567 650,483 $9.628
========== ======= ========== ======
- ---------------
(1) This table includes those plans assumed pursuant to various business
combinations according to the respective exchange ratios.
64
66
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, the total shares outstanding and exercisable under
these option plans were as follows:
OPTIONS OUTSTANDING
------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -----------------------------------
NUMBER REMAINING WEIGHTED NUMBER
OUTSTANDING LIFE AVERAGE AGGREGATE EXERCISABLE AVERAGE AGGREGATE
AT (IN EXERCISE OPTION AT EXERCISE OPTION
RANGE OF EXERCISE PRICES 12/31/00 YEARS) PRICE PRICE 12/31/00 PRICE PRICE
- ------------------------ ----------- --------- -------- ----------- ----------- -------- ----------
$2.87 -- $4.56................... 35,018 2.69 $ 3.8988 $ 136,527 35,018 $3.8988 $ 136,527
$4.625 -- $7.358................. 158,634 5.17 6.7668 1,073,441 158,634 6.7515 1,081,825
$8.3438 -- $10.625............... 1,501,306 4.53 10.0037 15,018,602 386,528 9.6348 3,748,197
$11.0313 -- $12.25............... 871,750 7.90 11.4929 10,018,945 293,300 11.5927 3,469,681
$12.2813 -- $18.1560............. 49,200 7.17 15.9146 783,000 25,800 16.2776 419,963
--------- ---- -------- ----------- ------- ------- ----------
Total................... 2,615,908 5.72 $10.3331 $27,030,515 899,280 $9.7387 $8,856,193
========= ==== ======== =========== ======= ======= ==========
As permitted by Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS 23), BancGroup has chosen to apply APB Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its Plans. Accordingly, no compensation cost
has been recognized for options granted under the Incentive Plan. For the
Nonqualified Plan, compensation expense is recognized for the difference between
exercise price and market price at grant date of the shares as the shares become
exercisable. Had compensation cost for BancGroup's Plans been determined based
on the fair value at the grant dates for awards under the Plan, BancGroup's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
AS PRO
REPORTED FORMA
-------- --------
2000
Net income.................................................. $112,730 $111,947
Earnings per share (basic).................................. 1.02 1.01
1999
Net income.................................................. $119,597 $117,752
Earnings per share (basic).................................. 1.07 1.05
1998
Net income.................................................. $ 55,196 $ 54,426
Earnings per share (basic).................................. 0.50 0.49
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield
of 3.16%, 3.13%, and 2.50%; expected volatility of 42%, 32%, and 25% for 2000,
1999, and 1998; risk-free interest rates of 5.82%, 5.43%, and 5.06% for 2000,
1999, and 1998, respectively; and expected lives of ten years. The weighted
average fair values of options granted during 2000, 1999, and 1998 were $3.52,
$3.89, and $3.66, respectively.
In 1987, BancGroup adopted the Restricted Stock Plan for Directors
("Directors Plan") whereby directors of BancGroup and its subsidiary banks may
receive Common Stock in lieu of cash director fees. The election to participate
in the Directors Plan is made at the inception of the director's term except for
BancGroup directors who make their election annually. Shares earned under the
plan for regular fees are issued quarterly while supplemental fees are issued
annually. All shares become vested at the expiration of the director's term.
During 2000, 1999, and 1998, respectively, 90,603, 60,435, and 79,092 shares of
Common Stock were issued under the Directors Plan, representing approximately
$1,079,000, $724,000, and $819,000 in directors' fees for 2000, 1999, and 1998,
respectively.
65
67
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1992, BancGroup adopted the Stock Bonus and Retention Plan to promote
the long-term interests of BancGroup and its shareholders by providing a means
for attracting and retaining officers, employees and directors by awarding
Restricted Stock which shall vest either over a stated time period or based upon
performance criteria. A total of $1,099,000, $745,000, and $1,123,000 in
compensation expense was charged to operations under this plan for the years
ended December 31, 2000, 1999, and 1998, respectively. During 2000, 1999, and
1998 the Company awarded 251,000, 20,100, and 123,960 shares, respectively,
under the Stock Bonus and Retention Plan having weighted average market value at
grant date of $10.50, $13.60, and $17.19, respectively. An aggregate of
3,000,000 shares has been reserved for issuance under this Plan. There were
288,405 shares outstanding under this plan at December 31, 2000.
In 1994, BancGroup adopted the Employee Stock Purchase Plan which provides
employees of BancGroup, who work in excess of 29 hours per week, with a
convenient way to become shareholders of BancGroup. The participant authorizes a
regular payroll deduction of not less than $10 or not more than 10% of salary.
