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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE #1-13508
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THE COLONIAL BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 63-0661573
(State of Incorporation) (IRS Employer Identification No.)
ONE COMMERCE STREET
POST OFFICE BOX 1108
MONTGOMERY, AL 36101 (334) 240-5000
(Address of principal executive offices) (Telephone No.)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $2.50 REGISTERED ON THE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of January 31, 1996 based on the closing price of $32.50 per
share for Common Stock was $304,278,130. (For purposes of calculating this
amount, all directors, officers and principal shareholders of the registrant are
treated as affiliates).
Shares of Common Stock outstanding at January 31, 1996 were 13,491,691.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
DOCUMENT PART OF FORM 10-K
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Portions of Annual Report to Shareholders Part I,
for fiscal year ended December 31, 1995 Part II,
as specifically referred to herein. and Part IV
Portions of Definitive Proxy Statement Part III
for 1996 Annual Meeting as specifically
referred to herein.
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Colonial BancGroup, Inc., is hereinafter referred to as
"BancGroup".
BancGroup, a Delaware corporation, was organized in 1974 and is a bank
holding company under the Bank Holding Act of 1956, as amended (the "BHCA").
BancGroup was originally organized as Southland Bancorporation, and its name was
changed in 1981.
BancGroup operates three banking subsidiaries, one in Alabama, one in
Tennessee and one in Georgia (sometimes referred to collectively as the
"Colonial Banks"). Colonial Bank, located in Alabama, has 95 banking offices in
Birmingham, Montgomery, Huntsville, Florence, Tuscumbia, Anniston, Pell City,
Opelika, Foley, Mobile and several other Alabama cities. Colonial Bank of
Tennessee has four banking offices in Fayetteville, Pulaski and Ardmore,
Tennessee. Colonial Bank, a federal savings bank located in Dunwoody, Georgia,
operates three banking offices in Buckhead, Dunwoody and Kennesaw, Georgia.
(This bank is sometimes referred to herein as "Colonial Bank -- Georgia.") The
Colonial Banks conduct a general commercial banking business in their respective
service areas and offer banking services such as the receipt of demand, savings
and time deposits, personal, commercial and mortgage loans, credit card and safe
deposit box services, and the purchase and sale of government securities.
Colonial Bank in Alabama is active as a correspondent bank for unaffiliated
banks.
At December 31, 1995, BancGroup's banking subsidiaries accounted for
approximately 98% of BancGroup's consolidated assets. The principal activity of
BancGroup is to supervise and coordinate the business of its subsidiaries and to
provide them with capital and services. BancGroup derives substantially all of
its income from dividends received from its subsidiary banks. 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.
BancGroup's affiliate banks encounter intense competition in their
commercial banking business, generally from other banks located in their
respective metropolitan and service areas. The Colonial Banks compete for
interest bearing funds with other banks and with many issuers of commercial
paper and other securities which are not banks. In the case of larger customers,
competition exists with banks in other metropolitan areas of the United States,
many of which are larger in terms of capital resources and personnel. In the
conduct of certain aspects of its commercial banking business, the Colonial
Banks compete with savings and loan associations, credit unions, factors,
insurance companies and other financial institutions.
On February 17, 1995, BancGroup's Alabama subsidiary bank, Colonial Bank,
acquired The Colonial Company and its wholly owned subsidiary, Colonial Mortgage
Company. Prior to this acquisition, The Colonial Company spun off its other
businesses which it had previously operated to Robert E., James K. and Thomas H.
Lowder. In this acquisition, BancGroup issued 2,272,727 shares of its Class A
Common Stock to Robert E., James K. and Thomas H. Lowder, who were the sole
shareholders of The Colonial Company and directors of BancGroup. Both BancGroup
and the Lowder brothers have provided certain indemnities to each other for
breaches of the acquisition agreement by the other party. The transaction was
approved by a vote of the stockholders of BancGroup on December 8, 1994. The
acquisition price in this transaction was negotiated for BancGroup by a
committee of three independent directors of BancGroup consisting of Clinton O.
Holdbrooks, Robert S. Craft, and William E. Powell, III, and was based upon an
opinion of a nationally recognized investment banking firm that the price paid
by BancGroup was fair from a financial point of view to the stockholders of
BancGroup other than Robert E., James K., and Thomas H. Lowder.
Colonial Mortgage Company ("CMC") is a subsidiary of Colonial Bank in
Alabama. CMC is engaged in the retail and wholesale mortgage banking business.
CMC operates retail offices in Alabama and 6 regional wholesale offices covering
29 states. CMC's retail operation offers conventional, government and jumbo
products directly to borrowers. CMC's wholesale operation offers somewhat
limited products comprised of conventional and jumbo products to various
mortgage brokers. CMC offers a wholesale government program
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from its home office in Montgomery, Alabama. CMC has relationships with all
housing agencies such as VA, the Department of Housing and Urban Development,
FHA, FHLMC and FNMA. CMC underwrites, closes and sells loans according to the
guidelines required by these agencies.
BancGroup has one direct nonbanking subsidiary, The Colonial BancGroup
Building Corporation, which was established primarily to own and lease the
buildings and land used by banking affiliates of BancGroup.
The following table reflects certain information concerning BancGroup's
banking subsidiaries and BancGroup on a consolidated basis as of December 31,
1995.
<TABLE>
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COLONIAL BANK COLONIAL BANK COLONIAL BANCGROUP
COLONIAL BANK OF TENNESSEE GEORGIA CONSOLIDATED(1)
------------- ------------- ------------- ------------------
(DOLLARS IN THOUSANDS)
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Banking Offices......................... 95 4 3 102
Employees............................... 1,654 38 56 1,751
Percent of Ownership by BancGroup....... 100% 100% 100%
Loans Net of Unearned Income............ $ 2,623,193 $59,644 $ 192,741 $2,875,581
Mortgage Loans Held For Sale............ 110,486 -- -- 110,486
Investment Securities................... 247,092 22,401 -- 269,493
Securities Available For Sale........... 156,850 1,010 2,003 159,863
Total Assets............................ 3,439,098 91,415 219,513 3,741,217
Deposits................................ 2,555,830 79,826 157,360 2,785,958
Shareholder's Equity.................... 250,026 9,635 18,207 253,148
</TABLE>
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(1) All material inter-company balances have been eliminated in consolidation.
Prior to February 21, 1995, BancGroup had two classes of common stock
outstanding, Class A and Class B. The Class A Common Stock had limited voting
rights and was traded as a NASDAQ security. The Class B Common Stock was not
publicly traded. On February 21, 1995, the Class A and Class B Common Stock were
reclassified into one class, BancGroup's Common Stock, and on February 24, 1995,
the BancGroup Common Stock was listed for trading on the New York Stock
Exchange.
BancGroup's principal offices are located at and its mailing address is:
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36101. Its
telephone number is (334) 240-5000.
LENDING ACTIVITIES
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.
BancGroup, through the branches and offices of the Colonial Banks, makes
loans for a range of business and personal uses in response to local demands for
credit. Loans are concentrated in Alabama, Tennessee and Georgia and are
dependent upon economic conditions in those states. Alabama has historically
been a slow growth state. The following broad categories of loans have varying
risks and underwriting standards.
- - Commercial Real Estate. Loans classified as commercial real estate loans are
loans which are collateralized by real estate and substantially dependent upon
cash flow from income-producing improvements attached to the real state. For
BancGroup, these primarily consist of apartments, hotels, office buildings,
shopping centers, amusement/recreational facilities, one to four family
residential housing developments, and health service facilities.
Loans within this category are underwritten based on projected cash flows and
loan-to-appraised-value ratios of 80% or less. The risks associated with
commercial real estate loans are primarily dependent upon
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real estate values in local market areas, the equity investments of borrowers,
and the borrowers' experience and expertise. BancGroup has diversified its
portfolio of commercial real estate loans with less than 10% of its total loan
portfolio concentrated in any of the above-mentioned income producing
activities.
- - Real Estate Construction. Construction loans include loans to finance single
family and multi-family residential as well as nonresidential real estate.
Loan values for these loans are from 80% to 85% of completed appraised values.
The principal risks associated with these loans are related to the borrowers'
ability to complete the project and local market demand, the sales market,
presales or preleasing, and permanent loan commitments. BancGroup evaluates
presale requirements, preleasing rates, permanent loan take-out commitments,
as well as other factors in underwriting construction loans.
- - Real Estate Mortgages. These loans consist of loans made to finance one to
four family residences and home equity loans on residences. BancGroup may loan
up to 95% of appraised value on these loans without other collateral or
security. The principal risks associated with one to four family residential
loans are the borrowers' debt coverage ratios and real estate values.
- - Commercial, Financial, and Agricultural. Loans classified as commercial,
financial, and agricultural consist of secured and unsecured credit lines and
equipment loans for various industrial, agricultural, commercial, retail, or
service businesses.
The risk associated with loans in this category are generally related to the
earnings capacity and cash flows generated from the individual business
activities of the borrowers. Collateral consists primarily of business
equipment, inventory, and accounts receivables with loan-to-value ratios of
less than 80%. Credit may be extended on an unsecured basis or in excess of
80% of collateral value in circumstances as described in the paragraph below.
- - Installment and Consumer. Installment and consumer loans are loans to
individuals for various purposes. Automobile loans and unsecured loans make up
the majority of these loans. The principal source of repayment is the earning
capacity of the individual borrowers as well as the value of the collateral.
Installment and consumer loans are sometimes made on an unsecured basis or
with loan-to-value ratios in excess of 80%.
Collateral values referenced above are monitored by loan officers through
property inspections, reference to broad measures of market values, as well as
current experience with similar properties or collateral. Loans with
loan-to-value ratios in excess of 80% have potentially higher risks which are
offset by other factors including the borrower's or guarantors' credit
worthiness, the borrower's other banking relationships, the bank's lending
experience with the borrower, and any other potential sources of repayment.
BancGroup's subsidiary banks fund loans primarily with customer deposits
approximately 10% of which are considered more rate sensitive or volatile than
other deposits.
CERTAIN REGULATORY CONSIDERATIONS
BancGroup is a registered bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). As such, it is subject to the Bank Holding Company Act of 1956, as
amended ("BHCA") and many of the Federal Reserve's regulations promulgated
thereunder. It is also subject to regulation by the Georgia Department of
Banking and Finance and by the Office of Thrift Supervision ("OTS") as a savings
and loan holding company.
The Colonial Banks are subject to supervision and examination by applicable
federal and state banking agencies. In Alabama, Colonial Bank, as a state
chartered bank and not a member of the Federal Reserve system, is regulated and
examined both by the State of Alabama Banking Department and by the Federal
Deposit Insurance Corporation ("FDIC"). Colonial Bank of Tennessee is also state
chartered and not a member of the Federal Reserve system and is regulated by
both the State of Tennessee Department of Financial Institutions and by the
FDIC. Colonial Bank -- Georgia, a federal savings bank, is regulated by the OTS.
The deposits of the Colonial 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
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of the Colonial Banks. Moreover, the FDIC may terminate deposit insurance of the
Colonial 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).
As a result of enactment in 1991 of the FDIC Improvement Act, banks are
subject to increased reporting requirements and more frequent examinations by
the bank regulators. The agencies also have the authority to dictate certain key
decisions that formerly were left to management, including compensation
standards, loan underwriting standards, asset growth, and payment of dividends.
Failure to comply with these 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 banking agencies have the authority to place an
institution into receivership or require that the bank be sold to, or merged
with, another financial institution.
In September 1994 Congress enacted the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. This legislation, among other things, amended
the BHCA to permit bank holding companies, subject to certain limitations, to
acquire either control or substantial assets of a bank located in states other
than that bank holding company's home state regardless of state law
prohibitions. This legislation became effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act to
permit, beginning on June 1, 1997 (or earlier where state legislatures provide
express authorization), the merger of insured banks with banks in other states.
The officers and directors of BancGroup and the Colonial Banks are subject
to numerous insider transactions restrictions, including limits on the amount
and terms of transactions involving the Colonial 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
Colonial 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 Colonial Banks' relationships with their
customers.
The Budget Reconciliation Act of 1995 ("Budget Act") was passed by Congress
but subsequently vetoed by President Clinton. Congressional leadership and
President Clinton began discussions in 1995 to determine whether the Congress
and the Administration could reach a compromise on budget reconciliation. It is
unknown whether these negotiations will be successful. The Budget Act originally
passed by Congress and subsequently vetoed by the President contained a
provision which directed the FDIC to set a one-time special
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assessment on deposits insured by the Savings Association Insurance Fund
("SAIF") which would be in an amount sufficient to recapitalize the SAIF. It is
anticipated that a special assessment in the range of $0.78 to $0.85 per $100 of
SAIF-insured deposits would be necessary in order to recapitalize the SAIF, if
the assessment were to be made in the next six months. The recapitalization
would allow a reduction in the current premium of $0.23 per $100 of SAIF insured
deposits. BancGroup's subsidiary banks maintain deposits which are insured by
both the SAIF and the Bank Insurance Fund. The SAIF insured deposits in all of
BancGroup's subsidiary banks total $679 million, after adjusting for certain
allowances in the current proposal, which could be subject to the special
assessment. In the event a budget reconciliation agreement is reached between
the Congress and the Administration, it is expected that the agreement would
include the special assessment provision contained in the original Budget Act.
If no agreement is reached by the Congress and the Administration, it is still
possible that Congress could attach such a provision to another piece of
legislation or pass such a provision as a free-standing bill. The
Administration, in testimony before Congress and in the press, has indicated its
support of the recapitalization of SAIF in the manner provided in the Budget
Act.
It should be noted that supervision, regulation, and examination of
BancGroup and the Colonial Banks are intended primarily for the protection of
depositors, not stockholders.
ADDITIONAL INFORMATION
Additional information, including statistical information concerning the
business of BancGroup, is set forth in BancGroup's Annual Report to Shareholders
for the year ended December 31, 1995, at pages 16 through 39 under the captions
"Selected Financial Data, Selected Quarterly Data 1995-1994" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
is incorporated herein by reference.
EXECUTIVE OFFICERS AND DIRECTORS
Pursuant to general instruction G, information regarding executive officers
of BancGroup is contained herein at Item 10.
ITEM 2. PROPERTIES
BancGroup's, Colonial Bank's, and Colonial Mortgage's principal offices are
located in Montgomery, Alabama in the Colonial Financial Center which are leased
from G.C. Associates I, Joint Venture, a partnership owned 50% by affiliates of
BancGroup's principal stockholders. These leased premises comprise 68,142 square
feet of office space.
The Colonial Bank of Tennessee's principal offices are located in Ardmore,
Tennessee, in a building owned by the bank.
Colonial Bank's central operations offices are located in Birmingham,
Alabama in a 16 story building owned by the bank. Approximately 90% or 71,609
square feet of this building is utilized by Colonial Bank; the remainder is
available for rent to third parties.
Colonial Bank -- Georgia's principal offices are located in Dunwoody,
Georgia, in a building owned by the bank.
As of December 31, 1995, bank subsidiaries of BancGroup owned 89 and leased
13 of their full-service banking offices. See Notes 7 and 12 of the Notes to
Consolidated Financial Statements included in the Annual Report to Shareholders,
which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of BancGroup, based on review and consultation with legal
counsel, the outcome of any litigation presently pending is not anticipated to
have a material adverse effect on BancGroup's consolidated financial statements
or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
"Market Price of and Dividends Declared on Common Stock" is contained on
page 59 of the Annual Report to Shareholders for the year ended December 31,
1995, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" and "Selected Quarterly Financial Data 1995-1994"
on pages 16 through 18 of the Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 19 through 39 of the Annual Report to Shareholders for the
year ended December 31, 1995 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements set forth in BancGroup's Annual Report to
Shareholders for 1995 at pages 40 through 58 are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to BancGroup directors is
contained in BancGroup's proxy statement dated March 18, 1996, for its 1996
annual meeting of shareholders under the captions "Election of Directors" and
"Section 16 Reporting" and is incorporated herein by reference.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME, AGE AND YEAR PRESENT AND PRINCIPAL OCCUPATION
BECAME EXECUTIVE FOR
OFFICER PRESENT POSITION WITH BANCGROUP THE LAST FIVE YEARS
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Robert E. Lowder...... Chairman of the Board, Chief Chairman of the Board, Chief
53, 1981 Executive Officer and President, Executive Officer and President,
BancGroup; Chairman of the BancGroup; Chairman of the
Board, Chief Executive Officer Board, Chief Executive Officer
and President, Colonial Bank in and President, Colonial Bank in
Alabama; Chairman of the Board, Alabama; Chairman of the Board,
Colonial Bank in Georgia; Colonial Bank in Georgia;
Chairman of the Board, Colonial Chairman of the Board, Colonial
Mortgage Co., Montgomery Mortgage Co.; Chairman of the
Board and President, Colonial
Broadcasting Company, Montgomery
Harold D. King........ Vice Chairman of the Board Vice Chairman of the Board,
63, 1986 BancGroup, Pell City
Jack H. Rainer........ Vice Chairman of the Board President and Chief Executive
73, 1981 Officer, Bankers Credit Life
Insurance Company, Montgomery
Young J. Boozer, Executive Vice President -- Executive Vice President --
III................. Investments Investments, BancGroup,
46, 1986 Montgomery
W. Flake Oakley, IV... Executive Vice President, Chief Chief Financial Officer, Secretary
42, 1988 Financial Officer, Treasurer and and Treasurer, BancGroup, since
Secretary June 1991; Chief Financial
Officer and Treasurer since
October, 1990; Senior Vice
President and Controller from
April 1989 to October 1990,
BancGroup, Montgomery
Michael R. Holley..... Executive Vice President -- Executive Vice President --
46, 1995 Operations Operations, BancGroup since
January 1995; Vice President and
Chief Financial Officer, The
Colonial Company 1990 to 1995,
Montgomery
Samuel R. Morgan...... Executive Vice President and Chief Executive Vice President and Chief
47, 1995 Credit Officer Credit Officer, BancGroup since
October 1995; Senior Loan
Officer -- Colonial Bank
Montgomery 1986 to 1995,
Montgomery
Michelle Condon....... Executive Vice President -- Retail Executive Vice President -- Retail
41, 1995 Banking Banking, BancGroup since October
1995; Colonial Bank -- Vice
President, Budgeting & Planning,
Colonial Bank 1990 to 1995,
Montgomery
</TABLE>
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in BancGroup's proxy
statement dated March 18, 1996 for its 1996 annual meeting of shareholders under
the caption "Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in BancGroup's proxy
statement dated March 18, 1996, for its 1996 annual meeting of shareholders
under the caption "Voting Securities and Principal Stockholders" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in BancGroup's proxy
statement dated March 18, 1996, for its 1996 annual meeting of shareholders
under the captions "Compensation Committee Interlocks and Insider Participation"
and "Executive Compensation" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are incorporated herein by reference
from Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1995;
Consolidated Statements of Condition as of December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements, including Parent Company
only information.
Report of Independent Accountants.
2. Financial Statements Schedules
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the required
information is shown in the financial statements or notes thereto which are
incorporated by reference at subsection 1 of this Item, above.
3. Exhibits
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EXHIBITS AND DESCRIPTION
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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.
</TABLE>
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<TABLE>
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EXHIBITS AND DESCRIPTION
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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 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 as Form S-2, file
number 33-4004, effective March 25, 1986, and incorporated herein by
reference.
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 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 on 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.
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBITS AND DESCRIPTION
------------------------------------------------------------------------------------------
<S> <C>
(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.
(E) -- Agreement and Plan of Merger between The Colonial BancGroup, Inc., and
Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995, included
as Exhibit 10(E) to Registrant's Registration Statement on Form S-4,
Registration No. 333-01163, and incorporated herein by reference.
(F) -- Amended and Restated Agreement and Plan of Merger between The Colonial
BancGroup, Inc. and Southern Banking Corporation dated as of February 15,
1996 included a Exhibit 10(F) to the Registrant's Registration Statement on
Form S-4, Registration No. 333-01163 and incorporated herein by reference.
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share.
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
Exhibit 13 -- Portions of the 1995 Annual Report to Security Holders. (Such annual report,
except for those portions expressly incorporated by reference in this
report, is furnished solely for the information of the Commission and is not
deemed to be filed as part of this report).
Exhibit 21 -- List of subsidiaries of the Registrant.
Exhibit 23 -- Consents of experts and counsel:
(A) -- Consent of Coopers & Lybrand L.L.P.
Exhibit 24 -- Power of Attorney.
Exhibit 27 -- Financial Data Schedule (for SEC use only)
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of 1995.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Montgomery, Alabama, on the 22nd day of March, 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 Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ ROBERT E. LOWDER Chairman of the Board of **
- ---------------------------------------- Directors, President and
Robert E. Lowder Chief Executive Officer
/s/ W. FLAKE OAKLEY, IV Chief Financial Officer, **
- ---------------------------------------- Secretary and Treasurer
W. Flake Oakley, IV (Principal Financial Officer
and Principal Accounting
Officer)
* Director **
- ----------------------------------------
Young J. Boozer
* 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
* Director **
- ----------------------------------------
Harold D. King
* Director **
- ----------------------------------------
John Ed Mathison
* Director **
- ----------------------------------------
Milton E. McGregor
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------ ----------------
<S> <C> <C>
* Director **
- ----------------------------------------
John C. H. Miller, Jr.
* Director **
- ----------------------------------------
Joe D. Mussafer
* Director **
- ----------------------------------------
William E. Powell
* Director **
- ----------------------------------------
Jack H. Rainer
* Director **
- ----------------------------------------
Frances E. Roper
* Director **
- ----------------------------------------
Ed V. Welch
</TABLE>
* The undersigned, acting pursuant to a power of attorney, has signed this
Annual Report on Form 10-K for and on behalf of the persons indicated above as
such persons' true and lawful attorney-in-fact and in their names, places and
stead, in the capacities indicated above and on the date indicated below.
