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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 6711 63-0661573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
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ONE COMMERCE STREET, SUITE 800 (334) 240-5000
MONTGOMERY, ALABAMA 36104 (Telephone No.)
(Address of principal executive offices)
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---------------------------------
W. FLAKE OAKLEY, IV
SECRETARY
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36102
(Name and address of agent for service)
Copies to:
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MICHAEL D. WATERS, ESQUIRE A. GEORGE IGLER, ESQ.
MILLER, HAMILTON, SNIDER & ODOM, L.L.C. IGLER & DOUGHERTY, P.A.
ONE COMMERCE STREET, SUITE 802 1501 PARK AVENUE EAST
P. O. BOX 19 TALLAHASSEE, FLORIDA 32301
MONTGOMERY, ALABAMA 36101-0019
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE (1)
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================================================================================================================
Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price
- ----------------------------------------------------------------------------------------------------------------
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Common Stock, par
value $2.50 per 289,520 Not Applicable $6,077,000 $ 1823.28
share
================================================================================================================
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(1) Calculated pursuant to Rule 457(f)(1) and (3) based upon a market
value of $21.50 per share of 580,500 shares of company acquired
(including 35,500 shares subject to employee stock options) less
$6,403,750 cash to be paid by registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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THE COLONIAL BANCGROUP, INC.
CROSS REFERENCE SHEET
TO ITEMS IN FORM S-4
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<CAPTION> CAPTION IN PROSPECTUS OR OTHER
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN REGISTRATION STATEMENT
- -------------------------------- ----------------------------------
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Item 1. Forepart of Registration Statement Facing page,
and Outside Front Cover Page of Cross Reference Sheet,
Prospectus Outside front cover page of
Prospectus
Item 2. Inside Front and Outside Back "AVAILABLE INFORMATION,"
Cover Pages of Prospectus Inside front cover page of Pros-
pectus, "DOCUMENTS INCOR-
PORATED BY REFERENCE,"
"TABLE OF CONTENTS"
Item 3. Risk Factors, Ratio of Earnings "SUMMARY," Cover Page of Pros-
to Fixed Charges and Other pectus, "PER SHARE
Information DATA," "THE MERGER," "PRO
FORMA FINANCIAL
INFORMATION" AND
"SELECTED FINANCIAL
DATA"
Item 4. Terms of the Transaction "THE MERGER," "DOCUMENTS
INCORPORATED BY
REFERENCE"
Item 5. Pro Forma Financial Information "PER SHARE DATA,"
"CONDENSED PRO FORMA
STATEMENTS OF CONDITION,"
AND "CONDENSED PRO FORMA
STATEMENTS OF INCOME"
Item 6. Material Contacts with the Company "THE MERGER -- Background
of the Merger," "First Family's
Board of Directors' Reasons for
Approving the Merger," and
"Interests of Certain Persons
in the Merger"
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Item 7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8. Interests of Named Experts and "LEGAL MATTERS" and
Counsel "EXPERTS"
Item 9. Disclosure of Commission Position Not Applicable; See Items
on Indemnification for Securities 20 and 22 below
Act Liabilities
Item 10. Information with Respect to S-3 "DOCUMENTS INCORPORAT-
Registrants ED BY REFERENCE," "BUSI-
NESS OF BANCGROUP"
Item 11. Incorporation of Certain Information "DOCUMENTS INCORPORATED
by Reference BY REFERENCE"
Item 12. Information with Respect to S-2 or Not Applicable
S-3 Registrants -- Item 12(b)
Item 13. Incorporation of Certain Information Not Applicable
by Reference
Item 14. Information with Respect to Not Applicable
Registrants Other Than S-3 or S-2
Registrants
Item 15. Information with Respect to S-3 Not Applicable
Companies
Item 16. Information with Respect to S-2 or Not Applicable
S-3 Companies
Item 17. Information with Respect to "BUSINESS OF FIRST FAMILY,"
Companies Other than S-3 or S-2 "FINANCIAL STATEMENTS"
Companies
Item 18. Information if Proxies, Consents or "THE SPECIAL MEETING,"
Authorizations are to be Solicited "BUSINESS OF BANCGROUP -
Voting Securities and Principal
Stockholders," "Security Ownership
of Management," "Management
Information"
Item 19. Information if Proxies, Consents or Not Applicable
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Authorizations are not to be
Solicited or in an Exchange Offer
Item 20. Indemnification of Directors and PART II, Item 20
Officers
Item 21. Exhibits and Financial Statement PART II, Item 21
Schedules
Item 22. Undertakings PART II, Item 22
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FIRST FAMILY FINANCIAL CORPORATION
2801 SOUTH BAY STREET
EUSTIS, FLORIDA 32726
(352)357-4171
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
---------------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of First Family Financial Corporation ("First Family") will be held at
the office of First Family Bank, fsb, located at 2801 South Bay Street, Eustis,
Florida, on , , 1996, at 1:30 p.m., local time, for the
following purposes:
1. Merger. To consider and vote upon the proposed merger (the
"Merger") of First Family with and into The Colonial BancGroup, Inc.
("BancGroup"), in accordance with an Agreement and Plan of Merger, dated as
of July 19, 1996, between First Family and BancGroup (the "Agreement").
BancGroup will be the surviving corporation in the Merger. Each share of
common stock of First Family outstanding at the time of the Merger will be
exchanged for $11.75 in cash and BancGroup Common Stock with a market value
of $11.75, with cash paid in lieu of fractional shares at the market value
of such fractional shares, as described more fully in the accompanying
Joint Proxy Statement and Prospectus. The Agreement is attached to the
Joint Proxy Statement and Prospectus as Appendix A.
2. Adjournment. To approve the adjournment of the Special Meeting, if
necessary, to solicit additional proxies in the event that there are not
sufficient votes at the Special Meeting to approve the Merger.
3. Other Matters. To transact such other business as may properly
come before the Special Meeting or any adjournments thereof.
The Board of Directors of First Family has fixed the close of business on
, 1996, as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. Only holders of record
of the common stock of First Family at the close of business on that date will
be entitled to notice of and to vote at the Special Meeting, or any adjournments
thereof.
You are requested to complete and sign the enclosed form of proxy and to
mail it promptly in the enclosed envelope. The proxy may be revoked at any time
by filing a written revocation with the Secretary of First Family, by executing
a later dated proxy and delivering it to the Secretary of First Family, or by
attending the Special Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
DAVID M. SHEPHERD
Chairman of the Board
Eustis, Florida
, 1996
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PROXY STATEMENT AND PROSPECTUS
COLONIAL BANCGROUP
COMMON STOCK
FIRST FAMILY FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1996
This Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of First Family Financial Corporation, a Florida
corporation ("First Family"), with and into The Colonial BancGroup, Inc., a
Delaware corporation ("BancGroup"). This Prospectus is being furnished to the
shareholders of First Family in connection with the solicitation of proxies by
the Board of Directors of First Family for use at a special meeting of the
shareholders of First Family (the "Special Meeting") to be held on ,
, 1996, at 1:30 p.m., local time, at the offices of First Family
Bank, fsb, located at 2801 South Bay Street, Eustis, Florida, including any
adjournments thereof. At the Special Meeting, shareholders of First Family will
consider and vote upon the matters set forth in the preceding Notice of Special
Meeting of the Shareholders, as more fully described in this Prospectus.
The Merger will be consummated pursuant to the terms of a certain Agreement
and Plan of Merger dated as of July 19, 1996, by and between BancGroup and First
Family (the "Agreement"). The Agreement provides that, subject to the approval
of the Agreement by the shareholders of First Family at the Special Meeting and
the satisfaction (or waiver, to the extent that such waiver is permitted by law)
of other conditions contained in the Agreement, First Family will be merged with
and into BancGroup and BancGroup will be the surviving corporation. Each issued
and outstanding share of common stock, par value $.01 per share of First Family
(the "First Family Common Stock"), shall be converted into a combination of (i)
shares of the common stock, par value $2.50 per share, of BancGroup (the
"BancGroup Common Stock") and (ii) cash, with a total value of $23.50.
Specifically, each share of First Family Common Stock shall receive both $11.75
in cash and BancGroup Common Stock with a market value of $11.75, with the
market value determined by the average of the market price of BancGroup Common
Stock for the 10 trading days immediately preceding the Effective Date. The
shares of BancGroup Common Stock are listed on the New York Stock Exchange
("NYSE"). The closing price per share of the BancGroup Common Stock on the NYSE
on October 18, 1996 was $35.
Consummation of the Merger requires, among other things, the affirmative
vote of the holders of at least a majority of the outstanding shares of First
Family Common Stock.
BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), to register the shares of the
BancGroup Common Stock to be issued in connection with the Merger as well as to
register shares of BancGroup Common Stock to be issued upon the exercise of
employee stock options respecting First Family common stock assumed by BancGroup
as part of the Merger. This document constitutes a Proxy Statement of First
Family in connection with the solicitation of proxies by First Family for the
Special Meeting and a Prospectus of BancGroup with respect to the BancGroup
Common Stock to be issued in the Merger and upon the exercise of employee stock
options assumed in the Merger. This Prospectus and accompanying form of proxy
are first being mailed to shareholders of First Family on or about the date set
forth below.
THE BOARD OF DIRECTORS OF FIRST FAMILY UNANIMOUSLY RECOMMENDS APPROVAL OF
THE MERGER.
---------------------
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE SHARES OF BANCGROUP COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The corporate office and mailing address of First Family are 2801 South Bay
Street, Eustis, Florida 32726 (telephone 352-357-4171), and the principal office
and mailing address of BancGroup are Colonial Financial Center, One Commerce
Street, Post Office Box 1108, Montgomery, Alabama 36192 (telephone
334-240-5000).
THE DATE OF THIS PROSPECTUS IS , 1996.
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AVAILABLE INFORMATION
BancGroup is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by
BancGroup, including proxy and information statements, can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at certain
regional offices: 7 World Trade Center, 13th Floor, New York, New York 10048;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; 1401 Brickell Avenue, Suite 200, Miami, Florida 33131; 1801
California Street, Suite 4800, Denver, Colorado 80202-2648; and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as BancGroup, that file electronically with the Commission.
The BancGroup Common Stock is listed for trading on the NYSE. Reports,
including proxy and information statements, of BancGroup and other information
may be inspected at the NYSE, 20 Broad Street, New York, New York 10005.
BancGroup has filed with the Commission a Registration Statement under the
Securities Act to register the shares of BancGroup Common Stock being offered in
connection with the Merger. This Prospectus omits certain information contained
in the Registration Statement and exhibits thereto. Such Registration Statement,
including the exhibits thereto, can be inspected at the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such Registration Statement can be obtained at prescribed rates from the
Commission at that address.
The information in this Prospectus concerning BancGroup and its
subsidiaries has been furnished by BancGroup, and the information concerning
First Family and its subsidiary has been furnished by First Family. First Family
is also subject to the periodic reporting requirements of the Exchange Act and
files reports and other information with the Commission as stated above for
BancGroup.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE, WITHOUT CHARGE,
UPON REQUEST FROM THE PERSON SPECIFIED BELOW. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY BANCGROUP NO LATER THAN FIVE
BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
The following documents filed by BancGroup with the Commission are hereby
incorporated by reference into this Prospectus:
(1) BancGroup's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) BancGroup's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996;
(3) BancGroup's Report on Form 8-K dated July 17, 1996;
(4) BancGroup's Report on Form 8-K/A dated October 9, 1996; and
(5) BancGroup's Registration Statement on Form 8-A dated November 22,
1994, effective February 22, 1995, containing a description of the
BancGroup Common Stock.
All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
Special Meeting, or, in the case of the exercise of employee stock options that
are being assumed by BancGroup, prior to the exercise of such options, shall be
deemed
2
<PAGE> 8
incorporated by reference in this Prospectus and made a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed incorporated herein by reference will be deemed to be
modified or superseded for the purpose of this Prospectus to the extent that a
statement contained herein or in the other subsequently filed document which
also is or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
BancGroup has entered into the Agreement with First Family regarding the
Merger described herein. Various provisions of the Agreement are summarized or
referred to in this Prospectus, and the Agreement is incorporated by reference
into this Prospectus and attached hereto as Appendix A.
BancGroup will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of any
such person, a copy of any and all of the documents which have been incorporated
herein by reference but not delivered herewith (other than the exhibits to such
documents unless specifically incorporated herein). Such request, in writing or
by telephone, should be directed to W. Flake Oakley, IV, Secretary, The Colonial
BancGroup, Inc., One Commerce Street, Post Office Box 1108, Montgomery, Alabama
36192 (telephone 334-240-5000).
3
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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<S> <C>
SUMMARY...............................................................................
THE SPECIAL MEETING...................................................................
General...............................................................................
Record Date; Shares Entitled to Vote; Vote Required for the Merger....................
Solicitation, Voting and Revocation of Proxies........................................
Effect of Merger on Outstanding BancGroup Common Stock................................
THE MERGER............................................................................
General...............................................................................
Background of the Merger..............................................................
First Family's Board of Directors' Reasons for Approving the Merger...................
Opinion of Financial Advisor..........................................................
Recommendation of the Board of Directors of First Family..............................
BancGroup's Reasons for the Merger....................................................
Interests of Certain Persons in the Merger............................................
Conversion of First Family Common Stock...............................................
Surrender of First Family Common Stock Certificates...................................
Certain Federal Income Tax Consequences...............................................
Other Possible Consequences...........................................................
Conditions to Consummation of the Merger..............................................
Amendment or Termination..............................................................
Regulatory Approvals..................................................................
Conduct of Business Pending the Merger................................................
Commitments with Respect to Other Offers..............................................
Rights of Dissenting Shareholders.....................................................
Resale of BancGroup Common Stock Issued in the Merger.................................
Accounting Treatment..................................................................
NYSE Reporting of BancGroup Common Stock Issued in the Merger.........................
Treatment of First Family Options.....................................................
COMPARATIVE MARKET PRICES AND DIVIDENDS...............................................
BancGroup.............................................................................
First Family..........................................................................
BANCGROUP CAPITAL STOCK AND DEBENTURES................................................
BancGroup Common Stock................................................................
Preference Stock......................................................................
1986 Debentures.......................................................................
Changes in Control....................................................................
COMPARATIVE RIGHTS OF STOCKHOLDERS....................................................
Director Elections....................................................................
Removal of Directors..................................................................
Voting................................................................................
Preemptive Rights.....................................................................
Directors' Liability..................................................................
Indemnification.......................................................................
Special Meetings of Stockholders; Action Without a Meeting............................
Mergers, Share Exchanges and Sales of Assets..........................................
Amendment of Certificate of Incorporation and Bylaws..................................
Rights of Dissenting Stockholders.....................................................
</TABLE>
4
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PAGE
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Antitakeover Statutes.................................................................
Preferred Stock.......................................................................
Effect of the Merger on First Family Shareholders.....................................
PRO FORMA INFORMATION.................................................................
Condensed Pro Forma Statements of Condition (Unaudited)...............................
Condensed Pro Forma Statements of Income (Unaudited)..................................
Pro Forma Selected Financial Data (Unaudited).........................................
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES.........................................
Selected Financial Data...............................................................
FIRST FAMILY FINANCIAL CORPORATION....................................................
Selected Financial Data...............................................................
Management's Discussion and Analysis of Financial Condition and Results of Operations
for the Fiscal Years Ended June 30, 1996, 1995 and 1994.............................
BUSINESS OF BANCGROUP.................................................................
General...............................................................................
Lending Activities....................................................................
Proposed Affiliate Banks..............................................................
Voting Securities and Principal Stockholders..........................................
Security Ownership of Management......................................................
Management Information................................................................
Certain Regulatory Considerations.....................................................
BUSINESS OF FIRST FAMILY..............................................................
General...............................................................................
Bank..................................................................................
Primary Services Area -- Offices......................................................
Lending Activities....................................................................
Investment Activities.................................................................
Sources of Funds......................................................................
Employees.............................................................................
Taxation..............................................................................
Regulation and Supervision............................................................
Regulation of the Company.............................................................
Regulation of the Bank................................................................
Legal Proceedings.....................................................................
Principal Holders of First Family Common Stock........................................
First Family Common Stock Owned by Management.........................................
ADJOURNMENT OF SPECIAL MEETING........................................................
OTHER MATTERS.........................................................................
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS................................
LEGAL MATTERS.........................................................................
EXPERTS...............................................................................
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
APPENDIX A -- Agreement and Plan of Merger............................................ A-1
APPENDIX B -- Opinion of Financial Adviser............................................ B-1
APPENDIX C -- Letter of Understanding Between BancGroup and David M. Shepherd......... C-1
</TABLE>
5
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OR PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCGROUP OR FIRST FAMILY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF BANCGROUP OR FIRST FAMILY SINCE THE DATE OF THIS PROSPECTUS OR THAT
INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THE DATES
THEREOF.
6
<PAGE> 12
SUMMARY
The following provides a summary of certain information included in this
Prospectus. This summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Shareholders of First Family are urged to read
this Prospectus in full.
GENERAL
This Prospectus relates to the issuance of shares of BancGroup Common Stock
in connection with the proposed Merger of First Family with and into BancGroup.
As a result of the Merger, First Family's subsidiary, First Family Bank, fsb
(the "Bank"), will become a wholly owned subsidiary of BancGroup. Following the
Merger, the name of the Bank will initially be changed to "Colonial Bank, FSB."
BancGroup expects that it will eventually merge the Bank with Colonial Bank,
Orlando. See "THE MERGER -- General."
THE SPECIAL MEETING
The Special Meeting will be held at the office of the Bank, located at 2801
South Bay Street, Eustis, Florida on , 1996, at 1:30 p.m., local
time, for the purpose of considering and voting upon the Agreement. Only holders
of record of First Family Common Stock at the close of business on ,
1996 (the "Record Date") are entitled to the notice of and to vote at the
Special Meeting. As of such date, 545,000 shares of First Family Common Stock
were issued and outstanding. See "THE SPECIAL MEETING."
THE COMPANIES
BancGroup. BancGroup is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "BHCA"). It was organized in
Delaware in 1974. BancGroup operates wholly owned commercial banking
subsidiaries in the states of Alabama, Florida, Georgia and Tennessee, each
under the name Colonial Bank. Colonial Bank conducts a full service commercial
banking business in the State of Alabama through 110 banking offices. In
Tennessee, Colonial Bank conducts a general commercial banking business through
three offices. In Georgia, BancGroup operates a wholly-owned federal savings
bank, Colonial Bank, FSB, which has four offices in the Atlanta, Georgia area,
and Colonial Bank, located in Lawrenceville, Georgia operates seven offices. In
Florida, Colonial Bank operates eight offices. BancGroup has also entered into
agreements or letters of intent to acquire four additional banks. Colonial
Mortgage Company, a subsidiary of the Colonial Bank in Alabama, is a mortgage
banking company which services approximately $10 billion in residential loans
and which originates residential mortgages in 29 states through 6 regional
offices. At June 30, 1996, BancGroup had consolidated total assets of $4.5
billion and consolidated stockholders equity of $317.6 million. See "BUSINESS OF
BANCGROUP."
First Family. First Family is a unitary savings and loan holding company
within the meaning of the Home Owners Loan Act of 1933, as amended ("HOLA").
First Family was organized in November 1994 as a holding company for the Bank.
The Bank was chartered in 1935 as a mutual savings and loan association. The
Bank, which converted from a mutual to stock form of ownership in October, 1992,
operates as a federal savings bank through six full-time branches in Eustis,
Leesburg, Tavares, Mount Dora, Umatilla, and Lady Lakes, Florida. At June 30,
1996, First Family had total consolidated assets of $155.9 million, deposits of
$143.4 million and stockholders' equity of $9.2 million. See "BUSINESS OF FIRST
FAMILY."
TERMS OF THE MERGER
The Agreement provides for the Merger of First Family with and into
BancGroup, with BancGroup to be the surviving corporation. Upon the date of
consummation of the Merger (the "Effective Date"), each outstanding share of
First Family Common Stock shall be converted by operation of law and without any
action by any holder thereof into shares of BancGroup Common Stock and cash,
with a total value equal to $23.50 per share of First Family Common Stock (the
"Merger Consideration"). Specifically, each outstand-
7
<PAGE> 13
ing share of First Family Common Stock shall receive both $11.75 in cash and
BancGroup Common Stock with a market value of $11.75. The number of shares of
BancGroup Common Stock into which each outstanding share of First Family Common
Stock on the Effective Date shall be converted shall be equal to $11.75 divided
by the "Market Value". The "Market Value" shall represent the per share market
value of the BancGroup Common Stock at the Effective Date and shall be
determined by calculating the average of the closing prices of the Common Stock
of BancGroup as reported by the NYSE on each of the 10 trading days ending on
the trading day immediately preceding the Effective Date. No fractional shares
of BancGroup Common Stock will be issued in connection with the Merger. To the
extent cash is paid in lieu of fractional shares, the cash will be paid based
upon the Market Value.
As of the date of this Prospectus, First Family had granted options (the
"First Family Options") which entitled the holders thereof to acquire up to
35,500 shares of First Family Common Stock. On the Effective Date, BancGroup
shall assume all First Family Options outstanding, and each such option shall
represent the right to acquire BancGroup Common Stock on the same terms
applicable to the First Family Options. The number of shares of BancGroup Common
Stock to be issued pursuant to such options shall equal the number of shares of
First Family Common Stock subject to such First Family Options multiplied by the
Exchange Ratio, as defined below, provided that no fractions of shares of
BancGroup Common Stock shall be issued. The number of shares of BancGroup Common
Stock to be issued upon the exercise of First Family Options, if a fractional
share exists, shall equal the number of whole shares obtained by rounding to the
nearest whole number, giving account to such fraction. The exercise price for
the acquisition of BancGroup Common Stock shall be the exercise price for each
share of First Family Common Stock subject to such options divided by the
Exchange Ratio, adjusted appropriately for any rounding to whole shares that may
be required. The "Exchange Ratio" shall mean the result obtained by dividing
$23.50 by the Market Value.
First Family shareholders will be given notice of the Merger promptly after
the Effective Date of the Merger. Cash to be distributed and certificates for
the shares of BancGroup Common Stock issued will not be distributed or dividends
paid on such shares until shareholders surrender their certificates representing
their shares of First Family Common Stock.
See "THE MERGER -- Conversion of First Family Common Stock," "Surrender of
First Family Common Stock Certificates," and "Treatment of First Family
Options."
For certain information concerning dissenters' rights, voting at the
Special Meeting, and management of BancGroup and First Family, see "THE
MERGER -- Rights of Dissenting Shareholders," "-- Conversion of First Family
Common Stock"; "THE SPECIAL MEETING -- Solicitation, Voting and Revocation of
Proxies," "-- Record Date; Shares Entitled to Vote; Vote Required"; "BUSINESS OF
BANCGROUP -- Voting Securities and Principal Stockholders," "-- Security
Ownership of Management," and "BUSINESS OF FIRST FAMILY -- Principal Holders of
Common Stock," and "-- Common Stock Owned By Management."
RECOMMENDATION OF FIRST FAMILY'S BOARD OF DIRECTORS
The Board of Directors of First Family has unanimously approved the
Agreement. THE BOARD OF DIRECTORS OF FIRST FAMILY BELIEVES THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF FIRST FAMILY, AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AGREEMENT. For a
discussion of the factors considered by the Board of Directors in reaching its
conclusions, see "THE MERGER -- Background of the Merger" and "First Family's
Board of Directors' Reasons for Approving the Merger."
OPINION OF FINANCIAL ADVISOR
First Family has received an opinion from Mercer Capital Management, Inc.
("Mercer Capital") that the Merger is fair to the shareholders of First Family
from a financial point of view. See "THE MERGER -- Opinion of Financial
Advisor."
8
<PAGE> 14
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain of the directors and executive officers of First Family hold First
Family Options which entitle them to purchase, in the aggregate, up to 35,500
shares of First Family Common Stock. Under the terms of the Agreement, any First
Family Options which are not exercised prior to the Effective Date will be
assumed by BancGroup. See "THE MERGER -- Conversion of First Family Common
Stock" and "Treatment of First Family Options."
David M. Shepherd, Chairman of the Board, President and Chief Executive
Officer of First Family, has certain employment, health insurance coverage and
other agreements with First Family or the Bank which entitle Mr. Shepherd to
certain retirement payments, lump-sum cash payments and other benefits in the
event of a change in control of First Family. BancGroup has agreed to assume
these agreements and benefits. See Appendix C. BancGroup has also agreed to
assume certain agreements relating to Bradley R. Meredith, Mario J. D'Alessio
and Susan E. Neal, executive officers of the Bank, respecting certain
employment, severance and retirement arrangements.
On the Effective Date, and subject to the existing agreements referenced
above, all employees of First Family shall, at BancGroup's option, either become
employees of BancGroup or its subsidiaries or be entitled to severance benefits
in accordance with BancGroup's severance policy as of the date of the Agreement.
All employees of First Family who become employees of BancGroup or its
subsidiaries on the Effective Date shall be entitled, to the extent permitted by
applicable law, to participate in all benefit plans of BancGroup to the same
extent as BancGroup's employees.
Except as indicated above, none of the directors or executive officers of
First Family, and no associate of any such person, has any substantial direct or
indirect interest in the Merger, other than an interest arising from the
ownership of First Family Common Stock.
See "THE MERGER -- Interests of Certain Persons in the Merger."
VOTE REQUIRED
Under Florida law, the Agreement must be approved by the affirmative vote
of the holders of at least a majority of the outstanding shares of First Family
Common Stock. Each share of First Family Common Stock is entitled to one vote on
the Agreement. Approval of the Agreement and the Merger by BancGroup
stockholders is not required under Delaware, Florida or other applicable law, or
the rules of the NYSE on which the BancGroup Common Stock is listed. See "THE
SPECIAL MEETING."
Only holders of record of First Family Common Stock at the close of
business on , 1996 are entitled to notice of and to vote at the
Special Meeting. As of such date, 545,000 shares of First Family Common Stock
were issued and outstanding. As of the Record Date, First Family's directors and
executive officers held approximately 20.90% of the outstanding shares of First
Family Common Stock. As of the same date, the directors, executive officers and
affiliates of BancGroup held no shares of First Family Common Stock. See "THE
SPECIAL MEETING."
The directors of First Family own 100,330 shares of First Family Common
Stock representing approximately 18% of the outstanding shares and have agreed
with BancGroup to vote their shares in favor of the Merger. Directors and
executive officers of BancGroup beneficially own in the aggregate 2,187,008
shares of BancGroup Common Stock representing approximately 13% of the
outstanding shares, but no vote of BancGroup stockholders is required to approve
the Merger. See "THE SPECIAL MEETING."
Proxies should be returned to First Family in the envelope enclosed
herewith. Shareholders of First Family submitting proxies may revoke their
proxies by (i) giving notice of such revocation in writing to the Secretary of
First Family at or prior to the Special Meeting, (ii) by executing and
delivering a proxy bearing a later date to the Secretary of First Family at or
prior to the Special Meeting, or (iii) by attending the Special Meeting and
voting in person. Because approval of the Merger requires the approval of at
least a majority of the outstanding shares of First Family Common Stock, failure
to submit a proxy or failure to vote in person at the Special Meeting will have
the same effect as a negative vote. See "THE SPECIAL MEETING -- Solicitation,
Voting and Revocation of Proxies."
9
<PAGE> 15
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of First Family Common Stock as of the Record Date are not entitled
to dissenters' rights of appraisal under Florida law because the shares of First
Family Common Stock are quoted on NASDAQ as a National Market System Security.
See "THE MERGER -- Rights of Dissenting Shareholders."
CONDITIONS TO THE MERGER
The parties' obligation to consummate the Merger is subject to the
satisfaction (or waiver, to the extent permitted by law) of various conditions
set forth in the Agreement.
The mutual obligations of the parties to consummate the Merger are subject
to the following conditions, among others: (i) the approval of the Agreement by
the holders of at least a majority of the outstanding shares of First Family
Common Stock; (ii) the approval of the Merger by The Board of Governors of the
Federal Reserve System (the "Federal Reserve"); (iii) the absence of any pending
or threatened litigation which seeks to restrain or prohibit the Merger or any
investigative action by a governmental agency which might result in such a
proceeding; (iv) the consummation of the Merger on or before March 31, 1997; (v)
the registration statement respecting the BancGroup Common Stock to be issued in
the Merger shall be in effect; and (vi) and receipt of legal opinions as to
certain matters, including tax matters.
The obligation of First Family to consummate the Merger is further subject
to several conditions, including: (i) BancGroup shall have incurred no losses
which, in the aggregate, exceed $14,000,000; (ii) the shares of BancGroup Common
Stock to be issued under the Agreement shall have been approved for listing on
the NYSE; and (iii) First Family shall have received an opinion of Mercer
Capital that the Merger is fair to the shareholders of First Family from a
financial point of view.
The obligation of BancGroup to consummate the Merger is subject to various
conditions, including: (i) First Family and its subsidiaries shall have incurred
no losses prior to the Effective Date which, in the aggregate, exceed $450,000;
and (ii) the consolidated shareholders' equity of First Family as that term is
defined in the Agreement, shall be no less than $9,000,000 as of the Effective
Date.
An application for approval of the Merger by the Federal Reserve was filed
with such agency on September 6, 1996. The regulatory approval process is
expected to take approximately three months from that date, and it is
anticipated that the Merger will be consummated during the first calendar
quarter of 1997.
See "THE MERGER -- Conditions to Consummation of the Merger" and
"Regulatory Approvals."
AMENDMENT OR TERMINATION OF AGREEMENT
The Boards of Directors of BancGroup and First Family may agree to amend or
terminate the Agreement at any time prior to the Effective Date. However, the
Board of Directors of First Family shall not agree to any amendments to the
Agreement which would alter the Merger Consideration or which, in the opinion of
the Board of Directors of First Family, would adversely affect the rights of the
shareholders of First Family, or which would change any term of First Family's
articles of incorporation, unless such amendments are approved by the holders of
a majority of the outstanding First Family Common Stock. Such amendments may
require the filing of an amendment to the Registration Statement, of which this
Prospectus forms a part. See "THE MERGER -- Amendment or Termination."
COMPARISON OF SHAREHOLDER RIGHTS
The rights of the holders of the First Family Common Stock may be different
from the rights of the holders of the BancGroup Common Stock. A discussion of
these rights and a comparison thereof is set forth in the section of this
Prospectus at "COMPARATIVE RIGHTS OF STOCKHOLDERS."
10
<PAGE> 16
FEDERAL INCOME TAX CONSEQUENCES
No ruling with respect to the federal income tax consequences of the Merger
to First Family's shareholders will be requested from the Internal Revenue
Service (the "IRS"). BancGroup and First Family have received an opinion from
counsel to BancGroup, Miller, Hamilton, Snider & Odom, L.L.C., Mobile, Alabama,
that, among other things, a shareholder of First Family who exchanges shares of
First Family Common Stock for BancGroup Common Stock and cash shall recognize
gain, if any, but only in an amount not in excess of the sum of such cash
received. Also, shareholders of First Family will recognize gain to the extent
such shareholders receive cash in lieu of fractional shares of BancGroup Common
Stock. See "APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The acquisition of First Family will be treated as a "purchase" transaction
by BancGroup for accounting purposes. See "THE MERGER -- Accounting Treatment."
RECENT PER SHARE MARKET PRICES
First Family. First Family Common Stock is traded in the over-the-counter
market and quoted on the NASDAQ National Market System under the symbol "FFML".
The following table shows the dividends paid per share and indicates the
high and low closing prices for First Family Common Stock as reported by the
NASDAQ National Market System for the periods indicated.
<TABLE>
<CAPTION>
PRICE
-----------------
HIGH LOW
---- ----
<S> <C> <C>
1994
1st Quarter.............................................................. $ 10 $9 1/2
2nd Quarter.............................................................. 9 3/4 9 1/2
3rd Quarter.............................................................. 10 9 1/2
4th Quarter.............................................................. 9 3/4 9 1/2
1995
1st Quarter.............................................................. 11 10 3/4
2nd Quarter.............................................................. 15 1/2 11 1/2
3rd Quarter.............................................................. 19 1/2 13 1/2
4th Quarter.............................................................. 21 18 1/2
1996
1st Quarter.............................................................. 22 20 1/4
2nd Quarter.............................................................. 22 1/8 21
3rd Quarter.............................................................. 23 21
</TABLE>
On July 24, 1996, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NASDAQ of First
Family Common Stock was $21.00 per share.
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low closing prices
of the BancGroup Class A Common Stock and the BancGroup Common Stock as reported
on the NASDAQ System and the NYSE, respectively, for the last two full fiscal
years. Prior to February 21, 1995, BancGroup had two classes of Common Stock
outstanding, Class A and Class B. Class B was not publicly traded. Class A was
traded as a NASDAQ
11
<PAGE> 17
security under the symbol "CLBGA" until February 24, 1995. On February 21, 1995,
the BancGroup Class A and Class B Common Stock were reclassified into a single
class of stock, BancGroup common stock.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF COMMON STOCK
----------------
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter.............................................................. 20 1/4 18
Second Quarter............................................................. 25 19 1/4
Third Quarter.............................................................. 24 3/4 22
Fourth Quarter............................................................. 23 3/4 19 1/2
1995
First Quarter(1)........................................................... 23 5/8 19 1/2
Second Quarter............................................................. 27 1/2 23 1/8
Third Quarter.............................................................. 29 7/8 27 1/2
Fourth Quarter............................................................. 32 7/8 28 1/2
1996
First Quarter.............................................................. 36 1/2 30
Second Quarter............................................................. 36 1/8 31 1/4
Third Quarter.............................................................. 35 7/8 31 1/4
</TABLE>
- ---------------
(1) Trading on the NYSE commenced on February 24, 1995.
On July 24, 1996, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $33 1/4 per share.
The following table presents the market value of BancGroup Common Stock on
July 24, 1996, and the market value and equivalent per share value of First
Family Common Stock on that date:
<TABLE>
<CAPTION>
EQUIVALENT
BANCGROUP FIRST FAMILY BANCGROUP
COMMON STOCK COMMON STOCK COMMON STOCK AND CASH
(PER SHARE) (PER SHARE) (PER SHARE)
------------ ------------ ----------------------
<S> <C> <C> <C>
Comparative Market Value............... $33 1/4(1) $ 21(2) $23.50(3)
</TABLE>
- ---------------
(1) Closing price as reported by the NYSE.
(2) Closing Price as reported by NASDAQ.
(3) If the Merger had closed on July 24, 1996, .3538 shares of BancGroup Common
Stock would have been exchanged for each share of the First Family Common
Stock (i.e. $11.75 / $33.2125) and $11.75 cash would also have been paid
for such share, resulting in a total of $23.50 per share.
See "COMPARATIVE MARKET PRICES AND DIVIDENDS."
CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL
Certain restrictions under Delaware law prevent a person who beneficially
owns 15% or more of the BancGroup Common Stock from engaging in a "business
combination" with BancGroup, unless certain conditions are satisfied. Also, the
Change in Bank Control Act of 1978 prohibits a person from acquiring "control"
of BancGroup unless certain notice provisions with the Federal Reserve Board
have been satisfied.
BancGroup's Restated Certificate of Incorporation and bylaws also contain
provisions which may deter or prevent a takeover of BancGroup that is not
supported by BancGroup's Board of Directors. These provisions include: (1) a
classified board of directors, (2) supermajority voting requirements for certain
"business combinations" that exceed the provisions of Delaware law described
above, (3) flexibility for the board to consider non-economic and other factors
in evaluating a "business combination," (4) inability of stockholders
12
<PAGE> 18
to call special meetings and act by written consent, and (5) certain advance
notice provisions for the conduct of business at stockholder meetings.
See "BANCGROUP CAPITAL STOCK AND DEBENTURES" and "COMPARATIVE RIGHTS OF
STOCKHOLDERS."
PER SHARE DATA
The table below presents on a per share basis the book value, cash
dividends and income from continuing operations of BancGroup and First Family on
a historical basis and on a pro forma equivalent basis assuming the acquisition
of First Family. Certain information from the table has been taken from the
condensed pro forma statements of condition and income included elsewhere in
this document. The table should be read in conjunction with those pro forma
statements.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996(A)(F) 1995(A)
---------------- -------
<S> <C> <C>
BANCGROUP-HISTORICAL:
Net Income
Primary.......................................................... $ 1.65 $ 2.63
Fully diluted.................................................... 1.63 2.56
Book value at end of period........................................ 19.62 18.65
Dividends per share:
Common Stock..................................................... 0.54 0.675
Common A......................................................... 0.225
Common B......................................................... 0.125
FIRST FAMILY FINANCIAL CORPORATION:
Net Income
Historical:
Primary....................................................... 1.23 2.35
Fully diluted................................................. 1.23 2.35
Pro forma equivalent assuming acquisition of First Family
Financial Corporation only(b)(e):
Primary....................................................... 0.56 0.89
Fully diluted................................................. 0.55 0.86
Pro forma equivalent assuming acquisition of First Family
Financial Corporation, combination with Jefferson Bancorp,
Inc. and other proposed combinations(b)(e):
Primary....................................................... 0.51 0.81
Fully diluted................................................. 0.51 0.79
Book value at end of period
Historical....................................................... 16.92 15.85
Pro forma equivalent assuming acquisition of First Family
Financial Corporation only(b)(e):............................. 6.65 N/A
Pro forma equivalent assuming acquisition of First Family
Financial Corporation, combination with Jefferson Bancorp,
Inc. and other proposed combinations(b)(e):................... 6.44 N/A
Dividends per share
Historical(d).................................................... 0.08 0.16
Pro forma equivalent assuming acquisition of First Family
Financial
Corporation(c)(e):............................................ 0.18 0.30
Pro forma equivalent assuming acquisition of First Family
Financial Corporation, combination with Jefferson Bancorp,
Inc. and other proposed combinations(c)(e):................... 0.18 0.30
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996(A)(F) 1995(A)
------ ------
<S> <C> <C>
BANCGROUP-PRO FORMA COMBINED (FIRST FAMILY FINANCIAL CORPORATION
ONLY):
Net Income
Primary.......................................................... 1.66 2.66
Fully diluted.................................................... 1.64 2.58
Book value at end of period........................................ 19.83 N/A
BANCGROUP-PRO FORMA COMBINED (FIRST FAMILY FINANCIAL CORPORATION,
JEFFERSON BANCORP, INC. AND OTHER PROPOSED COMBINATIONS):
Net Income
Primary.......................................................... 1.52 2.41
Fully diluted.................................................... 1.51 2.35
Book value at end of period........................................ 19.21 N/A
</TABLE>
- ------------------------
N/A Not applicable due to pro forma balance sheet being presented only at June
30, 1996 which assumes the transaction was consummated on the latest
balance sheet date in accordance with Rule 11.02(b) of Regulation S-X.
(a) Per share data of BancGroup is for the six months ended June 30, 1996 (as
restated) and for the year ended December 31, 1995 (as restated). Per share
data of First Family is for the year ended December 31, 1995 (last six
months from fiscal year end June 30, 1995 and first six months of fiscal
year end June 30, 1996).
(b) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of First
Family. For the purposes of these pro forma equivalent per share amounts, a
.3352 BancGroup common stock share conversion ratio is utilized. The ratio
is based on the 10-day average of the closing
market price of Colonial BancGroup, Inc. common stock of $35.05 at
September 19, 1996 ($11.75/$35.05 = .3352).
(c) Pro forma equivalent dividends per share are shown at BancGroup's Class A
Common Stock dividend per share rate multiplied by the .3352 conversion
ratio per share of First Family common stock (see note (b)). BancGroup
presently contemplates that dividends will be declared in the future.
However, the payment of cash dividends is subject to BancGroup's actual
results of operations as well as certain other internal and external
factors. Accordingly, there is no assurance that cash dividends will either
be declared and paid in the future, or, if declared and paid, that such
dividends will approximate the pro forma amounts indicated.
(d) First Family has paid the following dividends for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR JUNE 30, PER SHARE TOTAL
----------------------------------------------------------- --------- -------
<S> <C> <C>
1994....................................................... .04 $21,600
1995....................................................... .16 $87,200
1996....................................................... .16 $87,200
</TABLE>
(e) These pro forma equivalent amounts are based only on the BancGroup common
stock to be received by the First Family shareholders. In addition to the
BancGroup common stock to be received, each First Family shareholder will
receive $11.75 cash per share.
(f) Pro forma net income excludes two non-recurring charges for employee
severance and bonuses expected to result from the proposed pooling of
interests business combination with Jefferson Bancorp, Inc. in the amount
of $4.4 million, net of tax.
14
<PAGE> 20
THE SPECIAL MEETING
GENERAL
This Prospectus is being furnished to the shareholders of First Family in
connection with the solicitation of proxies by the Board of Directors of First
Family for use at the Special Meeting. The purpose of the Special Meeting is to
consider and vote upon the proposed Merger of First Family with and into
BancGroup. BancGroup will be the surviving corporation in the Merger.
This Prospectus is also furnished by BancGroup in connection with the offer
of shares of BancGroup Common Stock to be issued in the Merger. No vote of
BancGroup stockholders is required to approve the Merger.
THE BOARD OF DIRECTORS OF FIRST FAMILY BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF FIRST FAMILY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE MERGER (PROPOSAL 1 ON THE PROXY CARD).
First Family also seeks approval to adjourn the Special Meeting in the
event that the number of proxies sufficient to approve the Merger is not
received by the date of the Special Meeting. In order to permit proxies that
have been received by First Family at the time of the Special Meeting to be
voted, if necessary, for the adjournment, First Family is seeking approval of an
adjournment, if necessary, to permit further solicitation of proxies relating to
the Merger. See "ADJOURNMENT OF SPECIAL MEETING."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ADJOURNMENT (PROPOSAL 2 ON THE PROXY CARD).
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER
The Board of Directors of First Family has fixed the close of business on
, 1996, as the Record Date for determination of shareholders
entitled to vote at the Special Meeting. There were record holders of
First Family Common Stock as of such date. On that date, there were 545,000
shares of First Family Common Stock outstanding, each entitled to one vote per
share. First Family is obligated to issue an additional 35,500 shares of First
Family Common Stock upon the exercise of outstanding First Family Options.
The affirmative vote of the holders of at least a majority of the
outstanding shares of First Family Common Stock, whether or not present or
represented at the Special Meeting, is required to approve the Agreement. Broker
non-votes and abstentions will not be counted as votes cast "FOR" or "AGAINST"
the proposal to approve the Agreement and the proposal to adjourn, and, as a
result, such non-votes will have the same effect as votes cast "AGAINST" the
Agreement. Each holder of record of shares of First Family Common Stock is
entitled to cast, for each share registered in his or her name, one vote on the
Agreement and on each other matter presented to a vote of shareholders at the
Special Meeting.
As of the Record Date, directors and executive officers of First Family and
their affiliates were the owners of 100,330 shares of First Family Common Stock,
representing approximately 18% of the outstanding shares of First Family Common
Stock. All of such persons intend to vote in favor of the Merger.
If the Merger is approved at the Special Meeting, First Family is expected
to merge with and into BancGroup during the first calendar quarter of 1997,
after the other conditions to the Agreement are satisfied. See "THE
MERGER -- Conditions of Consummation of the Merger."
THE BOARD OF DIRECTORS OF FIRST FAMILY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE IN FAVOR OF THE MERGER AND IN FAVOR OF THE ADJOURNMENT OF THE
SPECIAL MEETING, IF NECESSARY. SHAREHOLDERS ARE URGED TO EXECUTE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE.
15
<PAGE> 21
SOLICITATION, VOTING AND REVOCATION OF PROXIES
In addition to soliciting proxies by mail, directors, officers and other
employees of First Family, without receiving special compensation therefor, may
solicit proxies from First Family's shareholders by telephone, by telegram or in
person. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries, if any, to forward solicitation materials
to any beneficial owners of shares of First Family Common Stock.
First Family will bear the cost of assembling and mailing this Prospectus
and other materials furnished to shareholders of First Family. It will also pay
all other expenses of solicitation, including the expenses of brokers,
custodians, nominees, and other fiduciaries who, at the request of First Family,
mail material to or otherwise communicate with beneficial owners of the shares
held by them. BancGroup will pay all expenses incident to the registration of
the BancGroup Common Stock to be issued in connection with the Merger.
Shares of First Family Common Stock represented by a proxy properly signed
and received at or prior to the Special Meeting, unless properly revoked, will
be voted in accordance with the instructions on the proxy. IF A PROXY IS SIGNED
AND RETURNED WITHOUT ANY VOTING INSTRUCTIONS, SHARES OF FIRST FAMILY COMMON
STOCK REPRESENTED BY THE PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT AND "FOR" ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY. A
shareholder may revoke any proxy given pursuant to this solicitation by: (i)
delivering to the Secretary of First Family, prior or to or at the Special
Meeting, a written notice revoking the proxy; (ii) delivering to the Secretary
of First Family, at or prior to the Special Meeting, a duly executed proxy
relating to the same shares and bearing a later date; or (iii) by voting in
person at the Special Meeting. All written notices of revocation and other
communications with respect to the revocation of First Family's proxies should
be addressed to:
First Family Financial Corporation
2801 South Bay Street
Eustis, Florida 32726
Attention: Bradley R. Meredith, Secretary
Attendance at the Special Meeting will not, in and of itself, constitute a
revocation of a proxy.
Votes will be tabulated by one or more inspectors of election appointed by
First Family. Proxies marked as abstentions and shares held in street name which
have been designated by brokers on proxy cards as not voted will not be counted
as votes cast. Such proxies will, however, be counted for purposes of
determining whether a quorum is present at the Special Meeting.
The Board of Directors of First Family is not aware of any business to be
acted upon at the Special Meeting other than consideration of the Merger
described herein and the proposal to approve adjournment of the Special Meeting,
if necessary. If, however, other matters are properly brought before the Special
Meeting, or any adjournments thereof, the persons appointed as proxies will have
the discretion to vote or act on such matters according to their best judgment.
EFFECT OF MERGER ON OUTSTANDING BANCGROUP COMMON STOCK
On the Effective Date, and assuming a Market Value, calculated as of
September 19, 1996, of $35.05, BancGroup will issue 182,703 shares of BancGroup
Common Stock to the shareholders of First Family pursuant to the Merger, not
including any BancGroup Common Stock to be issued pursuant to First Family
Options. These 182,703 shares of BancGroup Common Stock would represent
approximately 1% of the total number of shares of BancGroup Common Stock
outstanding following the Merger, not including any additional shares BancGroup
may issue, including shares to be issued pursuant to other pending acquisitions.
16
<PAGE> 22
THE MERGER
(PROPOSAL 1)
THE FOLLOWING SETS FORTH A SUMMARY OF ALL MATERIAL PROVISIONS OF THE
AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT
ATTACHED HERETO AS APPENDIX A. ALL FIRST FAMILY SHAREHOLDERS ARE URGED TO READ
THE AGREEMENT AND THE APPENDICES IN THEIR ENTIRETY.
GENERAL
The Agreement provides that, subject to shareholder ratification and
confirmation, receipt of necessary regulatory approval and certain other
conditions described below at "Conditions to Consummation of the Merger," First
Family will merge with and into BancGroup. Upon completion of the Merger, the
corporate existence of First Family will cease, and BancGroup will succeed to
the business formerly conducted by First Family. First Family's subsidiary bank,
First Family Bank, fsb, will become a wholly owned subsidiary of BancGroup
following the Merger. BancGroup intends initially to operate the Bank in Florida
as a federal savings bank with the name "Colonial Bank, FSB" but ultimately
plans to merge the Bank with Colonial Bank, Orlando.
BACKGROUND OF THE MERGER
Management and the Board have, on a continuing informal basis, since the
Bank's conversion from mutual to stock form of ownership in October of 1992,
reviewed the thrift industries merger and acquisition activity and discussed
possible transactions that might enhance shareholder value. In mid 1994,
management and the Board of Directors began investigating different alternatives
that would maximize stockholder value. In the Spring of 1995 management
contacted Capital Resources, Inc. ("Capital Resources") to review First Family's
progress since the conversion to stock ownership and to give the Board a range
of First Family's franchise value. At the recommendation of management, Capital
Resources was asked to prepare a detailed report to the Board of Directors
suggesting opportunities for merger, acquisition, and/or a plan to offer
additional common stock. The Board's position was that additional capital would
provide First Family an opportunity to expand its size and earning assets in
order to assist First Family in reaching a higher return on assets and also to
continue to build equity for First Family shareholders. The Board had a series
of meetings with management to discuss the various alternatives that were
available to enhance First Family's franchise value. The Board concluded that
growth from earnings alone would not be adequate to attain the desired corporate
objectives. According to the report of Capital Resources dated May 19, 1995
("Report"), the franchise value of First Family had a range of between $19.78
per share and $21.28 per share. This range was based upon a series of studies of
comparative thrift acquisition prices and results of operations of First Family
since the stock conversion of the Bank in October 1992. The Report addressed the
viability of First Family remaining an independent financial institution under
its current capital structure, as well as First Family's ability to raise
capital in a secondary stock offering to provide First Family an opportunity for
expansion. The Report also considered finding another merger partner for First
Family as a suitable alternative for maximizing shareholder value.
At the direction of the Board of Directors, management contacted more than
a dozen major investment banking firms, both national and regional, to assist
the Board in its analysis of which alternative would be in the best interest of
all of the shareholders. Based upon First Family's current shareholder makeup,
the consensus was that it would not be feasible for First Family to attempt a
new stock issue. In light of this information and the Capital Resource Report,
management recommended to the Board that an investment banker be engaged to find
a suitable acquiror for First Family. The Board of Directors, which met with
representatives of three investment banking firms, Sandler O'Neill and Partners,
LP ("Sandler O'Neill"), Capital Resources and Friedman, Billings, Ramsey &
Company, Inc., engaged Sandler O'Neill to market First Family.
Sandler O'Neill identified banks, thrifts and private investors in the
Midwest and Southeast United States with the financial capabilities of
consummating an acquisition. Sandler O'Neill reported to the Board that they
contacted 22 parties to establish levels of interest. In December 1995
management also met with
17
<PAGE> 23
representatives of Southern Bank of Orlando to discuss a possible merger.
Shortly thereafter, BancGroup signed a definitive agreement to acquire Southern
Bank and discussions between First Family and Southern Bank were discontinued.
As a result of the combined efforts of management and Sandler O'Neill,
First Family received four written and two verbal proposals from bank and thrift
holding companies located or currently doing business in the State of Florida.
After serious efforts on the part of First Family to bring one of these
proposals to fruition, none reached the point of a signed definitive agreement.
On December 31, 1995, the engagement with Sandler O'Neill expired.
In February 1996, at the suggestions of Counsel, First Family began
discussions with representatives of BancGroup who made inquiries about the
possible acquisition of First Family. During the same period, a mid-sized
Central Florida-thrift holding company also approached First Family with regard
to a possible merger/acquisition. After reaching certain basic understandings
with regard to a proposed acquisition, First Family and the mid-sized Central
Florida-thrift holding company entered into a non-binding letter of intent. The
parties, however, were unable to reach a definitive agreement and the term of
the non-binding letter of intent subsequently expired. Management of First
Family then began discussions with representatives of BancGroup to determine if
there were still an interest in proceeding with a merger/acquisition. On June 6,
1996, First Family and BancGroup entered into a non-binding letter of intent
which lead to the negotiation of a definitive agreement. At a Special Meeting,
the Board of Directors of First Family reviewed with management and counsel the
terms of the Agreement. The Board considered the value of remaining an
independent financial institution, using various assumptions regarding expansion
and projected earnings, as well as price to earnings multiples that other thrift
transactions had commanded. The Board of Directors determined that BancGroup's
proposal compared favorably with similar transactions and concluded that
BancGroup was a strong financial institution which could continue to increase
the value to First Family shareholders after consummation of the acquisition.
The Board of Directors authorized management and counsel to finalize the
Agreement with BancGroup. On July 17, 1996, the Board of Directors of First
Family unanimously approved the Agreement and authorized management to proceed
with the necessary applications to affect the transaction, subject to approval
by First Family's shareholders. The Agreement was executed on July 19, 1996.
FIRST FAMILY'S BOARD OF DIRECTORS' REASONS FOR APPROVING THE MERGER
In the course of reaching its decision to approve the Merger, the Board of
Directors consulted with its legal and financial advisors and the management to
determine which course of action would be in the best interest of the
shareholders, customers, and employees of First Family. The Board considered the
risks of remaining independent, including, among other things, concerns
regarding First Family's potential to engage in acquisitions which could further
enhance stockholder value. With regard to acquisitions by First Family, the
Board considered the costs that would be necessary to upgrade First Family's
record keeping and operational systems in order to absorb any acquisition and
enhance its ability to compete in the rapidly changing financial marketplace. In
evaluating BancGroup's offer, management of First Family considered the
competitive conditions in the market served by First Family, the value of the
assets of First Family, its capital and other requirements, the current
regulatory environment, and the future growth prospects of First Family.
Management also considered the changing markets for financial services. In
considering whether to affiliate with BancGroup, First Family's management
believed that BancGroup's size offered expansion opportunities for services not
otherwise available to First Family and its customers. Management and the Board
of Directors determined that the value of First Family stock could best be
enhanced through affiliation with BancGroup. The Board of Directors believes
that First Family's shareholders will benefit from receiving, as part of the
consideration, common stock in a larger company with a history of paying
dividends.
The Agreement between BancGroup and First Family resulted from arm's length
negotiations which considered the historical earnings and dividends of BancGroup
and First Family, the earnings potential and deposit base of First Family,
potential growth in First Family's market, First Family's asset quality and the
effect of the Merger on the shareholders, customers and employees of First
Family.
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<PAGE> 24
OPINION OF THE FINANCIAL ADVISOR
Mercer Capital is a national valuation consulting and transaction advisory
firm which renders independent valuations and related financial advisory
services, including the issuance of fairness opinions for mergers and
acquisitions, to financial institutions and businesses throughout the U.S.
Mercer Capital was formed in 1982 and was selected by the Board to prepare the
fairness opinion based upon its extensive experience in the banking industry.
Mercer Capital was contacted by David Shepherd, President and Chief
Executive Officer of First Family in late June regarding the issuance of a
fairness opinion for the contemplated merger between First Family and BancGroup.
Mercer Capital was formally retained by First Family on July 24, 1996 to issue a
fairness opinion regarding whether the contemplated merger between BancGroup and
First Family was fair, from a financial point of view, to First Family's
shareholders. Mercer Capital did not assist in the merger negotiations between
First Family and BancGroup.
Mercer Capital rendered its written fairness opinion on September 12, 1996.
No limitations were imposed by First Family's Board with respect to the
investigations made or the procedures followed by Mercer Capital in rendering
its fairness opinion. The opinion stated that the consideration to be received
by First Family shareholders for their shares is fair from a financial point of
view. A copy of the opinion is included at Appendix B. Shareholders are urged to
read the opinion in its entirety.
As part of its investigation, Mercer Capital reviewed: (i) the Agreement;
(ii) First Family's audited financial statements for the fiscal years ended June
30, 1992, 1993, 1994, 1995 and 1996; (iii) BancGroup's annual report to
shareholders for fiscal years 1993, 1994 and 1995; (iv) First Family's Form 10-K
for fiscal years 1993, 1994, 1995 and 1996; (v) BancGroup's Form 10-K for fiscal
years 1993, 1994 and 1995; (vi) BancGroup's quarterly reports on Form 10-Q for
the quarters ended March 31 and June 30, 1996; (vii) First Family's budget for
fiscal year 1997; (viii) BancGroup's Capital/Strategic Plan Summary; (ix)
research reports on BancGroup prepared by various brokerage firms; (x)
historical market prices and trading volumes for First Family's and BancGroup's
common shares; (xi) transaction data involving thrifts which have been acquired;
and, (12) public market pricing data of publicly traded banks which Mercer
Capital deemed comparable to BancGroup.
As part of its engagement, a representative of Mercer Capital visited with
First Family management in Eustis, Florida and BancGroup management in
Montgomery, Alabama. Factors considered in rendering the opinion include: (i)
terms of the Agreement; (ii) the process through which the Board solicited and
received other offers or indications of interest from prospective buyers other
than BancGroup; (iii) the negotiation process with BancGroup leading to the
Agreement; (iv) a valuation analysis of First Family prepared by Mercer Capital;
(v)_ an analysis of the estimated pro forma changes in book value per share,
earnings per share, and dividends per share from the perspective of the First
Family shareholders; (vi) a review of BancGroup's historical financial
performance, historical stock pricing, the liquidity of its shares and current
pricing in relation to other publicly traded bank holding companies based in the
U.S.; (vii) tax consequences of the Merger for First Family shareholders; (viii)
the ability of First Family shareholders to liquefy their investment through
converting half their interest to cash and the other half into BancGroup's more
liquid shares; and, (ix) restrictions placed on BancGroup shares received in the
Merger.