The participant may also contribute whole dollar amounts of not less than $100
or not more than $1,000 each month toward the purchase of the stock at market
price. There are 600,000 shares authorized for issuance under this Plan from
authorized but unissued shares. An additional 400,000 may be acquired from time
to time on the open market for issuance under the Plan. There were 211,617
shares issued and outstanding under this Plan at December 31, 2000.
On November 30, 2000, the subcommittee approved a proposal to offer
employees of BancGroup and its subsidiaries the opportunity to cancel certain
options and be granted replacement options at least six months after the
cancellation of the original options (the "Exchange Program"). Participation in
the Exchange Program was at the sole discretion of the employee. The
subcommittee included all employees with option exercise prices greater than
$13.00. At December 31, 2000, there were approximately 866,000 shares that fell
under the Exchange Program guidelines. As of March 1, 2001, 864,000 shares have
been surrendered under this program.
The subcommittee approved the Exchange Program with the goals of retaining
valuable employees and reinstating some value to a portion of BancGroup's
compensation and incentive strategy.
17. CONTINGENCIES
BancGroup and its subsidiaries are from time to time defendants in legal
actions from normal business activities. Management does not anticipate that the
ultimate liability arising from litigation outstanding at December 31, 2000 will
have a materially adverse effect on BancGroup's financial statements.
18. RELATED PARTIES
BancGroup and Colonial Bank lease premises, including their principal
corporate offices, from companies partly owned by a principal shareholder of
BancGroup. Amounts paid under these leases and agreements approximated
$2,271,000, $2,925,000 and $3,717,000 in 2000, 1999 and 1998, respectively.
During 2000, 1999 and 1998, BancGroup and its subsidiaries paid or accrued
fees of approximately $1,416,000, $1,196,000 and $1,198,000, respectively, for
legal services required of law firms in which a partner of the firm serves on
the Board of Directors.
66
68
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. ACQUISITION EXPENSE & RESTRUCTURING CHARGES
In the first quarter of 1998, BancGroup reorganized executive management of
its Florida regions. The reorganization resulted in a restructuring charge of
$2.5 million. During the fourth quarter of 1998, the Company developed a plan
to:
- Close certain unprofitable branches
- Sell five super-market branches
- Relocate and upgrade two other branches
- Move the headquarters of the South Florida Region to downtown Miami and
to consolidate the trust department into the South Florida headquarters
to better serve its customer base
As a result of these actions BancGroup recognized a fourth quarter of 1998
restructuring charge of $6.3 million, which is net of $902,000 in reversals of
unused reserves.
The following is a summary of restructuring charges and activity for the
years ended December 31, 2000, 1999, and 1998:
ACCRUED
LEASE SEVERANCE
REDUCTION OF TERMINATION &
ASSET VALUES LIABILITIES OTHER TOTAL
------------ ----------- --------- -------
(IN THOUSANDS)
January 1, 1998............................... $ -- $ -- $ -- $ --
Additions (expense)........................... 4,395 3,240 2,052 9,687
Reversal of unused reserves................... -- (362) (540) (902)
------- ------- ------ -------
Net expense................................... 4,395 2,878 1,512 8,785
Write-off of assets........................... (4,395) -- -- (4,395)
Reductions (payments)......................... -- -- (914) (914)
------- ------- ------ -------
Balance at December 31, 1998.................. -- 2,878 598 3,476
------- ------- ------ -------
Reductions (payments)......................... -- (1,327) (598) (1,925)
------- ------- ------ -------
Balance at December 31, 1999.................. $ -- $ 1,551 $ -- $ 1,551
======= ======= ====== =======
Reductions (payments)......................... -- (1,063) -- (1,063)
------- ------- ------ -------
Balance at December 31, 2000.................. $ -- $ 488 $ -- $ 488
======= ======= ====== =======
Additionally, the Company has recognized acquisition related expenses
totaling $0, $1,307,000 and $12,750,000 for each of the years ended December 31,
2000, 1999 and 1998, respectively. These expenses relate primarily to
transaction costs such as legal and accounting fees and incremental charges
related to the integration of acquired banks, such as system conversion
(including contract buy-outs and write off of equipment) and employee severance.