/s/ W. FLAKE OAKLEY, IV
- --------------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: March 22, 1996
12
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
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..............................................................
(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 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..............................................................
</TABLE>
13
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
(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 333-01163 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....
(E) -- Agreement and Plan of Merger between The Colonial BancGroup, Inc., and
Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995,
filed as Exhibit 10(E) to the Registrant's Registration Statement on
Form S-4, registration number 333 -01163, and incorporated herein by
reference..............................................................
(F) -- Amended and Restated Agreement and Plan of Merger between The Colonial
BancGroup, Inc. and Southern Banking Corporation dated as of February
15, 1996 included a Exhibit 10(F) to the Registrant's Registration
Statement on Form S-4, Registration No. 333-01163 and incorporated
herein by reference....................................................
Exhibit 11 -- Statement Regarding Computation of Earnings Per Share....................
Exhibit 12 -- Statement Regarding Computation of Ratio of Earnings to Fixed Charges....
Exhibit 13 -- Portions of the 1995 Annual Report to Security Holders. (Such annual
report, except for those portions expressly incorporated by reference
in this report, is furnished solely for the information of the
Commission and is not deemed to be filed as part of this report.)......
Exhibit 21 -- List of subsidiaries of the Registrant...................................
Exhibit 23 -- Consents of experts and counsel:
(A) -- Consent of Coopers & Lybrand L.L.P.......................................
Exhibit 24 -- Power of Attorney........................................................
Exhibit 27 -- Financial Data Schedule (for SEC use only)...............................
</TABLE>
14
<PAGE> 1
EXHIBIT 11
THE COLONIAL BANCGROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
A. Income before extraordinary items and the cumulative
effect of a change in accounting for income taxes... $38,794 $27,310 $19,137
B. Net income............................................
38,794 27,310 21,893
C. Interest expense on convertible debentures............
1,660 1,702 2,386
D. Tax effect of (C) above...............................
585 589 755
E. Average primary shares outstanding(1).................
12,418 11,996 9,530
F. Average contingent shares outstanding(2)..............
763 767 1,093
EARNINGS PER COMMON SHARE:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes:
Primary (A/E).............................................
$ 3.12 $ 2.28 $ 2.01
Fully diluted (A+C-D)/(E+F)...............................
3.02 2.23 1.96
Net income:
Primary (B/E).............................................
$ 3.12 $ 2.28 $ 2.30
Fully diluted (B+C-D)/(E+F)...............................
3.02 2.23 2.21
</TABLE>
- ---------------
(1) Includes the effect of stock options, totaling 107,268, 117,190 and 130,568
in 1995, 1994 and 1993.
(2) Includes the effect of the average contingent shares from BancGroup's two
issues of convertible subordinated debentures; computed by dividing the
outstanding balance of the convertible debentures, $7,483 and $9,637, by
their respective conversion prices of $18.25 and $28.00 per share. Also
includes an immaterial effect of stock options on a fully diluted basis.
<PAGE> 1
EXHIBIT 12
THE COLONIAL BANCGROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
A. Income before income taxes, extraordinary
items and the cumulative effect of a
change in accounting for income taxes... $ 59,907 $ 41,652 $28,023 $21,267 $16,394
Fixed charges:
Interest expense.......................... 132,458 82,549 59,517 60,576 81,486
1/3 Rent expense......................... 1,766 1,464 1,213 1,348 1,239
-------- -------- ------- ------- -------
B. Total fixed charges....................... 134,224 84,013 60,730 61,924 82,725
-------- -------- ------- ------- -------
C. Sum of A and B............................ $194,131 $125,665 $88,753 $83,191 $99,119
======== ======== ======= ======= =======
Ratio of earnings to fixed charges
(C/B)..................................... 1.45 1.50 1.46 1.34 1.20
</TABLE>
<PAGE> 1
EXHIBIT 13
PORTIONS OF THE 1995 ANNUAL REPORT TO SECURITY HOLDERS
(SUCH ANNUAL REPORT, EXCEPT FOR THOSE PORTIONS EXPRESSLY INCORPORATED BY
REFERENCE IN THIS REPORT, IS FURNISHED SOLELY FOR THE INFORMATION OF THE
COMMISSION AND IS NOT DEEMED TO BE FILED AS PART OF THIS REPORT.)
<PAGE> 2
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
For the years ended
December 31, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------
STATEMENT OF INCOME
<S> <C> <C> <C> <C> <C>
Interest income $250,900 $187,230 $141,572 $130,624 $138,969
Interest expense 132,458 82,549 59,517 60,576 81,486
- -------------------------------------------------------------------------------------------
Net interest income 118,442 104,681 82,055 70,048 57,483
Provision for possible loan losses 5,480 6,481 7,945 7,979 6,364
- -------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 112,962 98,200 74,110 62,069 51,119
Noninterest income 50,175 44,243 40,433 34,727 31,271
Noninterest expense 103,230 100,791 86,520 75,529 65,996
- -------------------------------------------------------------------------------------------
Income before income taxes 59,907 41,652 28,023 21,267 16,394
Applicable income taxes 21,113 14,342 8,886 5,715 4,175
- -------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 38,794 27,310 19,137 15,552 12,219
- -------------------------------------------------------------------------------------------
Extraordinary items, net of income taxes -- (463) -- 831
Cumulative effect of a change in
accounting for income taxes -- 3,219 -- --
- -------------------------------------------------------------------------------------------
Net income $ 38,794 $ 27,310 $ 21,893 $ 15,552 $ 13,050
===========================================================================================
EARNINGS PER COMMON SHARE
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary $ 3.12 $ 2.28 $ 2.01 $ 1.72 $ 1.37
Fully-diluted $ 3.02 $ 2.23 $ 1.96 $ 1.71 $ 1.37
Net income:
Primary $ 43.12 $ 2.28 $ 2.30 $ 1.72 $ 1.47
Fully-diluted $ 43.02 $ 2.23 $ 2.21 $ 1.71 $ 1.47
Average shares outstanding:
Primary 12,418 11,996 9,530 9,016 8,905
Fully-diluted 13,181 12,763 10,623 10,327 10,247
Cash dividends per common share:
Common $ 0.675
Class A 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
===========================================================================================
</TABLE>
16
<PAGE> 3
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
For the years ended
December 31, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
STATEMENT OF CONDITION DATA
<S> <C> <C> <C> <C> <C>
At year-end:
Total assets $3,741,217 $2,838,343 $2,822,521 $1,796,246 $1,687,177
Loans, net of unearned income 2,875,581 $2,094,028 1,771,989 1,172,151 1,093,728
Mortgage loans held for sale 110,486 60,536 361,496 144,215 105,219
Deposits 2,785,958 2,171,464 2,190,998 1,493,479 1,452,344
Long-term debt 29,038 69,042 57,397 22,979 27,225
Shareholders' equity 253,148 191,551 172,764 100,406 88,429
Average balances:
Total assets $3,239,312 $2,726,710 $2,119,660 $1,764,397 $1,643,622
Interest-earning assets 2,958,204 2,458,568 1,871,254 1,540,926 1,450,115
Loans, net of unearned income 2,428,823 1,906,385 1,315,910 1,136,124 1,094,096
Mortgage loans held for sale 97,511 131,121 241,683 118,510 65,373
Deposits 2,451,253 2,158,532 1,644,658 1,476,668 1,403,538
Shareholders' equity 216,256 182,823 119,790 94,833 84,423
Book value per share at year-end $ 19.35 $ 16.08 $ 14.64 $ 11.27 $ 10.00
Tangible book value per share at year-end $ 17.34 $ 14.71 $ 13.25 $ 10.60 $ 9.21
============================================================================================================
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.20% 1.00% 0.90% 0.88% 0.74%
Average shareholders' equity 17.94 14.94 15.98 16.40 14.47
Net income to:
Average assets 1.20 1.00 1.03 0.88 0.79
Average shareholders' equity 17.94 14.94 18.28 16.40 15.46
Efficiency ratio 60.32 66.68 69.50 70.64 72.52
Dividend payout ratio 27.12 27.21 25.33 26.85 31.60
Average equity to average total assets 6.68 6.70 5.65 5.37 5.14
Total nonperforming assets to
net loans, other real estate and repossessions(*) 0.78 0.90 1.31 1.34 1.07
Net charge-offs to average loans 0.13 0.09 0.33 0.47 0.51
Allowance for possible loan losses to
total loans (net of unearned income) 1.28 1.60 1.62 1.60 1.48
Allowance for possible loan losses to
nonperforming loans(*) 271% 314% 347% 246% 246%
============================================================================================================
</TABLE>
- -----------
(*) Nonperforming loans and nonperforming assets are shown as defined in
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Nonperforming Assets on page 32.
17
<PAGE> 4
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA 1995-1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------- ------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $70,667 $65,560 $60,664 $54,009 $50,870 $47,180 $45,779 $43,401
Interest expense 38,410 35,124 32,093 26,831 23,341 20,439 19,915 18,854
- ------------------------------------------------------------------------------------------------------
Net interest income 32,257 30,436 28,571 27,178 27,529 26,741 25,864 24,547
Provision for loan losses 2,050 1,265 1,098 1,067 1,767 1,818 1,448 1,448
- ------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 30,207 29,171 27,473 26,111 25,762 24,923 24,416 23,099
Net income $10,041 $10,202 $10,250 $ 8,301 $ 6,644 $ 7,078 $ 6,740 $ 6,848
======================================================================================================
Per common share:
Net income:
Primary $ 0.78 $ 0.83 $ 0.83 $ 0.69 $ 0.55 $ 0.59 $ 0.56 $ 0.57
Fully-diluted 0.75 0.80 0.80 0.67 0.54 0.58 0.55 0.56
======================================================================================================
</TABLE>
18
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- --------------------------------------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on the following pages. The principal purpose of this
review is to provide the user of the attached financial statements and
accompanying footnotes with a more detailed analysis of the financial results
of The Colonial BancGroup, Inc. ("BancGroup"). Among other things, this
discussion provides commentary on BancGroup's history, operating philosophies,
the components of net interest margin and balance sheet strength as measured by
the quality of assets, the composition of the loan portfolio and capital
adequacy.
BACKGROUND
BancGroup (or the "Company") was established in 1981 with one bank and
$166 million in assets. Through 32 acquisitions the Company has now grown to a
$3.7 billion multistate bank holding company with substantial centralized
operations, local lending autonomy with centralized loan review and a strong
commercial lending function. During 1995 the Company acquired Colonial Mortgage
Company and expanded its operations into the Atlanta, Georgia market. More
importantly BancGroup's earnings per share have increased an average of 26.9%
per year since 1990 and in 1995 the Company achieved a 17.94% return on average
equity and a 1.20% return on average assets.
BancGroup's performance goals are: 1) an annual earnings per share growth
rate in excess of 10%, 2) a 17.5% return on equity, 3) a 1.45% return on assets
and 4) a consistently increasing dividend. The strategies employed to achieve
these results are outlined below. They represent the foundation upon which
BancGroup operates and the basis for achieving the Company's goals.
- - Community Bank: BancGroup operates as a community bank allowing autonomy
in lending decisions and customer relationships. This operating philosophy
has been important in making acquisitions, retaining a skilled and highly
motivated management team and in developing a strong customer base,
particularly with respect to lending relationships.
- - Commercial lending primarily through groups located in the Birmingham,
Huntsville, Montgomery and Anniston, Alabama metropolitan centers has been
a major factor in the Company's growth. Commercial real estate and other
commercial loans increased 13.1% during 1995 following a 19.4% increase in
1994. BancGroup has been very successful in competing for these loans
against other larger financial institutions, due primarily to the
Company's local lending strategy and management continuity.
- - Consumer Real Estate: Since 1993 BancGroup has focused on residential real
estate lending as a means to increase consumer lending, broaden the
Company's customer base and create a significant stream of fee income. In
furtherance of this goal, in February, 1995 BancGroup acquired Colonial
Mortgage Company ("CMC"), one of the 70 largest mortgage loan servicers in
the country. BancGroup has increased residential mortgage loans 352% from
December 31, 1992 to $1.4 billion at December 31, 1995. The portfolio of
mortgage loans has a relatively low credit risk and CMC's $9 billion
portfolio of loans serviced for others provides a steady source of
noninterest income.
- - Growth Market Expansion: In October, 1995 BancGroup completed the
acquisition of Mt. Vernon Financial Corporation, an Atlanta, Georgia based
thrift with $225 million in assets. In addition BancGroup has signed
definitive agreements to merge with Commercial Bank of Georgia, a $220
million bank in the north Atlanta area, and Southern Bank of Central
Florida, a $230 million bank in Orlando, Florida. These acquisitions will
provide BancGroup with a significant base of operations in the Southeast's
two fastest growing markets.
- - Cost Control: An operational and organizational infrastructure
established in prior years has allowed the Company to grow significantly
and improve the efficiency ratio from 76.69% in 1990 to 60.32% in 1995.
The operating structure is built around centralized back-shop operations
in areas that do not have direct customer contact. As noted above, this
structure has served the Company well over the past few years and should
allow for continued growth at a low marginal cost. In order to further
enhance the cost efficiencies already established and position the Company
for more rapid growth, in 1995 BancGroup completed a reengineering study to
streamline transaction processing, increase the cost-effective use of
technological resources and identify potential revenue enhancements.
- - CAPITAL UTILIZATION: Management's goal is to provide a greater than 17.5%
return on capital while effectively utilizing internally created capital
and exceeding regulatory capital requirements. BancGroup has an asset
generating capability that can effectively utilize the capital generated.
This capability is most evident in the Company's 25% internal growth in
loans during 1995. As part of this capability the CMC acquisition
19
<PAGE> 6
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
provides asset generating sources for mortgage loans and mortgage servicing
rights.
- - Asset Quality: Maintenance of high asset quality is at the forefront of
the Company's strategy to allow for consistent earnings growth. The
Company's asset quality is demonstrated by its charge-off history and
nonperforming asset levels, which compare favorably to its peer group. On
December 31, 1993 the Company completed the acquisition of First AmFed
Corporation, Huntsville, Alabama. This transaction increased total
nonperforming assets in l993 by $12.8 million to 1.31% of loans and other
real estate. This ratio was reduced to .78% as of December 31, 1995
primarily through sales of other real estate. Net charge-offs over the
past 5 years have consistently compared favorably with the Company's peer
group and were only .13% of average loans in 1995 and .09% in 1994.
- - Stock Reclassification: On February 21, 1995 BancGroup reclassified its
two classes of common stock into one class. This action eliminates the
super voting rights of the previously existing Class B common stock and
establishes the rights of all stockholders on an equal basis. Management
believes the reclassification will significantly increase the market
acceptance of the Company's common stock and therefore enhance its ability
to expand through acquisitions. Subsequent to the reclassification, and as
part of this strategy for broader market acceptance, BancGroup listed its
common stock for trading on the New York Stock Exchange on February 24,
1995.
Obviously the Company cannot guarantee its success in implementing the
initiatives or reaching the goals set out previously. The following analysis of
financial condition and results of operations provide details with respect to
this summary material and demonstrates trends concerning the initiatives taken
through l995.
- --------------------------------------------------------------------------------
ACQUISITIONS
A principal part of BancGroup's strategy is to acquire other financial
institutions in order to increase the Company's market share in existing
markets, expand into other growth markets, more efficiently absorb the
Company's overhead and add profitable new lines of business.
During 1995 BancGroup completed the following acquisitions of other
financial institutions:
<TABLE>
<CAPTION>
(Dollars in thousands)
DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS ACQUIRED SHARES ASSETS LOANS DEPOSITS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colonial Mortgage Company 02/17/95 2,272,727 $ 71,000 $ 1,675 $ 0
Brundidge Banking Company 03/31/95 266,434 56,609 31,577 46,044
Mt. Vernon Financial Corp. 10/20/95 521,720 217,967 192,167 156,356
Farmers & Merchants Bank 11/03/95 256,843 56,050 25,342 45,448
===============================================================================
</TABLE>
The acquisition of Colonial Mortgage Company was accounted for using a
method of accounting similar to a pooling of interest, and the Company's
financial statements have been restated to reflect the pooling, as if it had
occurred as of the earliest date presented. The other three 1995 acquisitions
were accounted for as purchases, and the operations and income of the acquired
institutions are included in the income of BancGroup from the date of
purchase. Each of the acquired institutions that were accounted for as
purchases was merged into Colonial BancGroup or one of its subsidiaries as of
the listed dates, and the income and expenses have not been separately
accounted for since the respective mergers. For this reason and due to the
fact that significant changes have been made to the cost structure of each
acquired institution, a separate determination of the impact after acquisition
of earnings of BancGroup for 1994 and 1995 cannot reasonably be determined.
The acquisitions have had an impact on the comparisons of operating
results for 1994 and 1995 with prior years. Where such information is
determinable it has been identified and discussed in the discussion of results
of operations and financial condition that follows.
20
<PAGE> 7
COLONIAL MORTGAGE COMPANY
On February 17, 1995 BancGroup completed the acquisition of Colonial
Mortgage Company. This acquisition represents a major step in achieving several
BancGroup strategic goals. A principal initiative of BancGroup for the past
several years has been to increase fee income through establishment of
additional lines of business that provide natural extensions of existing
products or services. CMC in this regard provides an excellent fit for the
following reasons:
FEE INCOME
CMC, at December 31, 1995, provided servicing for approximately 118,000
customers with a total outstanding balance of $9.1 billion. The servicing
revenues from this portfolio plus other fee income from CMC provided
approximately 50% of BancGroup's noninterest income in 1995 and 1994.
CONSUMER REAL ESTATE LENDING
CMC, through its wholesale and retail offices, originated over $5 billion
in residential real estate loans from 1993 through 1995. These loans have
primarily been fixed rate loans sold into the secondary markets. However, since
the latter part of 1994 Colonial Bank has been acquiring adjustable rate
mortgage (ARM) loans originated by CMC. This program provides CMC additional
loan products for its branch network. In addition, CMC provides the Bank with
fixed rate loan products for its customers.
GROWTH MARKET EXPANSION
CMC currently originates residential mortgages in 29 states through 6
regional offices and services 118,000 customers located in 35 states. These
locations provide BancGroup with a broader market base to solicit business and
include areas which currently have greater growth rates than BancGroup's
existing branch locations. These areas include Atlanta, Cincinnati, Dallas,
Seattle, Denver, Milwaukee and Phoenix.
CAPITAL UTILIZATION
CMC's growth has previously been somewhat limited due to its ownership
structure as part of a private company. The combination of BancGroup and CMC
provides additional resources for the expansion of CMC's low cost servicing
operation through bulk purchases of servicing. In addition CMC provides another
source of loans for the Bank's portfolio including ARM loans and equity lines.
CUSTODIAL DEPOSITS
CMC maintains custodial accounts for its loan customers for the payment of
taxes and insurance as well as collection of principal and interest. The
balances in these accounts averaged approximately $121 million and $94 million
in 1995 and 1994, respectively. These balances, most of which were in other
financial institutions in 1994, have been deposited into Colonial Bank in 1995.
As a result these balances represent 25% of the 37% increase in average
noninterest bearing demand deposits from 1994 to 1995. These balances have a
positive impact on BancGroup's net interest margin by providing a noninterest
bearing source of funds.
CONTINUITY AND CONSISTENCY OF MANAGEMENT
Robert E. Lowder, Chairman and CEO of BancGroup has been Chairman and CEO
of CMC for 25 years. In addition, Ronnie Wynn has been the president of CMC for
19 years and is a former president of the Mortgage Bankers Association of
America. This continuation of management has provided a very smooth transition
in management and operating philosophy.
CROSS-SELLING OF CUSTOMERS
BancGroup has established a personal banking unit to solicit other
business from CMC customers, such as equity lines and deposits. In addition,
BancGroup plans to expand other customer relationships through establishment of
deposit relationships with CMC customers, acceptance of CMC payments in
branches, and establishing a linkage between construction and permanent
lending.
21
<PAGE> 8
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
<TABLE>
<CAPTION>
The major components of BancGroup's net income are:
(In thousands) 1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $118,442 $104,681 $82,055
Provision for possible
loan losses (5,480) (6,481) (7,945)
Noninterest income 50,175 44,243 40,433
Noninterest expense (103,230) (100,791) (86,520)
----------------------------------------------------------------------
Pretax income 59,907 41,652 28,023
Taxes (21,113) (14,342) (8,886)
----------------------------------------------------------------------
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes 38,794 27,310 19,137
Extraordinary loss -- -- (463)
Cumulative effect of
accounting change -- -- 3,219
----------------------------------------------------------------------
Net income $ 38,794 $ 27,310 $ 21,893
----------------------------------------------------------------------
</TABLE>
Consistently increasing net income is a primary goal of management. Earnings
(income before extraordinary items and accounting changes) increased 42% in
1995, 43% in 1994 and 23% in 1993. The most significant factors affecting
income for 1995, 1994 and 1993 are high-lighted below and discussed in greater
detail in subsequent sections.
- - An increase in 1995 of 20.3% in average earning assets. This follows an
increase of 31.4% in 1994.
- - An increase of $5.9 million (13%) and $3.8 million (9%) in noninterest
income in 1995 and 1994, respectively.
- - Maintenance of high asset quality and reserve coverage ratios. Net
charge-offs were $3.1 million or .13% of average net loans in 1995
and $1.7 million or .09% of average net loans in 1994. In recognition of
these low net charge-offs loan loss provisions were reduced $1.5 million
in 1994 and $1 million in 1995.
