<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): July 10, 1995
THE COLONIAL BANCGROUP, INC
(Exact name of registrant as specified in its charter)
Delaware 1-13508 63-0661573
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
One Commerce Street, Montgomery, Alabama 36104
(Address of Principal Executive Office) (Zip code)
Registrant's telephone number, including area code: 334-240-5000
<PAGE> 2
ITEM 5. OTHER EVENTS.
BancGroup completed the acquisition of Colonial Mortgage Company (CMC), an
entity under common control, on February 17, 1995. The combination is
accounted for in a manner similar to a pooling of interests. Accordingly, the
accompanying consolidated selected financial data, management's discussion and
analysis and consolidated financial statements as of December 31, 1994, 1993,
and 1992 and for each of the three years in the period ended December 31, 1994
have been restated to give retroactive effect to the acquisition of CMC and
include the combined operations of BancGroup and CMC for all periods presented.
<PAGE> 3
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.
The Colonial BancGroup, Inc.
By: /s/ W. Flake Oakley, IV
-----------------------
W. Flake Oakley, IV
Its Chief Financial Officer
On: July 10, 1995
-------------
<PAGE> 4
COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
INDEX TO RESTATED FINANCIAL STATEMENTS
Page Number*
-----------
Selected Financial Data 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
Report of Independent Accountants 41
Consolidated Financial Statements 42
Notes to Consolidated Financial Statements 46
* Pagination is consistent with BancGroup's 1994 Annual Report to Shareholders
(page numbers 1 through 15 are not utilized in this filing).
<PAGE> 5
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(as restated)*
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993, 1992, 1991 and 1990
(In thousands, except per share amounts)
1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $187,230 $141,572 $130,624 $138,969 $137,343
Interest expense 82,549 59,517 60,576 81,486 88,102
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 104,681 82,055 70,048 57,483 49,241
Provision for possible loan losses 6,481 7,945 7,979 6,364 6,306
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 98,200 74,110 62,069 51,119 42,935
Noninterest income 44,243 40,433 34,727 31,271 28,547
Noninterest expense 100,791 86,520 75,529 65,996 61,435
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,652 28,023 21,267 16,394 10,047
Applicable income taxes 14,342 8,886 5,715 4,175 1,782
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 27,310 19,137 15,552 12,219 8,265
Extraordinary items, net of income taxes -- (463) -- 831 1,385
Cumulative effect of a change in
accounting for income taxes(1) -- 3,219 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 27,310 $ 21,893 $ 15,552 $ 13,050 $ 9,650
=======================================================================================================================
EARNINGS PER COMMON SHARE
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary $ 2.28 $ 2.01 $ 1.72 $ 1.37 $ 0.94
Fully-diluted $ 2.23 $ 1.96 $ 1.71 $ 1.37 $ 0.94
Net income:
Primary $ 2.28 $ 2.30 $ 1.72 $ 1.47 $ 1.10
Fully-diluted $ 2.23 $ 2.21 $ 1.71 $ 1.47 $ 1.10
Average shares outstanding:
Primary 11,996 9,530 9,016 8,905 8,792
Fully-diluted 12,763 10,623 10,327 10,247 10,095
Cash dividends per common share:
Class A $ 0.80 $ 0.71 $ 0.67 $ 0.63 $ 0.60
Class B $ 0.40 $ 0.31 $ 0.27 $ 0.23 $ 0.20
=======================================================================================================================
</TABLE>
* See Note 2 to the consolidated financial statements.
(1) Adoption of SFAS #109, see Notes 1 and 18 to the consolidated financial
statements.
16
<PAGE> 6
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA CONTINUED
(as restated)*
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993, 1992, 1991 and 1990
(In thousands, except per share amounts)
1994 1993(1) 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets $2,838,343 $2,822,521 $1,796,246 $1,687,177 $1,568,216
Loans, net of unearned income 2,093,703 1,771,989 1,172,151 1,093,728 1,062,798
Mortgage loans held for sale 60,536 361,496 144,215 105,219 31,069
Deposits 2,171,464 2,190,998 1,493,479 1,452,344 1,339,918
Long-term debt 69,043 57,397 22,979 27,225 29,397
Shareholders' equity 191,551 172,764 100,406 88,429 78,412
Average daily balances:
Total assets $2,726,710 $2,119,660 $1,764,397 $1,643,622 $1,532,863
Interest-earning assets 2,458,568 1,871,254 1,540,926 1,450,115 1,355,059
Loans, net of unearned income 1,906,385 1,315,910 1,136,124 1,094,096 1,016,826
Mortgage loans held for sale 131,121 241,683 118,510 65,373 28,525
Deposits 2,158,532 1,644,658 1,476,668 1,403,538 1,309,395
Shareholders' equity 182,823 119,790 94,833 84,423 75,371
Book value per share at year-end $ 16.08 $ 14.64 $ 11.27 $ 10.00 $ 8.92
Tangible book value per share at year-end 14.71 13.25 10.60 9.21 8.12
======================================================================================================================
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.00% 0.90% 0.88% 0.74% 0.54%
Average shareholders' equity 14.94 15.98 16.40 14.47 10.97
Net income to:
Average assets 1.00 1.03 0.88 0.79 0.63
Average shareholders' equity 14.94 18.28 16.40 15.46 12.80
Efficiency ratio 66.68 69.50 70.64 72.52 76.69
Dividend payout ratio 27.21 25.33 26.85 31.60 44.00
Average equity to average total assets 6.70 5.65 5.37 5.14 4.92
Total nonperforming assets to
net loans, other real estate and repossessions(2) 0.91 1.31 1.34 1.07 1.49
Net charge-offs to average loans 0.09 0.33 0.47 0.51 0.49
Allowance for possible loan losses to
total loans (net of unearned income) 1.60 1.62 1.60 1.48 1.42
Allowance for possible loan losses to
nonperforming loans(2) 314% 347% 246% 246% 132%
======================================================================================================================
</TABLE>
* See Note 2 to the consolidated financial statements.
(1) During 1993, BancGroup completed the acquisition of five financial
institutions with assets of approximately $706 million. See page 20 in
Management's Discussion and Analysis and page 47 in the notes to the
consolidated financial statements for additional information.
(2) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Nonperforming Assets on page 33.
17
<PAGE> 7
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA 1994-1993
(as restated)*
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1994 1993
----------------------------------------- -----------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $50,870 $47,180 $45,779 $43,401 $38,269 $37,524 $35,361 $30,418
Interest expense 23,341 20,439 19,915 18,854 15,922 15,824 14,855 12,916
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 27,529 26,741 25,864 24,547 22,347 21,700 20,506 17,502
Provision for loan losses 1,767 1,818 1,448 1,448 2,333 2,061 2,263 1,288
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 25,762 24,923 24,416 23,099 20,014 19,639 18,243 16,214
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes 6,644 7,078 6,740 6,848 4,688 5,223 5,202 4,024
Net income $ 6,644 $ 7,078 $ 6,740 $ 6,848 $ 4,688 $ 4,760 $ 5,202 $ 7,243(1)
- -----------------------------------------------------------------------------------------------------------------------
Per common share:
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes
Primary $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.54 $ 0.54 $ 0.44
Fully-diluted 0.54 0.58 0.55 0.56 0.47 0.53 0.52 0.43
Net income
Primary $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.49 $ 0.54 $ 0.80
Fully-diluted 0.54 0.58 0.55 0.56 0.47 0.48 0.52 0.74
=======================================================================================================================
</TABLE>
* See Note 2 to the consolidated financial statements.
(1) Adoption of SFAS #109, see Notes 1 and 18 to the consolidated financial
statements.
18
<PAGE> 8
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. All appropriate financial data
has been restated to include the February 17, 1995 acquisition of Colonial
Mortgage Company, a combination accounted for in a manner similar to a pooling
of interest. The principal purpose of this review is to provide the user of the
attached financial statements and accompanying footnotes with a more detailed
analysis of the financial results of The Colonial BancGroup, Inc.
("BancGroup"). 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.
- -------------------------------------------------------------------------------
BACKGROUND
BancGroup (or the "Company") was established in 1981 with one bank and $166
million in assets. Through 28 acquisitions and the acquisition of Colonial
Mortgage Company, the Company has now grown to a $2.8 billion multistate bank
holding company with substantial centralized operations, significant market
presence in certain non-metropolitan areas, local lending autonomy with
centralized loan review and a strong commercial lending function in Alabama's
largest population centers. More importantly, BancGroup has increased its
operating earnings per share (earnings excluding extraordinary items and
accounting changes) an average of 24.7% per year since 1990; achieved a return
on equity of 14.94% or greater since 1992 and reached a 1.00% return on assets
in 1994.
In 1990 BancGroup set four goals: 1) an annual earnings growth rate in
excess of 10%, 2) a 15% return on equity, 3) a 1% return on assets and 4) a
consistently increasing dividend. All of these goals have been accomplished and
new goals have been set. These goals are: 1) an annual earnings growth rate in
excess of 10%, 2) a 17.5% return on equity, 3) a 1.45% return on assets and 4)
a consistently increasing dividend. The strategies employed to achieve these
results are outlined below. They represent the foundation upon which BancGroup
operates and the basis for achieving the Company's goals.
- COMMUNITY BANK: BancGroup operates as a community bank allowing autonomy
in lending decisions and customer relationships. This operating
philosophy has been important in making acquisitions, retaining a
skilled and highly motivated management team and in developing a strong
customer base, particularly with respect to lending relationships.
- COMMERCIAL LENDING: Commercial lending primarily through groups located
in the Birmingham, Huntsville, Montgomery and Anniston metropolitan
centers has been a major factor in the Company's growth. Commercial real
estate and other commercial loans increased 19.4% during 1994 following
a 27% increase in 1993. BancGroup has been very successful in competing
for these loans against larger financial institutions, due primarily to
the Company's local lending strategy and management continuity.
- CONSUMER REAL ESTATE: Since 1993 BancGroup has focused on residential
real estate lending as a means to increase consumer lending, broaden the
Company's customer base and create a significant stream of fee income.
In furtherance of this goal, BancGroup acquired Colonial Mortgage
Company (CMC), one of the 100 largest mortgage loan servicers in the
country with over $6.4 billion in servicing volume at December 31, 1994.
Separate from the CMC acquisition, which was completed on February 17,
1995, BancGroup has increased residential mortgage loans 174% from
December 31, 1992 to $857 million at December 31, 1994.
- COST CONTROL: An operational and organizational infrastructure
established in prior years has allowed the Company to grow significantly
and improve the efficiency ratio from 76.69% in 1990 to 66.68% in 1994.
The operating structure is built around centralized back-shop operations
in areas that do not have direct customer contact. As noted above, this
structure has served the Company well over the past few years and should
allow for continued growth at a low marginal cost. In order to further
enhance the cost efficiencies already established and position the
Company for more rapid growth, BancGroup is currently undertaking a
re-engineering study to streamline transaction processing and increase
the cost-effective use of technological resources.
- CAPITAL UTILIZATION: Management's goal is to provide a greater than
17.5% return on capital while effectively utilizing internally created
capital and exceeding regulatory capital requirements. BancGroup has an
asset generating capability that can effectively utilize the capital
generated. This capability is most evident in the Company's 18% growth
in loans during 1994. In addition the CMC acquisition is expected to add
further asset generating sources for mortgage loans and mortgage
servicing rights.
19
<PAGE> 9
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- ASSET QUALITY: Maintenance of high asset quality is at the forefront of
the Company's strategy to allow for consistent earnings growth. The
Company's asset quality is demonstrated by its charge-off history and
nonperforming asset levels, which compare favorably to its peer group.
On December 31, 1993 the Company completed the acquisition of First
AmFed Corporation, Huntsville, Alabama. This transaction increased total
nonperforming assets in 1993 by $12.8 million to 1.31% of loans and
other real estate. This ratio was reduced to .91% as of December 31,
1994 primarily through sales of other real estate. Net charge-offs have
consistently over the past 5 years compared favorably with the Company's
peer group and were only .09% of average loans in 1994.
- INCENTIVE PLAN: In January 1993 the Company adopted a profit-based
incentive plan for all salaried employees. The plan sets an earnings per
share target for the year and allows participants to share in the
Company's income above the target based on regional bank, branch and
individual goals. Along with the Company's community bank focus, the
incentive plan has been a key ingredient in increased BancGroup
earnings.
- STOCK RECLASSIFICATION: On February 21, 1995 BancGroup reclassified its
two classes of common stock into one class. This action eliminates the
super voting rights of the previously existing Class B common stock and
establishes the rights of all stockholders on an equal basis. Management
believes the reclassification will significantly increase the market
acceptance of the Company's common stock and therefore enhance its
ability to expand through acquisitions. Subsequent to the
reclassification, and as part of this strategy for broader market
acceptance, BancGroup listed its common stock for trading on the New
York Stock Exchange on February 24, 1995.
Obviously the Company cannot guarantee its success in implementing the
initiatives or reaching the goals set out previously. The following analysis of
financial condition and results of operations provide details with respect to
this summary material and demonstrates our trends concerning the initiatives
taken through 1994.
- --------------------------------------------------------------------------------
ACQUISITIONS
A principal part of BancGroup's strategy is to acquire other financial
institutions 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. During 1994
BancGroup completed the acquisition of branches in Tallassee and Eufaula,
Alabama with total deposits of $16 million from the Resolution Trust
Corporation. In addition BancGroup reached an agreement to purchase Colonial
Mortgage Company (CMC) and Brundidge Banking Company (Brundidge). The CMC
acquisition was completed on February 17, 1995 and is discussed more fully in
the following section. The Brundidge acquisition was completed on March 31,
1995.
During 1993 BancGroup completed the following acquisitions of other financial
institutions:
(Dollars in thousands)
<TABLE>
<CAPTION>
DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS ACQUIRED SHARES ASSETS LOANS DEPOSITS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Auburn Federal Savings Bank 3/19/93 148,822 $ 27,123 $ 11,070 $ 23,724
Home Federal Savings Bank of Alabama 3/26/93 407,179 90,483 61,436 78,535
First Federal Savings and
Loan Association of Russell County 7/23/93 -- 52,380 45,826 51,834
United Savings Bank 11/12/93 191,944 56,581 50,815 46,930
First AmFed Corporation 12/31/93 2,091,057 479,393 297,826 421,398
- -----------------------------------------------------------------------------------------------------------------------
Total 2,839,002 $ 705,960 $ 466,973 $ 622,421
=======================================================================================================================
</TABLE>
All of the 1993 acquisitions were accounted for as purchases, and the
operations and income of the acquired institutions are included in the income
of BancGroup from the date of purchase. Since the First AmFed acquisition was
completed on December 31, 1993, no income or expense has been included in the
results of operations for BancGroup for the year 1993. Each of the acquired
institutions was merged into Colonial 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 acquired
institution, a separate determination of the impact on earnings of BancGroup
for 1993 and 1994 cannot reasonably be determined.
The acquisitions have had an impact on the comparisons of operating results
for 1993 and 1994 with prior years. Where such information is determinable it
has been identified and discussed in the Discussions of Results of Operations
and Financial Condition that follows.