67
69
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. OTHER EXPENSE
The following amounts were included in Other Expense:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
FDIC and state assessments................................ $ 1,951 $ 1,629 $ 2,221
Advertising and public relations.......................... 7,789 7,757 9,143
Stationery, printing, and supplies........................ 4,827 5,599 5,879
Telephone................................................. 6,482 6,157 5,650
Legal..................................................... 4,504 4,453 5,218
Postage and courier....................................... 6,780 6,717 5,997
Insurance................................................. 1,394 1,456 1,576
Professional services..................................... 6,246 7,002 9,752
Travel.................................................... 3,462 3,535 4,643
Other..................................................... 17,401 13,509 11,891
------- ------- -------
Total........................................... $60,836 $57,814 $61,970
======= ======= =======
21. INCOME TAXES
The components of the provision for income taxes were as follows:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Currently payable
Federal................................................... $68,043 $66,285 $44,880
State..................................................... 1,096 2,248 3,985
Deferred.................................................. (4,473) 1,794 (17,459)
------- ------- -------
Total........................................... $64,666 $70,327 $31,406
======= ======= =======
The provision for income taxes is presented in the income statement as
follows:
2000 1999 1998
------- ------- -------
Continuing operations..................................... $67,732 $68,193 $37,790
Discontinued operations................................... (3,066) 2,134 (6,384)
------- ------- -------
Total........................................... $64,666 $70,327 $31,406
======= ======= =======
68
70
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Tax at statutory rate on pre-tax income................... $62,166 $66,473 $30,311
Add:
State income taxes, net of federal tax benefit.......... 563 1,641 1,259
Amortization of net purchase accounting adjustments..... 1,724 1,705 1,681
Other................................................... 4,225 3,080 367
------- ------- -------
Total........................................... 68,678 72,899 33,618
------- ------- -------
Deduct:
Nontaxable interest income.............................. 2,685 1,991 1,622
Other................................................... 1,327 581 590
------- ------- -------
Total........................................... 4,012 2,572 2,212
------- ------- -------
Total income taxes........................................ $64,666 $70,327 $31,406
======= ======= =======
The components of BancGroup's net deferred tax asset as of December 31,
2000 and 1999, were as follows:
2000 1999
------- -------
(IN THOUSANDS)
Deferred tax assets:
Allowance for possible loan losses........................ $39,115 $35,613
Pension accrual in excess of contributions................ 2,205 2,227
Accumulated amortization and valuation reserve for
mortgage servicing rights.............................. -- 1,881
Other real estate owned write-downs....................... 390 519
Other liabilities and reserves............................ 4,169 4,496
Differences between financial reporting and tax basis of
net assets acquired.................................... 944 190
Accelerated tax depreciation.............................. 758 1,520
Unrealized loss on securities available for sale.......... 3,305 16,045
Other..................................................... 1,424 517
------- -------
Total deferred tax asset.......................... $52,310 $63,008
======= =======
Deferred tax liabilities:
Cumulative accretion/discount on bonds.................... $ 1,248 $ 618
Loan loss reserve recapture............................... 703 2,772
Other..................................................... 1,227 2,219
------- -------
Total deferred tax liability...................... 3,178 5,609
======= =======
Net deferred tax asset............................ $49,132 $57,399
======= =======
The net deferred tax asset is included as a component of accrued interest
and other assets in the Consolidated Statement of Condition.
BancGroup did not establish a valuation allowance related to the net
deferred tax asset due to taxes paid within the carryback period being
sufficient to offset future deductions resulting from the reversal of these
temporary differences.
69
71
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. 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:
PER SHARE
INCOME SHARES AMOUNT
--------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
2000
Basic EPS
Income from continuing operations...................... $117,796 110,761 $1.06
Effect of dilutive securities
Options............................................. 114
Convertible debentures.............................. 192 597
-------- ------- -----
Diluted EPS.............................................. $117,988 111,472 $1.06
======== ======= =====
1999
Basic EPS
Income from continuing operations...................... $116,070 111,678 $1.04
Effect of dilutive securities
Options............................................. 907
Convertible debentures.............................. 219 667
-------- ------- -----
Diluted EPS.............................................. $116,289 113,252 $1.03
======== ======= =====
1998
Basic EPS
Income from continuing operations...................... $ 65,644 110,062 $0.60
Effect of dilutive securities
Options............................................. 1,640
Convertible debentures.............................. 238 729
-------- ------- -----
Diluted EPS.............................................. $ 65,882 112,431 $0.59
======== ======= =====
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents. For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment securities and securities available for sale. For debt
securities and marketable equity securities held either for investment purposes
or for sale, fair value equals quoted market price, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Mortgage loans held for sale. For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Derivatives. Fair value is defined as the amount that the company would
receive or pay to terminate the contracts at the reporting date. Market or
dealer quotes were used to value the instruments.
Loans. For loans, the fair value is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
70
72
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deposits. The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at December 31, 2000 and
1999. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
Short-term borrowings. Rates currently available to BancGroup for
borrowings with similar terms and remaining maturities are used to estimate fair
value of existing borrowings.
Long-term debt. Rates currently available to BancGroup for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.