- - Loan growth, excluding acquisitions, of 25% in 1995 following an increase
of 18% in 1994.
- - An increase in loans as a percent of average earning assets to 82.1% in
1995 from 77.5% in 1994.
- - Noninterest expenses as a percent of average assets were reduced to 3.19%
in 1995 from 3.70% in 1994.
- - 1993 includes a $463,000 extraordinary loss from the early redemption of
subordinated convertible debt and $3,219,000 in income from the cumulative
effect of a change in accounting for income taxes.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on
loans, securities and other interest-earning assets (interest income) and
interest paid on deposits and borrowed funds (interest expense). Three year
comparisons of net interest income in dollars and yield on a tax equivalent
basis are reflected on the following schedule on page 24. The net yield on
interest-earning assets was 4.09% in 1995 compared to 4.35% in 1994 and 4.49%
in 1993. Over this period net interest income on a fully tax equivalent basis
increased to $121.0 million in 1995 from $106.9 million in 1994 and $84.1
million in 1993. The principal factors affecting the Company's yields and net
interest income are discussed in the following paragraphs.
LEVELS OF INTEREST RATES
After declining consistently from 1989 through 1992 and remaining
virtually flat throughout 1993, short-term interest rates increased
dramatically in 1994 and continued to increase into late 1995 before starting
to decline. For example, the average fed funds rate for overnight bank
borrowing was 2.99% in December 1993, 5.45% in December 1994 and reached 6.00%
in 1995 before decreasing to 5.50% in December 1995. The Company's prime rate
increased from 6.0% in 1993 to 8.5% in 1994 and continued to increase to 9.0%
midyear 1995 before declining to 8.5% in December 1995. Long-term rates
declined throughout 1995, with the 30-year treasury bond ending 1994 at 7.93%
and declining to 5.95% in December 1995. Net interest margin remained virtually
flat from 1993 to 1994, while increasing competitive pressures resulted in an
increase in cost of funds in 1995. This increase along with a change in the
Company's loan mix is primarily responsible for the decreases in margin from
4.34% in the first quarter of 1995 to 3.95% in the fourth quarter of 1995.
ACQUISITIONS
The thrift acquisitions completed during 1993 and 1995 had a negative
impact on the Company's net interest yield due primarily to the fact that these
institutions had virtually no noninterest-bearing deposits. The rates on the
interest-bearing deposits in the acquired institutions were slightly higher
than the Company's rates and were adjusted to BancGroup products and rates
within a short time after the mergers.
INTEREST-BEARING LIABILITIES
- - COST OF FUNDS
Rates paid on new time deposits and variable rate deposits increased
during 1994 and continued to increase through 1995. Competitive pressures on
these deposit rates increased in 1995 resulting in a higher cost of funds
from 3.83% for 1994 to 5.23% for 1995.
22
<PAGE> 9
INTEREST-EARNING ASSETS
- GROWTH IN EARNING ASSETS
One of the most significant factors in the Company's increase in income
for 1995 has been the 20.3% increase in average interest-earning assets.
This follows a 31.4% increase in 1994. In addition and equally
significant, net loans increased $782 million (37.3%) from December 31,
1994 to December 31, 1995. Earning assets as a percentage of total average
assets also increased from 88.3% in 1993 to 90.2% in 1994 to 91.3% in
1995.
- MORTGAGE LOANS HELD FOR SALE
The level and direction of long-term interest rates had a dramatic
impact on the volume of mortgage loan originations, causing the average
balance of mortgage loans for sale to decline from $242 million in 1993 to
$98 million in 1995. Mortgage loans held for sale represent single family
residential mortgage loans originated or acquired by Colonial Mortgage
then packaged and sold in the secondary market. Colonial Mortgage incurs
gains or losses associated with rate fluctuations. Colonial Mortgage
limits its risk associated with the sale of these loans through an active
hedging program which generally provides for sales commitments on all
loans funded. Mortgage loans held for sale are funded primarily with
short-term borrowings.
- CHANGING LOAN MIX
During 1995 all categories of loans increased. The most significant
increase was in residential real estate loans increasing from 40.9% of
total loans at December 31, 1994 to 49.1% at December 31, 1995. These
loans are predominantly adjustable rate mortgages which have a low level
of credit risk and accordingly have lower yields than other loans.
23
<PAGE> 10
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
AVERAGE VOLUME AND RATES
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------ ------------------------------ -------------------------------
Average Average Average Average Average Average
(In thousands) Volume Interest Rate Volume Interest Rate Volume Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net of unearned
income (1) $2,428,823 $218,735 9.01% $1,906,385 $155,385 8.15% $1,315,910 $107,673 8.18%
Mortgage loans held for sale 97,511 7,301 7.49 131,121 10,313 7.87 241,683 17,737 7.34
Investment securities and
securities available for sale:
Taxable 348,270 21,063 6.05 334,200 18,288 5.47 246,898 13,882 5.62
Nontaxable (2) 43,143 3,361 7.79 38,623 2,967 7.68 29,249 2,505 8.56
Equity securities (3) 30,595 2,323 7.59 36,196 2,032 5.61 26,307 1,423 5.41
- ----------------------------------------------------------- ---------- --------------------
Total investment securities 422,008 26,747 6.34% 409,019 23,287 5.69% 302,454 17,810 5.89%
Federal funds sold and
securities purchased under
resale agreements 5,936 354 5.96 5,380 186 3.46 8,077 247 3.05
Interest-earning deposits 3,926 289 7.36 6,663 293 4.40 3,130 104 3.32
- ----------------------------------------------------------- -------------------- --------------------
Total interest-earning assets 2,958,204 $253,426 8.57% 2,458,568 $189,464 7.71% 1,871,254 $143,571 7.67%
- ----------------------------------------------------------- -------------------- --------------------
Allowance for loan losses (35,085) (31,267) (22,320)
Cash and due from banks 117,338 107,209 90,511
Premises and equipment, net 48,480 45,765 36,612
Other assets 150,375 146,435 143,603
- ------------------------------------------------- ---------- ----------
TOTAL ASSETS $3,239,312 $2,726,710 $2,119,660
- ------------------------------------------------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 425,071 $ 12,963 3.05% $ 491,671 $ 13,521 2.75% $ 404,517 $ 11,099 2.74%
Savings deposits 264,683 9,832 3.71% 279,554 8,681 3.11% 222,466 6,582 2.96%
Time deposits 1,314,701 76,696 5.82% 1,062,219 46,461 4.37% 744,071 32,774 4.40%
Short-term borrowings 477,785 29,231 6.12% 235,598 10,425 4.42% 195,752 6,268 3.20%
Long-term debt 48,683 3,736 7.68% 83,858 3,461 4.13% 56,339 2,794 4.96%
- ----------------------------------------------------------- -------------------- --------------------
Total interest-bearing liabilities 2,530,923 $132,458 5.23% 2,152,900 $ 82,549 3.83% 1,623,145 $ 59,517 3.67%
- ----------------------------------------------------------- -------------------- --------------------
Noninterest-bearing demand
deposits 446,798 325,088 273,604
Other liabilities 45,335 65,899 103,121
- ------------------------------------------------- ---------- ----------
Total liabilities 3,023,056 2,543,887 1,999,870
Shareholders' equity 216,256 182,823 119,790
- ------------------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,239,312 $2,726,710 $2,119,660
- ------------------------------------------------------------------------------------------------------------------------------------
RATE DIFFERENTIAL 3.34% 3.88% 4.00%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $120,968 4.09% $106,915 4.35% $ 84,054 4.49%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans classified as nonaccruing are included in the average volume
calculation. Interest earned and average rates on non-taxable loans are
reflected on a tax equivalent basis. This interest is included in the total
interest earned for loans. Tax equivalent interest earned is actual
interest earned times 145%.
(2) Interest earned and average rates on obligations of states and political
subdivisions are reflected on a tax equivalent basis. Tax equivalent
interest earned is actual interest earned times 145%. Tax equivalent
average rate is tax equivalent interest earned divided by average volume.
(3) Dividends earned and average rates on preferred stock are reflected on a
tax equivalent basis. Tax equivalent dividends earned are actual dividends
times 137.7%. Tax equivalent average rate is tax equivalent dividends
divided by average volume.
(4) Net interest income divided by average total interest-earning assets.
24
<PAGE> 11
ANALYSIS OF INTEREST INCREASES (DECREASES)
<TABLE>
<CAPTION>
1995 Change From 1994 1994 Change From 1993
-------------------------------- ------------------------------
Due to (1) Due to (1)
------------------ ----------------
(In thousands) Amount Volume Rate Amount Volume Rate
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable securities $ 2,775 $ 789 $ 1,986 $ 4,406 $ 4,785 $ (379)
Nontaxable securities (2) 394 351 43 462 739 (277)
Dividends on preferred
stocks (3) 291 (348) 639 609 554 55
- -----------------------------------------------------------------------------------------------------
Total securities 3,460 792 2,668 5,477 6,078 (601)
Total loans (net of unearned
income) 63,350 45,738 17,612 47,712 48,109 (397)
Mortgage loans held for sale (3,012) (2,535) (477) (7,424) (8,625) 1,201
Federal funds sold and
securities purchased
under resale agreements 168 21 147 (61) (90) 29
Interest-earning deposits (4) (151) 147 189 146 43
- -----------------------------------------------------------------------------------------------------
Total 63,962 43,865 20,097 45,893 45,618 275
- -----------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits (558) (1,943) 1,385 2,422 2,382 40
Savings deposits 1,151 (476) 1,627 2,099 1,753 346
Time deposits 30,235 12,619 17,616 13,687 13,911 (224)
Short-term borrowings 18,806 13,686 5,120 4,157 1,447 2,710
Long-term debt 275 (1,863) 2,138 667 1,194 (527)
- -----------------------------------------------------------------------------------------------------
Total 49,909 22,023 27,886 23,032 20,687 2,345
- -----------------------------------------------------------------------------------------------------
Net interest income $14,053 $21,842 $(7,789) $22,861 $24,931 $(2,070)
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Increases (decreases) are attributed to volume changes and rate changes on
the following basis: Volume Change = change in volume times old rate. Rate
Change = change in rate times old volume. The Rate/Volume Change = change in
volume x change in rate, and it is allocated between Volume Change and Rate
Change at the ratio that the absolute value of each of those components
bear to the absolute value of their total.
(2) Interest earned and average rates on obligations of states and political
subdivisions are reflected on a tax equivalent basis. Tax equivalent
interest earned as actual interest earned times 145%. Tax equivalent
average rate is tax equivalent interest earned divided by average volume.
(3) Dividends earned and average rates on preferred stock are reflected on a
tax equivalent basis. Tax equivalent dividends earned are actual dividends
times 137.7%. Tax equivalent average rate is tax equivalent dividends
divided by average volume.
================================================================================
NONINTEREST INCOME
BancGroup derives approximately 50% of its noninterest income from
mortgage banking related activities with the remaining 50% from traditional
retail banking services including various deposit account charges, safe deposit
box rentals and credit life commissions. Prior to the CMC acquisition on
February 17, 1995, BancGroup had not acquired other well-established ancillary
income sources, such as trust operations, mortgage banking or credit card
services with any of its acquisitions. One of the most important goals from
1993 through 1995 has been to increase noninterest income. The impact of this
acquisition is evident by the volume of revenue included in the category
entitled mortgage servicing fees.
CMC has servicing and subservicing agreements under which it services
118,000, 83,000 and 68,000 mortgage loans with principal balances of $9.1
billion, $6.4 billion and $4.6 billion on December 31, 1995, 1994 and 1993,
respectively. This servicing portfolio generated servicing fee and late charge
income of approximately $23.4 million, $18.1 million and $12.0 million for the
years ended December 31, 1995, 1994 and 1993, respectively. CMC through its
wholesale and retail offices, originated $1.1 billion, $1.2 billion and $2.6
billion in residential real estate loans in 1995, 1994, and 1993, respectively.
The increased volume in 1993 was primarily due to lower long-term interest
rates which resulted in increased mortgage lending activity.
Noninterest income from deposit accounts is significantly affected by
competitive pricing on these services and the volume of noninterest-bearing
accounts. During 1995 and 1994 average noninterest demand accounts (excluding
CMC custodial deposits) increased 11.8% and 18.8%, respectively. This increase
in volume and increases in service fee rates resulted in a 15% increase in
service charge income in 1995 and a 12% increase in 1994.
Other charges, fees, and commissions increased $411,000 (13%) in 1995 and
$889,000 (40%) in 1994. The increase is primarily from credit card related
fees, official check commissions and credit life commissions on residential
mortgage and consumer loans. Acquisitions
25
<PAGE> 12
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
have had a minimal impact on income in this area with most of the increase due
to an emphasis on bottom line income as a result of the Company's incentive
plan.
The Company through CMC enters into offers to extend credit for mortgage
loans to customers and into obligations to deliver and sell originated or
acquired mortgage loans to permanent investors. Sales of loans servicing
released resulted in income of $988,000, $539,000 and $1,820,000 for 1995, 1994
and 1993, respectively. The remaining increase in other income of $1,953,000
from 1994 to 1995 is due primarily to a gain on sale of servicing as well as
increases in income from safe deposit boxes, ATM transaction fees and various
other sources with off-setting decreases in gain on sale of fixed assets and
income from investment sales. BancGroup has an investment sales operation
(primarily mutual funds and annuities). Fee income generated from this and
other investment services activities totaled $649,000, $990,000 and $770,000
in 1995, 1994 and 1993, respectively. The increase in other income in 1994 was
primarily due to the investment sales programs as previously indicated and a
gain on sale of fixed assets with various other smaller decreases.
Securities gains and losses in each of the three years were not
significant. While certain securities are considered available for sale,
BancGroup currently intends to hold substantially all of its securities
portfolio for investment purposes. Realized gains or losses in this portfolio
are generally the result of calls of securities or sales of securities within
the six months prior to maturity.
<TABLE>
<CAPTION>
========================================================================================================
Increase (Decrease)
----------------------------
Years ended December 31 1995 1994
--------------------------- Compared Compared
(In thousands) 1995 1994 1993 to 1994 % to 1993 %
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest income:
Mortgage servicing $23,429 $22,216 $21,079 $1,213 5% $1,137 5%
Service charges on
deposit accounts 14,203 12,384 11,104 1,819 15 1,280 12
Other charges, fees and
commissions 3,545 3,134 2,245 411 13 889 40
Other income 8,751 6,349 6,330 2,402 38 19 --
- ---------------------------------------------------------------- ------ ------
Subtotal 49,928 44,083 40,758 5,845 13 3,325 8
Other noninterest
income items:
Securities gains, net 5 84 49 (79) 35
Gain (loss) on disposal of other
real estate and repossessions 242 76 (374) 166 450
- ---------------------------------------------------------------- ------ ------
Total noninterest income $50,175 $44,243 $40,433 $5,932 13% $3,810 9%
- ---------------------------------------------------------------- ------ ------
========================================================================================================
</TABLE>
NONINTEREST EXPENSE
The impact of the acquisitions completed from 1993 through 1995 is
reflected most noticeably in the increase in net interest income, discussed
previously, as well as the 19% increase from 1993 to 1995 in noninterest
expense as shown in the schedule following. These acquisitions have been the
most significant factor in the increase in numbers of branches from 72 at
December 31, 1992 to 102 at December 31, 1995. The decrease in noninterest
expense as a percent of average assets from 4.08% in 1993 to 3.70% in 1994 to
3.19% in 1995 is a direct result of the increased efficiency generated by
this growth. The foundation for the efficiencies gained in 1995 and 1994 was
laid in 1989 and 1990 when the Company established its current operating
structure (regional and community banks supported by centralized backshop
operations).
Salaries and benefits decreased $3.6 million or 8% in 1995 and increased
$4.9 million or 13% in 1994. The decrease in 1995 is primarily due to
increased deferred cost associated with loan originations discussed in a
following paragraph and a reduction in certain staffing levels throughout
BancGroup, particularly at CMC as a result of the decline in origination
activity discussed earlier that began in 1994. The incentive plan has been a
major factor in the Company's ability to contain cost and increase income. The
increase in 1994 was primarily due to acquisitions and other expansion
efforts. In addition to the increase in expenses related to growth,
advertising and public relations expenses have increased $1,007,000 or 39% and
$1,006,000 or 64% in 1995 and 1994, respectively, in concentrated efforts to
expand the Company's customer base and take advantage of increased market
share in certain key markets.
Other expenses in 1995, 1994 and 1993 include approximately $ 500,000,
$1,200,000 and $960,000, respectively associated with various acquisition
efforts.
As discussed in Note 1 to BancGroup's Consolidated Financial Statements,
BancGroup defers certain salary and benefit costs associated with loan
originations and amortizes these costs as yield adjustments over the life of
the related loans. The amount of costs deferred increased from $3,989,000 in
1993 to $4,717,000 in 1994 and $8,907,000 in 1995 due to changes in the mix of
loans and increases in the num-
26
<PAGE> 13
ber of loans closed.
Cost control and the capacity to absorb future growth continue to be a
major focus for management. The Company has taken several steps to achieve
this goal and to attempt to improve BancGroup's efficiency ratio. The
incentive plan and its profit-based rewards represent a key element in the
plan. During 1994 BancGroup also increased its data processing capacity
through a major upgrade. The cost of this upgrade is reflected in equipment
expenses in 1994 and 1995. Finally, and most importantly, in 1995 the Company
invested in a reengineering study. This study reviewed the Company's retail
delivery systems to better position the company for future growth, product
expansion and customer service. The cost of the study (approximately $2
million) was included in other expense. The study had some impact on 1995
through lower salary cost and increased fee income with the major impact to be
achieved in 1996.
The Company's deposits are insured by the Federal Deposit Insurance
Corporation in two separate funds; the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF). Legislation has been proposed in
Congress to recapitalize the SAIF with a special one-time charge estimated to
range between .78% and .85% of the deposits insured by SAIF. This
recapitalization would allow a reduction in the current .23% average annual
premium rate. BancGroup has approximately $679 million in SAIF deposits, after
adjusting for certain allowances in the current proposal, which would be
subject to the special assessment. Management cannot determine if or when a
special assessment may actually be imposed.
<TABLE>
<CAPTION>
==============================================================================================================
Increase (Decrease)
1995 1994
Years ended December 31 Compared Compared
(In thousands) 1995 1994 1993 to 1994 % to 1993 %
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $ 39,786 $ 43,355 $38,453 ($3,569) (8%) $ 4,902 13%
Net occupancy expense 9,005 8,610 7,302 395 5 1,308 18
Furniture and equipment
expense 8,504 7,468 6,452 1,036 14 1,016 16
Amortization of intangible
assets 1,324 1,196 818 128 11 378 46
Amortization of mortgage
servicing rights 9,095 6,078 4,840 3,017 50 1,238 26
FDIC assessment 3,323 4,643 3,527 (1,320) (28) 1,116 32
Stationery, printing and supplies 2,588 2,703 2,692 (115) (4) 11 --
Postage 1,884 1,609 1,514 275 17 95 6
Telephone 3,129 2,834 2,539 295 10 295 12
Insurance 1,306 1,645 1,410 (339) (21) 235 17
Legal fees 2,081 2,635 1,690 (554) (21) 945 56
Advetising and public relations 3,592 2,585 1,579 1,007 39 1,006 64
Other 17,613 15,430 13,704 2,183 14 1,726 13
- ----------------------------------------------------------------------------- ---------
Total noninterest expense $103,230 $100,791 $86,520 $2,439 2% $14,271 16%
- ----------------------------------------------------------------------------- ---------
Noninterest expense to
Average Assets 3.19% 3.70% 4.08%
==============================================================================================================
</TABLE>
INCOME TAXES
The provision for income taxes and related items are as follows:
<TABLE>
TAX CUMULATIVE EFFECT OF
PROVISION ACCOUNTING CHANGE
- ---------------------------------------------------------------------------
<S> <C> <C>
1995 $21,113,000 --
1994 14,342,000 --
1993 8,886,000 $3,219,000
</TABLE>
BancGroup is subject to federal and state taxes at combined rates of
approximately 38% for regular tax purposes and 23% for alternative minimum tax
purposes. These rates are reduced or increased for certain nontaxable income
or nondeductible expenses, primarily consisting of tax exempt interest income,
partially taxable dividend income, and nondeductible amortization of goodwill.
In 1993 the Company adopted Financial Accounting Standards Board
Statement No. 109 which requires an asset and liability approach for financial
accounting and reporting for income taxes. The impact of the adoption of this
statement was the recognition in the first quarter of 1993 of income in the
amount of $3,219,000, which is shown in the financial statements as the
cumulative effect of a change in accounting for income taxes.
Also in 1993, the Omnibus Reconciliation Act of 1993 effectively
increased the Company's Federal tax rate by 1% to 35% based on taxable income.
Management's goal is to minimize income tax expense and maximize cash
yield on earning assets by increasing or decreasing its tax exempt securities
and/or investment in preferred and common stock. Accordingly, BancGroup's
investment in tax exempt securities was increased in 1993, 1994 and 1995.
27
<PAGE> 14
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Ending balances of selected components of the Company's balance sheet
changed from December 31, 1994 to December 31, 1995 as follows:
<TABLE>
<CAPTION>
(In thousands) Increase
(Decrease)
- -----------------------------------------------------
Amount %
=====================================================
<S> <C> <C>
Total assets $902,874 31.8
Securities available for sale
and investment securities 24,492 6.0
Mortgage loans held for sale 49,950 82.5
Loans, net of unearned income 781,878 37.3
Deposits 614,494 28.3
- -----------------------------------------------------
</TABLE>
Management continuously monitors the financial condition of BancGroup in
order to protect depositors, increase shareholder value and protect current and
future earnings.
