<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): 7/3/96
THE COLONIAL BANCGROUP, INC
(Exact name of registrant as specified in its charter)
DELAWARE 1-13508 63-0661573
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
ONE COMMERCE STREET, MONTGOMERY, ALABAMA 36104
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 334-240-5000
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<PAGE> 2
ITEM 5. OTHER EVENTS
BancGroup completed business combinations with Commercial Bancorp of
Georgia, Inc. (CB) and Southern Banking Corporation (SBC), on July 3, 1996. The
combinations were accounted for as a poolings of interests. Accordingly, the
accompanying consolidated selected financial data, management's discussion and
analysis and consolidated financial statements as of December 31, 1995, 1994,
and 1993 and for each of the three years in the period ended December 31, 1995
have been restated to give retroactive effect to the combination with CB and SBC
and include the combined operations of BancGroup, CB and SBC for all periods
presented.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S> <C>
23 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Colonial BancGroup, Inc.
By: /s/ W. FLAKE OAKLEY, IV
------------------------------------
W. Flake Oakley, IV
Its Chief Financial Officer
On: September 27, 1996
<PAGE> 4
COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
INDEX TO RESTATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER*
-------
<S> <C>
Amended Financial Statements:
Selected Financial Data..........................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................
Report of Independent Accountants................................................
Consolidated Financial Statements................................................
Notes to Consolidated Financial Statements.......................................
Supplemental Information: (Restatement)
Selected Financial Data..........................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................
Report of Independent Accountants................................................
Supplemental Consolidated Financial Statements...................................
Notes to Supplemental Consolidated Financial Statements..........................
</TABLE>
- ---------------
* Pagination is consistent with BancGroup's 1995 Annual Report to Shareholders
(page numbers 1 through 15 are not utilized in this filing).
<PAGE> 5
The Colonial BancGroup, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
Selected Financial Data
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
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 $ 3.12 $ 2.28 $ 2.30 $ 1.72 $ 1.47
Fully-diluted $ 3.02 $ 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> 6
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA
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> 7
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Quarterly Financial Data 1995-1994
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
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> 8
Management's Discussion and Analysis of
- -------------------------------------------------------------------------------
Financial Condition and Results of Operations
INTRODUCTION
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on the following pages. 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: 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> 9
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:
(Dollars in thousands)
<TABLE>
<CAPTION>
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> 10
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> 11
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
The major components of BancGroup's net income are:
<TABLE>
<CAPTION>
(In thousands) 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 highlighted 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 4.26% in 1994 compared to 4.25% in 1993 and 4.41% in
1992. Over this period net interest income on a fully tax equivalent basis
increased to S104.8 million in 1994 from $79.5 million in 1993 and $67.9 million
in 1992. The principal factors affecting the Company's yields and net interest
income are discussed in the following paragraphs.
LEVELS OF INTEREST RATES
After declining consistently from 1989 through 1992 and remaining virtually
flat throughout 1993, short-term interest rates increased dramatically
throughout 1994 and continued to increased into the late 1995 before starting
to decline. For example, the average fed funds rate for overnight
bank borrowings 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 too 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 523% for 1995.
22
<PAGE> 12
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> 13
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> 14
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> 15
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 number of loans closed.
26
<PAGE> 16
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 be .75%
of the deposits insured by SAIF. This recapitalization would allow
a reduction in the current .23% average annual premium rate. BancGroup has
approximately $719 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. The assessment will result in a charge to after tax
earnings and equity of approximately $3.4 million.
<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 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
Advertising 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>
<CAPTION>
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> 17
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> 18
- - 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 mortgage loan refinancing. These loans are funded
principally with short-term borrowings, providing a relatively high margin
for these funds.
- - As discussed more fully in subsequent sections, management has determined to
maintain adequate liquidity and liquidity sources. BancGroup has arranged
funding sources in addition to customer deposits which provide the capability
for the Company to exceed a 100% loan to deposit ratio and maintain adequate
liquidity.
- - Internal loan growth has been a major factor in the Company's increasing
earnings with growth rates of 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> 19
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> 20
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> 21
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 collaterlized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands) 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>
* Total does not include loans contractually past due 90 days or more which are
still accruing interest.
Fluctuations from year to year in the balances of nonperforming assets are
attributable to several factors including changing economic conditions in
various markets, nonperforming assets obtained in various acquisitions and the
disproportionate impact of larger (over $500,000) individual credits. 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> 22
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, 1995, 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> 23
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> 24
MATURITY DISTRIBUTION OF SECURITIES
<TABLE>
<CAPTION>
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> 25
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 flexibility
in meeting its requirements.
36
<PAGE> 26
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 7.0% 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> 27
The Colonial BancGroup, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
----------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1-5 OVER
(In thousands) BALANCE DAYS DAYS DAYS YEARS 5 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 47,781 113,237
Securities available for sale 159,863 17,300 10,792 2,221 1,456 128,094
Mortgage loans held for sale 110,486 110,486 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 2,875,581 1,039,661 197,083 358,796 409,613 870,427
Allowance for possible loan losses (36,912) (13,346) (2,530) (4,605) (5,258) (11,173)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 2,838,669 1,026,315 194,553 354,191 404,355 859,254
Nonearning assets 357,322 -- -- -- -- 357,322
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $3,741,217 $1,217,898 $216,824 $ 394,995 $ 453,592 $1,457,907
- ---------------------------------------------------------------------------------------------------------------------------
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 1,094,863 231,601 199,621 318,543 262,769 82,329
Certificates of deposits more than $100,000 274,207 71,756 56,735 56,390 88,910 416
IRA's 183,136 48,440 20,636 26,924 86,695 441
Open time deposits 46,695 45,439 48 302 401 505
Short-term borrowings 597,256 597,256 -- -- -- 16,661
Long-term debt 46,159 25,080 87 174 4,157 --
Noncosting liabilities & equity 774,579 -- -- -- -- 774,579
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $3,741,217 $1,451,089 $277,127 $ 402,333 $ 735,737 $ 874,931
- ---------------------------------------------------------------------------------------------------------------------------
Gap $ -- ($ 233,191) ($ 60,303) ($ 7,338) ($ 282,145) $ 582,976
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Gap $ -- ($ 233,191) ($293,494) ($ 300,832) ($ 582,976) $ --
- ---------------------------------------------------------------------------------------------------------------------------
</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. For all interest earning assets
and interest bearing liabilities, variable rate assets and liabilities are
reflected in the time interval of the assets or liabilities' earliest repricing
date. Fixed rate assets and liabilities have been allocated to various time
intervals based on contractual repayment. Furthermore, the balances reflect
contractual repricing of the deposits and management's position on repricing
certain deposits where management discretion is permitted, prepayment
assumptions are applied at a constant rate based on the Company's historial
experience. Certain demand deposit accounts and regular savings accounts have
been classified as repricing beyond one year in accordance with regulatory
guidelines. While these accounts are subject to immediate withdrawal,
experience 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> 28
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> 29
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> 30
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31, 1995 and 1994
(In thousands)
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> 31
The Colonial BancGroup, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(In thousands, except per share amounts)
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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> 32
- --------------------------------------------------------------------------------
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(Dollars in thousands)
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK COMMON STOCK PAID IN RETAINED UNEARNED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 8,275,336 $ 20,688 637,528 $ 1,594 $ 60,006 $18,118
Shares issued under:
Directors Stock Plan 13,116 33 164
Stock Option Plans 21,350 53 102
Dividend Reinvestment 13,950 35 259
Issuance of shares for
acquisitions 2,839,002 7,098 66 47,566
54,664 Net income 21,893
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 107 2
Conversion of Class B Common
Stock to Class A Common Stock 699 2 (699) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 11,163,560 27,909 636,895 1,592 108,099 35,164
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 14,267 36 248
Stock Option Plans 67,078 168 738
Dividend Reinvestment 23,013 57 432
Stock Bonus & Retention Plan 650 2 10
Employee Stock Purchase Plan 2,186 5 48
Issuance of shares for previous
year acquisitions 7,470 19 88
Net income 27,310
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (7,432)
Conversion of Class B Common
Stock to Class A Common Stock 1,807 4 (1,807) (4)
Unrealized loss on securities
available for sale, net of taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 11,280,031 28,200 635,088 1,588 109,658 55,042
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 858 2 16,166 $ 39 285
Stock Option Plan 6,591 17 32,928 82 279
Dividend Reinvestment 26,758 66 516
Stock Bonus & Retention Plan 25,000 63 759 $(822)
Employee Stock Purchase Plan 268 1 3,767 10 99
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 25,204
Net Income 38,794
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share) (10,521)
Conversion of 7 1/2% convertible
subordinated debentures 11,709 31 298
Conversion of 12 1/3% convertible
subordinated debentures 560 1 9
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 $137,107 $ 83,315 $(822)
===================================================================================================================================
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES TOTAL
AVAILABLE SHAREHOLDERS'
FOR SALE EQUITY
- ------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1993 -- $100,406
Shares issued under:
Directors Stock Plan 197
Stock Option Plans 155
Dividend Reinvestment 294
Issuance of shares for
acquisitions
54,664 Net income 21,893
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 2
Conversion of Class B Common
Stock to Class A Common Stock --
- ------------------------------------------------------------------
Balance, December 31, 1993 -- 172,764
- ------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 284
Stock Option Plans 906
Dividend Reinvestment 489
Stock Bonus & Retention Plan 12
Employee Stock Purchase Plan 43
Issuance of shares for previous
year acquisitions 107
Net income 27,310
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (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 (2,937) 191,551
- ------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 326
Stock Option Plan 378
Dividend Reinvestment 582
Stock Bonus & Retention Plan
Employee Stock Purchase Plan 110
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock
Issuance of shares for acquisitions 27,816
Net Income 38,794
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share) (10,521)
Conversion of 7 1/2% convertible
subordinated debentures 329
Conversion of 12 1/3% convertible
subordinated debentures 10
Change in Unrealized loss on security
available for sale, net of taxes 3,773 3,773
- ------------------------------------------------------------------
Balance, December, 31, 1995 $ 836 $253,148
==================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 33
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(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 (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> 34
- --------------------------------------------------------------------------------
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 cost of mortgage loans is adjusted by gains and losses generated
from corresponding hedging transactions, principally using forward sales
commitments, entered into to protect the inventory value of the loans from
increases in interest rates. Hedge positions are also used to protect the
pipeline of commitments to originate and purchase loans from changes in interest
rates. Gains and losses resulting from changes in the market value of the
inventory, pipeline and open hedge positions are netted. Any net gain that
results is deferred; any net loss that results is recognized when incurred.