Commitments to extend credit and standby letters of credit. The value of
the unrecognized financial instruments is estimated based on the related fee
income associated with the commitments, which is not material to BancGroup's
financial statements at December 31, 2000 and 1999.
The estimated fair values of BancGroup's financial instruments at December
31, 2000 and 1999 are as follows:
2000 1999
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- ----------
(IN THOUSANDS)
Financial assets:
Cash and short-term investments.... $ 364,746 $ 364,746 $ 368,915 $ 368,915
Securities available for sale...... 1,449,386 1,449,386 1,489,991 1,489,991
Investment securities.............. 44,310 45,098 61,682 61,922
Mortgage loans held for sale....... 9,866 9,866 33,150 33,150
Loans.............................. 9,416,770 8,228,149
Less: allowances for loan losses... (107,165) (95,993)
----------- ----------- ----------- ----------
Loans, net......................... 9,309,605 9,331,264 8,132,156 7,919,286
----------- ----------- ----------- ----------
Total...................... $11,177,913 $11,200,360 $10,085,894 $9,873,264
=========== =========== =========== ==========
Financial liabilities:
Deposits........................... $ 8,143,017 $ 8,153,625 $ 7,967,978 $7,956,247
Short-term borrowings.............. 1,858,328 1,859,439 1,193,429 1,179,520
Long-term debt..................... 861,247 850,543 889,571 855,449
----------- ----------- ----------- ----------
Total...................... $10,862,592 $10,863,607 $10,050,978 $9,991,216
=========== =========== =========== ==========
Derivatives:
CMT Floors......................... $ -- $ -- $ 3,114 $ 3,114
PO Strips.......................... -- -- 167 167
CMS Floors......................... -- -- 3,046 3,046
----------- ----------- ----------- ----------
$ -- $ -- $ 6,327 $ 6,327
=========== =========== =========== ==========
24. SEGMENT INFORMATION
Through its wholly owned subsidiary, Colonial Bank, BancGroup had
previously segmented its operations into two distinct lines of business:
Commercial Banking and Mortgage Banking. In July 2000, the Company announced
definitive plans to exit the mortgage banking business. As of December 31, 2000,
all sales of mortgage servicing rights and transfers of underlying loans have
been completed.
Colonial Bank provides general banking services in 239 branches throughout
6 states.
71
73
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results and asset levels of the two segments reflect those which
are specifically identifiable or which are based on an internal allocation
method. The two segments are designed around BancGroup's organizational and
management structure, and while the assignments and allocations have been
consistently applied for all periods presented, the results are not necessarily
comparable to similar information published by other financial institutions.
The following table reflects the approximate amounts of consolidated
revenue, expense, and assets for the years ended December 31, for each segment:
Segment Data
CONTINUING OPERATIONS DISCONTINUED
-------------------------------------- OPERATIONS
COMMERCIAL CORPORATE/ MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
----------- ---------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000
Interest income................ $ 897,761 $ -- $ 897,761 $ 897,761
Interest expense............... 500,849 7,021 507,870 507,870
Provision for possible loan
losses....................... 29,680 -- 29,680 29,680
Noninterest income............. 75,331 (32) 75,299 75,299
Amortization and
depreciation................. 31,167 (418) 30,749 30,749
Noninterest expense............ 215,241 3,992 219,233 219,233
----------- -------- ----------- -------- -----------
Income from continuing
operations before income
taxes........................ 196,155 (10,627) 185,528 185,528
Income taxes................... 70,596 (2,864) 67,732 67,732
----------- -------- ----------- -------- -----------
Income from continuing
operations................... 125,559 (7,763) 117,796 117,796
Income (loss) from discontinued
operations and loss on
disposal (net of taxes)...... -- -- -- (5,065) (5,065)
----------- -------- ----------- -------- -----------
Net Income (loss)..... $ 125,560 $ (7,764) $ 117,796 $ (5,065) $ 112,731
=========== ======== =========== ======== ===========
Identifiable Assets............ $11,679,903 $ 12,678 $11,692,581 $ 35,056 $11,727,637
Capital Expenditures........... $ 20,206 $ -- $ 20,206 -- $ 20,206
YEAR ENDED DECEMBER 31, 1999
Interest income................ $ 750,828 $ -- $ 750,828 $ 750,828
Interest expense............... 371,141 7,265 378,406 378,406
Provision for possible loan
losses....................... 28,707 -- 28,707 28,707
Noninterest income............. 73,874 213 74,087 74,087
Amortization and
depreciation................. 27,676 (408) 27,268 27,268
Noninterest expense............ 203,003 3,268 206,271 206,271
----------- -------- ----------- -------- -----------
Income from continuing
operations before income