The most significant factors affecting BancGroup's financial condition
from 1993 through 1995 have been:
- An increase in residential mortgage loans from 26.7% of total loans at
December 31, 1992 to 49.1% at December 31, 1995. This increase has
resulted from the acquisition of thrifts as well as from loans CMC
produced for the Company's portfolio. BancGroup has continued to place
emphasis on these loans as a major product line which has a relatively low
loss ratio.
- Internal loan growth of 25% in 1995 excluding acquisitions.
- A 37.4% increase in 1995 in average noninterest bearing demand deposits
with 25.6% of the increase from CMC custodial deposits and the remainder
substantially from internal growth.
- Maintenance of high asset quality and reserve coverage of nonperforming
assets. Nonperforming assets were .78%, .90% and 1.31% of related assets
at December 31, 1995, 1994 and 1993. Net charge-offs were .13%, .09% and
.33% of average loans over the same periods. The allowance for possible
loan losses was 1.28% at December 31, 1995, providing 271% coverage of
non-performing loans (nonaccrual and renegotiated).
- Increase in tier one leverage ratios from 5.59% at December 31, 1993 to
6.19% at December 31, 1995.
- An increase in the loan to deposit ratio from 96.4% at December 31, 1994
to 103.2% at December 31, 1995. Federal Home Loan Bank borrowings continue
to be a major source of funding allowing the Company greater
funding flexibility.
- Increase of $50 million in mortgage loans held for sale primarily as a
result of decreases in long-term interest rates in late 1995.
These items, as well as a more detailed analysis of BancGroup's financial
condition, are discussed in the following sections.
- -------------------------------------------------------------------------------
LOANS
Growth in loans and maintenance of a high quality loan portfolio are the
principal ingredients to improved earnings. This goal is achieved in various
ways as outlined below:
- Management's emphasis, within all of BancGroup's banking regions, is on
loan growth in accordance with local market demands and the lending
experience and expertise in the regional and county banks. The regional
banks are diverse in the loan demands of their areas and in their lending
expertise, resulting in a fairly diversified portfolio without significant
concentration of risk.
- Management believes that its strategy of meeting local demands and
utilizing local lending expertise has proven successful. Management also
believes that any existing concentrations of loans, whether
geographically, by industry or by borrower do not expose BancGroup to
unacceptable levels of risk.
- BancGroup has a significant concentration of residential real estate loans
representing 49.1% of total loans. These loans are substantially all
mortgages on single-family, owner occupied properties and therefore have
minimal credit risk. While a major portion of these loans was acquired
with the thrift acquisitions, the Company has continued to grow this
portfolio with a $554 million or 65% increase in these loans in 1995. A
portion of this growth, approximately $246 million, is due to adjustable
rate mortgages originated by CMC and acquired by Colonial Bank.
Residential mortgage loans are predominately adjustable rate loans and
therefore have not resulted in any material change in the Company's rate
sensitivity.
28
<PAGE> 15
- The most significant industry concentration is in loans collateralized by
commercial real estate with loan balances of $623,805,000, $574,155,000,
$480,071,000, $376,000,000, and $312,346,000, at December 31, 1995, 1994,
1993, 1992 and 1991, respectively. BancGroup's commercial real estate
loans are spread geographically throughout Alabama and other areas with
no more than 30% of these loans in any one geographic area. The Alabama
economy experiences a generally slow but steady rate of growth. For this
reason, real estate values have not been inflated due to excessive
speculation and BancGroup's real estate related loans continue to perform
at acceptable levels.
- BancGroup makes mortgage loans on a short-term basis (generally less than
ninety days) while these loans are being packaged for sale in the secondary
market. These loans are classified as mortgage loans held for sale with
balances totaling $110,486,000, $60,536,000, $361,496,000, $144,215,000 and
$105,219,000 at December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
There is minimal credit risk associated with these loans. During 1991,
1992 and 1993 the total balances invested in these types of loans increased
significantly due primarily to large volumes of mortgage refinancing. The
decrease in mortgage loans held for sale during 1994 and subsequent
increase in 1995 are directly related to the fluctuation in long-term
interest rates and its related impact on refinancing. These loans are
funded principally with short-term borrowings, providing a relatively high
margin for these funds.
- As discussed more fully in subsequent sections, management has determined
to maintain adequate liquidity and liquidity sources. BancGroup has
arranged funding sources in addition to customer deposits which provide
the capability for the Company to exceed a 100% loan to deposit ratio and
maintain adequate liquidity.
- Internal loan growth has been a major factor in the Company's increasing
earnings with growth rates of 25% in 1995, 18.2% in 1994, 11.4% in 1993
and 7.0% in 1992 excluding acquisitions.
- -------------------------------------------------------------------------------
GROSS LOANS BY CATEGORY
<TABLE>
<CAPTION>
(In thousands) December 31
- -------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 362,991 $ 298,708 $ 250,746 $ 198,033 $ 241,824
Real estate--commercial 623,805 574,155 480,071 376,000 312,346
Real estate--construction 234,487 152,423 135,762 108,578 70,204
Real estate--residential 1,411,380 857,639 717,354 312,505 269,532
Installment and consumer 199,481 169,577 153,273 135,675 158,445
Other 43,667 41,577 34,954 39,816 42,064
- -------------------------------------------------------------------------------------------------------------
Total loans $2,875,811 $2,094,079 $1,772,160 $1,170,607 $1,094,415
=============================================================================================================
=============================================================================================================
Percent of loans in each category to total loans:
Commercial, financial and agricultural 12.6% 14.3% 14.2% 16.9% 22.1%
Real estate--commercial 21.7 27.4 27.1 32.2 28.6
Real estate--construction 8.2 7.3 7.7 9.2 6.4
Real estate--residential 49.1 40.9 40.4 26.7 24.6
Installment and consumer 6.9 8.1 8.6 11.6 14.5
- -------------------------------------------------------------------------------------------------------------
Other 1.5 2.0 2.0 3.4 3.8
100.0% 100.0% 100.0% 100.0% 100.0%
=============================================================================================================
</TABLE>
As discussed in a subsequent section, BancGroup seeks to maintain adequate
liquidity and minimize exposure to interest rate volatility. The goals of
BancGroup with respect to loan maturities and rate sensitivity have been and
will continue to be to focus on shorter term maturities and floating or
adjustable rate loans.
At December 31, 1995, approximately 55% of loans were floating rate or
adjustable rate loans compared to 54% at December 31, 1994.
Contractual maturities may vary significantly from actual maturities due
to loan extensions, early payoffs due to refinancing and other factors.
Fluctuations in interest rates are also a major factor in early loan pay-offs.
The uncertainties, particularly with respect to interest rates, of future
events make it difficult to predict the actual maturities. BancGroup has not
maintained records related to trends of early pay-off since management does not
believe such trends would present any significantly more accurate estimate of
actual maturities than the contractual maturities presented.
29
<PAGE> 16
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
LOAN MATURITY/RATE SENSITIVITY
<TABLE>
<CAPTION>
(In thousands) December 31, 1995
==========================================================================================================
Rate Sensitivity,
Loans Maturing
Maturing Rate Sensitivity Over 1 Year
-------------------------------- -------------------- --------------------
Within 1-5 Over
1 Year Years 5 Years Fixed Floating Fixed Floating
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $187,483 $ 128,379 $ 47,129 $ 169,283 $ 193,708 $106,911 $ 68,597
Real estate--commercial 139,860 392,463 91,482 368,842 254,963 307,508 176,437
Real estate--construction 138,561 56,782 39,144 59,146 175,341 33,148 62,778
Real estate--residential 161,288 419,961 830,131 488,288 923,092 367,393 882,699
Installment and consumer 101,755 91,320 6,406 165,820 33,661 80,504 17,222
Other 6,368 5,212 32,087 29,697 13,970 23,932 13,367
- ----------------------------------------------------------------------------------------------------------
Total loans $735,315 $1,094,117 $1,046,379 $1,281,076 $1,594,735 $919,396 $1,221,100
==========================================================================================================
</TABLE>
LOAN QUALITY
A major key to long-term earnings growth is maintenance of a high quality
loan portfolio. BancGroup's directive in this regard is carried out through its
policies and procedures for review of loans and through a company wide senior
credit administration function. This function participates in the loan approval
process with the regional banks and provides an independent review and grading
of loan credits on a continual basis.
BancGroup has standard policies and procedures for the evaluation of new
credits, including debt service evaluations and collateral guidelines.
Collateral guidelines vary with the credit worthiness of the borrower, but
generally require maximum loan-to-value ratios of 85% for commercial real
estate and 90% for residential real estate. Commercial, financial and
agricultural loans are generally collateralized by business inventory, accounts
receivables or new business equipment at 50%, 80% and 90% of estimated value,
respectively. Installment and consumer loan collateral where required is based
on 90% loan to value ratios.
Based on the above policies, procedures and loan review program, BancGroup
determines its allowance for possible loan losses and the amount of provision
for loan losses. The allowance for possible loan losses is maintained at a
level which, in management's opinion, is adequate to absorb potential losses on
loans present in the loan portfolio. The amount of the allowance is affected
by: (1) loan charge-offs, which decrease the allowance; (2) recoveries on loans
previously charged-off, which increase the allowance; (3) the provision for
possible loan losses charged to income, which increases the allowance, and (4)
the allowance for loan losses of acquired banks. In determining the provision
for possible loan losses in an effort to evaluate portfolio risks, it is
necessary for management to monitor fluctuations in the allowance resulting
from actual charge-offs and recoveries and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic
conditions.
The goal and result of these policies and procedures is to provide a sound
basis for new credit extensions and an early recognition of problem assets to
allow the most flexibility in their timely disposition.
LOAN LOSS EXPERIENCE
During 1995 the ratio of net charge-offs to average loans increased to
.13% from .09% in 1994. This increase has been impacted by the increase in
average loans but also by an increase of approximately $1.4 million in actual
net charge-offs. Net charge-offs as a percent of net loans for the past five
years have fluctuated from a high of .51% in 1991 to a low of .09% in 1994.
From 1990 through 1992, a period during which the national economy went through
a recession, BancGroup's annual charge-off ratio averaged .49% with only a .04%
variance between the high and low years. This consistently low and improving
charge-off level has primarily been the result of the Company's localized
lending strategies and early identification of potential problem loans. In
addition, the current concentration of loans in residential real estate loans
has had a favorable impact on net charge-offs.
The schedule on the following page reflects greater than 100% coverage of
nonperforming loans (nonaccrual and renegotiated) by the allowance for loan
losses. Management has not targeted any specific coverage ratio in excess of
100%, and the coverage ratio may fluctuate significantly as larger loans are
placed into or removed from nonperforming status. Management's focus has rather
been on establishing reserves related to an earlier identification of potential
problem loans. The increase in the coverage ratio from 246% at December 31,
1991 to 271% at December 31, 1995 reflects added reserves due to the growth in
loans and the relatively consistent level of nonperforming loans (nonaccrual
and renegotiated), coupled with management's decision to maintain and in fact
increase reserves due to economic uncertainties.
30
<PAGE> 17
Management is committed to maintaining
adequate reserve levels to absorb future losses. This
commitment has allowed BancGroup to weather
economic uncertainties without disruption of its
earnings.
<TABLE>
<CAPTION>
======================================================================================================
SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands) Years Ended December 31
- ------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
======================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses--
January 1 $ 33,410 $ 28,633 $ 18,769 $ 16,154 $ 15,097
Charge-offs:
Commercial, financial, and agricultural 2,211 1,836 2,877 3,149 2,670
Real estate--commercial 339 1,143 530 771 709
Real estate--construction 44 2 957 7 4
Real estate--residential 263 357 569 730 766
Installment and consumer 2,320 1,635 1,726 2,759 3,666
Other 163 168 7 83 74
- ------------------------------------------------------------------------------------------------------
Total charge-offs 5,340 5,141 6,666 7,499 7,889
- ------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 698 1,646 629 504 595
Real estate--commercial* 26 202 44 49 3
Real estate--construction 11 12 25 - -
Real estate--residential 159 77 102 171 157
Installment and consumer 1,294 1,430 1,502 1,396 1,488
Other 45 43 7 15 13
- ------------------------------------------------------------------------------------------------------
Total recoveries 2,233 3,410 2,309 2,135 2,256
- ------------------------------------------------------------------------------------------------------
Net charge-offs 3,107 1,731 4,357 5,364 5,633
Addition to allowance charged to
operating expense 5,480 6,481 7,945 7,979 6,364
Allowance added from bank acquisitions 1,129 27 6,276 - 326
- ------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 36,912 $ 33,410 $ 28,633 $ 18,769 $ 16,154
======================================================================================================
Loans (net of unearned income)
December 31 $2,875,581 $2,094,028 $1,771,989 $1,172,151 $1,093,728
Ratio of ending allowance to ending loans
(net of unearned income) 1.28% 1.60% 1.62% 1.60% 1.48%
Average loans (net of unearned income) $2,428,823 $1,906,385 $1,315,910 $1,136,124 $1,094,096
Ratio of net charge-offs to average loans
(net of unearned income) 0.13% 0.09% 0.33% 0.47% 0.51%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 271% 314% 347% 246% 246%
======================================================================================================
</TABLE>
31
<PAGE> 18
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
BancGroup classifies problem loans into four categories: nonaccrual, past due,
renegotiated and other potential problems. When management determines a loan no
longer meets the criteria for performing loans and collection of interest
appears doubtful, the loan is placed on nonaccrual status. All loans that are
90 days past due are considered nonaccrual unless they are adequately
collateralized, they are in the process of collection, and there is reasonable
assurance of full collection of principal and interest. BancGroup's policy is
also to charge off installment loans 120 days past due unless they are in the
process of foreclosure and are adequately collateralized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
============================================================================================
NONPERFORMING ASSETS December 31
- --------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $12,600 $ 8,293 $ 8,139 $ 7,142 $ 5,957
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 1,035 2,360 117 476 620
- --------------------------------------------------------------------------------------------
Total nonperforming loans 13,635 10,653 8,256 7,618 6,577
Other real estate 8,619 8,118 15,021 8,066 5,042
Repossessions 162 81 88 103 150
- --------------------------------------------------------------------------------------------
Total nonperforming assets $22,416 $18,852 $23,365 $15,787 $11,769
- --------------------------------------------------------------------------------------------
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 1,029 $ 2,559 $ 2,218 $ 1,450 $ 1,597
Total nonperforming loans as a
percent of net loans 0.47% 0.51% 0.47% 0.65% 0.60%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.78% 0.90% 1.31% 1.34% 1.07%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.51% 0.63% 0.59% 0.77% 0.75%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 271% 314% 347% 246% 246%
- --------------------------------------------------------------------------------------------
</TABLE>
Fluctuations from year to year in the balances of nonperforming assets are
attributable to several factors including changing economic conditions in
various markets, nonperforming assets obtained in various acquisitions and the
disproportionate impact of larger (over $500,000) individual credits. On
December 31, 1993 BancGroup completed the acquisition of First AmFed
Corporation. With this acquisition the Company recorded $11.2 million in other
real estate, $1.6 million in nonaccrual loans, and $.5 million in 90 day past
due loans that were still accruing. The carrying value of these nonperforming
assets was adjusted at the acquisition date to their current estimated fair
values based on BancGroup's intention to dispose of them in the most
expeditious and profitable manner. Excluding these nonperforming assets
acquired with First AmFed, the Company's nonperforming asset ratio would have
been .64% at December 31, 1993 compared to 1.31% noted above. During 1994 a
substantial portion of these problem assets, particularly other real estate,
was disposed of and the nonperforming asset ratio was reduced to .90%.
In the fourth quarter of 1992, three large loans totaling $4.9 million
were placed in nonperforming status, including one apartment loan ($1.3
million) which was classified as an "in substance foreclosure." The other two
loans were to an industrial trailer manufacturer and a health care services
provider located in different geographic areas of Alabama. All of these loans
were either charged-off ($.5 million), paid off ($1.3 million) or paid current
($3.1 million) in 1993 and removed from nonperforming status. The majority of
the balance of renegotiated loans at December 31, 1994 and 1995 represents a
bankruptcy credit on which the rate was reduced to below current market rate.
Nonaccrual loans at December 31, 1995 were $12.6 million compared to $8.3
million at December 31, 1994. This increase is primarily in commercial real
estate
32
<PAGE> 19
loans from prior years' acquisitions and the Georgia acquisition completed in
1995.
Management, through its loan officers, internal loan review staff and
external examinations by regulatory agencies, has identified approximately $111
million of potential problem loans not included above. The status of these
loans is reviewed at least quarterly by loan officers and the centralized loan
review function and annually by regulatory agencies. In connection with such
reviews collateral values are updated where considered necessary. If collateral
values are judged insufficient or other sources of repayment inadequate, the
loans are reduced to estimated recoverable amounts through increases in
reserves allocated to the loans or charge-offs. As of December 31, 1995
substantially all of these loans are current with their existing repayment
terms. Management believes that classification of such loans as potential
problem loans well in advance of their reaching a delinquent status allows the
Company the greatest flexibility in correcting problems and providing adequate
reserves without disruption of earnings trends. Given the reserves and the
ability of the borrowers to comply with the existing repayment terms,
management believes any exposure from these potential problem loans has been
adequately addressed at the present time. The above nonperforming loans and
potential problem loans represent all material credits for which management has
serious doubts as to the ability of the borrowers to comply with the loan
repayment terms. Management also expects that the resolution of these problem
credits as well as other performing loans will not materially impact future
operating results, liquidity or capital resources.
Interest income earned on nonaccrual loans was $589,000, $414,000,
$93,000, $316,000 and $232,000 in 1995, 1994, 1993, 1992 and 1991,
respectively. Interest income foregone on such loans was approximately
$830,000, $731,000, $526,000, $279,000 and $618,000 in 1995, 1994, 1993, 1992,
and 1991 respectively.
On January 1, 1996, BancGroup adopted SFAS No. 114, Accounting By
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan--Income Recognition Disclosure. As a result,
the following loans were considered impaired as of December 31, 1995. See Note
1 to the consolidated financial statements for further discussion.
<TABLE>
<CAPTION>
Carrying
(In thousands) Balance Reserve Value
---------------------------------------------------
<S> <C> <C> <C>
Commercial, financial,
and agricultural $ 2,319 $1,927 $ 392
Real Estate--Commercial 3,178 1,334 1,844
Real Estate--Construction 2,680 529 2,151
Real Estate--Residential 4,381 482 3,899
Installment and Consumer 782 232 550
Other 26 13 13
---------------------------------------------------
Total impaired loans $13,366 $4,517 $8,849
===================================================
</TABLE>
- -------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
Allocations of the allowance for possible loan losses are made on an
individual loan basis for all identified potential problem loans with a
percentage allocation for the remaining portfolio. The allocations of the total
allowance represent an approximation of the reserves for each category of loans
based on management's evaluation of the respective historical charge-off
experience and risk within each loan type.
<TABLE>
<CAPTION>
==================================================================================================
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES December 31
- --------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial, and agricultural $ 6,915 $ 6,010 $ 5,276 $ 4,280 $ 3,891
Real estate--commercial 12,306 12,168 11,112 6,030 5,025
Real estate--construction 5,593 3,156 1,407 1,741 963
Real estate--residential 7,057 8,560 7,159 3,906 3,524
Installment and consumer 2,853 2,227 2,549 2,175 2,174
Other 2,188 1,289 1,130 637 577
- --------------------------------------------------------------------------------------------------
Total $36,912 $33,410 $28,633 $18,769 $16,154
==================================================================================================
</TABLE>
SECURITIES
BancGroup determines on a daily basis the funds available for short-term
investment. Funds available for long-term investment are projected based upon
anticipated loan and deposit growth, liquidity needs, pledging requirements and
maturities of securities, as well as other factors. Based on these factors and
management's interest rate and income tax forecast, an investment strategy is
determined. Significant elements of this strategy as of December 31, 1995
include:
- BancGroup's investment in U.S. Treasury securities and obligations of
U.S. government agencies is substantially all pledged against public
funds deposits.
- Investment alternatives which maximize the highest after-tax net yield
are considered.
- Management has also attempted to increase the investment portfolio's
overall yield by investing
33
<PAGE> 20
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
................................................................................
funds in excess of pledging requirements in high-grade corporate notes
and mortgage-backed securities.
- - BancGroup's investment in obligations of state and political subdivisions
has been increased during 1994 and 1995 since the Company receives full
benefit for tax-advantaged investments. The investment strategy also
incorporates high-grade preferred stocks when the tax equivalent yield on
these investments provides an attractive alternative. The yields on these
preferred stocks are adjusted on a short-term basis and provide tax
advantaged income without long-term interest rate risk.
- - The maturities of investment alternatives are determined in
consideration of the yield curve, liquidity needs and the Company's
asset/liability gap position. Throughout 1992 and 1993, management
invested in securities with maturities of 5 years or less with the
majority in the 2-3 year range. As interest rates increased and the
Company's asset/liability gap position allowed, maturities were increased
during 1994 to the 5-7 year range and reduced to the 2-3 year range in
1995.
- - The risk elements associated with the various types of securities are also
considered in determining investment strategies. U.S. Treasury and U.S.
government agency obligations are considered to contain virtually no
default or prepayment risk. Mortgage-backed securities have varying
degrees of risk of impairment of principal. Impairment risk is primarily
associated with accelerated prepayments, particularly with respect to
longer maturities purchased at a premium and interest-only strip
securities. BancGroup's mortgage backed security portfolio as of December
31, 1995 or 1994 does not include any interest-only strips and the amount
of unamortized premium on mortgage backed securities is approximately
$123,000. The recoverability of BancGroup's investment in mortgage-backed
securities is reviewed periodically, and where necessary, appropriate
adjustments are made to income for impaired values.