Mercer Capital relied upon, without independent verification, the accuracy
and completeness of the information reviewed by it for purposes of rendering its
opinion. Mercer Capital did not compile or audit BancGroup's or First Family's
financial statements, nor did Mercer Capital independently verify the
information reviewed. Mercer Capital relied upon such information as being
complete and accurate in all material respects. Mercer Capital did not make an
independent valuation of the loan portfolio, adequacy of the loan loss reserve
or other assets or liabilities of either institution.
Mercer Capital's opinion does not constitute a recommendation to any
shareholder as to how the shareholder should vote on the proposed Merger; nor
does Mercer Capital express any opinion as to the prices at which any security
of BancGroup or First Family might trade in the future.
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<PAGE> 25
Mercer Capital calculated that the aggregate consideration for First Family
totals $12.8 million without consideration of First Family's options and $13.3
million when First Family's options are included in the analysis. The purchase
price of $23.50 per share represents 9.6x fully diluted earnings per share for
the fiscal year ended June 30, 1996 and about 143% of fully diluted book value
per share of $16.41 per share as of the same date. The purchase price in terms
of estimated core earnings is higher, however, at about 13.0x fully diluted core
earnings per share once non-recurring items are eliminated from First Family's
reported 1996 earnings.
Negotiation Process. Mercer Capital indicated that the process by which
the Agreement was reached provided an additional perspective of overall fairness
to First Family shareholders in addition to the pricing and terms of the
Agreement. The planned sale to BancGroup followed a period of about a year in
which First Family management, Sandler O'Neill, and First Family counsel sought
potential merger/acquisition partners for First Family. A number of institutions
were contacted, some of whom expressed varying levels of interest. Ultimately,
the Board elected to proceed with BancGroup based upon the price and terms which
were offered. In addition, First Family achieved an increase in the price from
the original price offered as a result of the negotiations.
Comparable Transaction Analysis. The comparable transaction method seeks
to develop an indication of value for a subject company by analyzing prices paid
for similar institutions which have been acquired. Mercer Capital noted that
with regard to the banking industry, most transactions are measured in terms of
price/book ratios, price/tangible book ratios and price/earnings ratios. In
addition, some analysts also consider pricing multiples for price/assets,
price/deposits and tangible book value premium/core deposits.
With regard to First Family, Mercer Capital reviewed prices paid for
acquired thrifts in relation to the sellers' book values and earnings as
complied by SNL Securities. The data was divided into six groups with average
and median P/E, P/B and P/TB ratios calculated for calendar years 1991-1995 and
year-to-date through the early September, 1996: (i) all U.S. thrifts which have
been acquired; (ii) Southeast based thrifts which have been acquired; (iii)
thrifts which have been acquired for a purchase consideration of $10 million to
$50 million; (iv) thrifts with assets of $100 million to $200 million which have
been acquired; (v) thrifts which have been acquired for a combination of cash,
common stock and other securities (mixture); and, (vi) Florida based thrifts
which have been acquired. The average and median 1996 transaction data for each
group was then determined and multiplied times First Family's fully diluted core
earnings per share, book value per share and tangible book value per share. The
analysis is summarized in the table below.
COMPARABLE TRANSACTIONS
IMPLIED ACQUISITION VALUES
<TABLE>
<CAPTION>
1996 TRANSACTION MULTIPLES IMPLIED ACQUISITION VALUES
------------------------------------------------- -------------------------------------------------
PRICE/ PRICE/ PRICE/ PRICE/ PRICE/ PRICE PRICE/ PRICE/
EARNINGS CORE EARNINGS BOOK TANGIBLE BOOK EARNINGS CORE EARNINGS BOOK TANGIBLE BOOK
------------- -------- ------ ------------- -------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
National Thrift
Averages................ 16.5 16.5 144% 148% $40.30 $ 29.80 $23.60 $ 24.30
Southeast Thrift
Averages................ 15.1 15.1 161% 165% $36.90 $ 27.30 $26.40 $ 27.10
Florida Thrift Averages... 15.0 15.0 151% 153% $36.60 $ 27.10 $24.80 $ 25.10
$10-$50 Million Deal Value
Thrift Avg.............. 18.7 18.7 137% 139% $45.60 $ 33.80 $22.50 $ 22.80
$100-$200 Million Asset
Thrift Averages......... 17.5 17.5 134% 138% $42.70 $ 31.70 $22.00 $ 22.60
Cash/Common (Mixture)
Averages................ 13.4 13.4 132% 130% $32.70 $ 24.20 $21.70 $ 21.30
---- ---- --- --- ----- ----- ------ ------
HIGH...................... 18.7 18.7 161% 165% $45.60 $ 33.80 $26.40 $ 27.10
AVERAGE................... 16.0 16.0 143% 146% $39.10 $ 29.00 $23.50 $ 23.90
MEDIAN.................... 15.8 15.8 141% 144% $38.60 $ 28.60 $23.10 $ 23.60
LOW....................... 13.4 13.4 132% 130% $32.70 $ 24.20 $21.70 $ 21.30
---- ---- --- --- ----- ----- ------ ------
FFFC Fully Diluted Per
Share Data -- 6/96...... $2.44 $ 1.81 $16.41 $ 16.41
</TABLE>
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<PAGE> 26
Based upon the P/E ratios applied to core earnings, Mercer Capital
calculated an indicated range of value of $24.20 per share to $33.80 per share,
with a median of $28.60 per share. The range of indicated value in relation to
the P/B ratio was $21.70 per share to $26.40 per share, with an average of
$23.50 per share, while the indicated range for tangible book value was $21.30
per share to $27.10 per share, with an average of $23.90 per share.
Mercer Capital noted that the acquisition price of $23.50 per share for
First Family approximated the average P/B indicated values cited above, but was
somewhat below the P/E indicated values. Mercer Capital went on to note that the
upper end of the range was derived from the median P/E multiples of 18.7x and
17.5x, respectively, for thrifts acquired for $10 million to $50 million and
thrifts with assets of $100 million to $200 million. These acquisition P/E
multiples exceed the 14x-16x multiples generally associated with thrifts (and
commercial banks). Thus, the upper end of the range may be overstated somewhat.
Finally, Mercer Capital noted that BancGroup and the other prospective acquirors
may have not been willing to "pay-up" for First Family's earnings given the
large proportion of earnings attributable to SBA gains and First Family's
relatively lean overhead structure which affords only modest economies.
Discounted Cash Flow Analysis. A discounted cash flow ("DCF") analysis was
also conducted to develop an estimate of value First Family shareholders might
realize based upon a hypothetical analysis in which a sale of the Company is
delayed for five years until the end of fiscal year 2001. Value derived using a
DCF analysis is equal to the present value of any interim cash flows (i.e.,
dividends) and the present value of a projected terminal value (i.e., the
estimated value of the subject at the end of the projection period).
Projections were prepared by Mercer Capital and reviewed by First Family
management regarding the overall reasonableness of the output. Mercer Capital
made no representations that the projections would actually be realized; rather,
the projections were prepared to compare the value to be received by First
Family shareholders from BancGroup versus what might be realized if a sale were
delayed for five years.
Although many assumptions were made regarding yields and expense growth
rates, the projections were geared so that 1997 reflected management's budget,
while 1998-2001 reflected asset growth of about 5% per annum and improving
profitability as measured by ROA to about 1.00%. In addition, a SAIF
recapitalization of fee equal to 0.85% of average deposits was assumed assessed
in 1998, followed by a reduction in premiums.1
Interim shareholder cash flows, consisting of dividends, were assumed equal
to about 8% of earnings in each year. The terminal value was derived by applying
a P/B multiple to projected 2001 fully diluted book value per share. The cash
flows were then discounted to their present values at a risk adjusted discount
rate.
Based upon the projections, the range of discount rates of 13% to 18%, and
a range of P/B multiples of 130% to 180% applied to the projected book value,
Mercer Capital calculated a range of value of $17.68 per share to $29.99 per
share, with an overall midpoint of $23.85 per share. A more narrow range of
$22.08 per share to $24.53 per share was also calculated based upon discount
rates of 15% and 16% and a P/B multiple of 150% and 160%.
Mercer Capital stated that based upon DCF analysis, the $23.50 per share
merger price offered by BancGroup was reasonable, particularly in light of the
favorable assumptions regarding improvements in projected profitability.
Market Premium Analysis. Mercer Capital compared the announced merger
price of $23.50 per share with First Family's quoted market price immediately
before the announcement was made. The announced acquisition price indicated a
premium over the market price of about 12% as compared to an average of
approximately 25% calculated for other publicly traded banks and thrifts which
have agreed to be acquired
- ---------------
(1) The FDIC has announced that as a result of the passage of the Deposit
Insurance Funds Act of 1996, the expected recapitalization fee for the SAIF
per thrift will be approximately 0.657% of the thrifts average deposits
as of March 31, 1995. The exact percentage will not be established until a
determination is made on the number of thrifts that will qualify as weak
thrifts for purposes of deferment of the special assessment. The fact that
the special assessment is lower than initially expected has no effect on
this opinion.
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<PAGE> 27
during the past few years. Management noted that given the long period in which
First Family was marketed, some investors may have been speculating that a
takeover was possible. In addition, Florida banks and thrifts have been the
subject of acquisition speculation given the attractiveness of the state and the
history of community bank acquisitions.
Mercer Capital noted that indirect evidence of the assumption that First
Family's public market price reflected some takeover speculation was supported
by the increase in First Family's stock price by 52% from $14.50 per share on
July 21, 1995, to $22.00 per share on July 19, 1996, while Standard & Poor's
Thrift Index rose only 8% from 70.53 to 76.11 during the same period. In
addition, First Family's public market pricing at the date of announcement
represented about 130% of book value at June 30, 1996, as compared to an average
of about 105% of book value (on a minority interest basis) for all publicly
traded thrifts.
Pro Forma Analysis of Per Share Data. Mercer Capital calculated estimated
changes in earnings per share, book value per share and dividends per share from
the perspective of First Family's shareholders once their shares are converted
into BancGroup shares. Mercer Capital made no representations that the pro forma
calculations that it made would reflect the same pro forma calculations as
presented elsewhere herein.
Mercer Capital noted that First Family shareholders are expected to benefit
from an increase in their current annualized quarterly dividend of $0.16 per
share to about $0.35 per exchange adjusted share for the 50% interest which is
converted to BancGroup stock. In addition, First Family shareholders will
receive $11.75 per share of cash.
Review of Colonial BancGroup, Inc. Mercer Capital noted that BancGroup is
a $4.1 billion asset regional bank holding company which is based in Montgomery,
Alabama and operates 126 offices through four commercial bank subsidiaries in
Alabama, Georgia, Florida and Tennessee and one thrift subsidiary in Georgia. In
addition, BancGroup owns Colonial Mortgage Company ("CMC") which presently
originates approximately $1.5 billion of mortgage loans annually in 29 states
through six regional offices. In addition, CMC services about $10 billion in
mortgage loans.
Upon consummation of all pending acquisitions, BancGroup's asset base will
approximate $4.5 billion. BancGroup management described its operating
philosophy as a "super community bank" concept with localized lending and
customer relationships, supported by consolidated bank office operations.
BancGroup has traditionally focused on real estate lending, and its emphasis on
mortgage originations and servicing have increased following the 1995
acquisition of CMC, an entity previously owned by Robert Lowder, Chairman of
BancGroup, and his two brothers.
In its 1995 annual report to shareholders and in its meeting with Mercer
Capital, BancGroup management has stated that it has four high performance
financial goals explicitly designed to enhance shareholder value: (i) grow
earnings per share by at least 10% each year; (ii) maintain an ROE of at least
17.5%; (iii) achieve and then maintain an ROA of at least 1.45%; and, (iv)
achieve an annual dividend payout of 30% of earnings.
Management also indicated that it would continue to pursue acquisitions in
selected Southeastern markets since many areas outside of Alabama are
demonstrating higher growth rates in their economies than Alabama. Thus, the
entry into the Atlanta area and Florida reflect an evolution in BancGroup's
make-up as an Alabama bank into a multi-state regional holding company.
Management stated that it intends to grow BancGroup's assets to $15 billion or
so within the next decade, with $5 billion of assets in its core markets of
Alabama, Georgia and Florida. BancGroup's strategic plan projects $10 billion of
assets by the year 2000.
BancGroup reported net income of $44.4 million for the twelve month period
ended June 30, 1996, up 14.5% from fiscal 1995 net income of $38.8 million. On a
fully diluted per share basis, net income increased 9.2% to $3.30 per share for
the twelve month period ended June 30, 1996, from $3.02 per share in fiscal
1995. BancGroup's currently quarterly dividend of $0.27 per share, or $1.08 per
share annualized, represents a payout ratio of about 33% of trailing twelve
month earnings. BancGroup's dividend has increased in each of the past five
years, having risen from $0.63 per share in 1991 to $1.08 per share currently.
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<PAGE> 28
Mercer Capital noted that in terms of relative earnings as measured by ROE
and ROA, BancGroup's earnings have improved substantially during the past five
years. ROE has improved from 14.5% in 1991 to 17.9% in fiscal 1995, while ROA
has risen from 0.74% in 1991 to 1.20% in 1995. Profitability improved further
during the first half of 1996 as BancGroup reported an ROA and ROE,
respectively, of 1.25% and 18.09% for the six month period ended June 30, 1996.
Analysts' earnings estimates for BancGroup for 1996 are in the vicinity of
$3.35 per share. BancGroup reported net income of $1.75 per fully diluted share
for the six month period ended June 30, 1996, or $3.50 per share annualized. The
consummation of pending acquisitions, however, is expected to lower actual
fiscal year earnings. BancGroup noted in its press release that if its earnings
were restated at June 30, 1996, for all pending acquisitions that reported
earnings would have been $1.63 per fully diluted share, or $3.26 per share
annualized.
Approximately 75% of BancGroup's $4.5 billion of assets are domiciled in
Alabama. Although BancGroup management has always emphasized real estate
lending, BancGroup's balance sheet has become more thrift like following the
acquisition of CMC. The $3.3 billion loan portfolio is largely comprised of
mortgages for 1-4 units (50%), while an additional 30% of the portfolio consists
of commercial real estate (22%) and construction loans (8%). Management noted
that CMC's ARM production is generally retained in the portfolio, while fixed
rate production is sold in the secondary market. Capitalized mortgage servicing
rights totaled $93 million at June 30, 1996. Management indicated that it hedges
the prepayment risk of its servicing portfolio by not purchasing any servicing
with weighted average coupons in excess of 8% or so and selling mortgages
servicing released when the mortgage rate exceeds about 8.5%.
BancGroup's balance sheet is funded with a combination of deposits,
including brokered deposits, short term funds (Fed Funds and repurchase
agreements) and FHLB borrowings. Mercer Capital noted that BancGroup's liquidity
position, based upon such ratios as the loan-to-deposit ratio (106% at June 30,
1996), appeared to be tight as a result of very strong loan growth recorded
during the past few years. Management stated that in its opinion, liquidity was
acceptable and noted that it leverages the capital base due to strong loan
demand and the acceptable return on incremental loans funded with wholesale
funds.
BancGroup management leverages its capital base to boost ROE and earnings
per share. BancGroup's equity-to-asset ratio was 6.8% at June 30, 1996, while
the leverage ratio was 6.4%. Management indicated that it intends to maintain an
average Tier One leverage ratio of at least 6.0% and an overall total risk based
capital ratio of 10.0%.
Market for BancGroup's Shares. Mercer Capital noted that BancGroup's
common shares are listed on the New York Stock Exchange and trade under the
ticker "CNB". Based upon the current market price of approximately $34 per share
and 13.6 million outstanding common shares, BancGroup's market capitalization is
about $460 million. Reported weekly trading volume during 1996 has averaged
about 42 thousand shares, or 16% of the shares on an annualized basis.
Institutional investors own slightly less than 23% of the outstanding shares.
Mercer Capital calculated that BancGroup's shares appreciated 379% between
January 1, 1991 and August 30, 1996 as compared to the 336% increase in the
NASDAQ Banking Index over the same period. Since January 1, 1995, BancGroup's
shares have appreciated 75% versus 59% for the NASDAQ Banking Index.
Mercer Capital compared the pricing of BancGroup's shares with (i) all
publicly traded bank holding companies; (ii) bank holding companies with $1
billion to $5 billion of assets; and, (iii) bank holding companies based in the
Southeast. Mercer Capital noted that as of late August, 1996, BancGroup's shares
were trading at a discount to the median P/E ratio and dividend yield for each
group. BancGroup's P/E ratio on trailing twelve month earnings was 10.3x as
compared to 13.0x for the Southeast bank holding companies, 12.5x for comparable
sized institutions and 12.6x for all publicly traded bank holding companies.
BancGroup's dividend yield of 3.18% compared with a median of 2.43% for the
Southeast bank holding companies, 2.95% for the comparable sized institutions
and 2.58% for all publicly traded bank holding companies. BancGroup's
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<PAGE> 29
P/B ratio of 166% approximated the median ratio for the Southeast and comparable
sized bank holding companies, while it exceeded the overall national median of
158%.
Other Considerations. Other factors considered by Mercer Capital in
rendering the fairness opinion included:
1. The planned sale of First Family to BancGroup resolved a number of
business and strategic issues which ultimately could have had a negative
impact on First Family's value:
(a) The resolution of the BIF/SAIF issue will lead to an assessment
on all thrifts. Based upon current legislation, First Family's one-time
premium would approximate $1.26 million, or $786 thousand after-tax.2
Although First Family would benefit from lower premiums going forward,
the reduction in capital would occur at an inopportune time given First
Family's equity-to-asset ratio of less than 6.0%;
(b) According to First Family management, First Family's capital
position is inadequate to effectively increase its deposit base and
compete in the Lake County market. Additional capital was reportedly
needed to strengthen the branch network, loan origination capacity, and
to modernize systems technology including equipment, delivery systems
and data processing systems. Even if the Board had decided to proceed
with a public offering, rather than sell First Family, existing
shareholders may have been diluted while facing an uncertain prospect of
whether such proceeds could be utilized to enhance shareholder value;
and,
(c) Although it is too early to tell, acquirors' interest in small
community banks, and in particular thrifts, may be waning given the
advent of alternative product distribution channels which are cheaper
than branches and the relative ease of raising wholesale funds. A
decision to sell now, as opposed to remaining independent, allows
shareholders' to realize First Family's franchise value.
2. Given its size and growing market presence in the fast growing
regions of Atlanta and Central Florida, combined with a large mortgage
origination and servicing operation, BancGroup may also be an acquisition
candidate. Mercer Capital made no representations whether BancGroup will
ever by acquired; or, if it is acquired, whether shareholders will receive
a premium price.
3. The transaction will be treated as a tax-free reorganization under
Section 368(a) of the Code for federal income tax purposes. Thus, the
merger will not trigger capital gains tax liabilities for First Family
shareholders with regard to the portion of the consideration consisting of
BancGroup stock; and,
4. BancGroup shares received by First Family shareholders will be
freely transferable, except for those shareholders who are deemed to be
affiliates under Rule 145 of the Securities Act of 1933, as amended. Thus,
First Family shareholders will obtain immediate liquidity for half their
interest in the Company, while the remaining 50% will be exchanged for
BancGroup's more liquid shares.
Compensation of Mercer Capital. Pursuant to its engagement letter, First
Family agreed to pay Mercer Capital a fee of $25,000 to render a fairness
opinion. First Family also agreed to indemnify Mercer Capital, its officers,
employees and agents, and to hold Mercer Capital, its officers, employees and
agents harmless from any and all obligations, claims, charges, expenses or costs
of any nature arising out of the engagement. The indemnification would not apply
if Mercer Capital were negligent in carrying out its duties.
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2 See footnote 1.
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<PAGE> 30
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRST FAMILY
The Board of Directors of First Family has determined that the Merger is in
the best interests of First Family and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF FIRST FAMILY VOTE IN FAVOR OF
THE APPROVAL AND ADOPTION OF THE MERGER AND THE AGREEMENT.
BANCGROUP'S REASONS FOR THE MERGER
The Board of Directors of BancGroup has unanimously approved the Merger and
the Agreement. BancGroup has been seeking to expand its banking service in the
Florida market, and to that end, it currently operates a commercial bank in
Orlando, and has pending agreements to acquire other banks in Florida. The Board
of Directors of BancGroup believes that the acquisition of First Family and the
Bank is consistent with that strategy.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account: (i) the financial performance and condition of
First Family, including its strong capital and good asset quality; (ii)
similarities in the philosophies of BancGroup and First Family, including First
Family's commitment to delivering high quality personalized financial services
to its customers; and (iii) First Family's management's knowledge of and
experience in the Central Florida market.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of First Family hold First Family
Options which entitle them to purchase, in the aggregate, up to 35,500 shares of
First Family Common Stock. The First Family Options were granted to the
directors and officers in connection with the Bank's conversion from mutual to
stock form in October, 1992. Under the terms of the Agreement, any First Family
Options which are not exercised prior to the Effective Date will be assumed by
BancGroup giving the holders of such options the right to acquire shares of
BancGroup Common Stock. See "Conversion of First Family Common Stock" and
"Treatment of First Family Options."
First Family does not have any employment or severance agreements with its
executive officers. The Bank, however, has separate employment agreements with
two of its executive officers, the President and Chief Executive Officer, David
M. Shepherd and the Executive Vice President and Chief Financial Officer,
Bradley R. Meredith. In addition, on October 30, 1995, the Bank adopted a Senior
Executive Severance Plan ("Severance Plan") for its senior executive officers,
David M. Shepherd, Bradley R. Meredith, Mario J. D'Alessio and Susan E. Neal.
The purpose of the Severance Plan was to assure that the Bank would maintain
competent management in the event an offer was received to acquire First Family
or the Bank.
The employment agreements with Messrs. Shepherd and Meredith, which were
entered into in October, 1992, are substantially the same except as noted
herein. Mr. Shepherd's and Mr. Meredith's employment agreements currently expire
on October 31, 1997. The employment agreements may be renewed by written notice
from the Bank to the employee. Each of the individuals is entitled to receive a
base salary, plus reimbursement of reasonable business expenses, may participate
in any stock option or profit-sharing plan established for executives of the
Bank, and each is entitled to certain disability benefits. The disability
provisions of the employment agreements provide for a payment equal to 100% of
the base salary during the first six months of disability, and a 75% payment for
the remaining term of the employment agreements.
The Bank may terminate the employment agreements on a 30-days notice for
any reason, but if the termination is without cause, the employee would be
entitled to receive the remaining payments due under the employment agreement,
which may be paid periodically or in a lump-sum, at the election of the Bank.
The employment agreements also allow the employees to terminate the agreement
for "good reason," in which case they would be entitled to receive certain
severance benefits under the terms of the respective employment agreements. Good
reason includes a change in control such as the pending Merger with BancGroup.
Under the terms of this employment agreement, as modified by agreement with
BancGroup, Mr. Shepherd will receive on the Effective Date a lump sum payment of
$225,000. Mr. Meredith will receive a severance
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<PAGE> 31
payment in an amount equal to his respective current annual base salary of
$83,000 upon termination of his employment.
The term of the Severance Plan and the implementing Individual Executive
Incentive Severance Agreements ("Severance Agreements") were for an indefinite
period, with the Board having the power at any time, in its discretion, to amend
or terminate the Severance Plan, in whole or in part. The Severance Plan and
Severance Agreements are triggered solely in the event of a "Change of Control"
(which includes the Merger) as defined in the Severance Plan and the subsequent,
voluntary or involuntary, termination of the senior executive by the acquiror
within two years after a Change of Control. Under the terms of the individual
Severance Agreements, Messrs. Shepherd, Meredith, and D'Alessio and Ms. Neal
shall receive $200,000, $150,000, $50,000 and $50,000, respectively, except that
Mr. Shepherd's payment pursuant to agreement with BancGroup will be received on
the Effective Date. The obligation to pay under the terms of the Severance
Agreements is absolute and unconditional. The senior executive officers are not
required to seek employment to mitigate the amount paid under the Severance
Agreements. Mr. Shepherd, however, has executed a non-competition agreement
which will take effect upon consummation of the Merger. The non-competition
agreement covers the Lake County, Florida area.
At the request of BancGroup, Mr. Shepherd has agreed to continue his
employment with the Bank for a period of six months following the Merger, under
terms and conditions mutually agreeable to BancGroup and Mr. Shepherd. Mr.
Shepherd shall receive a salary of approximately $75,000.
Mr. Shepherd is covered under a Type A Retirement Agreement which provides
that Mr. Shepherd or his beneficiary will be entitled to retirement benefits
beginning November 1, 1997. This agreement is not affected by the Merger, but
the agreement will be assumed by BancGroup.
BancGroup and Mr. Shepherd have entered into a letter of understanding
reflecting BancGroup's obligations to Mr. Shepherd under Mr. Shepherd's existing
employee benefits with First Family and the Bank. That agreement is included
herein at Appendix C.
The Bank currently provides a tax qualified contribution plan for its
employees. The plan is a 401(k) Plan which is administered by Transamerica
Pension Services. On the Effective Date of the Merger, First Family employees
who become employees of BancGroup shall be entitled, to the extent permitted by
applicable law, to participate in BancGroup employee retirement benefit plans.
The Bank maintains an Executive Supplemental Retirement Income
Agreement/Type B ("Retirement Agreement") for senior executive officers Bradley
R. Meredith, Mario J. D'Alessio and Susan E. Neal. The Retirement Agreement
provides retirement income to certain key employees of the Bank, including Mr.
Meredith, Mr. D'Alessio and Ms. Neal. Assuming these employees were to continue
their employment at the Bank, upon reaching age 65, the employee is entitled to
$7,337.08 per month for 120 months in the case of Mr. Meredith, $1,482.17 per
month for 120 months in the case of Mr. D'Alessio, and $5,066.33 per month for
120 months in the case of Ms. Neal. Should the proposed Merger be consummated,
the Retirement Agreement will terminate and the employees upon attaining
retirement age will be entitled to receive only a portion of the normal benefit
represented by the amounts which are currently vested at the time of
termination. These monthly amounts have been actuarially determined to be $1,082
for Mr. Meredith, $906 for Mr. D'Alessio and $700 for Ms. Neal. The employee's
beneficiaries are entitled to such payments if the employee dies prior to age 65
but has attained 5 full years under the Retirement Plan. If the employee
voluntarily or involuntarily terminates employment with the Bank before reaching
age 65 other than for cause, the employee is entitled to receive that portion of
the vested retirement benefit that is required to be expensed and accrued. Each
employee has agreed that, until the last payment due under the Retirement
Agreement has been paid, he or she will not own or become associated with,
within the Bank's trading area in Lake County Florida, any enterprise which is
or may be deemed to be competitive with the business of the Bank.
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<PAGE> 32
In addition to the benefits listed above, BancGroup has agreed to provide
each of the senior executive officers with health care coverage equal to the
coverage currently being provided under First Family's Florida Bankers
Association Plan for a period of 18 months following termination of their
employment.
Except as described above, none of the directors or executive officers of
First Family, and no associate of any such person, has any substantial direct or
indirect interest in the Merger, other than an interest arising from the
ownership of First Family Common Stock.
CONVERSION OF FIRST FAMILY COMMON STOCK
On the Effective Date, each share of First Family Common Stock outstanding
and held by First Family's shareholders shall be converted by operation of law
and without any action by any holder thereof into both shares of BancGroup
Common Stock and cash with a total value equal to $23.50 per share of First
Family Common Stock (the "Merger Consideration"). Specifically, on the Effective
Date, each outstanding share of First Family Common Stock shall receive both
$11.75 in cash and BancGroup Common Stock with a market value of $11.75 as
determined below. The number of shares, or fractions of a share of BancGroup
Common Stock into which each outstanding share of First Family Common Stock on
the Effective Date shall be converted shall be equal to $11.75 divided by the
Market Value. The Market Value shall represent the per share market value of the
BancGroup Common Stock at the Effective Date and shall be determined by
calculating the average of the closing prices of the Common Stock of BancGroup
as reported by the NYSE on each of the 10 trading days ending on the trading day
immediately preceding the Effective Date.
No fractional shares of BancGroup Common Stock will be issued in the
Merger. Each shareholder of First Family having a fractional interest arising
upon the conversion of First Family Common Stock into BancGroup Common Stock
will, at the time of surrender of the certificates representing First Family
Common Stock, be paid by BancGroup an amount of cash equal to the value of such
fractional interest based on the fair market value of such fractional share.
Fair market value for this purpose shall be the Market Value.
As an example, a shareholder of First Family who owns 500 shares of First
Family Common Stock would be entitled to receive for such shares BancGroup
Common Stock and cash. Assuming a Market Value of BancGroup Common Stock at the
Merger of $35.05 (calculated as of September 19, 1996), then such shareholder
would receive Merger Consideration as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF BANCGROUP
COMMON STOCK TO AMOUNT OF TOTAL VALUE
NUMBER OF SHARES OF BE CASH TO BE OF MERGER
FIRST FAMILY COMMON STOCK RECEIVED RECEIVED CONSIDERATION
-------------------------------------------- ----------------- ---------- -------------
<S> <C> <C> <C>
500......................................... 167(1) $5,875(2) $11,750(3)
</TABLE>
- ---------------
(1) Each share of First Family Common Stock would receive an amount of BancGroup
Common Stock determined by the following formula: $11.75 / $35.05 = .3352.
Thus, 500 shares multiplied by .3352 yields 167.60 shares of BancGroup
Common Stock. The fraction of .60 of a share would be paid in cash.
(2) Determined by the following formula: 500 X $11.75.
(3) The total Merger Consideration represents the $5,875 of cash to be received
plus the value of the 167.60 shares of BancGroup Common Stock to be
received at a Market Value of $35.05 per share. Thus, the total value of
the Merger Consideration is $23.50 per share.
As the Market Value of the BancGroup Common Stock rises, the number of
shares of BancGroup Common Stock to be issued in the Merger will decrease, and
as the Market Value falls, the number of such shares will increase. The cash
issued in the Merger will not vary.
The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the First Family Common
Stock shall be converted in the Merger.
For a description of the assumption of First Family Options, see "Treatment
of First Family Options."
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<PAGE> 33
SURRENDER OF FIRST FAMILY COMMON STOCK CERTIFICATES
Upon the Effective Date and subject to the conditions described at
"Conditions to Consummation of the Merger," First Family's shareholders will
automatically, and without further action by such shareholders or by BancGroup,
become owners of BancGroup Common Stock as described herein. Outstanding
certificates representing shares of the First Family Common Stock shall
represent shares of BancGroup Common Stock and the cash to which such persons
are entitled. Thereafter, upon surrender of the certificates formerly
representing shares of First Family Common Stock, the holders will be entitled
to receive certificates for the BancGroup Common Stock and cash as provided in
the Agreement. No interest will be paid on the cash to be distributed. Dividends
on the shares of BancGroup Common Stock will accumulate without interest and
will not be distributed to any former shareholder of First Family unless and
until such shareholder surrenders for cancellation his certificate for First
Family Common Stock. SunTrust Bank, Atlanta, Georgia, transfer agent for
BancGroup Common Stock, will act as the Exchange Agent with respect to the
shares of First Family Common Stock surrendered in connection with the Merger.
A detailed explanation of these arrangements will be mailed to First Family
shareholders promptly following the Effective Date. STOCK CERTIFICATES SHOULD
NOT BE SENT TO THE EXCHANGE AGENT UNTIL SUCH NOTICE IS RECEIVED.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). The obligation of First Family and BancGroup to consummate
the Merger is conditioned on the receipt by First Family and BancGroup of an
opinion from Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, to
the effect that the Merger will constitute such a reorganization. The opinion
has been delivered to First Family and BancGroup. In delivering its opinion,
Miller, Hamilton, Snider & Odom, L.L.C., have received and relied upon certain
representations of BancGroup and First Family and certain other information,
data, documentation and other materials as it deems necessary. The tax opinion
is based upon certain assumptions, including the assumption that First Family
has no knowledge of any plan or intention on the part of the First Family
shareholders to sell or dispose of BancGroup Common Stock that would reduce
their holdings to the number of shares having in the aggregate a fair market
value of less than 50% of the total fair market value of the First Family Common
Stock outstanding immediately upon the Merger.
Neither First Family nor BancGroup intends to seek a ruling from the
Internal Revenue Service as to the federal income tax consequences of the
Merger. First Family's shareholders should be aware that the opinion of counsel
will not be binding on the Internal Revenue Service or the courts.
Among other things, the following discussion is based on First Family's
shareholders maintaining sufficient equity ownership interest in BancGroup after
the Merger. The Internal Revenue Service takes the position for purposes of
issuing an advance ruling on reorganizations that the shareholders of an
acquired corporation (i.e., First Family) must maintain, in the aggregate, a
continuing equity ownership interest in the acquiring corporation (i.e.,
BancGroup) equal, in terms of value, to at least 50% of their interest in such
acquired corporation. Shares of First Family Common Stock and BancGroup Common
Stock held by First Family shareholders and otherwise sold, redeemed or disposed
of prior or subsequent to the Merger may be taken into account in determining
whether the requirement with respect to continuing equity ownership of BancGroup
Common Stock is met by First Family's shareholders. If the assumption stated
above, that there is no plan or intention by the First Family shareholders to
sell or dispose of BancGroup Common Stock that would reduce their holdings to
the number of shares with an aggregate fair market value of less than 50 percent
of the total fair market value of First Family Common Stock outstanding
immediately before the Merger, were to be incorrect, then counsel could not
opine that the Merger is a reorganization under Section 368 of the Code.
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<PAGE> 34
The tax opinion states that, provided the assumptions stated therein are
satisfied, the following federal income tax consequences will result to First
Family's shareholders who exchange their shares of First Family common stock for
shares of BancGroup Common Stock:
1. The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1) pursuant to Section 368(a)(1)(A) of the Code.
2. No gain or loss will be recognized by First Family upon the
transfer of its assets and liabilities to BancGroup. No gain or loss will
be recognized by BancGroup upon the receipt of the assets and liabilities
of First Family.
3. The basis of the assets of First Family acquired by BancGroup will
be the same as the basis of the assets in the hands of First Family
immediately prior to the Merger.
4. The holding period of the assets of First Family in the hands of
BancGroup will include the period during which such assets were held by
First Family.
5. A First Family shareholder who exchanges shares of First Family
Common Stock for a combination of BancGroup Common Stock and cash, as
described in the Agreement, shall recognize gain. The amount of the gain
realized by a shareholder will be the excess of (a) the sum of (i) the
amount of cash received and (ii) the fair market value of shares of
BancGroup Common Stock received, over (b) the tax basis of the shares of
First Family Common Stock exchanged therefor. Of such gain realized, a
shareholder will recognize gain, but such gain will be the lesser of the
actual amount of gain realized or the amount of cash received. No loss
shall be recognized.
Any gain recognized by shareholders of First Family will be
characterized as capital gain if the First Family Common Stock is a capital
asset in the hands of such shareholder and the receipt of the cash does not
have "the effect of the distribution of a dividend" within the meaning of
Section 356(a)(2) of the Code, as interpreted by the United States Supreme
Court in Commissioner v. Clark, 489 U.S. 726 (1989). Otherwise, the receipt
of the cash will be treated as a dividend. Pursuant to Clark, such First
Family shareholder will be treated as if the shareholder received only
BancGroup Common Stock and then BancGroup redeemed a portion of such Common
Stock for the amount of cash that actually was issued (a
post-reorganization hypothetical redemption). If that hypothetical
redemption satisfies any of the tests of Section 302(b) of the Code, it
will be treated as an exchange. First Family shareholders should be able to
satisfy one or more of the tests for exchange treatment under Section
302(b) of the Code. Consequently, any gain recognized by a First Family
shareholder should be treated as capital gain. However, the application of
Section 302(b) is dependent on each shareholder's particular facts and
circumstances and is affected by the attribution rules of Section 318 of
the Code. Consequently, First Family shareholders should seek independent
tax advice as to the tax effect of the Merger, including the receipt of the
cash, to them.
6. The payment of cash to a First Family shareholder in lieu of a
fractional share of BancGroup Common Stock as part of the Merger will be
treated as if the fractional share was delivered to the shareholder and
then redeemed by BancGroup, with the tax effect of such deemed redemption
being determined under Section 302(b) of the Code.
7. The basis of the BancGroup Common Stock (including any fractional
share) received by a First Family shareholder in the Merger will be the
same as the basis of the First Family Common Stock surrendered in exchange
therefor, decreased by the amount of cash received, and increased by the
amount treated as a dividend, if any, and the amount of gain recognized on
the exchange.
8. The holding period of the BancGroup Common Stock received by a
First Family shareholder in the Merger will include the holding period of
the First Family Common Stock surrendered in exchange therefor, provided
such shares of First Family Common Stock were capital assets or property
described under Section 1231 of the Code in the hands of the First Family
shareholder on the day of the Merger, and otherwise will begin on the date
following the date of the Merger.
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<PAGE> 35
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF ALL MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF FIRST
FAMILY, TO FIRST FAMILY AND TO BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER
TO VOTE IN FAVOR OF APPROVAL OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN
SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED
STATES PERSONS, SHAREHOLDERS WHO DO NOT HOLD THEIR SHARES OF FIRST FAMILY COMMON
STOCK AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, AND
SHAREHOLDERS WHO ACQUIRED THEIR SHARES OF FIRST FAMILY COMMON STOCK PURSUANT TO
THE EXERCISE OF OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. THE TAX
CONSEQUENCES TO FIRST FAMILY EMPLOYEES UNDER EMPLOYMENT AND OTHER AGREEMENTS ARE
NOT DISCUSSED. THE TAX CONSEQUENCES TO HOLDERS OF FIRST FAMILY OPTIONS AND STOCK
APPRECIATION RIGHTS ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS
AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. FIRST FAMILY
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO
THEM.
OTHER POSSIBLE CONSEQUENCES
If the Merger is consummated, the shareholders of First Family, a Florida
corporation, will become shareholders of BancGroup, a Delaware business
corporation.
For a discussion of the differences, if any, in the rights, preferences,
and privileges attaching to First Family Common Stock as compared with BancGroup
Common Stock, see "COMPARATIVE RIGHTS OF STOCKHOLDERS."
CONDITIONS TO CONSUMMATION OF THE MERGER
The parties' obligation to consummate the Merger is subject to the
satisfaction (or waiver, to the extent permitted by law) of various conditions
set forth in the Agreement.
The obligations of First Family and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of First Family Common
Stock; (ii) the approval of the Merger by the Federal Reserve; (iii) the absence
of pending or threatened litigation with a view to restraining or prohibiting
consummation of the Merger or in which it is sought to obtain divestiture,
rescission or damages in connection with the Merger, (iv) the absence of any
investigation by any governmental agency which might result in any such
proceeding, (v) consummation of the Merger no later than March 31, 1997, (vi)
receipt of opinions of counsel regarding certain matters, including tax matters
and (vii) the effectiveness of the registration statement respecting the shares
of BancGroup Common Stock to be issued in the Merger.
The obligation of First Family to consummate the Merger is further subject
to several other conditions, including: (i) BancGroup and its subsidiaries shall
have incurred no losses which in the aggregate exceed $14,000,000; (ii) the
shares of BancGroup Common Stock to be issued under the Agreement shall have
been approved for listing on the NYSE; (iii) the accuracy in all material
respects of the representations and warranties of BancGroup contained in the
Agreement and the performance by BancGroup of all of its
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<PAGE> 36
covenants and agreements under the Agreement; and (iv) receipt of the opinion of
Mercer Capital that the Merger Consideration is fair from a financial point of
view to the shareholders of First Family.
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including: (i) the accuracy in all material respects of the
representations and warranties of First Family contained in the Agreement, and
the performance by First Family of all of its covenants and agreements under the
Agreement; (ii) the receipt by BancGroup of certain undertakings from holders of
First Family Common Stock who may be deemed to be "affiliates" of First Family
pursuant to the rules of the Commission; (iii) First Family and its subsidiaries
shall have sustained no losses which, in the aggregate, exceed $450,000; and
(iv) the consolidated shareholders' equity of First Family shall be no less than
$9,000,000 as of the Effective Date. For this purpose, "shareholders' equity"
shall mean the consolidated stockholder's equity of First Family at the close of
business on the month-end immediately preceding the Effective Date computed in
accordance with Generally Accepted Accounting Principles ("GAAP"), plus the
after-tax impact of (a) the booked or accrued amount of any one-time special
assessment by the Federal Deposit Insurance Fund after the date of the
Agreement; (b) reasonable fees paid to counsel for First Family relating to the
Agreement; (c) compensation and other expenses paid to or on behalf of persons
hired by First Family pursuant to the Agreement; (d) any amounts transferred by
First Family to reserve accounts at the request of BancGroup that would be in
excess of the amounts required by GAAP or in excess of amounts necessary to
maintain reserves at current levels; (e) fees paid to Mercer Capital pursuant to
the Agreement; and (f) any other fees or payments required to be paid or accrued
by First Family in connection with the Agreement or the proposed transaction. As
of September 30, 1996, First Family's shareholder's equity exceeded the minimum
amount required by the Agreement.
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the Agreement, such as the receipt of certificates of
officers of each party as to compliance with the Agreement, and satisfaction of
each party of all representations, warranties and covenants, will be satisfied.
The Agreement provides that First Family and BancGroup may waive all conditions
to their obligations to consummate the Merger, other than the receipt of the
requisite approvals of regulatory authorities and First Family shareholder
approval of the Merger. In making any decision regarding a waiver of one or more
conditions to consummation of the Merger or an amendment of the Agreement, the
Boards of Directors of First Family and BancGroup would be subject to fiduciary
duty standards imposed upon such boards by relevant law that would require such
boards to act in the best interests of their respective shareholders.
AMENDMENT OR TERMINATION
The Boards of Directors of BancGroup and First Family may agree to amend or
terminate the Agreement before or after approval by the shareholders of First
Family. However, the Board of Directors of First Family shall not agree to any
amendments to the Agreement which would alter the Merger Consideration or which
in the opinion of the Board of Directors of First Family would adversely affect
the rights of the shareholders of First Family, or which would change the terms
of First Family's articles of incorporation, unless such amendments are approved
by the holders of a majority of the outstanding First Family Common Stock. Such
amendments may require the filing of an amendment of the Registration Statement,
of which this Prospectus forms a part, with the Commission. See "Conditions to
Consummation of the Merger."
REGULATORY APPROVALS
The Merger is subject to prior approval of the Federal Reserve under the
BHCA. BancGroup filed an application with the Federal Reserve on September 6,
1996. The regulatory approval process is expected to take approximately three
months from that date. Subject to shareholder and regulatory approvals, the
Merger will be consummated in the first calendar quarter of 1997.
Federal Reserve Approval. Pursuant to Section 4 of the BHCA, and the
regulations promulgated thereunder, the Federal Reserve must weigh the public
benefits associated with the Merger (such as greater convenience, increased
competition, and gains in efficiency) against the possible adverse effects (such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest, and unsound banking
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<PAGE> 37
practices), and must consider the financial and managerial resources of
BancGroup, its subsidiaries and First Family, and the effect of the Merger on
these resources.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger.
The Agreement provides that the obligations of BancGroup and First Family
to consummate the Merger are conditioned upon the receipt of the approval of the
Federal Reserve. There can be no assurance that the Federal Reserve will approve
BancGroup's applications to acquire First Family, and, if such approval is
received, that such approval will not be conditioned upon terms and conditions
that would require the parties to modify or substantially change the terms of
the Agreement or cause the parties to abandon the Merger. Any substantive
changes required to be made in the Agreement could require approval of First
Family's shareholders.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement contains certain restrictions on the conduct of the business
of First Family pending consummation of the Merger. The Agreement prohibits
First Family from taking any of the following actions, prior to the Effective
Date, subject to certain limited exceptions previously agreed to by the parties,
without the prior written approval of BancGroup:
(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and unissued or
held in the treasury), except shares of First Family Common Stock issued
upon the exercise of First Family Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent) except
borrowings, obligations and liabilities incurred in the ordinary course of
business and consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment
of dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchasing or redeeming or agreeing to purchase or redeem,
any of its outstanding securities, except that a dividend in cash of $.04
per share which was paid for the quarter ending June 30, 1996 and if the
Effective Date has not occurred by February 28, 1997, First Family may pay
a dividend thereafter of $.04 per share for the quarter ending March 31,
1997;
(v) Except in the ordinary course of business, selling or transferring
or agreeing to sell or transfer, any of its assets, property or rights or
canceling, or agreeing to cancel, any debts or claims;
(vi) Except in the ordinary course of business, entering or agreeing
to enter into any agreement or arrangement granting any preferential rights
to purchase any of its assets, property or rights or requiring the consent
of any party to the transfer and assignment of any of its assets, property
or rights;
(vii) Waiving any rights of value which in the aggregate are material;
(viii) Except in the ordinary course of business, making or permitting
any amendment or termination of any contract, agreement or license to which
it is a party if such amendment or termination is material considering its
business as a whole;
(ix) Except in accordance with normal and usual practice, making any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
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<PAGE> 38
(x) Except in accordance with normal and usual practice, increasing
the rate of compensation payable to or to become payable to any of its
officers or employees or making any material increase in any
profit-sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan, payment or arrangement made to,
for or with any of its officers or employees;
(xi) Failing to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations; and
(xii) Entering into any other material transaction other than in the
ordinary course of business.
The Agreement provides that prior to the Effective Date, no director or
officer of First Family or any of its subsidiaries shall, directly or indirectly
own, manage, operate, join, control, be employed by or participate in the
ownership, proposed ownership, management, operation or control of or be
connected in any manner with, any business, corporation or partnership which is
competitive to the business of First Family or its subsidiaries.
The Agreement also provides that, at the request of BancGroup, (i) First
Family shall use its best efforts to hire such additional loan officers for the
Bank as may be mutually satisfactory to BancGroup and First Family, (ii) the
Bank shall offer deposit products upon terms, including pricing, that are
consistent on a mutually satisfactory basis with those of BancGroup and its
Florida bank subsidiary, (iii) First Family will consult with BancGroup
concerning non single-family residential loan requests over $100,000 and (iv)
First Family will consult with BancGroup to coordinate various other business
issues on a basis mutually satisfactory to First Family and BancGroup. First
Family and the Bank shall not be required to undertake any of such activities,
however, except as such activities may be in compliance with existing law. First
Family and the Bank shall not be required to undertake the activities enumerated
in the foregoing clauses (i) and (ii) until such time as regulatory approval of
the Merger has been obtained. If the Merger is not consummated, BancGroup or its
Florida bank subsidiary will hire any persons hired by First Family pursuant to
the foregoing.
COMMITMENTS WITH RESPECT TO OTHER OFFERS
Until the termination of the Agreement, neither First Family nor any of its
directors or officers (or any person representing any of the foregoing) shall
solicit or encourage inquiries or proposals with respect to, furnish any
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or of a substantial portion of
the assets of, or of a substantial equity interest in, First Family or any
business combination involving First Family other than as contemplated by the
Agreement. First Family will notify BancGroup immediately if any such inquiries
or proposals are received by First Family, if any such information is requested
from First Family, or if any such negotiations or discussions are sought to be
initiated with First Family. First Family shall instruct its officers,
directors, agents or affiliates or their subsidiaries to refrain from doing any
of the above; provided, however, that nothing contained in the Agreement shall
be deemed to prohibit any officer or director of such party from fulfilling his
or her fiduciary duty or from taking any action that is required by law.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of First Family Common Stock as of the Record Date are not entitled
to dissenters' rights of appraisal under Florida law. The Florida Business
Corporation Act states that if the shares of common stock of a corporation to be
merged are designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc., such
shares are not subject to dissenters rights of appraisal in the merger. The
shares of First Family Common Stock are quoted on the NASDAQ National Market
System and, hence, appraisal rights do not apply to the Merger.
RESALE OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
The issuance of the shares of BancGroup Common Stock pursuant to the Merger
(including any shares to be issued pursuant to First Family Options) has been
registered under the Securities Act of 1933 (the "Securities Act"). As a result,
shareholders of First Family who are not "affiliates" of First Family (as such
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<PAGE> 39
term is defined under the Securities Act) may resell, without restriction, all
shares of BancGroup Common Stock which they receive in connection with the
Merger. Under the Securities Act, affiliates of First Family are subject to
certain restrictions on the resale of the BancGroup Common Stock which they
receive in the Merger.
ACCOUNTING TREATMENT
The acquisition of First Family will be treated as a "purchase" transaction
by BancGroup. Accordingly, the purchase price will be assigned to the fair value
of the net tangible assets acquired and any purchase price in excess thereof
will be assigned to intangibles. The valuation of intangibles, if any, will be
made as of the Effective Date of the Merger. Intangibles, in the approximate
amount of $6.2 million, will be amortized by charges or credits to future
earnings over a period of approximately twenty years.
NYSE REPORTING OF BANCGROUP COMMON STOCK ISSUED IN THE MERGER
Sales of BancGroup Common Stock to be issued in the Merger in exchange for
First Family Common Stock will be reported on the NYSE.
TREATMENT OF FIRST FAMILY OPTIONS
Assumption of Options. As of the date of this Prospectus, First Family had
granted First Family Options to its directors and certain executive officers
which entitled the holders thereof to acquire up to 35,500 shares of First
Family Common Stock. On the Effective Date, BancGroup shall assume all First
Family Options outstanding, and each such option shall represent the right to
acquire BancGroup Common Stock on substantially the same terms applicable to the
First Family Options except as specified below. The registration statement
registering the shares of BancGroup Common Stock issued pursuant to the Merger
also registers the shares of BancGroup Common Stock to be issued upon the
exercise of the First Family Options assumed by BancGroup. The number of shares
of BancGroup Common Stock to be issued pursuant to such options shall equal the
number of shares of First Family Common Stock subject to such First Family
Options multiplied by the Exchange Ratio, provided that no fraction of shares of
BancGroup Common Stock shall be issued and the number of shares of BancGroup
Common Stock to be issued upon the exercise of First Family Options, if a
fractional share exists, shall equal the number of whole shares obtained by
rounding to the nearest whole number, giving account to such fraction. The
exercise price for the acquisition of BancGroup Common Stock shall be the
exercise price for each share of First Family Common Stock subject to such
options divided by the Exchange Ratio, adjusted appropriately for any rounding
to whole shares that may be done. For these purposes, the "Exchange Ratio" shall
mean the result obtained by dividing $23.50 by the Market Value.
The First Family Options are issuable pursuant to the First Family Bank,
fsb 1992 Stock Option and Stock Appreciation Rights Plan (the "Option Plan").
The First Family Options originally provided that such options would expire 90
days after the holder of such options ceased to be an officer or employee of
First Family or the Bank. On July 17, 1996, First Family amended the
non-statutory options for each director of First Family and the incentive stock
options for David M. Shepherd and Bradley R. Meredith to provide that such
options will expire one year after a holder ceases to be an officer, director or
employee of First Family or the Bank (or of BancGroup or the Bank after the
Merger).
The Option Plan is not qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended, nor is it subject to the Employee Retirement
Income Security Act of 1974. First Family Options are not transferrable except
under the laws of descent and distribution.
Although First Family Options may be issued with stock appreciation rights
("SARs") which entitle the holder to elect to receive for each SAR, without
payment to First Family, and in lieu of exercise of the First Family Option,
cash or shares of First Family Common Stock, or a combination, in the amount
equal to the value of the SAR, no SARs have been issued.
Purpose of the Option Plan. The purpose of the Option Plan was to assist
the Bank in retaining the employment of valued employees by offering them a
greater stake in the Bank's success and a closer identity
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<PAGE> 40
with it, and to aid in obtaining the services of individuals whose employment
would be helpful to the Bank and would contribute to its success. BancGroup
believes that its assumption of the First Family Options will be consistent with
this purpose. No further options will be granted under the Option Plan after the
Merger.
Tax Consequences -- Incentive Options. BancGroup believes, after
consultation with legal counsel, that, if the options issued under the Option
Plan as incentive options qualified as such at the time of grant, the option,
after assumption by BancGroup, will continue to qualify as "incentive stock
options," under Section 422 of the Internal Revenue Code of 1986, as amended.
Under the Internal Revenue Code no income will result to a grantee of any such
option upon the granting or exercising of an option by the grantee, and
BancGroup will not be entitled to a tax deduction by reason of such grant or
exercise.
If, after exercising the option, the employee holds the stock obtained
through exercise for at least two years after the date of option grant and at
least one year after the stock was obtained, the employee's gain (if any) on
selling the stock will generally be treated as a long term capital gain.
Generally, the employee's alternative minimum taxable income for minimum tax
purposes will be increased by the difference between the option price and the
fair market value of the stock on the date of exercise.
If the holding period requirements just stated are not met, then any gain
on the sale of the stock will be taxed partly or entirely at ordinary income tax
rates. If the stock is held for less than the required holding period, then the
difference between the option exercise price and the fair market value of the
stock on the date of exercise will be taxed at ordinary income tax rates. The
gain equal to the increase in the fair market value of the stock after the date
of exercise of the option will generally be taxed as capital gain.
It should be understood that the holding periods discussed above relate
only to federal income tax treatment and not to securities law restrictions on
the sale of shares obtained through an option. Notwithstanding the above, any
incentive stock option that was amended by First Family to provide that the
option may be exercised within three years after termination of employment
following a change in control of First Family, may fail to qualify as an
incentive stock option, or if it qualifies, may nonetheless fail to qualify for
favorable tax treatment described above. Rather, upon exercise, such options may
be treated in substantially the same manner as nonqualified options, as
described below.
The foregoing statements concerning federal income tax treatment are
necessarily general and may not apply in a particular instance. No legal opinion
has been received by BancGroup or First Family respecting the effect of the
Merger on holders of First Family Options or of the exercise of such options.
Option holders should contact their own professional tax advisors for advice
concerning their particular tax situation and any changes in the tax law since
the date of this Prospectus.
Tax Consequences -- Non Qualified Options. The First Family Options that
are issued as nonqualified options are not "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended. Thus, upon the
exercise of such an option, ordinary income will result to the grantee equal to
the difference between the price of the option and the fair market value of the
stock subject to the option at the date of exercise. BancGroup, however, will be
entitled to a tax deduction equal to the amount of ordinary income accruing to
the optionee.
The foregoing statements concerning federal income tax treatment are
necessarily general and may not apply in a particular instance. No legal opinion
has been received by BancGroup or First Family respecting the effect of the
Merger on holders of First Family Options or of the exercise of such options.
Option holders should contact their own professional tax advisors for advice
concerning their particular tax situation and any changes in the tax law since
the date of this Prospectus.
Administration. The shares of stock to be delivered upon the exercise of
First Family Options granted under the Option Plan shall be made available after
the Merger, from the authorized but unissued shares of BancGroup's Common Stock.
The Option Plan is to be administered, after the Merger, by the Personnel
and Compensation Committee (the "Committee") of the board of directors of
BancGroup. All members of the Committee are directors of BancGroup. The Chairman
of the Committee, John C. H. Miller, Jr., receives employee-related compensa-
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<PAGE> 41
tion from BancGroup and holds options under BancGroup's stock option plans. Mr.
Miller is a member of a law firm that performs legal services for BancGroup. See
"LEGAL OPINIONS." Another member of the Committee, Jack H. Rainer, is Chairman
of Bankers Credit Life Insurance Company, which provides credit life insurance
on certain loans made by Colonial Bank, BancGroup's Alabama bank subsidiary. The
members of the Committee serve at the pleasure of the board of directors of
BancGroup. The Committee shall interpret the Option Plan and resolve questions
presented by holders of options under the Option Plan. Requests for information
or questions about the Plans should be directed to BancGroup's Corporate
Secretary, at the offices of BancGroup, Post Office Box 1108, One Commerce
Street, Montgomery, Alabama 36102, telephone: (334) 240-5000.
Exercise of Options. After a First Family Option becomes exercisable in
accordance with its terms, it may be exercised by the holder by giving written
notice to BancGroup on a form provided by BancGroup and, in the case of options,
by paying to BancGroup in cash the exercise price of the shares to be acquired
under a First Family Option. Payment may be made to BancGroup by cash, check,
bank draft, or money order, or, if the Committee agrees in a particular
instance, by delivering BancGroup stock already owned by the option holder.
Amendment and Other Matters. BancGroup's board of directors may at any
time amend the Option Plan, except that no amendment may make any change in any
option already granted which would adversely affect the rights of any
participant.
It is not anticipated that BancGroup will make any reports to option
holders regarding the amount or status of First Family Options held. Option
holders may obtain such information from BancGroup at the address given above.
The shares subject to options will be obtained by BancGroup from authorized
but unissued shares. BancGroup has reserved sufficient authorized but unissued
shares for issuance pursuant to options under the Plans and does not anticipate
acquiring any shares in the open market for such purposes.