taxes........................ 194,175 (9,912) 184,263 184,263
Income taxes................... 71,874 (3,681) 68,193 68,193
----------- -------- ----------- -------- -----------
Income from continuing
operations................... 122,301 (6,231) 116,070 116,070
Income (loss) from discontinued
operations and loss on
disposal (net of taxes)...... -- -- -- 3,527 3,527
----------- -------- ----------- -------- -----------
Net Income (loss)..... $ 122,301 $ (6,231) $ 116,070 $ 3,527 $ 119,597
=========== ======== =========== ======== ===========
Identifiable Assets............ $10,500,209 $ 12,474 $10,512,683 $341,416 $10,854,099
Capital Expenditures........... $ 40,037 $ 34 $ 40,071 $ 451 $ 40,522
72
74
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINUING OPERATIONS DISCONTINUED
-------------------------------------- OPERATIONS
COMMERCIAL CORPORATE/ MORTGAGE CONSOLIDATED
BANKING OTHER* TOTAL BANKING BANCGROUP
----------- ---------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1998
Interest income................ $ 664,664 $ (19) $ 664,645 $ 664,645
Interest expense............... 327,694 6,750 334,444 334,444
Provision for possible loan
losses....................... 26,345 -- 26,345 26,345
Noninterest income............. 60,055 (1,103) 58,952 58,952
Amortization and
depreciation................. 25,227 (283) 24,944 24,944
Noninterest expense............ 231,979 2,451 234,430 234,430
----------- -------- ----------- -------- -----------
Income from continuing
operations before income
taxes........................ 113,474 (10,040) 103,434 103,434
Income taxes................... 40,760 (2,970) 37,790 37,790
----------- -------- ----------- -------- -----------
Income from continuing
operations................... 72,714 (7,070) 65,644 65,644
Income (loss) from discontinued
operations and loss on
disposal (net of taxes)...... -- -- -- (10,448) (10,448)
----------- -------- ----------- -------- -----------
Net Income (loss)..... $ 72,714 $ (7,070) $ 65,644 $(10,448) $ 55,196
=========== ======== =========== ======== ===========
Identifiable Assets............ $ 9,507,563 $ 12,160 $ 9,519,723 $936,562 $10,456,285
Capital Expenditures........... $ 45,134 $ 95 $ 45,229 $ 1,636 $ 46,865
- ---------------
* Includes eliminations of certain intercompany transactions.
25. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC. (PARENT
COMPANY ONLY)
DECEMBER 31,
-------------------
2000 1999
STATEMENT OF CONDITION -------- --------
(IN THOUSANDS)
ASSETS:
Cash*..................................................... $ 7,496 $ 18,317
Investment in subsidiaries*............................... 835,366 757,658
Intangible assets......................................... 3,965 4,399
Other assets.............................................. 3,749 4,466
-------- --------
Total assets...................................... $850,576 $784,840
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings..................................... $ 3,000 $ --
Subordinated debt......................................... 81,900 82,048
Other liabilities......................................... 8,824 7,613
Shareholders' equity...................................... 756,852 695,179
-------- --------
Total liabilities and shareholders' equity........ $850,576 $784,840
======== ========
- ---------------
* Eliminated in consolidation.
73
75
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
STATEMENT OF OPERATIONS -------- -------- -------
(IN THOUSANDS)
INCOME:
Cash dividends from subsidiaries*......................... $ 63,649 $ 78,996 $49,532
Interest and dividends on short-term investments*......... 372 677 480
Other income.............................................. 2,781 2,490 2,418
-------- -------- -------
Total income...................................... 66,802 82,163 52,430
-------- -------- -------
EXPENSES:
Interest.................................................. 7,394 7,942 7,249
Salaries and employee benefits............................ 1,638 1,263 1,492
Occupancy expense......................................... 423 414 311
Furniture and equipment expense........................... 100 137 108
Amortization of intangible assets......................... 434 432 432
Other expenses............................................ 2,095 1,730 4,286
-------- -------- -------
Total expenses.................................... 12,084 11,918 13,878
-------- -------- -------
Income before income taxes and equity in undistributed net
income of subsidiaries................................. 54,718 70,245 38,552
Income tax benefit........................................ 3,314 3,278 3,875
-------- -------- -------
Income before equity in undistributed net income of
subsidiaries........................................... 58,032 73,523 42,427
Equity in undistributed net income of subsidiaries*....... 54,699 46,074 12,769
-------- -------- -------
Net income........................................ $112,731 $119,597 $55,196
======== ======== =======
- ---------------
* Eliminated in consolidation.