- - Obligations of state and political subdivisions, as well as other
securities have varying degrees of credit risk associated with the
individual borrowers. The credit ratings and the credit worthiness of
these securities are reviewed periodically and appropriate reserves
established when necessary
Securities available for sale represent those securities that BancGroup
intends to hold for an indefinite period of time or that may be sold in
response to changes in interest rates, prepayment risk and other similar
factors. These securities are recorded at market value with unrealized gains or
losses, net of any tax effect, added or deducted from shareholders' equity. The
balance in securities available for sale increased from $78 million at December
31, 1994 to $160 million at December 31, 1995 partially as a result of a
reclassification from investment securities of $38 million in December 1995 as
allowed by the Financial Accounting Standards Board to realign the portfolios
without risk of penalties and $26 million from acquisitions. The Company took
this opportunity to reclassify certain structured notes, corporate and
municipal bonds to allow for possible disposition and certain treasury notes
for liquidity purposes.
<TABLE>
<CAPTION>
SECURITIES BY CATEGORY
===================================================================
Carrying Value
at December 31
- -------------------------------------------------------------------
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations
of U.S. government
agencies $212,513 $270,993 $224,961
Obligations of state
and political
subdivisions 46,613 40,312 35,173
Other 10,367 15,294 31,304
- -------------------------------------------------------------------
Total $269,493 $326,599 $291,438
- -------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities
and obligations
of U.S. government
agencies $129,357 $ 65,500 $103,716
Obligations of state
and political
subdivisions 570 5 5
Other 29,936 12,760 4,395
- -------------------------------------------------------------------
Total $159,863 $ 78,265 $108,116
- -------------------------------------------------------------------
</TABLE>
At December 31, 1995, there was no single issuer with the exception of
U.S. government and U.S. government agencies, where the aggregate book value of
these securities exceeded ten percent of shareholders' equity or $25.3 million.
34
<PAGE> 21
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF SECURITIES
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
----------------- --------------- --------------- ----------------
Average Average Average Average
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 42,263 5.50% $119,419 6.42% - - $ 518 6.99%
Mortgage-backed securities 217 8.05 21,610 6.40 $13,463 7.54% 15,023 8.09
Obligations of state and
political subdivisions (1) 6,395 7.15 23,563 7.20 14,182 8.07 2,473 9.43
Other (2) 5 5.50 - - 362 8.24 - -
-------- -------- ------- -------
Total $ 48,880 5.73% $164,592 6.53% $28,007 7.82% $18,014 8.24%
- -----------------------------------------------------------------------------------------------------------------
Securities available for sale (3):
U.S. Treasury securities
and obligations of U.S.
government agencies $ 70,229 5.64%
Mortgage-backed securities 59,128 6.86
Obligations of state and
political subdivisions (1) 570 5.34
Other 6,053 7.60
--------
Total $135,980 6.27%
======================================================
</TABLE>
(1) The weighted average yields are calculated on the basis of the cost and
effective yield weighted for the scheduled maturity of each security. The
weighted average yields on tax exempt obligations have been computed on a
fully taxable equivalent basis using a tax rate of 35%. The taxable
equivalent adjustment represents the annual amounts of income from tax
exempt obligations multiplied by 145%.
(2) This category excludes all corporate common and preferred stocks since
these instruments have no maturity date.
(3) Securities available for sale are shown as maturing within one year
although BancGroup intends to hold these securities for an indefinite
period of time. (See Contractual Maturities in Note 3 to the consolidated
financial statements.)
- --------------------------------------------------------------------------------
DEPOSITS
BancGroup's deposit structure consists of the following:
<TABLE>
<CAPTION>
December 31 % Of Total
- ---------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1995 1994
===================================================================================================
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 462,735 $ 362,557 16.6% 16.7
Interest-bearing demand deposits 447,145 462,055 16.1 21.3
Savings deposits 277,177 266,536 9.9 12.3
Certificates of deposits less than $100,000 1,094,863 687,007 39.3 31.6
Certificates of deposits more than $100,000 274,207 189,058 9.8 8.7
IRA's 183,136 154,346 6.6 7.1
Open time deposits 46,695 49,905 1.7 2.3
- ---------------------------------------------------------------------------------------------------
Total deposits $2,785,958 $2,171,464 100.0% 100.0%
===================================================================================================
</TABLE>
The growth in deposits and the mix of deposits has been most significantly
impacted in 1994 and 1995 by acquisitions. BancGroup acquired several thrift
institutions from 1993 to 1995. As such, the level of noninterest-bearing
demand deposits was less than 3% of the total deposits acquired with the major
portion of acquired deposits in certificates of deposits. Noninterest-bearing
demand deposits have increased $100 million (28%) from December 31, 1994 to
December 31, 1995. The increase in average noninterest demand deposits has been
approximately 37.4%. Included in this 37.4% increase is approximately 25%
related to an increase in custodial deposits of Colonial Mortgage Company with
the remaining approximately 12% primarily related to internal growth throughout
the Company's branch system. As noted above, the acquired thrifts did not add
any significant amounts of noninterest-bearing demand accounts. However, the
presence of such branches and customer relationships has attracted demand
deposit accounts after the mergers. The Company also acquired two commercial
banks in 1995 with approximately $12 million in non-interest bearing deposits
at acquisition. The majority of the noninterest-bearing demand deposit growth
is attributable to the Company's focus on developing customer relationships and
sales efforts.
BancGroup has attempted through its acquisition and branch expansion
programs to increase its market presence in the State of Alabama and expand
into other growth markets in the Southeast, the first of which was Atlanta in
1995. The principal goal is to provide the Company's retail customer base with
convenient access
35
<PAGE> 22
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
to branch locations while enhancing the Company's potential for future
increases in profitability. During 1995 BancGroup established retail banking,
training and policies and procedures departments as well as continuing its
branch automation project to reinforce the Company's goal of providing the
customer with the best possible service. In connection with this goal, several
other initiatives have been undertaken, including an electronic banking
division which includes home banking, business banking, automatic teller,
credit card and check card services. The Company has increased its automatic
teller machine services by expanding into 67 WalMart locations throughout
Alabama. Full service banking will be offered in nine WalMart locations in 1996
with eight located in Alabama and one in Tennessee. The Company is continuing
its sales of investment products, such as mutual funds and annuities to
customers seeking alternatives to deposit products. The overall goal of these
steps has been to efficiently provide customers with the financial products
they need and desire.
In 1995 the Company initiated a brokered Certificate of Deposit (CD)
program to offer CD's in increments of $1,000 to $99,000 to out of market
customers at competitive rates and maturities. At December 31, 1995, $75
million of CD's were outstanding under this program.
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following at December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -----------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $131,115 $133,419 $104,818
Federal Home Loan
Bank borrowings 465,000 210,000 190,150
Other short-term
borrowings 1,141 1,131 1,000
- -----------------------------------------------------
Total $597,256 $344,550 $295,968
- -----------------------------------------------------
</TABLE>
BancGroup has available Federal Funds lines from upstream banks including
the Federal Home Loan Bank (FHLB) totaling $558 million at December 31, 1995.
In addition, correspondent banks and customers with repurchase agreements have
provided a consistent base of short-term funds. BancGroup became a member of
the FHLB in late 1992. As a member of the FHLB, BancGroup can borrow up to $850
million from the FHLB on either a short or long-term basis excluding funds
available through the federal funds line.
Short-term borrowings, including FHLB borrowings, have been used to fund
short-term assets, primarily mortgage loans held for sale, and loans. During
1994 the volume of mortgage loans held for sale decreased significantly as
long-term interest rates increased. FHLB borrowings have been used during 1994
and 1995 to fund loan growth. As discussed more fully in the "Liquidity and
Interest Sensitivity" section of this report, the line of credit with the FHLB
is considered a primary source of funding for the Company's asset growth.
- --------------------------------------------------------------------------------
LIQUIDITY AND INTEREST SENSITIVITY
BancGroup has addressed its liquidity and interest rate sensitivity
through its policies and structure for asset/liability management. It has
created the Asset/Liability Management Committee ("ALMCO"), the objective of
which is to optimize the net interest margin while assuming reasonable business
risks. ALMCO annually establishes operating constraints for critical elements
of BancGroup's business, such as liquidity and rate sensitivity. ALMCO
constantly monitors performance and takes action in order to meet its
objectives.
Of primary concern to ALMCO is maintaining adequate liquidity. Liquidity
is the ability of an organization to meet its financial commitments and
obligations on a timely basis. These commitments and obligations include credit
needs of customers, withdrawals by depositors, repayment of debt when due and
payment of operating expenses and dividends. The Consolidated Statement of Cash
Flows identifies the three major sources and uses of cash (liquidity) as
operating, investing and financing activities. Operating activities reflect
cash generated from operations. Management views cash flow from operations as a
major source of liquidity. Investing activities represent a primary usage of
cash with the major net increase being attributed to loan growth. When
investment securities mature they are generally reinvested in new investment
securities or assets held for sale. Financing activities generally provide
funding for the growth in loans and investment securities with increased
deposits. Short-term borrowings are used to provide funding for temporary gaps
in the funding of long-term assets and deposits, as well as to provide funding
for mortgage loans held for sale and loan growth. BancGroup has the ability to
tap other markets for certificates of deposits and to utilize established lines
for Federal funds purchased and FHLB advances. BancGroup maintains and builds
diversified funding sources in order to provide
36
<PAGE> 23
flexibility in meeting its requirements.
From 1992 through 1995 the significant changes in the Company's cash flows
have centered around loan growth and fluctuations in mortgage loans held for
sale. Loan growth of $541 million in 1995 and $323 million in 1994 has been one
of the principal uses of cash in both years. The decrease in mortgage loans
held for sale, was a principal source of cash in 1994 decreasing $301 million.
In 1995 these loans increased, using $50 million in funds. As noted in previous
sections, short-term borrowings increased $252 million in 1995 and were used to
fund loan growth. Management has chosen to fund short-term fluctuations in the
volume of mortgage loans held for sale with short-term borrowings as opposed to
increasing rate sensitive deposits. Deposit growth of $367 million with $75
million from the previously discussed brokered CD program provided an
additional source of funding for internal loan growth.
As noted previously, the composition of the Company's loan portfolio has
changed over the past three years. BancGroup at December 31, 1995 had $1.4
billion of residential real estate loans. These loans provide collateral for
the current $850 million credit line at the FHLB. The FHLB unused credit
capacity, $385 million at December 31, 1995, provides the Company significant
flexibility in asset/liability management, liquidity and deposit pricing.
In August, 1993 the Company retired $15 million of its 1986 subordinated
debentures which had a maturity date of 2011. The retirement of this debt was
funded with a $15 million term note which requires an annual principal
amortization of $1 million. The term note was reduced to a balance of
$11,250,000 at December 31, 1995. In August 1995 BancGroup entered into a two
year revolving line of credit for $15 million. This line of credit provides an
additional source of funding for acquisition related activities. Management
believes its liquidity sources and funding strategies are adequate given the
nature of its asset base and current loan demand.
The primary uses of funds as reflected in BancGroup's Parent Only
Statement of Cash Flows were $2.7 million for the payment of interest on debt,
$1.0 million for principal payment on term notes (See Note 9 to the
Consolidated Financial Statements) and $10.5 million for the payment of
dividends. The Parent Company's primary source of funds was $13.4 million in
dividends received from its Alabama subsidiary bank and $6.2 million in
proceeds from the line of credit discussed previously. Dividends payable by
national and state banks in any year, without prior approval of the appropriate
regulatory authorities, are limited to the bank's net profits (as defined) for
that year combined with its retained net profits for the preceding two years.
Under these limitations, approximately $54 million of retained earnings plus
certain 1996 earnings would be available for distribution to BancGroup as
dividends in 1996 without prior approval from the respective regulatory
authorities. BancGroup anticipates that the cash flow needs of the parent
company are well below the regulatory dividend restrictions of its subsidiary
bank.
At December 31, 1995, BancGroup's liquidity position was adequate with
loan maturities of $735 million, or 26% of the total loan portfolio, due within
one year. Investment securities totaling $185 million or 43% of the total
portfolio also had maturities within one year or have been classified as
available for sale. As of December 31, 1995 there were, however, no current
plans to dispose of any significant portion of these securities. In addition
BancGroup has $385 million in additional borrowing capacity at the FHLB.
BancGroup's asset/liability management policy has also established targets
for interest rate sensitivity. Changes in interest rates will necessarily lead
to changes in the net interest margin. It is ALMCO's goal to minimize
volatility in the net interest margin by taking an active role in managing the
level, mix and maturities of assets and liabilities and by analyzing and taking
action to manage mismatch and basis risk. The interest sensitivity schedule on
page 38 reflects an 8.0% negative gap at 12 months. Based on this schedule,
management believes that neither an increase or decrease in interest rates
would result in a material swing in net income. Management has managed the
asset/liability position of the bank through traditional sources. The Company
does however, use off balance sheet instruments for hedging purposes to limit
its risk associated with the sale of mortgage loans by providing sales
commitments on all loans funded. The following table summarizes BancGroup's
interest rate sensitivity as of December 31, 1995.
37
<PAGE> 24
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At December 31, 1995
----------------------------------------------------------------------
Interest Sensitive Within
----------------------------------------------------------------------
Total 0-90 91-180 181-365 Over
(In thousands) Balance Days Days Days 1 Year
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale agreements $ 5,384 $ 5,384 $ - $ - $ -
Investment securities 269,493 58,413 11,479 38,583 161,018
Securities available for sale 159,863 17,300 10,792 2,221 129,550
Mortgage loans held for sale 110,486 110,486 - - -
- ------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 2,875,581 1,039,661 197,083 358,796 1,280,041
Allowance for possible loan losses (36,912) (13,346) (2,530) (4,605) (16,431)
- ------------------------------------------------------------------------------------------------------------------------
Net loans 2,838,669 1,026,315 194,553 354,191 1,263,610
Nonearning assets 357,322 - - - 357,322
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,741,217 $ 1,217,898 $ 216,824 $ 394,995 $ 1,911,500
- ------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 447,145 $ 281,032 $ - $ - $ 166,113
Savings deposits 277,177 150,485 - - 126,692
Certificates of deposits less than $100,000 1,094,863 231,601 199,621 318,543 345,098
Certificates of deposits more than $100,000 274,207 71,756 56,735 56,390 89,326
IRA's 183,136 48,440 20,636 26,924 87,136
Open time deposits 46,695 45,439 48 302 906
Short-term borrowings 597,256 597,256 - - -
Long-term debt 46,159 25,080 87 174 20,818
Noncosting liabilities & equity 774,579 - - - 774,579
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $ 3,741,217 $ 1,451,089 $ 277,127 $ 402,333 $ 1,610,668
- ------------------------------------------------------------------------------------------------------------------------
Gap $ - ($ 233,191) ($ 60,303) ($ 7,338) $ 300,832
- ------------------------------------------------------------------------------------------------------------------------
Cumulative Gap $ - ($ 233,191) ($ 293,494) ($ 300,832) -
========================================================================================================================
</TABLE>
At the bottom of the table is the interest rate sensitivity gap which is
the difference between rate sensitive assets and rate sensitive liabilities.
In reviewing the table, it should be noted that the balances are shown for
a specific point in time and, because the interest sensitivity position is
dynamic, it can change significantly over time. Furthermore, the balances
reflect contractual repricing of the deposits and management's position on
repricing certain deposits where management discretion is permitted. Certain
demand deposit accounts and regular savings accounts have been classified as
repricing beyond one year. While these accounts are subject to immediate
withdrawal, experience has shown them to be relatively rate insensitive. If
these accounts were included in the 0-90 day category, the gap in that time
frame would be a negative $526 million with a corresponding cumulative gap at
one year of negative $594 million.
- --------------------------------------------------------------------------------
CAPITAL ADEQUACY AND RESOURCES
Management is committed to maintaining capital at a level sufficient to
protect shareholders and depositors, provide for reasonable growth and fully
comply with all regulatory requirements. Management's strategy to achieve these
goals is to retain sufficient earnings while providing a reasonable return to
shareholders in the form of dividends and return on equity. BancGroup's
dividend pay-out ratio in 1995 was 27%. This level is below the Company's
target range of 30-45%. Dividend rates are determined by the Board of Directors
in consideration of several factors including: current and projected capital
ratios, liquidity and income levels and other bank dividend yields and payment
ratios.
The amount of a cash dividend, if any, rests with the discretion of the
Board of Directors of BancGroup as well as upon applicable statutory
constraints such as the Delaware law requirement that dividends may be paid
only out of capital surplus or out of net profits for the fiscal year in which
the dividend is declared or the preceding fiscal year.
BancGroup also has access to equity capital markets through both public
and private issuances. Management considers these sources and related return in
addition to internally generated capital in evaluating future expansion or
acquisition opportunities.
The Federal Reserve Board has issued guidelines identifying minimum Tier I
leverage ratios relative to total assets and minimum capital ratios relative to
risk-adjusted assets. The minimum leverage ratio is 3% but is increased from
100 to 200 basis points based on a review of individual banks by the Federal
Reserve. The minimum risk adjusted capital ratios established by the
38
<PAGE> 25
Federal Reserve are 4% for Tier I and 8% for total capital. BancGroup's
actual capital ratios and the components of capital and risk adjusted asset
information as of December 31, 1995 are stated below:
<TABLE>
<S> <C>
Capital (thousands):
Tier I Capital:
Shareholders' equity (excluding
unrealized gain on
securities available for sale)
less intangibles $ 226,050
Tier II Capital:
Allowable loan loss reserve 32,298
Subordinated debt 17,121
----------
Total Capital $ 275,469
Risk Adjusted Assets (thousands) $2,579,230
Total Assets (thousands) $3,741,217
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------
<S> <C> <C> <C>
Tier I leverage ratio 6.19% 6.34% 5.59%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 8.76% 9.03% 8.44%
Total Capital Ratio 10.68% 11.17% 10.64%
</TABLE>
BancGroup has increased capital gradually through normal earnings
retention as well as through stock registrations to capitalize acquisitions.
In December 1995, BancGroup notified the holders of its 1985 Convertible
Subordinated Debentures of redemption of all debentures outstanding at January
31, 1996. In 1996 substantially all of the debentures were converted resulting
in the issuance of 403,299 shares of Common Stock and payment in cash for the
remaining balance. (See Note 9 to the consolidated financial statements.)
REGULATORY RESTRICTIONS
As noted previously on page 37, dividends payable by national and state
banks in any year, without prior approval of the appropriate regulatory
authorities, are limited.
The subsidiary banks are also required by law to maintain
noninterest-bearing deposits with the Federal Reserve Bank to meet regulatory
reserve requirements. At December 31, 1995, these deposits totaled $47.4
million.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
In 1995 the Financial Accounting Standards Board issued Statement of
Accounting Standards (SFAS) No. 121 Accounting for the Impairment of Long-lived
Assets to be Disposed Of and SFAS No. 123 Accounting for Stock--Based
Compensation. Both standards require adoption for years beginning after
December 15, 1995. Management believes that the adoption of these statements
will not have a material impact on BancGroup's financial position or results of
operation. In May 1995, effective January 1,1995, BancGroup adopted SFAS No.
122 Accounting for Mortgage Servicing Rights, an amendment to SFAS No. 65. (See
Note 1 to the consolidated financial statements.)
39
<PAGE> 26
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE COLONIAL BANCGROUP, INC.
We have audited the accompanying consolidated statement of condition of
The Colonial BancGroup, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Colonial
BancGroup, Inc. and subsidiaries as of December 31, 1995 and 1994, the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 18 to the consolidated financial statements,
the Company changed its method of accounting for mortgage servicing rights in
1995, for investments in 1994 and for income taxes in 1993.
COOPERS & LYBRAND L.L.P.
Montgomery, Alabama
February 23, 1996
40
<PAGE> 27
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 126,777 $ 129,720
Interest-bearing deposits in banks 5,384 1,777
Federal funds sold - 500
Securities available for sale (Note 3) 159,863 78,265
Investment securities (market value: 1995, $272,800; 1994, $316,822; (Note 3) 269,493 326,599
Mortgage loans held for sale 110,486 60,536
Loans, net of unearned income (Note 4) 2,875,581 2,094,028
Less:
Allowance for possible loan losses (Note 5) (36,912) (33,410)
- -----------------------------------------------------------------------------------------------------
Loans, net 2,838,669 2,060,618
Premises and equipment, net 55,161 45,874
Excess of cost over tangible and identified intangible assets
acquired, net 26,262 16,239
Mortgage servicing rights 80,053 54,796
Other real estate owned 8,781 8,199
Accrued interest and other assets 60,288 55,220
- -----------------------------------------------------------------------------------------------------
Total $3,741,217 $2,838,343
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 462,735 $ 362,557
Interest-bearing demand 447,145 462,055
Savings 277,177 266,536
Time 1,598,901 1,080,316
- -----------------------------------------------------------------------------------------------------
Total deposits 2,785,958 2,171,464
FHLB short-term borrowings (Note 8) 465,000 210,000
Other short-term borrowings (Note 8) 132,256 134,550
Subordinated debt (Note 9) 17,121 17,459
Other long-term debt (Note 9) 29,038 69,042
Other liabilities 58,696 44,277
- -----------------------------------------------------------------------------------------------------
Total liabilities 3,488,069 2,646,792
- -----------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6, 15) Shareholders' equity (Notes 3, 10):
Preference Stock, $2.50 par value; 1,000,000 shares authorized, none issued
Common Stock, $2.50 par value; 44,000,000 shares authorized, outstanding:
13,084,721 shares issued and outstanding in 1995. 32,712
Class A Common Stock, $2.50 par value; 40,000,000 shares authorized,
outstanding: 11,280,031 shares in 1994.(*) 28,200
Class B Common Stock, $2.50 par value; 4,000,000 shares authorized,
outstanding 635,088 shares in 1994.(*) 1,588
Additional paid in capital 137,107 109,658
Retained earnings 83,315 55,042
Unearned compensation (822) -
Unrealized gain (loss) on securities available for sale, net of taxes 836 (2,937)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 253,148 191,551
- -----------------------------------------------------------------------------------------------------
Total $3,741,217 $2,838,343
=====================================================================================================
</TABLE>
- ---------------
(*) On February 21, 1995 the Class A and Class B Common Stock were reclassified
into one class. (See Note 10.)