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<PAGE> 42
COMPARATIVE MARKET PRICES AND DIVIDENDS
BANCGROUP
BancGroup Common Stock is listed for trading on the NYSE. The Common Stock
was first listed on the NYSE on February 24, 1995. Prior to February 21, 1995,
BancGroup had two classes of common stock outstanding, Class A and Class B. The
Class B was not publicly traded. The Class A Common Stock was traded in the
over-the-counter market and quoted on the NASDAQ National Market System. The
BancGroup Class A Common Stock had more limited voting rights than the BancGroup
Class B Common Stock. The Class A and Class B Common Stock were reclassified
into one class of Common Stock on February 21, 1995, and the Class A Common
Stock ceased to be quoted on NASDAQ on February 24, 1995.
The following table shows the dividends paid per share and indicates the
high and low closing prices for the BancGroup Class A Common Stock as reported
by the NASDAQ National Market System up to February 24, 1995, and the same
information reported by the NYSE for the BancGroup Common Stock commencing
February 24, 1995.
<TABLE>
<CAPTION>
PRICE AND
DIVIDENDS PAID
-------------- DIVIDENDS
HIGH LOW -----------
---- --- (PER SHARE)
<S> <C> <C> <C>
1994
1st Quarter.................................................. $20 1/4 $18 $ 0.20
2nd Quarter.................................................. 25 19 1/4 0.20
3rd Quarter.................................................. 24 3/4 22 0.20
4th Quarter.................................................. 23 3/4 19 1/2 0.20
1995
1st Quarter.................................................. 23 5/8 19 1/2 0.225
2nd Quarter.................................................. 27 1/2 23 1/8 0.225
3rd Quarter.................................................. 29 7/8 27 1/2 0.225
4th Quarter.................................................. 32 7/8 28 1/2 0.225
1996
1st Quarter.................................................. 36 1/2 30 0.27
2nd Quarter.................................................. 36 1/8 31 1/4 0.27
3rd Quarter.................................................. 35 7/8 31 1/4 0.27
</TABLE>
On July 24, 1996, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NYSE of the
BancGroup Common Stock was $33 1/4 per share.
At June 30, 1996, BancGroup's subsidiaries accounted for approximately 98%
of BancGroup's consolidated assets. BancGroup derives substantially all of its
income from dividends received from its subsidiaries. Various statutory
provisions and regulatory policies limit the amount of dividends the subsidiary
banks may pay without regulatory approval. In addition, federal statutes
restrict the ability of subsidiary banks to make loans to BancGroup, and
regulatory policies may also restrict such dividends.
FIRST FAMILY
First Family Common Stock is traded in the over-the-counter market and
quoted on the NASDAQ National Market System under the symbol "FFML".
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<PAGE> 43
The following table shows the dividends paid per share and indicates the
high and low closing prices for First Family Common Stock as reported by the
NASDAQ National Market System for the periods indicated.
<TABLE>
<CAPTION>
PRICE
-------------
HIGH LOW DIVIDENDS PAID
---- ---- --------------
(PER SHARE)
<S> <C> <C> <C>
1994
1st Quarter..................................................... $ 10 $9 1/2 $ 0.04
2nd Quarter..................................................... 9 3/4 9 1/2 0.04
3rd Quarter..................................................... 10 9 1/2 0.04
4th Quarter..................................................... 9 3/4 9 1/2 0.04
1995
1st Quarter..................................................... 11 10 3/4 0.04
2nd Quarter..................................................... 15 1/2 11 1/2 0.04
3rd Quarter..................................................... 19 1/2 13 1/2 0.04
4th Quarter..................................................... 21 18 1/2 0.04
1996
1st Quarter..................................................... 22 20 1/4 0.04
2nd Quarter..................................................... 22 1/8 21 0.04
3rd Quarter..................................................... 23 21 0.04
</TABLE>
On July 24, 1996, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NASDAQ of First
Family Common Stock was $21.00 per share. The Agreement contains certain
limitations on First Family's ability to pay dividends. See "THE MERGER --
Conduct of Business Pending the Merger."
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 44,000,000 shares of
BancGroup Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of September 19, 1996, there
were issued and outstanding a total of 16,296,558 shares of BancGroup Common
Stock. No shares of Preference Stock are issued and outstanding. BancGroup
issued in 1986 $28,750,000 in principal amount of its 7 1/2% Convertible
Subordinated Debentures due 2011 (the "1986 Debentures") of which $8,082,000 are
currently outstanding and are convertible at any time into 277,177 shares of
BancGroup Common Stock, subject to adjustment. There are 767,571 shares of
BancGroup Common Stock subject to issue upon exercise of options under
BancGroup's stock option plans. In addition to BancGroup Common Stock to be
issued in the Merger, BancGroup will issue additional shares of its Common Stock
in pending acquisitions. See "BUSINESS OF BANCGROUP -- Proposed Affiliate
Banks."
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law, the
Restated Certificate of Incorporation (the "Certificate"), as amended, and
bylaws of BancGroup, do not purport to be complete and are qualified in their
entirety by reference to the foregoing.
BANCGROUP COMMON STOCK
Dividends. Subject to the rights of holders of BancGroup's Preference
Stock, if any, to receive certain dividends prior to the declaration of
dividends on shares of BancGroup Common Stock, when and as dividends, payable in
cash, stock or other property, are declared by the BancGroup Board of Directors,
the holders of BancGroup Common Stock are entitled to share ratably in such
dividends.
Voting Rights. Each holder of BancGroup Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.
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<PAGE> 44
Preemptive Rights. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup.
Issuance of Stock. The BancGroup Certificate authorizes the BancGroup
Board to issue authorized shares of BancGroup Common Stock without stockholder
approval. However, BancGroup's Common Stock is listed on the NYSE, which
requires stockholder approval of the issuance of additional shares of BancGroup
Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after preferences
of any outstanding Preference Stock.
PREFERENCE STOCK
BancGroup's Preference Stock may be issued from time to time as a class
without series, or if so determined by the BancGroup Board of Directors, either
in whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including, but not limited to, the dividend rights, conversion rights,
redemption rights and liquidation preferences, if any, of any wholly unissued
series of BancGroup Preference Stock (or of the entire class of BancGroup
Preference Stock if none of such shares has been issued), the number of shares
constituting any such series and the terms and conditions of the issue thereof
may be fixed by resolution of the BancGroup Board of Directors. BancGroup
Preference Stock may have a preference over the BancGroup Common Stock with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation or winding-up of BancGroup and such other preferences as may
be fixed by the BancGroup Board.
1986 DEBENTURES
BancGroup issued in 1986 its 7 1/2% Convertible Subordinated Debentures due
2011 (the "1986 Debentures") in the total principal amount of $28,750,000. The
1986 Debentures were issued under a trust indenture (the "1986 Indenture")
between BancGroup and SunTrust Bank, Atlanta, Georgia, as trustee.
The 1986 Debentures will mature on March 31, 2011, and are convertible at
any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $28 principal amount of the 1986 Debentures
for each share of BancGroup Common Stock. The conversion price is, however,
subject to adjustment upon the occurrence of certain events as described in the
1986 Indenture. In the event all of the outstanding 1986 Debentures are
converted into shares of BancGroup Common Stock in accordance with the 1986
Indenture, a total of 277,177 shares of such BancGroup Common Stock will be
issued. The 1986 Debentures are redeemable, in whole or in part, at the option
of BancGroup at certain premiums until 1996, when the redemption price shall be
equal to 100% of the face amount of the 1986 Debentures plus accrued interest.
The payment of principal and interest on the 1986 Debentures is subordinate, to
the extent provided in the 1986 Indenture, to the prior payment when due of all
Senior Indebtedness of BancGroup. "Senior Indebtedness" is defined as any
indebtedness of BancGroup for money borrowed, or any indebtedness incurred in
connection with an acquisition or with a merger or consolidation, outstanding on
the date of execution of the 1986 Indenture as originally executed, or
thereafter created, incurred or assumed, and any renewal, extension,
modification or refunding thereof, for the payment of which BancGroup (which
term does not include BancGroup's consolidated or unconsolidated subsidiaries)
is at the time of determination responsible or liable as obligor, guarantor or
otherwise. Senior Indebtedness does not include (i) indebtedness as to which, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such indebtedness is subordinate in right of
payment to any other indebtedness of BancGroup, and (ii) indebtedness which by
its terms states that such indebtedness is subordinate to or equally subordinate
with the 1986 Debentures.
At June 30, 1996, BancGroup's Senior Indebtedness as defined in the 1986
Indenture aggregated approximately $716 million. Such debt includes all
short-term debt consisting of federal funds purchased,
39
<PAGE> 45
securities purchased under repurchase agreements and borrowings with the Federal
Home Loan Bank but excludes all federally-insured deposits. BancGroup may from
time to time incur additional indebtedness constituting Senior Indebtedness. The
1986 Indenture does not limit the amount of Senior Indebtedness which BancGroup
may incur, nor does such indenture prohibit BancGroup from creating liens on its
property for any purpose.
CHANGES IN CONTROL
Certain provisions of the BancGroup Certificate and bylaws may have the
effect of preventing, discouraging or delaying any change in control of
BancGroup. The authority of the BancGroup Board of Directors to issue BancGroup
Preference Stock with such rights and privileges, including voting rights, as it
may deem appropriate may enable the BancGroup Board to prevent a change in
control despite a shift in ownership of the BancGroup Common Stock. See
"General" and "Preference Stock." In addition, the power of BancGroup's Board to
issue additional shares of BancGroup Common Stock may help delay or deter a
change in control by increasing the number of shares needed to gain control. See
"BancGroup Common Stock." The following provisions also may deter any change in
control of BancGroup.
Classified Board. BancGroup's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, one-third of BancGroup's Board of Directors
is elected by stockholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 19 directors of BancGroup. This provision of BancGroup's Certificate
also stipulates that (i) directors can be removed only for cause upon a vote of
80% of the voting power of the outstanding shares entitled to vote in the
election of directors, voting as a class, (ii) vacancies in the Board may only
be filled by a majority vote of the directors remaining in office, (iii) the
maximum number of directors shall be fixed by resolution of the Board of
Directors, and (iv) the provisions relating to the classified Board can only be
amended by the affirmative vote of the holders of at least 80% of the voting
power of the outstanding shares entitled to vote in the election of directors,
voting as a class.
Business Combinations. Certain "Business Combinations" of BancGroup with a
"Related Person" may only be undertaken with the affirmative vote of at least
75% of the outstanding shares of "Voting Stock," plus the affirmative vote of at
least 67% of the outstanding shares of Voting Stock, not counting shares owned
by the Related Person, unless the Continuing Directors of BancGroup approve such
Business Combination. A "Related Person" is a person, or group, who owns or
acquires 10% or more of the outstanding shares of BancGroup Common Stock,
provided that no person shall be a Related Person if such person would have been
a Related Person on the date of approval of this provision by BancGroup's Board
of Directors, i.e., April 20, 1994. An effect of this provision may be to
exclude Robert E. Lowder, the current Chairman and President of BancGroup, and
certain members of his family from the definition of Related Person. A
"Continuing Director" is a director who was a member of the Board of Directors
immediately prior to the time a person became a Related Person. This provision
may not be amended without the affirmative vote of the holders of at least 75%
of the outstanding shares of Voting Stock, plus the affirmative vote of the
outstanding shares of at least 67% of the outstanding Voting Stock, excluding
shares held by a Related Person. This provision may have the effect of giving
the incumbent Board of Directors a veto over a merger or other Business
Combination that could be desired by a majority of BancGroup's stockholders. The
current Board of Directors of BancGroup owns approximately 13% of the
outstanding shares of BancGroup Common Stock.
Board Evaluation of Mergers. BancGroup's Certificate permits the Board of
Directors to consider certain factors such as the character and financial
stability of the other party, the projected social, legal, and economic effects
of a proposed transaction upon the employees, suppliers, regulatory agencies and
customers and communities of BancGroup, and other factors when considering
whether BancGroup should undertake a merger, sale of assets, or other similar
transaction with another party. This provision may not be amended except by the
affirmative vote of at least 80% of the outstanding shares of BancGroup Common
Stock. This provision may give greater latitude to the Board of Directors in
terms of the factors which the board may consider in recommending or rejecting a
merger or other Business Combination of BancGroup.
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<PAGE> 46
Director Authority. BancGroup's Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's Board of Directors has the authority to undertake
certain actions with respect to governing BancGroup such as appointing
committees, electing officers, and establishing compensation of officers, and it
allows the Board to act by majority vote.
Bylaw Provisions. BancGroup's bylaws provide that stockholders wishing to
propose nominees for the Board of Directors or other business to be taken up at
an annual meeting of BancGroup stockholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholder meetings but could make it more
difficult for stockholders to nominate directors or introduce business at
stockholder meetings.
Delaware Business Combination Statute. Subject to some exceptions,
Delaware law prohibits BancGroup from entering into certain "business
combinations" (as defined) involving persons beneficially owning 15% or more of
the outstanding BancGroup Common Stock (or who is an affiliate of BancGroup and
has over the past three years beneficially owned 15% or more of such stock)
(either, for the purpose of this paragraph, an "Interested Stockholder"), unless
the BancGroup Board has approved either (i) the business combination or (ii)
prior to the stock acquisition by which such person's beneficial ownership
interest reached 15% (a "Stock Acquisition"), the Stock Acquisition. The
prohibition lasts for three years from the date of the Stock Acquisition.
Notwithstanding the preceding, Delaware law allows BancGroup to enter into a
business combination with an Interested Stockholder if (i) the business
combination is approved by the BancGroup Board of Directors and authorized by an
affirmative vote of at least 66 2/3% of the outstanding voting stock of
BancGroup which is not owned by the Interested Stockholder or (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, such stockholder owned at least 85% of the outstanding
stock of BancGroup (excluding BancGroup stock held by officers and directors of
BancGroup or by certain BancGroup stock plans). These provisions of Delaware law
apply simultaneously with the provisions of BancGroup's Certificate relating to
business combinations with a related person, described above at "Business
Combinations," but they are generally less restrictive than BancGroup's
Certificate.
Control Acquisitions. As it relates to BancGroup, the Change in Bank
Control Act of 1978 prohibits a person or group of persons from acquiring
"control" of a bank holding company unless the Federal Reserve has been given 60
days' prior written notice of such proposed acquisition and within that time
period the Federal Reserve has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during which such
a disapproval may be issued. An acquisition may be made prior to the expiration
of the disapproval period if the Federal Reserve issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve, the acquisition of more than 10% of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as BancGroup, would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. The receipt of revocable proxies, provided the proxies terminate within
a reasonable time after the meeting to which they relate, is not included in
determining percentages for change in control purposes.
41
<PAGE> 47
COMPARATIVE RIGHTS OF STOCKHOLDERS
If the Merger is consummated, all shareholders of First Family will become
holders of BancGroup Common Stock. The rights of the holders of the First Family
Common Stock who become holders of the BancGroup Common Stock following the
Merger will be governed by BancGroup's Certificate and bylaws, as well as the
laws of Delaware, the state in which BancGroup is incorporated.
The following summary compares the rights of the shareholders of First
Family Common Stock with the rights of the holders of the BancGroup Common
Stock. For a more complete description of the rights of the holders of BancGroup
Common Stock, see "BANCGROUP CAPITAL STOCK AND DEBENTURES."
The following information is qualified in its entirety by BancGroup's
Certificate and bylaws, and First Family's Articles of Incorporation and bylaws,
the Delaware General Corporation Law (the "Delaware GCL") and the Florida
Business Corporation Act ("FBCA").
DIRECTOR ELECTIONS
First Family. First Family's directors are elected to terms of three years
with approximately one-third of the Board elected annually. There is no
provision in First Family's Articles or bylaws for cumulative voting.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board to be elected annually. There is no
cumulative voting in the election of directors. See "BANCGROUP CAPITAL STOCK AND
DEBENTURES -- Changes in Control -- Classified Board."
REMOVAL OF DIRECTORS
First Family. Any or all of First Family's directors may be removed from
office, with or without cause, at a special meeting called for that purpose, by
the affirmative vote of the holders of at least 60 percent of the outstanding
shares of capital stock entitled to vote in the election of directors. Directors
may be removed for "cause" by a vote of not less than 60 percent of the
disinterested directors entitled to vote, at a meeting noticed and called
expressly for that purpose.
BancGroup. The BancGroup Certificate provides that a director may be
removed from office, but only for cause and by the affirmative vote of the
holders of at least 80% of the voting shares then entitled to vote at an
election of directors.
VOTING
First Family. Each First Family shareholder is entitled to one vote for
each share of stock held, on matters required or permitted to be voted upon,
including the election of directors.
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup Common Stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
PREEMPTIVE RIGHTS
First Family. First Family shareholders do not have preemptive rights to
acquire any additional shares of any First Family capital stock.
BancGroup. The holders of BancGroup Common Stock have no preemptive rights
to acquire any additional shares of BancGroup Common Stock or any other shares
of BancGroup capital stock.
DIRECTORS' LIABILITY
First Family. Section 607.0831 of the FBCA provides that a director of
First Family will not be personally liable for monetary damages to First Family
or any other person for any statement, vote, decision or failure to act,
regarding corporate management or policy, by a director unless: (a) the director
breached or failed to perform his duties as a director, and (b) the director's
breach of or failure to perform those duties constitutes: (1) a violation of the
criminal law, unless the director had reasonable cause to believe his conduct
42
<PAGE> 48
was lawful or had no reasonable cause to believe his conduct was unlawful, (2) a
transaction in which the director derived an improper personal benefit, (3) a
payment of certain unlawful dividends and distributions, (4) in a proceeding by
or in the right of First Family to procure judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interests of First
Family, or willful misconduct, or (5) in a proceeding by or in the right of
someone other than First Family or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety or
property. This provision would absolve directors of First Family of personal
liability for negligence in the performance of their duties, including gross
negligence. It would not permit a director to be exculpated, however, from
liability for actions involving conflicts of interest or breaches of the
traditional "duty of loyalty" to First Family and its shareholders, and it would
not affect the availability of injunctive and other equitable relief as a
remedy.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its stockholders for monetary
damages for breach of fiduciary duty as a director except (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for the payment of certain unlawful dividends
and the making of certain stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision would absolve directors of personal liability for negligence in the
performance of duties, including gross negligence. It would not permit a
director to be exculpated, however, for liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
BancGroup and its stockholders, and it would not affect the availability of
injunctive or other equitable relief as a remedy.
INDEMNIFICATION
First Family. Under Section 607.0850 of the FBCA, the directors and
officers of First Family may be indemnified against certain liabilities which
they may incur in their capacity as officers and directors. Such indemnification
is generally available if the executive acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interest of
First Family, and with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. Indemnification may also be
available unless a court of competent jurisdiction establishes by final
adjudication that the actions or omissions of the executive are material to the
cause of action so adjudicated and constituted: (a) a violation of the criminal
law, unless the executive had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(b) a transaction from which the executive derived an improper personal benefit;
or (c) willful misconduct or conscious disregard for the best interest of First
Family in a proceeding by or in the right of First Family to procure a judgment
in its favor or in a proceeding by or in the right of a shareholder.
To the extent that the proposed indemnitee is successful on the merits or
otherwise in the defense of any action, suit or proceeding (or any claim, issue
or matter therein) he or she must be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him or her in connection
with such proceeding. First Family maintains a directors and officers insurance
policy pursuant to which officers and directors of First Family would be
entitled to indemnification against certain liabilities, including reimbursement
of certain expenses.
BancGroup. Section 145 of the Delaware GCL contains detailed and
comprehensive provisions providing for indemnification of directors and officers
of Delaware corporations against expenses, judgments, fines and settlements in
connection with litigation. Under the Delaware GCL, other than an action brought
by or in the right of BancGroup, such indemnification is available if it is
determined that the proposed indemnitee acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of
BancGroup and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In actions brought by or
in the right of BancGroup, such indemnification is limited to expenses
(including attorneys' fees) actually and reasonably incurred in the defense or
settlement of such action if the indemnitee acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
BancGroup and except that no indemnification shall be made in respect of any
43
<PAGE> 49
claim, issue or matter as to which such person has been adjudged to be liable to
BancGroup unless and only to the extent that the Delaware Court of Chancery or
the court in which the action was brought determines upon application that in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which officers and directors of
BancGroup would be entitled to indemnification against certain liabilities,
including reimbursement of certain expenses that extends beyond the minimum
indemnification provided by Section 145 of the Delaware GCL.
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING
First Family. Special meetings of the First Family shareholders may be
called by a majority of the total authorized number of Directors; the Chairman
of the Board and the President; or by shareholders holding at least 50 percent
of the outstanding shares. Shareholders may not, by any consent in writing, take
any action required or permitted to be taken by the shareholders.
BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's stockholders may only be called by a majority of the BancGroup Board
of Directors or by the chairman of the Board of Directors of BancGroup. Holders
of BancGroup Common Stock may not call special meetings or act by written
consent.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
First Family. The FBCA provides that mergers and sales of substantially
all of the property of a Florida corporation must be approved by a majority of
the outstanding shares of the corporation entitled to vote thereon. The FBCA
also provides, however, that the shareholders of a corporation surviving a
merger need not approve the transaction if: (a) the articles of incorporation of
the surviving corporation will not differ from its articles before the merger,
and (b) each shareholder of the surviving corporation whose shares were
outstanding immediately prior to the effective date of the merger will hold the
same number of shares with identical designations, preferences, limitations and
relative rights, immediately after the merger.
BancGroup. The Delaware GCL provides that mergers and sales of
substantially all of the assets of Delaware corporations must be approved by a
majority of the outstanding stock of the corporation entitled to vote thereon.
The Delaware GCL law also provides, however, that the stockholders of the
corporation surviving a merger need not approve the transaction if: (i) the
agreement of merger does not amend in any respect the certificate of
incorporation of such corporation; (ii) each share of stock of such corporation
outstanding immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date of the merger; and (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such stock are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such corporation outstanding immediately prior to the
effective date of the merger. See also "BANCGROUP CAPITAL STOCK AND
DEBENTURES -- Changes in Control" for a description of the statutory provisions
and the provisions of the BancGroup Certificate relating to changes of control
of BancGroup. See "Antitakeover Statutes" for a description of additional
restrictions on business combination transactions.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
First Family. Under the FBCA, a Florida corporation's articles of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority
44
<PAGE> 50
of the outstanding stock of each class entitled to vote as a class, unless the
FBCA, the articles of incorporation or the bylaws require a greater vote. The
First Family Articles and Bylaws do not require a greater vote. As permitted by
the FBCA, First Family's Articles give the Board of Directors and shareholders
of First Family the power to adopt, amend or repeal the Bylaws provided that the
Board of Directors may not amend or repeal any Bylaw adopted by shareholders if
the shareholders specifically provide that such Bylaw is not subject to
amendment or repeal by the directors.
BancGroup. Under the Delaware GCL, a Delaware corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority of
the outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The BancGroup
Certificate requires "supermajority" stockholder approval to amend or repeal any
provision of, or adopt any provision inconsistent with, certain provisions in
the BancGroup Certificate governing (i) the election or removal of directors,
(ii) business combinations between BancGroup and a Related Person, and (iii)
board of directors evaluation of business combination procedures. See "BANCGROUP
CAPITAL STOCK AND DEBENTURES -- Changes in Control."
As is permitted by the Delaware GCL, the Certificate gives the Board of
Directors the power to adopt, amend or repeal the bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
bylaws.
RIGHTS OF DISSENTING STOCKHOLDERS
First Family. Under the FBCA, a shareholder of Florida corporation has the
right, in certain circumstances, to dissent from certain corporate transactions
and receive the fair value of his or her shares in cash in lieu of the
consideration he or she would otherwise be entitled to receive in the
transaction. Dissenters rights are not available with respect to a plan of
merger or share exchange or a proposed sale or exchange of property if the
shares are either registered on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Quotation of Securities Dealers, Inc., or held of record by not fewer
than 2,000 shareholders. The shareholders of First Family will not have
dissenters' rights with respect to the Merger because the First Family Common
Stock is a NASDAQ National Market System security. See "THE MERGER -- Rights of
Dissenting Shareholders."
BancGroup. Under the Delaware GCL, a stockholder has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair market value (excluding any appreciation or depreciation as a consequence
or in expectation of the transaction) of his or her shares in cash in lieu of
the consideration he or she otherwise would have received in the transaction.
Such fair value is determined by the Delaware Court of Chancery if a petition
for appraisal is timely filed. Appraisal rights are not available, however, to
stockholders of a corporation (i) if the shares are listed on a national
securities exchange (as is BancGroup Common Stock) or quoted on the NASDAQ
National Market System, or held of record by more than 2,000 stockholders (as is
BancGroup Common Stock), and (ii) stockholders are permitted by the terms of the
merger or consolidation to accept in exchange for their shares (a) shares of
stock of the surviving or resulting corporation, (b) shares of stock of another
corporation listed on a national securities exchange or held of record by more
than 2,000 stockholders, (c) cash in lieu of fractional shares of such stock, or
(d) any combination thereof. Stockholders are not permitted appraisal rights in
a merger if such corporation is the surviving corporation and no vote of its
stockholders is required.
PREFERRED STOCK
First Family. First Family's Articles of Incorporation provide for the
issuance by the Board of Directors of up to 2,000,000 shares of preferred stock.
Currently no shares of preferred stock are issued and outstanding.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preference Stock from time to time by resolution of the BancGroup
Board of Directors. Currently, no shares of Preference Stock are issued and
outstanding. See "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Preference Stock."
45
<PAGE> 51
EFFECT OF THE MERGER ON FIRST FAMILY SHAREHOLDERS
As of September 30, 1996, First Family had shareholders of record
and 545,000 outstanding shares of First Family Common Stock. As of September 19,
1996, BancGroup had 16,296,558 shares of BancGroup Common Stock outstanding with
5914 stockholders of record.
Assuming no exercises of First Family Options at the Effective Date and a
Market Value of BancGroup Common Stock of $35.05, calculated as of September 19,
1996, an aggregate amount of 182,703 shares of BancGroup Common Stock would be
issued to the shareholders of First Family pursuant to the Merger. These shares
would represent approximately 1% of the total shares of BancGroup Common Stock
outstanding after the Merger, not counting any shares of BancGroup Common Stock
to be issued in other pending acquisitions.
The issuance of the BancGroup Common Stock pursuant to the Merger will
reduce the percentage interest of the BancGroup Common Stock currently held by
each principal stockholder and each director and officer of BancGroup. As a
group, the directors and officers of BancGroup who own approximately 12.82% of
BancGroup's outstanding shares would own 12.68% after the Merger. See "BUSINESS
OF BANCGROUP -- Voting Securities and Principal Stockholders."
46
<PAGE> 52
THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
(IN THOUSANDS)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of June 30, 1996 (as restated), (ii)
the condensed consolidated statement of condition of First Family and
subsidiaries as of June 30, 1996, (iii) the condensed consolidated statement of
condition of Jefferson Bancorp, Inc. and subsidiaries ("Jefferson"), a probable
combination with BancGroup, as of June 30, 1996, (iv) the combined presentation
of condensed consolidated statements of condition of other probable combinations
with BancGroup: Tomoka State Bank, D/W Bankshares, Inc. and Fort Brooke
Bancorporation and subsidiaries ("other probable combinations") as of June 30,
1996, (v) adjustments to give effect to the proposed purchase method acquisition
of First Family and the proposed pooling of interests method business
combinations with Jefferson, and the other probable combinations, (vi) the pro
forma combined condensed statement of condition of BancGroup and subsidiaries as
if such combinations had occurred on June 30, 1996.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries (as restated), incorporated by reference herein, and
the statement of condition of First Family, included elsewhere herein. These pro
forma statements exclude the effects of one immaterial purchase method
combination which was completed by BancGroup on July 8, 1996. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------------------------------
CONSOLIDATED FIRST
COLONIAL FAMILY JEFFERSON
BANCGROUP FINANCIAL ADJUSTMENTS/ BANCORP,
(RESTATED)** CORPORATION (DEDUCTIONS) SUBTOTAL INC.
------------ ----------- ------------ ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 142,175 $ 1,752 $ (6,404)(1) $ 137,523 $ 12,027
Interest-bearing deposits...................... 2,688 1,689 4,377
Federal funds sold............................. 12,380 12,380
Securities available for sale.................. 202,191 202,191 114,400
Investment securities.......................... 298,183 29,863 (1,600)(1) 326,446 1,108
Mortgage loans held for sale................... 165,925 1,991 167,916 654
Loans, net of unearned income.................. 3,442,323 114,890 (100)(1) 3,557,113 289,672
Less: Allowance for possible loan
losses........................................ (43,643) (723) (44,366) (2,358)
---------- -------- ------- ---------- --------
Loans, net..................................... 3,398,680 114,167 (100) 3,512,747 287,314
Premises and equipment, net.................... 70,720 2,575 900 (1) 74,195 4,789
Excess of cost over tangible and intangible
assets acquired, net.......................... 30,114 6,211 (1) 36,325
Purchased mortgage servicing rights............ 92,511 92,511
Other real estate owned........................ 10,342 64 10,406 477
Accrued interest and other assets.............. 82,117 3,789 1,127 (1) 86,983 19,474
(50)(1)
---------- -------- ------- ---------- --------
Total Assets............................ $4,508,026 $ 155,890 $ 84 $4,664,000 $ 440,243
========== ======== ======= ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits....................................... $3,373,641 $ 143,362 $3,517,003 $ 386,306
FHLB short-term borrowings..................... 565,000 565,000 13,036
Other short-term borrowings.................... 127,032 127,032
Subordinated debt.............................. 8,082 8,082
Other long-term debt........................... 26,197 26,197
Other liabilities.............................. 90,462 3,306 $ 2,369 (1) 96,137 4,567
---------- -------- ------- ---------- --------
Total liabilities....................... 4,190,414 146,668 2,369 4,339,451 403,909
Common stock................................... 40,461 5 (5)(1) 40,918 4,005
457 (1)
Additional paid in capital..................... 168,985 2,873 (2,873)(1) 175,465 29,401
5,947 (1)
533 (1)
Retained earnings.............................. 110,522 6,344 (6,344)(1) 110,522 9,145
Treasury stock................................. (1,862)
Unearned compensation.......................... (740) (740) (782)
Unrealized gain (loss) on securities........... (1,616) (1,616) (3,573)
---------- -------- ------- ---------- --------
Total equity............................ 317,612 9,222 (2,285) 324,549 36,334
---------- -------- ------- ---------- --------
Total liabilities and equity............ $4,508,026 $ 155,890 $ 84 $4,664,000 $ 440,243
========== ======== ======= ========== ========
Capital Ratios:
Capital Ratio................................. 8.11% 8.01%
Tangible Leverage Ratio....................... 6.66 6.44
Tier One Capital Ratio*....................... 9.22 9.05
Total Capital Ratio*.......................... 10.73 10.55
<CAPTION>
JUNE 30, 1996
- -------------------------------------------------------------------------------------------
OTHER PRO FORMA
PROBABLE ADJUSTMENTS/ COMBINED
COMBINATIONS (DEDUCTIONS) TOTAL
------------ ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and due from banks........................ $ 14,215 $ 163,765
Interest-bearing deposits...................... 4,377
Federal funds sold............................. 17,035 29,415
Securities available for sale.................. 54,832 371,423
Investment securities.......................... 31,736 359,290
Mortgage loans held for sale................... 6,515 175,085
Loans, net of unearned income.................. 258,550 4,105,335
Less: Allowance for possible loan
losses........................................ (3,824) (50,548)
-------- ----------
Loans, net..................................... 254,726 4,054,787
Premises and equipment, net.................... 11,086 90,070
Excess of cost over tangible and intangible
assets acquired, net.......................... 36,325
Purchased mortgage servicing rights............ 92,511
Other real estate owned........................ 1,369 12,252
Accrued interest and other assets.............. 6,625 $ 779 (3) 113,861
-------- -------- ----------
Total Assets............................ $398,139 $ 779 $5,503,161
======== ======== ==========
Deposits....................................... $353,916 $4,257,225
FHLB short-term borrowings..................... 578,036
Other short-term borrowings.................... 6,740 133,772
Subordinated debt.............................. 1,425 9,507
Other long-term debt........................... 26,197
Other liabilities.............................. 3,431 $ 5,165 (3) 109,300
-------- -------- ----------
Total liabilities....................... 365,512 5,165 5,114,037
Common stock................................... 10,772 $(14,777)(2) 50,630
9,712 (2)
Additional paid in capital..................... 11,436 (40,837)(2) 219,505
44,040 (2)
Retained earnings.............................. 11,054 (4,386)(3) 126,335
Treasury stock................................. 1,862 (2)
Unearned compensation.......................... (1,522)
Unrealized gain (loss) on securities........... (635) (5,824)
-------- -------- ----------
Total equity............................ 32,627 (4,386) 389,124
-------- -------- ----------
Total liabilities and equity............ $398,139 $ 779 $5,503,161
======== ======== ==========
Capital Ratios:
Capital Ratio................................. 8.09
Tangible Leverage Ratio....................... 6.72
Tier One Capital Ratio*....................... 10.91
Total Capital Ratio*.......................... 12.48
</TABLE>
- ---------------
* Based on risk weighted assets
** Restated to give effect to the July 3, 1996 pooling of interests combinations
with Southern Banking Corporation and Commercial Bancorp of Georgia, Inc.
47
<PAGE> 53
PRO FORMA ADJUSTMENTS
FIRST FAMILY FINANCIAL CORPORATION
(PURCHASE METHOD)
(1) To assign the amount by which the estimated value of BancGroup's
investment in First Family is in excess of the historical carrying amount of the
net assets acquired, based on the estimated fair value of such net assets and to
record the investment in First Family by the issuance of 182,703 shares of
BancGroup Common Stock and $6,403,750 in cash for all of the outstanding 545,000
shares of First Family as follows:
<TABLE>
<S> <C>
Equity in carrying value of net assets of First Family..................... $ 9,222
Adjustments to state assets at fair value:
Write-up of fixed assets................................................. 900
Write-down of securities held to maturity................................ (1,600)
Other.................................................................... (150)
Acquisition accruals:
Severance pay............................................................ (1,013)
SAIF Premium............................................................. (1,100)
Other legal, accounting and professional fees............................ (256)
Tax effect of purchase adjustments......................................... 1,127
Goodwill................................................................... 6,211
-------
Total adjustments................................................ 4,119
Adjusted equity in carrying value of net assets............................ $13,341
=======
Allocated as follows:
Par Value of 182,703 shares issued for all outstanding shares of First
Family................................................................ $ 457
Estimated amount in excess of par value of 182,703 shares of BancGroup
Common Stock issued for First Family outstanding shares at an assumed
market value of $35.05 per share (10 day average at September 19,
1996)................................................................. 5,947
Stock options to be assumed by BancGroup................................. 533
Cash of $11.75 per share paid to First Family shareholders............... 6,404
-------
Total purchase price............................................. $13,341
=======
</TABLE>
48
<PAGE> 54
OTHER PROBABLE COMBINATIONS
(POOLING OF INTEREST)
(2) To record the issuance of 3,884,670 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of Jefferson Bancorp, Inc., Tomoka
Bancorp, Inc. D/W Bankshares, Inc. and Fort Brooke Bancorporation:
<TABLE>
<CAPTION>
OUTSTANDING
SHARES
-----------
<S> <C> <C>
Jefferson outstanding shares.................................. 3,811,976
Conversion ratio, determined as follows:
$18.90/$35.05 per share, the 10-day average market value of
BancGroup Common Stock on September 19, 1996............. 0.5392
---------
Bancgroup shares to be issued................................. 2,055,531
Tomoka Bancorp, Inc. outstanding shares....................... 405,000
Conversion ratio, determined as follows:
$32.00/$34.3375 per share, the 20-day average of the market
value of BancGroup Common Stock on September 19, 1996.... 0.9319
---------
Bancgroup shares to be issued................................. 377,430
D/W Bankshares, Inc. outstanding shares....................... 700,836
Conversion ratio, determined as follows:
$27.39/$35.05 per share, the 10-day average of the market
value of BancGroup Common Stock on September 19, 1996.... 0.7815
---------
Bancgroup shares to be issued................................. 547,672
Fort Brooke Bancorporation outstanding shares................. 1,005,920
Conversion ratio, determined as follows:
$31.50/$35.05 per share, the 10-day average of the market
value of BancGroup Common Stock on September 19, 1996.... 0.8987
---------
Colonial Bancgroup shares to be issued........................ 904,037
Total Colonial BancGroup shares to be issued.................. 3,884,670
Par value of 3,884,670 shares issued at $2.50 per share....... $ 9,712
Shares issued at par value.................................... 9,712
Total capital stock of Jefferson Bancorp, Inc., Tomoka
Bancorp, Inc., D/W Bankshares, Inc. and Fort Brooke
Bancorporation.............................................. 53,752
---------
Excess recorded as an increase in contributed capital......... 44,040
53,752
To eliminate Jefferson Bancorp, Inc., Tomoka Bancorp, Inc.,
D/W Bankshares, Inc. and Fort Brooke Bancorporation capital
stock:
Common stock, at par value.................................. (14,777)
Contributed capital......................................... (40,837)
Treasury stock.............................................. 1,862
(53,752)
Net change in equity................................ $ 0
</TABLE>
(3) To record nonrecurring charges expected to result from the proposed
pooling of interests combination with Jefferson.
<TABLE>
<S> <C>
Accrual of severance pay............................................... $ 4,325
Accrual of discretionary bonus......................................... 840
------
Total accrual adjustments...................................... 5,165
Deferred tax........................................................... (779)
------
Net charge to retained earnings........................................ $ 4,386
======
</TABLE>
49
<PAGE> 55
CONDENSED PRO FORMA STATEMENTS OF INCOME
(UNAUDITED)
The following summaries include (i) the condensed consolidated statements
of income of BancGroup and subsidiaries on a historical basis for the six months
ended June 30, 1996 (as restated), and the year ended December 31, 1995 (as
restated), (ii) the condensed consolidated statements of income of First Family
for the six months ended June 30, 1996 and the year ended December 31, 1995,
(iii) the condensed consolidated statements of income of Jefferson, a probable
combination with BancGroup, for the six months ended June 30, 1996 and the year
ended December 31, 1995, (iv) the combined presentation of condensed
consolidated statements of income of the other probable combinations for the six
months ended June 30, 1996 and the year ended December 31, 1995, (v) adjustments
to give effect to the proposed purchase method acquisition of First Family and
the proposed pooling of interests method combinations with Jefferson and the
other probable combinations, and (vi) the pro forma combined condensed
consolidated statements of income of BancGroup and subsidiaries as if such
combinations had occurred on January 1, 1995.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries (as restated), incorporated by reference herein, and
the statements of income of First Family included elsewhere herein. These pro
forma statements exclude the effects of two non-recurring charges related to
Jefferson in the amount of $4.4 million, net of tax. These pro forma statements
exclude the effects of one immaterial purchase method combination which was
completed by BancGroup on July 8, 1996. The pro forma information provided may
not necessarily be indicative of future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------------------------------------------------
CONSOLIDATED FIRST FAMILY OTHER
COLONIAL BANCGROUP FINANCIAL ADJUSTMENTS/ JEFFERSON PROBABLE ADJUSTMENTS/
(RESTATED)* CORPORATION (DEDUCTIONS) SUBTOTAL BANCORP, INC. COMBINATIONS (DEDUCTIONS)
------------------ ------------ ------------ ----------- ------------- ------------ --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income... $ 166,706 $5,758 $ (2)(1) $ 172,462 $ 16,276 $ 15,161
Interest
expense......... 85,386 3,507 88,893 7,305 6,398
------------------ ------ ------------ ----------- ------------- ------------ --------------
Net interest
income before
provision for
loan losses..... 81,320 2,251 (2) 83,569 8,971 8,763
Provision for loan
losses.......... 3,468 45 3,513 20 283
------------------ ------ ------------ ----------- ------------- ------------ --------------
Net interest
income after
provision for
loan losses..... 77,852 2,206 (2) 80,056 8,951 8,480
------------------ ------ ------------ ----------- ------------- ------------ --------------
Noninterest
income.......... 33,311 771 34,082 2,441 1,560
Noninterest
expense......... 69,203 1,943 177(1) 71,323 9,146 6,610
------------------ ------ ------------ ----------- ------------- ------------ --------------
Income before
income taxes.... 41,960 1,034 (179) 42,815 2,246 3,430
Income taxes...... 14,910 365 (8)(1) 15,267 722 1,127
------------------ ------ ------------ ----------- ------------- ------------ --------------
Net Income........ $ 27,050 $ 669 $ (171) $ 27,548 $ 1,524 $ 2,303 $ 0
============= ======== ========= ========== ========= ========== ==========
Average primary
shares
outstanding..... 16,418,000 545,000 (545,000) 16,615,460 3,906,120 2,178,399 (6,084,519)
197,460 4,055,832
Average fully-
diluted shares
outstanding..... 16,707,000 545,000 (545,000) 16,904,498 3,906,120 2,249,718 (6,155,838)
197,498 4,107,000
Earnings per
share:
Net Income:
Primary....... $ 1.65 $ 1.23 $ 1.66 $ 0.39 $ 1.06
Fully
diluted..... 1.63 1.23 1.64 0.39 1.04
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
- -----------------------------------------------
PROFORMA
COMBINED
TOTAL
------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C>
Interest income... $ 203,899
Interest
expense......... 102,596
------------
Net interest
income before
provision for
loan losses..... 101,303
Provision for loan
losses.......... 3,816
------------
Net interest
income after
provision for
loan losses..... 97,487
------------
Noninterest
income.......... 38,083
Noninterest
expense......... 87,079
------------
Income before
income taxes.... 48,491
Income taxes...... 17,116
------------
Net Income........ $ 31,375
==========
Average primary
shares
outstanding..... 20,671,292
Average fully-
diluted shares
outstanding..... 21,011,498
Earnings per
share:
Net Income:
Primary....... $ 1.52
Fully
diluted..... 1.51
</TABLE>
- ---------------
* Restated to give effect to the July 3, 1996 pooling of interests combinations
with Southern Banking Corporation and Commercial Bancorp of Georgia, Inc.
50
<PAGE> 56
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------
CONSOLIDATED FIRST FAMILY
COLONIAL BANCGROUP FINANCIAL ADJUSTMENTS/ JEFFERSON OTHER PROBABLE
(RESTATED)* CORPORATION (DEDUCTIONS) SUBTOTAL BANCORP, INC. COMBINATIONS
------------------ ------------ ------------ ----------- ------------- --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income............. $ 287,141 $ 11,777 $ (3)(1) $ 298,915 $ 30,792 $ 28,572
Interest expense............ 146,981 7,130 154,111 13,463 11,968
------------------ ------------ ------------ ----------- ------------- --------------
Net interest income before
provision for loan
losses.................... 140,160 4,647 (3) 144,804 17,329 16,604
Provision for loan losses... 7,350 180 7,530 150 1,616
------------------ ------------ ------------ ----------- ------------- --------------
Net interest income after
provision for loan
losses.................... 132,810 4,467 (3) 137,274 17,179 14,988
------------------ ------------ ------------ ----------- ------------- --------------
Noninterest
income.................... 54,391 1,482 55,873 4,207 2,975
Noninterest
expense................... 122,406 3,987 356(1) 126,749 18,705 11,892
------------------ ------------ ------------ ----------- ------------- --------------
Income before income
taxes..................... 64,795 1,962 (359) 66,398 2,681 6,071
Income taxes................ 23,242 685 (17)(1) 23,910 772 2,251
------------------ ------------ ------------ ----------- ------------- --------------
Net Income.................. $ 41,553 $ 1,277 $ (342) $ 42,488 $ 1,909 $ 3,820
============= ======== ========= ========== ========= ==========
Average primary shares
outstanding............... 15,797,000 545,000 (545,000) 15,992,157 3,816,071 2,125,641
195,157
Average fully-diluted shares
outstanding............... 16,667,000 545,000 (545,000) 16,864,149 3,816,071 2,178,394
197,149
Earnings per share:
Net Income:
Primary................. $ 2.63 $ 2.35 $ 2.66 $ 0.50 $ 1.80
Fully diluted........... 2.56 2.35 2.58 0.50 1.78
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------
PROFORMA
ADJUSTMENTS/ COMBINED
(DEDUCTIONS) TOTAL
------------ -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Interest income............. $ 358,279
Interest expense............ 179,542
------------ -----------
Net interest income before
provision for loan
losses.................... 178,737
Provision for loan losses... 9,296
------------ -----------
Net interest income after
provision for loan
losses.................... 169,441
------------ -----------
Noninterest
income.................... 63,055
Noninterest
expense................... 157,346
------------ -----------
Income before income
taxes..................... 75,150
Income taxes................ 26,933
------------ -----------
Net Income.................. $ 0 $ 48,217
========== ==========
Average primary shares
outstanding............... (5,941,712) 20,014,375
4,022,218
Average fully-diluted shares
outstanding............... (5,994,465) 20,957,443
4,093,294
Earnings per share:
Net Income:
Primary................. $ 2.41
Fully diluted........... 2.35
</TABLE>
- ---------------
* Restated to give effect to the July 3, 1996 pooling of interests combinations
with Southern Banking Corporation and Commercial Bancorp of Georgia, Inc.
51
<PAGE> 57
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
Adjustments Applicable to First Family Financial Corporation:
(1) To amortize the assignment of estimated fair value in excess of the
carrying amount of assets acquired. The amortization consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Increases in income:
Amortization of other write downs (2-5 year period).................... $ 22 $ 45
Amortization of write-down on securities portfolio (5 year period)..... 160 320
Decreases in income:
Earnings foregone on $6,403,750 cash at an average interest rate
5.75%............................................................... (184) (368)
----- -----
Total.......................................................... (2) (3)
----- -----
Increase in expense:
Additional depreciation due to write-up in building and premises
(20 year period).................................................... (22) (45)
Amortization of goodwill (20 year period).............................. (155) (311)
----- -----
Total.......................................................... (177) (356)
----- -----
Net decrease in income before tax........................................ (179) (359)
----- -----
Tax effect of the pro forma adjustments (other than goodwill
amortization).......................................................... 8 17
----- -----
Net decrease in income................................................... $ (171) $ (342)
----- -----
</TABLE>
52
<PAGE> 58
SUMMARY OF FUTURE ADJUSTMENTS
The anticipated effect of purchase accounting adjustments for the
acquisition of First Family Financial Corporation for each of the next five
years would be as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------------------
1996 1997 1998 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Depreciation -- building and premises............ $ (45) $ (45) $ (45) $ (45) $ (45)
Amortization of goodwill......................... (311) (311) (311) (311) (311)
----- ----- ----- ----- -----
Total charges to earnings.............. (356) (356) (356) (356) (356)
Amortization -- other............................ 45 45 20 20 20
Amortization -- securities portfolio............. 320 320 320 320 320
----- ----- ----- ----- -----
Total credits to earnings.............. 365 365 340 340 340
----- ----- ----- ----- -----
Net (charges) credits to future earnings before
income taxes................................... 9 9 (16) (16) (16)
Tax benefit of net charges to future earnings.... (112) (112) (103) (103) (103)
----- ----- ----- ----- -----
Net charges to future earnings................... $(103) $(103) $(119) $(119) $(119)
===== ===== ===== ===== =====
</TABLE>
53
<PAGE> 59
RECENT DEVELOPMENTS -- BANCGROUP AND FIRST FAMILY
BancGroup -- Recent Unaudited Results
The following table presents certain unaudited data for BancGroup for the
period ended September 30, 1996. Unaudited historical data reflect, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to a fair presentation of such data. The unaudited
financial information is presented for informational purposes only and is not
necessarily indicative of the financial position or results of operations which
would have actually occurred if the transactions had been consummated in the
past or which may be obtained in the future.
THE COLONIAL BANCGROUP, INC.
SELECTED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
% CHANGE
SEPT. 30, DEC. 31, SEPT. 30, SEPT. 30,
1996 1995 1995 1996 TO 1995
---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF CONDITION SUMMARY
Total assets.................................... $4,713,524 $4,202,194 $3,837,969 23%
Loans, net of unearned income................... 3,570,490 3,175,506 2,848,089 25%
Total earning assets............................ 4,324,106 3,823,233 3,518,662 23%
Deposits........................................ 3,561,923 3,204,260 2,935,768 21%
Shareholders' equity............................ 329,917 289,463 260,038 27%
Book value per share............................ $ 20.24 $ 18.65 $ 17.71 14%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30, THREE MONTHS ENDED SEPT. 30,
------------------------------ ----------------------------
% CHANGE % CHANGE
1996 1995 96 TO 95 1996 1995 96 TO 95
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY
Net interest income (taxable
equivalent)......................... $126,766 $104,374 21% $44,255 $36,716 21%
Provision for loan losses............. 6,023 4,155 45% 2,555 1,433 78%
Noninterest income.................... 49,854 39,291 27% 16,614 13,640 22%
Noninterest expense (excl SAIF special
assessment)......................... 104,042 87,049 20% 34,890 30,043 16%
SAIF special assessment*.............. 3,817 -- 3,817 --
Net income (excl SAIF special
assessment)......................... 41,816 32,432 29% 14,766 11,665 27%
Net income............................ 39,350 32,432 21% 12,300 11,665 5%
Average primary shares outstanding.... 16,465 14,826 16,698 14,942
Average fully diluted shares
outstanding......................... 16,754 15,597 16,985 15,706
Earnings per share excluding SAIF
special assessment*:
Primary............................. $ 2.54 $ 2.19 16% $ 0.88 $ 0.78 13%
Fully diluted....................... 2.52 2.13 18% 0.88 0.76 16%
Earnings per common share:
Primary............................. $ 2.39 $ 2.19 9% $ 0.74 $ 0.78 -5%
Fully-diluted....................... 2.37 2.13 11% 0.73 0.76 -4%
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30, THREE MONTHS ENDED SEPT. 30,
------------------------------ ----------------------------
% CHANGE % CHANGE
1996 1995 96 TO 95 1996 1995 96 TO 95
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Return on average assets.............. 1.20% 1.23% 1.21% 1.22%
Return on average assets (excl SAIF
assessment)*........................ 1.26% 1.23% 1.27% 1.22%
Return on average equity.............. 17.05% 17.90% 17.25% 18.29%
Return on average equity (excl SAIF
assessment)*........................ 17.83% 17.90% 18.01% 18.29%
Efficiency ratio (excl SAIF
assessment)*........................ 58.91% 60.59% 57.32% 59.66%
Equity to assets...................... 7.00% 6.78%
Total capital......................... 8.04% 8.17%
Tier one leverage..................... 6.52% 6.34%
</TABLE>
- ---------------
NOTE: Restated financial results above reflect the July 3, 1996 mergers of
Colonial BancGroup with Commercial Bancorp of Georgia, Inc. and Southern
Banking Corporation. These mergers were accounted for as poolings of
interests and the financial results restated accordingly.
* Legislation approving a one-time special assessment on SAIF deposits resulted
in $3,817,000 in expense before income taxes and $2,466,000 net of applicable
income taxes in the third quarter.
Net income for nine months ended September 30, 1996 was $39,350,000
compared to $32,432,000 for the previous period, a 21% increase. Earnings per
share for the nine months were $2.37 on a fully diluted basis, an 11% increase
over 1995. The company's return on average equity was 17.05% compared to 17.90%
in 1995. Return on average assets was 1.20% compared to 1.23% in 1995.
Net income for the third quarter of 1996 was $12,300,000 compared to
$11,665,000 in 1995, a 5% increase. Earnings per share for the third quarter of
1996 were $.73 compared to $.76 for the same period in 1995, a 4% decrease.
FIRST FAMILY UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL HIGHLIGHTS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996
First Family unaudited results for the three months ended September 30,
1996 reported net loss of $518,000 or $(.95) per share, versus net income of
$251,000 or $.46 per share for the prior year. Net loss in the first quarter of
1996 reflects a one time special assessment on SAIF deposits of $965,999.
Net interest income for the three months ended September 30, 1996 increased
over that of 1995, from $1,108,000 at September 30, 1995 to $1,145,000 at
September 30, 1996 a 3% increase.
BancGroup has previously considered the impact of the aforementioned first
quarter additional expenses and earnings trends in evaluating the exchange ratio
in the Merger, therefore, BancGroup does not expect the decrease in earnings or
additional expenses to have a material impact on BancGroup's future earnings,
financial operations, or financial condition or on the pro forma financial
information included elsewhere in this Joint Proxy Statement and Prospectus.
BancGroup has advised First Family that BancGroup's unaudited 1996
financial results will not affect the proposed Merger.
55
<PAGE> 61
Set forth below are selected financial highlights for First Family for the
periods indicated (amounts in thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Total interest income......................................... $ 2,947 $ 2,921
Total interest expense........................................ 1,802 1,813
-------- --------
Net interest income........................................... 1,145 1,108
Provision for loan losses..................................... 30 30
-------- --------
Net interest income after provision for loan losses........... 1,115 1,078
Total other income............................................ 238 286
Total other expenses.......................................... 1,871 970
-------- --------
Income (loss) before taxes.................................... (518) 394
Income tax.................................................... 0 143
-------- --------
Net income (loss)............................................. $ (518)(1) $ 251
Net income (loss) per share................................... $ (0.95) $ 0.46
Average share outstanding..................................... 545,000 545,000
Total Assets.................................................. $170,648 $155,786
Deposits...................................................... 157,902 143,495
Loans receivable, net......................................... 131,312 137,722
Allowances for loan losses.................................... 744 776
Securities.................................................... 24,872 9,267
Real estate owned............................................. 144 574
Stockholders' equity.......................................... 8,704 8,121
Stockholders' equity per share................................ $ 15.97 $ 14.90
</TABLE>
- ---------------
(1) Results reflects a one-time special assessment on SAIF deposits of $965,999.
56
<PAGE> 62
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial information on a
historical (as restated) and pro forma basis for BancGroup for the year ended
December 31, 1995 and as of and for the six months ended June 30, 1996, and on a
historical (as restated) basis for BancGroup as of and for the five years ended
December 31, 1995, 1994, 1993, 1992 and 1991.
The pro forma information includes consolidated restated BancGroup and
subsidiaries consolidated First Family Financial Corporation, consolidated
Jefferson Bancorp, Inc., consolidated D/W Bankshares, Inc., consolidated Tomoka
Bancorporation and Fort Brooke Bank. The pro forma balance sheet data give
effect to the combinations as if they had occurred on June 30, 1996 and the pro
forma operating data give effect to the combinations as if they had occurred at
the beginning of the earliest period presented.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and all of the financial
statements included elsewhere in this Prospectus or incorporated by reference.
In the opinion of BancGroup, all adjustments necessary for a fair presentation
of the results of the interim periods have been included, and all adjustments
are of a normal and recurring nature. The results of operations for the interim
period ended June 30, 1996 are not necessary indicative of the results obtained
for the full year.
SELECTED FINANCIAL DATA
COLONIAL BANCGROUP (PRO FORMA) AND COLONIAL BANCGROUP (HISTORICAL -- AS
RESTATED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------- ----------------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income:
Interest income............... $203,899 $166,706 $131,861 $358,279 $287,141 $211,903 $160,829 $146,486 $150,462
Interest expense.............. 102,596 85,386 65,562 179,542 146,981 90,902 66,357 67,389 87,717
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income........... 101,303 81,320 66,299 178,737 140,160 121,001 94,472 79,097 62,745
Provision for possible loan
losses...................... 3,816 3,468 2,779 9,296 7,350 7,506 8,850 8,956 7,097
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for possible loan
losses...................... 97,487 77,852 63,520 169,441 132,810 113,495 85,622 70,141 55,648
Noninterest income............ 38,083 33,311 25,725 63,055 54,391 47,752 43,445 37,027 32,668
Noninterest expense........... 87,079 69,203 56,991 157,346 122,406 115,677 98,501 85,636 72,377
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes.... 48,491 41,960 32,254 75,150 64,795 45,570 30,566 21,532 15,939
Applicable income taxes....... 17,116 14,910 11,446 26,933 23,242 15,829 9,780 5,742 4,197
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before extraordinary
items and the cumulative
effect of a change in
accounting for income
taxes....................... 31,375 27,050 20,808 48,217 41,553 29,741 20,786 15,790 11,742
Extraordinary items, net of
income taxes................ (463 ) 831
Cumulative effect of change in
accounting for income
taxes....................... 3,650
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Income.................... $ 31,375 $ 27,050 $ 20,808 $ 48,217 $ 41,553 $ 29,741 $ 23,973 $ 15,790 $ 12,573
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings Per Common Share
Income before extraordinary
items and the cumulative
effect of a change in
accounting for income taxes:
Primary..................... $ 1.52 $ 1.65 $ 1.41 $ 2.41 $ 2.63 $ 2.00 $ 1.65 $ 1.44 $ 1.15
Fully-diluted............... $ 1.51 $ 1.63 $ 1.38 $ 2.35 $ 2.56 $ 1.97 $ 1.64 $ 1.44 $ 1.15
Net Income:
Primary..................... $ 1.52 $ 1.65 $ 1.41 $ 2.41 $ 2.63 $ 2.00 $ 1.90 $ 1.44 $ 1.23
Fully-diluted............... $ 1.51 $ 1.63 $ 1.38 $ 2.35 $ 2.56 $ 1.97 $ 1.87 $ 1.44 $ 1.23
Average shares outstanding:
Primary..................... 20,671 16,418 14,762 20,014 15,797 14,898 12,613 10,996 10,219
Fully-diluted............... 21,011 16,707 15,517 20,957 16,667 15,665 13,706 12,307 11,561
Cash dividends per common
share:(1)
Common...................... $ 0.54 $ 0.54 $ 0.675 $ 0.675
Class A..................... $ 0.225 $ 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B..................... $ 0.125 $ 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
</TABLE>
- ---------------
(1) On February 21, 1995, the Class A and Class B Common Stock were reclassified
into one class of Common Stock.