74
76
THE COLONIAL BANCGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
STATEMENT OF CASH FLOWS -------- --------- --------
(IN THOUSANDS)
Cash flows from operating activities........................ $ 60,971 $ 77,526 $ 46,927
Cash flows from investing activities:
Capital expenditures...................................... -- (34) (95)
Proceeds from sale of premises and equipment.............. -- -- 2,389
Net investment in subsidiaries*........................... -- -- (25,000)
-------- --------- --------
Net cash used in investing activities..................... -- (34) (22,706)
-------- --------- --------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings.............. 3,000 (25,000) 11,860
Proceeds from issuance of common stock.................... 6,009 6,437 6,830
Purchase of treasury stock................................ (31,934) -- (17,100)
Dividends paid............................................ (48,867) (42,316) (36,377)
-------- --------- --------
Net cash used in financing activities..................... (71,792) (60,879) (34,787)
-------- --------- --------
Net (decrease) increase in cash and cash equivalents...... (10,821) 16,613 (10,566)
Cash and cash equivalents at beginning of year............ 18,317 1,704 12,270
-------- --------- --------
Cash and cash equivalents at end of year*................... $ 7,496 $ 18,317 $ 1,704
======== ========= ========
Supplemental Disclosure of cash flow information:
Cash paid (received) during the year for:
Interest.................................................. $ 7,638 $ 7,690 $ 7,350
Income taxes.............................................. (1,440) (4,023) (3,565)
- ---------------
* Eliminated in consolidation
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
75
77
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required by this item as to BancGroup's directors is
contained in BancGroup's proxy statement dated March 16, 2001, under the
captions "Election of Directors" and "Section 16 (a) Beneficial Ownership
Reporting Compliance," and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH PRESENT AND PRINCIPAL OCCUPATION
EXECUTIVE OFFICER BANCGROUP AND SUBSIDIARIES FOR THE LAST FIVE YEARS
- ------------------------- ------------------------------ --------------------------------
Robert E. Lowder.............. Chairman of the Board, Chairman of the Board, President
58, 1981 President, and Chief Executive and Chief Executive Officer,
Officer, BancGroup; Chairman, BancGroup (except for President,
Executive Committee, 1997-2000); Chairman of the
BancGroup; Chairman of the Board, President, and Chief
Board, President, and Chief Executive Officer, Colonial Bank
Executive Officer, Colonial (except for President, 1997-
Bank; Director, Central 2000); Chairman of the Board,
Alabama Region; Director, Colonial Mortgage Company until
Northern Region; Director, December 31, 1999; Chairman of
Gulf Coast Region; Director, the Board and President,
Montgomery Region; Director, Colonial Broadcasting Company,
Central Florida Region; Inc. until 1998, Montgomery, AL.
Director, South Florida
Region; Director, Bay Area
Region; Director, Southwest
Florida Region; Chairman of
the Board, Georgia Region;
Director, Nevada Region;
Director, Dallas Region;
Director, Chairman of the
Board, Colonial Investment
Services, Inc.; Chairman of
the Board, President and Chief
Executive Officer, Colonial
BancGroup Building Corporation
W. Flake Oakley, IV........... Executive Vice President, Executive Vice President, Chief
47, 1989 Chief Financial Officer, Financial Officer, and Secretary
Secretary, BancGroup; BancGroup and Colonial Bank;
Executive Vice President, Treasurer, BancGroup and Bank
Chief Financial Officer, and until 1999; Montgomery, AL
Secretary, Colonial Bank;
Director and Vice President,
Colonial Asset Management,
Inc.; Director, Vice President
and Treasurer Colonial
Investment Services, Inc.;
Secretary, Treasurer and
Director, Colonial BancGroup
Building Corporation
76
78
NAME, AGE AND YEAR BECAME POSITION AND OFFICES HELD WITH PRESENT AND PRINCIPAL OCCUPATION
EXECUTIVE OFFICER BANCGROUP AND SUBSIDIARIES FOR THE LAST FIVE YEARS
- ------------------------- ------------------------------ --------------------------------
Sarah H. Moore................ Executive Vice President and Executive Vice President and
35, 1999 Chief Operations Officer, Chief Operations Officer,
BancGroup; Executive Vice BancGroup and Colonial Bank
President and Chief Operations since 2000; Executive Vice
Officer, Colonial Bank; Vice President and Treasurer,
President, Colonial BancGroup BancGroup and Colonial Bank,
Building Corporation 1999-2000; Senior Vice
President, Strategic Planning,
BancGroup and Colonial Bank
1996-1999; Audit Manager,
PricewaterhouseCoopers LLP until
1996, Montgomery, AL
Young J. Boozer, III.......... Executive Vice President, Executive Vice President,
51, 1986 General Auditor, BancGroup; BancGroup and Colonial Bank;
Executive Vice President, President, Colonial Investment
General Auditor, Colonial Bank Services, Inc. 1993 to 1997,
Montgomery, AL
Michelle Condon............... Executive Vice President, Executive Vice President Special
46, 1995 Special Projects, BancGroup; Projects, BancGroup and Colonial
Executive Vice President, Bank since 1999; Executive Vice
Special Projects, Colonial President, Retail Banking,
Bank BancGroup since 1995;
Montgomery, AL
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in BancGroup's proxy
statement dated March 16, 2001 under the caption "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in BancGroup's proxy
statement dated March 16, 2001, under the caption "Voting Securities and
Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in BancGroup's proxy
statement dated March 16, 2001, under the captions "Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation" and is
incorporated herein by reference.