Hedging gains and losses realized during the commitment and warehousing period
related to the pipeline and mortgage loans held for sale are deferred. Hedging
losses are recognized currently if deferring such losses would result in
mortgage loans held for sale and the pipeline being valued in excess of their
estimated net realizable value. 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. Smaller balance homogeneous loans which consist of
residential mortgages and consumer loans are evaluated collectively and reserves
are established based on historical loss experience. 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> 35
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. Generally, nonaccrual loans as well as loans classified by
internal loan review are reviewed for impairment. The internal asset
classification procedures include a thorough review of significant loans and
lending relationships and include the accumulation of related data. This data
includes loan payment status, borrower's financial data, 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 uncollectable, the portion deemed uncollectable is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and an analysis of current economic
conditions. While management believes that it has established the allowance in
accordance with generally accepted accounting principles and has taken into
account the views of its regulators and the current economic environment, there
can be no assurance that in the future the Bank's regulators or its economic
environment will not require further increases in the allowance.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS--Loans, including
impaired loans, are generally classified as nonaccrual if they are past due as
to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan has been partially charged off,
recognition of interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge offs have been fully recovered. Interest
income recognized on a cash basis was immaterial for the years ended December
31, 1995 and 1994.
PREMISES AND EQUIPMENT--Bank premises and equpment 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 less estimated costs to sell.
Any write-down from the cost to market value required at the time of foreclosure
is charged to the allowance for possible loan losses. Subsequent write-downs and
gains or losses recognized on the sale of these properties are included in
noninterest income or expense.
INTANGIBLE ASSETS--Intangible assets acquired in acquisitions of banks are
stated at cost, net of accumulated amortization. Amortization is provided over
a period not to exceed 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> 36
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, respectively.
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 or 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 pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. 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> 37
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
- -----------------------------------------------------------
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.
(Dollars in thousands)
<TABLE>
<CAPTION>
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 pro forma results of operations for
the years ended December 31, 1995 and 1994, after giving effect to amortization
of goodwill and other pro forma adjustments, as if the acquisitions had
occurred at the beginning of the years presented. The pro forma 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 acquisitions.
<TABLE>
<CAPTION>
(In thousands) Total
- ----------------------------------------------------------
<S> <S>
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
Accrued 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> 38
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) $214,718 $270,993 $175 $ (9,936) $261,832
Obligations of state and
political subdivisions 46,613 1,244 (128) 47,729 40,312 499 (881) 39,930
Other 10,367 7 (21) 10,353 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:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
(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 both 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> 39
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 obligations to deliver and sell mortgage loans 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, standby letters of
credit and obligations to deliver and sell mortgage loans is represented by the
contractual amount of those instruments. BancGroup uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. BancGroup has no significant concentrations of credit risk
with any individual counterparty to originate loans. The total amounts of
financial instruments with off-balance sheet risk as of December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
(In thousands) Contract Amount
- ---------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $410,705 $458,449
Standby letters of credit 23,810 14,997
Mortgage sales commitments 121,925 56,750
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit and funding loan
commitments is essentially the same as that involved in extending loan
facilities to customers.
Obligations to sell loans at specified dates (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. Risks arise from changes in
interest rates. Changes in the market value of the sales commitments is
included in the measurement of the gain or loss on mortgage loans held for
sale. The current market value of these commitments was $120,644,000 and
$56,823,000 at December 31, 1995 and 1994, respectively.
50
<PAGE> 40
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> 41
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> 42
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
of 29,937 and 29,097 shares of BancGroup Common Stock representing 7% and 5% of
pension plan assets respectively. At December 31, 1995, BancGroup Common Stock
included in pension plan assets had a cost and market value of $507,312 and
$965,468, 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> 43
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> 44
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> 45
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 the
unrecognized financial instruments is estimated based on the related fee
income associated with the commitments, which is not material to BancGroup's
financial statements at December 31, 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> 46
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> 47
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> 48
SUPPLEMENTAL INFORMATION
<PAGE> 49
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $ 287,141 $ 211,903 $ 160,829 $ 146,486 $ 150,462
Interest expense 146,981 90,902 66,357 67,389 87,717
- ---------------------------------------------- --------- --------- --------- --------- ---------
Net interest income 140,160 121,001 94,472 79,097 62,745
Provision for possible loan losses 7,350 7,506 8,850 8,956 7,097
- ---------------------------------------------- --------- --------- --------- --------- ---------
Net interest income after provision for
possible loan losses 132,810 113,495 85,622 70,141 55,648
Noninterest income 54,391 47,752 43,445 37,027 32,668
Noninterest expense 122,406 115,677 98,501 85,636 72,377
- ---------------------------------------------- --------- --------- --------- --------- ---------
Income before income taxes 64,795 45,570 30,566 21,532 15,939
Applicable income taxes 23,242 15,829 9,780 5,742 4,197
- ---------------------------------------------- --------- --------- --------- --------- ---------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 41,553 29,741 20,786 15,790 11,742
Extraordinary items, net of income taxes -- -- (463) -- 831
Cumulative effect of a change in
accounting for income taxes -- -- 3,650 -- --
- ---------------------------------------------- --------- --------- --------- --------- ---------
Net income $ 41,553 $ 29,741 $ 23,973 $ 15,790 $ 12,573
==============================================
EARNINGS PER COMMON SHARE
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary $ 2.63 $ 2.00 $ 1.90 $ 1.44 $ 1.15
Fully-diluted $ 2.56 $ 1.97 $ 1.65 $ 1.44 $ 1.15
Net income:
Primary $ 2.63 $ 2.00 $ 1.90 $ 1.44 $ 1.23
Fully-diluted $ 2.56 $ 1.97 $ 1.81 $ 1.44 $ 1.23
Average shares outstanding:
Primary 15,797 14,898 12,613 10,996 10,219
Fully-diluted 16,667 15,665 14,143 12,307 11,561
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>
<PAGE> 50
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
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA
At year-end:
Total assets $4,202,195 $3,219,082 $3,104,410 $2,027,455 $1,861,980
Loans, net of unearned income 3,175,560 2,352,870 1,963,062 1,330,928 1,200,443
Mortgage loans held for sale 110,486 60,726 361,496 144,215 105,219
Deposits 3,204,198 2,504,461 2,444,418 1,697,648 1,601,973
Long-term debt 29,142 69,203 57,397 22,979 27,225
Shareholders' equity 289,464 224,018 198,389 123,952 111,437
Average balances:
Total assets $3,659,140 $3,074,619 $2,379,628 $1,978,313 $ 1,779,767
Interest-earning assets 3,333,887 2,768,705 2,100,674 1,730,373 1,583,046
Loans, net of unearned income 2,708,633 2,138,371 1,494,053 1,273,486 1,187,081
Mortgage loans held for sale 97,511 131,121 241,683 118,510 65,373
Deposits 2,828,864 2,471,657 1,876,026 1,665,417 1,531,672
Shareholders' equity 250,826 214,543 144,216 117,822 103,330
Book value per share at year-end $ 18.65 $ 15.62 $ 14.40 $ 11.04 $ 11.08
Tangible book value per share at year-end $ 16.82 $ 14.33 $ 13.21 $ 10.45 $ 10.39
============================================
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.14% 0.97% 0.87% 0.80% 0.66%
Average shareholders' equity 16.57 13.86 14.41 13.40 11.36
Net income to:
Average assets 1.14 0.97 1.01 0.80 0.71
Average shareholders' equity 16.57 13.86 16.62 13.40 12.17
Efficiency ratio 62.11 67.65 70.40 72.41 74.11
Dividend payout ratio 25.32 24.99 20.22 26.44 30.71
Average equity to average total assets 6.85 6.98 6.06 5.96 5.81
Total nonperforming assets to
net loans, other real estate and repossession 0.83 0.96 1.38 1.47 1.12
Net charge-offs to average loans 0.15 0.09 0.32 0.44 0.47
Allowance for possible loan losses to
total loans (net of unearned income) 1.31 1.57 1.58 1.55 1.44
Allowance for possible loan losses to
nonperforming loans* 265% 292% 284% 224% 238%
===================================================================================================================================
*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.
</TABLE>
<PAGE> 51
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 $80,586 $74,729 $69,634 $62,192 $58,861 $53,242 $51,354 $48,446
Interest expense 42,406 39,021 35,720 29,834 25,985 22,533 21,788 20,596
- ------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Net interest income 38,180 35,708 33,914 32,358 32,876 30,709 29,566 27,850
Provision for loan losses 3,099 1,529 1,384 1,338 2,161 2,021 1,681 1,643
- ------------------------------ ------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 35,081 34,179 32,530 31,020 30,715 28,688 27,885 26,207
- ------------------------------
Net Income $ 9,046 $11,663 $11,532 $ 9,312 $ 7,459 $ 7,799 $ 7,138 $ 7,345
- ------------------------------
Per common share:
Net income:
Primary $ 0.55 $ 0.74 $ 0.74 $ 0.60 $ 0.50 $ 0.52 $ 0.47 $ 0.51
Fully-diluted 0.54 0.72 0.72 0.58 0.49 0.51 0.47 0.50
==============================
</TABLE>
<PAGE> 52
Management's Discussion and Analysis of Supplemental
- --------------------------------------------------------------------------------
Financial Condition and Results of Operations
INTRODUCTION
Management's Discussion and Analysis of Supplemental 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. The following discussion reflects the effect
of the July 3, 1996 mergers of Commercial Bancorp of Georgia, Inc.
("Commercial") and Southern Banking Corporation ("Southern"). (See Note 2 to
the supplemental consolidated financial statements.)
- --------------------------------------------------------------------------------
BACKGROUND
BancGroup (or the "Company") was established in 1981 with one bank and $166
million in assets. Through 34 acquisitions including Commercial and
Southern the Company has grown to a $4.2 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. In July 1996 the Company continued its expansion
in the metropolitan Atlanta market with the Commercial acquisition and also
moved into Florida with the acquisition of Southern based in Orlando. More
importantly BancGroup's earnings per share have increased an average of 24.3%
per year since 1991 and in 1995 the Company achieved a 16.57% return on average
equity and a 1.14% 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: Commercial lending primarily through groups located in
the Birmingham, Huntsville, Montgomery and Anniston, Alabama as well as
Atlanta, Georgia and Orlando, Florida metropolitan centers has been a major
factor in the Company's growth. Commercial real estate and other commercial
loans increased 13% during 1995 following a 21.3% 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 357% from December 31,
1992 to $1.5 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. On July 3, 1996, BancGroup merged with
Commercial, a $232 million bank in the north Atlanta area and Southern, a
$232 million bank in Orlando, Florida. These business combinations provided
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 74.11% in 1991 to 62.11% 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 24% internal growth in loans
during 1995. As part of this capability the CMC acquisition
59
<PAGE> 53
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 1.38% of loans and other real estate. This ratio was reduced
to .83% 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 .15% 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.
- --------------------------------------------------------------------------------
COMBINATIONS
A principal part of BancGroup's strategy is to combine with 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.
BancGroup recently completed the following combinations with other financial
institutions. The balances reflected are as of the date of acquisition.