57
<PAGE> 63
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- -----------------------------------------------------------
BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP BANCGROUP
PRO FORMA HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
1996 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Condition
At period end:
Total assets............................... $5,503,161 $4,508,026 $4,202,195 $3,219,082 $3,104,410 $2,027,455 $1,861,980
Loans, net of unearned income.............. 4,105,335 3,442,323 3,175,560 2,352,870 1,963,052 1,330,928 1,200,443
Mortgage loans held for sale............... 175,085 165,925 110,486 60,726 361,496 144,215 105,219
Deposits................................... 4,257,225 3,373,641 3,204,198 2,504,461 2,444,418 1,697,648 1,601,973
Long-term debt............................. 35,704 34,279 29,142 69,203 57,397 22,979 27,225
Shareholders' equity....................... 389,124 317,612 289,464 224,018 198,389 123,952 111,437
Average daily balances:
Total assets............................... $5,413,500 $4,425,465 $3,659,140 $3,074,619 $2,379,628 $1,978,313 $1,779,767
Interest-earning assets.................... 4,956,982 4,038,424 3,333,887 2,768,705 2,100,674 1,730,373 1,583,046
Loans, net of unearned income.............. 3,986,157 3,340,474 2,708,633 2,138,371 1,494,053 1,273,486 1,187,081
Mortgage loans held for sale............... 175,660 175,660 97,511 131,121 241,683 118,510 65,373
Deposits................................... 3,490,161 2,717,879 2,828,864 2,471,657 1,876,026 1,665,417 1,531,672
Shareholders' equity....................... 388,839 312,630 250,826 214,543 144,216 117,822 103,330
Book value per share at period end........... $ 19.21 $ 19.62 $ 18.65 $ 15.62 $ 14.40 $ 11.04 $ 11.08
Tangible book value per share at period
end........................................ $ 17.92 $ 17.86 $ 16.82 $ 14.33 $ 13.21 $ 10.45 $ 10.39
Selected Ratios
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes to:
Average assets........................... 0.58 0.61 1.14 0.97 0.87 0.80 0.66
Average shareholders' equity............. 8.07 8.65 16.57 13.86 14.41 13.40 11.36
Net Income to:
Average assets........................... 0.58 0.61 1.14 0.97 1.01 0.80 0.71
Average shareholders' equity............. 8.07 8.65 16.57 13.86 16.62 13.40 12.17
Efficiency ratio............................. 62.47 60.37 62.11 67.65 70.40 72.41 74.11
Dividend payout ratio........................ 27.49 27.28 25.32 24.99 20.22 26.44 30.71
Average equity to average total assets....... 7.18 7.06 6.85 6.98 6.06 5.96 5.81
Allowance for possible loan losses to total
loans (net of unearned income)............. 1.23 1.26 1.31 1.57 1.58 1.55 1.44
</TABLE>
58
<PAGE> 64
FIRST FAMILY FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
Total assets................................ $155,890 $157,349 $142,857 $122,204 $111,003
Loans receivable, net....................... 114,167 114,055 102,163 76,443 79,416
Securities.................................. 29,863 29,317 30,063 28,732 11,867
Cash and cash equivalents................... 3,441 4,361 1,549 6,162 12,910
Deposit accounts............................ 143,362 145,805 132,440 113,812 106,491
Equity...................................... 9,222 7,892 6,990 6,127 2,654
Number of full-service offices.............. 5 5 5 5 5
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Total interest income....................... $ 11,631 $ 11,187 $ 9,782 $ 8,554 $ 11,513
Total interest expense...................... 7,090 6,598 5,389 5,201 8,192
------- ------- ------ ------ -------
Net interest income......................... 4,541 4,589 4,393 3,353 3,321
Provision for loan losses................... 75 300 150 75 355
------- ------- ------ ------ -------
Net interest income after provision for loan
losses.................................... 4,466 4,289 4,243 3,278 2,966
Noninterest income.......................... 1,620 1,048 577 1,077 1,890
Noninterest expenses........................ 3,905 3,882 3,892 3,432 4,122
------- ------- ------ ------ -------
Earnings before income taxes and cumulative
effect of change in accounting
principle................................. 2,181 1,455 928 923 734
Income tax provision........................ 764 509 305 285 50
------- ------- ------ ------ -------
Earnings before cumulative effect of change
in accounting principle................... 1,417 946 623 638 684
Cumulative effect of change in accounting
principle................................. -- -- 261 -- --
------- ------- ------ ------ -------
Net earnings................................ $ 1,417 $ 946 $ 884 $ 638 $ 684
======= ======= ====== ====== =======
Earnings per share:
Earnings before cumulative effect of
change in accounting principle......... $ 2.60 $ 1.75 $ 1.15 $ .55 $ --
Cumulative effect of change in accounting
principle.............................. -- -- .49 -- --
------- ------- ------ ------ -------
Earnings per share.......................... $ 2.60 $ 1.75 $ 1.64 $ .55 $ *
======= ======= ====== ====== =======
</TABLE>
- ---------------
* The Bank converted from mutual to stock form on October 22, 1992, therefore
earnings per share have been computed only from the beginning of the first
full quarter after the conversion.
59
<PAGE> 65
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR FIRST FAMILY
GENERAL
First Family (sometimes referred to in this section as the "Company") had
net earnings for the fiscal year ended June 30, 1996 of $1,417,000. Total assets
amounted to $155.9 million as of June 30, 1996, a decrease of $1.4 million from
total assets of $157.3 million as of June 30, 1995. During the year ended June
30, 1996, net loans increased $112,000 or .10%. The Company's deposits decreased
to $143.4 million as of June 30, 1996 from $145.8 million as of June 30, 1995, a
decrease of 1.7%. The decrease in deposits reflected the Company's strategy of
accepting and retaining deposits to the extent the funds could be invested
prudently.
On July 19, 1996, the Board of Directors of the Company entered into an
Agreement and Plan of Merger ("Merger Agreement") whereby the Company will be
acquired by BancGroup Montgomery, Alabama, a bank holding company with assets of
$4.5 billion. Under the terms of the Merger Agreement, BancGroup is proposing to
acquire all of the outstanding capital stock of First Family. Shareholders of
First Family will receive total consideration of $23.50 for each share of the
Company's common stock in a 50% cash and 50% stock transaction, resulting in
each shareholder receiving $11.75 in cash and BancGroup common stock with a
value of $11.75 at Closing. Cash will be paid in lieu of any fractional shares.
The acquisition is subject to approval by the various regulatory authorities and
the shareholders of First Family.
REGULATION AND LEGISLATION
The operating results of the Company are affected by federal and state laws
and federal regulations. As a unitary savings and loan holding company, First
Family is subject to regulation and supervision by the Office of Thrift
Supervision ("OTS"), the Board of Governors of the Federal Reserve System and
the FDIC. In recent years, measures have been taken to reform the banking
industry and to strengthen the insurance funds for depository institutions. The
most significant of these measures were the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FIRREA has had a
major impact on the operations and regulations of savings institutions. While
the primary purpose of the FDICIA was to recapitalize the Bank Insurance Fund of
the FDIC, which insures the deposits of commercial banks, the FDICIA also
effects the supervision and regulation of all federally insured depository
institutions.
The Bank, as a savings institution, must meet three separate minimum
capital-to-assets requirements: (i) a risk-based capital requirement of 8% of
risk-weighted assets, (ii) a leverage requirement of 3% core capital to adjusted
total assets, and (iii) a tangible capital requirement of 1.5% tangible capital
to adjusted total assets. In implementing the capital requirements of the
FIRREA, the OTS has modified the core capital requirement, whereby only savings
institutions rated composite 1 under the OTS CAMEL rating system are permitted
to operate with a minimum regulatory leverage ratio of 3%. For all other savings
institutions, the minimum core capital leverage ratio will be 3%, plus at least
an additional 100 to 200 basis points.
The Bank's deposit accounts are insured by the SAIF which is administered
by the FDIC. The FDICA required the FDIC to develop a system of risk-based
insurance assessments and to maintain a designated reserve ratio of the SAIF to
1.25% of insured deposits within a "reasonable period of time," and must impose
higher deposit insurance premiums on SAIF members, if necessary, to achieve that
ratio. The FDIC's new risk-based premium structure became effective on January
1, 1993. The premiums range from 23 basis points to 31 basis points on deposits
and are based upon a grouping of supervisors' evaluations and capital ratios.
The savings institutions' primary regulator makes the initial decision as to
which category the savings institutions should come under. Savings institutions
with lower capital and supervisory problems will be charged more for insurance,
with lower rates being the incentive to improve an institution's financial
condition and operations. Risk-based premium assessments are reviewed
semi-annually. For the year ended June 30, 1996, the Bank paid $416,000 for
insurance on its deposit accounts.
60
<PAGE> 66
In 1996, the FDIC reduced the basis for deposit insurance premium paid by
most BIF-insured banks from 4 basis points to 0 basis points. No similar
proposal was made for SAIF-insured institutions since the SAIF has not reached a
reserve ratio equal to 1.25% of deposits. During 1995 and 1996 Congress has
considered various proposals for a one-time special assessment to be charged on
all SAIF deposits to fully capitalize the SAIF. The proposed amount of the
special assessment has been as high as 85 basis points. If the assessment was
made at 85 basis points, the effect on the Bank would be a pretax charge of
approximately $1,258,000 (based upon $148.0 million on deposits at March 31,
1995, the proposed assessment date) or $786,000 after tax (based upon a 37.5%
tax rate).
The special assessment, however, would still not provide parity between
BIF-insured institutions and SAIF-insured institutions since SAIF-insured
institutions would be required to pay a greater share of the interest on Finance
Corp. Bonds issued to pay the cost of the Resolution Trust Corporation. In July
1996, the House Banking Committee approved a plan which would result in the
elimination of the disparity by the year 2000 by tapping the Federal Reserve
System's surplus reserves. Under this plan, the deposit account premium of
SAIF-insured institutions would be reduced from the current minimum of 23 basis
points to 6.35 basis points.
It is impossible to predict which plan will be finally approved by
Congress. Based upon the current proposals, however, First Family does not
expect that it will have to contribute additional capital to the Bank in order
for the Bank to remain an adequately capitalized savings institution.
A more complete discussion of the FIRREA and the FDICIA is continued in the
First Family's Form 10-K.
CREDIT RISK
The Company's primary business is lending on residential real estate. This
activity entails potential credit losses, the magnitude of which depends on a
variety of economic factors affecting borrowers that are beyond the control of
the Company. While the Company has instituted underwriting guidelines and credit
review procedures to protect the Company from avoidable credit losses, some
losses will inevitably occur.
RESULTS OF OPERATIONS
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, primarily single-family residential loans, and interest expense on
interest-bearing liabilities, consisting primarily of deposits. Net interest
income is determined by (i) the difference between yields earned on
interest-earning assets and rates paid on interest-bearing liabilities
("interest-rate spread") and (ii) the relative amounts of interest-earning
assets and interest-bearing liabilities. The Company's interest-rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. In addition, the Company's net earnings
are also affected by the level of nonperforming loans and real estate owned, as
well as, the level of its noninterest income, including loan related fees, and
its noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and income taxes.
61
<PAGE> 67
The following table sets forth, for the periods indicated, information for
the Company regarding (i) the average balances of interest-earning assets and
interest-bearing liabilities; (ii) the total dollar amount of interest income
from interest-earning assets and resultant average yields; (iii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average rate; (iv) net interest income; (v) interest-rate spread; (vi)
net average interest-earning assets and net yield on average interest-earning
assets; and (vii) the ratio of average interest-earning assets to average
interest-bearing liabilities.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net........... $115,563 $9,529 8.25% $112,139 $8,928 7.96% $ 95,753 $7,339 7.66%
Mortgage-backed securities...... 12,940 911 7.04% 20,255 1,446 7.14% 21,535 1,551 7.20%
Other investment securities..... 13,752 815 5.93% 9,283 597 6.43% 11,090 709 6.39%
Other interest-earning
assets(1)..................... 6,527 376 5.76% 3,566 216 6.06% 4,710 183 3.89%
-------- ------ -------- ------ -------- ------
Total interest-earning
assets.................. 148,782 11,631 7.82% 145,243 11,187 7.70% 133,088 9,782 7.35%
-------- ------ -------- ------ -------- ------
Interest-bearing liabilities:
Deposit accounts................ 144,890 7,084 4.89% 141,212 6,558 4.64% 130,453 5,366 4.11%
Short-term borrowings........... 84 6 7.14% 728 40 5.50% 689 23 3.34%
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities............. 144,974 7,090 4.89% 141,940 6,598 4.65% 131,142 5,389 4.11%
-------- ------ -------- ------ -------- ------
Net interest income and
interest-rate spread(2)......... $4,541 2.93% $4,589 3.05% $4,393 3.24%
====== ==== ====== ==== ====== ====
Net average interest-earning
assets, net yield on average
interest-earning assets(3)...... $ 3,808 3.05% $ 3,303 3.16% $ 1,946 3.30%
======== ==== ======== ==== ======== ====
Ratio of average interest-earning
assets to average
interest-bearing liabilities.... 1.03 1.02 1.01
======== ======== ========
</TABLE>
- ---------------
(1) Includes interest-bearing deposits and Federal Home Loan Bank of Atlanta
stock.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on average interest-earning assets is net interest income divided
by average interest-earning assets.
62
<PAGE> 68
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided regarding changes attributable to (i) changes in
interest rates earned or paid on these balances (changes in rate multiplied by
old volume) (ii) changes in the volume of assets or liabilities outstanding
(changes in volume multiplied by old interest rate), (iii) a combination of
change in rate and change in volume.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1996 VS. 1995
-------------------------------
INCREASE (DECREASE) DUE TO
-------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable, net......................................... $ 319 $ 273 $ 9 $ 601
Mortgage-backed securities................................... (20) (522) 7 (535)
Investment securities........................................ (47) 287 (22) 218
Other interest-earning assets................................ (11) 179 (8) 160
----- ----- --- ----
Total interest-earning assets........................ 241 217 (14) 444
----- ----- --- ----
Interest-bearing liabilities:
Deposit accounts............................................. 346 171 9 526
FHLB advances................................................ 12 (35) (11) (34)
----- ----- --- ----
Total interest-bearing liabilities................... 358 136 (2) 492
----- ----- --- ----
Net change in net interest income before provision for loan
losses....................................................... $(117) $ 81 $(12) $ (48)
===== ===== === ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1995 VS. 1994
--------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable, net........................................ $ 284 $1,256 $ 49 $1,589
Mortgage-backed securities.................................. (13) (92) -- (105)
Investment securities....................................... 4 (115) (1) (112)
Other interest-earning assets............................... 102 (45) (24) 33
----- ----- --- ----
Total interest-earning assets....................... 377 1,004 24 1,405
----- ----- --- ----
Interest-bearing liabilities:
Deposit accounts............................................ 692 443 57 1,192
FHLB advances............................................... 15 1 1 17
----- ----- --- ----
Total interest-bearing liabilities.................. 707 444 58 1,209
----- ----- --- ----
Net change in net interest income before provision for loan
losses...................................................... $(330) $ 560 $(34) $ 196
===== ===== === ====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by the OTS to maintain average daily balances of
liquid assets and short-term liquid assets (as defined) in amounts equal to 5%
and 1%, respectively, of net withdrawable deposits and borrowings payable in one
year or less to assure its ability to meet demand for withdrawals and repayment
of short-term borrowings. The liquidity requirements may vary from time to time
at the direction of the OTS depending upon economic conditions and deposit
flows. The Bank generally maintains a liquidity ratio in excess of these
63
<PAGE> 69
minimum requirements. The Bank's average daily liquidity ratio for June, 1996
was 7.4%, and its short-term liquidity ratio at June 30, 1996 was 5.3%.
The Company's primary sources of cash and cash equivalents during the year
ended June 30, 1996, were from loan and securities principal repayments, sales
of loans originated for sale, and sales of securities. During the year ended
June 30, 1996, loan principal repayments were $29.5 million, securities
principal repayments were $899,000, proceeds from sales of loans were $8.9
million, and proceeds from the sale of securities were $13.4 million.
Cash and cash equivalents were used primarily to originate and purchase
loans, purchase securities and fund deposit account outflows. Loans originated
and purchased amounted to $37.2 million, the purchase of securities totalled
$14.5 million and deposit account outflows totaled $2.5 million. At June 30,
1996, the Company had outstanding commitments to originate loans of $646,000 and
loans in process of $4.5 million. It is expected that these commitments will be
funded from the sources described above. Scheduled maturities of certificates of
deposit during the 12 months following June 30, 1996 totalled $64.6 million.
Management believes that the Company has adequate resources to fund all its
commitments, that substantially all of its existing commitments will be funded
in fiscal 1997 and, if necessary, that it can adjust the rates on certificates
of deposit to retain deposits in changing interest rate environments.
REGULATORY CAPITAL REQUIREMENTS
As a federally chartered institution, the Bank is required to maintain
certain minimum amounts of regulatory capital. The following is a summary of the
Bank's capital requirements, the Bank's regulatory capital levels and the
amounts in excess as of June 30, 1996:
<TABLE>
<CAPTION>
RISK-BASED
CORE TANGIBLE -------------------
--------------- --------------- % OF RISK-
% OF % OF WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital..................... $9,061 5.8% $9,061 5.8% $9,784 12.2%
Requirement............................ 4,668 3.0 2,334 1.5 6,436 8.0
------ ---- ------ --- - ------ ----
Excess................................. $4,393 2.8% $6,727 4.3% $3,348 4.2%
====== ==== ====== ==== ====== ====
</TABLE>
ASSET/LIABILITY MANAGEMENT
During the fiscal year, interest received on interest-earning assets, such
as loans and securities, and interest paid on interest-bearing liabilities, such
as deposits, were the Company's principal sources of revenue and expense,
respectively. During periods of changing interest rates, if the rates on the
Company's deposits rise more quickly than the rates on its loans, or if rates on
loans fall more quickly than rates on deposits, the Company's earnings may be
adversely affected. The Company's loans historically have had longer terms to
maturity or repricing than its deposits. The Company, however, has sought to
control the historic gap between the generally longer term of its
interest-earning assets and the generally shorter-term of its interest-bearing
liabilities, while continuing to satisfy its interest-rate spread objectives, by
engaging in the following asset/ liability management strategies:
- Shorter-Term, Fixed-Rate Loans. The Company originates 15-year term
fixed-rate mortgage loans. It has been management's experience that the
Company's interest rate risk on 15-year loans is mitigated by prepayments,
which reduce the expected term of such loans. An additional advantage of
these loans is the limited credit risk, because the loans allow borrowers
to build equity in their homes quickly. Further, fixed-rate mortgage loans
constitute only a portion of the Company's interest-earning assets.
- Adjustable Rate Mortgage Loans. In an attempt to hedge against interest
rate "risk" or "sensitivity", the Company began originating
adjustable-rate mortgages ("ARM") in 1980. Adjustable rate loans were
$79.6 million or 66.7% of the Company's gross loan portfolio, at June 30,
1996 and 77.6% of all mortgage loans originated and purchased during
fiscal 1996 were adjustable rate loans. The Company's
64
<PAGE> 70
typical ARM is priced at 275 basis points over the one-year Treasury Bill
rate, with an annual interest rate change cap of 200 basis points and a
lifetime interest rate cap of 600 basis points over the initial loan
interest rate.
- Low-Cost Stable Deposits. The Company promotes passbook and statement
accounts and transaction accounts, demand deposits, NOW accounts, Super
NOW accounts, and money market accounts, in order to generate long-term
banking relationships with customers, build low-cost deposits, and
increase fee income. At June 30, 1996, the Company had 27% of its deposits
in these accounts.
Each of these strategies, and the Company's progress in controlling its
exposure to interest-rate risk while satisfying its interest-rate spread
objective, is regularly reviewed by management.
Comparison of Year Ended June 30, 1996 and 1995
Results of Operations
General. Net earnings for the year ended June 30, 1996 were $1.4 million
or $2.60 per share compared to $946,000 or $1.75 per share for fiscal 1995. The
increase in net earnings for 1996 is attributable to an increase in noninterest
income as well as a decrease in the provision for loan losses partially offset
by an increase in the provision for income taxes.
Interest Income. Interest on loans for the year ended June 30, 1996
increased $601,000 from that earned during the year ended June 30, 1995. The
increase was due to an increase in the average balance of the loan portfolio
from $112.1 million in fiscal 1995 to $115.6 million in fiscal 1996 and an
increase in the average yield earned from 7.96% in fiscal 1995 to 8.25% during
fiscal 1996.
Interest on mortgage-backed securities decreased $535,000 from $1.4 million
for fiscal 1995 to $911,000 for the year ended June 30, 1996. The decrease was
primarily due to a decrease in the average balance during fiscal 1996. The
average balance decreased from $20.3 million in fiscal 1995 to $13.0 million in
fiscal 1996.
Interest on investment securities increased $218,000 from $597,000 for the
year ended June 30, 1995 to $815,000 for fiscal 1996. The increase was the
result of a larger portfolio balance, partially offset by a decrease in the
average yield earned on the portfolio during fiscal 1996.
Other interest and dividends increased $160,000 from $216,000 for the year
ended June 30, 1995, to $376,000 for the year ended June 30, 1996. The increase
was a result of an increase in the average portfolio balance, partially offset
by a slight decrease in the average yield earned on other interest-earning
assets during fiscal 1996.
Interest Expense. Interest expense on deposit accounts increased $526,000
during the year ended June 30, 1996, compared to the year ended June 30, 1995.
The increase was the result of a higher average balance and an increase in the
rate paid on deposits in fiscal 1996. The average balance on deposit accounts
increased $3.7 million from $141.2 million in fiscal 1995 to $144.9 million for
fiscal 1996. The average rate paid on deposit accounts increased from 4.64% for
fiscal 1995 to 4.89% for fiscal 1996.
Interest expense on Federal Home Loan Bank advances outstanding decreased
$34,000 from $40,000 for the year ended June 30, 1995, to $6,000 for the year
ended June 30, 1996. The decrease was primarily the result of a decrease in the
average balance of Federal Home Loan Bank advances outstanding during fiscal
1996.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management based upon historical experience, the volume and type of lending
conducted by the Company, industry standards, the amount of nonperforming loans,
general economic conditions, particularly as they relate to the Company's market
area, and others factors related to the collectibility of the Company's loan
portfolio. During fiscal 1996 the Company recorded a provision for loan losses
of $75,000. The allowance for possible loan losses is maintained at a level
which is considered by management to be adequate to absorb possible loan losses
on existing loans that may become uncollectible. The Company will continue to
monitor its allowance for possible loan losses and make future provisions to the
65
<PAGE> 71
allowance in consideration of the amount and types of loans in its portfolio and
as economic conditions dictate. At June 30, 1996 management believes the
allowance for loan losses of $723,000 is adequate.
Noninterest Income. Noninterest income increased $572,000 during the year
ended June 30, 1996, from fiscal 1995. The increase was primarily the result of
gains recognized on the sales of securities of $335,000 and loan servicing of
$208,000 in fiscal 1996, with no corresponding amounts in fiscal 1995.
Noninterest Expense. Noninterest expense increased $23,000 during the year
ended June 30, 1996 compared to fiscal 1995. The increase was primarily due to a
loss on real estate operations of $68,000 during fiscal 1996 compared to a gain
of $30,000 during fiscal 1995 and slight increases in federal insurance premiums
and professional fees partially offset by slight decreases in other expenses and
data processing.
Income Tax Provision. The income tax provision for the year ended June 30,
1996, was $764,000 (an effective rate of 35.0%) compared to $509,000 for fiscal
1995 (an effective rate of 35.0%).
Comparison of Year Ended June 30, 1995 and 1994
Results of Operations
General. Net earnings for the year ended June 30, 1995 were $946,000 or
$1.75 per share compared to earnings before the cumulative effect of change in
accounting principle of $623,000 or $1.15 per share for the year ended June 30,
1994. The increase was primarily attributable to an increase in noninterest
income and net interest income partially offset by an increase in the provision
for loan losses.
Interest Income. Interest on loans increased $1.6 million from $7.3
million earned for the year ended June 30, 1994 to $8.9 million for the year
ended June 30, 1995. The increase was primarily due to an increase in the
average balance of the loan portfolio from $95.8 million in fiscal 1994 to
$112.1 million in fiscal 1995.
Interest on mortgage-backed securities decreased $105,000 from $1.6 million
for the year ended June 30, 1994 to $1.5 million for the year ended June 30,
1995. This decrease was primarily due to a decrease in the average balance from
$21.5 million in fiscal 1994 to $20.3 million in fiscal 1995.
Interest on investment securities decreased $112,000 from $709,000 for the
year ended June 30, 1994 to $597,000 for the year ended June 30, 1995. The
decrease was a result of a decrease in the average portfolio balance from $11.1
million in fiscal 1994 compared to $9.3 million in fiscal 1995.
Other interest and dividends increased $33,000 from $183,000 for the year
ended June 30, 1994 to $216,00 for the year ended June 30, 1995. The increase
was a result of an increase in the yield earned on other interest-earning assets
partially offset by a $1.1 million decrease in the average portfolio balance.
Interest Expense. Interest expense on deposit accounts increased $1.2
million to $6.6 million during the year ended June 30, 1995, compared to $5.4
million for the year ended June 30, 1994, as a result of an increase in the
average deposit account balance from $130.5 million in 1994 to $141.2 million in
1995 and an increase in the average rate paid from 4.11% in fiscal 1994 to 4.64%
in fiscal 1995.
Interest expense on Federal Home Loan Bank advances was $40,000 for the
year ended June 30, 1995 compared to $23,000 during the year ended June 30,
1994. The increase is due primarily to an increase in the average rate paid on
Federal Home Loan Bank advances during fiscal 1995.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management based upon historical experience, the volume and type of lending
conducted by the Company, industry standards, the amount of nonperforming loans,
general economic conditions, particularly as they relate to the Company's market
area, and others factors related to the collectibility of the Company's loan
portfolio. Based upon an increase in the loan portfolio, management increased
the provision for loan losses to $300,000 for the year ended June 30, 1995
compared to $150,000 for the year ended June 30, 1994. The allowance for
possible loan losses is maintained at a level which is considered by management
to be adequate to absorb possible loan losses on existing loans that may become
uncollectible. The Company will continue to monitor its allowance for possible
loan losses and make future provisions to the allowance in consideration of the
amount and types of loans in its portfolio and as economic
66
<PAGE> 72
conditions dictate. At June 30, 1995 management believes the allowance for loan
losses of $783,000 is adequate.
Noninterest Income. Noninterest income increased $471,000 during the year
ended June 30, 1995, from the year ended June 30, 1994. The increase was due
primarily to a $395,000 unrealized loss on investment and mortgage-backed
securities held-for-sale in fiscal 1994 with no corresponding amount in fiscal
1995. The increase in fiscal 1995 was also due to an increase in gains
recognized on the sale of loans of $177,000 offset by gains recognized on the
sale of securities during fiscal 1994 of $189,000 with no corresponding amount
in fiscal 1995.
Noninterest Expense. Noninterest expense decreased $10,000. The decrease
was a result of a $186,000 decrease in loan expense, primarily due to decreased
loan origination activity, partially offset by an increase in compensation and
benefits of $181,000 primarily due to regular merit salary increases.
Income Tax Provision. The income tax provision for the year ended June 30,
1995 was $509,000 (an effective rate of 35%) compared to $305,000 (an effective
rate of 33%) in fiscal 1994.
Cumulative Effect of Change in Accounting Principle. On June 30, 1994 the
Company adopted Statement of Financial Accounting Standards No. 115 and
reclassified all securities as held-to-maturity which resulted in a $261,000 net
of tax increase to earnings which is reflected as a cumulative effect change in
accounting principle.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data herein have been prepared in
accordance with generally accepted accounting principles, which require
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Since the primary assets and liabilities of the Company are monetary in
nature, changes in the general level of prices for goods and services have a
relatively minor impact on the Company's total expense. Increases in operating
expenses such as salaries and maintenance are in part attributable to inflation.
However, interest rates have a far more significant effect than inflation on the
performance of financial institutions, including the Company. To the extent that
interest rates and loan demand have moved with inflation, there has been an
inflation-related impact on the net interest income of the Company.
FUTURE ACCOUNTING REQUIREMENTS
FASB issued Statement of Financial Accounting Standards No. 122 ("SFAS
122") which requires mortgage banking enterprises that acquire mortgage
servicing rights through either the purchase or origination of mortgage loans
and sells or securitizes those loans with servicing rights retained to allocate
the total cost of the mortgage loans to the mortgage servicing rights and the
loans based on their relative fair values. Mortgage banking enterprises include
commercial banks and thrift institutions that conduct operations substantially
similar to the primary operations of a mortgage banking enterprise. Management
does not anticipate this Statement will have a material impact on the Company.
This Statement is effective for the first six months of fiscal 1997. Although
this Statement will be superseded effective December 31, 1996 by SFAS 125
discussed below, the major provisions of SFAS 122 described above are included
in SFAS 125.
In addition the FASB has issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"). This Statement provides accounting and reporting standards
for transfers and servicing of financial assets as well as extinguishments of
liabilities. This Statement also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring after
December 31, 1996. Management does not anticipate SFAS 125 will have a material
impact on the Company.
The FASB has also issued Statement of Financial Accounting Standard No. 123
("SFAS 123") which encourages employers to account for stock-based compensation
awards based on their fair value at the date
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<PAGE> 73
the awards are granted. The resulting compensation award would be shown as an
expense on the consolidated statement of earnings. Entities can choose not to
apply the new accounting method and continue to apply current accounting
requirements, which generally result in no compensation cost for most fixed
stock-option plans. Those that do so, however, will be required to disclose in
the notes to the financial statements what net earnings and earnings per share
would have been had they followed the Statement's accounting method. This
Statement is effective for fiscal 1997. Management does not anticipate this
Statement will have a material impact on the Company.
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS, COMMON STOCK MARKET PRICES AND
DIVIDENDS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1996:
Total interest income............................. $ 2,921 $2,952 $ 2,858 $2,900
Total interest expense............................ 1,813 1,770 1,794 1,713
------ ------ ------ ------
Net interest income............................ 1,108 1,182 1,064 1,187
Provision for loan losses......................... 30 -- 14 31
------ ------ ------ ------
Net interest income after provision for loan
losses....................................... 1,078 1,182 1,050 1,156
Total noninterest income.......................... 286 563 466 305
Total noninterest expense......................... 970 992 970 973
Income taxes...................................... 143 256 191 174
------ ------ ------ ------
Net earnings................................... $ 251 $ 497 $ 355 $ 314
====== ====== ====== ======
Per share:
Net earnings................................... $ .46 $ .91 $ .65 $ .58
====== ====== ====== ======
Cash dividends declared........................ $ .04 $ .04 $ .04 $ .04
====== ====== ====== ======
Market price:
Low............................................ $ 13 1/2 $ 18 1/2 $ 20 1/4 $ 21
High........................................... 19 1/2 21 22 22 1/8
FOR THE YEAR ENDED JUNE 30, 1995:
Total interest income............................. $ 2,546 $2,737 $ 2,909 $2,995
Total interest expense............................ 1,461 1,590 1,727 1,820
------ ------ ------ ------
Net interest income............................ 1,085 1,147 1,182 1,175
Provision for loan losses......................... 75 75 75 75
------ ------ ------ ------
Net interest income after provision for loan
losses....................................... 1,010 1,072 1,107 1,100
Total noninterest income.......................... 230 185 274 359
Total noninterest expense......................... 922 935 1,025 1,000
Income taxes...................................... 111 112 125 161
------ ------ ------ ------
Net earnings................................... $ 207 $ 210 $ 231 $ 298
====== ====== ====== ======
Per share:
Net earnings................................... $ .38 $ .39 $ .43 $ .55
====== ====== ====== ======
Cash dividends declared........................ $ .04 $ .04 $ .04 $ .04
====== ====== ====== ======
Market price:
Low............................................ $ 9 1/2 $ 9 1/2 $ 10 3/4 $ 11 1/2
High........................................... 10 9 3/4 11 15 1/2
</TABLE>
The Company's common stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated
Quotation -- National Market System ("Nasdaq") under the symbol "FFML." The
market price information showing above for fiscal years 1996 and 1995 is the
closing prices, as reported by the NASDAQ for the common stock high and low
closing sales prices. In June 1996, the Board of Directors of the Company
declared a $.04 per share cash dividend to be paid in July, 1996. At June 30,
1996, the Company had 403 holders of record of common stock.
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<PAGE> 74
BUSINESS OF BANCGROUP
GENERAL
BancGroup is a bank holding company registered under the BHCA. It was
organized in 1974 under the laws of Delaware. BancGroup operates wholly owned
commercial banking subsidiaries in the states of Alabama, Florida, Georgia and
Tennessee, each under the name "Colonial Bank". Colonial Bank conducts a full
service commercial banking business in the state of Alabama through 110 banking
offices. In Tennessee, Colonial Bank conducts a general commercial banking
business through three offices. In Georgia, BancGroup's federal savings bank,
Colonial Bank, FSB, operates through four offices in the Atlanta, Georgia area,
and its commercial bank subsidiary, Colonial Bank, operates seven branches in
Lawrenceville, Georgia. In Florida, Colonial Bank operates eight branches in the
Orlando area. Colonial Mortgage Company, a subsidiary of Colonial Bank, is a
mortgage banking company which services approximately $10 billion in residential
loans and which originates mortgages in 29 states through 6 regional offices.
BancGroup's commercial banking loan portfolio is comprised primarily of
commercial real estate loans (22%) and residential real estate loans (49%), a
significant portion of which is located within the State of Alabama. BancGroup's
growth in loans over the past several years has been concentrated in commercial
and residential real estate loans. The lending activities of Colonial Bank in
Alabama are dependent upon the demands within the local markets of its branches.
Based on this demand, loans collateralized by commercial and residential real
estate have been the fastest growing component of Colonial Bank's loan
portfolio.
PROPOSED AFFILIATE BANKS
BancGroup has entered into a definitive agreement dated as of July 19,
1996, to acquire Tomoka Bancorp, Inc. ("Tomoka"). Tomoka is a Florida
corporation and is a holding company for Tomoka State Bank located in Ormond
Beach, Florida. Tomoka will merge with BancGroup and following such merger
Tomoka State Bank will merge with BancGroup's existing bank subsidiary in
Orlando, Colonial Bank. Based on the market price of BancGroup Common Stock as
of September 19, 1996, a total of 377,430 shares of BancGroup Common Stock would
be issued to the stockholders of Tomoka. The actual number of shares of
BancGroup Common Stock to be issued in this transaction will depend upon the
market value of such Common Stock at the time of the merger. This transaction is
subject to, among other things, approval by the stockholders of Tomoka and
approval by appropriate regulatory authorities. At June 30, 1996, Tomoka had
assets of $72.7 million, deposits of $64.2 million and stockholders' equity of
$5.9 million.
BancGroup has entered into a definitive agreement dated as of September 12,
1996, to acquire D/W Bankshares, Inc. ("Bankshares"). Bankshares is a Georgia
corporation and is a holding company for Dalton/Whitfield Bank & Trust located
in Dalton, Georgia. Bankshares will merge with BancGroup and following such
merger Bankshares' subsidiary bank will merge with BancGroup's existing bank
subsidiary in Lawrenceville, Georgia, Colonial Bank. Based on the market price
of BancGroup Common Stock as of September 19, 1996, a total of 547,672 shares of
BancGroup Common Stock would be issued to the stockholders of Bankshares. The
actual number of shares of BancGroup Common Stock to be issued in this
transaction will depend upon the market value of such Common Stock at the time
of the merger. This transaction is subject to, among other things, approval by
the stockholders of Bankshares and approval by appropriate regulatory
authorities. At June 30, 1996, Bankshares has assets of $139.7 million, deposits
of $126.1 million and stockholders' equity of $10.4 million.
BancGroup has signed a letter of intent dated September 11, 1996, to
acquire Jefferson Bancorp, Inc. ("Jefferson"). Jefferson is a Florida
corporation and is a holding company for Jefferson Bank of Florida located in
Miami Beach, Florida. Jefferson will merge with BancGroup and following such
merger Jefferson Bank of Florida will merge with BancGroup's existing bank
subsidiary in Orlando, Colonial Bank. Based on the market price of BancGroup
Common Stock as of September 19, 1996, a total of 2,055,531 shares of BancGroup
Common Stock would be issued to the stockholders of Jefferson. The actual number
of shares of BancGroup Common Stock to be issued in this transaction will depend
upon the market value of such Common Stock at the time of the merger subject to
a maximum of 2,349,202 shares and a minimum of 1,861,056 shares to be issued.
This transaction is subject to, among other things, approval by the stockholders
69
<PAGE> 75
of Jefferson and approval by appropriate regulatory authorities. At June 30,
1996, Jefferson has assets of $440.2 million, deposits of $386.3 million and
stockholders' equity of $36.3 million.
BancGroup has signed a letter of intent dated September 20, 1996, to
acquire Fort Brooke Bancorporation ("Fort Brooke"). Fort Brooke is a Florida
corporation and is a holding company for Fort Brooke Bank located in Tampa,
Florida. Fort Brooke will merge with BancGroup and following such merger Fort
Brooke Bank will merge with BancGroup's existing bank subsidiary in Orlando,
Colonial Bank. Based on the market price of BancGroup Common Stock as of
September 19, 1996, a total of 904,037 shares of BancGroup Common Stock would be
issued to the stockholders of Fort Brooke. The actual number of shares of
BancGroup Common Stock to be issued in this transaction will depend upon the
market value of such Common Stock at the time of the merger subject to a maximum
of 990,207 shares and a minimum of 812,471 shares to be issued. This transaction
is subject to, among other things, approval by the stockholders of Fort Brooke
and approval by appropriate regulatory authorities. At June 30, 1996, Fort
Brooke has assets of $185.7 million, deposits of $163.5 million and
stockholders' equity of $16.3 million.
See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma
Statements of Condition (Unaudited)."
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
As of September 19, 1996, BancGroup had issued and outstanding 16,296,558
shares of BancGroup Common Stock with 5,914 stockholders of record. Each such
share is entitled to one vote. In addition, as of that date, 767,571 shares of
BancGroup Common Stock were subject to issue upon exercise of options pursuant
to BancGroup's stock option plans and up to 277,177 shares of BancGroup Common
Stock were issuable upon conversion of BancGroup's 1986 Debentures. There are
currently 44,000,000 shares of BancGroup Common Stock authorized.
On February 21, 1995, BancGroup concluded a reclassification of its Class A
and Class B Common Stock into one class of Common Stock. The reclassification
was approved by BancGroup's stockholders on December 8, 1994. On February 24,
1995, the Common Stock of BancGroup was listed for trading on the NYSE.
The following table shows those persons who are known to BancGroup to be
beneficial owners as of September 19, 1996, of more than five percent of
BancGroup's outstanding Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
NAME AND ADDRESS COMMON STOCK OUTSTANDING(1)
- ---------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Robert E. Lowder(2)............................................. 1,437,409(3) 8.43%
Post Office Box 1108
Montgomery, AL 36101
James K. Lowder................................................. 1,099,649 6.45
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder................................................ 1,073,053 6.29
Post Office Box 11687
Birmingham, AL 35202
</TABLE>
- ---------------
(1) Percentages are calculated assuming the issuance of 767,571 shares of Common
Stock pursuant to BancGroup's stock option plans.
(2) Robert E. Lowder is the brother of James K. and Thomas H. Lowder. Robert E.
Lowder disclaims any beneficial ownership interest in the shares owned by
his brothers. Robert E. Lowder's mother, Catherine K. Lowder, owns 85,442
shares of Common Stock. Mr. Lowder disclaims any beneficial interest in
such shares.
(3) Includes 90,510 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.
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<PAGE> 76
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates for each director, executive officer, and all
executive officers and directors of BancGroup as a group the number of shares of
outstanding Common Stock of BancGroup beneficially owned as of September 19,
1996.
<TABLE>
<CAPTION>
PERCENTAGE
OF CLASS
NAME COMMON STOCK OUTSTANDING(1)
- ------------------------------------------------------------ ------------ --------------
<S> <C> <C>
DIRECTORS
Young J. Boozer............................................. 7,146(2) *
William Britton............................................. 6,808 *
Jerry J. Chesser............................................ 73,295 *
Augustus K. Clements, III................................... 9,476
Robert S. Craft............................................. 5,997 *
Patrick F. Dye.............................................. 18,980(3) *
Clinton O. Holdbrooks....................................... 145,932(4) *
D. B. Jones................................................. 10,064(5) *
Harold D. King**............................................ 77,729 *
Robert E. Lowder**.......................................... 1,437,409(6) 8.43%
John Ed Mathison............................................ 14,227 *
Milton E. McGregor.......................................... 0 *
John C. H. Miller, Jr....................................... 15,243(7) *
Joe D. Mussafer............................................. 10,000 *
William E. Powell, III...................................... 6,959 *
Donald J. Prewitt***........................................ 88,544(8) *
Jack H. Rainer.............................................. 1,345 *
Frances E. Roper............................................ 182,034 1.07
Ed V. Welch................................................. 14,825 *
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III........................................ 22,914(2)(9) *
W. Flake Oakley, IV......................................... 16,808(9) *
Michael R. Holley........................................... 21,337(9) *
All Executive Officers and Directors as a Group............. 2,187,008(10) 12.82
</TABLE>
- ---------------
* Represents less than one percent.
** Executive Officer.
*** Mr. Prewitt was added as a director by resolution of the BancGroup Board on
July 17, 1996. Mr. Prewitt was the Chairman of the Board of Southern
Banking Corporation, Orlando, Florida, which combined with BancGroup on
July 3, 1996. Mr. Prewitt is a real estate developer and is president of
his own company, Land Sales of Central Florida, Inc., located in Orlando.
Mr. Prewitt is also a director of Colonial Bank, Orlando.
(1) Percentages are calculated assuming the issuance of 767,571 shares of
Common Stock pursuant to BancGroup's stock option plans.
(2) Includes 500 shares of Common Stock out of 1,000 shares owned by Young J.
Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer.
(3) Includes 17,980 shares of Common Stock subject to options exercisable under
BancGroup's stock option plans.
(4) Includes 12,262 shares of Common Stock subject to options under BancGroup's
stock option plans, and 39,499 shares over which Mr. Holdbrooks serves as
trustee.
(5) Mr. Jones holds power to vote these shares as trustee.
(6) These shares include 90,510 shares of Common Stock subject to options under
BancGroup's stock option plans. See the table at "Voting Securities and
Principal Stockholders."
(7) Includes 5,000 shares subject to options.
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<PAGE> 77
(8) Includes 35,504 shares subject to stock options.
(9) Young J. Boozer, III, Michael R. Holley, and W. Flake Oakley, IV, hold
options respecting 12,500, 10,000, and 8,000 shares of Common Stock,
respectively, pursuant to BancGroup's stock option plans.
(10) Includes shares subject to options.
MANAGEMENT INFORMATION
Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1995, at items 10, 11, and 13 and is
incorporated herein by reference.
CERTAIN REGULATORY CONSIDERATIONS
BancGroup is a registered bank holding company subject to supervision and
regulation by the Federal Reserve. As such, it is subject to the BHCA and many
of the Federal Reserve's regulations promulgated thereunder. It is also subject
to regulation by the OTS, as a savings and loan holding company, and by the
Georgia Department of Banking and Finance.
BancGroup's subsidiary banks (the "Subsidiary Banks") are subject to
supervision and examination by applicable federal and state banking agencies.
The deposits of the Subsidiary Banks are insured by the FDIC to the extent
provided by law. The FDIC assesses deposit insurance premiums the amount of
which may, in the future, depend in part on the condition of the Subsidiary
Banks. Moreover, the FDIC may terminate deposit insurance of the Subsidiary
Banks under certain circumstances. Both the FDIC and the respective state
regulatory authorities have jurisdiction over a number of the same matters,
including lending decisions, branching and mergers.
One limitation under the BHCA and the Federal Reserve's regulations
requires that BancGroup obtain prior approval of the Federal Reserve before
BancGroup acquires, directly or indirectly, more than five percent of any class
of voting securities of another bank. Prior approval also must be obtained
before BancGroup acquires all or substantially all of the assets of another
bank, or before it merges or consolidates with another bank holding company.
BancGroup may not engage in "non-banking" activities unless it demonstrates to
the Federal Reserve's satisfaction that the activity in question is closely
related to banking and a proper incident thereto. Because BancGroup is a
registered bank holding company, persons seeking to acquire 25 percent or more
of any class of its voting securities must receive the approval of the Federal
Reserve. Similarly, under certain circumstances, persons seeking to acquire
between 10 percent and 25 percent also may be required to obtain prior Federal
Reserve approval.
In 1989 Congress expressly authorized the acquisition of savings
associations by bank holding companies. BancGroup must obtain the prior approval
of the Federal Reserve and the OTS (among other agencies) before making such an
acquisition and must demonstrate that the likely benefits to the public of the
proposed transaction (such as greater convenience, increased competition, or
gains in efficiency) outweigh potential burdens (such as an undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices).
Following enactment in 1991 of the FDIC Improvement Act, banks now are
subject to increased reporting requirements and more frequent examinations by
the bank regulators. The agencies also now have the authority to dictate certain
key decisions that formerly were left to management, including compensation
standards, loan underwriting standards, asset growth, and payment of dividends.
Failure to comply with these new standards, or failure to maintain capital above
specified levels set by the regulators, could lead to the imposition of
penalties or the forced resignation of management. If a bank becomes critically
undercapitalized, the bank agencies have the authority to place an institution
into receivership or require that the bank be sold to, or merged with, another
financial institution.
In September 1994 Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHCA to permit bank holding companies, subject
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<PAGE> 78
to certain limitations, to acquire either control or substantial assets of a
bank located in states other than that bank holding company's home state
regardless of state law prohibitions. This legislation became effective on
September 29, 1995. In addition, this legislation also amended the Federal
Deposit Insurance Act to permit, beginning on June 1, 1997 (or earlier where
state legislatures provide express authorization), the merger of insured banks
with banks in other states.
The officers and directors of BancGroup and the Subsidiary Banks are
subject to numerous insider transactions restrictions, including limits on the
amount and terms of transactions involving the Subsidiary Banks, on the one
hand, and their principal stockholders, officers, directors, and affiliates on
the other. There are a number of other laws that govern the relationship between
the Subsidiary Banks and their customers. For instance, the Community
Reinvestment Act is designed to encourage lending by banks to persons in low and
moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit
Opportunity Act attempt to minimize lending decisions based on impermissible
criteria, such as race or gender. The Truth-in-Lending Act and the
Truth-in-Savings Act require banks to provide full disclosure of relevant terms
related to loans and savings accounts, respectively. Anti-tying restrictions
(which prohibit, for instance, conditioning the availability or terms of credit
on the purchase of another banking product) further restrict the Subsidiary
Banks' relationships with their customers.
On September 30, 1996, Congress passed and the President signed a
continuing resolution which directed the FDIC to set a one-time special
assessment on SAIF-insured deposits in an amount sufficient to capitalize the
Savings Association Insurance Fund ("SAIF") at the reserve level previously
mandated by statute. The FDIC Board met on October 8, 1996, and set this special
assessment at $0.657 per $100 of SAIF-insured deposits. Though the special
assessment applies to SAIF-insured deposits, the special assessment, under the
legislation enacted into law on September 30, 1996, will not be applied to 20%
of those SAIF-insured deposits held be certain so-called Oakar and Sasser
institutions. Thus, the special assessment's effective rate with respect to the
SAIF-insured deposits in such institutions will be $0.525 per $100 of their
SAIF-insured deposits. In addition, the legislation enacted by Congress provides
that the annual $800-million FICO bond service will be shared by both
BIF-insured institutions and SAIF-insured institutions. Prior to this
legislation, this bond service was the obligation of SAIF members only. This
sharing of the FICO bond service obligation, coupled with the capitalization of
SAIF to the mandatory reserve level, will cause the regular SAIF deposit
insurance premium rate to fall from $0.23 per $100 of SAIF-insured deposits to
under $0.07, assuming the SAIF does not incur any large losses which would
necessitate recapitalization of the Fund. The regular BIF deposit insurance
premium rate will be under $0.02 per $100 of BIF-insured deposits. The
differential between BIF and SAIF caused by the FICO bond service will terminate
on December 31, 1999, after which time the FICO bond service will be divided on
a strictly pro rata basis and SAIF and BIF rates will be equal unless one of the
deposit insurance funds requires recapitalization. BIF and SAIF premium rates
will be approximately $0.024 per $100 of deposits after December 31, 1999. In
the event of a merger of the thrift and bank charters, the differential could be
eliminated prior to December 31, 1999. The legislation also provides for a
merger of SAIF and BIF if charter merger occurs. Such a merger of the funds,
assuming a merger of the charters has taken place, would occur on January 1,
1999. BancGroup's subsidiary banks hold deposits which are insured by both SAIF
and BIF. The SAIF-insured deposits in all of BancGroup's subsidiary institutions
totals approximately $850 million, before adjusting for certain allowances such
as the 20 percent discount referenced above, which would be subject to the
special assessment.
It should be noted that supervision, regulation, and examination of
BancGroup and the Subsidiary Banks are intended primarily for the protection of
depositors, not stockholders.
73
<PAGE> 79
BUSINESS OF FIRST FAMILY
GENERAL
First Family became the holding company for First Family Bank, f.s.b.
(collectively, the "Company") on November 9, 1994. First Family operates as a
unitary savings and loan holding company. First Family's only activity is the
operations of the Bank. On November 8, 1994, the Bank's stockholders approved an
Agreement and Plan of Reorganization under which the Bank became a wholly owned
subsidiary of First Family. Following the Reorganization the Bank's stockholders
exchanged their common shares for shares of First Family. As a result, all of
the previously issued 540,000 shares of $1.00 par value common stock of the Bank
were exchanged for 540,000 shares of the $.01 par value common shares of First
Family and all of the options to purchase Bank shares were converted to options
to acquire First Family shares.
BANK
The Bank, was chartered and initially commenced operations in 1935 as a
federal mutual savings and loan association under the name First Federal Savings
and Loan Association of Eustis. On October 22, 1992, the Bank converted to a
capital stock savings bank and changed its name to First Family Bank, fsb. The
Bank's deposits are federally insured and the Bank is a member of the Federal
Home Loan Bank ("FHLB") System.
PRIMARY SERVICES AREA -- OFFICES
The Company's corporate office is located in Eustis, Florida, which is
located approximately 35 miles Northwest of Orlando, Florida, and its telephone
number is (352) 357-4171. The Company operates six full-service branches one
each in Eustis, Leesburg, Tavares, Mount Dora, Umatilla and Lady Lakes. The
Company considers its primarily market area for lending and savings activities
to be Lake County. To a lesser extent, the Company also serves the rest of the
Central Florida area, including Orange, Seminole, Polk, Volusia, Marion, Sumter,
and Osceola Counties. At June 30, 1996, the Company had total consolidated
assets of $155.9 million, deposits accounts of $143.4 million and stockholders'
equity of $9.2 million.
The following table sets forth, for the indicated periods, certain ratios
reflecting the profitability of the Company.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Return on average assets (net earnings divided by average total
assets)............................................................... .91% .63% .63%
Return on average equity (net earnings divided by average equity)....... 16.98 12.81 13.46
Average equity-to-average assets ratio (average equity divided by
average total assets)................................................. 5.36 4.87 4.71
</TABLE>
The Company is primarily engaged in soliciting deposits from the general
public and investing such deposits, together with other sources of funds, in
loans secured primarily by residential real estate. To a lesser extent, the
Company invests its funds in commercial loans, primarily loans that are
government guaranteed by the Small Business Administration ("SBA"), Rural
Development Program loans, guaranteed by the U.S. Agricultural Department and
consumer loans. The Company also invests funds in securities.
Commercial and consumer loans usually earn a higher rate of interest than
the first mortgage home loans, and management believes this type of lending will
improve its interest margin without material increases in risk. These types of
loan originations will also help the Company attract additional checking and
other low cost deposit accounts which management believes are a key element in
building customer banking relationships.
The principal sources of funds for the Company's lending activities
traditionally have been deposits, sales and repayments of loans and earnings
from operations. In addition, the Company has also utilized advances from the
FHLB of Atlanta as a secondary source of funds. Principal sources of income are
interest and fees on loans, fees on transaction accounts and other activities,
and interest and dividends on securities. The Company's principal costs are
interest paid on deposits and operating expenses.
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<PAGE> 80
The Company experiences substantial competition in attracting and retaining
deposits and in making mortgage and other loans. The primary factors associated
with competing for savings deposits are interest rates, the range of financial
services offered, convenience of office locations, and flexible office hours.
Direct competition for savings deposits comes from commercial banks, savings
institutions, and credit unions as well as other businesses such as securities
brokerage firms and mutual funds, many of which are larger and have
substantially greater resources than the Company. Most of the Company's
competition is concentrated in Lake County, where the Company competes directly
with several branch offices of large regional commercial banking concerns,
including Sun Bank, Barnett Bank, First Union, SouthTrust and NationsBank. The
primary factors in competing for loans are interest rates, loan origination
fees, and the range of lending services offered. Direct competition for
origination of first mortgage loans normally comes from mortgage brokers,
mortgage lenders, commercial banks, savings institutions, insurance companies,
and other lending institutions located both within and outside the Company's
market area.
The competitive environment created by federal legislation and deregulation
since the 1980's gives savings institutions that comply with their regulatory
capital requirements the opportunity to compete in many areas previously
reserved for other types of financial institutions, mainly commercial banks.
Broader powers have increased the cost and risk of doing business for all
depository institutions in the Company's market area. The competition among
savings institutions, commercial banks and other financial institutions has
increased significantly and will continue to do so. Competition may also
increase as a result of the continuing reduction in the effective restrictions
on the interstate operations of financial institutions and by the enactment of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which allow bank holding companies to acquire savings institutions.
LENDING ACTIVITIES
General. At June 30, 1996, the Company's net loan portfolio totaled $114.2
million or 73.3% of the Company's total assets. The Company concentrates its
loan origination activities on conventional loans secured by first mortgages on
residences for between one and four families ("single-family residences"). To a
lesser extent, The Company also makes loans secured by second mortgages on
single-family residences. The Company makes commercial, commercial SBA and
consumer loans to the extent there is a demand in the market area which is
serves. The Company also makes 30-year and 15-year adjustable and fixed-rate
mortgage loans. It has been management's experience that the Company's interest
rate risk on 15-year loans is mitigated by prepayments, which reduce the
expected term of such loans. An additional advantage of the 15-year loans is the
limited credit risk, since the loans allow borrowers to build equity in their
homes quickly. The Company expects to continue concentrating its loan
origination activities on residential and consumer loans secured by
single-family residences in the Company's market area for the foreseeable
future. It is the Company's current policy not to consider loans in excess of
$250,000 without prior Board approval.