See notes to consolidated financial statements.
41
<PAGE> 28
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
For the years ended
December 31, 1995, 1994 and 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $224,784 $164,649 $124,384
Interest and dividends on securities:
Taxable 21,062 18,287 13,882
Nontaxable 2,318 2,047 1,727
Dividends 2,093 1,768 1,228
Interest on federal funds sold and securities purchased under
resale agreements 354 186 247
Other interest 289 293 104
- --------------------------------------------------------------------------------------------------------
Total interest income 250,900 187,230 141,572
- --------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 99,490 68,663 50,455
Interest on short-tern borrowings 29,231 10,425 6,268
Interest on long-term debt 3,737 3,461 2,794
- --------------------------------------------------------------------------------------------------------
Total interest expense 132,458 82,549 59,517
- --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR POSSIBLE LOAN LOSSES 118,442 104,681 82,055
Provision for possible loan losses (Notes 1, 5) 5,480 6,481 7,945
- --------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 112,962 98,200 74,110
- --------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing fees 23,429 22,216 21,079
Service charges on deposit accounts 14,203 12,384 11,104
Securities gains, net (Note 3) 5 84 49
Other charges, fees and commissions 3,545 3,134 2,245
Other income 8,993 6,425 5,956
- --------------------------------------------------------------------------------------------------------
Total noninterest income 50,175 44,243 40,433
- --------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 39,786 43,355 38,453
Occupancy expense of bank premises, net 9,004 8,610 7,302
Furniture and equipment expenses 8,504 7,468 6,452
Amortization of mortgage servicing rights 9,095 6,078 4,840
Amortization of intangible assets 1,325 1,196 818
Other expense (Note 17) 35,516 34,084 28,655
- --------------------------------------------------------------------------------------------------------
Total noninterest expense 103,230 100,791 86,520
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND THE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 59,907 41,652 28,023
Applicable income taxes (Note 18) 21,113 14,342 8,886
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 38,794 27,310 19,137
Extraordinary items, net of income taxes (Note 9) - - (463)
Cumulative effect of a change in accounting for income taxes (Notes 1, 18) - - 3,219
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 38,794 $ 27,310 $ 21,893
========================================================================================================
EARNINGS PER SHARE:
Primary:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 3.12 $ 2.28 $ 2.01
Extraordinary item, net of income taxes - - (0.05)
Cumulative effect of a change in accounting for income taxes - - 0.34
Net Income $ 3.12 $ 2.28 $ 2.30
Fully-diluted:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 3.02 $ 2.23 $ 1.96
Extraordinary item, net of income taxes - - (0.04)
Cumulative effect of a change in accounting for income taxes - - 0.29
Net income $ 3.02 $ 2.23 $ 2.21
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 12,418 11,996 9,530
Fully-diluted 13,181 12,763 10,623
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 29
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended
December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 8,275,336 $ 20,688 637,528 $ 1,594
Shares issued under:
Directors Stock Plan 13,116 33
Stock Option Plans 21,350 53
Dividend Reinvestment 13,950 35
Issuance of shares for acquisitions 2,839,002 7,098 66
Net income
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share)
Conversion of 7 1/2% convertible
subordinated debentures 107
Conversion of Class B Common
Stock to Class A Common Stock 699 2 (699) (2)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 11,163,560 27,909 636,895 1,592
- --------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 14,267 36
Stock Option Plans 67,078 168
Dividend Reinvestment 23,013 57
Stock Bonus & Retention Plan 650 2
Employee Stock Purchase Plan 2,186 5
Issuance of shares for previous
year acquisitions 7,470 19
Net income
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share)
Conversion of Class B Common
Stock to Class A Common Stock 1,807 4 (1,807) (4)
Unrealized loss on securities
available for sale, net of taxes
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 11,280,031 28,200 635,088 1,588
- --------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 858 2 16,166 $ 39
Stock Option Plan 6,591 17 32,928 82
Dividend Reinvestment 26,758 66
Stock Bonus & Retention Plan 25,000 63
Employee Stock Purchase Plan 268 1 3,767 10
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock (11,287,748) (28,220) (635,088) (1,588) 11,922,836 29,808
Issuance of shares for acquisitions 1,044,997 2,612
Net Income
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share)
Conversion of 7 1/2% convertible
subordinated debentures 11,709 31
Conversion of 12 3/4% convertible
subordinated debentures 560 1
Change in Unrealized loss on securities
available for sale, net of taxes
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 0 $ 0 0 $ 0 13,084,721 $32,712
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Additional Securities Total
Paid in Retained Unearned Available Shareholders'
Capital Earnings Compensation For Sale Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 60,006 $ 18,118 - $100,406
Shares issued under:
Directors Stock Plan 164 197
Stock Option Plans 102 155
Dividend Reinvestment 259 294
Issuance of shares for acquisitions 47,566 54,664
Net income 21,893 21,893
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 2 2
Conversion of Class B Common
Stock to Class A Common Stock -
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 108,099 35,164 _ 172,764
- -------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 248 284
Stock Option Plans 738 906
Dividend Reinvestment 432 489
Stock Bonus & Retention Plan 10 12
Employee Stock Purchase Plan 43 48
Issuance of shares for previous
year acquisitions 88 107
Net income 27,310 27,310
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (7,432) (7,432)
Conversion of Class B Common
Stock to Class A Common Stock _
Unrealized loss on securities
available for sale, net of taxes $(2,937) (2,937)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 109,658 55,042 (2,937) 191,551
- -------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 285 326
Stock Option Plan 279 378
Dividend Reinvestment 516 582
Stock Bonus & Retention Plan 759 $(822)
Employee Stock Purchase Plan 99 110
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock
Issuance of shares for acquisitions 25,204 27,816
Net Income 38,794 38,794
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share) (10,521) (10,521)
Conversion of 7 1/2% convertible
subordinated debentures 298 329
Conversion of 12 3/4% convertible
subordinated debentures 9 10
Change in Unrealized loss on securities
available for sale, net of taxes 3,773 3,773
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $137,107 $ 83,315 ($822) $ 836 $253,148
=============================================================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 30
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended
December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 38,794 $ 27,310 $ 21,893
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation, amortization and accretion 10,106 8,431 7,243
Amortization of mortgage servicing rights 9,095 6,078 4,840
Amortization of excess servicing fees 1,166 1,721 3,773
Provision for possible loan losses 5,480 6,481 7,945
Deferred income taxes (1,201) (1,794) (6,238)
Gain on sale of securities, net (5) (84) (49)
Additions to mortgage servicing rights (32,139) (34,624) (19,377)
Net (increase) decrease in mortgage loans held for sale (49,950) 300,960 (217,281)
Increase in interest receivable (8,222) (3,161) (896)
(Increase) decrease in prepaids and other receivables 1,411 532 (4,429)
(Decrease) increase in accrued expenses and accounts payable (9,078) (36,986) 22,830
Increase (decrease) in accrued income taxes 2,709 (2,372) (1,317)
Increase (decrease) in interest payable 9,747 2,110 (1,383)
Other, net (1,808) (2,396) 4,174
- -------------------------------------------------------------------------------------------------------------
Total adjustments (62,689) 244,896 (200,165)
- -------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (23,895) 272,206 (178,272)
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 15,983 30,870 11,947
Proceeds from sales of securities available for sale 13,585 16,156 --
Purchase of securities available for sale (42,072) (49) (10,166)
Proceeds from maturities of investment securities 80,989 70,767 202,455
Proceeds from sales of investment securities -- -- 1,751
Purchases of investment securities (51,134) (123,167) (218,121)
Net (increase) decrease in short-term investment securities -- (6,000) 39,000
Net increase in loans (541,534) (322,849) (140,198)
Cash received in bank acquisitions, net (Note 2) 23,201 -- 71,384
Cash received in the purchase of assets and
assumption of liabilities (Note 2) -- 15,275 4,491
Capital expenditures (9,001) (6,966) (7,119)
Proceeds from sale of other real estate owned 4,849 6,413 4,990
Other, net 2,787 (28) 1,049
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (502,347) (319,578) (38,537)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand, savings and time deposits 366,646 (35,245) 75,098
Net increase in federal funds purchased and
repurchase agreements and other short-term borrowings 212,696 48,452 195,511
Retirement of subordinated debt -- -- (15,338)
Proceeds from issuance of long-term debt 12,092 25,336 27,498
Repayment of long-term debt (55,510) (13,443) (8,012)
Proceeds from issuance of common stock 1,003 1,202 428
Dividends paid (10,522) (7,432) (4,847)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 526,405 18,870 270,338
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 163 (28,502) 53,529
Cash and cash equivalents at beginning of year 131,997 160,499 106,970
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $ 132,160 $ 131,997 $ 160,499
=============================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 122,711 $ 80,961 61,535
Income taxes 18,199 20,583 12,791
Non-cash transactions:
Transfer of loans to other real estate $ 4,216 $ 2,255 $ 1,813
Origination of loans for the sale of other real estate 456 1,309 537
Transfer of investment securities to securities available for sale 37,959 22,188 20,738
Assets acquired in business combinations 330,626 596 703,885
Liabilities assumed in business combinations 302,810 15,871 649,221
</TABLE>
See notes to consolidated financial statements.
44
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING
AND REPORTING POLICIES
The Colonial BancGroup, Inc. ("BancGroup") and its subsidiaries operate
predominantly in the domestic commercial and mortgage banking industry. The
accounting and reporting policies of BancGroup and its subsidiaries conform to
generally accepted accounting principles and to general practice within the
banking industry. The following summarizes the most significant of these
policies.
BASIS OF PRESENTATION-- The Consolidated Financial Statements of
BancGroup for 1994 and 1993 have previously been restated to give retroactive
effect to the February 17, 1995 acquisition of Colonial Mortgage Company,
which is accounted for in a manner similar to a pooling of interests. (See
Note 2)
PRINCIPLES OF CONSOLIDATION--The Consolidated Financial Statements and
Notes to Consolidated Financial Statements include the accounts of BancGroup
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers cash and highly liquid
investments with maturities of three months or less when purchased as cash and
cash equivalents. Cash and cash equivalents consist primarily of cash and due
from banks, interest-bearing deposits in banks and Federal funds sold.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE--Effective
January 1, 1994, BancGroup adopted Statement of Financial Accounting Standards
(SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." Under this statement, securities are classified as either
held-to-maturity, available-for-sale or trading.
Held-to-maturity or investment securities are securities for which
management has the ability and intent to hold on a long-term basis or until
maturity. These securities are carried at amortized cost, adjusted for
amortization of premiums, and accretion of discount to the earlier of the
maturity or call date.
Securities available-for-sale represent those securities intended to be
held for an indefinite period of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, the need to
increase regulatory capital or other similar factors. Securities
available-for-sale are recorded at market value with unrealized gains and
losses net of any tax effect, added or deducted directly from shareholders'
equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
Realized and unrealized gains and losses are based on the specific
identification method. Prior to 1994, securities available for sale and
marketable equity securities were recorded at the lower of aggregate cost or
market value.
MORTGAGE LOANS HELD FOR SALE--Mortgage loans held for sale are carried at
the lower of aggregate cost or market. The cost of mortgage loans held for
sale is the mortgage note amount plus certain net origination costs less
discounts collected. The aggregate cost of mortgage loans held for sale at
December 31, 1995 and 1994 is less than their aggregate net realizable value.
Gains or losses on the sale of Federal National Mortgage Association
mortgage-backed securities are recognized on the earlier of the date settled
or the date that a forward commitment to deliver a security to a dealer is
effectively offset by a commitment to buy a similar security (paired off).
These gains or losses are included in other income.
LOANS--Loans are stated at face value, net of unearned income and
allowance for possible loan losses. Interest income on loans is recognized
under the "interest" method except for certain installment loans where
interest income is recognized under the "Rule of 78's" (sum-of-the-months
digits) method, which does not produce results significantly different from
the "interest" method. Nonrefundable fees and costs associated with
originating or acquiring loans are recognized under the interest method as a
yield adjustment over the life of the corresponding loan.
ALLOWANCE FOR POSSIBLE LOAN LOSSES--BancGroup adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan-- Income Recognition
Disclosure, on January 1, 1995. Under the new standards, a loan is considered
impaired, based on current information and events, if it is probable that the
Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
Uncollateralized loans are measured for impairment based on the present value
of expected future cash flows discounted at the historical effective interest
rate, while all collateral-dependent loans are measured for impairment based
on the fair value of the collateral. The adoption of SFAS 114 and 118 resulted
in no additional provision for credit losses at January 1, 1995.
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 totaled $13,366,000
and these loans had a corresponding valuation allowance
45
<PAGE> 32
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
of $4,517,000. The impaired loans at December 31, 1995, were measured for
impairment based primarily on the value of underlying collateral. For the year
ended December 31, 1995, the average recorded investment in impaired loans was
approximately $16,036,000. BancGroup recognized approximately $799,000 of
interest on impaired loans during the portion of the year that they were
impaired.
BancGroup uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a thorough
review of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrower's financial data, and borrowers' operating factors such as cash
flows, operating income or loss, etc.
The allowance for loan losses is established through charges to earnings
in the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are
included in the provision for loan losses. Loans continue to be classified as
impaired unless they are brought fully current and the collection of scheduled
interest and principal is considered probable. When a loan or portion of a
loan is determined to be uncollectible, the portion deemed uncollectible is
charged against the allowance and subsequent recoveries, if any, are credited
to the allowance.
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to repay,
estimated value of any underlying collateral, and current economic conditions.
While management believes that it has established the allowance in accordance
with generally accepted accounting principles and has taken into account the
views of its regulators and the current economic environment, there can be no
assurance that in the future the Bank's regulators or its economic environment
will not require further increases in the allowance.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS-- Loans, including
impaired loans, are generally classified as nonaccrual if they are past due as
to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is
in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower,
in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan has been partially charged off,
recognition of interest on a cash base is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge offs have been fully recovered.
PREMISES AND EQUIPMENT--Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
generally using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over the terms of the
respective leases or the estimated useful lives of the improvements, whichever
is shorter. Estimated useful lives range from five to forty years for bank
buildings and leasehold improvements and three to ten years for furniture and
equipment.
Expenditures for maintenance and repairs are charged against earnings as
incurred. Costs of major additions and improvements are capitalized. Upon
disposition or retirement of property, the asset account is relieved of the
cost of the item and the allowance for depreciation is charged with
accumulated depreciation. Any resulting gain or loss is reflected in current
income.
OTHER REAL ESTATE OWNED--Other real estate owned includes real estate
acquired through foreclosure or deed taken in lieu of foreclosure. These
amounts are recorded at the lower of cost or market value. Any write-down from
the cost to market value required at the time of foreclosure is charged to the
allowance for possible loan losses. Subsequent write-downs and gains or losses
recognized on the sale of these properties are included in noninterest income
or expense.
INTANGIBLE ASSETS--Intangible assets acquired in acquisitions of banks
are stated at cost, net of accumulated amortization. Amortization is provided
over twenty years for the excess of cost over tangible and identified
intangible assets acquired and ten years for deposit core base intangibles
using the straight-line method. The recoverability of intangible assets is
reviewed periodically based on the current earnings of acquired entities. If
warranted, analysis, including undiscounted income projections, are made to
determine if adjustments to carrying value or amortization periods are
necessary.
MORTGAGE SERVICING RIGHTS--BancGroup adopted SFAS No. 122, Accounting for
Mortgage Servicing Rights, in May 1995 effective January 1,1995. This
statement amends certain provisions of SFAS No. 65 to substantially eliminate
the accounting distinction between rights to service mortgage loans for others
that are acquired through loan origination activities and those acquired
46
<PAGE> 33
through purchase transactions. The statement requires an allocation of the
total cost of mortgage loans held for sale to mortgage servicing rights and
mortgage loans held for sale (without mortgage servicing rights) based on
their relative fair values.
Mortgage servicing rights are being amortized primarily using an
accelerated method in proportion to the estimated net servicing income from
the related loans, which approximates a level yield method. The amortization
period represents management's best estimate of the remaining loan lives.
The carrying values of the mortgage servicing rights are evaluated for
impairment based on their fair values categorized by year of origination or
acquisition. Fair values of servicing rights are determined by estimating the
present value of future net servicing income considering the average interest
rate and the average remaining lives of the related mortgage loans being
serviced. At December 31, 1995, BancGroup had mortgage servicing rights
(included in other assets) with a net book value of $80.1 million and excess
servicing rights included in other assets with a net book value of $8.1
million. The estimated combined fair value of these assets is approximately
$120 million.
The servicing portfolio is geographically disbursed throughout the United
States with a concentration in the southern states. The mortgage servicing
rights at December 31, 1995 and 1994 are stated net of accumulated
amortization of approximately $25,903,000 and $27,235,000, respectively.
Mortgage servicing fees are deducted from the monthly payments on mortgage
loans and are recorded as income when earned. Fees from investors for servicing
their portfolios of residential loans generally range from 1/4 of 1 % to 1/2 of
1% per year on the outstanding principal balance.
INCOME TAXES--Effective January 1, 1993, BancGroup adopted SFAS No. 109
Accounting for Income Taxes, which changed BancGroup's method of accounting
for income taxes from the deferred method required under Accounting Principles
Board Opinion 11 to the asset and liability method (See Note 18). The
principal difference between the asset and liability method and deferred
method is that, under the asset and liability method, deferred tax assets and
liabilities are adjusted to reflect changes in statutory tax rates resulting
in income adjustments in the period such changes
are enacted.
BancGroup files a consolidated income tax return; however, income taxes
are computed by each subsidiary on a separate basis, and taxes currently
payable are remitted to BancGroup.
EARNINGS PER SHARE--Primary earnings per share were computed based on the
weighted average number of shares of common stock actually outstanding and
common stock equivalents which consists of shares issuable under outstanding
stock options. Fully diluted earnings per share also gives effect to shares
issuable under convertible debenture agreements.
ADVERTISING COSTS--Advertising costs are expensed as incurred. Advertising
expense was $3,592,000 and $2,585,000 for the years ended December 31, 1995 and
1994, repectively.
RECENTLY ISSUED ACCOUNTING STANDARDS--In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No.
121). This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by the entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. If the future undiscounted cash flows
expected to result from the use of the asset and its eventual disposition are
less than the carrying amount of the asset, an impairment loss is recognized.
This statement also requires that long-lived assets and certain intangibles to
be disposed of be reported at the lower of carrying amount of fair value less
cost to sell. SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995. Management does not believe that the adoption of SFAS No.
121 will have a material impact on BancGroup's financial statements.
The Financial Accounting Standards Board issued SFAS No. 123, Accounting
for Stock-Based Compensation, (SFAS No. 123) in October 1995. This statement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument. However, SFAS No. 123 allows an entity to continue to
measure compensation costs for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. Entities electing to remain with the accounting in Opinion
No. 25 must make proforma disclosures of net income and earnings per share as if
the fair value based method of accounting defined in SFAS No. 123 had been
applied. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. SFAS No. 123 is effective for fiscal
years beginning after December 15, 1995. BancGroup has elected to continue to
measure compensation cost for their stock option plan under the provisions in
APB Opinion 25.
2. ACQUISITIONS
On February 17, 1995, BancGroup acquired Colonial Mortgage Company (CMC)
and its parent company, The Colonial Company (TCC). At the acquisition date
TCC's only asset was its investment in CMC. BancGroup issued 2,272,727 shares
of its common stock and assumed the debts of TCC. At acquisition, the acquired
entities had total assets of $71 million, total liabilities of $64 million, and
total stockholders' equity of $7 million. This business combination by entities
under common control was accounted for in a manner similar to a
pooling-of-interests.
47
<PAGE> 34
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following tables show the effect of the above transaction on results
of operations for the periods prior to the merger and shareholders' equity at
January 1, 1993 (earliest date presented).
<TABLE>
<CAPTION>
Period from
January 1 through
(In thousands) February 17, 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Total Revenue:
BancGroup $21,279 $122,806 $ 93,693
CMC 4,193 26,118 28,795
Combined 25,472 148,924 122,488
Net Income (loss):
BancGroup 5,230 27,671 18,709
CMC 242 (361) 3,184
Combined 5,472 27,310 21,893
<CAPTION>
Jan. 1, 1993 Effect
as Previously of Jan. 1, 1993
Reported Combination as Restated
- -----------------------------------------------------------------
<S> <C> <C> <C>
Common Stock $16,600 $ 5,682 $ 22,282
Additional paid
in capital 61,134 (1,128) 60,006
Retained Earnings 17,968 150 18,118
- -----------------------------------------------------------------
Total
Shareholders Equity $95,702 $ 4,704 $100,406
=================================================================
</TABLE>
The combined financial results presented above include an adjustment made
to conform accounting policies of the two companies. The adjustment was the
restatement of CMC's 1993 net income for the cumulative effect of change in
accounting principle to SFAS 109, which CMC previously adopted and had elected
to apply retroactively to 1991. The adjustment increased net income $2,059,000
in 1993. Material intercompany transactions between the two companies have been
eliminated in consolidation.