20
<PAGE> 10
COLONIAL MORTGAGE COMPANY ACQUISITION
On February 17, 1995 BancGroup completed the acquisition of Colonial
Mortgage Company (CMC). This acquisition represents a major step in achieving
several BancGroup strategic goals. A principal initiative of BancGroup for the
past several years has been to increase fee income through establishment of
additional lines of business that provide natural extensions of existing
products or services. CMC in this regard provides an excellent fit for the
following reasons:
The CMC acquisition was a combination between entities under common control,
therefore it was accounted for on a basis similar to a pooling of interests,
with the book value of servicing rights and other assets being carried over to
BancGroup. Accordingly, all financial statement amounts have been restated to
reflect the financial condition and results of operations as if the acquisition
had occurred at the beginning of the earliest period presented.
FEE INCOME
CMC, as of February 17, 1995, provided servicing for approximately 83,000
customers with a total outstanding balance of $6.4 billion. The servicing
revenues from this portfolio plus other fee income from CMC increased
BancGroup's noninterest income by approximately $24 million in 1994, from
previously reported amounts.
CONSUMER REAL ESTATE LENDING
CMC, through its wholesale and retail offices, originated over $5 billion in
residential real estate loans from 1992 through 1994. These loans have
primarily been fixed rate loans sold into the secondary markets. However, since
the latter part of 1994 Colonial Bank has been acquiring ARM loans originated
by CMC. This program provides CMC additional loan products for its branch
network. In addition, CMC provides the Bank with fixed rate loan products for
its customers.
GROWTH MARKET EXPANSION
CMC currently has 21 offices in 11 states and 83,000 servicing customers
located in 32 states. These locations provide BancGroup with a broader market
base to solicit business and include areas which currently have greater growth
rates than BancGroup's existing branch locations. These areas include Atlanta,
Orlando, Dallas, Seattle, Denver, Milwaukee and Phoenix.
CAPITAL UTILIZATION
CMC's growth has previously been somewhat limited due to its ownership
structure as part of a private company. The combination of BancGroup and CMC
provides additional resources for the expansion of CMC's low cost servicing
operation through bulk purchases of servicing. In addition CMC provides another
source of loans for the Bank's portfolio including ARM loans and equity lines.
CUSTODIAL DEPOSITS
CMC maintains custodial accounts for its loan customers for the payment of
taxes and insurance as well as collection of principal and interest. The
balances in these accounts averaged approximately $94 million during 1994.
These balances, most of which were in other financial institutions, will be
deposited into Colonial Bank, increasing noninterest bearing demand deposit
accounts from the current 16.7% of total deposits to approximately 19%. These
balances will have a positive impact on BancGroup's net interest margin.
CONTINUITY AND CONSISTENCY OF MANAGEMENT
Robert E. Lowder, Chairman and CEO of BancGroup has been Chairman and CEO of
CMC for 25 years. In addition, Ronnie Wynn has been the president of CMC for 19
years and is a former president of the Mortgage Bankers Association of America.
This continuation of management will provide a very smooth transition in
management and operating philosophy.
CROSS-SELLING OF CUSTOMERS
BancGroup has established a personal banking unit to solicit other business
from CMC customers, such as equity lines and deposits. In addition, BancGroup
plans to expand other customer relationships through establishment of deposit
relationships with CMC customers, acceptance of CMC payments in branches, and
establishing a linkage between construction and permanent lending.
21
<PAGE> 11
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
The major components of BancGroup's net income are:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 104,681 $ 82,055 $ 70,048
Provision for possible
loan losses (6,481) (7,945) (7,979)
Noninterest income 44,243 40,433 34,727
Noninterest expense (100,791) (86,520) (75,529)
- --------------------------------------------------------------------
Pretax income 41,652 28,023 21,267
Taxes (14,342) (8,886) (5,715)
- --------------------------------------------------------------------
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes 27,310 19,137 15,552
Extraordinary loss -- (463) --
Cumulative effect of
accounting change -- 3,219 --
- --------------------------------------------------------------------
Net income $ 27,310 $ 21,893 $ 15,552
- --------------------------------------------------------------------
</TABLE>
Consistently increasing net income is a primary goal of management. With
1990 as a base year, operating earnings (net income before extraordinary items
and accounting change) increased 43% in 1994, 23% in 1993 and 27% in 1992. The
most significant factors affecting income for 1994, 1993 and 1992 are
highlighted below and discussed in greater detail in subsequent sections.
- An increase in 1994 of 31.4% in average earning assets. This follows
an increase of 21.4% in 1993.
- An increase in 1994 of $3.8 million (9%) in non-interest income.
- Maintenance of high asset quality and reserve coverage ratios. Loan
loss provisions in 1994 were reduced $1.5 million as net charge-offs
declined from $4.4 million or .33% of average net loans in 1993 to
$1.7 million or .09% of average net loans in 1994.
- Loan growth, excluding acquisitions, of 18.1% in 1994 following an
increase of 11.5% in 1993.
- An increase in loans as a percent of average earning assets from 70.3%
in 1993 to 77.5% in 1994.
- Noninterest expenses as a percent of average assets were reduced to
3.70% in 1994 from 4.08% in 1993.
- 1993 includes a $463,000 extraordinary loss from the early redemption
of subordinated convertible debt and $3,219,000 in income from the
cumulative effect of a change in accounting for income taxes.
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 yield on a tax equivalent
basis are reflected on the schedule on page 24.
The net yield on interest-earning assets was 4.35% in 1994 compared to 4.49%
in 1993 and 4.69% in 1992. Over this period net interest income on a fully tax
equivalent basis increased to $106.9 million in 1994 from $84.1 million in 1993
and $72.2 million in 1992. The principal factors affecting the Company's yields
and net interest income are discussed in the following paragraphs.
LEVELS OF INTEREST RATES
After declining consistently from 1989 through 1992 and remaining virtually
flat throughout 1993, short-term interest rates increased dramatically
throughout 1994. For example, the average fed funds rate for overnight bank
borrowings was 2.99% in December 1993 and 5.45% in December 1994 and the
Company's prime rate increased from 6.0% to 8.5% over the same period.
Long-term rates also increased through much of 1994, with the 30-year treasury
bond starting in January at 6.22% and ending December at 7.93%. While the
average net interest margin has decreased from 1993 to 1994, increasing short
term rates and the impact of changes in the Company's asset mix have resulted
in increases in the margin from 4.12% in the first quarter of 1994 to 4.45% in
the fourth quarter. Increasing long-term rates during 1994 have had less
impact on BancGroup's margins since the Company has less than 6% of its
interest-bearing assets or liabilities that reprice beyond 10 years.
ACQUISITIONS
The acquisitions completed during 1993 had a negative impact on the
Company's net interest yield due primarily to the fact that these institutions
had virtually no noninterest-bearing deposits. The rates on the
interest-bearing deposits in the acquired institutions were slightly higher
than the Company's rates and were adjusted to BancGroup products and rates
within a short time after the mergers.
22
<PAGE> 12
INTEREST-BEARING LIABILITIES
- COST OF FUNDS
Rates paid on new time deposits and variable rate deposits increased
during 1994 but at a slower rate of increase than market interest
rates. Competitive pressures on these deposit rates were not
significant, allowing the Company to maintain a relatively low cost of
funds as rates increased.
INTEREST-EARNING ASSETS
- GROWTH IN EARNING ASSETS
One of the most significant factors in the Company's increase in
income for 1994 has been the 31.4% increase in average
interest-earning assets. This follows a 21.4% increase in 1993. The
acquisitions completed during 1993 have had a major impact on the
increase in average earning assets. In addition and equally
significant, net loans increased $322 million (18.1%) from December
31, 1993 to December 31, 1994. Earning assets as a percentage of total
average assets also increased from 87% in 1992 to 88% in 1993 and to
90% in 1994.
- MORTGAGE LOANS HELD FOR SALE
Increasing long-term interest rates have had a dramatic impact on the
volume of mortgage loan originations, causing the average balance of
mortgage loans held for sale to decline from $242 million in 1993 to
$131 million in 1994. Mortgage loans held for sale represent single
family residential mortgage loans originated or acquired by Colonial
Mortgage then packaged and sold in the secondary market. Colonial
Mortgage incurs gains or losses associated with rate fluctuations.
Colonial Mortgage limits its risk associated with the sale of these
loans through an active hedging program which generally provides for
sales commitments on all loans funded. Mortgage loans held for sale
are funded primarily with short-term borrowings.
23
<PAGE> 13
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
AVERAGE VOLUME AND RATES
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------ ----------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(In thousands) VOLUME INTEREST RATE VOLUME INTEREST RATE VOLUME INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net of unearned
income (1) $1,906,385 $155,385 8.15% $1,315,910 $107,673 8.18% $1,136,124 $100,185 8.82%
Mortgage loans held for sale 131,121 10,313 7.87 241,683 17,737 7.34 118,510 12,422 10.48
Investment securities and
securities available for sale:
Taxable 334,200 18,288 5.47 246,898 13,882 5.62 219,047 15,908 7.26
Nontaxable (2) 38,623 2,967 7.68 29,249 2,505 8.56 21,076 2,078 9.86
Equity securities (3) 36,196 2,032 5.61 26,307 1,423 5.41 31,632 1,650 5.22
- ---------------------------------------------------- --------------------- --------------------
Total investment securities 409,019 23,287 5.69 302,454 17,810 5.89 271,755 19,636 7.23
Federal funds sold and
securities purchased under
resale agreements 5,380 186 3.46 8,077 247 3.06 14,179 500 3.53
Interest-earning deposits 6,663 293 4.40 3,130 104 3.32 358 26 7.26
- ---------------------------------------------------- --------------------- --------------------
Total interest-earning
assets 2,458,568 $189,464 7.71% 1,871,254 $143,571 7.67% 1,540,926 $132,769 8.62%
- ---------------------------------------------------- --------------------- --------------------
Allowance for loan losses (31,267) (22,320) (17,161)
Cash and due from banks 107,209 90,511 88,095
Premises and equipment, net 45,765 36,612 34,311
Other assets 146,435 143,603 118,226
- ----------------------------------------- ---------- ----------
TOTAL ASSETS $2,726,710 $2,119,660 $1,764,397
- ----------------------------------------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 491,671 $ 13,521 2.75% $ 404,517 $ 11,099 2.74% $ 349,093 $ 10,867 3.11%
Savings deposits 279,554 8,681 3.11 222,466 6,582 2.96 212,266 7,356 3.47
Time deposits 1,062,219 46,461 4.37 744,071 32,774 4.40 678,333 35,860 5.29
Short-term borrowings 235,598 10,425 4.42 195,752 6,268 3.20 53,380 1,748 3.27
Long-term debt 83,858 3,461 4.13 56,339 2,794 4.96 73,241 4,745 6.48
- ---------------------------------------------------- --------------------- --------------------
Total interest-bearing
liabilities 2,152,900 $ 82,549 3.83% 1,623,145 $ 59,517 3.67% 1,366,313 $ 60,576 4.43%
- ---------------------------------------------------- --------------------- --------------------
Noninterest-bearing demand
deposits 325,088 273,604 236,976
Other liabilities 65,899 103,121 66,275
- ----------------------------------------- ---------- ----------
Total liabilities 2,543,887 1,999,870 1,669,564
Shareholders' equity 182,823 119,790 94,833
- ----------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,726,710 $2,119,660 $1,764,397
==========================================================================================================================
RATE DIFFERENTIAL 3.88% 4.00% 4.19%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $106,915 4.35% $ 84,054 4.49% $ 72,193 4.69%
==========================================================================================================================
</TABLE>
(1) Loans classified as nonaccruing are included in the average volume
calculation. Interest earned and average rates on nontaxable 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% in 1993-1994 and 141% in 1992.
(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% in
1993-1994 and 141% in 1992. Tax equivalent average rate is tax
equivalent interest earned divided by average volume.
(3) Dividends earned and average rates on preferred stock are reflected on
a tax equivalent basis. Tax equivalent dividends earned are actual
dividends times 137.7% in 1993-1994 and 136% in 1992. Tax equivalent
average rate is tax equivalent dividends divided by average volume.
(4) Net interest income divided by average total interest-earning assets.
24
<PAGE> 14
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST INCREASES (DECREASES)
1994 CHANGE FROM 1993 1993 CHANGE FROM 1992
--------------------------------------- ---------------------------------------
DUE TO (1) DUE TO (1)
--------------------- -----------------------
(In thousands) AMOUNT VOLUME RATE AMOUNT VOLUME RATE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable securities $ 4,406 $ 4,785 $ (379) $(2,026) $ 1,858 $ (3,884)
Nontaxable securities (2) 462 739 (277) 427 728 (301)
Dividends on preferred
stocks (3) 609 554 55 (227) (285) 58
- -------------------------------------------------------------------------------------------------------------------------
Total securities 5,477 6,078 (601) (1,826) 2,301 (4,127)
Total loans (net of unearned
income) 47,712 48,109 (397) 7,488 15,104 (7,616)
Mortgage loans held for sale (7,424) (8,625) 1,201 5,315 9,903 (4,588)
Federal funds sold and
securities purchased
under resale agreements (61) (90) 29 (253) (193) (60)
Interest-earning deposits 189 146 43 78 99 (21)
- -------------------------------------------------------------------------------------------------------------------------
Total 45,893 45,618 275 10,802 27,214 (16,412)
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits 2,422 2,382 40 232 1,610 (1,378)
Savings deposits 2,099 1,753 346 (774) 343 (1,117)
Time deposits 13,687 13,911 (224) (3,086) 3,285 (6,371)
Short-term borrowings 4,157 1,447 2,710 4,520 4,558 (38)
Long-term debt 667 1,194 (527) (1,951) (968) (983)
- -------------------------------------------------------------------------------------------------------------------------
Total 23,032 20,687 2,345 (1,059) 8,828 (9,887)
- -------------------------------------------------------------------------------------------------------------------------
Net interest income $22,861 $24,931 $(2,070) $11,861 $18,386 $ (6,525)
=========================================================================================================================
</TABLE>
(1) Increases (decreases) are attributed to volume changes and rate
changes on the following basis: Volume Change = change in volume times
old rate. Rate Change = change in rate times old volume. The
Rate/Volume Change = change in volume X 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% in
1993-1994 and 141% in 1992. Tax equivalent average rate is tax
equivalent interest earned divided by average volume.
(3) Dividends earned and average rates on preferred stock are reflected on
a tax equivalent basis. Tax equivalent dividends earned are actual
dividends times 137.7% in 1993-1994 and 136% in 1992. Tax equivalent
average rate is tax equivalent dividends divided by average volume.
- --------------------------------------------------------------------------------
25
<PAGE> 15
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NONINTEREST INCOME
BancGroup derives approximately 50% of its noninterest income from mortgage
banking related activities with the remaining 50% from traditional retail
banking services including various deposit account charges, safe deposit box
rentals and credit life commissions. Prior to the Colonial Mortgage acquisition
on February 17, 1995, BancGroup did not acquire other well-established
ancillary income sources, such as trust operations, mortgage banking or credit
card services with any of its acquisitions. One of the most important goals
from 1992 through 1994 has been to increase noninterest income. During 1994 the
Company took a major step toward achieving this goal by reaching an agreement
to acquire Colonial Mortgage Company. The impact of this acquisition is evident
by the volume of revenue included in the category entitled mortgage servicing
and origination fees.
CMC has servicing and subservicing agreements under which it services
82,791, 67,608 and 57,724 mortgage loans with principal balances of $6.4
billion, $4.6 billion and $3.4 billion on December 31, 1994, 1993 and 1992,
respectively. This servicing portfolio generated servicing fee and late charge
income of approximately $18.1 million, $12.0 million and $12.0 million for the
years ended December 31, 1994, 1993 and 1992, respectively. CMC through its
wholesale and retail offices, originated $1.2 billion and $2.6 billion in
residential real estate loans in 1994 and 1993, respectively. The increased
volume in 1993 was primarily due to lower long-term interest rates which
resulted in increased mortgage lending activity. These origination activities
resulted in $4.1 million and $9.1 million in origination related fees for the
years ended December 31, 1994 and 1993, respectively.