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<PAGE> 81
The following table sets forth the composition of the Company's loan
portfolio by type of loan and type of security at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ------- -------- ------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans:
Residential construction
loans...................... $ 8,195 6.87% $ 7,953 6.76% $ 9,073 8.42%
Loans on existing property... 102,337 85.75 98,752 83.94 88,291 81.96
Consumer........................ 8,688 7.27 10,712 9.10 10,132 9.41
Commercial, other than
mortgage..................... 130 .11 231 .20 221 .21
-------- ------- -------- ------- -------- -------
Total................... 119,350 100.00% 117,648 100.00% 107,717 100.00%
======= ======= =======
Less:
Loans in process................ $ (4,545) $ (2,939) $ (4,952)
Discounts and other............. 85 129 (79)
Loan loss allowance............. (723) (783) (523)
-------- -------- --------
Total, net.............. $114,167 $114,055 $102,163
======== ======== ========
Type of Security:
Residential real estate:
Single-family................ $ 94,825 79.45% $ 92,730 78.82% $ 82,835 76.90%
Multi-family................. 2,541 2.13 2,965 2.52 5,892 5.47
Commercial real estate.......... 13,166 11.03 11,010 9.38 8,637 8.02
Consumer and other loans:
Manufactured housing loans... 3,145 2.63 3,868 3.28 5,020 4.66
Home equity and second
mortgage loans............. 4,528 3.79 5,346 4.53 4,019 3.73
Deposit account loans........ 401 .35 322 .27 331 .31
Automobile................... 290 .24 358 .30 365 .34
Other consumer............... 324 .27 818 .70 397 .36
Commercial, other than
mortgage................... 130 .11 231 .20 221 .21
-------- ------- -------- ------- -------- -------
Total................... $119,350 100.00% $117,648 100.00% $107,717 100.00%
======== ======== ========
Less:
Loans in process................ $ (4,545) $ (2,939) $ (4,952)
Discounts and other............. 85 129 (79)
Loan loss reserve............... (723) (783) (523)
-------- -------- --------
Total, net................... $114,167 $114,055 $102,163
======== ======== ========
</TABLE>
Loan Origination. The Company's primary lending activity consists of the
origination or purchases of single-family residential loans secured by property
throughout the State of Florida. At June 30, 1996, the Company had $94.8 million
of single-family residential loans, which constituted 97.4% of its residential
real estate loans and 79.5% of its gross loans. The Company makes single-family
residential loans with either fixed or adjustable interest rates. At June 30,
1996, $35.1 million or 37.0% of the Company's single-family residential loans
had fixed rates, and $59.7 million or 63.0%, had adjustable rates. The Company
also makes single-family residential construction loans. At June 30, 1996, the
Company had $8.2 million of such loans which are included in the total of
single-family residential loans.
Generally long-term, fixed-rate loans originated by First Family are
originated with documentation and in accordance with other agency guidelines so
that they are saleable in the secondary loan market. Such loans are originated
with terms not exceeding 30 years and are amortized on a monthly basis with
payments of principal and interest due each month.
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<PAGE> 82
The Company also offers Adjustable Rate Mortgage ("ARM") loans secured by
single-family residences with terms of up to 30 years. The various types of
loans have one or three year adjustment periods and are generally adjusted based
on the one or three-year United States Treasury constant maturity securities
index. The Company's typical ARM loan is priced at 287.5 basis points over the
one-year Treasury Bill rate, with an annual interest rate change cap of 200
basis points and a lifetime interest rate cap of 600 basis points over the
initial loan interest rate. ARM loans assist the Company in its asset/liability
management by reducing its exposure to increases in interest rates more than if
it held only fixed-rate residential loans.
However, there are certain credit risks to the Company resulting from
making loans at rates below the fully indexed rate and from the potential
increased cost to the borrower as a result of the repricing of the loans. It is
possible that during periods of rising interest rates, the risk of default on
ARM loans may increase because of the increased cost to the borrower. In order
to reduce this risk, the Company underwrites the loans at the fully indexed
rate. Moreover, the inclusion of annual and lifetime caps on ARM loans reduces
the extent to which ARM loans can help to protect the Company against interest
rate risk.
The maximum loan-to-value ratio on the Company's owner-occupied
single-family residential loans is 95% of the market value of the residences and
75% if the loan is to refinance an existing loan on an existing owner-occupied
residence. In either case, the loan amount over 80% is generally covered by
private mortgage insurance. For loans secured by nonowner-occupied residences,
the maximum loan-to-value ratio is 80%. All residential loans have due-on-sale
clauses, which provide that the loan must be repaid upon the sale or transfer of
the security property, unless the purchaser of the property meets the Company's
credit criteria for such loans.
Prior to FDICIA, federal regulations permitted federally chartered savings
institutions to make secured and unsecured consumer loans up to 30% of an
institution's assets. In addition, a federal savings institution has separate
lending authority, apart from the 30% category for certain types of consumer
loans, such as manufactured housing loans, home equity loans, home improvement
loans, and loans secured by deposit accounts. FDICIA increased authorized
consumer loans from 30% to 35% of an institution's assets. Management considers
consumer lending to be an important component of its future strategic plan. The
Company originates consumer loans in order to provide a wide range of financial
services to its customers and thereby create stronger ties to its customers and
because the shorter-term and normally higher interest rates on such loans help
the Company increase the sensitivity of its interest-earning assets to changes
in interest rates and maintain a profitable spread between its average loan
yield and its costs of funds. The terms of the consumer loans generally range
from one to ten years. The Company's underwriting standards for consumer loans
include an assessment of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loans.
Although the applicant's creditworthiness is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, to the proposed loan amount. The Company underwrites and originates the
majority of its consumer loans internally, which management believes limits
exposure to credit risks relating to loans underwritten or purchased from
brokers or other outside sources.
Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
assets that depreciate rapidly, such as automobiles. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans. Such loans may also give rise to
claims and defenses by the borrower against the Company as the holder of the
loan, and a borrower may be able to assert claims and defenses which it has
against the seller of the underlying collateral.
Commercial loans may be significantly impacted by the local economic
environment and may be subject to a greater extent to adverse conditions in the
economy generally. To minimize the Company's risk, the Company ensures that
these loans have adequate collateral, positive cash flow to cover operating
expenses and debt service payments, and that the borrowers have substantial
experience. In underwriting these loans, consideration is given to the
borrower's operating history, future operating projections, and reputation in
the
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<PAGE> 83
local and regional markets, as well as, the location and physical condition of
the collateral. Underwriting analysis also includes credit checks and a complete
review of the financial condition of the borrowers. When real estate is involved
a narrative appraisal report is required to substantiate property values for all
real estate securing the loan. These appraisals are reviewed by the Company's
lending personnel prior to the closing of the loans. The vast majority of this
lending is done through government programs providing additional safety.
At June 30, 1996, the Company's consumer loans totaled $8.7 million, or
7.3% of the Company's gross loans. The Company's consumer loans include
manufactured housing loans, home equity and second mortgages, loans secured by
deposit accounts, automobile loans, and other consumer loans. The largest
category of consumer loans at June 30, 1996 was home equity and second mortgage
loans which totaled $4.5 million and constituted 52.1% of the Company's consumer
and other loan portfolio. The home equity loans are secured by single-family
residences and are limited to a maximum of 100% of appraised value, less any
current liens. The Company's commercial, other than mortgage, loans totaled
$130,000, or .1% of the Company's gross loans and consist primarily of secured
and unsecured loans to local businesses.
At June 30, 1996, the Company held $2.5 million, or 2.1% of its gross
loans, in multi-family real estate loans and $13.1 million, or 11.0% of its
gross loans, in commercial real estate loans. Multi-family real estate loans are
collateralized primarily by garden-style apartments located in Florida.
Commercial real estate loans are secured primarily by office and retail business
properties.
The Company's multi-family and commercial real estate loans were originated
with loan-to-value ratios not exceeding 80% of the appraised value of the
properties; provided, however, that multi-family loans could exceed 80% of the
appraised value of the properties if the excesses were fully secured by deposits
at the Company. The maximum amortization term was 30 years, but at June 30, 1996
the average remaining term of the Company's multi-family and commercial real
estate loan portfolio was approximately 14 years.
Loans secured by multi-family and commercial real estate are generally
larger and involve a greater degree of risk than residential mortgage loans.
Because payments on loans secured by multi-family and commercial property depend
to a large degree on results of operations and management of the properties,
repayment of such loans may be subject to a greater extent to adverse conditions
in the real estate market or the economy. See "Mortgage Banking Activities, Loan
Purchases, and Sales," below.
Mortgage Banking Activities, Loan Purchases, and Sales. Most of the loans
in the Company's portfolio have been originated by the Company. Since 1985, it
has been the Company's policy to underwrite most residential mortgage loans in
accordance with Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA") standards so that they are eligible for
sale in the secondary market. There have been specific circumstances when the
Company has elected to sell loans from its portfolio.
In addition to originating home loans for its own portfolio, the Company
has originated home loans for correspondents and has sold loans to government
entities. Loan sales usually generate fee income and loan servicing income for
the Company. At the present time most loans not retained in portfolio are sold,
servicing-released, to other private investors. The Company plans to sell more
loans directly to the FHLMC and FNMA, while retaining servicing rights on the
loans. The Company purchases loans that meet its underwriting guidelines to
supplement its own originations.
Loan Commitments. In making home mortgage loans, the Company does not
normally charge a commitment fee. As part of the loan application, the borrower
pays the Company for its out-of-pocket costs in processing the application, such
as the cost of appraisal, whether or not the borrower closes the loan. The
interest rate charged is normally the prevailing rate at the time the loan
application is approved.
Income from Loan Activities. Interest rates charged by the Company on
mortgage loans are primarily determined by competitive loan rates offered in its
market area. Mortgage-loan interest rates reflect factors such as general
interest rate levels, the supply of money available to the Company and the
demand for such loans. These factors are, in turn, affected by general economic
conditions, the monetary policies of the federal government, including the
Federal Reserve Board, the general supply of money in the economy, tax policies
and governmental budget matters.
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<PAGE> 84
The Company receives fees for servicing loans sold to others. These fees
generally are a percentage of the balance of the loans being serviced. At June
30, 1996 the Company was servicing $14.7 million of loans for others. The
Company recognized $120,000, $74,000 and $47,000 of income from servicing loans
in the years ended June 30, 1996, 1995 and 1994, respectively. See Note 5 of the
Notes to Consolidated Financial Statements.
The Company also receives fees in connection with loan commitments and
originations, loan modifications, late payments, changes of property ownership
and for miscellaneous services related to its loans. Income from these
activities varies from period to period with the volume and type of loans
originated, sold and purchased, which in turn are dependent on prevailing
mortgage interest rates and their effect on the demand for loans in the markets
served by the Company. The Company usually sets its loan interest rates and fees
whereby approximately 3/4% to 1 1/2% of the principal amount is earned in fees
when home loan originations are sold to other investors.
The following table sets forth certain information at June 30, 1996
regarding loans in the Company's portfolio based upon their contractual terms to
maturity. Demand loans, loans having no schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
DUE DURING DUE AFTER DUE AFTER DUE AFTER DUE AFTER DUE AFTER
THE YEAR 1 THROUGH 2 THROUGH 3 THROUGH 5 THROUGH 10 THROUGH DUE AFTER
ENDING 2 YEARS 3 YEARS 5 YEARS 10 YEARS 15 YEARS 15 YEARS
JUNE 30, AFTER JUNE AFTER JUNE AFTER JUNE AFTER JUNE AFTER JUNE AFTER JUNE
1997 30, 1996 30, 1996 30, 1996 30, 1996 30, 1996 30, 1996 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage
loans................ $ 2,340 $2,033 $2,372 $5,415 $ 15,071 $ 22,444 $ 52,662 $102,337
Real estate
construction......... 8,119 76 -- -- -- -- -- 8,195
Consumer loans......... 775 132 263 230 1,150 3,449 2,689 8,688
Commercial, other than
mortgage............. 25 -- -- -- 105 -- -- 130
------- ------ ------ ------ ------- ------- ------- --------
Total......... $ 11,259 $2,241 $2,635 $5,645 $ 16,326 $ 25,893 $ 55,351 $119,350
======= ====== ====== ====== ======= ======= ======= ========
</TABLE>
Of the $108.1 million in loans due after 1997, 39% of such loans have fixed
interest rates and 61% have adjustable interest rates.
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<PAGE> 85
Nonperforming Loans, Restructured Loans, and Foreclosed Property. The
following table sets forth information with respect to the Company's
nonperforming assets as of the date indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------
1996 1995 1994
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate mortgage:
Single-family residential.......................................... $272 $212 $ 276
Multi-family and commercial........................................ 403 -- --
Consumer and other loans........................................... 10 -- --
---- ---- ------
Total......................................................... 685 212 276
---- ---- ------
Accruing loans which are contractually past due 90 days or more:
Single-family residential.......................................... -- -- --
---- ---- ------
Total......................................................... -- -- --
---- ---- ------
Total of nonaccrual and 90 days past due loans........................ $685 $212 $ 276
==== ==== ======
Percentage of total loans............................................. .57% .18% .26%
==== ==== ======
Other nonperforming assets(1)........................................... $108 $768 $ 917
==== ==== ======
Total nonperforming assets.............................................. $793 $980 $1,193
==== ==== ======
Percentage of total assets.............................................. .51% .62% .84%
==== ==== ======
</TABLE>
- ---------------
(1) Other nonperforming assets represent property acquired by the Company
through foreclosure or repossession.
Interest on the nonaccruing loans that would have been reported as income
for the years ended June 30, 1996, 1995 and 1994 had the loans been fully
accruing, totaled approximately $32,000, $16,000, and $22,000, respectively, of
which approximately $8,000, $6,000 and $12,000, were received during the years
ended June 30, 1996, 1995 and 1994, respectively.
Loan Impairment and Losses. On July 1, 1995, the Company adopted
Statements of Financial Accounting Standards No. 114 and 118 ("SFAS 114 and
118"). These Statements address the accounting by creditors for impairment of
certain loans. The Statements generally require the Company to identify loans
for which the Company probably will not receive full repayment of principal and
interest, as impaired loans. The Statements require that impaired loans be
valued at the present value of expected future cash flows, discounted at the
loan's effective interest rate, or at the observable market price of the loan,
or the fair value of the underlying collateral if the loan is collateral
dependent. The Company has implemented the Statements by modifying its review of
the adequacy of the allowance for loan losses to also identify and value
impaired loans in accordance with guidance in the Statements.
Asset Classification. Federal regulations require each savings institution
to classify its assets on a regular basis. In addition, in connection with
examinations of such savings institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: substandard, doubtful and loss. An asset is
classified "substandard" if it is determined to be inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. An asset is classified as "doubtful" if full collection is
highly questionable or improbable. An asset is classified as "loss" if it is
considered uncollectible, even if a partial recovery could be expected in the
future. Assets classified as substandard or doubtful require the savings
institution to establish general allowances for loan losses. If an asset or
portion thereof is classified as loss, the savings institution must either
establish specific allowances for loan losses in the amount of the portion of
the asset classified as loss, or charge off such amount. Federal examiners may
disagree with the savings institution's classifications and amounts reserved. If
an institution does not agree with an examiner's classification of an asset, it
may appeal this determination to the OTS District Director. Classified assets
totaled $947,000 at June 30, 1996 of which $943,000 were
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<PAGE> 86
substandard assets and $4,000 were classified doubtful. Non-performing assets
discussed in the table above are included in classified assets. Of the total
classified assets, approximately $64,000 is real estate owned, $44,000 is other
repossessed assets and $839,000 are earning assets with recognized credit
weakness related to borrowers or weaknesses in the underlying collateral causing
classification.
INVESTMENT ACTIVITIES
The Company is required under federal regulations to maintain a minimum
amount of its portfolio in liquid assets, which typically are marketable
short-term investments. Actual liquidity levels may be increased above these
minimums, depending upon the yields on investment alternatives, management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities, its expectations of the level of yield that will be
available in the future, and management's projections as to the short-term
demand for funds to be used in the Company's loan origination and other
activities. At June 30, 1996, the Company's liquidity ratio was 7.4%.
SOURCES OF FUNDS
General. Deposits are the primary source of the Company's funds for
lending and other investment activities. In addition to deposits, the Company
also derives funds from loan and securities principal repayments, loan sales,
and interest payments. Loan repayments and interest payments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. From time to
time, the Company emphasizes longer-term deposits as compared to shorter-term
deposits in order to lengthen the average term on its interest-bearing
liabilities. At June 30, 1996, the percentage of the Company's deposits with
terms shorter than or equal to one year represent 72.3% of total deposits. FHLB
loans may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. The Company also may borrow on a
longer-term basis for general business purposes. At June 30, 1996, the Company
did not have any borrowed funds outstanding. See Note 7 of the Notes to
Consolidated Financial Statements for additional information concerning the
Company's deposits.
Deposits. Consumer and commercial deposit accounts are attracted
principally from within the Company's market area through the offering of a
variety of deposit instruments, including passbook and statement accounts and
certificates of deposit ranging in terms up to five years. Deposit account terms
vary, with the principal differences being the minimum balance required, the
time periods the funds must remain on deposit, and the interest rate. The
Company also offers individual retirement accounts ("IRAs").
The Company's activities are designed primarily to attract deposits from
local residents rather than to obtain deposits from areas outside its primary
market. Deposits are acquired through marketing and advertising strategies
including branch reader boards, direct mail, print advertising and cross
selling. The Company does not accept, and never has accepted, deposits from
brokers.
The deregulation of various federal controls on insured deposits has
allowed the Company to be more competitive in obtaining funds and has given it
more flexibility to meet the threat of deposit outflows. While the deregulation
of rates payable on deposits has allowed the Company to be more competitive in
the acquisition and retention of funds, it has also resulted in a more volatile
cost of funds.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by the Company on a periodic basis. Determination of rates and
terms are predicated upon funds acquisition and liquidity requirements, earnings
spread, rates paid by competitors, growth goals, and federal regulations.
Reserve Requirements. Reserve requirements are established by law for
transaction accounts and non-personal time deposits of all depository
institutions. NOW accounts, money market accounts and Super NOW accounts, for
example, are subject to reserve requirements. See "Regulation -- Federal Reserve
System".
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<PAGE> 87
EMPLOYEES
At June 30, 1996, the Company had 51 full-time employees and 11 part-time
employees. No employees were represented by a collective bargaining agreement.
The Company believes that it enjoys good relations with its personnel.
The Company currently maintains a comprehensive employee benefit program
providing, among other benefits, hospitalization and major medical insurance,
long term disability insurance, life insurance, and education assistance. Such
employee benefits are considered by management to be generally competitive with
employee benefits provided by other major employers in the Company's market
areas.
TAXATION
General. The following discussion summarizes certain federal income tax
provisions applicable to the Company as a thrift institution. This summary is
based on the Internal Revenue Code of 1986, as amended ("Code"), regulations,
rulings and decisions currently in effect, all of which are subject to change.
First Family and its subsidiaries currently file a consolidated federal
income tax return on a June 30, fiscal year basis.
Federal Income Taxation. First Family is subject to the provisions of the
Code in the same general manner as other corporations. However, certain
subsidiaries of First Family such as the Bank, which meet certain definitional
tests and other conditions prescribed by the Code may benefit from favorable
provisions regarding their deductions from taxable income for annual additions
to their bad debt reserve. For purposes of the bad debt reserve deductions,
loans are separated into "qualifying real property loans," which generally are
loans secured by interests in certain real property, and nonqualifying loans,
which are all other loans. The bad debt reserve deduction with respect to
nonqualifying loans is based generally on actual loss experience over a period
of years ("experience method"). The amount of the bad debt reserve deduction
with respect to qualifying real property loans may be based upon the experience
method or a percentage of taxable income determined without regard to such
deduction ("percentage of taxable income method"). These deductions may have the
effect of lowering slightly the tax rates applicable to the Company.
Generally, the Company elects to use the bad debt reserve deduction which
results in the most favorable tax treatment. Historically, the Company has
elected to use the percentage of taxable income method. Under the percentage of
taxable income method, the bad debt reserve deduction for qualifying real
property loans is computed as a percentage, of "specially computed" taxable
income. The allowable deduction under the percentage of taxable income method
("percentage bad debt deduction") is 8% if certain assets ("qualifying assets")
of an institution amount to at least 60% of its total assets. There is no bad
debt reserve deduction in the event that less than 60% of the total dollar
amount of the assets of an institution are qualifying assets. Moreover, in such
case, an institution could be required to recapture, generally over a period of
up to four years, its existing bad debt reserve. As of June 30, 1996, more than
the required amount of the Company's total assets were qualifying assets.
The bad debt reserve deduction under the percentage of taxable income
method is subject to certain limitations. First, the amount of the deduction
accumulated in reserves for losses on qualifying real property loans may not
exceed 6% of such loans outstanding at the end of the taxable year. Further, the
amount of the deduction for losses on qualifying real property loans cannot
exceed the amount which, when added to that year's bad debt reserve for losses
on nonqualifying loans, equals the amount by which 12% of total deposits or
withdrawable accounts of depositors at year-end exceeds the sum of surplus,
undivided profits and reserves at the beginning of the year. Finally, the
percentage bad debt deduction under the percentage of taxable income method is
reduced by the deduction for losses on nonqualifying loans. It is not expected
that the limitations will restrict the Company from making the maximum addition
to its bad debt reserve.
Under the Code, an alternative minimum income tax ("AMT") is imposed to the
extent a corporation's AMT exceeds the corporation's regular income tax for the
year. The AMT is imposed at the rate of 20% of a specially computed tax base
known as "alternative minimum taxable income." A corporation's alternative
minimum taxable income for any taxable year is the corporation's taxable income
determined with regard to
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<PAGE> 88
certain adjustments prescribed by the Code, and increased by a number of
preference items, including (i) the amount by which the deduction allowable for
the taxable year under the percentage of taxable income method exceeds the
amount that would have been allowable using the experience method and (ii) the
interest earned on certain tax-exempt private activity bonds issued on or after
August 8, 1986. One adjustment to AMT is based on an amount equal to 75% of the
amount by which a corporation's adjusted current earnings (as defined in the
Code) exceeds its AMT (determined without regard to this preference and prior to
reduction for net operating losses).
Earnings appropriated to the Bank's bad debt reserve and claimed as a tax
deduction are not available for the payment of cash dividends or for
distribution to First Family (including distributions made on dissolution or
liquidation), unless the Bank includes the amount in taxable income, along with
the amount deemed necessary to pay the resulting federal income tax. At June 30,
1996, the Bank had approximately $2,889,000 in tax earnings and profits
available for dividend distribution to First Family without the imposition of
any tax to the Bank.
Changes in tax laws in recent years have eliminated or reduced tax benefits
from payments of interest, from investments in real estate, and from IRA
contributions. These and other tax law changes could have an indirect adverse
effect on the business of savings institutions, including the Bank. The
Company's federal income tax returns have not been audited in the last four
years.
For further information regarding federal income taxes, see Note 10 of the
Notes to Consolidated Financial Statements.
State Income Taxation. The State of Florida has a corporate franchise tax
which subjects the Company's taxable income in Florida to a 5.5% tax. Florida
taxable income is substantially similar to federal taxable income, except that
it includes interest income on obligations of any state or political subdivision
thereof which is not otherwise exempt under Florida laws and that net operating
losses cannot be carried back to prior taxable years. The Florida franchise tax
may be reduced by a credit for intangible taxes paid, but such credit cannot
exceed 65% of the franchise tax due for the year. This tax is deductible in
determining federal taxable income.
Income Tax Accounting Standard. In February 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 109
("SFAS 109") relating to the method of accounting for income taxes. SFAS 109
requires companies to take into account changes in tax rates when valuing the
deferred income tax amounts they carry on their balance sheets (the "Liability
Method"). SFAS 109 also requires that deferred taxes be provided for all
temporary differences between financial statement income and taxable income. The
Company adopted SFAS 109 in fiscal 1992 and retroactively applied it to the
fiscal year beginning July 1, 1989.
REGULATION AND SUPERVISION
General. The following is a brief summary of the regulatory environment in
which the Company operates and is not designed to be a complete discussion of
all statutes and regulations affecting such operations, including those statutes
and regulations specifically mentioned herein.
First Family is a unitary savings and loan holding company and is
registered as such with the OTS and is subject to regulation and supervision by
the OTS. The Company is required to file with the FRB and the OTS annual reports
and such other information as they may require. The FRB and OTS may also conduct
examinations of the Company.
First Family is a legal entity which is separate and distinct from its
subsidiaries. There are various legal limitations on the extent to which the
Bank may extend credit, pay dividends or otherwise supply funds to First Family
or its affiliates. In particular, the Bank is subject to certain restrictions
imposed by federal law on any extensions of credit to First Family or, with
certain exceptions, other affiliates.
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REGULATION OF THE COMPANY
General. The Company is a nondiversified unitary savings and loan holding
company within the meaning of the Home Owners Loan Act of 1933, as amended
("HOLA"). As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to be a
qualified thrift lender ("QTL"). Upon any non-supervisory acquisition by the
Company of another savings institution, the Company would become a multiple
savings and loan holding company (if the acquired institution were held as a
separate subsidiary). The HOLA limits the activities of a multiple savings and
loan holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act ("BHC Act"), subject to the prior approval of the OTS,
and activities authorized by OTS regulation. Recently proposed legislation could
restrict the activities of unitary savings and loan holding companies to those
permissible for multiple savings and loan holding companies.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS; acquiring or retaining, with certain
exceptions, more than 5% of a nonsubsidiary company engaged in activities other
than those permitted by the HOLA; or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance fund, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
laws of the states vary in the extent to which they permit interstate savings
and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does impose such restrictions on subsidiary
savings institutions, as described below. Thus, the Bank must notify the OTS 30
days before declaring any dividend to the Company. In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
Transactions with Related Parties and Affiliates. The Banks authority to
engage in transactions with related parties or "affiliates" (i.e., any company
that controls or is under common control with a savings institution, or to make
loans to certain insiders, is limited by Sections 23A and 23B of the Federal
Reserve Act ("FRA"). Section 23A limits the aggregate amount of transactions
with any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in the FRA and the purchase of low quality assets
from affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the savings institution as
those prevailing at the time for comparable transactions with a nonrelated party
or nonaffiliated company. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to nonrelated
parties or nonaffiliated companies. Notwithstanding Sections 23A and 23B,
savings institutions are prohibited from lending to any affiliate that is
engaged in activities that are not permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act.
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Section 22(g) and 22(h) of the Federal Reserve Act ("FRA") and Regulation O
set limits on loans and extensions of credit to executive officers, directors
and 10% shareholders, as well as companies which such persons control, applies
to savings institutions. Among other things, such loans must be made on terms,
including interest rates, substantially the same as loans to unaffiliated
individuals which involve no more than the normal risk of collectibility and
place limits on the amount of loans the Bank may make to such persons. These
restrictions apply in addition to certain restrictions on transactions with
affiliated persons contained in the OTS regulations.
REGULATION OF THE BANK
General. The activities of savings institutions are governed by the HOLA
and by OTS regulations adopted thereunder. The Bank is a federally-chartered
institution and its deposit accounts are insured up to a maximum of $100,000 per
each insured depositor under SAIF which is administered by the FDIC. As such,
the Bank is subject to examination and regulation by the OTS and the FDIC.
Insurance of Deposit Accounts. FDICIA required the FDIC to establish,
beginning January 1, 1994, a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. For the semi-annual
assessment period beginning January 1, 1993, a transitional risk-based insurance
system was implemented by regulation by the FDIC pursuant to FDICIA and the
average assessment rate paid by SAIF and BIF insured institutions was increased.
Under the rule implementing the transitional system, the FDIC assigned an
institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period. These categories consist of well capitalized, adequately
capitalized or undercapitalized, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. A savings institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Under the transitional system there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied. Assessment rates range from 23
basis points of deposits for an institution in the highest category (i.e.,
well-capitalized and financially sound with only a few minor weaknesses) to 31
basis points of deposits for an institution in the lowest category (i.e.,
undercapitalized and posing a substantial probability of loss to the SAIF unless
effective corrective action is taken). The Bank's assessment rate for the first
six months of the fiscal year 1997 will be $.23 per $100 of deposits which based
upon deposits as of June 30, 1996, would be approximately $330,000 in fiscal
1997. The Bank paid $416,000 in FDIC premiums during the year ended June 30,
1996.
Federal legislation has been proposed which would merge the BIF and SAIF
funds. If this occurs, it is expected that the premiums paid by the Bank would
decrease substantially after an initial one-time assessment. The Company cannot
predict if or when such legislation may be enacted.
A final rule establishing a new risk-based system was adopted by the FDIC
in June 1993. Semi-annual assessment under the final rule went into effect on
January 1, 1994. Except for limited changes, the structure of the new risk-based
system is substantially the same as the structure of the transitional system.
The FDIC is authorized to raise the assessment rates in certain circumstances.
If the FDIC determined to increase the assessment rates for all depository
institutions, institutions in all risk categories could be affected. The FDIC
has exercised this authority several times in the past and may raise SAIF
insurance premiums again in the future to fund the SAIF. If such action is taken
by the FDIC, it could have an adverse effect on the earnings of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the savings institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the OTS. Management of First Family does not know of any practice,
condition or violation that might lead to
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termination of deposit insurance. At June 30, 1996, the Bank's regulatory
capital exceeded all of the fully phased-in capital requirements.
To reduce the risk of loss to SAIF, the OTS is required to promulgate
regulations regarding institutional capital and permissible business activities.
The OTS is required to issue regulations that specify certain mandatory and
discretionary supervisory actions to be taken when FDIC-insured savings
institutions fall within one of the following five specific categories which are
indexed to the capital level of the institution:
"Well capitalized" -- an institution that significantly exceeds the
required minimum level for each relevant capital measure.
"Adequately capitalized" -- an institution that meets the required
minimum level for each relevant capital measure.
"Undercapitalized" -- an institution that fails to meet the required
minimum level for any relevant capital measure.
"Significantly undercapitalized" -- an institution that is
significantly below the required minimum level for any relevant capital
measure.
"Critically undercapitalized" -- an institution that has a ratio of
tangible equity to total assets of 2% or less, or otherwise fails to meet
the critical capital level established under Section 38(c)(3)(A) of the
Federal Deposit Insurance Act.
Subject to limited exceptions, insured institutions in any of the
undercapitalized categories are prohibited from declaring dividends, making any
other capital distribution or paying a management fee to a controlling person.
These undercapitalized institutions are subject to certain mandatory supervisory
actions, including increased monitoring, required capital restoration planning,
and growth and acquisition restrictions. Significantly undercapitalized
institutions face even more severe restrictions such as requiring the
institution to raise additional capital; restricting transactions between the
institution and its affiliates; restricting interest rates paid on deposits;
requiring the institution to accept an offer to be acquired by another
institution or company; and requiring the institution to terminate, reduce or
alter any activity posing excessive risk to the institution. The OTS may require
a significantly undercapitalized institution or an undercapitalized institution
that has failed to submit or implement an acceptable capital restoration plan to
comply with restrictions on activities imposed on critically undercapitalized
institutions (a term defined to include institutions which still have a positive
net worth). These institutions may not enter into any material transaction such
as investment, expansion, sale of assets requiring notice to the OTS; extend
credit for any highly leveraged transaction; amend their charter or bylaws; make
any material change in their accounting methods; or pay excessive compensation
or bonuses.
On September 16, 1992, the OTS adopted final regulations to implement the
prompt corrective action provisions of FDICIA. These regulations became
effective December 19, 1992. Among other things, the regulations define the
relevant capital measures for the five capital categories. For example, a
savings institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio (total capital to risk-weighted assets) of 10% or
greater, a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted
assets) of 6% or greater, and a Tier 1 leverage capital ratio (Tier 1 capital to
adjusted total assets) of 5% or greater, and is not subject to a regulatory
order, agreement or directive to meet and maintain a specific capital level for
any capital measure. A savings institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, and
(generally) a Tier 1 leverage capital ratio of 4% or greater, and the
institution does not meet the definition of a "well capitalized" institution. A
savings institution is deemed to be "critically undercapitalized" if it has a
ratio of tangible equity (as defined in the regulations) to total assets that is
equal to or less than 2%. In addition, the OTS is authorized effectively to
downgrade an institution to a lower capital category than the institution's
capital ratios would otherwise indicate, based upon safety and soundness
considerations (such as when the institution has received a less than
satisfactory examination rating for any of the equivalent MACRO rating
categories on asset quality, management, earnings or liquidity). Based upon
current capital and most recent examinations, management of First Family does
not believe that
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the Bank will be materially affected by the new regulation. At June 30, 1996 the
Bank was considered "well capitalized".
In accordance with FDICIA, the FDIC has implemented restrictions on the
acceptance of brokered deposits. In general, an "undercapitalized" institution
may not accept, renew or roll over any brokered deposits. "Adequately
capitalized" institutions may request a waiver from the FDIC to do so while
"well capitalized" institutions may accept, renew or roll over such deposits
without restriction. The rule requires registration of deposit brokers and
imposes certain recordkeeping requirements. Institutions that are not "well
capitalized" (even if meeting minimum capital requirements) are subject to
limits on rates of interest they may pay on brokered and other deposits. At June
30, 1996, the Bank had no brokered deposits.
FIRREA. The FIRREA, which was enacted on August 9, 1989, abolished the
Federal Home Loan Bank Board ("FHLBB") and the Federal Savings and Loan
Insurance Corporation ("FSLIC") and significantly changed the federal regulatory
framework for savings institutions and their holding companies. The FHLBB's
regulatory responsibilities for savings institutions and their holding companies
were transferred to the Director of the OTS, and a new insurance fund was
established to insure the deposit accounts of savings institutions. All savings
institutions that were insured by the FSLIC immediately prior to the enactment
of FIRREA automatically became members of the SAIF upon enactment of FIRREA. The
SAIF is administered by the FDIC, which also administers the Bank Insurance
Fund, the insurance fund for commercial banks and in some instances savings
banks. The FDIC, in its capacity as administrator of the SAIF, has the authority
generally to regulate savings institutions to the extent necessary to ensure the
safety and soundness of the SAIF. The Director of the OTS serves as a member of
the FDIC's Board of Directors.
Qualified Thrift Lender Test ("QTL"). The QTL test as originally imposed
by the Competitive Equality Banking Act of 1987 and the underlying FHLBB
regulations, required that a savings institution maintain at least 60% of its
total tangible assets in "qualified thrift investments" on an average basis in
three out of every four quarters and two out of every three years. The FIRREA
amended the QTL test by requiring that a savings institution's qualified thrift
investment equal or exceed 70% of the savings institution's portfolio assets for
the two-year period beginning July 1, 1991. The QTL test has since been
liberalized with the enactment of the FDICIA, reducing the test from 70% to 65%
and providing that the test be measured on a monthly average basis in 9 out of
every 12 months.
For purpose of the test, portfolio assets are defined as: the total assets
of the savings institution minus goodwill and other intangible assets; the value
of property used by the institution to conduct its business; and liquid assets
not to exceed a certain percentage (20% under FDICIA) of the savings
institution's total assets.
Under the QTL statutory and regulatory provisions, "qualified thrift
investments" include home mortgages, home improvement loans, home equity loans,
manufactured housing loans, securities backed by or representing an interest in
mortgages on residential or manufactured housing, and shares of stock issued by
a Federal Home Loan Bank, as well as a designated percentage of consumer loans
and, subject to certain limits, shares of stock issued by the FNMA or FHLMC, and
50% of residential mortgage loans originated and sold within 90 days.
Investments in non-subsidiary corporations or partnerships whose activities
include servicing mortgages or real estate development are also considered
qualified thrift investments in proportion to the amount of primary revenue such
entities derive from housing-related activities. Also included in qualified
thrift investments are mortgage servicing rights, whether such rights are
purchased by the insured institution or created when the institution sells loans
and retain the right to service such loans.
A savings institution that fails to become or remain a qualified thrift
lender shall either become a national bank or be subject to restriction
specified in FIRREA. A savings institution that converts to a bank must pay the
applicable exit and entrance fees involved in converting from one insurance fund
to another. A savings institution that fails to meet the QTL test and does not
convert to a national bank will be: (i) prohibited from making any new
investment or engaging in activities that would not be permissible for national
banks; (ii) prohibited from establishing any new branch offices where a national
bank located in the savings institution's home state would not be able to
establish a branch office; (iii) ineligible to obtain new advances from any
FHLB; and (iv) subject to limitations on the payment of dividends comparable to
the statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on
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which the savings institution ceases to be a qualified thrift lender, the
savings institution would be prohibited from retaining any investment or
engaging in any activity not permissible for a national bank and would be
required to repay any outstanding advances to any FHLB. A savings institution
may requalify as a qualified thrift lender if it, thereafter, complies with the
QTL test.
As of June 30, 1996, the Bank was in compliance with the current QTL
requirement.
Branching. In order to obtain supervisory clearance for branching, a
savings institution's regulatory capital must meet or exceed the minimum
requirements established by law and by the OTS regulations. Section 38(e)(4) of
the FDI Act prohibits any "undercapitalized" savings institution from acquiring
or establishing additional branches, unless: (i) the OTS has accepted the
savings institution's capital restoration plan required by the law; (ii) the
institution is implementing the plan; and (iii) the OTS determines that the
proposed action is consistent with such plan, or the FDIC Board of Directors
determines that the proposed action will further the purposes of the law. In
addition, the savings institution must have a satisfactory record under the
Community Reinvestment Act. At June 30, 1996 First Family operates six (6) full
service branches.
Subsidiary Activities. The FIRREA substantially revised the minimum
regulatory capital requirements and tangible capital requirements of savings
institutions. Under FIRREA, investments in and loans to subsidiaries engaged in
activities not permitted to national banks must be deducted from capital in
determining whether an institution meets its regulatory and tangible capital
requirements. At June 30, 1996, First Family had one active wholly-owned
subsidiary, First of Eustis, Inc. which was incorporated in September, 1981 and
two inactive subsidiaries, First Family Real Estate & Investments, Inc. and
First Family Ventures, Inc., both of which were incorporated on March 31, 1982.
The procedures for establishing or acquiring an operating subsidiary differ
depending on whether the parent savings institution is eligible for "expedited
treatment". A savings institution that is eligible for expedited treatment may
submit a notice to the OTS and FDIC, rather than an application, stating that it
intends to establish or acquire an operating subsidiary or engage in new
activities through an existing operating subsidiary. If an application is
required, formal approval from the OTS must be obtained by the parent savings
institution before it can establish or acquire an operating subsidiary or engage
in new activities through the existing operating subsidiary. At June 30, 1996,
First Family had one operating subsidiary, First of Eustis, Inc. First Family,
through First of Eustis, Inc., a wholly-owned subsidiary entered into a
securities product and insurance product agreement in January, 1990 with Liberty
Financial, whereby Liberty Financial, leased office space in First Family's
branch offices, paid fees in connection with its sale of securities to First
Family customers, and utilized certain marketing services provided by First
Family. This brokerage activity was preapproved by OTS for First of Eustis, Inc.
OTS Assessments. Savings institutions are required by OTS regulation to
pay assessments to the OTS to fund the operation of the OTS. The general
assessment, to be paid on a semiannual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. The Bank's paid
$47,000 in OTS assessments for the fiscal year ended June 30, 1996.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard;
a 3% leverage (core capital) ratio; and an 8% risk-based capital standard. Core
capital is defined as common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of consolidated subsidiaries, less intangibles other than
certain qualifying goodwill and certain purchased mortgage servicing rights. The
Bank has no supervisory goodwill. In determining compliance with these capital
standards, investments in and extension of credit to any subsidiary engaged in
activities not permissible for a national bank shall be deducted from capital.
Such deductions were being phased in gradually until June 30, 1994. At June 30,
1996, the Bank had only a minor amount of investments or extensions of credit
which were required to be deducted from capital.
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On August 23, 1993, the OTS adopted a final regulation amending its
regulatory capital rules to incorporate an "interest rate risk component."
Savings associations would be required to comply with the provisions of the new
rule beginning on July 1, 1994, and calculations of an association's sensitivity
to interest rate risk would be determined by using the association's financial
data from the preceding two calendar quarters. Generally speaking, the rule
would measure an association's interest rate risk by determining the changes to
an association's "net portfolio value" in response to a hypothetical 200 basis
point increase or decrease in market interest rates. Under the rule, a decline
in net portfolio value of up to 2% of an association's assets will be considered
a "normal level" of interest rate risk. It is only when a decline in net
portfolio value would exceed that 2% threshold that an association would be
required to hold capital against the interest rate risk. In that case, an
institution would be required to hold capital in an amount equal to one-half of
the difference between the measured risk and the 2% threshold. The rule also
includes an exemption for savings association with less than $300 million in
assets that have a risk-based capital ratio of 12 percent or more. Institutions
qualifying for the exemption may opt to file a "short form" of financial
information with OTS and would not be subject to the interest rate risk
component of the capital regulation.
As of June 30, 1996, the risk-based capital standard for savings
institutions is 8.0% of total capital (which is defined as core and
supplementary capital) to risk-weighted assets. The components of core capital
are equivalent to those discussed earlier under the 3% leverage standard. The
components of supplementary capital include cumulative perpetual preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and allowance for loan
losses. Allowance for loan losses includable in supplementary capital is limited
to a maximum of 1.25% of risk-adjusted assets. Overall, the amount of
supplementary capital counted toward total capital cannot exceed 100% of core
capital. In determining the amount of risk-weighted assets, all assets,
including certain off balance sheet assets, are multiplied by a risk weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset.
The following table summarizes the current capital requirements at June 30,
1996 for the Bank (See Also Note 16 to the Notes to Consolidated Financial
Statements in the 1996 Annual Report to Shareholders):
<TABLE>
<CAPTION>
AT JUNE 30, 1996
------------------------------------------------------------------
CORE TANGIBLE RISK-BASED
------------------- ------------------- ----------------------
% OF % OF % OF
QUALIFYING QUALIFYING RISK-WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ---------- ------ ---------- ------ -------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital............. $9,061 5.8% $9,061 5.8% $9,784 12.2%
Requirement.................. 4,668 3.0 2,334 1.5 6,436 8.0
------ --- ------ --- ------ ----
Excess......................... $4,393 2.8% $6,727 4.3% $3,348 4.2%
====== === ====== === ====== ====
</TABLE>
At June 30, 1996, the Bank exceeded all of its capital requirements.
Capital Distributions. Federal regulations impose certain limitations on
the payment of all capital distributions by the Bank such as cash dividends and
other distributions charged against capital. Under the regulations, a savings
association that, immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully phased-in
capital requirements, is generally permitted without OTS approval to make
capital distributions during a calendar year in the amount of (i) up to 100% of
its net income to date during the calendar year, plus (ii) an amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year. Any distribution in excess of that amount requires prior OTS approval. A
savings association with total capital in excess of the fully phased-in capital
requirement that has been notified by OTS that it is in need of more than normal
supervision also will be subject to restrictions on its ability to pay
dividends. A savings association with total capital in excess of current minimum
capital requirements but not in excess of fully phased-in requirements is
permitted by the new regulations to make capital distributions, without OTS
approval, of between 25% and 75% of its net income for the previous four
quarters, less dividends already paid for such period, depending on the extent
of its capital. A savings association that fails to meet
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current minimum capital requirements is prohibited from making any capital
distributions without the prior approval of OTS. The Bank meets its fully
phased-in capital requirements and, unless OTS determines that the Bank is an
institution requiring more than normal supervision, the Bank is authorized to
pay dividends in accordance with the provisions of OTS regulations discussed
above. Provisions of FDICIA also would bar any insured depository institution
from making any capital distribution if, after making the distribution, the
institution would be "undercapitalized,"with certain narrow exceptions.
Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper equal to
a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings). This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the savings flow of
member institutions, and is currently 5%. OTS regulations also require each
member savings institution to maintain an average daily balance of short-term
liquid assets at a specified percentage (currently 1%) of the total of its net
withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average daily liquidity ratio at June 30, 1996 was 7.4%
and the short-term liquidity ratio at June 30, 1996 was approximately 5.3%.
Enforcement. Under the HOLA, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement actions against all "institution-related parties," including
stockholders, attorneys, appraiser and accountants who knowingly or recklessly
participate in wrongful actions likely to have an adverse effect on an insured
institution. Civil penalties are broadened to cover a wider range of violations
and actions and range up to $25,000 per day unless a finding of reckless
disregard is made, in which case penalties may be as high as $1 million per day.
Criminal penalties for most financial institution crimes are increased to 15
years. In addition, regulators are provided with far greater flexibility to
impose enforcement action on an institution that fails to comply with its
regulatory requirements, particularly with respect to the capital requirements.
Possible enforcement action ranges from the imposition of a capital plan and
capital directive to receivership, conservatorship or the termination of deposit
insurance. The FDI Act empowers the FDIC to recommend to the Director of OTS
enforcement action be taken with respect to a particular savings institution. If
action is not taken by the Director, the FDIC has authority to take such action
under certain circumstances.
Loans to One Borrower. Under the HOLA, savings institutions are subject to
the national bank limits on loans to one borrower. Generally, savings
institutions now may lend to a single or related group of borrowers on an
unsecured basis an amount equal to 15% of its unimpaired capital and surplus. An
additional amount may be lent, equal to 10% of unimpaired capital and surplus,
if such loan is secured by readily-marketable collateral, which is defined to
include certain securities and bullion, but generally does not include real
estate. At June 30, 1996, the Bank was in compliance with the loans to one
borrower limit.
On February 15, 1995, the Office of the Comptroller of the Currency
announced its revised rules governing national bank lending limits which were
effective on March 17, 1995. The revisions automatically apply to savings
institutions regulated by the OTS. Under the revision, the calculation of
capital has been changed to the bank's total Tier 1 and Tier 2 capital, plus the
balance of the bank's allowance for loan and lease losses not included in the
total Tier 1 and Tier 2 capital. The revised rule simplifies the calculation of
loan limits by permitting the Bank to rely mainly on information from quarterly
reports of condition of income or call reports, instead of requiring calculation
of the lending limits on a daily basis.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit
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applications by such institution. The FIRREA amended the CRA to require,
effective July 1, 1990, public disclosure of an institution's CRA rating to
require that the OTS provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system in lieu of the
previously existing five-tiered numerical rating system. The Bank is committed
to meeting the needs of the communities it serves.
New CRA regulations which were enacted in late 1995 take effect starting in
1996. Under the new regulations, institutions will be evaluated based on: (i)
performance in lending in their assessment areas; (ii) the provision of deposit
and other community services in their assessment areas; and (iii) the investment
in housing-related and other qualified community investments. Under the new
regulations, an institution which is found to be deficient in its performance in
meeting its community's credit needs may be subject to enforcement actions,
including cease and desist orders and civil money penalties.
The Bank received a "outstanding" CRA Rating in its last CRA Examination.
Management believes the Bank meets its obligations under the CRA and intends to
continue to make a difference in the local communities it serves by investing in
those communities in order to provide more opportunities for the citizens
therein.
Federal Home Loan Bank System. The FHLB System consists of 12 regional FHL
Banks. The FHLB provides a central credit facility primarily for member savings
institutions. The Bank as a member of the FHLB-Atlanta, is required to acquire
and hold shares of capital stock in that FHLB in an amount at least equal to 1%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 5% of its advances
(borrowings) from the FHLB-Atlanta, whichever is greater. First Family is in
compliance with this requirement. The FHLB advances must be secured by specified
types of collateral and may be obtained only for the purpose of providing funds
for residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
savings institutions and to contribute funds for affordable housing programs.
These requirements could reduce the amount of dividends that the FHLBs pay to
their members and could also result in the FHLBs imposing a higher rate of
interest on advances to members. For the year ended June 30, 1996, dividends
from the FHLB-Atlanta amounted to $82,000 or 3.8% of the Bank's pre-tax income.
Should dividends be reduced, or interest on FHLB advances increased, the Bank's
net interest income might also be reduced. Furthermore, there can be no
assurance that the impact of the FIRREA on the FHLB's will not also cause a
decrease in the value of the FHLB-Atlanta stock held by the Bank.
Federal Reserve System. The Federal Reserve Board regulations require
savings institutions to maintain noninterest-earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves of 3% must be
maintained against aggregate transaction accounts of $51.9 million or less
(subject to adjustment by the Federal Reserve Board) and an initial reserve of
$1.56 million plus 10% (subject to adjustment by the Federal Reserve Board
between 8% and 14%) against that portion of total transaction accounts in excess
of $51.9 million. The first $4.0 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. First Family is in compliance with the foregoing
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements
imposed by the OTS. Because required reserves must be maintained in the form of
either vault cash, a noninterest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce the Bank's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve's "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
LEGAL PROCEEDINGS
First Family is not involved in any pending legal proceedings other than
nonmaterial legal proceedings undertaken in the ordinary course of business.
91
<PAGE> 97
PRINCIPAL HOLDERS OF FIRST FAMILY COMMON STOCK
The following table sets forth information as of August 1, 1996, with
respect to the persons believed by First Family to be the beneficial owners of
more than five percent of First Family's outstanding common stock. This
information is based on the most recent Schedule 13Ds filed by such persons with
the Securities and Exchange Commission ("SEC") in accordance with the Securities
Exchange Act of 1934 ("Exchange Act") and First Family's shareholder records.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
AMOUNT AND ADDRESS BENEFICIAL OWNERSHIP OUTSTANDING(1)
- ------------------------------------------------------------- -------------------- --------------
<S> <C> <C>
First Securities America, Inc.,.............................. 58,617 10.10%
General Partner of Investors of America, Limited
Partnership ("Investors"), and Tidal Insurance Limited, a
wholly owned subsidiary of Investors ("Tidal")
135 N. Meramec
Clayton, MO 63141
own stock under the names:
Investors................................... 53,617 shares
Tidal....................................... 5,000 shares
Total............................... 58,617 shares
Donald L. Koch............................................... 40,997 7.06
4 Muirfield Lane
St. Louis, MO 63141
Mary K. Drake................................................ 53,600 9.23
2104 Dornoch
League City, TX 77573
David M. Shepherd............................................ 28,345(2) 5.09
2801 South Bay Street
Eustis, Florida 32726
</TABLE>
- ---------------
(1) Percentage has been computed based upon 580,500 shares assuming the issuance
of all 35,500 shares granted pursuant to the Option Plan.
(2) Includes 12,000 shares subject to options but does not include shares held
by Mr. Shepherd's spouse or children.
92
<PAGE> 98
FIRST FAMILY COMMON STOCK OWNED BY MANAGEMENT
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNERSHIP OUTSTANDING(1)(2)
-------------------- -----------------
<S> <C> <C>
DIRECTORS:
Catherine C. Hanson(3)..................................... 4,847 0.89%
Braxton W. Price, M.D.(3).................................. 8,700 1.59
Thomas J. Windram(3)(4).................................... 2,069 0.38
George A. Bavelis(3)....................................... 20,000 3.75
Bradley R. Meredith(5)..................................... 17,281 3.12
Idris D. Voldness(3)(6).................................... 15,000 2.75
William M. Furnas(3)(4)(6)................................. 4,377 0.80
John B. Kirkpatrick, Jr.(3)(6)............................. 11,500 2.11
David M. Shepherd(7)(8).................................... 28,345 5.09
William Wintersdorf(3)(6).................................. 9,211 1.69
</TABLE>
- ---------------
(1) The information concerning the common stock beneficially owned includes
shares subject to outstanding options granted under the Option Plan. Under
the Option Plan, 54,000 shares are authorized to be granted. As of June 30,
1994, options have been granted for 40,500 shares, of which 35,500 remain
unexercised. The obligations of the Stock Option Plan were assumed by First
Family in connection with the holding company reorganization.
(2) Percentages for such persons are based upon the sum of 545,000 shares, plus
the number of shares subject to presently exercisable options held by each
nominee, as indicated in the following notes.
(3) Amount includes 1,000 shares for which options have been granted.
(4) Includes shares held by children.
(5) Amount includes 8,000 shares for which options have been granted.
(6) Includes shares held individually and shares held by spouse.
(7) Amount includes 12,000 shares for which options have been granted.
(8) Amount does not include shares held by spouse or children.
Securities ownership of management. As of August 1, 1996, all executive
officers and directors of the Company as a group, a total of 10 persons, owned
beneficially 121,330 shares of common stock, or 20.90% of the common stock
outstanding.
ADJOURNMENT OF SPECIAL MEETING
(PROPOSAL 2)
Approval of the Merger by First Family's shareholders requires the
affirmative vote of at least a majority of the total votes eligible to be cast
at the Special Meeting. In the event there are an insufficient number of shares
of First Family Common Stock present in person or by proxy at the Special
Meeting to approve the Merger, First Family's Board of Directors may adjourn the
Special Meeting to a later date provided a majority of the shares present and
voting have voted in favor of such adjournment (Proposal 2 on the proxy card).
Proxies voted against the Merger and abstentions will not be voted to adjourn
the Special Meeting. Abstentions and broker non-votes will not be voted on this
matter, but will not count as "no" votes. If it is necessary to adjourn the
Special Meeting and the time and place to which the Special Meeting is adjourned
are announced at the Special Meeting, no notice of the time and place of the
adjourned meeting need be given the shareholders. If, however, after the
adjournment, the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be delivered to each
shareholder of record entitled to vote at such meeting not less than 10 days or
more than 60 days before the meeting.
The effect of any such adjournment would be to permit First Family to
solicit additional proxies for approval of the Merger. While such an adjournment
would not invalidate any proxies previously filed as long as the record date for
the adjourned meeting remained the same, including proxies filed by shareholders
voting
93
<PAGE> 99
against the Merger, an adjournment would afford First Family the opportunity to
solicit additional proxies in favor of the Merger.
The Board of Directors of First Family recommends a vote "FOR" this
proposal.
OTHER MATTERS
The Board of Directors of First Family is not aware of any business to come
before the Special Meeting other than those matters described above in this
Prospectus. If, however, any other matters not now known should properly come
before the Special Meeting, the proxy holders named in the accompanying proxy
will vote such proxy on such matters as determined by a majority of the Board of
Directors of First Family.
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1997 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36192, no later
than 120 calendar days in advance of the date of March 18, 1997.
LEGAL MATTERS
Certain legal matters regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup and of Colonial Bank, is a partner. Such firm
received fees for legal services performed in 1995 of $1,305,633. John C. H.
Miller, Jr. owns 10,243 shares of Common Stock. Mr. Miller also received
employee-related compensation from BancGroup in 1995 of $58,070. The firm of
Igler & Dougherty, P.A., Tallahassee, Florida is passing upon certain tax and
other matters for First Family.
EXPERTS
Coopers & Lybrand L.L.P. serves as the independent accountants for
BancGroup. The consolidated financial statements of BancGroup as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 are incorporated by reference in this Prospectus in reliance upon the
report of such firm, given on the authority of that firm as experts in
accounting and auditing. It is not expected that a representative of such firm
will be present at the Special Meeting.
Hacker, Johnson, Cohen & Grieb, Tampa, Florida serves as the independent
accountants for First Family. The consolidated financial statements of First
Family as of June 30, 1996 and 1995 and for the three years ended June 30, 1996,
1995 and 1994 that are in this Prospectus in reliance upon the report of such
firm, are given on the authority of that firm as experts in accounting and
auditing. It is not expected that a representative of such firm will be present
at the Special Meeting.
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF FIRST FAMILY PRIOR TO
THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
SECRETARY OF FIRST FAMILY PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE
SPECIAL MEETING VOTING IN PERSON.