During 1995, three additional acquisitions were consummated; the following
table represents those acquisitions.
<TABLE>
<CAPTION>
(Dollars in thousands)
Common
Acquisition Stock Issued
Bank Date Shares Value
- -------------------------------------------------
<S> <C> <C> <C>
Brundidge
Banking Company March 31 266,434 $6,209
Mt. Vernon
Financial Corp. October 20 521,720 14,608
Farmers and
Merchants Bank November 3 256,843 6,999
</TABLE>
The value of the shares issued represents the total purchase price of
Brundidge Banking and Mt. Vernon Financial. Farmers and Merchants Bank
shareholders received $3 million cash in addition to the $7 million in stock.
The financial institutions acquired were accounted for as purchases and,
accordingly, income and expenses of such institutions are included in the
consolidated statements of BancGroup from the date of acquisition forward.
The following table presents unaudited proforma results of operations for
the years ended December 31, 1995 and 1994, after giving effect to amortization
of goodwill and other proforma adjustments, as if the acquisitions had
occurred at the beginning of the years presented. The proforma summary
information does not necessarily reflect the results of operations as they
actually would have been, if the acquisition had occurred at the beginning of
the years presented.
<TABLE>
<CAPTION>
(In thousands, except per
share amounts) 1995 1994
- ---------------------------------------------------
(Unaudited)
<S> <C> <C>
Net interest income before
provision for possible
loan losses $ 122,344 $115,184
Net income 39,772 29,888
Earnings per share:
Primary 3.03 2.29
Fully-diluted 2.94 2.25
Average shares outstanding:
Primary 13,119 13,041
Fully-diluted 13,882 13,808
====================================================
</TABLE>
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1995 acquistions.
<TABLE>
<CAPTION>
(In thousands) Total
- -------------------------------------------
<S> <C>
Cash and due $ 5,889
Interest-bearing deposits in banks 987
Federal funds sold 16,325
Securities available for sale 25,557
Investment securities 11,456
Loans, net 249,086
Other real estate owned 68
Accured interest and other assets 9,941
Deposits 247,848
Short-term borrowings 40,000
Other long-term debt 3,541
Other liabilities 11,421
Equity 27,816
- -------------------------------------------
Excess of cost over tangible
and identified intangible assets
acquired, net $11,317
===========================================
</TABLE>
BancGroup has entered into three separate definitive agreements with Southern
Banking Corporation, Commercial BancCorp of Georgia, Inc. and Dothan Federal
Savings Bank. The financial institutions have combined total assets of
approximately $485 million. These pending acquisitions are subject to the
respective Company's shareholder approval and various regulatory approvals
among other conditions and are expected to close in the second or third
quarter of 1996. The aggregate purchase price of these pending acquisitions
is approximately $90 million, comprised of $2.6 million in cash and
approximately 2.9 million shares of BancGroup Common Stock.
On May 20, 1994, BancGroup purchased certain assets totaling $596,000 and
assumed certain liabilities, primarily deposits, totaling $15,871,000 of Altus
Federal Savings Bank in Tallassee and Eufaula, Alabama, from the Resolution
Trust Corporation.
48
<PAGE> 35
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $212,513 $3,820 $(1,615) $ 214,71 $270,993 $175 $ (9,936) $261,832
Obligations of state and
political subdivisions 46,613 1,244 (128) 47,72 40,312 499 (881) 39,930
Other 10,367 7 (21) 10,35 15,294 29 (263) 15,060
- ---------------------------------------------------------------------------------------------------------------------------
Total $269,493 $5,071 $(1,764) $272,800 $326,599 $703 $(10,480) $316,822
===========================================================================================================================
</TABLE>
The carrying and market values of securities available for sale are summarized
as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
(In thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S
government agencies $128,873 $1,590 $(1,106) $129,357 $70,327 $ 28 $(4,855) $65,500
Obligations of state and
political subdivisions 560 10 570 5 5
Other 29,090 902 (56) 29,936 12,639 407 (286) 12,760
- ---------------------------------------------------------------------------------------------------------------------------
Total $158,523 $2,502 $(1,162) $159,863 $82,971 $ 435 $(5,141) $78,265
===========================================================================================================================
</TABLE>
The market values of obligations of states and political subdivisions were
established with the assistance of an independent pricing service. They were
based on available market data reflecting transactions of relatively small size
and not necessarily indicative of the prices at which large amounts of
particular issues could be readily sold or purchased.
Included within other investment securities are $10,000,000 in
marketable equity securities at December 31, 1995 and 1994. Included within
securities available for sale is $23,952,000 and $11,327,000 in Federal Home
Loan Bank stock at December 31, 1995 and 1994, respectively.
Securities with a carrying value of approximately $306,393,000 and
$308,081,000 at December 31, 1995 and 1994 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $18,000, $217,000 and $21,000 and gross losses of $15,000,
$133,000 and $1,000 were realized on sales of securities for 1995, 1994, and
1993, respectively. The amortized cost and market value of debt securities at
December 31, 1995, by contractual maturity, are as follows. Expected maturities
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available
Investment Securities For Sale
- --------------------------------------------------------------
Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 48,663 $ 48,919 $ 30,184 $ 30,120
Due after one year
through five years 142,983 145,977 42,402 43,595
Due after five years
through ten years 14,544 15,124 5,109 5,455
Due after ten years 2,991 3,154 -- --
- ------------------------------------------------------------
209,181 213,174 77,695 79,170
Mortgage-backed
securities 50,312 49,506 56,939 56,810
- ------------------------------------------------------------
Total $259,493 $262,680 $134,634 $135,980
============================================================
</TABLE>
During 1995 and pursuant to a FASB Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, BancGroup transferred approximately $37,959,000 from
Investment Securities to Securities Available for Sale.
49
<PAGE> 36
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
4. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -------------------------------------------------
<S> <C> <C>
Commercial, financial,
and agricultural $ 363,108 $ 298,708
Real estate--commercial 646,260 574,155
Real estate--construction 234,535 152,423
Real estate--mortgage 1,388,759 857,639
Installment and consumer 199,482 169,577
Other 43,667 41,577
- -------------------------------------------------
Subtotal $2,875,811 $2,094,079
Unearned income (230) (51)
- -------------------------------------------------
Total $2,875,581 $2,094,028
=================================================
</TABLE>
BancGroup's lending is concentrated throughout Alabama, southern
Tennessee and central Georgia, and repayment of these loans is in part
dependent upon the economic conditions in the respective regions of the
states. Management does not believe the loan portfolio contains concentration
of credits either geographically or by borrower which would expose BancGroup
to unacceptable amounts of risk. Management continually evaluates the
potential risk in all segments of the portfolio in determining the adequacy of
the allowance for possible loan losses. Other than concentrations of credit
risk in Alabama and commercial real estate loans in general, management is not
aware of any significant concentrations.
BancGroup evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by BancGroup
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, residential houses and
income-producing commercial properties. No additional credit risk exposure,
relating to outstanding loan balances, exists beyond the amounts shown in the
consolidated statement of condition at December 31, 1995.
In the normal course of business, loans are made to officers, directors,
principal shareholders and to companies in which they own a significant
interest. Such loans aggregated approximately $29.6 million and $48.7 million
at December 31, 1995 and 1994, respectively.
Loan activity to officers, directors, principal shareholders and to
companies in which they own a significant interest which aggregated a loan
balance of more than $60,000 during the year ended December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
Balance Balance
1/1/95 Additions Repayments 12/31/95
- -----------------------------------------------
<S> <C> <C> <C>
$48,728 $32,504 $51,616 $29,616
</TABLE>
5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -----------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $33,410 $28,633 $18,769
Addition due to
acquisitions 1,129 27 6,276
Provision charged
to income 5,480 6,481 7,945
Loans charged off (5,340) (5,141) (6,666)
Recoveries 2,233 3,410 2,309
- -----------------------------------------------
Balance, December 31 $36,912 $33,410 $28,633
===============================================
</TABLE>
6. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
BancGroup is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financial needs of its customers.
These financial instruments include loan commitments and standby letters of
credit and involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the financial statements.
BancGroup's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of those
instruments. BancGroup uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. BancGroup
has no significant concentrations of credit risk with any individual
counterparty to originate loans. The total amounts of financial instruments
with off-balance sheet risk as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In thousands) Contract Amount
- -----------------------------------------
<S> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $410,705
Standby letters of credit 23,810
Mortgage sales commitments 121,925
</TABLE>
Since many of the loan commitments may expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements. The credit risk involved in issuing letters of credit and
funding loan commitments is essentially the same as that involved in extending
loan facilities to customers.
Obligations to sell loans at specified dates (typically within ninety
days of the commitment date) and at specified prices are intended to hedge the
interest rate risk associated with the time period between the initial offer
to lend and the subsequent sale to a permanent investor. The current market
value of these commitments was $120,644,000 at December 31, 1995. Mortgage
sales commitments had contract value and current market value of $56,750,000
and $56,823,000 at December 31,1994, respectively.
50
<PAGE> 37
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -----------------------------------------------
<S> <C> <C>
Land $12,774 $11,160
Bank premises 48,560 43,032
Equipment 43,251 36,944
Leasehold improvements 3,560 3,416
Construction in progress 1,938 869
Automobiles 59 42
- -----------------------------------------------
Total 110,142 95,463
Less accumulated depreciation
and amortization 54,981 49,589
- -----------------------------------------------
Premises and equipment, net $55,161 $45,874
===============================================
</TABLE>
8. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- --------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased
and securities sold
under repurchase
agreements $131,115 $133,419 $104,818
FHLB borrowings 465,000 210,000 190,150
Other short-term
borrowings 1,141 1,131 1,000
- --------------------------------------------------------
Total $597,256 $344,550 $295,968
========================================================
</TABLE>
BancGroup had outstanding term notes (Note 9) of which the current
portion, $1,000,000, is included in other short-term borrowings at December
31, 1995 and 1994.
BancGroup became a member of the Federal Home Loan Bank (FHLB) in late
1992. Based on its investment in the FHLB and other factors at December 31,
1995, BancGroup can borrow up to $850 million from the FHLB on either a short
or long-term basis. At December 31, 1995, $465,000,000 was outstanding. FHLB
has a blanket lien on BancGroup's 1-4 family mortgage loans in the amount of
the outstanding debt.
Additional details regarding short-term borrowings are shown below:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Average amount
outstanding
during the year $477,785 $235,598 $195,752
Maximum amount
outstanding at
any month-end 597,256 344,550 309,714
Weighted average
interest rate:
During year 6.12% 4.42% 3.20%
End of year 5.78% 5.62% 3.20%
- --------------------------------------------------------------
</TABLE>
9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -------------------------------------
<S> <C> <C>
12 3/4% convertible
subordinated
debentures $ 7,483 $ 7,494
7 1/2% convertible
subordinated
debentures 9,637 9,964
Term note 10,250 11,250
Line of credit 6,249
FHLB advances 5,516 2,530
REMIC bonds 7,024 8,613
Purchased servicing
notes payable -- 46,650
- -------------------------------------
Total $46,159 $86,501
=====================================
</TABLE>
The 12 3/4% Convertible Subordinated Debentures due December 15, 2000
("1985 Debentures") were issued in connection with the acquisition of a bank.
The 1985 Debentures are redeemable, at the option of BancGroup, ten years from
the date of issuance at face value plus accrued interest. At the option of the
holder, each 1985 Debenture may be converted into BancGroup Common Stock at
the conversion price of $18.25 principal amount of 1985 Debentures, subject to
adjustment upon the occurrence of certain events, for each share of stock
received. In January, 1996, BancGroup called the 12 3/4% subordinated
debentures. As a result, 403,299 shares of BancGroup Common Stock were issued
and cash was paid for the remaining debentures.
The 7 1/2% Convertible Subordinated Debentures due March 31, 2011 ("1986
Debentures") issued in 1986 are convertible at any time into shares of
BancGroup Common Stock, at the conversion price of $28.00 principal amount of
1986 Debentures, subject to adjustment upon the occurrence of certain events,
for each share of stock received. The 1986 Debentures are redeemable at the
option of BancGroup at the face amount plus accrued interest. In the event all
of the remaining 1986 Debentures are converted into shares of BancGroup Common
Stock in accordance with the 1986 Indenture, a total of 343,898 shares of such
Common Stock will be issued.
On August 11, 1993, BancGroup redeemed $15 million of the 1986
Debentures at 102.25%. The redemption resulted in an extraordinary loss of
$746,000 ($463,000, net of tax). The redemption also reduced by 535,000 the
number of fully diluted shares outstanding. The redemption was funded
primarily by the term note discussed in the following paragraph.
BancGroup has a term note with $11,250,000 outstanding at December 31,
1995. (Also see Note 8.)The term note is payable in annual installments of
$1,000,000 with the balance due in 1998. BancGroup also has a line of credit
with the same financial institution totaling $15 million of which $6,249,000
is outstanding at December 31, 1995. The line of credit is due at maturity in
August 1997. The term note and the line of credit bear interest at a rate of
1.5% above LIBOR. All
51
<PAGE> 38
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
of the capital stock of BancGroup's subsidiary banks is pledged as
collateral. The agreements contain restrictive covenants which, among other
things, limit the sale of assets, incurrence of additional indebtedness,
repurchase of BancGroup stock, and requires BancGroup to maintain certain
specified financial ratios.
BancGroup had long-term Federal Home Loan Bank (FHLB) Advances
outstanding of $5,516,000 and $2,530,000 at December 31, 1995 and 1994,
respectively. These advances bear interest rates of 4% to 7.53% and mature
from 1999 to 2011.
BancGroup, with the acquisition of First AmFed, also assumed the real
estate mortgage investment conduit (REMIC) bonds through a conduit, Service
Financial Corporation, a subsidiary of Colonial Bank. These bonds were series
A (four classes) with an original principal amount of $28,123,000 and a coupon
interest rate of 7.875%. As of December 31, 1995 the bonds have an outstanding
balance of $7,024,000 and are collateralized by FNMA mortgaged-backed
securities with a carrying value of $6,971,000. The collections on these
securities are used to pay interest and principal on the bonds. Only Class A-3
and A-4 bonds remain outstanding. The REMIC bonds are summarized in the
following table:
<TABLE>
<CAPTION>
Balance at
Expected December 31, 1995
Class Maturity (In thousands)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
A-3 June 1, 2007 $2,658
A-4 September 1, 2017 4,366
- ----------------------------------------------------------------------------------------------------
Total $7,024
====================================================================================================
</TABLE>
At December 31, 1995, 1ong-term debt, including the current portion, is
scheduled to mature as follows:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------------------------
<S> <C>
1996 $ 1,141
1997 7,399
1998 9,411
1999 366
2000 17
Thereafter 28,966
- -------------------------------------------------------------------------------------------------
Total $47,300
=================================================================================================
</TABLE>
At December 31, 1994, Colonial Mortgage had purchased servicing notes payable
with various lenders with interest rates that ranged from 9.0% fixed to prime,
reduced by compensating balance credits limited to a base rate of 1.5%, due
monthly and quarterly. The Colonial Mortgage purchased servicing notes payable
were paid in full immediately following the merger.
10. CAPITAL STOCK
Effective February 21, 1995 the Class A Common Stock and the Class B
Common Stock were reclassified into one class of stock called Common Stock,
$2.50 par value, with equal rights for all shareholders. The Board of
Directors is authorized to issue shares of the preference stock in one or more
series, and in connection with such issuance, to establish the relative
rights, preferences, and limitations of each such series. Prior to the
reclassification the holders of Class A Common Stock had limited voting rights
compared with the holders of Class B Common Stock. The holders of the Class A
Common Stock were entitled to elect, voting as a separate class, up to 25%
(rounded up to the nearest whole number) of the entire Board of Directors of
BancGroup, and the holders of the Class B Common Stock were entitled to elect
the remaining directors. On all other matters coming before the stockholders
of BancGroup, except matters for which Delaware law requires a class vote, the
holders of the Class A Common Stock were entitled to one twentieth (1/20) of
one (1) vote per share and the holders of the Class B Common Stock were
entitled to one (1) vote per share. Stockholders of BancGroup may not act by
written consent or call special meetings.
At the option of the holder of record, and subject to adjustment to avoid
dilution in the event of certain occurrences, each share of BancGroup Class B
Common Stock was convertible at any time into one share of Class A Common
Stock. Shares of Class A Common Stock were not convertible into any other
securities of BancGroup.
11. REGULATORY RESTRICTIONS
Dividends payable by national and state banks in any year, without prior
approval of the appropriate regulatory authorities, are limited to the bank's
net profits (as defined) for that year combined with its retained net profits
for the preceding two years. Under these limitations, approximately $54.0
million of retained earnings plus certain 1996 earnings would be available for
distribution to BancGroup as dividends in 1996 without prior approval from the
respective regulatory authorities.
The subsidiary banks are required by law to maintain noninterest-bearing
deposits with the Federal Reserve Bank to meet regulatory reserve
requirements. At December 31,1995, these deposits totaled $47.4 million.
12. LEASES
BancGroup and its subsidiaries have entered into certain noncancellable
leases for premises and equipment used in connection with its operations. The
majority of these noncancellable lease agreements contain renewal options for
varying periods at the same or renegotiated rentals, and several contain
purchase options at fair value. Future minimum lease payments under all
noncancellable operating leases with initial or remaining terms (exclusive of
renewal options) of one year or more at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------
<S> <C>
1996 $ 3,935
1997 3,159
1998 2,362
1999 1,963
2000 1,859
Thereafter 5,062
- ---------------------------------------------------
Total $18,340
===================================================
</TABLE>
Rent expense for all leases amounted to $5,299,000 in 1995, $4,393,000
in 1994 and $3,638,000 in 1993.
52
<PAGE> 39
13. EMPLOYEE BENEFIT PLANS
BancGroup and its subsidiaries are participants in a pension plan with
certain other related companies. This plan covers most employees who have met
certain age and length of service requirements. BancGroup's policy is to
contribute annually an amount that can be deducted for federal income tax
purposes using the frozen entry age actuarial method. Actuarial computations
for financial reporting purposes are based on the projected unit credit
method. For purposes of determining the actuarial present value of the
projected benefit obligation, the weighted average discount rate was 7.25% for
1995, 8.5% for 1994 and 7% for 1993. The rate of increase in future
compensation levels was 4.00% for 1995, 5.00% for 1994, and 4.25% for 1993.
The expected long-term rate of return on assets was 9% for 1995, 1994, and
1993.
Employee pension benefit plan status at December 31:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation $10,211 $ 6,405
Vested benefit obligation $ 9,244 $ 6,557
Projected benefit obligation for
service rendered to date $13,811 $ 9,029
Plan assets at fair value $11,567 $ 8,994
- ----------------------------------------------------------
Plan assets under projected
benefit obligation (2,244) (35)
Unrecognized net gain from past
experience different from that
assumed and effects of changes
in assumptions (716) (1,879)
Unrecognized prior service cost (288) (299)
Prior service cost due to
January 1995 Plan change 354
Unrecognized net asset at
January, 1986 being recognized
over 19 years (38) (42)
- ----------------------------------------------------------
Accrued pension cost $(2,932) $(2,255)
==========================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net pension cost included
the following components:
Service cost $873 $849 $616
Interest cost 962 619 538
Actual return on plan assets (851) (614) (442)
Net amortization and deferral (6) (27) (147)
- ----------------------------------------------------------------
Net pension cost $978 $827 $565
================================================================
</TABLE>
At December 31, 1995 and 1994, the pension plan assets included
investments in BancGroup Common Stock of 7% and 5% respectively. Pension plan
assets are distributed approximately 11% in U.S. Government and agency issues,
37% in Corporate bonds and 44% in equity securities including BancGroup Common
Stock and 1% in preferred stock.
BancGroup also has an incentive savings plan (the "Savings Plan") for
all of the employees of BancGroup and its subsidiaries. The Savings Plan,
provides certain retirement, death, disability and employment benefits to all
eligible employees and qualifies as a deferred arrangement under Section 401(k)
of the Internal Revenue Code. Participants in the Savings Plan make basic
contributions and may make supplemental contributions to increase benefits.
BancGroup contributes a minimum of 50% of the basic contributions made by the
employees and may make an additional contribution from profits on an annual
basis. An employee's interest in BancGroup's contributions becomes 100% vested
after five years of participation in the Savings Plan. Participants have
options as to the investment of their Savings Plan funds, one of which
includes purchase of Common Stock of BancGroup. Charges to operations for this
plan amounted to $678,000, $559,000 and $452,000 for 1995, 1994 and 1993,
respectively.
14. STOCK PLANS
The 1992 Incentive Stock Option Plan ("the 1992 Plan") provides an
incentive to certain officers and key management employees of BancGroup and
its subsidiaries. Options granted under the 1992 Plan must be at a price not
less than the fair market value of the shares at the date of grant. All
options expire no more than ten years from the date of grant, or three months
after an employee's termination. An aggregate of 550,000 shares of Common
Stock are reserved for issuance under the 1992 Plan. At December 31, 1995 and
1994, 488,519 and 429,269 shares, respectively remained available for the
granting of options under the 1992 Plan.
The 1992 Nonqualified Stock Option Plan ("the 1992 Nonqualified Plan")
provides an incentive to directors, officers and employees of BancGroup and
its subsidiaries. Options granted under the 1992 Nonqualified Plan must be at
a price not less than 85% of the fair market value of the shares at the date
of grant. All options expire no more than ten years after the date of grant,
or three months after an employee's termination. An aggregate of 800,000
shares of Common Stock are reserved for issuance under the 1992 Nonqualified
Plan. At December 31,1995 and 1994, 782,750 and 786,500 shares, respectively
remained available for the granting of options under the 1992 Nonqualified
Plan.