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1994 and 1993 average noninterest demand accounts increased
18.8% and 15.5%. This increase in volume and increases in service fee rates
resulted in a 12% increase in service charge income in 1994 and a 9% increase
in 1993.
Other charges, fees, and commissions increased $889,000 (40%) in 1994 and
$205,000 (10%) in 1993. The increase is primarily from credit card related
fees and credit life commissions on residential mortgage and consumer loans.
Acquisitions have had a minimal impact on income in this area with most of the
increase due to an emphasis on bottom line income as a result of the Company's
incentive plan.
The Company through its subsidiary Colonial Mortgage enters into offers
to extend credit for mortgage loans to customers and into obligations to
deliver and sell originated or acquired mortgage loans to permanent investors.
Sales of loans servicing released resulted in income of $539,000, 1,820,000 and
685,000 for 1994, 1993 and 1992, respectively. This income is included in other
income. The remaining increase in other income of $1,300,000 from 1993 to 1994
is due primarily to a gain on sale of fixed assets as well as increases in
income from investment sales, safe deposit boxes, ATM transaction fees, and
various other sources. BancGroup has an investment sales operation (primarily
mutual funds and annuities). Fee income generated from this and other
investment services activities totaled $990,000, $770,000 and $152,000 in 1994,
1993 and 1992, respectively. The remaining $1,448,000 increase in other income
in 1993 comes primarily from the investment sales programs as indicated
previously of $618,000, and an increase of $190,000 in amortization of negative
goodwill and other smaller increases.
Securities gains of $1.2 million in 1992 include a $1.1 million gain from
the sale of the Company's investment in the common stock of another bank
holding company. Other securities gains and losses in each of the three years
were not significant. While certain securities are considered available for
sale, BancGroup currently intends to hold substantially all of its securities
portfolio for investment purposes. Realized gains or losses in this portfolio
are generally the result of a change in investment strategy, resulting from
changes in tax rates or status, credit quality, significant interest rate
fluctuations or realignment of security portfolios of acquired institutions.
26
<PAGE> 16
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
-----------------------------------------------
YEARS ENDED DECEMBER 31 1994 1993
--------------------------------- COMPARED COMPARED
(In thousands) 1994 1993 1992 TO 1993 % TO 1992 %
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Mortgage servicing and
origination fees $22,216 $21,079 $17,816 $1,137 5% $ 3,263 18%
Service charges on deposit
accounts 12,384 11,104 10,144 1,280 12 960 9
Other charges, fees, and
commissions 3,134 2,245 2,040 889 40 205 10
Other income 6,349 6,330 3,747 19 -- 2,583 69
- ----------------------------------------------------------------------- ------ -------
Subtotal 44,083 40,758 33,747 3,325 8 7,011 21
Other noninterest income items:
Securities gains, net 84 49 1,220 35 (1,171)
Gain (loss) on disposal of other
real estate and repossessions 76 (374) (240) 450 (134)
- ----------------------------------------------------------------------- ------ -------
Total noninterest income $44,243 $40,433 $34,727 $3,810 9% $ 5,706 16%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NONINTEREST EXPENSE
1993 was a year of significant expansion for the Company with five
acquisitions and the addition of 24 new branches. The impact of the five
acquisitions completed in 1993 is reflected most noticeably in the increase in
net interest income, discussed previously, as well as the 16% increase in
noninterest expense as shown in the schedule on the following page. The
decrease in noninterest expense as a percent of average assets from 4.28% in
1992 to 3.70% in 1994 is a direct result of the increased efficiency generated
by this growth as well as the impact of mortgage related activities discussed
below. The foundation for the efficiencies gained in 1994 and 1993 was laid in
1989 and 1990 when the Company established its current operating structure
(regional and community banks supported by centralized back-shop operations).
Salaries and benefits increased $4.9 million or 13% in 1994 and $6.3 million
or 19% in 1993 partially due to acquisitions and other expansion efforts.
However, approximately $2.1 million or 35% of the 1993 increase was due to
increased staffing levels in the mortgage operations to accommodate the
production volume increases resulting from increased refinancing activities.
Another 10% was attributable to the incentive plan put in place for the first
time in that year. The variance between amounts expensed under the incentive
plan for 1994 and 1993 was not significant. The incentive plan has been a major
factor in the Company's ability to contain cost and increase income. In
addition to the increase in expenses related to growth, advertising and public
relations expenses have increased $1.0 million or 64% in concentrated efforts
to expand the Company's customer base and take advantage of increased market
share in certain key markets.
Other expenses in 1994 and 1993 include approximately $1,200,000 and
$960,000, respectively associated with various acquisition efforts. The
remainder of the increase in 1993 was due primarily to the increase in
production volumes and costs associated with mortgage loan pay-offs. In 1994 as
activity began to level and decline these expenses also stabilized and began
decreasing in the latter half of 1994.
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. The amount of costs deferred increased from $3,637,000 in
1992 to $3,989,000 in 1993 and $4,717,000 in 1994 due to changes in the mix of
loans and increases in the number of loans closed.
Cost control and the capacity to absorb future growth continue to be a major
focus for management. The Company has taken several steps to achieve this goal
and to attempt to improve BancGroup's efficiency ratio. The incentive plan and
its profit-based rewards represent a key element in the plan. During 1994
BancGroup also increased its data processing capacity through a major upgrade.
A portion of the cost of this upgrade is reflected in equipment expenses in
1994. Finally, and most importantly, in early 1995 the Company has begun a
study of its operating processes in an effort to streamline transactional
processing and more effectively serve customers.
27
<PAGE> 17
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
-------------------------------------------
YEARS ENDED DECEMBER 31 1994 1993
------------------------------ COMPARED COMPARED
(In thousands) 1994 1993 1992 TO 1993 % TO 1992 %
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $ 43,355 $38,453 $32,198 $ 4,902 13% $ 6,255 20%
Net occupancy expense 8,610 7,302 6,702 1,308 18 600 9
Furniture and equipment
expense 7,468 6,452 6,178 1,016 16 274 4
Amortization of mortgage
servicing rights 6,078 4,840 5,002 1,238 26 (162) (3)
Amortization of intangible
assets 1,196 818 1,033 378 46 (215) (21)
FDIC assessment 4,643 3,527 3,259 1,116 32 268 8
Stationery, printing, and supplies 2,703 2,692 2,326 11 -- 366 16
Postage 1,609 1,514 1,462 95 6 52 4
Telephone 2,834 2,539 2,032 295 12 507 25
Insurance 1,645 1,410 1,345 235 17 65 5
Legal fees 2,635 1,690 1,792 945 56 (102) (6)
Advertising and public relations 2,585 1,579 1,521 1,006 64 58 4
Other 15,430 13,704 10,679 1,726 13 3,025 28
- ----------------------------------------------------------------------- ------- -------
Total noninterest expense $100,791 $86,520 $75,529 $14,271 16% $10,991 15%
- ----------------------------------------------------------------------- ------- -------
Noninterest expense to
Average Assets 3.70% 4.08% 4.28%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
The provision for income taxes and related items are as follows:
<TABLE>
<CAPTION>
Tax Cumulative Effect of
Provision Accounting Change
---------------------------------------
<S> <C> <C>
1994 $14,342,000 $ --
1993 8,886,000 3,219,000
1992 5,715,000 --
</TABLE>
BancGroup is subject to federal and state taxes at combined rates of
approximately 38% 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, and nondeductible amortization of goodwill.
In 1991 the Company accrued taxes under the alternative minimum tax
system and created a credit of $898,000 that was carried forward and fully
utilized in 1992 as a reduction of income tax expense. There were no tax credits
or loss carryforwards available in 1993 for financial reporting purposes. In
1993 the Company adopted Financial Accounting Standards Board Statement #109
which requires an asset and liability approach for financial accounting and
reporting for income taxes. The impact of the adoption of this statement was the
recognition in the first quarter of 1993 of income in the amount of $3,219,000,
($2,059,000 is attributable to Colonial Mortgage Company) which is shown in the
financial statements as the cumulative effect of a change in accounting for
income taxes.
Also in 1993, the Omnibus Reconciliation Act of 1993 effectively increased
the Company's Federal tax rate by 1% to 35% based on taxable income.
Management's goal is to minimize income tax expense and maximize cash yield
on earning assets by increasing or decreasing its tax exempt securities and/or
investment in preferred and common stock. Accordingly, BancGroup's investment
in tax exempt securities was increased in 1992, 1993 and 1994.
28
<PAGE> 18
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Ending balances of selected components of the Company's balance sheet
changed from December 31, 1993 to December 31, 1994 as follows:
<TABLE>
<CAPTION>
(In thousands) Increase
(Decrease)
- ------------------------------------------------------------
Amount %
- ------------------------------------------------------------
<S> <C> <C>
Total assets $ 15,822 0.6%
Securities available for sale
and investment securities 5,310 1.3
Mortgage loans held for sale (300,960) (83.3)
Loans, net of unearned income 321,714 18.2
Deposits (19,534) (0.9)
- ------------------------------------------------------------
</TABLE>
Management continuously 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
1992 through 1994 have been:
- Acquisitions in 1993 of five thrift institutions with assets totaling
$706 million. These acquisitions increased single-family mortgages
(primarily adjustable rate loans) from 26.7% of total loans at
December 31, 1992 to 40.4% at December 31, 1993 and 40.9% at December
31, 1994. BancGroup has continued to place emphasis on these loans as
a major product line which has a relatively low loss ratio.
- Internal loan growth of 18.1% in 1994 excluding acquisitions.
- An 18.8% increase in 1994 in average noninterest-bearing demand
deposits with substantially all of this increase from internal growth.
The acquired institutions were thrifts and therefore had minimal
noninterest-bearing deposits.
- Maintenance of high asset quality and reserve coverage of
nonperforming assets. Nonperforming assets were .91%, 1.31% and 1.34%
of related assets at December 31, 1994, 1993 and 1992. Net charge-offs
were .09%, .33% and .47% of average loans over the same periods. The
allowance for possible loan losses was 1.60% at December 31, 1994,
providing 314% coverage of non-performing loans (nonaccrual and
renegotiated).
- Increase in tangible leverage ratios from 5.59% at December 31, 1993
to 6.34% at December 31, 1994.
- Decrease of $301 million in mortgage loans held for sale primarily as
a result of increases in long-term interest rates.
These items, as well as a more detailed analysis of BancGroup's
financial condition, are discussed in the following sections.
- --------------------------------------------------------------------------------
LOANS
Growth in loans and maintenance of a high quality loan portfolio are the
principal ingredients to improved earnings. This goal is achieved in various
ways as outlined below:
- Management's emphasis, within each of BancGroup's six banking regions,
is on loan growth in accordance with local market demands and the
lending experience and expertise in the regional and county banks. The
regional banks are diverse in the loan demands of their areas and in
their lending expertise, resulting in a fairly diversified portfolio
without significant concentration of risk.
- Management believes that its strategy of meeting local demands and
utilizing local lending expertise has proven successful. Management
also believes that any existing concentrations of loans, whether
geographically, by industry or by borrower do not expose BancGroup to
unacceptable levels of risk.
- The most significant industry concentration is in loans collateralized
by commercial real estate with loan balances of $574,155,000,
$480,071,000, $376,000,000, $312,346,000, and $214,130,000 at December
31, 1994, 1993, 1992, 1991 and 1990, respectively. BancGroup's
commercial real estate loans are spread geographically throughout
Alabama and other areas with no more than 30% of these loans in any
one geographic area. The Alabama economy experiences a generally slow
but steady rate of growth. For this reason, real estate values have
not been inflated due to excessive speculation and BancGroup's real
estate related loans continue to perform at acceptable levels.
- Colonial Mortgage makes mortgage loans on a short-term basis
(generally less than ninety days) while these loans are being packaged
for sale in the secondary market. These loans are classified as
mortgage loans held for sale with balances totaling $60,536,000,
$361,496,000, $144,215,000, $105,219,000 and $31,069,000 at December
31, 1994, 1993, 1992, 1991 and 1990, respectively. There is minimal
credit risk associated with these loans. During 1991, 1992 and 1993
the total balances
29
<PAGE> 19
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
invested in these types of loans increased significantly due primarily
to large volumes of mortgage refinancing. The decrease in mortgage
loans held for sale during 1994 is directly related to the increase in
long-term interest rates and its related impact on mortgage loan
refinancing. These loans are funded principally with short-term
borrowings, providing a relatively high margin for these funds.
- As discussed more fully in subsequent sections, management has
determined to maintain adequate liquidity and liquidity sources.
BancGroup has arranged funding sources in addition to customer
deposits which provide the capability for the Company to exceed a 100%
loan to deposit ratio and maintain adequate liquidity.
- Internal loan growth has been a major factor in the Company's
increasing earnings with growth rates of 18.1% in 1994, 11.5% in 1993
and 7.0% in 1992 excluding acquisitions.
- BancGroup also has a significant concentration of residential real
estate loans representing 40.9% of total loans. These loans are
substantially all mortgages on single-family, owner occupied
properties and therefore have minimal credit risk. While a major
portion of these loans was acquired with the thrift acquisitions, the
Company has continued to grow this portfolio with a $140 million or
19.5% increase in these loans in 1994. Residential mortgage loans are
predominately adjustable rate loans and therefore have not resulted in
any material change in the Company's rate sensitivity.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
GROSS LOANS BY CATEGORY
(In thousands) DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 298,708 $ 250,746 $ 198,033 $ 241,824 $ 281,745
Real estate--commercial 574,155 480,071 376,000 312,346 214,130
Real estate--construction 152,423 135,762 108,578 70,204 66,721
Real estate--residential 857,314 717,354 312,505 269,532 258,434
Installment and consumer 169,577 153,273 135,675 158,445 182,648
Other 41,577 34,954 39,816 42,064 60,073
- ----------------------------------------------------------------------------------------------------------------------------
Total loans $2,093,754 $1,772,160 $1,170,607 $1,094,415 $1,063,751
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Percent of loans in each category to total loans:
Commercial, financial, and agricultural 14.3% 14.2% 16.9% 22.1% 26.5%
Real estate--commercial 27.4 27.1 32.2 28.6 20.1
Real estate--construction 7.3 7.7 9.2 6.4 6.3
Real estate--residential 40.9 40.4 26.7 24.6 24.3
Installment and consumer 8.1 8.6 11.6 14.5 17.2
Other 2.0 2.0 3.4 3.8 5.6
- ----------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As discussed in a subsequent section, BancGroup's Asset/Liability Management
Committee seeks to maintain adequate liquidity and minimize exposure to
interest rate volatility. The goals of BancGroup with respect to loan
maturities and rate sensitivity have been and will continue to be to focus on
shorter term maturities and floating or adjustable rate loans.
At December 31, 1994, approximately 54% of loans were floating rate or
adjustable rate loans compared to 56% at December 31, 1993.
Contractual maturities may vary significantly from actual maturities due to
loan extensions, early pay-offs due to refinancing and other factors.
Fluctuations in interest rates are also a major factor in early loan pay-offs.
The uncertainties, particularly with respect to interest rates, of future
events make it difficult to predict the actual maturities. BancGroup has not
maintained records related to trends of early pay-off since management does not
believe such trends would present any significantly more accurate estimate of
actual maturities than the contractual maturities presented.