94
<PAGE> 100
INDEX TO FINANCIAL STATEMENTS
COLONIAL BANCGROUP:
All required financial statements have been incorporated by reference into
this prospectus.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FIRST FAMILY FINANCIAL CORPORATION:
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets, June 30, 1996 and 1995................................... F-3
Consolidated Statements of Earnings Years Ended June 30, 1996, 1995 and 1994.......... F-4
Consolidated Statements Stockholders' Equity Years Ended June 30, 1996, 1995 and
1994................................................................................ F-5
Consolidated Statements of Cash Flows Years Ended June 30, 1996, 1995 and 1994........ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Family Financial Corporation
Eustis, Florida:
We have audited the accompanying consolidated balance sheets of First
Family Financial Corporation and subsidiaries (the "Company") as of June 30,
1996 and 1995 and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1996. 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 audits 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 financial position of the Company
as of June 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company changed its method of accounting for securities as of June 30, 1994, to
conform with Statement of Financial Accounting Standards No. 115.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
July 17, 1996, except for Note 18,
as to which the date is July 19, 1996
F-2
<PAGE> 102
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
($ IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Cash and due from banks................................................ $ 1,752 $ 1,769
Interest-bearing deposits with banks................................... 1,689 2,592
-------- --------
Cash and cash equivalents......................................... 3,441 4,361
Securities held to maturity............................................ 29,863 29,317
Loans held for sale.................................................... 1,991 2,894
Loans receivable, net of allowance for loan losses of $723 and $783,
respectively......................................................... 114,167 114,055
Accrued interest receivable:
Securities........................................................... 603 315
Loans receivable..................................................... 687 706
Premises and equipment................................................. 2,575 2,491
Other real estate owned, net of allowance of $30 at June 30, 1995...... 64 736
Restricted securities -- Federal Home Loan Bank of Atlanta stock, at
cost................................................................. 1,112 1,112
Prepaid expenses and other assets...................................... 1,387 1,362
-------- --------
Total........................................................ $155,890 $157,349
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits...................................................... 4,935 4,284
Savings and NOW deposits............................................. 15,070 17,361
Money market deposits................................................ 19,092 11,370
Other time deposits.................................................. 104,265 112,790
-------- --------
Total deposits............................................... 143,362 145,805
Advance payments by borrowers for taxes and insurance................ 1,254 1,642
Deferred income taxes................................................ 66 100
Accrued expenses and other liabilities............................... 774 965
Official checks...................................................... 1,212 945
-------- --------
Total liabilities............................................ 146,668 149,457
-------- --------
Commitments and Contingencies (Notes 8 and 12)
Stockholders' Equity:
Preferred stock, 2,000,000 shares authorized, issued none............ -- --
Common stock, $.01 par value, 8,000,000 shares authorized, 545,000
shares issued and outstanding..................................... 5 5
Additional paid-in capital........................................... 2,873 2,873
-------- --------
Retained earnings.................................................... 6,344 5,014
-------- --------
Total stockholders' equity................................... 9,222 7,892
-------- --------
Total........................................................ $155,890 $157,349
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 103
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1996 1995 1994
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans receivable................................................ $ 9,529 $ 8,928 $ 7,339
Securities held to maturity..................................... 1,726 2,043 2,260
Other interest-earnings assets.................................. 376 216 183
------- ------- -------
Total interest income................................... 11,631 11,187 9,782
------- ------- -------
Interest expense:
Deposits........................................................ 7,084 6,558 5,366
Other borrowed funds............................................ 6 40 23
------- ------- -------
Total interest expense.................................. 7,090 6,598 5,389
------- ------- -------
Net interest income..................................... 4,541 4,589 4,393
Provision for loan losses......................................... 75 300 150
------- ------- -------
Net interest income after provision for loan losses..... 4,466 4,289 4,243
------- ------- -------
Noninterest income:
Fees and service charges........................................ 534 480 474
Gain on sale of loans........................................... 422 382 205
Gain on sale of securities...................................... 335 -- 189
Gain on sale of loan servicing.................................. 208 -- --
Unrealized loss on securities held-for-sale..................... -- -- (395)
Other........................................................... 121 186 104
------- ------- -------
Total noninterest income, net........................... 1,620 1,048 577
------- ------- -------
Noninterest expenses:
Salaries and employee benefits.................................. 1,834 1,826 1,645
Occupancy and equipment, net.................................... 334 335 368
Deposit insurance premiums...................................... 468 437 377
Data processing................................................. 215 272 257
Loss (income) on other real estate operations................... 68 (30) (5)
Professional fees............................................... 308 275 257
Loan expense.................................................... 145 179 365
Other........................................................... 533 588 628
------- ------- -------
Total noninterest expenses.............................. 3,905 3,882 3,892
------- ------- -------
Earnings before income taxes and cumulative effect of change in
accounting principle............................................ 2,181 1,455 928
Income taxes...................................................... 764 509 305
------- ------- -------
Earnings before cumulative effect of change in accounting
principle....................................................... 1,417 946 623
Cumulative effect of change in accounting principle -- adoption of
SFAS 115........................................................ -- -- 261
------- ------- -------
Net earnings...................................................... $ 1,417 $ 946 $ 884
======= ======= =======
Earnings per share:
Earnings before cumulative effect of change in accounting
principle.................................................... $ 2.60 $ 1.75 $ 1.15
Cumulative effect of change in accounting principle............. -- -- .49
------- ------- -------
Earnings per share.............................................. $ 2.60 $ 1.75 $ 1.64
======= ======= =======
Dividends per share............................................. $ .16 $ .16 $ .04
======= ======= =======
Weighted average number of shares outstanding..................... 545,000 541,562 540,000
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 104
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at June 30, 1993............................... $5 $2,830 $3,292 $ 6,127
Net earnings........................................... -- -- 884 884
Dividends at $.04 per share............................ -- -- (21) (21)
--
----- ----- -----
Balance at June 30, 1994............................... 5 2,830 4,155 6,990
Net earnings........................................... -- -- 946 946
Dividends at $.16 per share............................ -- -- (87) (87)
Proceeds from common stock issued under the stock
option plan.......................................... -- 43 -- 43
--
----- ----- -----
Balance at June 30, 1995............................... 5 2,873 5,014 7,892
Net earnings........................................... -- -- 1,417 1,417
Dividends at $.16 per share............................ -- -- (87) (87)
--
----- ----- -----
Balance at June 30, 1996............................... $5 $2,873 $6,344 $ 9,222
== ===== ===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 105
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................................... $ 1,417 $ 946 $ 884
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization.................................... 137 149 160
Amortization of deferred loan fees, net.......................... 50 (49) (168)
Provision for loan losses........................................ 75 300 150
Provision (credit) for deferred income taxes..................... (34) 12 50
Deferred income taxes relating to the cumulative effect of the
change in accounting principle................................. -- -- 134
Increase in accrued interest receivable.......................... (269) (154) (241)
Increase in prepaid expenses and other assets.................... (25) (176) (537)
(Decrease) increase in accrued expenses and other liabilities.... (191) 554 234
Increase (decrease) in accrued interest on deposit accounts...... 41 52 (16)
Increase (decrease) in official checks........................... 267 274 (513)
Origination of loans held-for-sale............................... (7,543) (7,154) (12,812)
Proceeds from sale of loans held-for-sale........................ 8,868 7,204 13,956
Realized gains on sale of available-for-sale securities.......... (335) -- (189)
Gain on sale of loans............................................ (422) (382) (205)
Loss (gain) on sale of other real estate owned................... 2 (41) (97)
Gain on sale of loan servicing................................... (208) -- --
-------- -------- --------
Net cash provided by operating activities................... 1,830 1,535 790
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of securities................................... 13,385 -- 5,264
Purchases of securities............................................ (14,511) (502) (9,258)
Net increase in loans.............................................. (317) (12,277) (24,980)
Principal payments received on securities.......................... 899 1,222 2,818
Capital expenditures for real estate owned......................... -- (11) (140)
Proceeds from sale of real estate owned............................ 750 353 266
Purchases of premises and equipment................................ (205) (1) (100)
Proceeds from the sale of loan servicing rights.................... 208 -- --
Purchases of Federal Home Loan Bank stock.......................... -- (161) (68)
Proceeds from sale of Federal Home Loan Bank stock................. -- -- 798
-------- -------- --------
Net cash provided by (used in) investing activities......... 209 (11,377) (25,400)
-------- -------- --------
Cash flows from financing activities:
Net (decrease) increase in deposit accounts........................ (2,484) 13,313 18,644
Proceeds from Federal Home Loan Bank advances...................... 2,000 17,000 22,300
Repayment of Federal Home Loan Bank advances....................... (2,000) (18,000) (21,300)
(Decrease) increase in advance payments by borrowers for taxes and
insurance........................................................ (388) 385 353
Payments of cash dividends......................................... (87) (87) --
Proceeds from stock options exercised.............................. -- 43 --
-------- -------- --------
Net cash (used in) provided by financing activities......... (2,959) 12,654 19,997
-------- -------- --------
(Decrease) increase in cash and cash equivalents..................... (920) 2,812 (4,613)
Cash and cash equivalents at beginning of year....................... 4,361 1,549 6,162
-------- -------- --------
Cash and cash equivalents at end of year............................. $ 3,441 $ 4,361 $ 1,549
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes..................................................... $ 618 $ 393 $ 430
======== ======== ========
Interest......................................................... $ 7,049 $ 6,546 $ 5,406
======== ======== ========
Noncash investing and financing activities:
Transfer of mortgage loans receivable to other real estate
owned.......................................................... $ 203 $ 291 $ 366
======== ======== ========
Loans originated for the sale of other real estate owned......... $ 123 $ 157 $ 857
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 106
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Family Financial Corporation (the "Holding Company") owns 100% of the
outstanding stock of First Family Bank, fsb and Subsidiaries (the "Bank")
(collectively the "Company"). The Holding Company operates as a unitary savings
and loan holding company. On November 8, 1994, the Bank's stockholders approved
an Agreement and Plan of Reorganization under which the Bank became a
wholly-owned subsidiary of the Holding Company. On November 8, 1994, the Bank's
stockholders exchanged their common shares for shares of the Holding Company. As
a result, all of the previously issued 540,000 shares of $1.00 par value common
stock of the Bank were exchanged for 540,000 shares of the $.01 par value common
shares of the Holding Company. The Holding Company's acquisition of the Bank has
been accounted for as a pooling of interest and accordingly all financial data
for prior periods have been restated to include the results of the Bank. The
Holding Company's only business activities is the operation of the Bank.
The Bank is a federally chartered SAIF-insured thrift institution. The Bank
was founded as First Federal Savings and Loan Association of Eustis in 1935 as a
mutual institution. On October 22, 1992, the Bank converted from mutual to
capital stock form and at that time changed its name to First Family Bank, fsb.
The Bank provides a full range of community banking services to small and
middle-market businesses and to individuals through its five branch offices
located in Lake County, Florida.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to the general practices within the thrift
industry. The following summarizes the more significant of these policies and
practices:
Principals of Consolidation. The consolidated financial statements
include the accounts and results of operations of the Holding Company and
its subsidiary, the Bank and its wholly-owned subsidiaries, First of
Eustis, Inc., First Family Ventures, Inc. and First Family Real Estate and
Investments, Inc. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Due From Banks. The Bank is required to maintain certain
average reserve balances pursuant to regulations of the Federal Reserve
Board. These balances must be maintained in the form of vault cash or
noninterest bearing deposits at a Federal Reserve Bank. The Bank exceeded
this requirement at June 30, 1996.
Cash and Cash Equivalents. For the purpose of presentation in the
consolidated statements of cash flows, cash and cash equivalents are
defined as those amounts included in the balance-sheet captions "cash and
due from banks" and "interest-bearing deposits with banks."
Securities Held-to-Maturity. On June 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 ("SFAS 115"). This
Statement requires securities that the Company has the positive intent and
ability to hold to maturity to be classified as held-to-maturity securities
and reported at amortized cost. Securities that are held principally for
selling them in the near term are to be classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings. Securities not classified as either held-to-maturity securities
or trading securities are to be classified as available-for-sale securities
and reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity. At
June 30, 1996 and 1995, all securities are classified as held-to-maturity.
F-7
<PAGE> 107
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to June 30, 1994 securities held-to-maturity were carried at cost,
adjusted for amortization of premiums and accretion of discounts and were not
adjusted to the lower of cost or market because management had the intent and
ability to hold them to maturity. Premiums were amortized and discounts accreted
to income using the interest method over the estimated remaining life of the
securities. During fiscal 1994 the Company held certain securities as
held-for-sale which were recorded at the lower of cost or market value in the
aggregate. Net unrealized losses on these securities were recognized in a
valuation allowance by charges to operations.
Realized gains and losses are recognized based on the specific
identification method.
Loans Held for Sale. Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to earnings. At June 30, 1996 market value exceeded book
value.
Loans Receivable. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated loans
and unamortized premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Loan Impairment and Losses. On July 1, 1995, the Company adopted
Statements of Financial Accounting Standards No. 114 and 118 ("SFAS 114 and
118"). These Statements address the accounting by creditors for impairment of
certain loans. The Statements generally require the Company to identify loans
for which the Company probably will not receive full repayment of principal and
interest, as impaired loans. The Statements require that impaired loans be
valued at the present value of expected future cash flows, discounted at the
loan's effective interest rate, or at the observable market price of the loan,
or the fair value of the underlying collateral if the loan is collateral
dependent. The Company has implemented the Statements by modifying its review of
the adequacy of the allowance for loan losses to also identify and value
impaired loans in accordance with guidance in the Statements.
Management considers a variety of factors in determining whether a loan is
impaired, including (i) any notice from the borrower that the borrower will be
unable to repay all principal and interest amounts contractually due under the
loan agreement, (ii) any delinquency in the principal and interest payments
(other than minimum delays or shortfalls in payments), and (iii) other
information known by management which would indicate that full repayment of the
principal and interest is not probable. In evaluating loans for impairment,
management generally considers delinquencies of 90 days or less to be minimum
delays, and accordingly does not consider such delinquent loans to be impaired
in the absence of other indications of impairment.
F-8
<PAGE> 108
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management evaluates smaller balance, homogenous loans for impairment and
adequacy of allowance for loan losses collectively, and evaluates other loans
for impairment individually, on a loan-by-loan basis. For this purpose, the
Company considers its portfolio of first mortgage, single-family residential
loans with outstanding balances less than $250,000 and its consumer loan
portfolio to be smaller balance, homogenous loans. The Company evaluates each of
these loan portfolios for impairment on an aggregate basis, and utilizes its own
historical charge-off experience, as well as the charge-off experience of its
peer group and industry statistics to evaluate the adequacy of the allowance for
loan losses. For all other loans, the Company evaluates loans for impairment on
a loan by loan basis.
The Company evaluates all nonaccrual loans as well as any accruing loans
exhibiting collateral or other credit deficiencies for impairment. With respect
to impaired, collateral-dependant loans, any portion of the recorded investment
in the loan that exceed the fair value of the collateral is charged-off. During
the years ended June 30, 1996, 1995 and 1994, no loans were identified as
impaired under the provisions of SFAS 114 and 118.
For impairment recognized in accordance with SFAS 114 and 118, the Company
will report the entire change in the present value of expected cash flows, or
the entire change in estimated fair value of collateral for collateral dependent
loans as a provision for loan losses in the same manner in which impairment
initially was recognized or as a reduction in the amount of the provision that
otherwise would be reported.
Other Real Estate Owned. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in loss (income) on other real estate operations.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
The Holding Company and its subsidiary files a consolidated income tax
return. Income taxes are allocated proportionately to the Holding Company and
its subsidiary as though separate income tax returns were filed.
Premises and Equipment, Net. Land is carried at cost. Premises, furniture
and equipment are carried at cost, less accumulated depreciation computed by the
straight-line method.
Off-Balance-Sheet Instruments. In the ordinary course of business the
Company has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit and unused lines of credit. Such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
Fair Values of Financial Instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments as disclosed herein:
Cash and Cash Equivalents. The carrying amounts of cash and cash
equivalents approximate their fair value.
Securities Held-to-Maturity. Fair values for securities are based on
quoted market prices.
Loans Held for Sale. Fair values for loans held for sale are based on
quoted market prices.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed rate loans are estimated using discounted
F-9
<PAGE> 109
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.
Deposit Liabilities. For the Years Ended June 30, 1996, 1995 and 1994
The fair values disclosed for demand, savings, NOW and money market
deposits are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Accrued Interest. The carrying amounts of accrued interest
approximate their fair values.
Off-Balance Sheet Instruments. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
Earnings Per Share. Earnings per share has been computed by dividing the
net earnings by the weighted average number of shares outstanding during the
period. The dilutive effect of stock options was not material.
Future Accounting Requirements. FASB issued Statement of Financial
Accounting Standards No. 122 ("SFAS 122") which requires mortgage banking
enterprises that acquire mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained to allocate the total cost of the mortgage loans to
the mortgage servicing rights and the loans based on their relative fair values.
Mortgage banking enterprises include commercial banks and thrift institutions
that conduct operations substantially similar to the primary operations of a
mortgage banking enterprise. Management does not anticipate this Statement will
have a material impact on the Company. This Statement is effective for the first
six months of fiscal 1997. Although this Statement will be superseded effective
December 31, 1996 by SFAS 125 discussed below, the major provisions of SFAS 122
described above are included in SFAS 125.
In addition the FASB has issued Statement of Financial Accounting Standards
No. 125 ("SFAS 125"). This Statement provides accounting and reporting standards
for transfers and servicing of financial assets as well as extinguishments of
liabilities. This Statement also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets as well as extinguishments of liabilities occurring after
December 31, 1996. Management does not anticipate SFAS 125 will have a material
impact on the Company.
The FASB has also issued Statement of Financial Accounting Standard No. 123
("SFAS 123") which encourages employers to account for stock-based compensation
awards based on their fair value at the date the awards are granted. The
resulting compensation award would be shown as an expense on the consolidated
statement of earnings. Entities can choose not to apply the new accounting
method and continue to apply current accounting requirements, which generally
result in no compensation cost for most fixed stock-option plans. Those that do
so, however, will be required to disclose in the notes to the financial
statements what net earnings and earnings per share would have been had they
followed the Statement's accounting method. This Statement is effective for
fiscal 1997. Management does not anticipate this Statement will have a material
impact on the Company.
F-10
<PAGE> 110
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SECURITIES HELD-TO-MATURITY
Debt securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and their
approximate fair values at June 30 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT JUNE 30, 1996:
U.S. Government Agency Obligations............. $ 9,037 $ 11 $ (94) $ 8,954
FHLB debentures................................ 14,729 -- (889) 13,840
FHLMC certificates............................. 491 7 -- 498
GNMA certificates.............................. 2,727 18 (51) 2,694
FNMA certificates.............................. 1,642 -- (69) 1,573
Collateralized mortgage obligations............ 1,237 -- (38) 1,199
------- ---- ------- -------
$29,863 $ 36 $ (1,141) $28,758
======= ==== ======= =======
AT JUNE 30, 1995:
U.S. Government Agency Obligations............. $ 5,060 $ 30 $ (23) $ 5,067
FHLB debentures................................ 4,212 -- (602) 3,610
GNMA certificates.............................. 15,215 342 (38) 15,519
FNMA certificates.............................. 3,096 17 (67) 3,046
Collateralized mortgage obligations............ 1,734 5 (27) 1,712
------- ---- ------- -------
$29,317 $394 $ (757) $28,954
======= ==== ======= =======
</TABLE>
The Financial Accounting Standards Board offered entities a one-time
opportunity from November 15, 1995 to December 31, 1995 to reclassify their
securities among its three categories (trading, available-for-sale and
held-to-maturity) in conjunction with adopting a new implementation guide. Such
transfers were permitted to be made during this period without tainting other
held-to-maturity securities. Accordingly, the Company reclassified securities
with a book and market value of $13,050,283 and $13,385,690, respectively from
held-to-maturity to available-for-sale. All these securities were sold on
December 28, 1995 for a gain of $335,407.
Proceeds from sales of securities during the year ended June 30, 1994 was
$5.3 million. Gross gains recognized or the sale of these securities was
$189,000. There were no sales of securities during the year ended June 30, 1995.
The scheduled maturities of securities held-to-maturity at June 30, 1996
are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less......................................... $ 4,093 $ 4,102
Due after one year through five years........................... 5,345 5,094
Due after five years through ten years.......................... 8,483 8,057
Due after ten years............................................. 11,942 11,505
------- -------
Total................................................. $29,863 $28,758
======= =======
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
F-11
<PAGE> 111
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1994, prior to the adoption of SFAS 115, the Company had certain
securities held-for-sale which had an unrealized loss of $395,000. This amount
and a tax benefit of $134,000 was recognized in the statement of earnings during
fiscal 1994. On June 30, 1994, the Company adopted SFAS 115 and classified all
securities as held-to-maturity and realized a $261,000 increase to earnings
which is reflected as a cumulative effect of a change in accounting principle in
the fiscal 1994 statement of earnings.
3. LOANS RECEIVABLE
The Loan Portfolio. The components of loans in the consolidated balance
sheets are summarized as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans:
Secured by one-to-four family residences................... $ 89,171 $ 84,778
Secured by other properties................................ 12,559 13,476
Construction loans......................................... 8,195 7,953
Other...................................................... 607 498
-------- --------
Total first mortgage loans......................... 110,532 106,705
Manufactured housing loans................................... 3,145 3,868
Home equity and second mortgage loans........................ 4,528 5,346
Consumer loans............................................... 614 1,176
Loans on deposit accounts.................................... 401 322
Commercial loans............................................. 130 231
-------- --------
Total loans receivable............................. 119,350 117,648
(Deduct) add:
Undisbursed portion of loans in process.................... (4,545) (2,939)
Allowance for loan losses.................................. (723) (783)
Unearned discount on loans purchased....................... (17) (7)
Net deferred loan origination fees......................... 102 136
-------- --------
Loans receivable, net.............................. $114,167 $114,055
======== ========
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1996 1995 1994
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 783 $523 $ 606
Loans charged off........................................... (136) (47) (233)
Recoveries.................................................. 1 7 --
----- ---- -----
Net loans charged-off....................................... (135) (40) (233)
Provision for loan losses................................... 75 300 150
----- ---- -----
Balance at end of year...................................... $ 723 $783 $ 523
===== ==== =====
</TABLE>
F-12
<PAGE> 112
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PREMISES AND EQUIPMENT
Components of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cost:
Land and land improvements................................... $ 219 $ 219
Buildings and building improvements.......................... 2,856 2,726
Furniture and equipment...................................... 1,249 1,229
------- -------
Total cost........................................... 4,324 4,174
Less accumulated depreciation.................................. (1,749) (1,683)
------- -------
Net book value....................................... $ 2,575 $ 2,491
======= =======
</TABLE>
5. LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans at
June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
FNMA.................................................. $ 6,659 $21,576 $22,363
FHLMC................................................. -- 1,935 1,459
Other investors....................................... 8,045 4,396 598
------- ------- -------
$14,704 $27,907 $24,420
======= ======= =======
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing and included in demand deposits, were approximately $90,000 and
$388,000 at June 30, 1996 and 1995, respectively.
6. OTHER REAL ESTATE OWNED
Activity in the allowance for losses on other real estate owned is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.................................. $ 30 $30 $840
Amounts charged-off........................................... (30) -- (810)
---- --- -----
Balance at end of year........................................ $ -- $30 $ 30
==== === =====
</TABLE>
Loss (income) from real estate operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Operating costs, net.......................................... $66 $ 11 $ 92
Loss (gain) on sale of real estate owned, net................. 2 (41) (97)
--
---- -----
Loss (income) on other real estate operations................. $68 $(30) $ (5)
== ==== =====
</TABLE>
F-13
<PAGE> 113
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEPOSITS
The aggregate amount of short-term certificates of deposits with a minimum
denomination of $100,000, was approximately $8.8 million and $9.6 million at
June 30, 1996 and 1995, respectively.
At June 30, 1996, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997...................................................... $ 64,616
1998...................................................... 28,091
1999...................................................... 6,155
2000...................................................... 4,377
2001 and thereafter....................................... 1,026
--------
$104,265
========
</TABLE>
8. FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments are mortgage loan commitments to extend credit and
unused lines of credit and may involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract amounts of these instruments reflect the extent of
involvement the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
unused lines of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments as
it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on management's
credit evaluation of the counterparty.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1996
---------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and cash equivalents.................................... $ 3,441 $ 3,441
Securities held-to-maturity.................................. 29,863 28,758
Loans receivable............................................. 114,167 114,172
Loans held for sale.......................................... 1,991 2,109
Accrued interest receivable.................................. 1,290 1,290
Federal Home Loan Bank of Atlanta stock...................... 1,112 1,112
Financial liabilities:
Deposit liabilities.......................................... 143,362 144,236
</TABLE>
F-14
<PAGE> 114
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the contract amounts of the Company's financial instruments,
which approximate fair value, with off-balance-sheet risk at June 30, 1996 are
as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Outstanding loan commitments, exclusive of loans in process:
At fixed rates....................................................... $ 90
At variable rates.................................................... 556
----
Total........................................................ $646
====
Unused lines of credit................................................. $220
====
</TABLE>
9. CREDIT RISK
The Company grants real estate, commercial and installment loans to
customers primarily in the State of Florida with the majority of such loans in
the Lake County area. Therefore, the Company's exposure to credit risk is
significantly affected by changes in the economy of this county.
The Company, as a matter of policy, does not extend credit in excess of
$1,363,000 to any single borrower or group of related borrowers.
The contractual amounts of credit related financial instruments such as
commitments to extend credit and standby letters of credit represent the amounts
of potential accounting loss should the contract be fully drawn upon, the
customer default and the value of any existing collateral become worthless.
10. INCOME TAXES
If certain conditions are met in determining taxable income, the Company is
allowed a special bad debt deduction based on a percentage of taxable income
(presently 8.00%) or on specified experience formulas. Base year bad debt
reserves are included in taxable income of later years only if they are used for
purposes other than to absorb bad debt losses. Because the Company does not
intend to use the base year reserves for purposes other than to absorb losses,
no deferred income taxes have been provided. Retained earnings at June 30, 1996,
includes approximately $3,283,000 representing such base year bad debt
deductions for which no deferred income taxes have been provided. The unrecorded
deferred income tax liability on base year reserves at June 30, 1996 was
approximately $1,235,000.
The consolidated provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED JUNE 30, 1996:
Federal................................................... $ 691 $(35) $ 656
State..................................................... 107 1 108
---- ---- ----
Total............................................. $ 798 $(34) $ 764
==== ==== ====
YEAR ENDED JUNE 30, 1995:
Federal................................................... $ 445 $ 10 $ 455
State..................................................... 52 2 54
---- ---- ----
Total............................................. $ 497 $ 12 $ 509
==== ==== ====
YEAR ENDED JUNE 30, 1994:
Federal................................................... $ 247 $ 37 $ 284
State..................................................... 8 13 21
---- ---- ----
Total............................................. $ 255 $ 50 $ 305
==== ==== ====
</TABLE>
F-15
<PAGE> 115
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reasons for the differences between the statutory Federal income tax
rates and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
-------- -------- --------
% OF % OF % OF
PRETAX PRETAX PRETAX
EARNINGS EARNINGS EARNINGS
-------- -------- --------
<S> <C> <C> <C>
Tax provision at statutory rate......................... 34% 34% 34%
Increase (decrease) in taxes resulting from:
State taxes........................................... 4 2 3
Other, net............................................ (3) (1) (4)
-- -- --
35% 35% 33%
== == ==
</TABLE>
Deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------
1996 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capital loss carryforward....................................... $ 14 $ 14
Allowance for loan losses....................................... 272 291
Allowance for losses on real estate owned....................... -- 11
Deferred compensation........................................... 74 --
----- -----
Total gross deferred tax assets......................... 360 316
----- -----
Deferred tax liabilities:
Federal Home Loan Bank of Atlanta stock, principally due to
nontaxable stock dividends................................... (138) (138)
Premises and equipment, principally due to depreciation
differences.................................................. (196) (227)
Deferred loan origination fees.................................. (92) (51)
----- -----
Total gross deferred tax liabilities.................... (426) (416)
----- -----
Net deferred tax liability.............................. $ (66) $(100)
===== =====
</TABLE>
11. RELATED PARTIES
The Company has entered into transactions with its directors, officers and
associates. The activity of loans outstanding to directors, officers and
associates follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1996 1995 1994
----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 461 $ 401 $419
Loan originations........................................... 412 163 --
Repayments and other reductions............................. (257) (103) (18)
----- ----- ----
Balance at end of year...................................... $ 616 $ 461 $401
===== ===== ====
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the
F-16
<PAGE> 116
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinion of management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material adverse effect
on the consolidated financial condition of the Company.
The FDIC has proposed a one-time assessment on all SAIF-insured deposits,
in the range of 85 cents to 90 cents per $100 of domestic deposits, held as of
March 31, 1995. This one-time assessment is intended to recapitalize the SAIF to
the required level of 1.25% of insured deposits, and could be payable in fiscal
1997. If the assessment is made at the proposed rate, the effect on the Bank
would be a pretax charge of approximately $1,258,000 (0.85% on deposits of
$148.0 million at March 31, 1995), or $786,000 after tax (37.5% assumed tax
rate). Should this occur, the Holding Company does not expect to have to
contribute capital to the Bank for it to remain an adequately capitalized
institution.
13. STOCK OPTION PLAN
The Company's Board of Directors has a Stock Option and Stock Appreciation
Rights Plan ("Option Plan"). Pursuant to the Option Plan, 54,000 shares of
common stock were reserved for future issuance by the Company upon exercise of
stock options to be granted to directors and, from time to time, to employees of
the Company.
At June 30, 1996, 13,500 options remain unissued and no stock appreciation
rights have been granted. A summary of options granted, which are all currently
exercisable, and activity of transactions follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
--------- ------
<S> <C> <C>
Outstanding at June 30, 1993........................................ -- --
Options granted..................................................... 40,500 $8.50
------ -----
Outstanding at June 30, 1994........................................ 40,500 8.50
Exercised........................................................... 5,000 8.50
------ -----
Outstanding at June 30, 1995 and 1996............................... 35,500 8.50
====== =====
</TABLE>
14. DEFERRED COMPENSATION AND TERMINATION PLANS AND EMPLOYMENT CONTRACTS
In fiscal 1994, the Board of Directors approved deferred compensation
agreements for certain officers of the Company. The terms of the agreements
provide for the payments of specified benefits to these participants or their
beneficiaries at the earlier of retirement or death of the participant. The
Company is accruing the present value of the future benefits over the term of
the agreements. The Company has purchased life insurance policies on the
participants which although not formally linked, have future cash values that
exceed the estimated future benefits. The expense of the deferred compensation
plans and life insurance premiums, net of the increase in the cash surrender
value of the insurance policies was approximately $106,000, $91,200 and $13,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
In fiscal 1996, the Board of Directors approved termination agreements for
certain officers of the Company. These termination agreements specify amounts to
be paid to these officers should the Company be sold.
Also, two executive officers have employment agreements with the Company
that at June 30, 1996 have remaining terms of sixteen months.
15. STOCKHOLDERS EQUITY
At the time of conversion (On October 22, 1992) to a capital stock savings
bank, the Bank was required by the regulatory authorities to establish a
"liquidation account" in an amount equal to its retained earnings
F-17
<PAGE> 117
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined at June 30, 1992. The purpose of the account was to grant a priority
interest to eligible savings account holders as of June 4, 1991, in the unlikely
event of a future complete liquidation of the Bank. This account is reduced
annually in proportion to the reduction of eligible savings account balances
measured on June 30 of each year.
The ability of the Holding Company to pay dividends to the stockholders is
dependent upon receiving dividends from the Bank. The Bank is subject to certain
restrictions on the amount of dividends that it may declare without prior
regulatory approval.
Earnings appropriated for bad debt reserves and deducted for federal income
tax purposes are not available for payment of cash dividends or other
distributions to stockholders, including distributions on redemption,
dissolution, or liquidation without payment of taxes by the Bank on the amount
of earnings removed from the reserves for such distribution at the then current
tax rate. Under applicable Code provision, the amount which would be deemed
removed from such reserves by the Bank, in the event of any such distribution to
stockholders, and which would be subject to taxation to the Bank at the normal
tax rate would approximate one hundred and fifty percent (150%) of the net
amount actually distributed to the stockholders. At June 30, 1996, the Bank had
approximately $2,889,000 in tax earnings and profits available for dividend
distribution to the Holding Company without the imposition of any tax to the
Bank.
In June 1996, the Board of Directors of the Company declared a dividend of
$.04 per share to be paid to shareholders of record as of June 20, 1996. This
dividend was paid in July 1996.
16. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts (set forth in the table below) of
core, tangible and risk-weighted capital (as defined in the regulations).
Management believes, as of June 30, 1996, that the Bank is considered a well
capitalized financial institution.
The Bank's actual capital amounts and percentages are as follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------------------------
CORE TANGIBLE RISK-BASED
------------------- ------------------- -----------------
% OF
% OF % OF RISK-
QUALIFYING QUALIFYING WEIGHTED
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ---------- ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital................ $9,061 5.8% $9,061 5.8% $9,784 12.2%
Requirement....................... 4,668 3.0 2,334 1.5 6,436 8.0
------ --- ------ --- ------ ---
Excess............................ $4,393 2.8% $6,727 4.3% $3,348 4.2%
====== === ====== === ====== ===
</TABLE>
F-18
<PAGE> 118
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company as of June 30, 1996
and 1995 and for the year ended June 30, 1996 and the period from November 8,
1994 to June 30, 1995 are presented below. Amounts shown as investment in
subsidiary and equity in earnings of subsidiary are eliminated in consolidation.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash, deposited with subsidiary............................................ $ 61 $ 135
Investment in subsidiary................................................... 9,088 7,671
Other assets............................................................... 97 109
------ ------
Total assets..................................................... $9,246 $7,915
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expense and other liabilities...................................... 24 23
Stockholders' equity....................................................... 9,222 7,892
------ ------
Total liabilities and stockholders' equity....................... $9,246 $7,915
====== ======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
YEAR ENDED NOVEMBER 8, 1994
JUNE 30, TO JUNE 30,
1996 1995
---------- -------------------
<S> <C> <C>
Revenues.......................................................... $ -- $ --
Expenses.......................................................... 150 6
------ ----
Loss before earnings of subsidiary.............................. (150) (6)
Earnings of subsidiary.......................................... 1,567 952
------ ----
Net earnings.................................................... $1,417 $ 946
====== ====
</TABLE>
F-19
<PAGE> 119
FIRST FAMILY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
YEAR ENDED NOVEMBER 8, 1994
JUNE 30, TO JUNE 30,
1996 1995
---------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................... $ 1,417 946
Adjustments to reconcile net earnings to net cash used by
operations Equity in earnings of subsidiary.................. (1,567) (952)
Decrease (increase) in other assets.......................... 12 (109)
Increase in accrued expenses and other liabilities........... 1 23
------- ----
Net cash used by operating activities................... (137) (92)
------- ----
Cash flows from investing activities -- Dividends from
subsidiary...................................................... 150 250
------- ----
Cash flows from financing activities:
Proceeds from stock options exercised........................... -- 43
Cash dividends paid............................................. (87) (66)
------- ----
Net cash used by financing activities................... (87) (23)
------- ----
Net (decrease) increase in cash................................... (74) 135
Cash at beginning of period....................................... 135 --
------- ----
Cash at end of period............................................. $ 61 135
======= ====
</TABLE>
18. PENDING SALE OF COMPANY
On July 19, 1996, the Board of Directors of the Company entered into an
Agreement and Plan of Merger ("Merger Agreement") whereby the Company will be
acquired by Colonial BancGroup, Inc. ("Colonial") Montgomery, Alabama, a bank
holding company with assets of $4.5 billion. Under the terms of the Merger
Agreement, Colonial is proposing to acquire all of the outstanding capital stock
of the Company. Shareholders of the Company will receive total consideration of
$23.50 for each share of the Company's common stock in a 50% cash and 50% stock
transaction, resulting in each shareholder receiving $11.75 in cash and Colonial
common stock with a value of $11.75 at Closing. Cash will be paid in lieu of any
fractional shares. The acquisition is subject to approval by the various
regulatory authorities and the shareholders of the Company.
F-20
<PAGE> 120
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE COLONIAL BANCGROUP, INC.,
AND
FIRST FAMILY FINANCIAL CORPORATION
DATED AS OF
JULY 19, 1996
<PAGE> 121
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE 1 -- NAME
1.1 Name.......................................................................... A-5
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law................................................................ A-5
2.2 Corporate Existence........................................................... A-5
2.3 Articles of Incorporation and Bylaws.......................................... A-5
2.4 Resulting Corporation's Officers and Board.................................... A-6
2.5 Shareholder Approval.......................................................... A-6
2.6 Further Acts.................................................................. A-6
2.7 Effective Date and Closing.................................................... A-6
ARTICLE 3 -- CONVERSION OF FIRST FAMILY STOCK
3.1 Conversion of First Family Stock.............................................. A-6
3.2 Surrender of First Family Stock............................................... A-7
3.3 Fractional Shares............................................................. A-7
3.4 Adjustments................................................................... A-7
3.5 BancGroup Stock............................................................... A-8
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
4.1 Organization.................................................................. A-8
4.2 Capital Stock................................................................. A-8
4.3 Financial Statements; Taxes................................................... A-8
4.4 No Conflict with Other Instrument............................................. A-9
4.5 Absence of Material Adverse Change............................................ A-9
4.6 Approval of Agreements........................................................ A-9
4.7 Tax Treatment................................................................. A-9
4.8 Title and Related Matters..................................................... A-9
4.9 Subsidiaries.................................................................. A-10
4.10 Contracts..................................................................... A-10
4.11 Litigation.................................................................... A-10
4.12 Compliance.................................................................... A-10
4.13 Registration Statement........................................................ A-10
4.14 SEC Filings................................................................... A-10
4.15 Form S-4...................................................................... A-11
4.16 Brokers....................................................................... A-11
4.17 Government Authorization...................................................... A-11
4.18 Absence of Regulatory Communications.......................................... A-11
4.19 Disclosure.................................................................... A-11
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF FIRST FAMILY
5.1 Organization.................................................................. A-11
5.2 Capital Stock................................................................. A-11
5.3 Subsidiaries.................................................................. A-12
5.4 Financial Statements; Taxes................................................... A-12
5.5 Absence of Certain Changes or Events.......................................... A-13
5.6 Title and Related Matters..................................................... A-14
5.7 Commitments................................................................... A-14
5.8 Charter and Bylaws............................................................ A-15
5.9 Litigation.................................................................... A-15
</TABLE>
A-2
<PAGE> 122
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
5.10 Material Contract Defaults.................................................... A-15
5.11 No Conflict with Other Instrument............................................. A-15
5.12 Governmental Authorization.................................................... A-15
5.13 Absence of Regulatory Communications.......................................... A-15
5.14 Absence of Material Adverse Change............................................ A-15
5.15 Insurance..................................................................... A-16
5.16 Pension and Employee Benefit Plans............................................ A-16
5.17 Buy-Sell Agreement............................................................ A-16
5.18 Brokers....................................................................... A-16
5.19 Approval of Agreements........................................................ A-16
5.20 Disclosure.................................................................... A-16
5.21 Registration Statement........................................................ A-16
5.22 Loans; Adequacy of Allowance for Loan Losses.................................. A-17
5.23 Environmental Matters......................................................... A-17
5.24 Transfer of Shares............................................................ A-17
5.25 Collective Bargaining......................................................... A-17
5.26 Labor Disputes................................................................ A-17
5.27 Derivative Contracts.......................................................... A-18
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup............................................. A-18
6.2 Additional Covenants of First Family.......................................... A-19
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation..................................................... A-21
7.2 Press Release................................................................. A-21
7.3 Mutual Disclosure............................................................. A-21
7.4 Access to Properties and Records.............................................. A-21
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders...................................................... A-22
8.2 Regulatory Authority Approval................................................. A-22
8.3 Litigation.................................................................... A-22
8.4 Registration Statement........................................................ A-22
8.5 Tax Opinion................................................................... A-22
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF FIRST FAMILY
9.1 Representations, Warranties and Covenants..................................... A-23
9.2 Adverse Changes............................................................... A-23
9.3 Closing Certificate........................................................... A-23
9.4 Opinion of Counsel............................................................ A-23
9.5 Fairness Opinion.............................................................. A-23
9.6 NYSE Listing.................................................................. A-24
9.7 Material Events............................................................... A-24
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants..................................... A-24
10.2 Adverse Changes............................................................... A-24
10.3 Closing Certificate........................................................... A-24
10.4 Opinion of Counsel............................................................ A-25
10.5 Controlling Shareholders...................................................... A-25
10.6 Material Events............................................................... A-25
10.7 Employee Benefit Matters...................................................... A-25
10.8 Shareholders' Equity.......................................................... A-25
</TABLE>
A-3
<PAGE> 123
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES.......................... A-25
ARTICLE 12 -- NOTICES................................................................ A-25
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment..................................................................... A-26
13.2 Termination................................................................... A-26
13.3 Damages....................................................................... A-26
ARTICLE 14 -- DEFINITIONS............................................................ A-27
ARTICLE 15 -- MISCELLANEOUS.......................................................... A-31
15.1 Expenses...................................................................... A-31
15.2 Benefit....................................................................... A-31
15.3 Governing Law................................................................. A-31
15.4 Counterparts.................................................................. A-31
15.5 Headings...................................................................... A-31
15.6 Severability.................................................................. A-31
15.7 Construction.................................................................. A-31
15.8 Return of Information......................................................... A-31
15.9 Equitable Remedies............................................................ A-31
15.10 Arbitration................................................................... A-32
15.11 Attorneys' Fees............................................................... A-32
15.12 No Waiver..................................................................... A-32
15.13 Remedies Cumulative........................................................... A-32
15.14 Entire Contract............................................................... A-32
</TABLE>
A-4
<PAGE> 124
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
19th day of July 1996, by and between FIRST FAMILY FINANCIAL CORPORATION ("First
Family"), a Florida corporation, and THE COLONIAL BANCGROUP, INC. ("BancGroup"),
a Delaware corporation.
W I T N E S S E T H
WHEREAS, First Family operates as a unitary savings and loan holding
company for its wholly owned subsidiary, First Family Bank, FSB (the "Bank"),
with its principal office in Eustis, Florida; and
WHEREAS, BancGroup is a bank holding company with subsidiary banks in
Alabama, Florida, Georgia and Tennessee; and
WHEREAS, First Family wishes to merge with BancGroup; and
WHEREAS, it is the intention of BancGroup and First Family that such merger
shall qualify for federal income tax purposes as a "reorganization" within the
meaning of section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 Name. The name of the corporation resulting from the Merger shall be
"The Colonial BancGroup, Inc."
ARTICLE 2
MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, First Family shall be merged
with and into BancGroup (herein referred to as the "Resulting Corporation"
whenever reference is made to it as of the time of merger or thereafter). The
Merger shall be undertaken pursuant to the provisions of and with the effect
provided in the DGCL and the FBCA. The offices and facilities of First Family
and of BancGroup shall become the offices and facilities of the Resulting
Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
First Family and of BancGroup shall, as provided in the DGCL and the FBCA, be
merged into and continued in the Resulting Corporation. All rights, franchises
and interests of First Family and BancGroup, respectively, in and to every type
of property (real, personal and mixed) and choses in action shall be transferred
to and vested in the Resulting Corporation by virtue of the Merger without any
deed or other transfer. The Resulting Corporation on the Effective Date, and
without any order or other action on the part of any court or otherwise, shall
hold and enjoy all rights of property, franchises and interests, including
appointments, designations and nominations and all other rights and interests as
trustee, executor, administrator, transfer agent and registrar of stocks and
bonds, guardian of estates, assignee, and receiver and in every other fiduciary
capacity and in every agency, and capacity, in the same manner and to the same
extent as such rights, franchises and interests were held or enjoyed by First
Family and BancGroup, respectively, on the Effective Date.
2.3 Articles of Incorporation and Bylaws. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of BancGroup as they exist
immediately before the Effective Date.
A-5
<PAGE> 125
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist of
those persons serving in such capacities of BancGroup as of the Effective Date.
2.5 Shareholder Approval. This Agreement shall be submitted to the
shareholders of First Family at the Stockholders Meeting to be held as promptly
as practicable consistent with the satisfaction of the conditions set forth in
this Agreement. Upon approval by the requisite vote of the shareholders of First
Family as required by applicable Law, this Agreement shall become effective as
soon as practicable thereafter in the manner provided in section 2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of First Family or BancGroup, acquired as a
result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, First Family or BancGroup and its officers and directors shall
execute and deliver all such proper deeds, assignments and assurances in law and
do all acts necessary or proper to vest, perfect or confirm title to, and
possession of, such property or rights in the Resulting Corporation and
otherwise to carry out the purposes of this Agreement; and the proper officers
and directors of the Resulting Corporation are fully authorized in the name of
First Family or BancGroup, or otherwise, to take any and all such action.
2.7 Effective Date and Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be issued by the
Secretary of State of the State of Delaware (such time being herein called the
"Effective Date"). The Closing shall take place at the offices of BancGroup, in
Orlando, Florida, at 11:00 a.m. on the date that the Effective Date occurs or at
such other place and time that the Parties may mutually agree.
ARTICLE 3
CONVERSION OF FIRST FAMILY STOCK
3.1 Conversion of First Family Stock. (a) On the Effective Date, each
share of common stock of First Family outstanding and held by First Family's
shareholders (the "First Family Stock"), shall be converted by operation of law
and without any action by any holder thereof into shares of BancGroup Common
Stock and cash with a total value equal to $23.50 per share of First Family
Stock (the "Merger Consideration") as specified below. On the Effective Date,
each outstanding share of First Family Stock shall receive $11.75 in cash and
BancGroup Common Stock with a value of $11.75 as determined below. The number of
shares, or fractions of a share (subject to section 3.3 hereof), of BancGroup
Common Stock into which each outstanding share of First Family Stock on the
Effective Date shall be converted shall be equal to $11.75 divided by the Market
Value. The Market Value shall represent the per share market value of the
BancGroup Common Stock at the Effective Date and shall be determined by
calculating the average of the closing prices of the Common Stock of BancGroup
as reported by the NYSE on each of the ten (10) trading days ending on the
trading day immediately preceding the Effective Date.
(b)(i) On the Effective Date, BancGroup shall assume all First Family
Options outstanding, and each such option shall represent the right to acquire
BancGroup Common Stock on substantially the same terms applicable to the First
Family Options except as specified below in this section. The number of shares
of BancGroup Common Stock to be issued pursuant to such options shall equal the
number of shares of First Family common stock subject to such First Family
Options multiplied by the Exchange Ratio, provided that no fractions of shares
of BancGroup Common Stock shall be issued and the number of shares of BancGroup
Common Stock to be issued upon the exercise of First Family Options, if a
fractional share exists, shall equal the number of whole shares obtained by
rounding to the nearest whole number, giving account to such fraction. The
exercise price for the acquisition of BancGroup Common Stock shall be the
exercise price for each share of First Family common stock subject to such
options divided by the Exchange Ratio, adjusted appropriately for any rounding
to whole shares that may be done. For purposes of this section 3.1(b)(i), the
"Exchange Ratio" shall mean the result obtained by dividing $23.50 by the Market
Value. Schedule 3.1
A-6
<PAGE> 126
hereto sets forth the names of all persons holding First Family Options, the
number of shares of First Family common stock subject to such options, the
exercise price and the expiration date of such options.
(ii) As soon as practicable after the Effective Date, BancGroup shall file
at its expense a registration statement with the SEC on Form S-8 or such other
appropriate form with respect to the shares of BancGroup Common Stock to be
issued pursuant to such options and shall use its reasonable best efforts to
maintain the effectiveness of such registration statement for so long as such
options remain outstanding. Such shares shall also be registered or qualified
for sale under the securities laws of any state in which registration or
qualification is necessary.
3.2 Surrender of First Family Stock. (a) After the Effective Date, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of First Family Stock who is entitled to receive BancGroup
Common Stock and cash shall be entitled, upon surrender to BancGroup of their
certificate or certificates representing shares of First Family Stock, to
receive in exchange therefor a certificate or certificates representing the
number of whole shares of BancGroup Common Stock and cash into and for which the
shares of First Family Stock so surrendered shall have been converted, such
certificates to be of such denominations and registered in such names as such
holder may reasonably request. Until so surrendered and exchanged, each such
outstanding certificate which, prior to the Effective Date, represented shares
of First Family Stock and which is to be converted into BancGroup Common Stock
and cash shall for all purposes evidence ownership of the BancGroup Common Stock
and cash into and for which such shares shall have been so converted, except
that when dividends or other distributions with respect to such BancGroup Common
Stock distributed in the Merger shall be paid, such dividends or distributions
shall not be distributed until the certificates previously representing shares
of First Family Stock shall have been properly tendered in accordance with this
section and Section 3.2(b).
(b) Promptly after the Effective Date, SunTrust Bank (the "Exchange Agent")
shall mail to each record holder of an outstanding certificate or certificates
which as of the Effective Date represented First Family Stock, (the
"Certificates"), a form letter of transmittal approved by First Family and
BancGroup (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates, or proof of loss thereof, for payment therefor
(the "Letter of Transmittal"). Upon surrender to the Exchange Agent of a
Certificate, together with such Letter of Transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor cash and
BancGroup Common Stock in the amount provided in Section 3.1 and such
Certificate shall forthwith be canceled. No interest will be paid or accrued on
the cash payable upon surrender of the Certificate. If payment or delivery of
BancGroup Common Stock is to be made to a person other than the person in whose
name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
and delivery of BancGroup Common Stock to a person other than the registered
holder of the Certificate surrendered or established to the satisfaction of the
Resulting Corporation that such tax has been paid or is not applicable.
3.3 Fractional Shares. No fractional shares of BancGroup Common Stock
shall be issued, and each holder of shares of First Family Stock having a
fractional interest arising upon the conversion of such shares into shares of
BancGroup Common Stock shall, at the time of surrender of the certificates
previously representing First Family Stock, be paid by BancGroup an amount in
cash equal to the Market Value of such fractional share.
3.4 Adjustments. In the event that prior to the Effective Date BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the Common Stock,
an appropriate and proportionate adjustment shall be made in the number of
shares of BancGroup Common Stock into which the First Family Stock and First
Family Options shall be converted.
A-7
<PAGE> 127
3.5 BancGroup Stock. The shares of Common Stock of BancGroup issued and
outstanding immediately before the Effective Date shall continue to be issued
and outstanding shares of the Resulting Corporation.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with First Family as
follows:
4.1 Organization. BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. BancGroup
has the necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction in which the
character and location of the Assets owned by it or the nature of the business
transacted by it requires qualification or in which the failure to qualify
could, individually or in the aggregate, have a Material Adverse Effect on the
condition (financial or other), earnings, business, affairs, Assets, properties,
prospects or results of operations of BancGroup or of BancGroup and its
Subsidiaries taken as a whole.
4.2 Capital Stock. (a) The authorized capital stock of BancGroup consists
of (A) 44,000,000 shares of Common Stock, $2.50 par value per share, of which as
of May 31, 1996, 13,590,085 shares were validly issued and outstanding, fully
paid and nonassessable and are not subject to preemptive rights, and (B)
1,000,000 shares of Preference Stock, $2.50 par value per share, none of which
are issued and outstanding. The shares of Common Stock to be issued upon the
Merger are duly authorized and, when so issued, will be validly issued and
outstanding, fully paid and nonassessable, will have been registered under the
1933 Act, and will have been registered or qualified under the securities laws
of all jurisdictions in which such registration or qualification is required,
based upon information provided by First Family.
(b) The authorized capital stock of each Subsidiary of BancGroup is validly
issued and outstanding, fully paid and nonassessable, and each Subsidiary is
wholly owned, directly or indirectly, by BancGroup.
4.3 Financial Statements; Taxes. (a) BancGroup has delivered to First
Family copies of the following financial statements of BancGroup.
(i) Consolidated balance sheets as of December 31, 1994, and December
31, 1995, and for the three months ending March 31, 1996;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1993, 1994 and 1995, and for the three months ending
March 31, 1996;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1993, 1994 and 1995, and for the three months
ending March 31, 1996; and
(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1993, 1994 and 1995, and for the three
months ending March 31, 1996.
All such financial statements are in all material respects in accordance with
the books and records of BancGroup and have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated, all as more
particularly set forth in the notes to such statements. Each of the consolidated
balance sheets presents fairly as of its date the consolidated financial
condition of BancGroup and its Subsidiaries. Except as and to the extent
reflected or reserved against in such balance sheets (including the notes
thereto), BancGroup did not have, as of the dates of such balance sheets, any
material Liabilities or obligations (absolute or contingent) of a nature
customarily reflected in a balance sheet or the notes thereto, other than
Liabilities (including reserves) in the amount set forth in such balance sheets
and the notes thereto. The statements of consolidated income, shareholders'
equity and changes in consolidated financial position present fairly the results
of operations and changes in financial position of BancGroup and its
Subsidiaries for the periods indicated. The foregoing representations, insofar
as they relate to the unaudited interim financial statements of BancGroup for
the three months ended March 31, 1996, are subject in all cases to normal
recurring year-end adjustments and the omission of footnote disclosure.
A-8
<PAGE> 128
(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on said returns to be due and
all additional assessments received have been paid. The amounts recorded for
Taxes on the balance sheets provided under section 4.3(a) are, to the Knowledge
of BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest or
penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at said dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup has
withheld from its employees (and timely paid to the appropriate governmental
entity) proper and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state, foreign and local
Laws (including without limitation, income, social security and employment Tax
withholding for all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time) under any material indenture, mortgage, deed of trust or other material
agreement or instrument to which BancGroup or any of its Subsidiaries is a party
or by which they or their Assets may be bound; will not conflict with any
provision of the restated certificate of incorporation or bylaws of BancGroup or
the articles of incorporation or bylaws of any of its Subsidiaries; and will not
violate any provision of any Law, regulation, judgment or decree binding on them
or any of their Assets.
4.5 Absence of Material Adverse Change. Since the date of the most recent
balance sheet provided under section 4.3(a)(i) above, there have been no events,
changes or occurrences which have had or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BancGroup.
4.6 Approval of Agreements. The board of directors of BancGroup has, or
will have prior to July 18, 1996, approved this Agreement and the transactions
contemplated by it and have, or will have prior to July 18, 1996, authorized the
execution and delivery by BancGroup of this Agreement. This Agreement
constitutes the legal, valid and binding obligation of BancGroup, enforceable
against it in accordance with its terms. Approval of this Agreement by the
stockholders of BancGroup is not required by applicable law. Subject to the
matters referred to in section 8.2, BancGroup has full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. BancGroup has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions or
material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of First Family, or to liquidate any Subsidiaries,
subsequent to the Merger, and BancGroup intends to continue the historic
business of First Family.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal,
reflected in the most recent balance sheet referred to in section 4.3(a), or
acquired after the date of such balance sheet (except properties, interests and
Assets sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes of such balance sheet, (ii) liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not materially
detract from or interfere with the present use of the properties subject thereto
or affected thereby, or otherwise materially impair present business operations
at such properties. To the Knowledge of BancGroup, the material structures and
equipment of BancGroup comply in all material respects with the requirements of
all applicable Laws.
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4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified as
a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon BancGroup
and its Subsidiaries considered as one enterprise; each of the banking
Subsidiaries of BancGroup has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
violation of its respective certificate of incorporation or by-laws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any Contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which it
or its property may be bound.
4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of any facts which could give rise to any such Litigation) which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which is likely to have any Material Adverse Effect or prospective
Material Adverse Effect in the condition, financial or otherwise, or in the
general affairs, management, stockholders' equity or results of operations of
BancGroup and its Subsidiaries considered as one enterprise, or which is likely
to materially and adversely affect the properties or Assets thereof or which is
likely to materially affect or delay the consummation of the transactions
contemplated by this Agreement; all pending legal or governmental proceedings to
which BancGroup or any Subsidiary is a party or of which any of their properties
is the subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, are, considered in the
aggregate, not material; and neither BancGroup nor any of its Subsidiaries have
any contingent obligations which could be considered material to BancGroup and
its Subsidiaries considered as one enterprise which are not disclosed in the
Registration Statement as it may be amended or supplemented.
4.12 Compliance. BancGroup and its Subsidiaries, in the conduct of their
businesses, are to the Knowledge of BancGroup, in material compliance with all
material federal, state or local Laws applicable to their or the conduct of
their businesses.
4.13 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the Proxy
Statement made in reliance upon and in conformity with information furnished in
writing to BancGroup by First Family or any of its representatives expressly for
use in the Proxy Statement or information included in the Proxy Statement
regarding the business of First Family, its operations, Assets and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to First Family
copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; (ii) 1995 Annual Report to Shareholders; (iii) Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1996; and (iv) all
other reports, registration statements and other documents filed by BancGroup
with the SEC since December 31, 1995. Since December 31, 1995, BancGroup has
timely filed all reports and registration statements and the documents required
to be filed with the SEC under the rules and regulations of the SEC and all such
reports and registration statements or other documents have complied in all
material respects, as of their respective filing dates and effective dates, as
the case may be, with all the applicable requirements of the 1933 Act and the
1934 Act. As of the respective filing and effective dates, none of such reports
or
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registration statements or other documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The documents incorporated by reference into the Registration
Statement, at the time they were filed with the SEC, complied in all material
respects with the requirements of the 1934 Act and Regulations thereunder and
when read together and with the other information in the Registration Statement
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading at the time the Registration Statement becomes effective
or at the time of the Stockholders Meeting.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by BancGroup
directly with First Family and without the intervention of any other person,
either as a result of any act of BancGroup or otherwise in such manner as to
give rights to any valid claim against BancGroup for finders fee, brokerage
commissions or other like payment.
4.17 Government Authorization. BancGroup and its Subsidiaries have all
Permits that, to the Knowledge of BancGroup and its Subsidiaries, are or will be
legally required to enable BancGroup or any of its Subsidiaries to conduct their
businesses in all material respects as now conducted by each of them.
4.18 Absence of Regulatory Communications. Neither BancGroup nor any of
its Subsidiaries is subject to, or has received during the past three (3) years,
any written communication directed specifically to it from any Agency to which
it is subject or pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.19 Disclosure. No representation or warranty, or any statement or
certificate furnished or to be furnished to First Family by BancGroup, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF FIRST FAMILY
First Family represents, warrants and covenants to and with BancGroup, as
follows:
5.1 Organization. First Family is a Florida corporation, and the Bank is a
federal savings bank. Each First Family Company is duly organized, validly
existing and in good standing under the respective Laws of its jurisdiction of
incorporation and has all requisite power and authority to carry on its business
as it is now being conducted and is qualified to do business in every
jurisdiction in which the character and location of the Assets owned by it or
the nature of the business transacted by it requires qualification or in which
the failure to qualify could, individually, or in the aggregate, have a Material
Adverse Effect on the condition (financial or other) earnings, business,
affairs, Assets, properties, prospects or results of operations of First Family
or of First Family and its Subsidiaries taken as a whole.