Prior to 1992, BancGroup had both a qualified incentive stock option plan
("Plan") under which options were granted at a price not less than fair market
value and a nonqualified stock option plan ("Nonqualified Plan") under which
options were granted at a price not less than 85% of fair market value. All
options under the plans expire ten years from the date of grant, or three
months after the employee's termination. Although options previously granted
under these plans may be exercised, no further options may be granted.
53
<PAGE> 40
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Following is a summary of the transactions in Common Stock under these
plans for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Shares Under Option
- --------------------------------------------------------------------------------------
Nonqualified
Plans Plans
- --------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
December 31, 1992 68,830 199,620
Granted (at $4.25-
$15.73 per share) 57,731 13,500
Exercised (at $6.16-
$6.38 per share) (2,500) (18,850)
- ------------------------------------------------------------------------------------
Outstanding at
December 31, 1993 124,061 194,270
Exercised (at $4.25-
$13.00 per share) (52,078) (15,000)
- ------------------------------------------------------------------------------------
Outstanding at
December 31, 1994 71,983 179,270
Granted (at $16.89-
$19.88 per share) 3,750 3,750
Exercised (at $6.16-
$17.48 per share) (33,519) (6,000)
- -------------------------------------------------------------------------------------
Outstanding at
December 31, 1995 42,214 177,020
- -------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the total shares outstanding and exercisable under
these option plans were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Aggregate
Range of Option
Option Prices Shares Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$6.16-$6.38 159,770 $ 986,384
$7.25 23,364 169,389
$9.75-$11.48 1,600 15,600
$15.73-$19.88 34,500 599,993
- ---------------------------------------------------------------------------------------------
Total 219,234 $1,771,366
=============================================================================================
</TABLE>
In 1987 BancGroup adopted the Restricted Stock Plan for Directors
("Directors Plan") whereby directors of BancGroup and its subsidiary banks may
receive Common Stock in lieu of cash director fees. The election to
participate in the Directors Plan is made at the inception of the director's
term except for BancGroup directors who make this election six months prior to
the inception of their term. Shares earned under the plan for regular fees are
issued quarterly while supplemental fees are issued annually. All shares
become vested at the expiration of the director's term. During 1995, 1994 and
1993, respectively, 17,024, 14,267, and 13,116 shares of Common Stock were
issued under the Directors Plan, representing approximately $326,000,
$284,000, and $197,000 in directors' fees for 1995, 1994 and 1993,
respectively.
In 1992 BancGroup adopted the Stock Bonus and Retention Plan to promote
the long-term interests of BancGroup and its shareholders by providing a means
for attracting and retaining officers, employees and directors by awarding
Restricted Stock which shall vest 20% per year commencing on the first
anniversary of the award. An aggregate of 750,000 shares have been reserved
for issuance under this Plan. There were 25,650 shares outstanding of which
130 shares were vested at December 31, 1995.
In 1994 BancGroup adopted the Employee Stock Purchase Plan which provides
salaried employees of BancGroup with a convenient way to become shareholders
of BancGroup. The participant authorizes a regular payroll deduction of not
less than $10 or more than 10% of salary. The participant may also contribute
whole dollar amounts of not less than $100 or more than $1,000 each month
toward the purchase of the stock at market price. There are 150,000 shares
authorized for issuance under this Plan. There were 6,221 shares issued and
outstanding under this Plan at December 31, 1995.
15. CONTINGENCIES
BancGroup and its subsidiary banks are from time to time defendants in
legal actions from normal business activities. Management does not anticipate
that the ultimate liability arising from litigation outstanding at December
31, 1995, will have a materially adverse effect on BancGroup's financial
statements.
Due to current congressional proposals to recapitalize the Savings
Association Insurance Fund (SAIF), the Company may incur a one-time charge
when the proposed legislation is enacted. At December 31, 1995, BancGroup had
approximately $791 million in deposits which would be subject to such an
assessment.
16. RELATED PARTIES
Most of the insurance coverage for vendor single interest, credit life,
and accident and health insurance is provided to customers of BancGroup's
subsidiary bank by companies owned by a principal shareholder and a director
of BancGroup. Premiums collected from customers and remitted to these
companies on such insurance were approximately $1,712,000, $2,242,000 and
$1,287,000, in 1995, 1994 and 1993, respectively.
BancGroup, Colonial Bank and Colonial Mortgage lease premises, including
their principal corporate offices, and airplane services from companies owned
by principal shareholders of BancGroup. Amounts paid under these leases and
agreements approximated $3,100,000, $2,300,000 and $1,900,000 in 1995, 1994
and 1993, respectively.
During 1995, 1994 and 1993, BancGroup and its subsidiaries paid or
accrued fees of approximately $1,306,000, $1,326,000 and $949,000,
respectively, for legal services required of law firms in which a partner of
the firm serves on the Board of Directors.
54
<PAGE> 41
17. OTHER EXPENSE
The following charges have been included in Other Expense:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- ------------------------------------------------
<S> <C> <C> <C>
Stationery, printing,
and supplies $ 2,588 $ 2,703 $ 2,692
Postage 1,884 1,609 1,514
Telephone 3,129 2,834 2,539
Insurance 1,306 1,645 1,410
Legal fees 2,081 2,635 1,690
Advertising and
public relations 3,592 2,585 1,579
FDIC assessment 3,323 4,643 3,527
Other 17,613 15,430 13,704
- ------------------------------------------------
Total $35,516 $34,084 $28,655
================================================
</TABLE>
18. INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- --------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $20,267 $15,021 $10,835
State 2,047 1,115 1,070
Deferred (1,201) (1,794) (3,019)
- --------------------------------------------
Total $21,113 $14,342 $8,886
============================================
</TABLE>
BancGroup adopted SFAS No.109 as of January 1, 1993, as described in Note
1. This change in accounting principle resulted in a $3,219,000 ($.29 per
fully-diluted share) credit being reported as the cumulative effect of a
change in accounting for income taxes in the 1993 statement of income.
The reasons for the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate
on income from
operations $20,967 $14,578 $9,808
Add:
State income taxes, net
of federal tax benefit 1,331 746 566
Amortization of net
purchase accounting
adjustments 199 455 375
Other 515 171 (187)
- ----------------------------------------------------------------------------------------------
Total 23,012 15,950 10,562
==============================================================================================
Deduct:
Nontaxable interest
income 1,647 1,375 1,251
Dividends received
deduction 252 233 425
- ----------------------------------------------------------------------------------------------
Total 1,899 1,608 1,676
- ----------------------------------------------------------------------------------------------
Total income taxes $21,113 $14,342 $8,886
==============================================================================================
</TABLE>
The components of BancGroup's net deferred tax asset as of December 31,1995
and 1994, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible
loan losses $13,879 $12,260
Pension accrual in excess
of contributions 755 681
Accumulated amortization of
mortgage servicing rights 2,869 3,258
Acquisition related accruals 547 48
Other real estate owned
writedowns 1,270 1,311
Other liabilities and reserves 1,195 344
Deferred loan fees, net 37 699
Securities valuation reserve 105 105
Excess healthcare contributions 469 715
Unrealized loss on securities
available for sale -- 1,781
Other 1,000 1,412
- ----------------------------------------------------------------------------------------------------------
Total deferred tax asset 22,126 22,614
==========================================================================================================
Deferred tax liabilities:
Accelerated tax depreciation 297 236
Accumulated accretion/discount
on bonds 487 1,627
Differences between financial
reporting and tax bases of net
assets acquired 1,124 984
Stock dividends received 1,449 906
Prepaid FDIC assessment 407 827
Loan loss reserve recapture 2,248 2,727
Unrealized gain on securities
available for sale 314 --
Other 1,561 174
- ----------------------------------------------------------------------------------------------------------
Total deferred tax liability 7,887 7,481
==========================================================================================================
Net deferred tax asset $14,239 $15,133
==========================================================================================================
</TABLE>
The net deferred tax asset is included as a component of accrued interest
and other assets in the Consolidated Statement of Condition.
BancGroup did not establish a valuation allowance related to the net
deferred tax asset due to taxes paid within the carryback period being
sufficient to offset future deductions resulting from the reversal of these
temporary differences.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
- - CASH AND CASH EQUIVALENTS--For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
- - INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE--For debt
securities and marketable equity securities held either for investment
purposes or for sale, fair value equals quoted market price, if avail-
55
<PAGE> 42
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
able. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
- - MORTGAGE LOANS HELD FOR SALE--For these short-term instruments, the fair
value is determined from quoted current market prices.
- - MORTGAGE SERVICING RIGHTS AND EXCESS SERVICING FEES--Fair value is
estimated by discounting future cash flows from servicing fees using
discount rates that approximate current market rates.
- - LOANS--For loans, the fair value is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
- - DEPOSITS--The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at December 31, 1995
and 1994. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
- - SHORT-TERM BORROWINGS--For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
- - LONG TERM DEBT--Rates currently available to BancGroup for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.
- - COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT--The value
of these unrecognized financial instruments is estimated based on the
related fee income associated with the commitments, which is not material
to BancGroup's financial statements at December 31, 1995 and 1994.
The estimated fair values of BancGroup's financial instruments at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 132,161 $ 132,161 $ 131,997 $ 131,997
Securities available for sale 159,863 159,863 78,265 78,265
Investment securities 269,493 272,800 326,599 316,822
Mortgage loans held for sale 110,486 111,952 60,536 60,736
Mortgage servicing rights and
excess servicing fees 88,165 130,156 63,821 101,327
Loans 2,875,581 2,094,028
Less: allowance for loan losses (36,912) (33,410)
----------------------------------------------------------------------------------------
Loans, net 2,838,669 2,879,958 2,060,618 2,081,021
----------------------------------------------------------------------------------------
Total $3,598,837 $3,686,890 $2,721,836 $2,770,168
========================================================================================
Financial liabilities:
Deposits $2,785,958 $2,790,055 $2,171,464 $2,154,144
Short-term borrowings 597,256 597,256 344,550 344,550
Long-term debt 46,159 53,600 86,501 82,758
----------------------------------------------------------------------------------------
Total $3,429,373 $3,440,911 $2,602,515 $2,581,452
========================================================================================
</TABLE>
56
<PAGE> 43
20. CONDENSED FINANCIAL INFORMATION OF THE COLONIAL BANCGROUP, INC.
(PARENT COMPANY ONLY)
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31
(In thousands) 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash* $ 1,719 $ 1,372
Investment in subsidiaries(*) 279,691 212,268
Intangible assets 3,621 4,028
Other assets 4,478 5,857
- --------------------------------------------------------------
Total assets $289,509 $223,525
==============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 1,000 $ 1,000
Subordinated debt 17,121 17,458
Other long-term debt 16,499 11,250
Other liabilities 1,741 2,266
Shareholders' equity 253,148 191,551
- --------------------------------------------------------------
Total liabilities and
shareholders' equity $289,509 $223,525
==============================================================
</TABLE>
*Eliminated in consolidation.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
- -------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from
subsidiaries* $ 13,392 $ 11,883 $10,395
Interest and dividends
on short-term
investments* 81 66 89
Other income 1,054 1,063 1,077
- -------------------------------------------------------------------------
Total income 14,527 13,012 11,561
=========================================================================
EXPENSES:
Interest 2,616 2,486 2,702
Salaries and
employee benefits 754 928 725
Occupancy expense 298 293 291
Furniture and
equipment expense 89 111 135
Amortization of
intangible assets 406 406 406
Other expenses 2,854 3,247 2,067
- -------------------------------------------------------------------------
Total expenses 7,017 7,471 6,326
=========================================================================
Income before income
taxes, extraordinary
item and equity in
undistributed net
income of subsidiaries 7,510 5,541 5,235
Income tax benefit 1,949 2,224 1,728
Extraordinary item,
net of income taxes -- -- (463)
- -------------------------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 9,459 7,765 6,500
Equity in undistributed
net income of
subsidiaries(*) 29,335 19,545 15,393
- -------------------------------------------------------------------------
Net income $ 38,794 $ 27,310 $21,893
=========================================================================
</TABLE>
(*)Eliminated in consolidation.
57
<PAGE> 44
20. CONDENSED FINANCIAL INFORMATION OF
THE COLONIAL BANCGROUP, INC. (continued)
(PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1995 1994 1993
- ------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $38,794 $27,310 $21,893
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Gain on sale of assets -- (7) (3)
Depreciation, amorti-
zation, and accretion 617 637 670
(Increase) decrease in
prepaids and other
assets (2,343) 86 1,077
Increase (decrease)
in accrued income
taxes 3,387 (727) (2,243)
Increase (decrease)
in accrued expenses 81 79 (122)
Undistributed
earnings
of subsidiaries(*) (29,335) (19,545) (15,393)
- ------------------------------------------------------
Total adjustments (27,593) (19,477) (16,014)
- ------------------------------------------------------
Net cash provided by
operating activities 11,201 7,833 5,879
- ------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (108) (11) (18)
Proceeds from sale
of premises and
equipment -- 36 8
Additional investment
in subsidiaries(*) (6,500) -- --
- ------------------------------------------------------
Net cash provided by
(used in) investing
activities (6,608) 25 (10)
======================================================
</TABLE>
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31
(In thousands) 1995 1994 1993
- ------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt 6,249 -- 15,000
Repayment of
long-term debt (1,000) (2,000) (3,550)
Retirement of Sub-
ordinated debt -- -- (15,338)
Proceeds from
issuance of
common stock 1,027 1,384 558
Dividends paid (10,522) (7,432) (4,847)
Other, net -- -- 124
- ------------------------------------------------------
Net cash used in
financing activities (4,246) (8,048) (8,053)
- ------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents 347 (190) (2,184)
Cash and cash
equivalents at
beginning of year 1,372 1,562 3,746
- ------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR(*) $ 1,719 1,372 1,562
- ------------------------------------------------------
Supplemental
disclosure of cash
flow information:
Cash paid (received)
during the year for:
Interest $ 2,661 $ 2,489 $ 2,674
Income taxes (700) (1,500) (24)
======================================================
</TABLE>
(*)Eliminated in consolidation.
58
<PAGE> 45
- --------------------------------------------------------------------------------
COMMON STOCK INFORMATION
MARKET PRICE OF AND DIVIDENDS DECLARED ON COMMON STOCK
BancGroup's Common Stock is traded on the New York Stock Exchange under
the symbol "CNB". This trading commenced on February 24, 1995. Prior to that
time, BancGroup's Class A Common Stock was traded on the over-the-counter
market and was quoted on NASDAQ under the symbol "CLBGA". There was no active
public trading market for the Class B Common Stock.
The following table indicates the high and low closing prices for Common
Stock and Class A Common Stock, for 1995 and 1994.
<TABLE>
<CAPTION>
Sale Price of Dividends Declared
Common Stock on Common Stock
High Low (per share)
- -----------------------------------------------------------------------------------------------
1995
<S> <C> <C> <C>
1st Quarter
Class A ....................................... 23 5/8 19 1/2 $0.225
Class B ....................................... -- -- 0.125
Common ........................................ -- -- --
2nd Quarter
Common ......................................... 27 1/2 23 1/8 0.225
3rd Quarter
Common ......................................... 29 7/8 27 1/2 0.225
4th Quarter
Common ......................................... 32 7/8 28 1/2 0.225
- -----------------------------------------------------------------------------------------------
1994
1st Quarter
Class A ...................................... 20 1/4 18 $ 0.20
Class B ...................................... -- -- 0.10
2nd Quarter
Class A ...................................... 25 19 1/4 0.20
Class B ...................................... -- -- 0.10
3rd Quarter
Class A ...................................... 24 3/4 22 0.20
Class B ...................................... -- --
4th Quarter
Class A ...................................... 23 3/4 19 1/2 0.20
Class B ...................................... -- -- 0.10
- -----------------------------------------------------------------------------------------------
</TABLE>
VOTING SECURITIES AND SHAREHOLDERS
As of December 31, 1995, BancGroup had outstanding 13,084,721 shares of
Common Stock, with 5,388 shareholders of record.
As of December 31,1994, BancGroup had outstanding 11,280,031 shares of
Class A Common Stock and 635,088 shares of Class B Common Stock, with 5,123 and
382 holders of each class, respectively. Effective February 21, 1995 the Class
A Common Stock and the Class B Common Stock were reclassified into one class of
stock called Common Stock. There were 11,941,613 shares of Common Stock
outstanding following such reclassification with 5,196 shareholders of record.
59
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE REGISTRANT
COLONIAL BANK, AN ALABAMA BANKING CORPORATION.
COLONIAL BANK OF TENNESSEE, A TENNESSEE BANK.
COLONIAL BANK, DUNWOODY, GEORGIA, A FEDERAL SAVINGS 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 the registration statement
of The Colonial BancGroup, Inc., on Form S-8 (File No. 2-89959), Form S-8 (File
No. 33-13376), Form S-8 (File No. 33-41036), Form S-8 (File No. 33-47770), Form
S-8 (File No. 33-11540), Form S-8 (File No. 33-78118), Form S-3 (File No.
33-5665), Form S-3 (File No. 33-62071), and Form S-8 (File No. 33-63347) 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, which
report is incorporated by reference in this Annual Report on Form 10-K.
Montgomery, Alabama
March 21, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert E. Lowder, Young J. Boozer, III, and W.
Flake Oakley, and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and re-substitution, for him and in his name,
place and stead, to sign any reports or other filings which may be required to
be filed with the Securities and Exchange Commission on behalf of The Colonial
BancGroup, Inc. (the "Registrant"), during the year ending December 31, 1996; to
sign any registration statement and any amendments thereto of the Registrant for
the purpose of registering under the Securities Act of 1933, as amended, shares
to be offered and sold by the Registrant; to file such other reports or other
filings, such registration statements and amendments thereto, with all exhibits
thereto, and any documents in connection therewith with the Securities and
Exchange Commission; and to file such notices, reports or registration
statements (and amendments thereto) with any such securities authority of any
state which may be necessary to register or qualify for an exemption from
registration any securities offered or sold by BancGroup in such states,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
This Power of Attorney supersedes and revokes any previous power of
attorney of the Registrant relating to the foregoing matters and shall terminate
at the conclusion of the regular board meeting of the Registrant in January
1997.
Done this 17th day of January, 1996, in the City of Montgomery, Alabama.
<TABLE>
<S> <C>
/s/ ROBERT E. LOWDER Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer
Robert E. Lowder
/s/ YOUNG J. BOOZER Director
- ---------------------------------------------
Young J. Boozer
/s/ WILLIAM BRITTON Director
- ---------------------------------------------
William Britton
/s/ JERRY J. CHESSER Director
- ---------------------------------------------
Jerry J. Chesser
/s/ AUGUSTUS K. CLEMENTS, III Director
- ---------------------------------------------
Augustus K. Clements, III
/s/ ROBERT CRAFT Director
- ---------------------------------------------
Robert Craft
Director
- ---------------------------------------------
Patrick F. Dye
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
/s/ CLINTON HOLDBROOKS Director
- ---------------------------------------------
Clinton Holdbrooks
/s/ D. B. JONES Director
- ---------------------------------------------
D. B. Jones
/s/ HAROLD D. KING Director
- ---------------------------------------------
Harold D. King
/s/ JOHN ED MATHISON Director
- ---------------------------------------------
John Ed Mathison
/s/ MILTON MCGREGOR Director
- ---------------------------------------------
Milton McGregor
/s/ JOHN C. H. MILLER, JR. Director
- ---------------------------------------------
John C. H. Miller, Jr.
/s/ JOE D. MUSSAFER Director
- ---------------------------------------------
Joe D. Mussafer
/s/ WILLIAM E. POWELL, III Director
- ---------------------------------------------
William E. Powell, III
/s/ JACK H. RAINER Director
- ---------------------------------------------
Jack H. Rainer
/s/ FRANCES E. ROPER Director
- ---------------------------------------------
Frances E. Roper
/s/ ED V. WELCH Director
- ---------------------------------------------
Ed V. Welch
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 126,777
<INT-BEARING-DEPOSITS> 5,384
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,863
<INVESTMENTS-CARRYING> 269,493
<INVESTMENTS-MARKET> 272,800
<LOANS> 2,875,581
<ALLOWANCE> 36,912
<TOTAL-ASSETS> 3,741,217
<DEPOSITS> 2,785,958
<SHORT-TERM> 597,256
<LIABILITIES-OTHER> 58,696
<LONG-TERM> 46,159
32,712
0
<COMMON> 0
<OTHER-SE> 220,436
<TOTAL-LIABILITIES-AND-EQUITY> 3,741,217
<INTEREST-LOAN> 224,784
<INTEREST-INVEST> 25,473
<INTEREST-OTHER> 643
<INTEREST-TOTAL> 250,900
<INTEREST-DEPOSIT> 99,490
<INTEREST-EXPENSE> 32,968
<INTEREST-INCOME-NET> 118,442
<LOAN-LOSSES> 5,480
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 103,230
<INCOME-PRETAX> 59,907
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,794
<EPS-PRIMARY> 3.12
<EPS-DILUTED> 3.02
<YIELD-ACTUAL> 4.09
<LOANS-NON> 12,600
<LOANS-PAST> 1,029
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 111,000
<ALLOWANCE-OPEN> 33,410
<CHARGE-OFFS> 5,340
<RECOVERIES> 2,233
<ALLOWANCE-CLOSE> 36,912
<ALLOWANCE-DOMESTIC> 36,912
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