30
<PAGE> 20
LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY,
LOANS MATURING
MATURING RATE SENSITIVITY OVER 1 YEAR
------------------------------------- --------------------- -------------------
WITHIN 1-5 OVER
1 YEAR YEARS 5 YEARS FIXED FLOATING FIXED FLOATING
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $180,215 $ 91,449 $ 27,044 $138,836 $ 159,872 $ 75,089 $ 43,404
Real estate--commercial 125,240 328,327 120,588 270,021 304,134 223,499 225,416
Real estate--construction 97,909 38,994 15,520 32,176 120,247 17,104 37,410
Real estate--residential 119,848 231,794 505,672 346,131 511,183 307,392 430,074
Installment and consumer 90,971 75,011 3,595 145,583 23,994 68,508 10,098
Other 7,084 3,628 30,865 26,778 14,799 24,372 10,121
- -------------------------------------------------------------------------------------------------------------------------
Total loans $621,267 $769,203 $703,284 $959,525 $1,134,229 $715,964 $756,523
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 review of loans and through a companywide senior
credit administration function. This function participates in the loan
approval process with the regional banks and provides an independent review and
grading of loan credits on a continual basis.
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, 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% loan to value ratios.
Based on the above policies, procedures and loan review program, 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 in an effort to evaluate portfolio risks, 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 current and anticipated economic
conditions.
The 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 the most flexibility in their timely disposition.
LOAN LOSS EXPERIENCE
During 1994 the ratio of net charge-offs to average loans decreased to .09%
from .33% in 1993. This decrease has been impacted positively by the increase
in average loans but also by a decrease of approximately $2.6 million in actual
net charge-offs. Net charge-offs as a percent of net loans for the past five
years have fluctuated from a high of .51% in 1991 to a low of .09% in 1994.
From 1990 through 1992, a period during which the national economy went through
a recession, BancGroup's annual charge-off ratio averaged .49% with only a .04%
variance between the high and low years. This consistently low and improving
charge-off level has primarily been the result of the Company's localized
lending strategies and early identification of potential problem loans. In
addition, the current concentration of loans in residential real estate loans
has had a favorable impact on net charge-offs.
The schedule on the following page 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 rather
been on establishing reserves related to an earlier identification of potential
problem loans. The significant increase in the coverage ratio from 132% at
December 31, 1990 to 314% at December 31, 1994 reflects added reserves due to
the growth in loans and the relatively consistent level of nonperforming loans
(nonaccrual and renegotiated), coupled with management's decision to maintain
and in fact increase reserves due to economic uncertainties.
31
<PAGE> 21
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
Management is committed to maintaining adequate reserve levels to absorb
future losses. This commitment has allowed BancGroup to weather economic
uncertainties without disruption of its earnings streams.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE
(IN THOUSANDS) YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses--
January 1 $ 28,633 $ 18,769 $ 16,154 $ 15,097 $ 13,778
Charge-offs:
Commercial, financial, and agricultural 1,836 2,877 3,149 2,670 2,208
Real estate--commercial* 1,143 530 771 709 --
Real estate--construction 2 957 7 4 --
Real estate--residential 357 569 730 766 997
Installment and consumer 1,635 1,726 2,759 3,666 4,027
Other 168 7 83 74 74
- --------------------------------------------------------------------------------------------------------------------------
Total charge-offs 5,141 6,666 7,499 7,889 7,306
- --------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 1,646 629 504 595 322
Real estate--commercial* 202 44 49 3 --
Real estate--construction 12 25
Real estate--residential 77 102 171 157 306
Installment and consumer 1,430 1,502 1,396 1,488 1,669
Other 43 7 15 13 22
- --------------------------------------------------------------------------------------------------------------------------
Total recoveries 3,410 2,309 2,135 2,256 2,319
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs 1,731 4,357 5,364 5,633 4,987
Addition to allowance charged to
operating expense 6,481 7,945 7,979 6,364 6,306
Allowance added from bank acquisitions 27 6,276 -- 326 --
- --------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 33,410 $ 28,633 $ 18,769 $ 16,154 $ 15,097
- --------------------------------------------------------------------------------------------------------------------------
Loans (net of unearned income)
December 31 $2,093,703 $1,771,989 $1,172,151 $1,093,728 $1,062,798
Ratio of ending allowance to ending loans
(net of unearned income) 1.60% 1.62% 1.60% 1.48% 1.42%
Average loans (net of unearned income) $1,906,385 $1,315,910 $1,136,124 $1,094,096 $1,016,826
Ratio of net charge-offs to average loans
(net of unearned income) 0.09% 0.33% 0.47% 0.51% 0.49%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 314% 347% 246% 246% 132%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior to 1991 the data were not accumulated for real
estate--commercial; therefore, real estate--commercial charge-offs and
recoveries are included in real estate--residential.
32
<PAGE> 22
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: Non-accrual, past
due, renegotiated and other potential problems. When management determines a
loan no longer meets the criteria for performing loans and collection of
interest appears doubtful, the loan is placed on nonaccrual status. All loans
that are 90 days past due are considered nonaccrual unless they are adequately
collateralized, they are in the process of collection, and there is reasonable
assurance of full collection of principal and interest. BancGroup's policy is
also to charge off installment loans 120 days past due unless they are in the
process of foreclosure and are adequately collaterlized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $ 8,293 $ 8,139 $ 7,142 $ 5,957 $ 7,532
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 2,360 117 476 620 3,881
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 10,653 8,256 7,618 6,577 11,413
Other real estate 8,359 15,021 8,066 5,042 4,282
Repossessions 81 88 103 150 208
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $19,093 $23,365 $15,787 $11,769 $15,903
- ----------------------------------------------------------------------------------------------------------------------------
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 2,559 $ 2,218 $ 1,450 $ 1,597 $ 2,575
Total nonperforming loans as a
percent of net loans 0.51% 0.47% 0.65% 0.60% 1.07%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.91% 1.31% 1.34% 1.07% 1.49%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.63% 0.59% 0.77% 0.75% 1.32%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 314% 347% 246% 246% 132%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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. On
December 31, 1993 BancGroup completed the acquisition of First AmFed
Corporation. With this acquisition the Company recorded $11.2 million in other
real estate, $1.6 million in nonaccrual loans, and $.5 million in 90 day past
due loans that were still accruing. The carrying value of these nonperforming
assets was adjusted at the acquisition date to their current estimated fair
values based on BancGroup's intention to dispose of them in the most
expeditious and profitable manner. Excluding these nonperforming assets
acquired with First AmFed, the Company's nonperforming asset ratio would have
been .71% at December 31, 1993 compared to 1.31% noted above. During 1994 a
substantial portion of these problem assets, particularly other real estate,
was disposed of and the nonperforming asset ratio was reduced to .91%. In 1990
total non-performing assets increased due to a few large loans being placed on
nonaccrual or classified as renegotiated. The renegotiated loans were
classified as such due to the extension of amortization periods and did not
represent forgiveness of debt. The classifications of these individual credits
was not due to any related economic factors. In 1991 most of these larger loans
were removed from nonperforming status due to pay-off, payment of past due
amounts or demonstrated ability of borrowers to comply with renegotiated loan
terms.
In the fourth quarter of 1992, three large loans totaling $4.9 million were
placed in nonperforming status, including one apartment loan ($1.3 million)
which
33
<PAGE> 23
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
was classified as an "in substance foreclosure." The other two loans were to an
industrial trailer manufacturer and a health care services provider located in
different geographic areas of Alabama. All of these loans were either
charged-off ($.5 million), paid off ($1.3 million) or paid current ($3.1
million) in 1993 and removed from nonperforming status. The majority of the
balance of renegotiated loans at December 31, 1994 represents a bankruptcy
credit on which the rate was reduced to a below current market rate.
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies and independent auditors, has
identified approximately $77 million of potential problem loans not included
above. The status of these loans is reviewed at least quarterly by loan
officers and the centralized loan review function and annually by independent
auditors and 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, 1994 substantially all of these loans
are current with their existing repayment terms. Management believes that
classification of such loans as potential problem loans well in advance of
their reaching a delinquent status allows the Company the greatest flexibility
in correcting problems and providing adequate reserves without disruption of
earnings trends. 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 earned on nonaccrual loans was $414,000, $93,000, $316,000,
$232,000 and $398,000 in 1994, 1993, 1992, 1991 and 1990, respectively.
Interest income foregone on such loans was approximately $731,000, $526,000,
$279,000, $618,000 and $580,000 in 1994, 1993, 1992, 1991, and 1990
respectively.
- --------------------------------------------------------------------------------
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 allocations of the total
allowance represent an approximation of the reserves for each category of loans
based on management's evaluation of risk within each loan type.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial, and agricultural $ 6,010 $ 5,276 $ 4,280 $ 3,891 $ 4,532
Real estate--commercial 12,168 11,112 6,030 5,025 3,445
Real estate--construction 3,156 1,407 1,741 963 925
Real estate--residential 8,560 7,159 3,906 3,524 2,823
Installment and consumer 2,227 2,549 2,175 2,174 2,535
Other 1,289 1,130 637 577 837
- --------------------------------------------------------------------------------------------------------------------------
Total $33,410 $28,633 $18,769 $16,154 $15,097
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITIES
BancGroup determines on a daily basis 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 forecast, an investment strategy is
determined. Significant elements of this strategy as of December 31, 1994
include:
- BancGroup's investment in U.S. Treasury securities and obligations of
U.S. government agencies is substantially all pledged against public
funds deposits.
- Investment alternatives which maximize the highest after-tax net yield
are considered.
- Management has also attempted to increase the investment portfolio's
overall yield by investing funds
34
<PAGE> 24
in excess of pledging requirements in high-grade corporate notes and
mortgage-backed securities.
- BancGroup's investment in obligations of state and political subdivisions
has been increased during 1993 and 1994 since the Company receives full
benefit for tax-advantaged investments. The investment strategy also
incorporates high-grade preferred stocks when the tax equivalent yield on
these investments provides an attractive alternative. The yields on these
preferred stocks are adjusted on a short-term basis and provide tax
advantaged income without long-term interest rate risk.
- The maturities of investment alternatives are determined in consideration
of the yield curve, liquidity needs and the Company's asset/liability gap
position. Throughout 1992 and 1993, management has invested in securities
with maturities of 5 years or less with the majority in the 2-3 year
range. As interest rates have increased and the Company's asset/liability
gap position has allowed, maturities have been increased during 1994 to
the 5-7 year range.
- The risk elements associated with the various types of securities are
also considered in determining investment strategies. U.S. Treasury and
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 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, 1994 or 1993 does not include any interest-only strips and the
amount of unamortized premium on mortgage backed securities is
approximately $297,000. The recoverability of BancGroup's investment in
mortgage-backed securities is reviewed periodically, and where necessary,
appropriate adjustments are made to income for impaired values.
- 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
established when necessary.
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. A
substantial portion of the securities acquired in the First AmFed merger are
classified as available for sale due to the nature of the securities
(collateralized mortgage obligations) and the possibility of realigning this
portfolio for interest sensitivity purposes. The balance in securities
available for sale declined from $108 million at December 31, 1993 to $78
million at December 31, 1994 partially as a result of implementing this plan.
<TABLE>
<CAPTION>
SECURITIES BY CATEGORY
- ----------------------------------------------------------
CARRYING VALUE
AT DECEMBER 31
- ----------------------------------------------------------
(In thousands) 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations
of U.S.government
agencies $270,993 $224,961 $183,068
Obligations of state
and political
subdivisions 40,312 35,173 24,657
Other 15,294 31,304 59,162
- ----------------------------------------------------------
Total $326,599 $291,438 $266,887
- ----------------------------------------------------------
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 65,500 $103,716 $ 27,122
Obligations of state
and political
subdivisions 5 5 --
Other 12,760 4,395 1,714
- ----------------------------------------------------------
Total $ 78,265 $108,116 $ 28,836
- ----------------------------------------------------------
</TABLE>
At December 31, 1994, there was no single issuer with the exception of U.S.
government and U.S. government agencies, where the aggregate book value of
these securities exceeded ten percent of shareholder's equity or $19.2 million.
35
<PAGE> 25
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF SECURITIES
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS
------------------- ------------------- ----------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(In thousands) AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations of U.S.
government agencies $57,649 4.83% $161,671 5.88% $ 509 7.99% $ 506 7.25%
Mortgage-backed securities -- -- 17,839 6.28 15,443 7.55 17,376 8.21
Obligations of state and
political subdivisions (1) 6,670 7.44 21,991 7.64 10,109 7.68 1,542 12.51
Other (2) 523 11.67 1,504 6.34 3,267 8.48 -- --
------- -------- ------- -------
Total $64,842 5.15% $203,005 6.11% $29,328 7.71% $19,424 8.53%
- --------------------------------------------------------------------------------------------------------------------------
Securities available for sale (3):
U.S. Treasury securities
and obligations of U.S.
government agencies $ 7,042 4.26%
Mortgage-backed securities 58,458 6.48
Obligations of state and political
subdivisions (1) 5 6.52
Other 1,260 5.89
-------
Total $66,765 6.23%
- -----------------------------------------------------
</TABLE>
(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
35%. The taxable equivalent adjustment represents the annual amounts
of income from tax exempt obligations multiplied by 145%.
(2) This category excludes all corporate common and preferred stocks since
these instruments have no maturity date.
(3) 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.)
- --------------------------------------------------------------------------------
DEPOSITS
BancGroup's deposit structure consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 % OF TOTAL
- -------------------------------------------------------------------------------------------------------------------------
(In thousands) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 362,557 $ 316,370 16.7% 14.5%
Interest-bearing demand deposits 462,055 525,263 21.3 24.0
Savings deposits 266,536 278,889 12.3 12.7
Certificates of deposits less than $100,000 687,007 706,585 31.6 32.2
Certificates of deposits more than $100,000 189,058 192,643 8.7 8.8
IRAs 154,346 127,117 7.1 5.8
Open time deposits 49,905 44,131 2.3 2.0
- -------------------------------------------------------------------------------------------------------------------------
Total deposits $2,171,464 $2,190,998 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The growth in deposits and the mix of deposits has been most significantly
impacted in 1993 and 1994 by acquisitions. All of BancGroup's acquisitions
completed in 1993 were thrift institutions. As such, the level of
noninterest-bearing demand deposits was less than 3% of the total deposits
acquired with the major portion of acquired deposits in certificates of
deposits. Noninterest-bearing demand deposits have increased $46 million (15%)
from December 31, 1993 to December 31, 1994. The increase in average
noninterest demand deposits has been approximately 18.8%. Included in this
18.8% increase is approximately .8% related to an increase in deposits of
Colonial Mortgage Company with the remaining 18% related to internal growth
throughout the Company's branch system. As noted above, the acquired thrifts
did not add any significant amounts of noninterest-bearing demand accounts.
However, the presence of such branches and customer relationships has attracted
demand deposit accounts after the merger. The majority of the
noninterest-bearing demand deposit growth is attributable to the Company's
focus on developing customer relationships, sales efforts and the emphasis on
the Company's bottom line as brought about by the incentive plan.