(Dollars in thousands)
<TABLE>
<CAPTION>
DATE BANCGROUP TOTAL TOTAL TOTAL
FINANCIAL INSTITUTIONS COMBINED 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
Commercial Bancorp of Georgia, Inc. 07/03/96 1,153,230 232,555 145,429 207,641
Southern Banking Corporation 07/03/96 1,429,247 232,461 160,864 205,602
=================================================================================================================
</TABLE>
The combination with Mortgage Company in 1995 was accounted for using a
method of accounting similar to a pooling of interest. On July 3, 1996
BancGroup completed the mergers with Southern Banking Corporation and Commercial
Bancorp of Georgia, Inc. These combinations were accounted for using the
pooling of interest method. Accordingly, all financial statement amounts have
been restated to reflect the financial condition and results of operations as if
the combinations had occurred at the beginning of the earliest period
presented. The other three 1995 combinations were accounted for as purchases,
and the operations and income of the combined institutions are included in the
income of BancGroup from the date of purchase. Each of the combined 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 combined institution, a separate determination of the impact after
combination of earnings of BancGroup for 1994 and 1995 cannot reasonably be
determined.
The combinations 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.
60
<PAGE> 54
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.
61
<PAGE> 55
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
REVIEW OF RESULTS OF OPERATIONS
OVERVIEW
The major components of BancGroup's net income are:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- ----------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 140,160 $ 121,001 $ 94,472
Provision for possible
loan losses (7,350) (7,506) (8,850)
Noninterest income 54,391 47,752 43,445
Noninterest expense (122,406) (115,677) (98,501)
- ----------------------------------------------------------
Pretax income 64,795 45,570 30,566
Taxes (23,242) (15,829) (9,780)
- ----------------------------------------------------------
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes 41,553 29,741 20,786
Extraordinary loss -- -- (463)
Cumulative effect of
accounting change -- -- 3,650
- ----------------------------------------------------------
Net income $ 41,553 $ 29,741 $ 23,973
- ----------------------------------------------------------
</TABLE>
Consistently increasing net income is a primary goal of management. Earnings
(income before extraordinary items and accounting changes) increased 40% in
1995, 43% in 1994 and 32% in 1993. The most significant factors affecting income
for 1995, 1994 and 1993 are highlighted below and discussed in greater detail in
subsequent sections.
- - An increase in 1995 of 20.4% in average earning assets. This follows an
increase of 31.8% in 1994.
- - An increase of $6.6 million (14%) and $4.3 million (10%) in noninterest
income in 1995 and 1994, respectively.
- - Maintenance of high asset quality and reserve coverage ratios. Net
charge-offs were $4.0 million or .15% of average net loans in 1995 and $2.0
million or .09% of average net loans in 1994. In recognition of these low
net charge-offs loan loss provisions were reduced $1.3 million in 1994 and
$156,000 in 1995.
- - Loan growth, excluding acquisitions, of 24% in 1995 following an increase of
20% in 1994.
- - An increase in loans as a percent of average earning assets to 81.2% in 1995
from 77.2% in 1994.
- - Noninterest expenses as a percent of average assets were reduced to 3.35% in
1995 from 3.76% in 1994.
- - 1993 includes a $463,000 extraordinary loss from the early redemption of
subordinated convertible debt and $3,650,000 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. The net yield on
interest-earning assets was 4.28% in 1995 compared to 4.45% in 1994 and 4.59%
in 1993. Over this period net interest income on a fully tax equivalent basis
increased to $142.7 million in 1995 from $123.3 million in 1994 and $96.5
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
throughout 1994 and continued to increase into the late 1995 before starting
to decline. For example, the average fed funds rate for overnight
bank borrowings 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.
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
3.78% for 1994 to 5.18% for 1995.
62
<PAGE> 56
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 20.4% increase in average interest-earning assets. This
follows a 31.8% increase in 1994. In addition and equally significant, net
loans increased $823 million (35%) 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 90.1% in 1994 to 91.1% 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 38.2% of total loans at
December 31, 1994 to 45.7% 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.
63
<PAGE> 57
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) $2,708,633 $249,218 9.20% $2,138,371 $176,696 8.26% $1,494,053 $124,572 8.34%
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 411,589 24,938 6.06 391,312 20,892 5.34 281,016 15,717 5.59
Nontaxable (2) 43,782 3,382 7.72 39,089 2,978 7.62 29,326 2,507 8.55
Equity securities (3) 30,595 2,323 7.59 36,196 2,032 5.61 26,307 1,423 5.41
- ---------------------------------------------------------- --------------------- --------------------
Total investment securities 485,966 30,643 6.31% 466,597 25,902 5.55% 336,649 19,647 5.84%
Federal funds sold and
securities purchased under
resale agreements 37,771 2,211 5.85 25,879 929 3.59 25,159 768 3.05
Interest-earning deposits 4,006 293 7.31 6,737 297 4.41 3,130 104 3.32
- ---------------------------------------------------------- --------------------- ---------------------
Total interest-earning assets 3,333,887 $289,666 8.69% 2,768,705 $214,137 7.73% 2,100,674 $162,828 7.75%
- ---------------------------------------------------------- --------------------- ---------------------
Allowance for loan losses (36,746) (32,713) (23,073)
Cash and due from banks 130,406 118,022 96,479
Premises and equipment, net 53,468 50,968 39,251
Other assets 178,125 169,637 166,297
- ----------------------------------------------- ---------- ----------
Total Assets $3,659,140 $3,074,619 $2,379,628
- ----------------------------------------------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 542,906 $ 16,843 3.10% $ 594,979 $ 16,126 2.71% $ 480,554 $ 13,059 2.72%
Savings deposits 276,902 10,140 3.66 292,343 8,939 3.06 230,954 6,778 2.93
Time deposits 1,492,024 86,927 5.83 1,195,551 51,917 4.34 845,894 37,429 4.42
Short-term borrowings 478,596 29,305 6.12 236,074 10,428 4.42 195,752 6,268 3.20
Long-term debt 48,683 3,736 7.67 83,858 3,461 4.13 56,339 2,794 4.96
- ---------------------------------------------------------- -------------------- ---------------------
Total interest-bearing liabilities 2,839,111 $146,951 5.18% 2,402,805 $ 90,871 3.78% 1,809,493 $ 66,328 3.67%
- ---------------------------------------------------------- -------------------- ---------------------
Noninterest-bearing demand
deposits 517,032 388,784 318,624
Other liabilities 52,171 68,487 107,295
- ----------------------------------------------- ---------- ----------
Total liabilities 3,408,314 2,860,076 2,235,412
Shareholders' equity 250,826 214,543 144,216
- ----------------------------------------------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,659,140 $3,074,619 $2,379,628
===============================================================================================================================
RATE DIFFERENTIAL 3.51% 3.95% 4.08%
NET INTEREST INCOME AND
NET YIELD ON INTEREST-
EARNING ASSETS (4) $142,715 4.28% $123,266 4.45% $ 96,500 4.59%
===============================================================================================================================
</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.
64
<PAGE> 58
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 $ 4,046 $ 1,098 $ 2,948 $ 5,175 $ 5,911 $ (736)
Nontaxable securities (2) 404 364 40 471 766 (295)
Dividends on preferred
stocks (3) 291 (348) 639 609 554 55
- -----------------------------------------------------------------------------------------------------------------------------
Total securities 4,741 1,114 3,627 6,255 7,231 (976)
Total loans (net of unearned
income) 72,522 50,831 21,691 52,124 53,328 (1,204)
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 1,282 541 741 161 22 139
Interest-earning deposits (4) (150) 146 193 150 43
- -----------------------------------------------------------------------------------------------------------------------------
Total 75,529 49,801 25,728 51,309 52,106 (797)
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand
deposits 717 (1,484) 2,201 3,067 3,115 (48)
Savings deposits 1,201 (489) 1,690 2,161 1,852 309
Time deposits 35,010 14,683 20,327 14,488 15,177 (689)
Short-term borrowings 18,877 13,735 5,142 4,160 1,459 2,701
Long-term debt 275 (1,861) 2,136 667 1,194 (527)
- -----------------------------------------------------------------------------------------------------------------------------
Total 56,080 24,584 31,496 24,543 22,797 1,746
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $19,449 $25,217 $(5,768) $26,766 $29,309 $(2,543)
- -----------------------------------------------------------------------------------------------------------------------------
</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 12.8% and 24.0%, respectively. This increase
in volume and increases in service fee rates resulted in a 16% increase in
service charge income in 1995 and a 15% increase in 1994.
Other charges, fees, and commissions increased $372,000 (11%) in 1995 and
$695,000 (26%) 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
65
<PAGE> 59
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 by CMC 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 $2,167,000 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 16,716 14,365 12,440 2,351 16 1,925 15
Other charges, fees and
commissions 3,786 3,414 2,719 372 11 695 26
Other income 10,213 7,597 7,466 2,616 34 131 2
- ----------------------------------- ------- ------- ------- ------ -- ------ --
Subtotal 54,144 47,592 43,704 6,552 14 3,888 9
Other noninterest
income items:
Securities gains, net 5 84 116 (79) (32)
Gain (loss) on disposal of other
real estate and repossessions 242 76 (375) 166 451
- ----------------------------------- ------- ------- ------- ------ -- ------ --
Total noninterest income $54,391 $47,752 $43,445 $6,639 14% $4,307 10%
- ----------------------------------- ------- ------- ------- ------ -- ------ --
</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 24% increase from 1993 to 1995 in noninterest expense as shown in
the schedule following. The decrease in noninterest expense as a percent of
average assets from 4.14% in 1993 to 3.76% in 1994 to 3.35% 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 $1.8 million or 4% in 1995 and increased $6.2
million or 14% 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 $1,022,000 or 37% and $1,157,000 or
73% 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 $1,700,000,
$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 $4 million in
1993 to $5 million in 1994 and $9 million in 1995 due to changes in the mix of
loans and increases in the number of loans closed.
<PAGE> 60
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 be .75% of
the deposits insured by SAIF. This recapitalization would allow a reduction
in the current .23% average annual premium rate. BancGroup has approximately
$719 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. The
assessment may result in a charge to after tax earnings and equity of
approximately $3.4 million, based upon the assessment rates described above.