5.2 Capital Stock. As of March 31, 1996, the authorized capital stock of
First Family consists of 8,000,000 shares of common stock, $.01 par value per
share, 545,000 shares of which are issued and outstanding and 2,000,000 shares
of preferred stock, par value $.01, none of which is issued or outstanding. All
of such shares which are outstanding are validly issued, fully paid and
nonassessable and not subject to preemptive rights. First Family has 35,500
shares of its common stock subject to exercise at any time pursuant to stock
options under its stock option plans. Except for the foregoing, First Family
does not have any other
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arrangements or commitments obligating it to issue shares of its capital stock
or any securities convertible into or having the right to purchase shares of its
capital stock.
5.3 Subsidiaries. First Family has no direct Subsidiaries other than the
Bank. First Family owns all of the issued and outstanding capital stock of the
Bank free and clear of any liens, claims or encumbrances of any kind. All of the
issued and outstanding shares of capital stock of the Subsidiaries have been
validly issued and are fully paid and non-assessable. As of March 31, 1996,
there were 1,000 shares of the common stock, par value $.01 per share,
authorized of the Bank, all of which are issued and outstanding and wholly owned
by First Family. The Bank has three subsidiaries. As of March 31, 1996 there
were 1,000 shares of common stock authorized with a par value of $100 per share
of which 10 shares are issued and outstanding of First of Eustis, Inc., all of
which are wholly owned by the Bank. As of March 31, 1996 there were 50 shares of
common stock authorized with a par value of $100 per share of which 10 shares
are issued and outstanding of First Family Real Estate & Investments, Inc., all
of which are wholly owned by the Bank. As of March 31, 1996 there were 500
shares of common stock authorized with a par value of $100 per share of which 10
shares are issued and outstanding of First Family Ventures, Inc., all of which
are wholly owned by the Bank.
5.4 Financial Statements; Taxes. (a) First Family has delivered to
BancGroup copies of the following financial statements of First Family:
(i) Consolidated statements of financial condition for the years
ending June 30, 1994 and 1995, and for the nine months ending March 31,
1996;
(ii) Consolidated statements of income for each of the three years
ended June 30, 1993, 1994 and 1995, and for the nine months ending March
31, 1996;
(iii) Consolidated statements of stockholders' equity for each of the
three years ended June 30, 1993, 1994, and 1995, and for the nine months
ending March 31, 1996; and
(iv) Consolidated statements of cash flows for each of the three years
ended June 30, 1993, 1994 and 1995, and for the nine months ending March
31, 1996.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of First Family and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except for changes required by GAAP, all
as more particularly set forth in the notes to such statements. Each of such
balance sheets presents fairly as of its date the financial condition of First
Family. Except as and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), First Family did not have, as of
the date of such balance sheets, any material Liabilities or obligations
(absolute or contingent) of a nature customarily reflected in a balance sheet or
the notes thereto, other than Liabilities (including reserves) in the amount set
forth in such balance sheets and the notes thereto. The statements of income,
stockholders' equity and cash flows present fairly the results of operation,
changes in shareholders equity and cash flows of First Family for the periods
indicated. The foregoing representations, insofar as they relate to the
unaudited interim financial statements of First Family for the nine months ended
March 31, 1996, are subject in all cases to normal recurring year-end
adjustments and the omission of footnote disclosure.
(b) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of First Family have been timely filed (or requests for
extensions therefor have been timely filed and granted and have not expired),
and all returns filed are complete and accurate in all material respects. All
Taxes shown on said returns to be due and all additional assessments received
have been paid. The amounts recorded for Taxes on the balance sheets provided
under section 5.4(a) are, to the Knowledge of First Family, sufficient in all
material respects for the payment of all unpaid federal, state, county, local,
foreign and other Taxes (including any interest or penalties) of First Family
accrued for or applicable to the period ended on the dates thereof, and all
years and periods prior thereto and for which First Family may at said dates
have been liable in its own right or as a transferee of the Assets of, or as
successor to, any other corporation or other party. No audit, examination or
investigation is presently being conducted or, to the Knowledge of First Family,
threatened by any taxing authority which is likely to result in a material Tax
Liability, no material unpaid Tax deficiencies or additional liability of any
sort has been proposed by any governmental representative and no agreements for
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extension of time for the assessment of any material amount of Tax have been
entered into by or on behalf of First Family. First Family has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect.
(c) Each First Family Company has withheld from its employees (and timely
paid to the appropriate governmental entity) proper and accurate amounts for all
periods in material compliance with all Tax withholding provisions of applicable
federal, state, foreign and local Laws (including without limitation, income,
social security and employment Tax withholding for all types of compensation).
Each First Family Company is in compliance with, and its records contain all
information and documents (including properly completed IRS Forms W-9) necessary
to comply with, all applicable information reporting and Tax withholding
requirements under federal, state and local Tax Laws, and such records identify
with specificity all accounts subject to backup withholding under section 3406
of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no First Family Company has
(a) issued, delivered or agreed to issue or deliver any stock, bonds
or other corporate securities (whether authorized and unissued or held in
the treasury) except shares of common stock issued upon the exercise of
First Family Options and shares issued as director's qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations and Liabilities incurred in the ordinary course of business and
consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
any of its outstanding securities, provided that a dividend in cash of $.04
per share may be paid for the quarter ending June 30, 1996, and provided
further that if the Effective Date has not occurred by February 28, 1997,
First Family may thereafter pay a dividend in cash of $.04 per share for
the quarter ending March 31, 1997;
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its Assets, or canceled, or agreed to
cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its Assets, or requiring the consent of any party to the
transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any Contract, agreement or license to which it
is a party if such amendment or termination is material considering its
business as a whole;
(i) except in accordance with normal and usual practice, made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its officers
or employees or made any material increase in any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
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(k) received notice or had Knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;
(l) failed to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations;
(m) entered into any other transaction in excess of $50,000 without
prior notice to and approval by BancGroup which will not be unreasonably
withheld; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no First Family Company,
without the express written approval of BancGroup, will do any of the things
listed in clauses (a) through (n) of this section 5.5 except as permitted
therein or as contemplated in this Agreement, and no First Family Company will
enter into or amend any material Contract without the express written consent of
BancGroup. First Family may request the consent of BancGroup to any of the
foregoing actions by furnishing BancGroup with a written request which describes
the action proposed to be taken by First Family. BancGroup, at its sole option,
shall have a period of 5 business days from the date on which it receives such
request within which to notify First Family of either its consent or refusal to
consent to the proposed action except for matters referenced in clause (m) for
which BancGroup agrees not to unreasonably withhold consent. BancGroup's failure
to respond to any such request within such 5 business days period shall be
deemed to constitute a consent to the action proposed in First Family's request.
5.6 Title and Related Matters. (a) Title. First Family has good and
marketable title to all the properties, interest in properties and Assets, real
and personal, reflected in the most recent balance sheet referred to in section
5.4(a)(i), or acquired after the date of such balance sheet (except properties,
interests and Assets sold or otherwise disposed of since such date, in the
ordinary course of business), free and clear of all mortgages, Liens, pledges,
charges or encumbrances except (i) mortgages and other encumbrances referred to
in the notes to such balance sheet, (ii) Liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not materially
detract from or interfere with the present use of the properties subject thereto
or affected thereby, or otherwise materially impair present business operations
at such properties. To the Knowledge of First Family, the material structures
and equipment of each First Family Company comply in all material respects with
the requirements of all applicable Laws.
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any First Family Company, either as
lessor or lessee.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each First Family Company's fixed Assets as of June 30, 1996.
(d) Computer Hardware and Software. Schedule 5.6(d) contains a description
of all agreements relating to data processing computer software and hardware now
being used in the business operations of any First Family Company. First Family
is not aware of any defects, irregularities or problems with any of its computer
hardware or software which renders such hardware or software unable to
satisfactorily perform the tasks and functions to be performed by them in the
business of any First Family Company.
5.7 Commitments. Except as set forth in Schedule 5.7, no First Family
Company is a party to any oral or written (i) Contracts for the employment of
any officer or employee which is not terminable on 30 days' (or less) notice,
(ii) profit sharing, bonus, deferred compensation, savings, stock option,
severance pay, pension or retirement plan, agreement or arrangement, (iii) loan
agreement, indenture or similar agreement relating to the borrowing of money by
such party, (iv) guaranty of any obligation for the borrowing of money or
otherwise, excluding endorsements made for collection, and guaranties made in
the ordinary course of business, (v) consulting or other similar material
Contracts, (vi) collective bargaining agreement, (vii) agreement with any
present or former officer, director or shareholder of such party, or (viii)
other Contract, agreement or other commitment which is material to the business,
operations, property, prospects or Assets or to the condition, financial or
otherwise, of any First Family Company. Complete and accurate copies
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of all Contracts, plans and other items so listed have been made or will be made
available to BancGroup for inspection.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of
the articles of incorporation and bylaws of each First Family Company, including
all amendments thereto, as currently in effect. There will be no changes in such
articles of incorporation or bylaws prior to the Effective Date, without the
prior written consent of BancGroup.
5.9 Litigation. Except as disclosed on Schedule 5.9, there is no
Litigation (whether or not purportedly on behalf of First Family) pending or, to
the Knowledge of First Family, threatened against or affecting any First Family
Company (nor is First Family aware of any facts which are likely to give rise to
any such Litigation) at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, which involves the possibility of
any judgment or Liability not fully covered by insurance in excess of a
reasonable deductible amount or which may have a Material Adverse Effect on the
business operations, properties or Assets or in the condition, financial or
otherwise, of any First Family Company, and no First Family Company is in
Default with respect to any judgment, order, writ, injunction, decree, award,
rule or regulation of any court, arbitrator or governmental department,
commission, board, bureau, agency or instrumentality, which Default would have a
Material Adverse Effect on the business operations, properties or Assets or in
the condition, financial or otherwise, of such party. To the Knowledge of First
Family, each First Family Company has complied in all material respects with all
material applicable Laws and Regulations including those imposing Taxes, or any
applicable jurisdiction and of all states, municipalities, other political
subdivisions and Agencies, in respect of the ownership of its properties and the
conduct of its business, which, if not complied with, would have a Material
Adverse Effect in the business operations, properties or Assets or in the
condition, financial or otherwise, of any such First Family Company.
5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
First Family Company is in Default in any material respect under the terms of
any material Contract, agreement, lease or other commitment which is or may be,
material to the business, operations, properties or Assets, or the condition,
financial or otherwise, of such company and, to the Knowledge of First Family,
there is no event which, with notice or lapse of time, or both, may be or become
an event of Default under any such material Contract, agreement, lease or other
commitment in respect of which adequate steps have not been taken to prevent
such a Default from occurring.
5.11 No Conflict with Other Instrument. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of or constitute a Default under any Contract, indenture,
mortgage, deed of trust or other material agreement or instrument to which any
First Family Company is a party and will not conflict with any provision of the
charter or bylaws of any First Family Company.
5.12 Governmental Authorization. Each First Family Company has all Permits
that, to the Knowledge of First Family, are or will be legally required to
enable any First Family Company to conduct its business in all material respects
as now conducted by each First Family Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no First Family Company is subject to, nor has any First Family Company
received during the past three years, any written communication directed
specifically to it from any Agency to which it is subject or pursuant to which
such Agency has imposed or has indicated it may impose any material restrictions
on the operations of it or the business conducted by it or in which such Agency
has raised any material question concerning the condition, financial or
otherwise, of such company.
5.14 Absence of Material Adverse Change. To the Knowledge of First Family,
since the date of the most recent balance sheet provided under section
5.4(a)(i), there have been no events, changes or occurrences which have had, or
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on First Family.
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5.15 Insurance. Each First Family Company has in effect insurance coverage
and bonds with reputable insurers which, in respect to amounts, types and risks
insured, management of First Family reasonably believes to be adequate for the
type of business conducted by such company. No First Family Company is liable
for any material retroactive premium adjustment. All insurance policies and
bonds are valid, enforceable and in full force and effect, and no First Family
Company has received any notice of any material premium increase or cancellation
with respect to any of its insurance policies or bonds. Within the last three
years, no First Family Company has been refused any insurance coverage which it
has sought or applied for, and it has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases in premiums that do not result from any extraordinary loss
experience. All policies of insurance presently held or policies containing
substantially equivalent coverage will be outstanding and in full force with
respect to each First Family Company at all times and in all material respects
from the date hereof to the Effective Date provided that this sentence will not
apply to policies that are not reasonably available due to circumstance beyond
the control of First Family.
5.16 Pension and Employee Benefit Plans. To the Knowledge of First Family,
all employee benefit plans of each First Family Company have been established in
compliance with, and such plans have been operated in material compliance with,
all applicable Laws. Except as set forth in Schedule 5.16, no First Family
Company sponsors or otherwise maintains a "pension plan" within the meaning of
section 3(2) of ERISA or any other retirement plan of First Family that is
intended to qualify under section 401 of the Code, nor do any unfunded
Liabilities exist with respect to any employee benefit plan, past or present. To
the Knowledge of First Family, no employee benefit plan, any trust created
thereunder or any trustee or administrator thereof has engaged in a "prohibited
transaction," as defined in section 4975 of the Code, which may have a Material
Adverse Effect on the condition, financial or otherwise, of any First Family
Company.
5.17 Buy-Sell Agreement. To the Knowledge of First Family, there are no
agreements among any of its shareholders granting to any person or persons a
right of first refusal in respect of the sale, transfer, or other disposition of
shares of outstanding securities by any shareholder of First Family, any similar
agreement or any voting agreement or voting trust in respect of any such shares.
5.18 Brokers. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by First Family
directly with BancGroup and without the intervention of any other person, either
as a result of any act of First Family, or otherwise, in such manner as to give
rise to any valid claim against First Family for a finder's fee, brokerage
commission or other like payment.
5.19 Approval of Agreements. The board of directors of First Family has
approved this Agreement and the transactions contemplated by this Agreement and
has authorized the execution and delivery by First Family of this Agreement.
Subject to the matters referred to in section 8.2, First Family has full power,
authority and legal right to enter into this Agreement, and, upon appropriate
vote of the shareholders of First Family in accordance with this Agreement,
First Family shall have full power, authority and legal right to consummate the
transactions contemplated by this Agreement.
5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by First Family, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.
5.21 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Stockholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this section shall only apply to
statements in or omissions from the Proxy Statement relating to descriptions of
the business of First Family, its Assets, properties, operations, and capital
stock or to information furnished in writing by First Family or its
representatives expressly for inclusion in the Proxy Statement.
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5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan
losses shown on the most recent financial statements furnished by First Family
have been calculated in accordance with First Family's policies and are adequate
to reflect the risk inherent in the loans of First Family. First Family has no
Knowledge of any fact which is likely to require a future material increase in
the provision for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. Each loan reflected as an Asset on the
financial statements of First Family is the legal, valid and binding obligation
of the obligor of each loan, enforceable in accordance with its terms subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors' rights generally and to general equitable
principles. First Family does not have in its portfolio any loan exceeding its
legal lending limit, and except as disclosed on Schedule 5.22, First Family has
no known significant delinquent, substandard, doubtful, loss, nonperforming or
problem loans.
5.23 Environmental Matters. Except as provided in Schedule 5.23, to the
best of First Family's knowledge, each First Family Company is in material
compliance with all applicable Laws and other governmental requirements relating
to the generation, management, handling, transportation, treatment, disposal,
storage, delivery, discharge, release or emission of any waste, pollution, or
toxic, hazardous or other substance (the "Environmental Laws") which pertain to
any real property owned by First Family; and to the best of First Family's
Knowledge, there is no Litigation pending or threatened with respect to any
purported violation or alleged violation of the Environmental Laws. Also, to the
best of First Family's Knowledge, with respect to the Assets of any First Family
Company, including any Loan Property, (i) there has been no spillage, leakage,
contamination or release of any substances for which the appropriate remedial
action has not been completed; (ii) no property owned by First Family is
contaminated with, or contains any, hazardous substance or waste as defined in
the Resource Conservation and Recovery Act of 1976 (42 U.S.C.A. 6901, et seq.);
and (iii) there are no underground storage tanks of any property owned by any
First Family Company as defined by the Resource Conservation Recovery Act of
1976. First Family also has no Knowledge of any facts which might suggest that
any First Family Company has engaged in any management practice with respect to
any of its past or existing borrowers which could reasonably be expected to
subject any First Family Company to any Liability, either directly or
indirectly, under the principles of law as set forth in United States v. Fleet
Factors Corp., 901 F.2d 1550 (11th Cir. 1990). Moreover, to the best of First
Family's Knowledge, no First Family Company has extended credit, either on a
secured or unsecured basis, to any person or other entity engaged in any
activities which would require or requires such person or entity to obtain any
Permits which are required under any Environmental Law which has not been
obtained. Finally, to the best of First Family's Knowledge, all First Family
Companies have substantially complied with all regulations and requirements
promulgated by the Occupational Safety and Health Administration that are
applicable to any First Family Company.
5.24 Transfer of Shares. First Family has no Knowledge of any plan or
intention on the part of First Family's shareholders to sell or otherwise
dispose of any of the BancGroup Common Stock to be received by them in the
Merger that would reduce such shareholders' ownership to a number of shares
having, in the aggregate, a fair market value of less than fifty (50%) percent
of the total fair market value of First Family common stock outstanding
immediately before the Merger.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any First Family Company and any union or labor organization
covering any of any First Family Company's employees and none of said employees
are represented by any union or labor organization.
5.26 Labor Disputes. To the Knowledge of First Family, each First Family
Company is in material compliance with all federal and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours. No First Family Company is or has been engaged in any unfair labor
practice, and, to the Knowledge of First Family, no unfair labor practice
complaint against any First Family Company is pending before the National Labor
Relations Board. Relations between management of each First Family Company and
the employees are amicable and there have not been, nor to the Knowledge of
First Family, are there presently, any attempts to organize employees, nor to
the Knowledge of First Family, are there plans for any such attempts.
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5.27 Derivative Contracts. No First Family Company is a party to or has
agreed to enter into a swap, forward, future, option, cap, floor or collar
financial contract, or any other interest rate or foreign currency protection
contract or derivative security not included in First Family's financial
statements delivered under section 5.4 hereof.
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
First Family as follows: (a) Registration Statement and Other
Filings. BancGroup shall promptly prepare and file with the SEC the
Registration Statement on Form S-4 (or such other form as may be appropriate)
and all amendments and supplements thereto, in form reasonably satisfactory to
First Family and its counsel, with respect to the Common Stock to be issued
pursuant to this Agreement. BancGroup shall use reasonable good faith efforts to
prepare promptly all necessary filings with any Agencies which may be necessary
for approval to consummate the transactions contemplated by this Agreement.
Within 60 days of the date hereof, all bank regulatory applications with
appropriate Agencies will be filed by BancGroup, provided that BancGroup has
received in a timely manner the information from First Family necessary for such
applications.
(b) Blue Sky Permits. BancGroup shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary state
securities Law or "blue sky" Permits and approvals required to carry out the
transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to First Family:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of operations of
BancGroup for such period and for the period beginning at the commencement
of the fiscal year and ending at the end of such quarterly period, and a
consolidated statement of financial condition of BancGroup as of the end of
such quarterly period, setting forth in each case in comparative form
figures for the corresponding periods ending in the preceding fiscal year,
subject to changes resulting from year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;
(iii) As soon as practicable, copies of all such financial statements
and reports as it shall send to its stockholders and of such regular and
periodic reports as BancGroup may file with the SEC or any other Agency;
and
(iv) With reasonable promptness, such additional financial data as
First Family may reasonably request.
(d) No Control of First Family by BancGroup. Notwithstanding any other
provision hereof, until the Effective Date, the authority to establish and
implement the business policies of First Family shall continue to reside solely
in First Family's officers and board of directors.
(e) Listing. Prior to the Effective Date, BancGroup shall use its
reasonable efforts to list the shares of BancGroup Common Stock to be issued in
the Merger on the NYSE or other quotations system on which such shares are
primarily traded.
(f)(i) Employee Benefit Matters. On the Effective Date, all employees of
any First Family Company shall, at BancGroup's option, either become employees
of the Resulting Corporation or its Subsidiaries or be entitled to severance
benefits in accordance with Colonial Bank's severance policy in accordance with
its terms in effect as of the date of this Agreement; provided, the employees
whose names are set forth on Schedule 6.1(f)(i) shall be entitled to such
severance and other post-employment benefits to the extent, but only to the
extent, provided in each of their respective individual agreements with any
First Family Company,
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copies of which are included as part of Schedule 6.1(f)(i). First Family Company
employees who become eligible for payments under Colonial Bank's severance
policy shall be credited for all periods of service with the applicable First
Family Company for purposes of calculating payments to such employees under the
severance policy.
(ii) All Employees of any First Family Company who become employees of the
Resulting Corporation or its Subsidiaries on the Effective Date shall be
entitled, to the extent permitted by applicable Law and subject to the terms and
limits of this subsection(f)(ii), to participate in all employee benefit plans
of Colonial Bank to the same extent as Colonial Bank employees. Employees of any
First Family Company who become employees of the Resulting Corporation or its
Subsidiaries shall be allowed, as of the Effective Date and in the sole
discretion of Colonial Bank, either (A) to continue to participate in the First
Family Company group dental and medical benefits plans (to the extent provided
by First Family Company as of the date preceding the Effective Date); or (B) to
be eligible to participate in the group medical and dental benefits plan of
Colonial Bank as new employees of Colonial Bank, and the time of employment of
such employees who are employed at least 30 hours per week with any First Family
Company shall be counted as employment under such dental and medical benefits
plans of Colonial Bank for purposes of calculating any 30 day waiting period and
pre-existing condition limitations. In addition, if the Effective Date falls
within an annual period of coverage under the Colonial Bank group medical and
dental benefits plans in which such First Family Company employees become
eligible to participate as of the Effective Date, each such First Family Company
employee shall be given credit for covered expenses paid by that employee under
comparable employee benefits plans of the First Family Company during the
applicable coverage period through the Effective Date towards satisfaction of
any annual deductible limitation and out-of-pocket maximum that may apply under
such Colonial Bank plans. To the extent permitted by applicable Law, the period
of service with the appropriate First Family Company of all employees who become
employees of the Resulting Corporation or its Subsidiaries on the Effective Date
shall be recognized only for vesting and eligibility purposes under Colonial
Bank's tax-qualified retirement plans.
6.2 Additional Covenants of First Family. First Family covenants to and
with BancGroup as follows: (a) Operations. First Family will conduct its
business and the business of each First Family Company in a proper and prudent
manner and will use its best efforts to maintain its relationships with its
depositors, customers and employees. No First Family Company will engage in any
material transaction outside the ordinary course of business or make any
material change in its accounting policies or methods of operation, nor will
First Family permit the occurrence of any change or event which would render any
of the representations and warranties in Article 5 hereof untrue in any material
respect at and as of the Effective Date with the same effect as though such
representations and warranties had been made at and as of such Effective Date.
First Family may request the consent of BancGroup to any of the foregoing
actions by furnishing BancGroup with a written request which describes the
action proposed to be taken by First Family. BancGroup, at its sole option,
shall have a period of 5 business days from the date on which it receives such
request within which to notify First Family of either its consent or refusal to
consent, to the proposed action. BancGroup's failure to respond to any such
request within such 5 business day period shall be deemed to constitute a
consent to the action proposed in First Family's request.
(b) Stockholders Meeting; Best Efforts. First Family will cause the
Stockholders Meeting to be held for the purpose of approving the Merger as soon
as practicable after the effective date of the Registration Statement, and will
use its best efforts to bring about the transactions contemplated by this
Agreement, including stockholder approval of this Agreement, as soon as
practicable unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. Until the termination of this Agreement,
neither First Family nor any of First Family's directors or officers (or any
person representing any of the foregoing) shall solicit or encourage inquiries
or proposals with respect to, furnish any information relating to or participate
in any negotiations or discussions concerning, any acquisition or purchase of
all or of a substantial portion of the Assets of, or of a substantial equity
interest in, First Family or any business combination involving First Family or
any First Family Company other than as contemplated by this Agreement. First
Family will notify BancGroup immediately if any such inquiries or proposals are
received by First Family, if any such information is
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requested from First Family, or if any such negotiations or discussions are
sought to be initiated with First Family, and First Family shall instruct First
Family's officers, directors, agents or affiliates or their subsidiaries to
refrain from doing any of the above; provided, however, that nothing contained
herein shall be deemed to prohibit any officer or director of First Family from
fulfilling his fiduciary duty or from taking any action that is required by Law.
(d) Director Recommendation. The members of the Board of Directors of
First Family agree to support publicly the Merger, provided, however, that
nothing contained herein shall be deemed to prohibit any officer or director of
First Family from fulfilling his fiduciary duty or from taking any action that
is required by Law.
(e) Shareholder Voting. First Family shall no later than the date of
execution of this Agreement obtain and submit to BancGroup an agreement from its
directors substantially in the form set forth in Exhibit A.
(f) Financial Statements. First Family shall furnish to BancGroup:
(i) As soon as practicable and in any event within 30 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year, consolidated statements of operations of First Family for such
period and for the period beginning at the commencement of the fiscal year
and ending at the end of such quarterly period, and a consolidated
statement of financial condition of First Family as of the end of such
quarterly period, setting forth in each case in comparative form figures
for the corresponding periods ending in the preceding fiscal year, subject
to changes resulting from year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to First Family by independent auditors in connection with each
annual, interim or special audit of the books of First Family made by such
accountants;
(iii) As soon a practicable, copies of all such financial statements
and reports as it shall send to its stockholders and of such regular and
periodic reports as First Family may file with the SEC or any other Agency;
and
(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request.
(g) Fiduciary Duties. Prior to the Effective Date, no director or officer
(each an "Executive") of any First Family Company shall, directly or indirectly,
own, manage, operate, join, control, be employed by or participate in the
ownership, proposed ownership, management, operation or control of or be
connected in any manner with, any business, corporation or partnership which is
competitive to the business of any First Family Company. All Executives, at all
times, shall satisfy their fiduciary duties to each First Family Company, and
such Executives shall not (except as required in the course of his or her
employment with any First Family Company) communicate or divulge to, or use for
the benefit of himself or herself or any other person, firm, association or
corporation, without the express written consent of First Family, any
confidential information which is possessed, owned or used by or licensed by or
to any First Family Company or confidential information belonging to third
parties which any First Family Company shall be under obligation to keep secret
or which may be communicated to, acquired by or learned of by the Executive in
the course of or as a result of his or her employment with any First Family
Company.
(h) Certain Practices. At the request of BancGroup, (i) First Family shall
use its best efforts to hire such additional loan officers for the Bank as may
be mutually satisfactory to BancGroup and First Family, (ii) the Bank shall
offer deposit products upon terms, including pricing, that are consistent on a
mutually satisfactory basis with those of BancGroup and its subsidiary, (iii)
First Family will consult with BancGroup concerning non single-family
residential loan requests over $100,000 and (iv) First Family will consult with
BancGroup to coordinate various other business issues on a basis mutually
satisfactory to First Family and BancGroup. First Family and the Bank shall not
be required to undertake any of such activities, however, except as such
activities may be in compliance with existing Law and Regulations. First
Family's representations, warranties, and covenants contained in this Agreement
shall not be deemed to be untrue or breached in
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any respect as a consequence of any modifications or changes undertaken solely
on account of this section 6.2(h). First Family and the Bank shall not be
required to undertake the activities enumerated in clauses (i) and (ii) of this
subparagraph (h) until such time as the conditions set forth in Section 8.2 of
this Agreement have been satisfied. If the Merger is not consummated, BancGroup
or its Subsidiaries will hire any persons hired by First Family under this
section.
(i) Health Plan. First Family shall maintain its current health and
medical insurance policy with the Florida Bankers Insurance Trust. Such plan
shall be effective as of the Effective Date, and no notice of discontinuance or
non-renewal of such plan shall have been received by First Family or the Bank,
and First Family and the Bank shall take all steps necessary to insure that such
plan shall continue in place following the Effective Date.
(j) Executive Cooperation. First Family agrees that it and its Executives
shall cooperate fully with BancGroup to ensure that all representations and
warranties of this Article V of this Agreement will be complied with in a timely
and expeditious manner.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and First Family each agrees to use its best efforts
promptly to take, or cause to be taken, all actions and do, or cause to be done,
all things necessary, proper or advisable under applicable Laws or otherwise,
including, without limitation, promptly making required deliveries of
stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, to consummate and make
effective, as soon as practicable, the transactions contemplated by this
Agreement. The officers of each Party to this Agreement shall fully cooperate
with officers and employees, accountants, counsel and other representatives of
the other Parties not only in fulfilling the duties hereunder of the Party of
which they are officers but also in assisting, directly or through direction of
employees and other persons under their supervision or control, such as stock
transfer agents for the Party, the other Parties requiring information which is
reasonably available from such Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion, deems such
disclosure required by Law. In that event, such Party shall provide to the other
Party the text of such disclosure sufficiently in advance to enable the other
Party to have a reasonable opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to
each other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Thrift Financial
Reports, Form 8-K, Form 10-Q and Form 10-K filings, Form HB-11 filings, Y-2
applications, reports on Form Y-6, quarterly or special reports to shareholders,
Tax returns, Form S-8 registration statements and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of each of the other Parties full access
to the Assets, books and records of such Party in order that such other Parties
may have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested.
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ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and First Family to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction, in the sole discretion of the Party relying upon such conditions,
on or before the Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At the Stockholders Meeting, this
Agreement and the matters contemplated by this Agreement shall have been
duly approved by the vote of the holders of not less than the requisite
number of the issued and outstanding voting securities of First Family as
is required by applicable Law and First Family's articles of incorporation
and by-laws.
8.2 Regulatory Authority Approval. Orders, Consents and approvals, in
form and substance reasonably satisfactory to BancGroup and First Family
shall have been entered by the Board of Governors of the Federal Reserve
System and other appropriate bank regulatory Agencies (i) granting the
authority necessary for the consummation of the transactions contemplated
by this Agreement and (ii) satisfying all other requirements prescribed by
Law.
8.3 Litigation. There shall be no pending or threatened Litigation in
any court or any pending or threatened proceeding by any governmental
commission, board or Agency, with a view to seeking or in which it is
sought to restrain or prohibit consummation of the transactions
contemplated by this Agreement or in which it is sought to obtain
divestiture, rescission or damages in connection with the transactions
contemplated by this Agreement and no investigation by any Agency shall be
pending or threatened which might result in any such suit, action or other
proceeding.
8.4 Registration Statement. The Registration Statement shall be
effective under the 1933 Act and no stop order suspending the effectiveness
of the Registration Statement shall be in effect; no proceedings for such
purpose, or under the proxy rules of the SEC or any bank regulatory
authority pursuant to the 1934 Act, as amended, and with respect to the
transactions contemplated hereby, shall be pending before or threatened by
the SEC or any bank regulatory authority; and all approvals or
authorizations for the offer of BancGroup Common Stock shall have been
received or obtained pursuant to any applicable state securities Laws, and
no stop order or proceeding with respect to the transactions contemplated
hereby shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of Miller, Hamilton, Snider & Odom,
L.L.C., counsel to BancGroup, shall have been received in form and
substance reasonably satisfactory to First Family and BancGroup to the
effect that (i) the Merger will constitute a "reorganization" within the
meaning of section 368 of the Code; (ii) no gain or loss will be recognized
by First Family; (iii) no gain or loss will be recognized by the
shareholders of First Family who receive shares of BancGroup Common Stock
except to the extent of any taxable "boot" received by such persons from
BancGroup, and except to the extent of any dividends received from First
Family prior to the Effective Date; (iv) the basis of the BancGroup Common
Stock received in the Merger will be equal to the sum of the basis of the
shares of First Family common stock exchanged in the Merger and the amount
of gain, if any, which was recognized by the exchanging First Family
shareholder, including any portion treated as a dividend, less the value of
taxable boot, if any, received by such shareholder in the Merger; (v) the
holding period of the BancGroup Common Stock will include the holding
period of the shares of First Family common stock exchanged therefor if
such shares of First Family common stock were capital assets in the hands
of the exchanging First Family shareholder; and (vi) cash received by a
First Family shareholder in lieu of a fractional share interest of
BancGroup Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest
of BancGroup Common Stock which he or she would otherwise be entitled to
receive and will qualify as capital gain or loss (assuming the First Family
common stock was a capital asset in his or her hands as of the Effective
Date).
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ARTICLE 9
CONDITIONS TO OBLIGATIONS OF FIRST FAMILY
The obligations of First Family to cause the transactions contemplated by
this Agreement to be consummated shall be subject to the satisfaction on or
before the Effective Date of all the following conditions except as First Family
may waive such conditions in writing:
9.1 Representations, Warranties and Covenants. All representations
and warranties of BancGroup contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such
representations and warranties were made on and as of such Effective Date,
and BancGroup shall have performed in all material respects all agreements
and covenants required by this Agreement to be performed by it on or prior
to the Effective Date.
9.2 Adverse Changes. BancGroup and its subsidiaries shall have
incurred no Loss or Losses which, in the aggregate, exceed $14,000,000, and
there shall have been no material changes in the Laws governing the
business of BancGroup or which would impair the rights of First Family or
its shareholders pursuant to this Agreement.
9.3 Closing Certificate. In addition to any other deliveries required
to be delivered hereunder, First Family shall have received a certificate
from the President or a Vice President and from the Secretary or Assistant
Secretary of BancGroup dated as of the Closing certifying that:
(a) the Board of Directors of BancGroup has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and
remain in full force and effect;
(b) each person executing this Agreement on behalf of BancGroup is
an officer of BancGroup holding the office or offices specified therein
and the signature of each person set forth on such certificate is his or
her genuine signature;
(c) the certificate of incorporation and bylaws of BancGroup
referenced in section 4.4 hereof remain in full force and effect;
(d) such persons have no knowledge of a basis for any material
claim, in any court or before any Agency or arbitration and or otherwise
against, by or affecting BancGroup or the business, prospects, condition
(financial or otherwise), or Assets of BancGroup or which would prevent
the performance of this Agreement or the transactions contemplated by
this Agreement or declare the same unlawful or cause the recision
thereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
First Family's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading in light of the circumstances under
which they were made (it being understood that such persons need not
express a statement as to information concerning or provided by First
Family for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they
relate to BancGroup have been satisfied.
9.4 Opinion of Counsel. First Family shall have received an opinion
of Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated as
of the Closing, in form reasonably satisfactory to First Family, as to
matters set forth in Exhibit B hereto.
9.5 Fairness Opinion. First Family shall have received prior to the
mailing of the Proxy Statement from Mercer Capital Management, Inc. a
letter setting forth its opinion that the consideration to be
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received by the shareholders of First Family under the terms of this
Agreement is fair to them from a financial point of view.
9.6 NYSE Listing. The shares of BancGroup Common Stock to be issued
under this Agreement shall have been approved for listing on the NYSE.
9.7 Material Events. There shall have been no determination by the
board of directors of First Family that the transactions contemplated by
this Agreement have become impractical because of any state of war,
declaration of a banking moratorium in the United States or a general
suspension of trading on the NYSE or any other exchange on which BancGroup
Common Stock may be traded.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. All representations
and warranties of First Family contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such
representations and warranties were made on and as of the Effective Date,
and First Family shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it
on or prior to the Effective Date.
10.2 Adverse Changes. First Family and its Subsidiaries shall have
incurred no Loss or Losses which, in the aggregate, exceed $450,000 and
there shall have been no material changes in the Laws governing the
business of First Family which would impair BancGroup's rights pursuant to
this Agreement. For purposes of this section 10.2 any one-time assessment
by the Federal Deposit Insurance Corporation's Savings Association Fund
after the date of this Agreement shall not constitute an adverse change,
nor shall such assessment be included for the purpose of calculating a Loss
or Losses hereunder.
10.3 Closing Certificate. In addition to any other deliveries
required to be delivered hereunder, BancGroup shall have received a
certificate from the President or Vice President and from the Secretary or
Assistant Secretary of First Family dated as of the Closing certifying
that:
(a) the Board of Directors of First Family has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and
remain in full force and effect;
(b) the shareholders of First Family have duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of the Merger and the transactions contemplated
thereby and such resolutions have not been amended or modified and
remain in full force and effect;
(c) each person executing this Agreement on behalf of First Family
is an officer of First Family holding the office or offices specified
therein and the signature of each person set forth on such certificate
is his or her genuine signature;
(d) the charter documents of First Family and the Bank referenced
in section 5.8 hereof were in full force and effect and have not been
amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
First Family's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, not misleading in light of the circumstances under
which they were made (it being understood that such persons need only
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express a statement as to information concerning or provided by First
Family for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 10 insofar as they
relate to First Family have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of
Igler & Dougherty, P.A., counsel to First Family, dated as of the Closing,
in form reasonably satisfactory to BancGroup, as to matters set forth in
Exhibit C hereto.
10.5 Controlling Shareholders. Each shareholder of First Family who
may be an "affiliate" of First Family, within the meaning of Rule 145 of
the general rules and regulations under the 1933 Act shall have executed
and delivered an agreement satisfactory to BancGroup to the effect that
such person shall not make a "distribution" (within the meaning of Rule
145) of the Common Stock which he receives upon the Effective Date and that
such Common Stock will be held subject to all applicable provisions of the
1933 Act and the rules and regulations of the SEC thereunder. First Family
recognizes and acknowledges that BancGroup Common Stock issued to such
persons may bear a legend evidencing the agreement described above.
10.6 Material Events. There shall have been no determination by the
board of directors of BancGroup that the transactions contemplated by this
Agreement have become impractical because of any state of war, declaration
of a banking moratorium in the United States or general suspension of
trading on the NYSE or any exchange on which BancGroup Common Stock may be
traded.
10.7 Employee Benefit Matters. On or before the execution of this
Agreement, David Shepherd and First Family shall have duly executed the
letter agreement dated July 19, 1996 from BancGroup relating to medical
insurance and other matters, a copy of which is included as part of
Schedule 6.1(f)(i).
10.8 Shareholders' Equity. The consolidated Shareholders' Equity of
First Family shall be no less than $9,000,000 as of the Effective Date.
ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not consummated,
all representations, warranties, obligations, covenants, or agreements hereunder
or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished except that
Section 7.2, Article 11, Article 15 and any applicable definitions of Article
14, shall survive. Items disclosed in the Exhibits and Schedules attached hereto
are incorporated into this Agreement and form a part of the representations,
warranties, covenants or agreements to which they relate. Information provided
in such Exhibits and Schedules is provided only in response to the specific
section of this Agreement which calls for such information.
ARTICLE 12
NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at the
time given or mailed, first class postage prepaid:
(a) If to First Family, to David M. Shepherd, Chairman of the Board,
President and CEO, First Family Financial Corporation, 2801 South Bay
Street, Eustis, Florida 32726, facsimile (352) 357-8007,
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with copies to George Igler, Esq., Igler & Dougherty, P.A., 1501 Park
Avenue East, Tallahassee, Florida 32301, facsimile 904-878-1230, or as may
otherwise be specified by First Family in writing to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street,
Suite 800, Montgomery, Alabama, 36104, facsimile (334) 240-6040, with a
copy to Michael D. Waters, Miller, Hamilton, Snider & Odom, One Commerce
Street, Suite 802, Montgomery, Alabama 36104, facsimile (334) 265-4533, or
as may otherwise be specified in writing by BancGroup to First Family.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and First Family before or after approval of the transactions
contemplated herein by the shareholders of First Family, except that if amended
after shareholder approval no amendment shall:
(a) Change the amount or kind of shares, securities cash, property, or
rights to be received; or
(b) Change any other terms and conditions of the Merger if such change
would materially and adversely affect First Family or the holders of First
Family Stock; or
(c) Change any term of First Family articles of incorporation.
13.2 Termination. This Agreement may be terminated at any time prior to or
on the Effective Date whether before or after action thereon by the shareholders
of First Family, as follows:
(a) by the mutual consent of the respective boards of directors of
First Family and BancGroup;
(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching Party
of such breach and which breach would provide the non-breaching Party the
ability to refuse to consummate the Merger under the standard set forth in
section 10.1 of this Agreement in the case of BancGroup and section 9.1 of
this Agreement in the case of First Family;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching Party
of such breach, or if any of the conditions to the obligations of such
Party contained in this Agreement shall not have been satisfied in full; or
(d) by the board of directors of either BancGroup or First Family if
all transactions contemplated by this Agreement shall not have been
consummated on or prior to March 31, 1997, if the failure to consummate the
transactions provided for in this Agreement on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this section 13.2(d).
13.3 Damages. In the event of termination pursuant to section 13.2, First
Family and BancGroup shall not be liable for damages for any breach of warranty
or representation contained in this Agreement made in good faith, and, in that
case, the expenses incurred shall be borne as set forth in section 15.1 hereof.
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ARTICLE 14
DEFINITIONS
The following terms, which are capitalized in this Agreement, shall have
the meanings set forth below for the purpose of this Agreement:
Agencies................... Shall mean, collectively, the Federal Trade
Commission, the United States Department of
Justice, the Board of the Governors of the
Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift
Supervision, all state regulatory agencies having
jurisdiction over the Parties and their
respective Subsidiaries, HUD, the VA, the FHA,
the GNMA, the FNMA, the FHLMC, the NYSE, and the
SEC.
Agreement.................. Shall mean this Agreement and Plan of Merger and
the Exhibits and Schedules delivered pursuant
hereto and incorporated herein by reference.
Assets..................... Of a Party shall mean all of the assets,
properties, businesses and rights of such Party
of every kind, nature, character and description,
whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise
relating to or utilized in such Party's business,
directly or indirectly, in whole or in part,
whether or not carried on the books and records
of such Party, and whether or not owned in the
name of such Party or any Affiliate of such Party
and wherever located.
BancGroup.................. The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.
Bank....................... First Family Bank, FSB, a federal savings bank.
Closing.................... The closing of the transactions contemplated hereby
as described in section 2.7 of this Agreement.
Code....................... The Internal Revenue Code of 1986, as amended.
Common Stock............... BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.
Consent.................... Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.
Contract................... Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any
kind or character, or other document to which any
Person is a party or that is binding on any
Person or its capital stock, Assets or business.
Default.................... Shall mean (i) any breach or violation of or
default under any Contract, Order or Permit, (ii)
any occurrence of any event that with the passage
of time or the giving of notice or both would
constitute a breach or violation of or default
under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the
passage of time or the giving of notice would
give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or
to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
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DGCL....................... The Delaware General Corporation Law.
Effective Date............. Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.
Environmental Laws......... Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.
ERISA...................... The Employee Retirement Income Security Act of
1974, as amended.
Executive.................. Means those persons covered by section 6.2(g)
hereof.
Exchange Ratio............. The ratio of the number of shares of BancGroup
Common Stock to be issued for First Family
Options, as defined in section 3.1(b).
Exhibits................... A through C, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part hereof, and
may be referred to in this Agreement and any
other related instrument or document without
being attached hereto.
FBCA....................... The Florida Business Corporation Act
First Family............... First Family Financial Corporation, a Florida
corporation.
First Family Company....... Shall mean First Family, the Bank, any Subsidiary
of First Family or the Bank, or any person or
entity acquired as a Subsidiary of First Family
or the Bank in the future and owned by First
Family or the Bank at the Effective Date.
First Family Options....... Options respecting the issuance of First Family
common stock pursuant to the First Family Bank,
FSB, 1992 Stock Option and Stock Appreciation
Rights Plan.
First Family Stock......... Shares of Common stock, par value $.01 per share,
of First Family.
GAAP....................... Generally Accepted Accounting Principles
Knowledge.................. Means the actual knowledge of the Chairman,
President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General
Counsel or any Senior or Executive Vice President
of BancGroup, in the case of knowledge of
BancGroup, or of First Family and the Bank, in
the case of knowledge of First Family.
Law........................ Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute
applicable to a Person or its Assets, Liabilities
or business, including those promulgated,
interpreted or enforced by any Agency.
Liability.................. Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty,
cost or expense (including costs of
investigation, collection and defense),
deficiency, guaranty or endorsement of or by any
Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or
deposit in the ordinary course of business) of
any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured
or unmatured, or otherwise.
Lien....................... Any conditional sale agreement, default of title,
easement, encroachment, encumbrance,
hypothecation, infringement, lien, mortgage,
pledge, reservation, restriction, security
interest, title retention or other security
arrangement, or any adverse right or interest,
charge, or claim
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of any nature whatsoever of, on, or with respect
to any property or property interest, other than
(i) Liens for current property Taxes not yet due
and payable, (ii) for depository institution
Subsidiaries of a Party, pledges to secure
deposits and other Liens incurred in the ordinary
course of the banking business, and (iii) Liens
in the form of easements and restrictive
covenants on real property which do not
materially adversely affect the use of such
property by the current owner thereof.
Litigation................. Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative
or other proceeding relating to or affecting a
Party, its business, its Assets (including
Contracts related to it), or the transactions
contemplated by this Agreement.
Loan Property.............. Any property owned by the Party in question or by
any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where
required by the context, includes the owner or
operator of such property, but only with respect
to such property.
Loss....................... Any and all direct or indirect payments,
obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, losses,
diminution in the value of Assets, damages,
punitive, exemplary or consequential damages
(including, but not limited to, lost income and
profits and interruptions of business),
Liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and
expenses, and consultant's fees and other costs
of defense or investigation), and interest on any
amount payable to a third party as a result of
the foregoing.
material................... For purposes of this Agreement shall be determined
in light of the facts and circumstances of the
matter in question; provided that any specific
monetary amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect.... On a Party shall mean an event, change or
occurrence which has a material adverse impact on
(i) the financial position, business, or results
of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such
Party to perform its obligations under this
Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement
provided that "material adverse impact" shall not
be deemed to include the impact of (x) changes in
banking and similar laws of general applicability
or interpretations thereof by courts or
governmental authorities, (y) changes in
generally accepted accounting principles or
regulatory accounting principles generally
applicable to banks and thrifts and their holding
companies, and (z) the Merger and compliance with
the provisions of this Agreement on the operating
performance of the Parties.
Merger..................... The merger of First Family with BancGroup as
contemplated in this Agreement.
Merger Consideration....... The distribution of BancGroup Common Stock and cash
for each share of First Family Stock as provided
in section 3.1(a) hereof.
NYSE....................... The New York Stock Exchange.
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Order...................... Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any
federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative
agency or Agency.
Party...................... Shall mean First Family or BancGroup, and "Parties"
shall mean both First Family and BancGroup.
Permit..................... Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or
right to which any Person is a party or that is
or may be binding upon or inure to the benefit of
any Person or its securities, Assets or business.
Person..................... A natural person or any legal, commercial or
governmental entity, such as, but not limited to,
a corporation, general partnership, joint
venture, limited partnership, limited liability
company, trust, business association, group
acting in concert, or any person acting in a
representative capacity.
Proxy Statement............ The proxy statement used by First Family to solicit
the approval of its stockholders of the
transactions contemplated by this Agreement,
which shall include the prospectus of BancGroup
relating to the issuance of the BancGroup Common
Stock to the shareholders of First Family.
Registration Statement..... The registration statement on Form S-4, or such
other appropriate form, to be filed with the SEC
by BancGroup, and which has been agreed to by
First Family, to register the shares of BancGroup
Common Stock offered to stockholders of First
Family pursuant to this Agreement, including the
Proxy Statement.
Resulting Corporation...... BancGroup, as the surviving corporation resulting
from the Merger.
SEC........................ United States Securities and Exchange Commission.
Shareholders' Equity....... Shall mean the consolidated stockholder's equity of
First Family at the close of business on the
month-end immediately preceding the Closing Date
computed in accordance with GAAP, plus the
after-tax impact of (a) the booked or accrued
amount of any one-time special assessment by the
Federal Deposit Insurance Fund after the date of
this Agreement; (b) reasonable fees paid to Igler
& Dougherty, P.A. relating to this Agreement; (c)
compensation and other expenses paid to or on
behalf of persons hired by First Family pursuant
to Section 6.2(h) of the Agreement; (d) any
amounts transferred by First Family to reserve
accounts at the request of BancGroup that would
be in excess of the amounts required by GAAP or
in excess of amounts necessary to maintain
reserves at current levels; (e) fees paid to
Mercer Capital Management, Inc. pursuant to
Section 9.5 of this Agreement; and (f) any other
fees or payments required to be paid or accrued
by First Family in connection with this Agreement
or the proposed transaction.
Stockholders Meeting....... The special meeting of stockholders of First Family
called to approve the transactions contemplated
by this Agreement.
Subsidiaries............... Shall mean all those corporations, banks,
associations, or other entities of which the
entity in question owns or controls 5% or more of
the
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outstanding equity securities either directly or
through an unbroken chain of entities as to each
of which 5% or more of the outstanding equity
securities is owned directly or indirectly by its
parent; provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or controlled in a
fiduciary capacity.
Tax or Taxes............... Means any federal, state, county, local, foreign,
and other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.
1933 Act................... The Securities Act of 1933, as amended.
1934 Act................... The Securities Exchange Act of 1934, as amended.
ARTICLE 15
MISCELLANEOUS
15.1 Expenses. Each Party hereto shall bear its own legal, auditing,
trustee, investment banking, regulatory and other expenses in connection with
this Agreement and the transactions contemplated hereby.
15.2 Benefit. This Agreement shall inure to the benefit of and be binding
upon First Family and BancGroup, and their respective successors. This Agreement
shall not be assignable by any Party without the prior written consent of the
other Party.
15.3 Governing Law. This Agreement shall be governed by, and construed in
accordance with the Laws of the State of Alabama without regard to any conflict
of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being severable,
shall remain in full force and effect in such circumstance or situation and the
said term or provision shall remain valid and in effect in any other
circumstances or situation.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the
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contemplated transactions. In recognition thereof, in addition to (and not in
lieu of) any remedies at law that may be available to the non-breaching Party,
the non-breaching Party shall be entitled to obtain equitable relief, including
the remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable relief shall be deemed to
constitute an election of remedies by the non-breaching Party that would
preclude the non-breaching Party from obtaining any remedies at law to which it
would otherwise be entitled.
15.10 Arbitration. Any controversy or claim arising out of or related to
this Agreement, or the interpretation thereof, shall be settled by arbitration
in accordance with the rules of the American Arbitration Association then in
effect, before a panel of three arbitrators, and judgment upon the award
rendered may be entered without notice and enforced in any court having
jurisdiction thereof. It is agreed and understood that the transactions
contemplated by this Agreement are conducted in and affect interstate commerce
and that this section concerning arbitration shall be enforced notwithstanding
any provision of state or federal law to the contrary.
15.11 Attorneys' Fees. If any Party hereto shall bring an action at law or
in equity to enforce its rights under this Agreement (including an action based
upon a misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
15.12 No Waiver. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
15.13 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
15.14 Entire Contract. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
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IN WITNESS WHEREOF, First Family and BancGroup have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
<TABLE>
<S> <C>
FIRST FAMILY FINANCIAL
ATTEST: CORPORATION
BY: /s/ Bradley R. Meredith BY: /s/ David M. Shepherd
-------------------------------------- --------------------------------------
ITS: Corporate Secretary ITS: President & CEO
-------------------------------------- --------------------------------------
(CORPORATE SEAL) THE COLONIAL BANCGROUP, INC.
ATTEST:
BY: /s/ Teresa Skipper BY: /s/ Robert E. Lowder
-------------------------------------- --------------------------------------
ITS: Assistant Secretary ITS: President & CEO
-------------------------------------- --------------------------------------
(CORPORATE SEAL)
</TABLE>
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APPENDIX B
September 12, 1996
The Board of Directors
c/o Mr. David M. Shepherd
President and Chief Executive Officer
First Family Financial Corporation
2801 South Bay Street
Eustis, Florida 32726
Re: Fairness Opinion Regarding the Proposed Acquisition of First Family
Financial Corporation by The Colonial BancGroup, Inc.
Dear Directors:
Mercer Capital Management, Inc. ("Mercer Capital") has been retained by the
Board of Directors of First Family Financial Corporation ("FFFC") to issue a
fairness opinion for the proposed merger between FFFC and The Colonial
BancGroup, Inc. ("Colonial"). The fairness opinion is issued from a financial
point of view on behalf of FFFC shareholders.
Under the terms of the Agreement and Plan of Merger by and between The
Colonial BancGroup, Inc. and First Family Financial Corporation, dated July 19,
1996 ("the Agreement"), FFFC will be merged into Colonial. FFFC shareholders
will receive $23.50 per share for each share of FFFC, of which 50% will be in
cash and 50% in the form of Colonial common stock. Shareholders will therefore
receive a cash payment of $11.75 per share and Colonial stock valued at $11.75
per share. The market value for Colonial's shares for purposes of establishing
the exchange ratio will be determined by calculating the average of the closing
prices of Colonial's common stock as reported by the NYSE on each of the ten
trading days ending on the trading day immediately preceding the closing date.
Including options, the aggregate consideration for FFFC totals $13.3
million. The purchase price of $23.50 per share represents 9.6x fully diluted
earnings per share for the fiscal year ended June 30, 1996 and 143% of fully
diluted book value per share of $16.41 per share as of the same date. The
purchase price in terms of estimated core earnings is higher, however, at about
13.0x fully diluted core earning per share.
As part of the engagement, a representative of Mercer Capital visited with
FFFC management in Eustis, Florida and with Colonial management in Montgomery,
Alabama. Mercer Capital did not assist in the negotiations which resulted in the
Agreement between FFFC and Colonial.
Factors considered in rendering the opinion include:
1. Terms of the Agreement and Plan of Merger by and between The
Colonial BancGroup, Inc. and First Family Financial Corporation, dated July
19, 1996;
2. The process through which the Board solicited and received other
offers or indications of interest from prospective buyers other than
Colonial
3. The negotiation process with Colonial leading to the Agreement;
4. A valuation analysis of FFFC prepared by Mercer Capital;
5. An analysis of the estimated pro-forma changes in book value per
share, earnings per share, and dividends per share from the perspective of
the FFFC shareholders;
6. A review of Colonial's historical financial performance, historical
stock pricing, the liquidity of its shares and current pricing in relation
to other publicly traded bank holding companies based in the U.S.;
7. Tax consequences of the merger for FFFC shareholders;
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8. The ability of FFFC shareholders to liquefy their investment
through converting half their interest to cash and the other half into
Colonial's more liquid shares; and,
9. Restrictions placed on Colonial shares received in the merger.
Mercer Capital did not compile nor audit FFFC's or Colonial's financial
statements, nor have we independently verified the information reviewed. We have
relied upon such information as being complete and accurate in all material
respects. We have not made an independent valuation of the loan portfolio,
adequacy of the loan loss reserve or other assets or liabilities of either
institution.
Our opinion does not constitute a recommendation to any shareholder as to
how the shareholder should vote on the proposed merger; nor have we expressed
any opinion as to the prices at which any security of Colonial or FFFC might
trade in the future.
Based upon our analysis of the proposed transaction, it is our opinion that
the acquisition of First Family Financial Corporation by The Colonial BancGroup,
Inc. is fair from a financial point of view for the shareholders of FFFC.
Sincerely yours,
MERCER CAPITAL MANAGEMENT, INC.
/s/ JEFF K. DAVIS
--------------------------------------
Jeff K. Davis, ASA, CFA
Vice President
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APPENDIX C
July 18, 1996
Mr. David M. Shepherd
Chairman, CEO and President
First Family Financial Corporation
2801 South Bay Street
Eustis, Florida 32726-6503
Dear David:
This agreement is being entered into in connection with the proposed merger
of Colonial BancGroup, Inc. ("BancGroup") and First Family Financial Corporation
("First Family"). BancGroup agrees to provide health care coverage, equal to
that currently provided by First Family under its Florida Bankers Association
("FBA") plan (hereinafter referred to as "Coverage" or "FBA Plan") for Shepherd
and his wife Gretchen S. Shepherd ("Wife") for 24 months following the
completion of the merger.
IT IS ANTICIPATED THAT THE ABOVE DESCRIBED COVERAGE WILL BE PROVIDED, AS
FOLLOWS:
1. It is anticipated that Colonial will continue the FBA Plan for
First Family employees.
2. It is further anticipated that Shepherd's employment with First
Family, or its successor, will continue for a period of at least 6 months
following the effective date of the merger; provided, however, that the
terms and conditions of employment shall be mutually agreed to by Shepherd
and BancGroup.
3. During Shepherd's continued employment, it is anticipated that
Coverage will be provided to Shepherd and Wife under the FBA Plan;
provided, BancGroup may, in its sole discretion, elect to provided such
Coverage pursuant to BancGroup's current group health plan or any other
plan that BancGroup may provide. To the extent BancGroup's current group
health plan or any other plan that BancGroup may provide does not provide
Coverage equal to that currently provided by the FBA Plan, BancGroup will
reimburse Shepherd for any unreimbursed medical expenses that otherwise
would have been covered under the FBA Plan.