BancGroup has attempted through its acquisition and branch expansion programs
to increase its market presence in the state of Alabama and expand into other
growth markets in the Southeast. The principal goal is to provide the Company's
retail customer base
36
<PAGE> 26
with convenient access to branch locations while enhancing the Company's
potential for future increases in profitability. During 1992 BancGroup
implemented quality review and sales training programs to reinforce the
Company's goals of providing the customer with the best service possible. In
connection with this goal, several other initiatives have been undertaken,
including initiation of a branch automation project, product marketing and
creation of a sales force to sell investment products, such as mutual funds and
annuities to customers seeking alternatives to deposit products. The overall
goal of these steps has been to efficiently provide our customers with the
financial products they need and desire.
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31, 1994,
1993 and 1992:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $133,419 $104,818 $94,306
Federal Home Loan
Bank borrowings 210,000 190,150 --
Other short-term
borrowings 1,131 1,000 700
- ----------------------------------------------------------
Total $344,550 295,968 $95,006
- ----------------------------------------------------------
</TABLE>
BancGroup has available Federal Funds lines from upstream banks including
the Federal Home Loan Bank (FHLB) totaling $190 million at December 31, 1994.
In addition, correspondent banks and customers with repurchase agreements have
provided a consistent base of short-term funds. BancGroup became a member of
the FHLB in late 1992. As a member of the FHLB, BancGroup can borrow up to $525
million from the FHLB on either a short or long-term basis excluding funds
available through the federal funds line.
Short-term borrowings, including FHLB borrowings, have been used to fund
short-term assets, primarily mortgage loans held for sale, and loans. During
1993 and 1992 the volume of mortgage loans held for sale increased
significantly. BancGroup funds these loans on a short-term basis (generally
less than 60 days) while they are being packaged for sale. Colonial Mortgage
has expanded its base of operations, and the volume level for mortgage loans
held for sale has increased accordingly. This accounts for the increase in both
average and year-end short-term borrowings for 1993 and 1992. (See Note 8 to
the consolidated financial statements.) During 1994 the volume of mortgage
loans held for sale decreased significantly as long-term interest rates
increased. FHLB borrowings have been used during 1994 to fund loan growth. As
discussed more fully in the "Liquidity and Interest Sensitivity" section of
this report, the line of credit with the FHLB is considered a primary source of
funding for the Company's asset growth.
- --------------------------------------------------------------------------------
LIQUIDITY AND INTEREST 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 rate sensitivity. ALMCO constantly
monitors performance and takes action in order to meet its objectives.
Of primary concern to ALMCO is maintaining adequate liquidity for the
organization. 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 (net income).
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 investment securities mature
they are generally reinvested in new investment securities or assets held for
sale. Financing activities generally provide funding for the growth in loans
and investment 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.
37
<PAGE> 27
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
From 1992 through 1994 the significant changes in the Company's cash flows
have centered around loan growth and fluctuations in mortgage loans held for
sale. Loan growth of $323 million in 1994 and $140 million in 1993 has been one
of the principal uses of cash in both years. Mortgage loans held for sale, were
a principal use of cash in 1993 increasing $217 million. In 1994 these loans
declined, providing $301 million in funds. As noted in previous sections,
short-term borrowings increased $196 million excluding acquisitions in 1993 and
$48 million in 1994 and were used to fund the increases in mortgage loans held
for sale and loan growth. Management has chosen to fund short-term
fluctuations in the volume of mortgage loans held for sale with short-term
borrowings as opposed to increasing rate sensitive deposits. Deposit growth of
$75 million in 1993 was used along with the net cash from acquisitions to fund
the internal loan growth.
As noted previously, the composition of the Company's loan portfolio has
changed over the past two years. BancGroup at December 31, 1994 had $857
million of residential real estate loans. These loans provide collateral for
the current $525 million credit line at the FHLB. The FHLB unused credit
capacity, $315 million at December 31, 1994, provides the Company significant
flexibility in asset/liability management, liquidity and deposit pricing.
In August, 1993 the Company retired $15 million of its 1986 subordinated
debentures which had a maturity date of 2011. The retirement of this debt was
funded with a $15 million term note which requires an annual principal
amortization of $1 million. The term note was reduced to a balance of
$12,250,000 at December 31, 1994. 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 BancGroup's Parent Only Statement
of Cash Flows were $2.5 million for the payment of interest on debt, $2.0
million for principal payment on term notes (See Note 9 to the Consolidated
Financial Statements) and $7.4 million for the payment of dividends. The Parent
Company's primary source of funds was $11.9 million in dividends received from
its Alabama subsidiary bank. 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 $41.1 million of retained earnings plus certain 1995 earnings
would be available for distribution to BancGroup as dividends in 1995 without
prior approval from the respective regulatory authorities. BancGroup
anticipates that the cash flow needs of the parent company are well below the
regulatory dividend restrictions of its subsidiary bank.
At December 31, 1994, BancGroup's liquidity position was adequate with loan
maturities of $621 million, or 30% of the total loan portfolio, due within one
year. Investment securities totaling $132 million or 33% of the total portfolio
also had maturities within one year or have been classified as available for
sale. As of December 31, 1994 there were, however, no current plans to dispose
of any significant portion of these securities. In addition BancGroup has $315
million in additional borrowing capacity at the FHLB.
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. The interest sensitivity schedule on
page 38 reflects a less than 1% negative gap at 12 months. Based on this
schedule, management believes that neither an increase or decrease in interest
rates would result in a material swing in net income. Management has managed
the asset/liability position of the bank through traditional sources. The
Company has not used derivatives or off balance sheet instruments for hedging
purposes. The following table summarizes BancGroup's interest rate sensitivity
as of December 31, 1994.
38
<PAGE> 28
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
-------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
-------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 OVER
(IN THOUSANDS) BALANCE DAYS DAYS DAYS 1 YEAR
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale agreements $ 2,277 $ 2,277 $ -- $ -- $ --
Investment securities 326,599 16,089 37,687 21,868 250,955
Securities available for sale 78,265 42,064 1,132 2,264 32,805
Mortgage loans held for sale 60,536 60,536 -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 2,093,703 875,849 178,908 329,110 709,836
Allowance for possible loan losses (33,410) (13,964) (2,857) (5,255) (11,334)
- -------------------------------------------------------------------------------------------------------------------------
Net loans 2,060,293 861,885 176,051 323,855 698,502
Nonearning assets 310,373 -- -- -- 310,373
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $2,838,343 $ 982,851 $ 214,870 $347,987 $1,292,635
- -------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 462,055 $ 325,894 $ -- $ -- $ 136,161
Savings deposits 266,536 138,909 -- -- 127,627
Certificates of deposits less than $100,000 687,007 169,594 149,138 144,291 223,984
Certificates of deposits more than $100,000 189,058 72,479 29,446 32,372 54,761
IRAs 154,346 45,640 15,025 17,743 75,938
Open time deposits 49,905 47,579 -- 779 1,547
Short-term borrowings 344,550 264,550 80,000 -- --
Long-term debt 86,501 11,282 33 7,560 67,626
Noncosting liabilities & equity 598,385 598,385
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $2,838,343 $1,075,927 $ 273,642 $202,745 $1,286,029
- -------------------------------------------------------------------------------------------------------------------------
Gap $ -- ($93,076) ($58,772) $145,242 $6,606
- -------------------------------------------------------------------------------------------------------------------------
Cumulative Gap $ -- ($93,076) ($151,848) ($6,606) $ --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
At the bottom of the table is the interest rate sensitivity gap which is the
difference between rate sensitive assets and rate sensitive liabilities.
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. Furthermore, the balances
reflect contractual repricing of the deposits and management's position on
repricing certain deposits where management discretion is permitted. Certain
demand deposit accounts and regular savings accounts have been classified as
repricing beyond one year. While these accounts are subject to immediate
withdrawal, experience has 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 $357 million with a corresponding cumulative gap at
one year of negative $270 million.
- --------------------------------------------------------------------------------
CAPITAL ADEQUACY AND RESOURCES
Management is committed to maintaining capital at a level sufficient to
protect shareholders and depositors, provide for reasonable growth and fully
comply with all regulatory requirements. Management's strategy to achieve these
goals is to retain sufficient earnings while providing a reasonable return to
shareholders in the form of dividends and return on equity. BancGroup's
dividend payout ratio in 1994 was 27%. This level is below the Company's target
range of 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. There have been no considerations given to the cash flow or capital
needs of members of the Lowder family (BancGroup's principal shareholders) in
setting the dividend rates of BancGroup. Based on the low 1994 dividend payout
ratio and the other factors noted above, the Board of Directors in January 1995
approved a 12.5% increase in the quarterly Class A Common Stock dividend rate
to $.225 per share and an increase to $.125 per share on the Class B Common
Stock. The dividend rate on the Company's Common Stock after the
reclassification will be $.225.
The amount of a cash dividend, if any, rests with the discretion of the
Board of Directors of BancGroup as
39
<PAGE> 29
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
well as upon applicable statutory constraints such as the Delaware law
requirement that dividends may be paid only out of capital surplus or out of
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 Tier I leverage ratio replaces previous minimum
primary and total capital ratios. 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 as of December 31, 1994 are stated below:
<TABLE>
<S> <C>
Capital (thousands):
Tier I Capital:
Shareholders' equity (excluding
unrealized loss on securities
available for sale) less intangibles $ 178,249
Tier II Capital:
Allowable loan loss reserve 24,780
Subordinated debt 17,458
----------
Total Capital $ 220,487
Risk Adjusted Assets (thousands) $1,973,806
Total Assets (thousands) $2,838,343
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Tier I leverage ratio 6.34% 5.59% 5.23%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 9.03% 8.44% 7.24%
Total Capital Ratio 11.17% 10.64% 10.99%
</TABLE>
In the fall of 1991, BancGroup management undertook to have a capital plan
(the "Capital Plan") prepared for BancGroup which would analyze BancGroup's
capital adequacy and make recommendations to the board of directors regarding
long-term capital planning. The Capital Plan was initially undertaken in order
to respond to a recommendation for a capital plan by the regulatory examiners
of Colonial Bank.
The Capital Plan recommended that BancGroup consider increasing its capital
by $15 million. While the details of the plan recommended a capital infusion to
BancGroup, the Capital Plan deferred to senior management decisions regarding
how to raise any additional capital, when to raise such capital and where to
deploy proceeds.
A senior management committee was formed following approval of the Capital
Plan by BancGroup's board of directors in October 1991 and to date has
undertaken steps on behalf of BancGroup to increase capital gradually through
normal earnings retention (which was an option specifically acknowledged in the
Capital Plan). In addition capital has been increased through stock
registrations to capitalize acquisitions, as is the case with four of the five
acquisitions completed in 1993. No decision has been made to issue additional
common stock in a public offer for cash. BancGroup increased capital by
approximately $55 million with these four acquisitions and has continued to
increase capital through earnings retention, resulting in the increase in
BancGroup's capital ratios noted above.
REGULATORY RESTRICTIONS
As noted previously on page 38, dividends payable by national and state
banks in any year, without prior approval of the appropriate regulatory
authorities, are limited.
The subsidiary banks are also required by law to maintain
noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory
reserve requirements. At December 31, 1994, these deposits totaled $40.3
million.
FINANCIAL ACCOUNTING STANDARDS
BOARD RELEASES
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS)No. 114 which was amended in October 1994
by SFAS No 118. SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," require adoption for years beginning
after December 15, 1994. Management believes that the adoption of these
statements will not have a material impact on BancGroup's financial position or
results of operations.
40
<PAGE> 30
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS
THE COLONIAL BANCGROUP, INC.
We have audited the accompanying consolidated statement of condition of The
Colonial BancGroup, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements have been prepared to give retroactive effect
to the acquisition of an entity under common control on February 17, 1995,
which was accounted for in a manner similar to a pooling of interests, as
described in Note 2. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Colonial BancGroup, Inc. and subsidiaries as of December 31, 1994 and 1993, the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 18 to the consolidated financial statements, the
Company changed its method of accounting for investments in 1994 and changed
its method of accounting for income taxes in 1993.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 24, 1995
41
<PAGE> 31
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
(as restated)
<TABLE>
<CAPTION>
December 31, 1994 and 1993
(Dollars in thousands, except per share amounts)
ASSETS 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 129,720 $ 113,551
Interest-bearing deposits in banks 1,777 26,798
Federal funds sold 500 20,150
Securities available for sale (market value: 1993, $108,411) (Note 3) 78,265 108,116
Investment securities (market value: 1994, $316,822; 1993, $295,728) (Note 3) 326,599 291,438
Mortgage loans held for sale 60,536 361,496
Loans, net of unearned income (Note 4) 2,093,703 1,771,989
Less:
Allowance for possible loan losses (Note 5) (33,410) (28,633)
- -------------------------------------------------------------------------------------------------------------------------
Loans, net 2,060,293 1,743,356
Premises and equipment, net 45,874 44,775
Excess of cost over tangible and identified intangible assets
acquired, net 16,239 16,417
Purchased mortgage servicing rights 54,797 28,549
Other real estate owned 8,440 15,109
Accrued interest and other assets 55,303 52,766
- -------------------------------------------------------------------------------------------------------------------------
Total $2,838,343 $2,822,521
=========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing demand $ 362,557 $ 316,370
Interest-bearing demand 462,055 525,263
Savings 266,536 278,889
Time 1,080,316 1,070,476
- -------------------------------------------------------------------------------------------------------------------------
Total deposits 2,171,464 2,190,998
FHLB short-term borrowings (Note 8) 210,000 190,150
Other short-term borrowings (Note 8) 134,550 105,818
Subordinated debt (Note 9) 17,458 17,458
Other long-term debt (Note 9) 69,043 57,397
Other liabilities 44,277 87,936
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,646,792 2,649,757
- -------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 15)
Shareholders' equity: (Notes 3, 10)
Preference Stock, $2.50 par value; 1,000,000 shares authorized, none issued
Class A Common Stock, $2.50 par value; 40,000,000 shares authorized,
outstanding: 11,280,031 shares in 1994 and 11,163,560 shares in 1993* 28,200 27,909
Class B Common Stock, $2.50 par value; 4,000,000 shares authorized,
outstanding: 635,088 shares in 1994 and 636,895 shares in 1993* 1,588 1,592
Additional paid in capital 109,658 108,099
Retained earnings 55,042 35,164
Unrealized loss on securities available for sale, net of taxes (2,937) --
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 191,551 172,764
- -------------------------------------------------------------------------------------------------------------------------
Total $2,838,343 $2,822,521
=========================================================================================================================
</TABLE>
* On February 21, 1995 the Class A and Class B Common Stock were reclassified
into one class. (See Note 10.)
See notes to consolidated financial statements.