<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 expense:
Salaries and employee benefits $ 48,752 $ 50,548 $44,393 $(1,796) (4)% $ 6,155 14%
Net occupancy expense 11,219 10,688 9,054 531 5 1,634 18
Furniture and equipment
expense 9,247 8,074 6,802 1,173 15 1,272 19
Amortization of intangible
assets 1,488 1,353 977 135 10 376 38
Amortization of mortgage
servicing rights 9,095 6,078 4,840 3,017 50 1,238 26
FDIC assessment 3,767 5,293 3,829 (1,526) (29) 1,464 38
Stationery, printing and supplies 2,961 3,084 2,892 (123) (4) 192 7
Postage 1,988 1,682 1,514 306 18 168 11
Telephone 3,281 2,915 2,539 366 13 376 15
Insurance 1,359 1,690 1,410 (331) (20) 280 20
Legal fees 2,448 2,949 1,947 (501) (17) 1,002 51
Advertising and public relations 3,758 2,736 1,579 1,022 37 1,157 73
Other 23,043 18,587 16,725 4,456 24 1,862 11
- ------------------------------------------------------------------------------------- -------
Total noninterest expense $122,406 $115,677 $98,501 $ 6,729 6% $17,176 17%
- ------------------------------------------------------------------------------------- -------
Noninterest expense to
Average Assets 3.35% 3.76% 4.14%
==============================================================================================================================
</TABLE>
INCOME TAXES
The provision for income taxes and related items are as follows:
<TABLE>
<CAPTION>
TAX CUMULATIVE EFFECT OF
PROVISION ACCOUNTING CHANGE
- ----------------------------------------------------------------
<S> <C> <C>
1995 $23,242,000 --
1994 15,829,000 --
1993 9,780,000 $3,650,000
</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
$3,650,000, 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.
67
<PAGE> 61
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 $983,113 30.5
Securities available for sale
and investment securities 32,827 7.0
Mortgage loans held for sale 49,760 81.9
Loans, net of unearned income 822,690 35.0
Deposits 699,737 27.9
- ----------------------------------------------------------
</TABLE>
Management continuously monitors the financial condition of BancGroup in
order to protect depositors, increase shareholder value and protect current and
future earnings.
The most significant factors affecting BancGroup's financial condition from
1993 through 1995 have been:
- - An increase in residential mortgage loans from 23.9% of total loans at
December 31, 1992 to 45.7% 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 24% in 1995 excluding acquisitions.
- - A 33% increase in 1995 in average noninterest bearing demand deposits with
21.4% 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 .83%, .96% and 1.38% of related assets at
December 31, 1995, 1994 and 1993. Net charge-offs were .15%, .09% and .32% of
average loans over the same periods. The allowance for possible loan losses
was 1.31% at December 31, 1995, providing 265% coverage of non-performing
loans (nonaccrual and renegotiated).
- - Increase in tier one leverage ratios from 5.79% at December 31, 1993 to 6.29%
at December 31, 1995.
- - An increase in the loan to deposit ratio from 93.9% at December 31, 1994 to
99.1% 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 45.7% 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 $551 million or 61% 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.
68
<PAGE> 62
- - The most significant industry concentration is in loans collateralized by
commercial real estate with loan balances of $692,550,000, $626,618,000,
$514,299,000, $404,836,000, and $331,418,000, at December 31, 1995, 1994,
1993, 1992 and 1991, respectively. BancGroup's commercial real estate loans
are spread geographically throughout Alabama and other areas including
metropolitan Atlanta, Georgia and Central Florida 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, $60,726,000, $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 mortgage loan refinancing. These loans are funded
principally with short-term borrowings, providing a relatively high margin
for these funds.
- - As discussed more fully in subsequent sections, management has determined to
maintain adequate liquidity and liquidity sources. BancGroup has arranged
funding sources in addition to customer deposits which provide the capability
for the Company to exceed a 100% loan to deposit ratio and maintain adequate
liquidity.
- - Internal loan growth has been a major factor in the Company's increasing
earnings with growth rates of 24.3% in 1995, 20.3% in 1994, 12.1% in 1993 and
10.7% 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 $ 436,791 $ 372,104 $ 308,954 $ 274,404 $ 294,544
Real estate--commercial 692,550 626,618 514,299 404,836 331,418
Real estate--construction 335,645 227,645 172,367 131,835 84,170
Real estate--residential 1,451,338 900,318 760,176 317,511 272,843
Installment and consumer 215,043 185,272 166,126 158,451 173,927
Other 44,746 42,015 34,996 42,401 44,424
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $3,176,113 $2,353,972 $1,956,918 $1,329,438 $1,201,326
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
Percent of loans in each category to
total loans:
Commercial, financial and agricultural 13.8% 15.8% 15.8% 20.6% 24.5%
Real estate--commercial 21.8 26.6 26.3 30.5 27.6
Real estate--construction 10.6 9.7 8.8 9.9 7.0
Real estate--residential 45.7 38.2 38.8 23.9 22.7
Installment and consumer 6.8 7.9 8.5 11.9 14.5
Other 1.3 1.8 1.8 3.2 3.7
- ---------------------------------------------------------------------------------------------------------------------------
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 56% of loans were floating rate or
adjustable rate loans.
Contractual maturities may vary significantly from actual maturities due to
loan extensions, early payoffs due to refinancing and other factors.
Fluctuations in interest rates are also a major factor in early loan pay-offs.
The uncertainties, 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.
69
<PAGE> 63
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 $243,683 $ 141,369 $ 51,739 $ 198,316 $ 238,475 $ 124,512 $ 68,596
Real estate--commercial 216,969 382,273 93,308 371,388 321,162 299,080 176,501
Real estate--construction 239,656 56,845 39,144 131,249 204,396 33,210 62,779
Real estate--residential 176,803 436,522 838,013 513,751 937,587 405,384 869,151
Installment and consumer 111,131 97,185 6,727 169,931 45,112 86,572 17,340
Other 6,368 5,212 33,166 30,776 13,970 25,011 13,367
- -------------------------------------------------------------------------------------------------------------------------------
Total loans $994,610 $1,119,406 $1,062,097 $1,415,411 $1,760,702 $ 973,769 $1,207,734
===============================================================================================================================
</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 .15%
from .09% in 1994. This increase has been impacted by the increase in average
loans but also by an increase of approximately $2.0 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 .47% in 1991 to a low of .09% in 1994. For 1991
and 1992, a period during which the national economy went through a
recession, BancGroup's annual charge-off ratio averaged .46% with only a .03%
variance between the two 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 238% at December 31, 1991
to 265% 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.
70
<PAGE> 64
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 $ 36,985 $ 30,946 $ 20,598 $ 17,295 $ 15,574
Charge-offs:
Commercial, financial, and agricultural 2,781 2,017 3,179 3,346 2,670
Real estate--commercial 339 1,143 530 771 709
Real estate--construction 44 2 957 7 4
Real estate--residential 372 372 569 730 766
Installment and consumer 2,603 1,751 1,853 2,871 3,666
Other 163 168 7 83 74
- -------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 6,302 5,453 7,095 7,808 7,889
- -------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 777 1,686 637 524 595
Real estate--commercial* 26 202 44 49 3
Real estate--construction 11 12 25 -- --
Real estate--residential 161 77 102 171 157
Installment and consumer 1,307 1,465 1,502 1,396 1,488
Other 45 43 7 15 13
- -------------------------------------------------------------------------------------------------------------------------------
Total recoveries 2,327 3,485 2,317 2,155 2,256
- -------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 3,975 1,968 4,778 5,653 5,633
Addition to allowance charged to
operating expense 7,350 7,506 8,850 8,956 7,028
Allowance added from bank acquisitions 1,129 501 6,276 -- 326
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses--
December 31 $ 41,489 $ 36,985 $ 30,946 $ 20,598 $ 17,295
===============================================================================================================================
Loans (net of unearned income)
December 31 $3,175,560 $2,352,870 $1,963,062 $1,330,928 $1,200,443
Ratio of ending allowance to ending loans
(net of unearned income) 1.31% 1.57% 1.58% 1.55% 1.44%
Average loans (net of unearned income) $2,708,633 $2,138,371 $1,494,053 $1,273,486 $1,187,081
Ratio of net charge-offs to average loans
(net of unearned income) 0.15% 0.09% 0.32% 0.44% 0.47%
Allowance for loan losses as a percent
of nonperforming loans
(nonaccrual and renegotiated) 265% 292% 284% 224% 238%
===============================================================================================================================
</TABLE>
71
<PAGE> 65
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 collaterlized. Management closely
monitors all loans which are contractually 90 days past due, renegotiated or
nonaccrual. These loans are summarized as follows:
<TABLE>
<CAPTION>
===========================================================================================================================
NONPERFORMING ASSETS DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate loans for which interest is
not being accrued $13,840 $ 9,263 $ 9,472 $ 7,838 $ 6,257
Aggregate loans renegotiated to
provide a reduction or deferral
of interest or principal because of
a deterioration in the financial
condition of the borrower 1,800 3,386 1,425 1,346 1,020
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans* 15,640 12,649 10,897 9,184 7,277
Other real estate 10,592 9,873 16,399 10,382 6,042
Repossessions 162 81 88 103 150
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets * $26,394 $22,603 $27,384 $19,669 $13,469
===========================================================================================================================
Aggregate loans contractually
past due 90 days for which
interest is being accrued $ 1,381 $ 2,559 $ 2,218 $ 1,450 $ 1,597
Total nonperforming loans as a
percent of net loans 0.49% 0.54% 0.56% 0.69% 0.61%
Total nonperforming assets as a
percent of net loans, other real estate
and repossessions 0.83% 0.96% 1.38% 1.47% 1.12%
Total nonaccrual, renegotiated and
past due loans as a percent of total loans 0.54% 0.65% 0.67% 0.80% 0.74%
Allowance for loan loss as a percent of
nonperforming loans (nonaccrual
and renegotiated) 265% 292% 284% 224% 238%
===========================================================================================================================
* Total does not include loans contractually past due 90 days or more which are
still accruing interest.
</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 .74% at December
31, 1993 compared to 1.38% 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 .96%.
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 $13.8 million compared to $9.3
million at December 31, 1994. This increase is primarily in commercial real
estate
72
<PAGE> 66
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 $118
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 $605,000, $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 $905,000, $786,000, $562,000,
$279,000 and $618,000 in 1995, 1994, 1993, 1992, and 1991 respectively.
On January 1, 1995, 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 $ 2,569 $2,177 $ 392
Real Estate--Commercial 5,855 2,474 3,381
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 $16,293 $5,907 $10,386
- -------------------------------------------------------------
</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 $ 8,020 $ 6,999 $ 6,235 $ 5,087 $ 4,403
Real estate--commercial 13,662 12,168 11,112 6,030 5,025
Real estate--construction 7,233 3,636 1,830 2,077 1,177
Real estate--residential 7,256 8,837 7,182 3,906 3,524
Installment and consumer 3,076 2,844 2,754 2,327 2,272
Other 2,242 2,501 1,833 1,171 894
- --------------------------------------------------------------------------------------------
Total $41,489 $36,985 $30,946 $20,598 $17,295
- --------------------------------------------------------------------------------------------
</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
73
<PAGE> 67
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 $222,000. 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 $104 million at December 31, 1994
to $214 million at December 31, 1995 partially as a result of a reclassification
from investment securities of $57 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 $219,049 $288,554 $243,383
Obligations of state
and political
subdivisions 47,007 44,489 36,680
Other 18,483 29,280 34,520
- ----------------------------------------------------------
Total $284,539 $362,323 $314,583
- ----------------------------------------------------------
Securities available for sale:
U.S. Treasury securities
and obligations
of U.S. government
agencies $171,536 $ 83,752 $111,776
Obligations of state
and political
subdivisions 5,578 101 5
Other 37,179 19,829 7,935
- ----------------------------------------------------------
Total $214,293 $103,682 $119,716
- ----------------------------------------------------------
</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 $28.9 million.