4. Upon Shepherd's termination of employment, Coverage will be
provided to Shepherd, as follows:
a. Shepherd should be entitled to coverage under Medicare.
b. In addition, BancGroup will purchase, on behalf of Shepherd, a
Supplemental Medicare Insurance policy (for which BancGroup will pay the
premiums and pay Part B premium of Medicare coverage through the date
which is 24 months after the effective date of the merger); and
c. To the extent that Medicare and Supplemental Medicare Insurance
policies do not provide Coverage equal to that currently provided by the
FBA Plan, BancGroup will reimburse Shepherd for any unreimbursed medical
expenses that otherwise would have been covered under the FBA Plan.
5. Upon Shepherd's termination of employment, Coverage will be
provided to Wife pursuant to COBRA (for which BancGroup will pay the
premiums through the date which is 24 months after the effective date of
the merger).
Shepherd agrees that BancGroup and its subsidiaries' obligation to provide
Coverage to him and Wife shall terminate 24 months after the merger without
regard to any provision of the current Employment Agreement, Senior Executive
Severance Plan, Executive Supplemental Retirement Income Agreement (Type A), and
any other agreements.
Shepherd will continue to be an employee of First Family for a period of at
least 6 months from the date of the merger. During this 6 month period, Shepherd
shall render such reasonable services as the Bank may request and shall be
entitled to receive the same rate of salary as is set forth in Section 3.1 of
his Employment Agreement, as amended on October 25, 1995 ("Salary"). During this
6 month period, the Bank shall
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reimburse Shepherd for FICA taxes payable on Shepherd's Salary in an amount
equal to 4.75% up to the Social Security taxable wage base.
Shepherd agrees that in addition to the Coverage and continued Salary
referenced in this letter he is entitled to the following:
1. $225,000 pursuant to his existing Employment Agreement dated
November 1, 1992, as amended on November 1, 1994 and October 30, 1995, to
be paid in one lump sum by First Family Bank at the closing of the merger;
2. $200,000 pursuant to the Senior Executive Severance Plan dated
October 30, 1995, to be paid by First Family Bank in one lump sum at the
closing of the merger;
3. $500,000 pursuant to the Executive Supplemental Retirement Income
Agreement (Type A) dated May 1, 1994, to be paid in 10 annual installments
of $50,000 per year, beginning on November 1, 1997; provided, Bank and
Shepherd may mutually agree that Bank will provide Shepherd with an annuity
(equal to the actuarial equivalent of these 10 installments) in lieu of
these 10 installments;
4. The Executive Supplemental Retirement Income Agreement Type A dated
May 1, 1994, provides benefits to a designated Beneficiary (either a
primary beneficiary or a secondary beneficiary), in the event of Shepherd's
death. These payments will be paid to the designated Beneficiary, and will
be made in the manner provided for in the Agreement;
5. Continuation of Group Life Insurance coverage in the amount of
$292,500, pursuant to his existing Employment Agreement and the Senior
Executive Severance Plan, for a period of 24 months following the merger;
and
6. Subject to the terms of the definitive merger agreement between
First Family and BancGroup, 12,000 stock options granted pursuant to First
Family's 1992 Stock Option and Stock Appreciation Rights Plan ("1992 Stock
Plan"), will be substituted for BancGroup stock options.
As a condition to BancGroup's obligations as stated herein, Shepherd agrees
to comply with any reasonable request by BancGroup to make appropriate elections
and authorizations to provide the coverage selected by BancGroup and to
cooperate in BancGroup's efforts to provide such coverage. In addition, as a
condition to BancGroup's obligations stated herein, Shepherd agrees that: (i) he
will not terminate his employment with BancGroup before the expiration of the
six month period beginning on the effective date of the merger; and (ii) Wife
will sign a separate letter agreement agreeing to comply with any reasonable
request by BancGroup to make appropriate elections and to cooperate in
BancGroup's efforts to provide COBRA coverage, as long as the COBRA coverage is
equivalent to that currently being provided under the FBA Plan.
As a condition to BancGroup's obligations herein, Shepherd agrees to comply
with the noncompetition clause, as set forth in Section 2.7 of the Executive
Supplemental Retirement Income Agreement, for a 24 month period beginning on the
date of the merger.
Except for amounts which may be due Shepherd through First Family's annual
bonus program or accrued vacation, which will be paid at the time of closing,
Shepherd acknowledges that the foregoing represents the sum total of all amounts
to which Shepherd and Wife are entitled to receive from First Family and
BancGroup, and that they will not be entitled to any additional amounts,
pursuant to his Employment Agreement, the Senior Executive Severance Plan, the
Executive Supplemental Retirement Income Agreement (Type A), or any other
agreements.
Sincerely,
/s/ ROBERT E. LOWDER
--------------------------------------
Robert E. Lowder
Chairman of the Board
Chief Executive Officer and President
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I accept the above terms.
/s/ DAVID M. SHEPHERD
- --------------------------------------
David M. Shepherd
Date: July 19, 1996
The above letter of agreement is
accepted by First Family.
By: /s/ BRADLEY R. MEREDITH
----------------------------------
Bradley R. Meredith
Chief Financial Officer
Date: July 19, 1996
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July 18, 1996
Mrs. Gretchen S. Shepherd
c/o Mr. David M. Shepherd
Chairman, CEO and President
First Family Financial Corporation
2801 South Bay Street
Eustis, FL 32726-6503
Dear Mrs. Shepherd:
In connection with the proposed merger of Colonial BancGroup ("BancGroup")
and First Family Financial Corporation ("First Family"), BancGroup and First
Family agree that, as a result of the merger, you will be entitled to the
provision of health care coverage for a 24 month period beginning on the
effective date of the merger.
Set forth in a letter agreement with your husband, David M. Shepherd,
BancGroup has proposed the method in which your health care coverage will be
provided. We respectfully request that you agree with BancGroup (1) to comply
with any reasonable request by BancGroup to make appropriate elections for your
health care coverage, and (2) to cooperate in BancGroup's efforts to provide you
with COBRA coverage. Specifically, by signing this letter agreement, you agree
that, to the extent the Florida Bankers Association group health plan (the "FBA
Plan") is still maintained for employees of First Family at the time you are
entitled to make an election to continue your health care coverage pursuant to
COBRA, you will make an election to continue your health care coverage under the
FBA Plan. The health care coverage under COBRA shall be equal to that currently
provided First Family under the FBA Plan.
Sincerely,
/s/ ROBERT E. LOWDER
--------------------------------------
Robert E. Lowder
Chairman of the Board,
Chief Executive Officer and President
I accept the above terms.
/s/ GRETCHEN S. SHEPHERD
- --------------------------------------
Gretchen S. Shepherd
Date: July 18, 1996
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant,
officers, directors, employees, and agents of the Registrant are entitled to
indemnification against liabilities incurred while acting in such capacities on
behalf of the Registrant, including reimbursement of certain expenses. In
addition, the Registrant maintains on officers and all of its directors an
insurance policy pursuant to which officers and directors of the Registrant are
entitled to indemnification against certain liabilities, including reimbursement
of certain expenses, and the Registrant has indemnity agreements
("Indemnification Agreements") with certain officers and all of its directors
pursuant to which such persons may be indemnified by the Registrant against
certain liabilities, including expenses.
The Indemnification Agreements are intended to provide additional
indemnification to directors and officers of BancGroup beyond the specific
provisions of the Delaware General Corporation Law. Under the Delaware General
Corporation Law, a company may indemnify its directors and officers in
circumstances other than those under which indemnification and the advance of
expenses are expressly permitted by applicable statutory provisions.
Under the Delaware General Corporation Law, a director, officer,
employee or agent of a corporation (i) must be indemnified by the corporation
for all expenses incurred by him (including attorneys' fees) when he is
successful on the merits or otherwise in defense of any action, suit or
proceeding brought by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, (ii) may be indemnified by the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement of any such proceeding (other than a proceeding by
or in the right of the corporation) even if he is not successful on the merits
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interest of the corporation (and, in the case of a
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful), and (iii) may be indemnified by the corporation for expenses
(including attorneys' fees) incurred by him in the defense or settlement of a
proceeding brought by or in the right of the corporation, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation; provided that no indemnification may be made
under the circumstances described in clause (iii) if the director, officer,
employee or agent is adjudged liable to the corporation, unless a court
determines that, despite the adjudication of liability but in view of all of
the circumstances, he is fairly and reasonably entitled to indemnification for
the expenses which the court shall deem proper. The indemnification described
in clauses (ii) and (iii) above (unless ordered by a court) may be made only as
authorized in a specific case upon determination by (i) a majority of a quorum
of disinterested directors, (ii) independent legal counsel in a written
opinion, or (iii) the stock holders, that indemnification is proper in the
circumstances because the applicable
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<PAGE> 160
standard of conduct has been met. Expenses (including attorneys' fees)
incurred by an officer or director in defending a proceeding may be advanced by
the corporation prior to the final disposition of the proceeding upon receipt of
an undertaking by or on behalf of the director or officer to repay the advance
if it is ultimately determined that he is not entitled to be indemnified by the
corporation. Expenses (including attorneys' fees) incurred by other employees
and agents may be advanced by the corporation upon terms and conditions deemed
appropriate by the board of directors.
The indemnification provided by the Delaware General Corporation Law
has at least two limitations that are addressed by the Indemnification
Agreements: (i) BancGroup is under no obligation to advance expenses to a
director or officer, and (ii) except in the case of a proceeding in which a
director or officer is successful on the merits or otherwise, indemnification of
a director or officer is discretionary rather than mandatory.
The Indemnification Agreements, therefore, cover any and all expenses
(including attorneys' fees and all other charges paid or payable in connection
therewith) incurred in connection with investigating, defending, being a witness
or participating in (including an appeal), or preparing to defend, be a witness
in or participate in, any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether civil, criminal,
administrative or otherwise, related to the fact that such director or officer
is or was a director, officer, employee or agent of BancGroup or is or was
serving at the request of BancGroup as a director, officer, employee, agent,
partner, committee member or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by such director or officer in any such capacity.
The Indemnification Agreements also provide for the prompt advancement
of all expenses incurred in connection with any proceeding and obligate the
director or officer to reimburse BancGroup for all amounts so advanced if it is
subsequently determined, as provided in the Indemnification Agreements, that
the director or officer is not entitled to indemnification.
The Indemnification Agreements further provide that the director or
officer is entitled to indemnification for, and advancement of, all expenses
(including attorneys' fees) incurred in any proceeding seeking to collect from
BancGroup an indemnity claim or advancement of expenses under the
Indemnification Agreements, BancGroup's Certificate of Incorporation, or the
Delaware General Corporation Law, regardless of whether the director or officer
is successful in such proceeding.
The Indemnification Agreements impose upon BancGroup the burden of
proving that the director or officer is not entitled to indemnification in any
particular case, and the Indemnification Agreements negate certain presumptions
which might otherwise be drawn against a director or officer in certain
circumstances. Further, the Indemnification Agreements provide that if
BancGroup pays a director or officer pursuant to an Indemnification Agreement,
BancGroup will be subrogated to such director's or officer's rights to recover
from third parties.
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<PAGE> 161
The Indemnification Agreements stipulate that a director's or
officer's rights under such contracts are not exclusive of any other indemnity
rights a director or officer may have; however, the Indemnification Agreements
prevent double payment. The Indemnification Agreements require the maintenance
of directors' and officers' liability insurance if such insurance can be
maintained on terms, including rates, satisfactory to BancGroup.
The benefits of the Indemnification Agreements would not be available
if (i) the action with respect to which indemnification is sought was initiated
or brought voluntarily by the officer or director (other than an action to
enforce the right to indemnification under the Indemnification Agreements);
(ii) the officer or director is paid for such expense or liability under an
insurance policy; (iii) the proceeding is for an accounting of profits pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended; (iv) the
conduct of the officer or director is adjudged as constituting an unlawful
personal benefit, or active or deliberate dishonesty or willful fraud or
illegality; or (v) a court determines that indemnification or advancement of
expenses is unlawful under the circumstances.
The Indemnification Agreements would provide indemnification for
liabilities arising under the Securities Act of 1933, as amended. BancGroup
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such act and is,
therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits that are included in Part
II of the Registration Statement. Such exhibits are
separately indexed elsewhere in the Registration Statement.
DESCRIPTION
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation
of successor:
(A) Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and First Family Financial Corporation, dated as of July
19, 1996, included in the Prospectus portion of this
Registration Statement at Appendix A and incorporated herein by
reference.
(B) First Family Bank, fsb 1992 Stock Option and Stock
Appreciation Rights Plan
Exhibit 3 Articles of Incorporation and Bylaws:
(A) Restated Certificate of Incorporation of the Registrant, filed
as Exhibit 4.1 to the Registrant's Current Report on Form 8-K,
dated February 21, 1995, and incorporated herein by reference.
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<PAGE> 162
(B) Bylaws of the Registrant, filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K, dated February 21,
1995, and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File No.
33-07015), effective July 15, 1986, and incorporated herein by
reference.
(D) Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-2, file number 33-4004, effective March
25, 1986, and incorporated herein by reference.
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being registered.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan
of the Registrant, filed as Exhibit 4-1 to the Registrant's
Registration Statement on Form S-8 (Commission Registration
No. 33-41036), effective June 4, 1991, and incorporated herein
by reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference).
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<PAGE> 163
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form S-8
(File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed
as Exhibit 4-2 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.
(B)(1) Residential Loan Funding Agreement between Colonial Bank and
Colonial Mortgage Company dated January 18, 1988, included as
Exhibit 10(B)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National
Association, dated August 29, 1995 filed as Exhibit 10(B)(2)
to the Registrant's Registration Statement on Form S-4,
registration number 33-01163 and incorporated herein by
reference.
(B)(3) 1993 Term Loan Agreement between the Registrant and SunBank,
National Association, and related Pledge Agreement filed as
Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's
Registration Statement on Form S-4, registration number
33-63826 and incorporated herein by reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated
herein by reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 in
Registrant's registration statement on Form S-4, Registration
No. 33-83692 and incorporated herein by reference.
Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, and June 30, 1996, and incorporated
herein by reference.
Exhibit 21 List of subsidiaries of the Registrant.
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Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Hacker, Johnson, Cohen & Grieb
(D) Consent of Mercer Capital Management, Inc.
Exhibit 24 Power of Attorney, filed as Exhibit 24 to the registrant's
Registration Statement on Form S-4, Registration No.
333-01345, and incorporated herein by reference.
Exhibit 99 Additional exhibits:
(A) Form of Proxy of First Family Financial Corporation
(b) Financial Statement Schedules
The financial statement schedules required to be included
pursuant to this Item are not included herein because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned hereby undertakes as follows as required by
Item 512 of Regulation S-K:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which
is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will
contain the information called for by the applicable
registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to
the information called for by the other Items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately above, or (ii) that purports
to meet the requirements of
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<PAGE> 165
section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the
Registration Statement and will not be used until such
amendment is effective, and that, for purposes of
determining any liability under the Securities Act of
1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to
such securities offered therein, and the offering of
such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising
under the Act may be permitted to directors,
officers, and controlling persons of the Registrant,
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 Act 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.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding
to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
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<PAGE> 166
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration relating to the securities offered
therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(e) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Montgomery, Alabama, on the 23rd day of October, 1996.
THE COLONIAL BANCGROUP, INC.
By: /s/ Robert E. Lowder
------------------------------
Robert E. Lowder
Its Chairman of the Board
of Directors, Chief
Executive Officer, and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Robert E. Lowder Chairman of the Board **
- --------------------------- of Directors, President
Robert E. Lowder and Chief Executive
Officer
/s/ W. Flake Oakley, IV Chief Financial **
- --------------------------- Officer, Secretary
W. Flake Oakley, IV and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
* Director **
- --------------------------
Young J. Boozer
</TABLE>
II-9
<PAGE> 168
<TABLE>
<S> <C> <C> <C>
* Director **
- --------------------------
William Britton
* Director **
- --------------------------
Jerry J. Chesser
* Director **
- --------------------------
Augustus K. Clements, III
* Director **
- -------------------------
Robert C. Craft
Director
- -------------------------
Patrick F. Dye
* Director **
- -------------------------
Clinton O. Holdbrooks
* Director **
- -------------------------
D. B. Jones
</TABLE>
II-10
<PAGE> 169
<TABLE>
<S> <C> <C>
* Director **
- -------------------------
Harold D. King
* Director **
- -------------------------
John Ed Mathison
* Director **
- -------------------------
Milton E. McGregor
* Director **
- -------------------------
John C. H. Miller, Jr.
* Director **
- -------------------------
Joe D. Mussafer
* Director **
- -------------------------
William E. Powell
Director **
- -------------------------
Donald J. Prewitt
* Director **
- -------------------------
Jack H. Rainer
</TABLE>
II-11
<PAGE> 170
<TABLE>
<S> <C> <C>
* Director **
- -------------------------
Frances E. Roper
* Director **
- -------------------------
Ed V. Welch
</TABLE>
* The undersigned, acting pursuant to a power of attorney, has signed
this Registration Statement on Form S-4 for and on behalf of the
persons indicated above as such persons' true and lawful
attorney-in-fact and in their names, places and stead, in the
capacities indicated above and on the date indicated below.
/s/ W. Flake Oakley, IV
- -------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: October 23, 1996
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<PAGE> 171
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
EXHIBITS TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
THE COLONIAL BANCGROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE> 172
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation
of successor:
(A) Agreement and Plan of Merger between The Colonial BancGroup,
Inc., and First Family Financial Corporation, dated as of July
19, 1996, included in the Prospectus portion of this
registration statement at Appendix A and incorporated herein
by reference.
(B) First Family Bank, fsb 1992 Stock Option and Stock
Appreciation Rights Plan
Exhibit 3 Articles of Incorporation and Bylaws:
(A) Restated Certificate of Incorporation of the Registrant, filed
as Exhibit 4.1 to the Registrant's Current Report on Form 8-K,
dated February 21, 1995, and incorporated herein by reference.
(B) Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to
the Registrant's Current Report on Form 8-K, dated February
21, 1995, and incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders:
(A) Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.
(B) Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
(C) Dividend Reinvestment and Class A Common Stock Purchase Plan
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File No.
33- 07015), effective July 15, 1986, and incorporated herein
by reference.
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(D) Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-2, file number 33-4004, effective March
25, 1986, and incorporated herein by reference.
Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered.
Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
Exhibit 10 Material Contracts:
(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan
of the Registrant, filed as Exhibit 4-1 to the Registrant's
Registration Statement on Form S-8 (Commission Registration No.
33-41036), effective June 4, 1991, and incorporated herein by
reference.
(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock
Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference).
(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form S-8
(File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as
Exhibit 4-2 to Registrant's Registration Statement on Form S-8
(File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.
(B)(1) Residential Loan Funding Agreement between Colonial Bank and
Colonial Mortgage Company dated January 18, 1988, included as
Exhibit 10(B)(1) to the Registrant's Registration Statement as
Form S-4, file No. 33-52952, and incorporated herein by
reference.
(B)(2) Loan Agreement between the Registrant and SunBank, National
Association, dated August 29, 1995, filed as Exhibit
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10(B)(2) to the Registrant's Registration Statement on Form
S-4, registration number 33-01163 and incorporated herein by
reference.
(B)(3) 1993 Term Loan Agreement between the Registrant and SunBank,
National Association, and related Pledge Agreement filed as
Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's
Registration Statement on Form S-4, registration number
33-63826 and incorporated herein by reference.
(C)(1) The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.
(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated
herein by reference.
(D) Stock Purchase Agreement dated as of July 20, 1994, by and
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 in
Registrant's registration statement on Form S-4, Registration
No. 33-83692 and incorporated herein by reference.
Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996, and incorporated
herein by reference.
Exhibit 21 List of subsidiaries of the Registrant.
Exhibit 23 Consents of experts and counsel:
(A) Consent of Coopers & Lybrand, L.L.P.
(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.
(C) Consent of Hacker, Johnson, Cohen & Grieb
(D) Consent of Mercer Capital Management, Inc.
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Exhibit 24 Power of Attorney, filed as Exhibit 24 to the registrant's
Registration Statement on Form S-4, Registration No. 333-01345,
and incorporated herein by reference.
Exhibit 99 Additional exhibits:
(A) Form of Proxy of First Family Financial Corporation
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<PAGE> 1
EXHIBIT 2(B)
FIRST FAMILY BANK, FSB
1992 STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
1. PURPOSE OF PLAN
The purpose of the Plan is to assist the Bank in retaining the
employment of valued employees by offering them a greater stake in the Bank's
success and a closer identity with it, and to aid in obtaining the services of
individuals whose employment would be helpful to the Bank and would contribute
to its success.
2. DEFINITIONS
(a) "Bank" means First Family Bank, fsb.
(b) "Board" means the board of directors of the Bank.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee described in Paragraph 5.
(e) "Date of Grant" means the date on which an Option or an SAR is
granted.
(f) "Fair Market Value" means (i) on the date of the Conversion,
the price at which Shares are subscribed for pursuant to the
Modified Conversion, and (ii) on any other given date the mean
between the closing bid and asked prices for one such Share on
such date as reported on the National Association of
Securities Dealers Automated Quotation System or such other
generally recognized price quotation source as the Board shall
elect.
(g) "Holder" means a person to whom an SAR has been granted under
the Plan, which SAR has not been exercised and has not expired
or terminated.
(h) "Incentive Stock Option" means an Option granted under the
Plan, designated by the Committee at the time of such grant as
an Incentive Stock Option and containing the terms specified
herein for Incentive Stock Options.
(i) "Modified Conversion" means the conversion of First Family
Federal Savings and Loan Association from a federal mutual
savings and loan association to a federal capital stock
savings bank and the concurrent change of its name to First
Family Bank, fsb.
(j) "Non-Qualified Option" means an Option granted under the Plan,
designated by the Committee at the time of such grant as a
Non-Qualified Option and
<PAGE> 2
containing the terms specified herein for Non-Qualified
Options.
(k) "Option means any stock option granted under the Plan and
described in either Paragraph 3(a) or Paragraph 3(b).
(l) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has
not expired or terminated.
(m) "Plan" means the First Family Bank, fsb 1992 Stock Option and
Stock Appreciation rights Plan.
(n) "SAR" means a stock appreciation right granted under the Plan
and described in Paragraph 3(c).
(o) "Share" or "Shares" means a share or shares of Common Stock
$1.00 par value of the Bank.
(p) "Ten Percent Shareholder" means a person who on the Date of
Grant owns, either directly or within the meaning of the
attribution rules contained in section 425(d) of the Code,
stock possessing more than 10% of the total combined voting
power of all classes of stock of his or her employer
corporation or of its parent or subsidiary corporations, as
defined respectively in sections 425(e) and (f) of the Code.
(q) "Value" of an SAR means the excess of the Fair Market Value of
a Share on the date of exercise of such SAR over the Fair
Market Value of a Share on the Date of Grant of such SAR.
3. RIGHTS TO BE GRANTED
Rights that may be granted under the Plan are:
(a) Incentive Stock Options, which give the Optionee the
right for a specified time period to purchase a specified number of
Shares for a price not less than the Fair Market Value on the Date of
Grant;
(b) Non-Qualified Options, which give the Optionee the
right to purchase a specified number of Shares for a price not less
than the Fair Market Value on the Date of Grant; and
(c) SARs, which give the Holder the right, without
payment to the Bank, to receive the Value of such SARs, to be paid in
cash or Shares or a combination of cash and Shares, the number and
amount of which shall be determined pursuant to Paragraph 8(f).
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<PAGE> 3
4. STOCK SUBJECT TO PLAN
Not more than 54,000 Shares or, if less, 10% of the Shares issued
pursuant to the Modified Conversion in the aggregate may be issued pursuant to
the Plan upon exercise of Options or SARs. The Shares so delivered may, at the
option of the Bank, be either treasury Shares or Shares originally issued for
such purpose. If an Option or an SAR covering Shares terminates or expires
without having been exercised in whole or in part, other Options or SARs may be
granted covering the Shares as to which the Option or SAR was not exercised.
5. ADMINISTRATION OF PLAN
The Plan shall be administered by a committee of the Board, which may
be a standing committee of the Board and which shall be composed of not less
than three directors of the Bank appointed by the Board, none of whom shall be
eligible (or shall have been eligible within one year prior to the date of his
or her appointment) to be granted Options or SARs under the Plan or to be
selected as a participant under any other discretionary plan of the Bank or any
of its affiliates entitling him or her to acquire stock, stock options or stock
appreciation rights of the Bank or any of its affiliates.
6. GRANT OF RIGHTS
The Committee may grant Options or SARs or both to eligible employees
of the Bank.
7. ELIGIBILITY
(a) Eligible employees to whom Options and SARs may be granted
shall be officers and other key employees of the Bank, including persons who
are also directors.
(b) An Incentive Stock Option shall not be granted to a Ten
Percent Shareholder except on such terms concerning the option price and period
of exercise as are provided in Paragraphs 8(b) and 8(g) with respect to such a
person.
8. OPTION AND SAR AGREEMENTS AND TERMS
All Options and SARs shall be evidenced by Option agreements or SAR
agreements that shall be executed on behalf of the Bank and by the respective
Optionees or Holders. The terms of each such agreement shall be determined
from time to time by the Committee, consistent, however, with the following:
(a) Time of Grant. All Incentive Stock Options and any attached
SARs shall be granted within 10 years from the earlier of (i) the date
of adoption of the Plan by the Board, or (ii) approval of the Plan by
the shareholders of the Bank.
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<PAGE> 4
(b) Option Price. The option price per Share shall be determined
by the Committee but shall not be less than 100% of the Fair Market
Value of such Share on the Date of Grant; provided, however, that with
respect to any Incentive Stock Options granted to a Ten Percent
Shareholder, the option price per Share shall not be less than 110% of
the Fair Market Value of such Share on the Date of Grant.
(c) Restrictions on Transferability. No Option or SAR shall be
transferable otherwise than by will or the laws of descent and
distribution and, during the lifetime of the Optionee or Holder, shall
be exercisable only by him or her. Upon the death of an Optionee or
Holder, the person to whom the rights shall have passed by will or by
the laws of descent and distribution may exercise any Options or SARs
only in accordance with the provisions of Paragraph 8(h).
(d) Payment Upon Exercise of Options. Full payment for Shares
purchased upon the exercise of an Option shall be made in cash or, at
the election of the Optionee and as the Committee may, in its sole
discretion, approve, by surrendering Shares with an aggregate Fair
Market Value equal to the aggregate option price, or by delivering
such combination of shares and cash as the Committee may, in its sole
discretion, approve.
(e) Issuance of Certificate Upon Exercise of Options; Payment of
Cash. Only whole shares shall be issuable upon exercise of Options.
Any right to a fractional Share shall be satisfied in cash. Upon
payment of the option price, a certificate for the number of whole
Shares and a check for the Fair Market Value on the date of exercise
of any fractional Share to which the Optionee is entitled shall be
delivered to such Optionee by the Bank; provided, however, that in the
case of the exercise of a Non-Qualified Option, the Optionee has
remitted to his or her employer an amount determined by such employer,
necessary to satisfy applicable federal, state, or local tax
withholding requirements, or made other arrangements with his or her
employer for the satisfaction of such tax withholding requirements.
The Bank shall not be obligated to deliver any certificates for Shares
until such Shares have been listed (or authorized for listing upon
official notice of issuance) upon each stock exchange upon which
outstanding Shares of such class at the time are listed or, if
applicable, with the National Association of Securities Dealers
Automated Quotation System, nor until there has been compliance with
such laws or regulations as the Bank may deem applicable. The Bank
shall use its best efforts to effect such listing and compliance.
(f) Issuance of Certificates Upon Exercise of SARs; Payment of
Cash. Upon exercise of an SAR, its Value shall be payable in cash,
Shares, or in such combination of cash and Shares as is selected by
the Holder and approved by the Committee in its sole discretion. Any
Shares due upon exercise of an SAR shall be delivered to the Holder by
the Bank and any payment of cash shall be made by the employer of the
Holder. The employer of the Holder shall deduct from the amount
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<PAGE> 5
of any cash so payable an amount necessary to satisfy applicable
federal, state, or local tax withholding requirements. If no cash is
payable (or if the amount of cash payable is insufficient to satisfy
applicable tax withholding requirements), no shares shall be delivered
by the Bank to the Holder until the Holder remits to his or her
employer an amount determined by such employer, necessary to satisfy
applicable federal, state, or local tax withholding requirements or
makes other arrangements for the satisfaction of such tax withholding
requirements. The Bank shall not be obligated to deliver any
certificates for Shares until such Shares have been listed (or
authorized for listing upon official notice of issuance) upon each
stock exchange upon which outstanding Shares of such class at the time
are listed, or, if applicable, with the National Association of
Securities Dealers Automated Quotation System, nor until there has
been compliance with such laws or regulations as the Bank may deem
applicable. The Bank shall use its best efforts to effect such
listing and compliance.
(g) Periods of Exercise of Options and SARs. An Option or SAR
shall be exercisable in whole or in part at such time as may be
determined by the Committee and stated in the Option or SAR agreement;
provided, however, that unless otherwise determined by the Committee,
no Incentive Stock Option or attached SAR shall be exercisable before
one year or after five years from the Date of Grant in the case of an
Incentive Stock Option or attached SAR granted to a Ten Percent
Shareholder, or in the case of all other Incentive Stock Options and
attached SARs before one year or after 10 years from the Date of
Grant, except as provided below:
(i) In the event that an Optionee or Holder
ceases to be employed by the Bank for any reason other than
death, any Option or SAR held by such Optionee or Holder shall
not be exercisable after the date the Optionee or Holder
ceases to be employed by the Bank unless otherwise determined
by the Committee and set forth in the Option or SAR agreement;
provided, however, that if such cessation of employment is due
to the disability (as determined by the Committee) or the
retirement of the Optionee or Holder, he or she shall have the
right to exercise his or her Options or SARs, subject to the
limitations on the exercise of incentive stock options
contained in paragraph 9, to the extent determined by the
Committee in its discretion and set forth in the Option or SAR
agreement, even if the date of exercise is within any time
period prescribed by the Plan prior to which such Option or
SAR shall be exercised; provided, however, that in no event
shall an Incentive Stock Option or attached SAR be exercisable
after five years from the Date of Grant in the case of a Ten
Percent Shareholder or, in the case of all other Incentive
Stock Options and attached SARs, after 10 years from the Date
of Grant.
(ii) In the event that an Optionee or Holder
ceases to be employed by the Bank by reason of his or her
death, any Incentive Stock Option, Non-
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<PAGE> 6
Qualified Option or SAR held at death by such Optionee or
Holder shall not be exercisable after 12 months from the date
of death unless otherwise determined by the Committee and set
forth in the Option or SAR agreement; provided, however, that
in such event, the person to whom the rights of the Optionee
shall have passed by will or by the laws of descent and
distribution may exercise any of the descendent's Options or
SARs to the extent determined by the Committee in its
discretion and set forth in the Option or SAR agreement, even
if the date of exercise is within any time period prescribed
by the Plan prior to which such Option or SAR shall not be
exercisable; provided, however, that in no event shall an
Incentive Stock Option or attached SAR be exercisable after
five years from the Date of Grant in the case of a Ten Percent
Shareholder, or, in the case of all other Incentive Stock
Options and attached SARs, after 10 years from the Date of
Grant.
(h) Date of Exercise. The date of exercise of an Option or SAR
shall be the date on which written notice of exercise, addressed to the Bank at
its corporate headquarters to the attention of its Secretary, is hand
delivered, telecopied or mailed first class postage prepaid; provided, however,
that the Bank shall not be obligated to deliver any certificates for Shares
pursuant to the exercise of an Option until the Optionee shall have made
payment in full of the option price for such Shares. Each such exercise shall
be irrevocable when given. Each notice of exercise must (i) specify the
Incentive Stock Option, Non-Qualified Option, SAR, or combination thereof,
being exercised; (ii) must, in the case of the exercise of an Option, include a
statement of preference (which shall not be binding on the Committee) as to the
manner in which payment to the Bank shall be made (Shares or cash or a
combination of Shares and cash); and (iii) must, in the case of the exercise of
an SAR, include a statement of preference (which shall not be binding on the
Committee) as to the manner in which payment to the Holder shall be made
(Shares or cash or a combination of Shares and cash).
(i) Multiple Grants of Incentive Stock Options, Non-Qualified
Options and SARs. The grant, exercise, termination or expiration of any
Incentive Stock Option, Non-Qualified Option or SAR shall have no effect upon
any other Incentive Stock Option, Non-Qualified Option or SAR held by the same
Optionee or Holder; provided, however, that the Committee may, in its sole
discretion, provide in the Option agreement or SAR agreement that the exercise
of a certain number of SARs is conditioned upon the exercise of a certain
number of Options or provide that an SAR shall otherwise be attached to Options
granted under the Plan. All SARs that are attached to Options shall be subject
to the following terms:
(i) such SAR shall expire no later than the Option to
which it is attached.
(ii) such SAR shall be for an amount no more than the
excess of the Fair Market Value of the Shares subject to the attached
Option on the date such SAR
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<PAGE> 7
is exercised over the option price of such option,
(iii) such SAR shall be subject to the same restrictions on
transferability as the Option to which it is attached,
(iv) such SAR shall be exercisable only when the Option to
which it is attached is eligible to be exercised,
(v) such SAR shall be exercisable only when the Fair
Market Value of the Shares subject to the attached Option exceeds the
option price of such Option, and
(vi) such SAR shall expire upon the exercise of the Option
to which it is attached.
Upon exercise of an SAR that is attached to an Option, the Option to
which the SAR is attached shall expire.
9. LIMITATION ON GRANT OF INCENTIVE STOCK OPTIONS
The aggregate Fair Market Value (determined as of the time options are
granted) of the shares for which any employee may be granted incentive stock
options that first become exercisable by an Optionee in any one calendar year
under the Plan and any other plan of his or her employer corporation and its
parent and subsidiary corporations, as defined respectively in sections 425(e)
and (f) of the Code, shall not exceed $100,000.
10. RIGHTS AS SHAREHOLDERS
Neither an Optionee nor a Holder shall have any right as a shareholder
with respect to any Shares subject to his or her Options or SARs until the date
of the issuance of a stock certificate to him or her for such Shares.
11. CHANGES IN CAPITALIZATION
In the event of a stock dividend, stock split, recapitalization,
combination, subdivision, issuance of rights or other similar corporate change,
the Board shall make full anti-dilution adjustments in the aggregate number of
Shares that may be covered by Options issued pursuant to the Plan, the
aggregate number of SARs that may be granted, the number of Shares subject to,
and the option price of, each then-outstanding Option, the number of
then-outstanding SARs, and the Fair Market Value of Shares upon which the Value
of such SARs is based.
12. MERGERS, DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
If during the term of any Option or SAR, the Bank shall be merged into
or
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<PAGE> 8
consolidated with or otherwise combined with or acquired by another person or
entity, or there is a divisive reorganization or a liquidation or partial
liquidation of the Bank, the Bank may choose to take no action with regard to
the Options or SARs outstanding or, notwithstanding any other provision of the
Plan, to take any of the following courses of action:
(a) Subject to the limitations on the exercise of
incentive stock options contained in Paragraph 9, not less than 30
days nor more than 60 dyas prior to any such transaction, all
Optionees and Holders shall be notified that their Options and SARs
shall expire on the 15th day after the date of such notice, in which
event all Optionees and Holders shall have the right to exercise any
or all of their Options and SARs prior to such new expiration date; or
(b) The Bank shall provide in any agreement with respect
to any such merger, consolidation, combination or acquisition that the
surviving, new or acquiring corporation shall grant options and stock
appreciation rights to the Optionees and Holders to acquire shares, or
stock appreciation rights in shares in such corporation with respect
to which (i) the excess of the fair market value of the shares of such
corporation immediately after the consummation of such merger,
consolidation, combination or acquisition over the option price, or
the value of such stock appreciation rights, shall be as nearly equal
to, but not greater than, the excess of the Fair Market Value of the
Shares over the option price of Options (or, in the case of the SAR,
the Value of such SAR), immediately prior to the consummation of such
merger, consolidation, combination or acquisition, and (ii) on a
share-by-share basis, the ratio of the option price to the fair market
value of the shares of the surviving, new, or acquiring corporation
immediately after such merger, consolidation, combination or
acquisition is no more favorable to the optionee than the ratio of the
option price to the Fair Market Value of the Shares immediately before
such merger, consolidation, combination or acquisition; or
(c) The Bank shall take such other action as the Board
shall determine to be reasonable under the circumstances in order to
permit Optionees and Holders to realize the value of rights granted to
them under the Plan.
13. PLAN NOT TO AFFECT EMPLOYMENT
Neither the Plan nor any Option or SAR shall confer upon any employee
of the Bank any rights to continue in the employment of the Bank.
14. INTERPRETATION
The Committee shall have the power to interpret the Plan and to make
and amend rules for putting it into effect and administering it. It is
intended that the Incentive Stock Options granted under the Plan shall
constitute incentive stock options within the meaning
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<PAGE> 9
of section 422A of the Code, that the Non-Qualified Options shall constitute
property subject to federal income tax pursuant to the provisions of section 83
of the Code and that the Plan shall qualify for the exemption available under
Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission or
appropriate banking agency. The provisions of the Plan shall be interpreted
and applied insofar as possible to carry out such intent.
15. AMENDMENTS
The Plan may be amended by the Board, but any amendment that increases
the aggregate number of Shares that may be issued pursuant to the Plan upon
exercise of Options or SARs (otherwise than pursuant to the Paragraph 11), that
changes the class of eligible employees, or that otherwise requires the
approval of the shareholders of the Bank in order to maintain the exemption
available under Rule 16b-3 (or any similar rule) of the Securities and Exchange
Commission or appropriate banking agency, shall require the approval of the
holders of such portion of shares of the capital stock of the Bank present and
entitled to vote on such amendment as is required by applicable state law and
the terms of the Bank's Charter, as then in effect, to make the amendment
effective. No outstanding Option or SAR shall be affected by any such
amendment without the consent of the optionee, Holder or other person then
entitled to exercise such Option or SAR.
16. SECURITIES LAWS
The committee shall have the power to make each grant under the Plan
subject to such conditions as it deems necessary or appropriate to comply with
the then-existing requirements of the Securities Exchange Act 1934, including
Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission or
appropriate banking agency.
17. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which the Plan is
adopted by the Board, and shall expire no later than 10 years from Board
adoption, unless sooner terminated by the Board. The Board shall submit the
Plan to the Shareholders of the Bank for their approval at the first annual or
special meeting of shareholders held after the adoption of the Plan by Board.
Any Option or SAR granted before the approval of the Plan by the Banks's
shareholders shall be expressly conditioned upon, and shall not be exercisable
until, such approval. If such shareholder approval is not received before
September 1993, the Board shall have the right to terminate the Plan, in which
all Options and SARs granted under the plan shall expire.
18. GENERAL
Each Option or SAR shall be evidenced by a written instrument
containing such terms and conditions not inconsistent with the Plan as the
Committee may determine. The issuance of Shares on the exercise of as Option or
SAR shall be subject to all of the
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applicable requirements of the General Corporation Law of Florida and other
applicable laws, including federal or state securities laws, and all shares
issued under the Plan shall be subject to the terms and restrictions contained
in the Charter of the Bank, as amended from time to time. Among other things,
the Optionee or Holder may be required to deliver an investment representation
to the Bank in connection with any exercise of such Option or SAR or to agree
to refrain from selling or otherwise disposing of the Shares acquired for a
specified period of time or on specified terms.
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AMENDMENTS
The following amendments amend section 1(i)(i) of the incentive stock
option agreements for David M. Shepherd and Bradley R. Meredith (as employees)
and section 1(i)(i) of the non-qualified stock option agreements for Idris D.
Voldness, George A. Bavelis, Thomas J. Windram, William Wintersdorf, William M.
Furnas, Catherine C. Hanson, John B. Kirkpatrick, Jr., and Braxton W. Price,
M.D. (as directors):
FOR EMPLOYEES
If Employee shall cease to be employed by First Family Financial
Corporation, the sole shareholder of First Family ("Holding Company"), for any
reason other than death, disability (as determined by the Committee) or
retirement, the date 30 days after the date of termination of employment;
provided, however, should Employee cease to be employed by First Family,
Holding Company or its successor within two years of a Change in Control of
First Family or Holding Company, the Termination Date shall be three years
after the date of such termination of employment. "Change in Control" of First
Family or Holding Company means a change in control that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor disclosure item; provided that, without limitation, such
a Change in Control (as set forth in 12 U.S.C. Section 1841[a][2] of the Bank
Holding Company of Act of 1956, as amended) shall be deemed to have occurred if
any person (as such term is used in Sections 13[d] and 14[d] of the Exchange
Act in effect on the date first written above), other than any person who on
the date hereof is a director or officer of First Family or Holding Company,
(i) directly or indirectly, or acting through one or more other persons, owns,
controls or has power to vote 25% or more of any class of the then outstanding
voting securities of First Family or Holding Company; or (ii) controls in any
manner the election of the directors of First Family or Holding Company. For
purposes of this Agreement, a "Change in Control" shall be deemed not to have
occurred in connection with a reorganization, e.g. bank holding company
reorganization, consolidation, or merger of First Family or Holding Company
where the stockholders of First Family or Holding Company immediately before
the consummation of the transaction, will own at least 80% of the total
combined voting power of all classes of stock entitled to vote of the surviving
entity immediately after the transaction.
FOR DIRECTORS
If Director shall cease to be a director of First Family or First
Family Financial Corporation, the sole shareholder of First Family ("Holding
Company"), for any reason other than death, disability (as determined by the
Committee) or retirement, the date 30 days after the date of termination of
director's directorship provided, however, should Director cease to be a
director of First Family, Holding Company or its successor within two years of
a Change in Control of First Family or Holding Company, the Termination Date
shall be three years after the date of such termination of directorship.
"Change in Control" of First Family or Holding Company means a change in
control that would be required to
<PAGE> 12
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor disclosure item; provided that, without limitation, such
a Change in Control (as set forth in 12 U.S.C. Section 1841[a][2] of the Bank
Holding Company Act of 1956, as amended) shall be deemed to have occurred if
any person (as such term is used in Sections 13[d] and 14[d] of the Exchange
Act in effect on the date first written above), other than any person who on
the date hereof is a director or officer of First Family or Holding Company,
(i) directly or indirectly, or acting through one or more other persons, owns,
controls or has power to vote 25% or more of any class of the then outstanding
voting securities of First Family or Holding Company; or (ii) controls in any
manner the election of the directors of First Family or Holding Company. For
purposes of this Agreement, a "Change in Control" shall be deemed not to have
occurred in connection with a reorganization, e.g. bank holding company
reorganization, consolidation, or merger of First Family or Holding Company
where the stockholders of First Family or Holding Company immediately before
the consummation of the transaction, will own at least 80% of the total
combined voting power of all classes of stock entitled to vote of the surviving
entity immediately after the transaction.
2
<PAGE> 1
EXHIBIT 5
OPINION AS TO CERTAIN DELAWARE LAW ISSUES OF THE
SECURITIES BEING REGISTERED
<PAGE> 2
October 2, 1996
Montgomery Office
The Colonial BancGroup, Inc.
P. O. Box 1108
Montgomery, AL 36101
Re: Registration Statement on Form S-4 relating to the issuance of
shares of Common Stock of The Colonial BancGroup, Inc., in
connection with the acquisition by merger of First Family
Financial Corporation ("Merger")
Gentlemen:
We are familiar with the proceedings taken and proposed to be taken by
The Colonial BancGroup, Inc., a Delaware corporation (the "Company"), in
connection with the proposed issuance by the Company of shares of its Common
Stock, par value of $2.50 per share, in connection with the Merger and in
accordance with an Agreement and Plan of Merger, dated as of July 19, 1996 (the
"Agreement"), by and between the Company and First Family Financial Corporation
and the issuance by the Company of its Common Stock pursuant to the First
Family Bank, fsb 1992 Stock Option and Stock Appreciation Rights Plan being
assumed by the Company in accordance with the Agreement. We have also acted
as counsel for the Company in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, of the
Registration Statement on Form S-4 referred to in the caption above. In this
connection we have reviewed such documents and matters of law as we have deemed
relevant and necessary as a basis for the opinions expressed herein.
Upon the basis of the foregoing, we are of the opinion that:
(i) The Company is a corporation duly organized and existing under
the laws of
<PAGE> 3
The Colonial BancGroup
October 2, 1996
Page 2
the State of Delaware;
(ii) The shares of Common Stock of the Company referred to above,
to the extent actually issued pursuant to the Agreement will, when so issued,
be duly and validly authorized and issued and will be fully paid and
nonassessable shares of Common Stock of the Company;
(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced registration statement. In consenting to the inclusion of our
opinion in the Registration Statement, we do not thereby admit that we are a
person whose consent is required pursuant to Section 7 of the Securities Act of
1933, as amended.
Sincerely yours,
MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
By: /s/ Michael D. Waters
------------------------
Michael D. Waters
MDW/mfm
<PAGE> 1
EXHIBIT 8
TAX OPINION
<PAGE> 2
October 2, 1996
Mobile Office
First Family Financial Corporation
2801 South Bay Street
Eustis, FL 32726
The Colonial BancGroup, Inc.
One Commerce Street
P. O. Box 1108
Montgomery, AL 36104
Re: Tax Opinion
Gentlemen:
We have acted as counsel to The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"), in connection with the merger of First Family
Financial Corporation, a Florida corporation ("First Family") with and into
BancGroup, pursuant to the Agreement and Plan of Merger, dated as of July 19,
1996, (the "Agreement") by and between BancGroup and First Family. This
opinion is being rendered to you pursuant to paragraph 8.5 of the Agreement.
In rendering this opinion, we have relied upon the facts, which are
not restated herein, but rather, as they have been presented to us in the
Agreement, and in a preliminary joint proxy statement-prospectus of First
Family and BancGroup to be filed with the Securities and Exchange Commission.
We have assumed that the merger will be consummated on the Effective Date
pursuant to the terms and conditions set forth in the
<PAGE> 3
Agreement and as described in the preliminary joint proxy statement-prospectus.
We have assumed, with your consent, that the facts presented to us provide an
accurate and complete description of the facts and circumstances concerning the
proposed transaction. Any changes to the facts, representations, or documents
referred to in this opinion may affect the conclusions stated herein.
In connection with this opinion, we have assumed, with your consent,
the following:
(1) BancGroup does not plan to sell or otherwise dispose of any of
the stock of First Family Bank, FSB (the "Bank"), a wholly owned subsidiary of
First Family except that the Bank will be merged with Colonial Bank,
BancGroup's wholly owned Florida banking subsidiary, simultaneously with or
shortly after the merger.
(2) BancGroup will continue the historic business of First Family
and the Bank or will use a significant portion of the historic business assets
of First Family and the Bank in a business.
(3) First Family has no knowledge of any plan or intention on the
part of its shareholders to sell or otherwise dispose of the BancGroup common
stock to be received by them that would reduce their holdings to a number of
shares having, in the aggregate, a fair market value of less than fifty percent
of the total fair market value of First Family common stock outstanding
immediately before the merger.
(4) As a result of the merger, each share of the issued and
outstanding First Family common stock will be converted into the right to
receive BancGroup common stock and cash. A First Family shareholder will
receive $11.75 in cash and BancGroup common stock with a value of $11.75 for
each share of First Family common stock held by that shareholder.
(5) No fractional shares will be issued in the Merger. In the
event fractional shares result in the exchange, First Family shareholders
entitled to fractional shares will be paid cash by BancGroup for their
fractional shares.
(6) The fair market value of the BancGroup common stock and cash
to be received by a First Family shareholder will be approximately equal to the
fair market value of the First Family stock exchanged therefor.
(7) First Family shareholders do not have dissenters' rights and,
therefore, no cash will be paid to First Family shareholders other than as
described above.
(8) The proposed merger will be effected for substantial non-tax
business
<PAGE> 4
purposes.
(9) First Family is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
On the basis of the foregoing and our consideration of such other
matters as we have considered necessary, we advise you that, in our opinion,
for federal income tax purposes:
(1) The merger of First Family with and into BancGroup in
accordance with the terms of the Agreement will constitute a reorganization
within the meaning of Section 368(a)(1)(A) of the Code. Bancgroup and First
Family will each be a "party to a reorganization" under Section 368(b) of the
Code.
(2) No gain or loss will be recognized by First Family upon the
transfer of its assets and liabilities to BancGroup. Sections 357(a) and
361(a) of the Code. No gain or loss will be recognized by BancGroup upon
receipt of the assets and liabilities of First Family. Section 1032(a) of the
Code.
(3) A First Family shareholder who exchanges shares of First
Family stock for a combination of BancGroup common stock and cash as described
in the Agreement will recognize gain, if any, but in an amount not in excess of
the cash received. The amount of the gain realized will be the excess of (a)
the sum of (i) the amount of cash received and (ii) the fair market value of
the shares of BancGroup Common Stock received, over (b) the tax basis of the
shares of First Family stock exchanged therefor. No loss will be recognized.
Sections 356(a)(1), (c) of the Code.
(4) Any gain recognized by a shareholder of First Family will be
characterized as a capital gain if the First Family stock is a capital asset in
the hands of such shareholder and the receipt of the cash does not have "the
effect of the distribution of a dividend" within the meaning of Section
356(a)(2) of the Code as interpreted by the United States Supreme Court in
Commissioner v. Clark, 489 U.S. 726 (1989). Pursuant to Clark, it will be
assumed that BancGroup issued all stock to each of the First Family shareholders
and then BancGroup redeemed a portion of such stock for the amount of cash that
was actually issued. If that hypothetical redemption satisfies any of the tests
of Section 302(b) of the Code, the hypothetical redemption will be treated as an
exchange. Otherwise, the receipt of the cash will be treated as a dividend
under Section 356(a)(2) of the Code. In the present case, the First Family
shareholders should be able to satisfy one or more of the tests of Section
302(b) of the Code. However, the application of such provisions is dependent
<PAGE> 5
upon each shareholder's facts and circumstances and is affected by the
attribution rules of Section 318 of the Code. Consequently, shareholders should
seek independent tax advice as to the tax effect of the merger, including the
receipt of the cash, to them.
(5) The constructive ownership rules of Section 318 of the Code
apply in determining whether the receipt of cash has "the effect of the
distribution of a dividend." Under these rules, shares subject to options and
shares owned (or, in some cases, constructively owned) by members of the
shareholder's family, and by related entities (such as corporations,
partnerships, trusts, and estates) in which the shareholder, a member of his
family, or a related entity has an interest, may be counted as owned by the
shareholder. Similarly, an entity may be treated as owning shares owned by
related persons or entities (such as shareholders, partners, or beneficiaries).
(6) The tax basis of the BancGroup common stock received by a
First Family shareholder will be the same as the adjusted tax basis of the
shares of First Family stock exchanged, decreased by the amount of cash
received and increased by the amount treated as a dividend and the amount of
gain recognized on the exchange. Section 358(a)(1) of the Code.
(7) The holding period of the BancGroup common stock received by a
First Family shareholder will include the holding period of the shares of First
Family stock exchanged therefor if such shares were capital assets in the hands
of the exchanging shareholder. Section 1223(1) of the Code.
(8) Cash received in lieu of a fractional share interest in
BancGroup Common Stock will be treated as received in redemption for such
fractional share. The gain recognized on such redemption will be determined in
the same manner as described above. Consequently, a First Family shareholder
should recognize gain or loss equal to the difference between the cash received
and the basis of such fractional share interest.
This opinion is being rendered solely to the parties to whom it is
addressed. This opinion may not be relied upon nor distributed to any other
person without the written
<PAGE> 6
consent of our Firm. We hereby consent to the reference to our Firm in, and to
the filing of this opinion as an exhibit to, the joint proxy
statement-prospects.
Very truly yours,
/s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF THE COLONIAL BANCGROUP, INC.
COLONIAL BANK, AN ALABAMA BANKING CORPORATION.
COLONIAL BANK OF TENNESSEE, A TENNESSEE BANK.
COLONIAL BANK, FSB, DUNWOODY, GEORGIA, A FEDERAL SAVINGS BANK.
COLONIAL BANK, LAWRENCEVILLE, GEORGIA, A GEORGIA STATE BANK
COLONIAL BANK, ORLANDO, FLORIDA, A FLORIDA BANK
THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION.
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF COOPERS & LYBRAND, L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-4 of our report dated February 23, 1996, on our audits of the
consolidated financial statements of The Colonial BancGroup, Inc., as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 and our report dated February 23, 1996, except Notes 1 and 2
as to which the date is July 3, 1996, on our audits of the supplemental
consolidated financial statements of the Colonial BancGroup Inc., as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995. We also consent to the reference to our firm under the
caption "Experts."
/S/ COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
October 22, 1996
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
CONSENT OF COUNSEL
THE COLONIAL BANCGROUP, INC.
WE HEREBY CONSENT TO USE IN THIS FORM S-4 REGISTRATION STATEMENT OF
THE COLONIAL BANCGROUP, INC., OF OUR NAME IN THE PROSPECTUS, WHICH IS A PART OF
SUCH REGISTRATION STATEMENT, UNDER THE HEADINGS "APPROVAL OF THE MERGER -
CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND "LEGAL MATTERS," TO THE
SUMMARIZATION OF OUR OPINIONS REFERENCED THEREIN, AND TO THE INCLUSION OF OUR
OPINIONS AT EXHIBITS 5 AND 8 OF THE REGISTRATION STATEMENT.
/S/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C.
October 17, 1996
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF HACKER, JOHNSON, COHEN & GRIEB
ACCOUNTANTS' CONSENT
The Board of Directors
First Family Financial Corporation
Eustis, Florida
We consent to the use of our report dated July 17, 1996, except for Note
18, as to which the date is July 19, 1996 relating to the Consolidated
Financial Statements of First Family Financial Corporation as of June 30, 1996
and 1995 and for each of the years in the three-year period then ended and to
the use of our name under the caption "Experts", in the Form S-4 Registration
Statement of Colonial BancGroup.
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
October 9, 1996
<PAGE> 1
EXHIBIT 23(D)
CONSENT OF MERCER CAPITAL MANAGEMENT, INC.
CONSENT
THE COLONIAL BANCGROUP, INC.
WE HEREBY CONSENT TO USE IN THIS FORM S-4 REGISTRATION STATEMENT OF
THE COLONIAL BANCGROUP, INC., OF OUR NAME IN THE PROSPECTUS, WHICH IS A PART OF
SUCH REGISTRATION STATEMENT, UNDER THE HEADINGS "APPROVAL OF THE MERGER -
OPINION OF FINANCIAL ADVISOR," TO THE SUMMARIZATION OF OUR OPINION REFERENCED
THEREIN, AND TO THE INCLUSION OF SUCH OPINION AT APPENDIX B TO THE PROSPECTUS.
/S/ MERCER CAPITAL MANAGEMENT, INC.
October 22, 1996
<PAGE> 1
EXHIBIT 99(A)
FORM OF PROXY OF FIRST FAMILY FINANCIAL CORPORATION
<PAGE> 2
SOLICITED BY
THE BOARD OF
DIRECTORS
PROXY
FIRST FAMILY FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
_________________, 1996
The undersigned hereby appoints _________________________ and
_________________________, and either of them, or such other persons as the
board of directors of First Family Financial Corporation ("First Family"), may
designate, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of common stock of
First Family at the special meeting of stockholders to be held on
__________________, 1996, and at any and all adjournments thereof.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<C> <C> <C>
<S> <C>
1. To ratify and approve the Agreement --------- ---------- -----------
and Plan of Merger dated as of
July 19, 1996, pursuant to which
First Family will be merged with --------- ---------- -----------
and into The Colonial BancGroup,
Inc.
FOR AGAINST ABSTAIN
2. To approve an adjournment of the --------- ---------- -----------
special meeting, if necessary, in
order to solicit additional proxies
in favor of Agreement and Plan of --------- ---------- -----------
Merger dated as of July 19, 1996.
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST
FAMILY AND WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND IN ACCORDANCE WITH THE DISCRETION
OF THE PROXY HOLDERS RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE SPECIAL MEETING BUT WHICH ARE NOT NOW ANTICIPATED, AND TO VOTE UPON MATTERS
INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
DATED: _____________________________________, 1996
PHONE NO: ________________________________________
__________________________________________________
(Signature of Stockholder)
__________________________________________________
(Signature of Stockholder, if more than one)
Please sign exactly as your name appears on the envelope
in which this material was mailed. If shares are held
jointly, each stockholder must sign. Agents, executors,
administrators, guardians and trustees must give full
title as such. Corporations should sign by their
president or authorized officer.