42
<PAGE> 32
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
(as restated)
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993 and 1992
(In thousands, except per share amounts)
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $164,649 $124,384 $111,489
Interest and dividends on investments:
Taxable 18,287 13,882 15,908
Nontaxable 2,047 1,727 1,478
Dividends 1,768 1,228 1,223
Interest on federal funds sold and securities purchased under
resale agreements 186 247 500
Other interest 293 104 26
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 187,230 141,572 130,624
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 68,663 50,455 54,083
Interest on short-term borrowings 10,425 6,268 1,748
Interest on long-term debt 3,461 2,794 4,745
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 82,549 59,517 60,576
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR POSSIBLE LOAN LOSSES 104,681 82,055 70,048
Provision for possible loan losses (Notes 1, 5) 6,481 7,945 7,979
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 98,200 74,110 62,069
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing and origination fees 22,216 21,079 17,816
Service charges on deposit accounts 12,384 11,104 10,144
Securities gains, net (Notes 3, 18) 84 49 1,220
Other charges, fees and commissions 3,134 2,245 2,040
Other income 6,425 5,956 3,507
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 44,243 40,433 34,727
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 43,355 38,453 32,198
Occupancy expense of bank premises, net 8,610 7,302 6,702
Furniture and equipment expenses 7,468 6,452 6,178
Amortization of purchased servicing rights 6,078 4,840 5,002
Amortization of intangible assets 1,196 818 1,033
Other expense (Note 17) 34,084 28,655 24,416
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 100,791 86,520 75,529
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND THE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 41,652 28,023 21,267
Applicable income taxes (Note 18) 14,342 8,886 5,715
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 27,310 19,137 15,552
Extraordinary items, net of income taxes (Notes 9, 18) -- (463) --
Cumulative effect of a change in accounting for income taxes (Notes 1,18) -- 3,219 --
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (Note 2) $ 27,310 $ 21,893 $ 15,552
===========================================================================================================================
EARNINGS PER SHARE:
Primary:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 2.28 $ 2.01 $ 1.72
Extraordinary item, net of income taxes -- (0.05) --
Cumulative effect of a change in accounting for income taxes -- 0.34 --
Net Income $ 2.28 $ 2.30 $ 1.72
Fully-diluted:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 2.23 $ 1.96 $ 1.71
Extraordinary item, net of income taxes -- (0.04) --
Cumulative effect of a change in accounting for income taxes -- 0.29 --
Net income $ 2.23 $ 2.21 $ 1.71
Average number of shares outstanding:
Primary 11,996 9,530 9,016
Fully-diluted 12,763 10,623 10,327
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 33
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(as restated)
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993 and 1992
(Dollars in thousands, except per share amounts)
Unrealized
Loss on
Class A Class B Additional Securities Total
Common Stock Common Stock Paid in Retained Available Shareholders'
Shares Amount Shares Amount Capital Earnings for Sale Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 (Note 2) 8,206,415 $20,516 640,328 $1,601 $ 59,571 $ 6,741 $ -- $ 88,429
Shares issued under:
Directors Stock Plan 17,024 42 117 159
Stock Option Plans 26,300 66 12,000 30 158 254
Dividend Reinvestment 10,795 27 160 187
Other 2 --
Net income 15,552 15,552
Cash dividends: (Class A,
$0.67 per share; Class B,
$0.27 per share) (4,175) (4,175)
Conversion of Class B Common
Stock to Class A Common Stock 14,800 37 (14,800) (37) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 8,275,336 20,688 637,528 1,594 60,006 18,118 -- 100,406
Shares issued under:
Directors Stock Plan 13,116 33 164 197
Stock Option Plans 21,350 53 102 155
Dividend Reinvestment 13,950 35 259 294
Issuance of shares for the
acquisition of:
Auburn Federal Savings Bank 148,822 372 2,723 3,095
Home Federal Savings Bank
of Alabama 407,179 1,018 7,645 8,663
United Savings Bank, FSB 191,944 480 3,528 4,008
First AmFed Corporation 2,091,057 5,228 33,670 38,898
Previous year acquisition 66 --
Net income 21,893 21,893
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 107 2 2
Conversion of Class B Common
Stock to Class A Common Stock 699 2 (699) (2) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 11,163,560 27,909 636,895 1,592 108,099 35,164 -- 172,764
Shares issued under:
Directors Stock Plan 14,267 36 248 284
Stock Option Plans 67,078 168 738 906
Dividend Reinvestment 23,013 57 432 489
Stock Bonus & Retention Plan 650 2 10 12
Employee Stock Purchase Plan 2,186 5 43 48
Issuance of shares for previous
year acquisitions 7,470 19 88 107
Net income 27,310 27,310
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (7,432) (7,432)
Conversion of Class B Common
Stock to Class A Common Stock 1,807 4 (1,807) (4) --
Unrealized loss on securities
available for sale, net of taxes (2,937) (2,937)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 11,280,031 $28,200 635,088 $1,588 $109,658 $55,042 $(2,937) $191,551
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
44
<PAGE> 34
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(as restated)
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993, and 1992
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,310 $ 21,893 $ 15,552
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation, amortization and accretion 8,431 7,243 7,531
Amortization of purchased mortgage servicing rights 6,078 4,840 5,002
Amortization of excess servicing fees 1,721 3,773 834
Provision for possible loan losses 6,481 7,945 7,979
Provision for losses on foreclosure advances 480 333 646
Provision for losses on other real estate owned 345 784 298
Deferred income taxes (1,794) (6,238) (1,512)
Gain on sale of securities, net (84) (49) (1,220)
Decrease (increase) in mortgage loans held for sale 300,960 (217,281) (38,996)
(Increase) decrease in interest receivable (3,161) (896) 1,518
Decrease (increase) in prepaids and other receivables 532 (4,429) 942
(Decrease) increase in accrued expenses and accounts payable (36,986) 22,830 8,726
(Decrease) increase in accrued income taxes (2,372) (1,317) 327
Increase (decrease) in interest payable 2,110 (1,383) (2,910)
Other, net (3,221) 3,057 680
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments 279,520 (180,788) (10,155)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 306,830 (158,895) 5,397
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 30,870 11,947 --
Proceeds from sales of securities available for sale 16,156 -- --
Purchase of securities available for sale (49) (10,166) --
Proceeds from maturities of investment securities 70,767 202,455 134,486
Proceeds from sales of investment securities -- 1,751 4,154
Purchases of investment securities (123,167) (218,121) (149,144)
Net (increase) decrease in short-term investment securities (6,000) 39,000 (5,069)
Net increase in loans (322,849) (140,198) (87,582)
Cash received in acquisitions, net (Note 2) -- 71,384 --
Cash received in the purchase of assets and
assumption of liabilities(Note 2) 15,275 4,491 --
Capital expenditures (6,966) (7,119) (5,503)
Proceeds from sale of other real estate owned 6,413 4,990 2,273
Purchase of mortgage servicing rights (32,326) (13,938) (5,298)
Increase in excess service fees receivable (2,298) (5,439) (3,943)
Other, net (28) 1,049 2,957
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (354,202) (57,914) (112,669)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (decrease) increase in demand, savings and time deposits (35,245) 75,098 41,135
Net increase in federal funds purchased and
repurchase agreements 28,602 10,511 55,955
Net increase (decrease) in FHLB and other short-term borrowings 19,850 185,000 (70)
Retirement of subordinated debt -- (15,338) (32)
Proceeds from issuance of long-term debt 25,336 27,498 6,156
Repayment of long-term debt (13,443) (8,012) (13,016)
Proceeds from issuance of common stock 1,202 428 441
Dividends paid (7,432) (4,847) (4,175)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,870 270,338 86,394
- ----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (28,502) 53,529 (20,878)
Cash and cash equivalents at beginning of year 160,499 106,970 127,848
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $ 131,997 $ 160,499 $ 106,970
============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 80,961 $ 61,535 $ 63,296
Income taxes 20,583 12,791 6,741
Non-cash investing activities:
Transfer of loans to other real estate $ 2,255 $ 1,813 $ 6,727
Origination of loans for the sale of other real estate 1,309 537 1,568
Transfer of investment securities to securities available for sale 22,188 20,738 28,836
Non-cash financing activities (Note 2):
Issuance of Class A common stock in acquisitions -- $ 54,664 --
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 35
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(as restated)
For the years ended
December 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate
predominantly in the domestic commercial and mortgage banking industry. The
accounting and reporting policies of BancGroup and its subsidiaries conform to
generally accepted accounting principles and to general practice within the
banking industry. The following summarizes the most significant of these
policies.
BASIS OF PRESENTATION--The Consolidated Financial Statements of BancGroup
have been restated to give retroactive effect to the February 17, 1995
acquisition of an entity under common control, which is accounted for in a
manner similar to a pooling of interests. (See Note 2)
PRINCIPLES OF CONSOLIDATION--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.
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--Effective January
1, 1994, BancGroup adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities." Under this
statement, 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. Prior to 1994, securities available for
sale and marketable equity securities were recorded at the lower of aggregate
cost or market value.
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 less discounts collected. The aggregate cost of
mortgage loans held for sale at December 31, 1994 and 1993 is less than their
aggregate net realizable value. Gains or losses on the sale of mortgage loans
are recognized on the date settled. Gains or losses on the sale of Federal
National Mortgage Association mortgage-backed securities are recognized on the
earlier of the date settled or the date that a forward commitment to deliver a
security to a dealer is effectively offset by a commitment to buy a similar
security (paired off). These gains or losses are included in other income.
LOANS--Loans are stated at face value, net of unearned income and allowance
for possible loan losses. 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.
BancGroup generally does not accrue interest for loans on which the
collectibility of interest is doubtful or for loans which are 90 days past due
unless they are adequately collateralized, in the process of collection and
there is reasonable assurance of full collection of principal and interest.
Interest income on these loans thereafter is recognized to the extent received
in cash.
ALLOWANCE FOR POSSIBLE LOAN LOSSES--The allowance for possible loan losses
is established through a provision for losses charged to expense. Loans, or
portions thereof, considered to be uncollectible are charged against the
allowance. The allowance is an amount that management believes will be adequate
to absorb losses inherent in existing loans, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, the underlying value of collateral, overall portfolio quality,
review of loan concentrations and specific problem loans and current economic
conditions that may affect the borrower's ability to pay.
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.
46
<PAGE> 36
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 cost or market value. 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
twenty years for the excess of cost over tangible and identified intangible
assets acquired and ten years for deposit core base intangibles using the
straight-line method. The recoverability of intangible assets is reviewed
periodically based on the current earnings of acquired entities. If warranted,
analysis, including undiscounted income projections, are made to determine if
adjustments to carrying value or amortization periods are necessary.
PURCHASED MORTGAGE SERVICING RIGHTS--The cost of purchases of servicing
rights is capitalized and is being amortized primarily using an accelerated
method in proportion to the estimated net servicing income from the related
loans, which approximates a level yield method. The amortization period
represents management's best estimate of the remaining loan lives and the
remaining unamortized amount does not exceed the present value of future net
servicing income related to the purchased loans. The servicing portfolio is
geographically disbursed throughout the United States with a concentration in
the southern states. Amounts are stated net of accumulated amortization of
approximately $27,235,000 and $21,249,000 in 1994 and 1993, respectively.
INCOME TAXES--Effective January 1, 1993, BancGroup adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes,"
which changed BancGroup's method of accounting for income taxes from the
deferred method required under Accounting Principles Board Opinion 11 to the
asset and liability method (See Notes 2 and 18). The principal difference
between the liability method and deferred method is that, under the liability
method, 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. BancGroup files a consolidated income tax return; however, income
taxes are computed by each subsidiary on a separate basis, and taxes currently
payable are remitted to BancGroup.
MORTGAGE SERVICING AND ORIGINATION FEES--The service fees are deducted from
the monthly payments on mortgage loans and are recorded as income when earned.
Fees from investors for servicing their portfolios of residential loans
generally range from 1/4 of 1% to 1/2 of 1% per year on the outstanding
principal balance. Fees received and expenses incurred in connection with
mortgage loan origination are deferred until the loan is sold.
EARNINGS PER SHARE--Primary earnings per share were computed based on the
weighted average number of shares of common stock (both Class A and Class B)
outstanding, as restated, and common stock equivalents which consists of shares
issuable under outstanding stock options. Fully diluted earnings per share also
gives effect to shares issuable under convertible debenture agreements.
RECLASSIFICATIONS--Certain amounts were reclassified in the 1993 and 1992
financial statements in order to conform with the 1994 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS--In May, 1993, the Financial Accounting
Standards Board (FASB) issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which was amended in October, 1994 by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures" which require adoption for fiscal years beginning after December
15, 1994. These statements require that certain impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral, if the loan is
collateral dependent. Because of specialized industry practices, impaired loans
are currently measured at the lower of cost or fair value by the allocation of
the allowance for possible loan losses. Therefore, management believes that the
adoption of SFAS No. 114 and SFAS No. 118 will not have a material impact on
BancGroup's financial statements.
- --------------------------------------------------------------------------------
2. ACQUISITIONS
On February 17, 1995, BancGroup acquired Colonial Mortgage Company (CMC) and
its parent company, The Colonial Company (TCC). At the acquisition date TCC's
only asset was its investment in CMC. BancGroup issued 2,272,727 shares of its
common stock and assumed the debts of TCC. At acquisition, the acquired
entities had total assets of $71 million, total liabilities of $64 million, and
total stockholder's equity of $7 million. This business combination by entities
under common control is accounted for in a manner similar to a
pooling-of-interests. Therefore, BancGroup's 1994 and prior financial
statements have been restated to reflect the acquisition.
The following tables show the effect of the above transaction on
results of operations for 1994, 1993 and 1992 and shareholders' equity at
Januray 1, 1992 (earliest date presented).
47
<PAGE> 37
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Total Revenue:
BancGroup $122,806 $ 93,693 $ 80,757
CMC 26,118 28,795 24,018
Combined 148,924 122,488 104,775
Net Income (loss):
BancGroup 27,671 18,709 13,793
CMC (361) 3,184 1,759
Combined 27,310 21,893 15,552
</TABLE>
<TABLE>
<CAPTION>
January 1, 1992 Effect
as Previously of January 1, 1992
Reported Combination as Restated
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock $16,435 $ 5,682 $22,117
Additional Paid in Capital 60,699 (1,128) 59,571
Retained Earnings 8,350 (1,609) 6,741
- ----------------------------------------------------------------------------
Total Shareholders Equity $85,484 $ 2,945 $88,429
============================================================================
</TABLE>
The combined financial results presented above include an adjustment made to
conform accounting policies of the two companies. The adjustment was the
restatement of CMC's 1993 net income for the cumulative effect of a change in
accounting principle to SFAS 109 which CMC previously adopted and had elected
to apply retroactively to 1991. The adjustment increased 1993 net income
$2,059,000. Material intercompany transactions between the two companies have
been eliminated in consolidation.
On May 20, 1994, BancGroup purchased certain assets of $596,000 and assumed
certain liabilities, primarily deposits, of $15,871,000 of Altus Federal
Savings Bank in Tallassee and Eufaula, Alabama, from the Resolution Trust
Corporation.
The following table represents acquisitions consummated during 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
Class A Common
Stock Issued
Acquisition --------------------
Bank Date Shares Value
- --------------------------------------------------------
<S> <C> <C> <C>
Auburn Federal
Savings Bank March 19 148,822 $ 3,095
Home Federal
Savings Bank
of Alabama March 26 407,179 8,663
United Savings
Bank, FSB November 12 191,944 4,008
First AmFed
Corporation December 31 2,091,057 38,898
</TABLE>
The value of the shares issued represents the total purchase price of the
above acquisitions. In addition to the above acquisitions, on July 23, 1993
BancGroup also assumed certain liabilities, primarily deposits, of $52,380,000
and subsequently purchased certain assets, primarily loans, of $47,889,000 of
First Federal Savings and Loan Association of Russell County from the
Resolution Trust Corporation.
The financial institutions acquired were accounted for as purchases and,
accordingly, income and expenses of such institutions are included in the
consolidated statements of BancGroup from the date of acquisition forward.
The following table presents unaudited proforma results of operations for
the years ended December 31, 1993 and 1992, after giving effect to the TCC
acquisition and amortization of goodwill and other proforma adjustments, as if
the acquisitions had occurred on January 1, 1993 and 1992. The proforma summary
information does not necessarily reflect the results of operations as they
actually would have been, if the acquisition had occurred at the beginning of
the years presented.