77
79
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 the integration of the
businesses of BancGroup and the institutions acquired are greater than expected;
(iv) changes in the interest rate environment which reduce margins; (v) general
economic conditions, either nationally or regionally, that are less favorable
then expected, resulting in, among other things, a deterioration in credit
quality, vendor representations, technological advancements, and economic
factors including liquidity availability; (vi) changes which may occur in the
regulatory environment; (vii) a significant rate of inflation (deflation);
(viii) changes in the securities markets; and (ix) BancGroup is unable to
achieve its goals to increase non-interest income and deposits and to develop
increased internal efficiencies. 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included herein at Item 8.
Consolidated Statements of Condition as of December 31, 2000 and 1999.
Consolidated Statements of Income for the years ended December 31, 2000,
1999, and 1998.
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2000, 1999, and 1998.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 2000, 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998.
Notes to Consolidated Financial Statements, including Parent Company only
information.
Report of Independent Accountants.
2. Financial Statements Schedules
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto which are
incorporated by reference at subsection 1 of this Item, above.
3. Exhibits
EXHIBITS DESCRIPTION
- -------- -----------
Exhibit 3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein
by reference.
78
80
EXHIBITS DESCRIPTION
- -------- -----------
3.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, and incorporated
herein by reference.
3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2
to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
4.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, and incorporated
herein by reference.
4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
4.4 -- Dividend Reinvestment and Common Stock Purchase Plan of the
Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File
No. 33-07015), effective July 15, 1986, and incorporated
herein by reference.
4.5 -- All instruments defining the rights of holders of long-term
debt of the Registrant and its subsidiaries. Not filed
pursuant to clause 4(iii) of Item 601(b) of Regulation S-K;
to be furnished upon request of the Commission.
Exhibit 10 -- Material Contracts:
10.1 -- Second Amendment and Restatement of 1982 Incentive Stock
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.3 -- 1992 Incentive Stock Option Plan of the Registrant, as
amended, filed as Exhibit 10.1 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant as
amended, filed as Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.5 -- SunTrust Revolving Credit Facility Commitment Letter, filed
as Exhibit 10.5 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999, and incorporated
herein by reference.
10.6 -- The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement
on Form S-4 (File No. 33-52952), and incorporated herein by
reference.
10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan,
Included as Exhibit 10(C)(2) to the Registrant's
Registration Statement as Form S-4 (File No. 33-52952), and
incorporated herein by reference.
10.8 -- Indenture dated as of January 29, 1997 between The Colonial
BancGroup, Inc. and Wilmington Trust Company, as Debenture
Trustee dated as of, included as Exhibit 4(A) to
Registrant's Registration Statement on Form S-4 (File No.
333-22135), and incorporated herein by reference.
79
81
EXHIBITS DESCRIPTION
- -------- -----------
10.9 -- Management Incentive Plan of The Colonial BancGroup, Inc.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share are
included herein at footnote 22 to the financial statements
in Item 8.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of PricewaterhouseCoopers LLP.
Exhibit 24 -- Power of Attorney.
(b) Registrant's Current Reports on Form 8-K dated October 18, 2000 and
December 7, 2000, and incorporated herein by reference.
80
82
SIGNATURES
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, in the City of
Montgomery, Alabama, on the 9th day of March, 2001.
THE COLONIAL BANCGROUP, INC.