74
<PAGE> 68
MATURITY DISTRIBUTION OF SECURITIES
<TABLE>
<CAPTION>
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% $125,937 6.42% -- -- $ 518 6.99%
Mortgage-backed securities 217 8.05 29,205 6.40 $13,463 7.54% 15,023 8.09
Obligations of state and
political subdivisions (1) 6,395 7.15 24,363 7.20 14,182 8.07 2,473 9.43
Other (2) 5 5.50 -- -- 362 8.24 -- --
-------- -------- ------- -------
Total $ 48,880 5.73% $179,505 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 $116,794 5.64%
Mortgage-backed securities 61,371 6.86
Obligations of state and
political subdivisions (1) 5,552 5.34
Other 6,553 7.60
--------
Total $190,270 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 $ 543,102 $ 437,298 16.9% 17.5%
Interest-bearing demand deposits 522,803 531,203 16.3 21.2
Savings deposits 352,179 315,304 11.0 12.6
Certificates of deposits less than $100,000 1,094,863 687,007 34.2 27.4
Certificates of deposits more than $100,000 321,825 224,540 10.0 9.0
IRA's 183,136 154,346 5.7 6.2
Open time deposits 186,290 154,763 5.9 6.1
- --------------------------------------------------------------------------------------
Total deposits $3,204,198 $2,504,461 100.0% 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 $106 million (24%) from December 31, 1994 to December
31, 1995. The increase in average noninterest demand deposits has been
approximately 33%. Included in this 33% increase is approximately 21% 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, Brundidge Banking and Farmers and Merchants Bank, 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
followed by Orlando in 1996. The principal goal is to provide the Company's
retail customer base with convenient access
75
<PAGE> 69
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 $145,419 $104,818
Federal Home Loan
Bank borrowings 465,000 210,050 190,150
Other short-term
borrowings 1,141 1,131 1,000
- ----------------------------------------------------------
Total $597,256 $356,600 $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
flexibility in meeting its requirements.
76
<PAGE> 70
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 $590 million in 1995 and $375 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 $241 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 $452 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 $1.5
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 $57
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 $995 million, or 31% of the total loan portfolio, due within one
year. Investment securities totaling $239 million or 51% 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
reflects an 7.0% 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 (See Note 6 to the supplemental Consolidated financial statements). The
following table summarizes BancGroup's interest rate sensitivity as of
December 31, 1995.
77
<PAGE> 71
The Colonial BancGroup, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-----------------------------------------------------------------------------------
INTEREST SENSITIVE WITHIN
-----------------------------------------------------------------------------------
TOTAL 0-90 91-180 181-365 1 - 5 OVER 5
(In thousands) BALANCE DAYS DAYS DAYS YEARS YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets:
Federal funds sold and resale agreements $ 32,139 $ 32,139 $ -- $ -- $ -- $ --
Investment securities 284,539 66,925 13,436 41,123 90,812 72,243
Securities available for sale 214,293 17,646 11,443 2,872 182,332 --
Mortgage loans held for sale 110,486 110,486 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 3,175,560 1,195,713 226,523 390,587 693,666 669,071
Allowance for possible loan losses (41,489) (15,429) (3,033) (5,109) (9,454) (8,464)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans 3,134,071 1,180,284 223,490 385,478 684,212 660,607
Nonearning assets 426,667 457 100 100 29,660 396,350
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $4,202,195 $1,407,937 $ 248,469 $ 429,573 $ 987,016 $ 1,129,200
- ----------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Interest-bearing demand deposits $ 522,803 $ 356,690 $ -- $ -- $ 166,113 $ --
Savings deposits 352,179 225,487 -- -- 126,692 --
Certificates of deposits less than $100,000 1,230,704 262,165 224,083 348,245 313,882 82,329
Certificates of deposits more than $100,000 325,578 90,790 69,841 64,625 99,906 416
IRA's 183,136 48,440 20,636 26,924 86,695 441
Open time deposits 46,695 45,439 48 302 401 505
Short-term borrowings 597,256 597,256 -- -- -- --
Long-term debt 46,263 25,184 87 174 4,157 16,661
Noncosting liabilities & equity 897,581 0 -- -- -- 897,581
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $4,202,195 $1,651,451 $ 314,695 $ 440,270 $ 797,846 $ 997,933
- ----------------------------------------------------------------------------------------------------------------------------------
Gap $ -- $ (243,514) $ (66,226) $ (10,697) $ 189,170 $ 131,267
- ----------------------------------------------------------------------------------------------------------------------------------
Cumulative Gap $ -- $ (243,514) $(309,740) $(320,437) $ (131,267) $
- ----------------------------------------------------------------------------------------------------------------------------------
</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. For all interest earning assets
and interest bearing liabilities, variable rate assets and liabilities are
reflected in the time interval or the assets or liabilities' earliest repricing
date. Fixed rate assets and liabilities have been allocated to various time
intervals based on contractual repayment. Furthermore, the balances reflect
contractual repricing of the deposits and management's position on repricing
certain deposits where management discretion is permitted prepayment assumptions
are applied at a constant rate based on the Company's historical experience.
Certain demand deposit accounts and regular savings accounts have been
classified as repricing beyond one year in accordance with regulatory
guidelines. While these accounts are subject to immediate withdrawal,
experience 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 $536 million with a corresponding cumulative gap at one year of
negative $482 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 25%. 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
78
<PAGE> 72
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 $ 258,857
Tier II Capital:
Allowable loan loss reserve 36,455
Subordinated debt 17,121
----------
Total Capital $ 312,433
Risk Adjusted Assets (thousands) $2,915,927
Total Assets (thousands) $4,202,195
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Tier I leverage ratio 6.29% 6.43% 5.79%
Risk Adjusted Capital
Ratios:
Tier I Capital Ratio 8.88% 9.24% 8.76%
Total Capital Ratio 10.71% 11.27% 10.86%
</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, 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 $49.4 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.)
79
<PAGE> 73
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 supplemental consolidated statements of
condition of The Colonial BancGroup, Inc. and subsidiaries as of December 31,
1995 and 1994, and the related supplemental consolidated statements of income,
changes in stockholders' 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.
The supplemental consolidated financial statements give retroactive effect
to the mergers of The Colonial BancGroup, Inc. with Commercial Bancorp of
Georgia, Inc. and Southern Banking Corporation. Both occurred on July 3, 1996
and have been accounted for as poolings of interests as described in Notes 1
and 2 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated
business combination accounted for by the pooling of interests methods in
financial statements that do not include the date of consummation; however,
they will become the historical consolidated financial statements of The
Colonial BancGroup, Inc. and subsidiaries after financial statements covering
the date of consummation of the business combinations are issued.
In our opinion, the supplemental 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 applicable after financial
statements are issued for a period which includes the date of consummation of
the business combination.
As discussed in Notes 1 and 18 to the consolidated supplemental 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, except Notes 1 and 2
as to which the date is July 3, 1996
80
<PAGE> 74
- -------------------------------------------------------------------------------
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
December 31, 1995 and 1994
(In thousands)
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 162,891 $ 155,475
Interest-bearing deposits in banks 6,279 3,282
Federal funds sold 32,139 15,110
Securities available for sale (Note 3) 214,293 103,682
Investment securities (market value: 1995, $287,858; 1994, $351,098; (Note 3) 284,539 362,323
Mortgage loans held for sale 110,486 60,726
Loans, net of unearned income (Note 4) 3,175,560 2,352,870
Less:
Allowance for possible loan losses (Note 5) (41,489) (36,985)
- ---------------------------------------------------------------------------------------------------------------------------
Loans, net 3,134,071 2,315,885
Premises and equipment, net 65,833 56,898
Excess of cost over tangible and identified intangible assets
acquired, net 29,440 19,436
Mortgage servicing rights 80,053 54,796
Other real estate owned 10,754 9,680
Accrued interest and other assets 71,417 61,789
- ---------------------------------------------------------------------------------------------------------------------------
Total $4,202,195 $3,219,082
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 543,102 $ 437,298
Interest-bearing demand 522,803 531,203
Savings 352,179 315,304
Time 1,786,114 1,220,656
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 3,204,198 2,504,461
FHLB short-term borrowings (Note 8) 465,000 210,050
Other short-term borrowings (Note 8) 132,256 146,550
Subordinated debt (Note 9) 17,121 17,459
Other long-term debt (Note 9) 29,142 69,203
Other liabilities 65,014 47,341
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,912,731 2,995,064
- ---------------------------------------------------------------------------------------------------------------------------
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:
15,519,688 shares issued and outstanding in 1995. 38,799
Class A Common Stock, $2.50 par value; 40,000,000 shares authorized,
outstanding: 13,710,295 shares in 1994.* 34,276
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 159,434 131,961
Retained earnings 90,886 59,853
Unearned compensation (822) --
Unrealized gain (loss) on securities available for sale, net of taxes 1,167 (3,660)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 289,464 224,018
- ---------------------------------------------------------------------------------------------------------------------------
Total $4,202,195 $3,219,082
===========================================================================================================================
</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 supplemental financial statements.
81
<PAGE> 75
The Colonial BancGroup, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(In thousands, except per share amounts)
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $255,267 $185,960 $141,283
Interest and dividends on securities:
Taxable 24,681 20,701 15,637
Nontaxable 2,492 2,152 1,729
Dividends 2,140 1,779 1,239
Interest on federal funds sold and securities purchased under
resale agreements 2,212 929 767
Other interest 349 382 174
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 287,141 211,903 160,829
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 113,983 76,985 57,267
Interest on short-term borrowings 29,261 10,456 6,296
Interest on long-term debt 3,737 3,461 2,794
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 146,981 90,902 66,357
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR POSSIBLE LOAN LOSSES 140,160 121,001 94,472
Provision for possible loan losses (Notes 1, 5) 7,350 7,506 8,850
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 132,810 113,495 85,622
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Mortgage servicing fees 23,429 22,216 21,079
Service charges on deposit accounts 16,716 14,365 12,440
Securities gains, net (Note 3) 5 84 116
Other charges, fees and commissions 3,786 3,414 2,719
Other income 10,455 7,673 7,091
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 54,391 47,752 43,445
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 48,752 50,548 44,393
Occupancy expense of bank premises, net 11,219 10,688 9,054
Furniture and equipment expenses 9,247 8,074 6,802
Amortization of mortgage servicing rights 9,095 6,078 4,840
Amortization of intangible assets 1,488 1,353 977
Other expense (Note 17) 42,605 38,936 32,435
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 122,406 115,677 98,501
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND THE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 64,795 45,570 30,566
Applicable income taxes (Note 18) 23,242 15,829 9,780
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 41,553 29,741 20,786
Extraordinary items, net of income taxes (Note 9) -- -- (463)
Cumulative effect of a change in accounting for income taxes (Notes 1, 18) -- -- 3,650
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 41,553 $29,741 $ 23,973
===========================================================================================================================
EARNINGS PER SHARE:
Primary:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 2.63 $ 2.00 $ 1.65
Extraordinary item, net of income taxes -- -- (0.04)
Cumulative effect of a change in accounting for income taxes -- -- .29
Net Income $ 2.63 $ 2.00 $ 1.90
Fully-diluted:
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 2.56 $ 1.97 $ 1.59
Extraordinary item, net of income taxes -- -- (0.04)
Cumulative effect of a change in accounting for income taxes -- -- .26
Net income $ 2.56 $ 1.97 $ 1.81
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 15,797 14,898 12,613
Fully-diluted 16,667 15,665 14,143
===========================================================================================================================
</TABLE>
See notes to consolidated supplemental financial statements.