<TABLE>
<CAPTION>
(In thousands, except per share
amounts) 1993 1992
- ----------------------------------------------------------
(Unaudited)
<S> <C> <C>
Net interest income before
provision for possible
loan losses $97,390 $88,560
Income before extraordinary
items and the change in
accounting for income taxes 21,576 20,451
Net income 24,332 20,451
Earnings per share:
Income before extraordinary
item and the change in
accounting for income taxes
Primary $ 1.81 $ 1.73
Fully-diluted 1.78 1.71
Net income
Primary $ 2.04 $ 1.73
Fully-diluted 2.00 1.71
Average shares outstanding:
Primary 11,910 11,855
Fully-diluted 13,003 13,166
- ----------------------------------------------------------
</TABLE>
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1993 acquisitions.
<TABLE>
<CAPTION>
(In thousands) Total
- ----------------------------------------------------------
<S> <C>
Cash and due froms $ 12,283
Interest-bearing deposits in banks 42,940
Federal funds sold 20,050
Securities available for sale 60,442
Investment securities 71,005
Loans, net 460,698
Other real estate owned 12,114
Accrued interest and other assets 15,144
Deposits 622,421
Short-term borrowings 5,150
Other long-term debt 12,708
Other liabilities 8,942
Equity 54,664
- ----------------------------------------------------------
Excess of cost over tangible and
identified intangible assets
acquired, net $ 9,209
- ----------------------------------------------------------
</TABLE>
48
<PAGE> 38
3. SECURITIES
The carrying and market values of securities are summarized as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(In thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
COST GAINS LOSSES VALUE Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $270,993 $175 $ (9,336) $261,832 $224,961 $2,722 $(189) $227,494
Obligations of state and
political subdivisions 40,312 499 (881) 39,930 35,173 1,464 (89) 36,548
Other 15,294 29 (263) 15,060 31,304 389 (7) 31,686
- -------------------------------------------------------------------------------------------------------------------------
Total $326,599 $703 $ (10,480) $316,822 $291,438 $4,575 $(285) $295,728
=========================================================================================================================
</TABLE>
The carrying and market values of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
(In thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
COST GAINS LOSSES VALUE Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $70,327 $ 28 $(4,855) $65,500 $103,716 $151 $(135) $103,732
Obligations of state and
political subdivisions 5 5 5 5
Other 12,639 407 (286) 12,760 4,395 279 4,674
- -------------------------------------------------------------------------------------------------------------------------
Total $82,971 $435 $(5,141) $78,265 $108,116 $430 $(135) $108,411
=========================================================================================================================
</TABLE>
The market values of 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 other investment securities are $10,000,000 and $4,000,000
in marketable equity securities at December 31, 1994 and 1993, respectively and
$21,975,000 in Federal Home Loan Bank stock at December 31, 1993. Included
within securities available for sale is $11,327,000 in Federal Home Loan Bank
stock at December 31, 1994.
Realized gains on marketable equity securities were $0 and $1,104,000 in
1993 and 1992, respectively.
Investment securities with a carrying value of approximately $308,081,000
and $262,478,000 at December 31, 1994 and 1993, respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $217,000, $21,000, and $73,000 and gross losses of $133,000,
$1,000, and $0 were realized on sales of securities for 1994, 1993 and 1992,
respectively.
The amortized cost and market value of debt securities at December 31, 1994,
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.
<TABLE>
<CAPTION>
Securities Available
Investment Securities For Sale
- ---------------------------------------------------------------
Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 64,842 $ 64,400 $ 500 $ 504
Due after one year
through five years 185,166 179,169 7,819 7,803
Due after five years
through ten years 13,885 13,558 -- --
Due after ten years 2,048 2,045 -- --
- ---------------------------------------------------------------
265,941 259,172 8,319 8,307
- ---------------------------------------------------------------
Mortgage-backed
securities 50,658 47,875 63,229 58,458
- ---------------------------------------------------------------
Total $316,599 $307,047 $71,548 $66,765
===============================================================
</TABLE>
49
<PAGE> 39
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
Commercial, financial,
and agricultural $ 298,708 $ 250,746
Real estate--commercial 574,155 480,071
Real estate--construction 152,423 135,762
Real estate--mortgage 857,314 717,354
Installment and consumer 169,577 153,273
Other 41,577 34,954
- ----------------------------------------------------------
Subtotal $2,093,754 $1,772,160
Unearned income (51) (171)
- ----------------------------------------------------------
Total $2,093,703 1,771,989
==========================================================
</TABLE>
BancGroup's lending is concentrated throughout Alabama and southern
Tennessee, and repayment of these loans is in part dependent upon the economic
conditions in the respective regions of the states. Management does not believe
the loan portfolio contains concentration 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 Alabama and commercial real
estate loans in general, management is not aware of any significant
concentrations.
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, 1994.
In the normal course of business, loans are made to officers, directors,
principal shareholders and to companies in which they own a significant
interest. Such loans aggregated approximately $40.9 million and $33.4 million
at December 31, 1994 and 1993, respectively.
Loan activity to officers, directors, principal shareholders and to companies
in which they own a significant interest which aggregated a loan balance of
more than $60,000 during the year ended December 31, 1994 are summarized as
follows:
<TABLE>
<CAPTION>
(In thousands)
Balance Balance
1/1/94 Additions Repayments 12/31/94
- ----------------------------------------------------------
<S> <C> <C> <C>
$33,389 $36,039 $28,490 $40,938
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -----------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $28,633 $18,769 $16,154
Addition due to
acquisitions 27 6,276 --
Provision charged
to income 6,481 7,945 7,979
Loans charged off (5,141) (6,666) (7,499)
Recoveries 3,410 2,309 2,135
- -----------------------------------------------------------
Balance, December 31 $33,410 $28,633 $18,769
===========================================================
</TABLE>
6. 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.
These financial instruments include loan commitments, standby letters of credit
and obligations to deliver and sell (mandatory sales) originated or acquired
mortgage loans to permanent investors and 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 and standby
letters of credit 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, 1994 are as follows:
<TABLE>
<CAPTION>
Contract Amount
(In thousands)
- ----------------------------------------------------------
<S> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $458,449
Standby letters of credit 14,997
Mortgage sales commitments 56,750
</TABLE>
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.
Obligations to sell loans at specified dates and prices are intended to
hedge the interest rate risk
50
<PAGE> 40
associated with the time period between the initial offer to lend and the
subsequent sale to a permanent investor.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
Land $11,160 $10,924
Bank premises 43,032 41,548
Equipment 36,944 33,507
Leasehold improvements 3,416 3,235
Construction in progress 869 856
Automobiles 42 48
- ----------------------------------------------------------
Total 95,463 90,118
Less accumulated depreciation
and amortization 49,589 45,343
- ----------------------------------------------------------
Premises and equipment, net $45,874 $44,775
==========================================================
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $133,419 $104,818 $94,306
FHLB borrowings 210,000 190,150 --
Other short-term
borrowings 1,131 1,000 700
- ----------------------------------------------------------
Total $344,550 $295,968 $95,006
==========================================================
</TABLE>
BancGroup had outstanding term notes (Note 9) the current portion,
$1,000,000, is included in other short-term borrowings at December 31, 1994 and
1993.
BancGroup became a member of the Federal Home Loan Bank (FHLB) in late 1992.
Based on its investment in the FHLB at December 31, 1994, BancGroup can borrow
up to $525 million from the FHLB on either a short or long-term basis. At
December 31, 1994, $210,000,000 was outstanding.
Additional details regarding short-term borrowings are shown below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Average amount
outstanding
during the year $235,598 $195,752 $ 53,380
Maximum amount
outstanding at
any month-end 344,550 309,714 112,043
Weighted average
interest rate:
During year 4.42% 3.20% 3.27%
End of year 5.62% 3.20% 2.96%
==========================================================
</TABLE>
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ----------------------------------------------------------
<S> <C> <C>
12 3/4% convertible
subordinated
debentures $ 7,494 $ 7,494
7 1/2% Convertible
subordinated
debentures 9,964 9,964
Term note 11,250 13,250
FHLB advances 2,530 1,489
REMIC bonds 8,613 11,219
Purchasedservicing
notes payable 19,670 23,184
Working capital and other 26,980 8,255
- ----------------------------------------------------------
Total $ 86,501 $74,855
==========================================================
</TABLE>
The 12 3/4% convertible subordinated debentures due December 15, 2000 ("1985
Debentures") were issued in connection with the acquisition of a bank. The
1985 Debentures are redeemable, at the option of BancGroup, ten years from the
date of issuance at face value plus accrued interest. At the option of the
holder, each 1985 Debenture may be converted into BancGroup Common Stock at the
conversion price of $18.25 principal amount of 1985 Debentures, subject to
adjustment upon the occurrence of certain events, for each share of stock
received. In the event all of the remaining 1985 Debentures are converted into
shares of BancGroup Common Stock in accordance with the 1985 Indenture, a total
of 410,622 shares of such Common Stock will be issued.
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 $28.00 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 certain premiums until 1996, when the redemption price
shall be equal to 100% of 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, a total of 355,878 shares
of such Common Stock will be issued.
On August 11, 1993, BancGroup redeemed $15 million of the 1986 Debentures at
102.25%. The redemption resulted in an extraordinary loss of $746,000
($463,000, net of tax). The redemption also reduced by 535,000 the number of
fully diluted shares outstanding. The redemption was funded primarily by a $15
million term note discussed in the following paragraph.
BancGroup has a term note with $12,250,000 outstanding at December 31, 1994.
(Also see Note 8.) The term note bears interest at a rate of 1.5% above LIBOR
and is payable in annual installments of $1,000,000
51
<PAGE> 41
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
with the balance due in 1998. All of the capital stock of BancGroup's
subsidiary banks is pledged as collateral. The agreement contains restrictive
covenants which, among other things, limit the sale of assets, incurrance of
additional indebtedness, repurchase of BancGroup stock, and requires BancGroup
to maintain certain specified financial ratios.
BancGroup had long-term Federal Home Loan Bank (FHLB) Advances outstanding
of $2,530,000 and $1,489,000 at December 31, 1994 and 1993, respectively. These
advances bear interest rates of 4% to 7.53% and mature from 1999 to 2011.
BancGroup, with the acquisition of First AmFed, also assumed the real estate
mortgage investment conduit (REMIC) bonds through a conduit, Service Financial
Corporation, a subsidiary of Colonial Bank. These bonds were series A (four
classes) with an original principal amount of $28,123,000 and a coupon interest
rate of 7.875%. As of December 31, 1994 the bonds have an outstanding balance
of $8,613,000 and are collateralized by FNMA mortgaged-backed securities with a
carrying value of $8,673,000. The collections on these securities are used to
pay interest and principal on the bonds. Only Class A-3 and A-4 bonds remain
outstanding. The REMIC bonds are summarized in the following table:
<TABLE>
<CAPTION>
Balance at
Expected December 31, 1994
Class Maturity (In thousands)
- -----------------------------------------------------------
<S> <C> <C>
A-3 June 1, 2007 $4,445
A-4 September 1, 2017 4,168
- -----------------------------------------------------------
Total $8,613
===========================================================
</TABLE>
Colonial Mortgage had purchased servicing, working capital and other notes
payable. The purchased servicing notes payable were with various lenders with
interest rates that ranged from prime minus 4% to prime plus 1.5%, due monthly,
quarterly and annually. Prime equalled 8.5% at December 31, 1994.The working
capital and other notes payable were with various lenders with interest rates
that ranged from 9.0% fixed rate to prime, reduced by compensating balance
credits limited to a base rate of 1.5%, due monthly and quarterly. The notes
payable also contain covenants which restrict the occurrence or guaranty of
debt, repayment of existing debt, sale of assets, occurrence of lease
obligations and payment of dividends. Also, the covenants require Colonial
Mortgage to maintain a required level and composition of its servicing
portfolio and maintain a required net worth. The Colonial Mortgage purchase
servicing, working capital and other notes payable were paid in full
immediately following the merger. At December 31, 1994, Colonial Mortgage had
unused lines of credit outstanding in the amount of approximately $28,731,000.
At December 31, 1994, long-term debt, including the current portion, is
scheduled to mature as follows:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------
<S> <C>
1995 $ 8,722
1996 17,257
1997 7,936
1998 15,682
1999 4,909
Thereafter 33,126
- -----------------------------------------------------------
Total $ 87,632
===========================================================
</TABLE>
10. CAPITAL STOCK
Effective February 21, 1995 the Class A Common Stock and the Class B Common
Stock were reclassified into one class of stock called Common Stock, $2.50 par
value, with equal rights for all shareholders. 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. Prior to the reclassification
the holders of Class A Common Stock had limited voting rights compared with the
holders of Class B Common Stock. The holders of the Class A Common Stock were
entitled to elect, voting as a separate class, up to 25% (rounded up to the
nearest whole number) of the entire Board of Directors of BancGroup, and the
holders of the Class B Common Stock were entitled to elect the remaining
directors. On all other matters coming before the stockholders of BancGroup,
except matters for which Delaware law requires a class vote, the holders of the
Class A Common Stock were entitled to one-twentieth (1/20) of one (1) vote per
share and the holders of the Class B Common Stock were entitled to one (1) vote
per share. Stockholders of BancGroup may not act by written consent or call
special meetings.
At the option of the holder of record, and subject to adjustment to avoid
dilution in the event of certain occurrences, each share of BancGroup Class B
Common Stock was convertible at any time into one share of Class A Common
Stock. Shares of Class A Common Stock were not convertible into any other
securities of BancGroup.
11. REGULATORY 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 $41.1
million of retained earnings plus certain 1995 earnings would be available for
distribution to BancGroup as dividends in 1995 without prior approval from the
respective regulatory authorities.
The subsidiary banks are required by law to maintain noninterest-bearing
deposits with the Federal Reserve Bank to meet regulatory reserve requirements.
At December 31, 1994, these deposits totaled $40.3 million.
52
<PAGE> 42
12. 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, 1994 were as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------
<S> <C>
1995 $ 3,541
1996 2,803
1997 2,168
1998 1,596
1999 1,519
Thereafter 6,473
- --------------------------------------------------------
Total $18,100
========================================================
</TABLE>
Rent expense for all leases amounted to $4,393,000 in 1994, $3,638,000 in
1993 and $4,044,000 in 1992.
13. EMPLOYEE BENEFIT PLANS
BancGroup and its subsidiaries are participants in a pension plan with other
companies under common control (which includes The Colonial Company, see Note
16). This plan 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. For purposes of determining the
actuarial present value of the projected benefit obligation, the weighted
average discount rate was 8.5% for 1994, 7% for 1993 and 9% for 1992. The rate
of increase in future compensation levels was 5.00% for 1994, 4.25% for 1993
and 6% for 1992. The expected long-term rate of return on assets was 9% for
1994, 1993, and 1992.
BancGroup's employee pension benefit plan status at December 31:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- --------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $ 6,405 $ 8,948
Vested benefit obligation $ 6,557 $ 9,373
Projected benefit obligation for
service rendered to date $ 9,029 $11,912
Plan assets at fair value 8,994 9,638
- --------------------------------------------------------
Plan assets under projected
benefit obligation (35) (2,274)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (1,879) 117
Unrecognized prior service cost (299) 40
Unrecognized net asset at
January, 1986 being recognized
over 19 years (42) (46)
- --------------------------------------------------------
Accrued pension cost $(2,255) $(2,163)
========================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost $ 849 $ 616 $ 513
Interest cost 619 538 463
Actual return on plan assets (614) (442) (448)
Net amortization and deferral (27) (147) (122)
- --------------------------------------------------------
Net pension cost $ 827 $ 565 $ 406
========================================================
</TABLE>
During 1994, the Company completed a partial settlement of a previously
acquired financial institution's defined benefit plan, resulting in an
immaterial gain.