By: /s/ ROBERT E. LOWDER
-----------------------------------
Robert E. Lowder
Its Chairman of the Board of
Directors, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT E. LOWDER Chairman of the Board of **
- ----------------------------------------------------- Directors, President and
Robert E. Lowder Chief Executive Officer
/s/ W. FLAKE OAKLEY, IV Chief Financial Officer and **
- ----------------------------------------------------- Secretary (Principal
W. Flake Oakley, IV Financial Officer and
Principal Accounting
Officer)
* Director **
- -----------------------------------------------------
Lewis Beville
* Director **
- -----------------------------------------------------
William Britton
* Director **
- -----------------------------------------------------
Jerry J. Chesser
* Director **
- -----------------------------------------------------
Augustus K. Clements, III
* Director **
- -----------------------------------------------------
Robert C. Craft
Director
- -----------------------------------------------------
Patrick F. Dye
Director
- -----------------------------------------------------
Clinton O. Holdbrooks
* Director **
- -----------------------------------------------------
Harold D. King
* Director **
- -----------------------------------------------------
John Ed Mathison
81
83
SIGNATURE TITLE DATE
--------- ----- ----
* Director **
- -----------------------------------------------------
Milton E. Mcgregor
Director
- -----------------------------------------------------
John C. H. Miller, Jr.
* Director **
- -----------------------------------------------------
Joe D. Mussafer
* Director **
- -----------------------------------------------------
William E. Powell
* Director **
- -----------------------------------------------------
Jimmy Rane
* Director **
- -----------------------------------------------------
Frances E. Roper
* Director **
- -----------------------------------------------------
Simuel Sippial
* Director **
- -----------------------------------------------------
Edward V. Welch
- ---------------
* The undersigned, acting pursuant to a power of attorney, has signed this
Annual Report on Form 10-K for and on behalf of the persons indicated above as
such persons' true and lawful attorney-in-fact and in their names, places and
stead, in the capacities indicated above and on the date indicated below.
/s/ W. FLAKE OAKLEY, IV
- ------------------------------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: March 9, 2001
82
84
EXHIBITS INDEX
EXHIBITS DESCRIPTION
- -------- -----------
Exhibit 3 -- Articles of Incorporation and Bylaws:
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, and incorporated herein
by reference.
3.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, and incorporated
herein by reference.
3.3 -- Bylaws of the Registrant, as amended, filed as Exhibit 4.2
to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
Exhibit 4 -- Instruments defining the rights of security holders:
4.1 -- Article 4 of the Restated Certificate of Incorporation of
the Registrant filed as Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
4.2 -- Amendment to Article 4 of Registrant's Restated Certificate
of Incorporation, dated May 15, 1998, filed as Exhibit 4.2
to the Registrant's Registration Statement on Form S-4 (File
No. 333-56241), effective June 22, 1998, and incorporated
herein by reference.
4.3 -- Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
4.4 -- Dividend Reinvestment and Common Stock Purchase Plan of the
Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File
No. 33-07015), effective July 15, 1986, and incorporated
herein by reference.
4.5 -- All instruments defining the rights of holders of long-term
debt of the Registrant and its subsidiaries. Not filed
pursuant to clause 4(iii) of Item 601(b) of Regulation S-K;
to be furnished upon request of the Commission.
Exhibit 10 -- Material Contracts:
10.1 -- Second Amendment and Restatement of 1982 Incentive Stock
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.2 -- Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, and incorporated herein
by reference.
10.3 -- 1992 Incentive Stock Option Plan of the Registrant, as
amended, filed as Exhibit 10.1 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.4 -- 1992 Nonqualified Stock Option Plan of the Registrant as
amended, filed as Exhibit 10.2 to Registrant's Registration
Statement on Form S-8 (File No. 333-71841), effective
February 5, 1999, and incorporated herein by reference.
10.5 -- SunTrust Revolving Credit Facility Commitment Letter, filed as
Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference.
10.6 -- The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement
on Form S-4 (File No. 33-52952), and incorporated herein by
reference.
44
85
EXHIBITS DESCRIPTION
- -------- -----------
10.7 -- The Colonial BancGroup, Inc. Stock Bonus and Retention Plan,
Included as Exhibit 10(C)(2) to the Registrant's
Registration Statement as Form S-4 (File No. 33-52952), and
incorporated herein by reference.
10.8 -- Indenture dated as of January 29, 1997 between The Colonial
BancGroup, Inc. and Wilmington Trust Company, as Debenture
Trustee dated as of, included as Exhibit 4(A) to
Registrant's Registration Statement on Form S-4 (File No.
333-22135), and incorporated herein by reference.
10.9 -- Management Incentive Plan of The Colonial BancGroup, Inc.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share are
included herein at footnote 22 to the financial statements
in Item 8.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
23.1 -- Consent of PricewaterhouseCoopers LLP.
Exhibit 24 -- Power of Attorney.
(b) Registrant's Current Reports on Form 8-K dated October 18, 2000 and
December 7, 2000, and incorporated herein by reference.
45
86
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS TO FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 0-07945
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)