82
<PAGE> 76
- --------------------------------------------------------------------------------
Supplemental Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(Dollars in thousands)
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK COMMON STOCK PAID IN RETAINED UNEARNED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 8,275,336 $ 20,688 637,528 $ 1,594 $ 60,006 $18,118
Adjustments for pooling of
interests combinations
(Notes 1 and 2) 1,241,434 3,103 8,569 10
- -----------------------------------------------------------------------------------------------------------------------------------
Restated Beginning Balance 9,516,770 23,791 637,528 1,594 68,575 18,128
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 13,116 33 164
Stock Option Plans 21,350 53 102
Dividend Reinvestment 13,950 35 259
Issuance of shares for
acquisitions 3,577,147 8,944 66 57,293 290
Net income 23,973
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 107 2
Conversion of Class B Common
Stock to Class A Common Stock 699 2 (699) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 13,143,139 32,858 636,895 1,592 126,395 37,544
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 14,267 36 248
Stock Option Plans 67,078 168 738
Dividend Reinvestment 23,013 57 432
Stock Bonus & Retention Plan 650 2 10
Employee Stock Purchase Plan 2,186 5 43
Issuance of shares for previous
year acquisitions 7,470 19 88
Issuance of common stock by a
pooled bank 450,685 1,127 4,007
Net income 29,741
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (7,432)
Conversion of Class B Common
Stock to Class A Common Stock 1,807 4 (1,807) (4)
Unrealized loss on securities
available for sale, net of taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 13,710,295 34,276 635,088 1,588 0 0 131,961 59,853
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 858 2 16,166 $ 39 285
Stock Option Plan 6,591 17 32,928 82 279
Dividend Reinvestment 26,758 66 516
Stock Bonus & Retention Plan 25,000 63 759 $(822)
Employee Stock Purchase Plan 268 1 3,767 10 99
Issuance of common stock by a
pooled bank 4,703 11 24
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock (13,722,715) (34,307) (635,088) (1,588) 14,357,803 35,895
Issuance of shares for acquisitions 1,044,997 2,612 25,204
Net Income 41,553
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share) (10,520)
Conversion of 7 1/2% convertible
subordinated debentures 11,709 31 298
Conversion of 12 1/3% convertible
subordinated debentures 560 1 9
Change in Unrealized loss on securities
available for sale, net of taxes
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December, 31, 1995 0 $ 0 0 $ 0 15,519,688 $38,799 $159,434 $90,886 $(822)
===================================================================================================================================
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES TOTAL
AVAILABLE SHAREHOLDERS'
FOR SALE EQUITY
- ------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1993 -- $100,406
Adjustments for pooling of
interests (Notes 1 and 2) 11,682
- ------------------------------------------------------------------
Restated Beginning Balance -- 112,088
- ------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 197
Stock Option Plans 155
Dividend Reinvestment 294
Issuance of shares for
acquisitions 66,527
Net income 23,973
Cash dividends: (Class A,
$0.71 per share; Class B,
$0.31 per share) (4,847)
Conversion of 7 1/2% convertible
subordinated debentures 2
Conversion of Class B Common
Stock to Class A Common Stock --
- ------------------------------------------------------------------
Balance, December 31, 1993 -- 198,389
- ------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 284
Stock Option Plans 906
Dividend Reinvestment 489
Stock Bonus & Retention Plan 12
Employee Stock Purchase Plan 48
Issuance of shares for previous year
acquisitions 107
Issuance of common stock
by a pooled bank 5,134
Net income 29,742
Cash dividends: (Class A,
$0.80 per share; Class B,
$0.40 per share) (7,433)
Conversion of Class B Common
Stock to Class A Common Stock --
Unrealized loss on securities
available for sale, net of taxes $(3,660) (3,660)
- ------------------------------------------------------------------
Balance, December 31, 1994 (3,660) 224,018
- ------------------------------------------------------------------
Shares issued under:
Directors Stock Plan 326
Stock Option Plan 378
Dividend Reinvestment 582
Stock Bonus & Retention Plan 110
Employee Stock Purchase Plan
Conversion of Class A Common Stock
and Class B Common Stock to
Common Stock
Issuance of shares for acquisitions 27,816
Issuance of common stock by a
pooled bank prior to combination 35
Net Income 41,553
Cash Dividends (Class A,
$0.225; Class B, $0.125;
Common, $0.675 per share) (10,520)
Conversion of 7 1/2% convertible
subordinated debentures 329
Conversion of 12 1/3% convertible
subordinated debentures 10
Change in Unrealized loss on securities
available for sale, net of taxes 4,827 4,827
- ------------------------------------------------------------------
Balance, December, 31, 1995 $ 1,167 $289,464
==================================================================
</TABLE>
See notes to consolidated supplemental financial statements.
83
<PAGE> 77
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Supplemental Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the years ended
December 31, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 41,553 $ 29,741 $ 23,973
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation, amortization and accretion 11,398 10,129 8,407
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 7,350 7,506 8,850
Deferred income taxes (2,223) (2,361) (6,384)
Gain on sale of securities, net (27) (84) (116)
Additions to mortgage servicing rights (32,139) (34,624) (19,377)
Net (increase) decrease in mortgage loans held for sale (49,760) 303,577 (217,897)
Increase in interest receivable (8,697) (3,977) (1,011)
Decrease (increase) in prepaids and other receivables 1,357 953 (4,214)
(Decrease) increase in accrued expenses and accounts payable (6,719) (37,055) 23,580
Increase (decrease) in accrued income taxes 2,709 (2,372) (1,317)
Increase (decrease) in interest payable 10,643 2,233 (1,025)
Other, net (1,576) (2,457) 3,273
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (57,423) 249,267 (198,618)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (15,870) 279,008 (174,645)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 21,034 35,601 18,274
Proceeds from sales of securities available for sale 13,585 20,329 8,114
Purchase of securities available for sale (68,393) (16,970) (33,959)
Proceeds from maturities of investment securities 90,160 74,123 206,251
Proceeds from sales of investment securities 10,119 -- 7,901
Purchases of investment securities (55,186) (129,757) (224,429)
Net (increase) decrease in short-term investment securities -- (4,494) 39,000
Net increase in loans (589,868) (375,343) (178,641)
Cash and cash equivalents received in bank acquisitions, net (Note 2) 23,201 -- 71,384
Cash and cash equivalents received in the purchase of assets and
assumption of liabilities (Note 2) -- 12,154 4,491
Capital expenditures (9,818) (9,723) (8,938)
Proceeds from sale of other real estate owned 6,430 7,639 6,405
Other, net 2,474 6,799 8,466
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (556,262) (379,642) (75,681)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand, savings and time deposits 451,888 3,466 124,577
Net increase in federal funds purchased and
repurchase agreements and other short-term borrowings 200,588 60,373 193,755
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 1,038 6,337 428
Dividends paid (10,522) (7,432) (4,847)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 599,574 74,637 318,061
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 27,442 (25,997) 67,735
Cash and cash equivalents at beginning of year 173,867 199,864 132,129
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year (Note 1) $ 201,309 $ 173,867 $ 199,864
===========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 136,338 $ 89,191 $ 68,077
Income taxes 21,323 23,079 13,567
Non-cash transactions:
Transfer of loans to other real estate $ 5,532 $ 3,816 $ 2,317
Origination of loans from the sale of other real estate 456 1,309 537
Transfer of investment securities to securities available for sale 56,921 33,457 30,006
Assets acquired in business combinations 330,626 47,985 703,885
Liabilities assumed in business combinations 302,810 57,191 649,221
</TABLE>
See notes to consolidated supplemental financial statements.
84
<PAGE> 78
- --------------------------------------------------------------------------------
NOTES TO SUPPLEMENTAL 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 supplemental consolidated financial statements of
The Colonial BancGroup, Inc. and subsidiaries have been prepared to give
retroactive effect to the mergers with Commercial Bancorp of Georgia, Inc. and
Southern Banking Corporation on July 3, 1996. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation; however, they will become the historical
consolidated financial statements of The Colonial BancGroup, Inc. and
subsidiaries after financial statements covering the date of consummation of
the business combinations are issued. 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 Supplemental Consolidated Financial
Statements and Notes to Supplemental 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 cost of mortgage loans is adjusted by gains and
losses generated from corresponding hedging transactions, principally using
forward sales commitments, entered into to protect the inventory value of the
loans from increases in interest rates. Hedge positions are also used to
protect the pipeline of commitments to originate and purchase loans from
changes in interest rates. Gains and losses resulting from changes in the
market value of the inventory, pipeline and open hedge positions are netted.
Any net gain that results is deferred; any net loss that results is recognized
when incurred. Hedging gains and losses realized during the commitment and
warehousing period related to the pipeline and mortgage loans held for sale are
deferred. Hedging losses are recognized currently if deferring such losses
would result in mortgage loans held for sale and the pipeline being valued in
excess of their estimated net realizable value. 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. Smaller balance homogeneous loans which consist of
residential mortgages and consumer loans are evaluated collectively and reserves
are established based on historical loss experience. 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 $16,293,000 and these
loans had a corresponding valuation allowance
85
<PAGE> 79
The Colonial BancGroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
of $5,907,000. 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 $18,461,000. BancGroup recognized approximately $1,040,000 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. Generally, nonaccrual loans as well as loans classified by
internal loan review are reviewed for impairment. The internal asset
classification procedures include a thorough review of significant loans and
lending relationships and include the accumulation of related data. This data
includes loan payment status, borrower's financial data, 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 uncollectable, the portion deemed uncollectable is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to repay, estimated
value of any underlying collateral, and an analysis of current economic
conditions. While management believes that it has established the allowance in
accordance with generally accepted accounting principles and has taken into
account the views of its regulators and the current economic environment, there
can be no assurance that in the future the Bank's regulators or its economic
environment will not require further increases in the allowance.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS--Loans, including
impaired loans, are generally classified as nonaccrual if they are past due as
to maturity or payment of principal or interest for a period of more than 90
days, unless such loans are well collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan has been partially charged off,
recognition of interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge offs have been fully recovered. Interest
income recognized on a cash basis was immaterial for the years ended December
31, 1995 and 1994.