At December 31, 1994 and 1993, the pension plan assets included investments
in Class A Common Stock of BancGroup of 5% each year. Pension plan assets are
distributed approximately 16% in U.S. Government and agency issues, 39% in
Corporate bonds and 30% in equity securities including Colonial BancGroup Class
A Common Stock and 1% in preferred stock.
BancGroup also has an incentive savings plan (the "Savings Plan") for all
of the employees of BancGroup and its subsidiaries. The Savings Plan, which is
administered by The Colonial Company (see Note 16), 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
53
<PAGE> 43
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
includes purchase of Common Stock of BancGroup. Charges to operations for this
plan amounted to $559,000, $452,000 and $374,000 for 1994, 1993, 1992,
respectively.
14. 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. An aggregate of 550,000 shares of Common Stock are
reserved for issuance under the 1992 Plan. At December 31, 1994 and 1993,
492,269 shares 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 800,000 shares of
Common Stock are reserved for issuance under the 1992 Nonqualified Plan. At
December 31, 1994 and 1993, 786,500 shares remained available for the granting
of options under the 1992 Nonqualified Plan.
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.
Following is a summary of the transactions in Class A and Class B Common
Stock under these plans for the years ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
SHARES UNDER OPTION
- ---------------------------------------------------------
NONQUALIFIED
PLANS PLANS
COMMON STOCK COMMON STOCK
CLASS A CLASS B CLASS A CLASS B
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
December 31, 1991 67,140 17,750 193,110 28,750
Exercised (at $6.16-
$7.25 per share) (10,680) (5,380) (15,620) (6,620)
- ---------------------------------------------------------
Outstanding at
December 31, 1992 56,460 12,370 177,490 22,130
Granted (at $4.25-
$15.73 per share) 57,731 13,500
Exercised (at $6.16-
$6.38 per share) (2,500) (18,850)
- ---------------------------------------------------------
Outstanding at
December 31, 1993 111,691 12,370 172,140 22,130
Exercised (at $4.25-
$13.00 per share) (52,078) (15,000)
- ---------------------------------------------------------
Outstanding at
December 31, 1994 59,613 12,370 157,140 22,130
- ---------------------------------------------------------
</TABLE>
At December 31, 1994, the total shares outstanding and exercisable under
these option plans were as follows:
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(1)
- ---------------------------------------------------------
AGGREGATE AGGREGATE
RANGE OF OPTION OPTION
OPTION PRICES SHARES PRICE SHARES PRICE
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
$6.16-$6.38 143,640 887,023 22,130 136,321
$7.25 38,222 277,110 12,370 89,683
$9.75-$11.48 7,891 86,610
$15.73-$18.50 27,000 462,105
- ---------------------------------------------------------
Total 216,753 $1,712,848 34,500 $226,004
=========================================================
</TABLE>
(1) On February 21, 1995, the Class A and Class B Common Stock were
reclassified into one class.
In 1987 BancGroup adopted the Restricted Stock Plan for Directors
("Directors Plan") whereby directors of BancGroup and its subsidiary banks may
receive BancGroup Class A 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 this election six
months prior to the inception of their term. 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 1994,
1993 and 1992, respectively, 14,267, 13,116, and 17,024 shares of Class A
Common Stock were issued under the Directors
54
<PAGE> 44
Plan, representing approximately $284,000, $197,000, and $159,000 in directors'
fees for 1994, 1993 and 1992, respectively.
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 20% per year commencing on the first
anniversary of the award. An aggregate of 750,000 shares have been reserved for
issuance under this Plan. There were 650 shares outstanding with none vested at
December 31, 1994.
In 1994 BancGroup adopted the Employee Stock Purchase Plan which provides
salaried employees of BancGroup with a convenient way to become shareholders of
BancGroup. The participant authorizes a regular payroll deduction of not less
than $25 or more than 10% of salary. The participant may also contribute whole
dollar amounts of not less than $100 or more than $1,000 each month toward the
purchase of the stock at market price. There are 150,000 shares authorized for
issuance under this Plan. There were 2,186 shares issued and outstanding under
this Plan at December 31, 1994.
15. CONTINGENCIES
BancGroup and its subsidiary banks 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,
1994, will have a materially adverse effect on BancGroup's financial
statements.
16. RELATED PARTIES
As described in Note 10, on February 21, 1995 BancGroup's Class A and Class
B Common Stock were reclassified into one class. Prior to the
reclassification, BancGroup was under common control with an affiliated entity,
The Colonial Company and its subsidiaries, which were engaged in real estate,
construction, mortgage banking, insurance and broadcasting activities. Total
outstanding loan balances to the control group amounted to $15.2 million and
$14.4 million at December 31, 1994 and 1993, respectively.
Most of the insurance coverage for vendor single interest, credit life, and
accident and health insurance was provided in 1994 to customers of BancGroup's
subsidiary bank by subsidiaries of The Colonial Company. Premiums collected
from customers and remitted to The Colonial Company on such insurance were
approximately $1,986,000, $1,287,000, and $1,185,000 in 1994, 1993 and 1992,
respectively.
BancGroup, Colonial Bank and Colonial Mortgage lease premises, including
their principal corporate offices, from affiliates of The Colonial Company.
Amounts paid under these leases approximated $1,600,000, $1,499,000 and
$1,455,000 in 1994, 1993 and 1992, respectively.
During 1994, 1993 and 1992, BancGroup and its subsidiaries paid or accrued
fees of approximately $1,326,000, $949,000, and $922,000 respectively, for
legal services required of law firms in which a partner of the firm serves on
the Board of Directors.
17. OTHER EXPENSE
The following charges have been included in Other Expense:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Stationery, printing,
and supplies $ 2,703 $ 2,692 $ 2,326
Postage 1,609 1,514 1,462
Telephone 2,834 2,539 2,032
Insurance 1,645 1,410 1,345
Legal fees 2,635 1,690 1,792
Advertising and
public relations 2,585 1,579 1,521
FDIC assessment 4,643 3,527 3,259
Other 15,430 13,704 10,679
- --------------------------------------------------------
Total $34,084 $28,655 $24,416
========================================================
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $15,021 $10,835 $ 6,109
State 1,115 1,070 1,118
Deferred (1,794) (3,019) (1,512)
- --------------------------------------------------------
Total $14,342 $ 8,886 $ 5,715
========================================================
</TABLE>
BancGroup adopted SFAS No. 109 as of January 1, 1993, as described in Note
1. This change in accounting principle resulted in a $3,219,000 ($.29 per
fully-diluted share) credit being reported as the cumulative effect of a change
in accounting for income taxes in the 1993 statement of income. Prior period
financial statements have not been restated.
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:
55
<PAGE> 45
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate
on income from
operations $14,578 $ 9,808 $7,231
Add:
State income taxes, net
of federal tax benefit 746 566 413
Amortization of net
purchase accounting
adjustments 455 375 399
- --------------------------------------------------------
Total 15,779 10,749 8,043
========================================================
Deduct:
Nontaxable interest
income 1,375 1,251 1,218
Dividends received
deduction 233 425 332
Utilization of alternative
minimum tax credit
carryforward 898
Other (171) 187 (120)
- --------------------------------------------------------
Total 1,437 1,863 2,328
- --------------------------------------------------------
TOTAL INCOME TAXES $14,342 $ 8,886 $5,715
========================================================
</TABLE>
Applicable income taxes on realized securities gains of $49,000, $19,000,
and $448,000 for 1994, 1993, and 1992, respectively, are included in the
provision for income taxes. For federal income tax purposes, a capital loss
carryover was utilized in 1992 to offset capital gains totaling approximately
$1,100,000 which resulted from the sale of certain securities.
The components of BancGroup's net deferred tax asset as of December 31, 1994
and 1993, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- --------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan
losses $12,260 $10,555
Pension accrual in excess
of contributions 681 630
Excess gains on purchase
servicing rights 4,399 4,000
Acquisiton related accruals 48 689
Other real estate owned
writedowns 1,311 2,913
Other liabilities and reserves 344 426
Deferred loan fees, net 699 517
Securities valuation reserve 105 105
Excess healthcare contributions 715 --
Unrealized loss on securities
available for sale 1,781
Other 1,412 747
- --------------------------------------------------------
Total deferred tax asset 23,755 20,582
========================================================
Deferred tax liabilities:
Accelerated tax depreciation 236 1,098
Accumulated accretion/discount
on bonds 1,627 1,703
Accumulated amortization of
purchased servicing rights 1,141 721
Differences between financial
reporting and tax bases of net
assets acquired 984 843
Stock dividends received 906 800
Prepaid FDIC assessment 827
Loan loss reserve recapture 2,727 3,476
Other 174 383
- --------------------------------------------------------
Total deferred tax liability 8,622 9,024
- --------------------------------------------------------
Net deferred tax asset $15,133 $11,558
========================================================
</TABLE>
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.
The sources of the deferred tax benefit for 1992 and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1992
- --------------------------------------------------------
<S> <C>
Provision for possible
loan losses $(947)
Other (5)
- --------------------------------------------------------
Total $(952)
========================================================
</TABLE>
56
<PAGE> 46
19. 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.
- - 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.
- - DEPOSITS -- The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at December 31, 1994
and 1993. 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 -- For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
- - 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.
- - PURCHASED MORTGAGE SERVICING RIGHTS--Fair value is estimated by discounting
future cash flows from servicing fees using discount rates that approximate
current market rates.
- - COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT -- The value of
these 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, 1994 and 1993.
- --------------------------------------------------------------------------------
The estimated fair values of BancGroup's financial instruments at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------------------
CARRYING FAIR Carrying Fair
(In thousands) AMOUNT VALUE Amount Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 131,997 $ 131,997 $ 160,499 $ 160,499
Securities available for sale 78,265 78,265 108,116 108,411
Investment securities 326,599 316,822 291,438 295,728
Mortgage loans held for sale 60,536 60,536 361,496 361,496
Purchased mortgage servicing rights 54,797 101,327 28,549 77,496
Loans 2,093,703 1,771,989
Less: allowance for loan losses (33,410) (28,633)
- -----------------------------------------------------------------------------------------------------------------
Loans, net 2,060,293 2,081,021 1,743,356 1,822,573
- -----------------------------------------------------------------------------------------------------------------
Total $2,712,487 $2,769,968 $2,693,454 $2,826,203
=================================================================================================================
Financial liabilities:
Deposits $2,171,464 $2,154,144 $2,190,998 $2,201,802
Short-term borrowings 344,550 344,550 295,968 295,968
Long-term debt 86,501 82,758 74,855 68,829
- -----------------------------------------------------------------------------------------------------------------
Total $2,602,515 $2,581,452 $2,561,821 $2,566,599
=================================================================================================================
</TABLE>
57
<PAGE> 47
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
20. THE COLONIAL BANCGROUP, INC.
(PARENT COMPANY ONLY)
STATEMENT OF CONDITION
(as restated)
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------
(In thousands) 1994 1993
- ---------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash* $ 1,372 $ 1,562
Investment in subsidiaries* 212,268 195,562
Intangible assets 4,028 4,435
Other assets 5,857 5,449
- ---------------------------------------------------------
Total assets $223,525 $207,008
=========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 1,000 $ 1,000
Subordinated debt 17,458 17,458
Other long-term debt 11,250 13,250
Other liabilities 2,266 2,536
Shareholders' equity 191,551 172,764
- ---------------------------------------------------------
Total liabilities and
shareholders' equity $223,525 $207,008
=========================================================
</TABLE>
*Eliminated in consolidation.
STATEMENT OF OPERATIONS
(as restated)
<TABLE>
<CAPTION>
Years Ended December 31
- --------------------------------------------------------
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from
subsidiaries* $11,883 $10,395 $10,030
Interest and dividends
on investments:
Short-term investments
with subsidiary bank* 66 89 107
Other -- -- 23
Securities gains, net -- -- 1,104
Other income 1,063 1,077 1,124
- --------------------------------------------------------
Total income 13,012 11,561 12,388
=========================================================
EXPENSES:
Interest 2,486 2,702 3,025
Salaries and
employee benefits 928 725 957
Occupancy expense 293 291 303
Furniture and
equipment expense 111 135 124
Amortization of
intangible assets 406 406 406
Other expenses 3,247 2,067 2,018
- --------------------------------------------------------
Total expenses 7,471 6,326 6,833
=========================================================
Income before income
taxes, extraordinary
item and equity in
undistributed net
income of subsidiaries 5,541 5,235 5,555
Income tax benefit 2,224 1,728 1,475
Extraordinary item,
net of income taxes -- (463) --
- --------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 7,765 6,500 7,030
Equity in undistributed
net income of
subsidiaries* 19,545 15,393 8,522
- --------------------------------------------------------
Net income $27,310 $21,893 $15,552
=========================================================
</TABLE>
*Eliminated in consolidation.
58
<PAGE> 48
20. THE COLONIAL BANCGROUP, INC. (continued)
(PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
(as restated)
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 27,310 $ 21,893 $15,552
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Gain on sale of assets (7) (3) (1,102)
Depreciation, amorti-
zation, and accretion 637 670 711
Decrease (increase) in
prepaids and other
assets 86 1,077 (58)
(Decrease) increase
in accrued income
taxes (727) (2,243) 36
Increase (decrease)
in accrued expenses 79 (122) 449
Undistributed
earnings
of subsidiaries* (19,545) (15,393) (8,522)
- --------------------------------------------------------
Total adjustments (19,477) (16,014) (8,486)
- --------------------------------------------------------
Net cash provided by
operating activities 7,833 5,879 7,066
- --------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sales
of securities -- -- 2,229
Capital expenditures (11) (18) (84)
Proceeds from sale
of premises and
equipment 36 8 22
Additional investment
in subsidiaries* -- -- (587)
- --------------------------------------------------------
Net cash provided by
(used in) investing
activities 25 (10) 1,580
- --------------------------------------------------------
</TABLE>
STATEMENT OF CASH FLOWS (continued)
(as restated)
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1994 1993 1992
- --------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from advances
from subsidiaries -- 136 --
Proceeds from issuance
of long-term debt -- 15,000 --
Repayment of
long-term debt (2,000) (3,550) (2,100)
Retirement of sub-
ordinated debt -- (15,338) (32)
Proceeds from
issuance of
common stock 1,384 558 539
Dividends paid (7,432) (4,847) (4,175)
Other, net -- (12) --
- --------------------------------------------------------
Net cash used in
financing activities (8,048) (8,053) (5,768)
- --------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents (190) (2,184) 2,878
Cash and cash
equivalents at
beginning of year 1,562 3,746 868
- --------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR* $ 1,372 $ 1,562 $ 3,746
- --------------------------------------------------------
Supplemental
disclosure of cash
flow information:
Cash paid (received)
during the year for:
Interest $ 2,489 $ 2,674 $ 3,028
Income taxes (1,500) (24) (1,510)
- --------------------------------------------------------
</TABLE>
*Eliminated in consolidation.
59
<PAGE> 49
OTHER INFORMATION REPORTED
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the registrant's Registration statements on Form
S-8 Nos. 33-41036, 33-11540, 33-13376 and 2-89959:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
60