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 less estimated costs to sell.
Any write-down from the cost to market value required at the time of foreclosure
is charged to the allowance for possible loan losses. Subsequent write-downs and
gains or losses recognized on the sale of these properties are included in
noninterest income or expense.
INTANGIBLE ASSETS--Intangible assets acquired in acquisitions of banks
are stated at cost, net of accumulated amortization. Amortization is provided
over a period not to exceed 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
86
<PAGE> 80
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 $3,733,000, $2,719,000 and $1,579,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
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 or 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 pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. 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. BUSINESS COMBINATIONS
On July 3, 1996, BancGroup completed a business combination with Commercial
Bancorp of Georgia,Inc. (CBG), of Lawrenceville, Georgia with the issuance of
1,153,230 shares of BancGroup common stock. At the date of combination, CBG
had assets of $233 million and equity of $21 million. The transaction was
accounted for under the pooling-of-interests method of accounting and
accordingly all prior period information has been restated to include CBG.
On July 3, 1996, BancGroup completed a business combination with Southern
Banking Corporation (SBC), of Orlando, Florida with the issuance of 1,429,247
shares of BancGroup common stock. At the date of combination, SBC had assets
of $232 million and equity of $17 million. The transaction was accounted for
under the pooling-of-interests method of accounting and accordingly all prior
period information has been restated to include SBC.
On February 17, 1995, BancGroup completed a merger with Colonial Mortgage
Company (CMC) and its parent company, The Colonial Company (TCC). At the merger
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 the merger date,
TCC and CMC 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 and accordingly all prior period information has been
restated to include CMC.
87
<PAGE> 81
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>
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Total Revenue(1):
BancGroup $168,618 $122,806 $ 93,692
CBG 12,821 11,104 9,668
SBC 13,112 8,725 5,762
CMC 26,118 28,795
-------- -------- --------
Combined $194,551 $168,753 $137,917
-------- -------- --------
Net Income (loss):
BancGroup $ 38,794 $ 27,671 $ 18,709
CBG 668 698 1,270
SBC 2,091 1,733 810
CMC (361) 3,184
-------- -------- --------
Combined $ 41,553 $ 29,741 $ 23,973
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
January 1, Effect January 1,
1993 as of 1993
reported Combinations restated
---------- ------------ -----------
<S> <C> <C> <C>
Common Stock $ 16,600 $ 8,785 $ 25,385
Additional Paid in Capital 61,134 7,441 68,575
Retained Earnings 17,968 160 18,128
-------- ------- --------
Total equity $ 95,702 $16,386 $112,088
-------- ------- --------
(1) Includes net interest income
before provision for loan
losses and noninterest income.
</TABLE>
The combined financial results presented above include an adjustment made to
conform accounting policies of TCC, CMC and BancGroup. The adjustment was the
restatement of CMC's 1993 net income for the cumulative effect of a change in
accounting principle to SFAS 109, which CMC previously adopted and had elected
to apply retroactively to 1991. The adjustment increased net income $2,059,000
in 1993. Material intercompany transactions between TCC, CMC and BancGroup have
been eliminated in consolidation.
During 1995, three acquisitions were consummated; the following table
represents those acquisitions.
(Dollars in thousands)
<TABLE>
<CAPTION>
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 pro forma results of operations for
the years ended December 31, 1995 and 1994, after giving effect to amortization
of goodwill and other pro forma adjustments, as if the acquisitions had
occurred at the beginning of the years presented. The pro forma 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 $144,062 $151,504
Net income 42,531 34,750
Earnings per share:
Primary 2.58 2.18
Fully-diluted 2.51 2.15
Average shares outstanding:
Primary 16,498 15,943
Fully-diluted 17,368 16,710
- -----------------------------------------------------------
</TABLE>
The following chart summarizes the assets acquired and the liabilities
assumed in connection with the 1995 acquisitions.
<TABLE>
<CAPTION>
(In thousands) Total
- ----------------------------------------------------------
<S> <S>
Cash and due froms $ 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
Accrued 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>
On July 8, 1996, BancGroup completed the acquisition of Dothan Federal
Savings Bank (Dothan) of Dothan, Alabama with the payment of $2.6 million and
issuance of 77,409 shares of BancGroup common stock. The Dothan acquisition
was accounted for as a purchase and, accordingly, income and expenses of Dothan
will be included in the consolidated statements of BancGroup from the date of
acquisition forward.
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.
88
<PAGE> 82
3. SECURITIES
The carrying and market values of investment securities are summarized as
follows:
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(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 $219,049 $3,834 $(1,646) $221,237 $288,554 $175 $ (10,070) $278,659
Obligations of state and
political subdivisions 47,007 1,250 (128) 48,129 44,489 499 (1,100) 43,888
Other 18,483 52 (43) 18,492 29,280 44 (773) 28,551
- -----------------------------------------------------------------------------------------------------------------------------
Total $284,539 $5,136 $(1,817) $287,858 $362,323 $718 $(11,943) $351,098
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying and market values of securities available for sale are
summarized as follows:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
(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 $170,687 $1,959 $(1,110) $171,536 $89,190 $ 29 $(5,467) $83,752
Obligations of state and
political subdivisions 5,541 37 5,578 105 (4) 101
Other 36,223 1,020 (64) 37,179 20,244 407 (822) 19,829
- ----------------------------------------------------------------------------------------------------------------------------
Total $212,451 $3,016 $(1,174) $214,293 $109,539 $436 $(6,293) $103,682
- ----------------------------------------------------------------------------------------------------------------------------
</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 both December 31, 1995 and 1994. Included within securities
available for sale is $24,496,000 and $12,021,000 in Federal Home Loan Bank
stock at December 31, 1995 and 1994, respectively.
Securities with a carrying value of approximately $312,630,000 and
$311,129,000 at December 31, 1995 and 1994 respectively, were pledged for
various purposes as required or permitted by law.
Gross gains of $77,000, $217,000 and $102,000 and gross losses of $52,000,
$138,000 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 $ 51,589 $ 51,859 $ 36,074 $ 36,048
Due after one year
through five years 150,728 153,692 67,569 69,032
Due after five years
through ten years 14,544 15,124 18,959 19,581
Due after ten years 7,366 7,556 9,021 8,939
- -------------------------------------------------------------
224,227 228,231 131,623 133,600
Mortgage-backed
securities 50,312 49,506 56,939 56,810
- -------------------------------------------------------------
Total $274,539 $277,737 $188,562 $190,410
- -------------------------------------------------------------
</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 $56,921,000 from Investment
Securities to Securities Available for Sale.
89
<PAGE> 83
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 $ 436,791 $ 372,104
Real estate--commercial 692,550 626,618
Real estate--construction 335,645 227,645
Real estate--mortgage 1,451,338 900,318
Installment and consumer 215,043 185,272
Other 44,746 42,015
- --------------------------------------------------
Subtotal $3,176,113 $2,353,972
Unearned income (553) (1,102)
- --------------------------------------------------
Total $3,175,560 $2,352,870
==================================================
</TABLE>
BancGroup's lending is concentrated throughout Alabama, southern Tennessee,
central Georgia and central Florida 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 concentrations of
credits either geographically or by borrower which would expose BancGroup to
unacceptable amounts of risk. Management continually evaluates the potential
risk in all segments of the portfolio in determining the adequacy of the
allowance for possible loan losses. Other than concentrations of credit risk in
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 $35.6 million and $55.3 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>
$55,319 $32,538 $52,210 $35,647
</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 $36,985 $30,946 $20,598
Addition due to
acquisitions 1,129 501 6,276
Provision charged
to income 7,350 7,506 8,850
Loans charged off (6,302) (5,453) (7,095)
Recoveries 2,327 3,485 2,317
- ------------------------------------------------------------
Balance, December 31 $41,489 $36,985 $30,946
- ------------------------------------------------------------
</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 obligations to deliver and sell mortgage loans 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, standby letters of
credit and obligations to deliver and sell mortgage loans is represented by the
contractual amount of those instruments. BancGroup uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. BancGroup has no significant concentrations of credit risk
with any individual counterparty to originate loans. The total amounts of
financial instruments with off-balance sheet risk as of December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
(In thousands) Contract Amount
- ---------------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Loan commitments $494,703 $529,928
Standby letters of credit 28,440 18,058
Mortgage sales commitments 121,925 56,750
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit and funding loan
commitments is essentially the same as that involved in extending loan
facilities to customers.
Obligations to sell loans at specified dates (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. Risks arise from changes in
interest rates. Changes in the market value of the sales commitments is included
in the measurement of the gain or loss on mortgage loans held for sale. The
current market value of these commitments was $120,644,000 and $56,823,000 at
December 31, 1995 and 1994, respectively.
90
<PAGE> 84
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -----------------------------------------------------------
<S> <C> <C>
Land $ 15,055 $13,441
Bank premises 54,852 49,285
Equipment 48,552 41,486
Leasehold improvements 4,615 4,445
Construction in progress 1,993 869
Automobiles 59 42
- -----------------------------------------------------------
Total 125,126 109,568
Less accumulated depreciation
and amortization 59,293 52,670
- -----------------------------------------------------------
Premises and equipment, net $ 65,833 $56,898
- -----------------------------------------------------------
</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 $145,419 $104,818
FHLB borrowings 465,000 210,050 190,150
Other short-term
borrowings 1,141 1,131 1,000
- -----------------------------------------------------------
Total $597,256 $356,600 $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 $235,845 $195,752
Maximum amount
outstanding at
any month-end 597,256 356,600 309,714
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 9,638 9,965
Term note 10,250 11,250
Line of credit and other 6,352 161
FHLB advances 5,516 2,530
REMIC bonds 7,024 8,612
Purchased servicing
notes payable -- 46,650
- -----------------------------------------------------------
Total $46,263 $86,662
===========================================================
</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 $6,352,000 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
91
<PAGE> 85
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 $ 1,245
1997 7,399
1998 9,411
1999 366
2000 17
Thereafter 28,966
- -------------------------------------------------
Total $47,404
- -------------------------------------------------
</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 $57.0
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 $49.4 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 $ 4,684
1997 3,659
1998 2,803
1999 2,418
2000 1,909
Thereafter 6,829
- ------------------------------------------------------
Total $22,302
- ------------------------------------------------------
</TABLE>
Rent expense for all leases amounted to $6,184,000 in 1995, $5,104,000 in
1994 and $4,319,000 in 1993.
92
<PAGE> 86
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
of 29,937 and 29,097 shares of BancGroup Common Stock representing 7% and 5% of
pension plan assets, respectively. At December 31, 1995, BancGroup Common Stock
included in pension plan assets had a cost and market value of $507,312 and
$965,468, 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 and similar plans of
combined banks amounted to $772,000, $606,000 and $476,000 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.
Pursuant to the SBC and CBG combinations, BancGroup assumed qualified stock
options and non-qualified stock options in exchange for existing officers and
directors and other stock options according to the respective exchange ratios.
93
<PAGE> 87
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 68,830 623,775
Granted (at $4.25-
$16.35 per share) 57,731 171,514
Exercised (at $6.16-
$6.38 per share) (2,500) (18,850)
- ---------------------------------------------------------
Outstanding at
December 31, 1993 124,061 776,439
Granted (at $11.48
per share) 63,706
Exercised (at $4.25-
$13.00 per share) (52,078) (15,000)
- ---------------------------------------------------------
Outstanding at
December 31, 1994 71,983 825,145
Granted (at $16.89-
$19.88 per share) 3,750 18,431
Exercised (at $6.16-
$17.48 per share) (33,519) (15,232)
- ---------------------------------------------------------
Outstanding at
December 31, 1995 42,214 828,344
- ---------------------------------------------------------
</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-$8.62 396,061 3,039,062
$9.75-$11.48 64,695 739,941
$15.73-$19.88 250,032 4,139,804
- ----------------------------------------------------------
Total 870,558 $8,905,191
- ----------------------------------------------------------
</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 $719 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.
94
<PAGE> 88
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 $ 2,961 $ 3,084 $ 2,892
Postage 1,988 1,682 1,514
Telephone 3,281 2,915 2,539
Insurance 1,359 1,690 1,410
Legal fees 2,448 2,949 1,947
Advertising and
public relations 3,758 2,736 1,579
FDIC assessment 3,767 5,293 3,829
Other 23,043 18,587 16,725
- ---------------------------------------------------------
Total $42,605 $38,936 $32,435
=========================================================
</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 $23,265 $16,961 $11,834
State 2,200 1,229 1,111
Deferred (2,223) (2,361) (3,165)
- ---------------------------------------------------------
Total $23,242 $15,829 $ 9,780
=========================================================
</TABLE>
BancGroup adopted SFAS No.109 as of January 1, 1993, as described in Note 1.
This change in accounting principle resulted in a $3,650,000 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 $22,629 $15,911 $10,673
Add:
State income taxes, net
of federal tax benefit 1,453 829 585
Amortization of net
purchase accounting
adjustments 237 465 375
Other 871 261 (168)
- ---------------------------------------------------------------------
Total 25,190 17,466 11,465
- ---------------------------------------------------------------------
Deduct:
Nontaxable interest
income 1,696 1,404 1,260
Dividends received
deduction 252 233 425
- ---------------------------------------------------------------------
Total 1,948 1,637 1,685
- ---------------------------------------------------------------------
Total income taxes $23,242 $15,829 $ 9,780
=====================================================================
</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 $15,294 $13,362
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 1,394 1,421
Other liabilities and reserves 1,514 466
Deferred loan fees, net 408 1,071
Securities valuation reserve (18) 183
Excess healthcare contributions 469 715
Unrealized loss on securities
available for sale -- 2,130
Other 1,681 1,608
- ---------------------------------------------------------
Total deferred tax asset 24,913 24,943
- ---------------------------------------------------------
Deferred tax liabilities:
Accelerated tax depreciation 368 328
Accumulated accretion/discount
on bonds 510 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 362 --
Other 1,561 191
- ---------------------------------------------------------
Total deferred tax liability 8,029 7,590
=========================================================
Net deferred tax asset $16,884 $17,353
=========================================================
</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-
95
<PAGE> 89
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 the
unrecognized financial instruments is estimated based on the related fee
income associated with the commitments, which is not material to BancGroup's
financial statements at December 31, 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 $ 205,380 $ 205,380 $ 173,867 $ 173,867
Securities available for sale 214,293 214,293 103,682 103,862
Investment securities 284,539 287,857 362,323 351,098
Mortgage loans held for sale 110,486 111,952 60,726 60,736
Mortgage servicing rights and
excess servicing fees 88,165 130,156 63,821 101,327
Loans 3,175,560 2,352,870
Less: allowance for loan losses (41,489) (36,985)
- ------------------------------------------------------------------------------------------------------
Loans, net 3,134,071 3,178,115 2,315,885 2,339,085
- ------------------------------------------------------------------------------------------------------
Total $4,036,934 $4,127,753 $3,080,304 $3,129,975
======================================================================================================
Financial liabilities:
Deposits $3,204,198 $3,208,544 $2,504,461 $2,487,192
Short-term borrowings 597,256 597,256 356,600 356,550
Long-term debt 46,263 53,600 86,662 82,758
- ------------------------------------------------------------------------------------------------------
Total $3,847,717 $3,859,400 $2,947,723 $2,926,500
======================================================================================================
</TABLE>
96
<PAGE> 90
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* $ 3,002 $ 1,758
Investment in subsidiaries* 314,885 242,611
Intangible assets 3,621 4,028
Other assets 5,200 7,679
- ----------------------------------------------------------------------
Total assets $326,708 $256,076
======================================================================
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 2,624 2,350
Shareholders' equity 289,464 224,018
- ----------------------------------------------------------------------
Total liabilities and
shareholders' equity $326,708 $256,076
======================================================================
</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* $13,449 $12,027 $10,459
Interest and dividends
on short-term
investments* 84 81 95
Other income 1,054 1,062 1,082
- ---------------------------------------------------------------------
Total income 14,587 13,170 11,636
- ---------------------------------------------------------------------
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 4,034 3,915 2,340
- ---------------------------------------------------------------------
Total expenses 8,197 8,139 6,599
- ---------------------------------------------------------------------
Income before income
taxes, extraordinary
item and equity in
undistributed net
income of subsidiaries 6,390 5,031 5,037
Income tax benefit 1,949 2,238 1,740
Extraordinary item,
net of income taxes -- -- (416)
- ---------------------------------------------------------------------
Income before equity in
undistributed net
income of subsidiaries 8,339 7,269 6,361
Equity in undistributed
net income of
subsidiaries* 33,214 22,472 17,612
- ---------------------------------------------------------------------
Net income $41,553 $29,741 $23,973
=====================================================================
</TABLE>
*Eliminated in consolidation.
97
<PAGE> 91
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 $ 41,553 $ 29,741 $ 23,973
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Gain on sale of assets -- (7) 92
Depreciation, amorti-
zation, and accretion 629 649 682
(Increase) decrease in
prepaids and other
assets (1,726) 180 925
Increase (decrease)
in accrued income
taxes 3,387 (727) (2,243)
Increase (decrease)
in accrued expenses 930 74 (83)
Undistributed
earnings
of subsidiaries* (33,214) (22,472) (17,612)
- --------------------------------------------------------------------
Total adjustments (29,994) (22,303) (18,239)
- --------------------------------------------------------------------
Net cash provided by
operating activities 11,559 7,438 5,734
- --------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures (175) (343) (115)
Proceeds from sale
of premises and
equipment 538 399 570
Additional investment
in subsidiaries* (6,417) (5,603) --
- --------------------------------------------------------------------
Net cash provided by
(used in) investing
activities (6,054) (5,547) 455
- --------------------------------------------------------------------
</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 1,062 6,518 558
Dividends paid (10,522) (7,432) (4,847)
Other, net (50) 52 47
- --------------------------------------------------------------------
Net cash used in
financing activities (4,261) (2,862) (8,130)
- --------------------------------------------------------------------
Net (decrease) increase
in cash and cash
equivalents 1,244 (971) (1,941)
Cash and cash
equivalents at
beginning of year 1,758 2,729 4,670
- --------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR* $ 3,002 $ 1,758 $ 2,729
====================================================================
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.
98
<PAGE> 92
- --------------------------------------------------------------------------------
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
COMMON STOCK DIVIDENDS DECLARED
------------------- ON COMMON STOCK
HIGH LOW (PER SHARE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
1st Quarter
Class A .......................................... 23 5/8 19 1/2 $0.225
Class B .......................................... -- -- 0.125
Common ........................................... -- -- --
2nd Quarter
Common ........................................... 27 1/4 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 .......................................... -- -- 0.10
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 15,519,688 shares of
Common Stock, with 5,388 shareholders of record.
As of December 31,1994, BancGroup had outstanding 13,710,295 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 14,357,803 shares of Common Stock
outstanding following such reclassification with 5,196 shareholders of record.
99
<PAGE> 93
The Colonial Bancgroup, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Shareholder Information
<TABLE>
<S> <C>
CORPORATE OFFICES FORM 10-K
Colonial Financial Center Form 10-K is the Company's annual
One Commerce Street report filed with the Securities
Montgomery, Alabama 36104 and Exchange Commission. A copy of
(334) 240-5000 this report is available without
charge by writing to:
ANNUAL MEETING Corporate Secretary
The Colonial BancGroup, Inc.
The annual meeting of shareholders P.O. Box 1108
of The Colonial BancGroup, Inc. Montgomery, Alabama 36101
will be held on Wednesday, April 17, (334) 240-6008
1996, at 10:00 a.m., in the corporate
offices. Copies of exhibits to such reports
will also be available upon payment
STOCK EXCHANGE LISTING of a reasonable fee for copying
charges.
Common Stock is traded on the
New York Stock Exchange under TRANSFER AND DIVIDEND
the symbol CNB. In most newspapers DISBURSING AGENT
the stock is listed as ColBgp.
SunTrust Bank, Atlanta
DIVIDEND REINVESTMENT AND Corporate Trust Department
STOCK PURCHASE PLAN P.O. Box 4625
Atlanta, Georgia 30302
Owners of Colonial Common Stock (800) 568-3476
may participate in the Dividend
Reinvestment and Common Stock
Purchase Plan. Dividends are
reinvested and additional shares
purchased at 100% of the market price
average, determined as provided in
the plan.
For further information, plus a
prospectus and enrollment card,
contact:
Corporate Secretary
The Colonial BancGroup, Inc.
Dividend Reinvestment Plan
P.O. Box 1108
Montgomery, Alabama 36101
(334) 240-6008
</TABLE>
100
<PAGE> 1
EXHIBIT 23
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. 33-11540), 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. 33-63347), Form S-8 (File No.
33-78118), Form S-8 (File No. 333-10475), Form S-8 (File No. 333-11255), Form
S-3 (File No. 33-5665), and Form S-3 (File 33-62071) of our report dated
February 23, 1996, on our audits of the consolidated financial statements of The
Colonial BancGroup, Inc., as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995 and our report dated February
23, 1996, except Notes 1 and 2 as to which the date is July 3, 1996, on our
audits of the supplemental consolidated financial statements of The Colonial
BancGroup, Inc., as of December 31, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, which reports are included in this
Form 8-K.
COOPERS & LYBRAND, L.L.P.
Montgomery, Alabama
September 26, 1996
